中國石化 (SNP) 2018 Q4 法說會逐字稿

(Interpreted) Ladies and gentlemen, good afternoon. Welcome to Sinopec 2018 annual results announcement. Please allow me to introduce Mr. Dai Houliang, Chairman; Mr. Ma Yongsheng, President; and Mr. Wang Dehua, CFO.

Today's presentation covers three parts. First, Mr. Ma and Mr. Wang will highlight the annual performance overview and by segment as well as 2019 operational plan. Then Mr. Dai Houliang will present our thinking on future growth. Finally, we will have a Q&A session. Now let's welcome Mr. Ma.

(Interpreted) Ladies and gentlemen, now I will brief you on our performance for the year 2018. In 2018 global economy recorded a slow recovery while China's economy maintained a steady momentum with GDP growth by 6.6%. Domestic energy and petrochemicals demand increased quickly.

Natural gas and oil products' apparent consumption volume went up by 18.1% and 6% respectively. Growth in chemicals demand was robust. International oil prices fluctuated and rose in the first three quarters but dipped rapidly in the fourth quarter. Average price for Brent increased by 31%. This is the market fundamentals.

The Company actively addressed market changes and continued with high quality growth. We focused on reform, management, innovation and development. We pressed ahead with measures for optimized operation, market expansion, cost reduction, risk management, reform promotion and management enforcement, which yielded solid operating results.

Our operating revenues reached RMB2.9 trillion, up 22.5%. EBIT RMB98.1 billion, up 11.2%, keeping growth momentum and demonstrating future potential. Profit attributable to shareholders was RMB61.6 billion. EPS was RMB0.509, up by 20.2%.

In 2018 we kept optimizing debt structure and lowering the scale of interest-bearing debts. Gearing ratio remained low and interest coverage ratio was 28, placing us in a solid financial position.

Net cash generated from operating activities was RMB175.9. Net cash used in investing activities RMB66.4 billion. Net cash used in financing activities RMB111.3 billion. Cash dividend greatly increased and the interest-bearing debt scale was further repaid. Cash and cash equivalents RMB167 billion and cash flow remained ample, providing abundant support for the future development of the Company.

We aim to deliver good return to shareholders and share with them our growth. Considering our operations, cash flow, growth needs and return to shareholders, the Board declared a final dividend of RMB0.26 per share, plus the interim dividend of RMB0.16 per share. The total dividend reached RMB0.42 per share for the year. Total payout was RMB50.8 billion with a payout ratio at 83%. And annual [A] share dividend yield was 7.4%.

In investment we focus more on development quality and profitability, strength in investment return and optimized project portfolio. Total CapEx was RMB118 billion, up by 18.7%; RMB42.2 billion in upstream mainly for fueling and Weirong shale gas and Hanglinqi natural gas; Shengli and Northwest crude oil capacity building as well as construction for phase 1 of Xinjiang gas pipeline, phase 1 of Erdos-Anping-Cangzhou gas pipeline and Wen 23 gas storage.

RMB27.9 billion in refining mainly for Zhongke and Zhenhai refining structural adjustment projects; oil products quality upgrading projects, which included GB6 gasoline and diesel upgrading; and the pilot production of low sulfur bunker fuel as well as the construction of Rizhao-Puyang-Luoyang crude pipeline.

RMB21.4 billion for marketing and distribution mainly for construction of oil products depots, pipelines, service stations, non-fuel businesses and the renovation of underground oil tanks safety improvement.

RMB19.6 billion in chemicals mainly for ethylene projects in Zhongke, Zhenhai and Gulei; phase 2 of Hainan high-efficiency and environmental friendly aromatics, Sinopec-Sabic PC project and Zhongan coal chemical project.

RMB6.9 billion for corporate and others, mainly for setting up the co-funded Sinopec Capital Company with Sinopec Group, R&D facilities and IT projects. In the above mentioned is the investment.

In 2018, the Company gave full play to the leading role of R&D, depend the reform of R&D mechanism and pushed ahead with efforts in key and cutting edge technologies. R&D investment for the year was RMB12.9 billion, up by 12%.

In upstream, technology breakthrough and evaluation of buried hill bedrock and carbonate reservoir and the fracturing of deep shale gas field led to a new discoveries in Yin'e Basin, new series of strata in Yuanba area as well as the Weirong shale gas field. It's another big shale gas field after Fuling.

