Good morning, ladies and gentlemen. This is Jane Liu of PR China. Welcome, everyone, to Sinopec Corp's earnings conference call for the Q1 of 2021. Please be reminded that the results presentation for the Q1 of 2021 can be downloaded at www.sinopag.com. All lines have been placed on mute to prevent background noise.
After the presentation, there will be a question and answer session. Please follow the instructions given at that time if you would like to ask a question. Now, I would like to transfer the call to Mr. Zhang Zheng, Head of the Board Secretary of Sinopec Corp. Mr.
Zhang, you may begin.
Thank you, Jen. Good morning, ladies and gentlemen. Welcome to Sinopec Q1 results announcement, and thank you for your joining us today. This meeting is attended by Mr. Huang Wen Sheng, Vice President and Secretary to the Board and Mr.
Song Zhenguo, Deputy Head of Finance Department
and Madam Li Li, Deputy Head of
Operations and Management Department. First, I would like to give the floor to Mr. Chen Yang, Deputy Head of the Board's Secretariat to present you the performance of Q1. Mr. Chen, please.
Thank you, Mr. Chen. Good morning, ladies and gentlemen. Firstly, I will brief you on our performance of the Q1. The effects of global epidemic prevention and control have gradually emerged and China's economy maintained recovery growth with GDP up by 18.3%.
International crude oil price cap growth and the spot price of glass brand for the Q1 averaged US60.9 dollars per barrel, up by 21.2% year on year. The domestic demand for refined oil products recovered steadily, while natural gas and petrochemical demand maintained rapid growth. To promote the efficiency and profitability of the whole industrial chain and comprehensively promote high quality development. The company actively responded to market changes and optimized production and operation arrangements and achieved outstanding performance. In the Q1, our EBIT was KRW33 1,000,000,000 up by KRW59 1,000,000,000 year on year and also better than the Q1 in 20 19.
All the 4 segments achieved good results. Profit attributable to shareholders was RMB18.5 billion, up by RMB37.8 billion year on year. EPS was RMB0.153. In the Q1, we increased low cost financing and comprehensive finance cost was 2.7%, capped at low level. Debt to asset ratio was 49.5%, maintaining our strong financial position.
Equity attributable to shareholders of the company was rmb764.7 billion. For our cash flow, due to the payment for deferred tax of last year, net cash generated from operating activities was negative, but much better than the same period of last 2 years. To ensure the liquidity of the company, we raised RMB28 1,000,000,000 of short term debt and issued RMB30 1,000,000,000 of silver short term commercial paper with low interest. Net cash used in investing activities was RMB24.1 billion and cash generated from financing activities was yu51.1 billion. Cash and cash equivalents reached yu198.1 billion, up by 5.3% compared with the beginning of reporting period, providing strong backup for future growth.
For upstream, in the Q4, the company continuously priced ahead with high efficiency exploration and profit oriented development, accelerated systematic construction of natural gas production, supply, storage and marketing and achieved tangible results in maintaining oil production, increasing gas output and cutting costs. The company's production of oil and gas reached 117,000,000 barrels of oil equivalent, with natural gas production reached 292 Bcf, up by 17% year on year. In addition, we enhanced the expansion of natural gas market with sales volume up by 37% year on year. We strengthened cost control and enhanced competitiveness through improving efficiency. In the Q1, listing cost was $15.9 per barrel, slightly increased.
Excluding the impact of renminbi appreciation, our listing cost decreased by 5.4%. Realized crude oil and natural gas price was US54.9 dollars per barrel and US7.1 dollars plus 1,000 cubic feet, up by 11.7% and 9.9%, respectively. Upstream results improved significantly with EBIT reached RMB3.1 billion, up by 54.1 percent year on year. For refining, in the Q1, we brought the advantage of integrated refining and marketing into full play, kept a high utilization rate and significantly increased refinery throughput, which is 62,500,000 tons, up by 16.3% year on year. Based on market needs, we intensified product slight adjustment and increased output of marketable and high profit products, such as gasoline and chemical feedstock.
We coordinated whole process management of crude oil supply to lower procurement costs. We also sped up the construction of advanced capacity and promoted structural adjustments. In the hydrogen business, we accelerated the construction of hydrogen preoccupation units. Through these efforts, we realized a record high refining margin of US11.75 dollars per barrel. EBIT for this segment was $19,900,000,000 achieving a turnaround in profit year on year and also have 63.7% higher than that of the same period in 2019.
