China Petroleum & Chemical Corporation Annual Report 2017

Plain-text annual report

2 3 6 8 11 19 29 40 43 50 60 62 Company Profile Principal Financial Data and Indicators Changes in Share Capital and Shareholdings of Principal Shareholders Board’s Statement Business Review and Prospects Management’s Discussion and Analysis Significant Events Connected Transactions Corporate Governance Report of the Board of Directors Report of the Board of Supervisors Directors, Supervisors, Senior Management and Employees 78 Principal Wholly-owned and Controlled Subsidiaries Financial Statements Corporate Information Documents for Inspection 79 213 214 This annual report includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve and other estimates and business plans) are forward-looking statements. The Company’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties. The Company makes the forward- looking statements referred to herein as at 23 March 2018 and unless required by regulatory authorities, the Company undertakes no obligation to update these statements. CONTENTSIMPORTANT NOTICE: THE BOARD OF DIRECTORS, THE BOARD OF SUPERVISORS, DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF SINOPEC CORP. WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS IN THIS ANNUAL REPORT, AND JOINTLY AND SEVERALLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS ANNUAL REPORT. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDERS OF SINOPEC CORP. MR. JIAO FANGZHENG AND MR. MA YONGSHENG, DIRECTORS, MR. FAN GANG, INDEPENDENT NON- EXECUTIVE DIRECTOR, DID NOT ATTEND THE SEVENTEENTH MEETING OF THE SIXTH SESSION OF THE BOARD DUE TO OFFICIAL DUTIES. MR. JIAO FANGZHENG AUTHORISED MR. DAI HOULIANG, VICE CHAIRMAN AND PRESIDENT, MR. MA YONGSHENG AUTHORISED MR. LI YUNPENG, DIRECTOR, AND MR. FAN GANG AUTHORISED MR. TANG MIN, INDEPENDENT NON-EXECUTIVE DIRECTOR, TO VOTE ON THEIR BEHALVES IN RESPECT OF THE RESOLUTIONS PUT FORWARD AT THE MEETING. MR. DAI HOULIANG, VICE CHAIRMAN AND PRESIDENT, MR. WANG DEHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE FINACIAL DEPARTMENT OF SINOPEC CORP. WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS ANNUAL REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE ANNUAL RESULTS OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2017. THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 OF THE COMPANY PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (ASBE) AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) HAVE BEEN AUDITED BY PRICEWATERHOUSECOOPERS ZHONG TIAN LLP AND PRICEWATERHOUSECOOPERS RESPECTIVELY. BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED AUDITOR’S REPORT. AS APPROVED BY THE 17TH MEETING OF THE SIXTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB 0.40 (TAX INCLUSIVE) PER SHARE FOR 2017, COMBINING WITH THE INTERIM CASH DIVIDEND OF RMB 0.10 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2017 WILL BE RMB 0.50 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS’ APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2017. COMPANY PROFILE Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information. DEFINITIONS: In this report, unless the context otherwise requires, the following terms shall have the meaning set out below: Sinopec Corp.: China Petroleum & Chemical Corporation; Company: Sinopec Corp. and its subsidiaries; China Petrochemical Corporation: our controlling shareholder, China Petrochemical Corporation; Sinopec group: China Petrochemical Corporation and its subsidiaries; Shanghai SECCO: Shanghai SECCO Petrochemical Company Limited; Sichuan-to-East China Pipeline Co.: Sinopec Sichuan-to-East China Natural Gas Pipeline Co., Ltd; RMC: Oil and Natural Gas Reserves Management Committee of the Company; CSRC: China Securities Regulatory Commission. Hong Kong Stock Exchange: The Stock Exchange of Hong Kong Limited Hong Kong Listing Rules: Listing Rules of the Hong Kong Stock Exchange CONVERSION: For domestic production of crude oil, 1 tonne = 7.1 barrels; For overseas production of crude oil: 2017, 1 tonne = 7.21 barrels; 2016, 1 tonne = 7.20 barrels; 2015, 1 tonne = 7.21 barrels; For production of natural gas, 1 cubic meter = 35.31 cubic feet; Refinery throughput is converted at 1 tonne = 7.35 barrels. 2 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017COMPANY PROFILECompany Profile1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH ASBE (1) Principal financial data Items Operating income Operating profit Profit before taxation Net profit attributable to equity shareholders of the Company Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses Net cash flow from operating activities For the year ended 31 December 2017 RMB million 2,360,193 86,965 86,573 51,119 2016 RMB million 1,930,911 77,389 79,877 46,416 Change % 22.2 12.4 8.4 10.1 2015 RMB million 2,020,375 51,553 56,093 32,281 45,582 190,935 29,713 214,543 53.4 (11.0) 28,901 165,740 Items Operating income Net profit attributable to equity shareholders of the Company Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses Net cash flow from operating activities Items Total assets Total liabilities Total equity attributable to equity shareholders of the Company Total number of shares (1,000 shares) (2) Principal financial indicators First Quarter RMB million 582,185 16,633 Second Quarter RMB million For the year of 2017 Third Quarter RMB million 583,652 10,459 579,118 11,281 Fourth Quarter RMB million 615,238 12,746 Total RMB million 2,360,193 51,119 16,540 13,276 9,559 47,571 10,619 50,346 8,864 79,742 45,582 190,935 As of 31 December 2017 RMB million 1,595,504 741,434 727,244 121,071,210 2016 RMB million 1,498,609 666,084 712,232 121,071,210 Change % 6.5 11.3 2.1 — 2015 RMB million 1,447,268 657,703 677,538 121,071,210 For the year ended 31 December Items Basic earnings per share Diluted earnings per share Basic earnings per share (excluding extraordinary gains and losses) Weighted average return on net assets (%) 2017 RMB 0.422 0.422 0.376 7.14 2016 RMB 0.383 0.383 0.245 6.68 Weighted average return (excluding extraordinary gains and losses) on net assets (%) 6.37 4.33 Net cash flow from operating activities per share 1.577 1.772 Items Net assets attributable to equity shareholders of the Company per share Liabilities to assets ratio (%) As of 31 December 2016 RMB 2017 RMB 6.007 46.47 5.883 44.45 Change % 10.2 10.2 53.5 0.46 percentage points 2.04 percentage points (11.0) Change % 2.1 2.02 percentage points 2015 RMB 0.267 0.267 0.239 5.07 4.52 1.371 2015 RMB 5.606 45.44 3 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017PRINCIPAL FINANCIAL DATA AND INDICATORSPrincipal Financial Data and Indicators (3) Extraordinary items and corresponding amounts Items Net loss on disposal of non-current assets Donations Government grants Gain on holding and disposal of various investments Investment income on loss of control and remeasuring interests in pipeline company Gain on remeasurement of interests in Shanghai SECCO Other non-operating expenses, net Gain on business combination under the same control Subtotal Tax effect Total Attributable to: Equity shareholders of the Company Minority interests (4) Items measured by fair values For the year ended 31 December (Income)/expenses 2017 RMB million 2016 RMB million 2015 RMB million 1,518 152 (4,783) (148) — (3,941) 690 — (6,512) 976 (5,536) (5,537) 1 1,489 133 (3,987) (518) (20,562) — 1,367 (86) (22,164) 5,578 (16,586) (16,703) 117 665 112 (5,002) (943) — — 387 (134) (4,915) 1,060 (3,855) (3,380) (475) Items Available-for-sale financial assets Derivative financial instruments Cash flow hedging Financial assets at fair value through profit and loss Total Beginning of the year 262 314 (4,024) — (3,448) End of the year 178 (522) (1,617) 51,196 49,235 Unit: RMB million Influence on the profit of the year 41 (1,105) (1,486) 196 (2,354) Changes (84) (836) 2,407 51,196 52,683 (5) Significant changes of items in the financial statements The table below sets forth reasons for those changes where the fluctuation was more than 30% during the reporting period: Items Accounts receivable As of 31 December 2017 RMB million 2016 RMB million Increase/(decrease) Amount RMB million Percentage (%) Reasons for change 68,494 50,289 18,205 36.2 (35.7) (85.3) 36.0 (42.9) (76.4) (38.1) Mainly due to the increase in crude oil price and refined oil products export. Mainly due to the decrease of crude oil trade deposit and internal borrowings received from the Sichuan-to-East China Pipeline Co. The Company dispatched an executive to the Board of SIBUR in 2017 and it is able to exercise significant influence in SIBUR. So the Company turned the available for-sale financial assets to long term equity investment. Mainly due to increase in profit as well as the impact of timing of tax payment. Parts of debentures payable are converted to non-current liabilities due within one year. Mainly due to increase in profit, sufficient capital reserve and increase in interest revenue Mainly due to the income from restructuring of pipeline assets in 2016 and the impact of equity acquisition of Shanghai SECCO in 2017. Other receivables 16,467 25,596 (9,129) Available-for-sale financial assets 1,676 11,408 (9,732) Taxes payable 71,940 52,886 19,054 Debentures payable 31,370 54,985 (23,615) Financial expenses 1,560 6,611 (5,051) Income of investment 19,060 30,779 (11,719) 4 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017PRINCIPAL FINANCIAL DATA AND INDICATORS (CONTINUED)Principal Financial Data and Indicators 2 FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS Items Turnover and other operating revenues Operating profit Profit before taxation Profit attributable to owners of the Company Basic earnings per share (RMB) Diluted earnings per share (RMB) Return on capital employed (%) Return on net assets (%) Net cash generated from operating activities per share (RMB) Items Non-current assets Net current liabilities Non-current liabilities Non-controlling interests Total equity attributable to owners of the Company Net assets per share (RMB) Adjusted net assets per share (RMB) Unit: RMB million For the year ended 31 December 2016 2015 2014 2013 1,930,911 77,193 80,151 46,672 0.385 0.385 7.30 6.56 1.772 2,020,375 56,822 56,411 32,512 0.269 0.269 5.23 4.81 1.371 2,827,566 73,439 65,818 46,639 0.399 0.399 6.06 7.84 1.267 2,881,928 96,763 95,444 66,348 0.571 0.536 8.03 11.62 1.305 Unit: RMB million As of 31 December 2016 2015 2014 2013 1,086,348 73,282 181,831 120,241 710,994 5.873 5.808 1,113,611 129,175 196,275 111,964 676,197 5.585 5.517 1,094,035 242,892 201,540 54,348 595,255 5.033 4.969 1,012,703 197,440 189,485 54,691 571,087 4.899 4.860 2017 2,360,193 71,470 86,697 51,244 0.423 0.423 8.26 7.06 1.577 2017 1,066,455 50,397 163,168 126,770 726,120 5.997 5.868 3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER ASBE AND IFRS PLEASE REFER TO PAGE 206 OF THE REPORT. 5 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Principal Financial Data and Indicators1 CHANGES IN THE SHARE CAPITAL There is no change on the number and nature of shares of Sinopec Corp. during the reporting period 2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS As of 31 December 2017, the total number of shareholders of Sinopec Corp. was 508,659 including 502,590 holders of domestic A shares and 6,069 holders of overseas H shares. As of 28 February 2018, the total number of shareholders of Sinopec Corp. was 496,137. Sinopec Corp. has complied with requirement for minimum public float under the Hong Kong Listing Rules. (1) Shareholdings of top ten shareholders The shareholdings of top ten shareholders as of 31 December 2017 are listed as below: Name of shareholders China Petrochemical Corporation HKSCC Nominees Limited2 中國證券金融股份有限公司 HKSCC Nominees Limited 中央匯金資產管理有限責任公司長江證券股份有限公司中國工商銀行-上證50交易型開放式指數證券投資基金交通銀行股份有限公司-滙豐晉信大盤股票型證券投資基金國泰君安證券股份有限公司全國社保基金一一五組合 Nature of Shareholders Percentage of shareholdings % Total number of shares held Unit: Share Number of Changes of shares subject to shareholding1 pledges or lock-up State-owned Share H Share A Share A Share A Share A Share A Share A Share A Share A Share 70.86 20.96 2.75 0.33 0.27 0.07 0.07 0.06 0.05 0.04 85,792,671,101 25,379,806,872 3,331,730,143 400,982,945 322,037,900 88,458,695 80,551,930 0 153,819 1,470,304,825 39,831,541 0 17,261,400 2,693,300 68,970,054 54,884,077 54,190,722 23,033,290 (76,251,129) 54,190,722 0 Unknown 0 0 0 0 0 0 0 0 Note 1: As compared with the number of shares held as of 31 December 2016. Note 2: Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of China Petrochemical Corporation, holds 553,150,000 H shares, accounting for 0.46% of the total issued share capital of Sinopec Crop. Those shareholdings are included in the total number of the shares held by HKSCC Nominees Limited. Statement on the connected relationship or acting in concert among the above-mentioned shareholders: We are not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders. (2) Information disclosed by the shareholders of H shares in accordance with the Securities and Futures Ordinance (SFO) Name of shareholders BlackRock, Inc. JPMorgan Chase & Co. Status of shareholders Interest of corporation controlled by the substantial shareholder Beneficial owner Schroders Plc. Investment manager Trustee (exclusive of passive trustee) Custodian corporation/approved lending agent Investment manager (L): Long position, (S): Short position Number of shares interests held or regarded as held (H Share) 2,280,210,944(L) 4,080,000(S) 463,731,470(L) 226,733,320(S) 17,001,962(L) 20,400(L) 984,349,338(L) 1,278,173,372(L) Approximate percentage of Sinopec Corp.’s issued share capital (H Share) (%) 8.94(L) 0.02(S) 1.82(L) 0.89(S) 0.07(L) 0.00(L) 3.86(L) 5.01(L) 6 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERSChanges in Share Capital and Shareholdings of Principal Shareholders 3 ISSUANCE AND LISTING OF SECURITIES (1) Issuance of securities in reporting period There is no issuance of shares of Sinopec Corp. during the reporting period (2) Existing employee shares As at the end of the reporting period, there were no employee shares. 4 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER There was no change in the controlling shareholder and the de facto controller of Sinopec Corp. during the reporting period. (1) Controlling shareholder The controlling shareholder of Sinopec Corp. is China Petrochemical Corporation. Established in July 1998, China Petrochemical Corporation is a state-authorised investment organisation and a state-owned enterprise. The legal representative is Mr. Wang Yupu. Through re-organisation in 2000, China Petrochemical Corporation injected its principal petroleum and petrochemical businesses into Sinopec Corp. and retained certain petrochemical facilities. It provides well-drilling services, well- logging services, downhole operation services, services in connection with manufacturing and maintenance of production equipment, engineering construction, utility services including water and power and social services. Shares of other listed companies directly held by China Petrochemical Corporation Name of Company Sinopec Engineering (Group) Co. Ltd Sinopec Oilfield Service Corporation Sinopec Oilfield Equipment Corporation China Merchants Energy Shipping Co., Ltd Number of Shares Held Shareholding Percentage 2,907,856,000 65.67% 9,224,327,662 65.22% 351,351,000 58.74% 912,886,426 17.23% (2) Other than HKSCC Nominees Limited, there was no other legal person shareholder holding 10% or more of the total issued share capital of Sinopec Corp. (3) Basic information of the de facto controller China Petrochemical Corporation is the de facto controller of Sinopec Corp. (4) Diagram of the equity and controlling relationship between Sinopec Corp. and its de facto controller *: Inclusive of 553,150,000 H shares held by Sinopec Century Bright Capital Investment Ltd. (overseas wholly-owned subsidiary of China Petrochemical Corporation) through HKSCC Nominees Limited. 7 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Changes in Share Capital and Shareholdings of Principal ShareholdersIn accordance with IFRS, the Company’s turnover and other operating revenues reached RMB 2.36 trillion in 2017, up by 22.2% from the previous year. Profit attributable to equity shareholders of the Company was RMB 51.244 billion. Basic earnings per share were RMB 0.423, up by 9.9% from year on year. Taking into account the Company’s profitability, cash position, shareholder return and future business development, the Board proposed a final dividend of RMB 0.40 per share, which combined with the interim dividend of RMB 0.10 per share, brought the full-year dividend to RMB 0.50 per share, up by 100.8% from the previous year. During the three years of the sixth session of the Board, the global economy recovered slowly, and China’s economy entered a “new normal” phase. International oil prices fluctuated at low levels, with heavy repercussions for the upstream sector. At the same time, competition in the refined oil market intensified, with the government introducing a series of far-reaching policies in the oil and petrochemical industries. In the face of a complex and challenging operating environment, the Board emphasised on its principles of innovation, coordination, green development, openness and shared growth. We formulated our five major development strategies, 13th Five-Year Development Plan and Three-Year Rolling Development Program, taking advantage of our integrated value chain to accelerate the Company’s transformation and structural adjustments, eventually we achieved excellent operating performance. At the same time, we made outstanding progress in our corporate governance, corporate development, reforms and adjustments, and technological innovation, as well as in the fulfillment of our social responsibilities. Over the past three years, we consistently enhanced the composition and operation of the Board and the Supervisory Committee. The effort of confirming the role of the Chinese Communist Party in the Company’s corporate governance facilitated a better corporate governance mechanism featuring scientific decision-making and effective implementation and supervision. We focused on improving product quality, enhancing our efficiency and upgrading our businesses, thus driving the Company’s sustainable development. In our upstream business, we implemented a low-cost strategy to address the challenge of low oil prices, focused on high-efficiency exploration and development, and enlarged our proved reserves to lay a stronger foundation for sustainable development. We also developed our natural gas business as a new driver for profit growth. We built up the production capacity of the Fuling shale gas field to 10 billion cubic meters per year, laying a Mr. Dai Houliang, Vice Chairman & President Dear Shareholders and Friends: On behalf of the Board of Directors, I would like to express my sincere gratitude to our shareholders and the wider community for their interest and support. In 2017, international oil prices fluctuated and showed upward movement in the midst of a complex and changeable global political and economic environment. Domestic demand for natural gas and chemicals remained robust as the Chinese economy maintained its steady growth. Competition in the domestic refined oil market was fierce. As it made major decisions, the Board of Directors (the “Board”) focused on steady and firm improvement, and adhered to its overarching strategies of promoting value- oriented growth, innovation-driven development, integrated resource allocation, openness to cooperation, and green and low-carbon development. With an emphasis on delivering returns to shareholders, we continued to focus on supply-side structural reform and stepped up our efforts to enhance the Company’s efficiency, profitability and corporate governance. Over the past year, under the leadership of our management, the entire staff focused on optimisation, cost reduction, market expansion, structural adjustment, reform, foundation building, and risk management. As a result, our operating results were better than expected, and we met all performance targets for the year. In our upstream business, we emphasized high- efficiency exploration activities and cost-effective development. Our crude oil reserve replacement ratio reached 116%. At the same time, we worked hard to ensure a stable gas supply for the winter season, with gas production and sales volume hitting record highs. Taking advantage of our integrated value chain, which extends from refining to marketing and distribution, we actively responded to competitive market conditions. We achieved satisfactory results and further strengthened our competitive advantage. In our chemical operations, we adopted a customer-focused approach and enhanced the adjustments in our product and feedstock mix. Both the sales volume and profitability of the chemicals segment reached record highs. 8 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BOARD’S STATEMENTBoard’s Statementsolid resource foundation for promoting natural gas consumption in the Yangtze River Economic Belt. Moreover, we made continuous efforts to drive development of four world-class regional refining centers, sharpening our competitive edge. We took a market-driven approach to our refining and chemicals operations, vigorously promoting structural adjustments and increasing the production of high-value-added products to develop these businesses into our profit growth drivers. We actively coped with market competition, leading to steady growth in the sales volume of our refined oil products and the sustained rapid development of our non- fuel operations. We achieved record-breaking performance in various key operating indicators of the chemicals segment. As we continued to deepen our reform programs, the Company brought in new investors for the Sichuan-to- East China Pipeline Co., and introduced RMB 22.8 billion. The mixed-ownership reform of Sinopec Marketing Company went smoothly, and we successfully introduced a flattened organisation structure in upstream enterprises. With an emphasis on innovation, we enhanced our mechanisms for commecializing scientific and technological achievements and focused on the development of core technologies in our key businesses. Technological innovations have become a pillar of our development. The Company won eight National Technology Invention Awards and five National Science and Technology Progress Awards, remaining a leading domestic company in the number of invention patents granted. Moreover, we capitalised on the opportunities created by the Belt and Road Initiative by investing in refining and chemical projects, and increasing our trade volumes. We actively fulfilled our social responsibilities, and green and low-carbon development strategy. We successfully concluded the Clear Water, Blue Sky environmental project while smoothly implemented the Efficiency Doubling Plan. Our major pollutant emissions were lower than government criterias. Meanwhile, we made further achievements in our partnership assistance and targeted poverty alleviation programs. For the period of 2016 through 2017, we donated an aggregate amount of RMB 284 million to these causes. The Company actively participated in social and philanthropic activities. The Lifeline Express hospital train has provided free cataract surgeries for more than 40,000 impoverished people and is widely acclaimed throughout the country. Over the past three years, the Company’s turnover and total assets have grown steadily. Our businesses have expanded rapidly, and our overall performance has continued to improve. In accordance with IFRS, the Company’s total assets increased by 9.9% and our shareholders’ equity increased by 22.4% compared with 2014. In addition, we delivered good returns to our shareholders, with total dividends declared for the three-year period amounting to RMB 108.8 billion. These achievements are the product of the joint efforts of the Board, the management and the entire staff, reflecting their hard work and their determination to reform. The support of our shareholders and the wider community has also been indispensable. In accordance with regulatory requirements, the terms of office of the current Board of Directors and the Supervisory Committee will soon expire. Mr. Jiang Xiaoming and Mr. Andrew Y. Yan will step down as directors. They have demonstrated dedication and diligence throughout their terms of office and have made outstanding contribution to the Company’s decision-making, standardised operations, reforms and development. On behalf of the Board, I would also like to express my heartfelt gratitude to all independent directors and supervisors for their hard work and contribution. In 2018, the global economy will continue to recover. While China’s economic development model will shift from high-speed growth to high- quality development, domestic demand for oil and chemical products will remain robust. This year is an important link between the preceding and the following for carrying out the Company’s 13th Five-year Development Plan. In view of the new requirements in the new era, the Company will adhere to an underlying principle of progressing at a steady pace and under a new development model that makes quality and efficiency our top priorities. We will deepen supply-side structural reforms and enhance our corporate governance with China’s characteristics. We will also strive diligently to improve our production and operational standards, reinforce our management and ensure the Company’s sustainable development. In our upstream operations, we will pursue opportunities for high-efficiency exploration and cost-effective development, maintain the stability of our oil output, increase our gas supplies and reduce costs. At the same time, we will optimize our resource structure and drive the rapid development of the natural-gas business. In the refining, we will further optimize structure and implement a lean management model, optimise refining layout, and increase concentration ratio. We will continue to revamp our refining projects and upgrade our refined oil products. In the oil products marketing business, we will coordinate efforts to enhance market development and efficiency and expand our domestic and overseas businesses. In addition, we will strengthen our network and logistics system, accelerate the development of our non-fuel operations, and intensify efforts to boost our sales volume and profitability. In the chemicals business, we will improve quality and profitability and focus on transformation and development. We emphasise on the high end of our value chain, with more attention on the development of fine chemicals, bio-chemicals and new materials. In 2018, the capital expenditure of the Company will be RMB 117 billion. Looking ahead, the petroleum and chemical sectors are set to undergo significant and profound transformation. China’s economy will see remarkable progress in its move towards high-quality development. Both opportunities and challenges lie ahead of us. It is our mission to build Sinopec Corp. into a world- class energy and chemical company and to drive its sustainable growth. We will adjust to overall market trends, adapt as our development warrants, and optimize our strategies and planning. In addition, we will adhere to our corporate strategy of reform, management, innovation and development, stressing the importance of quality development in our core businesses and accelerating the development of new businesses. We will strengthen efforts to make reforms that improve the Company’s quality, efficiency and dynamism, and that enable sustainable and high-quality development. The Board has nominated an exceptional group of new members to join it. They include outstanding managers and leading experts in the academic, macro-economic, corporate management and petrochemical fields. Drawing on their far-ranging professional backgrounds and extensive work experience, they will share their insights with and add vitality to the Board, thus enhancing the Board’s decision-making capabilities. The new session of the Board will help the Company keep pace with overall market trends through their comprehensive view of our businesses and their pragmatic approach to market developments. We will redouble our efforts to develop Sinopec Corp. into a world- class energy and chemical company and to build a better community, delivering superior operating results to our shareholders and giving back to society and our employees. Dai Houliang Vice Chairman & President Beijing, China 23 March 2018 9 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Board’s StatementBUSINESS REVIEW In 2017, global economy recovered gradually, while China maintained stable and favourable economic growth with gross domestic product (GDP) up by 6.9%. International oil prices fluctuated and climbed from the low level, and domestic natural gas demand increased rapidly. With fast development of independent refineries, domestic oil products market witnessed strong competition. Demand for chemicals grew steadily, and China’s environmental regulations became more stringent. The Company actively addressed market changes through a focus on the improvement of assets quality and profitability, as well as operation upgrades. We pressed ahead with measures for specialised business development, market-oriented operation and overall coordination. Following the supply-side structural reform, we focused on optimisation, cost reduction, market expansion, structural adjustment, reform promotion, foundation building and risk management, coordinating all aspects of our work, which helped deliver solid operating results. 1 MARKET REVIEW (1) Crude Oil & Natural Gas Market (2) Refined Oil Products Market (3) Chemical Products Market In 2017, international crude oil prices fluctuated at low level among the first three quarters, and rapidly went up in the 4th quarter. The average spot price of Platt’s Brent for the year was USD 54.19 per barrel, up by 23.9% from the previous year. Along with the adjustments of China’s energy structure, domestic demand for natural gas became robust. Domestic apparent consumption of natural gas reached 237.3 billion cubic meters, up by 15.3% year on year. In 2017, domestic demand for refined oil products maintained its growth while market supply was in surplus. According to the statistics, apparent consumption of refined oil products (including gasoline, diesel and kerosene) was 306 million tonnes, up by 6.6% from the previous year, with gasoline up by 10.1% and kerosene up by 11.7%, and diesel made a turnaround, up by 2.9%. Prices for domestic refined oil products were adjusted in line with international oil prices trend. In 2017, the government made 17 times of price adjustments with 11 increases and 6 decreases. In 2017, domestic demand for chemicals grew fast. According to our statistics, domestic consumption of ethylene equivalent was up by 11.3% from the previous year, and the apparent consumption of synthetic resin, synthetic fibre and synthetic rubber rose by 8.6%, 5.0% and 6.4%, respectively. Domestic average chemical product prices increased compared with the previous year, in line with movements of international chemical product prices. 11 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BUSINESS REVIEW AND PROSPECTSBusiness Review and Prospects2 PRODUCTION & OPERATIONS REVIEW (1) Exploration and Production In 2017, faced with low oil prices, we constantly strengthened measures to increase proved reserves and rein in development costs, which helped achieving better results. We gave priority to high-efficiency exploration activities and made new discoveries in the Xinjiang Tahe Basin and the Sichuan Basin. The Company’s newly added proved reserve reached 462.73 million barrels of oil equivalent, with crude oil reserve replacement ratio reaching 116.0%. In crude oil development, we constantly adopted a profit-oriented approach, deepened structural adjustment, focused on cost control, reduced natural decline rate and ensured steady production. In natural gas development, we actively pushed forward capacity building in Summary of Operations for the Exploration and Production Segment Hangjinqi of Nei Mongol and Dongpo of west Sichuan, and completed 10 bcm(billion cubic meter) per year shale gas capacity building in Fuling. The Company’s production of oil and gas was 448.79 million barrels of oil equivalent, with domestic crude production down by 3.2% from the previous year and natural gas production up by 19.1%. Oil and gas production (mmboe) Crude oil production (mmbbls) China Overseas Natural gas production (bcf) Summary of Reserves of Crude Oil and Natural Gas Items Proved reserves Proved developed reserves China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Proved undeveloped reserves China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities 2017 448.79 293.66 248.88 44.78 912.50 2016 431.29 303.51 253.15 50.36 766.12 Change from 2015 2016 to 2017 (%) 471.91 349.47 296.34 53.13 734.79 4.1 (3.2) (1.7) (11.1) 19.1 Crude oil reserves (mmbbls) 31 December 2017 31 December 2016 1,599 1,429 1,124 1,124 811 313 305 32 273 170 137 137 49 88 33 0 33 1,552 1,393 1,080 1,080 801 279 313 40 273 159 136 136 37 99 23 0 23 12 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and ProspectsItems Proved reserves Proved developed reserves China Consolidated subsidiaries Puguang Fuling Others Overseas Consolidated subsidiaries Equity accounted entities Proved developed reserves China Consolidated subsidiaries Fuling Others Exploration and Production Activities Natural gas reserves (bcf) 31 December 2017 31 December 2016 7,178 6,454 6,436 6,436 2,330 1,226 2,880 18 0 18 724 724 724 0 724 6,997 6,012 6,000 6,000 2,127 1,121 2,752 12 0 12 985 985 985 187 798 2016 Wells drilled (as of 31 December) 2017 China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total Exploratory Development Exploratory Development Productive 266 266 151 115 2 0 2 268 Dry 149 149 71 78 1 0 1 150 Productive Dry Productive 1,442 1,442 845 597 119 0 119 1,561 9 9 1 8 0 0 0 9 266 266 166 100 2 0 2 268 Dry 149 149 73 76 1 0 1 150 Productive Dry 801 801 462 339 99 0 99 900 6 6 5 1 0 0 0 6 Wells drilling (as of 31 December) 2017 2016 Gross Net Gross Net Exploratory Development Exploratory Development Exploratory Development Exploratory Development 62 62 19 43 0 0 0 62 147 147 0 147 5 0 5 152 62 62 19 43 0 0 0 62 147 147 0 147 5 0 5 152 78 78 28 50 0 0 0 78 138 138 21 117 2 0 2 140 78 78 28 50 0 0 0 78 Oil productive wells (as of 31 December) 2017 2016 Gross 50,121 50,121 32,105 18,016 7,350 28 7,322 57,471 Net 50,121 50,121 32,105 18,016 3,968 14 3,954 54,089 Gross 49,921 49,921 32,019 17,902 7,432 28 7,404 57,353 138 138 21 117 2 0 2 140 Net 49,921 49,921 32,019 17,902 3,614 14 3,600 53,535 13 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Business Review and ProspectsRegion China Consolidated subsidiaries Puguang Fuling Others Total Acreage with exploration licenses China Acreage with development licenses China Overseas (2) Refining In 2017, with the market-oriented approach, we optimised product mix to produce more gasoline and jet fuel, and the production volume of high- value-added products have been further increased, with the diesel-to-gasoline ratio further declined to 1.17. The Company actively promoted refined oil products quality upgrading, the GB Summary of Operations for the Refining Segment Natural gas productive wells (as of 31 December) 2017 2016 Gross 4,800 4,800 57 266 4,477 4,800 Net 4,762 4,762 57 266 4,439 4,762 Gross 4,966 4,966 57 253 4,656 4,966 Net 4,932 4,932 57 253 4,622 4,932 Unit: Square kilometers Area under license (as of 31 December) 2017 621,529 621,529 36,604 31,498 5,106 2016 742,588 742,588 33,305 28,436 4,869 centralised marketing took full play, and profitability of LPG, asphalt and other products were further improved. In 2017, the Company processed 239 million tonnes of crude, up by 1.3% from the previous year, and produced 151 million tonnes of refined oil products, with gasoline up by 1.2% and kerosene up by 5.5% from the previous year. Unit: million tonnes Change from 2016 to 2017 (%) 2015 1.3 236.49 1.0 148.38 1.2 53.98 (0.9) 70.05 5.5 24.35 38.81 0.2 76.50 (0.48) percentage points 0.18 percentage points 94.75 V standard diesel quality upgrading completed, and advanced the refined oil products quality upgrading of GB VI standard. We adapted to market changes by taking full advantages of our integrated business, and moderately increasing export volume of refined oil products. We comprehensively optimised our production plans to ensure safe and reliable operations. The advantages of Refinery throughput Gasoline, diesel and kerosene production Gasoline Diesel Kerosene Light chemical feedstock production Light product yield (%) Refinery yield (%) Note: Includes 100% of the production of domestic joint ventures. 2017 238.50 150.67 57.03 66.76 26.88 38.60 75.85 94.88 2016 235.53 149.17 56.36 67.34 25.47 38.54 76.33 94.70 (3) Marketing and Distribution In 2017, confronted with stronger competition, the Company brought our advantages in integrated business and distribution network into full play, optimised internal and external resources, intensified market efforts and achieved sustained growth in both total sales volume and retail scale. We innovated operational models, optimised layout of service stations, and expedited revamping of storage and transportation facilities of refined oil products to further improve our distribution network. In addition, we proactively promoted and cultivated vehicle natural gas business. In 2017, the total sales volume of oil products was 199 million tonnes, of which domestic sales accounted for 178 million tonnes, up by 2.9% year on year. We strengthened self-owned brand development and marketing, and non-fuel business maintained its rapid growth with increased scale and profits. 14 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and ProspectsSummary of Operations for the Marketing and Distribution Segment Total sales volume of oil products (million tonnes) Total domestic sales volume of oil products (million tonnes) Retail sales (million tonnes) Direct sales and distribution (million tonnes) Annual average throughput per station (tonne/station) 2017 198.75 177.76 121.56 56.20 3,969 2016 194.84 172.70 120.14 52.56 3,926 Total number of service stations under the Sinopec brand Number of company-operated stations 30,633 30,627 30,603 30,597 30,560 30,547 0.1 0.1 31 December 2017 31 December 2016 31 December 2015 (4) Chemicals In 2017, the Company continued the “basic and high-end” chemical business development concept to promote effective supply. We fine-tuned chemical feedstock mix to lower costs, optimised product mix and increased high-value-added products production based on the customer demand. We optimised production and operation based on market conditions and intensified dynamic modelling and monitoring of profit to increase profitability. Ethylene output was 11.61 million tonnes, up by 5.0% from the previous year. The Company intensified its efforts to enhance research and development, production, marketing and sales of new high-value-added products. Our differential ratio of synthetic fibre reached 89.0% and the specialty Summary of Operations for the Chemicals Segment Ethylene Synthetic resin Synthetic rubber Synthetic fiber monomer and polymer Synthetic fiber 2017 11,610 15,938 848 9,439 1,220 2016 11,059 15,201 857 9,275 1,242 Change from 2015 2016 to 2017 (%) 189.33 171.37 119.03 52.34 3,896 2.0 2.9 1.2 6.9 1.1 Change from the end of the previous year to the end of the reporting period (%) and new products as a percentage of synthetic resin reached 63%. By fully exerting our network advantage, implementing precision marketing and further expanding the market, our full- year chemical sales volume increased by 12.2% from the previous year to 78.5 million tonnes, marking a historic record. Unit: thousand tonnes Change from 2015 2016 to 2017 (%) 11,118 15,065 843 8,994 1,282 5.0 4.8 (1.1) 1.8 (1.8) Note: Includes 100% of the production of domestic joint ventures. (5) Research and Development In 2017, the Company pushed ahead with its innovation-driven strategy, deepened reform of R&D mechanism, and accomplished notable results driven by R&D progresses. In upstream business, further breakthroughs in geological evaluation and exploration technologies of deep carbonate and deep shale gas reservoirs underpinned the growing resources base of Shunbei oilfield and south Sichuan as well as discoveries of new formations in Sichuan Basin. We improved development technologies for Tahe fractured-vuggy carbonate reservoir, bringing down the natural decline rate. In refining, our demonstration unit of fluidised bed residue hydro-treating achieved long-cycle operation at its full capacity, and we completed the industrial test of super solid-acid C5 and C6 isomerisation technology. In chemicals, the syngas to ethylene glycol demonstration unit ran smoothly, and we accomplished commercial production of low-volatility polypropylene for automobile use and high-transparency & low-extraction polypropylene. Our on-line trading platform developed rapidly, as a result of the integration of IT application and industrialisation. In 2017, the Company filed 5,876 patent applications at home and abroad, 3,640 patents granted. The Company also won two first prizes and one second prize in the National Scientific and Technological Progress Awards, two second prizes in the National Technology and Innovation Awards, and eight excellent patent awards in China’s Patent Award competition. 15 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Business Review and Prospects(6) Health, Safety and the Environment In 2017, the Company pressed ahead the formation of a long-term safe production scheme, strengthened safety measures at basic levels to control risks and remove potential hazards in all aspects. We promoted on-site safety supervision and management to continuously improve our safety management level. The Company actively implemented its green and low- carbon strategy to integrate energy conservation, emissions cutting and carbon reduction. We comprehensively strengthened environmental risk and air pollution control, steadily pushed forward our “Efficiency Doubling Plan”, continuously consolidated our carbon asset management, and accomplished all emissions reduction targets. For more detailed information, please refer to our Communication on Progress for Sustainable Development. (7) Capital Expenditures In 2017, focusing on quality and profitability of investment, the Company continuously optimised its investment projects. Total capital expenditures were RMB 99.384 billion. Capital expenditures for the exploration and production segment were RMB 31.344 billion, mainly for Fuling shale gas and Hangjinqi natural gas field development projects, Shengli and Northwest crude development projects, LNG terminals in Tianjin, Wen- 23 gas storage and phase I of Xinjiang gas pipeline, as well as overseas projects. Capital expenditures for the refining segment were RMB 21.075 billion, mainly for Zhongke Refining and Petrochemical project, adjustments in the product mix of Zhenhai and Maoming refineries, and gasoline and diesel GB VI quality upgrading projects. Capital expenditures for the marketing and distribution segment were RMB 21.539 billion, mainly for construction of service stations and refined oil product pipelines, depots and storage facilities. Capital expenditures for the chemicals segment were RMB 23.028 billion, mainly for Zhongke Refining and Petrochemical project, phase II of Hainan high-efficiency and environment- friendly aromatics project, Gulei and Zhong’an projects, acquisition of interest in Shanghai SECCO, as well as projects regarding resource comprehensive utilisation and product structure adjustments. Capital expenditures for the corporate and others segment were RMB 2.398 billion, mainly for R&D facilities and information technology application projects. BUSINESS PROSPECTS (1) Market Outlook Looking ahead to 2018, we expect world economy continuing to recover, and China’s economy would maintain steady growth. Meanwhile, the constant stream of reform measures by Chinese government to revitalise its substantial economy, the further development of the Belt and Road Initiative, the synergic development of Beijing-Tianjin-Hebei and the growth along Yangtze River Economic Belt will bring up demand for refined oil products and petrochemicals. Natural gas as clean energy will see rapid growth with structural adjustment of domestic energy mix. International oil price in 2018 is expected to maintain its stabilising momentum. (2) Operations In 2018, the Company will persist with our objective of progressing at a steady pace to continually focus on growth stabilisation, adhere to the principle of quality first and profitability prioritised. The Company will deepen the supply- side structural reform as main direction to further implement the operation objectives of reform, management, innovation and development, to fully improve operational performance. We will undertake the following work during the year: Exploration and Production: We will maintain high-efficiency exploration and profitable production activities to continually increase proved reserve and expand resource base. In oil development, we will enhance refined reservoir characterisation, deepen the structural adjustments of mature fields, control natural decline rate, lower operational cost and improve economic recovery rate. In natural gas development, we will keep advancing key projects for capacity construction, optimise production and marketing operations, and promote the coordinated development along the value chain. In 2018, we plan to produce 290 million barrels of crude oil, of which overseas production will account for 41 million barrels. We plan to produce 974.1 billion cubic feet of natural gas. Refining: We will comprehensively optimise our production plans along with market changes to consolidate the competitive advantage of refining business. We will continue to adjust our product structure by further lowering the diesel-to-gasoline ratio and increasing the production of naphtha and jet fuel. The quality upgrading of GB VI standard refined oil products will complete on time with strengthened coordination. We will fine-tune crude oil procurement and resource allocation to reduce procurement cost. We will optimise our marketing mechanism to enlarge the trading volume of other refined oil products. In 2018, we plan to process 239 million tonnes of crude and produce 152 million tonnes of refined oil products. Marketing and Distribution: We will intensify our marketing strategy of balancing profits and volume by optimising resources allocation and operational efficiency. We will put effort to expand markets and our business scale. We will further improve our marketing network to reinforce existing advantages. 16 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and ProspectsWe will accelerate the construction of oil products export infrastructure and amplify the profitability of overseas oil products marketing. We will deepen the integration of fuel and non-fuel business, so to create a new mode of coordinating oil products retailing, non-fuel products marketing and third-party vendors cooperation, and thus step up the growth of non-fuel business. In 2018, we plan to sell 179 million tonnes of oil products in the domestic market. Chemicals: We will further optimise feedstock mix and product slate. The constant feedstock optimisation would further lower feedstock costs. We will put more efforts on optimising product mix, enhancing the dynamic evaluation and monitoring of profitability of facilities and product chains, increasing more popular and profitable products production and advancing the R&D, production and sales of high-end chemicals. We will step up research on the industrial chain and optimise the rapid response mechanism combining production, marketing and research. Internal and external resources will be fully tapped to actively expand sales volume and market share. Meanwhile, refined marketing and tailor- made services will be adopted to provide our customers with full process solutions and value-added services. In 2018, we plan to produce 11.6 million tonnes of ethylene. Research and Development: We will continue to deeply implement our strategy of development driven by innovation and reform of mechanisms for technological innovation. We will accelerate key technical breakthroughs, reinforce research on leading technologies, and step up the commercial application of technological achievements to highlight the prominent role of technologies. In key technical breakthroughs, focus will be given to new discoveries of oil and gas resources, low-cost development of oil and gas resources, high-efficiency conversion of heavy crude, refined oil products quality upgrading, cost reduction and efficiency enhancement of chemical business, new products development of high-value- added materials, energy conservation and environmental protection. In leading technologies, priorities lie in the basic and prospective research of ultra-deep and deepwater oil and gas exploration and production, molecular-level intelligent refining and new energies. In innovative development, the Company plans to establish a joint R&D centre for cutting-edge technologies to facilitate the innovation from basic research to commercialisation. Meanwhile, the integration of information technologies and industrialisation will carry on by further enhancing integration of information systems and the application of intelligent pipeline management systems. Capital Expenditures: In 2018, we will devote attention to the quality and profitability of investments, and constantly optimise our investment projects. Capital expenditures for the year are budgeted at RMB 117 billion. The exploration and production segment will account for expenditures of RMB 48.5 billion, mainly for the shale gas development in southwest China, the natural gas project in north China and crude capacity building in northwest China, as well as natural gas pipelines and storage projects, and overseas oil and gas projects. The refining segment will account for RMB 28.8 billion, mainly for Zhongke Refining and Petrochemical Project, the structural adjustments of refining business in Zhenhai, Maoming and Tianjin subsidiaries, and the quality upgrading of GB VI standard gasoline and diesel. The marketing and distribution segment will account for RMB 18.5 billion, mainly for construction of depots and storage facilities, pipelines and service stations. The chemicals segment will account for RMB 17.7 billion, mainly for Zhongke Refining and Petrochemical Project, the high-efficiency and phase II of Hainan high-efficiency and environmental- friendly aromatics project, the integrated refining and petrochemical project in Gulei and the resource utilisation and structural adjustment projects in Zhenhai, Yangzi, Jinling, Maoming and Wuhan subsidiaries. The corporate and others segment will account for RMB 3.5 billion, mainly for R&D facilities and information technology projects. 17 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Business Review and Prospects18 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSISManagement’s Discussionand AnalysisTHE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING FINANCIAL DATA WERE ABSTRACTED FROM THE COMPANY’S AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO THE IFRS, UNLESS OTHERWISE STATED. THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX. 1 CONSOLIDATED RESULTS OF OPERATIONS In 2017, the Company’s turnover and other operating revenues were RMB 2,360.2 billion, increased by 22.2% compared with that of 2016. The profit before taxation was RMB 86.7 billion, representing a year on year increase of 8.2%. The following table sets forth the main revenue and expenses from the Company’s consolidated financial statements: Turnover and other operating revenues Turnover Other operating revenues Operating expenses Purchased crude oil, product and operating supplies and expenses Selling, general and administrative expenses Depreciation, depletion and amortisation Exploration expenses, including dry holes Personnel expenses Taxes other than income tax Other operating (expense)/income, net Operating profit Net finance costs Investment income and share of profits less losses from associates and joint ventures Profit before taxation Tax expense Profit for the year Attributable to: Owners of the Company Non-controlling interests (1) Turnover and other operating revenues Year ended 31 December 2017 RMB million 2,360,193 2,300,470 59,723 (2,288,723) (1,770,651) (64,973) (115,310) (11,089) (74,854) (235,292) (16,554) 71,470 (1,560) 16,787 86,697 (16,279) 70,418 2016 RMB million 1,930,911 1,880,190 50,721 (1,853,718) (1,379,691) (64,360) (108,425) (11,035) (63,887) (232,006) 5,686 77,193 (6,611) 9,569 80,151 (20,707) 59,444 51,244 19,174 46,672 12,772 Change (%) 22.2 22.4 17.7 23.5 28.3 1.0 6.4 0.5 17.2 1.4 — (7.4) (76.4) 75.4 8.2 (21.4) 18.5 9.8 50.1 In 2017, the Company’s turnover was RMB 2,300.5 billion, representing an increase of 22.4% over 2016. This was mainly attributed to the increase in crude oil prices. Meanwhile, major petroleum and petrochemical products prices and sales volume also increased as a result of the Company’s efforts in seizing opportunities to expand the market and sales volume. The following table sets forth the external sales volume, average realised prices and respective rates of change of the Company’s major products in 2017 and 2016: Crude oil Natural gas (million cubic meters) Gasoline Diesel Kerosene Basic chemical feedstock Monomer and polymer for synthetic fibre Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser Sales volume (thousand tonnes) Year ended 31 December Average realised price (RMB/tonne, RMB/thousand cubic meters Year ended 31 December 2017 6,567 22,529 83,933 88,848 25,557 35,964 10,267 13,199 1,304 1,128 698 2016 6,808 19,008 77,480 91,492 25,164 32,248 7,146 12,223 1,369 1,098 714 Change (%) (3.5) 18.5 8.3 (2.9) 1.6 11.5 43.7 8.0 (4.7) 2.7 (2.2) 2017 2,390 1,290 6,941 5,038 3,531 4,855 6,038 8,155 8,556 11,913 2,010 2016 1,628 1,258 6,386 4,482 2,807 4,054 5,325 7,488 7,113 9,608 1,612 Change (%) 46.8 2.5 8.7 12.4 25.8 19.8 13.4 8.9 20.3 24.0 24.7 19 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSISManagement’s Discussionand Analysis Most crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production, with the remaining sold to external customers. In 2017, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 69.2 billion, an increase of 45.8% over 2016. The change was mainly due to the increase in crude oil prices and sales volume of natural gas in 2017. In 2017, petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold by Refining Segment and Marketing and Distribution Segment achieved external sales revenues of RMB 1,324.4 billion, accounting for 56.1% of the Company’s turnover and other operating revenues, representing an increase of 17.2% over 2016, mainly due to the increase in various refined oil products’ prices. The sales revenue of gasoline, diesel and kerosene was RMB 1120.4 billion, representing an increase of 14.8% over 2016, and accounting for 84.6% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 204.0 billion, representing an increase of 31.8% compared with 2016, accounting for 15.4% of the total sales revenue of petroleum products. Chemical products sold by Chemicals Segment achieved external sales revenue of RMB 373.8 billion, representing an increase of 31.5% over 2016, accounting for 15.8% of the Company’s total turnover and other operating revenues. This was mainly due to the increase in price and sales volume of chemical products. (2) Operating expenses In 2017, the Company’s operating expenses were RMB 2,288.7 billion, increased by 23.5% compared with 2016, and it is mainly due to the increase in prices of crude oil and other related petroleum and chemical products. The operating expenses mainly consisted of the following: Purchased crude oil, products and operating supplies and expenses were RMB 1,770.7 billion, representing an increase of 28.3% over the same period of 2016, accounting for 77.4% of the total operating expenses, of which: Crude oil purchasing expenses were RMB 497.1 billion, representing an increase of 33.0% over the same period of 2016. Throughput of crude oil purchased externally in 2017 was 211.03 million tonnes (excluding the volume processed for third parties), representing an increase of 4.3% over the same period of 2016. The average cost of crude oil purchased externally was RMB 2,655 per tonne, representing an increase by 27.4% over 2016. The Company’s purchasing expenses of refined oil products were RMB 300.5 billion, representing an increase of 23.3% over the same period of 2016. This was mainly due to the increase in prices of externally purchased refined oil products, which were in line with the increase in prices of crude oil. The Company’s purchasing expense related to trading activities were RMB 503.9 billion, representing an increase of 27.7% over the same period of 2016. This was mainly due to the increase in prices of externally purchased crude oil and refined oil products in the trading business. The Company’s other purchasing expenses were RMB 469.2 billion, representing an increase of 27.6% over the same period of 2016. This was mainly due to the increase in prices of externally purchased oil related products in line with the increase in prices of crude oil. Selling, general and administrative expenses were RMB 65.0 billion, representing an increase of 1.0% over 2016. Depreciation, depletion and amortisation were RMB 115.3 billion, representing an increase of RMB 6.9 billion and 6.4% as compared with 2016. That was mainly due to the depreciation, depletion and amortisation of the Exploration & Development Segment, which increased by RMB 4.9 billion over 2016. Exploration expenses were RMB 11.1 billion, representing an increase of 0.5% year on year. Personnel expenses were RMB 74.9 billion, representing an increase of 17.2% over 2016. That was mainly because the Company promoted the reform of employment system, transferred some labours into contracted employees, which increased salary and other expenses. To implement the requirement of deepening the reform as required by the Central government, the Company handed over parts of its subsidiaries’ social insurance to local government, and paid relevant fees according to the local government’s requirements. As the Company improved its profit in 2017, income of employee was increased accordingly in line with its incentive mechanism. Taxes other than income tax were RMB 235.3 billion, representing an increase of 1.4% compared with 2016. Other operating (expense)/income, net were RMB 16.6 billion, increased by RMB 22.2 billion over the same period of 2016. That was mainly due to the non- operating income from capital injection of Sichuan-to-East China Pipeline Co. (3) Operating profit was RMB 71.5 billion, representing a decrease of 7.4% compared with 2016. After eliminating the impact of capital injection of Sichuan- to-East China Pipeline Co. in 2016 and acquisition of interest in Shanghai SECCO in 2017, operating profit increased by 19.2% year on year. (4) Net finance costs were RMB 1.6 billion, representing a decrease of 76.4% over 2016, of which: interest expense decreased by RMB 2.1 billion over 2016 as a result of significant reduction in interest bearing debt; net income from foreign exchange was RMB 0.3 billion, increased by RMB 0.9 billion as compared with 2016; interest income increased by RMB 2.0 billion as a result of increased cash reserve as compared with the same period of 2016. (5) Profit before taxation was RMB 86.7 billion, after eliminating the impact of capital injection of the Sichuan-to- East China Pipeline Co. in 2016 and acquisition of interest in Shanghai SECCO in 2017, it represents an increase of 38.9% compared with 2016. (6) Tax expense was RMB 16.3 billion, representing a decrease of 21.4% year on year. That was mainly due to the increase in exempt investment income. (7) Profit attributable to non-controlling interests was RMB 19.2 billion, representing an increase of RMB 6.4 billion compared with 2016. (8) Profit attributable to owners of the Company was RMB 51.2 billion, representing an increase of 9.8% year on year. 20 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis2 RESULTS OF SEGMENT OPERATIONS The Company manages its operations through four business segments, namely exploration and production segment, refining segment, marketing and distribution segment and chemicals segment, and corporate and others. Unless otherwise specified, the inter-segment transactions have not been eliminated from financial data discussed in this section. In addition, the operating revenue data of each segment include other operating revenues. The following table shows the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated. Operating revenues Year ended 31 December 2017 RMB million 2016 RMB million As a percentage of consolidated operating revenue before elimination of inter-segment sales Year ended 31 December 2017 (%) 2016 (%) 79,701 77,804 157,505 137,582 874,271 1,011,853 1,220,235 3,962 1,224,197 388,128 49,615 437,743 534,547 440,303 974,850 3,806,148 56,985 58,954 115,939 108,469 747,317 855,786 1,049,377 3,480 1,052,857 296,500 38,614 335,114 419,580 320,367 739,947 3,099,643 2.1 2.0 4.1 3.6 23.0 26.6 32.1 0.1 32.2 10.2 1.3 11.5 14.0 11.6 25.6 100.0 1.8 1.9 3.7 3.5 24.2 27.7 33.9 0.1 34.0 9.6 1.2 10.8 13.5 10.3 23.8 100.0 As a percentage of consolidated operating revenue after elimination of inter-segment sales Year ended 31 December 2017 (%) 3.4 2016 (%) 3.0 5.8 5.6 51.7 54.3 16.5 15.4 22.6 21.7 (1,445,955) 2,360,193 (1,168,732) 1,930,911 100.0 100.0 Exploration and Production Segment External sales* Inter-segment sales Operating revenues Refining Segment External sales* Inter-segment sales Operating revenues Marketing and Distribution Segment External sales* Inter-segment sales Operating revenues Chemicals Segment External sales* Inter-segment sales Operating revenues Corporate and Others External sales* Inter-segment sales Operating revenues Operating revenue before elimination of inter-segment sales Elimination of inter-segment sales Consolidated operating revenue *: Other operating revenues are included. 21 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Management’s Discussionand Analysis The following table sets forth the operating revenues, operating expenses and operating profit by each segment before elimination of the inter- segment transactions for the periods indicated, and the percentage change of 2017 compared to 2016. Year ended 31 December 2017 RMB million 2016 RMB million Change (%) 157,505 203,449 (45,944) 1,011,853 946,846 65,007 1,224,197 1,192,628 31,569 437,743 410,766 26,977 974,850 979,334 (4,484) (1,655) 115,939 152,580 (36,641) 855,786 799,521 56,265 1,052,857 1,020,704 32,153 335,114 314,491 20,623 739,947 736,735 3,212 1,581 35.9 33.3 — 18.2 18.4 15.5 16.3 16.8 (1.8) 30.6 30.6 30.8 31.7 32.9 — — In 2017, the operating expenses of this segment were RMB 203.4 billion, representing an increase of 33.3% over 2016. That was mainly due to the following: ‧ Depreciation, depletion and amortisation increased by RMB 4.9 billion year on year; ‧ Impairment loss increased by RMB 2.0 billion year on year; ‧ Personnel expenses increased by 1.7 billion year on year; ‧ Resource Tax increased by RMB 1.0 billion year on year, as a result of increase in crude oil price; ‧ Procurement cost increased by RMB 15.1 billion year on year, as a result of expansion of LNG business; ‧ With the restructuring of Sichuan- to-East China Pipeline Co. in 2016, other expenses (net) increased by RMB 20.6 billion. In 2017, the oil and gas lifting cost was RMB 788.3 per tonne, representing a year on year increase of 0.3%. In 2017, the operating loss of the exploration and production segment were RMB 45.9 billion, representing an expanded loss by RMB 9.3 billion as compared with 2016. By deducting the non-operating income from capital injection of Sichuan-to-East China Pipeline Co. in 2016, the Company realized a significant reduction in loss by RMB 11.3 billion in 2017. (2) Refining Segment Business activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment of the Company, as well as processing crude oil into refined petroleum products. Gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the Company; part of the chemical feedstock is sold to the chemicals segment of the Company; and other refined petroleum products are sold externally to both domestic and overseas customers. In 2017, the operating revenues of this segment were RMB 1,011.9 billion, representing an increase of 18.2% over 2016. This was mainly attributed to the increase in products prices. Exploration and Production Segment Operating revenues Operating expenses Operating loss Refining Segment Operating revenues Operating expenses Operating profit Marketing and Distribution Segment Operating revenues Operating expenses Operating profit Chemicals Segment Operating revenues Operating expenses Operating profit Corporate and Others Operating revenues Operating expenses Operating (loss)/profit Elimination of inter-segment (loss)/profit (1) Exploration and Production Segment Most crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Company’s refining and chemical production. Most of the natural gas and a small portion of crude oil were sold externally to other customers. In 2017, the operating revenues of this segment were RMB 157.5 billion, representing an increase of 35.9% over 2016. This was mainly attributed to the rise of realised price of crude oil and natural gas as well as expansion of LNG business. In 2017, the segment sold 35.31 million tonnes of crude oil, representing a decrease of 2.9% over 2016. Natural gas sales volume was 24.48 bcm, representing an increase of 19.1% over 2016. Regased LNG sales volume was 4.82 bcm, representing an increase of 118.9% over 2016. LNG sales volume was 2.283 million tonnes, representing an increase of 43.7% over 2016. Average realised prices of crude oil, natural gas, regased LNG, and LNG were RMB 2,341 per tonne, RMB 1,296 per thousand cubic meters, RMB 1,742 per thousand cubic meters, and RMB 3,056 per tonne, representing increase of 35.0%, 2.3%, 2.0%, and 24.0% respectively over 2016. 22 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis The following table sets forth the sales volumes, average realised prices and the respective changes of the Company’s major refined oil products of the segment in 2017 and 2016. Gasoline Diesel Kerosene Chemical feedstock Other refined petroleum products In 2017, domestic gasoline and diesel prices were adjusted 17 times with 11 increases and 6 decreases. The aggregate price increased (tax inclusive) of 90# gasoline and 0# diesel in 2017 were RMB 435 per tonne and 420 per tonne respectively. In 2017, sales revenues of gasoline were RMB 354.8 billion, representing an increase of 14.6% over 2016. The sales revenues of diesel were RMB 301.1 billion, representing an increase of 13.8% over 2016. The sales revenues of kerosene were RMB 60.2 billion, representing an increase of 47.3% over 2016. The sales revenues of chemical feedstock were RMB 118.4 billion, representing an increase of 25.8% over 2016. The sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB 172.2 billion, representing an increase of 22.2% over 2016. In 2017, the segment’s operating expenses were RMB 946.8 billion, representing an increase of 18.4% over 2016. This is mainly attributed to the increase in procurement cost of crude oil. In 2017, the average processing cost for crude oil was RMB 2,774 per tonne, representing an increase of 26.4% over Sales Volume (thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2017 54,273 60,680 17,080 36,951 58,801 2016 52,461 58,734 14,529 36,408 55,742 Change (%) 3.5 3.3 17.6 1.5 5.5 2017 6,538 4,962 3,527 3,204 2,929 2016 5,904 4,505 2,814 2,584 2,529 Change (%) 10.7 10.1 25.3 24.0 15.8 2016. Total crude oil processed was 230.30 million tonnes (excluding volume processed for third parties), representing an increase of 4.2% over 2016. The total cost of crude oil processed was RMB 638.8 billion, representing an increase of 31.8% over 2016. In 2017, refining gross margin was RMB 510.7 per tonne, representing an increase of RMB 38.8 per tonne compared with 2016. This is mainly due to the increased proportion of high value added products (volume of gasoline with high octane number and jet fuel increased by 0.7% and 5.6% over 2016 and diesel to gasoline ratio down to 1.17), the promotion of quality upgrading of refined oil products (output of gasoline and diesel with GB V standard or above increased by 58% over 2016), enlarged total refinery throughput by increasing the export volume, and further improved margins for LPG, asphalt and other refined oil products by our centralized marketing advantages brought fully into play. In 2017, the unit refining cash operating cost (defined as operating expenses less the processing cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, then divided by the throughput of crude oil and refining feedstock) was RMB 175.2 per tonne, an increase of RMB 9.5 per tonne over 2016, mainly because of increased operating expenses resulting from newly operated facilities related to quality upgrading of refined oil products as well as safety enhancement and environment protection. In 2017, the operating profit of the segment totaled RMB 65.0 billion, representing an increase of RMB 8.7 billion or 15.5% as compared with 2016. (3) Marketing and Distribution Segment The business activities of the marketing and distribution segment include purchasing refined oil products from the refining segment and third parties, conducting wholesale and direct sales to domestic customers and distributing oil products through the segment’s retail and distribution network, as well as providing related services. In 2017, the operating revenues of this segment were RMB 1,224.2 billion, representing an increase of 16.3% over 2016, of which: the sales revenues of gasoline totaled RMB 582.9 billion, representing an increase of 17.7% compared with 2016; the sales revenues of diesel were RMB 449.2 billion, representing an increase of 9.0% over 2016, and the sales revenues of kerosene were RMB 90.2 billion, representing an increase of 27.8% over 2016. 