Annual Report and Accounts (Stock code A Share : 600028 ; H Share : 00386 ; AdR : SNP) 2 3 6 8 11 19 31 42 45 52 62 64 Company Profile Principal Financial Data and Indicators Changes in Share Capital and Shareholdings of Principal Shareholders Chairman’s Address 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 80 Principal Wholly-owned and Controlled Subsidiaries Financial Statements Corporate Information Documents for Inspection 81 219 220 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 22 March 2019 and unless required by regulatory authorities, the Company undertakes no obligation to update these statements. CONTENTS IMPORTANT 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. LI YONG, DIRECTOR, DID NOT ATTEND THE 5TH MEETING OF THE SEVENTH SESSION OF THE BOARD DUE TO OFFICIAL DUITES. MR. LI YONG AUTHORISED MR. LI YUNPENG TO VOTE ON HIS BEHALF IN RESPECT OF THE RESOLUTIONS PROPOSED AT THE MEETING. MR. DAI HOULIANG, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, 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 FINANCIAL ANNUAL RESULTS OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2018. THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 OF THE COMPANY PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) 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 AT THE 5TH MEETING OF THE SEVENTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB 0.26 (TAX INCLUSIVE) PER SHARE FOR 2018, COMBINING WITH THE INTERIM CASH DIVIDEND OF RMB 0.16 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2018 WILL BE RMB 0.42 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS’ APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2018. 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 as 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; NDRC: China National Development and Reform Commission 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: 2018, 1 tonne = 7.21 barrels; 2017, 1 tonne = 7.21 barrels; 2016, 1 tonne = 7.20 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 2018COMPANY PROFILECompany Profile 1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs (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 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 For the year ended 31 December 2018 RMB million 2,891,179 101,474 100,502 63,089 2017 RMB million 2,360,193 86,965 86,573 51,119 Change % 22.5 16.7 16.1 23.4 2016 RMB million 1,930,911 77,389 79,877 46,416 59,630 175,868 45,582 190,935 30.8 (7.9) 29,713 214,543 First Quarter RMB million 621,251 18,770 Second Quarter RMB million For the year of 2018 Third Quarter RMB million 679,001 22,830 772,718 18,380 Fourth Quarter RMB million 818,209 3,109 Total RMB million 2,891,179 63,089 17,982 12,052 21,809 59,568 17,359 66,299 2,480 37,949 59,630 175,868 As of 31 December 2018 RMB million 1,592,308 734,649 718,355 121,071,210 2017 RMB million 1,595,504 741,434 727,244 121,071,210 Change % (0.2) (0.9) (1.2) — 2016 RMB million 1,498,609 666,084 712,232 121,071,210 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 (%) 2018 RMB 0.521 0.521 0.493 8.67 2017 RMB 0.422 0.422 0.376 7.14 Weighted average return (excluding extraordinary gains and losses) on net assets (%) 8.20 6.37 Net cash flow from operating activities per share 1.453 1.577 Items Net assets attributable to equity shareholders of the Company per share Liabilities to assets ratio (%) As of 31 December 2017 RMB 2018 RMB 5.933 46.14 6.007 46.47 Change % 23.4 23.4 31.1 1.53 percentage points 1.83 percentage points (7.9) Change % (1.2) (0.33) percentage points 2016 RMB 0.383 0.383 0.245 6.68 4.33 1.772 2016 RMB 5.883 44.45 3 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018PRINCIPAL 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 Net gain of business combination under common control from beginning of the year to the consolidation date Subtotal Tax effect Total Attributable to: Equity shareholders of the Company For the year ended 31 December (Income)/expenses 2018 RMB million 2017 RMB million 2016 RMB million 742 180 (7,482) (1,023) — — 1,613 — (5,970) 2,312 (3,658) (3,459) (199) 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 Minority interests (4) Items measured by fair values Items Other equity instruments Derivative financial instruments Cash flow hedging Financial assets held for trading Total Beginning of the year End of the year 1,676 (522) (1,617) 51,196 50,733 1,450 1,584 (7,268) 25,732 21,498 Unit: RMB million Influence on the profit of the year 515 191 (9,069) 878 (7,485) Changes (226) 2,106 (5,651) (25,464) (29,235) (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 Financial assets held for trading Non-current liabilities due within one year Financial expenses Impairment losses Non-operating income Non-operating expenses Cash received from disposal of investments Other cash paid relating to investing activities Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for dividends, profit distribution or interest As of 31 December 2018 RMB million 2017 RMB million Increase/(decrease) Amount RMB million Percentage (%) Reasons for change 25,732 17,450 (1,001) 11,605 2,070 3,042 56,546 51,196 26,681 1,560 21,791 1,317 1,709 4,729 (25,464) (9,231) (2,561) (10,186) 753 1,333 51,817 (49.7) (34.6) Decrease of structured deposit Bond repayment at maturity (164.2) (46.7) 57.2 78.0 1,095.7 Optimisation of capital operation and increase of interest income Decrease of impairment losses in current year Relocation compensation entitled by susidiaries Retirement of underground oil tanks in service station and other assets Receipt of the structured deposits at maturity 87,696 52,304 35,392 67.7 Receipt of time deposits at maturity (103,014) (70,948) (32,066) 45.2 Increase of capital expenditure (87,483) (45,763) (41,720) 91.2 Increase of dividend declared 4 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018PRINCIPAL 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 shareholders 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 shareholders of the Company Net assets per share (RMB) Adjusted net assets per share (RMB) Unit: RMB million For the year ended 31 December 2017 2016 2015 2014 2,360,193 71,470 86,697 51,244 0.423 0.423 8.26 7.06 1.577 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 Unit: RMB million As of 31 December 2017 2016 2015 2014 1,066,455 50,397 163,168 126,770 726,120 5.997 5.868 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 2018 2,891,179 82,264 99,110 61,618 0.509 0.509 9.25 8.59 1.453 2018 1,088,188 60,978 170,675 139,251 717,284 5.924 5.741 3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER CASs AND IFRS PLEASE REFER TO PAGE 212 OF THE REPORT. 5 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Principal Financial Data and Indicators 1 CHANGES IN THE SHARE CAPITAL There is no change in the number and nature of shares of Sinopec Corp. during the reporting period 2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS As of 31 December 2018, the total number of shareholders of Sinopec Corp. was 490,808 including 484,996 holders of domestic A shares and 5,812 holders of overseas H shares. As of 28 February 2019, the total number of shareholders of Sinopec Corp. was 464,131. 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 2018 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 國新投資有限公司 香港中央結算有限公司 北京誠通金控投資有限公司 招商銀行股份有限公司－博時中證央企結構調整交易型 開放式指數證券投資基金3 中央匯金資產管理有限責任公司 中國人壽保險股份有限公司-分紅-個人分紅- 005L-FH002滬 中國農業銀行股份有限公司－華夏中證央企結構調整交易型 開放式指數證券投資基金3 Nature of Shareholders Percentage of shareholdings % State-owned Share H Share A Share A Share A Share A Share A Share A Share A Share A Share 68.31 20.97 2.16 1.04 0.84 0.78 0.33 0.27 0.15 0.13 Note 1: As compared with the number of shares held as of 31 December 2017. Number of shares subject to shareholding1 pledges or lock-up Changes of Total number of shares held 82,709,227,393 25,390,660,438 2,609,312,057 1,253,177,754 1,021,782,160 947,604,254 (3,083,443,708) 10,853,566 (722,418,086) 1,253,177,754 620,799,215 947,604,254 397,446,193 322,037,900 397,446,193 0 181,957,660 128,785,037 154,958,200 154,958,200 0 Unknown 0 0 0 0 0 0 0 0 Note 2: Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of China Petrochemical Corporation, held 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. Note 3: China Petrochemical Corporation subscribed for the shares of 博時中證央企結構調整交易型開放式指數證券投資基金 and 華夏中證央企結構調整交易型開放式指數證券 投資基金 with 600 million A shares of Sinopec Corp. in October 2018. 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. 6 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERSChanges in Share Capital and Shareholdings of Principal Shareholders (2) Information disclosed by the shareholders of H shares in accordance with the Securities and Futures Ordinance (SFO) as of 31 December 2018 Name of shareholders Status of shareholders Number of shares interested % of Sinopec Corp.’s issued voting shares (H Share) BlackRock, Inc. Citigroup Inc. JPMorgan Chase & Co. Schroders Plc. Interest of corporation controlled by the substantial shareholder Person having a security interest in shares Interest of corporation controlled by the substantial shareholder Approved lending agent Beneficial owner Investment manager Trustee (exclusive of passive trustee) Approved lending agent Investment manager 2,320,644,807(L) 1,244,000(S) 618,800(L) 152,698,359(L) 101,037,238(S) 1,736,184,160(L) 478,700,855(L) 157,452,151(S) 103,077,862(L) 1,006,400(L) 956,876,795(L) 1,516,334,573(L) 9.10(L) 0.00(S) 0.00(L) 0.60(L) 0.40(S) 6.80(L) 1.88(L) 0.62(S) 0.40(L) 0.00(L) 3.75(L) 5.94(L) (L): Long position, (S): Short position 3 ISSUANCE AND LISTING OF SECURITIES (1) Issuance of securities in reporting period Not Applicable. (2) Existing employee shares Not Applicable. 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-authorized investment organisation and a state-owned enterprise. The legal representative is Mr. Dai Houliang. Through re-organization 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 (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 China Petrochemical Corporation 68.77% * Sinopec Corp. *: 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. production equipment, engineering construction, and utility services including water and power and social services. On 20 August 2018, China Petrochemical Corporation completed the industrial and commercial registration and changed from enterprise owned by the whole people into limited liability company (solely State-owned company) and changed its Chinese name. 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% 10,727,896,364 56.51% 351,351,000 58.74% 912,886,426 15.05% Note: China Petrochemical Corporation holds 2,595,786,987 H shares of Sinopec Oilfield Service Corporation (the “SSC”) through Sinopec Century Bright Capital Investment Ltd., a wholly-owned overseas subsidiary of China Petrochemical Corporation, accounting for 13.67% of the total share capital of SSC. Such shareholdings are excluded from the total shares of SSC directly held by China Petrochemical Corporation indicated above. 7 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Changes in Share Capital and Shareholdings of Principal Shareholders turnover and other operating revenues reached RMB 2.89 trillion. Profit attributable to equity shareholders of the Company grew by 20.2% year on year to RMB 61.6 billion, while the year-end liability-to-asset ratio was 46.21%. Taking into account the Company’s profitability, shareholder returns and the future development, the Board of Directors proposed a final dividend of RMB 0.26 per share. Combined with the interim dividend of RMB 0.16 per share, the total dividend for the year is RMB 0.42 per share with a dividend payout ratio of 82.5%. Over the past year, we constantly improved the Company’s development quality by optimising production and operation, actively expanding markets, accelerating structural adjustment, and further promoting scientific and technological innovations, which strengthened our competitiveness. In upstream, we made great efforts to enhance oil and gas exploration and production and achieved domestic crude oil reserves replacement ratio of 131.7%. Meanwhile, we pushed ahead with the construction of natural gas production, supply, storage and marketing system, rapidly increasing natural gas production and sales volume. In refining, we optimised resources allocation, adjusted product slate to further lower diesel-to-gasoline ratio and successfully accomplished the quality upgrading of GB VI standard. In marketing, we gave full play to the advantages of integrated value chain and distribution network, actively responded to the fierce market competition and achieved continuous growth in both total domestic sales volume and retail scale. Moreover, the non-fuel business maintained rapid growth. In chemicals, we made great efforts in adjusting structure and pushing ahead with the integration of production, marketing, research and application. The share of high value-added products of three principal synthetic materials increased continuously and the total sales volume of chemicals soared. Moreover, a number of key projects supporting our long-term development progressed smoothly, which consolidated the development foundation. Several significant breakthroughs were made in the development of core technologies. Both patents applications and patents granted hit record highs. Meanwhile, we made solid progress in the integration of informatisation and industrialisation by actively advancing the development of smart factories, smart oil and gas fields, and smart service stations as well as e-commerce platforms such as Epec, ChemEmall and EasyJoy. Chairman Dai Houliang Dear Shareholders and Friends: On behalf of the Board of Directors, the management and the entire staff, I would like to express my sincere gratitude to our shareholders and the community for your interest and support. In the face of complicated international situation, daunting challenges brought by the international oil prices fluctuating in a wide range, increasing demand for refined oil and petrochemical products and fierce market competition, adhering to the general principle of making progress while maintaining stability, following the new development philosophy and requirements for high-quality development, we fully exerted the advantages of the integrated value chain, initiated and implemented the phased goals for year 2020 and through year 2050, made great efforts in optimising operation, expanding market, reducing costs, controlling risks, deepening reforms, reinforcing management, and launching the Talent Empowering Enterprise Scheme. We successfully dealt with various risks and challenges, made progress in many aspects and pushed forward the sustainable development in an all-round way. Over the past year, the Company’s profitability increased significantly. In accordance with the International Financial Reporting Standards, our 8 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CHAIRMAN’S ADDRESSChairman’s Address Over the past year, we consistently enhanced our corporate governance. The Company reelected the Board of Directors and the Board of Supervisors, appointed the senior management, and established the Nomination Committee. Independent directors played a better role. The Company improved the corporate governance structure. The regulation for the participation by the Party Organisation in corporate governance was improved, thus facilitating scientific decision-making. We made long-term development strategy and relevant execution plans and drew the road-map of building the company into a world-class enterprise in the new era. The continuing connected transactions for the next three years have been approved by shareholders, which safeguarded the Company’s stable operation. Over the past year, we were determined to fulfilling our social responsibilities. Committed to mitigating climate change and keeping our skies blue, our waters clear, and our land pollution-free, we launched the Green Enterprise Campaign so as to vigorously develop clean energy and improve energy efficiency. We stepped up efforts to control greenhouse gas emissions and formulated a three-year plan for pollution prevention and control. Meanwhile, we reinforced our HSSE management system and the accountability system for safe operation and production, enhanced employees’ health and public security management. We achieved fruitful results by reinforcing targeted poverty alleviation, actively participated in various social and charity activities, disaster relief, the work related to the United Nations Global Compact and we were widely acclaimed by society. Looking ahead, we face both opportunities and challenges. Global politics and economy are facing increasing uncertainties. China will still be in an important period of strategic opportunity for development. Energy production and consumption revolution will be accelerated, domestic oil and gas industrial reform will be further deepened, and demand for energy and petrochemical products will increase. Adhering to the general principle of making progress while maintaining stability and the requirements for high-quality development, we will accelerate the strategic plan of our phased goals for year 2020 through year 2050. Guided by “reform, management, innovation and development”, we stick to the operating principles of “specialised development, market-based operation, international layout and overall coordination”. By expediting the upgrading of traditional business, strengthening extensive business, fostering new business, and building new green advantages, we will fully exert the specialised and integrated advantages and improved product and service quality with an emphasis on high-quality development. Meanwhile, we will make sure that staff develop together with the Company and the Company achieve harmonious development with society, which will help us achieve sustainable development in an all round way. In 2019, the Company will adhere to the overall strategy of pursuing progress while maintaining stability, fulfill our due responsibilities and make more efforts in implementing our plans so as to lay solid foundation for sustainable development. Meticulous planning will be made to secure stable operation and to boost operational quality and profitability. Besides, we will strive to implement reform and to improve motivation and incentive mechanisms. Foundation will be consolidated, risk control will be strengthened, and operation and management standards will be further enhanced. In addition, we will strongly promote technological innovations to drive our future growth. We advance structural reform by building a solid resource foundation for sustainable development, strengthening the overall competitiveness of the value chain of refining and marketing businesses, and enhancing our capability in high-end production and value creation of chemical business. With an aim to build the Company into a green enterprise with high quality, we will make vigorous efforts in pollution prevention and environmental protection to raise the level of our green development. Moreover, we will explore and capture strategic emerging business opportunities through financial investments, thereby cultivating new growth drivers. The Company’s capital expenditure for 2019 will be RMB 136.3 billion, increasing 15.5% year-on- year. Great aspiration and strong persistence will create remarkable accomplishments. I believe that with the joint efforts of the Board of Directors, the management and the entire staff, as well as the support from our shareholders and the community. Sinopec Corp. will surely stride ahead and create greater value for shareholders and the community. Dai Houliang Chairman Beijing, China 22 March 2019 9 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Chairman’s Address BUSINESS REVIEW In 2018, the global economic recovery was slow while China maintained an overall stable economic performance with its gross domestic product (GDP) up by 6.6%. International oil prices fluctuated in a wide range. Domestic demand for natural gas grew rapidly. Domestic oil products market saw fierce competition because of oversupply, and demand for chemicals increased steadily. Meanwhile, China’s environmental regulations became more stringent. The Company actively coped with market changes by focusing on reform, management, innovation and development. We coordinated all aspects of our work by pressing ahead measures for optimised operation, market expansion, cost reduction, risk control, reform promotion, and management enforcement, which helped the company achieve solid operating results. US$/barrel 100 90 80 70 60 50 40 30 20 10 0 WTI-NYMEX ICE BRENT DTD BRENT DUBAI 6 1 0 2 / 1 6 1 0 2 / 3 6 1 0 2 / 5 6 1 0 2 / 7 6 1 0 2 / 9 6 1 0 2 / 1 1 7 1 0 2 / 1 7 1 0 2 / 3 7 1 0 2 / 5 7 1 0 2 / 7 7 1 0 2 / 9 7 1 0 2 / 1 1 8 1 0 2 / 1 8 1 0 2 / 3 8 1 0 2 / 5 8 1 0 2 / 7 8 1 0 2 / 9 8 1 0 2 / 1 1 9 1 0 2 / 1 Trend of International Crude Oil Prices 1 MARKET REVIEW (1) Crude Oil & Natural Gas Market (2) Refined Oil Products Market (3) Chemical Products Market In 2018, international crude oil prices fluctuated upward in the first three quarters, but slided rapidly in the fourth quarter. The spot price of Platt’s Brent for the year averaged USD 71.03 per barrel, up by 31.1%. Along with the changes in China’s energy mix, domestic demand for natural gas remained strong. Domestic apparent consumption of natural gas reached 280.3 billion cubic meters, up by 18.1% year on year. In 2018, domestic demand for refined oil products maintained its growth while market supply was in surplus, which led to intense competition. According to statistics released by the NDRC, the apparent consumption of refined oil products (including gasoline, diesel and kerosene) was 325 million tonnes, up by 6.0% from the previous year, with gasoline up by 7.8%, kerosene up by 8.4% and diesel up by 4.1%. Prices for domestic refined oil products were adjusted timely with the international oil prices. There were 24 price adjustments throughout the year with 13 increases and 11 decreases. Domestic demand for chemicals kept strong momentum in 2018. Based on our statistics, domestic consumption of ethylene equivalent was up by 9.2% from the previous year, and the apparent consumption of synthetic resin, synthetic fibre and synthetic rubber rose by 7.7%, 7.6% and 0.6%, respectively. Domestic chemical product prices followed the same trend with international chemical product prices. 