Dear Shareholders and Friends:
On behalf of the Board of Directors, I would like to express my sincere gratitude to our shareholders and the wider community for their interest and support.
In 2017, international oil prices fluctuated and showed upward movement in the midst of a complex and changeable global political and economic environment. Domestic demand for natural gas and chemicals remained robust as the Chinese economy maintained its steady growth. Competition in the domestic refined oil market was fierce. As it made major decisions, the Board of Directors (the “Board”) focused on steady and firm improvement, and adhered to its overarching strategies of promoting valueoriented growth, innovation-driven development, integrated resource allocation, openness to cooperation, and green and low-carbon development. With an emphasis on delivering returns to shareholders, we continued to focus on supply-side structural reform and stepped up our efforts to enhance the Company’s efficiency, profitability and corporate governance.
Over the past year, under the leadership of our management, the entire staff focused on optimisation, cost reduction, market expansion, structural adjustment, reform, foundation building, and risk management. As a result, our operating results were better than expected, and we met all performance targets for the year. In our upstream business, we emphasized highefficiency exploration activities and cost-effective development. Our crude oil reserve replacement ratio reached 116%. At the same time, we worked hard to ensure a stable gas supply for the winter season, with gas production and sales volume hitting record highs. Taking advantage of our integrated value chain, which extends from refining to marketing and distribution, we actively responded to competitive market conditions. We achieved satisfactory results and further strengthened our competitive advantage. In our chemical operations, we adopted a customer-focused approach and enhanced the adjustments in our product and feedstock mix. Both the sales volume and profitability of the chemicals segment reached record highs.
In accordance with IFRS, the Company’s turnover and other operating revenues reached RMB 2.36 trillion in 2017, up by 22.2% from the previous year. Profit attributable to equity shareholders of the Company was RMB 51.244 billion. Basic earnings per share were RMB 0.423, up by 9.9% from year on year. Taking into account the Company’s profitability, cash position, shareholder return and future business development, the Board proposed a final dividend of RMB 0.40 per share, which combined with the interim dividend of RMB 0.10 per share, brought the full-year dividend to RMB 0.50 per share, up by 100.8% from the previous year.
During the three years of the sixth session of the Board, the global economy recovered slowly, and China’s economy entered a “new normal” phase. International oil prices fluctuated at low levels, with heavy repercussions for the upstream sector. At the same time, competition in the refined oil market intensified, with the government introducing a series of far-reaching policies in the oil and petrochemical industries. In the face of a complex and challenging operating environment, the Board emphasised on its principles of innovation, coordination, green development, openness and shared growth. We formulated our five major development strategies, 13th Five-Year Development Plan and Three-Year Rolling Development Program, taking advantage of our integrated value chain to accelerate the Company’s transformation and structural adjustments, eventually we achieved excellent operating performance. At the same time, we made outstanding progress in our corporate governance, corporate development, reforms and adjustments, and technological innovation, as well as in the fulfillment of our social responsibilities.
Over the past three years, we consistently enhanced the composition and operation of the Board and the Supervisory Committee. The effort of confirming the role of the Chinese Communist Party in the Company’s corporate governance facilitated a better corporate governance mechanism featuring scientific decision-making and effective implementation and supervision. We focused on improving product quality, enhancing our efficiency and upgrading our businesses, thus driving the Company’s sustainable development. In our upstream business, we implemented a low-cost strategy to address the challenge of low oil prices, focused on high-efficiency exploration and development, and enlarged our proved reserves to lay a stronger foundation for sustainable development. We also developed our natural gas business as a new driver for profit growth. We built up the production capacity of the Fuling shale gas field to 10 billion cubic meters per year, laying a solid resource foundation for promoting natural gas consumption in the Yangtze River Economic Belt. Moreover, we made continuous efforts to drive development of four world-class regional refining centers, sharpening our competitive edge. We took a market-driven approach to our refining and chemicals operations, vigorously promoting structural adjustments and increasing the production of high-value-added products to develop these businesses into our profit growth drivers. We actively coped with market competition, leading to steady growth in the sales volume of our refined oil products and the sustained rapid development of our nonfuel operations. We achieved record-breaking performance in various key operating indicators of the chemicals segment. As we continued to deepen our reform programs, the Company brought in new investors for the Sichuan-to- East China Pipeline Co., and introduced RMB 22.8 billion. The mixed-ownership reform of Sinopec Marketing Company went smoothly, and we successfully introduced a flattened organisation structure in upstream enterprises. With an emphasis on innovation, we enhanced our mechanisms for commecializing scientific and technological achievements and focused on the development of core technologies in our key businesses. Technological innovations have become a pillar of our development. The Company won eight National Technology Invention Awards and five National Science and Technology Progress Awards, remaining a leading domestic company in the number of invention patents granted. Moreover, we capitalised on the opportunities created by the Belt and Road Initiative by investing in refining and chemical projects, and increasing our trade volumes.
