FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2005
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Commission file number: 1-13750
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Jilin Chemical Industrial Company Limited
-----------------------------------------
(Translation of registrant's name into English)
No.9, Longtan Street
Longtan District
Jilin City, Jilin Province
The People's Republic of China
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(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 |X| Form 40-F |_|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes |_| No |X|
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- Not Applicable
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Page 1 of 32
JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
Form 6-K
TABLE OF CONTENTS
Page
----
Signature 3
2005 interim results announcement dated as of August 12, 2005 4
Announcement of the resolutions passed at the second extraordinary
general meeting for 2005 dated as of August 12, 2005 23
Supplemental Continuing Connected Transaction Agreements dated
as of August 12, 2005 25
Page 2 of 32
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.
JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
Date: August 23, 2005 By: /s/ Yu Li
-------------------------------------
Name: Yu Li
Title: Chairman
Page 3 of 32
(A JOINT STOCK LIMITED COMPANY INCORPORATED IN THE PEOPLE'S REPUBLIC OF CHINA)
(STOCK CODE: 0368)
2005 INTERIM RESULTS ANNOUNCEMENT
FINANCIAL HIGHLIGHTS (UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS)
o Turnover in the first half of 2005 increased to RMB17,993 million from
RMB13,730 million in the same period of 2004.
o Profit in the first half of 2005 increased to RMB129 million from RMB606
million in the same period of 2004.
o Earnings per share for the first half of 2005 decreased to RMB0.04 per
share from RMB0.17 per share in the same period of 2004.
INTERIM RESULTS
The board of directors (the "Board") of Jilin Chemical Industrial Company
Limited (the "Company") announces the unaudited consolidated interim results of
the Company and its subsidiaries (the "Group") for the six months ended 30th
June 2005 (the "Reporting Period"), together with the comparative figures in
2004.
The Company's financial statements for the first six months of 2005 prepared
under the People's Republic of China (the "PRC") Generally Accepted Accounting
Principles ("GAAP") and International Financial Reporting Standards ("IFRS") are
unaudited.
The directors Ni Muhua, Jiang Jixiang, Li Chongjie and Fanny Li did not attend
the board meeting. The directors Ni Muhua, Jiang Jixiang and Li Chongjie
appointed the chairman of the Board, Yu Li, and the independent non-executive
director, Fanny Li appointed the independent non-executive director, Lu Yanfeng,
to attend and vote on their behalf in respect of the resolutions considered at
the meeting.
The chairman, Yu Li, the chief financial officer, Zhang Liyan, and the head of
the finance department, Wang Chunxia, accept full responsibility for the
truthfulness and completeness of the financial statements contained in this
interim report.
FINANCIAL SUMMARY
PREPARED IN ACCORDANCE WITH PRC GAAP
FOR THE SIX MONTHS
ENDED 30TH JUNE,
2005 2004 Increase/
RMB RMB (decrease)
UNAUDITED unaudited
Net profit 123,956,551 605,087,927 (79.51%)
Net profit before non-operating loss 125,884,635 644,854,087 (80.48%)
Earnings per share RMB0.035 RMB0.17 (79.41%)
Return on net assets (%) 2.07% 15.58% (13.51)
Net cash flow from operating activities 2,145,757,163 1,478,751,765 45.11%
AS AT As at
30TH JUNE, 31st December,
2005 2004 Increase/
RMB RMB (decrease)
UNAUDITED audited
Current assets 2,198,546,381 3,327,819,333 (33.93%)
Current liabilities 5,999,171,982 7,628,841,391 (21.36%)
Total assets 12,717,874,138 14,392,756,371 (11.64%)
Shareholders' equity (excluding minority interests) 5,977,580,979 5,853,624,428 2.12%
Net assets per share 1.68 1.64 2.44%
Adjusted net assets per share 1.65 1.61 2.48%
NOTE: Non-operating loss was RMB1,928,084, of which net profit from disposal of
fix assets was RMB4,638,282, reversal of assets impairment provision was
RMB900,104, subsidy income was RMB2,683,084, other profits were
RMB1,170,067, loss on non-seasonal shutdown was RMB12,269,275 and net
income tax credit was RMB949,654.
PREPARED IN ACCORDANCE WITH IFRS
FOR THE SIX MONTHS
ENDED 30TH JUNE,
2005 2004
RMB'000 RMB'000
UNAUDITED unaudited
Profit attributable to equity holders of the Company 128,536 606,354
Earning per share RMB 0.04 RMB 0.17
Return on net assets (%) 2.48 19.45
AS AT As at
30TH JUNE, 31st December,
2005 2004
RMB'000 RMB'000
UNAUDITED audited
Equity 5,204,372 5,069,342
Net assets per share 1.46 1.42
Page 4 of 32
SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND IFRS
During the reporting period, net profit and profit under PRC GAAP and IFRS were
RMB123,957 thousand and RMB135,030 thousand, respectively. Effect of significant
differences between PRC GAAP and IFRS on profit is summarised below.
SIX MONTHS ENDED 30TH JUNE,
2005 2004
RMB'000 RMB'000
Net profit as reported under PRC GAAP 123,957 605,088
Adjustments to conform with IFRS:
- Depreciation expense due to revaluation of fixed assets
at 28th February, 1995 (726) (726)
- Depreciation expense on fixed assets due to difference
in exchange gains capitalised (3,655) (3,655)
- Amortisation of housing subsidy cost (4,660) (4,660)
- Reversal of amortisation of land use rights 10,636 10,307
- Tax adjustment 2,984 --
- Minority interest 6,494 (12,786)
Profit as reported under IFRS 135,030 593,568
Return on net assets and profit per share were prepared in accordance with No. 9
Regulations regarding the Preparation of Information Announcement for Public
Listed Companies Issued by CSRC:
RETURN ON NET ASSETS (%) PROFIT PER SHARE (RMB)
PROFIT FOR THE SIX MONTHS WEIGHTED WEIGHTED
ENDED 30TH JUNE, 2005 FULLY DILUTED AVERAGE FULLY DILUTED AVERAGE
Profit from principal operations 9.87 9.97 0.1656 0.1656
Operating profit 2.92 2.95 0.0489 0.0489
Net profit 2.07 2.10 0.0348 0.0348
Net profit before non-operating loss 2.11 2.13 0.0354 0.0354
TOTAL NUMBER OF SHAREHOLDERS
As at 30th June, 2005, the Company had a total of 66,753 shareholders.
SUBSTANTIAL SHAREHOLDERS
1. As at 30th June, 2005, the ten largest shareholders of the Company were as
follows:
INCREASE/
(DECREASE)
OF SHARES
DURING THE
NUMBER OF REPORTING PERCENTAGE
NAME OF SHAREHOLDERS CLASS SHARES HELD PERIOD OF HOLDING
(SHARES) (SHARES) (%)
1. PetroChina Company Limited A shares 2,396,300,000 -- 67.2914
2. HKSCC Nominees Limited H shares 822,166,699 2,322,000 23.0876
3. HSBC Nominees (Hong Kong) Limited H shares 135,627,300 -- 3.8086
4. Qiao Liang A shares 1,450,000 -- 0.0407
5. Zhang Li A shares 1,250,000 220,000 0.0351
6. Huang Sujie A shares 1,150,000 1,150,000 0.0323
7. Zhao Ying A shares 1,060,000 180,000 0.0298
8. Shanghai Shi Hong Development A shares 711,550 711,550 0.0200
Company Limited
9. Tian Qiucheng A shares 706,050 706,050 0.0198
10. Industrial and Commercial Bank of A shares 656,663 170,000 0.0184
China-Rongtong Shenzheng 100 Index
Securities Investment Fund
Page 5 of 32
NOTES:
1. As far as the Company is aware, the ten largest shareholders of the
Company are not related or concerted parties.
2. PetroChina Company Limited ("PetroChina") held 2,396,300,000
state-owned legal person shares issued by the Company, representing
approximately 67.29 per cent of the Company's total share capital.
Shares held by PetroChina in the Company were not pledged, locked up
or held in trust during the six months ended 30th June, 2005.
3. There were no shareholders for whom HKSCC Nominees Limited acted as
nominees whose shareholding accounted for 5 per cent or more of the
total number of shares issued by the Company.
2. As at 30th June, 2005, the ten largest shareholders of listed shares of
the Company were as follows:
INCREASE/
(DECREASE)
OF SHARES
DURING THE
NUMBER OF REPORTING PERCENTAGE
NAME OF SHAREHOLDERS CLASS SHARES HELD PERIOD OF HOLDING
(SHARES) (SHARES) (%)
1. HKSCC Nominees Limited H shares 822,166,699 2,322,000 23.0876
2. HSBC Nominees (Hong Kong) Limited H shares 135,627,300 -- 3.8086
3. Qiao Liang A shares 1,450,000 -- 0.0407
4. Zhang Li A shares 1,250,000 220,000 0.0351
5. Huang Sujie A shares 1,150,000 1,150,000 0.0323
6. Zhao Ying A shares 1,060,000 180,000 0.0298
7. Shanghai Shi Hong Development A shares 711,550 711,550 0.0200
Company Limited
8. Tian Qiucheng A shares 706,050 706,050 0.0198
9. Industrial and Commercial Bank of A shares 656,663 170,000 0.0184
China-Rongtong Shenzheng 100 Index
Securities Investment Fund
10. Chen Yu A shares 610,000 610,000 0.0171
NOTE: No relationship was found among the ten largest shareholders of
listed shares of the Company, nor was concert action which falls
under the description of the "Administration of Disclosure of
Information on the Change of Shareholders in Listed Companies
Procedures" found. Neither is the Company aware of any relationship
between the ten largest shareholders of listed shares of the Company
and the ten largest shareholders or that they are parties to any
concert action.
PRODUCTION AND OPERATION DURING THE REPORTING PERIOD
1. OVERALL OPERATION
The Group is principally engaged in the production and sale of petroleum
products, petrochemical, organic chemical and synthetic rubber products.
During the first half of 2005, the Company implemented a strategy of
vertical integration in refinery to improve and adjust its overall product
mix; closely monitored the development of product market and took full
advantage of any price movement of products so as to adjust its product
sales strategy in a timely manner; continued to improve efficiency, save
energy and reduce wastage for the purpose of imposing stringent control on
costs and expenses; continued to improve internal control to enhance
capital management and increase efficiency in the use of capital.
For the first half of 2005, the sales revenue and sales of the Company and
its subsidiaries (together "the Group") amounted to RMB16,122.195 million
and RMB17,992.634 million, respectively, under PRC GAAP and IFRS,
representing the increase of 28% and 31% from the same period in 2004. The
continuing substantial increase in the price of crude oil drove the price
of refined oil to move upward, which unfortunately failed to offset any
impacts caused by price rise in crude oil. Actual realized net profits and
profits of the Company were RMB123.957 million and RMB135.030 million,
respectively, down by 80% and 77% as compared to the corresponding period
in 2004.
2. OPERATING REVENUES AND PROFITS FROM PRINCIPAL BUSINESS ACTIVITIES
For the first half of 2005, in accordance with PRC GAAP, actual realized
revenue from the sale of the Group's petroleum products was RMB7,589.622
million, which accounted for 47% of the revenue from principal business
activities and the requisite cost of sales was RMB8,519.813 million, with
a gross profit margin of -12%; actual realized revenue from the sale of
petrochemical and organic chemical products was RMB7,315.044 million,
which accounted for 45% of the revenue from principal business activities
and the requisite cost of sales was RMB5,544.427 million , with a gross
profit margin of 24%; actual realized revenue from the sale of synthetic
rubber products was RMB878.241 million, which accounted for 5% of the
revenue from principal business activities and the requisite cost of sales
was RMB706.814 million, with a gross profit margin of 20%.
3. The Company conducts its principal business in the PRC and does not engage
in any other industry other than the petrochemical industry. During the
reporting period, there was no change in the Company's principal business,
nor was the Company engaged in any other business which had material
impact on its net profits during such reporting period.
Page 6 of 32
4. During the reporting period, no jointly-invested company had an impact of
more than 10% on the net profits of the Company.
5. PROBLEMS AND DIFFICULTIES IN THE OPERATION OF THE COMPANY
For the first half of 2005, the continuing substantial increase in the
price of crude oil drove the price of refined oil to move upward, which
unfortunately failed to offset any impacts caused by price rise in crude
oil. As a result, the Group recorded a loss from the sale of its petroleum
products, thereby adversely affecting the overall performance of the
Company. For the first half of 2005, net profits of the Company decreased
by 80% as compared to the same period in 2004.
OPERATING RESULTS AND FINANCIAL RESULTS ANALYSIS
I. UNDER PRC GAAP
1. For the six months ended 30th June 2005, revenue realized from the
principal business of the Group was RMB16,122.195 million, an
increase of 28% from the same period in 2004. This increase was
principally attributable to an increase in the total number of
products of the Group, such as petroleum products, petrochemical,
organic chemical and synthetic rubber products, and the increase in
their price.
(1) PETROLEUM PRODUCTS
In the first half of 2005, revenue from the sale of petroleum
products was RMB7,589.622 million, an increase of RMB1,157.868
million from the same period in 2004. The increase was
primarily attributable to an increase in the volume of the
Group's crude oil processing by 16% from last year to 3.5
million tons in the first half of 2005. In addition, the
weighted average price of petroleum products grew by 16% from
RMB2,416/ton in the first half of 2004 to RMB2,798/ton in the
first half of 2005.