11 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018BUSINESS REVIEW AND PROSPECTSBusiness Review and Prospects 2 PRODUCTION & OPERATIONS REVIEW (1) Exploration and Production In 2018, we pressed ahead with high- efficiency exploration and profit-oriented development. Measures were taken to accelerate the formation of an integrated value chain of natural gas business including production, supply, storage and marketing and continuously reduce cost and expenditure on all fronts. Tangible results were achieved in maintaining oil production, increasing gas output and reducing cost. We reinforced preliminary exploration in new areas and strengthened integrated detailed evaluation in mature fields, which led to new discoveries in Tarim, Yin’e and Sichuan basins. The Company’s newly added proved reserves in China reached 458.2 million barrels of oil equivalent, with crude oil reserve replacement ratio at 131.7%. In crude oil development, we made a full-fledged push to build profitable production capacity, deepen the structural adjustment of mature fields, reduce natural decline rate and ensure steady production. In natural gas development, we constantly pushed forward capacity building in Hangjinqi of Neimongol, the eastern slope of west Sichuan Depression and Weirong shale gas fields. We optimised production and distribution and promoted a coordinated growth along the value chain. The Company’s production of oil and gas reached 451.46 million barrels of oil equivalent, with domestic crude production registering 248.93 million barrels and natural gas production totaling 977.32 billion cubic feet, up by 7.1%. Summary of Operations for the Exploration and Production Segment 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 2018 451.46 288.51 248.93 39.58 977.32 2017 448.79 293.66 248.88 44.78 912.50 2016 431.29 303.51 253.15 50.36 766.12 Change from 2017 to 2018(%) 0.6 (1.8) 0.02 (11.6) 7.1 Crude oil reserves (mmbbls) 31 December 18 31 December 17 1,666 1,533 1,244 1,244 910 334 289 27 261 134 96 96 16 80 38 0 38 1,599 1,429 1,124 1,124 811 313 305 32 273 170 137 137 49 88 33 0 33 12 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and Prospects Items Proved reserves Proved developed reserves China Consolidated subsidiaries Puguang Fuling Others Overseas Consolidated subsidiaries Equity accounted entities Proved undeveloped reserves China Consolidated subsidiaries Fuling Others Exploration and Production Activities Natural gas reserves (bcf) 31 December 18 31 December 17 6,997 6,012 6,000 6,000 2,127 1,121 2,752 12 0 12 985 985 985 187 798 6,807 5,835 5,822 5,822 1,904 1,149 2,769 13 0 13 972 972 972 195 777 2017 Wells drilled (as of 31 December) 2018 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 286 286 149 137 0 0 0 286 Dry 131 131 71 60 0 0 0 131 Productive Dry Productive 1,941 1,941 1,201 740 70 0 70 2,011 6 6 5 1 0 0 0 6 266 266 151 115 2 0 2 268 Dry 149 149 71 78 1 0 1 150 Productive Dry 1,442 1,442 845 597 119 0 119 1,561 9 9 1 8 0 0 0 9 Wells drilling (as of 31 December) 2018 2017 Gross Net Gross Net Exploratory Development Exploratory Development Exploratory Development Exploratory Development 69 69 25 44 0 0 0 69 277 277 72 205 10 0 10 287 69 69 25 44 0 0 0 69 277 277 72 205 10 0 10 287 62 62 19 43 0 0 0 62 147 147 0 147 5 0 5 152 62 62 19 43 0 0 0 62 Oil productive wells (as of 31 December) 2018 2017 Gross 51,030 51,030 32,805 18,225 7,293 28 7,265 58,323 Net 51,030 51,030 32,805 18,225 3,939 14 3,925 54,969 Gross 50,121 50,121 32,105 18,016 7,350 28 7,322 57,471 147 147 0 147 5 0 5 152 Net 50,121 50,121 32,105 18,016 3,968 14 3,954 54,089 13 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Business Review and Prospects Region China Consolidated subsidiaries Puguang Fuling Others Total Acreage with exploration licenses China Acreage with development licenses China Overseas (2) Refining In 2018, with market-oriented approach, we optimised product mix to produce more gasoline, jet fuel and chemical feedstock, production of high value- added products further increased, and diesel-to-gasoline ratio declined to 1.06. Natural gas productive wells (as of 31 December) 2018 2017 Gross 5,068 5,068 58 368 4,642 5,068 Net 5,028 5,028 58 368 4,602 5,028 Gross 4,800 4,800 57 266 4,477 4,800 Net 4,762 4,762 57 266 4,439 4,762 Unit: Square kilometers Area under license (as of 31 December) 2018 525,269 525,269 36,748 31,643 5,106 2017 621,529 621,529 36,604 31,498 5,106 We proactively promoted structural adjustment and quality upgrading projects, the GB VI standard upgrading is completed successfully. We moderately increased the export of oil products to keep a relatively high utilisation rate. Optimisation of resources allocation were carried out to reduce crude oil cost. In 2018, the Company processed 244 million tonnes of crude oil, up by 2.3% and produced 155 million tonnes of refined oil products, up by 2.7%, with gasoline up by 7.2% and kerosene up by 7.6% year on year. Summary of Operations for the Refining Segment 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 from domestic joint ventures. 2018 244.01 154.79 61.16 64.72 28.91 38.52 76.00 94.93 2017 238.50 150.67 57.03 66.76 26.88 38.60 75.85 94.88 Unit: million tonnes Change from 2017 to 2018 (%) 2.3 2.7 7.2 (3.1) 7.6 (0.2) 0.15 percentage points 0.05 percentage points 2016 235.53 149.17 56.36 67.34 25.47 38.54 76.33 94.70 (3) Marketing and Distribution In 2018, confronted with fierce market competition, the Company aimed to achieve a balance between sales volume and profits. We brought our advantages of integrated business and distribution network into full play, and increased marketing efforts, thus, achieved sustained growth in both total domestic sales volume and retail scale. We adopted a flexible and targeted marketing strategy and upgraded our distribution network to further strengthen our existing advantages. We proactively promoted vehicle natural gas business and accelerated the construction and operation of CNG stations. Total sales volume of refined oil products for the year was 198 million tonnes, of which domestic sales volume accounted for 180 million tonnes. Meanwhile, we strengthened development and marketing of self-owned brands to speed up the growth of non-fuel business. 14 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and Prospects Summary 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) 2018 198.32 180.24 121.64 58.61 3,979 2017 198.75 177.76 121.56 56.20 3,969 Change from 2016 2017 to 2018 (%) 194.84 172.70 120.14 52.56 3,926 (0.2) 1.4 0.1 4.3 0.3 Change from the end of the previous year to the end of the reporting period (%) 31 December 2018 31 December 2017 31 December 2016 Total number of service stations under the Sinopec brand Number of company-operated stations 30,661 30,655 30,633 30,627 30,603 30,597 0.1 0.1 (4) Chemicals In 2018, the Company sticked to the development philosophy of “basic plus high-end” to enhance effective supply. We persistently fine-tuned chemical feedstock mix to lower cost. We optimised products slate and increased high-end products output. The ratio of new and specialty products in synthetic resin reached 64.3%, the ratio of high-value-added products in synthetic rubber amounted to 26.3%, and our differential ratio of synthetic fibre reached 90.4%. By optimising utilisation rate and production plan based on market demand, we improved the operation of chemical units. To reinforce the capacity structural adjustment, we actively promoted several key projects. Annual ethylene production was 11.51 million tonnes. The Company also intensified its efforts to enhance the efficiency of the integration among production, marketing, R&D, and application as well as promoted targeted marketing and servicing to further expand our business, with total chemical sales volume increased by 10.3% to 86.6 million tonnes, hitting a record high. Summary of Operations for the Chemicals Segment Ethylene Synthetic resin Synthetic rubber Synthetic fiber monomer and polymer Synthetic fiber Note: Includes 100% of the production of domestic joint ventures. 2018 11,512 15,923 896 9,343 1,218 2017 11,610 15,938 848 9,439 1,220 Unit: thousand tonnes Change from 2016 2017 to 2018 (%) 11,059 15,201 857 9,275 1,242 (0.8) (0.1) 5.7 (1.0) (0.2) (5) Research and Development In 2018, with the emphasis on reinforcing innovation-driven strategy, the Company accomplished notable results in R&D, deepened reform of R&D mechanism and pushed ahead with efforts in key and frontier technologies. In upstream segment, further advancement in evaluation technology of buried hill bedrock and deep carbonate reservoir and fracturing technology of deep shale gas field brought the breakthroughs in the exploration of Guaizihu Depression in Yin’e Basin and new series of strata in Maokou Formation in Yuanba area as well as the discovery of Weirong deep shale gas field. The pilot test of 185℃ high temperature measurement while drilling was successfully conducted in the ultra-deep well in Shunbei. In refining, we realised the industrialisation of technologies including new sulfuric acid alkylation and hydro-isomerisation dewaxing for producing high grade base oil. In chemicals, the industrial demonstration unit of HPPO achieved stable operation and new products like PE film turned into commercial production. In addition, SOR, the framework type code of a novel structured zeolite synthesized by us, has been approved by the Structure Commission of International Zeolite Association, making us the first Chinese company to achieve a breakthrough in this area. In 2018, the Company had 6,074 patent applications at home and abroad, among which 4,434 were granted. The Company also won one second prize of National Technology Invention and three second prizes of National Sci-tech Progress, four silver and four excellent prizes of National Patent Awards. 15 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Business Review and Prospects (6) Health, Safety, Security and Environment In 2018, the Company constantly promoted the HSSE management. We implemented the concept of “Comprehensive Health” by integrating the management of occupational, physical and mental health of our employees. The Company took stringent measures to control risks and supervise the safety and operations of contractors. We also strengthened safety measures at all levels, removing potential hazards and enhancing our emergency response capability, all acheived sound and reliable production and operation. Public security management capability was strengthened with improvement in risk evaluation, monitoring and early warning and emergency response mechanism. The green and low-carbon growth strategy was further carried out by promoting clean energy and green development, such as steadily pushing forward our Green Enterprise Campaign and Efficiency Doubling Plan. We accomplished all emission reduction targets by pursuing clean production and preventing pollutions. For more detailed information, please refer to “Communication on Progress for Sustainable Development 2018 of Sinopec Crop”. (7) Capital Expenditures In 2018, focusing on quality and profitability of investment, the Company continuously optimised its capital projects, with total capital expenditures of RMB 118 billion. Capital expenditure for the exploration and production segment was RMB 42.2 billion, mainly for Fuling and Weirong shale gas development projects, Hangjinqi natural gas development project, Shengli and Northwest crude oil development projects, phase I of Xinjiang gas pipeline, phase I of Erdos-Anping-Cangzhou gas pipeline, Wen 23 and Jintan gas storages, as well as overseas projects. Capital expenditure for the refining segment was RMB 27.9 billion, mainly for Zhongke Refining and Petrochemical project, Zhenhai, Tianjin, Maoming and Luoyang refineries, the gasoline and diesel GB VI quality upgrading projects and the construction of Rizhao-Puyang-Luoyang crude pipeline. Capital expenditure for the marketing and distribution segment was RMB 21.4 billion, mainly for construction of oil products depots, pipelines, service stations, non-fuel business and the renovation of underground oil tanks to remove potential safety hazards. Capital expenditure for the chemicals segment was RMB 19.6 billion, mainly for ethylene projects in Zhongke, Zhenhai and Gulei, Phase II of Hainan high-efficiency and environmentally-friendly aromatics project, Sinopec-SABIC Polycarbonate project and Zhongan coal chemical project. Capital expenditure for corporate and others was RMB 6.9 billion, mainly for setting up the joint-venture of Sinopec Capital Company with Sinopec Group, R&D facilities and information technology projects. BUSINESS PROSPECTS (1) Market Outlook Looking ahead to 2019, the international economy is expected to show a slower growth rate in the midst of a complex and uncertain global political and economic environment. Meanwhile, continued growth of China’s economy will further drive up domestic demand for high-end refined oil products and petrochemicals. As the adjustment of China’s energy mix deepens, demand for natural gas will continue to grow at a rapid pace. Considering uncertainties of supply capacity of major oil producing countries, global oil demand and geopolitical issues, etc., the international oil price is expected to fluctuate within a wide range. (2) Operations In 2019, adhering to the general principle of seeking progress while maintaining stability, the new development philosophy and the operating guidelines of “specialised development, market-based operation, internationalisation and overall coordination”. The following activities will be prioritized during the year. Exploration and Production, by fully implementing the action plan of redoubling efforts in oil and gas exploration and production, we will advance high-efficiency exploration, continuously increase proved reserves and expand resource base. In crude oil development, more efforts will be made in promoting the capacity building of the Tahe Oilfield, making technological breakthrough for undeveloped oil-bearing reservoirs, improving refined reservoir characterization of mature fields in order to increase reserve development rate and recovery rate. In natural gas development, we will accelerate the capacity construction of key projects, optimise the system of natural gas production, supply, storage and marketing as well as the market layout so as to foster coordinated development of the whole business value chain. In 2019, we plan to produce 288 million barrels of crude oil, among which overseas production will be 39 million barrels, and 1,019.1 billion cubic feet of natural gas. Refining, with integrated planning, we will optimise crude oil allocation, reinforce inventory management, and push forward the high-efficiency operation of the refining value chain. Maintenance will be arranged according to market changes so as to achieve maximum overall profit. We will further optimise product mix by lowering diesel-to-gasoline ratio and increasing the production of gasoline, jet fuel and light chemical feedstock. 16 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018BUSINESS REVIEW AND PROSPECTS (CONTINUED)Business Review and Prospects The quality upgrading plan for new spec marine fuel oil will be implemented to raise capacity utilisation ratio. Marketing mechanisms will be improved to push up the total trading volume of other refined oil products. In 2019, we plan to process 246 million tonnes of crude oil and produce 157 million tonnes of refined oil products. Marketing and Distribution, insisting the marketing strategy of balancing profits and sales volume, we will continue to optimise resources allocation, expand market, and increase operation profit. We will carry out targeted and differential marketing with customers at its core so as to constantly improve service quality. The marketing and distribution network will be further improved to amplify the existing advantages. We will accelerate the construction and operation of natural gas stations and expand natural gas market for automobiles. Substantial progress will be made in hydrogen refueling stations and charging and battery swap stations. We will explore the new business mode of “Internet + service stations + convenience stores + comprehensive services” to advance the development and marketing of self-owned brands and to advance the growth of non- fuel business. In 2019, we plan to sell 182 million tonnes of refined oil products in the domestic market. Chemicals, we will further adjust feedstock mix, product slate and facilities structure to constantly strengthen competitiveness. The continuous feedstock mix optimisation will diversify feedstock procurement channels and reduce costs. More efforts will be made in adjusting product slate and coordinating production, marketing, research and application to raise the proportion of high-end products. We will enhance the dynamic optimisation of facilities and product chain, and improve the utilisation and production scheduling based on market demand. We will strengthen market analysis to actively expand market, thus increasing market shares. Meanwhile, advantages cultivation and production capacity building will be accelerated to produce high-end products and create more value. In 2019, we plan to produce 12.12 million tonnes of ethylene. Research and Development, we will continue to fully implement the innovation-driven development strategy, deepen the reform of scientific and technological systems, accelerate key technological breakthroughs, push ahead with frontier research on leading technologies, and step up the commercial application of technological achievement so as to strive for sustainable development in an all-round way. With the emphasis on constantly advancing oil and gas exploration and production technologies, we will focus on achieving breakthroughs in oil and gas exploration and production and resource evaluation technologies. In refining, more efforts will be made in making progress in refined oil product quality upgrading technologies, enhancing the technology development of self-owned refined oil product, and reinforcing the research on refinery total process optimisation technology. In chemicals, we will continue to improve the technological system for chemical products and strengthen development of high-value-added new materials. Technological breakthrough in safety and environmental protection will be stepped up. At the same time, prospective and basic research will be carried out on such leading and new areas including new energy, new materials, artificial intelligence and low-carbon so as to boost innovation. Capital Expenditures, in 2019, we will further focus on investment quality and profitability through constantly optimising capital projects. Capital expenditures for the year are budgeted at RMB 136.3 billion. Of which RMB 59.6 billion will be invested in exploration and production with focuses on the production capacity building of Shengli Oilfield, Northwest Oilfield, Leikou Slope in western Sichuan, Fuling Shale Gas Filed and Weirong Shale Gas Field, and the construction of natural gas pipelines and storage facilities as well as overseas oil and gas projects. The capital expenditure for refining will amount to RMB 27.9 billion which will be spent on the construction of Zhongke and Zhenhai Projects, and the refining structural adjustment projects of Tianjin, Maoming, Luoyang, Wuhan, Beihai and Yangzi. RMB 21.8 billion are budgeted for marketing and distribution with emphases on the construction of depots and storage facilities for refined oil products, pipelines and service stations, non-fuel business development, as well as renovation of underground oil storage tanks. The share for chemicals will be RMB 23.3 billion which will be used on Zhongke, Zhenhai, Gulei, Hainan and Wuhan, coal chemical projects of Bijie and Zhongan, and comprehensive resource utilisation and structural adjustment projects of Yangzi and SSTPC. The capital expenditure for corporate and others will reach RMB 3.7 billion, mainly for R&D facilities and information technology projects. In 2019, adhering to the concept of innovative, coordinated, green, open and share development, we will continue to consolidate development foundation, focus on long term strategies and push forward high-quality development in an all-round way to achieve sound results. 17 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Business Review and Prospects 18 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’S DISCUSSION AND ANALYSISManagement’s Discussionand Analysis THE 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 2018, the Company’s turnover and other operating revenues was RMB 2,891.2 billion, increased by 22.5% compared with that of 2017. The operating profit was RMB 82.3 billion, representing a year on year increase of 15.1%. 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, net Operating profit Net finance costs Investment income and share of profits less losses from associates and joint ventures Profit before taxation Income tax expense Profit for the year Attributable to: Shareholders of the Company Non-controlling interests (1) Turnover and other operating revenues Year ended 31 December 2018 RMB million 2,891,179 2,825,613 65,566 (2,808,915) (2,292,983) (65,642) (109,967) (10,744) (77,721) (246,498) (5,360) 82,264 1,001 15,845 99,110 (20,213) 78,897 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 61,618 17,279 51,244 19,174 Change (%) 22.5 22.8 9.8 22.7 29.5 1.0 (4.6) (3.1) 3.8 4.8 (67.6) 15.1 (164.2) (5.6) 14.3 24.2 12.0 20.2 (9.9) In 2018, the Company’s turnover was RMB 2,825.6 billion, representing an increase of 22.8% over 2017. This was mainly attributed to the prices increase of major products. Meanwhile, sales volume also increased as a result of the Company’s efforts in bringing our advantages in distribution network into full play, constantly promoting targeted marketing, optimising allocation of internal and external resources and reinforcing market expansion. The following table sets forth the external sales volume, average realised prices and respective rates of change of the Company’s major products in 2018 and 2017: 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 2018 6,595 24,197 88,057 84,630 25,787 40,520 11,127 14,433 1,314 1,114 794 2017 6,567 22,529 83,933 88,848 25,557 35,964 10,267 13,199 1,304 1,128 698 Change (%) 0.4 7.4 4.9 (4.7) 0.9 12.7 8.4 9.3 0.8 (1.2) 13.8 2018 3,100 1,400 7,870 5,996 4,562 5,488 6,971 8,634 9,712 10,619 2,096 2017 2,390 1,290 6,941 5,038 3,531 4,855 6,038 8,155 8,556 11,913 2,010 Change (%) 29.7 8.5 13.4 19.0 29.2 13.0 15.5 5.9 13.5 (10.9) 4.3 19 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’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 2018, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 93.5 billion, an increase of 35.2% over 2017. The change was mainly due to the company seized opportunities of the prices increase in crude oil and natural gas to maintain steady crude oil production and rapidly expanded production of natural gas. In 2018, 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 1,557.9 billion (accounting for 53.9% of the Company’s turnover and other operating revenues), representing an increase of 17.6% over 2017, mainly due to the increase in petroleum products’ prices, as well as the Company actively coped with market challenge caused by resources oversupply, optimised production and operation with the market-oriented approach and maintained high utilisation rate. The sales revenue of gasoline, diesel and kerosene was RMB 1,318.1 billion, representing an increase of 17.6% over 2017, and accounting for 84.6% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 239.8 billion, representing an increase of 17.6% compared with 2017, accounting for 15.4% of the total sales revenue of petroleum products. Chemical products sold by Chemicals Segment achieved external sales revenue of RMB 457.4 billion, representing an increase of 22.4% over 2017, 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, which resulting from the Company seized good market opportunities and strengthened the coordination between production and marketing to positively expand market share and trading scale. (2) Operating expenses In 2018, the Company’s operating expenses was RMB 2,808.9 billion, increased by 22.7% compared with 2017. The operating expenses mainly consisted of the following: Purchased crude oil, products and operating supplies and expenses was RMB 2,293.0 billion, representing an increase of 29.5% over the same period of 2017, accounting for 81.6% of the total operating expenses, of which: Crude oil purchasing expenses was RMB 701.3 billion, representing an increase of 41.1% over the same period of 2017. Throughput of crude oil purchased externally in 2018 was 227.19 million tonnes (excluding the volume processed for third parties), representing an increase of 7.7% over the same period of 2017. The average cost of crude oil purchased externally was RMB 3,452 per tonne, representing an increase by 30.0% over 2017. The Company’s purchasing expenses of refined oil products was RMB 355.5 billion, representing an increase of 18.3% over the same period of 2017. 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 was RMB 655.4 billion, representing an increase of 30.1% over the same period of 2017. 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 was RMB 580.7 billion, representing an increase of 23.8% over the same period of 2017. 