23 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Management’s Discussionand AnalysisThe following table sets forth the sales volumes, average realised prices, and the respective percentage changes of the segment’s four major refined oil products in 2017 and 2016, including breakdown in retail, direct sales and wholesale of gasoline and diesel: Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December Gasoline Retail Direct sales and wholesale Diesel Retail Direct sales and wholesale Kerosene Fuel In 2017, the operating expenses of the segment were RMB 1,192.6 billion, representing an increase of RMB 171.9 billion or 16.8% as compared with that of 2016. This was mainly due to increased procurement prices of refined oil products and volume of gasoline. In 2017, the segment’s marketing cash operating cost (defined as the operating expenses less purchase costs, taxes other than income tax, depreciation and amortisation, and then divided by the sales volume) was RMB 198.7 per tonne, representing an increase of 0.7% compared with that of 2016. In 2017, the operating revenues of non- fuel business was RMB 27.6 billion, 2017 83,980 66,364 17,616 89,146 44,736 44,410 25,555 23,299 2016 77,613 63,718 13,895 91,998 46,656 45,342 25,164 22,034 Change (%) 8.2 4.2 26.8 (3.1) (4.1) (2.1) 1.6 5.7 representing an increase of RMB 6.2 billion compared with 2016; the profit of non-fuel business was RMB 2.2 billion, representing an increase of RMB 0.7 billion compared with 2016. In 2017, the operating profit of this segment was RMB 31.6 billion, representing a decrease of 1.8% compared with 2016. (4) Chemicals Segment The business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and third parties, producing, marketing and distributing petrochemical and inorganic chemical products. 2017 6,941 7,346 5,412 5,039 5,588 4,486 3,531 2,251 2016 6,380 6,722 4,812 4,478 5,088 3,851 2,807 1,703 Change (%) 8.8 9.3 12.5 12.5 9.8 16.5 25.8 32.2 In 2017, the operating revenues of the chemicals segment were RMB 437.7 billion, representing an increase of 30.6% as compared with that of 2016, This was mainly due to increase in sales volume and price of chemical products as compared with 2016. The sales revenues generated by the segment’s six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fibre monomer and polymer, synthetic fibre, synthetic rubber, and chemical fertiliser) totaled RMB 413.5 billion, representing an increase of 30.8% as compared with 2016, and accounted for 94.5% of the operating revenues of the segment. The following table sets forth the sales volume, average realised prices and respective percentage changes of each of the segment’s six major categories of chemical products in 2017 and 2016. Basic organic chemicals Synthetic fibre monomer and polymer Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser In 2017, the operating expenses of the chemicals segment were RMB 410.8 billion, representing an increase of 30.6% over 2016, mainly because of the significant increase in the price of externally procured raw materials. In 2017, the segment seized the opportunities of the improving market conditions, coordinated production with sales, intensified structural adjustment, increased the production of synthetic resin, rubber and some organic products which were more profitable, positively expanded the market, strictly controlled costs and expenses, thus, resulting in remarkable profits. Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2017 46,351 10,332 13,215 1,304 1,138 700 2016 41,605 7,169 12,250 1,369 1,099 714 Change (%) 11.4 44.1 7.9 (4.7) 3.5 (2.0) 2017 4,684 6,047 8,153 8,556 11,957 2,008 2016 3,963 5,328 7,482 7,113 9,609 1,612 Change (%) 18.2 13.5 9.0 20.3 24.4 24.6 In 2017, the operating profit of this segment was RMB 27.0 billion, representing an increase of RMB 6.4 billion or 30.8% as compared with 2016. was mainly attributed to the increase in international crude oil prices as well as increased revenue from crude oil trading business as compared with 2016. (5) Corporate and Others The business activities of corporate and others mainly consist of import and export business activities of the Company’s subsidiaries, research and development activities of the Company, and managerial activities of headquarters. In 2017, the operating revenues generated from corporate and others were RMB 974.9 billion, representing an increase of 31.8% over 2016. This In 2017, the operating expenses of corporate and others were RMB 979.3 billion, representing an increase of 32.9% over 2016. In 2017, the operating losses from corporate and others was RMB 4.48 billion. 24 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis3 ASSETS, LIABILITIES, EQUITY AND CASH FLOWS The major funding sources of the Company are its operating activities and short-term and long-term loans. The major use of funds includes operating expenses, capital expenditures, and repayment of the short-term and long-term debts. (1) Assets, liabilities and equity Total assets Current assets Non-current assets Total liabilities Current liabilities Non-current liabilities Total equity attributable to owners of the Company Share capital Reserves Non-controlling interests Total equity As of 31 December 2017 As of 31 December 2016 1,595,504 529,049 1,066,455 742,614 579,446 163,168 726,120 121,071 605,049 126,770 852,890 1,498,609 412,261 1,086,348 667,374 485,543 181,831 710,994 121,071 589,923 120,241 831,235 Unit: RMB million Change 96,895 116,788 (19,893) 75,240 93,903 (18,663) 15,126 0 15,126 6,529 21,655 As of 31 December 2017, the Company’s total assets were RMB 1,595.5 billion, representing an increase of RMB 96.9 billion compared with that of the end of 2016, of which: Current assets were RMB 529.0 billion, representing an increase of RMB 116.8 billion compared with that of the end of 2016, of which, inventory and accounts receivable increased by RMB 30.2 billion and RMB 18.2 billion respectively, mainly due to the increase in crude oil prices, cash flow improved further, structural deposit increased by RMB 51.2 billion and time deposit at financial institutions increased by RMB 33.8 billion. Non-current assets were RMB 1,066.5 billion, representing a decrease of RMB 19.9 billion as compared with that of the end of 2016. This was mainly due to optimisation of investment scale, which decreased the property, plant and equipment (net) by RMB 39.8 billion, construction in progress decreased by RMB 10.9 billion. Equity of associates and joint ventures increased by RMB 13.6 billion, long-term prepayment and other assets increased by RMB 11.8 billion. The Company’s total liabilities were RMB 742.6 billion, representing an increase of RMB 75.2 billion compared with that of the end of 2016, of which: Current liabilities were RMB 579.4 billion, representing an increase of RMB 93.9 billion as compared with that of the end of 2016. This was mainly due to increase in crude oil price, which resulted in account payable increased by RMB 25.8 billion, accrued expenses and other payable increased by RMB 54.7 billion. Non-current liabilities were RMB 163.2 billion, representing a decrease of RMB 18.7 billion compared with that of the end of 2016. This was mainly due to long-term debts decreased by RMB 16.9 billion. Total equity attributable to owners of the Company was RMB 726.1 billion, representing an increase of RMB 15.1 billion compared with that of the end of 2016, which was mainly due to the increase in profit during the year. (2) Cash Flow The following table sets forth the major items in the consolidated cash flow statements for 2017 and 2016. Major items of cash flows Net cash generated from operating activities Net cash used in investing activities Net cash generated used financing activities In 2017, the net cash generated from operating activities of the company was RMB 190.9 billion, representing a decrease of RMB 23.6 billion as compared with 2016. This was mainly due to the increase in crude oil price and volume of inventory, which resulted in increase in inventory and accounts receivable. In 2017, the net cash used in investing activities was RMB 145.3 billion, representing an increase of RMB 79.1 billion over 2016. This was mainly due to the increase in time deposit with maturities over 3 months and the increase in purchase of investments, investments in associates and investments in joint ventures. Unit: RMB million Year ended 31 December 2017 190,935 (145,323) (56,509) 2016 214,543 (66,217) (93,047) In 2017, the net cash used in the Company’s financing activities was RMB 56.5 billion, representing a decrease of cash out flow by RMB 36.5 billion over 2016. This was mainly due to the decrease in borrowing repayment. At the end of 2017, the cash and cash equivalents were RMB 113.2 billion. 25 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Management’s Discussionand Analysis (3) Contingent Liabilities (5) Research & development expenses and Please refer to “Material Guarantee Contracts and Their Performances” in the “Significant Events” section of this report. (4) Capital Expenditures Please refer to “Capital Expenditures” in the “Business Review and Prospects” section of this report. environmental expenditures Research & development expenses refer to the expenses recognised as expenditures when they occur. In 2017, the expenditure for research & development was RMB 6.423 billion. Environmental expenditures refer to the normal routine pollutant discharge fees paid by the Company, excluding capitalised cost of pollutant treatment properties. In 2017, the Company paid environmental expenditures of RMB 7.851 billion. (6) Measurement of fair values of derivatives and relevant system The Company has established sound decision-making mechanism, business process and internal control systems relevant to financial instrument accounting and information disclosure. Items relevant to measurement of fair values Unit: RMB million Items Financial assets at fair value through profit or loss of the reporting period Structured Deposit available for sale financial assets Stock Derivative financial instruments Cash flow hedges Total Beginning of the year End of the year — — 262 262 314 (4,024) (3,448) 51,196 51,196 178 178 (522) (1,617) 49,235 Profits and losses from variation of fair values in the current year Accumulated variation of fair values recorded as equity Impairment loss provision of the current year Funding source 196 196 — — (353) 103 (54) — — (9) (9) — (1,314) (1,323) — Self-owned fund — — Self-owned fund — — Self-owned fund — Self-owned fund — 4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER ASBE The major differences between the Company’s financial statements prepared under ASBE and IFRS are set out in Section C of the financial statements of the Company from page 206 of this report. (1) Under ASBE, the operating income and operating profit or loss by reportable segments were as follows: Operating income Exploration and Production Segment Refining Segment Marketing and Distribution Segment Chemicals Segment Corporate and Others Elimination of inter-segment sales Consolidated operating income Operating (loss)/profit Exploration and Production Segment Refining Segment Marketing and Distribution Segment Chemicals Segment Corporate and Others Elimination of inter-segment sales Financial expenses, investment income, loss from changes in fair value, asset disposal income and other income Consolidated operating profit Net profit attributable to equity shareholders of the Company Year ended 31 December 2017 RMB million 2016 RMB million 157,505 1,011,853 1,224,197 437,743 974,850 (1,445,955) 2,360,193 (47,399) 64,047 32,011 22,796 (3,160) (1,655) 20,325 86,965 51,119 115,939 855,786 1,052,857 335,114 739,947 (1,168,732) 1,930,911 (58,531) 55,808 32,385 20,769 2,912 1,581 22,465 77,389 46,416 Operating profit: In 2017, the operating profit of the Company was RMB 87.0 billion, representing an increase of RMB 9.6 billion as compared with 2016. Net profit: In 2017, the net profit attributable to the equity shareholders of the Company was RMB 51.1 billion, representing an increase of RMB 4.7 billion or 10.1% comparing with 2016. 26 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis (2) Financial data prepared under ASBE Total assets Non-current liabilities Shareholders’ equity As of 31 December 2017 RMB million As of 31 December 2016 RMB million 1,595,504 161,988 854,070 1,498,609 180,541 832,525 Change 96,895 (18,553) 21,545 At the end of 2017, the Company’s total assets were RMB 1,595.5 billion, representing an increase of RMB 96.9 billion compared with that of the end of 2016. This was mainly due to the combined results of increase in crude oil price and improved cash flow, which resulted in an increase of current assets by RMB 116.8 billion. As the end of 2017, the Company’s non-current liabilities were RMB 162.0 billion, representing a decrease of RMB 18.6 billion compared with that of the end of 2016. This was mainly due to the repayment of matured long term bonds payable and parts of the bond turned to non-current liabilities due within one year. At the end of 2017, the shareholders’ equity of the Company was RMB 854.1 billion, representing an increase of RMB 21.5 billion compared with that of the end of 2016. This was mainly due to the increasing in the profit of the Company. (3) The results of the principal operations by segments Segments Exploration and Production Refining Marketing and Distribution Chemicals Corporate and Others Elimination of inter-segment sales Total Operation income RMB million Operation cost RMB million Gross profit margin* (%) 157,505 1,011,853 1,224,197 437,743 974,850 (1,445,955) 2,360,193 154,224 703,743 1,127,374 386,111 963,246 (1,444,300) 1,890,398 (3.5) 8.7 7.6 11.2 1.2 N/A 9.9 Increase/ (decrease) of operation income on a year-on-year basis (%) Increase/ (decrease) of operation cost on a year-on-year basis (%) Increase/ (decrease) of gross profit margin on a year-on-year basis (%) 35.9 18.2 16.3 30.6 31.7 N/A 22.2 20.0 26.6 17.2 33.3 32.6 N/A 26.7 11.8 (0.4) (0.8) (1.8) (0.6) N/A (0.8) *: Gross profit margin = (operation income – operation cost, tax and surcharges)/operation income. 5 THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY’S ACCOUNTING POLICY Ministry of Finance issued “No.42 Accounting Standards for Business Enterprises – non-current assets held for sale, disposition and discontinuing operation”, revised “No.16 Accounting Standards for Business Enterprises-government grants” and Cai Kuai [2017] No. 30 “Announcement of the revision of general enterprise financial statements format.” the Company has adopted the above guidelines to prepare financial statements of 2017 and adjusted the 2016 and 2015 comparative financial statements retrospectively. The impact to the Company’s financial statements is presented as below: Content and Reasons for Changes of Accounting Policy Items affected Amount affected in 2016 (RMB in millions) Amount affected in 2015 (RMB in millions) Gains and losses on disposal of fixed assets and intangible assets of the Company in 2017 are under the item of asset disposal. The 2016 and 2015 comparative financial statements have been adjusted. Loss of asset disposal Non-operating income Non-business expenses 1,487 Less 258 Less 1,745 693 Less 264 Less 957 6 SIGNIFICANT CHANGES IN MAJOR ASSETS DURING THE REPORTING PERIOD During the reporting period, there are no significant changes in the Company’s major assets. 27 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Management’s Discussionand Analysis 28 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTSSignificant Events1 MAJOR PROJECTS (3) Zhongke integrated refining and (5) E-An-Cang gas pipeline project (1) Fuling shale gas project In accordance with the guidance of “overall deployment and stage-wise implementation”, the second phase of production capacity building was promoted comprehensively in 2017. The Company’s self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. By the end of 2017, the aggregate realised investment was RMB 33.152 billion and total production capacity was 10 billion cubic meters per year. (2) Tianjin LNG project The first phase of Tianjin LNG project with designed receiving capacity of 3 million tonnes per year consists mainly of the construction of wharf, terminal and transportation pipelines. It was completed and put into operation at the end of January 2018. The Company’s self- owned fund accounts for approximately 40% of the project investment and bank loan is the main source of the remaining 60%. By the end of 2017, the aggregate investment was RMB 10.651 billion. chemical project Zhongke integrated refining and petrochemical project consists mainly of a 10,000,000 tpa refinery, 800,000 tpa ethylene unit, 300,000- tonne jetty and relevant utilities. The mechanical completion is expected to be achieved in June 2020. The Company’s self-owned fund accounts for 30% of the project investment, bank loan is the main source for the remaining 70%. By the end of 2017, the aggregate investment was RMB 6.99 billion. (4) Xinqi pipeline project The first phase of Xinqi gas pipeline project mainly consists of pipeline from Qianjiang to Shaoguan with total length of 839.5 kilometres and designed transmission capacity of 6 billion cubic meters per year. It is expected to be completed and put into operation in July 2020. The Company’s self-owned fund accounts for 38% of the project investment and bank loan is the main source of the remaining 62%. By the end of 2017, the aggregate investment was RMB 1.692 billion. The first phase of E-An-Cang gas pipeline project mainly consists of the main pipeline from Luquan to Cangzhou and two branch pipeline named Puyang and Baoding respectively. Total length of pipeline is 736 kilometres and designed transmission capacity is 9 billion cubic meters per year. It is expected to be completed and put into operation in December 2019. The Company’s self- owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. By the end of 2017, the aggregate investment was RMB 107 million. (6) Wen 23 gas storage project The first phase of Wen 23 gas storage project mainly consists of construction of injection and production wells and surface facilities with storage capacity of 8.431 billion cubic meters. The Company’s self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. By the end of 2017, the aggregate investment was RMB 1.329 billion. 29 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTSSignificant Events2 CORPORATE BONDS ISSUED AND INTEREST PAYMENTS Basic information of corporate bonds Sinopec Corp. 2010 Corporate bond 10石化02 122052 21 May 2010 21 May 2020 Sinopec Corp. 2012 Corporate bond 12石化01 122149 12石化02 122150 1 June 2012 Sinopec Corp. 2015 Corporate bond (first issue) 15石化01 136039 19 November 2015 15石化02 136040 1 June 2017 1 June 2022 13 0 4.26 7 7 4.90 9 9 4.05 19 November 2018 16 16 3.30 19 November 2020 4 4 3.70 Simple interest is calculated and paid on an annual basis without compounding interests. The principal will be paid at maturity with last installment of interest. Sinopec Corp. had paid in full the interest accrued for the current period interest payment year and 「12石化01」 had been repaid and delisted from the Shanghai Stock Exchange. 15石化01 and 15石化02 were publicly offered to qualified investors in accordance with Administration of the Issuance and Trading of Corporate Bonds Shanghai Stock Exchange China International Capital Corporation Limited 27th-28th Floor, China World Office 2, 1 Jianguomenwai Avenue, Chaoyang District, Beijing Huang Xu, Zhai Ying (010) 6505 1166 United Credit ratings Co., Ltd. 12th Floor, PICC building, No.2 Jianguomenwai Avenue, Chaoyang District, Beijing Proceeds from the above-mentioned corporate bonds have been used for their designated purpose disclosed in the relevant announcements. All the proceeds have been completely used. During the reporting period, United Credit ratings Co., Ltd. provided continuing credit rating for 10石化02, 12石化 01, 12石化02, 15石化01 and 15石化02and reaffirmed AAA credit rating. The long term credit rating and outlook of the. remained at AAA and stable respectively. Pursuant to relevant regulations, the Company will publish latest credit rating results through medias designated by regulators within two months commencing from the announcement date of annual report. During the reporting period, there is no credit addition mechanism and change of the repayment arrangement for the above-mentioned corporate bonds Sinopec Corp. strictly followed the provisions in the corporate bond prospectus to repay principals and interests of the corporate bonds. During the reporting period, the bondholders’ meeting has not been convened. During the durations of the above-mentioned bonds, the bond trustee, China International Capital Corporation Limited, has strictly followed the Bond Trustee Management Agreement and continuously tracked the Company’s credit status, utilisation of bond proceeds and repayment of principals and interests of the bond. The bond trustee has also advised the company to satisfy obligations as described in the corporate bond prospectus and exercised its duty to protect the bondholders’ legitimate rights and interests. The bond trustee is expected to disclose the Trustee Management Affairs Report after disclosure of the Company’s annual report. The full disclosure will be available on the website of Shanghai Stock Exchange (http://www.sse.com.cn) Bond name Abbreviation Code Issuance date Maturity date Amount issued (RMB billion) Outstanding balance (RMB billion) Interest rate (%) Principal and interest repayment Payment of interests Investor Qualification Arrangement Listing place Corporate bonds trustee Credit rating agency Use of proceeds Credit rating agency Credit addition mechanism, repayment scheme and other relative events for corporate bonds during the reporting period Convening of corporate bond holders’ meeting Performance of corporate bonds trustee 30 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTS (CONTINUED)Significant Events Principal accounting data and financial indicators for the two years ended 31 December 2017 Principal data EBITDA (RMB million) Current ratio Quick ratio 2017 2016 207,528 196,464 Change 5.63% 0.91 0.85 0.06 0.59 0.53 0.06 Liability-to-asset ratio (%) 46.47 44.45 EBITDA to total debt ratio Interest coverage ratio Cash flow interest coverage ratio EBITDA-to-interest coverage ratio Loan repayment rate (%) Interest payment rate (%) 1.11 14.60 39.11 32.59 100 100 0.99 9.85 35.13 21.78 100 100 2.02 percentage points 0.12 4.74 3.99 10.81 — — During the reporting period, the Company paid in full the interest accrued for the other bonds and debt financing instruments. As at 31 December 2017, the standby credit line provided by several domestic financial institutions to the Company was RMB 361.9 billion in total, facilitating the Company to get such amount of unsecured loans. During the reporting period, the Company fulfilled relevant undertakings in the offering circular of corporate bonds. During the reporting period, Sinopec Corp. had no significant matters which could influence the Company’s operation and debt paying ability. On 18 April 2013, Sinopec Capital (2013) Limited, a wholly-owned overseas subsidiary of Sinopec Corp., issued senior notes guaranteed by Sinopec Corp. with four different maturities, 3 years, 5 years, 10 years and 30 years. The 3-year notes principal totaled USD 750 million, with an annual interest rate of 1.250% and had been repaid and delisted; the 5-year notes principal totaled USD 1 billion, with an annual interest rate of 1.875%; the 10-year notes principal totaled USD 1.25 billion, with an annual interest rate of 3.125%; and the 30-year notes principal totaled USD 500 million, with an annual interest rate of 4.250%. These notes were listed on the Hong Kong Stock Exchange on 25 April 2013, with interest payable semi-annually. The first payment of interest was on 24 October 2013. During the reporting period, the Company has paid in full the current- period interests of all notes with maturity of 5 years, 10 years and 30 years. 3 SHARE OPTION INCENTIVE SCHEME OF SINOPEC CORP.’S SUBSIDIARY, SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED (SHANGHAI PETRO), DURING THE REPORTING PERIOD Pursuant to the requirements of the Hong Kong Listing Rules, the resolution relating to the Shanghai Petro A Share Option Incentive Scheme (Draft) was considered and passed at the 18th meeting of the fifth session of the Board and the first extraordinary general meeting of Sinopec Corp. for 2014. The Share Option Incentive Scheme (Scheme) came into effect on 23 December 2014 with a validity period of 10 years. The expiry date of the Scheme is 22 December 2024. Under the Scheme, the total number of underlying shares to be granted shall neither exceed 10% of the total share capital of Shanghai Reasons for change Mainly due to the increase of earnings compared with last year Mainly due to the increase of cash at bank and on hand, structured deposit and inventories compared with last year Mainly due to the increase of cash at bank and on hand and structured deposit compared with last year Mainly due to the increase of non-interest-bearing debts compared with last year Mainly due to the increase of earnings Mainly due to the increase of non-interest-bearing debts compared with last year Mainly due to the decrease of interest expense in cash. Mainly due to the increase of earnings Petro (10,800 million shares) nor exceed 10% of the total A share capital of Shanghai Petro (7,305 million shares). As of the date of the 2017 annual report of Shanghai Petro, the number of the underlying shares of the share options to be exercised by Shanghai Petro to the participants was 8,946,900 A shares, which represents 0.08% of the total share capital of Shanghai Petro (10,823,813,500 shares). As of the date of the 2017 annual report of Shanghai Petro, the number of the underlying shares of the share options to be granted by Shanghai Petro to the participants was 691,740,000 A shares, which represents 6.4% of the total share capital of Shanghai Petro (10,823,813,500 shares). The vesting period for each grant under the Scheme shall be no less than two years. 31 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Significant Events (1) Summary of the Scheme For the details of the purpose of the Scheme, eligible participants and maximum entitlement of each participant, underlying shares and incentive instrument, validity period and the basis for the exercise price, please refer to page 31-33 of Sinopec Corp’s 2015 Annual Report published on 29 March 2016. (2) Information on the Initial Grant of the Share Option (i) Initial Grant of the Share Option: Grant Date: 6 January 2015 Number of Participants: 214 persons Number of Share Options Granted: 38,760,000 (ii) The exercise condition of the first grant of first exercise schedule of share option Exercise date: 29 August 2017 Number of exercisable share option: 14,212,500 options Number of lapsed share option: 5,228,900 options Number of exercised share option: 14,176,600 options Date of completing registration for newly increased shares: 27 September 2017 Number of participants who exercised the option: 199 Exercise price: RMB3.85/share (iii) Outstanding share options of Directors, chief executive and substantial shareholder as at the end of the Reporting Period As at the end of the Reporting Period, the total number of outstanding A shares share options held by the following 4 persons, Vice Chairman and Vice President of Shanghai Petro Mr. Gao Jinping, Director and Vice President of Shanghai Petro Mr. Jin Qiang, Director, Vice President and Secretary to the Board of Shanghai Petro Mr. Guo Xiaojun and Vice President of Shanghai Petro Mr. Jin Wenmin were 966,000 options. Former Director, Vice President and Chief Financial Officer of Shanghai Petro Mr. Ye Guohua resigned on 26 January 2017. Pursuant to the Share Option Incentive Scheme, 430,000 outstanding A share options granted to him have lapsed. Former Chairman and President of Shanghai Petro Mr. Wang Zhiqing resigned on 4 Decemeber 2017. Pursuant to the Share Option Incentive Scheme, 300,000 outstanding A share options granted to him have lapsed. Please refer to Shanghai Petro’s Annual Report for details of “Share options held by the Directors, Supervisors and senior management during the Reporting Period”. (iv) Outstanding share options granted to employees other than the persons mentioned in item (iii) At the beginning of the report period, a total number of 35,970,000 outstanding A shares share options were held by Shanghai Petro’s key business personnel. During the reporting period, a total number of 13,332,600 share options had been exercised by Shanghai Petro’s key business personnel during the first exercise period. During the reporting period, a total of 4,498,900 A shares share options granted to Shanghai Petro’s key business personnel had been lapsed due to their resignations and etc,. At the end of the Reporting Period, the number of outstanding A shares share options held by Shanghai Petro’s key business personnel was 18,138,500. (v) Exercise price of the initial grant and exercise price adjustment According to the principle disclosed by Shanghai Petro on the determination of exercise price, the exercise price of the initial grant was RMB4.20 per share (in the event of dividends payment, capitalisation of capital reserves, bonus issue, subdivision or reduction of shares 32 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTS (CONTINUED)Significant Eventsor allotment of shares during the validity period, the exercise price shall be adjusted according to the Share Option Incentive Scheme). On 15 June 2016, the 2015 annual profit distribution plan was considered and passed at Shanghai Petro’s 2015 annual general meeting, whereby cash dividend of RMB1.00 was paid for each 10 shares. On 15 June 2017, the 2016 annual profit distribution plan was considered and passed at Shanghai Petro’s 2016 annual general meeting, whereby cash dividend of RMB2.50 was paid for each 10 shares and the exercise price was adjusted to RMB3.85 per share accordingly. (vi) Validity of and exercise arrangements for the initial grant The validity period of the share options shall be five years commencing from the grant date, but is subject to exercise arrangement of the Scheme. Please refer to the section “Validity Period” on Page 32 of Sinopec Corp.’s 2015 annual report published on 29 March 2016. (vii) The progress of share option incentive up to the date of Shanghai Petro’s 2017 annual report On 8 January, 2018, Shanghai Petro deliberated and approved proposal on Adjustment of the Participants List and Numbers of Share option for A-share Share option Incentive Scheme of Shanghai Petro and the proposal on the Satisfaction of the Conditions of the Second Exercise Period of Share option Granted under First Grant and Determination of the Exercise Arrangement (e.g. Exercise Date.,etc) for A-share Share option Incentive Scheme of Shanghai Petro on the 9th meeting of the sixth session of the board of Shanghai Petro. The non-exercised share options which were granted to 4 participants shall be lapsed and cancelled due to their resignations; The non-exercised share options for the second exercising period which were granted to 2 participants shall be cancelled due to their failing in the performance appraisals in 2016; and the share options granted to 8 participants has been adjusted and cancelled by resolutions on the third meeting of the ninth session of the board of Shanghai Petro held on on 23 August 2017 due to their changes of internal positions. After adjustment, the total amount of share option for cancellation shall be 820,700 and the total amount of granted non-exercised share options shall be 18,583,800. 185 participants can exercise the share option in second exercising period; and the number of exercisable share options in the second exercising period is 9,636,900. On 14 February 2018, Shanghai Petro completed registration for newly increased 9,636,900 A shares and the total issued shares Shanghai Petro were increased to 10,823,813,500. As of the date of Shanghai Petro’s 2017 annual report, the total number of issued shares of Shanghai Petro is 10,823,813,500 shares. Save as disclosed above, during the reporting period, Shanghai Petro granted no A share option in accordance with the Scheme, none of the share options was exercised by the Participant and none of the share option was cancelled or lapsed. 33 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Significant Events4 PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION Background Undertakings related to Initial Public Offerings (IPOs) (IPOs) Type of Undertaking Party Contents Initial Public Offerings (IPOs) China Petrochemical Corporation Term for performance From 22 June 2001 Whether bears deadline or not Whether strictly performed or not No Yes Within five years, commencing from 15 March 2012 Yes Yes Within 10 years after 29 April 2014 or the date when China Petrochemical Corporation acquires the assets Yes Yes 1 2 3 4 5 6 Compliance with the connected transaction agreements; Solving the issues regarding the legality of land- use rights certificates and property ownership rights certificates within a specified period of time; Implementation of the Reorganisation Agreement (please refer to the definition of Reorganisation Agreement in the H share prospectus of Sinopec Corp.); Granting licenses for intellectual property rights; Avoiding competition within the same industry; Abandonment of business competition and conflicts of interest with Sinopec Corp. China Petrochemical Corporation would dispose of its minor remaining chemicals business within five years in order to avoid competition with Sinopec Corp. in the chemicals business. Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the exploration and production of overseas petroleum and natural gas, China Petrochemical Corporation hereby grants a 10-year option to Sinopec Corp. with the following provisions: (i) after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell its overseas oil and gas assets owned as of the date of the undertaking and still in its possession upon Sinopec Corp.’s exercise of the option to Sinopec Corp.; (ii) in relation to the overseas oil and gas assets acquired by China Petrochemical Corporation after the issuance of the undertaking, within 10 years of the completion of such acquisition, after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell these assets to Sinopec Corp. China Petrochemical Corporation undertakes to transfer the assets as required by Sinopec Corp. under aforesaid items (i) and (ii) to Sinopec Corp., provided that the exercise of such option complies with applicable laws and regulations, contractual obligations and other procedural requirements. Other undertakings Other Other undertakings Other China Petrochemical Corporation China Petrochemical Corporation 34 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTS (CONTINUED)Significant Events Since 2012, China Petrochemical Corporation has earnestly fulfilled its undertaking in eliminating competitions in chemical business with Sinopec Corp. through: (1) subscribing capital contribution of joint ventures controlled by Sinopec Corp., by way of injecting net assets of certain chemical business and cash; (2) authorising Sinopec Corp. to be in charge of production plan, management and sales of the remaining chemical business. The competition in chemical business between China Petrochemical Corporation and Sinopec Corp. has been eliminated. As of the date of this report, Sinopec Corp. had no undertakings in respect of profits, asset injections or asset restructuring that had not been fulfilled, nor did Sinopec Corp. make any profit forecast in relation to any asset or project. 5 ANALYSIS OF INVESTMENT (1) General analysis of external equity investment In 2017, the external equity investment of the Company totalled RMB 10.369 billion, mainly for acquisition of interest in Shanghai SECCO and subscribing for shareholding interest in China Boqi Environmental (Holding) Co., Ltd, by way of capital injection. BP Chemicals (Acquisition). Upon the completion of the acquisition, Shanghai SECCO is held as to 50% by Gaoqiao Petrochemical, 30% by Sinopec Corp. and 20% by Shanghai Petro. For more details, please refer to the announcement published in China Securities Journal, Shanghai Securities News and Securities Times by Sinopec Corp. on 28 April 2017 and the announcement on the website of Hong Kong Stock Exchange on 27 April 2017. (2) Significant equity investment 6 SIGNIFICANT ASSETS AND EQUITY SALE On 27 April 2017, Sinopec Corp., Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. (Gaoqiao Petrochemical) and BP Chemicals East China Investments Limited (BP Chemicals) entered into an equity interest purchase agreement. Pursuant to which, Gaoqiao Petrochemical aquired 50% shareholdings of Shanghai SECCO from During the reporting period, there is no significant assets or equity sale of the Company. 35 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Significant Events7 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE Unit: RMB million Major external guarantees (excluding guarantees for controlled subsidiaries) Guarantor Sinopec Corp. Sinopec Corp. Sinopec Great Wall Energy and Chemical Industry Co., LTD SSI Relationship with the Company The listed company itself The listed company itself Name of guaranteed company Zhongtian Hechuang Energy Co., Ltd Yanbu Aramco Sinopec Refining Company(YASREF) Limited Wholly owned subsidiary Zhong An United Coal Chemical Co., Ltd. Amount 13,520 Transaction date (date of signing) 25 May 2016 31 December 2014 no specific amount agreed, gurarantee on contract performance 940 Whether completed or not No Whether overdue or not No No No Period of guarantee Type 25 May 2016 - 31 December 2023 (the mature date is estimated) 30 years from the date YASRFE requires supply of hydrogen from Air Liquedie Arabia LLC. Joint liability guarantee Joint liability guarantee 18 April 2014 18 April 2014 – 17 April 2026 Joint liability guarantee No No Controlled subsidiary New Bright International Development Ltd./ Sonangol E.P./SSI15 9,732 Joint liability guarantee No No Total amount of guarantees provided during the reporting period*2 Total amount of guarantees outstanding at the end of reporting period*2 (A) Guarantees by the Company to the controlled subsidiaries Total amount of guarantee provided to controlled subsidiaries during the reporting period Total amount of guarantee for controlled subsidiaries outstanding at the end of the reporting period (B) Total amount of guarantees for the Company (including those provided for controlled subsidiaries) Total amount of guarantees(A+B) The proportion of the total amount of guarantees to the Sinopec Corp.’s net assets Guarantees provided for shareholder, de facto controller and its related parties (C) Amount of debt guarantees provided directly or indirectly to the companies with liabilities to assets ratio over 70% (D) The amount of guarantees in excess of 50% of the net assets (E) Total amount of the above three guarantee items (C+D+E) Statement of guarantee undue that might be involved in any joint and several liabilities Statement of guarantee status *1: As defined in the Listing Rules of the Shanghai Stock Exchange. Whether guaranteed for connected parties (yes or no)*1 Amount of overdue guarantee Counter- guaranteed — — — — No Yes No No No No Yes No 2,325 19,813 5,881 23,783 43,596 5.99% 1,794 2,491 None 4,285 None None *2: The amount of guarantees provided during the reporting period and the outstanding balance of guarantees amount at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.’s subsidiaries by the percentage of shareholding of Sinopec Corp. in such subsidiaries. 36 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTS (CONTINUED)Significant Events 8 SPECIFIC STATEMENTS AND INDEPENDENT OPINIONS FROM INDEPENDENT NON- EXECUTIVE DIRECTORS REGARDING EXTERNAL GUARANTEES PROVIDED BY SINOPEC CORP. DURING AND BY THE END OF 2017: We, as independent directors of Sinopec Corp., hereby make the following statements after conducting a thorough check of external guarantees provided by the Company accumulated up to and during 2017 in accordance with the requirements of the domestic regulatory authorities: The external guarantees prior to 2017 had been disclosed in previous annual report. The aggregate balance of external guarantees provided by Sinopec Corp. for the year 2017 was RMB 43.596 billion, accounting for approximately 5.99% of the Company’s net assets. We hereby present the following opinions: 11 OTHER MATERIAL CONTRACTS Sinopec Corp. shall continue to strengthen its management and actively monitor guarantee risks. It shall strictly follow the approval and disclosure procedures in relation to guarantee businesses for any new external guarantees provided thereafter. 9 SIGNIFICANT LITIGATION, ARBITRATION RELATING TO SINOPEC CORP. No significant litigation, arbitration relating to the Company occurred during the reporting period. 10 INSOLVENCY AND RESTRUCTURING During the reporting period, the Company was not involved in any insolvency or restructuring matters. Saved as disclosed by Sinopec Corp., the Company did not enter into any significant contracts subject to disclosure obligations during the reporting period. 12 CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER During the reporting period, the Company and its controlling shareholder did not have any unperformed court’s effective judgments which should be performed or any large amount of debt which should be repaid. 13 TRUSTEESHIP, CONTRACTING AND LEASES During the reporting period, the Company was not involved in any events relating to significant trusteeship, contracting or leases for the assets of any other company, nor has it placed its assets with any other company under a trusteeship, contracting or lease agreement subject to disclosure obligations. 14 ENTRUSTED ASSET MANAGEMENT AND ENTRUSTED LOANS (1) Entrusted Asset Management During the reporting period, the Company has no entrusted asset management subject to disclosure obligation. (2) Entrusted loans Categories Used for project construction. Used for working capital Source of fund Self-owned fund Self-owned fund (3) Other asset management and derivative investment Amount 0.6 0.215 Outstanding balance 0.6 0.215 Unit:RMB billion Overdue and uncollected amount None None During the reporting period, the Company has no other asset management or derivative investment subject to disclosure obligation. 37 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Significant Events15 DEPOSITS AT SINOPEC FINANCE CO., LTD. AND SINOPEC CENTURY BRIGHT CAPITAL INVESTMENT, LTD. In order to regulate connected transactions between the Company and Sinopec Finance Co., Ltd. (Sinopec Corp.’s domestic settlement center, hereinafter referred to as the Finance Company) and to ensure the safety and liquidity of the deposits of the Company in the Finance Company, Sinopec Corp. and the Finance Company formulated the Risk Control System on Connected Transactions between China Petroleum & Chemical Corporation and Sinopec Finance Co., Ltd., which covers the risk control system and the risk management plan of the Company to prevent financial risks and to ensure that the deposits of the Company in the Finance Company can be utilised at the Company’s discretion. At the same time, as the controlling shareholder of the Finance Company, China Petrochemical Corporation undertakes that in case of an emergency where the Finance Company has difficulty in making payments, China Petrochemical Corporation will increase the capital of the Finance Company in accordance with the actual need for the purpose of making payment. In order to regulate connected transactions between the Company and Sinopec Century Bright Capital Investment, Ltd. (Sinopec Corp.’s overseas settlement center, hereinafter referred to as the Century Bright Company), Century Bright Company ensures the safety of the deposits of the Company in Century Bright Company by strengthening internal risk controls and obtaining support from China Petrochemical Corporation. China Petrochemical Corporation has formulated a number of internal rules, including the Rules for the Internal Control System, the Rules for Implementation of Overseas Capital Management Methods, and the Provisional Methods for Overseas Fund Platform Management, to impose strict rules on Century Bright Company for providing overseas financial services. Century Bright Company has also established the Rules for the Implementation of the Internal Control System, which ensures the standardisation and safety of its corporate deposits business. At the same time, as the wholly controlling shareholder of Century Bright Company, China Petrochemical Corporation entered into a keep-well agreement with Century Bright Company in 2013, in which China Petrochemical Corporation undertakes that when Century Bright Company has difficulty in making payments, China Petrochemical Corporation will ensure that Century Bright Company will fulfill its repayment obligation through various channels. The deposits of the Company in the Finance Company and Century Bright Company during the reporting period did not exceed the cap as approved at the general meeting of shareholders. During daily operations, Sinopec Corp. can withdraw the full amount of its deposits in the Finance Company and Century Bright Company. 16 APPROPRIATION OF NONOPERATIONAL FUNDS BY THE CONTROLLING SHAREHOLDER AND ITS RELATED PARTIES AND THE PROGRESS FOR CLEARING UP Not applicable 17 STRUCTURED ENTITY CONTROLLED BY THE COMPANY None 18 DETAILED IMPLEMENTATION OF THE SHARE INCENTIVE SCHEME DURING THE REPORTING PERIOD Sinopec Corp. did not implement any share incentive scheme during the reporting period. 19 ENVIROMENTAL PROTECTION BY SINOPEC CORP AND ITS SUBSIDIARIES In 2017, the Company further improved environment protection management of projects construction, enhanced evaluation and examination of projects environment protection, as well as ensuring the environment protection facilities to be designed, built and put into operation with the main project simultaneously. All of the new projects of the Company obtained environmental evaluation approvals by governments. The Company, pursuant to new standards in respect of oil refining and petrochemicals, completed the treatment of effluents, actively pushed forward the comprehensive treatment of volatile organic compounds, and ensured all of pollution prevention and control facilities operated effectively and stably. The Company revised the self-monitoring scheme in accordance with the national pollutants discharge license and guidance for self-monitoring technology of relevant industries, promoted relevant work in accordance with new requirements for monitoring effluents, and disclosed environmental monitoring information publicly in accordance with relevant requirements; revised the contingency schemes in respects of environmental emergencies and severe pollution weather and others in accordance with requirements of national environmental emergencies contingency schemes. For more detailed information, please refer to our Communication on Progress for Sustainable Development. Certain branches and subsidiaries of Sinopec Corp. are major pollutant discharging companies as stipulated by China’s environment protection authorities. Pursuant to relevant regulations and specific requirements of local related authorities, environmental information of those companies has been disclosed publicly. For more details, please refer to the website of local government. 20 POVERTY ALLEVIATION PROGRAM LAUNCHED BY SINOPEC CORP. (1) Targeted Poverty Alleviation Plan The Company has strictly followed the nation’s poverty elimination program under the thirteenth five-year plan, and the fundamental principles of poverty alleviation and elimination. The Company focused on increasing fund input, enhancing fund management, targeted poverty alleviation, innovation, supervision, guaranteeing work efficiency to ensure the effectiveness of the targeted poverty alleviation plan. (2) Overview on 2017 Targeted Poverty Alleviations In 2017, the Company implemented 44 targeted poverty elimination programs in Yingshang county, Yuexi county, Fenghuang county, Luxi county, Yuepuhu county and Dongxiang county, mainly including rural industry development, village tourism development, labor output trainings and education assistance. We input RMB 128.22 million in targeted poverty alleviation, helped 27,759 registered people out of poverty and funded the education of 3,146 students. 38 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017SIGNIFICANT EVENTS (CONTINUED)Significant Events(3) 2017 Targeted Poverty Alleviation Work Statistics Index I. Overview 1. Funds 2. Value of goods and materials 3. Number of people lifted out of poverty II. Input breakdowns 1. Poverty elimination through industrial development 1.1 Categories of poverty alleviation programs through industrial development Unit: RMB million Data 124.53 3.69 27,759 √□ Poverty alleviation through agriculture and forestry development √□ Poverty alleviation through tourism development √□ Poverty alleviation through e-commerce √□ Poverty alleviation through assets income √□ Poverty alleviation through science and technology development √□ Others 1.2 Number of poverty alleviation programs 1.3 Input in poverty alleviation projects through industrial development 1.4 Number of people lifted out of poverty 2. Poverty elimination through provision of employment 2.1 Input in professional skill training 2.2 Participants of professional skill trainings (person time) 2.3 Number of people employed 3. Poverty elimination through relocation 3.1 Number of relocated people provided with employment 4. Poverty elimination through education 4.1 Input in students funding 4.2 Number of students who received funding assistance 4.3 Input in education resources in poverty-stricken areas 5. Poverty alleviation through healthcare 5.1 Input in medical and health care resources in proverty-striken areas 6. Poverty alleviation through ecological protection 6.1 Items 6.2 Input in ecological protection 7. Guarantee basic living standard 7.1 Input in left-behind children, women and senior people 7.2 Number of left-behind children, women and senior people assisted 7.3 Input in assisting the disabled 7.4 Number of the disabled helped 8. Poverty alleviation through social projects 8.1 Input in coordinated poverty alleviation in East and West China 8.2 Input in targeted poverty alleviation programs 8.3 Public Welfare funds for poverty alleviation 9. Other projects 9.1 Number of projects 9.2 Total input 9.3 Number of people lifted out of poverty √□ Conduct ecological protection and construction √□ Develop ways for ecological protection and compensation √□ Set up ecological public welfare positions √□ Others 275 32.02 13,907 0.62 4,316 1,669 4,275 3.05 3,146 5.96 8.65 1.05 0.27 386 0.48 513 0.01 49.26 1.58 261 21.57 13,852 (4) 2018 Targeted Poverty Alleviation Plan In 2018, we will further enhance our efforts on targeted poverty alleviation and elimination, continual focusing on poverty alleviation in extreme poverty areas, targeted assistance for special people in poverty, and solving the most urgent problems of the people in poverty. We will optimise the measures of poverty alleviation by strengthening education and training, industrial development and expanding local products trade through EasyJoy convenience stores etc., to eliminate poverty and enhance people’s sense of satisfaction. 39 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Significant Events 1 AGREEMENTS CONCERNING CONTINUING CONNECTED TRANSACTIONS BETWEEN SINOPEC CORP. AND CHINA PETROCHEMICAL CORPORATION Prior to Sinopec Corp.’s overseas listing, in order to ensure the smooth continuation of production and business conducted by the Company and China Petrochemical Corporation, the two parties entered into a number of agreements on continuing connected transactions, details of which are as follows: (1) The Company and China Petrochemical Corporation will mutually supply ancillary services for products, production and construction services (Mutual Supply Agreement) (2) China Petrochemical Corporation will provide trademarks, patents and computer software to the Company for use free of charge (3) China Petrochemical Corporation will provide cultural and educational, hygienic and community services to the Company (Cultural and Educational Hygienic and Community Services Agreement) (4) China Petrochemical Corporation will provide leasing services for lands and certain properties to the Company (5) China Petrochemical Corporation will provide comprehensive insurance to the Company (6) China Petrochemical Corporation will provide shareholders’ loans to the Company and (7) The Company will provide franchise licenses for service stations to China Petrochemical Corporation. On 26 August 2015, Sinopec Corp. and China Petrochemical Corporation entered into a supplementary agreement of the continuing connected transactions, whereby the terms of the Mutual Supply Agreement and the Cultural and Educational, Hygienic and Community Services Agreement were extended from 1 January 2016 to 31 December 2018. The resolution relating to continuing connected transactions for the three years from 2016 to 2018 was approved at the first extraordinary general meeting for 2015 held on 23 October 2015. For details of the above continuing connected transactions, please refer to relevant announcements published on 27 August 2015 in the China Securities Journal, the Shanghai Securities News and the Securities Times and on the websites of the Shanghai Stock Exchange and the Hong Kong Stock Exchange (dated 26 August 2015). The capitalised terms used in this section shall have the same meaning as that used in the above-mentioned announcements. 2 COMPLIANCE OF DISCLOSURES AND APPROVALS OF CONTINUING CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP WITH HONG KONG LISTING RULES AND THE SHANGHAI LISTING RULES Pursuant to the Hong Kong Listing Rules and the Shanghai Listing Rules, the continuing connected transactions between the Company and Sinopec Group are generally subject to full disclosure based on the nature and the value of the transactions, and are also subject to approvals of independent non-executive directors and/or independent shareholders. The Hong Kong Stock Exchange and Shanghai Stock Exchange exempted Sinopec Corp. from full compliance with the relevant listing rules regarding the above continuing connected transactions and conditionally exempted Sinopec Corp. from complying with the continuous disclosure obligations. There was no change to the above-mentioned supplementary agreements on continuing connected transactions during the reporting period. The aggregated amount of the continuing connected transactions for 2017 of the Company is in compliance with the relevant requirements of the Hong Kong Listing Rules and the Shanghai Listing Rules. For performance details of connected transaction agreements, please refer to Item 3 below. 3 ACTUAL CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BY THE COMPANY DURING THE YEAR Sinopec Corp. and China Petrochemical Corporation have implemented the relevant framework agreements in relation to the continuing connected transactions, including Mutual Supply Agreement, Cultural, Educational, Hygiene and Community Services Agreement, Land Use Rights Leasing Agreement, Properties Leasing Agreement, Intellectual Property Licence Agreements and SPI Fund Document. Pursuant to the above-mentioned agreements on continuing connected transactions, the aggregate amount of the continuing connected transactions of the Company during the year was RMB 340.543 billion. Among the transaction amount, purchases expenses amounted to RMB 226.600 billion, representing 9.45% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage and transportation, exploration and development services, and production-related services) of RMB 210.869 billion, purchases of auxiliary and community services of RMB 6.652 billion. The housing rent paid by the Company amounted to RMB 510 million. The rent for use of land was RMB 8.015 billion. Interest expenses amounted to RMB 554 million. The sales income amounted to RMB 113.943 billion, representing 4.63% of the total amount of this type of transaction for the reporting period, including RMB 113.096 billion for sales of products and services, RMB 41 million for agency commission income, and RMB 807 million for interest income. 40 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONNECTED TRANSACTIONSConnected TransactionsThe amounts of the above continuing connected transactions between the Company and Sinopec Group did not exceed the caps for the continuing connected transactions as approved by the general meeting of shareholders and the Board. Principle of pricing for the continuing connected transactions: (a) The government-prescribed price will apply; (b) when there is no government-prescribed price but there is a government-guidance price, the government-guidance price will apply; (c) when there is neither a government- prescribed price nor a government- guidance price, the market price will apply; or (d) when none of the above is applicable, the price for the provision of the products or services is to be agreed upon by the relevant parties, and shall be the reasonable cost incurred in providing the products or services plus 6% or less of such cost. For details of the pricing principle, please refer to relevant announcements published on 27 August 2015 in the China Securities Journal, the Shanghai Securities News and the Securities Times and on the websites of the Shanghai Stock Exchange and the Hong Kong Stock Exchange. Decision-making procedures: The major continuing connected transaction agreements were entered into in the ordinary course of the Company’s business and in accordance with normal commercial terms that are fair and reasonable to the Company and its shareholders. The Company, according to internal control procedures, adjusts the scope and the caps of continuing connected transactions every three years, and will be announced and implemented upon the approval of the Board and/or independent shareholders. For the other connected transactions, Sinopec Corp., in strict compliance with domestic and overseas regulatory rules, will publish the announcement and implement the transactions only after submitting the relevant proposals of connected transactions to the Board and/or the general meeting of shareholders for consideration and approval according to internal control procedures. Related party transactions with the Sinopec Group that occurred during the year, as set out in Note 36 to the financial statements prepared under the IFRS in this annual report, also fall under the definition of connected transactions under Chapter 14A of the Hong Kong Listing Rules. The above-mentioned connected transactions between the Company and Sinopec Group in 2017 were reviewed at the 17th meeting of the sixth session of the Board and have complied with the requirements under Chapter 14A of the Hong Kong Listing Rules. The external auditor of Sinopec Corp. was engaged to report on the Company’s continuing connected transactions in accordance with the Hong Kong Standard on Assurance Engagements 3000, Assurance Engagement Other Than Audits or Reviews of Historical Financial Information, and with reference to Practice Note 740, Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules, issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued its unqualified letter containing its conclusions in respect of the above-mentioned continuing connected transactions in accordance with Rule 14A.56 of the Hong Kong Listing Rules. Sinopec Corp. has submitted a copy of the auditor’s letter to the Hong Kong Stock Exchange. After reviewing the above-mentioned connected transactions, the independent non-executive directors of Sinopec Corp. have confirmed the following: (a) The transactions have been conducted in the ordinary course of the Company’s business. (b) The transactions have been entered into based on either of the following terms: i normal commercial terms; or ii terms not less favorable than those available from or to independent third parties, where there is no available comparison to determine whether such terms are on normal commercial terms. (c) The transactions were conducted pursuant to the terms of relevant agreements, and the terms were fair and reasonable and in the interests of Sinopec Corp. and its shareholders as a whole. 4 OTHER SIGNIFICANT CONNECTED TRANSACTIONS OCCURED THIS YEAR There are no other significant connected transactions during the reporting period. 5 FUNDS PROVIDED BETWEEN RELATED PARTIES Related Parties Sinopec Group Relations Parent company and affiliated companies* Associates and joint ventures Other related parties Total Reason for provision of funds between related parties Impacts on the Company *: affiliated companies include subsidiaries, associates and joint ventures. Unit: RMB million Funds to related parties Funds from related parties Balance at the beginning of the year Amount incurred Balance at the end of the year Balance at the beginning of the year Amount incurred Balance at the end of the year 26,464 (2,426) 24,038 29,541 (1,273) 28,268 6,008 32,472 (4,330) (6,756) 1,678 25,716 55 29,596 (17) (1,290) 38 28,306 Loans and other accounts receivable and payable No material negative impact 41 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Connected Transactions 42 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statement1 IMPROVEMENTS IN CORPORATE GOVERNANCE DURING THE REPORTING PERIOD During the Reporting Period, Sinopec Corp. was in full compliance with the Articles of Association as well as domestic and overseas laws and regulations and has not received any regulatory sanction imposed by securities regulatory authorities. There is no insider trading of the Company’s shares discovered in the Company. Taking into account the actual situation, Sinopec Corp. amended the Articles of Association and Rules and Procedures for the Board Meetings. With the amendments, corporate governance mechanism in scientific decision-making, efficient implementation and supervision was promoted. When making decisions on significant matters such as directions for reform and development, key targets and projects arrangements, and nominations and employment of executives of the Company, the Board would seek advice from the Party organisation, which further strengthened the Company’s democratic and scientific decision-making process. In respect of resolutions made by the Board, the Party organisations motivate party members to actively play an exemplary and leading role on implementations based on their responsibilities and inspires the initiative and enthusiasm of employees, which has helped the effective implementation of the Board’s decisions by the management. In addition, the Party organisations have strengthened the supervision and accountability on anti-corruption and self-discipline of the Party members which promote the clean governance and risk-management level. During the Reporting Period, the composition of the Board, the Board of Supervisors, and the Board Committees have been adjusted and optimised in a timely manner. The independent directors have played an active and good role with diligence. The internal control system has been further improved and effectively implemented. The work concerning investor relations has been further refined, and the required information has been disclosed in time. With the internal management and the transparency of operation improved, the capital market has positively recognised the Company. The Company’s active performance of its social responsibilities has earned the appreciation from the whole society. During the reporting period, there are no material inconsistency between Sinopec Corp.’s corporate governance and the requirements in the PRC Company Law and relevant regulations on securities of the CSRC. The Board of Supervisors of Sinopec Corp. agreed with all supervised matters. None of Sinopec Corp., the Board, directors, supervisors, senior management, controlling shareholders or de facto controllers of Sinopec Corp. were under the investigation by the CSRC or received any regulatory sanction or criticised publicly by the CSRC, the Hong Kong Securities and Futures Commission, the Securities and Exchange Commission of the United States, or received any public censure from Shanghai Stock Exchange, the Hong Kong Stock Exchange, the New York Stock Exchange or the London Stock Exchange. 2 GENERAL MEETINGS During the reporting period, Sinopec Corp. convened the 2016 annual general meeting, 2017 first A shareholders class meeting and 2017 first H shareholder class meeting on 28 June 2017 in Beijing, China in accordance with the required procedures of noticing, convening and holding pursuant to the relevant laws and regulations and the Articles of Association. For meeting details, please refer to the poll results announcements published in China Securities Journal, Shanghai Securities News and Securities Times and on the websites of Hong Kong Stock Exchange after the general meeting. 3 EQUITY INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT As of 31 December 2017, apart from 13,000 A shares of Sinopec Corp. held by Vice President Mr. Ling Yiqun, none of the directors, supervisors or other senior management of Sinopec Corp. held any shares of Sinopec Corp. Save as disclosed above, during the reporting period, none of the directors, supervisors and senior management of Sinopec Corp. and their associates had any interests or short positions (including any interest or short position that is regarded or treated as being held in accordance with the Securities and Futures Ordinance (SFO)) in the shares, debentures and underlying shares of Sinopec Corp. or any associated corporations (as defined in Part XV of SFO) would fall to be disclosed to the Sinopec Corp. and the Hong Kong Stock Exchange under the Division 7 and 8 of Part XV of SFO or which was recorded in the register required to be kept under section 352 of SFO or otherwise notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Company under the Hong Kong Listing Rules. 4 PERFORMANCE OF THE INDEPENDENT DIRECTORS During the reporting period, the independent non-executive directors of Sinopec Corp. fulfilled their duties in good faith as required by laws and regulations and the Articles of Association, and actively contributed to the development of the Company. They actively attended Board meetings and meetings of the Board committees (please refer to the Report of the Board of Directors in this annual report for details of their attendance), reviewed the relevant documents with due care and exercised their profession advantages to offer advice and suggestions to Sinopec Corp.’s development strategy, operations and reform. The independent non-executive directors gave their independent opinions on matters such as connected transactions, external guarantee, dividend distributions and appointments of senior management of the Company as required by relevant rules and regulations, and maintained timely and effective communications with the executive directors, management, external auditors and the internal auditing department. The independent non-executive directors strengthened the communications with the shareholders and independently and objectively protected the legitimate interests of the Company and the shareholders, especially the minority shareholders, when performing their duties. 5 COMPANY’S INDEPENDENCE FROM CONTROLLING SHAREHOLDER The Company is independent from its controlling shareholder in terms of, among other matters, business, assets and finances. The Company has a well-integrated independent business and independent operational capabilities. 6 COMPETITION BETWEEN SINOPEC CORP AND ITS CONTROLLING SHAREHOLDER Please refer to “Performance of Undertaking by China Petrochemical Corporation” under the section “Significant Events” in this annual report for details. 7 IMPROVEMENT AND IMPLEMENTATION OF THE INTERNAL CONTROL SYSTEM For details of internal control self-assessment and internal control auditing, please refer to the internal control assessment report and the internal control auditing report disclosed by the Company on the same day of this annual report. 43 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statement8 SENIOR MANAGEMENT APPRAISAL AND A Board of Directors e. The Secretary to the Board INCENTIVE SCHEMES Sinopec Corp. has established and is continuously improving the fairness and transparency of its performance appraisal standards, incentive schemes and requirements for directors, supervisors and other senior management. Sinopec Corp. has implemented a number of incentive policies, including the Measures of Sinopec Corp. for the Implementation of Remuneration for Senior Managers, the Measures of Sinopec Corp. for the Management of Annual Performance Evaluations and the Measures of the Leadership of Companies Directly under Sinopec Corp. and the Headquarters Departments for the Management of Performance Evaluation. 