SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2023

Commission File Number: 1-12158

 

 

Sinopec Shanghai Petrochemical Company Limited

(Translation of registrant’s name into English)

 

 

No. 48 Jinyi Road, Jinshan District, Shanghai, 200540

The People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒             Form 40-F  ☐

 

 

 

EXHIBITS

 

Exhibit Number
99.1		2022 Annual Results Announcement
99.2		2022 Environmental, Social and Governance Report

Disclaimer—Forward-Looking Statements

We may, in this document, make certain statements that are not historical facts and relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, expectations, developments and business strategies. Words such as “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”, “endeavor”, “target”, “forecast” and “project” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there are risks that the predictions, forecasts, projections, and other forward-looking statements will not be achieved. If one or more of these risks materialize, or should underlying assumptions prove incorrect, our actual results may differ materially from those anticipated. You should understand that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors and others are discussed more fully under the section titled “Item 3. Key Information—C. Risk Factors” in our most recent annual report on Form 20-F filed on April 28, 2022, and in other filings with the United States Securities and Exchange Commission. The list of factors discussed therein is not exhaustive; when relying on forward-looking statements to make investment decisions, you should carefully consider both these factors and other uncertainties and events. Forward-looking statements apply only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

 

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED
Date: April 18, 2023				By:		/s/ Wan Tao
				Name:		Wan Tao
				Title:		Chairman of the Board of Directors

 

3

Exhibit 99.1

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

 

2022 ANNUAL RESULTS ANNOUNCEMENT

 

§ 1	IMPORTANT MESSAGE

 

I.

The Board of Directors and the Supervisory Committee of Sinopec Shanghai Petrochemical Company Limited(the “Company” or “SPC”) as well as its Directors, Supervisors and senior management warrant the truthfulness, accuracy and completeness of the information contained in the 2022 annual results announcement, and warrant that there are no false representations or misleading statements contained in, or material omissions from, the 2022 annual report of the Company, and accept legal responsibility.

 

II.	Director(s) who has/have not attended in person the Board meeting for approving the 2022 Annual Report is/are:

 

Name of Director		Position		Reasons for Absence		Name of Proxy
Peng Kun		Non-Executive Director		Business Engagement		Wan Tao

 

III.

The financial statements for the year ended 31 December 2022 (the “Reporting Period”), prepared under the People’s Republic of China (“PRC” or “China”)’s Accounting Standards (“CAS”) as well as the International Financial Reporting Standards (“IFRS”), were audited by KPMG Huazhen LLP and KPMG, respectively, and both firms have issued unqualified opinions on the financial statements in their auditors’ reports.

 

IV.

Mr. Wan Tao, Chairman and the responsible person of the Company; Mr. Du Jun, Directors, Vice President and Chief Financial Officer in charge of the accounting work; and Ms. Yang Yating, person in charge of the Accounting Department (Accounting Chief) and General Manager of Finance Department hereby warrant the truthfulness, accuracy and completeness of the financial statements contained in the 2022 annual results announcement.

 

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V.	Plan for Profit Distribution or Capital Reserve Capitalisation reviewed by the Board

In 2022, the net loss attributable to equity shareholders of the parent company amounted to RMB2,872,072 thousand under CAS (net loss of RMB2,846,156 thousand attributable to shareholders of the Company under IFRS). The Board did not recommend the distribution of profit for the year nor capital reserve capitalisation.

 

VI.	Declaration of Risks Involved in the Forward-looking Statements

Forward-looking statements such as future plans and development strategies contained in this report do not constitute any substantive commitments of the Company to investors. The Company has alerted investors on the relevant investment risks.

 

VII.	Was there any appropriation of funds by the controlling shareholder of the Company and its connected parties for non-operation purposes?

No.

 

VIII.

Did the Company provide any external guarantees in violation of the required decision-making procedures?

No.

 

IX.	Material Risk Warning

Potential risks are elaborated in this report. Please refer to “Management Discussion and Analysis” under Section 5 “Report of the Directors” for details of the potential risks arising from the future development of the Company.

 

X.	The annual results announcement is published in both Chinese and English. In the event of any discrepancy between the Chinese and English versions, the Chinese version shall prevail.

 

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§ 2	CORPORATE INFORMATION

 

2.1	Corporate Information

 

 

2.2	Contact Persons and Contact Details

 

 

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2.3	Introduction of Main Business or Products during the Reporting Period

Located at Jinshanwei in the southwest of Shanghai, the Company and its subsidiaries (the “Group”) are a highly integrated petrochemical enterprises which mainly process crude oil into a broad range of petroleum products, intermediate petrochemicals, resins and plastics and synthetic fibres. The Group sells most of its products within the PRC domestic market and derives most of its revenues from customers in Eastern China, one of the fastest growing regions in the PRC.

The Group’s high-quality development is supported by the ever-increasing demand in the PRC for petrochemical products. Relying on the competitive advantage of its high degree of integration, the Group is optimizing its product structure, improving the quality and variety of its existing products, upgrading technology and increasing the capacity of its key upstream plants.

 

§ 3	ACCOUNTING DATA AND FINANCIAL INDICATORS

 

3.1	Major Accounting Data (Prepared under CAS)

 

										Unit: RMB’000
										Increase/decrease
										compared to the
										previous year
Major accounting data		2022				End of 2021				(%)				End of 2020
Revenue			82,518,315				89,280,415				-7.57				74,705,183
Total (loss)/profit			(3,599,570	)			2,648,161				-235.93				573,816
Net (loss)/profit attributable to equity shareholders of the Company			(2,872,072	)			2,000,506				-243.57				628,110
Net (loss)/profit attributable to equity shareholders of the Company excluding non-recurring items			(2,790,773	)			1,908,105				-246.26				493,350
Net cash flow from operating activities			(7,337,499	)			4,060,026				N/A				1,751,217

 

										Increase/decrease
										compared to the
		End of 2022				End of 2021				previous year (%)				End of 2020
Net assets attributable to equity shareholders of the Company			26,243,705				30,260,172				-13.27				29,218,033
Total assets			41,242,740				47,038,622				-12.32				44,749,173

 

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3.2	Major Financial Indicators (Prepared under CAS)

 

										Increase/decrease
										compared to the
										previous year
Major financial indicators		2022				2021				(%)				2020
Basic (losses)/earnings per share (RMB/Share)			(0.265	)			0.185				N/A				0.059
Diluted (losses)/earnings per share (RMB/Share)			(0.265	)			0.185				N/A				0.059
Basic (losses)/earnings per share excluding non-recurring items (RMB/Share)			(0.258	)			0.176				N/A				0.047
(Loss)/return on net assets (weighted average) (%)*			(10.163	)			6.727				Decreased by 16.89 percentage points				2.127
(Loss)/return on net assets excluding non-recurring items (weighted average) (%)*			(9.875	)			6.416				Decreased by 16.29 percentage points				1.709
Net cash flow per share generated from operating activities (RMB/Share)			(0.678	)			0.375				N/A				0.162

 

										Increase/decrease
										compared to the
										previous year
		End of 2022				End of 2021				(%)				End of 2020
Net assets per share attributable to equity shareholders of the Company (RMB/Share)*			2.426				2.796				-13.23				2.699
Gearing ratio (%)			36.058				35.382				Increased by 0.68 percentage points				34.401

 

*	The above-mentioned net assets do not include non-controlling shareholders’ interests.

