Sinostar PEC Holdings Limited. Annual Report

Transcription

1 Sinostar PEC Holdings Limited 2011 Annual Report

2 WE ARE SINOSTAR PEC HOLDINGS LIMITED With a comprehensive production process and the right infrastructure to carry out seamless operations, we have been successful in being a trusted producer and supplier of oil and petrochemical products in our network in the PRC, serving growth markets in strategic proximity to our nationwide footprint.

3 SINOSTAR PEC HOLDINGS LIMITED Annual Report SINOSTAR PEC AT A GLANCE CONTENTS 2 Sinostar PEC at a Glance 10 Letter to Shareholders 18 Operations Review 20 Board of Directors 22 Key Management 24 Financial Highlights 25 Corporate Governance Report 39 Financial Contents 80 Statistics of Shareholdings 82 Notice of Annual General Meeting Proxy Form Corporate Information

4 2 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 SINOSTAR PEC AT A GLANCE ABOUT SINOSTAR PEC HOLDINGS LIMITED We are one of the largest producers and suppliers of oil and petrochemical products within 400km radius of our production facilities within the Dongming Petrochem Industrial Zone in Dongming County of Shandong Province, PRC. Situated within the Zhongyuan Oilfield one of PRC s largest oilfields, rich in energy resources and linked by a comprehensive logistics network, our strategic location allows us to reach out to the nearby populous and industrialised provinces such as Shandong, Henan, Anhui, Jiangsu, Shaanxi, Hebei and Zhejiang. PEOPLE S REPUBLIC OF CHINA Anhui Hebei Shandong Shanxi Henan Hubei Zhejiang

5 SINOSTAR PEC HOLDINGS LIMITED Annual Report SINOSTAR PEC AT A GLANCE We aim to be more than an experienced producer of oil and petrochemical goods. We aim to be a committed supplier of product quality, prompt delivery and good customer service. Our Corporate Structure Our Group comprises Sinostar PEC Holdings Limited and our PRC subsidiary, Dongming Hengchang. In June 2008, through our subsidiary, we incorporated another subsidiary, Dongming Runchang Petrochemical Co., Ltd., in a joint venture with Dongming Petrochem Holdings Group (previously owned by Dongming Zhongyou Fuel and Petrochemical Company Limited s subsidiary), Dongming Runbang Petrochemical Co., Ltd. Prioritising Quality We have attained 3 major international standards in the areas of quality, environment and health management: ISO9001:2001, ISO14001:2004 and OHSAS18001:1999 a testimony to the importance we place on quality and safety control. Hengchang: Our Flagship Brand Backed by a strong reputation and credible track record for our commitment towards providing quality products and services, our Hengchang brand of polypropylene was named Shandong Province Famous Trade Mark and Shandong Top Brand in August and October 2005 respectively. 100% DONGMING HENGCHANG PETROCHEMICAL CO., LTD. DONGMING RUNCHANG PETROCHEMICAL CO. LTD DONGMING RUNBANG PETROCHEMICAL CO., LTD 100% SINOSTAR PEC HOLDINGS LIMITED 51% 49% DONGMING PETROCHEM HOLDINGS GROUP

6 4 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 OUR KEY PRODUCTS

7 SINOSTAR PEC HOLDINGS LIMITED Annual Report OUR PRODUCTION PROCESSES Briefing OUR KEY PRODUCTS

8 6 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 OUR KEY PRODUCTS GASOLINE Gasoline is an important fuel for engines, particularly for gasoline engines. It is widely used in automobiles, motorcycles, boats, helicopters and agricultural aircrafts. DIESEL Diesel is produced from crude oil via distillation. It is a special fuel used in compression-ignition engines (diesel engines). Diesel is a watery-white, light yellow or brown liquid. There are two types of diesels: light diesel and heavy diesel. Light diesel is used in high-speed diesel engines of 1000r/min or above, and heavy diesel is used in mid and low speed diesel engines of less than 1000r/min. LPG A type of liquefied petroleum gas used as a source of fuel by households and industrial manufacturers Mainly sold as household fuel through LPG distributors. A small portion is also sold to industrial manufacturers that use LPG as a source of fuel for their own production PROPYLENE An organic compound extracted from raw LPG Sold to other petrochemical producers to produce chemical intermediates such as polypropylene, vinyl cyanide,epichlorohydrin, propylene glycol, acetone and isopropanol POLYPROPYLENE A major derivative of propylene a thermoplastic polymer which is resistant to chemicals and heat Mainly sold to plastic manufacturers to produce plastic products for various industrial applications (i.e. flexible packaging, rigid packaging, automotive and consumer products)

9 SINOSTAR PEC HOLDINGS LIMITED Annual Report Engaged in the fractionation of raw LPG to produce downstream petrochemicals, namely propylene, polypropylene and LPG, our products cater to a wide range of industrial application and are sold mainly to manufacturers of petrochemicals, plastic products and LPG distributors. We have an annual capacity to process a total of 350,000 tonnes of raw LPG and are able to further process part of our generated propylene into 50,000 tonnes of polypropylene annually. From April 2011, the new 1 million tonnes heavy oil conversion facility has been completed and commenced operation. This enlarge the products range especially gasoline, diesel and napthan, also increase our total fractionation capacity by another 300,000 tonnes thus giving the Group a total of fractionation capacity of 650,000 tonnes. Our strategic affiliation with the Dongming Petrochem Holdings Group, one of the largest privately-owned crude oil refiners in the PRC, ensures a secure and steady supply of heavy oil and raw LPG creating a solid foundation for our Group to continue to build on our existing market leadership position. This affiliation also ensures that the heavy oil and raw LPG we supply is of a consistent quality.