For marketing, in the Q1, we brought the advantage of marketing network into full play. Continuously expanded market is a substantial increase of domestic sales volume and retail scale. We constantly optimized the network layout to reach end users and improved the network integrity, stability and competitiveness. We also promoted the construction of hydrogen charging and battery swap stations to improve the capability and services of comprehensive energy supply. Domestic sales volume was 40,000,000 tons, up by 23.2%.
Retail volume reached 27,000,000, up by 24.4%. We deepened non fuel business reform and improved membership system. Non fuel business profit was KRW1.2 billion, up by 87%. EBIT for the segment was KRW8.6 billion, realized significant growth year on year and better than that of the same period in 2019. For chemicals, in the Q1, the company further fine tuned chemical feedstock mix and well controlled feedstock costs.
We integrated production with marketing strengthened research on market needs to increase the ratio of high value added and high end products. Ethylene production was 3,400,000 tons, up by 11.7% year on year and the total chemical sales volume was 19,800,000 tons, up by 10.5%. Domestic chemical demand was robust in the Q1. We optimized product slate and feedstock structure, well controlled cost and realized very good margin. EBIT was KRW8.93 billion made a turnaround year on year and 4% higher than that of the same period of 2019.
For CapEx, in the Q1, our CapEx was KRW23 1,000,000,000, mainly used for the construction of natural gas industry of China, advanced refining capacity and supporting the transformation and the development of the company. KRW9 billion was in E and P, mainly for oil and gas capacity building and R and D projects. Refining accounted for RMB7.6 billion, mainly on Anqing Refinery Structural Adjustment and Expansion of Zhenghai. RMB2.9 billion was in marketing, mainly for construction of service stations, hydrogen stations, staples and non fuel business. Chemicals accounted for RMB1.8 billion mainly on building advanced production capacity, including Zhenghai, Tianjin, Nangong and the Amur projects.
The capital expenditure for others was RMB1.7 billion mainly for R and D facilities and IT projects. That's all for the presentation. And now the management is glad to take your questions. Thank you.
Thank you, Mr. Chen. We'll now open the floor for Q and A. Please.
Ladies and gentlemen, this concludes the prepared remarks for today and we're now ready for
Thank you. The first question is Laurence from BLCI. Please go ahead.
Okay. I would like to take the first question. So the total imported RNG volume for the Q1 was around TWD5.2 million and for the whole year, the total volume would be the RMB17.4 million. And I would like to take your second question. So in order to maintain a stable operation, the company normally keep the inventory of the crude oil at a steady day processing volume level.
And so in the Q1, the inventory gains of Refining segment was around RMB8.8 billion.
Thank you. Next question please.
Okay. Thank you for the question. And the next question is Tom from HSBC.
Gentlemen, congratulations on the performance. It's comparable here. I just wanted to ask you, the cash balances continue to build here. You're almost at RMB 200,000,000,000 of cash and cash equivalent. When are we going to hear more about what your long term strategy is regard to balance sheet management and the application of that cash?
Thank you very much.
Thank you, Tom, for your great questions. Yes, thank you. The first quarter results were sound and the company's try to manage the sustainable development of in the various business units. And in the whole year, we expect that the company can continue to deliver the momentum growth given economic growth in China will be continue strong and demand in China, but our products as well as the chemical products will be continue strong. At the current environment, we are very confident on the earning power And at the same time, we are trying hard to manage our cash flow.
And you are absolutely right. We have built up the cash around some RMB200 1,000,000,000. And we also have make our CapEx plan this year. It's going to be around RMB150 1,000,000,000 to RMB160 1,000,000,000. And apart from that, we also have the dividend payout and the same time to try to control the gearing.
So you can find you can tell through the investment, we will try to manage the growth and the company also have the existing dividend payout decline. So all those areas are the major area of cash will be allocated. Thank you.
Okay. Thank you for your question. Thank you. The next question is Wang Ruihua from JPMorgan. Please go ahead.
Hi, thank you for the chance to ask your question. This is Parsley Ong from JPMorgan. I would like to check your E and P earnings in Q1 was pretty good. Could you give us an update on your all in production cost? And over the next few years, what are your plans for cost reduction?
And how do you plan to achieve this? Thank you.
So the oil in cost for oil and gas was around $38.2 per BOE and increased around $2.3 per BOE compared with the same period of last year. There are two major reasons. The first is that according to the accounting policy, we have made some impairment in the the upstream asset impairment in the last year. So the SEC reserve we used this year decreased. And because of this, the DD and A increased.