(2) PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS
In the first half of 2005, revenue realized from the sale of
petrochemical and organic chemical products was RMB7,315.044
million, representing an increase of RMB2,252.693 million from
the same period in 2004. This increase was principally
attributable to an increase in the demand of petrochemicals
from enterprises engaged in the downstream segment of the
petrochemical industry, which has resulted in the sales volume
and weighted average price of such products increasing by 16%
and 25%, respectively, from the same period in 2004 to 1.07
million tons and RMB6,841/ton.
(3) SYNTHETIC RUBBER PRODUCTS
In the first half of 2005, revenue realized from the sale of
synthetic rubber products was RMB878.241 million, an increase
of RMB154.964 million from the same period in 2004. The
increase was principally attributable to an increase in the
weighted average price of such products by 24% from the same
period in 2004.
2. The cost of principal business increased by 38% to RMB15,123.413
million in the first half of 2005 from RMB10,955.477 million in the
first half of 2004. This increase was principally attributable to a
growth in the sales volume of the Company's products and the volume
of crude oil processing, as well as an increase in the price of
other raw materials. In the first half of 2005, the weighted average
price of the Group's crude oil cost was RMB3,016/ton, which
represented an increase of 47% as compared to the same period in
2004.
The cost of sales grew due to the continuing substantial increase in
the price of crude oil. Therefore, profits of the Group from its
principal business dropped by 52% as compared to the same period in
2004.
3. Financial cost, administrative and operating costs decreased by 35%
from RMB548.128 million in the first half of 2004 to RMB357.736
million in the first half of 2005, of which, the financial cost
decreased by RMB67.410 million from the same period in 2004. This
decrease was primarily due to a reduction in the Group's interest
bearing borrowings and the replacement of the Company's
high-interest bearing loans with low-interest bearing loans. As a
result, interest expenses decreased by RMB58.083 million. The Group
realized a net exchange gain of RMB12.197 million due to its foreign
currency borrowing being affected by the interest rate fluctuation.
Administrative expenses decreased from RMB382.719 million in the
first half of 2004 to RMB267.197 million in the first half of 2005.
This decrease was principally due to the provision of RMB76.870
million made for the decrease in inventory price and the provision
of RMB22.533 million made for bad debts in the same period in 2004
which were not made during the current reporting period.
In the first half of 2005, the Group recorded a loss from other
business activities and its profits from operation fell by RMB57,733
million.
Due to the above factors, the Group's profits from its operation
decreased from RMB647.149 million in the first half of 2004 to
RMB174.272 million in the first half of 2005.
4. Compared to the first half of 2004, the Group's return from
investment decreased by RMB2.166 million in the first half of 2005
due to a reduction of the Group's share of profits of its jointly
controlled entity. The decrease of RMB56.186 million in
non-operating expenses of the Group was principally attributable to
no substantial loss incurred in the disposal of fixed assets during
the reporting period. In addition, revenue from subsidies and
non-operating revenue increased by RMB8.199 million.
Page 7 of 32
Based on the aforesaid, the Group's total profits decreased from
RMB592.302 million in the first half of 2004 to RMB181.643 million
in the first half of 2005.
In the first half of 2005, the income tax of the Group amounted to
RMB51.192 million, which consists of the deferred tax liabilities
arising from the acceleration of depreciation and amortization, and
the deferred tax assets resulting from taxation loss in the first
half of 2005. In the same period in 2004, the Company did not make
up in full its accumulated loss for 2002 and the previous years in
accordance with applicable taxation laws and no deferred tax assets
in respect of such taxation loss had been confirmed. Therefore,
there was no income tax in the same period in 2004. In addition, the
minority interest of the Group was RMB6.494 million during the
reporting period. After deducting the above, the Group recorded a
net profit of RMB123.957 million in the first half of 2005.
5. Net increase in cash and cash equivalents amounted to RMB25.671
million in the first half of 2005, and net decrease in cash and cash
equivalents amounted to RMB19.221 million in the same period of
2004. This change was primarily attributable to the improvement of
capital management and an increase in the turnover of capital of the
Company.
6. As at 30th June, 2005, the total assets of the Group was
RMB12,717.874 million, representing a decrease of 12% as compared to
the percentage as at 31st December, 2004. This decrease was
principally attributable to a decrease in inventories and an
increase in accumulated depreciation.
7. As at 30th June, 2005, the shareholder's equity of the Group was
RMB5,977.581 million, representing an increase of 2% from 31st
December, 2004. This increase was primarily attributable to an
increase in net profits during the reporting period.
II. UNDER IFRS
1. In the first half of 2005, total turnover of the Group was
RMB17,992.634 million, up 31% from the same period in 2004. This
increase was primarily attributable to an increase in market demand,
thus resulting in the simultaneous increase in the Group's sales
volume and the weighted average price of its products.
(1) PETROLEUM PRODUCTS
Revenue of petroleum products increased by 17% from
RMB6,212.553 million in the first half of 2004 to RMB7,263.050
million in the first half of 2005, which accounted for 40% of
its total turnover attributable to petroleum products. The
increase in revenue was principally attributable to an increase
of weighted average price and sales volume of petroleum
products by 16% and 2%, respectively, from the same period in
2004.
(2) PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS
Revenues of petrochemical and organic chemical products
increased by 45% from RMB5,493.959 million in the first half of
2004 to RMB7,943.724 million in the first half of 2005, which
accounted for 44 % of the total turnover attributable to such
products. This increase was principally attributable to an
increase in market demand which has caused an increase of
weighted average price and sales volume of petrochemical and
organic chemical products by 25% and 16%, respectively, from
the same period in 2004.
(3) SYNTHETIC RUBBER PRODUCTS
Revenue of synthetic rubber products increased by 27% from
RMB800.349 million in the first half of 2004 to RMB1,017.254
million in the first half of 2005. This increase was mainly
attributable to an increase in the price of such products by
24% from the same period in 2004.
2. Cost and expenditure
The cost of sales increased by 39% from RMB12,615.949 million in the
first half of 2004 to RMB17,508.817 million in the first half of
2005. This increase was primarily attributable to an increase in the
sales volume of the Company's products, volume of crude oil
processing and the price of other raw materials. In the first half
of 2005, the weighted average price of the Group's crude oil cost
was RMB3,016/ton, which represented an increase of 47% from the same
period in 2004, and the volume of crude oil processing was 3.5
million tons, which represented an increase of 16% from the same
period in 2004.
The Group's gross profit margin decreased by 5% in the first half of
2005 as compared to the same period in 2004 due to an increase in
cost of sales in connection with the continuous surge in crude oil
price.
Distribution costs, administrative expenses and other operating
expenses dropped by 40% from RMB384.770 million in the first half of
2004 to RMB230.143 million in the first half of 2005. This decrease
was primarily attributable to the provisions made for diminution in
value of trade and other receivables, construction in progress and
intangible assets made in the first half of 2004 which were not made
during the reporting period, a net loss of RMB34.158 million
incurred from the retirement of fixed assets in the first half of
2004 and a net profit of RMB4.638 million so incurred during the
reporting period.
Due to the aforesaid factors, the Group's operating profit decreased
from RMB729.256 million in the first half of 2004 to RMB253.674
million in the first half of 2005.
Interest expenses decreased by 38% from RMB152.934 million in the
first half of 2004 to RMB94.851 million in the first half of 2005.
The decrease was principally attributable to a reduction in the
Group's interest bearing borrowings and the replacement of
high-interest bearing loans with low-interest bearing loans during
the reporting period.
Page 8 of 32
In the first half of 2005, the Group recorded a net foreign exchange
gain of RMB12.197 million, which increased by RMB9.1 million from
the same period in 2004. This increase was mainly attributable to
the foreign exchange rate fluctuation in favour of the Company's
foreign currency borrowing during the reporting period.
In the first half of 2005, the Group's shares of profit before
taxation of its jointly controlled entity and associate stood at
RMB11.396 million, as compared to RMB13.564 million in the first
half of 2004. This change was primarily caused by a decrease of
profit of its jointly controlled entity and associate during the
reporting period.
In the first half of 2005, the income tax of the Group amounted to
RMB48.209 million, which consists of the deferred tax liabilities
arising from the acceleration of depreciation and amortization, and
the deferred tax assets resulting from taxation loss in the first
half of 2005. In the same period in 2004, the Company did not make
up in full its accumulated loss for 2002 and the previous years in
accordance with applicable taxation laws and no deferred tax assets
in respect of such taxation loss had been confirmed. Therefore,
there was no income tax in the same period in 2004.
3. Liquidity and Capital Resources
The Company depends upon cash flow from operations and loans to
satisfy its ongoing liquidity and capital needs.
Net cash flows from the Group's operating activities in the first
half of 2005 was RMB2,059.624 million, as compared to RMB1,295.921
million in the first half of 2004. The increase of net cash inflows
was primarily due to a decrease in inventories during the reporting
period.
Net cash used in investing activities in the first half of 2005 was
RMB40.426 million, as compared to RMB195.203 million in the first
half of 2004. This decrease was due to a decrease in capital
expenditure during the reporting period.
Net cash used in financing activities in the first half of 2005 was
RMB1,993.527 million, as compared to RMB1,119.939 million in the
first half of 2004. The change was due to a decrease in proceeds
obtained from borrowings during the reporting period.
As at 30th June, 2005, the Group's current assets amounted to
RMB2,198.547 million and the current liabilities amounted to
RMB5,999.173 million, which caused a negative working capital of
RMB3,800.626 million. The Group regularly reviews its working
capital and liquidity position and ensures the short term
obligations of the Group are satisfied through the refinancing of
indebtedness and other measures. China Petroleum Finance Company
Limited, a subsidiary of our ultimate beneficial shareholder, has
agreed to extend the term of a RMB8 billion loan facility provided
to the Group up to 31st December, 2008. The Company believes that it
has sufficient capital resources to meet its foreseeable working
capital needs. As at 30th June, 2005, the Group's capital
liabilities ratio was 12% as compared to 15% as at 31st December,
2004 (the capital liabilities ratio is calculated by dividing the
long-term liabilities by the aggregate of shareholders' equity and
long-term liabilities).
As at 30th June, 2005, the Group's liquidity ratio was 37% and its
quick ratio was 12%; inventory ratio was 7.66 times, an increase of
0.45 times as compared to the same period in 2004.
As at 30th June, 2005, the Group's aggregate borrowings were
RMB1,988.563 million, a decrease of RMB1,993.527 million as compared
to the figure as at 31st December, 2004, of which short-term
borrowings was RMB1,268.212 million, representing a decrease of
RMB1,817.863 million as compared to the level of short-term
borrowings as at 31st December, 2004. Long-term borrowings were
RMB720.351 million, representing a decrease of RMB175.664 million as
compared to the same type of borrowings as at 31st December, 2004.
These changes reflected an increase in the repayment amounts of the
Group during the first half of 2005 which in turn led to a decrease
in liabilities ratio.
The Group does not have seasonal demands for capital.
4. Exchange Risk
On 30th June, 2005, the Group's short-term borrowings were
denominated in Renminbi and the portion of long-term borrowings
denominated in foreign currency that was translated into RMB968.803
million was mainly a foreign currency-denominated loan for the
300,000-ton ethylene facility project. Foreign currency-denominated
loans are mainly taken out in United States Dollar, Japanese Yen and
Euro Dollar. The Group also experiences foreign exchange risk in
making payments related to the import of raw materials and
machinery, which needs to be converted into the applicable foreign
currency from Renminbi. In addition, dividends for H shares are also
payable in foreign currency. Hence, any fluctuation in foreign
exchange rates will have a significant impact on the Group. In the
first half of 2005, the Group had a net foreign exchange gain of
RMB12.197 million.
5. Employees
As at 30th June, 2005, the Company had a total of 20,187 employees.
The aggregate remuneration paid to them was RMB378.110 million.
Page 9 of 32
6. Charges of Assets
The Group has not created any charges on any of its principal assets
as at 30th June, 2005.
7. Contingent Liabilities
The Group did not have any significant contingent liabilities as at
30th June, 2005.
INVESTMENT (CAPITAL NOT OBTAINED FROM FUND-RAISING ACTIVITIES)
During the first half of 2005, the Company did not carry out any large-scale
technological renovation projects. The total investment attributable to such
projects was RMB57.174 million as at 30th June, 2005.
PROSPECTS OF THE SECOND HALF OF 2005
For the second half of 2005, the Company will further strengthen the following:
(i) the management of safety production by arranging for installation and
overhaul of equipment so as to ensure its production facilities run at full
capacity; (ii) the control on capital budget in order to use capital in a
safely, reasonable and efficient manner, thereby speeding up the turnover of its
capital; (iii) the control on cost budget by continuing to implement a low-cost
strategy to reduce the production and operation costs; (iv) the marketing
management in order to respond to the changes in petrochemical and chemical
products. The Company expects the processing capacity for crude oil to reach 3.5
million tons in the second half of 2005. In view of the continuing increase in
the price of crude oil to a high level which may not be offset by the increase
in the price of refined oil, the actual realized profits for the period from
January to September 2005 is expected to decrease by over 50% as compared to the
same period in 2004.
REVIEW OF THE SIGNIFICANT EVENTS
1. CORPORATE GOVERNANCE STRUCTURE
The Company's corporate governance structure was in compliance with the
requirements of the Listed Company Governance Guidelines.
2. PROPOSED INTERIM DISTRIBUTION AND TRANSFER FROM COMMON RESERVE TO SHARE
CAPITAL
The directors resolved not to declare any interim dividend and did not
make any transfer from the common reserves to the Company's share capital
during the first six months ended 30th June, 2005.
