Stock Code: 1314 (MOPS) (Website of China Petrochemical Development Corporation) Website: 1.http://mops.twse.com.tw 2.http://www.cpdc.com.tw CHINA PETROCHEMICAL Published on May 8, 2017 DEVELOPMENT CORPORATION Annual Report 2016 CHINA PETROCHEMICAL DEVELOPMENT CORPORATION Annual Report 2016 Notice to readers This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail. I. Company spokesman and deputy spokesman: Spokesman Deputy spokesman Name: Chen Ying-Chun Liu Yung-Fu Job Title: Assistant Vice President Assistant Vice President Tel. No.: (02)8787-8187, Ext. 8370 (02)8787-8187, Ext. 1620 e-mail:[email protected] e-mail:[email protected] II. Company and Plant address and Tel. Nos: Name Location Tel. No. Taipei Office 11F, No. 12 Tunghsing Road, (02)8787-8187 Songshan District, Taipei City Tou-Fen Plant No. 217 Sec.2 Tzyh-Chyang Road, (037)623-381 Tou-Fen township, Miaoli County, Da-Sheh Plant No. 1 Chinchian Road, Da-Sheh (07)351-3521 district, Kaohsiung City Hsiaokang No. 34 Chunglin Road, Hsiaokang (07)871-1161 Plant District, Kaohsiung City III. Shares Registrar: Name: Shareholder Services Office of CPDC Address: 3F, No. 12, Tunghsing Road, Taipei City Tel. No.: (02)8978-2589 Website: http://www.cpdc.com.tw IV. External Auditors in the most recent year CPA Name: Jeff Chen & Dan-dan Chung Firm Name: KPMG Certified Public Accountants Address: 68F, No. 7, Sinyi Road, Sec. 5, Taipei City Tel. No.: (02)8101-6666 Website: http://www.kpmg.com.tw V. Offshore secondary exchange and disclosure information available at: Singapore Exchange www.sgx.com VI. Company Website: http://www.cpdc.com.tw One. Message to Shareholders ................................................................................................ 1 Two. Introduction to Company............................................................................................... 8 I. Date of Incorporation............................................................................................ 8 II. Company Profile.................................................................................................... 8 Three. Report on Corporate Governance............................................................................ 11 I. Organization ........................................................................................................ 11 II. Information About Director, President, Vice President, Assistant Vice President, and Head of Department and Branch ............................................. 15 III. Status of Corporate Governance........................................................................ 40 IV. Information About CPA Professional Fee ........................................................ 81 V. Information About Replacement of CPA.......................................................... 82 VI. Information About Chairman, President, and Financial or Accounting Manager of the Company Who Has Worked with the CPA Firm Which Conducts the Audit of the Company or Affiliate to Said Firm in the Most Recent Year ................................................................................................ 83 VII. Any transfer of equity interests and pledge of or change in equity interests by a director, managerial officer, or shareholder with a stake of more than 10 percent in the most recent year and up to the date of publication of the annual report. ....................................................................... 83 IX. Ratio of Combined Shareholding....................................................................... 90 Four. Status of Fund Raising ................................................................................................ 91 I. Capital Stock and Shares.................................................................................... 91 II. Issuance of Corporate Bonds.............................................................................. 99 III. Issuance of Preferred Shares............................................................................ 101 IV. Status of Participation in Issuance of “Global Depository Receipts (GDRs)”.............................................................................................................. 101 V. Status of Employee Stock Option..................................................................... 101 VI. Restriction on Employee Share Subscription Warrant ................................. 101 VII. Mergers and Acquisitions, or as Assignee of New Shares Issued by Another Company ............................................................................................. 101 VIII. Implementation of Capital Utilization Plan.................................................... 101 Five. Operations Overview.................................................................................................. 103 I. Business contents ............................................................................................... 103 II. Market and Sales Overview.............................................................................. 113 III. Employees........................................................................................................... 121 IV. Environmental Protection Expenses................................................................ 121 V. Labor-Management Relations.......................................................................... 123 VI. Major Contracts ................................................................................................ 132 Six. Financial Status............................................................................................................. 134 I. Condensed balance sheet, income statement, external auditor’s name and audit opinion for the most recent five years ............................................ 134 II. Financial Analysis for the most recent five years........................................... 142 III. Audit Committee’s Audit Report on the Financial Statement for the Most Recent Year .............................................................................................. 149 IV. Independent Accountants’Audit Report (Page F1–Page F109) V. In the case of any insolvency of the Company and its affiliates, specify its effect on the Company’s financial position ................................................ 150 Seven. Review and Analysis of Financial Position and Financial Performance, and Risk Management................................................................................................................. 151 I. Financial status comparison and analysis....................................................... 151 II. Analysis on financial performance .................................................................. 152 III. Review and Analysis of Cash Flow..................................................................... 153 IV. Major capital expenditure for the most recent year and its effect on financial position and operation of the Company .......................................... 153 V. Direct investment policy, the main reasons for profit or loss, and corrective action plan for the most recent year, and investment plan in the next year....................................................................................................... 154 VI. Analysis of risk factors: analyze and assess the following circumstances for the most recent year and until the date of publication of the annual report .................................................................................................................. 155 VII. Other important notes....................................................................................... 206 Eight、Special Note ............................................................................................................. 207 I. Information about Affiliates................................................................................... 207 II. Private placement of securities for the most recent year and until the date of publication of the annual report.......................................................... 213 III. Holding or disposal of the Company’s stock by subsidiaries for the most recent year and until the date of publication of the annual report............... 213 IV. Supplementary Disclosure................................................................................ 213 V. Conditions that will materially affect shareholders’ equity or price of securities as referred to in Paragraph 2.2 of Article 36 of the Securities and Exchange Act.............................................................................................. 213 One. Message to Shareholders To All Shareholders: Thank you for your interest and support of our Company. In the first half of 2016, our Company faced great challenges, weak industry conditions, changes to our management team, the rise of competitors in China and Asia, the commercialization of shale gas, and raw material price volatility, all contribute to significant impacts to the Company. During this time, we have been reviewing both internal and external conditions for the Company, and following our management needs quickly adapt to changes and monitor industry conditions for improvements. After 4Q 2016, the overall condition seems to indicate a turnaround. Despite this