10 8 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 LETTER TO SHAREHOLDERS

11 SINOSTAR PEC HOLDINGS LIMITED Annual Report LETTER TO SHAREHOLDERS Briefing LETTER TO SHAREHOLDERS

12 10 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 LETTER TO SHAREHOLDERS Dear Shareholders, We are pleased to present our financial report for the fiscal year 2011 on behalf of the Board of Directors, and would like to take this opportunity to express our gratitude for your support which has enabled us to focus on our long-term vision of strategic growth. The past few years have presented one of the most challenging global economic environments in recent decades. In response to the unfavourable market conditions, the Group adopted a prudent approach to investment and focused on increasing efficiency and flexibility. Despite the loss in earnings in 2011, we developed stronger momentum across all our businesses, maintained a disciplined approach to managing costs and continued to target developments that pave the way for future revenue growth and profitability.

13 SINOSTAR PEC HOLDINGS LIMITED Annual Report LETTER TO SHAREHOLDERS GROUP PERFORMANCE With the commencement of operation of Dongming Runchang in FY2011, the Group's revenue increased by 341.4% from RMB984.1 million in FY2010 to RMB4.3 billion in FY2011. The gross profit decreased by 68.8% from RMB78.6 million in FY2010 to RMB24.5 million in FY2011. The Group had a net loss after tax of RMB12.0 million, the loss was mainly due to the commencement of production of new projects, combination of higher cost of raw materials and government pricing in the markets lagging behind, which led to a decrease in our profit in Q In addition, our strategic supplier, Dongming Zhongyou Fuel and Petrochemical Company Limited has ceased production and carried out major overhaul and maintenance of their plant since August 2011, and as a result, our subsidiary Dongming Hengchang Petrochemical Co., Ltd. was not able to procure sufficient raw liquefied petroleum gas for production and accordingly affected its production and revenue generating. NEW HEAVY OIL CONVERSION FACILITY Our subsidiary Dongming Runchang Petrochemical Co. Ltd. started trial production with its new 1 million-tonne heavy oil conversion plant and 300 thousand-tonne gas fractionation installation in May 2011 and till early July 2011, which turned out successful. Although Dongming Runchang temporarily stopped the trial production in July 2011 for calibration of equipment and system adjustment, it resumed production in September 2011, therefore, its production and sales experienced a significant growth. Barring unforeseeable circumstances, we are confident that the new plant will contribute positively to the Group in the near future. MARKET OVERVIEW The global outlook remains uncertain in 2012 amidst the worsening debt crises of Europe and the United States and concerns regarding whether the governments would escalate the necessary political, economic, fiscal and financial reforms to restore economic growth. With the delayed recovery of economies of the developed countries, the political instability in the Mid- East and the possible slowdown of the emerging markets, oil prices are likely to stay volatile. In anticipation of the changes in our operating environment, we have undertaken proactive measures to manage costs, increase the efficiency of our production and exercise greater prudence in decision. In 2011, we had announced that our subsidiary company, Dongming Hengchang Petrochemical Co. Ltd, would explore the possibility of acquiring from our joint-venture partner, Dongming Runbang Petrochemical Co. Ltd, its remaining 49% stake in the Dongming Runchang Petrochemical Co. Ltd., in order to achieve full ownership and expand the possibilities for the Group's future development. This plan has been temporarily placed on hold due to uncertain macroeconomic conditions. While the Group is cautiously optimistic about the developments in the oil and petrochemical industry in China, we still firmly believe that prudence is the best course of action in the current economic climate.

14 12 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 LETTER TO SHAREHOLDERS We are confident that the economic situation in China will remain favourable for the Group's operations. While inflation was a key challenge in 2011, partly as a result of government monetary stimulus measures, rising prices have been successfully contained. The inflation rate in December 2011 was 4.6 percent, down from 6.5 percent in July Meanwhile, there are concerns that the debt crisis in Europe would have adverse impact on China's economy as the European Union accounts for approximately 20 percent of China's exports. However, China is in transition from an export-dependent economic model to one based on domestic demand, and a series of measures have been announced to boost domestic demand, including reforming the income distribution system, improving the social security system and increasing domestic consumers' purchasing power. China has set the target growth rate from at 7 percent and the IMF has predicted it to be 9 percent in World oil demand grew by a mere 1.04 percent in 2011, and the demand mainly came from the emerging countries. China is expected to be the main demand in China Petroleum and Chemical Industry Federation estimated that China's crude oil consumption will increase 5.3 percent year on year in 2012 to 9.6 million barrels per day. The Federation also forecasted that demand for gasoline, diesel and other oil products will increase by 5.8 percent from DRIVING FUTURE GROWTH Despite the challenges of the most difficult economic environment in decades, the Group has successfully made adjustments in operational strategies to cope with the upcoming changes. Sinostar PEC will continue to improve its operational strategies so as to achieve balanced and healthy growth as well as its long-term goal and create benefits for the shareholders. We are confident that the Group's financial strength, leadership, and presence in China will certainly enable us for faster growth. We will adhere to our business model and be offering the best services to our shareholders, customers, partners, and employees. The Group will continue to pursue opportunities for development and restructuring that would safeguard the interests of our shareholders and broaden channels for the generation of financial returns in the current economic climate. DIVIDEND Due to the global economic uncertainty in 2012, in addition to the need of sufficient cash flow for the production of heavy oil conversion plant and gas fractionation installation, as well as the disappointing financial results in 2011, we have decided not to pay dividend. We will take active steps to grow and develop our business and enhance profitability. We are looking at a further future in creating greater value for our shareholders. ACKNOWLEDGEMENTS We would like to express our deep appreciation to our shareholders for their continued confidence, loyalty and trust. We would also like to thank our business partners and customers for their longstanding support. Our achievements were made possible thanks to the professionalism and great efforts of all our staff. We wish to extend our appreciation to our fellow Board members whose advice, confidence and dedication over the years form an integral part of our success. Thank you for your continued support. Li Xiang Ping Non-Executive Chairman Fan Deng Chao Chief Executive Officer

