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Edited Transcript of 600028.SS earnings conference call or presentation 26-Aug-19 4:15am GMT

Q2 2019 China Petroleum & Chemical Corp Earnings Presentation (Chinese, English)

Central Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of China Petroleum & Chemical Corp earnings conference call or presentation Monday, August 26, 2019 at 4:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ma Yongsheng

China Petroleum & Chemical Corporation - President

* Wang Dehua

China Petroleum & Chemical Corporation - CFO

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Presentation

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Unidentified Company Representative [1]

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Ladies and gentlemen, welcome to Sinopec 2019 interim results announcement. Please allow me to introduce our senior executives today. They are President of Sinopec Group, President of Sinopec Corp., Mr. Ma Yongsheng; CFO, Mr. Wang Dehua.

Today's presentation covers two parts. First, Mr. Ma will highlight first half performance overview, and then Mr. Wang will elaborate on each segment's performance and second-half operational plan. Finally, we will have a Q&A session. Now I will give the floor to Mr. Ma to present the highlights in the first half.

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Ma Yongsheng, China Petroleum & Chemical Corporation - President [2]

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Ladies and gentlemen, now I will brief you our performance for the first half in 2019. In the first half global economy recorded slow recovery while China's economy maintained steady momentum, securing progress where the GDP grew by 6.3%. International oil prices fluctuated with an upward trend first and then declined quickly. The average spot price of [plus] Brent for the first half slid by 6.6% year-on-year.

Driven by economic growth, domestic energy and petrochemicals demand kept growing, among which natural gas demand was up by 10.8%. Oil product consumption went up. Growth in chemicals demand was rapid as well. And this is the fundamentals of the market in the first half. And faced with tough external market, the Company actively addressed market changes by leveraging integrated strength and achieved a stable progress.

We focused on management optimization, market expansion, cost reduction, risk control and seeking growth. E&P kept stabilizing oil production increasing gas output and reducing costs, greatly improving profit. Integrated strength was further displayed in refining and marketing segments, effectively addressing market competition. Chemicals continued to cut costs and increase market share.

The Company in general delivered solid operating results. Turnover and other operating revenues reached JPY1.5 trillion, up by 15.3%. EBIT JPY55.2 billion, among which the second quarter recorded JPY28.1 billion, up 3.6% over the first quarter. Profit attributable to shareholders was JPY32.2 billion. EPS was JPY0.266.

Gearing ratio remained low in the first half at 52.5% and, if excluding the effect of the new lease standards, the ratio was 46.8%, almost flat with year end of 2018. As of June 30, equity attributable to shareholders of the Company was JPY723.5 billion, up by 1% against year beginning.

In the first half and net cash generated from operating activities went down to JPY32.9 billion, mainly due to decreasing net profit of the Company and the growing taxation payment for the previous year and the two factors played the most vital role. Cash used in investing activities JPY49.1 billion. Net cash used in financing activities JPY2.9 billion. Cash and cash equivalents JPY163.1 billion.

[About and] for future strategic development, we aim to deliver good return to ensure growth with our shareholders in accordance with the Company's articles of association. Considering our operations, future growth and return to shareholders, the Board declared an interim dividend of JPY0.12 per share, with an estimated total payout of JPY14.5 billion. Annualized H-share dividend yield in the first half was 4.8%.

With strength and cost control and made remarkable achievement, enhanced our competitiveness through improving efficiency. And our achievements are made in the following aspects. In E&P we promoted effective exploration and profitable production. Lifting cost dropped by 2.6% year-on-year. In refining, while proceeding with structural adjustment, we further optimized the product mix and lowered cash operating cost by 7.4%.

Faced with fierce competition, domestic oil product sales volume and retail scale saw stable growth and the marketing business cut cash operating costs by 13.1%. In chemical segment we optimized feedstock mix products late in operation. Unit all-in cost was down by 2.6%. These are the progress we made in cost reduction.

For a CapEx we focus more on quality, efficiency and investment return and optimized capital projects. CapEx for the first half totaled JPY42.9 billion, up by 81%. CapEx for E&P were JPY20.1 billion, mainly for oil capacity building in [Shengli] and Northwest oil fields. Shale gas capacity building in Fuling and Weirong, natural gas transmission and storage projects.

CapEx for refining were JPY8.8 billion, mainly from Zhongke integrated refining and chemical project, product mix optimization of Zhenhai and Maoming as well as the crude pipeline of Rizhao to Puyang to Luoyang.

CapEx for marketing and distribution were JPY8.1 billion mainly for constructing oil products depots, pipelines and service stations. CapEx for chemicals were JPY5.7 billion mainly for Zhongke, Zhenhai, Wuhan ethylene expansion projects, etc. CapEx for corporate and others were JPY300 million mainly for R&D facilities and IT application.

The company constantly improved the HSSE system and implemented the concept of comprehensive health by integrating the management of occupational, physical and mental health of our employees. Stringent rules were set to manage and control major safety risks or contributing to the stable and safe production performance for the Company.

We upgraded our capacity in all-dimension risk prevention and control as well as emergency response, further enhancing security management. We actively practiced creating a low carbon growth strategy and further promoted the Green Enterprise Campaign and the energy efficiency upgrading plan.