3. PREVIOUS YEAR'S PROFIT DISTRIBUTION
According to the Company's 2004 annual general meeting of the Company, no
final dividend was declared and no transfer was made from the common
reserve to the Company's share capital for 2004.
4. The Company was not involved in any material litigation or arbitration
during the reporting period.
5. During the reporting period, there were no mergers, acquisitions or
restructuring involving the Company or any member of the Group.
6. MATERIAL CONTRACTS AND PERFORMANCE
(1) During the reporting period, the Company did not enter into any
trust, sub-contracting or lease arrangements in respect of the
assets of any third party nor has any third party entered into any
trust, sub-contracting or lease arrangements in respect of the
assets of the Company.
(2) The Company has not entered into any significant guarantees during
the reporting period and no significant guarantees entered into
prior to the reporting period has been extended to the reporting
period.
(3) During the reporting period, the Company did not entrust any party
with cash assets administration.
7. The Company and its shareholders holding an interest of 5 per cent or more
have not provided any undertakings that may have a significant impact on
the Company's operating results and financial conditions.
8. Neither the Company, the Board nor any directors of the Company has
experienced any reprimand, penalties or complaints from or faced
investigation by CSRC, or any public reprimand from any stock exchanges or
any regulatory authority during the reporting period.
9. PURCHASE, SALE AND REDEMPTION OF SHARES
During the reporting period, neither the Company nor any of its
subsidiaries has purchased, sold or redeemed any of the Company's shares.
10. CODE ON CORPORATE GOVERNANCE PRACTICES
None of the directors of the Company is aware of any information that
would reasonably indicate that the Company does not, or during the period,
did not comply with the Code on Corporate Governance Practices contained
in Appendix 14.
Page 10 of 32
11. MODEL CODE
The Company has adopted a code of conduct regarding directors' securities
transactions in terms no less exacting than the required standard set out
in the Model Code set out in Appendix 10 to the Listing Rules.
Specific enquiry has been made of the directors of the Company who have
confirmed that they have complied with the required standard set out in
the Model Code and the Company's code of conduct regarding directors'
securities transactions throughout the reporting period.
12. TRUST DEPOSITS AND TRUST LOANS
As at 30th June, 2005, the Company did not have any trust deposits and
trust loans with any financial institutions and did not encounter any
difficulty in making withdrawals.
13. HOUSING REFORMS
Since 1998, the Company has incurred a loss of RMB84.09 million due to the
discount offered to its employees to purchase staff accommodation.
In accordance with IFRS, the above loss was capitalized. The staff cost
associated with the Company's employee housing reform programs was
amortized on a straight-line basis over the remaining expected average
employment period of the relevant employees.
From 1st January, 1998 to 30th June, 2005, the total amount amortized was
RMB54.55 million. The amount amortized in the first six months of 2005 was
RMB4.66 million. As at 30th June, 2005, the above remaining deferred staff
cost was approximately RMB29.54 million. In the opinion of the Board, if
the aforesaid deferred staff cost was completely written off in the first
half of 2005, the net assets of the Company as at 30th June, 2005 would be
reduced by approximately RMB29.54 million. Other than the employees'
housing reform programs mentioned above, the Company has not implemented
any employees' housing plan.
14. INFORMATION RELATING TO FUND OCCUPATION BY THE CONTROLLING SHAREHOLDER AND
SUBSIDIARIES OF THE COMPANY AND INDEPENDENT NON-EXECUTIVE DIRECTORS'
OPINION
Excluding the normal course of production and operating activities, there
were no instances where the controlling shareholder and its subsidiaries
occupied the funds of the Company during the reporting period.
During the reporting period, the independent non-executive directors have
not found any instances of fund occupation between the Company and the
controlling shareholder and related parties to be outside the ordinary
course of production and operating activities of the Company. The
independent non-executive directors have not found any instances where the
controlling shareholder and other related parties misused funds belonging
to the Company or any instances of third party guarantees.
15. There were no other significant events during the reporting period.
FINANCIAL STATEMENTS (UNAUDITED)
The Board hereby announces the unaudited interim results of the Group for the
six months ended 30th June, 2005 prepared under the PRC GAAP and the IFRS. The
Company's Audit Committee and management have reviewed the accounting
principles, accounting standards and measures adopted by the Group, and have
reviewed internal supervision and financial reports, including the unaudited
financial statement prepared under the PRC GAAP and IFRS and the additional
information in respect thereof for the six months ended 30th June, 2005.
UNAUDITED CONSOLIDATED INTERIM CONDENSED PROFIT AND LOSS ACCOUNT
(PREPARED UNDER IFRS)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED 30TH JUNE,
2005 2004
NOTES RMB RMB
TURNOVER 2 17,992,634 13,729,975
Cost of sales (17,508,817) (12,615,949)
GROSS PROFIT 483,817 1,114,026
Distribution costs (8,617) (16,076)
Administrative expenses (229,788) (306,330)
Other operating income/(expenses), net 8,262 (62,364)
Page 11 of 32
OPERATING PROFIT 3 253,674 729,256
Interest expense (94,851) (152,934)
Interest income 823 585
Exchange loss (29) (3,829)
Exchange gain 12,226 6,926
Share of profit of a jointly controlled entity 8,443 12,559
Share of profit of an associated company 2,953 1,005
PROFIT BEFORE TAXATION 183,239 593,568
Taxation 4 (48,209) -
PROFIT FOR THE PERIOD 135,030 593,568
ATTRIBUTABLE TO:
Equity holders of the Company 128,536 606,354
Minority interest 6,494 (12,786)
135,030 593,568
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE
TO THE EQUITY HOLDERS OF THE COMPANY DURING THE PERIOD 5 RMB0.04 RMB0.17
DIVIDEND 6 -- --
UNAUDITED CONSOLIDATED INTERIM CONDENSED BALANCE SHEET (PREPARED UNDER IFRS)
AS OF 30TH JUNE, 2005
(AMOUNTS IN THOUSANDS)
30TH JUNE, 31st December,
2005 2004
NOTES RMB RMB
NON-CURRENT ASSETS
Property, plant and equipment 8,937,297 9,368,990
Interests in a jointly controlled entity 74,278 89,835
Investment in an associated company 12,258 9,305
Intangible assets 466,523 515,047
Deferred income tax assets 234,993 283,202
9,725,349 10,266,379
CURRENT ASSETS
Inventories 1,449,954 2,606,053
Accounts receivable 7 317,832 265,245
Prepaid expenses and other current assets 390,461 441,891
Cash and cash equivalents 40,300 14,629
2,198,547 3,327,818
CURRENT LIABILITIES
Accounts payable and accrued liabilities 8 4,633,438 4,429,686
Current income tax liabilities 97,523 113,079
Short-term borrowings 1,268,212 3,086,075
5,999,173 7,628,840
Page 12 of 32
NET CURRENT LIABILITIES (3,800,626) (4,301,022)
TOTAL ASSETS LESS CURRENT LIABILITIES 5,924,723 5,965,357
EQUITY
Equity attributable to equity holders of the Company
Share capital 3,561,078 3,561,078
Reserves 2,099,372 2,099,858
Accumulated losses (476,848) (605,870)
5,183,602 5,055,066
Minority interest 20,770 14,276
Total equity 5,204,372 5,069,342
NON-CURRENT LIABILITIES
Long-term borrowings 720,351 896,015
5,924,723 5,965,357
UNAUDITED CONSOLIDATED INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY
(PREPARED UNDER IFRS)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(AMOUNTS IN THOUSANDS)
ATTRIBUTABLE TO EQUITY HOLDERS MINORITY TOTAL EQUITY
OF THE COMPANY INTEREST
SHARE ACCUMULATED
CAPITAL LOSSES RESERVES
RMB RMB RMB RMB RMB
Balance at 1st January, 2004
as previously represented 3,561,078 (3,151,353) 2,100,831 -- 2,510,556
Representation as a result of
the adoption of revised IAS 1
and IAS 27 -- -- -- 30,800 30,800
Balance at 1st January, 2004 3,561,078 (3,151,353) 2,100,831 30,800 2,541,356
Profit for the period -- 606,354 -- (12,786) 593,568
Transfer to accumulated losses on
realisation of revaluation reserve -- 486 (486) -- --
Balance at 30th June, 2004 3,561,078 (2,544,513) 2,100,345 18,014 3,134,924
Balance at 1st January, 2005
as previously represented 3,561,078 (605,870) 2,099,858 -- 5,055,066
Representation as a result of the
adoption of revised IAS 1
and IAS 27 -- -- -- 14,276 14,276
Balance at 1st January, 2005 3,561,078 (605,870) 2,099,858 14,276 5,069,342
Profit for the period -- 128,536 -- 6,494 135,030
Transfer to accumulated losses on
realisation of revaluation reserve -- 486 (486) -- --
BALANCE AT 30TH JUNE, 2005 3,561,078 (476,848) 2,099,372 20,770 5,204,372
Page 13 of 32
NOTES:
1. The unaudited consolidated interim condensed financial statements are
prepared in accordance with International Accounting Standards 34 "Interim
Financial Reporting". The accounting policies and methods of computation
used in the preparation of the consolidated interim condensed financial
statements are consistent with those used in the preparation of the annual
financial statements for the year ended 31st December, 2004 except for the
ones modified by the Company as a result of the adoption of the new
revised International Financial Reporting Standards ("IFRS").
The results of operations for the six months ended 30th June, 2005 are not
necessarily indicative of the results to be expected for the full year
ending 31st December, 2005.
2. SEGMENT INFORMATION SIX MONTHS ENDED 30TH JUNE, 2005
CHEMICAL
PETROCHEMICAL FERTILISERS OTHER
AND ORGANIC AND SYNTHETIC PRODUCTS
PETROLEUM CHEMICAL INORGANIC RUBBER AND
PRODUCTS PRODUCTS PRODUCTS PRODUCTS SERVICES TOTAL
RMB RMB RMB RMB RMB RMB
Revenues 7,263,050 7,943,724 337,620 1,017,254 1,430,986 17,992,634
Segment results (1,351,841) 1,571,834 (23,606) 145,611 (88,324) 253,674
Finance costs, net (81,831)
Share of profit of a jointly
controlled entity -- 8,443 -- -- -- 8,443
Share of profit of an
associated company -- -- -- -- 2,953 2,953
Profit before taxation 183,239
SIX MONTHS ENDED 30TH JUNE, 2004
Chemical
Petrochemical fertilisers Other
and organic and Synthetic products
Petroleum chemical inorganic rubber and
products products products products services Total
RMB RMB RMB RMB RMB RMB
Revenues 6,212,553 5,493,959 616,306 800,349 606,808 13,729,975
Segment results (93,733) 818,966 (91,967) 172,965 (76,975) 729,256
Finance costs, net (149,252)
Share of profit of a jointly
controlled entity -- 12,559 -- -- -- 12,559
Share of profit of an associated
company -- -- -- -- 1,005 1,005
Profit before taxation 593,568
All assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with
similar risks and returns. Accordingly, no geographic segment information
is presented.
Page 14 of 32
3. OPERATING PROFIT
The following items have been charged/(credited) to operating profit
during the period:
SIX MONTHS ENDED 30TH JUNE,
2005 2004
RMB RMB
Crediting
Government grants and subsidies (2,683) --
Charging
Amortisation of intangible assets 48,524 61,562
Depreciation of property, plant and equipment 491,792 501,375
Net (profit)/loss on disposal of property, plant and equipment
(included in "other operating (income)/expenses") (4,638) 34,158
Provision for impairment of property, plant and equipment
(included in "cost of sales") -- 19,814
Provision for impairment of intangible assets (included in "cost of sales") -- 6,698
(Reversal)/provision for impairment of receivables
(included in "administrative expenses") (882) 11,354
(Reversal)/provision for impairment of prepaid expenses and
other current assets (included in "other operating (income)/expenses") (18) 11,179
Inventory writedowns (included in "cost of sales") -- 79,169
Research and development expenditure 279 192
Employee compensation costs 378,110 497,520
Operating lease rentals on land and buildings 3,200 4,320
Operating lease rentals on plant and machinery 15,650 13,867
Repair and maintenance 163,357 304,285
4. TAXATION
SIX MONTHS ENDED 30TH JUNE,
2005 2004
RMB RMB
PRC income tax -- --
Deferred tax 48,209 --
48,209 --
Income tax expense is recognised based on the best estimate of the
weighted average annual income tax rate expected for the full financial
year. During the six months ended 30th June, 2005 and 2004 there was no
current tax expense because of the utilisation of tax loss carryforwards.
Tax expense during the six months ended 30th June, 2005 results from
changes in the deferred tax assets and liabilities at the expected annual
rate of 33%.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to
the Group as follows:
SIX MONTHS ENDED 30TH JUNE,
2005 2004
RMB RMB
Profit before taxation 183,239 593,568
Tax calculated at a rate of 33% 60,469 195,877
Utilisation of previously unrecognised deferred tax assets -- (202,269)
Other (12,260) 6,392
Tax expense 48,209 --
5. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended 30th June,
2005 have been computed by dividing the profit attributable to equity
holders of the Company of RMB128,536 (2004: RMB606,354) by the number of
3,561,078,000 shares issued and outstanding for the period.
6. DIVIDEND
The directors do not recommend the payment of an interim dividend for the
six months ended 30th June, 2005 (2004: nil).