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 was RMB 65.6 billion, representing an increase of 1.0% over 2017 as a result of the increase in R&D expenses. Depreciation, depletion and amortisation was RMB 110.0 billion, representing a decrease of 4.6% compared with 2017. That was mainly due to the Company reinforced efficient exploration, enhanced profit-oriented production of refined reservoir with an emphasis on increasing proved reserves of crude oil and natural gas. Meanwhile, its depreciation and depletion decreased as a result of the Company’s proved reserves increased in line with the increase in crude oil price. Exploration expenses was RMB 10.7 billion, representing a decrease of 3.1% year on year. That was mainly due to the Company constantly reinforced the management of exploration investment, improved exploration success rate. Personnel expenses was RMB 77.7 billion, representing an increase of 3.8% over 2017. Taxes other than income tax was RMB 246.5 billion, representing an increase of 4.8% compared with 2017. That was mainly because of increased consumption tax as a result of the increase in the sales volume of refined oil products, as well as resource tax and special oil income levy increased resulting from increase in crude oil price. Other operating expense, net was RMB 5.4 billion, decreased 67.6% over the same period of 2017. That was mainly due to the decrease in impairment during the year. (3) Operating profit was RMB 82.3 billion, representing an increase of 15.1% compared with 2017. Loss from upstream business greatly reduced and downstream business achieved good profit under the fierce market competition, as the Company persistently centralised on value-oriented operation, focused on improving asset quality, increasing asset efficiency, and upgrading asset structure. (4) Profit before taxation was RMB 99.1 billion, representing an increase of 14.3% compared with 2017. (5) Income tax expense was RMB 20.2 billion, representing an increase of 24.2% year on year, mainly due to the increase in profit and the decrease in exempt investment income. (6) Profit attributable to non-controlling interests was RMB 17.3 billion, representing an increase of RMB 1.9 billion compared with 2017. (7) Profit attributable to shareholders of the Company was RMB 61.6 billion, representing an increase of 20.2% year on year. 20 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis 2 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 2018 RMB million 2017 RMB million As a percentage of consolidated operating revenue before elimination of inter-segment sales Year ended 31 December 2018 (%) 2017 (%) 104,237 95,954 200,191 154,319 1,109,088 1,263,407 1,441,413 5,224 1,446,637 472,898 73,835 546,733 718,312 650,271 1,368,583 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 2.2 2.0 4.2 3.2 22.9 26.1 29.9 0.1 30.0 9.8 1.5 11.3 14.9 13.5 28.4 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 As a percentage of consolidated operating revenue after elimination of inter-segment sales Year ended 31 December 2018 (%) 3.6 2017 (%) 3.4 5.3 5.8 49.9 51.7 16.4 16.5 24.8 22.6 4,825,551 (1,934,372) 2,891,179 3,806,148 (1,445,955) 2,360,193 100.0 100.0 100.0 100.0 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 Turnover and other operating revenues *: Other operating revenues are included. 21 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Management’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 2018 compared to 2017. Year ended 31 December 2018 RMB million 2017 RMB million Change (%) 200,191 210,298 (10,107) 1,263,407 1,208,580 54,827 1,446,637 1,423,173 23,464 546,733 519,726 27,007 1,368,583 1,377,876 (9,293) (3,634) 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) 27.1 3.4 — 24.9 27.6 (15.7) 18.2 19.3 (25.7) 24.9 26.5 0.1 40.4 40.7 — — In 2018, the operating expenses of this segment was RMB 210.3 billion, representing an increase of 3.4% over 2017. That was mainly due to the following: ‧ Resource Tax and special oil income levy increased by RMB 2.8 billion year on year, as a result of increase in crude oil prices; ‧ Personnel expenses increased by RMB 2.4 billion year on year; ‧ Procurement cost increased by RMB 16.2 billion year on year, as a result of expansion of LNG business and increase in LNG price; ‧ Depreciation, depletion and amortisation decreased by RMB 6.5 billion year on year; ‧ Impairment losses on long-lived assets decreased by RMB 9.3 billion year on year; In 2018, the oil and gas lifting cost was RMB 796 per tonne, representing a year on year increase of 1.0%. In 2018, the operating loss of the exploration and production segment was RMB 10.1 billion, representing a declined loss by RMB 35.8 billion as compared with 2017. By capturing the recovery of crude oil price, the segment reinforced efficient exploration, enhanced profitable production of refined reservoir, promoted stable production of crude oil, and rapidly expanded production of natural gas. By deducting the impairment losses on long-lived assets, the operating loss was RMB 5.8 billion. (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 2018, the operating revenues of this segment was RMB 1,263.4 billion, representing an increase of 24.9% over 2017. This was mainly attributed to the increase in products prices, as well as the Company’s efforts in expanding the refinery throughput and increasing the sales volumes. 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 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 2018, the operating revenues of this segment was RMB 200.2 billion, representing an increase of 27.1% over 2017. This was mainly attributed to the rise of realised price of crude oil and natural gas as well as the expansion of natural gas and LNG business. In 2018, the segment sold 34.79 million tonnes of crude oil, representing a decrease of 1.5% over 2017. Natural gas sales volume was 26.25 billion cubic meters (bcm), representing an increase of 7.2% over 2017. Regasified LNG sales volume was 8.33 bcm, representing an increase of 72.9% over 2017. LNG sales volume was 2.856 million tonnes, representing an increase of 25.1% over 2017. Average realised prices of crude oil, natural gas, Regasified LNG, and LNG were RMB 3,046 per tonne, RMB 1,410 per thousand cubic meters, RMB 1,934 per thousand cubic meters, and RMB 3,779 per tonne, representing increase of 30.1%, 8.8%, 11.0%, and 23.7% respectively over 2017. 22 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’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 2018 and 2017. Gasoline Diesel Kerosene Chemical feedstock Other refined petroleum products In 2018, sales revenues of gasoline was RMB 441.3 billion, representing an increase of 24.4% over 2017. The sales revenues of diesel was RMB 361.4 billion, representing an increase of 20.0% over 2017. The sales revenues of kerosene was RMB 101.2 billion, representing an increase of 68.0% over 2017. The sales revenues of chemical feedstock was RMB 150.6 billion, representing an increase of 27.2% over 2017. The sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock was RMB 203.5 billion, representing an increase of 18.2% over 2017. In 2018, the segment’s operating expenses was RMB 1,208.6 billion, representing an increase of 27.6% over 2017. This was mainly attributed to the increase in refinery throughput and procurement cost of crude oil. Sales Volume (thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2018 59,746 62,676 22,418 38,524 61,439 2017 54,273 60,680 17,080 36,951 58,801 Change (%) 10.1 3.3 31.3 4.3 4.5 2018 7,386 5,766 4,515 3,910 3,312 2017 6,538 4,962 3,527 3,204 2,929 Change (%) 13.0 16.2 28.0 22.0 13.1 In 2018, the average processing cost for crude oil was RMB 3,548 per tonne, representing an increase of 27.9% over 2017. Total crude oil processed was 248.29 million tonnes (excluding volume processed for third parties), representing an increase of 7.8% over 2017. The total cost of crude oil processed was RMB 880.8 billion, representing an increase of 37.9% over 2017. In 2018, refining gross margin was RMB 461 per tonne, representing a reduction of RMB 49 per tonne compared with 2017. This is mainly due to the increased procurement cost of crude oil, as well as the narrowed gross margin of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock. In 2018, 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 180.2 per tonne, an increase of RMB 5.1 per tonne over 2017, mainly because of increased operating expenses resulted from quality upgrading of refined oil products as well as product mix optimisation. In 2018, the operating profit of the segment totaled RMB 54.8 billion, representing a decline of RMB 10.2 billion compared with 2017. (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 2018, the operating revenues of this segment was RMB 1,446.6 billion, representing an increase of 18.2% over 2017, of which: the sales revenues of gasoline totaled RMB 693.1 billion, representing an increase of 18.9% compared with 2017; the sales revenues of diesel was RMB 509.0 billion, representing an increase of 13.3% over 2017, and the sales revenues of kerosene was RMB 117.6 billion, representing an increase of 30.4% over 2017. The 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 2018 and 2017, including breakdown in retail, direct sales and wholesale of gasoline and diesel: Gasoline Retail Direct sales and wholesale Diesel Retail Direct sales and wholesale Kerosene Fuel Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2018 88,076 66,855 21,221 84,865 43,327 41,537 25,787 23,372 2017 83,980 66,364 17,616 89,146 44,736 44,410 25,555 23,299 Change (%) 4.9 0.7 20.5 (4.8) (3.1) (6.5) 0.9 0.3 2018 7,870 8,296 6,524 5,998 6,435 5,541 4,562 2,974 2017 6,941 7,346 5,412 5,039 5,588 4,486 3,531 2,251 Change (%) 13.4 12.9 20.6 19.0 15.2 23.5 29.2 32.1 23 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Management’s Discussionand Analysis In 2018, the operating expenses of the segment was RMB 1,423.2 billion, representing an increase of RMB 230.5 billion or 19.3% as compared with that of 2017. This was mainly due to the increase in refined oil products procurement price. In 2018, 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 207 per tonne, representing an increase of 4.2% compared with that of 2017. In 2018, the segment actively coped with the fierce market competition by taking advantages of integrated business and distribution network into full play, reinforcing the coordination of internal and external resources, constantly intensifying the market strategy of balancing profits and sales volume, and putting efforts to expand non-fuel business scale and profitability. In 2018, the operating profit of this segment was RMB 23.5 billion, representing a decrease of 25.7% compared with 2017. (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. In 2018, the operating revenue of the chemicals segment was RMB 546.7 billion, representing an increase of 24.9% as compared with that of 2017, This was mainly due to increase in sales volume and price of chemical products as a result of the Company’s effort in actively expanding sales volume and market share, optimising product mix. 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 516.2 billion, representing an increase of 24.8% as compared with 2017, and accounted for 94.4% 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 2018 and 2017. Basic organic chemicals Synthetic fibre monomer and polymer Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser In 2018, the operating expenses of the chemicals segment was RMB 519.7 billion, representing an increase of 26.5% over 2017, mainly because of the significant increase in the price of externally procured raw materials as compared with the same period in 2017. In 2018, the segment seized the opportunities of high chemical margin, continuously optimised the structures of feedstock, product and facilities, strengthened the coordination among research, development, production and marketing, intensified allocation of resources, improved targeted marketing strategy, and achieved remarkable profits with increased sales volume of petrochemicals. Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2018 52,450 11,252 15,325 1,314 1,278 796 2017 46,351 10,332 13,215 1,304 1,138 700 Change (%) 13.2 8.9 16.0 0.8 12.3 13.7 2018 5,281 6,978 8,646 9,712 10,750 2,093 2017 4,684 6,047 8,153 8,556 11,957 2,008 Change (%) 12.7 15.4 6.0 13.5 (10.1) 4.2 In 2018, the operating profit of this segment was RMB 27.0 billion, achieving an increase as compared with 2017. (5) Corporate and Others The business activities of corporate and others mainly consist of import and export business activities of the Company’s subsidiaries, R&D activities of the Company, and managerial activities of headquarters. In 2018, the operating revenues generated from corporate and others was RMB 1,368.6 billion, representing an increase of 40.4% over 2017. This was mainly attributed to the increase in revenues from crude oil and overseas refined oil products trading business, as well as the rapid growth of the petrochemicals business scale through Epec platform. In 2018, the operating expenses of corporate and others was RMB 1,377.9 billion, representing an increase of 40.7% over 2017. In 2017, the operating losses from corporate and others was RMB 9.3 billion. 24 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis 3 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 shareholders of the Company Share capital Reserves Non-controlling interests Total equity As of 31 December 2018, the Company’s total assets was RMB 1,592.3 billion, representing a decrease of RMB 3.2 billion compared with that of the end of 2017, of which: Current assets was RMB 504.1 billion, representing a decrease of RMB 24.9 billion compared with that of the end of 2017, mainly becasue the financial assets at fair value through profit and loss and trade accounts receivable and bills receivable decreased by RMB 25.5 billion and RMB 19.8 billion respectively, as well as the prepayments and other current assets increased by RMB 13.1 billion. Non-current assets was RMB 1,088.2 billion, representing an increase of RMB 21.7 billion as compared with that of the end of 2017. This was mainly due to the depreciation and depletion of property, plant and equipment decreased As of 31 December 2018 As of 31 December 2017 1,592,308 504,120 1,088,188 735,773 565,098 170,675 717,284 121,071 596,213 139,251 856,535 1,595,504 529,049 1,066,455 742,614 579,446 163,168 726,120 121,071 605,049 126,770 852,890 Unit: RMB million Change (3,196) (24,929) 21,733 (6,841) (14,348) 7,507 (8,836) — (8,836) 12,481 3,645 by RMB 33.0 billion, construction in progress increased by RMB 18.3 billion. Equity of associates and joint ventures increased by RMB 9.8 billion, deferred tax assets increased by RMB 6.6 billion, lease prepayments increased by RMB 6.0 billion, long-term prepayment and other assets increased by RMB 9.4 billion. The Company’s total liabilities was RMB 735.8 billion, representing a decrease of RMB 6.8 billion compared with that of the end of 2017, of which: Current liabilities was RMB 565.1 billion, representing a decrease of RMB 14.3 billion as compared with that of the end of 2017. This was mainly due to the short-term debts and loans from Sinopec Group decreased by RMB 19.5 billion, derivative financial liabilities and liabilities from contracts and other payables increased by RMB 10.9 billion and RMB 14.4 billion respectively, trade accounts payable and bills payable and taxes payable decreased by RMB 13.8 billion and RMB 6.3 billion respectively. Non-current liabilities was RMB 170.7 billion, representing an increase of RMB 7.5 billion compared with that of the end of 2017. This was mainly due to long- term debts decreased by RMB 4.8 billion, provisions increased by RMB 2.8 billion, and other non-current liabilities increased by RMB 10.8 billion. Total equity attributable to owners of the Company was RMB 717.3 billion, representing a decrease of RMB 8.8 billion compared with that of the end of 2017, which was mainly due to the capital reserve was RMB 596.2 billion, representing a decrease of RMB 8.8 billion. Minority interests was RMB 139.3 billion, representing an increase of RMB 12.5 billion. 25 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Management’s Discussionand Analysis (2) Cash Flow The following table sets forth the major items in the consolidated cash flow statements for 2018 and 2017. Major items of cash flows Net cash generated from operating activities Net cash used in investing activities Net cash used in financing activities In 2018, the net cash generated from operating activities of the company was RMB 175.9 billion, representing a decrease of RMB 15.1 billion as compared with 2017. Of which: profit before taxation increased by RMB 12.4 billion, depreciation, depletion & amortization and assets impairment loss decreased by RMB 15.5 billion, accounts receivable and net change for other current assets decreased by RMB 30.1 billion, net change for inventory decreased by RMB 25.6 billion, accounts payable and net change for other current liabilities decreased by RMB 57.1 billion, and the paid income tax increased by RMB 13.0 billion as compared with 2017. In 2018, the net cash used in investing activities was RMB 66.4 billion, representing a decrease of RMB 78.9 billion over 2017. Of which: capital expenditure increased by RMB 31.2 billion, income from the change of structured deposit increased by RMB 76.6 billion, outcome from in time deposit with maturities over three months decreased by RMB 30.5 billion. In 2018, the net cash used in the Company’s financing activities was RMB 111.3 billion, representing an increase of cash out flow by RMB 54.8 billion over 2017. This was mainly due to the cash paid for dividends increased by RMB 35.1 billion, cash repayments of borrowings increased by RMB 13.9 billion, and distributions by subsidiaries to non-controlling interests increased by RMB 6.2 billion. At the end of 2018, the cash and cash equivalents was RMB 111.9 billion. (3) Contingent Liabilities 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. Unit: RMB million Year ended 31 December 2018 175,868 (66,422) (111,260) 2017 190,935 (145,323) (56,509) (5) Research & development and environmental expenditures R&D expenditures occurred in the period including R&D expenses, expenditures for wildcat exploration, seismic data interpretation, and pilot demonstration project in upstream, expenditures for pilot test and relevant utilities of initial commercial trial in refining segment, as well as expenditures for research equipment. In 2018, the expenditures for R&D was RMB 12.876 billion, of which expense was RMB 7.96 billion (In 2017, the expenditures for R&D was RMB 11.533 billion, of which expense 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 2018, the Company paid environmental expenditures of RMB 7.94 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. 26 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis Items relevant to measurement of main fair values Unit: RMB million Items Financial assets at fair value through profit or loss of the reporting period Structured Deposit Stock Available for sale financial assets Stock Derivative financial instruments Cash flow hedges Other equity instruments investment Total End of last year Beginning of the year End of the year 51,196 51,196 — 178 178 (522) (1,617) — 49,235 51,196 51,196 — — — (522) (1,617) 1,676 50,733 25,732 25,550 182 — — 1,584 (7,268) 1,450 21,498 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 885 880 5 — — 191 (1,978) — (902) — — — — — — (12,500) (53) (12,553) — Self-owned fund — — — — — — — — — Self-owned fund — Self-owned fund — Self-owned fund — — 4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER CASs The major differences between the Company’s financial statements prepared under CASs and IFRS are set out in Section C of the financial statements of the Company on page 212 of this report. (1) Under CASs, 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, gains/(losses) from changes in fair value, asset disposal expense and other income Consolidated operating profit Net profit attributable to equity shareholders of the Company Year ended 31 December 2018 RMB million 2017 RMB million 200,191 1,263,407 1,446,637 546,733 1,368,583 (1,934,372) 2,891,179 (11,557) 53,703 24,106 25,970 (8,151) (3,634) 21,037 101,474 63,089 157,505 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 Operating profit: In 2018, the operating profit of the Company was RMB 101.5 billion, representing an increase of RMB 14.5 billion as compared with 2017. Net profit: In 2018, the net profit attributable to the equity shareholders of the Company was RMB 63.1 billion, representing an increase of RMB 12.0 billion or 23.4% comparing with 2017. 27 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Management’s Discussionand Analysis (2) Financial data prepared under CASs Total assets Non-current liabilities Shareholders’ equity As of 31 December 2018 RMB million As of 31 December 2017 RMB million 1,592,308 169,551 857,659 1,595,504 161,988 854,070 Change (3,196) 7,563 3,589 At the end of 2018, the Company’s total assets was RMB 1,592.3 billion, representing a decrease of RMB 3.2 billion compared with that of the end of 2017. At the end of 2018, the Company’s non-current liabilities was RMB 169.6 billion, representing an increase of RMB 7.6 billion compared with that of the end of 2017. At the end of 2018, the shareholders’ equity of the Company was RMB 857.7 billion, representing an increase of RMB 3.6 billion compared with that of the end of 2017. (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 200,191 1,263,407 1,446,637 546,733 1,368,583 (1,934,372) 2,891,179 Operation cost RMB million Gross profit margin* (%) 165,444 952,577 1,355,391 492,991 1,365,348 (1,930,738) 2,401,013 11.6 6.4 6.1 9.4 0.2 N/A 8.4 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 (%) 27.1 24.9 18.2 24.9 40.4 N/A 22.5 7.3 35.4 20.2 27.7 41.7 N/A 27.0 15.1 (2.2) (1.5) (1.7) (1.0) N/A (1.5) *: Gross profit margin = (operation income – operation cost, tax and surcharges)/operation income. 28 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Management’s Discussionand Analysis 5 THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY’S ACCOUNTING POLICY Please refer to the note 3 in the financial statement complying with the PRC Accounting Standards for Business Enterprises (CASs). 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. 29 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Management’s Discussionand Analysis 30 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTSSignificant Events 1 MAJOR PROJECTS (1) 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%. As of 31 December 2018, the aggregate investment was RMB 11.8 billion. (2) Hainan Refining and Chemical expansion project Hainan Refining and Chemical expansion project consists of 5,000,000 tpa refinery project and 1,000,000 tpa ethylene project, among which second set of high-efficiency and environment-friendly aromatics project started in August 2017 and is expected to be put into operation in June 2019. The Company’s self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 31 December 2018, the aggregate investment was RMB 2.6 billion. (3) Zhongke integrated refining and chemical project Zhongke integrated refining and petrochemical project mainly consists of a 10,000,000 tpa refinery project, 800,000 tpa ethylene unit, 300,000 tonne capacity jetty and relevant utilities project. 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 sourceof the remaining 70%. As of 31 December 2018, the aggregate investment was RMB 10.8 billion. (4) Zhenhai Refining & Chemical expansion project Zhenhai Refining & Chemical expansion project consists of 15,000,000 tpa refinery project and 1,200,000 tpa ethylene project. The project was approved in June 2018, ethylene and relevant projects started at the end of October 2018 and is expected to be put into operation in 2021. The Company’s self-owned fund accounts for 30% of the project investment, bank loan is the main source of the remaining 70%. As of 31 December 2018, the aggregate investment was RMB 1.6 billion. (5) E-An-Cang gas pipeline project The first phase of E-An-Cang gas pipeline project mainly consists of the main pipeline from Luquan to Cangzhou and two branch pipelines Puyang and Baoding. The total length of the pipeline is 736 kilometers with a designed transmission capacity of 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%. As of 31 December 2018, the aggregate investment was RMB 4.9 billion. (6) Wen 23 gas storage project The first phase of Wen 23 gas storage project mainly consists of the construction of injection and production wells and surface facilities with storage capacity of 8.431 billion cubic meters. The gas storage is expected to be officially put into operation in July 2020. The Company’s self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 31 December 2018, the aggregate investment was RMB 3.5 billion. (7) Xinqi pipeline project The main project of the first phase of Xinqi pipeline project was the construction of the pipeline from Qianjiang to Shaoguan. The total length of the pipeline is 839.5 kilometers with a 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%. As of 31 December 2018, the aggregate investment was RMB 5.8 billion. 