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16 14 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011

17 SINOSTAR PEC HOLDINGS LIMITED Annual Report

18 16 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 OPERATIONS REVIEW

19 SINOSTAR PEC HOLDINGS LIMITED Annual Report OPERATIONS REVIEW Briefing OPERATIONS REVIEW

20 18 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 OPERATIONS REVIEW FINANCIAL PERFORMANCE The Group s revenue increase by 341.4% from RMB 984 million in FY2010 to RMB 4.3 billion in FY2011, is largely attributable to the commencement of operation of Dongming Runchang in FY2011. Notably, administrative and distribution expenses rose by 80.7% from RMB 17.5 million in FY2010 to RMB 28.1 million in FY2011, in tandem with the increase in operational activities. The Group s gross profit decreased by 68.8% from RMB 78.6 million in FY2010 to RMB 24.5 million in FY2011. Profit before tax decreased from RMB62.6 million in FY2010 to RMB832 thousand in FY2011. The income tax expense of the Group increased by 44.7% from RMB8.9 million in FY2010 to RMB 12.9 million in This brought our full-year net loss after tax to RMB12.0 million in FY2011, compared to RMB53.7 million of profit in FY2010. The loss in earnings were mainly due to the combination of higher cost of raw materials and uncertain market conditions which led to a decrease in the overall market selling prices experienced in the Q period. Current assets increased from RMB475.1 million in FY2010 to million in FY2011. Trade and other receivables increased 43.8% from FY2010 to RMB81.9million in FY2011 mainly because of the amount owed to related parties in trade. RMB26.5 million and RMB50.7 million were payable on Dongming Runchang s purchase of raw materials (heavy oil) from strategic suppliers, Dongming Zhongyou Fuel and Petrochemical Company Limited and Dongming Runbang Petrochemical Co. Ltd. respectively. Net cash used in investing activities increased from RMB249.8 million in FY2010 to RMB264.5 million in FY2011. This is due to the RMB 250 million fixed deposit placed with a financial institution which was due and returned in December As of 31 December 2011, the Group maintained its robust cash position that stood at approximately RMB376.7 million.

21 SINOSTAR PEC HOLDINGS LIMITED Annual Report OPERATIONS REVIEW BREAKDOWN OF SALES (RMB Million) REVENUE BY PRODUCTS (%) 1,800 1,620 1,440 1,260 1,080 1, , , Q1 Q2 Q3 Q Gasoline Diesel Processed LPG Propylene Polypropylene Others PERFORMANCE BY SUBSIDIARIES DONGMING HENGCHANG Since Q our strategic supplier, Dongming Zhongyou has temporary ceased production and thus Dongming Hengchang was unable to procure sufficient raw LPG for production. Due to this limitation, revenue from sales of processed LPG decreased by 19.4% from RMB million in FY2010 to RMB million in FY2011. The volume of processed LPG produced and sold decreased by 29.9% in FY2011 as compared to FY2010. As of the date of this report, our strategic supplier has yet to re-commence its production due to plant maintenance and upgrading for the Ri-Dong line operations. Dongming Hengchang has purchased a total of 17.8 thousand tonnes of propylene from Dongming Runchang since September 2011, for its polymerisation process production. As a result, the output of propylene increased by 1.5% in FY2011 compared to FY2010, and correspondingly, revenue from the sales of polypropylene increased by 12.1% from RMB million in FY 2010 to RMB million in FY2011. DONGMING RUNCHANG Dongming Runchang commenced its trial operation in May In Q2 2011, in order to test the operation and production process, Dongming Runchang purchased crude oil and fuel oil through Dongming Zhongyou Fuel and Petrochemical Company Limited ( Dongming Zhongyou )and Shandong Dongming Petrochem Group Co., Ltd. ( ) ( Dongming Petrochem ) (collectively the Strategic Suppliers ), which were further processed by the Strategic Suppliers and Shandong Dongming Petrochem Group Huize Co., Ltd. ( ) ( Dongming Huize ) to extract heavy oil. Heavy oil is a main raw material of Dongming Runchang catalytic cracking installation for manufacturing of gasoline, diesel oil, LPG and other oil products. Dongming Runchang temporarily stood down for a month since mid-july 2011 for the purposes of scheduled plant maintenance, equipments realignment and systems adjustment and re-commenced its production from mid-august A total of thousand tonnes of raw materials were procured and processed by our strategic supplier through its Vaccum Distillation process, another thousand tonnes and 98.7 thousand tonnes through the catalytic cracking and gas fractionation processes. This generate a total sale revenue of Gasoline of RMB 1.5 billion, Diesel of RMB 1.0 billion, Processed LPG RMB 335 million, Propylene RMB 162 million and others oil products RMB 442 million.