And in addition, our leasing cost maintained stable compared with the same period of last year. And in the future the E and P segment will take the strategy which was to maintain a stable oil production and to accelerate the gas output and to decrease the oil in cost to further decrease or reduce the oil in cost in our E and P segment. We also have a plan in our 14th 5 year plan period that is to decrease our oil in cost of the domestic crude oil to around
$45 per barrel.
Thank you.
Okay. Thank you for the question. And as a reminder, if you would like to ask any questions, please press star 1. Thank you. The next question is Li Hong Liang from Morgan Stanley.
Please go ahead.
I have two questions. The first was regarding the chemical margin. Currently, speaking the chemical margin was pretty good. So I want to know the company's outlook for the chemical market. And the second question was regarding the new energy outlook.
I know the company has some cooperation with a lot of new energy companies such as NIO. So I want to know if the company has a future plan or cooperation with other private or new energy companies. Thank you. So in the Q1, the company grasped the opportunity of the food chemical market to optimize our feedstock mix and our product slate to maintain a high level run rate. And we realized a good relatively good performance of chemical segment in the Q1.
And currently speaking, the domestic economy kept a good recovery growth. And in addition, the overseas the pandemic situation in the overseas countries are much better. So I think generally speaking, the demand for chemicals would be at a high level growth. And from the view of the supplying side, some chemicals price was increasing in the Q1, but there will also be some new advanced domestic capacity will be put into operation concentratedly in the next few quarters. So it is hard to anticipate if the price or the chemical margin will increase or not.
But for the company, we will hold a strategy that is to optimize the product slate to maintain or to fulfill the demand of the market to achieve a better performance in the next few quarters. Thank you. So for our company, we are the largest one stop energy service in China and we have more than 60% market share for the automobiles and we have also a very large network which was around 30,000 gas station. So we cannot only provide the photo bills for the automobiles, but also can provide some new energy such as for EV cars or FEC EV cars. So in the future, we will actively explore the cooperation to set up a new business model to fulfill the demand of the customers and to continue to enhance our leverage of very large network to fulfill our customers.
Thank you.
Okay. Thank you for the question. And the next question is Neil from Bernstein. Please go ahead.
Yes. Thank you very much. Two questions really around, again, the new energy business and specifically on hydrogen plans. So you've talked about rolling out, I think, 1,000 hydrogen stations by 2025. Can you talk about how much the CapEx is going to be for this?
And what kind of margins you'd expect in that business? Would it
be higher or lower than
your existing fuels marketing business margins? And secondly, in terms of the hydrogen supply, will that come from the existing supply within Sinopec? I think you produced about 3,500,000 tonnes per year. So will it be from existing hydrogen supply? Or will you be investing in new green hydrogen production facilities?
Thank you.
Thank you. I would like to take these two questions. For the first one regarding the hydrogen business, the company have carefully following the domestic policy and the international policies. We are the leading company of the Global Compact and we are a member of a lot of those initiatives to clean up burned energies. So in last year, the President of Chinese President Xi Jinping announced that China will make ambitious plan to fulfill the carbon peak and the carbon neutralities.
And after that, the company also make a plan to take the practical measures to as a company, we should be a practitioner. And to make a
concrete plan to deliver
that, and the hydrogen is a part of the solution of based on our existing plan, we want to we plan to build some 1,000 hydrogen stations in China. And
to
be honest, we are going to start in this year for the 100. At the moment, we are operating some 10 stations. And 2 out of the 10 today is breakeven, 1 in 1 in Guangdong and another one in Shanghai, but 8 out of those 10 is still in red. The major reason for that is the lack of applications. There are very few those products on the road.
So it's kind of the chicken and eggs issues. However, we believe we are the leading company. We have existing facilities and we have a lot of advantages to install this infrastructure to booming and helping to incubate this hydrogen business in China. So the 100 stations will help that the development of those fuel cell cars and fuel cells vehicles. And I believe in the second half of this year, the Chinese government will launch its promotion or incentive policies to show for the development of hydrogen vehicles.
And those policy will be we believe will be very positive to trigger the further development of the hydrogens and our existing outlets and networks will be a great help in terms of the infrastructure to boosting the hydrogens development. And for currently, based on the current model, the one station cost will be around some RMB 20,000,000 and it's fully equipped the hydrogen plant with in COVID with existing petrol stations. And we believe through this combination of these two kind of the services, the station can manage the breakeven and make some profit because some major profit come from fuel side and eventually the hydrogen will make a breakeven. For the hydrogen longer term investment, currently the major hydrogen will come from our existing operations from our refining Sohrab PSA to purify the hydrogen to permit the 99.999 purity of hydrogen that is fuel cell enabled hydrogens today. However, in short term, we are also considering to make investment to build the PAM in the stations to help to serve the fuel cell vehicles.