In refining we completed the industrialization of technologies for new sulfuric acid alkylation and hydro-isomerization dewaxing for producing high-grade base oil.

In chemicals, the green HPPO unit achieved a stable operation and new products like PE film turned into commercial production. Our zeolite material of a brand-new structure was awarded a structure code by the International Zeolite Association, making us the first Chinese company to make a breakthrough in this area.

Meanwhile we further integrated industrialization and IT applications. New progress was made in smart factories, smart oil and gas fuels and smart service stations. Platforms like Epec, ChemEmall and EasyJoy developed rapidly.

The Company filed 6,074 patent applications at home and abroad with 4,434 granted, staying at the forefront among Chinese companies. In 2018, we won four national level awards and eight Chinese patent awards. This is the achievement we made in the R&D.

And 2018 witnessed our efforts to advance HSSE work with more emphasis on our employees' physical and mental health. Efforts were made to implement intrinsic safety concept redline awareness, which stipulates the development shouldn't come at the cost of safety and responsibility system of safety production.

We removed potential hazards and greatly enhanced our emergency response capability, all contributing to the sound and reliable production. Improvement was made to the risk evaluation monitoring and early warning and emergency response mechanism for boosting the performance of security. The green and low carbon growth strategy was further [rode out] as we launched the Green Enterprise Campaign with 10 subsidiaries certified as green enterprises in the first batch.

As a corporate citizen we actively fulfilled our CSR and engaged with stakeholders. The Sinopec Open Day was held throughout the year with roughly 20,000 public representatives invited to our local subsidiaries. We facilitated the improvement of infrastructure, education and health service in regions where we operate helping their social and economic progress.

We are an active participant in the National Poverty Alleviation Program and contributed RMB230 million for targeted poverty alleviation. More than 30,000 people got rid of poverty and the Yuexi County of Anhui Province was lifted out of poverty without unremitting assistance for over 20 years.

We are also committed to the harmonious development between the Company and society. 3,456 cataract patients were treated in our 2018 Lifeline Express charity project. The Warm Station Project helped 600,000 people altogether. And this is our operational overview for the year 2018. And now Mr. Wang Dehua, CFO of the Company, will present our 2018 results by segment and our operational plan for 2019.

(Interpreted) Thank you, President Ma. Now I'd like to present operational results by segment. In upstream we strengthened high-quality acceleration and profit oriented development and achieved progress in stabilizing oil production.

In exploration we increased (inaudible) acceleration and pre-acceleration and we have made new discoveries of oil and gas reserves in the Tarim Basin and other areas. Newly added proven reserves were [416] million Boe and the replacement ratio of crude reserves reached 132%, 16 percentage points higher than 2017.

We achieved over 100% of the replacement ratio for two consecutive years, laying the foundation for the sustainable development for upstream. In development we fully promoted production capacity building deep in the structural adjustments of mature fields and the -- increasing the capacity building of Hanglinqi west of Sichuan and Weirong, accelerated the construction of the production supply storage and marketing system.

In 2018 the production of oil and gas equivalent was 451 million barrels of which domestic crude production was 249 million barrels, a small increase. Natural gas production was 977.3 bcf, up by 7.1%. The upstream cost management was reinforced and the unit operating cost was RMB796 per ton. The unit full oil and gas costs decreased by 5.3%. The realized price of crude oil was $64.84 per barrel, up by 32.8%. Realized price for natural gas was $6.03 per 1,000 cubic meters, up by 10.8%.

In 2018 we continued to optimize the product slate based on market demand. Diesel to gasoline ratio dropped further to 1.06. We promoted structural adjustment projects and completed the GB VI oil quality upgrading. Meanwhile we made an overall plan for low sulfur bunker fuel and carried out our pilot reduction. And we continued to reduce the crude oil costs and the crude throughput was 244 million tons, an increase of 2.3%. Gasoline production increased by 7.2% and kerosene production increased by 7.6%.

In 2018 we achieved a refining margin of $9.5 per barrel and we further optimized the operation and effectively controlled the unit operating costs. EBIT of the refining segment was RMB55.3 billion. The profit level of the refining segment remained stable.

