RNS Number:0067P
Sinopec Zhenhai Refining&Chem Co Ld
26 August 2003

SINOPEC ZHENHAI REFINING & CHEMICAL COMPANY LIMITED

(a joint-stock limited company incorporated in the People's Republic of China)


INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2003




The Board of Directors ("the Directors") of Sinopec Zhenhai Refining & Chemical
Company Limited ("the Company") is pleased to present the interim results of the
Company and its subsidiaries ("the Group") for the six-month period ended 30
June 2003. The interim financial report is unaudited.


Interim Financial Report prepared in accordance with IAS 34 "Interim Financial
Reporting"


This interim financial report is unaudited, but has been reviewed in accordance
with Statement of Auditing Standards 700 "Engagements to review interim
financial reports", issued by the Hong Kong Society of Accountants, by KPMG,
whose unmodified review report to the Directors is included in the interim
financial report to be distributed to shareholders.


Consolidated Income Statement

For the six-month period ended 30 June 2003 (unaudited)

(Amounts expressed in thousands, except per share data)


                                                                           Six-month period ended 30 June               
                                             
                                                                       Note            2003          2002
                                                                                        RMB           RMB
              Turnover                                                           13,407,666     9,887,594
              Less: Business taxes and surcharges                                 (469,497)     (485,738)
              Net sales                                                          12,938,169     9,401,856
              Cost of sales                                                    (11,901,566)   (8,543,962)
              Gross profit                                                        1,036,603       857,894
              Other operating income                                                 24,202        18,591
              Selling and administrative expenses                                 (237,448)     (231,546)
              Other operating expenses                                             (16,292)      (11,816)
              Net loss on disposal of property, plant and equipment                (13,292)       (9,955)
              Profit from operations                                                793,773       623,168
              Net financing costs                                                  (36,699)      (30,917)
              Share of profits less (losses) from associates                        (8,288)         1,134
              Profit from ordinary activities before taxation          3            748,786       593,385
              Income tax expense                                       4          (224,379)     (140,972)
              Profit attributable to shareholders                      2            524,407       452,413
              Dividends attributable to the period:                                                      
              Interim dividend declared after the balance sheet date   5(a)         126,188       100,950
              Earnings per share                                                                         
              - Basic                                                  6(a)        RMB 0.21      RMB 0.18
              - Diluted                                                6(b)        RMB 0.21      RMB 0.18


Notes to the Unaudited Interim Financial Report


1     Principal activities and basis of preparation


The Group is principally engaged in the production and sale of petroleum
products (including gasoline, diesel, kerosene, naphtha, liquefied petroleum
gas, solvent oil and fuel oil), intermediate petrochemical products, asphalt,
urea and other petrochemical products. Gasoline, diesel and kerosene are three
major products of the Group. China Petroleum & Chemical Corporation ("Sinopec
Corp") is the immediate parent company and China Petrochemical Corporation
("Sinopec Group Company") is the ultimate parent company.


The interim financial report has been prepared in accordance with the
requirements of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited, including compliance with International
Accounting Standard ("IAS") 34 "Interim Financial Reporting" adopted by the
International Accounting Standards Board ("IASB").


The financial information relating to the financial year ended 31 December 2002
included in the interim financial report does not constitute the Company's
annual financial statements for that financial year but is derived from those
financial statements. The annual financial statements for the year ended 31
December 2002 are available from the Company's registered office. The Company's
independent auditors have expressed an unqualified opinion on those financial
statements in their report dated 17 April 2003.


The accounting policies have been consistently applied by the Group and are
consistent with those adopted in the 2002 annual financial statements.


The 2002 annual financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS").


2     Segment reporting


The Group conducts the majority of its business activities in two areas,
refining and chemicals. An analysis of business segment is as follows:



                                                                 Six-month period ended 30 June 2003
                                                                                                                
                                                               Refining   Chemicals   Elimination          Total
                                                                RMB'000     RMB'000       RMB'000        RMB'000
        Net sales                                            12,855,238     326,675     (243,744)     12,938,169
        Cost of sales                                      (11,888,886)   (256,424)       243,744   (11,901,566)
        Gross profit                                            966,352      70,251             -      1,036,603
        Other operating income                                                                            24,202        
        Selling and administrative expenses                                                            (237,448)        
        Other operating expenses                                                                        (16,292)        
        Net loss on disposal of property,                                                                       
        plant and equipment                                                                             (13,292)        
        Profit from operations                                                                           793,773        
        Net financing costs                                                                             (36,699)        
        Share of profits less (losses) from associates                                                   (8,288)        
        Profit from ordinary activities before taxation                                                  748,786        
        Income tax expense                                                                             (224,379)        
        Profit attributable to shareholders                                                              524,407        