9 CORPORATE GOVERNANCE REPORT (IN ACCORDANCE WITH HONG KONG LISTING RULES) (1) Compliance with the Corporate Governance Code Sinopec Corp. did not establish a Nomination Committee of the Board according to section A.5 of the Corporate Governance Code and Corporate Governance Report (Corporate Governance Code) as set out in Appendix 14 of the Hong Kong Listing Rules. Sinopec Corp. is of the view that the nomination of Director Candidates by all members of the Board would be better suited the actual situation of the Company. The board of directors of Sinopec Corp. (Board) performed the duties of the Nomination Committee prescribed in the Corporate Governance Code. Save as disclosed above, Sinopec Corp. complied with all code provisions set out in the Corporate Governance Code during the reporting period. A.1 Board of Directors a. The Board is the decision-making body of Sinopec Corp. and abides by good corporate governance practices and procedures. All decisions made by the Board are implemented by the Management of Sinopec Corp. b. The meeting of the Board is held at least once a quarter. The Board will usually communicate the time and proposals of the Board meeting 14 days before convening of the meeting. The relevant documents and materials for Board meetings are usually sent to each Director 10 days in advance. In 2017, Sinopec Corp. held five Board meetings. For details about the attendance of each Director, please refer to the Report of the Board of Directors in this annual report. c. Each Director of the Board may submit proposals to be included in the agenda of Board meetings, and each Director is entitled to request other related information. d. The Board has reviewed and evaluated its performance in 2017 and is of the view that the Board made decisions in compliance with domestic and overseas regulatory authorities’ requirements and the Company’s internal rules; that the Board have received the suggestions from the Board of Supervisors and Management during its decision making process; and that the Board safeguarded the rights and interests of Sinopec Corp. and its shareholders. assists the Directors in handling the daily work of the Board, continuously informs the Directors of any regulations, policies or other requirements of domestic or overseas regulatory bodies in relation to corporate governance and ensures that the Directors comply with domestic and overseas laws and regulations when performing their duties and responsibilities. Sinopec Corp. has purchased liability insurance for all Directors to minimise their risks that might incur, arising from the performance of their duties. A.2 Chairman and President a. The Chairman of the Board is elected by a majority vote of all Directors, and the President is nominated and appointed by the Board. The main duties and responsibilities of the Chairman and the President are clearly distinguished from each other, and the scope of their respective duties and responsibilities are set out in the Articles of Association. Mr. Wang Yupu serves as Chairman of the Board and tendered his resignation on 22 September 2017. Mr. Dai Houliang serves as Vice Chairman of the Board and President of Sinopec Corp. and performs duties as Chairman upon Mr. Wang Yupu’s resignation. b. The Chairman of the Board places great emphasis on communication with the Independent Directors. The Chairman independently held two meetings with the Independent Directors in respect of development strategy, corporate governance and operational management, etc. of Sinopec Corp. 44 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statementc. The Chairman encourages open b. All Directors of Sinopec Corp. and active discussions. Directors have spoken freely at the Board meetings and actively and deeply participated in the discussions of significant decision made by the Board in the Board meetings. A.3 Board composition a. For details of the composition of the Board of Directors, please refer to the section “Directors, Supervisors, Other Senior Management and Employees” of this annual report. The Board has a fairly good diversity. The Chairman, Executive Directors and Non-executive Director of Sinopec Corp. have petroleum and petrochemical technical background and/or extensive management experience in large- scale enterprises. The Independent Non-executive Directors have rich experience in economics, capital management and investment. b. Sinopec Corp. has received from each of the Independent Directors a letter of confirmation for 2017 regarding their compliance with relevant independence requirements set out in Rule 3.13 of the Hong Kong Listing Rules. Sinopec Corp. considers that each of the Independent Non-executive Directors is independent. A.4 Appointment, re-election and dismissal a. The term of each session of the Directors of Sinopec Corp. is three years, and the consecutive term of office of an Independent Non- executive Director cannot exceed six years. have been elected at the general meeting of shareholders. The Board has no power to appoint temporary Directors. c. Sinopec Corp. engages professional consultants to prepare detailed materials for newly elected Directors, to notify them of the regulations of each listing place of Sinopec Corp. and to remind them of their rights, responsibilities and obligations as Directors. A.5 Nomination Committee a. Considering that the Board did not establish a Nomination Committee, the Board performs the duties of the Nomination Committee prescribed in the Corporate Governance Code. The rules in relation to the nomination of Directors has been prescribed clearly in the Articles of Association and Rules of Procedure for the Shareholders’ Meeting. Nomination of Directors may be proposed by shareholders who individually or collectively hold 3% of the total voting shares of Sinopec Corp. (1% for the nomination of Independent Directors), by the Board or by the Board of Supervisors for approval at the general meeting of shareholders. When the Board nominates a candidate for Director, Independent Non- executive Directors shall give their independent opinions on the nomination in advance. Eleven out of total thirteen Directors of the Board were elected at the annual general meeting for the year 2014; one was elected at the first extraordinary general meeting for the year 2016; one was elected at the annual general meeting for the year 2016. b. The Board establishes the Policy Concerning Diversity of Board Members which stipulates that the members of the Board shall be nominated and appointed based on the skills and experience required by the Board as well as the principles on diversity of the Board. When deciding the composition of the Board, Sinopec Corp. shall consider several factors in relation to the diversity of the Board, including but not limited to, gender, age, culture and background of education, locations, profession and experience, skills, knowledge and service term. A.6 Responsibility of Directors a. All Non-executive Directors have the same duties and powers as the Executive Directors. In addition, the Independent Non-executive Directors are entitled to certain specific powers. The Articles of Association and the Rules of Procedure for Boards Meetings clearly prescribe the duties and powers of Directors, Non-executive Directors including Independent Non-executive Directors. The above duties and powers are published on the Sinopec Corp.’s website at http://www.sinopec.com. b. Each of the Directors was able to devote sufficient time and efforts to handling the matters of Sinopec Corp. c. Each of the Directors confirmed that he has complied with the Model Code for Securities and Transactions by Directors of Listed Companies during the reporting period. In addition, Sinopec Corp. formulated the Rules Governing Shares Held by Company Directors, Supervisors and Senior Managers and Changes in Shares and the Model Code of Securities Transactions by Company Employees to regulate the purchase and sale of Sinopec Corp.’s securities by relevant personnel. 45 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statementc. Sinopec Corp. has adopted an internal control mechanism to ensure that the Management and relevant departments have provided the Board and the Audit Committee with sufficient financial data and related explanations and materials. d. The external auditors of Sinopec Corp. made a statement about their reporting responsibilities in the auditor’s report contained in the financial report. C.2 Internal Control and Risk Management a. Sinopec Corp. has formulated and implemented its internal control and risk management system. The Board as a decision- making body is responsible for evaluating and review the effectiveness of its internal control and risk management. The Board and Audit Committee periodically (at least annually) receive reports of the Company regarding internal control and risk management information from the Management. All major internal control and risk management issues are reported to the Board and Audit Committee. Sinopec Corp. has set up its internal control and risk management department and internal auditing departments, which are equipped with sufficient staff, and these departments periodically (at least twice per year) report to the Audit Committee. The internal control and risk management system of the Company are designed to manage rather than eliminate all the risks of the Company. d. Sinopec Corp. organised and arranged training sessions for Directors and paid the relevant fees. The Directors actively participated in the trainings and continuing professional development program. A.7 Provision of and access to information a. The agenda and other reference documents for meetings of the Board and Board committees will be distributed prior to the meetings to give each Director sufficient time to review the materials so that Directors can make informed decisions. b. Each Director can obtain all related information in a comprehensive and timely manner. The Secretary to the Board is responsible for organising and preparing the materials for the Board meetings, including preparation of explanations for each proposal to ensure fully understanding by the Directors. The Management is responsible for providing the Directors with necessary information and materials. The Director may ask the Management, or ask, via the Management, relevant departments to provide necessary information or explanations. The Directors may seek advices from professional consultants when necessary. B Remuneration and Appraisal Committee a. Remuneration and Appraisal Committee (Remuneration Committee) consists of Independent Non-executive Director Mr. Fan Gang, who serves as the Chairman, and the Vice Chairman of the Board & President Mr. Dai Houliang and Independent Non-executive Director Mr. Jiang Xiaoming, who serve as the members of the Remuneration Committee. The Remuneration Committee is responsible for reviewing the implementation of the annual remuneration plans for Directors, Supervisors and other senior Management as approved at the general meeting of the shareholders, and report to the Board. b. The Remuneration Committee always consults the Chairman of the Board and the President about the remuneration plans for other Executive Directors. After the Remuneration Committee’s review, it is of the view that all the Executive Directors of Sinopec Corp. have fulfilled the duty clauses in the service contracts of the Directors in 2017. c. The members of the Remuneration Committee may engage independent professionals when performing its duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Remuneration Committee has also appointed consultants to provide advices. The working expenses of the Remuneration Committee are included in the budget of Sinopec Corp. According to the policies of Sinopec Corp., the senior Management and relevant departments of Sinopec Corp. must actively cooperate with the Remuneration Committee. C Accountability and Auditing C.1 Financial reporting a. Directors are responsible for supervising the preparation of accounts for each fiscal period to ensure that the accounts truly and fairly reflect the condition of the business, its performance and the cash flow of the Company during the period. The Board approved the Financial Report for 2017 and warranted that the annual report contained no false representations, no material omissions or misleading statements and jointly and severally accepted full responsibility for the authenticity, accuracy and completeness of the content. b. Sinopec Corp. provides Directors with information about the financial, production and operating data of the Company every month to ensure that the Directors can learn about the latest developments of the Company in a timely manner. 46 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statementc. Audit Committee members may engage independent professionals when performing its duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Audit Committee has appointed consultants to provide advices. The working expenses of the Audit Committee are included in the budget of Sinopec Corp. In accordance with the policies of Sinopec Corp., the senior Management and relevant departments of Sinopec Corp. shall actively cooperate with the Audit Committee. d. The Audit Committee has reviewed the adequacy of the resources for accounting and financial reporting and the qualifications and experience of the employees as well as the sufficiency of the training courses provided to relevant employees. Audit Committee is of the view that the Management has fulfilled the duties to establish an effective internal control system. The Company established a whistle- blowing policy in its internal control system, providing several channels as online reporting, letter reporting, receipt of appeals and a complaint mailbox, etc. to employees to report behavior that violates the internal control system of the Company. The Audit Committee has reviewed and approved such policy. b. In terms of internal control, Sinopec Corp. adopted the internal control framework prescribed in the internationally accepted Committee of Sponsoring Organisations of the Treadway Commission Report (COSO). Based upon the Articles of Association and the applicable management policies currently in effect, as well as in accordance with relevant domestic and overseas applicable regulations, Sinopec Corp. formulated and continuously improves the Internal Control Manual to achieve internal control of all factors of internal environment, risk evaluation, control activities, information and communication, and internal supervision. At the same time, Sinopec Corp. has constantly supervised and evaluate its internal control, and conducted comprehensive and multi-level checks including regular test, enterprise self-examination and auditing check, and subsumed headquarters, branches and subsidiaries into the scope of internal control evaluation, with an internal control evaluation report being produced. The Board annually review the internal control evaluation report. For detailed information about the internal control during the reporting period, please refer to the report on internal control prepared by Sinopec Corp. Sinopec Corp. has formulated and implemented its information disclosure policy and insider information registration policy. The corporation regularly evaluates the policy implementation and makes disclosure in accordance with relevant regulations. Please refer to the website of Sinopec Corp. for the details of the information disclosure policy. c. In terms of risk management, Sinopec Corp. adopted the enterprise risk management framework provided by COSO, and established its risk management policy and risk management organisation system. The Company annually conducts risk evaluation to identify major and important risks and perform risk management duties. It has designed major and important risks tackling measures combined with its internal control system and periodically monitor their implementation to ensure adequate care, monitor and tackling of major risks. d. Based upon the review and evaluation of internal control and risk management of the reporting period, the Board is of the view that the internal control and risk management of the Company are effective. C.3 Audit Committee a. The Board has established an Audit Committee. The Audit Committee consists of Independent Non-executive Director Mr. Andrew Y. Yan, who serves as the Chairman, and Independent Non-executive Director Mr. Jiang Xiaoming and Independent Non-executive Director Mr. Tang Min, who serve as members. As verified, none of them has served as a partner or a former partner in our current auditing firm. b. During the reporting period, the Audit Committee held four meetings (please refer to the section Meetings held by the special committees of the Board under the Report of the Board of Directors in this annual report). The review opinions were issued at each meeting and submitted to the Board after signed by the members of the Audit Committee. During the reporting period, the Board and the Audit Committee had no disagreement. 47 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statement D Delegation of power by the Board c. Each Board Committee is required a. The Board and the Management have clear terms of reference in writing. The Articles of Association and the Rules of Procedure for the General Meetings of Shareholders and the Rules of Procedure for the Board Meetings clearly set forth the scope of duties, powers and delegation of power of the Board and Management, which are published on the website of Sinopec Corp. at http://www.sinopec. com. b. In addition to the Audit Committee and the Remuneration Committee, the Board had established the Strategy Committee and the Social Responsibility Management Committee. The Strategy Committee is responsible for overseeing long-term development strategies and significant investment decisions of the Company. The Strategy Committee consists of eight directors, including former Chairman of the Board Mr. Wang Yupu, who serves as Chairman, as well as Vice Chairman of the Board & President Mr. Dai Houliang, Executive Director Mr. Wang Zhigang, Mr. Zhang Haichao, Mr. Jiao Fangzheng, Mr. Ma Yongsheng and Independent Non-executive Directors Mr. Andrew Y. Yan and Mr. Fan Gang, who serve as members. The Social Responsibility Management is responsible for preparing policies, governance, strategies and plans for social responsibility management of the Company. The Social Responsibility Management Committee consists of three Directors, including former Chairman of the Board Mr. Wang Yupu, who serves as Chairman, Vice Chairman of the Board & President Mr. Dai Houliang and Independent Non-executive Director Mr. Tang Min, who serve as members. E to report its decisions and recommendations to the Board. The terms of reference of the Audit Committee and the Remuneration Committee are published on the website of Sinopec Corp. at http:// www.sinopec.com. Investor Relations a. In order to further enhance corporate governance and satisfy business expansion needs of the Company, as being approved at the annual general meeting of shareholders for the year 2016, Sinopec Corp. amends the Articles of Association and its appendix Rules and Procedures for Board Meetings. For more details, please refer to the announcement published in the China Securities Journal, the Shanghai Securities News and the Securities Times by Sinopec Corp. on 29 June 2017 and the announcement published on the website of the Hong Kong Stock Exchange on 28 June 2017. b. Sinopec Corp. pays close attention to investor relations. The management conduct road shows every year to answer questions on subjects of concern to investors, such as development strategies and the production and business performance of the Company. Sinopec Corp. established a department responsible for communicating with investors. In compliance with regulatory provisions, Sinopec Corp. enhanced communication with investors by holding meetings with institutional investors, setting up an investor hotline and communicating through internet platform. c. During the reporting period, separate resolution was proposed for each substantially separate issue at the general meeting. All resolutions were voted by poll to ensure the interests of all shareholders. Notices of the general meeting were dispatched to shareholders 45 days (excluding the date of the general meeting) in advance. d. The Chairman of the Board hosted the annual general meeting for the year 2016. Some members of the Board and senior Management attended the meeting and communicated with the investors extensively. e. According to relevant rules of Sinopec Corp., the Board Secretary is responsible for establishing an effective communication channel between Sinopec Corp. and its shareholders, for setting up special departments to communicate with the shareholders and for passing the opinions and proposals of the shareholders to the Board and Management in a timely manner. Contact details of Sinopec Corp. can be found on the Investor Center page on Sinopec Corp’s website. F Company Secretary a. The Hong Kong Stock Exchange recognized the Secretary to the Board as having the relevant qualifications as company Secretary. Nominated by the Chairman of the Board and appointed by the Board, the Secretary to the Board is a Senior Management Officer of Sinopec Corp. and responsible for the Company and the Board. The Secretary gives opinions on corporate governance to the Board and arranges orientation training and professional development for the Directors. 48 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statement(3) Other information about Sinopec Corp.’s corporate governance Except for their working relationships with Sinopec Corp., none of the Directors, Supervisors or other Senior Management has any financial, business or family relationship or any relationship in other material aspects with one another. For information about changes in share capital and shareholdings of substantial shareholders, please refer to page 6 to page 7; for information about meetings of the Board, please refer to page 51; for information about equity interests of Directors, Supervisors and other senior Management, please refer to page 43; for information about the biographies and annual remuneration of Directors, Supervisors and other senior Management, please refer to page 62 to page 74. b. During the reporting period, the Secretary to the Board actively participated in career development training with more than 15 training hours. G Shareholders’ rights c. The eligibility for attending the general meeting, the rights of shareholders, the proposals at the meeting and the voting procedures are clearly stated in the notice of the general meeting of Sinopec Corp. dispatched to the shareholders. a. Shareholders who individually or collectively hold 10% of the total voting shares of Sinopec Corp. may request the Board in writing to convene the general meeting of shareholders. If the Board fails to grant the request to convene the meeting according to the Rules of Procedure for Meetings of Boards of Directors, the shareholders may convene and hold the meeting at their discretion according to applicable laws, and reasonable expenses incurred will be borne by Sinopec Corp. These provisions are subject to the following conditions: the proposals at the general meeting of shareholders must fall within the responsibilities of the general meeting of shareholders, with specific proposals and resolutions and in compliance with relevant laws, administrative regulations and the Articles of Association. b. When Sinopec Corp. holds the general meeting of shareholders, shareholders who individually or collectively hold 3% of the total voting shares of Sinopec Corp. may propose a supplementary proposal 10 days before the date of the general meeting. (2) Auditors The appointment of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as Sinopec Corp.’s external auditors for 2017 and the authorisation of the Board to determine their remuneration were approved at Sinopec Corp.’s annual general meeting for the year 2016 on 28 June 2017. The audit fee for 2017 is RMB 51.58 million (including audit fee of internal control), which was approved at the 17th meeting of the sixth session of the Board. The annual financial statements have been audited by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers. The Chinese certified accountants signing the report are Zhao Jianrong and Gao Peng from PricewaterhouseCoopers Zhong Tian LLP. During the reporting period, neither PricewaterhouseCoopers Zhong Tian LLP nor PricewaterhouseCoopers provided any non-audit service to the Company. 49 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE GOVERNANCEChairman’s Statement(5) The 15th meeting of the six session of the Board was held by written resolution on 30 October 2017, whereby the proposals in relation to the following matters were approved: (i) the third quarterly results of the Company for the nine months ended 30 September 2017. (ii) Optimisation adjustment to the 2017 investment plan. For details of each meeting, please refer to the announcements published in China Securities Journal, Shanghai Securities News and Securities Times on the next working day after each meeting and on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and Sinopec Corp. 2 IMPLEMENTATION OF RESOLUTIONS APPROVED AT THE GENERAL MEETINGS OF SHAREHOLDERS BY THE BOARD During this reporting period, in accordance with relevant laws and regulations as well as the Articles of Association, all members of the Board diligently implemented the resolutions approved at the general meetings of Sinopec Corp., and have completed all the tasks delegated to them at the general meetings. The Board is pleased to present the directors’ report for the year ended 31 December 2017 for shareholders’ review. 1 MEETINGS OF THE BOARD During this reporting period, Sinopec Corp. held five(5) Board meetings. The details are as follows: (1) The 11th meeting of the six session of the Board was held by written resolution on 16 February 2017, whereby the proposals in relation to the acquisition of the downstream assets of Chevron South Africa and Botswana and provide shareholder performance guarantee were approved in the meeting. (2) The 12th meeting of the six session of the Board was held by on site meeting and via video conference on 24 March 2017, whereby the proposals in relation to the following matters were approved: (i) 2016 Work Report of the Board, (ii) Business performance of 2016 and work plan of 2017, (iii) Financial results and business performance of the Company for the year 2016, (iv) 2016 Communication on Progress for Sustainable Development Report of Sinopec Corp., (v) Financial Statements of Sinopec Corp. for the year 2016, (vi) Annual Report and form 20F of the Company for the year 2016, (vii) Internal control assessment report of Sinopec Corp. for the year 2016, (viii) Re-appointment of external auditors of Sinopec Corp. for the year of 2017 and to authorise the Board to determine their remunerations, (ix) Resolution on proposed election of supervisor of Sinopec Corp. at the General meeting; (x) Authorising the Board to determine the interim profit distribution plan of Sinopec Corp. for the year 2017, (xi) Authorising the Board to determine the proposed plan for issuance of debt financing instrument(s) (xii) Granting to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp., (xiii) Convening the annual general meeting of Sinopec Corp. for the year 2016 and to dispatch the notice of the annual general meeting. (3) The 13th meeting of the six session of the Board was held by written resolution on 27 April 2017, whereby the proposals in relation to the following matters were approved: (i)first quarterly results of the Company for the three months ended 31 March 2017. (ii) The acquisition of equity interest in Shanghai SECCO by Gaoqiao Petrochemical (iii) Adjusting parameters for appraisal of project returns of Sinopec Corp. (iv) Proposed election of director of Sinopec Corp. at the general meeting; (v) Proposed amendments to the Articles of Association and the Rules of the Procedures of Board Meeting. (vi) The Overseas listing plan of Sinopec Marketing Co. Ltd. (4) The 14th meeting of the sixth session of the Board was held by on site meeting on 25 August 2017, whereby the proposals in relation to the following matters were approved: (i) Business performance of the first half year of 2017 and work plan of the latter half year of 2017, (ii) Financial results and business performance of the Company for the first half of 2017, (iii) The interim financial statements for the first half of 2017 (vi) The interim report for the first half of 2017, (v) Three years rolling development plan of Sinopec Corp. (2017 to 2019). 50 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF DIRECTORSReport of the Board of Directors3 DIRECTORS’ ATTENDANCE TO THE SIXTH SESSION OF THE BOARD MEETINGS AND THE INDEPENDENT DIRECTOR ‘S ATTENDANCE TO THE GENERAL MEETINGS. (1) ATTENDANCE TO THE BOARD MEETINGS Director Titles Names Vice Chairman Director Director Director Director Director Independent Director Independent Director Independent Director Independent Director Director Titles Dai Houliang Li Yunpeng Wang Zhigang Zhang Haichao Jiao Fangzheng Ma Yongsheng Jiang Xiaoming Andrew Y. Yan Tang Min Fan Gang Names No. of meeting held Actual Attendance Board Meetings Attended By communication Attended by proxy Absent 5 2 5 5 5 5 5 5 5 5 2 1 2 2 2 2 2 2 2 2 3 1 3 3 3 3 3 3 3 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 No. of meeting held Actual Attendance Board Meetings*1 Attended By communication Attended by proxy 2 Absent 0 Former Chairman Wang Yupu 4 0 2 1. No directors were absent from two consecutive Board meetings. 2. Mr Wang Zhigang,Mr Zhang Haichao resigned as directors of the Board on 29 January 2018. 3. Mr. Wang Yupu resigned as chairman and the director of the Board on 22 September 2017. 4. Pursuant to Hong Kong Listing Rules, attended by proxy was not counted as attendance by the director himself. (2) Independent Non-executive Directors’ attendance to the General Meetings. During the reporting period, Mr. Tang Min, the Independent Non-executive directors of the Company attended the 2016 annual general meeting, 2017 first A shareholders class meeting and 2017 first H shareholder class meeting. No other Independent Non-executive Directors had attended the general meetings in person. 51 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of Directors4 MEETINGS HELD BY THE BOARD (3) The 9th meeting of the sixth session of COMMITTEES During the reporting period, the Audit Committee held four (4) meetings. Strategy Committee held two (2) meetings, and each of the Remuneration Committee and the Social Responsibility Management Committee held one (1) meeting. All members of each committee had attended the relevant meetings. Details of those meetings are as follows: (1) The 7th meeting of the sixth session of the Audit Committee was held by written resolutions on 22 March 2017, whereby the proposals in relation to the following matters were approved in the meeting: (i) 2016 Annual Report; (ii) 20F of 2016; (iii) Financial results and business performance of the Company for the year 2016; (iv) Internal control assessment report of the Company for the year 2016 and the internal control manual (2017); (v) Work report on the internal auditing work for the year 2016; (vi) Reports on the auditing of the financial statements for the year 2016 prepared by the domestic and overseas auditors. (2) The 8th meeting of the sixth session of Audit Committee was held by written resolution on 27 April 2017, whereby the first quarterly report for three months ended 31 March 2017 was approved in the meeting. the Audit Committee was held by on site meeting on 23 August 2017, whereby (i) Interim report for the first half of 2017; (ii) Financial statements for the first half year of 2017; (iii) Business performance and financial results of the first half year of 2017; (iv) Reports on internal auditing work for the first half of 2017 were approved in the meeting. (4) The 10th meeting of the sixth session of the Audit Committee was held by written resolution on 30 October 2017, whereby the third quarterly report for three months ended 30 September 2017 was approved in the meeting. (5) The 3rd meeting of the sixth session of the Strategy Committee was held by written resolution on 22 March 2017, whereby the proposal in relation to the 2017 investments plan was approved in the meeting. (6) The 4th meeting of the sixth session of the Strategy Committee was held by written resolution on 23 August 2017, whereby the three years rolling development plan of Sinopec corp. (2017- 2019) was approved in the meeting. (7) The 2nd meeting of the sixth session of the Remuneration Committee was held by written resolution on 22 March 2017 whereby the proposal in relation to implementation of the remuneration rules for directors, supervisors and other senior management for 2016 was reviewed and approved. (8) The 2nd meeting of the sixth session of the Social Responsibility Management Committee was held by written resolution on 22 March 2017, whereby the 2016 Communication on Progress for the Sustainable Development Report of Sinopec Corp. was approved in the meeting. 5 BOARD COMMITTEES HAVE ISSUED REVIEW OPINIONS WITHOUT ANY OBJECTION TO THE BOARD WHEN PERFORMING THEIR DUTIES DURING THE REPORT PERIOD. 6 BUSINESS PERFORMANCE The financial results of the Company for the year ended 31 December 2017, which is prepared in accordance with IFRS and the financial position as at that date and the accompanying analysis are set out from page149 to page 205 in this annual report. The Company’s business review, a discussions and analysis on business performance using financial key performance indicators and the material factors underlying our results and financial position during the reporting period, particulars of significant events affecting the Company and the outlook of the Company’s business are disclosed in this annual report under the relevant chapters of Chairman’s Statement, Business Review and Prospects, Management’s Discussion and Analysis and Significant Events. All the sections above constitute parts of this Report of the Board of Directors. 52 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of Directors7 DIVIDEND The profit distribution policy of Sinopec Corp. maintains consistency and steadiness, and gives further consideration to the long-term interests of the Company, overall interests of all the shareholders and the sustainable development of the Company. Sinopec Corp. gives priority to adopting cash dividends for profit distribution, and is able to deliver an interim profit distribution. When the net profits and retained earnings of the Company are positive in current year, and in the event that the cash flow of Sinopec Corp. can satisfy the normal operation and sustainable development, Sinopec Corp. should adopt cash dividends, and the distribution profits in cash every year are no less than 30% of the net profits of the Company in current year. The profit distribution plan of Sinopec Corp. for the current year will be carried out in accordance with the policy and procedures stipulated in the Articles of Association, with the advice of minority shareholders being heard and considered, meanwhile, the independent directors will issue independent opinions. Proposals for dividend distribution At the 17th meeting of the sixth session of the Board, the Board approved the proposal to distribute a final cash dividend of RMB 0.40 (tax inclusive) per share, combining with an interim distributed dividend of RMB 0.10 (tax inclusive) per share, the total dividend for the whole year is RMB 0.50 (tax included) per share. The final cash dividend will be distributed on or before 14 June 2018 (Thursday) to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 4 June 2018 (Monday). In order to qualify for the final dividend for H shares, the holders of H shares must lodge all share certificates accompanied by the transfer documents with Hong Kong Registrars Limited located at 1712-1716 17th Floor Hopewell Centre, 183 Queen’s Road East, Wan Chai Hong Kong before 4:30 p.m. on 28 May 2018 (Monday) for registration. The H shares register of members of Sinopec Corp. will be closed from 29 May 2018 (Tuesday) to 4 June 2018 (Monday) (both dates are inclusive). The dividend will be denominated and declared in RMB, and distributed to the domestic shareholders and investors participating in the Shanghai-Hong Kong Stock Connect Program in RMB and to the overseas shareholders in Hong Kong Dollar. The exchange rate for the dividend calculation in Hong Kong Dollar is based on the average benchmark exchange rate of RMB against Hong Kong Dollar as published by the People’s Bank of China one week preceding the date of the declaration of such dividend. In accordance with the Enterprise Income Tax Law of the People’s Republic of China which came into effect on 1 January 2008 and its implementation regulations, Sinopec Corp. is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise shareholders whose names appear on the register of members for H Shares of Sinopec Corp. when distributing cash dividends or issuing bonus shares by way of capitalisation from retained earnings. Any H Shares of the Sinopec Corp. which is not registered under the name of an individual shareholder, including those registered under HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non- resident enterprise shareholders. Therefore, on this basis, enterprise income tax shall be withheld from dividends payable to such shareholders. If holders of H Shares intend to change its shareholder status, please enquire about the relevant procedures with your agents or trustees. Sinopec Corp. will strictly comply with the law or the requirements of the relevant government authority to withhold and pay enterprise income tax on behalf of the relevant shareholders based on the registration of members for H shares of Sinopec Corp. as at the record date. If the individual holders of the H shares who are Hong Kong or Macau residents or residents of the countries which had an agreed tax rate of 10% for the cash dividends or bonus shares by way of capitalisation from retained earnings with China under the relevant tax agreement, Sinopec Corp. should withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. Should the individual holders of the H Shares are residents of the countries which had an agreed tax rate of less than 10% with China under the relevant tax agreement, Sinopec Corp. shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. In that case, if the relevant individual holders of the H Shares wish to reclaim the extra amount withheld (Extra Amount) due to the application of 10% tax rate, Sinopec Corp. would apply for the relevant agreed preferential tax treatment provided that the relevant shareholders submit the evidence required by the notice of the tax agreement to the share register of Sinopec Corp. in a timely manner. Sinopec Corp. will assist with the tax refund after the approval of the competent tax authority. Should the individual holders of the H Shares are residents of the countries which had an agreed tax rate of over 10% but less than 20% with China under the tax agreement, Sinopec Corp. shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreement. In the case that the individual holders of the H Shares are residents of the countries which had an agreed tax rate of 20% with China, or which has not entered into any tax agreement with China, or otherwise, Sinopec Corp. shall withhold and pay the individual income tax at a rate of 20%. Pursuant to the Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect (關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知) (Caishui [2014] No. 81): For domestic investors investing in the H Shares of Sinopec Corp. through Shanghai- Hong Kong Stock Connect Program, the company shall withhold and pay income tax at the rate of 20% on behalf of individual investors and securities investment funds. The company will not withhold or pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax by themselves. 53 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of DirectorsFor investors of the Hong Kong Stock Exchange (including enterprises and individuals) investing in the A Shares of Sinopec Corp. through Shanghai- Hong Kong Stock Connect Program, the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the tax authorities for the withholding. For investors who are tax residents of other countries, whose country of domicile is a country having entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, the enterprises and individuals may, or may entrust a withholding agent to, apply to the competent tax authorities for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the amount paid in excess of the tax payable based on the tax rate according to such tax treaty will be refunded. The dividend distribution and bonus shares declared by Sinopec Corp. in the past three years are as follows: Cash dividends (RMB/Share, tax inclusive) Total amount of cash dividends (RMB billion, tax inclusive) Net profits attributed to the shareholders of the listed company shown in the consolidated statement for the dividend year (RMB billion) Ratio between the dividends and the net profit attributed to the shareholders of the listed company in the consolidated statement (%) Note: The final cash dividend for 2017 is subject to the approval at the 2017 annual general meeting. The aggregate cash dividend declared by Sinopec Corp. during three years from 2015 to 2017 is RMB 0.899 per share, and the total dividend payment from 2015 to 2017 as a percentage of average net profit in the three years is 251.27%. 8 RESPONSIBILITIES FOR THE COMPANY’S INTERNAL CONTROL The Board is fully responsible for establishing and maintaining the internal control system related to the financial statements as well as ensuring its effective implementation. In 2017, the Board assessed and evaluated the internal control of Sinopec Corp. according to the Basic Standard for Enterprise Internal Control, Application Guidelines for Enterprise Internal Control and Assessment Guidelines for Enterprise Internal Control. There were no material defects in relation to the internal control system as of 31 December 2017. The internal control system of Sinopec Corp. related to the financial statements is sound and effective. 2017 Annual Internal Control Assessment Report of Sinopec Corp. was reviewed and approved on the 17th meeting of the sixth Session of the Board on 23 March 2018, and all members of the Board warrant that the contents of the report are true, accurate and complete, and there are no false representations, misleading statements or material omissions contained in the report. 9 DURING THIS REPORTING PERIOD, THE COMPANY DID NOT VIOLATE ENVIRONMENTAL POLICIES Details with regard to the Company’s performance in relation to environmental and social-related policies and performances are provided in the Board Statement and Business Review and Prospects in this annual report as well as the 2017 Communication on Progress for the Sustainable Development Report of Sinopec Corp. Those disclosures in regard to the environmental policies constitute part of the Report of the Board of Directors. 2017 0.50 60.54 51.12 118.42 2016 0.249 30.15 46.42 64.95 2015 0.15 18.16 32.28 56.26 10 DURING THIS REPORTING PERIOD, THE COMPANY DID NOT VIOLATE LAWS OR REGULATIONS WHICH HAVE A MATERIAL IMPACT ON THE COMPANY 11 MAJOR SUPPLIERS AND CUSTOMERS During this reporting period, the total value of the purchasing from the top five crude oil suppliers of the Company accounted for 48.8% of the total value of the crude oil purchasing by the Company, of which the total value of the purchasing from the largest supplier accounted for 15.5% of the total value of the crude oil purchasing by the Company. 54 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of DirectorsThe total sales value to the five largest customers of the Company in 2017 was RMB 159,918 million and accounted for 6.8% of the total sales value of the Company, of which the sales value to the connected party (Sinopec group) among the five largest customers was RMB 87,349 million and accounted for 3.7% of the total sales value for the year. During the reporting period, other than disclosed above, all the top five crude oil suppliers and the other four largest customers of the Company were independent third parties. There were no supplier, customer, employee or others that have a significant impact on the Company and on which the Company’s success depends. 12 BANK LOANS AND OTHER BORROWINGS Details of bank loans and other borrowings of the Company as of 31 December 2017 are set out in Note 29 to the financial statements prepared in accordance with IFRS in this annual report. 13 FIXED ASSETS During this reporting period, changes to the fixed assets of the Company are set out in Note 16 to the financial statements prepared in accordance with IFRS in this annual report. 14 RESERVES During this reporting period, the changes to the reserves of the Company are set out in the consolidated statement of changes in shareholders’ equity in the financial statements prepared in accordance with IFRS in this annual report. 19 DIRECTORS’ INTERESTS IN CONTRACTS No director had a material interest, either directly or indirectly, in any contract of significance to the business of the Company to which Sinopec Corp. or any of its holding companies, subsidiaries or fellow subsidiaries was a party during the reporting period. 15 DONATIONS 20 MANAGEMENT CONTRACTS No contracts concerning management or administration of the whole or any substantial part of the business of the Company were entered into or existed during the reporting period. 21 PERMITTED INDEMNITY PROVISIONS During the reporting period, Sinopec Corp. has purchased liability insurance for all directors to minimise their risks arising from the performance of their duties. The permitted indemnity provisions are stipulated in such directors liability insurance in respect of the liabilities and costs associated with the potential legal proceedings that may be brought against such directors. 22 EQUITY-LINKED AGREEMENTS As of 31 December 2017, the Company has not entered into any equity-linked agreement. During this reporting period, the amount of charity donations made by the Company amounted to RMB 152 million. 16 PRE-EMPTIVE RIGHTS Pursuant to the Articles of Association and the laws of the PRC, the shareholders of Sinopec Corp. are not entitled to any pre-emptive rights. Therefore the existing shareholders cannot request Sinopec Corp. for the right of first refusal in proportion to their shareholdings. 17 REPURCHASE, SALES AND REDEMPTION OF SHARES During this reporting period, neither Sinopec Corp. nor any of its subsidiaries repurchased, sold or redeemed any listed shares of Sinopec Corp. or its subsidiaries. 18 DIRECTORS’ INTERESTS IN COMPETING BUSINESS For details for the positions held by the directors of Sinopec Corp. in the Sinopec Group, during the reporting period please refer to the chapter Directors, Supervisors, Senior Management and Employees of this annual report. 55 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of Directors23 OIL & GAS RESERVE APPRAISAL PRINCIPLES We manage our reserves estimation through a two-tier management system. Our Oil and Natural Gas Reserves Management Committee, or RMC, at the headquarters level oversees the overall reserves estimation process and reviews the reserves estimation of our company. Each of our branches has a reserves management committee that manages the reserves estimation process and reviews the reserve estimation report at the branch level. Our RMC is led by a couple of senior vice presidents, as well as experts and directors general of Sinopec’s exploration and production segment. Mr. Jiao Fangzheng, the chairman of RMC holds a Ph.D. in petroleum and natural gas engineering and has over 30 years of experience in the oil and gas industry. Our RMC also includes other members who are senior managers in charge of exploration and development activities at the production bureau level. A majority of our RMC members hold Ph.D. or master’s degrees, and our members have an average of 20 years of technical experience in relevant professional fields, such as geology, engineering and economics. Our reserves estimates are guided by procedural manuals and technical guidance formulated by the company. A number of working divisions at the production bureau level, including the exploration, development, financial and legal divisions, are responsible for initial collection and compilation of information about reserves. Exploration and development division prepares the initial report on the reserves estimate. Together with technical experts, reserves management committees at the subsidiary level then review the report to ensure qualitative and quantitative compliance with technical guidance and the accuracy and reasonableness of the reserves estimation. At corporate level, the RMC is primarily responsible for the management and coordination of the reserves estimation process, review and approval the annual changes and results in the reserves estimate, and disclose of our proved reserves. We also engage outside consultants to assist in our compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Our reserves estimation process is further facilitated by a specialised reserves database, which is improved and updated periodically. 24 CORE COMPETITIVENESS ANALYSIS The Company is a large scale integrated energy and petrochemical company with upstream, mid-stream and downstream operations. The Company is a large scaled oil and gas producer in China; in respect of refining capacity, it ranks first in China; equipped with a well-developed refined oil products sales network, the Company is the largest supplier of refined oil products in China; and in terms of ethylene production capacity, the Company takes the first position in China, and has a well-established marketing network for chemical products. The integrated business structure of the Company carries strong advantages in synergy among its various business segments, enabling the Company to continuously tap onto potentials in attaining an efficient and comprehensive utilisation of its resources, and endowed the Company with strong resistance against risks, as well as remarkable capabilities in sustaining profitability. The Company enjoys a favourable positioning with its operations located close to the consumer markets. Along with the steady growth in the Chinese economy, sales volume of both oil products and chemical products of the Company has been increasing steadily over the years; through continuous and specialised marketing efforts, the Company’s capability in international operations and market expansion has been further enhanced. The Company owns a team of professionals and expertise engaged in the production of oil and gas, operation of refineries and chemical plants, as well as marketing activities. The Company applies outstanding fine management measures with its remarkable capabilities in management of operations, and enjoys a favourable operational cost advantage in its downstream businesses. The Company has formulated a well- established technology system and mechanism, and owns competent teams specialised in R&D covering a wide range of subjects; the four platforms for technology advancement is taking shape, which includes exploration and development of oil and gas, refining, petrochemicals and strategic emerging technology. With its overall technologies reaching state of the art level in the global arena, and some of them taking the lead globally, the Company enjoys a strong technical. 56 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of DirectorsRisks with regard to the changes from environmental legislation requirements: Our production activities generate waste liquids, gases and solids. The Company has built up the supporting effluent treatment systems to prevent and reduce the pollution to the environment. However, the relevant government authorities may issue and implement much stricter environmental protection laws and regulations, adopt much stricter environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly. Risks from the uncertainties of obtaining additional oil and gas resources: The future sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline overtime which may adversely affect the Company’s financial situation and operation performance. The Company always attaches great importance to fulfilling social responsibilities, and carries out the green and low carbon development strategy to pursue a sustainable development. Moreover, the Company enjoys an outstanding “Sinopec” brand name, plays an important role in the national economy and is a renowned and reputable company in China. 25 RISK FACTORS In the course of its production and operations, the Company will actively take various measures to circumvent operational risks. However, in practice, it may not be possible to prevent the occurrence of all risks and uncertainties described below. Risks with regard to the variations from macroeconomic situation: The business results of the Company are closely related to China’s and global economic situation. The development of Chinese economy has entered New Normal. Although various countries have adopted different kinds of macroeconomic policies to eliminate negative effects caused by lower growth of global economy, the turnaround of economic recovery still remains uncertain. The Company’s business could also be adversely affected by other factors such as the impact on export due to trade protectionism from certain countries, impact on import which is likely caused by regional trade agreements, and negative impact on the investment of overseas oil and gas exploration and development and refining and chemical storage projects which results from the uncertainty of international crude oil price and etc. Risks with regard to the cyclical effects from the industry: The majority of the Company’s operating income comes from the sales of refined oil products and petrochemical products, and part of those businesses and their related products are cyclic and are sensitive to macro-economy, cyclic changes of regional and global economy, the changes of the production capacity and output, demand of consumers, prices and supply of the raw materials, as well as prices and supply of the alternative products etc. Although the Company is an integrated company with upstream, midstream and downstream operations, it can only counteract the adverse influences of industry cycle to some extent. Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalizing the market entry regulations on petroleum and petrochemicals sector, the petroleum and petrochemical industries in China are still subject to entry regulations to a certain degree, which include: issuing licenses in relation to exploration and development of crude oil and natural gas, issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and other oil products, the imposing of the special oil income levy, formulation of import and export quotas and procedures, formulation of safety, quality and environmental protection standards and formulation of energy conservation policies. In addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up of crude oil import licenses, and further improvement in pricing mechanism of refined oil products, reforming and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party, and reforming in resource tax and environmental tax, will cause effects on our business operations. Such changes might further intensify market competition and have certain effect on the operations and profitability of the Company. 57 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of DirectorsRisks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is satisfied through external purchases. In recent years, especially influenced by the mismatch between supply and demand of crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fell sharply. Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions. Although the Company has taken flexible counter measures, it may not fully avoid risks associated with any significant fluctuation of international crude oil prices and sudden disruption of supply of crude oil from certain regions. Risks with regard to the operation and natural disasters: The process of petroleum chemical production is exposed to the risks of inflammation, explosion and environmental pollution and is vulnerable to natural disasters. Such contingencies may cause serious impacts to the society, major financial losses to the Company and grievous injuries to people. The Company has always been paying great emphasis on the safety production, and has implemented a strict HSE management system as an effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the possibility of damage to a third party have been insured. However, such measures may not shield the Company from financial losses or adverse impact resulting from such contingencies. Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company adopted a prudent investment strategy, and as required by the new procedure and management of investment decision-making issued in 2017, conducted rigorous feasibility study on each investment project, which consists of special verifications in raw material market, technical scheme, profitability, safety and environmental protection, legal compliance, etc., certain investment risks will still exist and expected returns may not be achieved due to major changes in factors such as market environment, prices of equipment and raw materials, and construction period during the implementation of the projects. Risks with regard to overseas business development and management: The Company engages in oil and gas exploration, refining and chemical, warehouse logistics and international trading businesses in some regions outside China. The Company’s overseas businesses and assets are subject to the jurisdiction of the host country’s laws and regulations. In light of the complicated factors such as imbalance of global economy, competitiveness of industry and trade structure, exclusiveness of regional trading blocs, polarisation of benefits distribution trade, and politicisation of economic and trade issues, including sanctions, barriers to entry, instability in the financial and taxation policies, contract defaults, tax dispute, the Company’s risks with regard to overseas business development and management could be increased. 58 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of DirectorsCurrency risks: At present, China implements an administered floating exchange rate regime based on market supply and demand which is regulated with reference to a basket of currencies in terms of the exchange rate of Renminbi. As the Company purchases a significant portion of crude oil in foreign currency which is based on US dollar-denominated prices, fluctuations in the exchange rate of Renminbi against US dollars and certain other foreign currencies may affect the Company’s purchasing costs of crude oil. Meanwhile, according to domestic pricing mechanism of refined oil products, the prices of domestic refined oil products fluctuate with Renminbi exchange rate, and the prices of other domestic refined and chemical products would also be influenced by import price. Cyber-security risks: the Company devotes significant resources to protecting our digital infrastructure and data against cyber-attacks, if our systems against cyber-security risk prove to be ineffective, we could be adversely affected by, among other things, disruptions to our business operations, and loss of proprietary information, including intellectual property, financial information and employer and customer data, injury to people, property, environment and reputation. As cyber-security attacks continue to evolve, we may be required to expend additional resources to enhance our protective measures against cyber-security breaches. By order of the Board Dai Houliang Vice Chairman & President Beijing, China, 23 March 2018 59 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of DirectorsOn 28 June 2017, the 10th meeting of the sixth session of the Board of Supervisors was held, and Mr. Zhao Dong was elected as Chairman of the Board of Supervisors of Sinopec Corp. On 25 August 2017, the 11th meeting of the sixth session of the Board of Supervisors was held, and the Interim Financial Statements of Sinopec Corp. for 2017 as well as Interim Report of Sinopec Corp. for 2017 were reviewed and approved at the meeting. On 30 October 2017, the 12th meeting of the sixth session of the Board of Supervisors was held, and the Third Quarterly Report of Sinopec Corp. for 2017 was approved at the meeting. In addition, the supervisors attended the general meetings of shareholders and presented at meetings of the Board. The Board of Supervisors also organised supervisors to attend the trainings for directors and supervisors of listed companies organised by Beijing Securities Supervisory Bureau under CSRC, which have further improved their capabilities in performing supervisory duties. Through supervision and inspection on the production and operation management as well as financial management conditions, the Board of Supervisors and all the supervisors conclude that under the severe operating environment of excessive supply of refined oil products in domestic market and fluctuation of international crude oil prices at low level in 2017, the Company focused on transformation of its growth mode, improve asset quality, increase asset efficiency and upgrade the asset structure, with an aim to optimise resource and structure adjustment; made every effort to expand the market, optimise structure, reduce costs, and control risks, all contributing to a hard-won business result. The Board of Supervisors had no objection to the supervised issues during this reporting period. Dear Shareholders: In 2017, the Board of Supervisors and each supervisor of Sinopec Corp. diligently performed their supervision responsibilities, actively participated in the supervision process of decision making, carefully reviewed and effectively supervised the major decisions of the Company, and endeavored to safeguard the interests of shareholders and the Company in accordance with the PRC Company Law and the Articles of Association of Sinopec Corp. During this reporting period, the Board of Supervisors held five (5) meetings in total, and mainly reviewed and approved the proposals in relation to the Company’s periodic report, financial statements, communication on progress report for sustainable development, internal control assessment report, working report of the board of supervisors and share acquisition etc. On 24 March 2017, the 8th meeting of the sixth session of the Board of Supervisors was held, and the proposals in relation to the Financial Statements of Sinopec Corp. for 2016, Annual Report of Sinopec Corp. for 2016, 2016 Communication on Progress for Sustainable Development Report of Sinopec Corp., Internal Control Assessment Report of Sinopec Corp. for 2016, Report on the Work of Board of Supervisors of Sinopec Corp. for 2016 were reviewed and approved at the meeting. On 27 April 2017, the 9th meeting of the sixth session of the Board of Supervisors was held, and the proposals in relation to the First Quarterly Report of Sinopec Corp. for 2017, the acquisition of equity interest in Shanghai SECCO Petrochemical Company Limited by Sinopec Shanghai Gaoqiao Petroleum and Chemical Limited., the adjusting parameters for appraisal of project returns of Sinopec Corp. and the Overseas Listing Plan of Sinopec Marketing Co., Ltd. were approved at the meeting. 60 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017REPORT OF THE BOARD OF SUPERVISORSReport of the Board of SupervisorsFirstly, the Board and the management of Sinopec Corp. performed their responsibilities pursuant to relevant laws and regulations, and implemented efficient management. The Board diligently fulfilled its obligations and exercised its rights under the PRC Company Law and the Articles of Association, and made informed decisions on major issues concerning change in growth mode, structure adjustment, as well as development and profitability. The senior management diligently implemented the resolutions approved by the Board, continued to deepen the reform, focus on innovations, regulate operations, intensified strict management and strived to tap potentials and enhance efficiency, optimise business structures, committed to achieving the aim of sustaining profit and growth set by the Board. During the reporting period, the Board of Supervisors did not discover any behaviour of any director or senior management which violated laws, regulations, or the Articles of Association, or was detrimental to the interests of Sinopec Corp. or its shareholders. Secondly, the reports and financial statements prepared by Sinopec Corp. in 2017 complied with the relevant regulation of domestic and overseas securities regulators, the disclosed information truly, accurately, completely and fairly reflected Sinopec Corp.’s financial reasults and operation performance. The dividend distribution plan was made after comprehensively consideration of the long-term interests of Sinopec Corp. and the interest of the shareholder. No violation of confidential provisions of persons who prepared and reviewed the report was found. Thirdly, Sinopec Corp.’s internal control system is robust and effective, no material defects of internal control were found. In the meantime, Sinopec Corp. actively fulfilled its social responsibilities and promoted the sustainable development of social economy. Information disclosed in the sustainable development report was in compliance with requirements made by Shanghai Stock Exchange and Hong Kong Stock Exchange for listed companies with regard to the publication of social responsibility report. Fourthly, the consideration for the share acquisition made by Sinopec Corp. was fair and reasonable, neither insider trading, damage to shareholders’ interest nor losses of corporate assets was discovered. Fifthly, all connected transactions between the Company and Sinopec Group were in compliance with the relevant rules and regulations of domestic and overseas listing places. The pricing of all the connected transaction was fair and reasonable. No insider trading or asset loss which is detrimental to the interests of Sinopec Corp. or its shareholders was discoverd. In 2018, the Board of Supervisors and each supervisor will continue to follow the principle of due diligence and integrity, earnestly perform the duties of supervision as delegated by the shareholders, strictly review the significant decisions, strengthen the process control and supervision, increase the strength of inspection and supervision on subsidiaries and protect Sinopec Corp.’s benefit and its shareholders’ interests. Zhao Dong Chairman of the Board of Supervisors Beijing, China, 23 March 2018 61 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Report of the Board of SupervisorsDai Houliang Li Yunpeng Li Yunpeng, aged 58, Director of Sinopec Corp. Mr. Li is a senior administration engineer with a master degree in engineering. In January 1998, he was appointed as deputy General Manager of Executive Division of China Ocean Shipping (Group) Company (“COSCO”); in September 1998, he served as Deputy Secretary of Discipline Inspection Committee, Director of Supervision Office and concurrently served as General Manager of Supervision Division of COSCO; in November 1999, he was appointed as General Manager of Human Resource Division of COSCO; and in September 2000, he served as Head of Organisation Department of COSCO; in December 2000, he was appointed as Secretary of Communist Youth League Committee of COSCO; in April 2003, he was appointed as Assistant President of COSCO; in April 2004, he served as a member of the Leading Party Member Group and Team Leader of the Discipline Inspection Group of CPC Leading Group of COSCO; in December 2011, he was appointed as Executive Vice President and a member of the Leading Party Member Group of COSCO; in June 2013, he served as President and a member of the Leading Party Member Group of COSCO; in July 2013, he served as Director of COSCO; and in February 2017, Mr. Li was appointed as Deputy Secretary of the Leading Party Member Group and Vice President of China Petrochemical Corporation. In June 2017, he was elected as Director of Sinopec Corp. 1 INTRODUCTION OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT (1) Directors Dai Houliang, aged 54, Vice Chairman of the Board and the President of Sinopec Corp. Mr. Dai is a professor level senior engineer with a Ph.D. degree and an academician of the Chinese Academy of Engineering. Mr. Dai is the alternate member of the nineteenth Central Committee of the Communist Party of China. In December 1997, he was appointed as Vice President of Yangzi Petrochemical Corporation; in April 1998, he served as Director and Vice President of Yangzi Petrochemical Co., Ltd.; in July 2002, he served as Vice Chairman of Board of Directors, President of Yangzi Petrochemical Co., Ltd. and Director of Yangzi Petrochemical Corporation; in December 2003, he served as Chairman of Board of Directors and President of Yangzi Petrochemical Co., Ltd. and concurrently as Chairman of Board of Directors of Yangzi Petrochemical Corporation; in December 2004, he served concurrently as Chairman of Board of Directors of BASF-YPC Company Limited; in September 2005, he was appointed as Deputy CFO of Sinopec Corp.; in November 2005, he was appointed as Vice President of Sinopec Corp.; in May 2006, he served as Director, Senior Vice President and CFO of Sinopec Corp.; in June 2008, he served as a member of the Leading Party Member Group of China Petrochemical Corporation; in August 2012, he was appointed concurrently as Chairman of Sinopec Great Wall Energy & Chemical Co., Ltd.; in March 2013, he was appointed concurrently as Chairman of Sinopec Catalyst Co., Ltd.; and in May 2009, he was elected as Director and appointed as Senior Vice President of Sinopec Corp. in May 2016, he was appointed as the President and Deputy Secretary of the Leading Party Member Group of China Petrochemical Corporation and since August 2016, he was elected as the Vice Chairman of the Board and appointed as President of Sinopec Corp. 62 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Wang Zhigang Zhang Haichao Wang Zhigang, aged 60, former Director and Senior Vice President of Sinopec Corp. Mr. Wang is a professor level senior engineer with a Ph.D. Degree. In February 2000, he was appointed as Vice President of Sinopec Shengli Oilfield Co., Ltd.; in June 2000, he served as Board Director and President of Shengli Oilfield Co., Ltd.; in November 2001, he was appointed temporarily as Deputy Director General and Deputy Secretary of Leading Party Member Group of Economic and Trade Commission, Ningxia Hui Autonomous Region; in April 2003, he was appointed as Vice President of Sinopec Corp.; in June 2003, he was appointed concurrently as Director General of Exploration and Production Department of Sinopec Corp.; in Feb 2005, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation; in March 2005, he was appointed as Senior Vice President of Sinopec Corp.; in January 2007, he was appointed concurrently as Vice Chairman of Sinopec International Petroleum Exploration and Production Corporation; in September 2014, he was appointed concurrently as Chairman of Board of Directors of Sinopec International Petroleum Exploration and Production Corporation; and in May 2006, he was elected as Director and appointed as Senior Vice President of Sinopec Corp. In January 2018, he resigned as an executive director, a member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. Zhang Haichao, aged 60, former Director and Senior Vice President of Sinopec Corp. Mr. Zhang is a professor level senior economist with a master degree. In March 1998, he was appointed as Vice President of Zhejiang Petroleum Corporation; in September 1999, he was appointed as President of Zhejiang Petroleum Corporation; in February 2000, he was appointed as President of Sinopec Zhejiang Petroleum Co., Ltd.; in April 2003, he was elected as Employee’s Representative Supervisor of Sinopec Corp.; in April 2004, he served as Chairman of Board of Directors of Sinopec-BP Zhejiang Petroleum Sales Co., Ltd.; in October 2004, he served as Secretary of CPC Committee, Vice Chairman of Board of Directors, and Vice President of Sinopec Sales Co., Ltd.; in November 2005 he served as Vice President of Sinopec Corp., Secretary of the Leading Party Member Group, Chairman of Board of Directors, and President of Sinopec Sales Co., Ltd.; in June 2006, he served as Chairman of Board of Directors, and President of Sinopec Sales Co., Ltd.; in July 2014, he was appointed as Member of the Leading Party Member Group and Vice President of China Petrochemical Corporation; and in May 2015, he was elected as Board Director and appointed as Senior Vice President of Sinopec Corp. In January 2018, he resigned as an executive director, a member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. 