SPTJF Shanghai Petrochemical Co Ltd (PK)

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.

(A joint stock limited company incorporated in the People’s Republic of China)

(Stock Code: 00338)

2022 Interim Results Announcement

For the Six Months Ended 30 June 2022

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Prepared under the People’s Republic of China (“China”) Accounting Standards for Business Enterprises (“CAS”)

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For a detailed description of the differences between financial statements prepared under CAS and those prepared under IFRS, please refer to the Supplementary Information to the Financial Statements prepared under CAS.

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Note：Sinopec Group held 44,660,000 H shares of the Company through its overseas wholly-owned subsidiary Shengjun International Investment Co., Ltd., accounting for 0.4126% of the total share of the Company. These shares were included in the total shares held by HKSCC (Nominees) Limited.

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As at 30 June 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 (Chapter 571 of the Laws of Hong Kong) (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

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

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Note:

Save as disclosed above, as at 30 June 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 or 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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As at 30 June 2022, the interests and short positions of the Directors, chief executive and Supervisors of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or to be recorded in the register of interests required to be kept under Section 352 of the SFO; or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant the “Model Code for Securities Transactions” set out in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Hong Kong Listing Rules”) were as follows:

(L)： Long position

Save as disclosed above, as at 30 June 2022, so far as was known to the Directors, chief executive and Supervisors of the Company, none of the Directors, chief executive or Supervisors of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations which were required to be disclosed or recorded pursuant to the SFO and the Hong Kong Listing Rules as mentioned above.

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(The following discussion and analysis should be read in conjunction with the unaudited financial report of the Group and the notes in the 2022 interim report. Unless otherwise specified, certain financial data involved the 2022 interim report hereinafter are extracted from the unaudited interim financial report of the Group prepared in accordance with IFRS.)

Review and Discussion of Operating Results

In the first half of 2022, the global economic growth slowed down, and China effectively coordinated COVID-19 prevention and control and economic and social development. The nation managed to achieve the gross domestic product (GDP) growth of 2.5% year-on-year in the first half of this year

In the first half of 2022, in the face of high and violent energy prices, increasing industrial competition pressure, supply chain congestion caused by the Shanghai epidemic, and shrinking downstream market demand, the Group adhered to the principle of “pursuing the advanced standards and keeping up with the highest standards”. While taking measures to prevent the pandemic, it ensured that the production and operation was uninterrupted and various operational targets were met in an orderly manner. For the six months ended 30 June 2022, the Group generated revenue of RMB45.859 billion, representing an increase of RMB8.771 billion or a growth rate of 23.65%. Loss before taxation amounted to RMB0.433 billion (1H2021: profit before taxation of RMB1.543 billion), representing a decrease of RMB1.976 billion from the same period of last year. Loss after taxation and excluding non-controlling shareholders’ interests was RMB0.427 billion (1H2021: profit after taxation and excluding non-controlling shareholders’ interests of RMB1.276 billion), representing a decrease of RMB1.703 billion.

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Dragged by the pandemic as well as repair and maintenance work, the total volume of goods within the main commodity categories produced by the Group reduced by 8.07% year-on-year to 5.4317 million tons in the first half of 2022. For the period between January and June, it processed a total of 5.7951 million tons of crude oil (of which 172.8 thousand tons were processed on order), down 6.68% year-on-year. Refined oil output amounted to 3.1534 million tons, representing a 12.85% year-on-year decrease. The gasoline production reduced by 0.88% year-on-year to 1.4483 million tons, the diesel production reduced by 15.32% year-on-year to 1.3112 million tons, the jet fuel production cut by 35.32% year-on-year to 393.8 thousand tons, while the liquefied gas production increased by 23.41% year-on-year to 326.3 thousand tons. Ethylene production increased by 16.67% year-on-year to 353.5 thousand tons, p-xylene production jumped by 116.01% year-on-year to 318.4 thousand tons. Production of plastics, resins and copolymers (excluding polyester and polyvinyl alcohol) reduced by 0.16% year-on-year to 450.5 thousand tons, production of raw materials of synthetic fibers reduced by 54.62% year-on-year to 60.9 thousand tons, production of synthetic fiber polymers dropped by 60.09% year-on-year to 68.6 thousand tons, and production of synthetic fibers dropped by 80.55% year-on-year to 10.6 thousand tons. The Group’s product sale rate for the first half of this year was 98.74% and the payment return rate was 100% (excluding connected companies).