 

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3.3	Non-recurring Items (Prepared under CAS)

 

										Unit: RMB’000
Non-recurring items		2022				2021				2020
(Losses)/gains on disposal of non-current assets			(26,767	)			48,671				72,296
Government grants recognised through profit or loss (excluding government grants pursuant to the State’s unified standard sum and quota closely related to the corporate business)			43,055				45,944				71,296
Employee reduction expenses			(33,739	)			(12,232	)			(20,060	)
(Losses)/gains from changes in fair value of financial assets and liabilities			(8,987	)			8,987				(17,871	)
Income from structured deposits			11,124				97,921				132,690
(Losses)/gains on disposal of derivative financial instruments			(18,864	)			9,859				(912	)
Discount loss of receivables			(3,148	)			(4,685	)			(9,513	)
Gains from entrusted loans			2,704				–				–
Other non-operating income and expenses other than those mentioned above			(60,087	)			(57,733	)			(42,968	)
Income tax effect amount			12,692				(44,887	)			(51,339	)
Effect on non-controlling interests (after tax)			718				556				1,141
Total			(81,299	)			92,401				134,760

 

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3.4	Financial Information Prepared under IFRS (for the past five years)

 

														Unit: RMB million
Year ended 31 December		2022				2021				2020				2019				2018
Net sales			72,654.6				75,888.8				61,560.9				88,055.7				95,613.5
(Loss)/profit before taxation			(3,573.7	)			2,721.1				590.8				2,656.1				6,808.1
(Loss)/profit after taxation			(2,842.3	)			2,076.6				656.4				2,227.2				5,336.2
(Loss)/profit attributable to equity shareholders of the Company			(2,846.2	)			2,073.4				645.1				2,215.7				5,336.3
Basic (losses)/earnings per share (RMB/share)			(0.263	)			0.192				0.060				0.205				0.493
Diluted (losses)/earnings per share (RMB/share)			(0.263	)			0.192				0.060				0.205				0.493
Basic and diluted (losses)/earnings per share (RMB/share) (restated) *			N/A				N/A				N/A				N/A				N/A

 

As at 31 December		2022				2021				2020				2019				2018
Total equity attributable to equity shareholders of the Company			26,227.7				30,242.1				29,198.0				29,863.3				30,346.1
Total assets			41,136.7				46,920.6				44,619.1				45,494.1				44,385.9
Total liabilities			14,781.4				16,543.2				15,284.2				15,500.2				13,923.5

 

*	After the capital reserves capitalisation in December 2013, the total number of issued shares of the Company increased from 7.2 billion to 10.8 billion.

After the first exercise of the Company’s Share Option Incentive Scheme in August 2017, the total number of issued shares of the Company increased by 14,176,600 shares.

After the second exercise of the Company’s Share Option Incentive Scheme in January 2018, the total number of issued shares of the Company increased by 9,636,900 shares.

 

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3.5	Major Quarterly Financial Data in 2022 (Prepared under CAS)

 

										Unit: RMB’000
		First Quarter								Third Quarter				Fourth Quarter
		(January to				Second Quarter				(July to				(October to
		March)				(April to June)				September)				December)
Operating income			26,006,070				19,894,285				11,878,206				24,739,754
Net profit/(loss) attributable to equity shareholders of the Company			213,510				(649,519	)			(1,566,776	)			(869,287	)
Net profit/(loss) attributable to equity shareholders of the Company excluding non-recurring items			241,668				(644,222	)			(1,529,113	)			(859,106	)
Net cash flow (used by)/generated from operating activities			(1,785,568	)			(4,619,554	)			1,670,792				(2,603,169	)

 

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§ 4	INFORMATION ON SHAREHOLDERS’ SHAREHOLDING AND CONTROL

 

4.1	Shareholding of the top ten shareholders as at the end of the Reporting Period

 

Shareholding of the top ten shareholders
						Increase/decrease				Number of								Number of				Pledged/
						of shareholding				shares held at								shares held				Marked/Frozen
						during the				the end of the				Percentage of				with selling
		Class of				Reporting Period				Reporting Period				shareholding				restrictions				Status				Number				Nature of
Full name of shareholder		shares				(Shares)				(Shares)				(%)				(Shares)				of shares				of Shares				shareholder
China Petroleum & Chemical Corporation			A Shares				0				5,459,455,000				50.44	%			0				None				0				State-owned legal person
HKSCC (Nominees) Limited			H Shares				-1,324,000				3,452,515,030				31.90	%			0				Unknown				–				Overseas legal person
HKSCC Limited			A Shares				-18,603,920				96,545,788				0.89	%			0				None				0				Overseas legal person
Wang Lei			A Shares				-21,535,500				46,120,300				0.43	%			0				None				0				Domestic natural person
GF Fund – Agricultural Bank of China – GF CSI Financial Asset Management Plan			A Shares				-19,179,415				45,222,300				0.42	%			0				None				0				Others
Dacheng Fund – Agricultural Bank of China – Dacheng CSI Financial Asset Management Plan			A Shares				-1,690,831				43,531,469				0.40	%			0				None				0				Others
Southern Fund – Agricultural Bank of China – Southern CSI Financial Asset Management Plan			A Shares				0				43,083,700				0.40	%			0				None				0				Others
Yinhua Fund – Agricultural Bank of China – Yinhua CSI Financial Asset Management Plan			A Shares				-31,984				43,051,716				0.40	%			0				None				0				Others
E Fund Fund – Agricultural Bank of China – E Fund CSI Financial Asset Management Plan			A Shares				-45,050				43,038,700				0.40	%			0				None				0				Others
Bosera Fund – Agricultural Bank of China – Bosera CSI Financial Asset Management Plan			A Shares				-855,769				42,675,700				0.39	%			0				None				0				Others
Note on connected relationship or acting in concert of the above shareholders:							Among the above-mentioned shareholders, Sinopec Corp., a State-owned legal person, does not have any connected relationship with the other shareholders, and does not constitute an act-in-concert party under the Administrative Measures on Acquisition of Listed Companies. Among the above-mentioned shareholders, HKSCC (Nominees) Limited is a nominee and HKSCC Limited is the nominal holder of the company’s Shanghai-Hong Kong Stock Connect. Apart from the above, the Company is not aware of any connected relationships among the other shareholders, or whether any other shareholder constitutes an act-in-concert party under the Administrative Measures on Acquisition of Listed Companies.

 

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4.2.	The ownership and controlling relationship between the Company and the controlling shareholder and the de facto controller

 

 

*	Including 767,916,000 H shares in Sinopec Corp. held by Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of Sinopec Group, through HKSCC (Nominees) Limited.