22 20 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 BOARD OF DIRECTORS Mr Li Xiang Ping is our Non-Executive Chairman. He started his career as an accountant in Dongming County Medicine Company in He joined the Dongming County Audit Bureau as their deputy bureau officer in 1986 where he managed internal discipline issues. In 1993, he joined Dongming County Petroleum Refining Factory as the finance manager. Mr Li subsequently became the chief accountant of Dongming County Petroleum Refining Factory and was overall in-charge of the financial management of the factory. In 1998, Mr Li was appointed as the director and chief auditor of Shandong Dongming Petrochem Group Company Limited ( Dongming Petrochem ) and was responsible for the daily operations of the business as well as the accounting functions of the company. In 2001, Mr Li was appointed chairman of Dongming Petrochem and has since been responsible for the overall development and operations of the business. Mr Li was selected as a People s Representative in the 10th and 11th National People s Congress of Shandong Province in 2003 and 2008 respectively. LI XIANG PING Non-Executive Chairman He was also named 2007 Shandong Top 10 Business Man of the Year by Da Zhong News Group. He is also a deputy chairman of the Dongming County Chinese People s Political Consultative Conference. Mr Li received a senior auditor qualification from the Shandong Province Audit Profession Advance Accreditation Committee in December 1998 and a senior accountant qualification from the Shandong Province Accounting Profession Advance Accreditation Committee in December Mr Li obtained a Bachelor s degree in Financial Accounting from the University of Shandong Officials in 1999 and has completed a business administration graduate programme offered by the Shandong University in December Mr Li was also recognised as one of the Top Ten Shandong Province Elitist Youth Entrepreneur in 2002, as one of the Top Ten Outstanding Enterprise Reform Personnel in 2005 and as a Nationwide Labour Role Model in Mr Li was named Shandong Top 10 Business Man of the Year again in FAN DENG CHAO Chief Executive Officer and Executive Director Mr Fan Deng Chao is responsible for the strategic development of our Group as well as overseeing the daily operations and management function of our subsidiary, Dongming Hengchang. Mr Fan has more than 20 years of experience in the petrochemical industry. He first joined Dongming County Petroleum Refining Factory as an operations technician and was later appointed as the supervisor of the atmospheric-vacuum distillation production plant. Subsequently, he became the operations manager of the factory. In 1997, Mr Fan joined Dongming County Heat and Electricity Company as the general manager and was responsible for the daily operations of the company. In 2000, Mr Fan joined Dongming Hengchang as a deputy general manager and was subsequently promoted to general manager. Mr Fan obtained a Bachelor s degree in Operation Management Engineering from Shandong Industry University in July 1989 and a Masters in Engineering from Shandong Technology University in January He received a senior engineer qualification from the Shandong Province Engineering Profession Advance Accreditation Committee in January Mr Fan was selected as one of Heze City Technology Elite Professionals in May 2006 by the Heze Provincial Government. Mr Wu Guozhi was appointed as a non-executive Director of our Group on 27 April He has more than 40 years of experience in the China petroleum industry. He started his career in 1970 in the Oil Transportation Bureau in Jilin Province where he rose quickly to become the Vice Chairman of the Trade Union, as well as Master and Party Branch Secretary of Xinmiao Oil Pump Station. In 1979, he went on to join the Tibet Autonomous Region Oil and Gas Company and served as the vice manager of its petroleum department. Between 1981 and 2010, Mr Wu took on various positions within PetroChina Company Limited and retired from the Group in June 2010 from his last position as its general manager and chairman based in Beijing. Mr Wu holds a Bachelor s degree in 1986 from the Daqing petroleum Institute in Business Administration. WU GUOZHI Non-Executive Director