7. ACCOUNTS RECEIVABLE
30TH JUNE, 31st December,
2005 2004
RMB RMB
Due from third parties 218,325 236,943
Due from related parties
- PetroChina 287,222 211,530
- JCGC (a fellow subsidiary) Group Companies 172,007 169,077
- An associated company 17,147 23,138
- Other state-controlled enterprises 263,691 265,999
958,392 906,687
Less: Provision for impairment loss
- Due from third parties (205,114) (211,932)
- Due from related parties (435,446) (429,510)
317,832 265,245
Page 15 of 32
Amounts due from related parties are interest free and unsecured. Related
parties are offered credit terms of no more than 30 days.
Provision for impairment of amounts due from related parties charged to
profit and loss account was RMB5,936 for the six months ended 30th June,
2005 (Six months ended 30th June, 2004: RMB2,507).
The ageing analysis of accounts receivable at 30th June, 2005 is as
follows:
30TH JUNE, 31st December,
2005 2004
RMB RMB
Within 1 year 289,193 222,075
Between 1 to 2 years -- 2,042
Between 2 to 3 years 2,042 299
Over 3 years 667,157 682,271
958,392 906,687
In 2002, the Group implemented a cash sales policy for the majority of its
customers. Certain selected customers are offered credit terms of no more
than 30 days. There is no change in this policy during 2004 and the six
months ended 30th June, 2005.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
30TH JUNE, 31st December,
2005 2004
RMB RMB
Trade payables 1,205,534 1,548,764
Advances from customers 203,243 545,545
Salaries and welfare payable 194,570 197,094
Other payables and accrued liabilities 200,731 121,461
Amounts due to related parties
- PetroChina 2,620,436 1,667,303
- CNPC Group Companies 3,718 --
- JCGC (a fellow subsidiary) Group Companies 58,277 85,623
- An associated company -- 9,109
- Other state-controlled enterprises 146,929 254,787
4,633,438 4,429,686
Amounts due to related parties are interest free, unsecured and with no
fixed term of repayment.
The ageing analysis of trade payables at 30th June, 2005 is as follows:
30TH JUNE, 31st December,
2005 2004
RMB RMB
Within 1 year 1,112,293 1,450,029
Between 1 to 2 years 25,483 33,123
Between 2 to 3 years 12,345 23,267
Over 3 years 55,413 42,345
1,205,534 1,548,764
Page 16 of 32
UNAUDITED BALANCE SHEETS (PREPARED UNDER PRC GAAP) AS AT 30TH JUNE, 2005 (ALL
AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)
30TH JUNE, 31st December, 30TH JUNE, 31st December,
2005 2004 2005 2004
GROUP Group COMPANY Company
(UNAUDITED) (Audited) (UNAUDITED) (Audited)
ASSETS
CURRENT ASSETS
Cash and bank 40,300,488 14,629,219 36,259,808 11,819,321
Short-term investments -- -- -- --
Notes receivable 1,971,000 10,545,237 1,911,000 9,456,637
Dividend receivable -- -- -- --
Interest receivable -- -- -- --
Accounts receivable 315,860,595 254,700,444 385,279,727 322,568,028
Other receivables 33,799,957 45,075,155 7,494,684 19,094,936
Advances to suppliers 354,036,608 376,959,411 352,314,863 376,874,901
Subsidy receivable -- -- -- --
Inventories 1,449,953,644 2,606,053,383 1,406,094,241 2,566,518,007
Prepaid expenses 2,624,089 19,856,484 1,972,175 19,474,862
Long-term bond investments maturing
within one year -- -- -- --
Other current assets -- -- -- --
TOTAL CURRENT ASSETS 2,198,546,381 3,327,819,333 2,191,326,498 3,325,806,692
LONG-TERM INVESTMENTS
Long-term equity investments 86,536,435 99,139,594 165,156,303 169,469,728
Long-term bond investments -- -- -- --
TOTAL LONG-TERM INVESTMENTS 86,536,435 99,139,594 165,156,303 169,469,728
Including: Consolidation difference -- -- -- --
FIXED ASSETS
Fixed assets - cost 16,228,024,899 16,196,975,563 15,847,825,984 15,822,513,692
Less: Accumulated depreciation (7,189,153,350) (6,719,916,853) (7,003,001,894) (6,545,147,557)
Fixed assets - net book value 9,038,871,549 9,477,058,710 8,844,824,090 9,277,366,135
Less: Impairment of fixed assets (282,023,248) (282,023,248) (269,931,112) (269,931,112)
Fixed assets - net book amount 8,756,848,301 9,195,035,462 8,574,892,978 9,007,435,023
Construction materials 2,833,640 2,837,473 2,833,640 2,837,473
Construction in progress 64,217,179 42,555,665 64,217,179 42,555,665
Fixed assets pending disposal -- -- -- --
TOTAL FIXED ASSETS 8,823,899,120 9,240,428,600 8,641,943,797 9,052,828,161
30TH JUNE, 31st December, 30TH JUNE, 31st December,
2005 2004 2005 2004
GROUP Group COMPANY Company
(UNAUDITED) (Audited) (UNAUDITED) (Audited)
INTANGIBLE AND OTHER ASSETS
Intangible assets 1,290,637,730 1,345,139,741 1,289,126,149 1,343,581,225
Long-term deferred expenses 53,866,319 64,648,462 53,866,319 64,648,462
Other long-term assets -- -- -- --
TOTAL INTANGIBLE AND OTHER ASSETS 1,344,504,049 1,409,788,203 1,342,992,468 1,408,229,687
DEFERRED TAXES
Deferred tax assets 264,388,153 315,580,641 264,388,153 315,580,641
TOTAL ASSETS 12,717,874,138 14,392,756,371 12,605,807,219 14,271,914,909
Page 17 of 32
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans 1,019,760,000 2,918,970,000 975,120,000 2,874,330,000
Notes payable -- -- -- --
Accounts payable 2,409,675,322 1,891,153,893 2,403,450,986 1,864,805,946
Advances from customers 1,711,754,822 2,137,105,902 1,704,000,340 2,119,941,248
Salaries payable 128,491,679 139,240,168 123,976,408 139,183,607
Welfare payable 66,078,191 57,854,011 53,914,480 48,261,501
Dividend payable -- -- -- --
Taxes payable 181,876,402 154,334,897 178,690,849 150,912,286
Other levies payable -- -- -- --
Other payables 135,460,655 137,027,193 127,048,196 131,685,926
Accrued expenses 97,622,539 26,049,897 93,221,680 26,049,897
Provisions -- -- -- --
Long-term liabilities due within one year 248,452,372 167,105,430 248,452,372 167,105,430
Other current liabilities -- -- -- --
TOTAL CURRENT LIABILITIES 5,999,171,982 7,628,841,391 5,907,875,311 7,522,275,841
LONG-TERM LIABILITIES
Long-term loans 580,557,049 682,499,114 580,557,049 682,499,114
Debentures payable -- -- -- --
Payables due after one year -- -- -- --
Special project payables -- -- -- --
Other long-term liabilities 139,793,880 213,515,526 139,793,880 213,515,526
TOTAL LONG-TERM LIABILITIES 720,350,929 896,014,640 720,350,929 896,014,640
DEFERRED TAXES
Deferred tax liabilities -- -- -- --
TOTAL LIABILITIES 6,719,522,911 8,524,856,031 6,628,226,240 8,418,290,481
MINORITY INTERESTS 20,770,248 14,275,912 -- --
SHAREHOLDERS' EQUITY
Share capital 3,561,078,000 3,561,078,000 3,561,078,000 3,561,078,000
Capital surplus 2,293,618,886 2,293,618,886 2,293,618,886 2,293,618,886
Statutory common reserve fund 701,442,717 701,442,717 693,730,248 693,730,248
Including: Statutory common welfare fund 126,834,279 126,834,279 125,287,623 125,287,623
Accumulated losses (578,558,624) (702,515,175) (570,846,155) (694,802,706)
Foreign exchange difference reserve -- -- -- --
TOTAL SHAREHOLDERS' EQUITY 5,977,580,979 5,853,624,428 5,977,580,979 5,853,624,428
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 12,717,874,138 14,392,756,371 12,605,807,219 14,271,914,909
UNAUDITED PROFIT AND LOSS ACCOUNTS (PREPARED UNDER PRC GAAP)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)
2005 (1-6) 2004 (1-6) 2005 (1-6) 2004 (1-6)
GROUP Group COMPANY Company
ITEMS (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
1. SALES REVENUE 16,122,195,208 12,556,716,553 16,055,223,686 12,545,541,890
Less: Cost of sales (15,123,412,908) (10,955,477,471) (15,088,226,705) (10,921,200,679)
Sales tax and other levies (409,040,843) (366,365,066) (409,040,843) (366,365,066)
Page 18 of 32
2. GROSS PROFIT ON SALES 589,741,457 1,234,874,016 557,956,138 1,257,976,145
Add: Other operating loss (57,733,155) (39,597,041) (63,101,688) (44,951,883)
Less: Selling expenses (8,616,914) (16,076,225) (8,614,199) (16,069,181)
General and administrative expenses (267,196,723) (382,719,213) (245,913,469) (371,398,599)
Financial expenses, net (81,922,594) (149,332,739) (80,792,863) (146,361,685)
3. OPERATING PROFIT 174,272,071 647,148,798 159,533,919 679,194,797
Add: Investment income/(loss) 11,396,841 13,563,392 19,686,575 (7,847,024)
Subsidy income 2,683,084 -- 2,683,084 --
Non-operating income 7,209,537 1,693,881 7,163,619 1,665,763
Less: Non-operating expenses (13,918,158) (70,103,725) (13,918,158) (67,925,609)
4. TOTAL PROFIT 181,643,375 592,302,346 175,149,039 605,087,927
LESS: Income tax (51,192,488) -- (51,192,488) --
Minority interests (6,494,336) 12,785,581 -- --
5. NET PROFIT 123,956,551 605,087,927 123,956,551 605,087,927
SUPPLEMENTARY INFORMATION
2005 (1-6) 2004 (1-6)
GROUP COMPANY Group Company
(UNAUDITED) (UNAUDITED) (Unaudited) (Unaudited)
1. Income from sale and disposal of
departments or investees -- -- -- --
2. Loss from natural catastrophe -- -- -- --
3. Increase in total profit resulting from
change in accounting policies -- -- -- --
4. Increase in total profit resulting from
change in accounting estimates -- -- -- --
5. Loss from debt restructuring -- -- -- --
6. Other -- -- -- --
UNAUDITED PROFIT APPROPRIATION STATEMENTS (PREPARED UNDER PRC GAAP)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)
2005 (1-6) 2004 (1-6) 2005 (1-6) 2004 (1-6)
GROUP Group COMPANY Company
ITEMS (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
1. NET PROFIT 123,956,551 605,087,927 123,956,551 605,087,927
Add: Accumulated losses at the beginning
of the period (702,515,175) (3,276,275,225) (694,802,706) (3,268,562,756)
Transfer from other sources -- -- -- --
2. ACCUMULATED LOSSES (578,558,624) (2,671,187,298) (570,846,155) (2,663,474,829)
Less: Transfer to statutory common
reserve fund -- -- -- --
Transfer to statutory common welfare
fund -- -- -- --
Transfer to staff and workers' bonus
and welfare fund -- -- -- --
3. ACCUMULATED LOSSES (578,558,624) (2,671,187,298) (570,846,155) (2,663,474,829)
Less: Dividend for preference stocks -- -- -- --
Transfer to discretionary common
reserve fund -- -- -- --
Dividend for common stocks -- -- -- --
Dividend for common stocks
transferred to capital -- -- -- --
4. ACCUMULATED LOSSES AT
THE END OF THE PERIOD (578,558,624) (2,671,187,298) (570,846,155) (2,663,474,829)
Page 19 of 32
UNAUDITED CASH FLOW STATEMENTS (PREPARED UNDER PRC GAAP)
FOR THE SIX MONTHS ENDED 30TH JUNE, 2005
(ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)
2005 2004 2005 2004
(1-6) GROUP (1-6) Group (1-6) COMPANY (1-6) Company
ITEMS (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
1. CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sale of goods or
rendering of services 18,577,643,853 13,575,335,485 18,433,571,643 13,484,432,032
Refund of tax 9,674,715 -- 9,674,715 --
Cash received relating to other
operating activities 2,919,221 763,975 2,585,083 2,301,971
SUB-TOTAL OF CASH INFLOWS 18,590,237,789 13,576,099,460 18,445,831,441 13,486,734,003
Cash paid for goods and services (15,050,303,981) (10,782,067,240) (14,974,325,328) (10,730,760,826)
Cash paid to and on behalf of employees (386,424,308) (235,213,677) (349,288,007) (206,644,741)
Payment of all types of taxes (971,247,853) (999,288,984) (953,334,584) (994,857,894)
Cash paid relating to other operating
activities (36,504,484) (80,777,794) (31,508,819) (75,840,348)
SUB-TOTAL OF CASH OUTFLOWS (16,444,480,626) (12,097,347,695) (16,308,456,738) (12,008,103,809)
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,145,757,163 1,478,751,765 2,137,374,703 1,478,630,194
2005 2004 2005 2004
(1-6) GROUP (1-6) Group (1-6) COMPANY (1-6) Company
ITEMS (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
2. CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from sale of investments -- -- -- --
Cash received from return of investments 24,000,000 -- 24,000,000 --
Net cash received from disposal of fixed
assets 5,113,098 1,514,731 5,113,098 1,514,731
Cash received relating to other investing
activities -- -- -- --
SUB-TOTAL OF CASH INFLOWS 29,113,098 1,514,731 29,113,098 1,514,731
Cash paid to acquire fixed assets and
other long-term assets (69,538,730) (196,718,328) (63,801,686) (195,192,189)
Cash paid to acquire investments -- -- -- --
Cash paid relating to other investing
activities -- -- -- --
SUB-TOTAL OF CASH OUTFLOWS (69,538,730) (196,718,328) (63,801,686) (195,192,189)
NET CASH FLOWS FROM INVESTING ACTIVITIES (40,425,632) (195,203,597) (34,688,588) (193,677,458)
3. CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing shares -- -- -- --
Including: Cash received from
minority shareholders -- -- -- --
Proceeds from borrowings 2,861,390,000 4,854,427,269 2,861,390,000 4,854,427,269
Cash received relating to other
financing activities -- -- -- --
SUB-TOTAL OF CASH INFLOWS 2,861,390,000 4,854,427,269 2,861,390,000 4,854,427,269
Repayment of borrowings (4,854,916,769) (5,974,366,833) (4,854,916,769) (5,974,366,833)
Cash paid for interest expense and
distribution of dividends (86,133,493) (182,829,135) (84,718,859) (181,429,548)
Including: Dividends paid to minority
shareholders -- -- -- --
Cash paid relating to other financing
activities -- -- -- --
Including: Cash paid to minority