 

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4.3	Interests and short positions of the substantial shareholders of the Company in shares and underlying shares of the Company

As at 31 December 2022, so far as was known to the Directors or chief executive of the Company, the interests and short positions of the Company’s substantial shareholders (being those who are entitled to exercise or control the exercise of 5% or more of the voting power at any general meeting of the Company but excluding the Directors, chief executive and Supervisors) in the shares and underlying shares of the Company who are required to disclose their interests pursuant to Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (the “SFO”) or as recorded in the register of interests required to be kept under section 336 of the SFO were as set out below:

Interests in ordinary shares of the Company

 

						Percentage				Percentage
						of total issued				of total issued
		Interests held or				shares of the				shares of the
		deemed as held				Company				relevant class
Name of shareholders		(shares)		Note		(%)				(%)				Capacity
China Petroleum & Chemical Corporation		5,459,455,000 A shares (L)		(1)			50.44				74.49			Beneficial owner
		Shares of legal person
The Bank of New York Mellon Corporation		205,747,637 H shares (L)		(2)			1.90				5.89			Interests of controlled
		182,599,000 H shares (S)					1.69				5.22			corporation
		23,145,637 H shares (P)					0.21				0.66
Corn Capital Company Ltd		211,008,000 H shares (L)		(3)			1.95				6.04			Interests of controlled
		200,020,000 H shares (S)					1.85				5.72			corporation
Hung Hin Fai		211,008,000 H shares (L)		(3)			1.95				6.04			Beneficial owner
		200,020,000 H shares (S)					1.85				5.72
Yardley Finance Limited		200,020,000 H shares (L)		(4)			1.85				5.72			Secured equity holders
Chan Kin Sun		200,020,000 H shares (L)		(4)			1.85				5.72			Interests of controlled corporation

(L): Long position; (S): Short position; (P): Lending Pool

 

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Note:

 

(1)

Based on the information obtained by the Directors from the website of the Hong Kong Stock Exchange and as far as the Directors are aware, Sinopec Group directly and indirectly owned 67.84% of the issued share capital of Sinopec Corp. as at 31 December 2022. By virtue of such relationship, Sinopec Group is deemed to have an interest in the 5,459,455,000 A shares of the Company directly owned by Sinopec Corp.

 

(2)

All the 205,747,637 H shares (long position) and 182,599,000 H shares (short position) are deemed to be held by The Bank of New York Mellon Corporation, due to control of multiple companies (among which 182,599,000 H shares (short position) are held through physical settlement unlisted derivatives). Below are the companies indirectly or wholly owned by The Bank of New York Mellon Corporation:

 

(2.1)

All the 3,000 H shares (long position) are held by BNY MELLON, NATIONAL ASSOCIATION. Since BNY MELLON, NATIONAL ASSOCIATION is wholly owned by The Bank of New York Mellon Corporation, The Bank of New York Mellon Corporation is deemed to have an interest in the 3,000 H shares (long position) of the Company held by BNY MELLON, NATIONAL ASSOCIATION.

 

(2.2)

All the 205,744,637 H shares (long position) and 182,599,000 H shares (short position) are held by The Bank of New York Mellon. Since The Bank of New York Mellon is wholly owned by The Bank of New York Mellon Corporation, The Bank of New York Mellon Corporation is deemed to have an interest in the 205,744,637 H shares (long position) and 182,599,000 H shares (short position) of the Company held by The Bank of New York Mellon.

 

(3)	These shares were held by Corn Capital Company Limited. Hung Hin Fai held 100% interests in Corn Capital Company Limited. Pursuant to the SFO, Hung Hin Fai was deemed to be interested in the shares held by Corn Capital Company Limited.

 

(4)	These shares were held by Yardley Finance Limited. Chan Kin Sun held 100% interests in Yardley Finance Limited. Pursuant to the SFO, Chan Kin Sun was deemed to be interested in the shares held by Yardley Finance Limited.

Save as disclosed above, as at 31 December 2022, the Directors have not been notified by any person (other than the Directors, chief executive and Supervisors) who had interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO or as recorded in the register of interests required to be kept by the Company under section 336 of the SFO.

 

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§ 5	REPORT OF THE DIRECTORS (MANAGEMENT DISCUSSION AND ANALYSIS)

(Unless otherwise specified, the financial information included in this “Management Discussion and Analysis” section was extracted from the financial statements prepared under IFRS.)

 

5.1	General – Review of the Company’s operations during the Reporting Period

In 2022, the change in domestic and international situations surpassed expectations, the momentum of global economic growth decayed, geopolitical fluctuations intensified, oil and gas prices fluctuated wildly, and market demand slumped. The severe and complicated situations posed unprecedented huge challenges for the Company’s production and operation. Facing the highly volatile energy market, the Group coordinated the production and operation, scientific and technological innovation, reform and management and project construction in a well-coordinated way, basically completing the annual target. The total volume of crude oil processed for the year was 10.4453 million tons, representing a year-on-year decrease of 24.11%; the volume of refined oil produced for the year was 5.9080 million tons, representing a year-on-year decrease of 25.86%; the total volume of goods within the main commodities categories was 9.7062 million tons, representing a year-on-year decrease of 27.82%. The Group’s turnover was RMB82,443 million, representing a year-on-year decrease of 7.57%. The Group’s product sale rate was 99.83% and the payment return rate was 100%, signaling premium and stable product quality.

 

(1)	Rising prices of petroleum and petrochemical products driven by high crude oil prices and other factors

In 2022, global economy plunged. As a result, commodity prices fluctuated significantly, international crude oil prices stayed high, and petroleum and petrochemical product prices oscillated at high. As of 31 December 2022, the weighted average prices (excluding tax) of synthetic fibers, resins and plastics, major intermediate petrochemical products and major petroleum products of the Group increased by 36.31%, 3.58%, 13.97% and 31.94% year on year respectively.

 

(2)	Reduced crude oil processing due to the market demand and unit accidents

International oil prices were basically upward in the first half of 2022 but on the downward trend in the second half with sluggish oil demand.

For the year ended 31 December 2022, the Group processed a total of 10.4453 million tons of crude oil (including 378,300 tons of incoming materials), representing a decrease of 24.11% year on year, mainly due to the weak market demand and the Company’s device accidents. In 2022, the annual crude oil processing cost was RMB4,682.50 per ton, representing an increase of RMB1,450.21 per ton or 44.87% over the same period of the previous year. The total crude oil processing cost for the year increased by RMB3,956 million or 9.16%, accounting for 61.81% of the total cost of sales.

 

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(3)	Steady recovery of production operation

Following the explosion of the Company’s 1# glycol devices, the Group, overcoming unfavorable factors such as the extreme high temperature and typhoon, steadily and orderly pushed forward the emergency disposal of the accident, the investigation and elimination of risks and hidden dangers, restorative maintenance, and resumption of work and production. We strengthened organizational leadership and coordination with the focus on key links, and implemented safety upgrading management. At the end of September, the whole industry chain resumed normal operation, among which, the catalytic cracking units (CCUs) achieved zero flare discharging, and ethylene units set the fastest start-up record in the industry. We reinforced the fulfillment of production safety responsibilities, cemented site management, and maintained stable production run.

 

(4)	Breakthrough in science and technology innovation

Adhering to the combination of independent innovation and collaborative innovation, the Company has stepped up efforts to tackle key problems in science and technology, applying for 120 patents and authorizing 59 of them. The Company completed the R&D, mass production and service support tasks of “flying” torches of the Beijing 2022 Winter Olympic Games, and awarded as an “Outstanding Contribution Group for the Beijing Winter Olympic Games and the Winter Paralympic Games”. Carbon fiber and its composite materials and other research tasks basically achieved the annual target and the general requirements of the three-year task. We promoted the research of carbon fiber composites in key application fields, and expanded the demonstration applications of carbon fiber composites in rail transportation, construction bridges and new energy. We successfully applied them in the hydrogen-powered trams of Lin-gang T2 public tram and Qingdao Haikou Road Cross-Wind River Bridge. We strengthened information technology efforts, and continuously improved the information level.