63 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Jiao Fangzheng Ma Yongsheng Jiao Fangzheng, aged 55, Director and Senior Vice President of Sinopec Corp. Mr. Jiao is a professor level senior engineer with a Ph.D. degree. In January 1999, he was appointed as Chief Geologist in Zhongyuan Petroleum Exploration Bureau of China Petrochemical Corporation; in February 2000, he was appointed as Vice President and Chief Geologist of Sinopec Zhongyuan Oilfield Company; in July 2000, he was appointed as Deputy Director General of Sinopec Petroleum Exploration & Development Research Institute; in March 2001, he was appointed as Deputy Director General of Sinopec Exploration & Production Department; in June 2004, he was appointed as President of Sinopec Northwest Oilfield Company; in October 2006, he was appointed as Vice President of Sinopec Corp. in July 2010, he was appointed as the Director General of Sinopec Exploration & Production Department; in July 2014, he was appointed as Member of the Leading Party Member Group and Vice President of China Petrochemical Corporation; in September 2014, he was elected concurrently as Chairman of Board of Directors of Sinopec Oilfield Service Corporation and Vice Chairman of Board of Directors of Sinopec International Petroleum Exploration and Production Corporation; and in May 2015, he was elected as Director and appointed as Senior Vice President of Sinopec Corp. Ma Yongsheng, aged 56, Director and Senior Vice President of Sinopec Corp. Mr. Ma is a professor level senior engineer with a Ph.D. degree and an academician of the Chinese Academy of Engineering. Mr. Ma is the member of the thirteenth national committee of CPPCC. In April 2002, he was appointed as Chief Geologist of Sinopec Southern Exploration and Production Company; in April 2006, he was appointed as Executive Deputy Manager (in charge of overall management), Chief Geologist of Sinopec Southern Exploration and Production Company; in January 2007, he was appointed as Manager and Party Secretary of CPC Committee of Sinopec Southern Exploration and Production Company; in March 2007, he served as General Manager and Deputy Party Secretary of CPC Committee of Sinopec Exploration Company; in May 2007, he was appointed as Deputy Commander of Sichuan-East China Gas Transmission Construction Project Headquarter of Sinopec Corp., General Manager and Deputy Secretary of CPC Committee of Sinopec Exploration Company; in May 2008, he was appointed as Deputy Director General of Exploration and Production Department of Sinopec Corp. (Director General Level) and Deputy Commander of Sichuan-East China Gas Transmission Construction Project Headquarter; in July 2010, he served as Deputy Chief Geologist of Sinopec Corp.; in August 2013, he was appointed as Chief Geologist of Sinopec Corp.; in December 2015, he served as Vice President of China Petrochemical Corporation and appointed as Senior Vice President of Sinopec Corp.; in January 2017, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation. In February 2016, he was elected as Director of Sinopec Corp. 64 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Jiang Xiaoming Andrew Y. Yan Jiang Xiaoming, aged 64, Independent Director of Sinopec Corp. Mr. Jiang has a Ph.D. in economics. Presently, he acts as the member of the United Nations Board of Investment, Chairman of the Board of Directors of Hong Kong Saibo International Co. Ltd., Independent Director of COSCO International, Senior Fellow of the University of Cambridge Business School, and trustee of University of Cambridge China Development Fund. Between 1992 and 1998, he acted as the Vice President of United Nations Staff Retirement Fund; between 1999 and 2003, he acted as the Chairman of the Board of Directors of Frasers Property (China) Co., Ltd.; and he has previously acted as the member of the Eleventh and Twelfth national committee of CPPCC, the Board Director of JSW Energy Ltd., member of the Advisory Committee of American Capital Group and Rothschild, the British Investment Bank, and Independent Director of China Oilfield Services Limited. From May 2012 to the present, he has acted as Independent Director of Sinopec Corp. Andrew Y. Yan, aged 60, Independent Director of Sinopec Corp. Mr. Yan is the founding Managing Partner of SAIF Partners. He studied in Nanjing University of Aeronautics and Astronautics, Peking University and Princeton University and earned a master degree from Princeton University. Presently, he acts as the Independent Non-executive Director of China Resources Land Limited, the Non- executive Director of China Huiyuan Juice Group Limited, Feng Deli Holdings Limited and Guodian Technology & Environment Group Corporation Limited; the Independent Director of Beijing BlueFocus Brand Management Consulting Co., Ltd and TCL Group; and the Director of ATA Co., Ltd and Ata Online(Beijing)Education Technology Co.,Ltd.. From 1989 to 1994, he acted as Economist of the World Bank headquarters in Washington, research Fellow of Hudson Institute, an American famous research think tank, and acted as the director of APAC Strategic Planning & Business Development of Sprint International Corporation; between 1994 and 2001, he acted as the Managing Director of Emerging Markets Partnership and Director of Hong Kong Office of AIG Asia Infrastructural Investment Fund. From May 2012 to the present, he has acted as Independent Director of Sinopec Corp. 65 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Tang Min Fan Gang Tang Min, aged 64, Independent Director of Sinopec Corp. Mr. Tang has a Ph.D. in economics. He presently acts as a Counsellor of the State Council of the PRC and the Executive Vice Chairman of YouChange China Social Entrepreneur Foundation, Independent Director of Minmetals Development Co., Ltd, Origin Agritech Limited and Baoshang Bank Co., Ltd. He has served as economist and senior economist at the Economic Research Centre of the Asian Development Bank between 1989 and 2000; chief economist at the Representative office of the Asian Development Bank in China between 2000 and 2004; deputy representative at the Representative Office of the Asian Development Bank in China between 2004 and 2007 and the deputy secretary-general of the China Development Research Foundation between 2007 and 2010. From May 2015 to the present, he has acted as Independent Director of Sinopec Corp. Fan Gang, aged 64, Independent Director of Sinopec Corp. Mr. Fan has a Ph.D. in economics. He presently acts as Vice President of China Society of Economic Reform, Head of the National Economic Research Institution of China Reform Foundation, President of China Development Institute (Shenzhen) and an economics professor at Peking University. He began to work for Chinese Academy of Social Sciences in 1988, and subsequently served as Director of Editorial Department for the Economic Research Journal between 1992 and 1993 and as Deputy Head of the Institute of Economics of Chinese Academy of Social Sciences between 1994 and 1995. In 1996, he was redesignated to work for China Society of Economic Reform, and subsequently founded the National Economic Research Institution. From 2006 to 2010, and from 2015 to the present, he has served as a member of the Monetary Policy Committee of People’s Bank of China. Mr. Fan is recognised as one of the National Young and Middle-Aged Experts with Outstanding Contributions. From May 2015 to the present, he has acted as Independent Director of Sinopec Corp. 66 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017List of Members of the Board Name Dai Houliang Li Yunpeng Wang Zhigang Zhang Haichao Jiao Fangzheng Ma Yongsheng Jiang Xiaoming Andrew Y. Yan Tang Min Fan Gang Gender Age Male Male Male Male Male Male Male Male Male Male 54 58 60 60 55 56 64 60 64 64 Position in Sinopec Corp. Vice Chairman, President Director Former Board Director, Senior Vice President Former Board Director, Senior Vice President Board Director, Senior Vice President Board Director, Senior Vice President Independent Director Independent Director Independent Director Independent Director Tenure 2009.05-2018.05 2017.06-2018.05 2006.05-2018.01 2015.05-2018.01 2015.05-2018.05 2016.02-2018.05 2012.05-2018.05 2012.05-2018.05 2015.05-2018.05 2015.05-2018.05 Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) Whether paid by the holding Company Equity interests in Sinopec Corp. (as at 31 December) 2017 2016 843.8 — 769.9 — — — 300.0 300.0 300.0 300.0 Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) No Yes No Yes Yes Yes No No No No 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Whether paid by the holding Company Yes Equity interests in Sinopec Corp. (as at 31 December) 2017 0 2016 0 Name Wang Yupu Gender Male Age 61 Position in Sinopec Corp. Tenure Former Chairman 2015.05-2017.09 — Note 1: Mr Wang Zhigang resigned as a director, a member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. in January 2018. 2: Mr Zhang Haichao resigned as a director, a member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. in January 2018. 67 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Directors, Supervisors,Senior Management and Employees Zhao Dong Liu Zhongyun (2) Supervisors Zhao Dong, aged 47, Chairman of Board of Supervisors of Sinopec Corp. Mr. Zhao is a professor- level senior accountant with a doctor’s degree. In July 2002, he was appointed as chief accountant and manager of financial assets department of CNPC International (Nile) Ltd.; in January 2005, he was appointed as deputy chief accountant and executive deputy director of financial and capital operation department of China National Oil and Gas Exploration and Development Corporation; in April 2005, he was appointed as deputy chief accountant and manager of financial and capital operation department of China National Oil and Gas Exploration and Development Corporation; in June 2008, he was appointed as chief accountant of China National Oil and Gas Exploration and Development Corporation; in October 2009, he was appointed as chief accountant of China National Oil and Gas Exploration and Development Corporation and chief financial officer of PetroChina International Investment Company Limited; in September 2012, he was appointed as vice general manager of CNPC Nile Company and in August 2013, he was appointed as general manager of CNPC Nile Company; in November 2015, he was appointed as chief financial officer of PetroChina Company Limited. He has been a member of the Leading Party Member Group and chief accountant of China Petrochemical Corporation since November 2016; in June 2017, he was elected as Chairman of Board of Supervisors of Sinopec Corp. Liu Zhongyun, aged 54, former Supervisor of Sinopec Corp. Mr. Liu is a professor level senior engineer with a Ph.D. in engineering. In December 2002, he was appointed as a standing committee member of CPC Committee and Director of Organisation Department of Shengli Petroleum Administration Bureau; in November 2004, he was appointed as Deputy Secretary of CPC Committee of Shengli Petroleum Administration Bureau; in December 2005, he was appointed as Manager of Sinopec Shengli Oilfield Branch; in December 2008, he was appointed as Secretary of CPC Committee of Sinopec International Petroleum Exploration and Production Corporation; in July 2010, he was appointed as General Manager of Sinopec Northwest Oilfield Company, Director General of Northwest Petroleum Bureau under China Petrochemical Corporation. Since August 2014, Mr. Liu has acted as Assistant to President and Director General of HR Department of China Petrochemical Corporation, and in May 2015, he was elected as Supervisor of Sinopec Corp.; in March 2017, he was appointed as Vice President of China Petrochemical Corporation; in February 2018, he resigned as Supervisor of Sinopec Corp.; in February 2018, he was appointed as Senior Vice President of Sinopec Corp. 68 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Zhou Hengyou Zou Huiping Zou Huiping, aged 57, Supervisor of Sinopec Corp. Mr. Zou is a professor level senior accountant with a university diploma. In November 1998, he was appointed as Chief Accountant in Guangzhou Petrochemical General Plant of China Petrochemical Corporation; in February 2000, he was appointed as Deputy Director General of Finance & Assets Department of China Petrochemical Corporation; in December 2001, he was appointed as Deputy Director General of Finance & Planning Department of China Petrochemical Corporation; in March 2006, he was appointed as Director General of Finance & Assets Department of Assets Management Co., Ltd. of China Petrochemical Corporation; in March 2006, he was appointed as Director General of Auditing Department of Sinopec Corp.; and in May 2006, he was elected as Supervisor of Sinopec Corp. Zhou Hengyou, aged 54, Supervisor of Sinopec Corp. Mr. Zhou is a professor level senior administration engineer and with a master degree. In December 1998, Mr. Zhou was appointed as a standing committee member of CPC Committee and Deputy Labour Union Chairman of Jiangsu Petroleum Exploration Bureau; in February 1999, he was appointed as a standing committee member of CPC Committee and Labour Union Chairman of Jiangsu Petroleum Exploration Bureau of China Petrochemical Corporation; in December 2002, he was appointed as Deputy Secretary of CPC Committee and Labour Union Chairman of Jiangsu Petroleum Exploration Bureau; in June 2004, he was appointed as Deputy Secretary of CPC Committee and Secretary of CPC Disciplinary Inspection Committee of Jiangsu Petroleum Exploration Bureau; in August 2005, he was appointed as Secretary of CPC Committee of Jiangsu Petroleum Exploration Bureau; in March 2011,he was appointed as Director General and Secretary of CPC Committee of China Petrochemical News. In March 2015, he was appointed as Director General of the General Office of China Petrochemical Corporation, Director General of Policy Research Department of the General Office and Director General of President’s office of Sinopec Corp. In August 2015, he was appointed as Director General of Board of Directors Office under China Petrochemical Corporation; and in May 2015, he was elected as Supervisor of Sinopec Corp. 69 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Jiang Zhenying Yu Renming Yu Xizhi Jiang Zhenying, aged 53, Employee’s Representative Supervisor of Sinopec Corp. Mr. Jiang is a professor level senior economist with a doctor degree. In December 1998, he was appointed as the Vice President of the China Petrochemical Supplies & Equipment Co., Ltd.; in February 2000, he was appointed as the Deputy Director General of Sinopec Procurement Management Department; in December 2001, he was appointed as the Director General of Sinopec Procurement Management Department and in November 2005 he concurrently held the positions of Chairman of Board of Directors, President and Secretary of CPC Committee of China Petrochemical International Co., Ltd.; in March 2006, he was appointed as the Director General (General Manager), Executive Director and Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd.); in April 2010, he was appointed as the Director General (General Manager), Executive Director and Deputy Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd); in November 2014, he was appointed as Director General of Safety Supervisory Department of Sinopec Corp.; in May 2017, he was appointed as Deputy Director of the Leading Group Office of Party Inspection Work of China Petrochemical Corporation and the leader of overseas enterprises inspection group; and since December 2010, he was elected as the Employee’s Representative Supervisor of Sinopec Corp. Yu Renming, aged 54, Employee’s Representative Supervisor of Sinopec Corp. Mr. Yu is a professor level senior engineer with a university diploma. In June 2000, he was appointed as the Deputy General Manager of Sinopec Zhenhai Refining & Chemical Co., Ltd.; in June 2003, he was appointed as the Board Director and Deputy General Manager of Sinopec Zhenhai Refining & Chemical Co., Ltd.; in September 2006, he was appointed as the Vice President of Sinopec Zhenhai Refining & Chemical Company; in September 2007, he was appointed as the President and the Vice Secretary of CPC committee of Sinopec Zhenhai Refining & Chemical Company; in January 2008, he was appointed as the Director General of Sinopec Production Management Department; in December 2017, he was appointed as the Director General of Refining Department of Sinopec Corp.; and in December 2010, he was elected as Employee’s Representative Supervisor of Sinopec Corp. Yu Xizhi, aged 55, Employee’s Representative Supervisor of Sinopec Corp. Mr Yu is a professor-level senior engineer with a Ph.D. in engineering. In August 1997, he was appointed as Deputy Manager of Anqing Petrochemical Complex and Manager of Fertiliser Plant; in September 1999, he became a member of the CPC Standing Committee of Anqing Petrochemical Complex; in February 2000, he was appointed as Deputy Manager of Sinopec Anqing Company and in September 2000, he was appointed as Manager of Sinopec Anqing Company. In January 2005, he was appointed as Manager of Anqing Petrochemical Complex and from May 2009 to July 2010, he served a temporary position at the Standing Committee of the CPC Anqing Municipal Committee. In July 2010, he became General Manager and Deputy Secretary of the CPC Committee of Maoming Petrochemical Company and General Manager of Sinopec Maoming Company; in July 2016, Mr. Yu was appointed as head of Maoming- Zhanjiang Integration Leading Group; in December 2016, he became Executive Director, General Manager and Deputy Secretary of the CPC Committee of Zhongke (Guangdong) Refining and Petrochemical Co., Ltd. Since April 2017, Mr. Yu has been Director General of Human Resources Department of China Petrochemical Corporation and Sinopec Corp. In June 2017, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 70 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017List of Members of the Board of Supervisors Name Zhao Dong Gender Male Liu Zhongyun Zhou Hengyou Zou Huiping Jiang Zhenying Yu Renming Yu Xizhi Male Male Male Male Male Male Name Liu Yun Gender Male Wang Yajun Male Age 47 54 54 57 53 54 55 Age 61 61 Position in Sinopec Corp. Chairman of the Board of Supervisors Former Supervisor Supervisor Supervisor Employee’s Representative Supervisor Employee’s Representative Supervisor Employee’s Representative Supervisor Tenure 2017.06-2018.05 2015.05-2018.02 2015.05-2018.05 2006.05-2018.05 2010.12-2018.05 2010.12 -2018.05 2017.06-2018.05 Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) — — — 758.2 758.2 758.2 265.9 Whether paid by the holding Company Equity interests in Sinopec Corp. (as of 31 December) 2017 2016 Yes Yes Yes No No No No 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) Tenure 2015.05-2017.03 — 2015.05-2017.06 417.3 Whether paid by the holding Company Yes No Equity interests in Sinopec Corp. (as of 31 December) 2017 2016 0 0 0 0 Position in Sinopec Corp. Former Chairman of the Board of Supervisors Former Employee’s Representative Supervisor Note: Mr. Liu Zhongyun resigned as Supervisor of Sinopec Corp. in February 2018. 71 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Directors, Supervisors,Senior Management and Employees Wang Dehua Ling Yiqun Huang Wensheng President and Secretary of CPC Committee of Sinopec Refinery Product Sales Company Limited; in August 2013, he was appointed as the President of Sinopec Qilu Company; in December 2016, he was elected concurrently as Chairman of Board of Directors of Sinopec Engineering(Group) Co. Ltd.; in March 2017, he was appointed as Vice President of China Petrochemical Corporation and in February 2018, he was appointed as Senior Vice President of Sinopec Corp. Ling Yiqun, aged 55, former Vice President of Sinopec Corp. Mr. Ling is a professor level senior engineer with a Ph.D. degree. From 1983, he worked in the refinery of Beijing Yanshan Petrochemical Company and the Refining Department of Beijing Yanshan Petrochemical Company Ltd. In February 2000, he was appointed as the Deputy Director General of Refining Department of Sinopec Corp.; in June 2003, he was appointed as the Director General of Refining Department of Sinopec Corp.; in July 2010, he was appointed as Vice President of Sinopec Corp; in May 2012, he was appointed as Executive Director, Huang Wensheng, aged 51, Vice President of Sinopec Corp., Secretary to the Board of Directors. Mr. Huang is a professor level senior economist with a university diploma. In March 2003, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp.; in May 2006, he was appointed as Representative on Securities Matters of Sinopec Corp.; since August 2009, He has served as the Deputy Director General of President’s office of Sinopec Corp. In September 2009, he was appointed as Director General of the Board Secretariat of Sinopec Corp.; in May 2012, he was appointed as Secretary to the Board of Directors of Sinopec Corp.; and in May 2014, he was appointed as Vice President of Sinopec Corp. (3) Other Members of Senior Management Wang Dehua, aged 51, Chief Financial Officer of Sinopec Corp. Mr.Wang is a senior accountant with university diploma. In January 2001, he was appointed as Deputy Director General of Finance Department of Sinopec Corp.; in May 2014, he was appointed as Acting Director General of Finance Department of Sinopec Corp.; in October 2015, he was promoted to Director General of Finance Department of Sinopec Corp.; in November 2015, he was appointed as Director General of Finance Department of China Petrochemical Corporation; in August 2016, he was appointed as Director General of Finance Department of Sinopec Corp.. Mr. Wang now concurrently acts as Vice Chairman of Sinopec Finance CO., Ltd. and Taiping & Sinopec Financial Leasing Co., in September 2016, he was appointed as Chief Financial Officer of Sinopec Corp. 72 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Chang Zhenyong Lei Dianwu Chang Zhenyong, aged 59, Vice President of Sinopec Corp. Mr. Chang is a professor level senior engineer with a master’s degree. In September 1997, he was appointed as Vice President of Tianjin Petrochemical Company; in February 2000, he was appointed as Vice President of Sinopec Tianjin Company; and in September 2000, he was promoted to President of Sinopec Tianjin Company; from February 2004, he was appointed temporarily as member of Standing Committee of CPC Committee of Beihai, Guangxi; in March 2004, he was appointed temporarily as deputy mayor of Beihai, Guangxi; in November 2005, he was appointed as Director General of Production and Operation Management Department of Sinopec Corp.; in December 2007, he was appointed as President of Qilu Petrochemical Company and President of Sinopec Qilu Company; in April 2010, he was appointed as Employee’s Representative Supervisor of Sinopec Corp.; in July 2010, he was appointed as Deputy Chief Engineer and concurrently as Director General of Chemicals Department of Sinopec Corp.; in August 2012, he was appointed concurrently as Vice Chairman of Board of Directors of Sinopec Great Wall Energy & Chemical Co., Ltd.; in November 2014, he was appointed as Executive Director and President of Sinopec Chemical Products Sales Co. Ltd and concurrently as Chairman of Board of Directors of Sinopec Chemical Products Sales (Hong Kong) Co. Ltd.; and in May 2014, he was appointed as Vice President of Sinopec Corp. Lei Dianwu, aged 55, Vice President of Sinopec Corp. Mr. Lei is a Professor level Senior Engineer with a university diploma. In October 1995, he was appointed as Vice President of Yangzi Petrochemical Corporation; in December 1997, he was appointed as Director General of Planning & Development Department in China Eastern United Petrochemical (Group) Co., Ltd.; in May 1998, he was appointed as Vice President of Yangzi Petrochemical Corporation; in August 1998 he was appointed as Vice President of Yangzi Petrochemical Co., Ltd.; in March 1999, he was appointed temporarily as Deputy Director General of Development & Planning Department of China Petrochemical Corporation; in February 2000, he was appointed as Deputy Director General of Development & Planning Department of Sinopec Corp.; in March 2001, he was appointed as Director General of Development & Planning Department of Sinopec Corp.; in March 2009, he was appointed as Assistant to President of China Petrochemical Corporation; in August 2013, he was appointed as the Chief Economist of China Petrochemical Corporation; in October 2015, he was appointed as Secretary to the Board of Directors of China Petrochemical Corporation; and in May 2009, he was appointed as Vice President of Sinopec Corp. 73 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017List of Members of the Senior Management Name Gender Age Wang Dehua Ling Yiqun Huang Wensheng Chang Zhenyong Lei Dianwu Male Male Male Male Male 51 55 51 59 55 Position in Sinopec Corp. CFO Former Vice President Vice President, Board Secretary Vice President Vice President Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) 866.3 — 892.9 892.9 892.9 Remuneration paid by Sinopec Corp. in 2017 (RMB 1,000, before tax) Whether paid by the holding Company No Yes No No No Whether paid by the holding Company No Equity interests in Sinopec Corp. (as of 31 December) 2017 0 13,000 0 0 0 2016 0 13,000 0 0 0 Equity interests in Sinopec Corp. (as of 31 December) 2017 0 2016 0 Name Gender Jiang Zhenghong Male Age 56 Position in Sinopec Corp. Former Vice President 755.4 5 REMUNERATION OF DIRECTORS, SUPERVISORS, AND THE SENIOR MANAGEMENT During this reporting period, there is a total of 16 directors, supervisors and other senior management received remuneration from Sinopec Corp. with a total amount of RMB 10.0385 million. 6 THE COMPANY’S EMPLOYEES As at 31 December 2017, the Company has a total of 446,225 employees. There are a total of 197,083 retired employees to be reimbursed by Sinopec Corp. Sinopec Marketing Co. Limited and Shanghai Petro, both principal subsidiaries of Sinopec Corp., have 153,804 employees and 10,226 employees respectively. Note 1: Mr. Lin Yiqun was appointed as Senior Vice President of Sinopec Corp. in February 2018 2: The members of senior management are in order of the number of strokes of their surname in Chinese. 2 INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT On 16 March 2017, Mr. Liu Yun resigned as the Chairman of the Board of Supervisors and supervisor of Sinopec Corp. due to his age. On 28 June 2017, Mr. Li Yunpeng was elected as director of the Sixth Session of the Board of Sinopec Corp. On 28 June 2017, Mr. Zhao Dong was elected as Chairman of the Board of Supervisors of Sinopec Corp. On 28 June 2017, Mr. Yu Xizhi was elected as employee representative supervisor of the Sixth Session of the Board of Supervisors. On 28 June 2017, Mr. Wang Yajun resigned as the supervisor of Sinopec Corp. due to his age. On 12 September 2017, Mr. Jiang Zhenghong resigned as Vice President of Sinopec Corp. due to change of working arrangement. On 22 September 2017, Mr. Wang Yupu resigned as Chairman of the Board, Director and Chairmen of Strategy Committee and Social Responsibility Management Committee of the Board of Sinopec Corp. due to change of working arrangement. On 29 January 2018, Mr. Wang Zhigang resigned as director, member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. due to his age. On 29 January 2018, Mr. Zhang Haichao resigned as director, member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. due to his age. On 7 February 2018, Mr. Liu Zhongyun resigned as the supervisor of Sinopec Corp. due to change of working arrangement. On 8 February 2018, Mr. Lin Yiqun was appointed as Senior Vice President of Sinopec Corp. On 8 February 2018, Mr. Liu Zhongyun was appointed as Senior Vice President of Sinopec Corp. On 8 February 2018, Mr. Zhao Rifeng was appointed as Vice President of Sinopec Corp. For details, please refer to the announcements, published in China Securities Journal, Shanghai Securities News and Securities Times after the meetings and on websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and Sinopec Corp. 3 CHANGE OF SHAREHOLDING OF DIRECTORS, SUPERVISORS, AND THE SENIOR MANAGEMENT There is no change in shareholdings of the Company by Directors, Supervisors and other senior managements during the reporting period. 4 CONTRACTRAL INTERESTS OF DIRECTORS AND SUPERVISORS As of 31 December 2017 or any time during the reporting period, there is no Director or Supervisor of the Company entered into any agreement with any of Sinopec Corp., its controlling shareholder, any subsidiary or related subsidiary which shall significantly benefit such Director or Supervisor. 74 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and Employees THE BREAKDOWN ACCORDING TO THE MEMBERS OF EACH OPERATION SEGMENT AS FOLLOWS EMPLOYEES’ PROFESSIONAL STRUCTURE AS FOLLOWS: EDUCATIONAL BACKGROUND STRUCTURE FOR EMPLOYEES AS FOLLOWS: 75 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Directors, Supervisors,Senior Management and Employees7 CHANGES OF CORE 9 REMUNERATION POLICY Based on a relatively united basic remuneration system, Sinopec Corp. has established its remuneration distribution system based on the value of positions, performance & contribution, with an aim to improve employee capabilities, and constantly improve employee performance evaluation and incentive & discipline mechanisms. TECHNICAL TEAM OR KEY TECHNICIANS During the reporting period, there are no significant changes of core technical team or key technicians. 8 EMPLOYEE BENEFITS SCHEME Details of the Company’s employee benefits scheme are set out in Note37 of the financial statements prepared under IFRS of this annual report. As at 31 December 2017, the Company has a total of 197,083 retired employees. All of them participated in the basic pension schemes administered by provincial (autonomous region or municipalities) governments. Government-administered pension schemes are responsible for the payments of basic pensions. 76 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and Employees10 TRAINNING PROGRAMS Centring on enterprise development strategy and key work of the year, the Company organised training programs at headquarters level which were attended by 4,292 high- level personnel. With an aim to enhance the professional capability, the Company launched a series of training programs for new management personnel, and organised seminars with topics such as Innovation & Development for 1,822 employees. The Company strengthened the training of young and middle-aged reserve managers, and organised trainings for 100 employees. With an aim to solve key problems related to scientific research and production, the Company organised workshops for leading experts in the field of oil & gas exploration and refining technology for 1,205 high-level professional and technical personnel. With roles of craftsmanship spirit and heritage of skills as the focus, the Company launched the first chief technician training classes and training programs for 10 types of work such as oil and gas gathering and transferring, catalytic cracking for top skilled talents covering 245 people. To enhance the management of transnational operation and risk prevention, the company organised a series of training programs covering 920 overseas project managers. The branch companies and subsidiaries adopted various ways to carry out different kinds of personnel training according to their conditions, and organised off-job training for a total of 328,000 employees, as well as basic training for a total of 386,000 employees. 77 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Directors, Supervisors,Senior Management and EmployeesOn 31 December, 2017, details of the principal wholly-owned and controlled subsidiaries of the Company were as follows: Registered Capital RMB million Percentage of shares held by Sinopec Corp. (%) 8,000 22,761 13,203 12,000 4,000 3,374 1,595 1,000 3,000 USD 1,638 million 1,500 1,400 100 100 100 100 100 100 100 100 100 100 100 100 5,294 98.98 5,000 4,397 3,986 28,403 7,801 6,270 HKD 248 million 10,000 85 75 75 70.42 67.60 65 60.34 55 Name of Company Sinopec International Petroleum Exploration and Production Limited Sinopec Great Wall Energy & Chemical Company Limited Sinopec Yangzi Petrochemical Company Limited Sinopec Pipeline Storage & Transportation Company Limited Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Lubricant Company Limited Sinopec Qingdao Petrochemical Company Limited Sinopec Chemical Sales Company Limited China International United Petroleum and Chemical Company Limited Sinopec Overseas Investment Holding Limited Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Beihai Refining and Chemical Limited Liability Company Sinopec Qingdao Refining and Chemical Company Limited Sinopec Zhanjiang Dongxing Petrochemical Company Limited Sinopec Hainan Refining and Chemical Company Limited Sinopec Marketing Co. Limited Sinopec Shanghai SECCO Petrochemical Company Limited Sinopec-SK(Wuhan) Petrochemical Company Limited Sinopec Kantons Holdings Limited Sinopec Shanghai Gaoqiao Petroleum and Chemical Limited Sinopec Shanghai Petrochemical Company Limited Total Assets RMB million 54,324 Net Assets RMB million 18,683 Net Profit/ (Net Loss) RMB million 1,075 35,303 16,549 (4,821) 28,786 38,752 8,303 8,552 3,918 20,037 173,035 24,173 8,652 13,947 16,811 17,748 21,642 5,264 3,725 486 2,758 31,994 11,916 4,141 3,604 9,601 18,522 10,181 7,974 12,176 5,188 8,613 409,949 195,555 27,517 24,399 15,234 14,285 25,434 18,485 11,259 9,504 12,000 726 2,733 1,046 2,642 2,277 2,724 6 595 183 1,383 3,853 1,082 2,649 3,780 2,161 1,627 607 317 Production and sale of catalyst products Trading of petrochemical products Principal Activities Investment in exploration, production and sale of petroleum and natural gas Coal chemical industry investment management, production and sale of coal chemical products Manufacturing of intermediate petrochemical products and petroleum products Pipeline storage and transportation of crude oil Production and sale of polyester chips and polyester fibres Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials Manufacturing of intermediate petrochemical products and petroleum products Marketing and distribution of petrochemical products Trading of crude oil and petrochemical products Overseas investment holding Import and processing of crude oil, production, storage and sale of petroleum products and petrochemical products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Marketing and distribution of refined petroleum products Production and sale of petrochemical products Production, sale, research and development of ethylene and downstream by-products Trading of crude oil and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical products and petroleum products 10,814 50.49 39,609 28,541 6,152 Fujian Petrochemical Company Limited 6,898 50 10,917 9,860 2,757 Note 1: All above subsidiaries except Fujian Petrochemical Company Limited are audited by PricewaterhouseCoopers Zhong Tian LLP or PricewaterhouseCoopers in 2017. KPMG Huazhen LLP served the exception. 2: The above indicated total assets and net profit has been prepared in accordance with ASBE. Except for Sinopec Kantons Holdings Limited and Sinopec Overseas Investment Holdings Ltd, which are incorporated in Bermuda and Hong Kong SAR, respectively, all of the above wholly-owned and non-wholly-owned subsidiaries are incorporated in the PRC. All of the above wholly-owned and controlling subsidiaries are limited liability companies except for Sinopec Shanghai Petrochemical Company Limited and Sinopec Kantons Holdings Limited. The Board of Directors considered that it would be redundant to disclose the particulars of all subsidiaries and, therefore, only those which have material impact on the results or assets of Sinopec Corp. are set out above. 78 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017PRINCIPAL WHOLLY-OWNED AND CONTROLLED SUBSIDIARIESPrincipal Wholly-Owned and Controlled Subsidiaries PwC ZT Shen Zi (2018) No. 10001 To the Shareholders of China Petroleum & Chemical Corporation, OPINION What we have audited We have audited the accompanying financial statements of China Petroleum & Chemical Corporation (hereinafter “Sinopec Corp.”), which comprise the consolidated and company balance sheets as at 31 December 2017, the consolidated and company income statements for the year then ended, the consolidated and company cash flow statements for the year then ended, the consolidated and company statements of changes in shareholders’ equity for the year then ended, and notes to the financial statements. Our opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and company’s financial position of Sinopec Corp. as at 31 December 2017, and their financial performance and cash flows for the year then ended in accordance with the requirements of Accounting Standards for Business Enterprises (“CASs”). BASIS FOR OPINION We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of Sinopec Corp. in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 79 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (PRC)REPORT OF THE PRC AUDITORThe key audit matter identified in our audit is “Recoverability of the carrying amount of fixed assets related to oil and gas producing activities”. Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of fixed assets related to oil and gas producing activities Refer to note 14 “FIXED ASSETS”, note 44 “IMPAIRMENT LOSSES”, and note 55 “PRINCIPAL ACCOOUNTING ESTIMATES AND JUDGEMENTS” to the consolidated financial statements. Low crude oil prices gave rise to possible indication that the carrying amount of fixed assets related to oil and gas producing activities as at 31 December 2017 might be impaired. The Group has adopted discounted future cash flow as the respective recoverable amounts of fixed assets related to oil and gas producing activities, which involved key estimations or assumptions including: – Future crude oil prices; – Future production profiles; – Future cost profiles; and – Discount rates. Because of the significance of the carrying amount of fixed assets related to oil and gas producing activities as at 31 December 2017, together with the use of significant estimations or assumptions in determining their respective discounted cash flow, we had placed our audit emphasis on this matter. In auditing the respective discounted cash flow of fixed assets related to oil and gas producing activities, we have performed the following key procedures on the relevant discounted cash flow projections prepared by management: ‧ Evaluated and tested the key controls, relating to the preparation of the discounted cash flow projections of fixed assets related to oil and gas producing activities. ‧ Compared estimates of future crude oil prices adopted by the Group against a range of reputable published crude oil price forecasts. ‧ Compared the future production profiles against the oil and gas reserve estimation report approved by the management. Evaluated the competence, capability and objectivity of the management’s experts engaged in estimating the oil and gas reserves. Assessed key estimations or assumptions used in the reserve estimation, by reference to historical data, management plans and/or reputable external data. ‧ Compared the future cost profiles against historical costs or relevant budgets of the Group. ‧ Independently estimated a range of discount rates, and found that the discount rates adopted by management were within the range. ‧ Tested selected other key data inputs, such as natural gas prices and production profiles in the projections by reference to historical data and/or relevant budgets of the Group. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of the discounted cash flow projections. ‧ Evaluated the sensitivity analyses prepared by the Group, and assessed the potential impacts of a range of possible outcomes. Based on our work, we found the key assumptions and input data adopted were supported by the evidence we gathered and consistent with our expectations. OTHER INFORMATION Management of Sinopec Corp. is responsible for the other information. The other information comprises all of the information included in 2017 annual report of Sinopec Corp. other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS Management of Sinopec Corp. is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing these financial statements, management is responsible for assessing Sinopec Corp.’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intend to liquidate Sinopec Corp. or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing Sinopec Corp.’s financial reporting process. 80 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ‧ Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ‧ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. ‧ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ‧ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Sinopec Corp.’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Sinopec Corp. to cease to continue as a going concern. ‧ Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. ‧ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Sinopec Corp. to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. PricewaterhouseCoopers Zhong Tian LLP Shanghai, the People’s Republic of China 23 March 2018 Signing CPA Zhao Jianrong (Engagement Partner) Signing CPA Gao Peng 81 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)Note At 31 December 2017 RMB million At 31 December 2016 RMB million 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 26 27 28 31 29 30 31 32 19 33 34 35 36 37 38 165,004 51,196 16,207 68,494 16,467 4,901 186,693 20,087 529,049 1,676 131,087 650,774 118,645 97,126 8,634 14,720 15,131 28,662 1,066,455 1,595,504 54,701 6,462 200,073 120,734 7,162 71,940 6,843 84,850 — 26,681 579,446 67,754 31,370 39,958 6,466 16,440 161,988 741,434 121,071 119,557 (4,413) 888 199,682 290,459 727,244 126,826 854,070 1,595,504 142,497 — 13,197 50,289 25,596 3,749 156,511 20,422 412,261 11,408 116,812 690,594 129,581 85,023 6,353 13,537 7,214 25,826 1,086,348 1,498,609 30,374 5,828 174,301 95,928 1,618 52,886 2,006 77,630 6,000 38,972 485,543 62,461 54,985 39,298 7,661 16,136 180,541 666,084 121,071 119,525 (932) 765 196,640 275,163 712,232 120,293 832,525 1,498,609 Assets Current assets Cash at bank and on hand Financial assets at fair value through profit and loss Bills receivable Accounts receivable Other receivables Prepayments Inventories Other current assets Total current assets Non-current assets Available-for-sale financial assets Long-term equity investments Fixed assets Construction in progress Intangible assets Goodwill Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Short-term loans Bills payable Accounts payable Advances from customers Employee benefits payable Taxes payable Dividends payable Other payables Short-term debentures payable Non-current liabilities due within one year Total current liabilities Non-current liabilities Long-term loans Debentures payable Provisions Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserves Retained earnings Total equity attributable to shareholders of the Company Minority interests Total shareholders’ equity Total liabilities and shareholders’ equity These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 82 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(A) FINANCIAL STATEMENTS PREPARED UNDER CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES CONSOLIDATED BALANCE SHEET as at 31 December 2017Financial Statements (PRC) Assets Current assets Cash at bank and on hand Financial assets at fair value through profit and loss Bills receivable Accounts receivable Other receivables Dividends receivable Prepayments Inventories Other current assets Total current assets Non-current assets Available-for-sale financial assets Long-term equity investments Fixed assets Construction in progress Intangible assets Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Short-term loans Bills payable Accounts payable Advances from customers Employee benefits payable Taxes payable Other payables Short-term debentures payable Non-current liabilities due within one year Total current liabilities Non-current liabilities Long-term loans Debentures payable Provisions Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserves Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. Note At 31 December 2017 RMB million At 31 December 2016 RMB million 8 9 10 13 14 15 92,545 48,179 157 37,609 47,493 16,327 4,429 44,933 27,189 318,861 395 275,557 329,814 50,046 8,340 1,958 6,834 10,690 683,634 1,002,495 17,330 3,155 83,449 3,413 4,854 42,549 143,274 — 19,539 317,563 63,667 20,000 31,405 — 2,591 117,663 435,226 121,071 68,789 196 482 199,682 177,049 567,269 1,002,495 98,250 — 471 38,332 40,189 5,454 3,454 46,942 32,743 265,835 297 268,451 373,020 49,277 7,913 1,980 — 10,952 711,890 977,725 9,256 2,761 75,787 2,360 312 32,423 113,841 6,000 38,082 280,822 58,448 36,000 29,767 505 2,607 127,327 408,149 121,071 68,769 263 393 196,640 182,440 569,576 977,725 83 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017BALANCE SHEETas at 31 December 2017Financial Statements (PRC) Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Financial expenses Exploration expenses, including dry holes Impairment losses Add: Loss from changes in fair value Investment income Asset disposal income Other income Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation Less: Income tax expense Net profit Including: net profit of acquiree before the consolidation under common control Classification by going concern: Continuous operating net profit Termination of net profit. Classification by ownership: Equity shareholders of the Company Minority interests Basic earnings per share Diluted earnings per share Net profit Other comprehensive income Items that may be reclassified subsequently to profit or loss (net of tax and after reclassification adjustments): Cash flow hedges Changes in fair value of available-for-sale financial assets Share of other comprehensive income of associates and joint ventures Foreign currency translation differences Total other comprehensive income Total comprehensive income Attributable to: Equity shareholders of the Company Minority interests These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer Note 39 39/42 40 42 42 41 42/43 44 45 46 47 48 49 50 62 62 36 2017 RMB million 2016 RMB million 2,360,193 1,890,398 235,292 56,055 78,928 1,560 11,089 21,791 (13) 19,060 (1,518) 4,356 86,965 1,317 1,709 86,573 16,279 70,294 — 70,294 — 51,119 19,175 0.422 0.422 70,294 (1,580) (57) 1,053 (3,792) (4,376) 65,918 47,638 18,280 1,930,911 1,492,165 232,006 49,550 74,155 6,611 11,035 17,076 (216) 30,779 (1,487) — 77,389 4,706 2,218 79,877 20,707 59,170 86 59,170 — 46,416 12,754 0.383 0.383 59,170 2,014 (24) 45 4,298 6,333 65,503 53,468 12,035 The accompanying notes form part of these financial statements. 84 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2017Financial Statements (PRC) Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Financial expenses Exploration expenses, including dry holes Impairment losses Add: Gain from changes in fair value Investment income Asset disposal income Other income Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation Less: Income tax expense Net profit Classification by going concern: Continuous operating net profit Termination of net profit Other comprehensive income Items that may be reclassified subsequently to profit or loss (net of tax and after reclassification adjustments): Cash flow hedges Share of other comprehensive loss of associates Total other comprehensive income Total comprehensive income These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer Note 39 39 46 2017 RMB million 2016 RMB million 857,478 633,114 158,480 2,670 44,982 2,642 10,614 14,372 179 38,058 (887) 1,784 29,738 474 725 29,487 (928) 30,415 30,415 — 53 (120) (67) 30,348 726,178 513,514 158,373 2,365 41,724 3,851 11,012 14,044 33 43,519 (413) — 24,434 2,812 1,117 26,129 2,539 23,590 23,590 — 557 (149) 408 23,998 The accompanying notes form part of these financial statements. 85 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017INCOME STATEMENTfor the year ended 31 December 2017Financial Statements (PRC) Cash flows from operating activities: Cash received from sale of goods and rendering of services Refund of taxes and levies Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and for employees Payments of taxes and levies Other cash paid relating to operating activities Sub-total of cash outflows Net cash flow from operating activities Cash flows from investing activities: Cash received from disposal of investments Cash received from returns on investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets Other cash received relating to investing activities Net cash received from disposal of subsidiaries and other business entities Sub-total of cash inflows Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Other cash paid relating to investing activities Net cash paid for the acquisition of subsidiaries and other business entities Sub-total of cash outflows Net cash flow from investing activities Cash flows from financing activities: Cash received from capital contributions Including: Cash received from minority shareholders’ capital contributions to subsidiaries Cash received from borrowings Sub-total of cash inflows Cash repayments of borrowings Cash paid for dividends, profits distribution or interest Including: Subsidiaries’ cash payments for distribution of dividends or profits to minority shareholders Other cash paid relating to financing activities Sub-total of cash outflows Net cash flow from financing activities Effects of changes in foreign exchange rate Net (decrease)/increase in cash and cash equivalents These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer Note 2017 RMB million 2016 RMB million 2,644,126 2,158 57,287 2,703,571 (2,041,977) (68,260) (328,304) (74,095) (2,512,636) 190,935 4,729 8,506 1,313 52,304 80 66,932 (70,948) (57,627) (82,392) (1,288) (212,255) (145,323) 946 946 524,843 525,789 (536,380) (45,763) (7,539) (155) (582,298) (56,509) (353) (11,250) 2,163,695 2,434 77,436 2,243,565 (1,547,868) (62,602) (316,062) (102,490) (2,029,022) 214,543 31,489 4,028 440 2,914 2,027 40,898 (72,847) (16,389) (17,879) — (107,115) (66,217) 343 343 506,097 506,440 (569,091) (30,396) (6,553) — (599,487) (93,047) 256 55,535 52(a) 52(b) The accompanying notes form part of these financial statements. 86 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2017Financial Statements (PRC) Cash flows from operating activities: Cash received from sale of goods and rendering of services Refund of taxes and levies Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and for employees Payments of taxes and levies Other cash paid relating to operating activities Sub-total of cash outflows Net cash flow from operating activities Cash flows from investing activities: Cash received from disposal of investments Cash received from returns on investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets Other cash received relating to investing activities Net cash received from disposal of subsidiaries and other business entities Sub-total of cash inflows Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Other cash paid relating to investing activities Sub-total of cash outflows Net cash flow from investing activities Cash flows from financing activities: Cash received from borrowings Sub-total of cash inflows Cash repayments of borrowings Cash paid for dividends or interest Sub-total of cash outflows Net cash flow from financing activities Net (decrease)/increase in cash and cash equivalents These financial statements have been approved by the board of directors on 23 March 2018. Note 2017 RMB million 2016 RMB million 1,000,467 1,304 42,913 1,044,684 (653,412) (37,054) (200,995) (35,502) (926,963) 117,721 18,919 23,842 252 23,270 1 66,284 (37,139) (66,913) (30,116) (134,168) (67,884) 106,407 106,407 (133,663) (38,392) (172,055) (65,648) (15,811) 831,578 1,323 85,932 918,833 (504,152) (35,190) (189,557) (50,638) (779,537) 139,296 29,002 22,233 1,885 1,488 2,027 56,635 (43,765) (39,505) (10,130) (93,400) (36,765) 153,790 153,790 (192,828) (21,826) (214,654) (60,864) 41,667 Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 87 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CASH FLOW STATEMENTfor the year ended 31 December 2017Financial Statements (PRC) Share capital RMB million 121,071 Capital reserve RMB million 121,576 Other comprehensive income RMB million (7,984) Specific reserve RMB million 612 Surplus reserves RMB million 196,640 Retained earnings RMB million 245,623 Total shareholders’ equity attributable to equity shareholders of the Company RMB million 677,538 Minority interests RMB million 112,027 Total shareholders’ equity RMB million 789,565 — — — — — — — — — — — — 121,071 121,071 — — — — — — — — — — — — (30) — — (2,137) (2,167) — 116 119,525 119,525 — — — — — (13) — — — — 121,071 (13) — 45 119,557 — 7,052 7,052 — — — — — — — — — (932) (932) — (3,481) (3,481) — — — — — — — (4,413) — — — — — — — — — — 153 — 765 765 — — — — — — — — 123 — 888 — — — — — — — — — — — — 196,640 196,640 — — — 3,042 — — — 3,042 — — 199,682 46,416 — 46,416 46,416 7,052 53,468 12,754 (719) 12,035 59,170 6,333 65,503 — (16,829) — — (16,829) (30) — — 263 — (16,829) 233 (86) (6,146) (47) — (39) (6,146) (2,137) 2,137 — (19,043) 153 116 712,232 712,232 51,119 (3,481) 47,638 — (32,689) (13) — (32,702) 123 (47) 727,244 (3,785) 7 9 120,293 120,293 19,175 (895) 18,280 — — 724 (12,501) (11,777) 3 27 126,826 (22,828) 160 125 832,525 832,525 70,294 (4,376) 65,918 — (32,689) 711 (12,501) (44,479) 126 (20) 854,070 (47) — — (16,876) — — 275,163 275,163 51,119 — 51,119 (3,042) (32,689) — — (35,731) — (92) 290,459 Balance at 1 January 2016 Change for the period 1. Net profit 2. Other comprehensive income (Note 36) Total comprehensive income Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriation for surplus reserves – Distributions to shareholders (Note 51) 4. Transaction with minority interests 5. Distributions to the original shareholders in the combination of entities under common control 6. Distributions to minority interests 7. Adjustment for the combination of entities under common control (Note 53) Total transactions with owners, recorded directly in shareholders’ equity 8. Net increase in specific reserve for the year 9. Others Balance at 31 December 2016 Balance at 1 January 2017 Change for the year 1. Net profit 2. Other comprehensive income (Note 36) Total comprehensive income Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriation for surplus reserves (Note 38) – Distributions to shareholders(Note 51) 4. Transaction with minority interests 5. Distributions to minority interests Total transactions with owners, recorded directly in shareholders’ equity 6. Net increase in specific reserve for the year 7. Others Balance at 31 December 2017 These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 88 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2017Financial Statements (PRC) Balance at 1 January 2016 Change for the year 1. Net profit 2. Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriation for surplus reserves – Distributions to shareholders (Note 49) Total transactions with owners, recorded directly in shareholders’ equity 4. Net increase in specific reserve for the year 5. Others Balance at 31 December 2016 Balance at 1 January 2017 Change for the year 1. Net profit 2. Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriation for surplus reserves – Distributions to shareholders (Note 49) Total transactions with owners, recorded directly in shareholders’ equity 4. Net increase in specific reserve for the year 5. Others Balance at 31 December 2017 Share capital RMB million Capital reserve RMB million Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity RMB million 121,071 68,716 (145) 313 196,640 175,679 562,274 — — — — — — — — 121,071 121,071 — — — — — — — — — — — — 53 68,769 68,769 — — — — — — — — 121,071 — — 20 68,789 — 408 408 — — — — — 263 263 — (67) (67) — — — — — 196 — — — — — — 80 — 393 393 — — — — — — 89 — 482 — — — — — — — — 196,640 196,640 — — — 3,042 — 3,042 — — 199,682 23,590 — 23,590 23,590 408 23,998 — (16,829) (16,829) — — 182,440 182,440 30,415 — 30,415 (3,042) (32,689) (35,731) — (75) 177,049 — (16,829) (16,829) 80 53 569,576 569,576 30,415 (67) 30,348 — (32,689) (32,689) 89 (55) 567,269 These financial statements have been approved by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 89 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2017Financial Statements (PRC) 1 STATUS OF THE COMPANY China Petroleum & Chemical Corporation (the “Company”) was established on 25 February 2000 as a joint stock limited company. The company is registered in Beijing, the People’s Republic of China, and the headquarter is located in Beijing, the People’s Republic of China. The approval date of the financial report is 23 March 2018. According to the State Council’s approval to the “Preliminary Plan for the Reorganisation of China Petrochemical Corporation” (the “Reorganisation”), the Company was established by China Petrochemical Corporation (“Sinopec Group Company”), which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation Corporation. The net asset value was determined at RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry of Finance (the “MOF”) (Cai Ping Zi [2000] No. 20 “Comments on the Review of the Valuation Regarding the Formation of a Joint Stock Limited Company by China Petrochemical Corporation”). In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 “Reply to the Issue Regarding Management of State-Owned Equity by China Petroleum and Chemical Corporation” issued by the MOF, 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation. Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 “Reply on the Formation of China Petroleum and Chemical Corporation”, the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the formation of a joint stock limited company. The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and related sales and marketing business of Sinopec Group Company after the establishment of the Company. The Company and its subsidiaries (the “Group”) engage in the oil and gas and chemical operations and businesses, including: (1) the exploration, development and production of crude oil and natural gas; (2) the refining, transportation, storage and marketing of crude oil and petroleum product; and (3) the production and sale of chemical. Details of the Company’s principal subsidiaries are set out in Note 56. 2 BASIS OF PREPARATION (1) Statement of compliance of China Accounting Standards for Business Enterprises (“ASBE”) The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises – Basic Standards, specific standards and relevant regulations (hereafter referred as ASBE collectively) issued by the MOF on or after 15 February 2006. These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No.15: General Requirements for Financial Reports” issued by the China Securities Regulatory Commission (“CSRC”). These financial statements present truly and completely the consolidated and company financial position as at 31 December 2017, and the consolidated and company financial performance and the consolidated and company cash flows for the year then ended. These financial statements are prepared on a basis of going concern. (2) Accounting period The accounting year of the Group is from 1 January to 31 December. (3) Measurement basis The financial statements of the Group have been prepared under the historical cost convention, except for the assets and liabilities set out below: — Financial asset and financial liability with change in fair value recognised through profit or loss (see Note 3(10)) — Available-for-sale financial assets (see Note 3(10)) — Derivative financial instruments (see Note 3(10)) (4) Functional currency and presentation currency The functional currency of the Company’s and most of its subsidiaries are Renminbi. The Group’s consolidated financial statements are presented in Renminbi. The Company and its subsidiaries determine their functional currency according to the main economic environment in where they operate. Some of subsidiaries use other currency as the functional currency. The Company translates the financial statements of subsidiaries from their respective functional currencies into Renminbi (see Note 3(2)) if the subsidiaries’ functional currencies are not Renminbi. 90 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES The Group determines specific accounting policies and accounting estimates based on the characteristics of production and operational activities, mainly reflected in the accounting for allowance for accounts receivable (Note 3(11)), valuation of inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(6), (7)), measurement of provisions (Note 3(15)), ect. Principal accounting estimates and judgements of the Group are set out in Note 55. (1) Accounting treatment of business combination involving entities under common control and not under common control (a) Business combination involving entities under common control A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition are accounted for at the acquiree’s carrying amount on the acquisition date. The difference between the carrying amount of the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit or loss for the current period when occurred. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. The combination date is the date on which the acquirer effectively obtains control of the acquiree. (b) Business combination involving entities not under common control A business combination involving entities or businesses not under common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, and the Group’s interest in the fair value of the identifiable net assets of the acquiree, is recognised as goodwill (Note 3(9)) if it is an excess, otherwise in the profit or loss. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in the profit or loss for the year. The difference between the fair value and the book value of the assets given is recognised in profit or loss. The acquiree’s identifiable assets, liabilities and contingent liabilities, if satisfying the recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. (c) Method for preparation of consolidated financial statements The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries. Control means an entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary’s financial statements, from the date that common control was established. Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, based on the fair value of those identifiable assets and liabilities at the acquisition date. Where the Company acquired a minority interest from a subsidiary’s minority shareholders, the difference between the investment cost and the newly acquired interest into the subsidiary’s identifiable net assets at the acquisition date is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is adjusted to retained profits. 91 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (1) Accounting treatment of business combination involving entities under common control and not under common control (Continued) (c) Method for preparation of consolidated financial statements (Continued) In a business combination involving entities not under common control achieved in stages, the Group remeasures its previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net book value is recognised as investment income for the year. If other comprehensive income was recognised regarding the equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is transferred to investment income in the period in which the acquisition occurs. Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other reasons, the Group derecognises assets, liabilities, minority interests and other equity items related to the subsidiary. The remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of the Group’s previous share of the subsidiary’s identifiable net assets recorded from the acquisition date, is recognised in investment income in the period in which control is lost. Other comprehensive income related to the previous equity investment in the subsidiary, is transferred to investment income when control is lost. Other comprehensive income related to the equity investment of the orginal subsidiary shall be converted into the current investment income in the event of loss of control. Minority interest is presented separately in the consolidated balance sheet within shareholders’ equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item. The excess of the loss attributable to the minority interests during the period over the minority interests’ share of the equity at the beginning of the reporting period is deducted from minority interests. Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the Company, adjustments are made to the subsidiaries’ financial statements according to the Company’s accounting policies and accounting period. Intra- group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. The unrealised profit or loss arising from the sale of assets by the Company to its subsidiaries is eliminated in full against the net profit attributed to shareholders; the unrealised profit or loss from the sale of assets by subsidiaries to the Company is eliminated according to the distribution ratio between shareholders of the parent company and minority interests. For sale of assets that occurred between subsidiaries, the unrealised gains and losses is eliminated according to the distribution ratio for its subsidiaries seller between net profit attributable to shareholders of the parent company and minority interests. (2) Transactions in foreign currencies and translation of financial statements in foreign currencies Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by the People’s Bank of China (“PBOC rates”) at the transaction dates. Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Non- monetary items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference between the translated amount and the original currency amount is recognised as other comprehensive income, if it is classified as available-for- sale financial assets; or charged to the income statement if it is measured at fair value through profit or loss. The assets and liabilities of foreign operation are translated into Renminbi at the spot exchange rates at the balance sheet date. The equity items, excluding “Retained earnings”, are translated into Renminbi at the spot exchange rates at the transaction dates. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or an exchange rate that approximates the spot exchange rates on the transaction dates. The resulting exchange differences are separately presented as other comprehensive income in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs. (3) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. 92 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (4) Inventories Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the inventories to their present location and condition. The cost of inventories is calculated using the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing overhead costs. At the balance sheet date, inventories are stated at the lower of cost and net realisable value. Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices. Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss. Inventories are recorded by perpetual method. (5) Long-term equity investments (a) Investment in subsidiaries In the Company’s separate financial statements, long-term equity investments in subsidiaries are accounted for using the cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or profit distributions declared by the investee as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment losses (see Note 3(11)) in the balance sheet. At initial recognition, such investments are measured as follows: The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company’s share of the carrying amount of the subsidiary’s equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings. For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity investment obtained through a business combination not involving enterprises under common control, if it is achieved in stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date. An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors. 93 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (5) Long-term equity investments (Continued) (b) Investment in joint ventures and associates A joint venture is an incorporated entity over which the Group, based on legal form, contractual terms and other facts and circumstances, has joint control with the other parties to the joint venture and rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the Group and the parties sharing control. An associate is the investee that the Group has significant influence on their financial and operating policies. Significant influence represents the right to participate in the financial and operating policy decisions of the investee but is not control or joint control over the establishment of these policies. The Group generally considers the following circumstances in determining whether it can exercise significant influence over the investee: whether there is representative appointed to the board of directors or equivalent governing body of the investee; whether to participate in the investee’s policy-making process; whether there are significant transactions with the investees; whether there is management personnel sent to the investee; whether to provide critical technical information to the investee. An investment in a joint ventures or an associate is accounted for using the equity method, unless the investment is classified as held for sale. The initial cost of investment in joint ventures and associates is stated at the consideration paid except for cash dividends or profits distributions declared but unpaid at the time of acquisition and therefore included in the consideration paid should be deducted if the investment is made in cash. Under the circumstances that the long-term investment is obtained through non-monetary asset exchange, the initial cost of the investment is stated at the fair value of the assets exchanged if the transaction has commercial substance, the difference between the fair value of the assets exchanged and its carrying amount is charged to profit or loss; or stated at the carrying amount of the assets exchanged if the transaction lacks commercial substance. The Group’s accounting treatments when adopting the equity method include: Where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially recognised at the investor’s share of the fair value of the investee’s identifiable net assets, and the difference is charged to profit or loss. After the acquisition of the investment, the Group recognises its share of the investee’s net profits or losses and other comprehensive income as investment income or losses and other comprehensive income, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group. The Group recognises its share of the investee’s net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee’s net identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s interest in the associates or joint ventures. Unrealised losses resulting from transactions between the Group and its associates or joint ventures are fully recognised in the event that there is an evidence of impairment. The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that is in substance forms part of the Group’s net investment in the associate or the joint ventures is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. Where net profits are subsequently made by the associate or joint venture, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. The Group adjusts the carrying amount of the long-term equity investment for changes in owners’ equity of the investee other than those arising from net profits or losses and other comprehensive income, and recognises the corresponding adjustment in capital reserve. (c) The impairment assessment method and provision accrual on investment The impairment assessment and provision accrual on investments in subsidiaries, associates and joint ventures are stated in Note 3(11). 