31 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTSSignificant Events 2 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02 122150 1 June 2012 1 June 2022 Sinopec Corp 2015 Corporate bond (first issue) 15石化02 136040 15石化01 136039 19 November 2015 9 9 4.05 19 November 2018 16 0 3.30 19 November 2020 7 4 7 4 3.70 4.90 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 15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 as disclosed. 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02, 15石化01 and 15石化02 and reaffirmed AAA credit rating. The long term credit rating and outlook of the Company remained at AAA and stable respectively. Pursuant to relevant regulations, the Company will publish its 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. The Company strictly followed the provisions in the corporate bond prospectus to repay principals and interests of the corporate bonds. The guarantor of 10石化02 and 12石化02 is China Petrochemical Corporation. For more information of the guarantor, please refer to the annual report of corporate bonds which will be published on website of Shanghai Stock Exchange by China Petrochemical Corporation. 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, the use 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 prospects 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 the publish of the Company’s annual report. The details of such report 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 exchange Corporate bonds trustee Credit rating agency Use of proceeds Credit rating 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 32 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTS (CONTINUED)Significant Events Principal accounting data and financial indicators for the two years ended 31 December 2018 Principal data EBITDA (RMB million) Current ratio Quick ratio 2018 2017 Change Reasons for change 216,352 207,528 8,824 0.89 0.57 0.91 0.59 (0.02) (0.02) Liability-to-asset ratio (%) 46.14 46.47 EBITDA to total debt ratio Interest coverage ratio Cash flow interest coverage ratio EBITDA-to-interest coverage ratio Loan repayment rate (%) Interest payment rate (%) 1.33 16.76 35.92 33.93 100 100 1.11 14.60 39.11 32.59 100 100 (0.33) percentage points 0.22 2.16 (3.19) 1.34 — — During the reporting period, the Company paid in full the interest accrued for the other bonds and debt financing instruments. As at 31 December 2018, the standby credit line provided by several domestic financial institutions to the Company was RMB 392.7 billion in total, facilitating the Company to get such amount of unsecured loans. The Company has fulfilled all the relevant undertakings in the offering circular of corporate bonds and 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 the Company 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% and had been repaid and delisted; 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 made on 24 October 2013. During the reporting period, the Company has paid in full the current-period interests of all notes with maturity of 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 of Directors and the first extraordinary general meeting of Sinopec Corp. for 2014. The Scheme came into effect on 23 December 2014 with a validity period of 10 years. The expiry date of the Scheme Mainly due to the increase of earnings compared with last year Mainly due to the decrease of account receivable and inventories compared with last year Mainly due to the decrease of account receivable, and cash caused by the increase of dividend compared with last year Mainly due to the decrease of financial leverage by lowering debts compared with last year Mainly due to the increase of EBITDA Mainly due to the increase of EBIT compared with last year Mainly due to the decrease of cash caused by the increase of dividend compared with last year Mainly due to the increase of EBITDA 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 Petro (10,800 million shares) nor exceed 10% of the total A share capital of Shanghai Petro (7,305 million shares). As of 20 March 2019, there is no exercisable outstanding share options according to the Scheme. As of 20 March 2019, 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. 33 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Significant 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 of Shanghai Petro’s A share (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 exercise period of share option under the first grant Exercise date: 29 August 2017 Number of exercisable Share Options: 14,212,500 options Number of lapsed Share Options: 5,228,900 options Number of exercised Share Options: 14,176,600 options Date of completion of the registration for newly increased shares: 27 September 2017 Number of participants who exercised the option: 199 Exercise price: RMB 3.85/share (iii) The exercise condition of the second exercise period of Share Option under the first grant Exercise date: 12 January 2018 Number of exercisable Share Options: 9,636,900 options Number of lapsed Share Options: 520,700 options Number of exercised Share Options: 9,636,900 options Date of completion of the registration for newly increased shares: 14 February 2018 Number of participants who exercised the option: 185 Exercise price: RMB 3.85/share (iv) The exercise condition of the third exercise period of Share Option under the first grant Since the exercise conditions were not satisfied, the total amount of Share Options that have lapsed during the reporting period is: 8,946,900 (v) Outstanding Share Options held by directors, chief executive and substantial shareholder of Shanghai Petro during the reporting period At the beginning of the Reporting Period, a total number of 966,000 outstanding Share Options which were not exercised were held by the directors of Shanghai Petro Mr. Gao Jinping, Mr. Jin Qiang, Mr. Guo Xiaojun and Vice President of Shanghai Petro Mr. Jin Wenmin. During the reporting period, Vice President of Shanghai Petro Mr. Jin Wenmin was appointed as Director of Shanghai Petro on 13 June 2018. During the reporting period, a total of 483,000 Share Options had been exercised by Director of Shanghai Petro Mr. Gao Jinping, Mr. Jin Qiang, Mr Guo Xiaojun and Mr. Jin Wenmin during the second exercise period. During the reporting period, since Director of Shanghai Petro Mr. Gao Jinping resigned, the 150,000 A share options granted to him which were not exercised had lapsed. During the reporting period, since the third exercise conditions were not met, a total of 333,000 Share Options held by Director of Shanghai Petro Mr. Jin Qiang, Mr. Guo Xiaojun and Mr. Jin Wenmin had lapsed. There is no outstanding Share Options which were not exercised held by directors, chief executives and substantial shareholders of Shanghai Petro as of the end of the Reporting Period. (vi) Outstanding Share Options granted to employees other than the persons mentioned in item (v) At the beginning of the reporting period, a total number of 18,138,500 outstanding Share Options which were not exercised were held by Shanghai Petro’ key business personnel. 34 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTS (CONTINUED)Significant Events During the reporting period, a total number of 9,153,900 outstanding Share Options had been exercised by Shanghai Petro’s key business personnel during the second exercise period. During the reporting period, a total of 8,984,600 Share Options granted to Shanghai Petro’s key business personnel had lapsed due to participants’ resignations and un- satisfaction of the exercise conditions for the third exercise period etc. At the end of the Reporting Period, there is no outstanding Shares Options which were not exercisable held by Shanghai Petro’s key business personnel. (vii) Exercise price of the initial grant and the adjustment to the exercise price According to the pricing 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 or allotment of shares during the validity period, the exercise price shall be adjusted according to the Scheme). On 15 June 2016, the 2015 annual profit distribution plan was considered and passed at Shanghai Petrol’s 2015 annual general meeting, whereby a 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 Petrol’s 2016 annual general meeting, whereby a cash dividend of RMB2.50 was paid for each 10 shares and the exercise price was adjusted to RMB3.85 per share accordingly. On 13 June 2018, the 2017 annual profit distribution plan was considered and passed at Shanghai Petrol’s 2017 annual general meeting, whereby a cash dividend of RMB3.00 was paid for each 10 shares and the exercise price was adjusted to RMB3.55 per share accordingly. (viii) 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 for the Scheme. For the details of the exercise arrangement, please refer to the section of “Validity Period” on Page 32 of Sinopec Corp.’s 2015 annual report published on 29 March 2016. (ix) The progress of share option incentive up to the date of Shanghai Petro’s 2018 annual report None Save as disclosed above and in previous relevant announcements, during the reporting period, Shanghai Petro granted no 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. 35 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Significant Events Term for performance From 22 June 2001 Whether bears deadline or not Whether strictly performed or not No Yes Within 10 years after 29 April 2014 or the date when China Petrochemical Corporation acquires the assets Yes Yes 4 PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION Background Type of Undertaking Party Contents Undertakings related to Initial Public Offerings (IPOs) IPOs China Petrochemical Corporation Other undertakings Other China Petrochemical Corporation 1 2 3 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.); 4 Granting licenses for intellectual property rights; Avoiding competition within the same industry; 5 Abandonment of business competition and conflicts 6 of interest with Sinopec Corp. 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. 36 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTS (CONTINUED)Significant Events As of the date of this report, Sinopec Corp. had no undertakings in respect of financial performance, 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 SIGNIFICANT EQUITY INVESTMENT On 9 July 2018, Sinopec Corp. entered into the Articles of Association (Sinopec Capital AOA) of Sinopec Capital Co., Ltd. (Sinopec Capital) with China Petrochemical Corporation. Pursuant to Sinopec Capital AOA, Sinopec Corp. proposed to establish Sinopec Capital with China Petrochemical Corporation with a registered capital of RMB 10 billion, of which, Sinopec Corp. will subscribe capital contribution of RMB 4.9 billion by cash, representing 49% of the registered capital of Sinopec Capital; and China Petrochemical Corporation will subscribe capital contribution of RMB 5.1 billion by cash, representing 51% of the registered capital of Sinopec Capital. Sinopec Corp. and China Petrochemical Corporation shall pay all their respective capital contribution to Sinopec Capital no later than 31 December 2020. Upon the establishment of Sinopec Capital, its investments will focus on strategic emerging industries, including new energy, new material, energy conservation and environmental protection, and intelligence manufacturing in relation to the industry chain. In respect of the investment projects which are related to Sinopec Corp.’s principal business, Sinopec Corp. will have the right of first refusal to acquire such projects. The formation of Sinopec Capital will speed up investments in emerging industries and help support Sinopec Corp.’s own business development and industrial chain upgrade. It will play an important role in achieving comprehensive, sustainable and high-quality development of Sinopec Corp. Pursuant to Chapter 14A of the Hong Kong Listing Rules, China Petrochemical Corporation, the controlling shareholder of Sinopec Corp., is a connected person of the Company. Therefore, the transaction between Sinopec Corp. and China Petrochemical Corporation constituted a connected transaction under the Hong Kong Listing Rules. For details of the transaction, please refer to the announcements published in China Securities Journal, Shanghai Securities, News Securities Times and the websites of Shanghai Stock Exchange on 11 July 2018 and on the website of Hong Kong Stock Exchange on 10 July 2018. 6 SIGNIFICANT ASSETS AND EQUITY SALE During the reporting period, there is no significant assets or equity sale of the Company. 37 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Significant Events 7 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE Unit: RMB million Major external guarantees (excluding guarantees for controlled subsidiaries) Guarantor Sinopec Corp. Sinopec Corp. Sinopec Corp. Relationship with the Company Name of guaranteed company The listed company itself Zhongtian Hechuang Energy Co., Ltd The listed company itself The listed company itself Zhong An United Coal Chemical Co., Ltd. Yanbu Aramco Sinopec Refining Company(YASREF) Limited SSI Controlled subsidiary New Bright International Development Ltd./ Sonangol E.P./SSI15 Amount 12,168 Transaction date (date of signing) 25-May-16 5,033 18-Apr-18 31-Dec-14 No specific amount agreed, guarantee on contract performance 7,197 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 completed or not Whether overdue or not Amount of overdue guarantee Counter- guaranteed No No No No No No — — — No No No Whether guaranteed for connected parties yes or no)*1 Yes No No Period of guarantee Type 25 May 2016 -31 December 2023 (the mature date is estimated) 18 April 2018-31 December 2031 30 years from the date YASRFE requires supply of hydrogen from Air Liquide Arabia LLC. Joint liability guarantee Joint liability guarantee Joint liability guarantee Joint liability guarantee No No — Yes No 5,033 21,159 — 11,951 33,110 4.61% — 2,771 None 2,771 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. 38 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTS (CONTINUED)Significant Events 8 SPECIFIC STATEMENTS AND We hereby present the following opinions: 11 OTHER MATERIAL CONTRACTS INDEPENDENT OPINIONS FROM INDEPENDENT NON-EXECUTIVE DIRECTORS REGARDING EXTERNAL GUARANTEES PROVIDED BY THE COMPANY DURING AND BY THE END OF 2018: 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 2018 in accordance with the requirements of the domestic regulatory authorities: The external guarantees prior to 2018 had been disclosed in previous annual report. The aggregate balance of external guarantees provided by Sinopec Corp. for the year 2018 was RMB 33.11 billion, accounting for approximately 4.61% of the Company’s net assets. 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 THE COMPANY No significant litigation, arbitration relating to the Company occurred during the report 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 0.1244 0.154 Outstanding balance 0.5744 0.381 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. 39 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Significant Events 15 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 as the Finance Company) and to ensure the safety and liquidity of the deposits of the Company at 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 at 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 when 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 at the Century Bright Company), Century Bright Company ensures the safety of the deposits of the Company at 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 at the Finance Company and Century Bright Company during the reporting period did not exceed the relevant caps as approved at the general meeting of Sinopec Corp. During daily operations, the Company can withdraw the full amount of its deposits at 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 ENVIRONMENTAL PROTECTION SOLUTIONS OF COMPANIES AND THEIR SUBSIDIARIES AS MAJOR POLLUTANT DISCHARGING COMPANIES RECOGNIZED BY ENVIRONMENTAL PROTECTION DEPARTMENTS In 2018, some subsidiaries of Sinopec Corp. which are listed as major pollutant discharge units have disclosed environmental information as required by the relevant authorities and local government. The details of such information was published on the local government website. Sinopec Corp. strictly implemented the new standards in refining and petrochemical industry, completed the treatment of sewage and flue gas, and actively conducted the comprehensive treatment of VOCs. For details, please refer to the Company’s Communication on Progress for Sustainable Development. Pollution prevention and control facilities remained in effective and stable operation. The Company further regulated environmental management of construction projects, enhanced assessment, and implemented “three-simultaneity” management (environmental facilities shall be designed, constructed and put into operation simultaneously with the main construction). All of the newly-built projects have obtained approvals from the environment authorities. Sinopec Corp. strictly complying with relevant national requirements on environment emergency plan management and continulysly improves the emergency plans for environmental emergencies and heavy pollution weather. According to the national pollution permit and self-monitoring technology guidelines in relevant industries, we modified the self- monitoring plan, and implemented new national requirements of sewage, flue gas and noise monitory, and disclosed the environmental results. For other subsidiaries that are not listed as major pollutant discharge units, the Company also completed relevant environmental protection formalities in accordance with the national and local requirements, and implemented relevant environmental protection measures. According to the requirements of national and local ecological environment departments, these companies do not need to disclose relevant information. 20 POVERTY ALLEVIATION PROGRAM LAUNCHED BY THE COMPANY (1) Targeted Poverty Alleviation Plan The Company actively fulfilled our social responsibilities and strictly followed the fundamental principles of poverty alleviation and elimination. We focused on poverty alleviation in terms of industry, consumption, employment and education, so as to ensure to stably lift poor household out of poverty, increase income of poor household and orderly carry out rural revival strategy. (2) Overview on 2018 Targeted Poverty Alleviations In 2018, the Company invested nearly RMB 0.23 billion in Targeted Poverty Alleviation, including RMB 108.41 million invested in 50 targeted poverty alleviation 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 lifted 12,250 registered people out of poverty and funded the education of 206 students. 40 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018SIGNIFICANT EVENTS (CONTINUED)Significant Events (3) 2018 Targeted Poverty Alleviation Work Statistics Index I. Overview 1. Funds 2. 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 1.2 Number of poverty alleviation programs 1.3 Input in poverty alleviation projects through industrial development 2. Poverty elimination through provision of employment 2.1 Input in professional skill training 2.2 Participants of professional skill trainings (person time) 3. Poverty elimination through relocation 3.1 Number of relocated people 3.2 Input in relocation 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 poverty- stricken areas 6. Emergency relief 6.1 Input in emergency relief 6.2 Number of people get assistance 7. Other input III. Consumption assistance 1. Procurement Agriculture products from impoverish areas 2. Assistance on sales of agriculture products from impoverish areas Data Unit: RMB million 228.47 32,250 √□ 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 1,500 110 4.09 3,149 545 6 3.5 1,374 22.33 2.31 8.1 6,198 18.25 17.7 146 Note1: The table was prepared in accordance with the 2018 requirements of the State Council Leading Group Office of Poverty Alleviation and Development. Note2: Fund for Poverty Alleviation Work consists of our own funds and financing from other parties introduced by the Company. (4) Subsequent targeted poverty alleviation plan In 2019, the Company will further strengthen poverty alleviation key-problem tackling work, continue to insist on targeted poverty alleviation and targeted lifting of poor people out of poverty, insist on combination of “blood transfusion” and “haematogenesis”, focus on tackling of key problems of poor regions, exert the advantages of the enterprise, and focus on poverty alleviation in terms of industry; attach importance to poverty alleviation in terms of employment, and create jobs; deepen poverty alleviation in terms of education, and strengthen support to poor students; strengthen cooperation with China Foundation for Poverty Alleviation, and motivate social strength to participate in poverty alleviation; optimize poverty alleviation in terms of medical treatment, and provide high quality medical treatment support to the people in poor regions; strengthen poverty alleviation in terms of consumption, cooperate with Social Participation in Poverty Alleviation and Development of China, promote high quality agriculture products of poor counties to the whole country and make efforts to optimize targeted poverty alleviation work. 21 OTHER EVENT Sinopec Corp. published voluntary announcement and progress update announcements in relation to China International United Petroleum and Chemical Company Limited. For details, please refer to the announcements published in China Securities Journal, Shanghai Securities News Securities Times and the website of the Shanghai Stock Exchange on 28 December 2018, 5 January 2019 and 26 January 2019 and on the website of Hong Kong Stock Exchange on 27 December 2018, 4 January 2019 and 25 January 2019. 41 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Significant 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, Educational, Hygiene and Auxiliary 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 24 August 2018, Sinopec Corp. and China Petrochemical Corporation entered into a supplemental agreement of the continuing connected transactions and the Land Use Rights Leasing Agreement Amendment Memo, pursuant to which the scope of services of the Mutual Supply Agreement and the Cultural, Educational, Hygienic and Auxiliary Services Agreement were adjusted and the term of the Mutual Supply Agreement and the Cultural, Educational, Hygienic and Auxiliary Services Agreement was extended from 1 January 2019 to 31 December 2021; the term of the Properties Leasing Agreement was extended to 31 December 2021 and the term of Intellectual Property Licensing Agreements was extended to 31 December 2029. The area and rent in the Land Use Rights Leasing Agreement were also adjusted. The resolution relating to continuing connected transactions for the three years from 2019 to 2021 was approved at the first extraordinary general meeting of the Company for 2018 held on 23 October 2018. For details of the above continuing connected transactions, please refer to relevant announcements published on 27 August 2018 in the China Securities Journal, the Shanghai Securities News and the Securities Times and on the website of the Shanghai Stock Exchange and on the website of the Hong Kong Stock Exchange dated 26 August 2018. The capitalised terms used in this section shall have the same meaning as that used in the above- mentioned announcements. 