 

(5)	Continuous deepening of reform management

Focusing on the three-year action of deepening reform, we aligned our efforts in this respect with the first-class management standard and continued increasing our efforts in this respect. We comprehensively promoted the tenure system and contractual management of management members, and launched the tenure system and contractual reform of the middle management cadres. We optimized the organizational setup and improved the organizational operation efficiency and professional management capability. We formulated a work plan for improving the quality of listed companies, initiated the delisting of the Company’s ADR (American Depositary Receipts) from the U.S., and implemented the first H-share buyback. We comprehensively promoted 5S (SEIRI, SEITON, SEISO, SEIKETSU and SHITSUKE) management and carried out the “compliance management enhancement year” activity, to advance a law-based enterprise.

 

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(6)	Vigorous impetus to transformation and development

We promoted the transformation and upgrading to green development through project construction, to build a green enterprise. We passed the review of environment-friendly enterprises. We expedited the construction of key projects. Projects of 24,000 tons/year of raw silk and 12,000 ton/year of 48K large-tow carbon fiber were put into operation. The 250,000 tons/year thermoplastic elastomer project, which is a key project in Shanghai, steadily progressed. We pressed ahead with hidden danger management and environmental protection projects as well as new energy projects such as photovoltaic projects. We delivered the second phase of the hydrogen supply center of hydrogen cells, and completed the construction of the first megawatt-class photovoltaic power plant project. We promoted coupled biomass power generation, and achieved a “double 10,000” in terms of tons of biomass fuel blended and tons of CO2 emissions reduced. We participated in the market-based trading of “green certificates” for the first time and purchased 10,000 “green certificates”.

 

5.2	Accounting judgments and estimates

The Group’s financial conditions and the results of its operations are susceptible to accounting methods, assumptions and estimates applied in preparing the financial statements. Such assumptions and estimates are based on the historical experience of the management of the Group and on various other assumptions that the management believes to be reasonable, and form the basis for the management to make judgments about matters that cannot be confirmed by other sources. On an on-going basis, the management evaluates its estimates. Actual results may differ from those estimates as the actual circumstances, environment and conditions change.

The selection of accounting policies, judgments and other uncertainties in the course of applying of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The principal accounting policies are set forth in the financial statements. The Company’s management has made the following accounting judgement and estimate in the preparation of the financial statements.

 

- 15 -

(1)	Classification of Financial Assets

The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. The Group determines the business model for managing financial assets at the level of the financial asset portfolio. The factors considered include the way to evaluate and report the performance of financial assets to key management personnel, the risks affecting the performance of financial assets and their management methods, and the way for relevant business management personnel to obtain remuneration, etc.

When evaluating whether the contractual cash flow of financial assets is consistent with the basic lending arrangements, the Group has the following main judgments: whether the time distribution or amount of the principal may change in the duration due to prepayment and other reasons; whether the interest only includes the time value of money, credit risk, other basic lending risks and the consideration of cost and profit. For example, does the amount of prepayment only reflect the outstanding principal and the interest based on the outstanding principal, as well as the reasonable compensation paid for the early termination of the contract.

 

(2)	Net realizable value (“NRV”) of inventories

Inventories are valued at the lower of cost and net realizable value. The net realizable value is determined based on the estimated selling prices in the ordinary course of business less the estimated costs to completion, and other costs necessary to make the sale. These estimates are based on the current market condition and historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to changes in market conditions.

Management reassesses these estimations at the end of each reporting period to ensure inventory is measured at the lower of cost and net realizable value.

 

(3)	Impairments for non-current assets

At the end of each reporting period, the Group estimates the recoverable amount of an asset or a cash-generating unit (“CGU”) (a portion of which related to certain production facilities), at the higher of its fair value less costs of disposal and its value in use, to determine the impairment losses. If circumstances indicate that the carrying amount of the asset or CGU may not be recoverable, the asset or CGU may be considered “impaired”, and an impairment loss may be recognized.

The recoverable amount of assets or CGUs is the higher of the fair value less costs of disposal and value in use. As the fair value of certain assets or CGUs may not be publicly available, the Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions for projections of product sales and operating costs and discount rate. In particular, in determining the value in use of the Group’s specific CGUs, significant judgements are required on the accounting estimates which are based on the assumptions relating to product sales growth rates, related costs growth rates and discount rate applied.

 

- 16 -

(4)	Useful life and residual value of property, plant and equipment

Property, plant and equipment, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account its residual value. Management reviews the estimated useful lives and estimated residual value of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The estimated useful lives are based on the Group’s historical experience with similar assets, taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

 

5.3.	Comparison and analysis of results of the Company’s operations (Prepared under IFRS)

 

5.3.1

Summary

The following table sets forth the Group’s sales volumes and net sales (net of sales taxes and surcharges) for the years indicated:

 

		For the years ended 31 December
		2022												2021												2020
		Sales												Sales												Sales
		volume				Net sales								volume				Net sales								volume				Net sales
		(’000 tons)				(RMB million)				%				(’000 tons)				(RMB million)				%				(’000 tons)				(RMB million)				%
Synthetic fibres			22.4				412.5				0.6				101.9				1,374.8				1.8				151.4				1,472.4				2.4
Resins and plastics			889.3				7,321.2				10.1				1,254.9				9,962.7				13.1				1,365.4				9,419.7				15.3
Intermediate petrochemical products			1,544.2				10,537.7				14.5				1,989.1				10,780.5				14.2				2,168.0				8,205.8				13.3
Petroleum products			7,211.4				41,444.7				57.0				10,065.0				41,884.4				55.2				10,347.7				30,139.6				49.0
Trading of petrochemical products			—				12,007.6				16.5				—				11,051.4				14.6				—				11,577.3				18.8
Others			—				930.9				1.3				—				835.0				1.1				—				746.1				1.2
Total			9,667.3				72,654.6				100.0				13,410.9				75,888.8				100.0				14,032.5				61,560.9				100.0

 

- 17 -

The following table sets forth a summary of the Group’s consolidated statement of profit or loss for the years indicated (prepared under IFRS):

 

		For the years ended 31 December
		2022								2021								2020
		RMB million				% of net sales				RMB million				% of net sales				RMB million				% of net sales
Synthetic fibres
Net sales			412.5				0.6				1,374.8				1.8				1,472.4				2.4
Cost of sales and operating expenses			(1,427.8	)			(2.0	)			(2,228.9	)			(2.9	)			(1,836.6	)			(3.0	)
Segment loss from operations			(1,015.3	)			(1.4	)			(854.1	)			(1.1	)			(364.2	)			(0.6	)
Resins and plastics
Net sales			7,321.2				10.1				9,962.7				13.1				9,419.7				15.3
Cost of sales and operating expenses			(8,573.7	)			(11.8	)			(9,910.5	)			(13.1	)			(8,157.6	)			(13.3	)
Segment (loss)/profit from operations			(1,252.5	)			(1.7	)			52.2				0.1				1,262.1				2.0
Intermediate petrochemical products
Net sales			10,537.7				14.5				10,780.5				14.2				8,205.8				13.3
Cost of sales and operating expenses			(11,994.3	)			(16.5	)			(11,415.6	)			(15.0	)			(7,624.2	)			(12.4	)
Segment (loss)/profit from operations			(1,456.6	)			(2.0	)			(635.1	)			(0.8	)			581.6				0.9
Petroleum products
Net sales			41,444.7				57.0				41,884.4				55.2				30,139.6				49.0
Cost of sales and operating expenses			(41,443.7	)			(57.0	)			(38,917.4	)			(51.3	)			(32,338.3	)			(52.5	)
Segment profit/(loss) from operations			1.0				0.0				2,967.0				3.9				(2,198.7	)			(3.5	)
Trading of petrochemical products
Net sales			12,007.6				16.5				11,051.4				14.6				11,577.3				18.8
Cost of sales and operating expenses			(11,994.8	)			(16.5	)			(11,007.7	)			(14.5	)			(11,535.3	)			(18.7	)
Segment profit from operations			12.8				0.0				43.7				0.1				42.0				0.1