                                                                          Six-month period ended 30 June 2002           
                                                        
                                                               Refining   Chemicals   Elimination          Total
                                                                RMB'000     RMB'000       RMB'000        RMB'000
        Net sales                                             9,262,768     303,453     (164,365)      9,401,856
        Cost of sales                                       (8,467,675)   (240,652)       164,365    (8,543,962)
        Gross profit                                            795,093      62,801             -        857,894
        Other operating income                                                                            18,591        
        Selling and administrative expenses                                                            (231,546)        
        Other operating expenses                                                                        (11,816)        
        Net loss on disposal of property,                                                                       
        plant and equipment                                                                              (9,955)        
        Profit from operations                                                                           623,168        
        Net financing costs                                                                             (30,917)        
        Share of profits less (losses) from associates                                                     1,134        
        Profit from ordinary activities before taxation                                                  593,385        
        Income tax expense                                                                             (140,972)        
        Profit attributable to shareholders                                                              452,413        
                                

Segment information is presented in respect of the Group's business segments.
The format of which is based on the Group's management and internal reporting
structure.


Inter-segment transfer pricing is based on cost plus an appropriate margin, as
specified by Sinopec Corp's policy.


The Group conducts the majority of its business activities in two areas,
refining and chemicals. The specific products of each segment are as follows:


(a)   The refining segment is principally engaged in the production and sale of
petroleum products, intermediate petrochemical products and other petrochemical
products. Gasoline, diesel and kerosene are three major products of the segment.


(b)   The chemical segment is principally engaged in the production and sale of
urea.


3     Profit from ordinary activities before taxation


Profit from ordinary activities before taxation is arrived at after charging/
(crediting):


                                                                     Six-month period ended 30 June                     
                                                                                   2003        2002
                                                                                RMB'000     RMB'000
                     Interest expense on                                                           
                     - Bank borrowings wholly repayable within five years        48,110      39,982
                     - Convertible bonds                                             72          72
                     Less: Amount capitalised as projects in progress          (15,268)    (10,425)
                     Interest expense, net                                       32,914      29,629
                     Cost of inventories                                     11,563,227   8,351,320
                     Depreciation and amortisation                              373,344     338,386
                     Provision for impairment of associates                      10,000           -
                     Dividend income from other investments                     (2,758)     (2,721)
                     Interest income                                            (3,638)     (2,825)

                     4 Income tax expense                                                          
                                                                     Six-month period ended 30 June                     
                                                                                   2003        2002
                                                                                RMB'000     RMB'000
                     Current tax expense                                                           
                     - Current period                                           219,235     132,360
                     - Under provision in respect of prior years                  5,079           -
                                                                                224,314     132,360
                     Deferred taxation                                          (2,606)       5,443
                     Share of associates' income tax                              2,671       3,169
                                                                                224,379     140,972


Individual companies within the Group are mainly subject to Enterprise Income
Tax ("EIT") at 33% on taxable income determined according to the PRC tax laws.


Pursuant to the document "Cai Shui Zi 1994 No.1" issued by the Ministry of
Finance ("MOF") and State Administration of Taxation of China ("SAT") on 29
March 1994, the Group is eligible to certain EIT preferential treatments because
of its recycling of certain wasted materials. The amount of EIT refund was
RMB9,833,000 (2002: RMB43,077,000).


Pursuant to the document "Cai Shui Zi 1999 No. 290" issued by the MOF and SAT on
8 December 1999, the Group is eligible to certain EIT preferential treatments
because of its purchase of certain domestic equipment for technical improvement.
The amount of EIT refund was RMB24,113,000 (2002: Nil).


The Group did not carry on business overseas and in Hong Kong and therefore does
not incur overseas and Hong Kong Profits Tax.