In 2018 we exerted the advantages of production sales synergy in a marketing network, actively responded to oversupply of oil production and fierce competition, increased efforts in expanding markets, maintained growth of total sales and retail volume, optimized the layouts of refined oil pipelines and service stations to further enhance network advantages. And we vigorously developed the automotive natural gas business and increased the number of service stations. The natural gas business volume increased by 25.6%.

In 2018 the domestic refined oil market witnessed abandoned supply and fierce competition bringing severe challenges to the marketing segment. We give full play to the network advantages, better balanced volume and profit. EBIT for the segment was RMB26.7 billion. At the same time the scale and profit of nonfuel business continued to increase. The revenue from nonfuel business rose by 14% and profit increased by 37%.

In 2018 we adhered to the basic plus high end development philosophy and improved the effective supply. The feedstock mix was optimized and costs continuously reduced. We optimized the product slate with higher share of high-end products. The proportion of new synthetic resin products and specialty materials reached 64.3%, 1.3 percentage points higher than 2017.

The synthetic fiber differentiation ratio reached 90.4% and we have optimized the utilization and the scheduling. Ethylene production was 11.51 million tonnes, and the total sales volume of chemical products increased by 10.3% hitting a record high. In 2018 the domestic demand for chemicals was strong. We achieved good margin by optimizing our [adjusted] feedstock and the EBIT was RMB33.9 billion.

In 2019 the international political and economic uncertainties are expected to increase. According to IMF the global economy is projected to grow at 3% in 2019. China's economy will maintain steady growth which will drive domestic demand for refined oil and petrochemical products.

As the national energy mix is further adjusted natural gas demand will continue to grow at a relatively fast pace. Based on factors of oil producers' supply capabilities, global demand growth and geopolitics we expect international oil prices to fluctuate in a wide range.

Adhering to the general principle of seeking progress while maintaining stability and the operating guidelines of a specialized development market-based operation, international layout and overall planning, we will prioritize the following areas: in E&P by redoubling efforts in oil and gas E&P, we will increase the economically recoverable reserves that expand resource space into lower breakeven point; we will optimize the system of natural gas production, supply storage and marketing system and market layout to promote the coordinated development of the entire business value chain.

In refining we will accelerate in the building of advanced production capacity, optimize and adjust the product slate and increase the proportion of high value-added products. In marketing we will fully expand the market, strengthen supply chain management, well plan the international layout, redouble efforts in increasing the total business volume on a retail scale.

In chemicals we will deepen the structural adjustment for feedstock products and facilities, expand markets, continuously increase market share and to accelerate the construction of (inaudible) and advantaged production capacity.

In 2019 we will attach more importance to investments, quality and profitability and the CapEx for the year is RMB136.3 billion. RMB59.6 billion is for E&P among which RMB38.9 billion is for oil and gas E&P and RMB20.7 billion for natural gas storage and transmission. RMB27.9 billion is for refining, namely on Zhongke and Zhenhai refining projects as well as structural adjustment products.

RMB21.8 billion is for marketing and then we own the construction of refined oil depots, pipelines, service stations and nonfuel business. RMB23.3 billion is for chemicals, mainly only chemical projects such as Zhongke, Zhenhai and Gulei; coal chemical projects such as Zhongan and Bije, as well as comprehensive resource utilization projects.

In 2019 we will adhere to the concepts of innovative according to the green open shared development consolidated foundation focused on the long-term promoted high quality development. And now I will give the floor to Chairman Dai Houliang. He will discuss with you the thinking about our future development.

(Interpreted) Let me start by thanking our friends from the capital market for your long-standing support for Sinopec. Just now President Ma and the CFO, Mr. Wang, presented our 2018 results and 2019 operational plan. Next, I would like to discuss the Company's future development together with you.

The year 2018 saw a drastically changing international landscape with oil prices hitting highs before falling rapidly along with fierce market competition and complex operational environment. Nevertheless we utilized our advantage in specialization and integration, ensured that near-term targets are met while long-term goals are not compromised.

Through proactive risk control measures and comprehensive work plans we have recorded continued and quality growth. An increase in ROE and are a CD4 consecutive years, the Company now enjoys a solid fund financial position, strong cash flow and better capability to compete and manage risks, paving a sound foundation for further reform and sustained development.

It has been our unwavering commitment to create long-term and stable return for our shareholders and share the Company growth with them. In the past five years the dividend payout ratio has been more than 50% with that of 2018 reaching 83% and a dividend yield at 7.4%, bringing good return to the shareholders and delivering our commitment.