94 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (6) Fixed assets and construction in progress Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year. Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(11)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(11)). The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(18)), and any other costs directly attributable to bringing the asset to working condition for its intended use. According to legal or contractual obligations, costs of dismantling and removing the items and restoring the site on which the related assets located are included in the initial cost. Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is provided against construction in progress. Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset. The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred. The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held for sale. The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed assets are as follows: Plants and buildings Equipment, machinery and others Useful lives, residual values and depreciation methods are reviewed at least each year end. Estimated useful life Estimated rate of residual value 12-50 years 4-30 years 3% 3% (7) Oil and gas properties Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil and gas exploration and production activities. The acquisition cost of mineral interest is capitalised as oil and gas properties. Costs of development wells and related support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and geophysical costs, are charged to profit or loss in the year as incurred. The Group estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices. These estimated future dismantlement costs are discounted at credit-adjusted risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves. 95 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (8) Intangible assets Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated amortisation and provision for impairment losses (see Note 3(11)). For an intangible asset with finite useful life, its cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the expected useful lives, unless the intangible assets are classified as held for sale. An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the year over which the asset is expected to generate economic benefits for the Group. Useful lives and amortisation methods are reviewed at least each year end. (9) Goodwill The initial cost of goodwill represents the excess of cost of acquisition over the acquirer’s interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control. Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(11)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal. (10) Financial Instruments Financial instruments of the Group include cash and cash equivalents, bond investments, equity securities other than long-term equity investments, receivables, derivative financial instruments, payables, loans, bonds payable, and share capital, financial asset with change in fair value recognised through profit or loss, etc. (a) Classification, recognition and measurement of financial instruments The Group recognises a financial asset or a financial liability on its balance sheet when the Group enters into and becomes a party to the underlining contract of the financial instrument. The Group classifies financial assets and liabilities into different categories at initial recognition based on the purpose of acquiring assets and assuming liabilities: financial assets and financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities. Financial assets and financial liabilities are initially recognised at fair value. For financial asset or financial liability of which the change in its fair value is recognised in profit or loss, the relevant transaction cost is recognised in profit or loss. The transaction costs for other financial assets or financial liabilities are included in the initially recognised amount. Subsequent to initial recognition financial assets and liabilities are measured as follows: — Financial asset or financial liability with change in fair value recognised through profit or loss A financial asset or financial liability is classified as at fair value through profit or loss if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is a derivative, unless the derivative is a designated and effective hedging instrument, or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price from an active market) whose fair value cannot be reliably measured. These financial instruments are initially measured at fair value with subsequently changes in fair value recognised in profit or loss. Subsequent to initial recognition, financial assets and financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. — Loans and Receivables Loans and Receivables are non-derivative financial assets with fixed or determinable recoverable amount and with no quoted price in active market. After the initial recognition, loans and receivables are measured at amortised cost using the effective interest rate method. — Held-to-maturity investment Held-to-maturity investment includes non-derivative financial assets with fixed or determinable recoverable amount and fixed maturity that the Group has the positive intention and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method. 96 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) Financial Instruments (Continued) (a) Classification, recognition and measurement of financial instruments (Continued) — Available-for-sale financial assets Available-for-sale financial assets include non-derivative financial assets that are designated as available for sales and other financial assets which do not fall into any of the above categories. Available-for-sale financial assets whose fair value cannot be measured reliably are measured at cost subsequent to initial recognition. Other than the above equity instrument investments whose fair values cannot be measured reliably, other available-for-sale financial assets are initially stated at fair values. The gains or losses arising from changes in the fair value are directly recognised in equity, except for the impairment losses and exchange differences from monetary financial assets denominated in foreign currencies, which are recognised in profit or loss. The cumulative gains and losses previously recognised in equity are transferred to profit or loss when the available-for- sale financial assets are derecognised. Dividend income from these equity instruments is recognised in profit or loss when the investee declares the dividends. Interest on available-for-sale debt instrument investments calculated using the effective interest rate method is recognised in profit or loss (see Note 3(16) (c)). — Other financial liabilities Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include the liabilities arising from financial guarantee contracts. Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, subsequent to initial recognition, the guarantee is measured at the higher of the amount initially recognised less accumulated amortisation and the amount of a provision determined in accordance with the principles of contingencies (see Note 3(15)). Except for the other financial liabilities described above, subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effective interest method. (b) Disclosure of financial assets and financial liabilities In the balance sheet, financial assets and liabilities are not offset unless all the following conditions are met: — the Group has a legally enforceable right to set off financial assets against financial liabilities; and — the Group intends to settle the financial assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously. (c) Determination of fair value If there is an active market for a financial asset or financial liability, the quoted price in the active market is used to establish the fair value of the financial asset or financial liability. If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include using arm’s length market transactions between knowledge, and willing parties; reference to the current fair value of other instrument that is substantially the same; discounted cash flows and option pricing model. The Group calibrates the valuation technique and tests it for validity periodically. 97 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) Financial Instruments (Continued) (d) Hedge accounting Hedge accounting is a method which recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item in the same accounting period(s). Hedged items are the items that expose the Group to risks of changes in fair value or future cash flows and that are designated as being hedged. The Group’s hedged items include fixed-rate borrowings that expose the Group to risk of changes in fair values, floating rate borrowings that expose the Group to risk of variability in cash flows, and a forecast transaction that is settled with a fixed amount of foreign currency and expose the Group to foreign currency risk, and a forecast transaction that is settled with an undetermined future market price and exposes the Group to risk of variability in cash flows, etc. A hedging instrument is a designated derivative whose changes in fair value or cash flows are expected to offset changes in the fair value or cash flows of the hedged item. The hedge is assessed by the Group for effectiveness on an ongoing basis and determined to have been highly effective throughout the accounting periods for which the hedging relationship was designated. The Group uses a ratio analysis to assess the subsequent effectiveness of a cash flow hedge, and uses a regression analysis to assess the subsequent effectiveness of a fair value hedge. — Cash flow hedges A cash flow hedge is a hedge of the exposure to variability in cash flows. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in shareholders’ equity as a separate component. That effective portion is adjusted to the lesser of the following (in absolute amounts): — the cumulative gain or loss on the hedging instrument from inception of the hedge; — the cumulative change in present value of the expected future cash flows on the hedged item from inception of the hedge. The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset, the associated gain or loss is removed from shareholders’ equity, included in the initial cost of the non-financial asset, and recognised in profit or loss in the same year during which the non-financial asset affects profit or loss. However, if the Group expects that all or a portion of a net loss recognised directly in shareholders’ equity will not be recovered in future accounting periods, it reclassifies the amount that is not expected to be recovered into profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is removed from equity and recognised in profit or loss in the same period during which the financial asset or financial liability affects profit or loss. However, if the Group expects that all or a portion of a net loss recognised directly in shareholders’ equity will not be recovered in future accounting periods, it reclassifies the amount that is not expected to be recovered into profit or loss. For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is removed from shareholders’ equity and recognised in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss. When a hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, the Group will discontinue the hedge accounting treatments prospectively. In this case, the gain or loss on the hedging instrument that remains recognised directly in shareholders’ equity from the period when the hedge was effective shall not be reclassified into profit or loss and is recognised in accordance with the above policy when the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the gain or loss on the hedging instrument that remains recognised directly in shareholders’ equity from the period when the hedge was effective shall be reclassified into profit or loss immediately. 98 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) Financial Instruments (Continued) (d) Hedge accounting (Continued) — Fair value hedges A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or unrecognised firm commitment. The gain or loss from remeasuring the hedging instrument at fair value is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in profit or loss. When a hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged item is a financial instrument measured at amortised cost, any adjustment to the carrying amount of the hedged item is amortised to profit or loss from the adjustment date to the maturity date using the recalculated effective interest rate at the adjustment date. — Hedge of net investment in foreign operation A hedge of a net investment in a foreign operation is a hedge of the exposure to foreign exchange risk associated with a net investment in a foreign operation. The portion of the gain or loss on a hedging instrument that is determined to be an effective hedge is recognised directly in equity as a separate component until the disposal of the foreign operation, at which time the cumulative gain or loss recognised directly in equity is recognised in profit or loss. The ineffective portion is recognised immediately in profit or loss. (e) Derecognition of financial assets and financial liabilities The Group derecognises a financial asset when the contractual right to receive cash flows from the financial asset expires, or where the Group transfers substantially all risks and rewards of ownership of the financial asset, or where the Group neither transfers nor retains substantially all risks and rewards of ownership of the financial asset but the Group gives up the control of a financial asset. On derecognition of a financial asset, the difference between the following amounts is recognised in profit or loss: — the carrying amounts; and — the sum of the consideration received and any cumulative gain or loss that had been recognised directly in equity. Where the obligations for financial liabilities are completely or partially discharged, the entire or parts of financial liabilities are derecognised. (11) Impairment of financial assets and non-financial long-term assets (a) Impairment of financial assets The carrying amount of financial assets (except those financial assets stated at fair value with changes in the fair values charged to profit or loss) are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided. Objective evidences of impairment include but not limited to: (i) significant financial difficulty of the debtor; (ii) a breach of contract, such as a default or delinquency in interest or principal payments; (iii) it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; (iv) due to the significant financial difficulty of the debtor, financial assets is unable to be traded in active market; (v) significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and the cost of investment may not be recoverable;and (vi) a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. 99 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Impairment of financial assets and non-financial long-term assets (Continued) (a) Impairment of financial assets (Continued) — Receivables and held-to-maturity investments Receivables are assessed for impairment on the combination of an individual basis and the aging analysis. Held-to-maturity investments are assessed for impairment on an individual basis. Where impairment is assessed on an individual basis, an impairment loss in respect of a receivable or held-to-maturity investment is calculated as the excess of its carrying amount over the present value of the estimated future cash flows (exclusive of future credit losses that have not been incurred) discounted at the original effective interest rate. All impairment losses are recognised in profit or loss. Impairment loss on receivables and held-to-maturity investments is reversed in profit or loss if evidence suggests that the financial assets’ carrying amounts have increased and the reason for the increase is objectively as a result of an event occurred after the recognition of the impairment loss. The reversed carrying amount shall not exceed the amortised cost if the financial assets had no impairment recognised. — Available-for-sale financial assets Available-for-sale financial assets are assessed for impairment on an individual basis. Objective evidence of impairment for equity instruments classified as available-for-sale includes information about significant but not temporary decline in the fair value of the equity investment instrument below its cost. The Group assesses equity instruments classified as available-for-sale separately at the end of each reporting period, it will be considered as impaired if the fair value of the equity instrument at reporting date is less than its initial investment cost over 50% (including 50%) or the duration of the fair value below its initial investment cost is more than one (including one) year, if the fair value of the equity instrument at reporting date is less than its initial investment cost over 20% (including 20%) but below 50%, other related factors such as price volatility will be taken into consideration to assess if it is impaired. When available-for-sale financial assets measured at fair value are impaired, despite not being derecognised, the cumulative losses resulted from the decrease in fair value which had previously been recognised directly in shareholders’ equity, are reversed and charged to profit or loss. When available-for-sale financial assets measured at cost are impaired, the differences between the book value and the discounted present value with the market return of similar financial assets are charged to profit or loss. Impairment loss of available-for-sale debt instrument is reversed, if the reason for the subsequent increase in fair value is objectively as a result of an event occurred after the recognition of the impairment loss. Impairment loss for available-for-sale equity instrument is not reversed through profit or loss. Impairment loss for available-for-sale financial assets measured by the cost cannot be reversed in the following period. 100 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Impairment of financial assets and non-financial long-term assets (Continued) (b) Impairment of other non-financial long-term assets Internal and external sources of information are reviewed at each balance sheet date for indications that the following assets, including fixed assets, construction in progress, goodwill, intangible assets and investments in subsidiaries, associates and joint ventures may be impaired. Assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amounts of goodwill and intangible assets with uncertain useful lives are estimated annually no matter there are any indications of impairment. Goodwill is tested for impairment together with related asset units or groups of asset units. An asset unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. An asset unit comprises related assets that generate associated cash inflows. In identifying an asset unit, the Group primarily considers whether the asset unit is able to generate cash inflows independently as well as the management style of production and operational activities, and the decision for the use or disposal of asset. The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows generated by the asset (or asset unit, set of asset units). Fair value less costs to sell of an asset is based on its selling price in an arm’s length transaction less any direct costs attributable to the disposal. Present value of expected future cash flows is the estimation of future cash flows to be generated from the use of and upon disposal of the asset, discounted at an appropriate pre-tax discount rate over the asset’s remaining useful life. If the recoverable amount of an asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The amount by which the carrying amount is reduced is recognised as an impairment loss in profit or loss. A provision for impairment loss of the asset is recognised accordingly. Impairment losses related to an asset unit or a set of asset units first reduce the carrying amount of any goodwill allocated to the asset unit or set of asset units, and then reduce the carrying amount of the other assets in the asset unit or set of asset units on a pro rata basis. However, the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero. Impairment losses for assets are not reversed. (12) Long-term deferred expenses Long-term deferred expenses are amortised on a straight-line basis over their beneficial periods. (13) Employee benefits Employee benefits are all forms of considerations and compensation given in exchange for services rendered by employees, including short term compensation, post-employment benefits, termination benefits and other long term employee benefits. (a) Short term compensation Short term compensation includes salaries, bonuses, allowances and subsidies, employee benefits, medical insurance premiums, work- related injury insurance premium, maternity insurance premium, contributions to housing fund, unions and education fund and short-term absence with payment etc. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the short term compensation actually incurred as a liability and charge to the cost of an asset or to profit or loss in the same period, and non- monetary benefits are valued with the fair value. (b) Post-employment benefits The Group classifies post-employment benefits into either Defined Contribution Plan (DC plan) or Defined Benefit Plan (DB plan). DC plan means the Group only contributes a fixed amount to an independent fund and no longer bears other payment obligation; DB plan is post- employment benefits other than DC plan. In this reporting period, the post-employment benefits of the Group primarily comprise basic pension insurance and unemployment insurance and both of them are DC plans. Basic pension insurance Employees of the Group participate in the social insurance system established and managed by local labor and social security department. The Group makes basic pension insurance to the local social insurance agencies every month, at the applicable benchmarks and rates stipulated by the government for the benefits of its employees. After the employees retire, the local labor and social security department has obligations to pay them the basic pension. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the accrued amount according to the above social security provisions as a liability and charge to the cost of an asset or to profit or loss in the same period. (c) Termination benefits When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss under the conditions of both the Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly; and the Group is not allowed to withdraw from termination plan or redundancy offer unilaterally. 101 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (14) Income tax Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to business combinations and items recognised directly in equity (including other comprehensive income). Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, plus any adjustment to tax payable in respect of previous years. At the balance sheet date, current tax assets and liabilities are offset if the Group has a legally enforceable right to set them off and also intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are recognised based on deductible temporary differences and taxable temporary differences respectively. Temporary difference is the difference between the carrying amounts of assets and liabilities and their tax bases. Unused tax losses and unused tax credits able to be utilised in subsequent years are treated as temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available to offset the deductible temporary differences. Temporary differences arise in a transaction, which is not a business combination, and at the time of transaction, does not affect accounting profit or taxable profit (or unused tax losses), will not result in deferred tax. Temporary differences arising from the initial recognition of goodwill will not result in deferred tax. At the balance sheet date, the amounts of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws. The carrying amount of deferred tax assets is reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of deferred tax asset, the carrying amount of the deferred tax assets is written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. At the balance sheet date, deferred tax assets and liabilities are offset if all the following conditions are met: — the taxable entity has a legally enforceable right to offset current tax assets and current tax liabilities; and — they relate to income taxes levied by the same tax authority on either: — the same taxable entity; or — different taxable entities which either to intend to settle the current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. (15) Provisions Provisions are recognised when the Group has a present obligation as a result of a contingent event, it is probable that an outflow of economic benefits will be required to settle the obligations and a reliable estimate can be made. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows. Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group’s expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest costs, is reflected as an adjustment to the provision of oil and gas properties. (16) Revenue recognition Revenue is the gross inflow of economic benefits arising in the course of the Group’s normal activities when the inflows result in increase in shareholder’s equity, other than increase relating to contributions from shareholders. Revenue is recognised in profit or loss when it is probable that the economic benefits will flow to the Group, the revenue and costs can be measured reliably and the following respective conditions are met. (a) Revenues from sales of goods Revenue from the sales of goods is recognised when all of the general conditions stated above and following conditions are satisfied: — the significant risks and rewards of ownership and title have been transferred to buyers; and — the Group does not retain the management rights, which is normally associated with owner, on goods sold and has no control over the goods sold. Revenue from the sales of goods is measured at fair value of the considerations received or receivable under the sales contract or agreement. 102 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (16) Revenue recognition (Continued) (b) Revenues from rendering services The Group determines the revenue from the rendering of services according to the fair value of the received or to-be received price of the party that receives the services as stipulated in the contract or agreement. At the balance sheet date, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue from rendering of services is recognised in the income statement by reference to the stage of completion of the transaction based on the proportion of services performed to date to the total services to be performed. When the outcome of rendering the services cannot be estimated reliably, revenues are recognised only to the extent that the costs incurred are expected to be recoverable. If the costs of rendering of services are not expected to be recoverable, the costs are recognised in profit or loss when incurred, and revenues are not recognised. (c) Interest income Interest income is recognised on a time proportion basis with reference to the principal outstanding and the applicable effective interest rate. (17) Government grants Government grants are the gratuitous monetary assets or non-monetary assets that the Group receives from the government, excluding capital injection by the government as an investor. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of “capital reserve” are dealt with as capital contributions, and not regarded as government grants. Government grants are recognised when there is reasonable assurance that the grants will be received and the Group is able to comply with the conditions attaching to them. Government grants in the form of monetary assets are recorded based on the amount received or receivable, whereas non-monetary assets are measured at fair value. Government grants received in relation to assets are recorded as deferred income, and recognised evenly in profit or loss over the assets’ useful lives. Government grants received in relation to revenue are recorded as deferred income, and recognised as income in future periods as compensation when the associated future expenses or losses arise; or directly recognised as income in the current period as compensation for past expenses or losses. (18) Borrowing costs Borrowing costs incurred on borrowings for the acquisition, construction or production of qualified assets are capitalised into the cost of the related assets. Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred. (19) Repairs and maintenance expenses Repairs and maintenance (including overhauling expenses) expenses are recognised in profit or loss when incurred. (20) Environmental expenditures Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations is expensed as incurred. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures. (21) Research and development costs Research costs and development costs that cannot meet the capitalisation crateria are recognised in profit or loss when incurred. (22) Operating leases Operating lease payments are charged as expenses on a straight-line basis over the period of the respective leases. (23) Dividends Dividends and distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared. 103 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (24) Related parties If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control, joint control from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Where enterprises are subject to state control but are otherwise unrelated, they are not related parties. Related parties of the Group and the Company include, but not limited to: (a) the holding company of the Company; (b) the subsidiaries of the Company; (c) the parties that are subject to common control with the Company; (d) investors that have joint control or exercise significant influence over the Group; (e) enterprises or individuals if a party has control, joint control over both the enterprises or individuals and the Group; (f) joint ventures of the Group, including subsidiaries of the joint ventures; (g) associates of the Group, including subsidiaries of the associates; (h) principle individual investors of the Group and close family members of such individuals; (i) key management personnel of the Group, and close family members of such individuals; (j) key management personnel of the Company’s holding company; (k) close family members of key management personnel of the Company’s holding company; and (l) an entity which is under control, joint control of principle individual investor, key management personnel or close family members of such individuals. (25) Segment reporting Reportable segments are identified based on operating segments which are determined based on the structure of the Group’s internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that meets the following respective conditions: — engage in business activities from which it may earn revenues and incur expenses; — whose operating results are regularly reviewed by the Group’s management to make decisions about resource to be allocated to the segment and assess its performance; and — for which financial information regarding financial position, results of operations and cash flows are available. Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting, and segment accounting policies are consistent with those for the consolidated financial statements. 104 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies MOF issued “No.42 Accounting Standards for Business Enterprises – non-current assets held for sale, disposition and discontinuing operation”, revised “No.16 Accounting Standards for Business Enterprises-government grants” and Cai Kuai [2017] No. 30 “Announcement of the revision of general enterprise financial statements format.” The group has adopted the above guidelines to prepare financial statements of 2017. The impact to the group’s financial statements is presented as below: The reason of change The profits and losses of 2017 of disposing of fixed assets and intangible assets are included in the asset disposal income project. The comparative financial statements of 2016 have been adjusted accordingly. 4 TAXATION Subject Amount (RMB million) year of 2016 Asset disposal income Non-operating income Non-operating expenses 1,487 Less 258 Less 1,745 Major types of tax applicable to the Group are income tax, consumption tax, resources tax, value added tax, city construction tax, education surcharge and local education surcharge. Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below: Products Gasoline Diesel Naphtha Solvent oil Lubricant oil Fuel oil Jet fuel oil Effective from 13 January 2015 (RMB/Ton) 2,109.76 1,411.20 2,105.20 1,948.64 1,711.52 1,218.00 1,495.20 Pursuant to the ‘Circular on the Overall Promotion of Pilot Program of Levying VAT in place of Business Tax’(Cai Shui [2016] 36) jointly issued by the Ministry of Finance and the State Administration of Taxation, revenue from modern service of the subsidiaries of the Group, are subject to VAT from 1 May 2016, and the applicable tax rate is 6%. Before 1 May 2016, revenue from modern service of the subsidiaries of the Group, are subject to the business tax with a tax rate of 3% to 5%. 105 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 5 CASH AT BANK AND ON HAND The Group Cash on hand Renminbi Cash at bank Renminbi US Dollars Hong Kong Dollars Others Deposits at related parities Renminbi US Dollars EUR Others Total At 31 December 2017 At 31 December 2016 Original currency million Exchange rates 3,760 98 6.5342 0.8359 2,336 16 6.5342 7.8023 Original currency million Exchange rates 1,499 87 6.9370 0.8945 2,619 5 6.9370 7.3068 RMB million 14 92,711 24,561 82 122 117,490 32,117 15,256 126 15 47,514 165,004 RMB million 10 91,855 10,406 78 75 102,424 21,843 18,181 34 15 40,073 142,497 Deposits at related parties represent deposits placed at Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited. Deposits interest is calculated based on market rate. At 31 December 2017, time deposits with financial institutions of the Group amounted to RMB 51,786 million (2016: RMB 18,029 million). At 31 December 2017, structured deposits included in cash at bank and on hand with financial institutions of the Group amounted to RMB 65,250 million (2016: RMB 75,000 million). 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Current assets Structural deposits Total At 31 December 2017 RMB million At 31 December 2016 RMB million 51,196 51,196 — — The financial assets are the structured deposit with financial institutions and cannot be readily convertible to known amounts of cash, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period. The changes in the financial assets at fair value through profit or loss for the year ended 31 December 2017 amounted to RMB 196 million (2016:nil), which has been recorded in gain from changes in fair value. 7 BILLS RECEIVABLE Bills receivable represents mainly the bills of acceptance issued by banks for sales of goods and products. At 31 December 2017, the Group’s outstanding endorsed or discounted bills (with recourse) amounted to RMB 10,441 million (2016: RMB 7,523 million). 106 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 8 ACCOUNTS RECEIVABLE The Group The Company At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million Amounts due from subsidiaries Amounts due from Sinopec Group Company and fellow subsidiaries Amounts due from associates and joint ventures Amounts due from others Less: Allowance for doubtful accounts Total Ageing analysis on accounts receivable is as follows: — 7,941 4,962 56,203 69,106 612 68,494 — 6,398 4,580 39,994 50,972 683 50,289 30,905 1,417 2,051 3,383 37,756 147 37,609 At 31 December 2017 At 31 December 2016 The Group Percentage to total accounts receivable Allowance % RMB million 98.1 1.0 0.1 0.8 100.0 — 142 44 426 612 Amount RMB million 67,777 715 87 527 69,106 Percentage of allowance to accounts receivable balance Amount % RMB million — 19.9 50.6 80.8 49,854 464 225 429 50,972 The Company Percentage to total accounts receivable Allowance % RMB million 97.8 0.9 0.4 0.9 100.0 — 231 48 404 683 At 31 December 2017 At 31 December 2016 Percentage to total accounts receivable Allowance % RMB million Percentage of allowance to accounts receivable balance Amount % RMB million Percentage to total accounts receivable Allowance % RMB million 98.8 0.4 0.4 0.4 100.0 — 17 29 101 147 — 12.7 18.8 73.7 38,023 357 49 131 38,560 98.7 0.9 0.1 0.3 100.0 — 114 10 104 228 Amount RMB million 37,331 134 154 137 37,756 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total 33,142 1,662 2,036 1,720 38,560 228 38,332 Percentage of allowance to accounts receivable balance % — 49.8 21.3 94.2 Percentage of allowance to accounts receivable balance % — 31.9 20.4 79.4 At 31 December 2017 and 2016, the total amounts of the top five accounts receivable of the Group are set out below: Total amount (RMB million) Percentage to the total balance of accounts receivable Allowance for doubtful accounts At 31 December 2017 At 31 December 2016 17,920 25.9% — 14,967 29.4% — During the year ended 31 December 2017 and 2016, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts. During the year ended 31 December 2017 and 2016, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years. 107 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 9 OTHER RECEIVABLES The Group The Company At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million Amounts due from subsidiaries Amounts due from Sinopec Group Company and fellow subsidiaries Amounts due from associates and joint ventures Amounts due from others Less: Allowance for doubtful accounts Total Ageing analysis of other receivables is as follows: — 4,985 459 12,509 17,953 1,486 16,467 — 8,019 4,841 14,085 26,945 1,349 25,596 46,900 147 — 1,608 48,655 1,162 47,493 At 31 December 2017 At 31 December 2016 The Group Percentage to total other receivables Allowance % RMB million 84.7 2.8 2.4 10.1 100.0 — 82 44 1,360 1,486 Amount RMB million 15,191 509 433 1,820 17,953 Percentage of allowance to other receivables balance Amount % RMB million — 16.1 10.2 74.7 24,316 515 254 1,860 26,945 The Company Percentage to total other receivables Allowance % RMB million 90.2 2.0 0.9 6.9 100.0 57 32 13 1,247 1,349 At 31 December 2017 At 31 December 2016 Percentage to total other receivables Allowance % RMB million Percentage of allowance to other receivables balance Amount % RMB million Percentage to total other receivables Allowance % RMB million 49.2 26.6 5.3 18.9 100.0 — 1 2 1,159 1,162 — — 0.1 12.6 28,763 2,740 5,237 4,573 41,313 69.6 6.6 12.7 11.1 100.0 — 1 1 1,122 1,124 Amount RMB million 23,946 12,920 2,570 9,219 48,655 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total 35,370 164 3,986 1,793 41,313 1,124 40,189 Percentage of allowance to other receivables balance % 0.2 6.2 5.1 67.0 Percentage of allowance to other receivables balance % — — — 24.5 At 31 December 2017 and 2016, the total amounts of the top five other receivables of the Group are set out below: Total amount (RMB million) Ageing Percentage to the total balance of other receivables Allowance for doubtful accounts At 31 December 2017 At 31 December 2016 7,672 Within one year 42.7% — 11,226 Within one year 41.7% — During the year ended 31 December 2017 and 2016, the Group and the Company had no individually significant other receivables been fully or substantially provided allowance for doubtful accounts. During the year ended 31 December 2017 and 2016, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years. 108 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 10 PREPAYMENTS Amounts to subsidiaries Amounts to Sinopec Group Company and fellow subsidiaries Amounts to associates and joint ventures Amounts to others Less: Allowance for doubtful accounts Total Ageing analysis of prepayments is as follows: The Group The Company At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million — 126 63 4,737 4,926 25 4,901 — 206 24 3,550 3,780 31 3,749 3,766 99 — 568 4,433 4 4,429 3,043 58 — 364 3,465 11 3,454 The Group At 31 December 2017 At 31 December 2016 Percentage to total prepayments Allowance % RMB million Percentage of allowance to prepayments balance Amount % RMB million Percentage to total prepayments Allowance % RMB million Percentage of allowance to prepayments balance % 93.5 3.5 1.7 1.3 100.0 — 14 4 7 25 — 8.1 4.7 11.1 3,465 211 72 32 3,780 91.7 5.6 1.9 0.8 100.0 The Company — 12 1 18 31 — 5.7 1.4 56.3 Amount RMB million 4,605 173 85 63 4,926 At 31 December 2017 At 31 December 2016 Percentage to total prepayments Allowance % RMB million Percentage of allowance to prepayments balance Amount % RMB million Percentage to total prepayments Allowance % RMB million 95.3 2.3 0.6 1.8 100.0 — 1 — 3 4 — 1.0 — 3.8 3,306 62 13 84 3,465 95.4 1.8 0.4 2.4 100.0 — — — 11 11 Percentage of allowance to prepayments balance % — — — 13.1 Amount RMB million 4,227 101 25 80 4,433 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total At 31 December 2017 and 2016, the total amounts of the top five prepayments of the Group are set out below: Total amount (RMB million) Percentage to the total balance of prepayments At 31 December 2017 At 31 December 2016 1,472 29.9% 1,354 35.8% 109 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 11 INVENTORIES The Group Raw materials Work in progress Finished goods Spare parts and consumables Less: Provision for diminution in value of inventories Total At 31 December 2017 RMB million At 31 December 2016 RMB million 85,975 14,774 84,448 2,651 187,848 1,155 186,693 75,680 14,141 65,772 1,838 157,431 920 156,511 Provision for diminution in value of inventories is mainly against spare parts and consumables. For the year ended 31 December 2017, the provision for diminution in value of inventories of the Group was primarily due to the costs of spare parts and consumables of the refining segment and chemical segment were higher than their net realisable value. 12 AVAILABLE-FOR-SALE FINANCIAL ASSETS Equity securities, listed and at quoted market price Other investment, unlisted and at cost Less: Impairment loss for investments Total At 31 December 2017 RMB million At 31 December 2016 RMB million 178 1,544 1,722 46 1,676 262 11,175 11,437 29 11,408 Other investment, unlisted and at cost, represents the Group’s interests in privately owned enterprises which are mainly engaged in oil and natural gas activities and chemical production. The impairment losses relating to investments for the year ended 31 December 2017 amounted to 17 million (2016: nil). 110 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 13 LONG-TERM EQUITY INVESTMENTS The Group Balance at 1 January 2017 Additions for the year Share of profits less losses under the equity method Change of other comprehensive income under the equity method Other equity movement under the equity method Dividends declared Disposals for the year Reclassification Investments transferred to subsidiaries Other movements Movement of provision for impairment Balance at 31 December 2017 The Company Balance at 1 January 2017 Additions for the year Share of profits less losses under the equity method Change of other comprehensive loss under the equity method Dividends declared Disposals for the year Investments transferred to subsidiaries Movement of provision for impairment Balance at 31 December 2017 Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million 50,696 2,437 10,615 798 (6) (5,199) — (902) (6,195) 28 — 52,272 66,838 11,129 5,910 255 6 (2,755) (607) (387) — 40 — 80,429 (722) — — — — — — — — — (892) (1,614) Total RMB million 116,812 13,566 16,525 1,053 — (7,954) (607) (1,289) (6,195) 68 (892) 131,087 Investments in subsidiaries RMB million Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million Total RMB million 245,921 3,743 — — — (375) 3,722 — 253,011 15,496 434 4,804 — (2,190) — (3,722) — 14,822 14,691 183 970 (120) (145) — — — 15,579 (7,657) — — — — — — (198) (7,855) 268,451 4,360 5,774 (120) (2,335) (375) — (198) 275,557 For the year 2017, the Group and the Company had no individually significant long-term investment impairment. Details of the Company’s principal subsidiaries are set out in Note 56. 111 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC)13 LONG-TERM EQUITY INVESTMENTS (Continued) Principal joint ventures and associates of the Group are as fllows: (a) Principal joint ventures and associates Name of investees 1.Joint ventures Fujian Refining & Petrochemical Company Limited (“FREP”) Principal place of business Register location Legal representative Principal activities PRC PRC Gu Yuefeng BASF-YPC Company Limited (“BASF-YPC”) PRC PRC Wang Jingyi Taihu Limited (“Taihu”) Russia Cyprus Yanbu Aramco Sinopec Refining Company Ltd. (“YASREF”) Sinopec SABIC Tianjin Petrochemical Company Limited (“Sinopec SABIC Tianjin”) 2.Associates Sinopec Sichuan to East China Gas Pipeline Co., Ltd. (“Pipeline Ltd”) Sinopec Finance Company Limited (“Sinopec Finance”) Saudi Arabia Saudi Arabia PRC PRC NA NA UWAIDH AL- HARETHI PRC PRC Quan Kai PRC PRC Zhao Dong PAO SIBUR Holding (“SIBUR”) Russia Russia NA Zhongtian Synergetic Energy Company Limited (“Zhongtian Synergetic Energy”) PRC PRC Peng Yi Caspian Investments Resources Ltd. (“CIR”) The Republic of Kazakhstan British Virgin NA Islands Percentage of equity/voting right directly or indirectly held by the Company Registered Capital RMB million 14,758 50.00% 12,547 40.00% 25,000 USD 49.00% 1,560 million USD 9,796 37.50% 50.00% 200 50.00% 18,000 49.00% 21,784 million 10.00% RUB 17,516 38.75% 10,000 USD 50.00% Manufacturing refining oil products Manufacturing and distribution of petrochemical products Crude oil and natural gas extraction Petroleum refining and processing Manufacturing and distribution of petrochemical products Operation of natural gas pipelines and auxiliary facilities Provision of non- banking financial services Proccessing natural gas and manufacturing petrochemical products Mining coal and manufacturing of coal-chemical products Crude oil and natural gas extraction Except that SIBUR is a public joint stock company, other joint ventures and associates above are limited companies. 112 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 13 LONG-TERM EQUITY INVESTMENTS (CONTINUED) (b) Major financial information of principal joint ventures Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal joint ventures: FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities (i) Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities(ii) Other non-current liabilities Total non-current liabilities Net assets Net assets attributable to owners of the company Net assets attributable to minority interests Share of net assets from joint ventures Others (iii) Carrying Amounts Summarised income statement 5,772 11,013 16,785 19,740 (1,135) (5,049) (6,184) (13,654) (236) (13,890) 16,451 8,172 10,269 18,441 21,903 (1,781) (4,643) (6,424) (19,985) (252) (20,237) 13,683 1,800 5,335 7,135 12,075 (233) (1,982) (2,215) (955) (19) (974) 16,021 1,394 4,852 6,246 13,530 (783) (2,107) (2,890) (1,492) (10) (1,502) 15,384 16,451 13,683 16,021 15,384 — 8,226 — 8,226 — 6,842 — 6,842 — 6,409 — 6,409 — 6,154 — 6,154 2,352 2,462 4,814 7,978 (20) (1,914) (1,934) (72) (2,686) (2,758) 8,100 7,818 282 3,831 — 3,831 1,165 1,616 2,781 8,279 (334) (1,616) (1,950) (49) (2,130) (2,179) 6,931 4,916 10,816 15,732 51,553 (5,407) (11,864) (17,271) (35,619) (890) (36,509) 13,505 1,259 6,826 8,085 57,054 (1,187) (6,466) (7,653) (43,028) (1,004) (44,032) 13,454 6,524 2,709 9,233 13,248 (1,236) (4,546) (5,782) (4,101) (41) (4,142) 12,557 3,634 1,886 5,520 14,003 — (2,657) (2,657) (5,337) (32) (5,369) 11,497 6,690 13,505 13,454 12,557 11,497 241 3,278 743 4,021 — 5,064 — 5,064 — 5,045 — 5,045 — 6,279 — 6,279 — 5,749 — 5,749 Year ended 31 December FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million Turnover Interest income Interest expense Profit before taxation Tax expense Profit for the year Other comprehensive income/(loss) Total comprehensive income Dividends from joint ventures Share of net profit from joint ventures Share of other comprehensive 49,356 208 (857) 6,977 (1,699) 5,278 — 5,278 1,250 41,764 130 (929) 6,476 (1,574) 4,902 — 4,902 — 21,020 36 (71) 4,565 (1,151) 3,414 — 3,414 1,109 2,639 2,451 1,366 income/(loss) from joint ventures (iv) — — — 17,323 19 (173) 2,606 (648) 1,958 — 1,958 155 783 — 12,520 142 (142) 1,697 (553) 1,144 25 1,169 — 541 12 9,658 40 (113) 2,411 (518) 1,893 1,851 3,744 — 895 875 61,587 45 (1,382) 548 57 605 (554) 51 — 227 (208) 41,286 33 (1,216) 28 56 84 647 731 — 31 243 22,286 104 (223) 5,113 (1,279) 3,834 — 3,834 1,375 16,337 30 (245) 3,184 (783) 2,401 — 2,401 300 1,917 1,201 — — The share of profit and other comprehensive income for the year ended 31 December 2017 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 3,925 million (2016: RMB 2,061 million) and RMB 994 million (2016: other comprehensive loss RMB 934 million) respectively. As at 31 December 2017, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 21,552 million (2016: RMB 22,885 million). Note: (i) Excluding accounts payable, other payables. (ii) Excluding provisions. (iii) Other reflects the excess of fair value of the consideration transferred over the Group’s share of net fair value of the investee’s identifiable assets acquired and liabilities as of the transaction date. 113 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 13 LONG-TERM EQUITY INVESTMENTS (Continued) (c) Major financial information of principal associates Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal associates: Pipeline Ltd At 31 December 2017 RMB million At 31 December 2016 RMB million Sinopec Finance At 31 December 2017 RMB million At 31 December 2016 RMB million SIBUR (v) At 31 December 2017 RMB million Zhongtian Synergetic Energy At 31 December 2017 RMB million At 31 December 2016 RMB million CIR At 31 December 2017 RMB million At 31 December 2016 RMB million 11,317 40,972 (933) (3,176) 48,180 11,835 42,124 (5,009) (3,350) 45,600 161,187 17,782 (154,212) (6) 24,751 149,457 16,478 (142,386) (88) 23,461 20,719 158,938 (20,554) (61,771) 97,332 8,232 51,553 (10,668) (31,494) 17,623 7,292 50,301 (8,078) (32,137) 17,378 48,180 45,600 24,751 23,461 96,761 17,623 17,378 — 24,090 24,090 — 22,800 22,800 — 12,128 12,128 — 11,496 11,496 571 9,676 9,676 — 6,829 6,829 — 6,734 6,734 5,612 1,673 (908) (170) 6,207 6,207 — 3,104 3,104 5,120 3,842 (928) (883) 7,151 7,151 — 3,576 3,576 Pipeline Ltd (vi) 2017 RMB million 2016 RMB million Sinopec Finance 2017 RMB million 2016 RMB million SIBUR (v) 2017 RMB million Zhongtian Synergetic Energy 2016 RMB million 2017 RMB million CIR 2017 RMB million 2016 RMB million 5,644 2,543 — 2,543 — 1,272 — 191 51 — 51 23 26 — 3,542 1,536 (246) 1,290 — 753 (121) 2,442 1,526 (175) 1,351 — 748 (86) 52,496 9,601 (260) 9,341 221 960 (26) 3,569 123 — 123 — 48 — — — — — — — — 2,563 (610) (334) (944) — (305) (167) 2,205 (3,518) 662 (2,856) — (1,759) 331 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to owners of the Company Net assets attributable to minority interests Share of net assets from associates Carrying Amounts Summarised income statement Year ended 31 December Turnover Profit/(loss) for the year Other comprehensive (loss)/income Total comprehensive income/(loss) Dividends declared by associates Share of profit/(loss) from associates Share of other comprehensive (loss)/income from associates (iv) The share of profit and other comprehensive income for the year ended 31 December 2017 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,182 million (2016: RMB 2,869 million) and RMB 569 million (2016: other comprehensive loss RMB 384 million) respectively. As at 31 December 2017, the carrying amount of all individually immaterial associates for using equity method in aggregate was RMB 23,899 million (2016: RMB 21,510 million). Note: (iv) Including foreign currency translation differences. (v) Sinopec is able to exercise significant influence in SIBUR since Sinopec has a member in SIBUR’s Board of Director and has a member in SIBUR’s Management Board. (vi) The summarised income statement for the year 2016 of Pipeline Ltd presents the operating results from the date when the Group lost control to 31 December 2016. 114 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC)14 FIXED ASSETS The Group Cost: Balance at 1 January 2017 Additions for the year Transferred from construction in progress Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2017 Accumulated depreciation: Balance at 1 January 2017 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2017 Provision for impairment losses: Balance at 1 January 2017 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2017 Net book value: Balance at 31 December 2017 Balance at 31 December 2016 The company Cost: Balance at 1 January 2017 Additions for the year Transferred from construction in progress Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2017 Accumulated depreciation: Balance at 1 January 2017 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2017 Provision for impairment losses: Balance at 1 January 2017 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2017 Net book value: Balance at 31 December 2017 Balance at 31 December 2016 Plants and buildings RMB million Oil and gas properties RMB million Equipment, machinery and others RMB million Total RMB million 114,920 854 6,789 (673) (1,737) (140) 120,013 45,243 4,075 (122) (771) (57) 48,368 3,329 554 — (51) — 3,832 67,813 66,348 650,685 1,627 19,881 (50) (1,913) (2,573) 667,657 404,919 55,057 (77) (1,488) (1,952) 456,459 30,642 8,832 — (12) (104) 39,358 171,840 215,124 892,936 11,983 54,605 723 (19,736) (199) 940,312 463,023 46,585 199 (11,466) (95) 498,246 20,791 10,450 — (295) (1) 30,945 411,121 409,122 Plants and buildings RMB million Oil and gas properties RMB million Equipment machinery and others RMB million 540,499 982 15,609 (46) — — (1,911) 555,133 337,394 43,305 (75) — — (1,487) 379,137 26,727 7,556 — — — (12) 34,271 443,485 400 19,636 (160) 809 (503) (6,728) 456,939 255,451 21,397 23 688 (282) (5,428) 271,849 15,954 6,042 — 19 (27) (164) 21,824 47,586 46 2,260 206 58 (652) (482) 49,022 21,401 1,618 52 31 (470) (230) 22,402 1,623 361 — 16 (165) (38) 1,797 24,823 24,562 1,658,541 14,464 81,275 — (23,386) (2,912) 1,727,982 913,185 105,717 — (13,725) (2,104) 1,003,073 54,762 19,836 — (358) (105) 74,135 650,774 690,594 Total RMB million 1,031,570 1,428 37,505 — 867 (1,155) (9,121) 1,061,094 614,246 66,320 — 719 (752) (7,145) 673,388 44,304 13,959 — 35 (192) (214) 57,892 141,725 176,378 163,266 172,080 329,814 373,020 115 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 14 FIXED ASSETS (Continued) The additions to oil and gas properties of the Group and the Company for the year ended 31 December 2017 included RMB 1,627 million (2016: RMB 3,420 million) (Note 32) and RMB 982 million (2016: RMB 2,939 million), respectively of the estimated dismantlement costs for site restoration. Impairment losses on fixed assets for the year ended 31 December 2017 primarily represent impairment losses recognised in the exploration and production (“E&P”) segment of RMB 12,611 million (2016: RMB 10,594 million) on fixed assets, for the chemicals segment of RMB 4,779 million (2016: RMB 2,840 million) of fixed assets and for the refining segment of RMB 1,836 million (2016: RMB 1,245 million) of fixed assets. The primary factors resulting in the E&P segment impairment loss were downward revision of oil and gas reserve due to price change and high operating and development cost for certain oil fields.The carrying values of these E&P properties were written down to recoverable amounts which were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2016: 10.47%). Further future downward revisions to the Group’s oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss in Group’s fixed assets relating to oil and gas producing activities by approximately RMB 3,145 million. It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment in Group’s fixed assets relating to oil and gas producing activities by approximately RMB 2,659 million. It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in additional impairment loss in Group’s fixed assets relating to oil and gas producing activities by approximately RMB 461 million. The assets in the refining segment were written down due to the suspension of operations of certain production facilities, while the assets in the chemical segment were written down because of evidence indicates the economic performance of certain production facilities are worse than expected and due to the suspension of operations of certain production facilities. At 31 December 2017 and 2016, the Group and the Company had no individually significant fixed assets which were pledged. At 31 December 2017 and 2016, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal. At 31 December 2017 and 2016, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use. 15 CONSTRUCTION IN PROGRESS Cost: Balance at 1 January 2017 Additions for the year Disposals for the year Dry hole costs written off Transferred to fixed assets Reclassification to other assets Exchange adjustments Balance at 31 December 2017 Provision for impairment losses: Balance at 1 January 2017 Additions for the year Decreases for the year Balance at 31 December 2017 Net book value: Balance at 31 December 2017 Balance at 31 December 2016 At 31 December 2017, major construction projects of the Group are as follows: Project name Zhongke Refine Integration Project Guangxi LNG Project Budgeted amount RMB million 34,667 15,475 Balance at 1 January 2017 RMB million 3,274 4,903 Net change for the year RMB million 3,716 (2,538) Wen 23 gas storage project (first-stage) 13,865 124 1,205 Tianjin LNG Project 13,639 8,213 (5,059) Xinjiang coal-based substitute natural gas (SNG) export pipeline construction project (first-stage) 11,589 651 1,041 116 The Group RMB million The Company RMB million 131,274 85,552 (376) (6,876) (81,275) (7,773) (101) 120,425 1,693 252 (165) 1,780 118,645 129,581 Balance at 31 December 2017 RMB million Percentage of Completion Source of funding 6,990 2,365 1,329 3,154 1,692 20% Bank loans & self-financing 68% Bank loans & self-financing 10% Bank loans & self-financing Bank loans & self-financing 15% Bank loans & self-financing 78% 49,689 45,701 — (6,567) (37,505) (859) — 50,459 412 47 (46) 413 50,046 49,277 Accumulated interest capitalised at 31 December 2017 RMB million 25 670 1 148 — CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 16 INTANGIBLE ASSETS The Group Cost: Balance at 1 January 2017 Additions for the year Decreases for the year Balance at 31 December 2017 Accumulated amortisation: Balance at 1 January 2017 Additions for the year Decreases for the year Balance at 31 December 2017 Provision for impairment losses: Balance at 1 January 2017 Additions for the year Decreases for the year Balance at 31 December 2017 Net book value: Balance at 31 December 2017 Balance at 31 December 2016 Land use rights RMB million Patents RMB million Non-patent technology RMB million Operation rights RMB million Others RMB million Total RMB million 68,467 10,752 (3,491) 75,728 14,015 4,082 (1,119) 16,978 211 21 (8) 224 58,526 54,241 4,378 1,075 (293) 5,160 3,261 162 (255) 3,168 483 — (1) 482 1,510 634 4,134 190 (479) 3,845 2,259 515 — 2,774 24 — — 24 36,908 11,837 (132) 48,613 9,892 4,338 (24) 14,206 120 23 (4) 139 4,013 898 (249) 4,662 2,596 448 (174) 2,870 16 1 — 17 117,900 24,752 (4,644) 138,008 32,023 9,545 (1,572) 39,996 854 45 (13) 886 1,047 1,851 34,268 26,896 1,775 1,401 97,126 85,023 Amortisation of the intangible assets of the Group charged for the year ended 31 December 2017 is RMB 4,468 million (2016: RMB 4,299 million). 17 GOODWILL Goodwill is allocated to the following Group’s cash-generating units: Name of investees Principal activities Sinopec Beijing Yanshan Petrochemical Branch (“Sinopec Yanshan”) Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”) Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) (Note 53) Sinopec (Hong Kong) Limited Other units without individual significant goodwill Total Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products Trading of petrochemical products At 31 December 2017 RMB million At 31 December 2016 RMB million 1,004 1,157 4,043 2,541 879 167 8,634 4,043 — 941 212 6,353 Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 10.8% to 11.4% (2016: 10.4% to 11.0%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognised. Key assumptions used for cash flow forecasts for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management’s expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period. 18 LONG-TERM DEFERRED EXPENSES Long-term deferred expenses primarily represent prepaid rental expenses over one year and catalysts expenditures. 117 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 19 DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities before the consolidated elimination adjustments are as follows: Receivables and inventories Accruals Cash flow hedges Fixed assets Tax value of losses carried forward Available-for-sale securities Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million 381 1,925 165 14,150 2,325 117 227 180 19,470 87 391 27 11,264 2,477 — 260 133 14,639 — — (50) (9,928) — — (563) (264) (10,805) — — (242) (14,615) — — — (229) (15,086) The consolidated elimination amount between deferred tax assets and liabilities are as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows: Deferred tax assets Deferred tax liabilities At 31 December 2017 RMB million At 31 December 2016 RMB million 4,339 4,339 7,425 7,425 At 31 December 2017 RMB million At 31 December 2016 RMB million 15,131 6,466 7,214 7,661 At 31 December 2017, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 20,821 million (2016: RMB 19,194 million), of which RMB 5,938 million (2016: RMB 3,833 million) was incurred for the year ended 31 December 2017, because it was not probable that the related tax benefit will be realised. These deductible losses carried forward of RMB 2,508 million, RMB 4,462 million, RMB 4,080 million, RMB 3,833 million and RMB 5,938 million will expire in 2018, 2019, 2020, 2021, 2022 and after, respectively. Periodically, management performed assessment on the probability that future taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have sufficient future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the year ended 31 December 2017, write-down of deferred tax assets amounted to RMB 26 million (2016: RMB 811 million) (Note 50). 20 OTHER NON-CURRENT ASSETS Other non-current assets mainly represent prepayments for construction projects and purchases of equipment. 118 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 21 DETAILS OF IMPAIRMENT LOSSES At 31 December 2017, impairment losses of the Group are analysed as follows: Allowance for doubtful accounts Included: Accounts receivable Other receivables Prepayments Inventories Long-term equity investments Fixed assets Construction in progress Intangible assets Goodwill Others Total Note 8 9 10 11 13 14 15 16 17 Balance at 1 January 2017 RMB million Provision for the year RMB million Written back for the year RMB million Written off for the year RMB million Other increase/ (decrease) RMB million Balance at 31 December 2017 RMB million 683 1,349 31 2,063 920 722 54,762 1,693 854 7,663 43 68,720 49 233 2 284 436 936 19,836 252 19 198 17 21,978 (100) (74) — (174) (13) — — — — — — (187) (21) (18) — (39) (190) (2) (372) (60) (1) — — (664) 1 (4) (8) (11) 2 (42) (91) (105) 14 — (11) (244) The reasons for recognising impairment losses are set out in the respective notes of respective assets. 22 SHORT-TERM LOANS The Group’s short-term loans represent: Short-term bank loans –Renminbi loans –US Dollar loans Short-term other loans –Renminbi loans Short-term loans from Sinopec Group Company and fellow subsidiaries –Renminbi loans –US Dollar loans –HK Dollar loans –Euro loans –Singapore Dollar loans Total At 31 December 2017 At 31 December 2016 Original currency million Exchange rates 1,136 6.5342 3,010 2,277 — 4 6.5342 0.8359 7.8023 4.8831 Original currency million Exchange rates 146 6.9370 1,957 2,202 1 4 6.9370 0.8945 7.3068 4.7995 RMB million 31,105 23,685 7,420 299 299 23,297 1,706 19,668 1,903 — 20 54,701 612 1,486 25 2,123 1,155 1,614 74,135 1,780 886 7,861 49 89,603 RMB million 11,944 10,931 1,013 — — 18,430 2,858 13,577 1,969 5 21 30,374 At 31 December 2017, the Group’s interest rates on short-term loans were from interest 0.70% to 6.09% (2016: from interest 0.68% to 6.19%). The majority of the above loans are by credit. At 31 December 2017 and 2016, the Group had no significant overdue short-term loan. 23 BILLS PAYABLE Bills payable primarily represented bank accepted bills for the purchase of material, goods and products. Bills payable were due within one year. At 31 December 2017 and 2016, the Group had no overdue unpaid bills. 24 ACCOUNTS PAYABLE At 31 December 2017 and 2016, the Group had no individually significant accounts payable aged over one year. 25 ADVANCES FROM CUSTOMERS At 31 December 2017 and 2016, the Group had no individually significant advances from customers aged over one year. 119 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 26 EMPLOYEE BENEFITS PAYABLE At 31 December 2017 and 2016, the Group’s employee benefits payable primarily represented wages payable and social insurance payables. 27 TAXES PAYABLE The Group Value-added tax payable Consumption tax Income tax Mineral resources compensation fee Other taxes Total 28 OTHER PAYABLES At 31 December 2017 RMB million At 31 December 2016 RMB million 8,899 39,623 13,015 175 10,228 71,940 8,668 29,682 6,051 196 8,289 52,886 At 31 December 2017 and 2016, the Group’s other payables primarily represented payables for constructions. At 31 December 2017 and 2016, the Group had no individually significant other payables aged over three years. 29 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR The Group’s non-current liabilities due within one year represent: Long-term bank loans – Renminbi loans – US Dollar loans Long-term loans from Sinopec Group Company and fellow subsidiaries – Renminbi loans Long-term loans due within one year Debentures payable due within one year – Renminbi debentures – US Dollar debentures Others Non-current liabilities due within one year At 31 December 2017 At 31 December 2016 Original currency million Exchange rates RMB million Original currency million Exchange rates 4 6.5342 1,000 6.5342 1,379 23 1,402 2,014 2,014 3,416 16,000 6,532 22,532 733 26,681 6 6.9370 — 6.9370 RMB million 8,753 42 8,795 150 150 8,945 29,500 — 29,500 527 38,972 At 31 December 2017 and 2016, the Group had no significant overdue long-term loan. 120 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 30 LONG-TERM LOANS The Group’s long-term loans represent: Long-term bank loans – Renminbi loans – US Dollar loans Interest rate and final maturity Interest rates ranging from interest 1.08% to 4.66% per annum at 31 December 2017 with maturities through 2030 Interest rates ranging from interest 1.55% to 4.29% per annum at 31 December 2017 with maturities through 2031 Less: Current portion Long-term bank loans Long-term loans from Sinopec Group Company and fellow subsidiaries – Renminbi loans Interest rates ranging from interest free to 4.99% per annum at 31 December 2017 with maturities through 2022 Less: Current portion Long-term loans from Sinopec Group Company and fellow subsidiaries Total The maturity analysis of the Group’s long-term loans is as follows: Between one and two years Between two and five years After five years Total Long-term loans are primarily unsecured, and carried at amortised costs. At 31 December 2017 At 31 December 2016 Original currency million Exchange rates Original currency million Exchange rates RMB million 25,644 RMB million 26,058 29 6.5342 192 61 6.9370 426 (1,402) 24,434 45,334 (2,014) 43,320 67,754 (8,795) 17,689 44,922 (150) 44,772 62,461 At 31 December 2017 RMB million At 31 December 2016 RMB million 16,822 48,238 2,694 67,754 3,957 56,725 1,779 62,461 121 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 31 DEBENTURES PAYABLE The Group Short-term corporate bonds (i) Debentures payable: – Corporate Bonds (ii) Less: Current portion Total Note: At 31 December 2017 RMB million At 31 December 2016 RMB million — 6,000 53,902 (22,532) 31,370 84,485 (29,500) 54,985 (i) The company issued 182-day corporate bonds of face value RMB 6 billion to corporate investors in the PRC debenture market on 12 September 2016 at par value of RMB 100. The effective cost of the 182-day corporate bonds is 2.54% per annum. The short-term bonds were due on 14 March 2017 and have been fully paid by the Group at maturity. (ii) These corporate bonds are carried at amortised cost, including USD denominated corporate bonds of RMB 17,902 million, and RMB denominated corporate bonds of RMB 36,000 million (2016: USD denominated corporate bonds of RMB 18,985 million, and RMB denominated corporate bonds of RMB 65,500 million). At 31 December 2017, corporate bonds of RMB 17,902 million (2016: RMB 18,985 million) are guaranteed by Sinopec Group Company. 