5     Dividends


(a)   Dividends attributable to the period:


                                              Six-month period ended 30 June
                                                       2003             2002
                                                    RMB'000          RMB'000

Interim dividend declared after the balance
sheet date of RMB0.05 per share 
(2002: RMB0.04 per share)                           126,188          100,950



The interim dividend declared after the balance sheet date has not been
recognised as a liability at the balance sheet date.


(b)   Dividends attributable to the previous financial year, and approved during
the period:


                                            Six-month period ended 30 June
                                              2003                    2002
                                           RMB'000                 RMB'000

Final dividend in respect of the previous 
financial year, approved during the period, 
of RMB0.08 per share 
(2002: RMB0.035 per share)                 201,900                  88,332


6     Earnings per share


(a) Basic earnings per share


The calculation of basic earnings per share is based on the profit attributable
to ordinary shareholders of RMB524,407,000 for the six-month period ended 30
June 2003 (2002: RMB452,413,000) and the weighted average number of ordinary
shares of 2,523,754,468 (2002: 2,523,754,468) in issue during the period.


(b) Diluted earnings per share


The calculation of diluted earnings per share is based on the adjusted profit
attributable to ordinary shareholders of RMB524,455,000 for the six-month period
ended 30 June 2003 (2002: RMB452,462,000) and the weighted average number of
ordinary shares of 2,525,357,000 (2002: 2,525,357,000) after adjusting for the
effects of all dilutive potential ordinary shares.


7     Reserves


No transfers were made to the statutory surplus reserve, the statutory public
welfare fund nor the discretionary surplus reserve from profit attributable to
shareholders for the six-month period ended 30 June 2003 (2002: Nil).


8       Comparative figures


The presentation and classification of certain cost and expense items in the
consolidated income statement for the six-month period ended 30 June 2002 have
been changed to conform with the current period's presentation and
classification.


Dividends


The Directors have declared an interim dividend of Renminbi ("RMB") 0.05 per
share, or a total of RMB126.19 million for the year ending 31 December 2003. The
dividend will be paid on 20 October 2003 to shareholders whose names appear on
the Company's register of members on 13 September 2003. Dividends payable to
China Petroleum & Chemical Corporation, the Company's controlling shareholder,
will be paid in RMB, while dividends payable to holders of H shares will be paid
in Hong Kong dollars at an exchange rate of RMB1.0609 for HK$1.00, being the
average of the basic rates of RMB for Hong Kong dollars published by the
People's Bank of China in the calendar week immediately before the date of the
declaration of dividend (22 August 2003). Accordingly, each H share of the
Company is entitled to an interim dividend of HK$0.047.


Register for the Transfer of Shares


The register of members of the Company will be closed from 9 September 2003 to
13 September 2003 (both days inclusive), during which period no transfer of
shares will be effected. In order to qualify for the 2003 interim dividend,
holders of H shares of the Company must lodge their transfers together with all
relevant share certificates to the Company's H share registrar, Hong Kong
Registrars Limited at 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai,
Hong Kong, not later than 4 p.m. on 8 September 2003.


Review of Operations for the First Half of 2003


During the first half of 2003, the Group encountered the challenge brought by
the war between the US and Iraq and the sudden outbreak of Severe Acute
Respiratory Syndrome ("SARS") in the PRC. The Group faced the difficulties and
rose to the occasion with satisfactory results for the period. The throughput of
feedstock reached 6,233,200 tonnes (including 428,000 tonnes of crude oil for
third-party processing), representing an increase of 5.48 per cent from that of
the same period last year. Profit attributable to shareholders increased by
15.91 per cent when compared with that of the same period last year to RMB524
million, while the Group's total earnings continued to rank the highest among
domestic refining companies. The Group's performance fully reflected its ability
to react to a difficult and changing market environment and its strong earning
power.


The US' war with Iraq had led to fluctuations in the prices of international
crude oil and petroleum products in the first half of the year, and had thus
increased the risk in operation. On the one hand, the Company had closely
monitored the international market changes and stepped up efforts in tracking
and analyzing market trend, to achieve swift response and decision making in
accordance with the prevailing situation. With respect to crude oil, the Company
purchased crude oil at appropriate timing and maintained a reasonable inventory
level of crude oil. Meanwhile, the Company achieved a higher production to sales
ratio and intensified its marketing efforts and increased output to achieve
higher sales when the prices of petroleum products and self-distributed products
hovered at high levels. All these efforts were made to mitigate the impact of
the war. On the other hand, the Company seized the market opportunities by
taking advantage of its scale of operations, and through participation in
third-party processing business and increasing export volume to increase its
total processing volume. The throughput of crude oil for third-party processing
business was 428,000 tonnes in the first half of the year, which represented a
283.10 per cent increase over that of the same period last year, while the
facility capacity utilisation rate rose by 5.40 percentage points. Despite
increased external uncertainties, the Company's refining margin increased by
US$0.80 per barrel ("$/bbl") to 4.95 $/bbl when compared with that of same
period last year.