And also, we are looking at opportunities to liquefy the hydrogens or work with our other partners to manage those infrastructures. And at the same time, we're also starting some of the applications of hydrogen. It's not only used to the mobility areas, it also can be used in our chemical feedstocks in certain areas that the alternative energy can be pretty low cost. So we are working on that and we are going to announce in the next year of those data plans. Thank you.
Okay. Thank you for the question. And the next question is Mu Wei from JPMorgan. Please go ahead.
I have two questions. The first question was regarding the dividend policy for the company and what is the outlook for the whole year dividend payout ratio? And the first and the second question was regarding the refining run rate. So I know in the future there will be some maintenance in the refining facilities. So what does the overall impact the run rate of the refining segment?
Thank you. So the company always value the return to our shareholders. We would like to supply a long term stable payback to our shareholders by a high quality development as well as to maintain a stable and continuous sustainable dividend policy. So you can see that in the first half of last year, the company suffered a loss, but we still pay a special dividend to our shareholders to maintain the sustainability of our dividend. So for the whole year dividend payout ratio of 2020, the payout ratio was more than 73%.
And I think in the future, the management of the company will also value the return of our shareholders and maintain a good level of payout ratio. Thank you. In the Q1, the run rate of refining facilities was 91.7%, increased 7 percentage compared with last year. And in addition, the run rate of ethylene facilities was 98.8%, increased 5 percentage compared with last year, as well as the PX run rate was around 93% increased 6.8 percentage. And we will have some overhaul in the Q2.
And I think the maintaining plan will not impact the run rate of our refining and chemical facilities very much because we have a room to improve or increase the run rate of other facilities to offset the maintaining facilities. And generally speaking, I think the run rate of refining facilities will be more than 90% in the second quarter as well as the run rate of ethylene and PX facilities will also be more than 95% or 90 6% in the Q2. Thank you.
Thank you for the question. The next questioner is Matthew Zhao from Value of Range. Please go ahead.
So I have two questions. The first question was regarding the natural gas business. I know in the context of carbon and of Chinese government carbon emission picking and carbon neutrality target. So what is the production plan of the company for the natural gas business? And I also would like the company to elaborate the natural gas cost in the future.
And the second question was regarding the RNG importation business. So I know there will be a time lag in the RNG price. So recently speaking, the crude oil price increased. So I would like to know if the RNG business will suffer losses in the future? Thank you.
And the company always focused on our natural gas business and it was also our major strategy in our E and P segment. So currently speaking, the natural gas the all in cost of natural gas was around RMB5 1,000,000 per cubic meter. And we will also have future plans for our natural gas production volume. So I would like to see that along with the volume increase, I think the unit cost of natural gas will also decrease and diluted. So for the 2021, our natural gas production plan was around 34 Bcm and for 2022, the target was around 38 Bcm and the number was around 42 Bcm in 2023.
And we also have a future plan for our unconventional gas that is the shale gas. So in this year, our shale gas production plan was around 10.6 Bcm. And I believe that the shale gas volume growth rate in the future will be between the 6% to 10%. And maybe in the 2022, the production volume of shale gas will be around 12 Bcm to 12.5 Bcm. As well as for the cost of shale gas, I think that the cost of shale gas in the future will be lower than the current level.
Thank you. So I would like to take your questions which was regarding the importation R and D importation business. So in the Q1, the company the total imported RNG volume of the Oxenopaque was around RMB5.2 million. And we procure the RNG from the long term contract and from the spot market. So for the whole year's thinking, the RNG importation volume would like to will be around 17,400,000 times and the sources also will be from the spot market as well as the long term contract.
Sinopec will always pay attention to the natural gas value chain construction to fulfill the market demand and we will take the market price as well as the domestic natural gas demand and some other key factors into consideration to optimize the pace of our natural R and D importation business as well as to increase our R and D the profit of the R and D business in the next few quarters. Thank you.
Okay. Thank you again for attending Sinopec's announcement and your continued support. If you have any further questions, please contact our Board Secretary and IR people based in Beijing, Hong Kong and Houston. That concludes today's announcement. Thank you.