 

- 18 -

		For the years ended 31 December
		2022								2021								2020
		RMB million				% of net sales				RMB million				% of net sales				RMB million				% of net sales
Others
Net sales			930.9				1.3				835.0				1.1				746.1				1.2
Cost of sales and operating expenses			(1,063.7	)			(1.5	)			(976.5	)			(1.3	)			(535.1	)			(0.9	)
Segment (loss)/profit from operations			(132.8	)			(0.2	)			(141.5	)			(0.2	)			211.0				0.3
Total
Net sales			72,654.6				100.0				75,888.8				100.0				61,560.9				100.0
Cost of sales and operating expenses			(76,498.0	)			(105.3	)			(74,456.6	)			(98.1	)			(62,027.1	)			(100.8	)
Operating (loss)/profit			(3,843.4	)			(5.3	)			1,432.2				1.9				(466.2	)			(0.8	)
Net finance income			443.3				0.6				414.6				0.5				332.3				0.5
Share of (loss)/profit of associates and joint ventures			(173.6	)			(0.2	)			874.3				1.2				724.7				1.2
(Loss)/Profit before tax			(3,573.7	)			(4.9	)			2,721.1				3.6				590.8				0.9
Income tax			731.4				1.0				(644.5	)			(0.9	)			65.6				0.1
(Loss)/Profit for the year			(2,842.3	)			(3.9	)			2,076.6				2.7				656.4				1.0
Attributable to:
Equity shareholders of the Company			(2,846.2	)			(3.9	)			2,073.4				2.7				645.1				1.0
Non-controlling interests			3.9				0.0				3.2				0.0				11.3				0.0
(Loss)/Profit for the year			(2,842.3	)			(3.9	)			2,076.6				2.7				656.4				1.0

 

5.3.2

Comparison and analysis

Comparison between the year ended 31 December 2022 and the year ended 31 December 2021 is as follows:

 

- 19 -

5.3.2.A Operating results

 

(1)

Net sales

In 2022, the net sales of the Group amounted to RMB72,654.6 million, a decrease of 4.26% from the previous year’s RMB75,888.8 million. Analysis by product is as follows:

 

(i)	Synthetic fibers

In 2022, the Group’s net sales of synthetic fiber products amounted to RMB412.5 million, representing a decrease of 70.00% from the previous year’s RMB1,374.8 million. This was mainly due to the price hike of main raw materials and the perennial loss of acrylic fiber, and due to the lower sales during the Reporting Period resulting from the decrease of sales of synthetic fiber products. The sales volume of synthetic fibers decreased by 78.02% year on year, while the weighted average sales price increased by 36.31%. Meanwhile, the sales volume of acrylic fibers, the main product of the synthetic fibers segment, decreased by 71.92% year on year. The net sales of acrylic fibers and other products accounted for 78.47% and 21.53% of the total sales of the synthetic fibers segment respectively.

The net sales of synthetic fibers accounted for 0.60% of the Group’s net sales in the current year, representing a decrease of 1.2 percentage points from the previous year.

 

(ii)	Resins and plastics

In 2022, the Group’s net sales of resins and plastics products amounted to RMB7,321.2 million, a decrease of 26.51% from the previous year’s RMB9,962.7 million. This was mainly due to the decrease in production resulting from the downturn in the domestic market and the shutdown of production during the year. The weighted average sales price of resins and plastics increased by 3.58%, while the sales volume of resins and plastics products decreased by 29.13% year on year. Meanwhile, the weighted average sales price of polyethylene and polypropylene decreased by 0.11% and 5.48%, and that of polyester chips increased by 14.17% year on year. The sales of polyethylene, polypropylene, polyester chips and other products accounted for 45.36%, 41.31%, 9.47% and 3.86% of the total sales of the resins and plastics segment respectively.

The net sales of resins and plastics accounted for 10.08% of the Group’s net sales in the current year, representing a decrease of 3 percentage points from the previous year.

 

- 20 -

(iii)

Intermediate petrochemical products

In 2022, the Group’s net sales of intermediate petrochemical products amounted to RMB10,537.7 million, a decrease of 2.25% from the previous year’s RMB10,780.5 million. This was mainly due to the rise in the unit price of intermediate petrochemical products driven by the sharp rise in international crude oil prices and due to the decrease in the sales volume resulting from the stagnant market. The weighted average sales price of major intermediate petrochemical products increased by 13.97% year on year, and its sales volume decreased by 11.43% year on year. The sales of p-xylene, ethylene oxide, pure benzene, ethylene glycol and other products accounted for 41.16%, 11.93%, 19.44%, 2.44% and

25.03% of the total sales of intermediate petrochemical products respectively.

The net sales of intermediate petrochemical products accounted for 14.50% of the Group’s net sales in the current year, an increase of 0.3 percentage points from the previous year.

 

(iv)	Petroleum products

In 2022, the Group’s net sales of petroleum products amounted to RMB41,444.7 million, a decrease of 1.05% from the previous year’s RMB41,884.4 million. This was mainly due to the increase in petroleum product prices resulting from the downturn in the domestic market and the hike in international crude oil prices. The weighted average sales price of major petroleum products increased by 31.94% year on year, and its sales volume decreased by 30.06% year on year.

The net sales of petroleum products accounted for 57.04% of the Group’s net sales in the current year, an increase of 1.8 percentage points from the previous year.

 

(v)	Trading of petrochemical products

In 2022, the Group’s net sales of trading of petrochemical products amounted to RMB12,007.6 million, an increase of 8.65% from the previous year’s RMB11,051.4 million. This was mainly due to the increase in sales of our second-level subsidiary, Shanghai Jinshan Trading Corporation, by RMB1,439 million.

The net sales of trading of petrochemical products accounted for 16.53% of the Group’s net sales in the current year, an increase of 1.9 percentage points from the previous year.

 

(vi)

Others

In 2022, the Group’s net sales of other products amounted to RMB930.9 million, an increase of 11.48% from the previous year’s RMB835.0 million.

The net sales of other products accounted for 1.28% of the Group’s net sales in the current year, an increase of 0.2 percentage points from the previous year.