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The Group focused on epidemic prevention and control to ensure production and operation. In the first half of the year, the Group strictly implemented the epidemic prevention and control measures, and “zero infection” was achieved among the resident employees, successfully completed various anti epidemic tasks. It strongly supported the local anti-epidemic and was highly praised by the local government and medical team members. The Company optimized and adjusted the maintenance equipment and material control, strengthened the balance and operation coordination of public works, and continued to strengthen the process technology management and energy saving management. Among the 56 major technical and economic indicators under monitoring, 17 items reached the advanced level of the industry while the performance of 30 items was better than last year, with a year-on-year progress rate of 53.57%. Practicing the concept of green development, for the period between January and June, the compliance rate of waste water treatment reached 100% and the total mission volume of ammonia, nitrogen and sulphur dioxide dropped by 58.93% and 8.78% year-on-year respectively. The average contraction rate of volatile organic compounds (VOCs) at plant boundary reduced by 25.76% from a year ago. Continuously promoting the implementation of HSE management system, unfortunately, an explosion occurred at the Company’s 1# ethylene glycol equipment on 18 June. Afterwards, the Company’s major production facilities were forced to shut down. Up to now, the cause of the accident is under investigation and the production facilities have resumed production in an orderly manner.

Persistent efforts were made to construct project and to optimize the operating system. In the first half of the year, the Group persistently pushed for the 48K large tow carbon fiber project, the 250,000 ton/year elastomer project and the plant distributed photovoltaic power generation project, etc.. The Group took the effect-oriented approach and insisted on dynamic optimization. By tracking and predicting the crude oil market movement, it adjusted the crude oil mix procured and hence lowering the procurement costs. Refined oil and chemical product structure was vigorously adjusted and the grading of plastic and chemical fiber products was optimized. The diesel-gasoline ratio for the first half was 0.91, representing a year-on-year decrease of 0.15. The market-oriented approach facilitated the linkage between production and marketing. Three-month rolling price forecast was persistently promoted in the practice and application of production optimization. Meanwhile, budget and fee management was enhanced, and the cost input-output efficiency continuously improved, leading to effective fund utilization.

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The Group focused on scientific and technological innovation and promoted industrial application. In the first half of the year, efforts to drive breakthroughs in the core technology for carbon fibers and composite materials as well as their application and mass production were sped up, the 100 ton high-performance test device project were steadily promoted and the R&D, mass production and service support tasks of the torch for Beijing 2022 Winter Olympic Games and Winter Paralympic Games were successfully completed. The Group awarded by the CPC Central Committee and the State Council as “outstanding contribution collective for the Beijing Winter Olympic Games and the Winter Paralympic Games”. The Group deepened the legal and compliance management of scientific research, strengthened the protection of intellectual property rights, a total of 55 items were submitted for patent application and 39 items were granted patent licences. The standards of informatization management were persistently improved. In the first half, the Company produced a total of 65.8 thousand tons of new products. Output of new synthetic resin products and high value-added polyolefin products amounted to 363.4 thousand tons.

While deepening reform, the Group promoted management improvement. In the first half of the year, the Group relentlessly promoted the three-year action plan to deepen reform, and 55 work tasks and 238 action projects were fully completed. The Group strengthened benchmarking and first-class management to improve action process management, and completed all of the 115 action projects. Its management system was optimized and the organization structure was transformed from the one driven by traditional functional management to the one driven by businesses and values. A new carbon fiber business unit was set up and new units for “triple news” (new energy, new materials and new economy) were established to support the development of carbon fibers and new energy operations. The Group comprehensively launched the pilot and promote 5S (SEIRI, SEITON, SEISO, SEIKETSU and SHITSUKE) management work and carried out the “compliance management enhancement year” activity. The Group optimized workforce development, enhanced basic staff trainings, raised operating staff’s awareness of the code on work safety and operation procedures, and strove hard to improve their work safety know-how. It enhanced talent selection and encouraged high-level personnel to exert their potentials. Through standardized management, it stepped up efforts to attract and retain talents.