shareholders due to reduction of
capital of subsidiaries -- -- -- --
SUB-TOTAL OF CASH OUTFLOWS (4,941,050,262) (6,157,195,968) (4,939,635,628) (6,155,796,381)
NET CASH FLOWS FROM FINANCING ACTIVITIES (2,079,660,262) (1,302,768,699) (2,078,245,628) (1,301,369,112)
Page 20 of 32
4. EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH -- -- -- --
5. NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 25,671,269 (19,220,531) 24,440,487 (16,416,376)
SUPPLEMENTARY INFORMATION
1. RECONCILIATION OF NET PROFIT TO
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit 123,956,551 605,087,927 123,956,551 605,087,927
Add: Minority interests 6,494,336 (12,785,581) -- --
(Reversal)/provision for impairment
of assets (900,104) 128,214,613 (900,104) 127,551,812
Depreciation of fixed assets 470,407,433 454,768,739 459,025,273 443,626,779
Amortization of intangible assets 54,502,011 67,208,626 54,455,076 67,158,685
Amortization of long-term deferred
expenses 17,001,633 42,225,822 17,001,633 42,225,822
Decrease/(increase) in prepaid
expenses 17,232,395 (4,276,743) 17,502,687 (4,292,406)
Increase in accrued expenses 62,855,438 263,075,625 58,454,579 259,935,408
Gain on disposal of fixed assets (5,113,098) (1,514,731) (5,113,098) (1,514,731)
Loss on scrapping of fixed assets 474,816 35,672,355 474,816 33,737,001
Financial expenses 94,850,697 152,933,553 93,436,063 151,533,966
Investment (income)/loss (11,396,841) (13,563,392) (19,686,575) 7,847,024
Deferred tax credit 51,192,488 -- 51,192,488 --
Decrease/(increase) in inventories 1,156,099,739 (7,391,193) 1,160,423,766 12,668,078
Increase in operating receivables (12,841,338) (217,013,842) (13,459,197) (229,303,010)
Increase/(decrease) in operating
payables 120,941,007 (13,890,013) 140,610,745 (37,632,161)
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,145,757,163 1,478,751,765 2,137,374,703 1,478,630,194
2. INVESTING AND FINANCING ACTIVITIES THAT
DO NOT INVOLVE CASH RECEIPTS AND
PAYMENTS
Purchase of fixed assets -- -- -- --
Convertible bonds maturing within one year -- -- -- --
Finance lease of fixed assets -- -- -- --
3. NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash at the end of the period 40,300,488 16,278,288 36,259,808 14,258,692
Less: Cash at the beginning of the period (14,629,219) (35,498,819) (11,819,321) (30,675,068)
Cash equivalents at the end of the period -- -- -- --
Less: Cash equivalents at the beginning
of the period -- -- -- --
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 25,671,269 (19,220,531) 24,440,487 (16,416,376)
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with the Accounting
Standards for Business Enterprises and the "Accounting System for Business
Enterprises" as promulgated by the People's Republic of China.
PUBLICATION OF FINANCIAL INFORMATION
The Company's 2005 interim report, which set out all the information required by
paragraphs 46(1) to 46(9) inclusive in Appendix 16 to the Rules Governing the
Listing of Securities on the Stock Exchange, will be available for publication
on the website of the Stock Exchange (http://www.hkex.com.hk) within 21 days
from the date of this announcement.
By Order of the Board
YU LI
CHAIRMAN
Page 21 of 32
Jilin, PRC, 12th August, 2005
As of the date of this announcement, the composition of the Board is as follows:
EXECUTIVE DIRECTORS: Yu Li, Zhang Xingfu, Li Chongjie
NON-EXECUTIVE DIRECTORS: Yang Dongyan, Ni Muhua,
Jiang Jixiang, Xiang Ze
INDEPENDENT NON-EXECUTIVE DIRECTORS: Lu Yanfeng, Wang Peirong,
Zhou Henglong, Fanny Li
- --------------------------------------------------------------------------------
(A JOINT STOCK LIMITED COMPANY INCORPORATED IN THE PEOPLE'S REPUBLIC OF CHINA)
(STOCK CODE: 0368)
NOTICE OF EXTRAORDINARY GENERAL MEETING TO BE HELD ON 29TH SEPTEMBER, 2005
NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the "EGM") of
Jilin Chemical Industrial Company Limited (the "Company") will be held at 9:00
a.m. on 29th September, 2005 at No. 9 Longtan Street, Longtan District, Jilin
City, Jilin Province, the People's Republic of China (the "PRC") to consider
and, if thought fit, approve the following resolutions:
1. To consider and approve the Supplemental Composite Services Agreement, and
authorize any director of the Company to do such further acts and things
and execute further documents and take all such steps which in his opinion
may be necessary, desirable or expedient to implement and/or give effect
to the terms of such agreement;
2. To consider and approve the Supplemental Master Products and Services
Agreement, and authorize any director of the Company to do such further
acts and things and execute further documents and take all such steps
which in his opinion may be necessary, desirable or expedient to implement
and/or give effect to the terms of such agreement;
3. To consider and approve the Assets Management Agreement, and authorize any
director of the Company to do such further acts and things and execute
further documents and take all such steps which in his opinion may be
necessary, desirable or expedient to implement and/or give effect to the
terms of such agreement.
By Order of the Board
ZHANG LIYAN
COMPANY SECRETARY
Jilin, PRC, 12th August, 2005
NOTES:
(A) Holders of the Company's shares whose names appear on the register of
members of the Company at 4:00 p.m. on 30 August 2005 are entitled to
attend the Extraordinary General Meeting with their passports or other
identity papers.
(B) The register of members of the Company will close from 31 August 2005 to
29 September 2005 (both days inclusive), during which time no share
transfer will be effected.
(C) Each shareholder who has the right to attend and vote at the EGM is
entitled to appoint one or more proxies, whether they are members or not,
to attend and vote, on his behalf, at the EGM.
(D) A proxy of a shareholder who has appointed more than one proxy may only
vote on a poll.
(E) The instrument appointing a proxy must be in writing under the hand of the
appointor or his attorney duly authorized in writing. If that instrument
is signed by an attorney of the appointor, the power of attorney must be
certified by a notary. The notarially certified power of attorney, or
other documents of authorization, and the form of proxy must be delivered
to the Company's registrar, Hong Kong Registrars Limited, 46th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong not less than
24 hours before the time appointed for the holding of the EGM.
(F) Shareholders intending to attend the EGM should return the accompanying
reply slip to the Secretary's Office to the Company before 9 September
2005 personally/or by mail, cable or facsimile.
(G) The EGM is expected to last half a day. Shareholders attending the EGM
will be responsible for their own transportation and accommodation
expenses.
(H) The details of the Secretary's Office of the Company are as follows:
No. 9 Longtan street
Longtan District
Jilin City
Jilin Province
PRC
Postal code: 132021
Tel: (86 432) 3903651
Fax: (86 432) 3028126
Page 22 of 32
(A JOINT STOCK LIMITED COMPANY INCORPORATED IN THE PEOPLE'S REPUBLIC OF CHINA
WITH LIMITED LIABILITY)
(STOCK CODE: 0368)
ANNOUNCEMENT OF THE RESOLUTIONS PASSED
AT THE SECOND EXTRAORDINARY GENERAL MEETING FOR 2005
The Company and the Board warrant the truthfulness, accuracy and completeness of
the contents of this announcement and that there are no misrepresentations or
misleading statements in, or material omissions from this announcement.
I. IMPORTANCE MATTERS
No new resolutions were proposed to be considered and no proposals were
put forward to veto or amend any resolutions at the meeting.
II. CONVENING OF THE EGM
The second extraordinary general meeting for 2005 (the "EGM") for the
shareholders ("Shareholder(s)") of Jilin Chemical Industrial Company
Limited (the "Company") was held at No. 9 Longtan Street, Longtan
District, Jilin City, Jilin Province, the People's Republic of China (the
"PRC") on 12 August 2005. The EGM was convened by the board of directors
("Board") of the Company and chaired by Mr. Yu Li, the chairman of the
Board. Voting by poll was taken at the EGM. The meeting was convened in
accordance with the relevant laws and regulations and the articles of
association of the Company.
III. ATTENDANCE OF THE EGM
The EGM was attended by 1 shareholder (proxy) of the Company holding
2,510,931,492 shares, representing 70.51% of the Company's total share
capital, among which nil Share was PRC-listed shares ("A Share(s)") and
114,631,492 Shares were overseas-listed foreign investment shares ("H
Shares"), representing 11.88% of the total number of the H Shares with
voting rights held by the holders of the H Shares ("H Shareholder(s)") of
the Company.
IV. CONSIDERATION OF AND VOTING ON THE RESOLUTIONS
The following ordinary resolutions were considered and passed at the EGM
through accumulative voting by a poll:
1. The elections and appointments of the following directors of the
Company for a term from 12 August 2005 to 19 April 2007 were
approved:
(i) The election and appointment of Ms. Yang Dongyan as a director
of the Company
2,410,113,392 Shares voted in favour, representing 98.15% of
the total number of the Shares with voting rights held by the
shareholders (or proxy) who attended the EGM. 45,304,300
Shares voted against, representing 1.85% of the total number
of the Shares with voting rights held by the shareholders (or
proxy) who attended the EGM.
Among the H Shares, 13,813,392 Shares voted in favour,
representing 23.37% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM. 45,304,300 Shares voted against,
representing 76.63% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM.
(ii) The election and appointment of Mr. Xiang Ze as director of
the Company
2,410,113,392 Shares voted in favour, representing 98.15% of
the total number of the Shares with voting rights held by the
shareholders (or proxy) who attended the EGM. 45,304,000
Shares voted against, representing 1.85% of the total number
of the Shares with voting rights held by the Shareholders (or
proxy) who attended the EGM.
Among the H Shares, 13,813,392 Shares voted in favour,
representing 23.37% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM. 45,304,300 Shares voted against,
representing 76.63% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM.
(iii) The election and appointment of Mr. Li Chongjie as director of
the Company
2,448,321,392 Shares voted in favour, representing 99.71% of
the total number of the Shares with voting rights held by the
Shareholders (or proxy) who attended the EGM. 7,096,300 Shares
voted against, representing 0.29% of the total number of the
Shares with voting rights held by the Shareholders (or proxy)
who attended the EGM.
Among the H Shares, 52,021,392 Shares voted in favour,
representing 88% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM. 7,096,300 Shares voted against, representing
12% of the total number of the H Shares with voting rights
held by the H Shareholders (or proxy) who attended the EGM.
2. The elections and appointments of the following supervisors of the
Company for a term from 12 August 2005 to 19 April 2007 were
approved or noted:
(i) The election and appointment of Mr. Wang Jianrong as a
supervisor of the Company
2,448,495,892 Shares voted in favour, representing 99.71% of
the total number of the Shares with voting rights held by the
Shareholders who attended the EGM. 7,041,800 Shares voted
against, representing 0.29% of the total number of the Shares
with voting rights held by the Shareholders who attended the
EGM.
Among the H Shares, 52,195,892 Shares voted in favour,
representing 88.11% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM. 7,041,800 Shares voted against, representing
11.89% of the total number of the H Shares with voting rights
held by the H Shareholders (or proxy) who attended the EGM.
(ii) The election and appointment of Mr. Xue Feng as a supervisor
of the Company
2,448,495,892 Shares voted in favour, representing 99.71% of
the total number of the Shares with voting rights held by the
Shareholders (or proxy) who attended the EGM. 7,041,800 Shares
voted against, representing 0.29% of the total number of the
Shares with voting rights held by the Shareholders (or proxy)
who attended the EGM.
Among the H Shares, 52,195,892 Shares voted in favour,
representing 88.11% of the total number of the H Shares with
voting rights held by the H Shareholders (or proxy) who
attended the EGM. 7,041,800 Shares voted against, representing
11.89% of the total number of the H Shares with voting rights
held by the H Shareholders (or proxy) who attended the EGM.
Page 23 of 32
(iii) The election and appointment of Mr. Bai Xuefeng as a
supervisor of the Company (employees' representative)
The election and appointment of Mr. Bai Xuefeng as a
supervisor of the Company (employees' representative) were
noted.