We are now working with full steam towards phased goals for year 2020 through year 2050 guided by growth quality, deepened reform and multipronged approaches. We shall upgrade traditional business, strengthen extended business and nurture emerging business. In this process we will develop a new advantage and green growth and steer the Company onto a healthy track of all around growth in all value chains and across all businesses.

And hence, given full play to our advantage of specialization as well as integration, we believe the harmonious growth of all our staff, the Company and society will be achieved and supply quality will be upgraded. We will focus on structural adjustment by solidifying resource base for sustainable growth, strengthening system building of production, supply storage and marketing of natural gas, integrating the value chain and refining and marketing, and increasing high end manufacturing and value creation capability for chemical business.

A number of key projects concerned long-term development will be completed and operational covering oil and gas E&P and capacity building, refining and chemical base, and the storage and transmission infrastructure. We will focus on cementing or strengthened markets, analyzing and adapting to market changes and utilizing our advantage in technology, brand network, human resources and management.

Customer oriented -- we will strive for high efficiency integration among production, marketing, R&D and application, promote targeted marketing, create new advantage in competition. We will focus on science and technology innovation by increasing R&D effort along entire business value chain and achieving breakthrough in key technologies.

We will carry out strategic, basic and application research in new energy, new materials, AI, green and low carbon; further the integration of [infermitization] with industrialization; and fasten and sustain the development of smart plants, smart oil and gas fields, smart fuel stations; and the e-commerce platforms such as Epec, ChemEmall and EasyJoy.

We will press ahead with the Green Enterprise Program through combating climate change and align the Company's business results with providing clean energy, saving energy, protecting the environment, reducing emission and cutting carbon footprint, hence fulfilling CSR and achieving harmony with society.

We will create a new driving force through identifying strategic opportunities from financial investment, particularly in new energy, new materials and environmental protection business, as well as smart manufacturing and industrial Internet related to these areas. Meanwhile we shall invigorate untapped potential of our system and mechanism, refine management and strengthen HR development to support sustained and all around growth of the Company.

Dear shareholders and friends, I believe with your strong support and our hard effort the Company will make greater progress on all fronts at the new starting point and create greater value for shareholders and society. Thank you.

(Interpreted) Thank you all for your statements. And now we will come to the third part of today's announcement and we will discuss topics of common concern together with you. And each investor is invited to ask nearly two questions. And before asking a question please introduce your company.

(Interpreted) The question is from Morgan Stanley. The first one is regarding the Company's upstream. The reserve replacement ratio for the past year was 132%. It was pretty good. However, to compare with other oil companies, upstream has still been a weak link for the Company. So the question is whether the Company has any plan -- aggressive plans to increase reserve.

And a following up question is the upstream CapEx will be increased significantly. Then the question is whether the Company has further plans to reduce costs to increase efficiency so that can turn the loss-making business.

The third one regarding the marketing business segment. The performance for this segment has been lower to compare with the previous year. What are the reasons behind that and whether this has changed for better situation in 2019?

(Interpreted) Thank you. I will take questions related to the resource base for the Company. Seizing the opportunity of rising crude oil, particularly in the first half of last year, the Company has carried out multiple approaches. In the first place we increased the exploration for the frontier area and we also increased the proven and developed reserves in the mature fields.

On the other hand, we also increased our efforts in enhanced oil recovery for the mature oilfields. But more importantly our efforts were made to further reduce the cost for the upstream. And just now our CFO, Mr. Wang, has illustrated that the upstream operating cost has been lowered. Through all these measures we were able to achieve better indicators in the Company's reserve replacement ratio.

As I understand our investors show keen interest in the Company's upstream business and its potential. Please allow me to expand several minutes to report to you how we operated regarding the oil and gas operations last year. And the highlights are in the following areas.

The first one is for the Tahe oilfield in Xinjiang in the Tarim Basin. Last year we made continued major discoveries in the [Shunbai 1] Block and, as of today, we have more than 30 high production wells in that area. And we are able to build up capacity about 700,000 tonnes for crude oil. And the proven reserve has been approximately 100 million tonnes. And we expect more probable and possible reserve to be upgraded into proven reserves.

It is worth noting that the crudes produced from this area are of premium quality. They are light crudes. And in addition to this Shunbai 1 Block, we have another about 10 similar blocks close to these areas. So we are very confident in the potential.