 

- 21 -

(2)	Cost of sales and operating expenses

Cost of sales and operating expenses consist of cost of sales, sales and administrative expenses, other operating expenses and other operating income, etc. In 2022, the Group’s cost of sales and operating expenses amounted to RMB76,498.0 million, an increase of 2.74% from RMB74,456.6 million in 2021. Cost of sales and expenses of synthetic fibers, resins and plastics, intermediate petrochemical products, petroleum products, trading of petrochemical products and other products amounted to RMB1,427.8 million, RMB8,573.7 million, RMB11,994.3 million, RMB41,443.7 million, RMB11,994.8 million and RMB1,063.7 million respectively, representing a decrease of 35.94%, a decrease of 13.49%, an increase of 5.07%, an increase of 6.49%, an increase of 8.97% and an increase of 8.93% year on year respectively.

Compared with the last year, the cost of sales and operating expenses of intermediate petrochemical products, petroleum products, trading of petrochemical products and others increased this year, which was mainly due to the hike in crude oil prices and thus the increase in corresponding costs.

-Cost of sales

In 2022, the Group’s cost of sales amounted to RMB76,265.9 million, an increase of 2.65% from previous year’s RMB74,298.0 million, which was mainly due to the increase in cost resulting from the rise in crude oil prices as well as the lower NRV of most inventories than the cost. The cost of sales accounted for 104.97% of the net sales this year.

-Selling and administrative expenses

In 2022, the Group’s sales and administrative expenses amounted to RMB288.7 million, a decrease of

21.59% from the previous year’s RMB368.2 million. This was mainly due to the overall sales volume drop in the year.

-Other operating income

In 2022, the Group’s other operating income amounted to RMB110.6 million, a decrease of 11.73% from previous year’s RMB125.3 million, which was mainly due to the drop in rental income.

-Other operating expenses

In 2022, the Group’s other operating expenses amounted to RMB25.8 million, a decrease of 42.28% from previous year’s RMB44.7 million. This was mainly due to the decrease of RMB23.2 million for the purchases of rights of carbon emission during the year.

 

- 22 -

(3)	Operating profit

In 2022, the Group’s operating loss amounted to RMB3,843.4 million, a decrease of RMB5,275.6 million from the operating profit of RMB1,432.2 million in the previous year. In 2022, the operating profit declined significantly from the previous year due to the rising cost resulting from higher crude oil prices, the increase in the selling price of products not as high as the rising cost, and a sluggish domestic market.

 

(i)	Synthetic fibres

In 2022, the operating loss of synthetic fibers amounted to RMB1,015.3 million, an increase of RMB161.2 million from the operating loss of RMB854.1 million in the previous year. The increase was mainly due to the weak market demand of the textile industry which is the downstream market of the synthetic fibers segment, together with temporary plant shutdown. Due to a part of production facilities being idle or obsolete the provision for impairment of long-term assets of RMB49.2 million was made for the synthetic fiber segment.

 

(ii)	Resins and plastics

In 2022, the operating loss of resins and plastics amounted to RMB1,252.5 million, a decrease of RMB1,304.7 million from the operating profit of RMB52.2 million in the previous year. The decrease in operating “profit” in the year was mainly because the rise in international crude oil prices resulted in the sharp rise in costs while the demand in the downstream market was weak, and thus the increase in sales price was lower than that in cost price.

 

(iii)

Intermediate petrochemical products

In 2022, the operating loss of intermediate petrochemical products amounted to RMB1,456.6 million, an increase of RMB821.5 million from the operating loss of RMB635.1 million in the previous year. The “increase in operating loss” in the year was mainly because the rise in international crude oil prices resulted in the sharp rise in costs while the demand in the downstream market was weak, and thus the increase in sales price was lower than that in cost price. In 2022, the provision for impairment of long-term assets of RMB212.4 million was made for some devices as the increasing production and operation cost is not expected to be covered by the estimated sales price of the devices due to deteriorating market conditions.

 

(iv)	Petroleum products

In 2022, the operating profit of petroleum products amounted to RMB1.0 million, a decrease of RMB2,966.0 million from the operating profit of RMB2,967.0 million in the previous year. The decrease in operating profit in the year was mainly because the rise in international crude oil prices resulted in the sharp rise in costs, and thus the increase in sales price was lower than that in cost price.

 

- 23 -

(V)	Trading of petrochemical products

In 2022, the Group’s operating profit of trading of petrochemical products amounted to RMB12.8 million, a decrease of RMB30.9 million from the operating profit of RMB43.7 million in the previous year, which was mainly due to the decrease in the gross profit from trading of petrochemical products during the period.

 

(vi)

Others

In 2022, the Group’s other operating loss amounted to RMB132.8 million, a decrease of RMB8.7 million from the other operating loss of RMB141.5 million in the previous year, which was no significant change compared with the previous year.

 

(4)	Net finance income

In 2022, the Group’s net financial income amounted to RMB443.3 million, an increase of RMB28.7 million from the net financial income of RMB414.6 million in the previous year, mainly due to the increase in interest income from time deposits during the Reporting Period, resulting in an increase of our interest income by RMB33 million from RMB508.8 million in 2021 to RMB541.8 million in 2022.

 

(5)	Loss before taxation

In 2022, the Group’s loss before taxation amounted to RMB3,573.7 million, a decrease of RMB6,294.8 million from the profit before taxation of RMB2,721.1 million in the previous year.

 

(6)	Income tax

The income tax benefit of the Group amounted to RMB731.4 million in 2022 and the income tax expenses amounted to RMB644.5 million in 2021. This is mainly due to the recognition of deferred income tax assets as a result of the Company’s loss for the year.

In accordance with The Enterprise Income Tax Law of the PRC (amended in 2018), the income tax rate applicable to the Group in 2022 is 25% (2021: 25%).

 

(7)	Loss for the year

In 2022, the Group’s loss after tax amounted to RMB2,842.3 million, a decrease of RMB4,918.9 million from the profit after tax of RMB2,076.6 million in the previous year.

 

- 24 -

5.3.2.B

Liquidity and capital sources

The Group’s primary sources of capital are cash inflows from investing activities arising from the maturity of time deposits. The Group’s primary uses of capital are costs of sales, other operating expenses and capital expenditure.

 

(1)	Capital sources

 

(i)	Net cash flow generated from operating activities

In 2022, the Group’s net cash outflows generated from operating activities amounted to RMB7,459.4 million, representing a decrease of RMB11,409.4 million from the net cash inflows of RMB3,950.0 million in the previous year. During the Reporting Period, with the operating loss, the Group’s cash outflows generated from operating activities in 2022 amounted to RMB6,960.7 million, representing a decrease of RMB11,372.4 million from the cash inflows generated from operating activities of RMB4,411.7 million in the previous year.

 

(ii)	Borrowings

By the end of 2022, the Group’s total borrowings decreased by RMB9.8 million to RMB2,250 million as compared to the end of last year, mainly due to the decrease of long-term borrowings due within one year by RMB19.8 million as well as the increase of short-term borrowings due within one year by RMB10 million.

The Group managed to maintain its gearing ratio at a safe level by strengthening its management of liabilities (such as borrowings) and enhancing its control over financial risks. The Group generally does not experience any seasonality in borrowings. However, due to the fact that the Group’s capital expenditure is, by nature, planned in advance, long-term bank loans can be suitably arranged in advance of expenditures, while short-term borrowings are used to meet operational needs. The terms of the Group’s existing borrowings do not restrict its ability to distribute dividends for its shares.

 

(2)	Gearing ratio

As of 31 December 2022, the Group’s gearing ratio was 35.93% (2021: 35.26%). The ratio is calculated using this formula: total liabilities/total assets multiply by 100%.