The above are the highlights of the first half operation of the Company. Now CFO of the Company, Mr. Wang Dehua, will present our results by segment. Thank you.

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Wang Dehua, China Petroleum & Chemical Corporation - CFO [3]

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As for E&P, in the first half we fully implemented the action plan to enhance oil and gas E&P, to maintain oil production, increase gas output and cut cost while pushing forward an integrated value chain of natural gas business. In exploration, we continue to enhance high-quality exploration and rain forest preliminary exploration in new areas as well as integrating evaluation for key projects to increase reserves, leading to new discoveries in Jiyang Depression, Sichuan Basin and Ordos Basin, etc.

Through our efforts, despite the declined international oil price, our domestic reserve of crude oil and natural gas both increased against the end of last year. In development we enhanced profit-oriented production, strengthened the capacity building of profitable oil production, maintained growth in domestic crude production and promoted rapid growth of natural gas.

Capacity building in Fuling, Weirong, Dongsheng and West Sichuan gas fields sped up. Production and sales of gas were optimized to promote a coordinated growth along the value chain. Natural gas production was up by 7% in sales volume up by 31.6%. The realized price of crude oil was 61. -- $60.1 per barrel, down by 5.1%. [In fact] of natural gas was JPY1.4 per cubic meter, up by 4.1%.

We made remarkable progress in controlling costs and fees. Lifting costs were $16.1 per barrel, down by 2.6%, and unit owing costs continued to decline. In the first half, upstream EBIT reached JPY7.98 billion, a dramatic increase.

As for refining, we focused on market demand, fully leveraged our advantage of integration and continue to optimize product mix. Gasoline production grew by 4.3%, kerosene up by 7.9% and diesel to gasoline ratio dropped to 1.03. We increased oil product exports, expanded the jet fuel market and maintained high utilization rate.

We upgraded quality for new spec bunker fuel and kept improving operations. New and structural [judgment] projects rolled out in the first half, refining output was 124 million tons, up by 2.7%.

In the first half, affected by multiple factors, crude procurement costs grew up and gross margin of downstream projects narrowed. We enhanced optimization of facilities and strengthened cost control with unit cash operating costs down by 7.4%. The refining margin was $7.68 per barrel and refining EBIT JPY18.6 billion.

As for oil product sales, we leveraged strength of integrated reduction in sales network, actively responded to the oversupply and fierce competition in domestic market, coordinated internal and external resources, achieved sustainable growth in both total domestic sales and retail.

We adopted a flexible and targeted marketing strategy, optimized the layout of pipelines and gas stations and further consolidated our strength in the marketing network. We explored overseas market and expanded the international trade.

Total sales volume of oil projects grew by 9.6% of which domestic was up by 3.8% and overseas trading volume up by 37%. In the first half we balanced volume and profit, deepened internal reform and innovative business model. While making judgments based on the new lease standards we greatly cut costs and fees and brought down unit cash operating costs by 13.1%.

Despite the fierce market competition our operations were stable. Oil product sales EBIT JPY16.4 billion. In addition, we strengthened nurturing self-owned brands and supply chain management and sped up the development of nonfuel business whose profit grew by 12%.

As for chemicals, in the first half we adhered to the basic plus high-end path and sharpened market competitiveness through effective supply. We improved chemical feedstock mix to further lower costs and optimized product slate by raising the share of high-end products.

With new and specialty projects of synthetic resin accounting for 64.6%, we optimized facilities' operation and value capture and improved the utilization and production plan based on market demand. We promoted a number of key projects and [fashioned] advanced capacity building.

In the first half, ethylene production 6.16 million tons, up by 6.5%. We enhanced integration among production marketing R&D application, promoted targeted marketing and services and further expanded the market to proper profitability along the value chain. Total chemical sales amounted to 48.69 million tons, up by 14.4%. In the first half, the unit cost of chemicals brought down by 2.6%. Chemicals' EBIT was JPY13.8 billion maintaining good profitability.

And now I will brief you our operational plan for the second half. In the second half we will continue to deepen corporate reform, optimize management, stress our innovation and growth and promote high-quality development. We will undertake the following work. We will promote effective E&P, increase reserve and oil recovery through innovation and technologies, step-up profitable capacity building and [launch] the production supply storage marketing system to develop gas business.

For refining with integrated strength we will drive for high-efficiency operation and the value creation, speed up the (inaudible) capacity building and fashion differentiated development of refineries to improve competitiveness. We will optimize the production plan for low sulfur bunker fuel and reduce costs.

For marketing and distribution we will increase sales volume at retail through targeted marketing. We will explore and expand the E vehicle charging battery swapping business and building hydrogen refueling stations. We will improve the new business model of Internet service station, C store comprehensive service to further develop nonfuel business.

For chemicals we further adjust feedstock, product and facility structure to improve competitiveness and deliver greater profit. We will scale up capacity building to upgrade our business. Meanwhile, we will promote precision marketing, integrate online and off-line resources and keep increasing our market penetration.

In the second half the Company will carry on with specialized development, market-oriented operation, optimize global presence and integrated planning to enhance high-quality development and to deliver superior results. Thank you.

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Editor [4]

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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.