23 SINOSTAR PEC HOLDINGS LIMITED Annual Report BOARD OF DIRECTORS Mr Zhang Liu Cheng is an Executive Director of our Group and Deputy General Manager (Finance and Administration) of our subsidiary, Dongming Hengchang. Mr Zhang worked in the Dongming County Finance Department as an accountant between 1996 and 2001 where he was responsible for the accounting functions of the department. In June 2004, Mr Zhang joined Dongming Hengchang as its chief financial controller overseeing the daily operations of the financial management and the overall financial management of Dongming Hengchang. Mr Zhang obtained a Bachelor s degree in 1996 from Shandong University in Accounting. From 2001 to 2004, Mr Zhang studied in the China Agricultural University and attained a Masters in Agricultural Economy Management. He received an intermediate accountant qualification in May 2002 and a certified public valuer qualification in November 2003 from the Ministry of Finance of the PRC. ZHANG LIU CHENG Executive Director and Deputy General Manager LEE GEE AIK Independent Director and Chairman of the Audit and Nominating Committees Mr Lee Gee Aik was appointed as an Independent Director of our Group on 29 June Mr Lee is the founder of G A Lee and Associates, a Certified Public Accounting firm in Singapore. He started his career as an auditor in KPMG Singapore in 1979 and was responsible for audit projects for various listed and non-listed companies. Between 1986 and 1988, Mr Lee was seconded to KPMG USA Executive Office and specialised in the areas of professional development and research work in audit and financial reporting. Mr Lee was subsequently appointed as senior manager of KPMG Singapore. Prior to the founding of G A Associates, Mr Lee was the regional controller of Omni Marco Polo Hotels between 1993 and He was also involved in evaluating potential new businesses. Mr Lee qualified as a Chartered Certified Accountant with The Association of Chartered Certified Accountants, United Kingdom in He obtained a Masters in Business Administration from Henley Management College, United Kingdom in He is currently a Fellow with the Association of Chartered Certified Accountants, United Kingdom and The Institute of Certified Public Accountants in Singapore. Mr Lee has lectured regularly for the Continuing Professional Education Programme of The Institute of Certified Public Accountants of Singapore since Mr Teo Moh Gin was appointed as an Independent Director of our Group on 29 June He is currently a director of Vive Capital Pte. Ltd and is involved in investment related work. Mr Teo has more than 25 years of global experience in finance, business development and consulting. He started his career in 1983 as a consultant in Arthur Andersen where he was in charge of various management consultancy projects. In 1990, he joined the Government of Singapore Investment Corporation as a senior investment officer (real estate department) and was responsible for the acquisition and management of prime commercial assets. In 1998, he joined System Access Ltd as its financial officer overseeing the finance and corporate development of the company. He was also previously with Transword Carnival Corporation as its chief executive officer and was responsible for the overall management of the company. He joined GKE International Ltd as their executive vice-president and was responsible for their merger and acquisitions function as well as business development of the company. TEO MOH GIN Independent Director and Chairman of the Remuneration Committee Between March 2006 and January 2007, he was the chief corporate officer of Richland Group and was responsible for the corporate development of the company. He obtained a Bachelor of Accountancy (Honours) from the National University of Singapore in 1983 and a post-graduate diploma in Business Administration from the University of Manchester in 1998.

24 22 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 KEY MANAGEMENT MU ZHI YUAN Deputy General Manager (Production) Mr Mu Zhi Yuan joined our subsidiary, Dongming Hengchang, in Mr Mu started as a technician in Dongming County Petroleum Refining Factory in 1990 and was responsible for implementing the production techniques of the factory. He was subsequently appointed as a measuring officer and was responsible for controlling the production process of the factory prior to joining Sinostar in He first joined us as a fractionation supervisor, and supervised our gas and fractionation activities. Mr Mu was appointed as the supervisor of our polypropylene production in 2001 and was in-charge of our production of polypropylene products. In 2003, Mr Mu became the Deputy General Manager (Production) of Dongming Hengchang and has since been responsible for the overall management of our production activities, research and development functions, as well as our quality and safety control activities. Mr Mu obtained his Bachelor s degree in Petroleum Processing from China University of Petroleum in December 1996 and a Masters degree in Industrial Engineering from Shandong Technology University in March He received an engineer qualification from Heze City Engineering Technical Duties Accreditation Committee in November LIU ZHONG HUA Deputy General Manager (Sales and Procurement) Mr Liu Zhong Hua joined our subsidiary, Dongming Hengchang in He oversees the operation of the sales and procurement functions of Dongming Hengchang. Mr Liu started his career as a technician in Dongming County Petroleum Refining Factory in 1990 and was mainly responsible for managing the operational efficiency and effectiveness of the company. He was subsequently responsible for the procurement of crude oil and related materials for the Group prior to joining us. Mr Liu obtained a Bachelor s degree in Management Engineering from China University of Petroleum in July 1990 and a Masters in Industrial Engineering from Shandong Technology University in June He received a professional senior economist qualification from Economic Profession Accreditation Committee in October TAN YEW CHEE WILLIAM Chief Financial Officer Mr William Tan joined the Group since 2008 as the Chief Financial Officer. He is responsible for the financial management and accounting functions of our Group. Mr Tan embarked on his career as an audit assistant in a local audit firm in From 1992 to 2001, he was Managing Director for a local SME before he joined Nixvue Systems Pte Ltd as Financial Controller from 2002 to 2005, a subsidiary of Wearnes Technology Pte Ltd. From 2005 to 2007, Mr Tan joined Unidux Electronics Ltd as Group Financial Controller and was responsible for the overall finance & accounting, human resource, business development & planning functions of the group. He joined SNF Corporation Ltd in July 2007 as Group Financial Controller. Prior to joining our Group, Mr Tan was engaged by a SGX IPO-aspirant solar energy solution-maker in Beijing as Financial Consultant. Mr Tan is a non-practising member of the Institute of Certified Public Accountants of Singapore and a Fellow member of The Association of Certified Chartered Accountants (UK).