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The following table sets forth the Group’s sales volume and net sales after business tax and surcharges for the Reporting Period:

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In the first half of 2022, the Group achieved a total net sales of RMB40.142 billion, an increase of 26.89% compared with the same period last year, of which the net sales of intermediate petrochemical products, petroleum products and trading of petrochemical products increased by 66.91%, 28.47% and 37.84% respectively. The net sales of synthetic fibers, resins and plastics fell by 68.44% and 7.67% respectively. Affected by plant shutdowns and rising product prices, except for intermediate petrochemical products, the sales volume of each sector dropped significantly. Synthetic fibers, resins and plastics, and petroleum products decreased by 79.89%, 15.07% and 12.89% respectively. The weighted average selling prices of all sectors increased over the same period of last year due to the increase in crude oil prices. In the first half of 2022, the Group’s cost of sales was RMB40.681 billion, an increase of 31.95% from the same period last year and accounting for 101.34% of net sales.

In the first half of 2022, the Group’s crude oil unit processing cost was RMB4,540.43/ton, an increase of RMB1,691.30/ton or 59.36% compared to the same period last year. The crude oil processing capacity of the Group was 5,795,100 tons (including 172,800 tons of processing materials supplied), a decrease of 415,000 tons from the same period last year (including a decrease of 390,300 tons in the Group’s self produced crude oil processing capacity). From January to June this year, the cost of crude oil processing increased by RMB8.397 billion. Among them, the decrease of crude oil processing volume resulting in the cost decreased by RMB1.112 billion, and the unit processing cost increased resulting in the cost increased by RMB9.509 billion. Crude oil costs accounted for 62.75% of the Group’s cost of sales in the first half of the year.

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In the first half of 2022, the Group’s expenditure on other excipients was RMB4.886 billion, a decrease of 6.22% from the same period last year. During the Reporting Period, the Group’s depreciation and amortization expenses and maintenance expenses were RMB876 million and RMB834 million respectively. Depreciation and amortization expenses dropped by 6.60% year-on-year mainly due to the expiration of the depreciation period of some fixed assets from the second half of last year to the first half of this year; maintenance costs decreased by 17.20% year-on-year mainly because a major overhaul was carried out in the same period last year, with a large overhaul expenditure.

In the first half of 2022, the Group recorded sales expenses of RMB174.6 million, a decrease of 16.74% from RMB209.7 million in the same period last year mainly because the freight of RMB54.7 million in the handling and incidental expenses was accounted as the contract performance cost in the sales cost.

In the first half of 2022, the Group’s income from other business was RMB47.7 million, a decrease of RMB8.5 million over the same period last year mainly due to a decrease in rental income of RMB7.0 million and a decrease in other income such as government subsidy income of RMB1.5 million during the Reporting Period.

In the first half of 2022, the Group reported a financial net income of RMB279.3 million, compared to financial net income of RMB210.5 million in the same period last year. The increase was mainly due to an increase in interest income of RMB80.5 million during the Reporting Period. In the first half of 2022, the Group achieved a loss after taxation excluding non-controlling interests of RMB426.5 million, a decrease of RMB1,703.0 million from the profit of RMB1,276.5 million in the same period last year.

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Liquidity and Capital Resources

In the first half of 2022, the Group’s net cash outflow from operating activities was RMB6,455.6 million, compared with a net cash outflow of RMB2,443.4 million in the same period last year.

In the first half of 2022, the Group’s net cash inflow from investment activities was RMB1,776.7 million, compared with a net cash outflow of RMB3,106.4 million in the same period last year. This is mainly due to the net cash inflow of the Group’s term deposit, structured deposit investment and recovery during the Reporting Period of RMB2.350 billion, an increase of RMB4.300 billion over the same period of last year, and the dividend received from the joint venture during the Reporting Period of RMB576.1 million, an increase of RMB521.1 million over the same period of last year.