32 PROVISIONS Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has established certain standardised measures for the dismantlement of its retired oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its retired oil and gas properties. Movement of provision of the Group’s obligations for the dismantlement of its retired oil and gas properties is as follows: Balance at 1 January 2017 Provision for the year Accretion expenses Utilised for the year Exchange adjustments Balance at 31 December 2017 33 OTHER NON-CURRENT LIABILITIES Other non-current liabilities primarily represent long-term payables, special payables and deferred income. The Group RMB million 36,918 1,627 1,501 (467) (172) 39,407 122 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 34 SHARE CAPITAL The Group Registered, issued and fully paid: 95,557,771,046 domestic listed A shares (2016: 95,557,771,046) of RMB 1.00 each 25,513,438,600 overseas listed H shares (2016: 25,513,438,600) of RMB 1.00 each Total At 31 December 2017 RMB million At 31 December 2016 RMB million 95,558 25,513 121,071 95,558 25,513 121,071 The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each. Such shares were issued to Sinopec Group Company in consideration for the assets and liabilities transferred to the Company (Note 1). Pursuant to the resolutions passed at an Extraordinary General Meeting held on 25 July 2000 and approvals from relevant government authorities, the Company is authorised to increase its share capital to a maximum of 88.3 billion shares with a par value of RMB 1.00 each and offer not more than 19.5 billion shares with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group Company is authorised to offer not more than 3.5 billion shares of its shareholdings in the Company to investors outside the PRC. The shares sold by Sinopec Group Company to investors outside the PRC would be converted into H shares. In October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HKD 1.59 per H share and USD 20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong and overseas investors. As part of the global initial public offering, 1,678,049,000 state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong and overseas investors. In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural persons and institutional investors in the PRC. During the year ended 31 December 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each, as a result of exercise of 188,292 warrants entitled to the Bonds with Warrants. During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2012, the Company issued 117,724,450 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. On 14 February 2013, the Company issued 2,845,234,000 listed H shares (“the Placing”) with a par value of RMB 1.00 each at the Placing Price of HKD 8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD 24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD 23,970,100,618.00. In June 2013, the Company issued 21,011,962,225 listed A shares and 5,887,716,600 listed H shares as a result of bonus issues of 2 shares converted from the retained earnings, and 1 share transferred from capital reserves for every 10 existing shares. During the year ended 31 December 2013, the Company issued 114,076 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2014, the Company issued 1,715,081,853 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2015, the Company issued 2,790,814,006 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. All A shares and H shares rank pari passu in all material aspects. Capital management Management optimises the structure of the Group’s capital, which comprises of equity and debts and bonds. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans and bonds. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion) and debentures payable, by the total of equity attributable to owners of the Company and long-term loans (excluding current portion) and debentures payable, and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management’s strategy is to make appropriate adjustments according to the Group’s operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2017, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 12.0% (2016: 14.2%) and 46.5% (2016: 44.5%), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 30 and 57, respectively. There were no changes in the management’s approach to capital management of the Group during the year. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements. 123 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 35 CAPITAL RESERVE The movements in capital reserve of the Group are as follows: Balance at 1 January 2017 Transaction with minority interests Others Balance at 31 December 2017 RMB million 119,525 (13) 45 119,557 Capital reserve represents mainly: (a) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation; (b) share premiums derived from issuances of H shares and A shares by the Company and excess of cash paid by investors over their proportionate shares in share capital, the proportionate shares of unexercised portion of the Bond with Warrants at the expiration date, and the amount transferred from the proportionate liability component and the derivative component of the converted portion of the 2011 Convertible Bonds; (c) difference between consideration paid for the combination of entities under common control and the transactions with minority interests over the carrying amount of the net assets acquired. 36 OTHER COMPREHENSIVE INCOME The Group (a) Each item of other comprehensive income and the influence of the income tax and the process of change to profit or loss Before-tax amount RMB million 2017 Tax effect RMB million Net-of-tax amount RMB million Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year Less/(Add): Adjustments of amounts transferred to initial carrying amount of hedged items Total amounts transferred to profit or loss from other comprehensive income during the year Subtotal Changes in fair value of available-for-sale financial assets recongnised during the year Less: Total amounts transferred to profit or loss from other comprehensive income during the year Subtotal Share of other comprehensive income in associates and joint ventures Subtotal Translation difference in foreign currency statements Subtotal Other comprehensive income (1,314) 4 575 (1,893) (57) — (57) 1,053 1,053 (3,792) (3,792) (4,689) 240 (1) (72) 313 — — — — — — — 313 (1,074) 3 503 (1,580) (57) — (57) 1,053 1,053 (3,792) (3,792) (4,376) Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year (Add)/Less: Adjustments of amounts transferred to initial carrying amount of hedged items Total amounts transferred to profit or loss from other comprehensive income during the year Subtotal Changes in fair value of available-for-sale financial assets recongnised during the year Less: Total amounts transferred to profit or loss from other comprehensive income during the year Subtotal Share of other comprehensive loss in associates and joint ventures Subtotal Translation difference in foreign currency statements Subtotal Other comprehensive income Before-tax amount RMB million 2016 Tax effect RMB million Net-of-tax amount RMB million (3,813) (13) (6,279) 2,479 (17) — (17) 45 45 4,298 4,298 6,805 652 2 1,115 (465) (7) — (7) — — — — (472) (3,161) (11) (5,164) 2,014 (24) — (24) 45 45 4,298 4,298 6,333 124 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 36 OTHER COMPREHENSIVE INCOME (Continued) The Group (Continued) (b) Reconciliation of other comprehensive income The share of other comprehensive income which being reclassified to profit and loss in the future under equity method RMB Million (6,557) 2,396 (4,161) 680 (3,481) 31 December 2015 Changes in 2016 31 December 2016 Changes in 2017 31 December 2017 37 SPECIFIC RESERVE Equity Attributable to shareholders of the company Minority interests Total other comprehensive income Changes in fair value of available-for-sale financial assets RMB Million 114 (17) 97 (40) 57 Cash flow hedges RMB Million (838) 1,970 1,132 (1,642) (510) Translation difference in foreign currency statements RMB Million (703) 2,703 2,000 (2,479) (479) Subtotal RMB Million (7,984) 7,052 (932) (3,481) (4,413) RMB Million RMB Million (1,169) (719) (1,888) (895) (2,783) (9,153) 6,333 (2,820) (4,376) (7,196) According to relevant PRC regulations, the Group is required to transfer an amount to specific reserve for the safety production fund based on the turnover of certain refining and chemicals products or based on the production volume of crude oil and natural gas. The movements of specific reserve are as follows: Balance at 1 January 2017 Provision for the year Utilisation for the year Balance at 31 December 2017 38 SURPLUS RESERVES Movements in surplus reserves are as follows: Balance at 1 January 2017 Appropriation Balance at 31 December 2017 The Group RMB million 765 3,280 (3,157) 888 Statutory surplus reserve RMB million The Group Discretionary surplus reserves RMB million 79,640 3,042 82,682 117,000 — 117,000 Total RMB million 196,640 3,042 199,682 The PRC Company Law and Articles of Association of the Company have set out the following profit appropriation plans: (a) 10% of the net profit is transferred to the statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is needed; (b) After the transfer to the statutory surplus reserve, a transfer to discretionary surplus reserve can be made upon the passing of a resolution at the shareholders’ meeting. 125 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 39 OPERATING INCOME AND OPERATING COSTS Income from principal operations Income from other operations Total Operating costs The Group 2017 RMB million 2,300,470 59,723 2,360,193 1,890,398 2016 RMB million 1,880,190 50,721 1,930,911 1,492,165 The Company 2017 RMB million 2016 RMB million 824,100 33,378 857,478 633,114 696,211 29,967 726,178 513,514 The income from principal operations mainly represents revenue from sales of crude oil, natural gas,refined petroleum products and chemical products. The income from other operations mainly represents revenue from sale of materials, service, rental income and others. Operating costs primarily represent the products cost related to the principal operations. The Group’s segmental information is set out in Note 59. 40 TAXES AND SURCHARGES The Group Consumption tax City construction tax Education surcharge Resources tax Other taxes Total The applicable tax rate of the taxes and surcharges are set out in Note 4. 41 FINANCIAL EXPENSES The Group Interest expenses incurred Less: Capitalised interest expenses Net interest expenses Accretion expenses (Note 32) Interest income Net foreign exchange (gain)/loss Total 2017 RMB million 2016 RMB million 192,907 18,274 13,811 4,841 5,459 235,292 193,836 18,155 13,695 3,871 2,449 232,006 2017 RMB million 2016 RMB million 6,368 723 5,645 1,501 (5,254) (332) 1,560 9,021 859 8,162 1,057 (3,218) 610 6,611 The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2017 by the Group ranged from 2.37% to 4.41% (2016: 2.65% to 4.82%). 42 CLASSIFICATION OF EXPENSES BY NATURE The operation costs, selling and distribution expenses, general and administrative expenses and exploration expenses (including dry holes) in consolidated income statement classified by nature are as follows: Purchased crude oil, products and operating supplies and expenses Personnel expenses Depreciation, depletion and amortization Exploration expenses (including dry holes) Other expenses Total 43 EXPLORATION EXPENSES Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs. 2017 RMB million 2016 RMB million 1,770,651 74,854 115,310 11,089 64,566 2,036,470 1,379,691 63,887 108,425 11,035 63,867 1,626,905 126 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 44 IMPAIRMENT LOSSES The Group Receivables (Note 8,9,10) Inventories (Note 11) Long-term equity investment (Note 13) Fixed assets (Note 14) Construction in Progress (Note 15) Intangible assets (Note 16) Others Total 45 GAIN FROM CHANGES IN FAIR VALUE The Group Changes in fair value of financial assets and financial liabilities at fair value through loss, net Unrealised gains from ineffective portion cash flow hedges, net Others Total 46 INVESTMENT INCOME 2017 RMB million 2016 RMB million 110 423 936 19,836 252 19 215 21,791 231 420 1 14,921 1,486 11 6 17,076 2017 RMB million 2016 RMB million (157) 103 41 (13) (160) 11 (67) (216) Income from investment of subsidiaries accounted for under cost method Income from investment accounted for under equity method Investment (loss)/income from disposal of long-term equity investments Investment income from holding/disposal of available-for-sale financial assets Investment income from holding/disposal of financial assets and liabilities and derivative financial instruments at fair value through profit or loss (Losses)/gains from ineffective portion of cash flow hedge Investment income on loss of control and remeasuring interests in the Pipeline Ltd (Note 13(vi)) Gain on remeasurement of interests in Shanghai SECCO (Note53) Others Total The Group 2017 RMB million 2016 RMB million The Company 2017 RMB million 2016 RMB million — 16,525 (26) 199 (752) (916) — 3,941 89 19,060 — 9,306 11 173 355 293 20,562 — 79 30,779 31,118 5,774 17,769 3,749 (21) 13 — (88) — — 1,262 38,058 (6) 4 — (135) 20,562 — 1,576 43,519 47 OTHER INCOME Other income are mainly the government grants related to the business activities. 48 NON-OPERATING INCOME The Group Government grants Others Total 2017 RMB million 2016 RMB million 427 890 1,317 3,987 719 4,706 127 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 49 NON-OPERATING EXPENSES The Group Fines, penalties and compensation Donations Others Total 50 INCOME TAX EXPENSE The Group Provision for income tax for the year Deferred taxation Under-provision for income tax in respect of preceding year Total Reconciliation between actual income tax expense and accounting profit at applicable tax rates is as follows: Profit before taxation Expected income tax expense at a tax rate of 25% Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of preferential tax rate (i) Effect of income taxes at foreign operations (ii) Tax effect of utilisation of previously unrecognised tax losses and temporary differences Tax effect of tax losses not recognised Write-down of deferred tax assets Adjustment for under provision for income tax in respect of preceding years Actual income tax expense Note: 2017 RMB million 2016 RMB million 89 152 1,468 1,709 152 133 1,933 2,218 2017 RMB million 2016 RMB million 26,668 (10,317) (72) 16,279 21,313 (834) 228 20,707 2017 RMB million 2016 RMB million 86,573 21,643 1,936 (5,939) (793) (1,394) (613) 1,485 26 (72) 16,279 79,877 19,969 1,569 (2,757) 83 299 (453) 958 811 228 20,707 (i) The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in western regions in the PRC are taxed at preferential income tax rate of 15% through the year 2020. (ii) It is mainly due to the foreign operation in the Republic of Angola (“Angola”) calculated the assessable income in accordance with the relevant income tax rules and regulations of Angola, and taxed at 50% of the assessable income as determined. 51 DIVIDENDS (a) Dividends of ordinary shares declared after the balance sheet date Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 23 March 2018, the directors authorised to declare the final dividends during the year ended 31 December 2017 of RMB 0.40 per share totaling RMB 48,428 million. Dividends declared after the balance sheet date are not recognised as a liability at the balance sheet date. (b) Dividends of ordinary shares declared during the year Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 25 August 2017, the directors authorised to declare the interim dividends for the year ended 31 December 2017 of RMB 0.10 per share totaling RMB 12,107 million. Pursuant to the shareholders’ approval at the Annual General Meeting on 28 June 2017, a final dividend of RMB 0.17 per share totaling RMB 20,582 million of the year ended 31 December 2016 was declared. Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 26 August 2016, the directors authorised to declare the interim dividends for the year ended 31 December 2016 of RMB 0.079 per share totaling RMB 9,565 million. Pursuant to the shareholders’ approval at the Annual General Meeting on 18 May 2016, a final dividend of RMB 0.06 per share totaling RMB 7,264 million of the year ended 31 December 2015 was declared. 128 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 52 SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT The Group (a) Reconciliation of net profit to cash flows from operating activities: Net profit Add: Impairment losses on assets Depreciation of fixed assets Amortisation of intangible assets and long-term deferred expenses Dry hole costs written off Net loss on disposal of non-current assets Fair value loss Financial expenses Investment income (Increase)/decrease in deferred tax assets Decrease in deferred tax liabilities Increase in inventories Safety fund reserve Increase in operating receivables Increase in operating payables Net cash flow from operating activities (b) Net change in cash: Cash balance at the end of the year Less: Cash at the beginning of the year Net (decrease)/increase of cash (c) The analysis of cash held by the Group is as follows: Cash at bank and on hand – Cash on hand – Demand deposits Cash at the end of the year 2017 RMB million 2016 RMB million 70,294 21,791 106,149 9,161 6,876 1,518 13 676 (19,060) (4,707) (5,610) (28,903) 126 (31,151) 63,762 190,935 59,170 17,076 99,592 8,833 7,467 1,528 216 4,336 (30,779) 1,719 (2,553) (11,364) 160 (22,549) 81,691 214,543 2017 RMB million 2016 RMB million 113,218 124,468 (11,250) 124,468 68,933 55,535 2017 RMB million 2016 RMB million 14 113,204 113,218 10 124,458 124,468 129 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 53 BUSINESS COMBAINATION (a) Business combination involving entities not under common control Business combination under different control in this year On 26 October 2017, a subsidiary of the Company, Gaoqiao Petrochemical Co., Ltd., purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited with a cash consideration of RMB 10,135 million (“the Transaction”). Before the Transaction, the Company and one of its subsidiaries held 30% and 20% equity interest in Shanghai SECCO, respectively. After the Transaction, the Company, together with its subsidiaries, hold 100% equity interest of Shanghai SECCO, which became a subsidiary of the Company. Shanghai SECCO is principally engaged in the production and sale of petrochemical products including acrylonitrile, polystyrene, polyethylene, etc. Acquiree Shanghai SECCO Time of acquisition 26/10/2017 Cost of acquisition RMB 10,135 million Share of acquired equity 50% Acquisition method Acquisition date Cash 26/10/2017 Details of combination cost and goodwill are as follows: Net profits of the acquiree from the acquisition date to end of year Operating cash flow of the acquiree from the acquisition date to end of year Net cash flow of the acquiree from the acquisition date to end of year RMB 726 million RMB 1,639 million RMB 7,205 million Income of the acquiree from the acquisition date to end of year RMB 5,222 million Basis of determination on the acquisition date Acquirer gaining actual control over acquiree Purchase consideration – Cash consideration for the purchase of 50% equity interest acquired – Acquisition-date fair value of the 50% equity interest held before the acquisition Total purchase consideration Less: Net assets acquired Goodwill (Note 17) Details of the net assets acquired are as follows: Cash and cash equivalents Bills receivable Accounts and other receivables Inventories Prepayments Other current assets Total current assets Fixed assets Construction in progress Intangible assets Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets Total assets Accounts and other payables Bills payable Advances from customers Employee benefits payable Taxes payable Total current liabilities Deferred tax liabilities Net assets acquired Shanghai SECCO RMB million 10,135 10,135 20,270 17,729 2,541 Fair value at the Acquisition Date Book value at the Acquisition Date Book value At December 31 2016 5,653 641 558 1,702 1,349 761 10,664 9,587 231 2,937 117 11 — 12,883 23,547 (2,115) — (383) (96) (1,438) (4,032) (1,786) 17,729 5,653 641 558 1,558 1,349 791 10,550 4,860 229 662 117 12 7 5,887 16,437 (2,115) — (383) (96) (1,438) (4,032) — 12,405 2,343 621 251 1,643 354 386 5,598 5,665 117 613 168 19 — 6,582 12,180 (936) (35) (376) (99) (538) (1,984) — 10,196 The goodwill is attributable to the high profitability of the acquired business and synergy to be achieved post the Transaction among Shanghai SECCO and the Group’s existing petrochemical operations located in eastern China. As of Acquisition Date, a gain of RMB 3,941 million was recognised as a result of remeasuring the 50% equity interest held before the Transaction to its fair value, which is included in investment income (Note 46) in the Group’s consolidated income statement for the year ended 31 December 2017. 130 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 53 BUSINESS COMBAINATION (Continued) (b) Business combination involving entities under common control Pursuant to the resolution passed at the Directors’ meeting on 29 October 2015, the Company entered into the JV Agreement with Sinopec Assets Management Corporation (“SAMC”) in relation to the formation of the Gaoqiao Petrochemical Co., Ltd. According to the JV Agreement, the Company and SAMC jointly set up Gaoqiao Petrochemical Co., Ltd. for RMB 100 million in cash in 2016. Subsequently, the Company subscribed capital contribution with the net assets of Gaoqiao Branch of the Company and SAMC subscribed capital contribution with the net assets of Gaoqiao Branch of SAMC. The capital contribution was completed on 1 June 2016, after which the Company held 55% of Gaoqiao Petrochemical Co., Ltd.’s voting rights and became the parent company of Gaoqiao Petrochemical Co., Ltd. As Sinopec Group Company controls both the Group and SAMC, the non–cash transaction described above between Sinopec and SAMC has been accounted as business combination under common. Accordingly, the assets and liabilities of Gaoqiao Branch of SAMC have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Gaoqiao Branch of SAMC on a combined basis. 54 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (1) Related parties having the ability to exercise control over the Group The name of the company Unified social credit identifier Registered address Principal activities Relationship with the Group Types of legal entity Authorised representative Registered capital : : : : : : : : China Petrochemical Corporation 9111000010169286X1 No. 22, Chaoyangmen North Street, Chaoyang District, Beijing Exploration, production, storage and transportation (including pipeline transportation), sales and utilisation of crude oil and natural gas; refining; wholesale and retail of gasoline, kerosene and diesel; production, sales, storage and transportation of petrochemical and other chemical products; industrial investment and investment management; exploration, construction, installation and maintenance of petroleum and petrochemical constructions and equipments; manufacturing electrical equipment; research, development, application and consulting services of information technology and alternative energy products; import & export of goods and technology. Ultimate holding company State-owned Wang Yupu RMB 274,867 million Sinopec Group Company is an enterprise controlled by the PRC government. Sinopec Group Company directly and indirectly holds 71.32% shareholding of the Company. (2) Related parties not having the ability to exercise control over the Group Related parties under common control of a parent company with the Company: Sinopec Finance (Note) Sinopec Shengli Petroleum Administration Bureau Sinopec Zhongyuan Petroleum Exploration Bureau Sinopec Assets Management Corporation Sinopec Engineering Incorporation Sinopec Century Bright Capital Investment Limited Sinopec Petroleum Storage and Reserve Limited Associates of the Group: Pipeline Ltd Sinopec Finance SIBUR Zhongtian Synergetic Energy CIR Joint ventures of the Group: FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin Note: Sinopec Finance is under common control of a parent company with the Company and is also the associate of the Group. 131 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 54 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (3) The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business, are as follows: Sales of goods Purchases Transportation and storage Exploration and development services Production related services Ancillary and social services Operating lease charges for land Operating lease charges for buildings Other operating lease charges Agency commission income Interest income Interest expense Net deposits placed with related parties Net loans obtained from/(repaid to) related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (ix) (x) (ix) (xi) The Group 2017 RMB million 2016 RMB million 244,211 165,993 7,716 21,210 20,824 6,653 8,015 510 626 127 807 554 (7,441) 5,279 194,179 118,242 1,333 27,201 10,816 6,584 10,474 449 456 129 209 996 (21,770) (24,877) The amounts set out in the table above in respect of the year ended 31 December 2017 and 2016 represent the relevant costs and income as determined by the corresponding contracts with the related parties. Included in the transactions disclosed above, for the year ended 31 December 2017 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 128,350 million (2016: RMB 114,526 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 112,619 million (2016: RMB 96,023 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 6,652 million (2016: RMB 6,584 million), operating lease charges for land and buildings paid by the Group of RMB 8,015 million and 510 million (2016: RMB 10,474 million and RMB 449 million), respectively and interest expenses of RMB 554 million (2016: RMB 996 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 60,045 million (2016: RMB 56,251 million), comprising RMB 59,213 million (2016: RMB 56,010 million) for sales of goods, RMB 807 million (2016: RMB 209 million) for interest income and RMB 25 million (2016: RMB 32 million) for agency commission income. As at 31 December 2017 and 2016, there was no guarantee given to banks by the Group in respect of banking facilities to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, except for the disclosure set out in Note 58(b). Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 58(b). Note: (i) Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials. (ii) Purchases represent the purchase of material and utility supplies directly related to the Group’s operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas. (iii) Transportation and storage represents the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities. (iv) Exploration and development services comprise direct costs incurred in the exploration and development such as geophysical, drilling, well testing and well measurement services. (v) Production related services represent ancillary services rendered in relation to the Group’s operations such as equipment repair and general maintenance, insurance premium, technical research, communications, firefighting, security, product quality testing and analysis, information technology, design and engineering, construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management and environmental protection. (vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, property maintenance and management services. (vii) Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment. (viii) Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company. (ix) Interest income represents interest received from deposits placed with Sinopec Finance and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. (x) Interest expense represents interest charges on the loans and advances obtained from Sinopec Group Company and fellow subsidiaries. (xi) The Group obtained or repaid loans from or to Sinopec Group Company and fellow subsidiaries. 132 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 54 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (3) The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business, are as follows: (Continued) In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the year ended 31 December 2017. The terms of these agreements are summarised as follows: (a) The Company has entered into a non-exclusive “Agreement for Mutual Provision of Products and Ancillary Services” (“Mutual Provision Agreement”) with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months’ notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows: ‧ the government-prescribed price; ‧ where there is no government-prescribed price, the government-guidance price; ‧ where there is neither a government-prescribed price nor a government-guidance price, the market price; or ‧ where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%. (b) The Company has entered into a non-exclusive “Agreement for Provision of Cultural and Educational, Health Care and Community Services” with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as agreed to in the above Mutual Provision Agreement. (c) The Company has entered into a number of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party. (d) The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company. (e) The Company has entered into a service station franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group. 133 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 54 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (4) Balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures The balances with the Group’s related parties at 31 December 2017 and 2016 are as follows: Cash and cash equivalents Accounts receivable Other receivables Prepayments and other current assets Other non-current assets Accounts payable Advances from customers Other payables Other non-current liabilities Short-term loans Long-term loans (including current portion) (Note) The ultimate holding company Other related companies At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million — 19 33 — — 43 12 104 — — — — 25 33 — — 3 13 178 — — — 47,514 12,884 5,411 189 20,726 22,806 2,763 18,111 10,165 23,297 45,334 40,073 10,953 12,827 570 20,385 19,416 1,969 19,430 9,998 18,430 44,922 Note: The long-term borrowings mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from the Sinopec Group Company through the Sinopec Finance. This borrowing is a special arrangement to reduce financing costs and improve liquidity of the Company during its initial global offering in 2000. Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 22 and Note 30. As at and for the year ended 31 December 2017 and 2016, no individually significant impairment losses for bad and doubtful debts were recorded in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures. (5) Key management personnel emoluments Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensations are as follows: Short-term employee benefits Retirement scheme contributions Total 2017 RMB thousand 2016 RMB thousand 5,344 424 5,768 5,648 499 6,147 134 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 55 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change. The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The significant accounting policies are set forth in Note 3. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements. (a) Oil and gas properties and reserves The accounting for the exploration and production segment’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. The Group has used the successful efforts method to account for oil and gas business activities. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Engineering estimates of the Group’s oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”. Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property’s carrying amount. Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in the similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs. Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment expense and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves. (b) Impairment for assets If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognised in accordance with “ASBE 8 – Impairment of Assets”. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows. It is difficult to precisely estimate the fair value because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value of expected future cash flows, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to sales volume, selling price, amount of operating costs and discount rate. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volume, selling price, amount of operating costs and discount rate. (c) Depreciation Fixed assets are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting year. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future years is adjusted if there are significant changes from previous estimates. (d) Allowances for doubtful accounts Management estimates impairment losses for bad and doubtful debts resulting from the inability of the Group’s customers to make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write- off experience. If the financial condition of the customers were to deteriorate, actual write-offs would be higher than estimated. (e) Allowance for diminution in value of inventories If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories would be higher than estimated. 135 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 56 PRINCIPAL SUBSIDIARIES The Company’s principal subsidiaries have been consolidated into the Group’s financial statements for the year ended 31 December 2017. The following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group: Full name of enterprise Principal activities Registered capital/paid- up capital million Actual investment at 31 December 2017 million (a) Subsidiaries acquired through group restructuring: China Petrochemical International Company Limited China International United Petroleum and Chemical Company Limited Sinopec Catalyst Company Limited Sinopec Yangzi Petrochemical Company Limited Sinopec Pipeline Storage & Transportation Company Limited Sinopec Lubricant Company Limited Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Marketing Company Limited (“Marketing Company”) Sinopec Kantons Holdings Limited (“Sinopec Kantons”) Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) (b) Subsidiaries established by the Group: Trading of petrochemical products Trading of crude oil and petrochemical products RMB 1,400 RMB 3,000 RMB 1,856 RMB 4,585 Production and sale of catalyst products Manufacturing of intermediate petrochemical products and petroleum products Pipeline storage and transportation of crude oil Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials Production and sale of polyester chips and polyester fibres Marketing and distribution of refined petroleum products Trading of crude oil and petroleum products Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical products and petroleum products RMB 1,500 RMB 13,203 RMB 1,562 RMB 15,651 RMB 12,000 RMB 12,000 100.00 RMB 3,374 RMB 3,374 100.00 RMB 4,000 RMB 6,713 100.00 RMB 28,403 RMB 20,000 HKD 248 RMB 10,814 HKD 3,952 RMB 5,820 70.42 60.34 50.49 Percentage of equity interest/ voting right held by the Group % 100.00 100.00 100.00 100.00 Minority Interests at 31 December 2017 RMB million 27 4,072 225 — — 56 — 63,006 3,788 14,275 RMB 6,898 RMB 3,737 50.00 4,930 Sinopec International Petroleum Exploration and Production Limited (“SIPL”) Sinopec Overseas Investment Holding Limited (“SOIH”) Sinopec Chemical Sales Company Limited Sinopec Great Wall Energy & Chemical Company Limited Sinopec Beihai Refining and Chemical Limited Liability Company Sinopec Qingdao Refining and Chemical Company Limited Sinopec-SK(Wuhan) Petrochemical Company Limited (“Zhonghan Wuhan”) Investment in exploration, production and sale of petroleum and natural gas Investment holding Marketing and distribution of petrochemical products Coal chemical industry investment management, production and sale of coal chemical products Import and processing of crude oil, production, storage and sale of petroleum products and petrochemical products Manufacturing of intermediate petrochemical products and petroleum products Production, sale, research and development of ethylene and downstream byproducts RMB 8,000 RMB 8,000 100.00 15,215 USD 1,638 RMB 1,000 RMB 22,761 USD 1,638 RMB 1,165 RMB 22,759 100.00 100.00 100.00 RMB 5,294 RMB 5,240 98.98 RMB 5,000 RMB 4,250 RMB 6,270 RMB 4,076 85.00 65.00 54 68 49 98 1,527 3,941 (c) Subsidiaries acquired through business combination under common control: Sinopec Hainan Refining and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited Gaoqiao Petrochemical Company Limited (Note 53) Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products (d) Subsidiaries acquired through business combination not under common control: RMB 3,986 RMB 2,990 75.00 2,153 RMB 1,595 RMB 7,233 100.00 — RMB 10,000 RMB 4,804 55.00 5,400 Sinopec Zhanjiang Dongxing Petrochemical Company Limited Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) (Note 53) Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products RMB 4,397 RMB 3,225 RMB 7,801 RMB 7,801 75.00 67.60 1,297 5,989 * The minority interests of subsidiaries which the Group holds 100% of equity interests at the end of the year are the minority interests of their subsidiaries. Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong, respectively, all of the above principal subsidiaries are incorporated and operate their businesses principally in the PRC. Note: (i) The Group consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those return through its power over the entity. 136 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 56 PRINCIPAL SUBSIDIARIES (Continued) Summarised financial information on subsidiaries with material minority interests Set out below are the summarised financial information which the amount before inter-company eliminations for each subsidiary that has minority interests that are material to the Group. Summarised consolidated balance sheet Marketing Company At 31 December 2017 RMB million At 31 December 2016 RMB million 156,494 (212,620) 121,260 (168,366) (56,126) 253,455 (1,774) 215,681 (47,106) 246,514 (1,460) 245,054 SIPL Shanghai Petrochemical Fujian Petrochemical At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million Sinopec Kantons At 31 December 2017 RMB million At 31 December 2016 RMB million 19,555 (7,118) 12,437 34,769 (28,523) 6,246 18,116 (824) 17,292 40,067 (39,322) 745 19,866 (10,922) 8,944 19,743 (146) 19,597 14,876 (8,942) 5,934 19,248 (150) 19,098 992 (376) 616 9,925 (681) 9,244 926 (812) 114 7,845 (721) 7,124 1,196 (2,351) (1,155) 13,089 (2,430) 10,659 1,352 (2,891) (1,539) 13,228 (3,101) 10,127 Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets Summarised consolidated statement of comprehensive income and cash flow Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 4,016 (4,604) 92,014 6,152 77,894 5,969 (2,481) 6,152 5,988 6,068 2,757 2,757 4,968 2,513 2,513 2017 RMB million 1,221,530 27,517 2016 RMB million 1,050,294 26,461 26,983 27,385 9,033 9,544 9,028 4,932 6,136 1,075 396 (38) — Turnover Profit/(loss) for the year Total comprehensive income/(loss) Comprehensive income/ (loss) attributable to minority interests Dividends paid to minority interests Net cash generated from/ (used in) operating activities Note: (3,279) — 3,081 1,344 7,078 2,966 563 7,211 1,378 1,256 625 (558) — 617 51,038 50,840 2,758 2,576 Sinopec Kantons 2017 RMB million 2016 RMB million 1,498 1,046 1,146 433 70 968 1,512 860 879 349 51 505 Shanghai SECCO At 31 December 2017 RMB million 11,602 (4,174) 7,428 12,797 (1,740) 11,057 Shanghai SECCO(ii) 2017 RMB million 5,222 726 726 235 — Zhonghan Wuhan At 31 December 2017 RMB million At 31 December 2016 RMB million 1,636 (3,975) (2,339) 13,598 — 13,598 1,489 (7,521) (6,032) 14,686 — 14,686 Zhonghan Wuhan 2017 RMB million 2016 RMB million 16,139 2,733 11,703 1,558 2,733 1,558 957 — 545 — 1,639 2,976 3,636 (ii) The summarised consolidated statement of comprehensive income and cash flow of Shanghai SECCO presents the results from the acquisition date to 31 December 2017. 137 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 57 COMMITMENTS Operating lease commitments The Group lease land and buildings, service stations and other equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contains escalation provisions that may require higher future rental payments. At 31 December 2017 and 2016, the future minimum lease payments of the Group under operating leases are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years Total Capital commitments At 31 December 2017 and 2016, the capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for Total At 31 December 2017 RMB million At 31 December 2016 RMB million 11,114 11,492 10,730 10,552 10,428 202,806 257,122 14,917 14,228 13,966 13,217 12,980 275,570 344,878 At 31 December 2017 RMB million At 31 December 2016 RMB million 120,386 57,997 178,383 116,379 31,720 148,099 These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects, the construction of service stations and oil depots and investment commitments. Note: (i) The investment commitments of the Group is RMB 3,364 million (2016: RMB 4,173 million). Commitments to joint ventures Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices. Exploration and production licenses Exploration licenses for exploration activities are registered with the Ministry of Land and Resources. The maximum term of the Group’s exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Land and Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of the production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group’s production license is renewable upon application by the Group 30 days prior to expiration. The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Land and Resources annually and recognised in profit and loss. Payments incurred were approximately RMB 308 million for the year ended 31 December 2017 (2016: RMB 333 million). Estimated future annual payments of the Group are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years Total At 31 December 2017 RMB million At 31 December 2016 RMB million 205 83 32 28 28 882 1,258 263 123 25 24 25 867 1,327 The implementation of commitments in previous year and the Group’s commitments did not have material discrepancy. 138 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 58 CONTINGENT LIABILITIES (a) The Company has been advised by its PRC lawyers that, except for liabilities constituting or arising out of or relating to the business assumed by the Company in the Reorganisation, no other liabilities were assumed by the Company, and the Company is not jointly and severally liable for other debts and obligations incurred by Sinopec Group Company prior to the Reorganisation. (b) At 31 December 2017 and 2016, guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures Associates (i) Others Total At 31 December 2017 RMB million At 31 December 2016 RMB million 940 13,520 9,732 24,192 658 11,545 10,669 22,872 (i) The group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. As at 31 December 2017, the amount withdrawn by Zhongtian Synergetic Energy from banks and guaranteed by the group was RMB 13,520 million. The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2017 and 2016, it was not probable that the Group will be required to make payments under the guarantees. Thus no liabilities have been accrued for a loss related to the Group’s obligation under these guarantee arrangements. Environmental contingencies Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect the Group’s ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. The Group paid normal routine pollutant discharge fees of approximately RMB 7,851 million for the year ended 31 December 2017 (2016: RMB 6,358 million). Legal contingencies The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group. 59 SEGMENT REPORTING Segment information is presented in respect of the Group’s operating segments. The format is based on the Group’s management and internal reporting structure. In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments. (i) Exploration and production — which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers. (ii) Refining — which processes and purifies crude oil, which is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers. (iii) Marketing and distribution — which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks. (iv) Chemicals — which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products to external customers. (v) Corporate and others — which largely comprise the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries. The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed separately because they manufacture and/ or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics. 139 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 59 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities The Group’s chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating profit basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group’s policy. Assets and liabilities dedicated to a particular segment’s operations are included in that segment’s total assets and liabilities. Segment assets include all tangible and intangible assets, except for cash at bank and on hand, long-term equity investments, deferred tax assets and other unallocated assets. Segment liabilities exclude short-term loans, short-term debentures payable, non-current liabilities due within one year, long- term loans, debentures payable, deferred tax liabilities, other non-current liabilities and other unallocated liabilities. Reportable information on the Group’s operating segments is as follows: 2017 RMB million 2016 RMB million 69,168 77,804 146,972 132,478 874,271 1,006,749 1,191,902 3,962 1,195,864 373,814 49,615 423,429 533,108 440,303 973,411 (1,445,955) 2,300,470 10,533 5,104 28,333 14,314 1,439 59,723 2,360,193 47,443 58,954 106,397 102,983 747,317 850,300 1,027,373 3,480 1,030,853 284,289 38,614 322,903 418,102 320,367 738,469 (1,168,732) 1,880,190 9,542 5,486 22,004 12,211 1,478 50,721 1,930,911 Income from principal operations Exploration and production External sales Inter-segment sales Refining External sales Inter-segment sales Marketing and distribution External sales Inter-segment sales Chemicals External sales Inter-segment sales Corporate and others External sales Inter-segment sales Elimination of inter-segment sales Consolidated income from principal operations Income from other operations Exploration and production Refining Marketing and distribution Chemicals Corporate and others Consolidated income from other operations Consolidated operating income 140 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 59 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Operating (loss)/profit By segment Exploration and production Refining Marketing and distribution Chemicals Corporate and others Elimination Total segment operating profit Investment income Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment investment income Financial expenses Loss from changes in fair value Asset disposal income Other income Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation Assets Segment assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment assets Cash at bank and on hand Long-term equity investments Deferred tax assets Other unallocated assets Total assets Liabilities Segment liabilities Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment liabilities Short-term loans Non-current liabilities due within one year Long-term loans Debentures payable Deferred tax liabilities Other non-current liabilities Other unallocated liabilities Total liabilities 2017 RMB million 2016 RMB million (47,399) 64,047 32,011 22,796 (3,160) (1,655) 66,640 1,401 1,017 2,951 13,648 43 19,060 (1,560) (13) (1,518) 4,356 86,965 1,317 1,709 86,573 (58,531) 55,808 32,385 20,769 2,912 1,581 54,924 19,248 1,071 2,928 5,815 1,717 30,779 (6,611) (216) (1,487) — 77,389 4,706 2,218 79,877 At 31 December 2017 RMB million At 31 December 2016 RMB million 343,404 273,123 309,727 158,472 170,045 1,254,771 165,004 131,087 15,131 29,511 1,595,504 99,367 101,429 163,680 35,207 117,756 517,439 54,701 26,681 67,754 31,370 6,466 16,440 20,583 741,434 402,476 260,903 292,328 144,371 95,263 1,195,341 142,497 116,812 7,214 36,745 1,498,609 95,883 82,170 132,922 31,989 97,078 440,042 30,374 38,972 62,461 54,985 7,661 16,136 15,453 666,084 141 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 59 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Capital expenditure Exploration and production Refining Marketing and distribution Chemicals Corporate and others Depreciation, depletion and amortisation Exploration and production Refining Marketing and distribution Chemicals Corporate and others Impairment losses on long-lived assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others 2017 RMB million 2016 RMB million 31,344 21,075 21,539 23,028 2,398 99,384 66,843 18,408 15,463 12,873 1,723 115,310 13,556 1,894 675 4,922 211 21,258 32,187 14,347 18,493 8,849 2,580 76,456 61,929 17,209 14,540 12,654 2,093 108,425 11,605 1,655 267 2,898 — 16,425 (2) Geographical information The following tables set out information about the geographical information of the Group’s external sales and the Group’s non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets. 2017 RMB million 2016 RMB million 1,758,365 269,349 332,479 2,360,193 1,488,117 152,068 290,726 1,930,911 At 31 December 2017 RMB million At 31 December 2016 RMB million 979,329 48,572 1,027,901 1,000,209 45,887 1,046,096 External sales Mainland China Singapore Others Non-current assets Mainland China Others 142 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 60 FINANCIAL INSTRUMENTS Overview Financial assets of the Group include cash at bank, financial assets at fair value through profit and loss, equity investments other than long-term equity investment, accounts receivable, bills receivable, available-for-sale financial assets, derivative financial instruments and other receivables. Financial liabilities of the Group include short-term and long-term loans, accounts payable, bills payable, debentures payable, employee benefits payable, derivative financial instruments and other payables. The Group has exposure to the following risks from its uses of financial instruments: ‧ credit risk; ‧ liquidity risk; ‧ market risk; The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework, and developing and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group’s audit committee. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s deposits placed with financial institutions (including structured deposit) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institution in the PRC with acceptable credit ratings. The majority of the Group’s accounts receivable relates to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2017, except for the amounts due from Sinopec Group Company and fellow subsidiaries. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management’s expectations. The carrying amounts of cash at bank, trade accounts and bills receivables, derivative financial instruments, financial assets at fair value through profit or loss and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets. Liquidity risk Liquidity risk is the risk that the Group encounters short fall of capital when meeting its obligation of financial liabilities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed capital conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group prepares monthly cash flow budget to ensure that they will always have sufficient liquidity to meet its financial obligation as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the liquidity risk. At 31 December 2017, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 361,852 million (2016: RMB 256,375 million) on an unsecured basis, at a weighted average interest rate of 3.40% (2016: 3.57%). At 31 December 2017, the Group’s outstanding borrowings under these facilities were RMB 56,567 million (2016: RMB 36,933 million) and were included in loans. 143 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 60 FINANCIAL INSTRUMENTS (Continued) Liquidity risk (Continued) The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the balance sheet date) and the earliest date the Group would be required to repay: Short-term loans Non-current liabilities due within one year Long-term loans Debentures payable Bills payable Accounts payable Dividends payable Other payables and employee benefits payable Total Short-term loans Non-current liabilities due within one year Short-term debentures payable Long-term loans Debentures payable Bills payable Accounts payable Dividends payable Other payables and employee benefits payable Total At 31 December 2017 Total contractual undiscounted cash flow RMB million Within one year or on demand RMB million More than one year but less than two years RMB million More than two years but less than five years RMB million Carrying amount RMB million More than five years RMB million 54,701 26,681 67,754 31,370 6,462 200,073 6,843 92,012 485,896 55,451 27,261 70,613 39,122 6,462 200,073 6,843 92,012 497,837 55,451 27,261 1,003 1,250 6,462 200,073 6,843 92,012 390,355 — — 17,666 1,250 — — — — 18,916 — — 49,038 22,285 — — — — 71,323 — — 2,906 14,337 — — — — 17,243 At 31 December 2016 Total contractual undiscounted cash flow RMB million Within one year or on demand RMB million More than one year but less than two years RMB million More than two years but less than five years RMB million Carrying amount RMB million More than five years RMB million 30,374 38,972 6,000 62,461 54,985 5,828 174,301 2,006 79,248 454,175 30,708 39,934 6,030 64,566 65,503 5,828 174,301 2,006 79,248 468,124 30,708 39,934 6,030 900 1,932 5,828 174,301 2,006 79,248 340,887 — — — 4,652 24,717 — — — — 29,369 — — — 57,262 16,069 — — — — 73,331 — — — 1,752 22,785 — — — — 24,537 Management believes that the Group’s current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group’s short-term and long-term capital requirements. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. (a) 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 denominated in US Dollars and the Group enters into foreign exchange contracts to manage currency risk exposure. Included in short-term and long-term debts are the following amounts denominated in a currency other than the functional currency of the entity to which they relate: The Group Gross exposure arising from loans and borrowings US Dollars At 31 December 2017 million At 31 December 2016 million USD 204 USD 126 A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2017 and 2016 would have increased/ decreased net profit for the year 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 2016. 144 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 60 FINANCIAL INSTRUMENTS (Continued) Market risk (Continued) (a) Currency risk (Continued) The Group US Dollars At 31 December 2017 million At 31 December 2016 million 50 33 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 of the Group. (b) Interest rate risk The Group’s interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable interest rates and at fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed in Note 22 and Note 30, respectively. At 31 December 2017, 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 net profit for the year by approximately RMB 450 million (2016: decrease/increase RMB 327 million). This sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and the change was applied to the Group’s loans outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2016. (c) 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, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity futures and swaps, to manage a portion of such risk. At 31 December 2017, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. At 31 December 2017, the net fair value of such derivative hedging financial instruments is derivative financial assets of RMB 515 million (2016: RMB 312 million) recognised in other receivables and derivative financial liabilities of RMB 2,624 million (2016: RMB 4,336 million) recognised in other payables. At 31 December 2017, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments which would decrease/increase the Group’s profit for the year by approximately RMB 4,049 million (2016: decrease/increase RMB 634 million), and decrease/increase the Group’s other comprehensive income by approximately RMB 701 million (2016: decrease/increase RMB 4,007 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 2016. 145 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 60 FINANCIAL INSTRUMENTS (Continued) Fair values (i) Financial instruments carried at fair value The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy. With the fair value of each financial instrument categorised in its entirely based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows: ‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments. ‧ Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data. ‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data. At 31 December 2017 The Group Assets Financial assets at fair value through profit and loss – Structural deposits Available-for-sale financial assets: – Listed Derivative financial instruments: – Derivative financial assets Liabilities Derivative financial instruments: – Derivative financial liabilities At 31 December 2016 The Group Assets Available-for-sale financial assets: – Listed Derivative financial instruments: – Derivative financial assets Liabilities Derivative financial instruments: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million — 178 343 521 — — 183 183 1,277 1,277 1,388 1,388 51,196 51,196 — — 51,196 — — 178 526 51,900 2,665 2,665 Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million 262 29 291 2,586 2,586 — 733 733 1,886 1,886 — — — — — 262 762 1,024 4,472 4,472 During the years ended 31 December 2017 and 2016, there was no transfer among instruments in Level 1, Level 2, Level 3. Management of the uses discounted cash flow model with inputted interest rate and commodity index, which were influenced by historical fluctuation and the probability of market fluctuation, to evaluate the fair value of the structural deposits classified as Level 3 financial assets. 146 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 60 FINANCIAL INSTRUMENTS (Continued) Fair values (Continued) (ii) Fair values of financial instruments carried at other than fair value The fair values of the Group’s financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 1.79% to 4.90% (2016: 1.06% to 4.90%). The following table presents the carrying amount and fair value of the Group’s long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2017 and 2016: Carrying amount Fair value At 31 December 2017 RMB million At 31 December 2016 RMB million 79,738 78,040 110,969 109,308 The Group has not developed an internal valuation model necessary to make the estimate of the fair value of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair value because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation of the Group, its existing capital structure and the terms of the borrowings. Other unquoted equity investments are individually and in the aggregate not material to the Group’s financial position or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. The Group intends to hold these unquoted equity investments for long term purpose. Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2017 and 2016. 61 EXTRAORDINARY GAINS AND LOSSES Pursuant to “Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public- Extraordinary Gain and Loss” (2008), the extraordinary gains and losses of the Group are as follows: Extraordinary (gains)/losses for the year: Net loss on disposal of non-current assets Donations Government grants Gain on holding and disposal of various investments Investment income on loss of control and remeasuring interests in the Pipeline Ltd (Note 13(vi)) Gain on remeasurement of interests in the Shanghai SECCO (Note 53(a)) Other non-operating loss, net Net gains of combination under common control from 1 January 2017 to the consolidation date Tax effect Total Attributable to: Equity shareholders of the Company Minority interests 2017 RMB million 2016 RMB million 1,518 152 (4,783) (148) — (3,941) 690 — (6,512) 976 (5,536) (5,537) 1 1,489 133 (3,987) (518) (20,562) — 1,367 (86) (22,164) 5,578 (16,586) (16,703) 117 147 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) 62 BASIC AND DILUTED EARNINGS PER SHARE (i) Basic earnings per share Basic earnings per share is calculated by the net profit attributable to equity shareholders of the Company and the weighted average number of outstanding ordinary shares of the Company: Net profit attributable to equity shareholders of the Company (RMB million) Weighted average number of outstanding ordinary shares of the Company (million) Basic earnings per share (RMB/share) The calculation of the weighted average number of ordinary shares is as follows: Weighted average number of outstanding ordinary shares of the Company at 1 January (million) Weighted average number of outstanding ordinary shares of the Company at 31 December (million) 2017 51,119 121,071 0.422 2017 121,071 121,071 2016 46,416 121,071 0.383 2016 121,071 121,071 (ii) Diluted earnings per share Diluted earnings per share is calculated by the net profit attributable to equity shareholders of the Company (diluted) and the weighted average number of ordinary shares of the Company (diluted): Net profit attributable to equity shareholders of the Company (diluted) (RMB million) Weighted average number of outstanding ordinary shares of the Company (diluted) (million) Diluted earnings per share (RMB/share) The calculation of the weighted average number of ordinary shares (diluted) is as follows: Weighted average number of the ordinary shares issued at 31 December (million) Weighted average number of the ordinary shares issued at 31 December (diluted) (million) 63 RETURN ON NET ASSETS AND EARNINGS PER SHARE 2017 51,117 121,071 0.422 2017 121,071 121,071 2016 46,413 121,071 0.383 2016 121,071 121,071 In accordance with “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No.9 – Calculation and Disclosure of the Return on Net Assets and Earnings Per Share” (2010 revised) issued by the CSRC and relevant accounting standards, the Group’s return on net assets and earnings per share are calculated as follows: Net profit attributable to the Company’s ordinary equity shareholders Net profit deducted extraordinary gains and losses attributable to the Company’s ordinary equity shareholders 2017 2016 Weighted average return on net assets (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) Weighted average return on net assets (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) 7.14 0.422 0.422 6.68 0.383 0.383 6.37 0.376 0.376 4.33 0.245 0.245 148 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (PRC) Independent Auditor’s Report To the Shareholders of China Petroleum & Chemical Corporation (incorporated in the People’s Republic of China with limited liability) OPINION What we have audited The consolidated financial statements of China Petroleum & Chemical Corporation (the “Company”) and its subsidiaries (the “Group”) set out on pages 152 to 205, which comprise: • • • • • • the consolidated balance sheet as at 31 December 2017; the consolidated income statement for the year then ended; the consolidated statement of comprehensive income for the year then ended; the consolidated statement of changes in equity for the year then ended; the consolidated statement of cash flows for the year then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. Our opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standard Board and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. BASIS FOR OPINION We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 149 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITORThe key audit matter identified in our audit is “Recoverability of the carrying amount of property, plant and equipment related to oil and gas producing activities”. Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of property, plant and equipment related to oil and gas producing activities Refer to note 8 “OTHER OPERATING (EXPENSE)/INCOME, NET”, note 16 “PROPERTY, PLANT AND EQUIPMENT”, and note 41 “ACCOUNTING ESTIMATES AND JUDGEMENTS” to the consolidated financial statements. Low crude oil prices gave rise to possible indication that the carrying amount of property, plant and equipment related to oil and gas producing activities as at 31 December 2017 might be impaired. The Group has adopted values in use as the respective recoverable amounts of property, plant and equipment related to oil and gas producing activities, which involved key estimations or assumptions including: – Future crude oil prices; – Future production profiles; – Future cost profiles; and – Discount rates. Because of the significance of the carrying amount of property, plant and equipment related to oil and gas producing activities as at 31 December 2017, together with the use of significant estimations or assumptions in determining their respective values in use, we had placed our audit emphasis on this matter. In auditing the respective values in use calculations of property, plant and equipment related to oil and gas producing activities, we have performed the following key procedures on the relevant discounted cash flow projections prepared by management: ‧ Evaluated and tested the key controls, relating to the preparation of the discounted cash flow projections of property, plant and equipment related to oil and gas producing activities. ‧ Compared estimates of future crude oil prices adopted by the Group against a range of reputable published crude oil price forecasts. ‧ Compared the future production profiles against the oil and gas reserve estimation report approved by the management. Evaluated the competence, capability and objectivity of the management’s experts engaged in estimating the oil and gas reserves. Assessed key estimations or assumptions used in the reserve estimation, by reference to historical data, management plans and/or reputable external data. ‧ Compared the future cost profiles against historical costs or relevant budgets of the Group. ‧ Independently estimated a range of discount rates, and found that the discount rates adopted by management were within the range. ‧ Tested selected other key data inputs, such as natural gas prices and production profiles in the projections by reference to historical data and/or relevant budgets of the Group. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of, the discounted cash flow projections. ‧ Evaluated the sensitivity analyses prepared by the Group, and assessed the potential impacts of a range of possible outcomes. Based on our work, we found the key assumptions and input data adopted were supported by the evidence we gathered and consistent with our expectations. OTHER INFORMATION The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. 150 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED)AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is HON CHONG HENG. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 23 March 2018 151 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED)Turnover and other operating revenues Turnover Other operating revenues Operating expenses Purchased crude oil, products and operating supplies and expenses Selling, general and administrative expenses Depreciation, depletion and amortisation Exploration expenses, including dry holes Personnel expenses Taxes other than income tax Other operating (expense)/income, net Total operating expenses Operating profit Finance costs Interest expense Interest income Foreign currency exchange gains/(losses), net Net finance costs Investment income Share of profits less losses from associates and joint ventures Profit before taxation Tax expense Profit for the year Attributable to: Shareholders of the Company Non-controlling interests Profit for the year Earnings per share: Basic Diluted Note Year ended 31 December 2017 RMB 2016 RMB 3 4 5 6 7 8 9 19, 20 10 15 2,300,470 59,723 2,360,193 (1,770,651) (64,973) (115,310) (11,089) (74,854) (235,292) (16,554) (2,288,723) 71,470 (7,146) 5,254 332 (1,560) 262 16,525 86,697 (16,279) 70,418 51,244 19,174 70,418 0.423 0.423 1,880,190 50,721 1,930,911 (1,379,691) (64,360) (108,425) (11,035) (63,887) (232,006) 5,686 (1,853,718) 77,193 (9,219) 3,218 (610) (6,611) 263 9,306 80,151 (20,707) 59,444 46,672 12,772 59,444 0.385 0.385 The notes on pages 159 to 205 form part of these consolidated financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in Note 13. 152 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2017 (Amounts in million, except per share data) Profit for the year Other comprehensive income: Items that may be reclassified subsequently to profit or loss (net of tax and after reclassification adjustments): Cash flow hedges Available-for-sale securities Share of other comprehensive income of associates and joint ventures Foreign currency translation differences Total items that may be reclassified subsequently to profit or loss Total other comprehensive income Total comprehensive income for the year Attributable to: Shareholders of the Company Non-controlling interests Total comprehensive income for the year Note Year ended 31 December 14 2017 RMB 70,418 (1,580) (57) 1,053 (3,792) (4,376) (4,376) 66,042 47,763 18,279 66,042 2016 RMB 59,444 2,014 (24) 45 4,298 6,333 6,333 65,777 53,724 12,053 65,777 The notes on pages 159 to 205 form part of these consolidated financial statements. 153 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2017(Amounts in million)Financial Statements (International) Note 31 December 2017 RMB 31 December 2016 RMB 16 17 18 19 20 21 28 22 23 24 25 25 26 27 29 29 30 30 31 29 29 28 32 33 650,774 118,645 8,634 79,726 51,361 1,676 15,131 58,526 81,982 1,066,455 113,218 51,786 51,196 68,494 16,207 186,693 41,455 529,049 55,338 25,311 200,073 6,462 279,247 13,015 579,446 50,397 1,016,058 55,804 43,320 6,466 39,958 17,620 163,168 852,890 121,071 605,049 726,120 126,770 852,890 690,594 129,581 6,353 66,116 50,696 11,408 7,214 54,241 70,145 1,086,348 124,468 18,029 — 50,289 13,197 156,511 49,767 412,261 56,239 18,580 174,301 5,828 224,544 6,051 485,543 73,282 1,013,066 72,674 44,772 7,661 39,298 17,426 181,831 831,235 121,071 589,923 710,994 120,241 831,235 Non–current assets Property, plant and equipment, net Construction in progress Goodwill Interest in associates Interest in joint ventures Available-for-sale financial assets Deferred tax assets Lease prepayments Long-term prepayments and other assets Total non-current assets Current assets Cash and cash equivalents Time deposits with financial institutions Financial assets at fair value through profit or loss Trade accounts receivable Bills receivable Inventories Prepaid expenses and other current assets Total current assets Current liabilities Short-term debts Loans from Sinopec Group Company and fellow subsidiaries Trade accounts payable Bills payable Accrued expenses and other payables Income tax payable Total current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Deferred tax liabilities Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity attributable to shareholders of the Company Non-controlling interests Total equity Approved and authorised for issue by the board of directors on 23 March 2018. Dai Houliang Vice Chairman, President Wang Dehua Chief Financial Officer The notes on pages 159 to 205 form part of these consolidated financial statements. 