25 SINOSTAR PEC HOLDINGS LIMITED Annual Report KEY MANAGEMENT MR ZHANG YUNSHAN Chief Executive Officer MR NIU XING PING Financial Controller MR YANG SHU FANG Deputy General Manager (Production) Mr Zhang Yunshan was appointed as Chief Executive Officer of our joint-venture subsidiary, Dongming Runchang Petrochemical Co., Ltd., since He began his career in Dongming Petrochemical Group in In 2000, Mr Zhang was appointed the Head of the Production Technology Section and then the General Manager of the Production Technology Department of Dongming Petrochemical Group. In 2003, he served as the Manager of Production Department of our subsidiary Dongming Hengchang Petrochemical Co., Ltd. In 2006 he was appointed as the General Manager of Production Scheduling Department of Dongming Petrochemical Group. He was subsequently designated the General Manager of Dongming Zhongyou Group in Mr Zhang holds a Bachelor degree in Petroleum Processing from the China University of Petroleum, Beijing. Mr Zhang was conferred the Young Scientist Award of Heze District, Shandong Province in 2004 and was named as a Top-engineerTalent in Mr Niu Xing Ping joined our subsidiary Dongming Runchang Petrochemical Co Ltd as Financial Controller at year end He is responsible for the full spectrum of finance and accounting matters of the subsidiary. Mr Niu brings with him two decades of experience in finance. He joined Donming Petrochemical Holdings in 1990 as an Account Executive. In 2000, he assumed the post of Finance Manager of Dongming Hengchang Petrochemical Co Ltd. In 2003, he was promoted to Chief Accountant. A year later, he joined Dongming Heng-Jin Paper Co Ltd as Financial Controller. Mr Niu was appointed Vice-Chief Accountant for Shandong Zhong-You Logistic Co Ltd in 2005, prior to the transfer to his current post. In 1989, he graduated from the Shandong University of Marketing and became a qualified accountant in Mr Yang Shu Fang was appointed as the Deputy General Manager (Production) of our subsidiary, Dongming Runchang Chemical Co. Ltd in Prior to that, Mr Yang held the position of General Manager of the Dongming Petrochemical Group. In 2001, he was appointed the Head of Production Technology at Dongming Hengchang Chemical Co. Ltd,. From 2006 to 2008, he held various positions at Dongming Petrochemical Group, including Head of Catalytic Processing and Deputy General Manager. Mr Yang obtained a Master degree in Engineering from Shandong University of Technology in He also holds Bachelor degrees from the China University of Petroleum and Qingdao University of Science and Technology.

26 24 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 FINANCIAL HIGHLIGHTS REVENUE (RMB Million) , ,342.2 PROFITABILITY (RMB Million) (12.0) , , LPG Propylene Polypropylene Oil derivatives Others Gross Profit Net Profit Net Loss OTHER KEY FIGURES 2007 RMB RMB RMB RMB RMB 000 Financial Strength Cash & cash equivalents 438, , , , ,728 Debt & borrowings Net current assets 424, , , , ,617 Shareholders equity 477, , , , ,875 Cash Flow Operating cash flow 124,765 45,405 33,914 23,438 40,092 Investing cash flow (2,310) (55,359) (221,993) (352,068) 195,624 Financing cash flow 246,063 59,080 88,283 97,917 (14,877) Shareholders Wealth Number of shares on issue 640, , , , ,000 Basic earnings per share (RMB cents) Net asset value per share (RMB cents) Net cash value per share (RMB cents) Dividend yield na na na 2.5% na Market price High S$0.950 S$0.570 $0.290 $0.275 $0.270 Low S$0.435 S$0.055 $0.060 $0.160 $0.170 Closing S$0.550 S$0.085 $0.185 $0.200 $0.200

27 SINOSTAR PEC HOLDINGS LIMITED Annual Report CORPORATE GOVERNANCE REPORT The Board of Directors (the Board ) of Sinostar PEC Holdings Limited (the Company ) recognises the importance of corporate governance and the offering of high standards of accountability to the shareholders of the Company by complying with the benchmark set by the Code of Corporate Governance 2005 (the Code ). This report sets out the corporate governance practices that have been adopted by the Company with specific reference to the principles of the Code, as well as any deviation from any guideline of the Code together with an explanation for such deviation. STATEMENT OF COMPLIANCE The Board confirms that for the financial year ended 31 December 2011, the Company has generally adhered to the principles and guidelines as set out in the Code save as otherwise explained below. BOARD MATTERS The Board s Conduct of Affairs Principle 1: Every company should be headed by an effective Board to lead and control the Company. The Board is collectively responsible for the success of the Company. The Board works with the management of the Company (the Management ) to achieve this and the Management remains accountable to the Board. As at the date of this Annual Report, the Board comprises six directors, which include two executive directors, two non-executive directors (one of whom is the non-executive chairman) and two independent non-executive directors, all of whom are from different disciplines and bring with them diversity of experience which will enable them to contribute effectively to the Company. The principal functions of the Board, apart from its statutory responsibilities, include: reviewing and overseeing the management of the Group s business affairs and financial controls, performance and resource allocation; approving matters such as corporate strategy and business plans, corporate restructuring, mergers and acquisitions, major investments and divestments, material acquisitions and disposals of assets and major corporate policies on key areas of operations; and approving the release of the Group s quarterly and full-year financial results and related party transactions of a material nature. The Board has established three Board committees, namely, the Audit Committee ( AC ), the Nominating Committee ( NC ) and the Remuneration Committee ( RC ) to assist in the execution of its responsibilities. These committees operate within clearly defined terms of reference. The Board will meet on a quarterly basis and ad-hoc Board meetings will be convened when they are deemed necessary. In between Board meetings, other important matters will be put to the Board s approval by way of circulating resolutions in writing. The Company s Articles of Association provide for meetings of Directors to be held by means of telephone conference or other methods of simultaneous communication by electronic or other means. Newly appointed directors are given an orientation on the Group s business strategies and operations. Directors also have the opportunity to visit the Group s operating facilities and meet with the Management to gain a better understanding of the Group s business operations and governance practices. All directors who have no prior experience acting as directors of a listed company will undergo the necessary training and briefing on the roles and responsibilities as directors of a listed company.