In the first half of 2022, the Group generated a net cash inflow of RMB1,996.8 million from financing activities, compared with a net cash inflow of RMB2.8 million in the same period last year. This is mainly due to the increase of net cash flow generated by borrows and short-term bonds obtained and repaid by the Group during the Reporting Period of RMB1,999.8 million compared with the same period last year.

Borrowings and Debts

The Group’s long-term borrowings are mainly used for capital expansion projects. The Group generally arranges long-term borrowings in accordance with capital expenditure plans. The short-term debt is used to supplement the working capital required by the normal production and operation of the Group. As of 30 June 2022, the total loan balance of the Group increased by RMB500 million from the opening balance to RMB2.760 billion. The balance of the Group’s short-term bonds increased by RMB1.510 billion compared with the opening balance to RMB1.510 billion. The Group’s total borrows at fixed interest rates are RMB3.54 billion.

Capital Expenditures

In the first half of 2022, the Group’s capital expenditure was RMB972 million. It was mainly used for the preliminary work and construction of raw silks (24,000 tons/year) and 48K large tow carbon fiber (12,000 ton/year) project and 100 ton high performance carbon fiber test plant.

In the second half of the year, the Group will continue to promote the raw silks (24,000 tons/year) and 48K large tow carbon fiber (12,000 tons/year) project, and 100 ton high performance carbon fiber test plant. The projects to be commenced will include compliance transformation project of control room of synthetic resin department and improvement transformation project of clean water and sewage separation of Shanghai Petrochemical. The planned capital expenditure of the Group can be financed from operating cash and bank credit.

Gearing Ratio

As of 30 June 2022, the Group’s gearing ratio was 31.58% (as of 30 June 2021: 36.65%). The gearing ratio was calculated as: total liabilities/total assets.

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The Group’s Employees

As of 30 June 2022, the number of registered employees of the Group was 8,039, among which 4,921 were production personnel, 2,026 were sales, finance and other personnel, and 1,037 were administrative personnel. 61.38% of the Group’s employees were college graduates or above.

The Group determines the remuneration of its employees and directors on the basis of their position, performance, experience and current market pay trends. Other benefits include equity incentive plans and state-administered pension plans. The Group also provides professional and vocational training for its employees.

Income Tax

The Enterprise Income Tax Law of the PRC took effect from 1 January 2008, subsequent to which the income tax rate for enterprises was uniformly adjusted to 25%. As of the half year ended 30 June 2022, the income tax rate applicable to the Group is 25%.

Disclosure Required by the Hong Kong Listing Rules

Save as disclosed herein, pursuant to paragraph 40 of Appendix 16 to the Hong Kong Listing Rules, the Company confirms that there were no material differences between the existing information of the Company relating to the matters as set out in paragraph 32 of Appendix 16 to the Hong Kong Listing Rules and the relevant information disclosed in the Company’s 2021 annual report.

Market Outlook and Work Plans for the Second Half of the Year

Looking ahead to the second half of 2022, the risk of global economic stagflation will rise, and China’s economic growth is expected to rebound and remain within a reasonable range. As demand recovers and stabilization policies take effect, demand of automobiles, real estate and home appliances is expected to rise. It is expected that the demand for domestic refined oil and chemical products will recover, and the price pass-through of the petrochemical industrial chain will normalize. The overall outlook of the industry is positive. However, due to the increased uncertainty of the international oil price trend, the domestic refining and chemical production capacity is released in a concentrated manner, and the pressure on the Company’s efficiency will be further increased.

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In the second half of the year, the Group will attach great importance to safety and environmental protection issues, be well prepared for the worst scenarios, implement all aspects of production recovery in a strict, detailed, scientific and orderly manner, devote every effort to reverse the passive situation of safety production, consolidate the Company’s high-quality development foundation, and focus on the following four aspects.

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Unit: RMB’ 000

As of the end of the Reporting Period, there was no case where the Company’s main assets were sealed up, seized, frozen, mortgaged or pledged, and there was no case or arrangement where the possession, use, income and disposal rights of main assets were subject to other restrictions.

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During the Reporting Period, the Group’s overseas assets were RMB15,758 thousand, accounting for 0.04% of the total assets.