154 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CONSOLIDATED BALANCE SHEETAs at 31 December 2017(Amounts in million)Financial Statements (International) Balance at 1 January 2016 Profit for the year Other comprehensive income (Note 14) Total comprehensive income for the year Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2015 (Note 13) Interim dividend for 2016 (Note 13) Appropriation (Note (a)) Distributions to non–controlling interests Profit distribution to SAMC (Note 35) Distribution to SAMC in the Acquisition of Gaoqiao Branch of SAMC (Note 35) Total contributions by and distributions to owners Changes in ownership interests in subsidiaries that do not result in a loss of control: Transaction with non-controlling interests Total changes in ownership interests in subsidiaries that do not result in a loss of control Total transactions with owners Others Balance at 31 December 2016 Share capital RMB 121,071 — — — — — — — — — — — — — — 121,071 Capital reserve RMB 28,341 — — — — — — — — (2,137) (2,137) (30) (30) (2,167) 116 26,290 Share premium RMB 55,850 — — — Statutory surplus reserve RMB Discretionary surplus reserve RMB 79,640 — — — 117,000 — — — Other reserves RMB (6,781) — 7,052 7,052 — — — — — — — — — — — — — — — — — — — — — — — — — — — 55,850 — — — 79,640 — — — 117,000 — — — — — — — — — — 153 424 Total equity attributable to shareholders of the Company RMB 676,197 46,672 7,052 53,724 (7,264) (9,565) — — (47) Retained earnings RMB 281,076 46,672 — 46,672 (7,264) (9,565) — — (47) — (16,876) (2,137) (19,013) Non- controlling interests RMB 111,964 12,772 (719) 12,053 — — — (6,146) (39) 2,137 (4,048) Total equity RMB 788,161 59,444 6,333 65,777 (7,264) (9,565) — (6,146) (86) — (23,061) — (30) 263 233 — (16,876) (153) 310,719 (30) (19,043) 116 710,994 263 (3,785) 9 120,241 233 (22,828) 125 831,235 The notes on pages 159 to 205 form part of these consolidated financial statements. 155 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2017(Amounts in million) Balance at 1 January 2017 Profit for the year Other comprehensive income (Note 14) Total comprehensive income for the year Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2016 (Note 13) Interim dividend for 2017 (Note 13) Appropriation (Note (a)) Distributions to non-controlling interests Total contributions by and distributions to owners Changes in ownership interests in subsidiaries that do not result in a loss of control: Transaction with non-controlling interests Total changes in ownership interests in subsidiaries that do not result in a loss of control Total transactions with owners Others Balance at 31 December 2017 Note: Share capital RMB 121,071 — — — Capital reserve RMB 26,290 — — — Share premium RMB 55,850 — — — — — — — — — — — — 121,071 — — — — — (13) (13) (13) 49 26,326 — — — — — — — — — 55,850 Statutory surplus reserve RMB Discretionary surplus reserve RMB 117,000 — — — — — — — — — 79,640 — — — — — 3,042 — 3,042 — — 3,042 — 82,682 Total equity attributable to shareholders of the Company RMB 710,994 51,244 (3,481) 47,763 Non- controlling interests RMB 120,241 19,174 (895) 18,279 (20,582) (12,107) — — (32,689) — — — (12,501) (12,501) Retained earnings RMB 310,719 51,244 — 51,244 (20,582) (12,107) (3,042) — (35,731) Total equity RMB 831,235 70,418 (4,376) 66,042 (20,582) (12,107) — (12,501) (45,190) — (13) 724 711 Other reserves RMB 424 — (3,481) (3,481) — — — — — — — — — 117,000 — — 123 (2,934) — (35,731) (107) 326,125 (13) (32,702) 65 726,120 724 (11,777) 27 126,770 711 (44,479) 92 852,890 (a) According to the PRC Company Law and the Articles of Association of the Company, the Company is required to transfer 10% of its net profit determined in accordance with the accounting policies complying with Accounting Standards for Business Enterprises (“ASBE”), adopted by the Group to statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is required. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by issuing of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. During the year ended 31 December 2017, the Company transferred RMB 3,042 million (2016:nil) to the statutory surplus reserve, being 10% of the current year’s net profit determined in accordance with the accounting policies complying with ASBE to this reserve. (b) The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve. (c) As at 31 December 2017, the amount of retained earnings available for distribution was RMB 177,049 million (2016: RMB 182,440 million), being the amount determined in accordance with ASBE. According to the Articles of Association of the Company, the amount of retained earnings available for distribution to shareholders of the Company is lower of the amount determined in accordance with the accounting policies complying with ASBE and the amount determined in accordance with the accounting policies complying with International Financial Reporting Standards (“IFRS”). (d) The capital reserve represents (i) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation (Note1); and (ii) the difference between the considerations paid over or received the amount of the net assets of entities and related operations acquired from or sold to Sinopec Group Company and non–controlling interests. (e) The application of the share premium account is governed by Sections 167 and 168 of the PRC Company Law. The notes on pages 159 to 205 form part of these consolidated financial statements. 156 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)for the year ended 31 December 2017(Amounts in million) Net cash generated from operating activities Investing activities Capital expenditure Exploratory wells expenditure Purchase of investments, investments in associates and investments in joint ventures Payment for acquisition of subsidiary, net of cash acquired Proceeds from disposal of investments and investments in associates Proceeds from disposal of property, plant, equipment and other non-current assets Increase in time deposits with maturities over three months Decrease in time deposits with maturities over three months Interest received Investment and dividend income received Net cash used in investing activities Financing activities Proceeds from bank and other loans Repayments of bank and other loans Contributions to subsidiaries from non–controlling interests Dividends paid by the Company Distributions by subsidiaries to non–controlling interests Interest paid Finance lease payment Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign currency exchange rate changes Cash and cash equivalents at 31 December Note Year ended 31 December 2017 RMB 2016 RMB (a) 190,935 214,543 (63,541) (7,407) (57,627) (1,288) 4,809 1,313 (82,577) 48,820 3,669 8,506 (145,323) 524,843 (536,380) 946 (32,689) (7,539) (5,535) (155) (56,509) (10,897) 124,468 (353) 113,218 (65,467) (7,380) (16,389) — 33,516 440 (17,896) 600 2,331 4,028 (66,217) 506,097 (569,091) 343 (16,876) (6,553) (6,967) — (93,047) 55,279 68,933 256 124,468 The notes on pages 159 to 205 form part of these consolidated financial statements. 157 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2017(Amounts in million) (a) Reconciliation from profit before taxation to net cash generated from operating activities Operating activities Profit before taxation Adjustments for: Depreciation, depletion and amortisation Dry hole costs written off Share of profits from associates and joint ventures Investment income Gain on dilution and remeasurement of interests in the Pipeline Ltd Gain on remeasurement of interests in the Shanghai SECCO (Note 35) Interest income Interest expense (Gain)/loss on foreign currency exchange rate changes and derivative financial instruments Loss on disposal of property, plant, equipment and other non-currents assets, net Impairment losses on assets Net charges from: Accounts receivable and other current assets Inventories Accounts payable and other current liabilities Income tax paid Net cash generated from operating activities Year ended 31 December 2017 RMB 2016 RMB 86,697 80,151 115,310 6,876 (16,525) (262) — (3,941) (5,254) 7,146 (1,547) 1,518 21,791 211,809 (31,151) (28,903) 59,210 210,965 (20,030) 190,935 108,425 7,467 (9,306) (263) (20,562) — (3,218) 9,219 86 1,528 17,076 190,603 (22,549) (11,364) 81,089 237,779 (23,236) 214,543 The notes on pages 159 to 205 form part of these consolidated financial statements. 158 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Financial Statements (International)NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2017(Amounts in million) 1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION Principal activities China Petroleum & Chemical Corporation (the “Company”) is an energy and chemical company that, through its subsidiaries (hereinafter collectively referred to as the “Group”), engages in oil and gas and chemical operations in the People’s Republic of China (the “PRC”). Oil and gas operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil and natural gas by pipelines; refining crude oil into finished petroleum products; and marketing crude oil, natural gas and refined petroleum products. Chemical operations include the manufacture and marketing of a wide range of chemicals for industrial uses. Organisation The Company was established in the PRC on 25 February 2000 as a joint stock limited company as part of the reorganisation (the “Reorganisation”) of China Petrochemical Corporation (“Sinopec Group Company”), the ultimate holding company of the Group and a ministry–level enterprise under the direct supervision of the State Council of the PRC. Prior to the incorporation of the Company, the oil and gas and chemical operations of the Group were carried on by oil administration bureaux, petrochemical and refining production enterprises and sales and marketing companies of Sinopec Group Company. As part of the Reorganisation, certain of Sinopec Group Company’s core oil and gas and chemical operations and businesses together with the related assets and liabilities were transferred to the Company. On 25 February 2000, in consideration for Sinopec Group Company transferring such oil and gas and chemical operations and businesses and the related assets and liabilities to the Company, the Company issued 68.8 billion domestic state–owned ordinary shares with a par value of RMB 1.00 each to Sinopec Group Company. The shares issued to Sinopec Group Company on 25 February 2000 represented the entire registered and issued share capital of the Company on that date. The oil and gas and chemical operations and businesses transferred to the Company were related to (i) the exploration, development and production of crude oil and natural gas, (ii) the refining, transportation, storage and marketing of crude oil and petroleum products, and (iii) the production and sales of chemicals. Basis of preparation The accompanying consolidated financial statements have been prepared in accordance with all applicable IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations (“IFRIC”). These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group are set out in Note 2. (a) New and amended standards and interpretations adopted by the Group The following relevant IFRS, amendments to exisiting IFRS and interpretation of IFRS have been published and are mandatory for the year beginning on 1 January 2017 and have been adopted by the Group in current accounting period: Amendments to IAS 7, ‘Statement of cash flows’, the IASB has issued an amendment to IAS 7 introducing an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. Amendments to IAS 7 are effective for annual periods beginning on 1 January 2017. Amendments to IAS 12, ‘Income taxes’, the IASB has issued amendments to IAS 12, ‘Income taxes’. These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. Amendments to IAS 12 are effective for annual periods beginning on 1 January 2017. There have been no significant changes to the accounting policies applied in these financial statements for the periods presented as a result of these developments. The Group has not early adopted any new standard or interpretation that is not yet effective for the current accounting period. 159 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2017Financial Statements (International)1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION (Continued) Basis of preparation (Continued) (b) New and amended standards and interpretations not yet adopted by the Group The following relevant IFRS, amendments to existing IFRS and interpretation of IFRS have been published and are mandatory for accounting periods beginning on or after 1 January 2018 or later periods and have not been early adopted by the Group. Management is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application and has so far concluded that, except for IFRS 16, the adoption of these amendments, new standards and new interpretations is unlikely to have a significant impact on the Group’s results of operations and financial position. IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the whole of IAS 39. IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses model, which constitutes a change from the incurred loss model in IAS 39. IFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges of interest rate risk. The new guidance better aligns hedge accounting with the risk management activities of an entity and provides relief from the more “rule-based” approach of IAS 39. IFRS 9 is effective for annual periods beginning on 1 January 2018. Earlier application is permitted. IFRS 15, ‘Revenue from contracts with customers’, establishes a comprehensive framework for determining when to recognise revenue and how much revenue to recognise through a 5-step approach. IFRS 15 provides specific guidance on capitalisation of contract cost and licence arrangements. It also includes a cohesive set of disclosure requirements about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The core principle is that a company should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. IFRS 15 replaces the previous revenue standards: IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’ and the related Interpretations on revenue recognition: IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 18 ‘Transfers of Assets from Customers’ and SIC-31 ‘Revenue–Barter Transactions Involving Advertising Services’. IFRS 15 is effective for annual reporting periods beginning on 1 January 2018. Earlier application is permitted. IFRS 16, ‘Leases’, provides updated guidance on the definition of leases, and the guidance on the combination and separation of contracts. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. IFRS 16 requires lessees to recognise lease liability reflecting future lease payments and a ‘right–of–use–asset’ for almost all lease contracts, with an exemption for certain short–term leases and leases of low–value assets. The lessors accounting stays almost the same as under IAS 17 ‘Leases’. IFRS 16 is effective for annual reporting periods beginning on 1 January 2019. Earlier application is permitted if IFRS 15 is also applied. Amendments to IFRS 10 and IAS 28 on sale or contribution of assets between an investor and its associate or joint venture. The amendments address an inconsistency between IFRS 10 and IAS 28 in the sale and contribution of assets between an investor and its associate or joint venture. A full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. The amendments were originally intended to be effective for annual periods beginning on or after 1 January 2016. The effective date has now been deferred/removed. Early application of the amendments continues to be permitted. The accompanying consolidated financial statements are prepared on the historical cost basis except for the remeasurement of available–for–sale securities (Note 2(k)), securities held for trading (Note 2(k)) and derivative financial instruments (Note 2(l) and (n)) to their fair values. The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Key assumptions and estimation made by management in the application of IFRS that have significant effect on the consolidated financial statements and the major sources of estimation uncertainty are disclosed in Note 41. 160 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International)2 SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation The consolidated financial statements comprise the Company and its subsidiaries, and interest in associates and joint ventures. (i) Subsidiaries and non–controlling interests Subsidiaries are those entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Non–controlling interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated balance sheet and consolidated statement of changes in equity within equity, separately from equity attributable to the shareholders of the Company. Non– controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non– controlling interests and the shareholders of the Company. Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non–controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. If a business combination involving entities not under common control is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in the consolidated income statement. When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 2(a) (ii)). In the Company’s balance sheet, investments in subsidiaries are stated at cost less impairment losses (Note 2(o)). The particulars of the Group’s principal subsidiaries are set out in Note 39. (ii) Associates and joint ventures An associate is an entity, not being a subsidiary, in which the Group exercises significant influence over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in associates and joint ventures are accounted for in the consolidated and separate financial statements using the equity method from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (Note 2(j) and (o)). The Group’s share of the post–acquisition, post–tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post–acquisition, post–tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income. When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate (see Note 2(a) (ii)). (iii) Transactions eliminated on consolidation Inter–company balances and transactions and any unrealised gains arising from inter–company transactions are eliminated on consolidation. Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 161 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (a) Basis of consolidation (Continued) (iv) Merger accounting for common control combination The consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognised as consideration for goodwill or excess of acquirers’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest. The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination. The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter. A uniform set of accounting policies is adopted by those entities. All intra–group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation. Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses, etc., incurred in relation to the common control combination that is to be accounted for by using merger accounting is recognised as an expense in the period in which it is incurred. (b) Translation of foreign currencies The presentation currency of the Group is Renminbi. Foreign currency transactions during the year are translated into Renminbi at the applicable rates of exchange quoted by the People’s Bank of China (‘‘PBOC’’) prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into Renminbi at the PBOC’s rates at the balance sheet date. Exchange differences, other than those capitalised as construction in progress, are recognised as income or expense in the “finance costs” section of the consolidated income statement. The results of foreign operations are translated into Renminbi at the applicable rates quoted by the PBOC prevailing on the transaction dates. Balance sheet items, including goodwill arising on consolidation of foreign operations are translated into Renminbi at the closing foreign exchange rates at the balance sheet date. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or an exchange rate that approximents the spot exchange rates on the transaction dates. The resulting exchange differences are recognised in other comprehensive income and accumulated in equity in the other reserves. On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to the consolidated income statement when the profit or loss on disposal is recognised. (c) Cash and cash equivalents Cash equivalents consist of time deposits with financial institutions with an initial term of less than three months when purchased. Cash equivalents are stated at cost, which approximates fair value. (d) Trade, bills and other receivables Trade, bills and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(o)). Trade, bills and other receivables are derecognised if the Group’s contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets. (e) Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes the cost of purchase computed using the weighted average method and, in the case of work in progress and finished goods, direct labour and an appropriate proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. 162 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (f) Property, plant and equipment An item of property, plant and equipment is initially recorded at cost, less accumulated depreciation and impairment losses (Note 2(o)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, when it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other expenditure is recognised as an expense in the consolidated income statement in the year in which it is incurred. Gains or losses arising from the retirement or disposal of an item of property, plant and equipment, other than oil and gas properties, are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised as income or expense in the consolidated income statement on the date of retirement or disposal. Depreciation is provided to write off the cost amount of items of property, plant and equipment, other than oil and gas properties, over its estimated useful life on a straight–line basis, after taking into account its estimated residual value, as follows: Buildings Equipment, machinery and others Estimated usage period Estimated residuals rate 12 to 50 years 4 to 30 years 3% 3% Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reassessed annually. (g) Oil and gas properties The Group uses the successful efforts method of accounting for its oil and gas producing activities. Under this method, costs of development wells, the related supporting equipment and proved mineral interests in properties are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. The impairment of exploratory well costs occurs upon the determination that the well has not found proved reserves. The exploratory well costs are usually not carried as an asset for more than one year following completion of drilling, unless (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made; (ii) drilling of the additional exploratory wells is under way or firmly planned for the near future; or (iii) other activities are being undertaken to sufficiently progress the assessing of the reserves and the economic and operating viability of the project. All other exploration costs, including geological and geophysical costs, other dry hole costs and annual lease rentals, are expensed as incurred. Capitalised costs of proved oil and gas properties are amortised on a unit–of–production method based on volumes produced and reserves. Management estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices and the future cash flows are adjusted to reflect such risks specific to the liability, as appropriate. These estimated future dismantlement costs are discounted at pre–tax risk–free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties. (h) Lease prepayments Lease prepayments represent land use rights paid to the relevant government authorities. Land use rights are carried at cost less accumulated amount charged to expense and impairment losses (Note 2(o)). The cost of lease prepayments is charged to expense on a straight–line basis over the respective periods of the rights. (i) Construction in progress Construction in progress represents buildings, oil and gas properties, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (Note 2(o)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the periods of construction. Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress. 163 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Goodwill Goodwill represents amounts arising on acquisition of subsidiaries, associates or joint ventures. Goodwill represents the difference between the cost of acquisition and the fair value of the net identifiable assets acquired. Prior to 1 January 2008, the acquisition of the non–controlling interests of a consolidated subsidiary was accounted for using the acquisition method whereby the difference between the cost of acquisition and the fair value of the net identifiable assets acquired (on a proportionate share) was recognised as goodwill. From 1 January 2008, any difference between the amount by which the non–controlling interest is adjusted (such as through an acquisition of the non–controlling interests) and the cash or other considerations paid is recognised in equity. Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash–generating unit, or groups of cash–generating units, that is expected to benefit the synergies of the combination and is tested annually for impairment (Note 2(o)). In respect of associates or joint ventures, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or joint venture and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (Note 2(o)). (k) Available-for-sale financial assets Investments in available–for–sale securities are carried at fair value with any change in fair value recognised in other comprehensive income and accumulated separately in equity in other reserves. When these investments are derecognised or impaired, the cumulative gain or loss is reclassified from equity to the consolidated income statement. Investments in equity securities, other than investments in associates and joint ventures, that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (Note 2(o)). Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in the consolidated income statement as incurred. At each balance sheet date, the fair value is remeasured, with any resultant gain or loss being recognised in the consolidated income statement. (l) Derivative financial instruments Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in other operating (expense)/income, net, except where the derivatives qualify for cash flow hedge accounting or hedge the net investment in a foreign operation, in which case recognition of any resulting gain or loss depends on the nature of the item being hedged (Note 2(n)). (m) Offsetting financial instruments Financial assets and liabilities are presented respectively in the consolidated balance sheet, without any offset. However, they are offset and reported in the balance sheet when satisfied the following: (i) There is a legally enforceable right to offset the recognised amounts. (ii) There is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty. (n) Hedging (i) Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk of a committed future transaction, the effective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value are recognised in other comprehensive income and accumulated separately in equity in other reserves. The ineffective portion of any gain or loss is recognised immediately in the consolidated income statement. If a hedge of a forecast transaction subsequently results in the recognition of a non–financial asset, the associated gain or loss is reclassified from equity to be included in the initial cost or other carrying amount of the non–financial asset. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is reclassified from equity to the consolidated income statement in the same period or periods during which the asset acquired or liability assumed affects the consolidated income statement (such as when interest income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is reclassified from equity to the consolidated income statement in the same period or periods during which the hedged forecast transaction affects the consolidated income statement. When a hedging instrument expires or is sold, terminated, exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity until the transaction occurs and it is recognised in accordance with the above policy. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is reclassified from equity to the consolidated income statement immediately. 164 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Hedging (Continued) (ii) Fair value hedges A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or unrecognised firm commitment. The gain or loss from remeasuring the hedging instrument at fair value is recognised in the consolidated income statement. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in the consolidated income statement. When a hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged item is a financial instrument measured at amortised cost, any adjustment to the carrying amount of the hedged item is amortised to profit or loss from the adjustment date to the maturity date using the recalculated effective interest rate at the adjustment date. (iii) Hedge of net investments in foreign operations The portion of the gain or loss on remeasurement to fair value of an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income and accumulated separately in equity in the other reserve until the disposal of the foreign operation, at which time the cumulative gain or loss is reclassified from equity to the consolidated income statement. The ineffective portion is recognised immediately in the consolidated income statement. In this year no hedge of net investment in foreign operations was hold by the Group. (o) Impairment of assets (i) Trade accounts receivable, other receivables and investment in equity securities that do not have a quoted market price in an active market are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is determined and recognised. The impairment loss is measured as the difference between the asset’s carrying amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognised as an expense in the consolidated income statement. Impairment losses for trade and other receivables are reversed through the consolidated income statement if in a subsequent period the amount of the impairment losses decreases. Impairment losses for equity securities carried at cost are not reversed. For investments in associates and joint ventures accounted under the equity method (Note 2(a) (ii)), the impairment loss is measured by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with the accounting policy set out in Note 2(o) (ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with the accounting policy set out in Note 2(o) (ii). (ii) Impairment of other long–lived assets is accounted as follows: The carrying amounts of other long–lived assets, including property, plant and equipment, construction in progress, lease prepayments and other assets, are reviewed at each balance sheet date to identify indicators that the assets may be impaired. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. For goodwill, the recoverable amount is estimated at each balance sheet date. The recoverable amount is the greater of the fair value less costs to disposal and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash–generating unit). The amount of the reduction is recognised as an expense in the consolidated income statement. Impairment losses recognised in respect of cash–generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash–generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to disposal, or value in use, if determinable. Management assesses at each balance sheet date whether there is any indication that an impairment loss recognised for a long–lived asset, except in the case of goodwill, in prior years may no longer exist. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write–down or write–off cease to exist, is recognised as an income. The reversal is reduced by the amount that would have been recognised as depreciation had the write–down or write–off not occurred. An impairment loss in respect of goodwill is not reversed. 165 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (p) Trade, bills and other payables Trade, bills and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. (q) Interest–bearing borrowings Interest–bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest– bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the period of borrowings using the effective interest method. (r) Provisions and contingent liability A provision is recognised for liability of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, when it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non–occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group’s expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest cost, is reflected as an adjustment to the provision and oil and gas properties. (s) Revenue recognition Revenues associated with the sale of crude oil, natural gas, petroleum and chemical products and ancillary materials are recorded when the customer accepts the goods and the significant risks and rewards of ownership and title have been transferred to the buyer. Revenue from the rendering of services is recognised in the consolidated income statement upon performance of the services. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably. Interest income is recognised on a time apportioned basis that takes into account the effective yield on the asset. A government grant that becomes receivable as compensation for expenses or losses already incurred with no future related costs is recognised as income in the period in which it becomes receivable. (t) Borrowing costs Borrowing costs are expensed in the consolidated income statement in the period in which they are incurred, except to the extent that they are capitalised as being attributable to the construction of an asset which necessarily takes a period of time to get ready for its intended use. (u) Repairs and maintenance expenditure Repairs and maintenance expenditure is expensed as incurred. (v) Environmental expenditures Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed as incurred. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures. (w) Research and development expense Research and development expenditures that cannot be capitalised are expensed in the period in which they are incurred. Research and development expense amounted to RMB 6,423 million for the year ended 31 December 2017 (2016: RMB 5,941 million). (x) Operating leases Operating lease payments are charged to the consolidated income statement on a straight–line basis over the period of the respective leases. (y) Employee benefits The contributions payable under the Group’s retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 37. Termination benefits, such as employee reduction expenses, are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. 166 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (z) Income tax Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes only to the extent that it is probable that future taxable income will be available against which the assets can be utilised. Deferred tax is calculated on the basis of the enacted tax rates or substantially enacted tax rates that are expected to apply in the period when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited to other comprehensive income or directly in equity. The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability within the same legal tax unit and jurisdiction to the extent appropriate, and is not available for set off against the taxable profit of another legal tax unit. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that the related tax benefit will be realised. (aa) Dividends Dividends and distributions of profits proposed in the profit appropriation plan which will be authorized and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared. (bb) Segment reporting Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group’s various lines of business. 3 TURNOVER Turnover primarily represents revenue from the sales of crude oil, natural gas, refined petroleum products and chemical products. 4 OTHER OPERATING REVENUES Sale of materials, service and others Rental income 5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The following items are included in selling, general and administrative expenses: Operating lease charges Auditor’s remuneration: – audit services – others Impairment losses: – trade accounts receivable – other receivables – accounts prepayments 6 PERSONNEL EXPENSES Salaries, wages and other benefits Contributions to retirement schemes (Note 37) 2017 RMB million 2016 RMB million 58,930 793 59,723 49,812 909 50,721 2017 RMB million 12,104 2016 RMB million 14,410 72 5 (51) 159 2 73 2 230 (12) 13 2017 RMB million 2016 RMB million 65,873 8,981 74,854 55,502 8,385 63,887 167 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 7 TAXES OTHER THAN INCOME TAX Consumption tax (i) City construction tax (ii) Education surcharge Resources tax Other Note: (i) Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below: Products Gasoline Diesel Naphtha Solvent oil Lubricant oil Fuel oil Jet fuel oil 2017 RMB million 2016 RMB million 192,907 18,274 13,811 4,841 5,459 235,292 193,836 18,155 13,695 3,871 2,449 232,006 Effective from 13 January 2015 RMB/Ton 2,109.76 1,411.20 2,105.20 1,948.64 1,711.52 1,218.00 1,495.20 (ii) City construction tax is levied on an entity based on its total paid amount of value–added tax, consumption tax and business tax. Pursuant to the 'Circular on the Overall Promotion of Pilot Program of Levying VAT in place of Business Tax'(Cai Shui [2016] 36) jointly issued by the Ministry of Finance and the State Administration of Taxation, revenue from modern service of the subsidiaries of the Group, are subject to VAT from 1 May 2016, and the applicable tax rate is 6%. Before May 1, 2016, revenue from modern service of the subsidiaries of the Group, are subject to the business tax with a tax rate of 3% to 5%. 8 OTHER OPERATING (EXPENSE)/INCOME, NET Government grant (i) Gain on remeasurement of interests in the Shanghai SECCO (Note 35) Gain on dilution and remeasurement of interests in the Pipeline Ltd Impairment losses on long-lived assets (ii) Loss on disposal of property, plant, equipment and other non-currents assets, net Net realised and unrealised gain on derivative financial instruments not qualified as hedging Ineffective portion of change in fair value of cash flow hedges Donations Fines, penalties and compensations Others Note: 2017 RMB million 2016 RMB million 4,893 3,941 — (21,258) (1,518) (909) (813) (152) (89) (649) (16,554) 4,101 — 20,562 (16,425) (1,489) 195 304 (133) (152) (1,277) 5,686 (i) Government grants for the years ended 31 December 2017 and 2016 primarily represent financial appropriation income and non–income tax refunds received from respective government agencies without conditions or other contingencies attached to the receipts of the grants. (ii) Impairment losses on long-lived assets for the year ended 31 December 2017 primarily represent impairment losses recognised in the exploration and production (“E&P”) segment of RMB 13,556 million (2016: RMB 11,605 million), the chemicals segment of RMB 4,922 million (2016: RMB 2,898 million) and for the refining segment of RMB 1,894 million (2016: RMB 1,655 million) (Note 38), most of which are impairment losses on property, plant and equipment (Note 16). The primary factors resulting in the E&P segment impairment loss were downward revision of oil and gas reserve due to price change and high operating and development cost for certain oil fields. The carrying values of these E&P properties were written down to recoverable amounts which were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2016: 10.47%). Further future downward revisions to the Group’s oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 3,145 million. It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 2,659 million. It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 461 million. The assets in the refining segment were written down due to the suspension of operations of certain production facilities, while the assets in the chemical segment were written down because of evidence indicates the economic performance of certain production facilities are worse than expected and due to the suspension of operations of certain production facilities. 168 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 9 INTEREST EXPENSE Interest expense incurred Less: Interest expense capitalised* Accretion expenses (Note 32) Interest expense * Interest rates per annum at which borrowing costs were capitalised for construction in progress 10 TAX EXPENSE Tax expense in the consolidated income statement represents: Current tax – Provision for the year – Adjustment of prior years Deferred taxation (Note 28) 2017 RMB million 2016 RMB million 9,021 (859) 8,162 1,057 9,219 2.37% to 4.41% 2.65% to 4.82% 6,368 (723) 5,645 1,501 7,146 2017 RMB million 2016 RMB million 26,668 (72) (10,317) 16,279 21,313 228 (834) 20,707 Reconciliation between actual income tax expense and the expected income tax expense at applicable statutory tax rates is as follows: Profit before taxation Expected PRC income tax expense at a statutory tax rate of 25% Tax effect of non–deductible expenses Tax effect of non–taxable income Tax effect of preferential tax rate (i) Effect of income taxes at foreign operations (ii) Tax effect of utilisation of previously unrecognised tax losses and temporary differences Tax effect of tax losses not recognised Write–down of deferred tax assets Adjustment of prior years Actual income tax expense Note: 2017 RMB million 2016 RMB million 86,697 21,674 1,905 (5,939) (793) (1,394) (613) 1,485 26 (72) 16,279 80,151 20,038 1,529 (2,786) 83 299 (453) 958 811 228 20,707 (i) The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in western regions in the PRC are taxed at preferential income tax rate of 15% through the year 2020. (ii) It is mainly due to the foreign operation in the Republic of Angola (“Angola”) calculated the assessable income in accordance with the relevant income tax rules and regulations of Angola, and taxed at 50% of the assessable income as determined. 169 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 11 DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (a) Directors’ and supervisors’ emoluments The emoluments of every director and supervisor is set out below: Emoluments paid or receivable in respect of director’s other services in connection with the management of the affairs of the Company or its subsidiary undertaking Salaries, allowances and benefits in kind RMB’000 Bonuses RMB’000 2017 Retirement scheme contributions RMB’000 — 227 — 207 — — — — — — — — — — 207 207 207 122 — 51 1,228 — 537 — 487 — — — — — — — — — — 480 480 480 103 — 349 2,916 — 76 — 76 — — — — — — — — — — 71 71 71 42 — 17 424 Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking Directors’/ Supervisors’ fee RMB’000 Total RMB’000 — — — — — — — 300 300 300 300 — — — — — — — — — 1,200 — 840 — 770 — — — 300 300 300 300 — — — 758 758 758 267 — 417 5,768 Name Directors Wang Yupu (i) Dai Houliang Li Yunpeng Wang Zhigang Zhang Haichao Jiao Fangzheng Ma Yongsheng Independent non–executive directors Jiang Xiaoming Andrew Y. Yan Tang Min Fan Gang Supervisors Zhao Dong Liu Zhongyun Zhou Hengyou Zou Huiping Jiang Zhenying Yu Renming Yu Xizhi (ii) Liu Yun (iii) Wang Yajun (ii) Total 170 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 11 DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (Continued) (a) Directors’ and supervisors’ emoluments (Continued) The emoluments of every director and supervisor is set out below: (Continued) Emoluments paid or receivable in respect of director’s other services in connection with the management of the affairs of the Company or its subsidiary undertaking Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking Salaries, allowances and benefits in kind RMB’000 2016 Retirement scheme contributions RMB’000 Bonuses RMB’000 Directors’/ Supervisors’ fee RMB’000 Total RMB’000 — 214 196 — — — 130 114 — — — — — — — 218 218 218 204 1,512 — 459 431 — — — 379 365 — — — — — — — 334 334 309 325 2,936 — 72 72 — — — 47 41 — — — — — — — 67 67 67 66 499 — — — — — — — — 300 300 300 300 — — — — — — — 1,200 — 745 699 — — — 556 520 300 300 300 300 — — — 619 619 594 595 6,147 Name Directors Wang Yupu Dai Houliang Wang Zhigang Zhang Haichao Jiao Fangzheng Ma Yongsheng(iv) Li Chunguang(iv) Zhang Jianhua(iv) Independent non-executive directors Jiang Xiaoming Andrew Y. Yan Tang Min Fan Gang Supervisors Liu Yun Liu Zhongyun Zhou Hengyou Zou Huiping Jiang Zhenying Yu Renming Wang Yajun Total Notes: (i) Mr. Wang Yupu ceased being chairman and independent director from 22 September 2017. (ii) Mr Yu Xizhi were elected to be supervisor from 28 June 2017; Mr Wang Yajun ceased being supervisor from 28 June 2017. (iii) Mr Liu Yun ceased being supervisor and chairman of board of supervisor from 16 March 2017. (iv) Mr. Zhang Jianhua ceased being director from 13 July 2016; Mr. Li Chunguang ceased being director from 26 August 2016; Mr. Ma Yongsheng was elected as director from 25 February 2016. 171 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 12 SENIOR MANAGEMENT’S EMOLUMENTS For the year ended 31 December 2017, the five highest paid individuals in the Company included one director and four senior management. The emolument paid to each of one director and four senior management was below RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 3,996 thousand, and the total amount of their retirement scheme contributions was RMB 360 thousand. For the year ended 31 December 2016, the five highest paid individuals in the Company included one director and four senior management. 13 DIVIDENDS Dividends payable to shareholders of the Company attributable to the year represent: Dividends declared and paid during the year of RMB 0.10 per share (2016: RMB 0.079 per share) Dividends declared after the balance sheet date of RMB 0.40 per share (2016: RMB 0.17 per share) 2017 RMB million 2016 RMB million 12,107 48,428 60,535 9,565 20,582 30,147 Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 25 August 2017, the directors authorised to declare the interim dividends for the year ending 31 December 2017 of RMB 0.10 (2016: RMB 0.079) per share totaling RMB 12,107 million (2016: RMB 9,565 million). Dividends were paid on 20 September 2017. Pursuant to a resolution passed at the director’s meeting on 23 March 2018, final dividends in respect of the year ended 31 December 2017 of RMB 0.40 (2016: RMB 0.17) per share totaling RMB 48,428 million (2016: RMB 20,582 million) were proposed for shareholders’ approval at the Annual General Meeting. Final cash dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date. Dividends payable to shareholders of the Company attributable to the previous financial year, approved during the year represent: Final cash dividends in respect of the previous financial year, approved and paid during the year of RMB 0.17 per share (2016: RMB 0.06 per share) 2017 RMB million 2016 RMB million 20,582 7,264 Pursuant to the shareholders’ approval at the Annual General Meeting on 28 June 2017, a final dividend of RMB 0.17 per share totaling RMB 20,582 million according to total shares of 18 July 2017 was approved. All dividends have been paid in the year ended 31 December 2017. Pursuant to the shareholders’ approval at the Annual General Meeting on 18 May 2016, a final dividend of RMB 0.06 per share totaling RMB 7,264 million according to total shares of 23 June 2016 was approved. All dividends have been paid in the year ended 31 December 2016. 172 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 14 OTHER COMPREHENSIVE INCOME 2017 Before tax amount RMB million Tax effect RMB million Net of tax amount RMB million Before tax amount RMB million 2016 Tax effect RMB million Net of tax amount RMB million Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year (1,314) 240 (1,074) (3,813) 652 (3,161) Amounts transferred to initial carrying amount of hedged items Reclassification adjustments for amounts transferred to the consolidated income statement Net movement during the year recognised (4) (575) 1 72 (3) 13 (2) 11 (503) 6,279 (1,115) 5,164 in other comprehensive income (1,893) 313 (1,580) 2,479 (465) 2,014 Available–for–sale securities: Changes in fair value recognised during the year Net movement during the year recognised in other comprehensive income Share of other comprehensive profit of associates and joint ventures Foreign currency translation differences Other comprehensive income 15 BASIC AND DILUTED EARNINGS PER SHARE (57) (57) 1,053 (3,792) (4,689) — — — — 313 (57) (57) 1,053 (3,792) (4,376) (17) (17) 45 4,298 6,805 (7) (7) — — (472) (24) (24) 45 4,298 6,333 The calculation of basic earnings per share for the year ended 31 December 2017 is based on the profit attributable to ordinary shareholders of the Company of RMB 51,244 million (2016: RMB 46,672 million) and the weighted average number of shares of 121,071,209,646 (2016: 121,071,209,646) during the year. The calculation of diluted earnings per share for the year ended 31 December 2017 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 51,242 million (2016: RMB 46,669 million) and the weighted average number of shares of 121,071,209,646 (2016: 121,071,209,646) calculated as follows: (i) Profit attributable to ordinary shareholders of the Company (diluted) Profit attributable to ordinary shareholders of the Company After tax effect of employee share option scheme of Shanghai Petrochemical Profit attributable to ordinary shareholders of the Company (diluted) (ii) Weighted average number of shares (diluted) Weighted average number of shares at 31 December Weighted average number of shares (diluted) at 31 December 2017 RMB million 2016 RMB million 51,244 (2) 51,242 46,672 (3) 46,669 2017 Number of shares 2016 Number of shares 121,071,209,646 121,071,209,646 121,071,209,646 121,071,209,646 173 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 16 PROPERTY, PLANT AND EQUIPMENT Cost: Balance at 1 January 2016 Additions Transferred from construction in progress Reclassifications Reclassification to lease prepayments and other long–term assets Disposals Exchange adjustments Balance at 31 December 2016 Balance at 1 January 2017 Additions Transferred from construction in progress Reclassifications Reclassification to lease prepayments and other long–term assets Disposals Exchange adjustments Balance at 31 December 2017 Accumulated depreciation: Balance at 1 January 2016 Depreciation for the year Impairment losses for the year Reclassifications Reclassification to lease prepayments and other long–term assets Written back on disposals Exchange adjustments Balance at 31 December 2016 Balance at 1 January 2017 Depreciation for the year Impairment losses for the year Reclassifications Reclassification to lease prepayments and other long–term assets Written back on disposals Exchange adjustments Balance at 31 December 2017 Net book value: Balance at 1 January 2016 Balance at 31 December 2016 Balance at 31 December 2017 Plants and buildings RMB million Oil and gas, properties RMB million Equipment, machinery and others RMB million Total RMB million 107,873 277 5,901 1,426 (130) (509) 82 114,920 114,920 854 6,789 (673) (859) (878) (140) 120,013 44,469 3,815 440 369 (14) (534) 27 48,572 48,572 4,075 554 (122) (238) (584) (57) 52,200 63,404 66,348 67,813 613,134 3,420 31,473 (115) — (27) 2,800 650,685 650,685 1,627 19,881 (50) (1,702) (211) (2,573) 667,657 374,191 49,005 10,580 (58) — (22) 1,865 435,561 435,561 55,057 8,832 (77) (1,305) (195) (2,056) 495,817 238,943 215,124 171,840 880,711 626 50,025 (1,311) (2,202) (35,100) 187 892,936 892,936 11,983 54,605 723 (8,751) (10,985) (199) 940,312 449,609 47,914 3,901 (311) (316) (17,067) 84 483,814 483,814 46,585 10,450 199 (2,682) (9,079) (96) 529,191 431,102 409,122 411,121 1,601,718 4,323 87,399 — (2,332) (35,636) 3,069 1,658,541 1,658,541 14,464 81,275 — (11,312) (12,074) (2,912) 1,727,982 868,269 100,734 14,921 — (330) (17,623) 1,976 967,947 967,947 105,717 19,836 — (4,225) (9,858) (2,209) 1,077,208 733,449 690,594 650,774 The additions to oil and gas properties of the Group for the year ended 31 December 2017 included RMB 1,627 million (2016: RMB 3,420 million) of estimated dismantlement costs for site restoration (Note 32). 174 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 17 CONSTRUCTION IN PROGRESS Balance at 1 January Additions Dry hole costs written off Transferred to property, plant and equipment Reclassification to lease prepayments and other long–term assets Impairment losses for the year Disposals Exchange adjustments Balance at 31 December 2017 RMB million 2016 RMB million 129,581 85,552 (6,876) (81,229) (7,773) (252) (315) (43) 118,645 152,325 81,837 (7,467) (87,399) (6,900) (1,486) (1,445) 116 129,581 As at 31 December 2017, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 9,737 million (2016: RMB 12,192 million). The geological and geophysical costs paid during the year ended 31 December 2017 were RMB 3,710 million (2016: RMB 2,899 million). 18 GOODWILL Cost Less: Accumulated impairment losses Impairment tests for cash–generating units containing goodwill Goodwill is allocated to the following Group’s cash-generating units: Sinopec Beijing Yanshan Petrochemical Branch (“Sinopec Yanshan”) Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”) Shanghai SECCO Petrochemical Company Limited ("Shanghai SECCO") (Note 35) Sinopec (Hong Kong) Limited Other units without individually significant goodwill Principal activities Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products Trading of petrochemical products 31 December 2017 RMB million 31 December 2016 RMB million 16,495 (7,861) 8,634 14,016 (7,663) 6,353 31 December 2017 RMB million 31 December 2016 RMB million 1,004 4,043 2,541 879 167 8,634 1,157 4,043 — 941 212 6,353 Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 10.8% to 11.4% (2016: 10.4% to 11.0%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognised. Key assumptions used for cash flow forecasts for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management’s expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period. 175 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 19 INTEREST IN ASSOCIATES The Group’s investments in associates are with companies primarily engaged in the oil and gas, petrochemical, and marketing and distribution operations in the PRC. The Group’s principal associates are as follows: Name of company Sinopec Sichuan To East China Gas Pipeline Co., Ltd. (“Pipeline Ltd”) Sinopec Finance Company Limited ("Sinopec Finance") PAO SIBUR Holding ("SIBUR") Zhongtian Synergetic Energy Company Limited ("Zhongtian Synergetic Energy") Caspian Investments Resources Ltd. ("CIR") % of ownership interests 50.00 Principal activities Operation of natural gas pipelines and auxiliary facilities Measurement method Country of incorporation Principal place of business Equity method PRC PRC PRC 49.00 Provision of non–banking Equity method PRC 10.00 financial services Proccessing natural gas and manufacturing petrochemical products Equity method Russia Russia 38.75 Mining coal and Equity method PRC PRC 50.00 manufacturing of coal–chemical products Crude oil and natural gas extraction Equity method British Virgin Islands The Republic of Kazakhstan Summarised financial information and reconciliation to their carrying amounts in respect of the Group’s principal associates: Current assets Non–current assets Current liabilities Non–current liabilities Net assets Net assets attributable to owners of the Company Net assets attributable to non-controlling interests Share of net assets from associates Carrying Amounts Pipeline Ltd Sinopec Finance 31 December 2017 RMB million 31 December 2016 RMB million 31 December 2017 RMB million 31 December 2016 RMB million SIBUR (i) 31 December 2017 RMB million Zhongtian Synergetic Energy 31 December 2016 RMB million 31 December 2017 RMB million CIR 31 December 2017 RMB million 31 December 2016 RMB million 11,317 40,972 (933) (3,176) 48,180 48,180 — 24,090 24,090 11,835 42,124 (5,009) (3,350) 45,600 45,600 — 22,800 22,800 161,187 17,782 (154,212) (6) 24,751 24,751 — 12,128 12,128 149,457 16,478 (142,386) (88) 23,461 23,461 — 11,496 11,496 20,719 158,938 (20,554) (61,771) 97,332 96,761 571 9,676 9,676 8,232 51,553 (10,668) (31,494) 17,623 17,623 — 6,829 6,829 7,292 50,301 (8,078) (32,137) 17,378 17,378 — 6,734 6,734 5,612 1,673 (908) (170) 6,207 6,207 — 3,104 3,104 5,120 3,842 (928) (883) 7,151 7,151 — 3,576 3,576 Summarised statement of comprehensive income Year ended 31 December Pipeline Ltd (ii) 2017 RMB million 2016 RMB million Sinopec Finance 2017 RMB million 2016 RMB million SIBUR(i) 2017 RMB million Zhongtian Synergetic Energy 2016 RMB million 2017 RMB million CIR 2017 RMB million 2016 RMB million Turnover Profit/(loss) for the year Other comprehensive (loss)/income Total comprehensive income/(loss) Dividends declared by associates Share of profit/(loss) from associates Share of other comprehensive (loss)/income from associates (iii) 5,644 2,543 — 2,543 — 1,272 — 191 51 — 51 23 26 — 3,542 1,536 (246) 1,290 — 753 (121) 2,442 1,526 (175) 1,351 — 748 (86) 52,496 9,601 (260) 9,341 221 960 (26) 3,569 123 — 123 — 48 — — — — — — — — 2,563 (610) (334) (944) — (305) (167) 2,205 (3,518) 662 (2,856) — (1,759) 331 The share of profit and other comprehensive income for the year ended 31 December 2017 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,182 million (2016: RMB 2,869 million) and RMB 569 million (2016: other comprehensive loss RMB 384 million) respectively. As at 31 December 2017, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 23,899 million (2016: RMB 21,510 million). Note: (i) Sinopec is able to exercise significant influence in SIBUR since Sinopec has a member in SIBUR’s Board of Director and has a member in SIBUR’s Management Board. (ii) The summarised income statement for the year 2016 of Pipeline Ltd presents the operating results from the date when the Group lost control to 31 December 2016. (iii) Including foreign currency translation differences. 176 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 20 INTEREST IN JOINT VENTURES The Group’s principal interests in joint ventures are as follows: Name of entity Fujian Refining & Petrochemical Company Limited (“FREP”) BASF–YPC Company Limited ("BASF–YPC") Taihu Limited ("Taihu") Yanbu Aramco Sinopec Refining Company Ltd. ("YASREF") Sinopec SABIC Tianjin Petrochemical Company Limited ("Sinopec SABIC Tianjin") % of ownership interests 50.00 40.00 49.00 37.50 50.00 Principal activities Manufacturing refining oil products Manufacturing and distribution of petrochemical products Crude oil and natural gas extraction Petroleum refining and processing business Manufacturing and distribution of petrochemical products Measurement method Country of incorporation Principal place of business Equity method PRC Equity method PRC PRC PRC Equity method Cyprus Russia Equity method Saudi Arabia Saudi Arabia Equity method PRC PRC Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal joint ventures: FREP BASF–YPC Taihu YASREF Sinopec SABIC Tianjin 31 December 2017 31 December 2016 RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million 31 December 2016 31 December 2016 31 December 2016 31 December 2016 31 December 2017 31 December 2017 31 December 2017 31 December 2017 Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities (i) Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities (ii) Other non-current liabilities Total non-current liabilities Net assets Net assets attributable to owners of the Company Net assets attributable to non-controlling interests Share of net assets from joint ventures Other (iii) Carrying Amounts 5,772 11,013 16,785 19,740 (1,135) (5,049) (6,184) (13,654) (236) (13,890) 16,451 8,172 10,269 18,441 21,903 (1,781) (4,643) (6,424) (19,985) (252) (20,237) 13,683 1,800 5,335 7,135 12,075 (233) (1,982) (2,215) (955) (19) (974) 16,021 1,394 4,852 6,246 13,530 (783) (2,107) (2,890) (1,492) (10) (1,502) 15,384 2,352 2,462 4,814 7,978 (20) (1,914) (1,934) (72) (2,686) (2,758) 8,100 1,165 1,616 2,781 8,279 (334) (1,616) (1,950) (49) (2,130) (2,179) 6,931 4,916 10,816 15,732 51,553 (5,407) (11,864) (17,271) (35,619) (890) (36,509) 13,505 1,259 6,826 8,085 57,054 (1,187) (6,466) (7,653) (43,028) (1,004) (44,032) 13,454 6,524 2,709 9,233 13,248 (1,236) (4,546) (5,782) (4,101) (41) (4,142) 12,557 3,634 1,886 5,520 14,003 — (2,657) (2,657) (5,337) (32) (5,369) 11,497 16,451 13,683 16,021 15,384 7,818 6,690 13,505 13,454 12,557 11,497 — 8,226 — 8,226 — 6,842 — 6,842 — 6,409 — 6,409 — 6,154 — 6,154 282 3,831 — 3,831 241 3,278 743 4,021 — 5,064 — 5,064 — 5,045 — 5,045 — 6,279 — 6,279 — 5,749 — 5,749 177 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 20 INTEREST IN JOINT VENTURES (Continued) Summarised statement of comprehensive income Year ended 31 December Turnover Depreciation, depletion and amortisation Interest income Interest expense Profit/(loss) before taxation Tax expense Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) Dividends declared by joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive FREP Sinopec SABIC Tianjin 2016 RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million BASF–YPC YASREF Taihu 2016 2017 2017 2017 2017 2016 2017 2016 2016 49,356 41,764 21,020 17,323 12,520 9,658 61,587 41,286 22,286 16,337 (16) 208 (857) 6,977 (1,699) 5,278 — 5,278 1,250 (52) 130 (929) 6,476 (1,574) 4,902 — 4,902 — (1,793) 36 (71) 4,565 (1,151) 3,414 — 3,414 1,109 2,639 2,451 1,366 (2,275) 19 (173) 2,606 (648) 1,958 — 1,958 155 783 — (715) 142 (142) 1,697 (553) 1,144 25 1,169 — 541 12 (1,043) 40 (113) 2,411 (518) 1,893 1,851 3,744 — 895 875 (2,763) 45 (1,382) 548 57 605 (554) 51 — 227 (208) (2,754) 33 (1,216) 28 56 84 647 731 — 31 243 (36) 104 (223) 5,113 (1,279) 3,834 — 3,834 1,375 (33) 30 (245) 3,184 (783) 2,401 — 2,401 300 1,917 1,201 — — income/(loss) from joint ventures (iv) — — — The share of profit and other comprehensive income for the year ended 31 December 2017 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 3,925 million (2016: RMB 2,061 million) and RMB 994 million (2016: other comprehensive loss RMB 934 million) respectively. As at 31 December 2017, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 21,552 million (2016: RMB 22,885 million). Note: (i) Excluding trade accounts payable and other payables. (ii) Excluding provisions. (iii) Other reflects the excess of fair value of the consideration transferred over the Group's share of the fair value of the investee's identifiable assets and liabilities as of the transaction date. (iv) Including foreign currency translation differences. 21 AVAILABLE-FOR-SALE FINANCIAL ASSETS Equity securities, listed and at quoted market price Other investment, unlisted and at cost Less: Impairment loss for investments 31 December 2017 RMB million 31 December 2016 RMB million 178 1,544 1,722 46 1,676 262 11,175 11,437 29 11,408 Other investment, unlisted and at cost, represents the Group’s interests in privately owned enterprises which are mainly engaged in oil and natural gas activities and chemical production. The impairment losses relating to investments for the year ended 31 December 2017 amounted to RMB 17 million (2016: nil). 178 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 22 LEASE PREPAYMENTS Cost: Balance at 1 January Additions Transferred from construction in progress Transferred from other long–term assets Reclassification to other assets Disposals Exchange adjustments Balance at 31 December Accumulated amortisation: Balance at 1 January Amortisation charge for the year Transferred from other long–term assets Reclassification to other assets Written back on disposals Exchange adjustments Balance at 31 December Net book value: 23 LONG-TERM PREPAYMENTS AND OTHER ASSETS Operating rights of service stations Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries Prepayments for construction projects to third parties Others (i) Balance at 31 December Note: (i) Others mainly comprise prepaid operating lease charges over one year and catalyst expenditures. 2017 RMB million 2016 RMB million 68,467 2,614 4,151 3,987 (2,603) (531) (357) 75,728 14,226 2,076 2,027 (770) (266) (91) 17,202 58,526 63,324 300 4,279 994 (229) (422) 221 68,467 12,275 1,840 132 (12) (83) 74 14,226 54,241 31 December 2017 RMB million 31 December 2016 RMB million 34,268 20,726 4,999 21,989 81,982 26,896 20,385 2,234 20,630 70,145 The cost of operating rights of service stations is charged to expense on a straight–line basis over the respective periods of the rights. The movement of operating rights of service stations is as follows: Operating rights of service stations Cost: Balance at 1 January Additions Decreases Balance at 31 December Accumulated amortisation: Balance at 1 January Additions Decreases Balance at 31 December Net book value at 31 December 2017 RMB million 2016 RMB million 36,908 11,837 (132) 48,613 10,012 4,361 (28) 14,345 34,268 34,407 2,670 (169) 36,908 8,310 1,777 (75) 10,012 26,896 179 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 24 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Current assets Structured deposit 31 December 2017 RMB million 31 December 2016 RMB million 51,196 51,196 — — The financial assets are the structured deposit with financial institutions and cannot be readily convertible to known amounts of cash, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period. The changes in the financial assets at fair value through profit or loss for the year ended 31 December 2017 amounted to RMB 196 million (2016:nil), which has been recorded in other operating (expense)/income, net. 25 TRADE ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE Amounts due from third parties Amounts due from Sinopec Group Company and fellow subsidiaries Amounts due from associates and joint ventures Less: Impairment losses for bad and doubtful debts Trade accounts receivable, net Bills receivable 31 December 2017 RMB million 31 December 2016 RMB million 56,203 7,941 4,962 69,106 (612) 68,494 16,207 84,701 39,994 6,398 4,580 50,972 (683) 50,289 13,197 63,486 The ageing analysis of trade accounts and bills receivables (net of impairment losses for bad and doubtful debts) is as follows: Within one year Between one and two years Between two and three years Over three years Impairment losses for bad and doubtful debts are analysed as follows: Balance at 1 January Provision for the year Written back for the year Written off for the year Others Balance at 31 December 31 December 2017 RMB million 31 December 2016 RMB million 83,984 573 43 101 84,701 63,051 233 177 25 63,486 2017 RMB million 2016 RMB million 683 49 (100) (21) 1 612 525 238 (8) (72) — 683 Sales are generally on a cash term. Credit is generally only available for major customers with well–established trading records. Amounts due from Sinopec Group Company and fellow subsidiaries are repayable under the same terms. Trade accounts receivable and bills receivables (net of impairment losses for bad and doubtful debts) primarily represent receivables that are neither past due nor impaired. These receivables relate to a wide range of customers for whom there is no recent history of default. 180 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 26 INVENTORIES Crude oil and other raw materials Work in progress Finished goods Spare parts and consumables Less: Allowance for diminution in value of inventories 31 December 2017 RMB million 31 December 2016 RMB million 85,975 14,774 84,448 2,651 187,848 (1,155) 186,693 75,680 14,141 65,772 1,838 157,431 (920) 156,511 The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 1,854,629 million for the year ended 31 December 2017 (2016: RMB 1,461,285 million). It includes the write-down of inventories of RMB 436 million (2016: RMB 430 million) and the reversal of write-down of inventories made in prior years of RMB 13 million (2016: RMB 10 million), which were recorded in purchased crude oil, products and operating supplies and expenses in the consolidated income statement. The write-down of inventories of RMB 190 million for the year ended 31 December 2017 (2016: RMB 4,021 million) was realised primarily with the sales of inventories. The write-down of inventories is mainly related to the spare parts and consumables in refining segment and chemical segment. 27 PREPAID EXPENSES AND OTHER CURRENT ASSETS Other receivables Advances to suppliers Value-added input tax to be deducted Prepaid income tax Derivative financial instruments 28 DEFERRED TAX ASSETS AND LIABILITIES 31 December 2017 RMB million 31 December 2016 RMB million 17,704 4,901 17,926 398 526 41,455 26,056 3,749 18,055 1,145 762 49,767 Deferred tax assets and deferred tax liabilities before offset are attributable to the items detailed in the table below: Receivables and inventories Accruals Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale securities Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities 31 December 2017 RMB million 381 1,925 165 14,150 2,325 117 227 180 19,470 31 December 2016 RMB million 87 391 27 11,264 2,477 — 260 133 14,639 31 December 2017 RMB million — — (50) (9,928) — — (563) (264) (10,805) 31 December 2016 RMB million — — (242) (14,615) — — — (229) (15,086) At 31 December 2017, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 20,821 million (2016: RMB 19,194 million), of which RMB 5,938 million (2016: RMB 3,833 million) was incurred for the year ended 31 December 2017, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 2,508 million, RMB 4,462 million, RMB 4,080 million, RMB 3,833 million and RMB 5,938 million will expire in 2018, 2019, 2020, 2021, 2022 and after, respectively. Periodically, management performed assessment on the probability that future taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have sufficient future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the year ended 31 December 2017, write–down of deferred tax assets amounted to RMB 26 million (2016: RMB 811 million) (Note 10). 181 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 28 DEFERRED TAX ASSETS AND LIABILITIES (Continued) Movements in the deferred tax assets and liabilities are as follows: Receivables and inventories Accruals Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale securities Intangible assets Others Net deferred tax (liabilities)/assets Receivables and inventories Accruals Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale securities Intangible assets Others Net deferred tax (liabilities)/assets Balance at 01 January 2016 RMB million 1,552 413 250 (9,131) 5,883 — 203 40 (790) Recognised in consolidated income statement RMB million (1,505) (22) — 6,063 (3,426) (139) (1) (136) 834 Recognised in other comprehensive income RMB million 6 — (465) (392) 20 (7) — — (838) Balance at 31 December 2016 RMB million 87 391 (215) (3,351) 2,477 — 260 (96) (447) Others RMB million 34 — — 109 — 146 58 — 347 Balance at 1 January 2017 RMB million 87 391 (215) (3,351) 2,477 — 260 (96) (447) Recognised in consolidated income statement Recoginsed in other comprehensive income RMB million 300 1,534 9 8,475 (135) 117 (27) 44 10,317 RMB million (5) — 313 287 (17) — — 4 582 Acquisition of Shanghai SECCO Balance at 31 December 2017 RMB million — — — (1,181) — — (569) (36) (1,786) RMB million 381 1,925 115 4,222 2,325 117 (336) (84) 8,665 Others RMB million (1) — 8 (8) — — — — (1) 29 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES Short-term debts represent: Third parties’ debts Short-term bank loans RMB denominated US Dollar (“USD”) denominated Short-term other loans RMB denominated Current portion of long-term bank loans RMB denominated USD denominated Current portion of long-term corporate bonds RMB denominated USD denominated Corporate bonds(i) Loans from Sinopec Group Company and fellow subsidiaries Short-term loans RMB denominated USD denominated Hong Kong Dollar (“HKD”) denominated EUR denominated Singapore Dollar (“SGD”) denominated Current portion of long-term loans RMB denominated 31 December 2017 RMB million 31 December 2016 RMB million 31,105 23,685 7,420 299 299 1,402 1,379 23 22,532 16,000 6,532 23,934 — 55,338 23,297 1,706 19,668 1,903 — 20 2,014 2,014 25,311 80,649 11,944 10,931 1,013 — — 8,795 8,753 42 29,500 29,500 — 38,295 6,000 56,239 18,430 2,858 13,577 1,969 5 21 150 150 18,580 74,819 The Group’s weighted average interest rates on short-term loans were 2.72% (2016: 2.42 %) at 31 December 2017. The above borrowings are unsecured. 