Annual Report 2012

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2012
40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
Currency risk
Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The
Group’s currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries
denominated in US Dollars, Japanese Yen and Hong Kong Dollars. The Group enters into foreign exchange contracts to manage its currency risk
exposure.
Included in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group are the following amounts
denominated in a currency other than the functional currency of the entity to which they relate:
The Group The Company
2012 2011 2012 2011
millions millions millions millions
Gross exposure arising from debts and loans
US Dollars USD 2,405 USD 1,794 USD 66 USD 42
Japanese Yen JPY 10,753 JPY 14,532 JPY 10,753 JPY 14,532
Hong Kong Dollars HKD 13,511 HKD 12,847 HKD 13,511 HKD 12,847
A 5 percent strengthening of Renminbi against the following currencies at 31 December 2012 and 2011 would have increased profit for the year and
retained earnings of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates
had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated
above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2011.
The Group
2012 2011
RMB millions RMB millions
US Dollars 567 424
Japanese Yen 29 44
Hong Kong Dollars 411 391
Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the
functional currency of respective entity within the Group.
Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term and long-term debts. Debts bearing interest at variable rates and at fixed
rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates of short-term and long-term
debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 29.
As at 31 December 2012, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables
held constant, would decrease/increase the Group’s profit for the year and retained earnings by approximately RMB 577 million (2011: RMB 271
million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group’s debts outstanding at
the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2011.
Commodity price risk
The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil and refined oil products.
The fluctuations in prices of crude oil and refined oil products could have significant impact on the Group. The Group uses derivative financial
instruments, including commodity futures and swaps, to manage a portion of this risk. As at 31 December 2012, the Group had certain commodity
contracts of crude oil and refined oil products designated as qualified cash flow hedges and economic hedges. The fair values of these derivative
financial instruments as at 31 December 2012 are set out in Notes 27 and 31.
As at 31 December 2012, it is estimated that a general increase/decrease of USD 10 per barrel in crude oil and refined oil products, with all
other variables held constant, would decrease/increase the Group’s profit for the year and retained earnings by approximately RMB 221 million
(2011: increase/decrease RMB 563 million), and increase/decrease the Group’s other reserves by approximately RMB 152 million (2011: RMB 450
million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change
was applied to the Group’s derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the
same basis for 2011.
Equity price risk
The Group is exposed to equity price risk arising from changes in the Company’s own share price to the extent that the Company’s own equity
instruments underlie the fair values of derivatives of the Group. As at 31 December 2012, the Group’s exposure to equity price risk is the derivatives
embedded in the 2007 Convertible Bonds and the 2011 Convertible Bonds issued by the Company as disclosed in Note 29(c) and (e) respectively.
As at 31 December 2012, it is estimated that an increase of 20% in the Company’s own share price would decrease the Group’s profit for the year
and retained earnings by approximately RMB 2,007 million (2011: RMB 2,159 million); a decrease of 20% in the Company’s own share price would
increase the Group’s profit for the year and retained earnings by approximately RMB 1,448 million (2011: RMB 1,628 million). This sensitivity
analysis has been determined assuming that the changes in the Company’s own share price had occurred at the balance sheet date and that all
other variables remain constant. The analysis is performed on the same basis for 2011.
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CHINA PETROLEUM & CHEMICAL CORPORATION Annual Report 2012
Financial Statements (International)