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As one of the major integrated petrochemical enterprises in China with an integrated refinery and petrochemical capacity, the Company possesses competitive business scale and strength, which made it a major manufacturer of refined oil, intermediate petrochemicals, synthetic resins and synthetic fibers in China. The Company also has self-owned utilities and environmental protection systems, as well as sea transport, inland shipping, rail transport and road transport ancillary facilities.

The Company’s major competitive advantages include quality, geographical location and its vertically integrated production. The Company has 50 years of petrochemical production and management experience, and has accumulated extensive resources in the petrochemical industry. The Company has won several quality product awards from the central and local governments. Located at the core region of Yangtze River Delta, the most economically active region in China with a strong demand for petrochemical products, the Company has built a comprehensive logistics system and supporting facilities with close geographic proximity with most of its clients which enables the Company to enjoy the convenience of coastal and inland shipping. This gives the Company a competitive edge in terms of transportation costs and timely delivery. The Company has leveraged its advantages in integrated refinery and petrochemical capacity to actively strengthen product structure, while continuously improving products quality and variety. The Company has also improved production technology and boosted capacity of key upstream units to maximize the use and the efficiency in the utilization of its corporate resources, and is therefore able to achieve strong and sustainable development.

(1) Entrusted Wealth Management

The Company did not engage in entrusted wealth management during the Reporting Period.

(2) Entrusted Loans

During the Reporting Period, the Company provided entrusted loans to Shanghai Jinshan Baling New Material Co., Ltd. (“Baling New Materials”) through Sinopec Finance Co., Ltd., with a total loan amount of RMB300 million, which was used for styrene thermoplastic elastomer project. The loan term is 6 months and the annual interest rate is 3.80%. During the six months ended June 30 2022, the entrusted loan of RMB150 million has been issued.

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

The Group’s share of interests in associates comprises a 38.26% interest in the Shanghai Chemical Industry Park Development Co., Ltd (“Chemical Industrial Park”) established in the PRC in the amount of RMB2,085.3 million, and a 20% interest in the Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) established in the PRC in the amount of RMB587.2 million. The principal businesses of the Chemical Industry Park include the planning, development and operation of a chemical industrial park located in Shanghai of the PRC. The principal business of the Shanghai SECCO is the production and distribution of petrochemical products.

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In the first half of 2022, Shanghai SECCO recorded a revenue of RMB12.9273 billion, and its loss after tax reached RMB663.0 million, among which RMB132.6 million was attributed to the Company.

In the first half of 2022, Chemical Industrial Park recorded a revenue of RMB815.9 million, and its profit after tax reached RMB247.5 million, among which RMB84.3 million was attributed to the Company.

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The Company acted in strict compliance with regulatory legislations such as the PRC Company Law, the PRC Securities Law, the Corporate Governance Principles for Listed Companies and the Guidelines for Establishing the Independent Directors System for Listed Companies issued by the CSRC, as well as the relevant requirements of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange to push forward the innovation of the Company’s system and management, to improve the corporate governance structure, and to strengthen the establishment of the Company’s system in order to enhance the overall image of the Company.

On 24 August 2022, the Audit Committee of the Tenth Session of the Board held its eleventh meeting, primarily to review the financial report of the Group for the Reporting Period, and discussed matters relating to the risk management, internal control and financial reporting.

During the Reporting Period, the Company did not purchase, sell or redeem any of the Company’s securities (for the definition of “securities”, please refer to paragraph 1 of Appendix 16 to the Hong Kong Listing Rules).

During the Reporting Period, the Company applied and complied with all code provisions as set out in the Corporate Governance Code contained in Appendix 14 to the Hong Kong Listing Rules.

The Company has adopted and implemented the Model Code for Securities Transactions to regulate the securities transactions of the Directors and Supervisors of the Company. After making specific enquiries with all Directors and Supervisors of the Company and having obtained written confirmations from each Director and Supervisor, the Company is not aware of any incident of non-compliance with the Model Code for Securities Transactions by the Directors and Supervisors of the Company during the Reporting Period.

The Model Code for Securities Transactions is also applicable to the senior management who may be in possession of unpublished inside information of the Company. The Company is not aware of any incident of non-compliance with the Model Code for Securities Transactions by the senior management of the Company.

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