2 COMPLIANCE OF DISCLOSURE 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 subject to disclosure, independent non-executive directors’ approval and/or independent shareholders’ approval (if needed) based on the nature and the value of the transactions. Sinopec Corp. has fully complied with the above requirements in relation to the continuing connected transaction between the Company and Sinopec Group. The aggregated amount of the continuing connected transactions for 2018 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 Pursuant to the above-mentioned agreements on continuing connected transactions, the aggregate amount of the continuing connected transactions of the Company during the reporting period was RMB 417.201 billion. Among which, purchases expenses amounted to RMB 267.505 billion, representing 9.04% 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 251.444 billion, purchases of auxiliary and community services of RMB 6.664 billion, payment of property rent of RMB 522 million, payment of land use right of RMB 7.765 billion, and the interest expenses amounted to RMB 1.11 billion. The sales income amounted to RMB 149.697 billion, representing 4.91% of the total amount of this type of transaction for the reporting period, including RMB 148.779 billion for sales of products and services, RMB 69 million for agency commission income, and RMB 848 million for interest income. The amounts of the above continuing connected transactions between the Company and Sinopec Group did not exceed the relevant caps for the continuing connected transactions as approved by the general meeting of shareholders and the Board. 42 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONNECTED TRANSACTIONSConnected Transactions Principle of pricing for the continuing connected transactions: (a) The government-prescribed price will apply; (b) where there is no government-prescribed price but where there is a government- guidance price, the government-guidance price will apply; (c) where there is neither a government- prescribed price nor a government- guidance price, the market price will apply; or (d) where none of the above is applicable, the price for the provision of the products or services is to be agreed between the relevant parties, which shall be the reasonable cost incurred in providing the same plus 6% or less of such cost. For details of the pricing principle, please refer to relevant announcements published on 27 August 2018 in the China Securities Journal, the Shanghai Securities News and the Securities Times and on the website of the Shanghai Stock Exchange and on the website of the Hong Kong Stock Exchange on 26 August 2018. Decision-making procedures: The 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 its internal control procedures, adjusts the scope and the relevant 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 37 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 2018 were approved at the 5th meeting of the seventh 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 For details, please refer to item 5” significant equity investment” in section “Significant Events”. 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 24,038 5,377 29,415 28,268 1,964 30,232 1,678 25,716 (247) 5,130 1,431 30,846 38 28,306 295 2,259 333 30,565 Loans and other accounts receivable and payable No material negative impact 43 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Connected Transactions 44 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE GOVERNANCECorporate Governance 1 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. Sinopec Corp. further improved corporate governance structure through completion of the re- election of the Board of Directors, Board of Supervisors, and the appointment of senior management, as well as the appointment of each Board Committee and establishment of the Nomination Committee under the Board. We amended the Articles of Association, Rules and Procedures of the Board Meetings and Internal Control Procedures, and formulated Terms of References of Nomination Committee. Pursuant to Article of Association and other regulations, we further improved the regulations in relation to the Party’s participation in the corporate governance of the Company, which promoted the scientific decision-making procedures. The Company actively implemented “the year of party building quality” event to drive the high-quality development of the Company. The independent directors have played an active and good role with diligence in performing their duties. The investor relations work has been further refined, and the required information was disclosed in time, which improved the transparency of the Company and were positively recognised by the capital market. The Company’s active performance of its social responsibilities has achieved good results. During the reporting period, there are no material inconsistency between Sinopec Corp.’s corporate governance and the requirements of the PRC Company Law and relevant regulations 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 4 PERFORMANCE OF THE INDEPENDENT During the reporting period, Sinopec Corp. convened the 2017 annual general meeting on 15 May 2018, and 2018 first extraordinary general meeting on 23 October 2018 in Beijing, China in accordance with the required procedures of noticing, convening and holding procedures 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 meetings. 3 EQUITY INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT As of 31 December 2018, apart from 13,000 A shares of Sinopec Corp. held by Director, Senior 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 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 should notified Sinopec Corp. or the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Company under the Hong Kong Listing Rules. 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 section “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 nomination of directors, connected transactions, dividend distributions and appointments of senior management of the Company as required by relevant rules and regulations, and maintained timely and effective communications with 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 Sinopec Corp. and the shareholders, especially the minority shareholders’ interests, when performing their duties. Pursuant to requirements of securities regulatory authority of China, independent non-executive directors of Sinopec Corp. reviewed the performance of the senior managers of Sinopec Corp. who held concurrent positions as senior managers in China Petrochemical Corporation and published independent opinions as follows: “The President Mr. Ma Yongsheng, Senior Vice President Mr. Ling Yiqun and Mr. Liu Zhongyun, each of whom concurrently held position as deputy general manager of China Petrochemical Corporation, have obtained the exemptions for holding concurrent position from CSRC. During the reporting period, Mr. Ma Yongsheng, Mr. Ling Yiqun and Mr. Liu Zhongyun devoted sufficient time and energy to fulfill their duties with diligence and due care. They protected the interests of the Company and minority shareholders effectively and didn’t harm the legitimate interests of Sinopec Corp. and minority shareholders due to holding concurrent position in China Petrochemical Corporation.” 45 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE GOVERNANCECorporate Governance 5 COMPANY’S INDEPENDENCE FROM A Board of Directors 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 date of this annual report. 8 SENIOR MANAGEMENT APPRAISAL AND 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 and the Measures of Sinopec Corp. for the Management of Performance Evaluations. 9 CORPORATE GOVERNANCE REPORT (IN ACCORDANCE WITH HONG KONG LISTING RULES) (1) Compliance with the Corporate Governance Code 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 2018, Sinopec Corp. held seven Board meetings. For details about each Director’s attendance at the Board meetings and the general meetings, please refer to the section “Report of the Board of Directors” in this annual report. c. Each Director of the Board can 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 2018 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 considered the suggestions from the Party organisation, 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. e. The Secretary to the Board 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 authorities 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 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. Dai Houliang serves as Chairman of the Board and Mr. Ma Yongsheng serves as President of Sinopec Corp. b. The Chairman of the Board places great emphasis on communication with the Independent Non- executive Directors. The Chairman independently held three meetings with the Independent Non- executive Directors in respect of development strategy, corporate governance and operational management, etc. of the Company. c. The Chairman encourages open and active discussions. Directors actively and deeply participated in the discussions of significant decisions made by the Board in the Board meetings. 46 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE GOVERNANCE (CONTINUED)Corporate Governance A.3 Board composition A.5 Nomination Committee a. As approved at the annual general meeting for the year 2017, the Board of Sinopec Corp. established Nomination Committee, consisting of Chairman of the Board Mr. Dai Houliang, who served as the Chairman, and Independent Non-Executive Directors Mr. Tang Min and Mr. Ng, Kar Ling Johnny, who served as members. The major responsibilities of Nomination Committee are to provide suggestion on Board’s size and composition, as well as the selecting standards, procedures and candidates for directors and senior management. b. The Board establishes the Board Diversity Policy which stipulates that the members of the Board shall be nominated and appointed based on the skills and experience for the overall optimum operation of the Board, while taking into account the targets and requirements of the board diversity. 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 profession experience, skills, knowledge, length of service, regions, cultural and educational backgrounds, gender and age. c. The members of the Nomination Committee can engage professions when performing its duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Nomination Committee has also appointed consultants member and can require such member to provide advice. The working expenses of the Remuneration Committee are included in the budget of Sinopec Corp. 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 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 are with professional backgrounds in economics, accounting and finance. b. Sinopec Corp. has received from each of the Independent Non- executive directors a letter of confirmation for 2018 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. For details about the tenure of each director, please refer to the section “Directors, Supervisors, Other Senior Management and Employees” b. All Directors of Sinopec Corp. 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. d. during the reporting period, the Nomination Committee held two meetings (please refer to “Meetings held by the special committees of the Board” under the section “Report of the Board of Directors” in this annual report). The review opinions were issued at each meeting and submitted to the Board. 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 of Board Meetings clearly prescribe the duties and powers of Directors, Non-executive Directors including Independent Non-executive Directors, which are published on the Sinopec Corp.’s website at http://www.sinopec. com/listco/. 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. d. Sinopec Corp. organised and arranged training sessions for Directors and paid the relevant fees as well as making relevant records. The Directors actively participated in the trainings and paid more attention on continuing professional development program to ensure that their contribution to the Board remains informed and relevant. 47 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Corporate Governance c. 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 on 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. A.7 Provision of and access to c. The members of the Remuneration Committee can 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 member and can require such member 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. d. During the reporting period, the Remuneration Committee held one meeting (please refer to “Meetings held by the special committees of the Board” under the section of “Report of the Board of Directors” in this annual report). 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, the performance and the cash flow of the Company during the period. The Board approved the Financial Report for 2018 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. 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 require the Management, or require, 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 Non- executive Director Mr. Li Yunpeng and Independent Non-executive Director Mr. Ng, Kar Ling Johnny, 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 their service contracts in 2018. 48 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE GOVERNANCE (CONTINUED)Corporate Governance 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 assessment, control activities, information and communication, and internal supervision. At the same time, Sinopec Corp. has constantly supervised and evaluated its internal control, and conducted comprehensive and multi-level inspections including regular test, enterprise self-examination and auditing check, and included headquarters, branches and subsidiaries into the scope of internal control evaluation, with an internal control evaluation report being produced. The Board annually reviews the internal control evaluation report. For detailed information about the internal control during the reporting period, please refer to the report on internal control evaluation prepared by Sinopec Corp. Sinopec Corp. has formulated and implemented its information disclosure policy and insider information registration policy. The Company regularly evaluates the policy implementation and makes disclosure in accordance with relevant regulations. Please refer to the website of Sinopec Corp. (http://www.sinopec.com/listco/) 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. c. Audit Committee members can 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 members and can request such member 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. Based upon the review and d. The Audit Committee has reviewed the adequacy and sufficiency of the resources for accounting and financial reporting and the qualifications and experience of the relevant 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. 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. Ng, Kar Ling Johnny, who serves as the Chairman, and Independent Non-executive Director Mr. Tang Min and Independent Non-executive Director Mr. Cai Hongbin, 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 six meetings (please refer to the “Meetings held by the special committees of the Board” under the section of “Report of the Board of Directors” in this annual report). The review opinions were issued at each meeting and submitted to the Board. During the reporting period, the Board and the Audit Committee had no disagreement. 49 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Corporate Governance Investor Relations a. In order to further enhance corporate governance and satisfy business expansion needs of the Company, as approved at the annual general meeting of shareholders for the year 2017, Sinopec Corp. amends the Articles of Association and its appendix Rules and Procedures of 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. as well as the website of Shanghai Stock Exchange on 16 May 2018 and the announcement published on the website of the Hong Kong Stock Exchange on 15 May 2018. b. Sinopec Corp. pays high attention to investor relations. The team led by management conduct road shows every year to answer questions on subjects of concern to investors, such as introduction of the 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 meetings. 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 2017 and the first extraordinary general meeting for the year 2018. 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 Secretary to the Board 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. b. During the reporting period, the Secretary to the Board actively participated in career development training with more than 15 training hours. D Delegation of power by the Board E a. The Board and the Management have clear duties and responsibilities in written rules. The Articles of Association and the Rules of Procedure for the General Meetings of Shareholders and the Rules of Procedure of 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/ listco/. b. In addition to the Audit Committee, the Remuneration Committee and Nomination 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 7th session Strategy Committee consists of six directors, including Chairman of the Board Mr. Dai Houliang, who serves as Chairman, as well as Executive Director Mr. Ma Yongsheng, Mr. Ling Yiqun, Mr. Liu Zhongyun and Independent Non-executive Directors Mr. Fan Gang and Mr. Cai Hongbin, 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 Chairman of the Board Mr. Dai Houliang, who serves as Chairman, Independent Non-executive Directors Mr. Tang Min and Mr. Fan Gang, who serve as members. c. Each Board Committee is required to report its decisions and recommendations to the Board and has formulated its terms of references. The terms of reference of the Audit Committee, the Remuneration Committee and the Nomination Committee are published on the website of Sinopec Corp. at http://www.sinopec.com/listco/. 50 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE GOVERNANCE (CONTINUED)Corporate Governance G Shareholders’ rights d. Sinopec Corp. established (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 52; for information about meeting held by Board Committees, please refer to page 54; for information about tenure of non-executive directors, please refer to page 69; for information about equity interests of Directors, Supervisors and other senior Management, please refer to page 45; for information about the biographies and annual remuneration of Directors, Supervisors and other senior Management, please refer to page 64 to page 78. special organisation in charge of communication with shareholders and published relevant contact details to facilitate shareholders to make enquiries pursuant to Articles of Association. (2) Auditors The appointment of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as Sinopec Corp.’s external auditors for 2018 and the authorisation of the Board to determine their remuneration were approved at Sinopec Corp.’s annual general meeting for the year 2017 on 15 May 2018. The audit fee for 2018 is RMB 47.58 million (including audit fee of internal control), which was approved at the 5th meeting of the seventh 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 Xu Xia from PricewaterhouseCoopers Zhong Tian LLP. During the reporting period, neither PricewaterhouseCoopers Zhong Tian LLP nor PricewaterhouseCoopers provided any non-audit service to the Company. 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 approve the request to convene the meeting according to the Rules of Procedure for General Meetings of Shareholders, 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 supplemental proposal 10 days before the date of the general meeting. 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. 51 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Corporate Governance The Board is pleased to present the directors’ report for the year ended 31 December 2018 for shareholders’ review. 1 MEETINGS OF THE BOARD During this reporting period, Sinopec Corp. held seven (7) Board meetings. The details are as follows: (1) The 16th meeting of the sixth session of the Board was held by written resolution on 8 February 2018, whereby the proposals in relation to the appointment of senior management of the Company and the revision of the internal control manual (version 2018) were approved at the meeting. (2) The 17th meeting of the sixth session of the Board was held by on site meeting and via video conference on 23 March 2018, whereby the proposals in relation to the following matters were approved: (i) the Work Report of the sixth session of the Board, (ii) the Work Report of the sixth Session of the Senior Management, (iii) Financial results and business performance of the Company for the year 2017(including a. provision for impairment for the year 2017; b. The connected transactions for the year 2017; c. Profit distribution plan for the year 2017; d. Audit costs for the year 2017; e. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company), (iv) 2017 Communication on Progress for Sustainable Development of Sinopec Corp., (v) Financial Statements of Sinopec Corp. for the year 2017, (vi) Annual Report and form 20F of the Company for the year 2017, (vii) Internal control assessment report of Sinopec Corp. for the year 2017, (viii)Re-appointment of external auditors of Sinopec Corp. for the year of 2018 and to authorise the Board to determine their remunerations, (ix) Provision of Guarantee for Zhong An United Coal Chemical Co., Ltd. by Sinopec Corp. (x) the service contracts between Sinopec Corp. and the Directors of the seventh session of the Board (including emolument provisions) and service contracts between Sinopec Corp. and the Supervisors of the seventh session of the Board of Supervisors(including emolument provisions) (xi) the establishment of Board committees (xii) the amendments to the Articles of Association of Sinopec Corp. (xiii) the amendments to the rules and procedures of the Board meetings, (xiv)the re-election of the Board of Directors, (xv) the re-election of the Board of Supervisors, (xvi)to authorise the Board to determine the interim profit distribution plan of Sinopec Corp. for the year 2018, (xvii)authorising the Board to determine the proposed plan for issuance of debt financing instrument(s) (xviii) granting to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp., (xix)Convening the annual general meeting of Sinopec Corp. for the year 2017 and to dispatch the notice of the annual general meeting. (3) The 18th meeting of the sixth session of the Board was held by written resolution on 26 April 2018, whereby the proposal in relation to the first quarterly results of the Company for the three months ended 31 March 2018 was approved. (4) The 1st meeting of the seventh session of the Board was held by on site meeting on 15 May 2018, whereby the proposals in relation to the following matters were approved: (i) the election of the Chairman of the seventh session of the Board, (ii) the adjustment of members of the Board Committees including Strategy Committee, Audit Committee, Remuneration Committee,Nomination Committee and Social Responsibility Management Committee, (iii) the appointment of the President of Sinopec Corp., (iv) the appointment of Senior Vice Presidents, Chief Financial Officer and Vice Presidents of Sinopec Corp., (v) the appointment of the Secretary to the Board, the authorised representative of Sinopec Corp. to Hong Kong Stock Exchange and the representative on securities matters. And authorise the Secretary to the Board to handle the above-mentioned matters and to sign relevant documents. (5) The 2nd meeting of the seventh session of the Board was held by written resolution on 10 July 2018, whereby the proposal on the proposed establishment of Sinopec Capital by Sinopec Corp. with China Petrochemical Corporation was approved. (6) The 3rd meeting of the seventh session of the Board was held by on site meeting on 24 August 2018, whereby the proposals in relation to the following matters were approved: (i) the report on the fulfillment of the key targets for the first half of the year 2018 and the work arrangements for the second half of the year 2018, (ii) Financial results and business performance of the Company for the first half of the year 2018 (including a. the 2018 interim dividend distribution plan; b. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company), (iii) the financial statements for the first half of the year 2018, (iv) interim report for the six months ended 30 June 2018, (v) Three years rolling development plan of Sinopec Corp. (2018 to 2020). (vi) to propose to the general meeting for election of the Directors of the Board. (vii) the continuing connected transactions for three years from 2019 to 2021 (viii) to propose to the general meeting for election of the first extraordinary general meeting of Sinopec Corp. for the year 2018 and to dispatch the notice of the meeting. (7) The 4th meeting of the seventh session of the Board was held by written resolution on 30 October 2018, whereby the proposals in relation to (i) the third quarterly report for three months ended 30 September 2018, (ii) the nomination and appointment of the President of Sinopec Corp., (iii) the appointment of Senior Vice Presidents of Sinopec Corp. were approved. 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. 52 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF DIRECTORSReport of the Board of Directors 3 DIRECTORS’ ATTENDANCE TO THE BOARD MEETINGS AND TO THE GENERAL MEETINGS. (1) The Directors’ attendance to the sixth session of the Board Meetings and the General Meeting. Director Titles Names No. of meeting held Actual Attendance Board Meetings Attended By communication Attended by proxy Absent General Meetings. No. of meeting held Actual Attendance Vice Chairman Director Director Director Director Director Independent Director Independent Director Independent Director Independent Director Dai Houliang Li Yunpeng Wang Zhigang Zhang Haichao Jiao Fangzheng Ma Yongsheng Jiang Xiaoming Andrew Y. Yan Tang Min Fan Gang 3 3 0 0 3 3 3 3 3 3 1 1 0 0 0 0 1 1 1 0 2 2 0 0 2 2 2 2 2 2 0 0 0 0 1 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 1 1 1 1 1 1 1 0 0 1 0 0 0 1 0 (2) The Directors’ attendance to the seventh session of the Board Meeting and the General Meeting. Director Titles Names No. of meeting held Actual Attendance Board Meetings Attended By communication Attended by proxy Absent General Meetings. No. of meeting held Actual Attendance Chairman Director Director Director Director Director Director Director Independent Director Independent Director Independent Director Independent Director Dai Houliang Li Yunpeng Yu Baocai Jiao Fangzheng Ma Yongsheng Ling Yiqun Liu Zhongyun Li Yong Tang Min Fan Gang Cai Hongbin Ng, Kar Ling Johnny 4 4 1 1 4 4 4 4 4 4 4 4 2 2 0 1 0 1 1 1 1 2 1 2 2 2 1 0 2 2 2 2 2 2 2 2 0 0 0 0 2 1 1 1 1 0 1 0 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. Jiao Fangzheng resigned as director of the Board on 7 June 2018. 4. 5. Pursuant to the Hong Kong Listing Rules, attended by proxy was not counted as attendance by the director himself. Independent Director Mr. Jiang Xiaoming, Mr. Andrew Y. Yan have not been directors of the board since 15 May 2018. 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 1 1 1 1 1 1 1 1 0 0 0 0 1 0 1 1 0 0 0 53 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Directors 4 MEETINGS HELD BY THE BOARD (3) The 13th meeting of the sixth session of Audit Committee was held by written resolution on 26 April 2018, whereby the first quarterly report for three months ended 31 March 2018 was approved at the meeting. (4) The 1st meeting of the seventh session of Audit Committee was held by written resolution on 10 July 2018, whereby the proposal in relation to the the proposed establishment of Sinopec Capital by Sinopec Corp. with China Petrochemical Corporation was approved. (5) The 2nd meeting of the seventh session of Audit Committee was held by on site meeting on 22 August 2018, whereby (i) Financial statements for the first half year of 2018; (ii)Interim report for the first half year of 2018; (iii) Business performance and financial results of the first half year of 2018; (iv) Reports on internal auditing work for the first half year of 2018;. (v) the continuing connected transactions for three years from 2019 to 2021 were approved at the meeting. (8) The 1st meeting of the seventh session of the Strategy Committee was held by written resolution on 22 August 2018, whereby the proposal in relation to three years rolling development plan of Sinopec Corp. (2018-2020) was approved at the meeting. (9) The 3rd meeting of the sixth session of the Remuneration Committee was held by written resolution on 21 March 2018, whereby the proposals in relation to implementation of the remuneration rules for directors, supervisors and other senior management for 2017 and the report of the remuneration for directors of the seventh session of the Board and for supervisors of the seventh session of the Board of Supervisors were reviewed and approved at the meeting. (10) The 3rd meeting of the sixth session of the Social Responsibility Management Committee was held by written resolution on 21 March 2018, whereby the 2017 Communication on Progress for the Sustainable Development of Sinopec Corp. was approved at the meeting. (6) The 3rd meeting of the seventh session of the Audit Committee was held by written resolution on 29 October 2018, whereby the third quarterly report for three months ended 30 September 2018 was approved at the meeting. (11) The 1st meeting of the seventh session of the Remuneration Committee was held by written resolution on 22 August 2018, whereby the proposal in relation to the election of the directors of the Board for general meeting’s approval was approved. (7) The 5th meeting of the sixth session of the Strategy Committee was held by written resolution on 21 March 2018, whereby the proposal in relation to the proposed 2018 investments plan was approved at the meeting. (12) The 2nd meeting of the seventh session of the Remuneration Committee was held by written resolution on 29 October 2018, whereby the proposals in relation to the appointment of the President and Senior Vice Presidents of Sinopec Corp. were approved. 5 BOARD COMMITTEES HAVE ISSUED REVIEW OPINIONS WITHOUT ANY OBJECTION TO THE BOARD WHEN PERFORMING THEIR DUTIES DURING THE REPORT PERIOD. COMMITTEES During the reporting period, the Audit Committee held six (6) meetings. Strategy Committee held two (2) meetings, the Remuneration Committee held one (1) meeting, the Social Responsibility Management Committee held one (1) meeting, and the Nomination Committee held two (2) meetings. All members of each committee had attended the relevant meetings. Details of those meetings are as follows: (1) The 11th meeting of the sixth session of the Audit Committee was held by written resolutions on 8 February 2018, whereby the proposal in relation to the revision of the internal control manual (version 2018) was approved at the meeting. (2) The 12th meeting of the sixth session of the Audit Committee was held by on site meeting on 21 March 2018, whereby the following matters were approved at the meeting: (i) Financial results, business performance and other related matters of the Company for the year 2017 (including a. provision for impairment for the year 2017; b. the connected transactions for the year 2017; c. profit distribution plan for the year 2017; d. audit costs for the year 2017; e. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company), (ii) Annual Report and 20F for the year 2017; (iii) Financial Statements of Sinopec Corp. for the year 2017; (iv) Internal control assessment report of the Company for the year 2017; (v) Work report on the internal auditing for the year 2017. Reports on the auditing work of the financial statements for the year 2017 prepared by the domestic and overseas auditors were also reviewed at the meeting. 54 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of Directors 6 BUSINESS PERFORMANCE The financial results of the Company for the year ended 31 December 2018, which is prepared in accordance with IFRS and the financial position as at that date and the accompanying analysis are set out from page 152 to page 211 in this annual report. The Company’s business review, 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 prospects of the Company’s business are disclosed in this annual report under the relevant sections of Chairman’s Address, 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. 7 DIVIDEND The profit distribution policy of Sinopec Corp. maintains consistency and steadiness, and considers 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 realised during the corresponding year. The profit distribution plan of Sinopec Corp. for the corresponding 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 5th meeting of the seventh session of the Board, the Board approved the proposal to distribute a final cash dividend of RMB 0.26 (tax inclusive) per share, combining with an interim distributed dividend of RMB 0.16 (tax inclusive) per share, the total dividend for the whole year is RMB 0.42 (tax included) per share. The final cash dividend will be distributed on or before 21 June 2019 (Friday) to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 10 June 2019 (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 3 June 2019 (Monday) for registration. The H shares register of members of Sinopec Corp. will be closed from 4 June 2019 (Tuesday) to 10 June 2019 (Monday) (both dates 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, 55 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Directors 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. For 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. 56 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of Directors 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 2018 0.42 50.85 61.618 2017 0.50 60.54 51.12 listed company in the consolidated statement (%) 82.52 118.42 Note: The final cash dividend for 2018 is subject to the approval at the 2018 annual general meeting. 2016 0.249 30.15 46.42 64.95 The aggregate cash dividend declared by Sinopec Corp. during three years from 2016 to 2018 is RMB 1.169 per share, and the total dividend payment from 2016 to 2018 as a percentage of average net profit in the three years is 266.8%. 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 2018, 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 2018. The internal control system of Sinopec Corp. related to the financial statements is sound and effective. 2018 Internal Control Assessment Report of Sinopec Corp. was reviewed and approved at the 5th meeting of the seventh Session of the Board on 22 March 2019, 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. 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 2018 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. 15 DONATIONS During this reporting period, the amount of charity donations made by the Company amounted to RMB 0.18 billion. 9 DURING THIS REPORTING PERIOD, THE IMPLEMTATION OF ENVIRONMENTAL POLICIES BY THE COMPANY The Company did not violate any environmental policy during the reporting period. Details with regard to the Company’s performance in relation to environmental and social-related policies and performances are provided in the Chairman’s Address and Business Review and Prospects in this annual report as well as the 2018 Communication on Progress for the Sustainable Development of Sinopec Corp. Those disclosures in relation to the environmental policies constitute part of the Report of the Board of Directors. 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 46.6% 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 14.8% of the total value of the crude oil purchasing by the Company. The total sales value to the five largest customers of the Company in 2018 was RMB 231,305 million, accounted for 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 92,475 million, accounted for 3.2% of the total sales value for the year. 57 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Directors 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 section “Directors, Supervisors, Senior Management and Employees” of 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. 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 2018, the Company has not entered into any equity-linked agreement. 23 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 including organisation, coordination, monitoring and major decision-making, and reviews the reserves estimation of our Company. Each of our branches has a reserves management committee that manages and coordinates the reserves estimation, organises the estimation process and reviews the reserve estimation report at the branch level. Our RMC is led by President of our Company, related departments of headquarter, Petroleum Exploration and Production Research Institute of Sinopec (PEPRIS) and senior managers of oilfield branches. Mr. Ma Yongsheng, the chairman of RMC is President of Sinopec Corp., an academician of the Chinese academy of Engineering with over 30 years of experience in oil and gas industry. 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 and financial divisions are responsible for initial collection and compilation of information about reserves. Experts from exploration, development and economic divisions prepare the initial report on the reserves estimate which is then reviewed by the RMC at the subsidiary level to ensure the qualitative and quantitative compliance with technical guidance as well as its accuracy and reasonableness. 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 rank first 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. 58 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of Directors 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. 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 geopolitics, 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 refined oil 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 the right of tenure, and further improvement in pricing mechanism of refined oil products, gas stations investment are fully opened overseas, 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. Risks 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. 59 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Directors 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 over time which may adversely affect the Company’s financial situation and operation performance. Risks 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 fluctuate 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 countermeasures, 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 high risks of inflammation, explosion and environmental pollution and is vulnerable to extreme 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 HSSE 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 has 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. 60 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF DIRECTORS (CONTINUED)Report of the Board of Directors Cyber-security risks: the Company has a well- established network safety system, information infrastructure and operation system, and network safety information platform, 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 Chairman Beijing, China, 22 March 2019 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 in 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. Currency 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, the realized price of crude oil is based on international oil price. Despite the fact that, the price of the domestic refined oil products will change as the exchange rate of the Renminbi changes according to the pricing mechanism for the domestic refined oil products, and the price of other domestic petrochemical products will also be influenced by the price of the imported products, which to a large extent, smooths the impact of the Renminbi exchange rate on the processing and sales of the Company’s crude oil refined products. However, the fluctuation of the Renminbi exchange rate will still have an effect on the income of the upstream sector. 61 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Directors On 23 March 2018, the 13th meeting of the sixth session of the Board of Supervisors was held, and the proposals in relation to Annual Report of Sinopec Corp. for 2017, the Financial Statements of Sinopec Corp. for 2017, 2017 Communication on Progress for Sustainable Development of Sinopec Corp., Internal Control Assessment Report of Sinopec Corp. for 2017, Work Report of the Board of Supervisors of Sinopec Corp. for 2017, Work Report of the Sixth Session of the Board of Supervisors of Sinopec Corp., were reviewed and approved at the meeting. On 26 April 2018, the 14th meeting of the sixth session of the Board of Supervisors was held, and the proposal in relation to the First Quarterly Report of Sinopec Corp. for 2018 was reviewed and approved at the meeting. On 15 May 2018, the 1st meeting of the seventh 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 24 August 2018, the 2nd meeting of the seventh session of the Board of Supervisors was held, and the Interim Report of Sinopec Corp. for 2018, the Interim Financial Statements of Sinopec Corp. for 2018 and Proposal of Continuing Connected Transactions from 2019 to 2021 were reviewed and approved at the meeting. On 30 October 2018, the 3rd meeting of the seventh session of the Board of Supervisors was held, and the Third Quarterly Report of Sinopec Corp. for 2018 was reviewed and approved at the meeting. In addition, the supervisors attended the general meetings of shareholders and attended 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 the Supervisors’ capabilities in performing supervisory duties. Dear Shareholders: In 2018, 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 for sustainable development, internal control assessment report, working report of the Board of Supervisors and continuing connected transactions etc. 62 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018REPORT OF THE BOARD OF SUPERVISORSReport of the Board of Supervisors 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 fluctuation of international crude oil prices and severe operating environment of excessive supply of refined oil products in domestic market in 2018, the Company took advantage of its integrated value chain to accelerate the Company’s transformation and focused on improving quality and efficiency; made every effort to expand the market, reinforce its management, strictly control costs, promote the deepening reform, promote transformation and development, all contributing to a hard-won business result. The Board of Supervisors had no objection to the supervised issues during this reporting period. Firstly, the Board and the senior 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 executed the resolutions approved by the Board, continued to deepen the reform, focus on innovations and compliance operations, intensified refined management and strived to tap potentials and enhance efficiency, optimise business structures, committed to achieving the target of sustaining profit and growth set by the Board. During the reporting period, the Board of Supervisors did not discover any behavior 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 2018 complied with the relevant regulation of domestic and overseas securities regulators, the disclosed information truly, accurately, completely and fairly reflected Sinopec Corp.’s financial results and operation performance. The dividend distribution plan was made after comprehensive consideration of the long-term interests of Sinopec Corp. and the interests of the shareholders. No violation of confidential provisions of persons who prepared and reviewed the report was found. Thirdly, Sinopec Corp.’s internal control system is 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 Communication on Progress for Sustainable Development was in Compliance with requirements made by Shanghai Stock Exchange for listed companies with regard to the publication of social responsibility report. Fourthly, the consideration for the equity investment 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 exchanges. 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 discovered. In 2019, 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 22 March 2019 63 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Report of the Board of Supervisors Dai Houliang Li Yunpeng Li Yunpeng, aged 59, 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 the Party 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 the Leading Party Member Group of COSCO; in December 2011, he was appointed as 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 55, Chairman of the Board of Directors 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 64 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 May 2009, he was elected as Director and appointed as Senior Vice President of Sinopec Corp.; in August 2012, he was appointed concurrently as Chairman of Sinopec Great Wall Energy & Chemical Ltd.; in March 2013, he was appointed concurrently as Chairman of Sinopec Catalyst Ltd.; 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; between August 2016 and October 2018, he acted as President of Sinopec Corp.; in July 2018, he was appointed as the Chairman of the Board of Sinopec Petrochemical Corporation; in May 2018, he was appointed as the Chairman of the Board. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Yu Baocai Ma Yongsheng Yu Baocai, aged 53, Director of Sinopec Corp. Mr. Yu is a senior engineer and master in economics. In September 1999, Mr. Yu was appointed as the Deputy General Manager of Daqing Petrochemical Company; In December 2001, he was appointed as the General Manager and Deputy Secretary of CPC Committee of Daqing Petrochemical Company; In September 2003, he was appointed as the General Manager and Secretary of CPC Committee of Lanzhou Petrochemical Company; In June 2007, he was appointed as the General Manager and Deputy Secretary of CPC Committee of Lanzhou Petrochemical Company and the General Manager of Lanzhou Petroleum & Chemical Company; He had been a member of the Leading Party Member Group and the Deputy General Manager of China National Petroleum Corporation since September 2008 and had been acting concurrently as director of Petrochina Company Limited since May 2011; Since June 2018, he has been a member of the Leading Party Member Group and the Vice President of China Petrochemical Corporation. In August 2018, he was appointed concurrently as Chairman of Sinopec Enginnering (Group) Co., Ltd. In October 2018, Mr. Yu was elected as Director of Sinopec Corp. Ma Yongsheng, aged 57, Director and 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 General 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 Pipeline 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 Pipeline 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 February 2016, he was elected as Director of Sinopec Corp.; in January 2017, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation; in October 2018, he was appointed as President of Sinopec Corp. 65 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Ling Yiqun Liu Zhongyun Ling Yiqun, aged 56, Director and Senior 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 concurrently as Executive Director, President and Secretary of CPC Committee of Sinopec Refinery Product Sales Company Limited; in August 2013, he was appointed concurrently 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. In May 2018, he was elected as Director of Sinopec Corp. Liu Zhongyun, aged 55, Director and Senior Vice President 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 the Party 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 Limited; 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 was appointed as Senior Vice President of Sinopec Corp. In December 2018, he was appointed concurrently as the Chairman of Sinopec Oilfield Service Corporation. In May 2018, Mr. Liu was elected as Director of Sinopec Corp. 66 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Li Yong Tang Min Fan Gang Li Yong, aged 55, Director of Sinopec Corp. Mr. Li is a senior engineer with a master degree. In April 2003, he was appointed as Deputy General Manager of Tianjin Branch of China National Offshore Oil Corporation (China) Limited; in October 2005, he was appointed as Executive Vice President of China Oilfield Services Limited; in April 2009, he was appointed as President of China Oilfield Services Limited; in September 2010, he was appointed as Chief Executive Officer and President of China Oilfield Services Limited; in July 2012, he was appointed as the Chief Executive Officer, President and Secretary of CPC Committee of China Oilfield Services Limited; in June 2016, he was appointed as Assistant President of China National Offshore Oil Corporation and Executive Vice President of China National Offshore Oil Corporation Limited, as well as Chief Director (General Manager) and Secretary of CPC Committee of China National Offshore Oil Corporation Bohai Petroleum Administration Bureau (China National Offshore Oil Corporation (China) Limited Tianjin Branch); in March 2017, he was appointed as Vice President of China Petrochemical Corporation, and since July 2017, he concurrently served as Vice Chairman of the Board of Directors, President and Secretary of CPC Committee of Sinopec International Petroleum Exploration and Production Corporation, as well as Chairman of Board of Directors and President of Sinopec International Petroleum Exploration and Production Limited. In May 2018, he was elected as Director of Sinopec Corp. Tang Min, aged 65, Independent Director of Sinopec Corp. Mr. Tang has a Ph.D. in economics. He presently acts as Counsellor of the State Council of the PRC and Executive Vice Chairman of YouChange China Social Entrepreneur Foundation, Independent Director of Baoshang Bank Co., Ltd, and Independent Director of China Minmetals Development Co., Ltd. He was an 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 Deputy Secretary-General of the China Development Research Foundation between 2007 and 2010. In May 2015, he acted as Independent Director of Sinopec Corp. Fan Gang, aged 65, 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 between 2015 and 2018, he served as a member of the Monetary Policy Committee of the People’s Bank of China. Mr. Fan is recognised as one of the National Young and Middle-Aged Experts with Outstanding Contributions. In May 2015, he acted as Independent Director of Sinopec Corp. 67 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Cai Hongbin Ng, Kar Ling Johnny Ng, Kar Ling Johnny, aged 58, Independent Director of Sinopec Corp. Mr. Ng currently is a practicing certified public accountant in Hong Kong, a practicing auditor and certified public accountant in Macau, a fellow member of the Hong Kong Institute of Certified Public Accountants (FCPA), a fellow member of the Association of Chartered Certified Accountant (FCCA), and a member of the Institute of Chartered Accountants in England and Wales (AICAEW). Mr. Ng obtained a Bachelor’s degree and a Master’s degree in Business Administration from the Chinese University of Hong Kong in 1984 and 1999, respectively. Mr. Ng joined KPMG (Hong Kong) in 1984 and became a Partner in 1996. He acted as a Managing Partner from June 2000 to September 2015 and the Vice Chairman of KPMG (China) from October 2015 to March 2016. Mr. Ng currently serves as Independent Non-executive Director and Chairman of the audit committee of China Vanke Co., Ltd. In May 2018, Mr. Ng acted as Independent Director of Sinopec Corp. Cai Hongbin, aged 51, Independent Director of Sinopec Corp. Mr. Cai is dean of Faculty of Business and Economics and Professor of Economics of the University of Hong Kong. Mr. Cai has a Ph.D. degree in Economics. From 1997 to 2005, Mr. Cai taught at University of California, Los Angeles; since 2005, he served as a professor and Ph.D. supervisor in Applied Economics Department at Guanghua School of Management at Peking University, he once served as Director, Assistant to the Dean and Vice Dean of the Applied Economics Department. From December 2010 to January 2017, he served as the dean of Guanghua School of Management at Peking University. In June 2017, he joined the Faculty of Business and Economics of the University of Hong Kong. Professor Cai Hongbin is a member of the 12th National People’s Congress and a member of Beijing Municipal Committee of Chinese People’s Political Consultative Conference, serving as member of the eleventh Central Committee of China Democratic League, deputy Chairman of Beijing Municipal Committee of China Democratic League, and a special auditor of the National Audit Office. Mr. Cai once served as external director of China Petrochemical Corporation, independent directors of China Unicom and China Everbright Bank, etc. Mr. Cai currently serves as independent director of CCB International (Holdings) Ltd., Rightway Holdings Co., Ltd. and Beijing Landsky Environmental Technology Co., Ltd., In May 2018, Mr. Cai acted as Independent Director of Sinopec Corp. 68 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 LIST OF MEMBERS OF THE BOARD Name Gender Age Position in Sinopec Corp. Dai Houliang Li Yunpeng Yu Baocai Ma Yongsheng Ling Yiqun Liu Zhongyun Male Male Male Male Male Male Male Li Yong Male Tang Min Male Fan Gang Cai Hongbin Male Ng, Kar Ling Johnny Male 56 55 59 53 57 Chairman Board Director Board Director Board Director, President Board Director, Senior Vice President Board Director, Senior Vice President 55 Board Director 65 Independent Director 65 Independent Director 51 Independent Director 58 Independent Director 55 Name Wang Zhigang Gender Male Age 61 Zhang Haichao Male Jiao Fangzheng Male Jiang Xiaoming Male Yan Yan Male 61 56 65 61 Position in Sinopec Corp. Former Director and Senior Vice President Former Director and Senior Vice President Former Director and Senior Vice President Former Independent Director Former Independent Director Remuneration paid by in 2018 (RMB 1,000, before tax) Whether paid by Equity interests in Sinopec Corp. the holding Company (as at 31 December) 2018 2017 467.8 — — 394.6 — — — 333.3 333.3 233.3 233.3 No Yes Yes No Yes Yes Yes No No No No 0 0 0 0 0 0 0 0 13,000 13,000 0 0 0 0 0 0 0 0 0 0 0 0 Tenure 2009.05-2021.05 2017.06-2021.05 2018.10-2021.05 2016.02-2021.05 2018.05-2021.05 2018.05-2021.05 2018.05-2021.05 2015.05-2021.05 2015.05-2021.05 2018.05-2021.05 2018.05-2021.05 Remuneration paid by in 2018 (RMB 1,000, before tax) Tenure Whether paid by Equity interests in Sinopec Corp. the holding Company (as at 31 December) 2018 2017 2006.05-2018.01 48.29 2015.05-2018.01 2015.05-2018.06 2012.05-2018.05 2012.05-2018.05 — — 12.50 12.50 No Yes Yes No No 0 0 0 0 0 0 0 0 0 0 Note 1: Mr. Dai Houliang received remuneration from the Company from January 2018 to October 2018. 2: Mr. Ma Yongsheng receives remuneration from the Company since November 2018. 69 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Directors, Supervisors,Senior Management and Employees Zhao Dong Jiang Zhenying (2) Supervisors Zhao Dong, aged 48, 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 general 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 general 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. Jiang Zhenying, aged 54, 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 Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation and since December 2010, he was elected as the Employee’s Representative Supervisor of Sinopec Corp. Since December 2018, he was appointed as Director of Audit Bureau of China Petrochemical Corporation, and Director of Audit Department of Sinopec Corp. In May 2018, he was elected as Supervisor of Sinopec Corp. 70 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Yang Changjiang Zhang Baolong Zhang Baolong, aged 59, Supervisor of Sinopec Corp. Mr. Zhang is a professor- level senior economist with a Master degree. In July 1995, he served as General Manager of Hong Kong Century Bright Capital Investment Limited; in August 1996, he served as Deputy General Manager of Sinopec Finance Co., Ltd.; in December 2001, he was appointed as Deputy General Manager and Chief Accountant of China International United Petroleum & Chemicals Co., Ltd.; in August 2004, he was appointed concurrently as Secretary of Disciplinary Inspection Committee of China International United Petroleum & Chemicals Co., Ltd.; since March 2006, he has served as General Manager and Secretary of CPC Committee of Sinopec Finance Co., Ltd. In June 2018, he was appointed as Deputy Director of Department of Capital Management and Financial Services of China Petrochemical Corporation. In May 2018, he was elected as Supervisor of Sinopec Corp. Yang Changjiang, aged 58, Supervisor of Sinopec Corp. Mr. Yang is a professor- level senior administration engineer with a Master’s degree. In October 2007, he was appointed as a standing committee member of CPC Committee of Shengli Petroleum Administration Bureau; in April 2009, he was appointed as Deputy Secretary of CPC Committee and Secretary of Discipline Inspection Committee of Shengli Petroleum Administration Bureau, as well as a standing committee member of CPC Committee of Dongying City, Shandong Province; in December 2012, he was appointed as Secretary of CPC Committee and Deputy Director of Southwest Petroleum Bureau, Deputy General Manager of Sinopec Southwest Oil & Gas Company and a member of the Coordination Committee of Sinopec Southwest Petroleum Bureau, Sinopec Southwest Oil & Gas Company and Sinopec Southern Exploration Company; in December 2016, he was appointed as Secretary of CPC Committee and Deputy Director General of Shengli Petroleum Administration Bureau, and Deputy General Manager of Shengli Oilfield Company; in October 2017, he was appointed as Secretary of CPC Committee and Deputy General Manager of Shengli Petroleum Administration Bureau Co., Ltd., and Deputy General Manager of Sinopec Shengli Oilfield Company. Since March 2018, he has served as Director General of Party Affairs and Employee Relations Department (Leading Party Member Group Office), Deputy Secretary of the CPC Committee directly under China Petrochemical Corporation, Deputy Director General of Working Committee of Trade Union, and Deputy Director of the Youth Working Committee of China Petrochemical Corporation. In May 2018, he was elected as Supervisor of Sinopec Corp. 71 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Zou Huiping Zhou Hengyou Zou Huiping, aged 58, 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 Director General of China Petrochemical Corporation Audit Bureau. In September 2018, he was appointed as Chief Representative of Sinopec Corp. Hong Kong Office. In May 2006, he was elected as Supervisor of Sinopec Corp. Zhou Hengyou, aged 55, Employee’s Representative 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 Vice Chairman of Trade Union of Jiangsu Petroleum Exploration Bureau; in February 1999, he was appointed as a standing committee member of CPC Committee and Trade Union Chairman of Jiangsu Petroleum Exploration Bureau of China Petrochemical Corporation; in December 2002, he was appointed as Deputy Secretary of CPC Committee and Trade 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 of China Petrochemical Corporation 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. In May 2018, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 72 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Yu Renming Yu Xizhi Yu Renming, aged 55, 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 56, 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 General Manager of Anqing Petrochemical General Plant and concurrent General Manager of Fertiliser Plant; in September 1999, he became a member of the CPC Standing Committee of Anqing Petrochemical General Plant; in February 2000, he was appointed as Deputy General Manager of Sinopec Anqing Company and in September 2000, he was appointed as General Manager of Sinopec Anqing Company. In January 2005, he was appointed as General Manager of Anqing Petrochemical General Plant and from May 2009 to July 2010, he served a interim 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 Sinopec Corp. In June 2017, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 73 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 LIST OF MEMBERS OF THE BOARD OF SUPERVISORS Name Zhao Dong Gender Male Jiang Zhenying Yang Changjiang Zhang Baolong Zou Huiping Zhou Hengyou Male Male Male Male Male Age 48 54 58 59 58 55 Yu Xizhi Male 56 Yu Renming Male 55 Position in Sinopec Corp. Chairman of the Board of Supervisors Supervisor Supervisor Supervisor Supervisor Employee’s Representative Supervisor Employee’s Representative Supervisor Employee’s Representative Supervisor Remuneration paid by Sinopec Corp. in 2018 (RMB 1,000, before tax) Tenure 2017.06-2021.05 — 2018.05-2021.05 2018.05-2021.05 2018.05-2021.05 2006.05-2021.05 2018.05-2021.05 — — — 1,034.7 340.8 2017.06-2021.05 1,008.6 2010.12-2021.05 984.1 Whether paid by the Equity interests in Sinopec Corp. holding Company (as of 31 December) 2018 2017 Yes Yes Yes Yes No No No No 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Name Liu Zhongyun Zhou Hengyou Jiang Zhenying Gender Male Male Male Age 55 55 54 Position in Sinopec Corp. Former Supervisors Former Supervisors Former Employee’s Representative Supervisor Tenure 2015.05-2018.02 2015.05-2018.05 2010.12-2018.05 Note: Mr. Zhou Hengyou receives remuneration from the Company since May 2018. Remuneration paid by Sinopec Corp. in 2018 (RMB 1,000, before tax) Whether paid by Equity interests in Sinopec Corp. the holding Company (as of 31 December) 2018 2017 — — — Yes Yes Yes 0 0 0 0 74 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and Employees Lei Dianwu Chen Ge (3) Other Members of Senior Management Lei Dianwu, aged 56, Senior 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 May 2009, he was appointed as Vice President of Sinopec Corp.; 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; in June 2018, he was appointed concurrently as Director General of International Cooperation Department of Sinopec Corp. In October 2018, he was appointed as Senior Vice President of Sinopec Corp. Chen Ge, aged 56, Senior Vice President of Sinopec Corp. Mr. Chen is a senior economist with a master degree. In February 2000, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp. In December 2001, he was appointed as Director General of the Board Secretariat of Sinopec Corp. In April 2003, he was appointed as Secretary to the Board of Directors of Sinopec Corp. From April 2005 to August 2013, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp. In July 2010, he was appointed as Assistant to President of China Petrochemical Corporation. From December 2013 to December 2015, he was appointed temporarily as Deputy Secretary-General of Guizhou Provincial People’s Government and a member of the Leading Party Member Group of Guizhou Provincial General Office. In November 2015, he was appointed as Employee’s Representative Director of China Petrochemical Corporation. In December 2017, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp. In October 2018, he was appointed as Senior Vice President of Sinopec Corp. 75 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 Wang Dehua Zhao Rifeng Huang Wensheng Zhao Rifeng, aged 55, Vice President of Sinopec Corp. Mr. Zhao is a Professor level Senior Engineer with a master degree. In July 2000, he was appointed as Deputy General Manager of Sinopec Jinling Petrochemical Co., Ltd and Deputy Manager of Sinopec Jinling Company; in October 2004, he was appointed as General Manager of Sinopec Jinling Company; in October 2006, he was appointed as Vice Chairman and General Manager of Sinopec Jinling Petrochemical Co., Ltd; in November 2010, he was appointed as Chairman, General Manger, Deputy Secretary of CPC Committee of Sinopec Jinling Petrochemical Co., Ltd; in August 2013, he was appointed as Director General of Refining Department of Sinopec Corp.; and in December 2017, he was appointed as the Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited. In February 2018, he was appointed as Vice President of Sinopec Corp. Huang Wensheng, aged 52, 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.; In June 2018, he was appointed concurrently as Director General of Department of Capital Management and Financial Services of China Petrochemical Corporation. In July 2018, he was appointed concurrently as Chairman, President and Secretary of CPC Committee of Sinopec Capital Co., Ltd.; and in May 2014, he was appointed as Vice President of Sinopec Corp. Wang Dehua, aged 52, 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. in September 2016, he was appointed as Chief Financial Officer of Sinopec Corp. 76 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018 LIST OF MEMBERS OF THE SENIOR MANAGEMENT Name Gender Lei Dianwu Chen Ge Wang Dehua Zhao Rifeng Huang Wensheng Male Male Male Male Male Age 56 56 52 56 52 Position in Sinopec Corp. Senior Vice President Senior Vice President CFO Vice President Vice President, Board Secretary Remuneration paid by Sinopec Corp. in 2018 (RMB 1,000, before tax) 1,155.6 129.7 1,130.0 606.6 1,130.0 Remuneration paid by Sinopec Corp. in 2018 (RMB 1,000, before tax) Whether paid by the holding Company No No No No No Whether paid by the holding Company No Equity interests in Sinopec Corp. (as of 31 December) 2018 2017 0 0 0 0 0 0 0 0 0 0 Equity interests in Sinopec Corp. (as of 31 December) 2018 0 2017 0 Name Chang Zhenyong Gender Male Age Position in Sinopec Corp. 60 Former Vice President 749 Note: Mr. Chen Ge receives remuneration from the Company since November 2018. 2 INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT 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. On 15 May 2018, the members of the Seventh Session of the Board of Directors and the Board of Supervisors (non- employee representative supervisors) were elected at the 2017 general meeting of shareholders. The 1st meeting of the Seventh Session of Board held at the same date elected Chairman of the Board and appointed senior management. The 1st meeting of the Seventh Session of the Board of Supervisors elected Chairman of the Board of Supervisors. The changes of the directors, supervisors and other senior management are as follows: Board of Directors: Mr. Dai Houliang was elected as Executive Director and Chairman of the Board. Mr. Li Yunpeng, Mr. Jiao Fangzheng, Mr. Ma Yongsheng, Mr. Ling Yiqun, Mr. Liu Zhongyun and Mr. Li Yong were elected as Directors. Mr. Tang Min, Mr. Fan Gang, Mr. Cai Hongbin and Mr. Ng. Kar Ling Johnny were elected as Independent Non-executive Directors. Mr. Jiang Xiaoming and Mr. Andrew Y. Yan were no longer the Independent Non-executive Directors of the Board. Board of Supervisors: Mr. Zhao Dong was elected as the Chairman of Board of Supervisors. Mr. Jiang Zhenying, Mr. Yang Changjiang, Mr. Zhang Baolong and Mr. Zou Huiping were elected as Supervisors. Mr. Zhou Hengyou, Mr. Yu Renming and Mr. Yu Xizhi were elected as Employee Representative Supervisors. Other Senior Management: Mr. Zhao Rifeng, Mr. Huang Wensheng and Mr. Lei Dianwu were elected as Vice President. Mr. Huang Wensheng was elected as Secretary to the Board. On 7 June 2018, Mr. Jiao Fangzheng resigned as director, member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. due to change of working arrangement. On 23 October 2018, Mr. Yu Baocai was elected as Non- executive Director of the Seventh Session of the Board of Sinopec Corp. On 30 October 2018, Mr. Dai Houliang was re-designated as the Non-executive Director of Sinopec Corp. On 30 October 2018, Mr. Ma Yongsheng was appointed as president of Sinopec Corp. On 30 October 2018, Mr. Lei Dianwu was appointed as Senior Vice President of Sinopec Corp. On 30 October 2018, Mr. Chen Ge was appointed as Senior Vice President of Sinopec Corp. 77 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Directors, Supervisors,Senior Management and Employees 3 CHANGE OF SHAREHOLDING 4 CONTRACTRAL INTERESTS 5 REMUNERATION OF DIRECTORS, 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. OF DIRECTORS AND SUPERVISORS As of 31 December 2018 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. SUPERVISORS, AND THE SENIOR MANAGEMENT During this reporting period, there is a total of 19 directors, supervisors and other senior management received remuneration from Sinopec Corp. with a total amount of RMB 10.9976 million. 6 THE COMPANY’S EMPLOYEES As at 31 December 2018, the Company has a total of 423,543 employees. There are a total of 241,168 retired employees to be reimbursed by Sinopec Corp. Sinopec Marketing Co. Limited, principal subsidiary of Sinopec Corp., have 142,669 employees. THE BREAKDOWN ACCORDING TO THE MEMBERS OF EACH OPERATION SEGMENT AS FOLLOWS: Marketing and Distribution 142,669 34% R&D 5,873 Other Segments 14,574 1% 4% Exploration and Production 139,873 33% Refining 60,492 14% Chemicals 60,062 14% Technology 81,778 19% Finance 9,479 Administration 33,883 Others 13,356 2% 8% 3% Production 153,867 37% Sales 131,180 31% EMPLOYEES’ PROFESSIONAL STRUCTURE AS FOLLOWS: 78 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and Employees EDUCATIONAL BACKGROUND STRUCTURE FOR EMPLOYEES AS FOLLOWS: Senior high school and technical school degrees or below 167,666 40% Master’s degree or above 16,535 4% Undergraduate 108,165 25% Junior college 94,162 22% Technical secondary school 37,015 9% 7 CHANGES OF CORE TECHNICAL TEAM OR KEY TECHNICIANS During the reporting period, there are no significant changes of core technical team or key technicians. administered by provincial (autonomous region or municipalities) governments. Government-administered pension schemes are responsible for the payments of basic pensions. 8 EMPLOYEE BENEFITS SCHEME 9 REMUNERATION POLICY Details of the Company’s employee benefits scheme are set out in Note 38 of the financial statements prepared under IFRS of this annual report. As at 31 December 2018, the Company has a total of 241,168 retired employees. All of them participated in the basic pension schemes 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. 10 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 4,471 Key employees. With an aim to improve the Corporate Governance level, the Company launched a series of training programs for 1,731 senior management personnel. The Company conducted seminars with the topic of learning the spirit of the 19th CPC National Congress for 1,083 senior managers and 12,000 managers. The Company organised training programs with topics of Innovation Development, Green Development, transnational operation, risk prevention and increasing the comprehensive capabilities of young managers for 644 employees. With the aim to advance Professional and technical personnel’s innovation capability, the Company trained 1,085 employees from all the business segments. With roles of Craftsmanship and heritage, the Company focused trainings on top talents such as first chief technicians and famous craftsmen for 221 people. To enhance the management of transnational operation, finance, taxation, law and HSSE, the company organised a series of training programs covering 1,434 overseas project managers. 