Since April, the Company had been committed to taking precautionary measures
against the SARS epidemic, while maintaining efficient production and operation.
First, the Company took effective measures to ensure stability in its workforce,
production and operation. Second, the Company strove to adjust the facility
capacity utilisation rate and to fine-tune its operational process, in order to
enhance processing intensity. The Company had also adjusted and optimised its
product mix, by increasing the production of high value-added products such as
liquefied petroleum gas ("LPG"), solvent oil and propylene and reducing the
output of jet fuel in phases. By cooperating with local petroleum product
distributors, the Company actively explored the market for jet fuel substitutes
to alleviate the selling pressure on jet fuel. Third, the Company captured the
opportunities to export its products, through which the Company was able to
maintain its initiative in production and operation. All these measures had
contributed to the Company's satisfactory results amid the SARS epidemic.


During the first half of the year, the Company also finished the planned
overhauls of two batches of facilities, resulting in further improvement in the
equipment technical level, operation reliability and degree of control via the
Distributed Control System (DCS). The improvements had laid the groundwork for
arranging facility overhaul once every three years in the future. Despite a
shorter effective production period owing to the overhauls, the total throughput
of feedstock was still higher than that of the same period last year, with
further improvement in various technical and economic indicators. The refining
composite commercial yield for the interim period was 93.93 per cent,
representing a 0.13 percentage point increase from that of the same period last
year. Light oil yield rose by 0.32 percentage point to 73.17 per cent when
compared with that of the same period last year, while the added value of the
products increased further.


Construction of the 1 million tonnes per annum ("tpa") Continuous Catalytic
Reforming (CCR) and 450,000 tpa Paraxylene ("PX") units were completed during
the first half of the year. The refining comprehensive processing capacity of
the Company reached 16 million tpa, which further enhanced the Company's
competitive edge and signifies a major step in the integration of its refining
and chemical operations, while striving to strengthen and further expand its
core business in refining.


Prospects for the Second Half of 2003


In the second half of 2003, China's economy will continue to experience a
steady, fast and healthy growth. The GDP growth rate of China for the entire
year is expected to reach a relatively high level of 7 per cent. In addition,
the rapid growth in China's automobile consumption will drive further demand for
petroleum products. With effect from 1 July 2003, China has adopted more
stringent environmental standards for gasoline for automobile and implemented
measures that support "price for quality", which is expected to facilitate the
Company's profit growth. It is expected that the refining margin will remain at
a relatively healthy level in the second half of 2003. Although the
commissioning of the new facilities will increase part of the costs and
expenses, on the whole, the Company is confident in maintaining continued and
steady profitability for the full year.


In the second half of 2003, the Company will seize the favourable opportunity of
rising demand for domestic petroleum products by taking advantage of its scale
of operations and technology, in order to optimise the composition of feedstock
and business structure. The Company also strives to raise the utilisation rate
to increase the total sales volume. For the second half of the year, the Company
plans to process 6,700,000 tonnes of crude oil (including 400,000 tonnes of
crude oil for third-party processing) and strives to achieve the target
throughput of crude oil of 13 million tonnes for the full year.


The Company will focus on fine-tuning the new production process formulated
after the commissioning of the new facilities such as the PX and CCR units, and
will strive to maintain efficient production, lower cost and increase output, in
order to create new profit centres. Through efficient operating of the
circulating fluidized-bed ("CFB") boiler, the Company will integrate its
refining and chemical operations further. The Company will fully utilise its
facilities, which have been upgraded after the overhauls, to increase the
throughput of sour crude oil and heavy crude oil, to enhance the yield of high
value-added products and to improve the various technical and economic
indicators. The Company will also take advantage of its existing production
facilities for high-grade clean gasoline to increase the output of high-grade
clean gasoline. The Company will maintain its unit refining cash operating cost
and unit complete expense at an advanced level in the domestic industry by
continuing to take advantage of its approach in low-cost fuel oil processing and
by capitalising on advanced technology to further reduce cost and increase
profit.