The Company had appointed Hong Kong Registrars Limited jointly with King &
Wood, the legal advisers to the Company on the PRC laws, as the
scrutineers to monitor the vote-taking procedures at the EGM.
V. LEGAL OPINIONS
As witnessed by and stated in the legal opinions issued by Zhou Ning of
King & Wood, the convening and holding of the EGM of the Company, the
voting procedures adopted at the EGM and the eligibility of the persons
who attended the EGM are in compliance with the provisions of relevant
laws and the articles of association of the Company".
By Order of the Board
ZHANG LIYAN
COMPANY SECRETARY
Jilin, PRC
August 12, 2005
As at the date of this announcement, the Board consists of the following
directors:
EXECUTIVE DIRECTORS: Yu Li, Zhang Xingfu, Li Chongjie
NON-EXECUTIVE DIRECTORS: Yang Dongyan, Ni Muhua, Jiang Jixiang, Xiang Ze
INDEPENDENT NON-EXECUTIVE DIRECTORS: Lu Yanfeng, Zhou Henglong, Wang Peirong,
Fanny Li
Page 24 of 32
THE STOCK EXCHANGE OF HONG KONG LIMITED TAKES NO RESPONSIBILITY FOR THE CONTENTS
OF THIS ANNOUNCEMENT, MAKES NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS
AND EXPRESSLY DISCLAIMS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING
FROM OR IN RELIANCE UPON THE WHOLE OR ANY PART OF THE CONTENTS OF THIS
ANNOUNCEMENT.
(A JOINT STOCK LIMITED COMPANY INCORPORATED IN THE PEOPLE'S REPUBLIC OF CHINA)
(STOCK CODE: 0368)
SUPPLEMENTAL CONTINUING CONNECTED TRANSACTION AGREEMENTS
The Directors wish to announce that, on 12 August 2005, the Company entered into
(i) the Supplemental Master Products and Services Agreement with Jilin
Petrochemical; (ii) the Supplemental Composite Services Agreement with JCGC; and
(iii) the Assets Management Agreement with Jilin Petrochemical.
The transactions under the Supplemental Agreements and the Assets Management
Agreement constitute non-exempt continuing connected transactions of the Company
and are subject to the reporting, announcement and independent shareholders'
approval under the Listing Rules.
An Extraordinary General Meeting of the Company will be held on 29 September
2005 to approve the Supplemental Agreements and the Assets Management Agreement.
The Board will appoint an independent board committee to consider and advise the
independent shareholders on the terms of the Supplemental Agreements and the
Assets Management Agreement, and will appoint Watterson Asia Limited, the
independent financial adviser to advise the independent board committee. A
circular containing, among other things, details of the Supplemental Agreements
and the Assets and Management Agreement, the recommendation of the independent
board committee and the advice of Watterson Asia Limited, the independent
financial adviser to the independent board committee will be despatched to the
shareholders of the Company as soon as possible.
PetroChina, being the controlling shareholder of the Company holding 67.29% of
the share capital of the Company, and its associates will abstain from voting
with regards to the ordinary resolutions in connection with the Supplemental
Agreements and the Assets Management Agreement to be proposed at the
Extraordinary General Meeting.
Holders of the Company's shares whose names appear on the register of members of
the Company at 4:00 pm on 30 August 2005 will be entitled to attend the
Extraordinary General Meeting. The register of members of the Company will be
closed from 31 August 2005 to 29 September 2005 (both days inclusive), during
which no transfer of H Shares will be effected.
The Directors noted that the Company has breached two caps for the Continuing
Connected Transactions. The delay in disclosure of and omission in obtaining the
independent Shareholders' approval for such sale of petrochemical products has
constituted breaches of the Listing Rules. The Stock Exchange has informed the
Company that it reserves the rights to take appropriate actions against the
Company and/or the Directors in respect of the breaches of the Listing Rules.
THE SUPPLEMENTAL AGREEMENTS AND THE ASSETS MANAGEMENT AGREEMENT MAY OR MAY NOT
BE APPROVED BY THE INDEPENDENT SHAREHOLDERS. SHAREHOLDERS AND POTENTIAL
SHAREHOLDERS ARE ADVISED TO EXERCISE CAUTION WHEN DEALING IN THE SHARES OF THE
COMPANY.
1. BACKGROUND: THE EXISTING CONTINUING CONNECTED TRANSACTIONS
1.1 CONTINUING TRANSACTIONS WITH PETROCHINA
PetroChina is the immediate controlling shareholder of the Company,
holding 67.29% of the share capital of the Company. As such, PetroChina is
a Connected Person of the Company and transactions between PetroChina and
the Company constitute connected transactions under the Listing Rules.
PetroChina's principal business consists of the exploration and production
of crude oil and natural gas, crude oil refining, pipeline transportation
and the production and sale of petrochemical products and natural gas
products.
The Company and PetroChina entered into the Master Products and Services
Agreement on 30 November 2004 to govern the supply (1) by PetroChina to
the Group, and (2) by the Group to PetroChina, of a range of products and
services which may be required and requested from time to time by either
party and/or its subsidiaries and affiliated companies in the ordinary and
usual course of business of the Company and PetroChina for a term of three
years from 1 January 2005 to 31 December 2007. The detailed terms and
conditions of the Master Products and Services Agreement and the annual
caps for the Continuing Connected Transactions contemplated thereunder
were set out in the announcement dated 12 December 2004 and the Continuing
Connected Transaction Circular and have been approved by the independent
Shareholders.
Jilin Petrochemical is a branch company of PetroChina registered and
licensed under the PRC laws and regulations. Jilin Petrochemical is
authorized to conduct its own business and enter into agreements in its
own name to the extent authorised by PetroChina. The majority of the
transactions under the Master Products and Services Agreement are carried
out between the Company and Jilin Petrochemical.
1.2 CONTINUING TRANSACTIONS WITH JCGC
JCGC is a wholly-owned subsidiary of CNPC which is the ultimate
controlling shareholder of the Company. As such, JCGC is a Connected
Person of the Company and transactions between JCGC and the Company
constitute connected transactions under the Listing Rules. The business
scope of JCGC consists of the management of the operation of its
subsidiaries, production, trading, purchase and sale of raw chemical
materials, chemical products, macromolecule materials, rubber products,
plastic products, aluminum powder, food additive, farm chemical,
environmental project engineering equipment, steam and electricity power.
The Company and JCGC entered into the Composite Services Agreement on 30
November 2004 to govern the supply (1) by JCGC to the Group, and (2) by
the Group to JCGC, of a range of products and services which may be
required and requested from time to time by either party and/or its
subsidiaries and affiliated companies in the ordinary and usual course of
business of the Company and JCGC for a term of three years from 1 January
2005 to 31 December 2007. The detailed terms and conditions of the
Composite Services Agreement and the annual caps for the Continuing
Connected Transactions contemplated thereunder were set out in the
announcement dated 12 December 2004 and the Continuing Connected
Transaction Circular and have been approved by the independent
Shareholders.
Page 25 of 32
2. SUPPLEMENTAL CONTINUING CONNECTED TRANSACTION AGREEMENTS
2.1 TERMS AND CONDITIONS OF THE SUPPLEMENTAL MASTER PRODUCTS AND SERVICES
AGREEMENT
In anticipation of the continuing increase in the price of the products of
the Company and Jilin Petrochemical, the increasing demand of both the
Company and Jilin Petrochemical for the products and services from each
other as a result of the expansion of their operations and a new assets
management service to be provided by the Company to Jilin Petrochemical,
the Company and Jilin Petrochemical, as authorized by PetroChina, entered
into the Supplemental Master Products and Services Agreement on 12 August
2005 to expand the scope of the products and services to be provided under
the Master Products and Services Agreement and revise the annual caps for
the Continuing Connected Transactions contemplated thereunder.
The details of and basis and reasons for such revision are set out under
paragraphs 3.2.2 and 3.2.3 of this announcement.
Payment for such transactions will be settled by cash by the Company
through internal resources.
Save as the above mentioned, the terms and conditions of the Master
Products and Services Agreement, including but not limited to, general
principles, terms for pricing and payments and termination of supply of
any one or more categories of products or services for the products and
services, shall remain unchanged and in full effect.
Subject to and as from obtaining independent Shareholders' approval, the
Supplemental Master Products and Services Agreement shall be valid till 31
December 2007.
If in any year, the Company, due to any events or factors beyond the
control of the Company (e.g. nature disasters or instability of crude oil
prices) or the development of new projects, is required to purchase or
supply additional products and services, then the Company shall, before
any of the revised annual caps as mentioned above is breached, re-comply
with the reporting and announcement requirements described in rules 14A.45
to 14A.47 and the independent shareholders' approval requirements
described in rule 14A.48 of the Listing Rules for the decision to purchase
or supply such additional products or services on the basis of any revised
business plan and comprehensive financial analysis.
2.2 TERMS AND CONDITIONS OF THE SUPPLEMENTAL COMPOSITE SERVICES AGREEMENT
In anticipation of the continuing increase in the price of petrochemical
products of the Company and the increasing demand of both the Company and
JCGC for the products and services from each other as a result of the
expansion of their operations, the Company and JCGC entered into the
Supplemental Composite Services Agreement on 12 August 2005 to expand the
scope of the products and services to be provided under the Composite
Services Agreement and revise the annual caps for the Continuing Connected
Transactions contemplated thereunder.
The details of and basis and reasons for such revision are set out under
paragraphs 3.3.2 and 3.3.3 of this announcement.
Payment for such transactions will be settled by cash by the Group through
internal resources.
Save as the above mentioned, the terms and conditions of the Composite
Services Agreement, including but not limited to, general principles,
terms for pricing and payments and termination of supply of any one or
more categories of products or services for the products and services,
shall remain unchanged and in full effect.
Subject to and as from obtaining independent Shareholders' approval, the
Supplemental Composite Services Agreement shall be valid till 31 December
2007.
If in any year, the Company, due to any events or factors beyond the
control of the Company (e.g. nature disasters or instability of crude oil
prices) or the development of new projects, is required to purchase or
supply additional products and services, then the Company shall, before
any of the revised annual caps as mentioned above is breached, re-comply
with the reporting and announcement requirements described in rules 14A.45
to 14A.47 and the independent shareholders' approval requirements
described in rule 14A.48 of the Listing Rules for the decision to purchase
or supply such additional products or services on the basis of any revised
business plan and comprehensive financial analysis.
2.3 ASSETS MANAGEMENT AGREEMENT
The Company sells ethylene to Jilin Petrochemical under the Master
Products and Services Agreement. The production capacity of the Company's
existing ethylene production facilities is approximately 380,000 tonnes
per year (the "Existing Facilities"). Due to the increasing demand of
Jilin Petrochemical for ethylene, which could not be satisfied by the
Existing Facilities, and the Company's lack of funds to expand such
production facilities, Jilin Petrochemical carried out an expansion of the
Existing Facilities. The expanded facilities to the Existing Facilities
are expected to commence commercial operation around 31 October 2005 with
an annual production capacity of approximately 220,000 tonnes (the
"Expanded Facilities").
To manage and operate the expanded ethylene production facilities in a
efficient manner, Jilin Petrochemical and the Company entered into the
Assets Management Agreement on 12 August 2005 under which the Company will
be responsible for the management and operation of the Expanded Facilities
owned by Jilin Petrochemical.
Subject to obtaining the independent Shareholders' approval, the Assets
Management Agreement will be valid for a term of three years from the date
of the commencement of commercial operation of the Expanded Facilities.
The Expanded Facilities are expected to commence commercial operation
around 31 October 2005. Following the expiry of such three year term and
in the event that Jilin Petrochemical intends to sell the Expanded
Facilities upon the expiry of such three year term, the Company shall have
a right of first refusal upon the same terms and conditions offered by
Jilin Petrochemical. Jilin Petrochemical shall also procure the third
party which will acquire the Expanded Facilities to undertake to be bound
by the Assets Management Agreement. Further announcement will be made if
the Company acquires the Expanded Facilities according to the Listing
Rules.
Following the commencement of commercial operation of the Expanded
Facilities, of the total amount of the ethylene produced by the Existing
Facilities and Expanded Facilities as a whole ("Expanded Ethylene Plant"),
on a monthly basis, 63.33% shall be attributed to the Company and 36.67%
to Jilin Petrochemical, being the respective percentages of the designed
production capacity of the Existing Facilities and the Expanded Facilities
to the total designed production capacity of the Expanded Ethylene Plant,
i.e., approximately 600,000 tonnes. The costs of ancillary materials,
public utilities services and fuels consumed by the Expanded Ethylene
Plant shall also be shared by the Company and Petrochemical according to
such percentages. The costs pertaining to the fixed assets in relation to
the Expanded Ethylene Plant such as the costs of depreciation, production
safety insurance fund and maintenance shall be separately accounted for
and borne by the Company and Jilin Petrochemical in relation to the
Existing Facilities and Expanded Facilities, respectively.
The ethylene and related products produced by the Expanded Ethylene Plant
attributable to the Company will be supplied to fully satisfy the
requirements of the downstream production facilities of the Company and
any excess amount may be sold to Jilin Petrochemical or independent third
parties. Such ethylene and related products attributable to Jilin
Petrochemical will be supplied to satisfy the requirements of its
downstream polyethylene production facilities and any excess amount may be
sold to the Company or independent third parties.