 

- 25 -

5.3.2.C Research and development, patents and licenses

The Group owns various technology development departments, including the Advanced Materials Innovation Research Institute, Petrochemical Research Institute, Plastic Research Institute and Environmental Protection Research Institute, which are responsible for the research and development of new technologies, products, processes, equipment and environmental protection. The Group’s research and development expenses for 2020, 2021 and 2022 amounted to RMB110.6 million, RMB94.3 million and RMB130.5 million, respectively. The increase was mainly due to the increase in material cost for research and development of technology in equipment and products.

The Group does not rely on any patents, licenses, industrial, commercial or financial contracts or new production processes in any material respect.

5.3.2.D Off-Balance Sheet Arrangements

Please refer to note 34 to the financial statements prepared under IFRS in the full text of the 2022 Annual Report for details of the Group’s capital commitments. The Group did not provide any guarantee to external parties during the Reporting Period.

5.3.2.E Contractual obligations

The following table sets forth the Group’s obligations to repay loan principal in future as at 31 December 2022:

 

Payment due and payable

by the following period as at 31 December 2022

After

After two

one year

years but

Within

but within

within

Over

Total

one year

two years

five years

five years

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Contractual obligations

Short-term borrowings

1,550,000

1,550,000

—

—

—

Long-term borrowings

700,000

—

700,000

—

—

Total contractual obligations

2,250,000

1,550,000

700,000

—

—

 

- 26 -

5.3.2.F Analysis of operation and results of major controlling companies and investing companies during the Reporting Period

As at 31 December 2022, the Company had more than 50% equity interest in the following principal subsidiaries:

 

Percentage

Percentage

Net

of equity

of equity

profit/(loss)

Place for

held by the

held by the

Paid-in

for the

Place of

principal

Type of

Company

Group

capital

year 2022

Company name

registration

Principal business

activities

legal person

(%)

(%)

(RMB’000)

(RMB’000)

Shanghai Petrochemical Investment Development Company Limited (“Shanghai Investment Development”)

China

Investment management

China

Limited company

100.00

100.00

RMB1,000,000

18,330

China Jinshan Associated Trading Corporation (“Jinshan Associated Trading”)

China

Import and export of petrochemical products and equipment

China

Limited company

67.33

67.33

RMB25,000

22,314

Shanghai Jinchang Engineering Plastics Company Limited (“Shanghai Jinchang”)

China

Production of polypropylene compound products

China

Limited company

—

74.25

USD9,154

(27,804

)

Shanghai Golden Phillips Petrochemical Company Limited (“Shanghai Golden Phillips”)

China

Production of polypropylene products

China

Limited company

—

100.00

RMB415,623

1,695

Shanghai Jinshan Trading Corporation (“JMGJ”)

China

Import and export of petrochemical products and equipment

China

Limited company

—

67.33

RMB100,000

11,401

Zhejiang Jinlian Petrochemical Storage and Transportation Co., Ltd. (“Jinlian”)

China

Trading of petrochemical products

China

Limited company

—

100.00

RMB400,000

(21,495

)

Note: None of the subsidiaries have issued any debt securities.

The Group’s share of interests in associates comprises a 38.26% interest in Shanghai Chemical Industry Park Development Co., Ltd. (“Chemical Industrial Park”) established in the PRC in the amount of RMB2,115.1 million, and a 20% interest in Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) established in the PRC in the amount of RMB333.9 million. The principal activities of Chemical Industry Park Development Co., Ltd., include the planning, development and operation of a chemical industrial park located in Shanghai of the PRC. The principal activities of Shanghai SECCO are the production and distribution of petrochemical products.

 

- 27 -

(1)	Explanation of profits of major controlling companies and investing companies affecting more than 10% of the net profit of the Group

In 2022, Shanghai SECCO recorded a revenue of RM24,096.8 million, and its loss after tax reached RMB1,947.6 million, among which RMB382.0 million was attributed to the Company.

 

(2)	Analysis of operational performance of major controlling companies and investing companies with a 30% or more year-on-year change

 

a)

The operating results of Shanghai Investment Development decreased by 85.5% in 2022 as compared with the previous year. The decrease was mainly due to the decrease of RMB67.5 million in dividends declared by the subsidiary Shanghai Golden Phillips in 2022 as compared with 2021, as well as the significant decrease in the net profit of major associates and joint ventures, resulting in a sharp fall of RMB130.3 million in the investment income in 2022.

 

b)	The operating results of Jinshan Associated Trading decreased by 30.69% in 2022 as compared with the previous year. The decrease was mainly due to the decrease in dividends declared by the subsidiary in 2022.

 

c)

The operating results of Shanghai Golden Phillips decreased by 94.29% in 2022 as compared with the previous year, which was mainly due to the fact that the price increase of polyethylene, the product of Shanghai Golden Phillips, was lower than the price increase of ethylene, the major raw material of Shanghai Golden Phillips.

5.3.2.G Major suppliers and customers

The Group’s top five suppliers in 2022 were China International United Petroleum & Chemical Co., Ltd., East China Branch of Sinopec Chemical Commercial Holding Company Limited, Materials and Equipment Department of China Petroleum and Chemical Corporation, Shanghai SECCO and Shanghai Gas Co., Ltd. Total procurement costs involving these five suppliers, which amounted to RMB53,719.8 million, accounted for 74.29% of the total procurement costs of the Group for the year. Among the top five suppliers, the purchase amount of related parties was RMB52,304.9 million, accounting for

72.33% of the total annual purchase amount. The total procurement from the largest supplier amounted to RMB45,666.4 million, representing 63.15% of the total costs of purchases by the Group for the year.

The Group’s top five customers in 2022 were East China Branch of Sinopec Sales Co., Ltd., China International United Petroleum & Chemical Co., Ltd., Sinopec Chemical Commercial Holding Company Limited, Shanghai SECCO and Zhejiang Dushan Energy Co., Ltd. Total sales to these five customers amounted to RMB54,719.9 million, representing 66.37% of the Group’s total turnover for the year. Among the sales of the top five customers, the sales of related parties was RMB52,363.1 million, accounting for 63.51% of the total annual sales. Sales to the Group’s largest customer amounted to RMB40,337.0 million, representing 48.93% of the Group’s total turnover for the year.

 

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To the knowledge of the Board, among the suppliers and customers listed above, Shareholders and Directors of the Company and their close associates have no interest in Shanghai Gas Co., Ltd. and Zhejiang Dushan Energy Co., Ltd.; Shanghai SECCO is an associate of the Company; China International United Petroleum & Chemical Co., Ltd., East China Branch of Sinopec Chemical Commercial Holding Company Limited, Materials and Equipment Department of China Petroleum and Chemical Corporation, East China Branch of Sinopec Sales Co., Ltd. and Sinopec Chemical Commercial Holding Company Limited are subsidiaries of Sinopec Corp., the controlling shareholder of the Company.