The Company will pay close attention to changes in market demand, and adjust its
marketing strategies and positioning accordingly. While ensuring the ex-factory
staple products such as gasoline, diesel, kerosene are sold in accordance with
the sales plan, the Company will intensify its efforts in selling
self-distributed products and capture the opportunities to sell its major
self-distributed products at higher prices, in order to improve self-distributed
products' profit contribution to the Company. In accordance with the PX products
and the progress of the polypropylene ("PP") project, operation of which is
scheduled to commence early next year, the Company will make an early move in
conducting market research and exploring the market for chemical raw materials.


The Company will develop an information-based supporting system for
decision-making based on its streamlined management and the one-path
implementation of its Enterprise Resource Planning (ERP) programme commenced
during the first half of the year. In order to further fine-tune its operating
structure, as well as to enhance its management quality and efficiency, the
Company will actively push forward with the reforms regarding diversion, and
will make formal announcement of the Health, Safety and Environment (HSE)
management system, which will incorporate the ISO quality system in its
operation.


The Company will focus on the construction of new projects, ensuring that the
second CFB boiler of the chemical fertiliser fuel conversion project "replacing
oil by coal as a source of energy" will be completed during the year and
striving to complete the construction of a PP unit during the year, and to
commence the operation of the PP unit early next year. And according to the
changes in market demand, the Company will resume the construction of the
disproportionation of aromatics sector for the production of PX, striving to
expand its PX production capacity to 650,000 tpa (550,000 tpa of PX and 100,000
tpa of orthoxylene) in 2004. The Directors believe the implementation of the
aforesaid projects will establish a solid foundation for the Company's
development in the coming years.


New Board of Directors and Supervisory Committee


The annual general meeting held on 20 June 2003 elected members of the Board of
Directors and the Supervisory Committee for a new term of office of three years,
details of which were published in Hong Kong newspapers, South China Morning
Post and Wen Wei Po on 23 June 2003.


External Investment


The Company together with BP Global Investment Ltd establishes a joint-venture
company ("JVC") for the sale of liquefied petroleum gas ("LPG"). The total
investment amount of the JVC is US$25 million, including a registered capital of
US$10 million. The Company and BP Global Investment Ltd will each hold 50 per
cent interest of the JVC. The establishment of the JVC has been approved by the
relevant department of the State, and the relevant procedures for business
registration have been completed. The Company plans to sell all of the LPG
produced by the Company to the JVC.


Loans to Third Party and Overdue Time Deposit


The Company did not have any loans to third party or any overdue time deposit as
at 30 June 2003.


Purchase, Sale and Redemption of the Company's Listed Securities


During the period ended 30 June 2003, neither the Company nor its subsidiaries
had purchased, sold or redeemed any of the Company's listed securities.


Appointment of Auditors


Pursuant to the approval of the annual general meeting held on 20 June 2003,
KPMG was appointed as the Company's auditors for the year of 2003. The term is
one year to the conclusion of the next annual general meeting.


Code of Best Practice


The first meeting of the fourth Board of Directors held on 20 June 2003 elected
the members of the Audit Committee of the Board of Directors. The organisational
structure of the Audit Committee is in compliance with the Code of Best Practice
in Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited. The Audit Committee of the Company carries out
functions similar to those of an audit committee as defined under the Code of
Best Practice.


The Audit Committee held a meeting on 22 August 2003 to review the "2003 interim
financial report".


The Directors were not aware of any information which reasonably indicated that
the Company had not complied with the Code of Best Practice as set out in
Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited during the first half of 2003.


Other Disclosure Items


There has been no material change from the information disclosed in accordance
with the requirements under paragraphs 46 and 32 of Appendix 16 to the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
to the information contained in the 2002 Annual Report. A detailed interim
results announcement of the Company containing all the information required by
paragraphs 46(1) to 46(6) (both paragraphs inclusive) of Appendix 16 to the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited will be published on the website of The Stock Exchange of Hong Kong
Limited at an appropriate time.


By Order of the Board

Sun Weijun

Chairman

22 August 2003, Ningbo, the PRC




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