At the same time we are also seeing challenges. For instance, the oil bearing layers are mostly more than 7,000 meters. And that challenges the down-hole operations equipment because of the high pressure and high temperature nature down in the hole. However, we are focusing on the R&D and technology breakthrough. And so far we are able to produce or develop the fields at a temperature around 180 degrees. And this is also a remarkable achievement to compare with the international peers.

We also made discoveries in the eastern [material] fields including the Dongying trough in Shengli. And the discoveries were made due to our breakthrough over the previous years of hard work for the Burial Field formation. Last year there were a number of major discoveries. We also have now as of today five wells yielding industrial flow in the [Jilin] Basin in Inner Mongolia.

On the natural gas side we have more exciting news or discoveries. For the conventional gas we have made new discoveries in the [Gramba] new formations and we also have discoveries in the west part of the Sichuan Basin. In the northeast we have discoveries to the south of the [Sunau] basin. And more importantly, as you know, we have made a major discovery for shale gas after the Fuling which is called Weirong shale gas. The field has a reserve more than 120 billion cubic meters.

When talking about this year's aggressive plan, we will increase our input in exploration and production, not only in the sense of capital but also in technology R&D and related support. So through our effort we're also very optimistic that we can achieve better reserve/replacement ratio as well as reserve to production ratio this year.

We also showed interest in the Company's CapEx for upstream last year and this year. Our 2018 CapEx for upstream was RMB42.2 billion. This was actually RMB6.3 billion less than the planned CapEx. The reasons were we optimized and improved the project planning operation and implementation. In addition, it also took the relevant environmental approval agencies to assess the project. So this was the reason for this difference between the real-life CapEx between the planned budget.

CapEx for 2019 is earmarked RMB59.6 billion, an increase of RMB17.4 billion over 2018. And the budget for the CapEx will be mainly used for upstream exploration and production. In addition, the CapEx will also be used to further develop our natural gas business.

As our Chairman mentioned just now, natural chaos will be a focal area for Sinopec this year. And in natural gas we plan to build 1,100 km of pipeline and we also aim to complete the first -- the phase 1 of Wen 23 underground storage. So when completed the Wen 23 will be China's largest underground storage site.

I'd also like to add that all the projects I mentioned that have been planned to be pushed ahead has been -- undergone very thorough project feasibility study. And we will also carefully review the return on investment indicators. Thank you very much. That's my answer to the resource-related questions.

I will take the question for the marketing company. The marketing company is actually the Company's functioning business segment that has an integrated value chain and directly faced market competition. As the end of last year the marketing company has around 30,000 service stations and around 27,000 C store -- convenience stores. This network services about 20 million customers each day. And by the number of gas stations Sinopec Marketing Company is the second-largest globally.

This marketing network is very effective and efficient in China. On the sense of numbers of stations that Sinopec Marketing Company account for 30% of China's total. However, the business volume accounts for 56% of China's total. Against the fierce market competition backdrop, the profit for this business segment last year was lower to compare with the previous years. And for the breakdown of profit, it mainly comes from the sales of oil products and from the nonfuel business.

The marketing segment has actually recorded relatively good results against a fierce competition last year. They utilize their strength in integrated business model, their strength in brands and strength in network. Particularly the first three quarters' results were very good. However, in the fourth quarter due to the price changes and they also had some inventory loss, the overall full-year profit was lower than the previous year.

You can also read from our annual report, their total business scale, retail volume, as well as the volume for direct sales all increased last year. We should also notice that out of the businesses they have seen significant increases in premium products, including the products of -- over 95 and also the high premium quality products account for 30% of their total refined product sales. These achievements and the business results laid a very good foundation for the future developments of the marketing segment.

Let's turn to the nonfuel business. The revenue for the nonfuel business last year increased by 15%, but the profit increased by 37% and the margin further improved. And if we look into this year's prospects, we are confident that this business segment will achieve good results based on their existing strength and advantages.

In addition, the marketing company has completed the reform for a limited company ownership in 2018 and in this year they will further deepen the reform and be more innovative, so we are very confident. And we believe the Board of Directors for the marketing company will seize appropriate timing as for the listing work for the Company, all in the principle to be responsible to the shareholders of the Company. And Sinopec will further support any reform measures that is market based by marketing company.