We actively fulfilled our social responsibilities, and green and low-carbon development strategy. We successfully concluded the Clear Water, Blue Sky environmental project while smoothly implemented the Efficiency Doubling Plan. Our major pollutant emissions were lower than government criterias. Meanwhile, we made further achievements in our partnership assistance and targeted poverty alleviation programs. For the period of 2016 through 2017, we donated an aggregate amount of RMB 284 million to these causes. The Company actively participated in social and philanthropic activities. The Lifeline Express hospital train has provided free cataract surgeries for more than 40,000 impoverished people and is widely acclaimed throughout the country.
Over the past three years, the Company’s turnover and total assets have grown steadily. Our businesses have expanded rapidly, and our overall performance has continued to improve. In accordance with IFRS, the Company’s total assets increased by 9.9% and our shareholders’equity increased by 22.4% compared with 2014. In addition, we delivered good returns to our shareholders, with total dividends declared for the three-year period amounting to RMB 108.8 billion.
These achievements are the product of the joint efforts of the Board, the management and the entire staff, reflecting their hard work and their determination to reform. The support of our shareholders and the wider community has also been indispensable. In accordance with regulatory requirements, the terms of office of the current Board of Directors and the Supervisory Committee will soon expire. Mr. Jiang Xiaoming and Mr. Andrew Y. Yan will step down as directors. They have demonstrated dedication and diligence throughout their terms of office and have made outstanding contribution to the Company’s decision-making, standardised operations, reforms and development. On behalf of the Board, I would also like to express my heartfelt gratitude to all independent directors and supervisors for their hard work and contribution.
In 2018, the global economy will continue to recover. While China’s economic development model will shift from high-speed growth to highquality development, domestic demand for oil and chemical products will remain robust. This year is an important link between the preceding and the following for carrying out the Company’s 13th Five-year Development Plan. In view of the new requirements in the new era, the Company will adhere to an underlying principle of progressing at a steady pace and under a new development model that makes quality and efficiency our top priorities. We will deepen supply-side structural reforms and enhance our corporate governance with China’s characteristics. We will also strive diligently to improve our production and operational standards, reinforce our management and ensure the Company’s sustainable development.
In our upstream operations, we will pursue opportunities for high-efficiency exploration and cost-effective development, maintain the stability of our oil output, increase our gas supplies and reduce costs. At the same time, we will optimize our resource structure and drive the rapid development of the natural-gas business. In the refining, we will further optimize structure and implement a lean management model, optimise refining layout, and increase concentration ratio. We will continue to revamp our refining projects and upgrade our refined oil products. In the oil products marketing business, we will coordinate efforts to enhance market development and efficiency and expand our domestic and overseas businesses. In addition, we will strengthen our network and logistics system, accelerate the development of our non-fuel operations, and intensify efforts to boost our sales volume and profitability. In the chemicals business, we will improve quality and profitability and focus on transformation and development. We emphasise on the high end of our value chain, with more attention on the development of fine chemicals, bio-chemicals and new materials. In 2018, the capital expenditure of the Company will be RMB 117 billion.
Looking ahead, the petroleum and chemical sectors are set to undergo significant and profound transformation. China’s economy will see remarkable progress in its move towards high-quality development. Both opportunities and challenges lie ahead of us. It is our mission to build Sinopec Corp. into a worldclass energy and chemical company and to drive its sustainable growth. We will adjust to overall market trends, adapt as our development warrants, and optimize our strategies and planning. In addition, we will adhere to our corporate strategy of reform, management, innovation and development, stressing the importance of quality development in our core businesses and accelerating the development of new businesses. We will strengthen efforts to make reforms that improve the Company’s quality, efficiency and dynamism, and that enable sustainable and high-quality development.
The Board has nominated an exceptional group of new members to join it. They include outstanding managers and leading experts in the academic, macro-economic, corporate management and petrochemical fields. Drawing on their far-ranging professional backgrounds and extensive work experience, they will share their insights with and add vitality to the Board, thus enhancing the Board’s decision-making capabilities. The new session of the Board will help the Company keep pace with overall market trends through their comprehensive view of our businesses and their pragmatic approach to market developments. We will redouble our efforts to develop Sinopec Corp. into a worldclass energy and chemical company and to build a better community, delivering superior operating results to our shareholders and giving back to society and our employees.
Chairman & President