28 26 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 CORPORATE GOVERNANCE REPORT BOARD COMPOSITION AND GUIDANCE Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. As at the date of this report, the Board comprises the following directors: Executive Directors Fan Deng Chao Zhang Liu Cheng Non-Executive Directors Li Xiang Ping Wu Guo Zhi Lee Gee Aik Teo Moh Gin Chief Executive Officer Executive Director Non-Executive Chairman Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director The independent non-executive directors make up one-third of the Board. The Board has adopted the Code s criteria of an independent non-executive director in its review. An independent director is one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the directors independent business judgment with a view to the best interests of the Company. The Board is of the view that all independent non-executive directors have satisfied such criteria of independence as a result of its review. The independence of each independent non-executive director will be reviewed annually by the NC. The composition of the Board will be reviewed annually by the NC to ensure that there is an appropriate mix of expertise and experience, which the Group may tap for assistance in furthering its business objectives and shaping its business strategies. Together, the directors as a group provide core competencies in business, accounting, investment, audit and taxation matters. The independent non-executive directors also communicate regularly to discuss matters such as the Group s financial performance, corporate governance initiatives and the remuneration of the executive directors and executive officers. The profiles of each of the directors are set out on pages 20 and 21 of this Annual Report. The Board considers the current Board size appropriate for the nature and scope of the Group s operations. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The Non-Executive Chairman and the Chief Executive Officer of the Company are separate individuals. Mr Fan Deng Chao is the Executive Director of the Company and bears executive responsibility for the Group s business performance. He also assumes the responsibility of the Chief Executive Officer of the Board and is responsible for scheduling Board meetings as and when required, setting the agenda for Board meetings in consultation with the Non-Executive Chairman and ensuring the quality, quantity and timeliness of the flow of information between the Management, the Board and shareholders. He is also responsible for ensuring compliance with the Company s guidelines on corporate governance. As the Non-Executive Chairman, Mr Li Xiang Ping leads the Board, encourages constructive relations between the Board and Management, as well as between Board members and promotes high standards of corporate governance. The Non- Executive Chairman leads each Board meeting and ensures full discussion of the items on the agenda. The Board is of the view that with the establishment of the three Board committees, there are adequate safeguards in place to prevent an uneven concentration of power and authority in a single individual. In assuming their roles and responsibilities, the Non-Executive Chairman and the Chief Executive Officer consult with the Board and the respective Committees on major issues.

29 SINOSTAR PEC HOLDINGS LIMITED Annual Report CORPORATE GOVERNANCE REPORT BOARD MEMBERSHIP Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. The NC comprises the following members: Lee Gee Aik Teo Moh Gin Li Xiang Ping (Chairman) Mr Lee Gee Aik and Mr Teo Moh Gin are independent non-executive directors, whilst Mr Li Xiang Ping is the Non- Executive Chairman. The terms of reference of the NC have been approved and adopted. The duties and powers of the NC include: making recommendations to the Board on all Board appointments and re-nominations having regard to the director s contribution and performance (such as attendance, preparedness, participation and candour); ensuring that all directors submit themselves for re-nomination and re-election at regular intervals and at least once every three years; determining annually whether a director is independent in accordance with paragraph 2.1 of the Code; formulating and deciding whether a director is able to and has adequately carried out his duties as a director of the Company, in particular, where the director concerned has multiple board representations; and assessing the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. All directors submit themselves for re-nomination and re-election at regular intervals of at least once every three years. Pursuant to Article 104 of the Company s Articles of Association, one-third of the Directors shall retire from office at least once every three years at the Company s Annual General Meeting ( AGM ). In addition, Article 106 of the Company s Articles of Association provides that the retiring directors are eligible to offer themselves for re- election. Pursuant to Article 114 of the Company s Articles of Association, Directors shall have power at any time to appoint any other qualified person as Director either to fill a casual vacancy or as an addition to the Board. But any Director so appointed shall hold office only until the next Annual General Meeting of the Company, and shall be eligible for re-election. The dates of initial appointment of each director, together with their directorships in other listed companies are set out below: Name of director Appointment Date of initial appointment Date of last re-election Current Directorships in listed companies Past Directorships in listed companies Li Xiang Ping Age: 49 Fan Deng Chao Age: 46 Non-Executive Chairman Chief Executive Officer 6 July April 2010 None None 6 July April 2009 None None Zhang Liu Cheng Age: 40 Executive Director 6 July April 2010 None None Wu Guo Zhi Age: 61 Non-Executive Director 27 April 2011 None None