182 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 29 SHORT–TERM AND LONG–TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued) Long–term debts represent: Third parties’ debts Long-term bank loans RMB denominated USD denominated Corporate bonds (ii) RMB denominated USD denominated Interest rate and final maturity Interest rates ranging from 1.08% to 4.66% per annum at 31 December 2017 with maturities through 2030 Interest rates ranging from 1.55% to 4.29% per annum at 31 December 2017 with maturities through 2031 Fixed interest rates ranging from 3.30% to 5.68% per annum at 31 December 2017 with maturity through 2022 Fixed interest rates ranging from 1.88% to 4.25% per annum at 31 December 2017 with maturities through 2043 Total third parties’ long-term debts Less: Current portion Long-term loans from Sinopec Group Company and fellow subsidiaries RMB denominated Interest rates ranging from interest free to 4.99% per annum at 31 December 2017 with maturities through 2022 Less: Current portion 31 December 2017 RMB million 31 December 2016 RMB million 25,644 26,058 192 426 25,836 36,000 26,484 65,500 17,902 18,985 53,902 79,738 (23,934) 55,804 84,485 110,969 (38,295) 72,674 45,334 44,922 (2,014) 43,320 99,124 (150) 44,772 117,446 Short-term and long-term bank loans, short-term other loans and loans from Sinopec Group Company and fellow subsidiaries are primarily unsecured and carried at amortised cost. Note: (i) The Company issued 182-day corporate bonds of face value RMB 6 billion to corporate investors in the PRC debenture market on 12 September 2016 at par value of RMB 100. The effective cost of the 182-day corporate bonds is 2.54% per annum. The short-term bonds were due on 14 March 2017 and have been fully paid by the Group at maturity. (ii) These corporate bonds are carried at amotised cost. At 31 December 2017, RMB 17,902 million (USD denominated corporate bonds) are guaranteed by Sinopec Group Company. 183 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 30 TRADE ACCOUNTS AND BILLS PAYABLES Amounts due to third parties Amounts due to Sinopec Group Company and fellow subsidiaries Amounts due to associates and joint ventures Bills payable Trade accounts and bills payables measured at amortised cost The ageing analysis of trade accounts and bills payables are as follows: Within 1 month or on demand Between 1 month and 6 months Over 6 months 31 ACCRUED EXPENSES AND OTHER PAYABLES Salaries and welfare payable Interest payable Payables for constructions Other payables Financial liabilities carried at amortised costs Taxes other than income tax Receipts in advance Derivative financial instruments 32 PROVISIONS 31 December 2017 RMB million 31 December 2016 RMB million 177,224 13,350 9,499 200,073 6,462 206,535 154,882 13,168 6,251 174,301 5,828 180,129 31 December 2017 RMB million 31 December 2016 RMB million 195,189 8,076 3,270 206,535 159,953 12,693 7,483 180,129 31 December 2017 RMB million 31 December 2016 RMB million 7,162 723 60,010 29,022 96,917 58,925 120,734 2,671 279,247 1,618 1,396 52,827 21,468 77,309 46,835 95,928 4,472 224,544 Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has mainly committed to the PRC government to establish certain standardised measures for the dismantlement of its oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its oil and gas properties. Movement of provision of the Group’s obligations for the dismantlement of its oil and gas properties is as follow: Balance at 1 January Provision for the year Accretion expenses Utilised for the year Exchange adjustments Balance at 31 December 2017 RMB million 2016 RMB million 36,918 1,627 1,501 (467) (172) 39,407 33,115 3,420 1,057 (843) 169 36,918 184 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 33 SHARE CAPITAL Registered, issued and fully paid 95,557,771,046 listed A shares (2016: 95,557,771,046) of RMB 1.00 each 25,513,438,600 listed H shares (2016: 25,513,438,600) of RMB 1.00 each 31 December 2017 RMB million 31 December 2016 RMB million 95,558 25,513 121,071 95,558 25,513 121,071 The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state–owned shares with a par value of RMB 1.00 each. Such shares were issued to Sinopec Group Company in consideration for the assets and liabilities transferred to the Company (Note 1). Pursuant to the resolutions passed at an Extraordinary General Meeting held on 25 July 2000 and approvals from relevant government authorities, the Company is authorised to increase its share capital to a maximum of 88.3 billion shares with a par value of RMB 1.00 each and offer not more than 19.5 billion shares with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group Company is authorised to offer not more than 3.5 billion shares of its shareholdings in the Company to investors outside the PRC. The shares sold by Sinopec Group Company to investors outside the PRC would be converted into H shares. In October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HKD 1.59 per H share and USD 20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong and overseas investors. As part of the global initial public offering, 1,678,049,000 state–owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong and overseas investors. In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural persons and institutional investors in the PRC. During the year ended 31 December 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each, as a result of exercise of 188,292 warrants entitled to the Bonds with Warrants. During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2012, the Company issued 117,724,450 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. On 14 February 2013, the Company issued 2,845,234,000 listed H shares (“the Placing”) with a par value of RMB 1.00 each at the Placing Price of HKD 8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD 24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD 23,970,100,618.00. In June 2013, the Company issued 21,011,962,225 listed A shares and 5,887,716,600 listed H shares as a result of bonus issues of 2 shares converted from the retained earnings, and 1 share transferred from the share premium for every 10 existing shares. During the year ended 31 December 2013, the Company issued 114,076 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2014, the Company issued 1,715,081,853 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. During the year ended 31 December 2015, the Company issued 2,790,814,006 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. All A shares and H shares rank pari passu in all material aspects. 185 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 33 SHARE CAPITAL (Continued) Capital management Management optimises the structure of the Group’s capital, which comprises of equity and debts. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion), including long-term debts and loans from Sinopec Group Company and fellow subsidiaries, by the total of equity attributable to shareholders of the Company and long-term loans (excluding current portion), and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management’s strategy is to make appropriate adjustments according to the Group’s operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2017, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 12.0% (2016: 14.2 %) and 46.5% (2016: 44.5 %), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 29 and 34, respectively. There were no changes in the management’s approach to capital management of the Group during the year. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements. 34 COMMITMENTS AND CONTINGENT LIABILITIES Operating lease commitments The Group leases land and buildings, service stations and other equipment through non–cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contains escalation provisions that may require higher future rental payments. At 31 December 2017 and 2016, the future minimum lease payments under operating leases are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Thereafter Capital commitments At 31 December 2017 and 2016, capital commitments are as follows: Authorised and contracted for (i) Authorised but not contracted for 31 December 2017 RMB million 31 December 2016 RMB million 11,114 11,492 10,730 10,552 10,428 202,806 257,122 14,917 14,228 13,966 13,217 12,980 275,570 344,878 31 December 2017 RMB million 31 December 2016 RMB million 120,386 57,997 178,383 116,379 31,720 148,099 These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects, the construction of service stations and oil depots and investment commitments. Note: (i) The investment commitments of the Group is RMB 3,364 million (2016: RMB 4,173 million). Commitments to joint ventures Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices. 186 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2017Financial Statements (International) 34 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Exploration and production licenses Exploration licenses for exploration activities are registered with the Ministry of Land and Resources. The maximum term of the Group’s exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two–year term. The Group is obligated to make progressive annual exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Land and Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group’s production license is renewable upon application by the Group 30 days prior to expiration. The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Land and Resources annually which are expensed. Payments incurred were approximately RMB 308 million for the year ended 31 December 2017 (2016: RMB 333 million). Estimated future annual payments are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Thereafter 31 December 2017 RMB million 31 December 2016 RMB million 205 83 32 28 28 882 1,258 263 123 25 24 25 867 1,327 Contingent liabilities At 31 December 2017 and 2016, guarantees by the group in respect of facilities granted to the parties below are as follows: Joint ventures Associates(ii) Others 31 December 2017 RMB million 31 December 2016 RMB million 940 13,520 9,732 24,192 658 11,545 10,669 22,872 Management monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occurr, and recognises any such losses under guarantees when those losses are estimable. At 31 December 2017 and 2016, it was not probable that the Group will be required to make payments under the guarantees. Thus no liability has been accrued for a loss related to the Group’s obligation under these guarantee arrangements. Note: (ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. As at 31 December 2017, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 13,520 million. Environmental contingencies Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect management’s ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. The Group paid normal routine pollutant discharge fees of approximately RMB 7,851 million in the consolidated financial statements for the year ended 31 December 2017 (2016: RMB 6,358 million). Legal contingencies The Group is defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group. 187 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 35 BUSINESS COMBINATION (a) Acquisition of Shanghai SECCO On 26 October 2017, a subsidiary of the Company, Gaoqiao Petrochemical Co., Ltd., purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited with a cash consideration of RMB 10,135 million ("the Transaction"). Before the Transaction, the Company and one of its subsidiaries held 30% and 20% equity interest in Shanghai SECCO, respectively. After the Transaction, the Company, together with its subsidiaries, hold 100% equity interest of Shanghai SECCO, which became a subsidiary of the Company. Shanghai SECCO is principally engaged in the production and sale of petrochemical products including acrylonitrile, polystyrene, polyethylene, etc. Based on the purchase price allocation performed, details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration ﹕ Acquisition Date (26 October 2017) – Cash consideration for the purchase of 50% equity interest acquired – Acquisition-date fair value of the 50% equity interest held before the acquisition Total purchase consideration The assets and liabilities recognised as a result of the acquisition are as follows: Cash and cash equivalents Bills receivable Inventories Trade and other receivables Prepayments Other current assets Total current assets Property, plant and equipment, net Lease prepayments Intangible assets Construction in progress Long-term prepaid expenses Deferred tax assets Total non-current assets Total assets Trade and other payables Advances received Employee benefits payable Tax payable Total current liabilities Deferred tax liabilities (Note 28) Net assets acquired Goodwill RMB million 10,135 10,135 20,270 Fair value RMB million 5,653 641 1,702 558 1,349 761 10,664 9,587 1,920 1,017 231 117 11 12,883 23,547 (2,115) (383) (96) (1,438) (4,032) (1,786) 17,729 2,541 The goodwill is attributable to the high profitability of the acquired business and synergy to be achieved post the Transaction among Shanghai SECCO and the Group’s existing petrochemical operations located in eastern China. As of Acquisition Date, a gain of RMB 3,941 million was recognised as a result of remeasuring the 50% equity interest held before the Transaction to its fair value, which is included in other operating (expense)/income in the Group's consolidated income statement for the year ended 31 December 2017. Shanghai SECCO contributed revenue of RMB 5,222 million and net profit of RMB 726 million to the Group for the period from the Acquisition Date to 31 December 2017. If the acquisition had occurred on 1 January 2017, consolidated pro-forma revenue and profit for the year ended 31 December 2017 would have been RMB 2,365,632 million and RMB 74,930 million respectively. These amounts have been calculated using the subsidiary’s results and adjusting them for the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2017, together with the consequential tax effects. 188 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 35 BUSINESS COMBINATION (Continued) (b) Acquisition of Gaoqiao Branch of SAMC Pursuant to the resolution passed at the Directors’ meeting on 29 October 2015, the Company entered into the JV Agreement with Sinopec Assets Management Corporation (“SAMC”) in relation to the formation of the Gaoqiao Petrochemical Co., Ltd. According to the JV Agreement, the Company and SAMC jointly set up Gaoqiao Petrochemical Co., Ltd. for RMB 100 million in cash in 2016. Subsequently, the Company subscribed capital contribution with the net assets of Gaoqiao Branch of the Company and SAMC subscribed capital contribution with the net assets of Gaoqiao Branch of SAMC. The capital contribution was completed on 1 June 2016, after which the Company held 55% of Gaoqiao Petrochemical Co., Ltd.’s voting rights and became the parent company of Gaoqiao Petrochemical Co., Ltd. As Sinopec Group Company controls both the Group and SAMC, the non-cash transaction described above between Sinopec and SAMC has been accounted as business combination under the common control and it has been reflected in the accompanying consolidated financial statements as combination of entities under common control in a manner of predecessor value accounting. Accordingly, the assets and liabilities of Gaoqiao Branch of SAMC have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Gaoqiao Branch of SAMC on a combined basis. At the completion date, the non-controlling interests amount to RMB 2,137 million was recognized in relation to SAMC’s 45% interest in Gaoqiao Branch of the Company. 36 RELATED PARTY TRANSACTIONS Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to control or common control. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures The Group is part of a larger group of companies under Sinopec Group Company, which is controlled by the PRC government, and has significant transactions and relationships with Sinopec Group Company and fellow subsidiaries. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business are as follows: Sales of goods Purchases Transportation and storage Exploration and development services Production related services Ancillary and social services Operating lease charges for land Operating lease charges for buildings Other operating lease charges Agency commission income Interest income Interest expense Net deposits placed with from related parties Net loans obtained from/(repaid to) related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (ix) (x) (ix) (xi) 2017 RMB million 2016 RMB million 244,211 165,993 7,716 21,210 20,824 6,653 8,015 510 626 127 807 554 (7,441) 5,279 194,179 118,242 1,333 27,201 10,816 6,584 10,474 449 456 129 209 996 (21,770) (24,877) The amounts set out in the table above in respect of the year ended 31 December 2017 and 2016 represent the relevant costs and income as determined by the corresponding contracts with the related parties. 189 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 36 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) Included in the transactions disclosed above, for the year ended 31 December 2017 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 128,350 million (2016: RMB 114,526 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 112,619 million (2016: RMB 96,023 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 6,652 million (2016: RMB 6,584 million), operating lease charges for land and buildings paid by the Group of RMB 8,015 million and RMB 510 million (2016: RMB 10,474 million and RMB 449 million), respectively and interest expenses of RMB 554 million (2016: RMB 996 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 60,045 million (2016: RMB 56,251 million), comprising RMB 59,213 million (2016: RMB 56,010 million) for sales of goods, RMB 807 million (2016: RMB 209 million) for interest income and RMB 25 million (2016: RMB 32 million) for agency commission income. At 31 December 2017 and 2016, there was no guarantee given to banks by the Group in respect of banking facilities to related parties, except for the guarantees disclosed in Note 34. The directors of the Company are of the opinion that the above transactions with related parties were conducted in the ordinary course of business and on normal commercial terms or in accordance with the agreements governing such transactions, and this has been confirmed by the independent non–executive directors. Note: (i) Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials. (ii) Purchases represent the purchase of materials and utility supplies directly related to the Group’s operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas. (iii) Transportation and storage represent the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities. (iv) Exploration and development services comprise direct costs incurred in the exploration and development such as geophysical, drilling, well testing and well measurement services. (v) Production related services represent ancillary services rendered in relation to the Group’s operations such as equipment repair and general maintenance, insurance premium, technical research, communications, firefighting, security, product quality testing and analysis, information technology, design and engineering, construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management and environmental protection. (vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, property maintenance and management services. (vii) Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment. (viii) Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company. (ix) Interest income represents interest received from deposits placed with Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. The balance of deposits at 31 December 2017 was RMB 47,514 million (2016: RMB 40,073 million). (x) Interest expense represents interest charges on the loans and advances obtained from Sinopec Group Company and fellow subsidiaries. (xi) The Group obtained or repaid loans from or to Sinopec Group Company and fellow subsidiaries. 190 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International)36 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the year ended 31 December 2017. The terms of these agreements are summarised as follows: • The Company has entered into a non–exclusive "Agreement for Mutual Provision of Products and Ancillary Services" (“Mutual Provision Agreement”) with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows: (1) the government-prescribed price; (2) where there is no government-prescribed price, the government-guidance price; (3) where there is neither a government-prescribed price nor a government-guidance price, the market price; or (4) where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%. The Company has entered into a non-exclusive "Agreement for Provision of Cultural and Educational, Health Care and Community Services" with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as described in the above Mutual Provision Agreement. The Company has entered into a series of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party. The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company. The Company has entered into a service stations franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group. • • • • Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures included in the following accounts captions are summarised as follows: Trade accounts receivable Other receivables Prepaid expenses and other current assets Long-term prepayments and other assets Total Trade accounts payable Accrued expenses and other payables Other long–term liabilities Short–term loans and current portion of long-term loans from Sinopec Group Company and fellow subsidiaries Long–term loans excluding current portion from Sinopec Group Company and fellow subsidiaries Total 31 December 2017 RMB million 31 December 2016 RMB million 12,903 5,444 189 20,726 39,262 22,849 20,990 10,165 25,311 43,320 122,635 10,978 12,860 570 20,385 44,793 19,419 21,590 9,998 18,580 44,772 114,359 Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 29. The long–term borrowings mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from the Sinopec Group Company (a state-owned enterprise) through the Sinopec Finance. This borrowing is a special arrangement to reduce financing costs and improve liquidity of the Company during its initial global offering in 2000. As at and for the year ended 31 December 2017, and as at and for the year ended 31 December 2016, no individually significant impairment losses for bad and doubtful debts were recognised in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures. 191 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 36 RELATED PARTY TRANSACTIONS (Continued) (b) Key management personnel emoluments Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensation is as follows: Short–term employee benefits Retirement scheme contributions 2017 RMB’000 5,344 424 5,768 2016 RMB’000 5,648 499 6,147 (c) Contributions to defined contribution retirement plans The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group’s employee benefits plan are disclosed in Note 37. As at 31 December 2017 and 2016, the accrual for the contribution to post–employment benefit plans was not material. (d) Transactions with other state–controlled entities in the PRC The Group is a state-controlled energy and chemical enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government through its government authorities, agencies, affiliations and other organisations (collectively referred as “state-controlled entities”). Apart from transactions with Sinopec Group Company and fellow subsidiaries, the Group has transactions with other state-controlled entities, include but not limited to the followings: ‧ sales and purchases of goods and ancillary materials; ‧ rendering and receiving services; ‧ lease of assets; ‧ depositing and borrowing money; and ‧ uses of public utilities. These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state–controlled. 37 EMPLOYEE BENEFITS PLAN As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The Group is required to make contributions to the retirement plans at rates ranging from 15.0% to 20.0% of the salaries, bonuses and certain allowances of its staff. In addition, the Group provides a supplementary retirement plan for its staff at rates not exceeding 5% of the salaries. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. The Group’s contributions for the year ended 31 December 2017 were RMB 8,981 million (2016: RMB 8,385 million). 38 SEGMENT REPORTING Segment information is presented in respect of the Group’s business segments. The format is based on the Group’s management and internal reporting structure. In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments. (i) Exploration and production, which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers. (ii) Refining, which processes and purifies crude oil, that is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers. (iii) Marketing and distribution, which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks. (iv) Chemicals, which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products mainly to external customers. (v) Corporate and others, which largely comprises the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries. 192 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 38 SEGMENT REPORTING (Continued) The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed separately because they manufacture and/ or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics. (1) Information of reportable segmental revenues, profits or losses, assets and liabilities The Group’s chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating profit basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group’s policy. Assets and liabilities dedicated to a particular segment’s operations are included in that segment’s total assets and liabilities. Segment assets include all tangible and intangible assets, except for interest in associates and joint ventures, investments, deferred tax assets, cash and cash equivalents, time deposits with financial institutions and other unallocated assets. Segment liabilities exclude short-term, income tax payable, long-term debts, loans from Sinopec Group Company and fellow subsidiaries, deferred tax liabilities and other unallocated liabilities. Information of the Group’s reportable segments is as follows: Turnover Exploration and production External sales Inter–segment sales Refining External sales Inter–segment sales Marketing and distribution External sales Inter–segment sales Chemicals External sales Inter–segment sales Corporate and others External sales Inter–segment sales Elimination of inter–segment sales Turnover Other operating revenues Exploration and production Refining Marketing and distribution Chemicals Corporate and others Other operating revenues Turnover and other operating revenues 2017 RMB million 2016 RMB million 69,168 77,804 146,972 132,478 874,271 1,006,749 1,191,902 3,962 1,195,864 373,814 49,615 423,429 533,108 440,303 973,411 (1,445,955) 2,300,470 10,533 5,104 28,333 14,314 1,439 59,723 2,360,193 47,443 58,954 106,397 102,983 747,317 850,300 1,027,373 3,480 1,030,853 284,289 38,614 322,903 418,102 320,367 738,469 (1,168,732) 1,880,190 9,542 5,486 22,004 12,211 1,478 50,721 1,930,911 193 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 38 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Result Operating (loss)/profit By segment – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others – Elimination Total segment operating profit Share of profits/(losses) from associates and joint ventures – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Aggregate share of profits from associates and joint ventures Investment income/(losses) – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Aggregate investment income Net finance costs Profit before taxation Assets Segment assets – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Total segment assets Interest in associates and joint ventures Available-for-sale financial assets Deferred tax assets Cash and cash equivalents and time deposits with financial institutions Other unallocated assets Total assets Liabilities Segment liabilities – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Total segment liabilities Short-term debts Income tax payable Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Deferred tax liabilities Other unallocated liabilities Total liabilities 194 2017 RMB million 2016 RMB million (45,944) 65,007 31,569 26,977 (4,484) (1,655) 71,470 1,449 989 2,945 9,621 1,521 16,525 40 28 90 86 18 262 (1,560) 86,697 (36,641) 56,265 32,153 20,623 3,212 1,581 77,193 (1,203) 1,075 2,362 5,696 1,376 9,306 24 (4) 90 119 34 263 (6,611) 80,151 At 31 December 2017 RMB million At 31 December 2016 RMB million 343,404 273,123 309,727 158,472 170,045 1,254,771 131,087 1,676 15,131 165,004 27,835 1,595,504 99,568 101,429 164,101 35,293 117,781 518,172 55,338 13,015 55,804 68,631 6,466 25,188 742,614 402,476 260,903 292,328 144,371 95,263 1,195,341 116,812 11,408 7,214 142,497 25,337 1,498,609 95,944 82,170 133,303 32,072 97,080 440,569 56,239 6,051 72,674 63,352 7,661 20,828 667,374 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 38 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Capital expenditure Exploration and production Refining Marketing and distribution Chemicals Corporate and others Depreciation, depletion and amortisation Exploration and production Refining Marketing and distribution Chemicals Corporate and others Impairment losses on long-lived assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others 2017 RMB million 2016 RMB million 31,344 21,075 21,539 23,028 2,398 99,384 66,843 18,408 15,463 12,873 1,723 115,310 13,556 1,894 675 4,922 211 21,258 32,187 14,347 18,493 8,849 2,580 76,456 61,929 17,209 14,540 12,654 2,093 108,425 11,605 1,655 267 2,898 — 16,425 (2) Geographical information The following tables set out information about the geographical information of the Group’s external sales and the Group’s non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets. External sales Mainland China Singapore Others Non-current assets Mainland China Others 2017 RMB million 2016 RMB million 1,758,365 269,349 332,479 2,360,193 1,488,117 152,068 290,726 1,930,911 31 December 2017 RMB million 31 December 2016 RMB million 979,329 48,572 1,027,901 1,000,209 45,887 1,046,096 195 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 39 PRINCIPAL SUBSIDIARIES At 31 December 2017, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group. Name of company Sinopec Great Wall Energy & Chemical Company Limited Sinopec Yangzi Petrochemical Company Limited RMB 13,203 100.00 Particulars of issued capital (million) Interests held Interests held by by the non-controlling Company % interests % Principal activities RMB 22,761 100.00 Sinopec Pipeline Storage & Transportation Company Limited Sinopec Overseas Investment Holding Limited ("SOIH") Sinopec International Petroleum Exploration and Production Limited ("SIPL") RMB 12,000 100.00 USD 1,638 RMB 8,000 100.00 100.00 — Investment holding — Investment in exploration, — — — Coal chemical industry investment management, production and sale of coal chemical products Manufacturing of intermediate petrochemical products and petroleum products Pipeline storage and transportation of crude oil — — — — production and sale of petroleum and natural gas Production and sale of polyester chips and polyester fibres Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials Trading of crude oil and petrochemical products Manufacturing of intermediate petrochemical products and petroleum products 1.02 15.00 — Production and sale of catalyst products — Trading of petrochemical products — Marketing and distribution of petrochemical products Import and processing of crude oil, production, storage and sale of petroleum products and petrochemical products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Marketing and distribution of refined petroleum products Production and sale of petrochemical products Production, sale, research and development of ethylene and downstream byproducts Trading of crude oil and petroleum products Manufacturing of intermediate petrochemical products and petroleum products Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical products and petroleum products 25.00 25.00 29.58 32.40 35.00 39.66 45.00 49.51 50.00 Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Lubricant Company Limited RMB 4,000 100.00 RMB 3,374 100.00 China International United Petroleum and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited RMB 3,000 100.00 RMB 1,595 100.00 Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Chemical Sales Company Limited RMB 1,500 RMB 1,400 RMB 1,000 100.00 100.00 100.00 Sinopec Beihai Refining and Chemical Limited Liability Company RMB 5,294 98.98 Sinopec Qingdao Refining and Chemical Company Limited RMB 5,000 85.00 Sinopec Zhanjiang Dongxing Petrochemical Company Limited RMB 4,397 75.00 Sinopec Hainan Refining and Chemical Company Limited RMB 3,986 75.00 Sinopec Marketing Company Limited ("Marketing Company") Shanghai SECCO Petrochemical Company Limited ("Shanghai SECCO") (Note 35) Sinopec-SK(Wuhan) Petrochemical Company Limited ("Zhonghan Wuhan") RMB 28,403 RMB 7,801 RMB 6,270 Sinopec Kantons Holdings Limited ("Sinopec Kantons") HKD 248 Gaoqiao Petrochemical Company Limited (Note 35) RMB 10,000 70.42 67.60 65.00 60.34 55.00 Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) RMB 10,814 50.49 Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) RMB 6,898 50.00 196 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 39 PRINCIPAL SUBSIDIARIES (Continued) Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong respectively, all of the above principal subsidiaries are incorporated and operate their businesses principally in the PRC. All of the above principal subsidiaries are limited companies. Note: (i) The Group consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Summarised financial information on subsidiaries with material non-controlling interests Set out below are the summarised financial information which the amount before inter–company eliminations for each subsidiary that has non– controlling interests that are material to the Group. Summarised consolidated balance sheet SIPL Shanghai Petrochemical Fujian Petrochemical At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million At 31 December 2017 RMB million At 31 December 2016 RMB million Sinopec Kantons At 31 December 2017 RMB million At 31 December 2016 RMB million Shanghai SECCO At 31 December 2017 RMB million Zhonghan Wuhan At 31 December 2017 RMB million At 31 December 2016 RMB million 19,555 (7,118) 12,437 34,769 (28,523) 6,246 18,683 18,116 (824) 17,292 40,067 (39,322) 745 18,037 19,866 (10,922) 8,944 19,577 (6) 19,571 28,515 14,876 (8,942) 5,934 19,070 — 19,070 25,004 992 (376) 616 9,925 (681) 9,244 9,860 4,930 4,930 926 (812) 114 7,845 (721) 7,124 7,238 3,619 3,619 1,196 (2,351) (1,155) 13,089 (2,430) 10,659 9,504 5,716 3,788 1,352 (2,891) (1,539) 13,228 (3,101) 10,127 8,588 5,162 3,426 11,602 (4,174) 7,428 12,797 (1,740) 11,057 18,485 12,496 5,989 1,636 (3,975) (2,339) 13,598 — 13,598 11,259 7,318 3,941 1,489 (7,521) (6,032) 14,686 — 14,686 8,654 5,625 3,029 132,549 134,393 3,468 2,784 14,253 12,500 63,006 63,555 15,215 15,253 14,262 12,504 Summarised consolidated statement of comprehensive income Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million Sinopec Kantons 2017 RMB million 2016 RMB million Shanghai SECCO(ii) 2017 RMB million 6,136 1,075 396 (38) — 4,016 (4,604) 91,962 6,154 77,843 5,981 (2,481) 6,153 6,000 (3,279) — 3,052 1,344 2,964 563 6,068 2,726 2,726 1,363 625 4,968 2,513 2,513 1,256 — 1,498 1,046 1,146 433 70 1,512 860 879 349 51 5,222 726 726 235 — Marketing Company At 31 December 2017 RMB million At 31 December 2016 RMB million 156,494 (212,620) 121,260 (168,366) (56,126) 253,455 (1,774) 251,681 195,555 (47,106) 246,514 (1,460) 245,054 197,948 Current assets Current liabilities Net current (liabilities)/assets Non–current assets Non–current liabilities Net non–current assets Net assets Attributable to owners of the Company Attributable to non-controlling interests Turnover Profit/(loss) for the year Total comprehensive income/(loss) Comprehensive income/(loss) attributable to non- controlling interests Dividends paid to non–controlling interests 2017 RMB million 1,221,530 27,520 2016 RMB million 1,050,294 26,461 26,986 27,385 9,033 9,544 9,028 4,932 Zhonghan Wuhan 2017 RMB million 2016 RMB million 16,139 2,730 11,703 1,558 2,730 1,558 956 — 545 — 197 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 39 PRINCIPAL SUBSIDIARIES (Continued) Summarised statement of cash flows Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million 2017 RMB million 2016 RMB million Sinopec Kantons 2017 RMB million 2016 RMB million Shanghai SECCO(ii) 2017 RMB million Zhonghan Wuhan 2017 RMB million 2016 RMB million Net cash generated from/ (used in) operating activities Net cash (used in)/generated from investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign currency exchange rate changes Cash and cash equivalents at 31 December 51,038 50,840 2,758 (35,738) (31,573) (2,211) (16,499) (20,424) (1,199) (1,157) 243 790 14,373 14,914 3,045 (253) 616 (230) 12,921 14,373 3,605 2,576 2,729 7,061 7,182 (2,401) (190) (4,414) (2,590) (2,637) 891 2,042 112 3,045 2,070 5,441 (7) 4,355 1,077 9 7,504 5,441 (558) 225 (158) (491) 717 — 226 617 54 (55) 616 101 — 717 968 193 505 261 (1,093) (1,338) 1,639 5,567 — 68 289 (14) 343 (572) 7,206 886 (25) 289 — (1) 7,205 2,976 3,636 (2,415) (3,080) (631) (70) 134 — 64 (682) (126) 260 — 134 (ii) The summarized consolidated statement of comprehensive income and the summarized statement of cash flow of Shanghai SECCO present the results from the acquisition date to 31 December 2017. 40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES Overview Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, investments, financial assets at fair value through profit or loss, trade accounts receivable, bills receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due from associates and joint ventures, available-for-sale financial assets, derivative financial instruments and other receivables. Financial liabilities of the Group include short-term and long-term debts, loans from Sinopec Group Company and fellow subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec Group Company and fellow subsidiaries, derivative financial instruments and other payables. The Group has exposure to the following risks from its uses of financial instruments: ‧ credit risk; ‧ liquidity risk; ‧ market risk. The Board of Directors has overall responsibility for the establishment, oversight of the Group’s risk management framework, and developing and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management controls and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group’s audit committee. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s deposits placed with financial institutions (including structured deposit) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group’s trade accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2017, except the amounts due from Sinopec Group Company and fellow subsidiaries. Management performs ongoing credit evaluations of the Group’s customers’ financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management’s expectations. The carrying amounts of cash and cash equivalents, time deposits with financial institutions, trade accounts and bills receivables, derivative financial instruments, financial assets at fair value through profit or loss and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets. 198 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach in managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Management prepares monthly cash flow budget to ensure that the Group will always have sufficient liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the Group’s liquidity risk. At 31 December 2017, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 361,852 million (2016: RMB 256,375 million) on an unsecured basis, at a weighted average interest rate of 3.40% per annum (2016: 3.57%). At 31 December 2017, the Group’s outstanding borrowings under these facilities were RMB 56,567 million (2016: RMB 36,933 million) and were included in debts. The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would be required to repay: Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Trade accounts payable Bills payable Accrued expenses and other payables Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Trade accounts payable Bills payable Accrued expenses and other payables Total contractual Carrying undiscounted cash flow RMB million amount RMB million 55,338 55,804 68,631 200,073 6,462 99,588 485,896 56,562 66,202 68,950 200,073 6,462 99,588 497,837 Total contractual Carrying undiscounted cash flow amount RMB million RMB million 56,239 72,674 63,352 174,301 5,828 81,781 454,175 57,515 85,021 63,678 174,301 5,828 81,781 468,124 31 December 2017 Within More than 1 More than 2 year but less years but less than 5 years than 2 years RMB million RMB million 1 year or on demand RMB million More than 5 years RMB million 56,562 2,166 25,504 200,073 6,462 99,588 390,355 — 14,477 4,439 — — — 18,916 — 32,316 39,007 — — — 71,323 — 17,243 — — — — 17,243 31 December 2016 Within More than 1 More than 2 year but less years but less than 5 years than 2 years RMB million RMB million 1 year or on demand RMB million More than 5 years RMB million 57,515 2,672 18,790 174,301 5,828 81,781 340,887 — 27,277 2,092 — — — 29,369 — 30,535 42,796 — — — 73,331 — 24,537 — — — — 24,537 Management believes that the Group’s current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group’s short-term and long-term capital requirements. 199 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. 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 USD. 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: Gross exposure arising from loans USD 31 December 2017 million 31 December 2016 million USD 204 USD 126 A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2017 and 2016 would have increased/decreased net profit for the year 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 2016. USD 31 December 2017 million 31 December 2016 million 50 33 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 2017, 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 net profit for the year by approximately RMB 450 million (2016: decrease/increase by approximately RMB 327 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 2016. 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, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical 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 2017, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. The fair values of these derivative financial instruments as at 31 December 2017 are set out in Notes 27 and 31. As at 31 December 2017, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would decrease/increase the Group’s profit for the period by approximately RMB 4,049 million (2016: decrease/increase RMB 634 million), and decrease/increase the Group’s other reserves by approximately RMB 701 million (2016: decrease/increase RMB 4,007 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 2016. 200 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Fair values (i) Financial instruments carried at fair value The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS 7, ‘Financial Instruments: Disclosures’, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows: ‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments. ‧ Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data. ‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data. At 31 December 2017 Assets Financial assets at fair value through profit and loss: – Structured deposit Available-for-sale financial assets: – Listed Derivative financial instruments: – Derivative financial assets Liabilities Derivative financial instruments: – Derivative financial liabilities At 31 December 2016 Assets Available-for-sale financial assets: – Listed Derivative financial instruments: – Derivative financial assets Liabilities Derivative financial instruments: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million — 178 343 521 — — 183 183 1,277 1,277 1,388 1,388 51,196 51,196 — — 51,196 — — 178 526 51,900 2,665 2,665 Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million 262 29 291 2,586 2,586 — 733 733 1,886 1,886 — — — — — 262 762 1,024 4,472 4,472 During the years ended 31 December 2017 and 2016, there was no transfer among instruments in Level 1, Level 2, Level 3. Management of the Group evaluates the fair value of Level 3 financial assets using discounted cash flow model based on the interest rate and commodity index which were influenced by historical fluctuation and the probability of market fluctuation as input value for evaluating the fair value of the structural deposits. 201 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 40 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Fair values (Continued) (ii) Fair values of financial instruments carried at other than fair value The disclosures of the fair value estimates, and their methods and assumptions of the Group’s financial instruments, are made to comply with the requirements of IFRS 7 and IAS 39 and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair values of the Group’s financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group that range from 1.79% to 4.90% (2016: 1.06% to 4.90%). The following table presents the carrying amount and fair value of the Group’s long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2017 and 2016: Carrying amount Fair value 31 December 2017 RMB million 79,738 78,040 31 December 2016 RMB million 110,969 109,308 The Group has not developed an internal valuation model necessary to estimate the fair values of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation, the Group’s existing capital structure and the terms of the borrowings. Investments in unquoted equity securities are individually and in the aggregate not material to the Group’s financial condition or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. The Group intends to hold these unquoted other investments in equity securities for long term purpose. Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2017 and 2016. 41 ACCOUNTING ESTIMATES AND JUDGEMENTS The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. Management bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change. The selection of critical accounting policies, the judgements and other uncertainties affecting application of such policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 2. Management believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the consolidated financial statements. 202 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International)41 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) Oil and gas properties and reserves The accounting for the exploration and production’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time. Engineering estimates of the Group’s oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”. Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in relation to depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property’s carrying amount. Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs. Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment loss and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised on a unit–of–production method based on volumes produced and reserves. Impairment for long–lived assets If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognised in accordance with IAS 36 “Impairment of Assets”. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price, amount of operating costs and discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price, amount of operating costs and discount rate. Depreciation Property, plant and equipment, other than oil and gas properties, are depreciated on a straight–line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. 203 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International)41 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) Impairment for bad and doubtful debts Management estimates impairment losses for bad and doubtful debts resulting from the inability of the Group’s customers to make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs would be higher than estimated. Allowance for diminution in value of inventories If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated. 42 PARENT AND ULTIMATE HOLDING COMPANY The directors consider the parent and ultimate holding company of the Group as at 31 December 2017 is Sinopec Group Company, a state–owned enterprise established in the PRC. This entity does not produce financial statements available for public use. 43 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY BALANCE SHEET OF THE COMPANY (Amounts in million) Note 31 December 2017 RMB 31 December 2016 RMB Non–current assets Property, plant and equipment, net Construction in progress Investment in subsidiaries Interest in associates Interest in joint ventures Available-for-sale financial assets Deferred tax assets Lease prepayments Long-term prepayments and other assets Total non–current assets Current assets Cash and cash equivalents Time deposits with financial institutions Financial assets at fair value through profit or loss Trade accounts receivable Bills receivable Dividends receivable Inventories Prepaid expenses and other current assets Total current assets Current liabilities Short-term debts Loans from Sinopec Group Company and fellow subsidiaries Trade accounts payable Bills payable Accrued expenses and other payables Total current liabilities Net current assets/(liabilities) Total assets less current liabilities Non–current liabilities Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Deferred tax liabilities Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity 204 329,814 50,046 245,156 15,579 14,822 395 6,834 6,916 14,072 683,634 72,309 20,236 48,179 37,609 157 16,327 44,933 79,111 318,861 33,454 3,214 83,449 3,155 194,291 317,563 1,298 684,932 40,442 43,225 — 31,405 3,613 118,685 566,247 121,071 445,176 566,247 373,020 49,277 238,264 14,691 15,496 297 — 6,114 14,731 711,890 88,120 10,130 — 38,332 471 5,454 46,942 76,386 265,835 50,574 2,703 75,787 2,761 148,997 280,822 (14,987) 696,903 49,676 44,772 505 29,767 3,688 128,408 568,495 121,071 447,424 568,495 (a) CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) 43 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued) (a) RESERVES MOVEMENT OF THE COMPANY The reconciliation between the opening and closing balances of each component of the Group’s consolidated reserves is set out in the consolidated statement of changes in equity. Details of the change in the Company’s individual component of reserves between the beginning and the end of the year are as follows: Capital reserve Balance at 1 January Others Balance at 31 December Share premium Balance at 1 January Balance at 31 December Statutory surplus reserve Balance at 1 January Appropriation Balance at 31 December Discretionary surplus reserve Balance at 1 January Balance at 31 December Other reserves Balance at 1 January Share of other comprehensive loss of associates and joint ventures, net of deferred tax Cash flow hedges, net of deferred tax Others Balance at 31 December Retained earnings Balance at 1 January Profit for the year Distribution to owners (Note 13) Appropriation Others Balance at 31 December The Company 2017 RMB million 2016 RMB million 9,175 20 9,195 55,850 55,850 79,640 3,042 82,682 9,122 53 9,175 55,850 55,850 79,640 — 79,640 117,000 117,000 117,000 117,000 2,438 (120) 53 89 2,460 183,321 30,488 (32,689) (3,042) (89) 177,989 445,176 1,950 (149) 557 80 2,438 176,497 23,733 (16,829) — (80) 183,321 447,424 205 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2017Financial Statements (International) Other than the differences in the classifications of certain financial statements captions and the accounting for the items described below, there are no material differences between the Group’s consolidated financial statements prepared in accordance with the accounting policies complying with ASBE and IFRS. The reconciliation presented below is included as supplemental information, is not required as part of the basic financial statements and does not include differences related to classification, presentation or disclosures. Such information has not been subject to independent audit or review. The major differences are: (I) GOVERNMENT GRANTS Under ASBE, grants from the government are credited to capital reserve if required by relevant governmental regulations. Under IFRS, government grants relating to the purchase of fixed assets are recognised as deferred income and are transferred to the income statement over the useful life of these assets. (II) SAFETY PRODUCTION FUND Under ASBE, safety production fund should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, payments are expensed as incurred, or capitalised as fixed assets and depreciated according to applicable depreciation methods. Effects of major differences between the shareholders’ equity under ASBE and the total equity under IFRS are analysed as follows: Shareholders’ equity under ASBE Adjustments: Government grants Total equity under IFRS* Note (i) 31 December 2017 RMB million 31 December 2016 RMB million 854,070 832,525 (1,180) 852,890 (1,290) 831,235 Effects of major differences between the net profit under ASBE and the profit for the year under IFRS are analysed as follows: Net profit under ASBE Adjustments: Government grants Safety production fund Others Profit for the year under IFRS* Note (i) (ii) 2017 RMB million 70,294 2016 RMB million 59,170 110 126 (112) 70,418 114 160 — 59,444 * The figures are extracted from the consolidated financial statements prepared in accordance with the accounting policies complying with IFRS during the year ended 31 December 2016 and 2017 which have been audited by PricewaterhouseCoopers. 206 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH ASBE AND IFRS (UNAUDITED)Financial Statements (Differences Between the ASBE and IFRS)(Unaudited) In accordance with the Accounting Standards Update 2010–03, “Extractive Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures” (“ASU 2010–03”), issued by the Financial Accounting Standards Board of the United States, and in accordance with “Industrial Information Disclosure Guidelines for Public Company – No.8 Oil and Gas Exploitation”, issued by Shanghai Stock Exchange, this section provides supplemental information on oil and gas exploration and producing activities of the Group and its equity method investments at 31 December 2017 and 2016, and for the years then ended in the following six separate tables. Tables I through III provide historical cost information under IFRS pertaining to capitalised costs related to oil and gas producing activities; costs incurred in oil and gas exploration and development; and results of operation related to oil and gas producing activities. Tables IV through VI present information on the Group’s and its equity method investments’ estimated net proved reserve quantities; standardised measure of discounted future net cash flows; and changes in the standardised measure of discounted cash flows. Tables I to VI of supplemental information on oil and gas producing activities set out below represent information of the Company and its consolidated subsidiaries and equity method investments. Table I: Capitalised costs related to oil and gas producing activities The Group Property cost, wells and related equipments and facilities Supporting equipments and facilities Uncompleted wells, equipments and facilities Total capitalised costs Accumulated depreciation, depletion, amortisation and impairment losses Net capitalised costs Equity method investments Share of net capitalised costs of associates and joint ventures Total of the Group’s and its equity method investments’ net capitalised costs 2017 RMB million Other countries Total China 2016 RMB million Other countries Total China 667,657 210,711 41,397 919,765 625,621 210,694 41,389 877,704 42,036 17 8 42,061 650,686 192,877 52,935 896,498 606,493 192,855 52,931 852,279 44,193 22 4 44,219 (601,318) 318,447 (565,651) 312,053 (35,667) 6,394 (528,636) 367,862 (495,538) 356,741 (33,098) 11,121 6,357 — 6,357 9,337 — 9,337 324,804 312,053 12,751 377,199 356,741 20,458 Table II: Costs incurred in oil and gas exploration and development The Group Exploration Development Total costs incurred Equity method investments Share of costs of exploration and development of associates and joint ventures Total of the Group’s and its equity method Total China 11,589 30,844 42,433 11,589 30,710 42,299 724 — investments’ exploration and development costs 43,157 42,299 2017 RMB million Other countries — 134 134 724 858 Total China 10,942 32,280 43,222 10,942 31,918 42,860 719 — 2016 RMB million Other countries — 362 362 719 43,941 42,860 1,081 207 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) Table III: Results of operations related to oil and gas producing activities 2017 RMB million Other countries Total China 2016 RMB million Other countries Total China The Group Revenues Sales Transfers Production costs excluding taxes Exploration expenses Depreciation, depletion, amortisation and impairment losses Taxes other than income tax Profit before taxation Income tax expense Results of operation from producing activities Equity method investments Revenues Sales Production costs excluding taxes Exploration expenses Depreciation, depletion, amortisation and impairment losses Taxes other than income tax Profit before taxation Income tax expense Share of profit for producing activities of associates and joint ventures 43,644 73,447 117,091 (46,311) (11,089) (80,399) (8,726) (29,434) 1,188 (28,246) 8,080 8,080 (2,748) — (1,243) (3,628) 461 (347) 114 43,644 67,311 110,955 (44,977) (11,089) (74,856) (8,726) (28,693) — (28,693) — — — — — — — — — Total of the Group’s and its equity method investments’ results of operations for producing activities (28,132) (28,693) — 6,136 6,136 (1,334) — (5,543) — (741) 1,188 447 8,080 8,080 (2,748) — (1,243) (3,628) 461 (347) 114 561 36,720 58,571 95,291 (44,077) (11,035) (73,534) (4,576) (37,931) (798) (38,729) 6,352 6,352 (2,205) — (2,752) (2,570) (1,175) (195) (1,370) 36,720 54,555 91,275 (42,652) (11,035) (68,594) (4,576) (35,582) — (35,582) — — — — — — — — — — 4,016 4,016 (1,425) — (4,940) — (2,349) (798) (3,147) 6,352 6,352 (2,205) — (2,752) (2,570) (1,175) (195) (1,370) (40,099) (35,582) (4,517) The results of operations for producing activities for the years ended 31 December 2017 and 2016 are shown above. Revenues include sales to unaffiliated parties and transfers (essentially at third–party sales prices) to other segments of the Group. Income taxes are based on statutory tax rates, reflecting allowable deductions and tax credits. General corporate overhead and interest income and expense are excluded from the results of operations. Table IV: Reserve quantities information The Group’s and its equity method investments’ estimated net proved underground oil and gas reserves and changes thereto for the years ended 31 December 2017 and 2016 are shown in the following table. Proved oil and gas reserves are those quantities of oil and gas, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change as additional information becomes available. Proved developed oil and gas reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well. “Net” reserves exclude royalties and interests owned by others and reflect contractual arrangements and obligation of rental fee in effect at the time of the estimate. 208 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) Table IV: Reserve quantities information (Continued) The Group Proved developed and undeveloped reserves (oil) (million barrels) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Non–controlling interest in proved developed and undeveloped reserves at the end of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Proved developed and undeveloped reserves (gas) (billion cubic feet) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year 2017 2016 Total China Other countries Total China Other countries 1,256 151 90 60 (264) 1,293 14 1,120 1,156 136 137 7,160 (107) 72 769 (909) 6,985 6,436 6,000 724 985 1,216 148 86 60 (249) 1,261 — 1,080 1,124 136 137 7,160 (107) 72 769 (909) 6,985 6,436 6,000 724 985 40 3 4 — (15) 32 14 40 32 — — — — — — — — — — — — 1,957 (505) 35 41 (272) 1,256 18 1,753 1,120 204 136 7,551 (170) 66 475 (762) 7,160 6,439 6,436 1,112 724 1,902 (509) 35 41 (253) 1,216 — 1,701 1,080 201 136 7,551 (170) 66 475 (762) 7,160 6,439 6,436 1,112 724 55 4 — — (19) 40 18 52 40 3 — — — — — — — — — — — 209 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) Table IV: Reserve quantities information (Continued) Equity method investments Proved developed and undeveloped reserves of associates and joint ventures (oil) (million barrels) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Proved developed and undeveloped reserves of associates and joint ventures (gas) (billion cubic feet) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Total of the Group and its equity method investments Proved developed and undeveloped reserves (oil) (million barrels) Beginning of year End of year Proved developed and undeveloped reserves (gas) (billion cubic feet) Beginning of year End of year 2017 2016 Total China Other countries Total China Other countries 296 12 8 20 (30) 306 273 273 23 33 18 (2) — — (4) 12 18 12 — — — — — — — — — — — — — — — — — — — — — — 1,552 1,599 7,178 6,997 1,216 1,261 7,160 6,985 296 12 8 20 (30) 306 273 273 23 33 18 (2) — — (4) 12 18 12 — — 336 338 18 12 286 (2) 3 41 (32) 296 260 273 26 23 19 3 — — (4) 18 18 18 1 — — — — — — — — — — — — — — — — — — — — — 2,243 1,552 7,570 7,178 1,902 1,216 7,551 7,160 286 (2) 3 41 (32) 296 260 273 26 23 19 3 — — (4) 18 18 18 1 — 341 336 19 18 210 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) Table V: Standardised measure of discounted future net cash flows The standardised measure of discounted future net cash flows, related to the above proved oil and gas reserves, is calculated in accordance with the requirements of ASU 2010–03 and “Industrial Information Disclosure Guidelines for Public Company – No.8 Oil and Gas Exploitation”. Estimated future cash inflows from production are computed by applying the average, first-day-of-the-month price for oil and gas during the twelve–month period before the ending date of the period covered by the report to year-end quantities of estimated net proved reserves. Future price changes are limited to those provided by contractual arrangements in existence at the end of each reporting year. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end estimated proved reserves based on year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates to estimated future pre-tax net cash flows, less the tax basis of related assets. Discounted future net cash flows are calculated using 10% discount factors. This discounting requires a year-by-year estimate of when the future expenditure will be incurred and when the reserves will be produced. The information provided does not represent management’s estimate of the Group’s and its equity method investments’ expected future cash flows or value of proved oil and gas reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation requires assumptions as to the timing and amount of future development and production costs. The calculations are made for the years ended 31 December 2017 and 2016 and should not be relied upon as an indication of the Group’s and its equity method investments’ future cash flows or value of its oil and gas reserves. 2017 RMB million Other countries Total China 2016 RMB million Other countries Total China The Group Future cash flows Future production costs Future development costs Future income tax expenses Undiscounted future net cash flows 10% annual discount for estimated timing of cash flows Standardised measure of discounted future net cash flows Discounted future net cash flows attributable to non–controlling interests Equity method investments Future cash flows Future production costs Future development costs Future income tax expenses Undiscounted future net cash flows 10% annual discount for estimated timing of cash flows Standardised measure of discounted future net cash flows Total of the Group’s and its equity method investments’ results of standardised measure of 639,336 (292,789) (24,999) (1,374) 320,174 628,187 (287,914) (20,314) — 319,959 11,149 (4,875) (4,685) (1,374) 215 603,785 (271,650) (20,241) (1,405) 310,489 592,389 (266,549) (15,615) — 310,225 (97,082) (97,115) 33 (102,342) (102,332) 208,147 207,893 223,092 222,844 112 43,587 (12,131) (4,692) (4,406) 22,358 (9,803) 12,555 — — — — — — — — 248 112 43,587 (12,131) (4,692) (4,406) 22,358 114 35,690 (10,783) (3,444) (3,303) 18,160 (9,803) (7,969) 12,555 10,191 — — — — — — — — 11,396 (5,101) (4,626) (1,405) 264 (10) 254 114 35,690 (10,783) (3,444) (3,303) 18,160 (7,969) 10,191 discounted future net cash flows 235,647 222,844 12,803 218,338 207,893 10,445 211 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) Table VI: Changes in the standardised measure of discounted cash flows The Group Sales and transfers of oil and gas produced, net of production costs Net changes in prices and production costs Net changes in estimated future development cost Net changes due to extensions, discoveries and improved recoveries Revisions of previous quantity estimates Previously estimated development costs incurred during the year Accretion of discount Net changes in income taxes Net changes for the year Equity method investments Sales and transfers of oil and gas produced, net of production costs Net changes in prices and production costs Net changes in estimated future development cost Net changes due to extensions, discoveries and improved recoveries Revisions of previous quantity estimates Previously estimated development costs incurred during the year Accretion of discount Net changes in income taxes Net changes for the year Total of the Group’s and its equity method investments’ results of net changes for the year 2017 RMB million 2016 RMB million (62,054) 7,487 (7,320) 29,799 20,608 5,747 20,909 (231) 14,945 (1,704) 2,479 (856) 1,205 688 206 967 (621) 2,364 17,309 (46,637) (53,715) 6,073 15,113 (48,479) 9,370 30,340 6,363 (81,572) (1,577) (3,952) (534) 1,887 (92) 322 1,308 464 (2,174) (83,746) 212 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited) STATUTORY NAME 中国石油化工股份有限公司 ENGLISH NAME China Petroleum & Chemical Corporation Hong Kong: Herbert Smith Freehills 23rd Floor, Gloucester Tower 15 Queen’s Road Central, Hong Kong PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES A Shares: Shanghai Stock Exchange Stock name Stock code : SINOPEC CORP : 600028 H Shares: Hong Kong Stock Exchange Stock code : 00386 ADRs: New York Stock Exchange Stock code : SNP London Stock Exchange Stock code : SNP NAMES AND ADDRESSES OF AUDITORS OF SINOPEC CORP. Domestic Auditors : PricewaterhouseCoopers Address : 11th Floor Zhong Tian LLP PricewaterhouseCoopers, 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai, PRC 200021 : PricewaterhouseCoopers : 22nd Floor, Prince’s Building, Central, Hong Kong Overseas Auditors Address CHINESE ABBREVIATION 中国石化 ENGLISH ABBREVIATION Sinopec Corp. LEGAL REPRESENTATIVE Mr. Wang Yupu AUTHORISED REPRESENTATIVES Mr. Dai Houliang Mr. Huang Wensheng SECRETARY TO THE BOARD Mr. Huang Wensheng REPRESENTATIVE ON SECURITIES MATTERS Mr. Zheng Baomin REGISTERED ADDRESS AND PLACE OF BUSINESS No.22 Chaoyangmen North Street, Chaoyang District Beijing, PRC Postcode Tel. Fax Website E-mail addresses : 100728 : 86-10-59960028 : 86-10-59960386 : http://www.sinopec.com : ir@sinopec.com PLACE OF BUSINESS IN HONG KONG 20th Floor, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong INFORMATION DISCLOSURE AND PLACES FOR COPIES OF RELATIVE REPORTS No change during the reporting period LEGAL ADVISORS People’s Republic of China: Haiwen & Partners 20th Floor, Fortune Financial Centre No. 5, Dong San Huan Central Road Chaoyang District Beijing PRC Postcode: 100020 U.S.A.: Skadden, Arps, Slate, Meagher & Flom LLP 30/F, China World Office 2 No. 1, Jian Guo Men Wai Avenue, Beijing, PRC REGISTRARS A Shares: China Securities Registration and Clearing Company Limited Shanghai Branch Company 36th Floor, China Insurance Building 166 Lujiazui East Road Shanghai, PRC H Shares: Hong Kong Registrars Limited R1712-1716, 17th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong DEPOSITARY FOR ADRS The US: Citibank, N.A. 388 Greenwich St., 14th Floor New York NY 10013 United States of America COPIES OF THIS ANNUAL REPORT ARE AVAILABLE AT The PRC: China Petroleum & Chemical Corporation Board Secretariat No.22 Chaoyangmen North Street, Chaoyang District Beijing, PRC The US: Citibank, N.A. 388 Greenwich St., 14th Floor New York NY 10013 USA The UK: Citibank, N.A. Citigroup Centre Canada Square, Canary Wharf London E14 5LB, U.K. 213 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017CORPORATE INFORMATIONCorporate InformationThe following documents will be available for inspection during normal business hours after 23 March 2018 at the registered address of Sinopec Corp. upon requests by the relevant regulatory authorities and shareholders in accordance with the Articles of Association and the laws and regulations of PRC: a) The original copies of the 2017 annual report signed by Mr. Dai Houliang, the Vice Chairman and President; b) The original copies of financial statements and consolidated financial statements as of 31 December 2017 prepared under IFRS and ABSE, signed by Mr. Dai Houliang, Vice Chairman and President, Mr. Wang Dehua, the Chief Financial Officer and head of the financial department of Sinopec Corp.; c) The original auditors’ report signed by the auditors; and d) Copies of the documents and announcements that Sinopec Corp. has published in the newspapers stipulated by the CSRC during the reporting period. By Order of the Board Dai Houliang Vice Chairman and President Beijing, PRC, 23 March 2018 If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail. 214 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2017Documents for InspectionDOCUMENTS FOR INSPECTION

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