Page 26 of 32
The production materials for ethylene produced by the oil refinery
facilities shall be supplied to fully satisfy the requirement of the
Existing Facilities and any excess amount (if any) may be sold to Jilin
Petrochemical to be used for the Expanded Facilities. The Company will
purchase additional amount of production materials required by the
Existing Facilities from independent third parties. Jilin Petrochemical
will mainly purchase the production materials required by the Expanded
Facilities from independent third parties.
During the first year following the commence of commercial operation of
the Expanded Facilities, Jilin Petrochemical shall pay the Company a
management fee at RMB21 per tonne of ethylene attributable to the Expanded
Facilities, which is determined by reference to the average amount of the
labor cost involved in the production of ethylene by the Existing
Facilities for the two years ended 31 December 2004 and six months ended
30 June 2005. The amount of the ethylene attributable to the Expanded
Facilities is estimated not to exceed 260,000 tonnes per year. Such
management fee will be increased by 15% each year thereafter. The
management fee is payable on a monthly basis before the 5th day of each
month.
As such, the management fee payable by Jilin Petrochemical to the Company
is expected not to exceed RMB910,000, RMB5,600,000 and RMB6,440,000 for
each of the three years ending 31 December 2007, respectively.
3. BASIS FOR INCREASING THE CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS
3.1 GENERAL PRINCIPLES
The Directors consider that it is in the interest of the Group to continue
the Continuing Connected Transactions upon the same terms and conditions
set out in the Continuing Connected Transactions Agreements as amended by
the Supplemental Agreements and the Assets Management Agreement.
The Directors had revised the annual caps for the Continuing Connected
Transactions for each of three financial years ending 31 December 2007
based on the following factors:
(a) the Continuing Connected Transactions will continue to be entered
into between the Company and the relevant Connected Persons upon the
terms and conditions set out in the relevant Connected Transaction
Agreement as amended by the relevant Supplemental Agreements and
Assets Management Agreement;
(b) the annual caps are set or revised based on the amounts of the
Continuing Connected Transactions for the year ended 31 December
2004 and the six months ended 30 June 2005 set out below under
paragraphs 3.2.1 and 3.3.1 and for the reasons set out below under
paragraphs 3.2.3 and 3.3.3;
(c) there will be no material changes in existing government policies,
political, legal, fiscal, or economic conditions in the PRC or
countries to which the Company exports its products; and
(d) there will be no material delay in the production schedule or
expansion projects of the Company or material changes in the
production process of the Company.
The Directors consider that the caps for the Continuing Connected
Transactions and the basis on which such caps are set or revised are fair
and reasonable in the interest of the Company and Shareholders as a whole.
3.2 REASONS FOR REVISING THE ANNUAL CAPS FOR THE CONTINUING CONNECTED
TRANSACTION WITH PETROCHINA
3.2.1 The table below sets out the amount of the Continuing Connected
Transaction with PetroChina for the year ended 31 December 2004 and six
months ended 30 June 2005:
YEAR ENDED SIX MONTHS ENDED
CATEGORY OF TRANSACTIONS 31 DECEMBER 2004 30 JUNE 2005
(RMB'000) (RMB'000)
Purchase of crude oil 11,798,022 7,381,607
Purchase of production materials 7,447,892 3,087,316
Sale of gasoline and diesel oil 10,712,175 6,370,666
Sale of petrochemical products 11,519,222 5,781,711
Production safety insurance funds 32,958 16,576
Lease of machinery and equipment 27,733 15,650
Railway transport and water treatment services 29,706 17,090
3.2.2 The table below sets out the revises annual caps for the Continuing
Connected Transaction with PetroChina for each of the three years ending
31 December 2007:
YEAR ENDING 31 DECEMBER 2005 YEAR ENDING 31 DECEMBER 2006 YEAR ENDING 31 DECEMBER 2007
(RMB'000) (RMB'000) (RMB'000)
ORIGINAL AMOUNT OF REVISED ORIGINAL AMOUNT OF REVISED ORIGINAL AMOUNT OF REVISED
CATEGORY OF TRANSACTION CAP INCREASE CAP CAP INCREASE CAP CAP INCREASE CAP
Purchases of crude oil 23,680,000 0 23,680,000 31,370,000 0 31,370,000 33,980,000 0 33,980,000
Purchase of production
materials 2,640,000 4,536,860 7,176,860 2,920,000 7,542,720 10,462,720 3,210,000 12,030,840 15,240,840
Sale of gasoline and
diesel oil 13,320,000 0 13,320,000 17,330,000 0 17,330,000 18,780,000 0 18,780,000
Sale of petrochemical
products 12,480,000 517,570 12,997,570 14,130,000 4,347,600 18,477,600 15,310,00 6,521,410 21,831,410
Production safety
insurance funds 58,000 15,430 73,430 59,000 18,520 77,520 60,000 22,220 82,220
Lease of machinery and
equipment 18,000 61,560 79,560 20,000 86,190 106,190 23,000 129,280 152,280
Railway transport and
water treatment servies 19,000 36,720 55,720 21,000 51,410 72,410 23,000 77,110 100,110
Public utilities services* NA 797,140 797,140 NA 1,110,300 1,110,300 NA 1,665,220 1,665,220
Assets management service* NA 910 910 NA 5,600 5,600 NA 6,440 6,440
Other supporting services* NA 154,940 154,940 NA 216,920 216,920 NA 325,370 325,370
TOTAL 52,215,000 6,121,130 58,336,130 65,850,000 13,379,260 79,229,260, 71,386,000 20,777,890 92,163,890
* New continuing connected transactions to be entered into between the
Company and PetroChina from the second half of 2005
Page 27 of 32
3.2.3 The basis and reasons for revising the caps for the Continuing Connected
Transactions with PetroChina are as follows:
(A) PURCHASE OF PRODUCTION MATERIALS
The price of the production materials purchased by the Company from
Jilin Petrochemical has increased substantially in line with the
increase in the market price of petrochemical products in the PRC,
which tracks an increase in the price of crude oil by approximately
47% in the first half of 2005. The price of such production
materials has increased by an average of approximately 40% in the
first half of 2005 compared with the same period in the last year.
Such substantial increase is beyond the Director's reasonable
expectation. The Directors expect an increase of approximately 30%,
40% and 50%, respectively, in the price of such products for each of
the years ending 31 December 2007 on a year-on-year basis.
In order to comply with the new environmental protection standards
for diesel oil carried out by the PRC government in 2004, the
cracking diesel oil produced by the Company must be refined through
the hydrogenation treating facility of Jilin Petrochemical and the
Company will re-purchase the hydrogenated diesel oil for its further
processing and sales to Jilin Petrochemical. With the increase in
the volume of crude oil, the amount of the cracking diesel oil
produced by the Company which must be hydrogenated through the
hydrogenation treating facilities of Jilin Petrochemical increased
accordingly, resulting in a substantial increase in the amount of
the hydrogenated diesel oil purchased by the Company from Jilin
Petrochemical.
(B) SALE OF PETROCHEMICAL PRODUCTS
The price of the petrochemical products sold by the Company to Jilin
Petrochemical has increased substantially in line with the increase
in the market price of petrochemical products in the PRC, which
tracks an increase in the price of crude oil in the international
market by approximately 47% in the first half of 2005. The price of
petrochemical products sold by the Company to Jilin Petrochemical
has increased by an average of approximately 25% in the first half
of 2005 compared with the same period in the last year. Such
substantial increase is beyond the Directors' reasonable
expectation. The Directors expect an increase of approximately 30%,
40% and 50%, respectively, in the price of such products for each of
the years ending 31 December 2007 on a year-on-year basis.
The amount of the petrochemical products sold by the Company to
Jilin Petrochemical will also increase substantially following the
commencement of commercial operation of Jilin Petrochemical's
expanded polyethylene production facilities in October 2005 and that
of the Expanded Facilities by the end of 2005 and the commencement
of expansion of phenol acetone production facilities in 2006 and
glycol production facilities in 2007.
(C) PRODUCTION SAFETY INSURANCE FUNDS
The Company shall contribute to the production safety insurance plan
of PetroChina at 0.4% of the average cost of fixed assets and
inventory. The increase in the caps for such funds is proposed
mainly due to the increase in the cost of inventory of the Company
which is beyond the reasonable expectation of the Company due to the
substantial increase in the price of crude oil, production materials
and petrochemical products.
(D) LEASE OF MACHINERY AND EQUIPMENT
With the unexpected expansion of plants of Jilin Petrochemical, the
Company will lease additional machinery and equipment from Jilin
Petrochemical to benefit from the operation effectiveness and
proficiency which will cause an increase in the amount of the
services charges payable to Jilin Petrochemical.
(E) RAILWAY TRANSPORT AND WATER TREATMENT SERVICES
The Company will provide additional railway transport and water
treatment services to Jilin Petrochemical following the commencement
of commercial operations of Jilin Petrochemical's various expansion
projects, which would cause an increase in the amount of services
charges payable by Jilin Petrochemical beyond the Directors'
reasonable expectation.
(F) PUBLIC UTILITIES SERVICES
As a substantial part of plants of the Company is co-mingled with
those of Jilin Petrochemical at the same premises, it would be more
cost effective for the Company and Jilin Petrochemical to acquire
public utilities services from each other for those plants. The
Company and Jilin Petrochemical will provide public utilities to
each other at market price from the second half of 2005 with the
commencement of commercial operation of renovated facilities of both
the Company and Jilin Petrochemical. The Directors expect a
substantial increase in the amount of such services in 2006 and 2007
following the completion of various expansion projects by both the
Company and JCGC and in view of the continuing increase in the
prices of the public utilities due to that in the prices of power
and energy.
(G) ASSETS MANAGEMENT SERVICE
The Company will provide a management service of ethylene production
facilities to Jilin Petrochemical under the Assets Management
Agreement for a management fee from the second half 2005. The basis
on which such management fee is determined and its annual caps is
set out under paragraph 3.4.
(H) OTHER SUPPORTING SERVICES
The Company will provide maintenance services to the production
facilities of Jilin Petrochemical due to the insufficient capacity
of Jilin Petrochemical. The Company also expects to provide such
services to Jilin Petrochemical in its triennial overall overhaul
and maintenance of production facilities in the second half of 2005.
Such services will be provided at actual cost.
The Company will provide landscaping services, job training services
and other welfare and supporting services as required by Jilin
Petrochemical with its expansion of operation and labor force. Such
services will be provided at market price.
The Directors expect an average increase of approximately 50% in
2006 and 2007 on a year-on-year basis to satisfy the increasing
requirements of Jilin Petrochemical in the course of expanding both
of its operations and labor force.
Page 28 of 32
3.3 REASONS FOR REVISING THE ANNUAL CAPS FOR THE CONTINUING CONNECTED
TRANSACTION WITH PETROCHINA
3.3.1 The table below sets out the amounts of the Continuing Connected
Transactions with JCGC for the year ended 31 December 2004 and six months
ended 30 June 2005:
YEAR ENDED SIX MONTHS ENDED
CATEGORY OF TRANSACTIONS 31 DECEMBER 2004 30 JUNE 2005
(RMB'000) (RMB'000)
Sale of products 1,417,140 803,708
Examination and maintenance services 19,665 1,552
Construction of fixed assets 76,342 6,406
Purchase of production materials
and spare parts 148,587 55,903
Welfare and supporting services 262,961 42,450
Operating lease rentals on land & property 7,680 3,200
3.3.2 The table below sets out the revised annual caps for the Continuing
Connected Transactions with JCGC for each of the three years ending 31
December 2007:
YEAR ENDING 31 DECEMBER 2005 YEAR ENDING 31 DECEMBER 2006 YEAR ENDING 31 DECEMBER 2007
(RMB'000) (RMB'000) (RMB'000)
ORIGINAL AMOUNT OF REVISED ORIGINAL AMOUNT OF REVISED ORIGINAL AMOUNT OF REVISED
CATEGORY OF TRANSACTION CAP INCREASE CAP CAP INCREASE CAP CAP INCREASE CAP
Sale of products 1,503,300 637,700 2,141,000 1,643,300 2,261,300 3,904,600 1,803,300 7,022,500 8,825,800
Examination and
maintenance services 11,600 10,360 21,960 11,600 34,100 45,700 11,600 38,660 50,260
Construction of fixed
assets 26,890 110,150 137,040 26,890 124,970 151,860 26,890 150,890 177,780
Purchase of production
materials and spare parts 7,480 453,000 460,480 8,220 641,400 649,620 9,050 972,100 981,150
Welfare and supporting
services 101,550 186,990 288,540 101,550 367,850 469,400 101,550 653,270 754,820
Operating lease rentals on
land & property 7,680 4,100 11,780 7,680 4,980 12,660 7,680 5,980 13,660
TOTAL 1,658,500 1,402,300 3,060,800 1,799,240 3,434,600 5,233,840 1,960,070 8,843,400 10,803,470
3.3.3 The basis and reasons for revising the annual caps for the Continuing
Connected Transactions with JCGC are as follows:
(A) SALE OF PRODUCTS
The price of the products sold by the Company to JCGC has increased
substantially in line with the increase in the market price of
petrochemical products in the PRC, which tracks an increase in the
price of crude oil in the international market by approximately 47%
in the first half of 2005. The price of petrochemical products sold
by the Company to JCGC has increased by an average of approximately
25% in the first half of 2005 compared with the same period in the
last year. Such substantial increase is beyond the Directors'
reasonable expectation. The Directors expect an increase of
approximately 30%, 40% and 50%, respectively, in the price of such
products for each of the years ending 31 December 2007 on a
year-on-year basis.