30 28 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 CORPORATE GOVERNANCE REPORT Name of director Appointment Date of initial appointment Date of last re-election Current Directorships in listed companies Past Directorships in listed companies Lee Gee Aik Age: 53 Independent Director 29 June April 2011 Westminster Travel (S) Limited None Leader Environmental Technologies Limited Anchun International Holdings Ltd. Teo Moh Gin Age: 53 Independent Director 29 June April 2011 China Sun Bio-Chem Technology Company Group Ltd None Yangzijiang Shipbuilding (Holdings) Ltd. Qian Feng Fabric Tech Limited * According to Article 104 of the Company s Articles of Association, Mr Fan Deng Chao and Mr Li Xiang Ping will retire at the Company s forthcoming AGM and will be eligible for re-election. * According to Article 114 of the Company s Articles of Association, Mr Wu Guo Zhi will retire at the Company s forthcoming AGM and will be eligible for re-election. In its search and nomination process for new directors, the NC has, at its disposal, search companies, personal contacts and recommendations for the right candidates. Key information on the individual directors and their shareholdings in the Company are set out on pages 20, 21 and 40 of this Annual Report. BOARD PERFORMANCE Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. The Board s performance is linked to the overall performance of the Group. The Board should ensure compliance with the applicable laws and the Board members should act in good faith, with due diligence and care in the best interest of the Company and its shareholders. The NC is responsible for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual director. The Board performance assessment is undertaken collectively and informally on a continual basis by the NC with input from the other Board members. A formal review of the Board s performance is conducted annually by way of a Board Assessment Checklist, which is circulated to the Board members for completion and thereafter, for the NC to review to determine the actions required to improve the corporate governance of the company and effectiveness of the Board and committees of the Board.

31 SINOSTAR PEC HOLDINGS LIMITED Annual Report CORPORATE GOVERNANCE REPORT For financial year ended 31 December 2011, individual assessment of directors had been conducted at the NC meeting held on 27 February The criteria for assessment include performance of principal functions and fiduciary duties, level of participation at meetings and individual attendance record. The NC has assessed the current Board s performance to-date and is of the view that the performance of the Board as a whole is adequate to measure the effectiveness of the Board s performance. Although some of the Board members have multiple board representations, the NC is satisfied that sufficient time and attention has been given by the Directors to the Group. ACCESS TO INFORMATION Principle 6: In order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis. The Company recognises the importance of the flow of information for the Board to discharge its duties effectively. All directors are furnished with the management accounts of the Group and regular updates on the financial position of the Company. The Board has separate and independent access to the Company Secretary and Management at all times. The Company Secretary facilitates information flow within the Board and its committees and between senior management. The Company Secretary attends all Board meetings and meetings of the Board committees of the Company and ensures that the Company complies with the requirements of the Companies Act and the SGX-ST. The minutes of all Board committees meetings are circulated to the Board. The Board will have independent access to professional advice when required, subject to the approval of the Chairman. The fees of professional advice will be borne by the Company. REMUNERATION MATTERS Procedures for Developing Remuneration Policies Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. As at the date of this Annual Report, the RC comprises the following members: Teo Moh Gin Lee Gee Aik Li Xiang Ping (Chairman) Mr Teo Moh Gin and Mr Lee Gee Aik are independent non-executive directors, whilst Mr Li Xiang Ping is a Non- Executive Chairman. The terms of reference of the RC have been approved and adopted. The duties and powers of the RC include: recommending to the Board a framework of remuneration for the directors and senior management; determining specific remuneration packages for each executive director. The RC should cover all aspects of remuneration including but not limited to directors fees, salaries, allowances, bonuses, options and benefits in kind. In setting remuneration packages, the RC should be aware of pay and employment conditions within the industry and in comparable companies. The remuneration packages should take into account the Company s relative performance and the performance of individual directors;

32 30 SINOSTAR PEC HOLDINGS LIMITED Annual Report 2011 CORPORATE GOVERNANCE REPORT the remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and the responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised; in the case of service contracts of directors, reviewing and recommending to the Board the terms of renewal of the service contracts. There should be a fixed appointment period for all directors after which they are subject to re-election. The service contracts should not be excessively long or with onerous removal clauses. The RC should consider what compensation commitments the directors contracts of service, if any, would entail in the event of early termination. The RC should aim to be fair and avoid rewarding poor performers; and considering the various disclosure requirements for directors and key executives remuneration, particularly those required by regulatory bodies such as the SGX-ST, and ensure that there is adequate disclosure in the financial statements to ensure and enhance transparency between the Company and relevant interested parties. The RC s recommendations are submitted for endorsement by the entire Board. The overriding principle is that no director should be involved in deciding his own remuneration. LEVEL AND MIX OF REMUNERATION Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. In setting remuneration packages, the Company takes into consideration the remuneration packages and employment conditions within the industry and in comparable companies. The remuneration package also takes into account the Company s relative performance and the performance of individual directors. The non-executive and independent non-executive directors are paid directors fees, taking into account factors such as effort and time spent, and responsibilities of the directors. Directors fees are recommended by the Board for approval at the Company s AGM. The executive directors do not receive directors fees. The remuneration packages of the executive directors include a basic salary. The executive directors are entitled to receive an annual incentive bonus. The Company has entered into service agreements with the executive directors, Mr Fan Deng Chao and Mr Zhang Liu Cheng for an initial period of three years with effect from 26 September Upon the expiry of the initial period of three years, the employment of the executive directors shall be automatically renewed on a year-to-year basis on such terms and conditions as the parties may agree. The service agreement provides for termination by each party giving not less than six months notice in writing.