 

5.4	Discussion and analysis of the Company’s operation (prepared under CAS)

 

5.4.1

Analysis of the Company’s principal activities

 

5.4.1A

Analysis of changes in the consolidated income statement and the consolidated cash flow statement

 

										Unit: RMB’000
		Amount for				Amount for
		the year ended				the year ended				Percentage
		31 December				31 December				change
Item		2022				2021				(%)
Operating income			82,518,315				89,280,415				(7.57	)
Operating cost			73,518,024				71,675,646				2.57
Selling and distribution expenses			282,841				362,334				(21.94	)
General and administrative expenses			1,795,867				1,842,087				(2.51	)
Financial expenses (“–” for financial income)			(459,437	)			(406,799	)			12.94
Research and development expenditure			130,516				94,295				38.41
Net cash inflow generated from operating activities (“–” for net outflow)			(7,337,499	)			4,060,026				Outflow increased by
											280.73	%
Net cash inflow generated from investing activities (“–” for net outflow)			4,390,350				(2,359,421	)			N/A
Net cash inflow generated from financing activities (“–” for net outflow)			(1,290,768	)			(3,503,142	)			N/A

 

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Analysis of major changes in the consolidated income statement

 

																Unit: RMB’000
		For the years								Increase/		Increase/
		ended 31 December								Decrease		Decrease
Item		2022				2021				amount		(%)				Major reason for change
Investment income (“–” for loss)			(191,800	)			967,380			(1,159,180)			(119.83	)		Investment loss resulting from the operating loss of associates
Income tax expenses (“–” for profit)			(731,354	)			644,480			(1,375,834)			(213.48	)		Deferred income tax benefit for deductible losses resulting from the loss for the year
Net profit attributable to owners of the parent (“–” for loss)			(2,872,072	)			2,000,506			(4,872,578)			(243.57	)		The price of petrochemical products did not increase as much as that of crude oil this year, resulting in an operating loss.

Analysis of major changes in the cash flow statement

 

Unit: RMB’000

For the years

Increase/

Increase/

ended 31 December

Decrease

Decrease

Item

2022

2021

amount

(%)

Major reason for change

Net cash inflow generated from operating activities (“–” for net outflow)

(7,337,499

)

4,060,026

Outflow increased by 11,397,525

Outflow increased by 280.73

%

The price increase of petrochemical products in the year was less than that of crude oil, resulting in a decrease in cash received from the sale of goods and services as compared with the previous year, while the cash paid for the purchase of goods and services increased as compared with the previous year.

Net cash inflow generated from investing activities (“–” for net outflow)

4,390,350

(2,359,421

)

Inflow increased by 6,749,771

N/A

The net cash inflow of time deposits increased in the year as compared with the previous year.

Net cash inflow generated from financing activities (“–” for net outflow)

(1,290,768

)

(3,503,142

)

Outflow decreased by 2,212,374

N/A

The net cash outflow from the acquisition and repayment of Short- term bond decreased by RMB3,001 million and the net cash outflow from the acquisition and repayment of loans increased by RMB722 million as compared with the previous year.

 

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5.4.1B Operating income

 

(1)	Analysis of factors causing the changes in revenue in the Reporting Period

The sales volume of the Group’s synthetic fibres, resins and plastics, intermediate petrochemical products and petroleum products decreased by 78.02%, 29.13%, 22.37% and 28.35% respectively, bringing a lower revenue in 2022 compared with the previous year.

 

(2)	Major customers

Please refer to 5.3.2.G for details of major customers of the Group.

 

5.4.1C

Operating cost

 

(1)	Analysis of operating cost

In 2022, the Group’s operating cost was RMB73,518.0 million, an increase of 2.57% from the previous year’s RMB71,675.6 million. This was mainly due to the rise in international crude oil price in the year, resulting in an increase in operating cost.

The following table sets forth the details of the operating cost of the Group during the Reporting Period:

 

		For the years ended 31 December
		2022								2021
		Amount				% of the total				Amount				% of the total				Increase/
		(RMB million)				operating cost				(RMB million)				operating cost				Decrease (%)
Cost of raw materials
– Crude oil			47,139.0				64.12				43,182.3				60.25				9.16
– Other raw materials, auxiliary materials and power			8,858.7				12.05				11,275.3				15.73				-21.43
Depreciation and amortisation			1,606.8				2.18				1,779.1				2.48				-9.68
Employee wage			2,425.5				3.30				2,357.5				3.29				2.88
Trading cost			11,910.5				16.20				10,929.1				15.25				8.98
Others			1,577.5				2.15				2,152.3				3.00				-26.71
Total			73,518.0				100.00				71,675.6				100.00				2.57

 

(2)	Major suppliers

Please refer to 5.3.2.G for details of major suppliers of the Group.

 

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5.4.1D

Expenses

Please refer to “Analysis of changes in the consolidated income statement and the consolidated cash flow statement” under the “Analysis of the Company’s principal activities” set forth in the “Discussion and analysis of the Company’s operation” for details of the changes in expenses of the Group.

 

5.4.1E

Research and development (“R&D”) expenditure

 

(1)	R&D expenditure

 

		Unit: RMB’000
Expensed R&D expenditure during the Reporting Period			130,515.5
Capitalised R&D expenditure during the Reporting Period			—
Total R&D expenditure			130,515.5
% of R&D expenditure to revenue			0.16
% of capitalised R&D expenditure			—

 

(2)	R&D personnel

 

Number of R&D personnel			179
% of number of R&D personnel to total number of staff			2.24

 

Educational structure of R&D personnel
Education structure category		Education structure number
Doctor			12
Master			51
Undergraduate			66
Junior college graduate			26
High school and below			24

 

Age structure of R&D personnel
Age structure category		Age structure number
Under 30 years old (excluding 30 years old)			26
30-40 years old (including 30 years old and excluding 40 years old)			38
40-50 years old (including 40 years old and excluding 50 years old)			47
50-60 years old (including 50 years old and excluding 60 years old)			68
Over 60 years old			0

Please refer to 5.3.2.C for details of R&D, patents and licenses of the Group.

 

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5.4.1F

Cash flow

Please refer to “Analysis of changes in the consolidated income statement and the consolidated cash flow statement” under the “Analysis of the Company’s principal activities” set forth in the “Discussion and analysis of the Company’s operation” for details of changes in the consolidated cash flow statement.

 

5.4.2.

Analysis of operation by industry, product or geographical location

 

5.4.2A

Principal activities by industry or product

 

																						Unit: RMB’000
By industry		Operating income				Operating cost				Gross profit/(loss) margin (%)				Increase/ Decrease of operating income as compared to the previous year				Increase/ Decrease of operating cost as compared to the previous year				Change of gross profit margin as compared to the previous year (percentage point)
Petroleum products Note			51,153,867				41,092,010				19.67				-7.12	%			7.35	%			Decreased by 10.83 percentage points
Intermediate petrochemical products			10,575,905				10,831,360				-2.42				–2.39	%			4.55	%			Decreased by 6.80 percentage points
Trading of petrochemical products			12,016,586				11,910,488				0.88				8.65	%			8.98	%			Decreased by 0.30 percentage points
Resins and plastics			7,345,052				7,914,497				-7.75				–26.59	%			–14.23	%			Decreased by 15.53 percentage points
Synthetic fibres			413,883				831,846				-100.99				–70.03	%			–56.49	%			Decreased by 62.56 percentage points
Others			542,892				620,800				-14.35				24.71	%			7.50	%			Increased by 18.31 percentage points

 

Note:

The gross profit margin is calculated according to the price of petroleum products, which includes consumption tax. The gross profit margin of petroleum products after deducting the consumption tax amounted to 2.89%.

 

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