In addition, the Company will sell certain products to JCGC which
were previously sold to third parties due to the changes in the
market, resulting in an increase in the amounts of sale of such
products.
(B) EXAMINATION AND MAINTENANCE SERVICES
In view of JCGC's improved capacity for examination and maintenance
services and for the sake of cost effectiveness, the Company will
acquire a substantial amount of additional examination and
maintenance services from JCGC instead of third parties to carry out
examination and maintenance of its production facilities, including
its triennial overall examination and maintenance in the second half
of 2005.
(C) CONSTRUCTION OF FIXED ASSETS
The Company will acquire additional fixed assets construction
services from JCGC in the course of its triennial overall
examination and maintenance in the second half of 2005. Moreover,
the Company will acquire an additional amount of such services from
JCGC as it expects to carry out a series of small scale renovation
and expansion projects in 2006 and 2007.
(D) PURCHASE OF PRODUCTION MATERIALS AND SPARE PARTS
The price of the production materials purchased by the Company from
JCGC has increased substantially in line with the increase in the
market price of petrochemical products in the PRC, which tracks an
increase in the price of crude oil in the international market by
approximately 47% in the firs half of 2005. The price of production
materials purchased by the Company from JCGC has increased by an
average of approximately 40% in the first half of 2005 compared with
the same period in the last year. Such substantial increase is
beyond the Director's reasonable expectation. The Directors expect
an increase of approximately 30%, 40% and 50%, respectively, in the
price of such production materials for each of the years ending 31
December 2007 on a year-on-year basis.
In addition, the Company will continue to purchase certain
production materials from JCGC which were purchased from independent
third parties due to the unexpected changes in the market, resulting
in an substantial increase in the amounts of purchase of such
production materials.
(E) WELFARE AND SUPPORTING SERVICES
With the expansion of operations by JCGC, the Company will acquire a
substantial amount of additional public utilities services from
JCGC's plants to benefit from the convenience of locations and
achieve cost effectiveness.
(F) OPERATING LEASE RENTALS ON LAND AND PROPERTY
With the expansion of operations by JCGC, the Company will lease
additional properties from JCGC's facilities to benefit from the
convenience of locations and achieve cost effectiveness.
Page 29 of 32
3.4 BASIS FOR THE ANNUAL CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS UNDER
THE ASSETS MANAGEMENT AGREEMENT
The management fee payable under the Assets Management Agreement is
determined with reference to the average amount of actual labor costs
incurred in the production of ethylene for the two years ended 31 December
2004 and six months ended 30 June 2005, being RMB21 per tonne of ethylene.
The annual caps for the management fee payable by Jilin Petrochemical to
the Company for each of the years ending 31 December 2008 are estimated on
such basis multiplied by the amount of ethylene attributable to the
Expanded Facilities and a mark-up of 15% on the labor cost each year
thereafter. The estimated maximum amount of ethylene attributable to the
Expanded Facilities will be approximately 260,000 tonnes for each of the
three years following the commencement of commercial operation of the
Expanded Facilities.
4. BREACH OF TWO CAPS FOR ONE CONTINUING CONNECTED TRANSACTION
In the course of preparing the interim report for the six months ended 30
June 2005, the Directors noted that while the Company is in compliance
with the cap set out in the Master Products and Services Agreement for the
total amount of the Continuing Connected Transactions with PetroChina for
the year ending 31 December 2005, the estimated maximum amount for the
purchase of production materials by the Company from PetroChina has been
exceeded. The total amount of production materials purchased by the
Company from PetroChina for the six months ended 30 June 2005 was
approximately RMB3,087,316 which exceeds the annual cap for such
transaction as approved by the independent Shareholders, being
RMB2,640,000,000.
Such breach was mainly due to the purchase of a large amount of
hydrogenated diesel oil by the Company from Jilin Petrochemical in order
to comply with the new environmental protection standards for diesel oil
introduced by the PRC government in 2004, which is beyond the Company's
control and reasonable expectation. To comply with such standards, the
cracking diesel oil produced by the Company must be refined through the
hydrogenation treating facility of Jilin Petrochemical and the Company
will re-purchase the hydrogenated diesel oil for its further processing
and sales to PetroChina. With the increase in the volume of crude oil, the
amount of the cracking diesel oil produced by the Company, which must be
hydrogenated through the hydrogenation treating facilities of Jilin
Petrochemical, increased accordingly and resulted in a substantial
increase in the amount of the hydrogenated diesel oil purchased by the
Company from Jilin Petrochemical.
The Directors also noted that while the Company is in compliance with the
cap set out in the Composite Services Agreement for the total amount of
the Continuing Connected Transactions with JCGC for the year ending 31
December 2005, the estimated maximum amount for production materials
purchased by the Company from JCGC has been exceeded. The total amount of
production materials purchased by the Company from JCGC for the six months
ended 30 June 2005 was approximately RMB55,903,000 which exceeds the
annual cap for such transaction as approved by the independent
Shareholders, being RMB7,480,000.
Such breach was mainly due to the purchase of a large amount of fatty
alcohol by the Company from PetroChina which was purchased from a third
party. As the third party ceased its manufacturing of such production
material and due to the Company's lack of import license, the Company has
to import such production material of equivalent standards through a
subsidiary of JCGC with such license, resulting in a substantial increase
in the amount of production materials purchased from JCGC.
The delay in disclosure of and omission in obtaining the independent
Shareholders' approval for such sale of petrochemical products has
constituted breaches of the Listing Rules. The Stock Exchange has informed
the Company that it reserves the rights to take appropriate actions
against the Company and/or the Directors in respect of the breaches of the
Listing Rules.
To remedy such breach, the Directors have resolved to enter into and
propose for the Shareholders' approval of the Supplemental Agreements to
revise the annual caps for the Continuing Connected Transactions,
including but not limited to, the purchase of production materials from
PetroChina and the purchase of production materials and spare parts from
JCGC to satisfy the increasing demand for such transactions in the
ordinary and usual course of the business of the Company. Furthermore, the
Directors will continue to monitor closely the amount of the Continuing
Connected Transactions on a monthly basis. The Directors, will
particularly review the amounts of the Continuing Connected Transactions
and take prompt actions to make necessary disclosure and obtain
independent Shareholders' necessary approval as required under the Listing
Rules if the amount of any of the Continuing Connected Transactions
exceeds or is likely to exceed the relevant cap.
5. LISTING RULES IMPLICATIONS FOR SUPPLEMENTAL CONTINUING CONNECTED
TRANSACTIONS
PetroChina is the controlling shareholder of the Company and JCGC is a
wholly-owned subsidiary of the ultimate controlling shareholder of the
Company. They are respectively Connected Persons of the Company as defined
under Rule 14A.11 of the Listing Rules. Accordingly, the transactions
under the Supplemental Agreements and the Assets Management Agreement
constitute non-exempt continuing connected transactions of the Company
under Rule 14A.35 of the Listing Rules and are subject to the disclosure
requirements under Rules 14A.37 to 14A.40, 14A.45 and 14A.47 and the
approval of the independent Shareholders under Rule 14A.48 of the Listing
Rules.
6. APPROVAL BY THE BOARD
A meeting of the Board was held on 12 August 2005, at which the Board
approved the entering into of: (i) the Supplemental Master Products and
Services Agreement with Jilin Petrochemical; (ii) the Supplemental
Composite Services Agreement with JCGC; and (iii) the Assets Management
Agreement with Jilin Petrochemical. The votes of Mr. Yu Li, Ms. Yang
Dongyan, Mr. Ni Muhua, Mr. Jiang Jixiang and Mr. Xiang Ze, who are also
employees of PetroChina, were not counted. All the remaining six
Directors, including Mr. Zhang Xingfu, Mr. Li Chongjie, Mr. Wang Peirong,
Mr. Lu Yanfeng, Mr. Zhou Henlong and Ms. Fanny Li, have approved all such
agreements.
7. EXTRAORDINARY GENERAL MEETING AND CLOSURE OF REGISTER OF MEMBERS
The Board of the Company resolved to convene an Extraordinary General
Meeting of the Company on 29 September 2005 to approve, among other
things, the Supplemental Agreements and the Assets Management Agreement.
PetroChina and its associates will abstain from voting with regard to
ordinary resolutions in connection with the matters mentioned above to be
proposed at the Extraordinary General Meeting.
A circular containing, among other things, details of the Supplemental
Agreements and the Assets Management Agreement, the recommendations of the
independent board committee and the advice of Watterson Asia Limited, the
independent financial adviser of the independent board committee will be
despatched to the shareholders of the Company.
The holders of the Company's shares whose names appear on the register of
members of the Company at 4:00 pm on 30 August 2005 will be entitled to
attend the Extraordinary General Meeting. The register of members of the
Company will be closed from 31 August 2005 to 29 September 2005 (both days
inclusive), during which no transfer of H Shares will be effected.
THE SUPPLEMENTAL AGREEMENTS AND THE ASSETS MANAGEMENT AGREEMENT MAY OR MAY
NOT BE APPROVED BY THE INDEPENDENT SHAREHOLDERS. SHAREHOLDERS AND
POTENTIAL SHAREHOLDERS ARE ADVISED TO EXERCISE CAUTION WHEN DEALING IN THE
SHARES OF THE COMPANY.
Page 30 of 32
7. GENERAL INFORMATION
The Group's principal business consists of production and sale of
petroleum products, petrochemical and organic chemical products, synthetic
rubber products, chemical fertilizers and other chemical products.
As of the date hereof, the Board comprises of:
EXECUTIVE DIRECTORS:
Yu Li, Zhang Xingfu, Li Chongjie
NON-EXECUTIVE DIRECTORS:
Yang Dongyan, Ni Muhua, Jiang Jixiang, Xiang Ze
INDEPENDENT NON-EXECUTIVE DIRECTORS:
Lu Yanfeng, Wang Peirong, Fanny Li, Zhou Henglong
By order of the Board of Directors
YU LI
CHAIRMAN
12 August 2005
Jilin, the PRC
DEFINITIONS
"Assets Management the assets management agreement entered into between the
Agreement" Company and Jilin Petrochemical (as authorized by
PetroChina) on 12 August 2005 in relation to the
management of certain ethylene production facilities by
the Company for Jilin Petrochemical
"Board" the board of Directors
"CNPC" China National Petroleum Corporation, a state-owned
enterprise established in the PRC, which, pursuant to
the Restructuring, oversees the exploration and
development of oil and natural gas resources, refining,
transportation, marketing of crude oil and refined
products
"Company" Jilin Chemical Industrial Company Limited, a joint stock
limited company incorporated in the PRC with H Shares
listed on the Stock Exchange and American Depository
Shares listed on the New York Stock Exchange
"Composite Services the composite services agreement entered into between
Agreement" the Company and JCGC on 30 November 2004 for a term of
three years from 1 January 2005 to 31 December 2007 to
govern the continuing supply of certain goods and
services between the parties
"Connected Person(s)" connected person(s) of the Company as defined in the
Listing Rules, i.e., in relation to the Company, means a
promoter, director, supervisor, chief executive or
substantial shareholder of the Company or any of its
subsidiaries or an associate of any of them. For purpose
of this announcement, means PetroChina and/or JCGC
"Continuing Connected the transaction(s) entered into between the Group and
Transaction(s)" PetroChina and JCGC respectively which constitute
continuing connected transactions as defined in Chapter
14A of the Listing Rules
"Continuing Connected the circular dated 24 December 2004 issued by the
Transaction Circular" Company relating to the continuing connected
transactions with PetroChina and JCGC, respectively
"Directors" the directors of the Company
"EGM" the extraordinary general meeting of the Company to be
held on 29 September 2005
"Group" the Company and its subsidiaries from time to time
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Independent the independent non-executive directors of the Company
Directors"
"JCGC" Jilin Chemical Group Corporation, a wholly-owned
subsidiary of CNPC
"Jilin Petrochemical" Jilin Petrochemical Branch Company of PetroChina
"Listing Rules" The Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited
"Master Products and the master products and services agreement entered into
Services Agreement" between the Company and PetroChina on 30 November 2004
for a term of three years from 1 January 2005 to 31
December 2007 to govern the continuing supply of certain
goods and services between the parties
"petrochemical petrochemical products including ethylene, propylene,
products" styrene, butadiene, 1-butene, xylene, n-xylene, and
other miscellaneous products
"PetroChina" PetroChina Company Limited, a subsidiary of CNPC
incorporated as a joint stock company with limited
liability in the PRC with H Shares listed on the Stock
Exchange and American Depository Shares listed on the
New York Stock Exchange
"PRC" The People's Republic of China
"RMB" Renminbi, the lawful currency of the PRC
"Shareholders" shareholders of the Company
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"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supplemental an agreement entered into between the Company and JCGC
Composite Services 12 August 2005 to amend and supplement certain terms of
Agreement" the Composite Services Agreement
"Supplemental Master an agreement entered into between the Company and Jilin
Products and Petrochemical (as authorized by PetroChina) on 12 August
Services Agreement" 2005 to amend and supplement certain terms of the Mater
Products and Services Agreement
"Supplemental collectively, the Supplemental Master Products Services
Agreements" Agreement, the Supplemental Composite Services Agreement
"%" per cent.
FOR THE PURPOSE OF ILLUSTRATION ONLY, THE TRANSLATION OF RMB INTO HONG KONG
DOLLARS IS BASED ON THE EXCHANGE RATE OF HK$1.00 TO RMB1.07.
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