Okay, our next question on my left, (inaudible).

It's Scott Darling here from JPMorgan. Thank you for taking some of my questions. The first one, if I look at your financials, your free cash really has been on a declining trend. I'd broadly say the macro environment for energy, whether it's oil price, refining margins, could be very much flat to declining this year. You're going to spend a lot. So what comments can you give around where you think your free cash will go in the next few years?

And why I'm asking that is obviously that's relating to the dividend or partly relating to the dividend. We know about your dividend policy, but tell us how you're feeling about your payout ratio. Because it feels as if in absolute terms your dividend sort of has peaked already in 2017. So I think the concern for some investors here is you are a good yielding stock, but is that yield coming under pressure because obviously your free cash is under pressure as well? That's the first question.

Second quick question, could you tell everyone about what's your view around sort of the national pipeline company? How it will impact your Sinopec? And then my third one is what sort of controls or compliance have you learned from the Unipec? And that's obviously quite pertinent to all of us in this room. Thank you.

I actually thank your questions, but you asked three. Do we have to take your third one?

(Interpreted) The first question regarding the free cash flow, the Company over the past years has been -- maintained a very solid foundation for free cash flow and our cash flow for the past several years has been maintained at RMB170 billion to RMB200 billion. The breakdown mainly comes from around RMB110 billion depreciation, RMB60 billion to RMB70 billion of net profit. And that also is related to the inventory change as well as the credit line change.

The volatility or the change in free cash flow mainly is due to the crude oil prices as well as the price for product changes. And the Company has been maintaining an inventory level closely linked to the Company's crude throughput as well as the marketing volume of the refined products.

For 2018 the crude oil prices increased by $16 per barrel over 2017. This is the reason that we've seen a decrease in the Company's cash flow. However, if the crude price maintained as the market forecasted, around $60 to $70, we are confident that the Company's free cash flow will be maintained at the current level.

I'll take the question regarding national pipeline company. Just as you, Sinopec also has been paying great attention and following closely regarding this issue. And we've been paying attention to this for the past one to two years. We are also pleased to see that as the seventh work conference by China's central deepening reform commission, the commission reviewed and approved the guidelines for the reform of the national pipeline operating mechanism.

This guideline stated that the reform will be market-based and be in the aim of increasing the opening up level. And that the country will also establish a company that is -- the majority of shareholder and will be from the states capital and the shareholders will be diversified.

And the ultimate aim is to -- for the upstream to set up a multi-player multi-source of supply for the midstream highly efficient collection and transmission system will be set up. And for the upstream full competition will be encouraged so that the country or China will be able to better utilize the crude resources -- crude and product resources and to increase steady, reliable and secure supply.

As of today the Company has not received any very detailed official document and we're also waiting for such a document as all of you present here.

(Interpreted) The next question is regarding you made the announcement at the end of last year and earlier this year regarding the Unipec.

(Interpreted) Sinopec it is the world's largest refining company. Our 2018 crude throughput was 244 million tonnes and out of that import crude accounted for 89%. It is Unipec's mission to secure crude oil supply to the refining system of the Company. At the same time they should also take appropriate measures to avert the large volatility of crude oil prices.

As disclosed in the 20-F form, Unipec has not conducted any trading purpose transactions.

What they are doing was the standard hedging practices in the open market. At the end of last year we noticed that in the first quarter, due to the declining crude oil prices, there were some abnormal indicators from Unipec due to their misjudgment of the oil prices movement as well as inappropriate tactics for hedging. And that led to the loss over the papers end.

Unipec's Last year's operating result was a loss of RMB4.64 billion. However, the overall cost reduction benefit was RMB6.4 billion for the physical transactions. And this led to a lower cost for crude procurement by barrel terms, $0.761. And this also contributed to what we've seen in the refining business of $9.5 per barrel refining margin.

Through this we also have the internal control and governance in place. It was due to those policies and procedures that we discovered the abnormal positions. And we also make timely adjustments to those positions.

For the future, we are also going to further improve the internal governance and control so we can effectively monitor all the transactions by Unipec. We will also strengthen the analysis of the crude oil prices and also make very effective scientific countermeasures in alignment with the crude oil price movements.

(Interpreted) Our Chairman will take actually, which were in the number of questions you raised, regarding the dividend before we move to the question from BOCI.

(Interpreted) I'd like to thank you for the question regarding our dividend payout policy. I believe other investors are very clear about their companies' dividend payout policy and they're also very clear our dividend -- the benefit for the dividend payout over the past few years. The overarching principle for the Company is still to generate long-term and high-quality return for our investors and we seek long-term development goals.

The return for our shareholders mainly come from two aspects. The first one is the cash dividend and the second one is the growth in the Company. So we have to take the two factors into consideration and [integratedly] develop the projects as well as the dividend payout plan.

If there is a very promising and good project we are going to spend more on that project and may reduce dividend. If there is no immediate good project on our hands, then we will increase the dividend payout. That's why you see a slightly difference for the CapEx over the past years and there's also a difference in the Company's dividend payout.

To sum up, the Company is very confident in our future. At the same time we also attach great importance to increase the return to our shareholders.

You mentioned the dividend payout level for 2017, which was 118%. And as you can see, that high number is not likely to sustain. We believe that 83% is already a good or high level. And with that we achieved a dividend yield of 7.4%, which also outperformed our peer companies.

So I still recall last year I mentioned that Sinopec's investors should be happy. And I believe the 7.4% dividend yield should -- is already delivering our commitment. Sinopec is very responsible to our shareholders.

Questions from BOCI. The first one is regarding Company's production plan for 2019, the gas increase is arranged at 4% to 5% and this is even lower than that of 2018. What's the reason for that? Was it because of any bottleneck on the resource side or on the infrastructure side?

Second one regarding the low sulfur bunker fuel plan. As the Company has a special production capacity target by the end of this year to achieve. And if so, how much investment will be -- will the Company make to achieve that production capacity plan?

(Interpreted) Answer the question regarding natural gas production targets and growth. Our plan for 2019 is 28.7 billion cubic meters. This was an increase of 1.12 billion cubic meters over 2018. This is relatively lower than what we've seen in the growth for 2018. There are two reasons for that and the first one is the major reason I would like to share with you.

There was some progress delay regarding the approval for the land use regarding the planning and the site selection for the Sichuan Basin, particularly on the west part, and some of the major gas fields have seen some delay. This is the major reason.

And the second one is the major capacity buildup and release for the (inaudible) in [older] space as well as in the (inaudible) gas production base will be mainly -- will mainly come from the fourth quarter. So the capacity release for 2019 could only be 1.1 billion cubic meters. A major production addition contribution will come in 2020. So actually we have not seen any bottleneck in the resource base.

In addition, the Company has detailing all the production and the production plan for the coming three years. And by 2020 we aim to increase the output -- the capacity by 10 billion cubic meters. So you will see in the coming three years a steady and significant growth in natural gas production.

(Interpreted) For the question regards the low sulfur bunker fuel or the IMO 2020 new guidelines and rules, Sinopec is the world's largest refining company with a refining capacity of 300 million tonnes each year and last year's crude throughput was 244 million tonnes. Our refining systems also have a very deep conversion and the indicator for the complexity of our refineries is 12.3.

Apart from producing refined products from our refining refineries we also produce feedstock for ethylene or aromatics. So as we always say, we'll produce, in addition, in accordance with the needs of our business, either it's being the refined products or the feedstock for the chemicals.

Globally speaking, the heavy bunker fuel consumption accounts for 4% to 5% of the world's total consumption for the fuel oil. The IMO 2020 has it that the sulfur content in the bunker fuel should be lowered from 3.5% to 0.5% by year 2020 and this forms or presents strategic opportunities for refining large refiners such a Sinopec.

The work we are now doing is related to the research and development of the low sulfur bunker fuel formula industrial pilot production as well as test run on the tankers and ships. We've selected 10 Sinopec subsidiaries along the coastlines for the production of the new products. And our target is to reach 10 million tonnes production by 2020.

As I mentioned, all the preparatory work and now mainly focus on the refining system overall planning as well as the R&D for the formula, so we don't see immediate major investment in this regard.

So we will make countermeasures in accordance with the IMO new guidelines and rules and we'll optimize the crude types in our refining system using the PIMs and [RSIMs] software. We will also increase the high value-added products portion to increase our refining margin and to maintain a relatively high utilization rate of the refining system so that we can have better business results for this segment. Thank you.

(Interpreted) Thank you for your attendance.

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.