79 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Directors, Supervisors,Senior Management and Employees On 31 December, 2018, details of the principal wholly-owned and controlled subsidiaries of the Company were as follows: Percentage of shares held by Sinopec Corp. (%) Total Assets Net Assets RMB million RMB million Registered Capital RMB million 8,000 22,761 15,651 12,000 4,000 3,374 1,595 1,000 3,000 USD 1,662 million 1,500 1,400 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 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 Net Profit/ (Net Loss) RMB million 3,272 (1,574) 3,692 2,685 101 382 319 1,279 (4,024) 245 683 712 23,218 14,997 18,919 22,648 5,459 3,926 549 3,248 22,749 12,802 4,712 4,104 100 100 100 100 100 100 100 100 100 100 100 100 54,751 32,972 30,453 39,182 8,041 9,247 3,640 17,773 176,748 26,832 9,694 14,533 17,173 20,174 21,239 5,294 98.98 5,000 3,986 85 75 11,657 2,433 12,066 10,329 3,564 2,619 28,403 70.42 391,923 208,071 21,995 7,801 6,270 HKD 248 million 10,000 10,824 67.6 65 60.33 55 50.44 21,839 15,363 14,104 31,710 44,540 17,908 13,029 10,250 15,225 30,487 3,099 1,879 1,065 3,282 5,277 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 etrochemical 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 Production and sale of catalyst products Trading 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 Marketing and distribution of refined petroleum products Production and sale of petrochemical products Production, sale, research and development of ethylene and downstream by-products Oil jetty and nature gas pipeline transportation service 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 Fujian Petrochemical Company Limited 8,140 50 12,260 11,523 1,595 Note 1: All above subsidiaries except Fujian Petrochemical Company Limited are audited by PricewaterhouseCoopers Zhong Tian LLP or PricewaterhouseCoopers in 2018. KPMG Huazhen LLP served the exception. 2: The above indicated total assets and net profit has been prepared in accordance with CASs. 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, Sinopec Marketing Co., 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. 80 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018PRINCIPAL WHOLLY-OWNED AND CONTROLLED SUBSIDIARIESPrincipal Wholly-Owned and Controlled Subsidiaries PwC ZT Shen Zi (2019) 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 2018, 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 2018, 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. 81 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)REPORT OF THE PRC AUDITOR Key audit matters identified in our audit are summarised as follows: ‧ Recoverability of the carrying amount of fixed assets relating to oil and gas producing activities ‧ Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of fixed assets relating to oil and gas producing activities Refer to Note 13 “Fixed assets”, Note 42 “Impairment losses”, and Note 53 “Principal accounting estimates and judgements” to the consolidated financial statements. Decrease in prices of international crude oil in the fourth quarter of the year ended 31 December 2018 gave rise to possible indication that the carrying amount of fixed assets relating to oil and gas producing activities as at 31 December 2018 might be impaired. The Group has adopted discounted future cash flow to determine the respective recoverable amounts of fixed assets relating 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 relating to oil and gas producing activities as at 31 December 2018, 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 relating to oil and gas producing activities, we performed the following key procedures on the relevant discounted cash flow projections prepared by management: ‧ Evaluated and tested the key controls in respect of the preparation of the discounted cash flow projections of fixed assets relating to oil and gas producing activities. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of the discounted cash flow projections. ‧ 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 and relevant budgets of the Group. ‧ 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. ‧ Independently estimated a range of relevant discount rates, and found that the discount rates adopted by management were within the range. ‧ 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 obtained. 82 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED) Key Audit Matter How our audit addressed the Key Audit Matter Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products Refer to Note 3(4) “Inventories”, Note 11 “Inventories” and Note 53 “Principal accounting estimates and judgements” to the consolidated financial statements. Decrease in prices of international crude oil along with its highly- correlated products, such as refined oil products in the fourth quarter of the year ended 31 December 2018 gave rise to the risk that net realisable values of crude oil, finished goods and work in progress of refined oil products were lower than their respective book values as at 31 December 2018. Management has determined the NRVs of crude oil, finished goods and work in progress of refined oil products based on the respective estimated selling prices less the estimated costs to completion, other necessary costs of sales and the related taxes, which involved key estimations or assumptions including: In auditing the NRVs of crude oil, finished goods and work in progress of refined oil products, we performed the following key procedures on the inventory NRV models prepared by the management. ‧ Evaluated and tested the key controls, relating to the preparation of the NRV models of crude oil, finished goods and work in progress of refined oil products. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of the NRV models. ‧ On a sampling basis, compared the estimated selling prices of inventories used in the NRV models against the recently realised selling prices, and the prices available on domestic and international markets. ‧ On a sampling basis, compared the costs to completion, other necessary costs of sales and related taxes against historical data of the Group. Based on the work, we found that the key assumptions and data adopted in the NRV models were supported by the evidence we obtained. – Estimated selling prices; – Estimated costs to completion, other necessary costs of sales and related taxes. Because of the significance of the book value of crude oil, finished goods and work in progress of refined oil products as at 31 December 2018, together with the use of significant estimations or assumptions in determining their respective NRVs, we had placed our audit emphasis on this matter. OTHER INFORMATION Management of Sinopec Corp. is responsible for the other information. The other information comprises all of the information included in 2018 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 relating 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. 83 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial 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 relating 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 22 March 2019 Signing CPA Zhao Jianrong (Engagement Partner) Signing CPA Xu Xia 84 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED) Notes At 31 December 2018 RMB million At 31 December 2017 RMB million At 1 January 2017 RMB million Assets Current assets Cash at bank and on hand Financial assets held for trading Derivative financial assets Bills receivable and accounts receivable Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Available-for-sale financial assets Long-term equity investments Other equity instrument 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 Derivative financial liabilties Bills payable and accounts payable Advances from customers Contract liabilities 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 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 7 22 3(26) 23 24 25 26 27 28 29 30 18 31 32 33 34 35 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 22 March 2019. 167,015 25,732 7,887 64,879 5,937 25,312 184,584 22,774 504,120 — 145,721 1,450 617,812 136,963 103,855 8,676 15,659 21,694 36,358 1,088,188 1,592,308 44,692 13,571 192,757 — 124,793 7,312 87,060 77,463 — 17,450 565,098 61,576 31,951 42,800 5,948 27,276 169,551 734,649 121,071 119,192 (6,774) 1,706 203,678 279,482 718,355 139,304 857,659 1,592,308 165,004 51,196 526 84,701 4,901 15,941 186,693 20,087 529,049 1,676 131,087 — 650,920 118,645 97,126 8,634 14,720 15,131 28,516 1,066,455 1,595,504 54,701 2,665 206,535 120,734 — 7,162 71,940 89,028 — 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 — 762 63,486 3,749 24,834 156,511 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 4,472 180,129 95,928 — 1,618 52,886 75,164 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 Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 85 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(A) FINANCIAL STATEMENTS PREPARED UNDER CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES CONSOLIDATED BALANCE SHEET as at 31 December 2018Financial Statements (PRC) Assets Current assets Cash at bank and on hand Financial assets held for trading Bills receivable and accounts receivable Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Available-for-sale financial assets Long-term equity investments Other equity instrument 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 Derivative financial liabilties Bills payable and accounts payable Advances from customers Contract liabilities 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 Notes At 31 December 2018 RMB million At 31 December 2017 RMB million At 1 January 2017 RMB million 8 9 10 12 13 14 3(26) 82,879 22,500 30,145 2,488 57,432 45,825 15,835 257,104 — 289,207 395 302,082 51,598 8,571 2,480 11,021 9,145 674,499 931,603 3,961 967 84,418 — 4,230 4,294 54,764 119,514 — 16,729 288,877 48,104 20,000 33,094 — 4,332 105,530 394,407 121,071 68,795 (485) 989 203,678 143,148 537,196 931,603 92,545 48,179 37,766 4,429 63,820 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 — 86,604 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 — 38,803 3,454 45,643 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 — 78,548 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 These financial statements have been approved by the board of directors on 22 March 2019. Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 86 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018BALANCE SHEETas at 31 December 2018Financial Statements (PRC) Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Research and development expenses Financial expenses Exploration expenses, including dry holes Impairment losses Credit impairment losses Add: Other income Investment income Gains/(losses) from changes in fair value Asset disposal expense 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 Classification by ownership: Equity shareholders of the Company Minority interests Basic earnings per share Diluted earnings per share Other comprehensive income Items that may not be reclassified subsequently to profit or loss Changes in fair value of other equity instrument investments Items that may be reclassified subsequently to profit or loss Other comprehensive income that can be converted into profit or loss under the equity method Changes in fair value of available-for-sale financial assets Cash flow hedges 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 22 March 2019. Notes 36 36/39 37 39 39 39/40 38 39/41 42 43 44 45 46 47 48 60 60 34 2018 RMB million 2017 RMB million 2,891,179 2,401,012 246,498 59,396 73,390 7,956 (1,001) 10,744 11,605 141 6,694 11,428 2,656 (742) 101,474 2,070 3,042 100,502 20,213 80,289 80,289 — 63,089 17,200 0.521 0.521 (53) (229) — (9,741) 3,399 (6,624) 73,665 55,471 18,194 2,360,193 1,890,398 235,292 56,055 72,505 6,423 1,560 11,089 21,791 — 4,356 19,060 (13) (1,518) 86,965 1,317 1,709 86,573 16,279 70,294 70,294 — 51,119 19,175 0.422 0.422 — 1,053 (57) (1,580) (3,792) (4,376) 65,918 47,638 18,280 Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 87 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2018Financial Statements (PRC) Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Research and development expenses Financial expenses Exploration expenses, including dry holes Impairment losses Credit impairment losses Add: Other income Investment income (Losses)/gains from changes in fair value Asset disposal income/(expense) 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 Other comprehensive loss that can be converted into profit or loss under the equity method Cash flow hedges Total other comprehensive income Total comprehensive income These financial statements have been approved by the board of directors on 22 March 2019. Note 36 36 44 2018 RMB million 2017 RMB million 1,058,493 812,355 168,905 3,078 36,169 7,453 1,029 9,796 6,766 42 2,777 28,336 (20) 12 44,005 599 1,687 42,917 2,960 39,957 39,957 — (64) (617) (681) 39,276 857,478 633,114 158,480 2,670 39,537 5,445 2,642 10,614 14,372 — 1,784 38,058 179 (887) 29,738 474 725 29,487 (928) 30,415 30,415 — (120) 53 (67) 30,348 Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 88 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018INCOME STATEMENTfor the year ended 31 December 2018Financial Statements (PRC) Note 2018 RMB million 2017 RMB million 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 Other cash received relating to financing activities 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 in cash and cash equivalents These financial statements have been approved by the board of directors on 22 March 2019. 50(a) 50(b) 3,189,004 1,681 90,625 3,281,310 (2,565,392) (77,048) (329,387) (133,615) (3,105,442) 175,868 56,546 10,720 9,666 87,696 11 164,639 (103,014) (39,666) (85,193) (3,188) (231,061) (66,422) 1,886 1,886 746,655 190 748,731 (772,072) (87,483) (13,700) (436) (859,991) (111,260) 518 (1,296) 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) Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 89 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2018Financial 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 in cash and cash equivalents These financial statements have been approved by the board of directors on 22 March 2019. Note 2018 RMB million 2017 RMB million 1,228,816 1,481 19,380 1,249,677 (867,259) (41,770) (206,305) (26,211) (1,141,545) 108,132 65,930 43,693 2,838 28,724 — 141,185 (54,792) (40,169) (28,759) (123,720) 17,465 109,915 109,915 (176,757) (71,944) (248,701) (138,786) (13,189) 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) Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 90 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CASH FLOW STATEMENTfor the year ended 31 December 2018Financial Statements (PRC) Share capital RMB million 121,071 Capital reserve RMB million 119,525 Other comprehensive income RMB million (932) Specific reserve RMB million 765 Surplus reserves RMB million 196,640 Retained earnings RMB million 275,163 Total shareholders’ equity attributable to equity shareholders of the Company RMB million 712,232 Minority interests RMB million 120,293 Total shareholders’ equity RMB million 832,525 — — — — — — — — — — 121,071 121,071 — 121,071 — — — — — — — — — — — — 121,071 — — — — — (13) — (13) — 45 119,557 119,557 — 119,557 — — — — — — — (12) — (12) — (353) 119,192 — (3,481) (3,481) — — — — — — — (4,413) (4,413) (12) (4,425) — (7,618) (7,618) 5,269 — — — — — — — — (6,774) — — — — — — — — 123 — 888 888 — 888 — — — — — — — — — — 818 — 1,706 — — — 51,119 — 51,119 51,119 (3,481) 47,638 19,175 (895) 18,280 70,294 (4,376) 65,918 3,042 — — — 3,042 — — 199,682 199,682 — 199,682 — — — — 3,996 — — — — 3,996 — — 203,678 (3,042) (32,689) — — (35,731) — (92) 290,459 290,459 12 290,471 63,089 — 63,089 — (32,689) (13) — (32,702) 123 (47) 727,244 727,244 — 727,244 63,089 (7,618) 55,471 — — 724 (12,501) (11,777) 3 27 126,826 126,826 — 126,826 17,200 994 18,194 — (32,689) 711 (12,501) (44,479) 126 (20) 854,070 854,070 — 854,070 80,289 (6,624) 73,665 — 5,269 — 5,269 (3,996) (67,799) — — — (71,795) — (2,283) 279,482 — (67,799) — (12) — (67,811) 818 (2,636) 718,355 — — 2,060 (299) (7,476) (5,715) 91 (92) 139,304 — (67,799) 2,060 (311) (7,476) (73,526) 909 (2,728) 857,659 Balance at 1 January 2017 Change for the year 1. Net profit 2. Other comprehensive income (Note 34) Total comprehensive income Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves – Distributions to shareholders (Note 49) 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 Balance at 31 December 2017 Change in accounting policy (Note 3(26)) Balance at 1 January 2018 Change for the year 1. Net profit 2. Other comprehensive income (Note 34) Total comprehensive income Amounts transferred to cash flow hedge reserves initially recognised by hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves – Distributions to shareholders (Note 49) 4. Transaction with minority interests 5. Contributions to subsidiaries from non-controlling interests 6. Distributions to minority interests Total transactions with owners, recorded directly in shareholders’ equity 7. Net increase in specific reserve for the year 8. Others Balance at 31 December 2018 These financial statements have been approved by the board of directors on 22 March 2019. Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 91 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2018Financial Statements (PRC) 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 Balance at 31 December 2017 Change in accounting policy (Note 3(26)) Balance at 1 January 2018 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 2018 Share capital RMB million Capital reserve RMB million 121,071 68,769 — — — — — — — — 121,071 121,071 — 121,071 — — — — — — — — — — — — 20 68,789 68,789 — 68,789 — — — — — — — — 121,071 — — 6 68,795 Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity RMB million 263 — (67) (67) — — — — — 196 196 — 196 — (681) (681) — — — — — (485) 393 196,640 182,440 569,576 — — — — — — 89 — 482 482 — 482 — — — — — — 507 — 989 — — — 30,415 — 30,415 30,415 (67) 30,348 3,042 — 3,042 — — 199,682 199,682 — 199,682 — — — 3,996 — 3,996 — — 203,678 (3,042) (32,689) (35,731) — (75) 177,049 177,049 — 177,049 39,957 — 39,957 (3,996) (67,799) (71,795) — (2,063) 143,148 — (32,689) (32,689) 89 (55) 567,269 567,269 — 567,269 39,957 (681) 39,276 — (67,799) (67,799) 507 (2,057) 537,196 These financial statements have been approved by the board of directors on 22 March 2019. Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The accompanying notes form part of these financial statements. 92 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2018Financial 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 22 March 2019. 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 54, and there are no significant changes related to the consolidation scope during current period. 2 BASIS OF PREPARATION (1) Statement of compliance of China Accounting Standards for Business Enterprises (“CASs”) 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 CASs 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 2018, and the consolidated and company financial performance and the consolidated and company cash flows for the year ended 31 December 2018. 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 assets held for trading (see Note 3(10)) — Other equity instrument investments (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 Company and its subsidiaries determine their functional currency according to the main economic environment in where they operate. The Group’s consolidated financial statements are presented in Renminbi. 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. 93 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2018Financial 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 financial assets (Note 3(10)), 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)), etc. Principal accounting estimates and judgements of the Group are set out in Note 53. (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. 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. 94 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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) 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 other equity instrument investments; 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. 95 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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. 96 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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 venture 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). 97 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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. 98 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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, refer to the contracts that form one party’s financial assets and form the financial liabilities or equity instruments of the other party. The Group recognises a financial asset or a financial liability when the Group enters into and becomes a party to the underlining contract of the financial instrument. (a) Financial assets (i) Classification and measurement The Group classifies financial assets into different categories depending on the business model for managing the financial assets and the contractual terms of cash flows of the financial assets: (1) financial assets measured at amortised cost, (2) financial assets measured at fair value through other comprehensive income, (3) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset. Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. Bills receivable and accounts receivable arising from sales of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Group. Debt instruments Debt instruments held by the Group mainly include cash at bank and on hand, and receivables, etc. These financial assets are measured at amortised cost. The business model for managing such financial assets by the Group are held for collection of contractual cash flows. The contractual cash flow characteristics are to give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income from these financial assets is recognised using the effective interest rate method. Equity instruments Equity instruments that the Group has no power to control, jointly control or exercise significant influence over, are measured at fair value through profit or loss and presented as financial assets held for trading. In addition, the Group designates some equity instruments that are not held for trading as financial assets at fair value through other comprehensive income, and presented in other equity instrument investments. The relevant dividends of these financial assets are recognised in profit or loss. When derecognised, the cumulative gain or loss previously recognised in other comprehensive income transfer to retained earnings. 99 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) Financial Instruments (Continued) (a) Financial assets (Continued) (ii) Impairment The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost. The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group measures the expected credit losses of financial instruments on different stages at each balance sheet date. For financial instruments that have no significant increase in credit risk since the initial recognition, on first stage, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk since the initial recognition of a financial instrument but credit impairment has not occurred, on second stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. For financial instruments that have low credit risk at the balance sheet date, the Group assumes that there is no significant increase in credit risk since the initial recognition, and measures the loss allowance at an amount equal to 12-month expected credit losses. For financial instruments on the first stage and the second stage, and that have low credit risk, the Group calculates interest income according to carrying amount without deducting the impairment allowance and effective interest rate. For financial instruments on the third stage, interest income is calculated according to the carrying amount minus amortised cost after the provision of impairment allowance and effective interest rate. For receivables related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses. The Group recognises the loss allowance accrued or written back in profit or loss. (iii) Derecognition The Group derecognises a financial asset when a) the contractual right to receive cash flows from the financial asset expires; b) the Group transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset; c) the financial assets have been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but the Group has not retained control. On derecognition of other equity instrument investments, the difference between the carrying amounts and the sum of the consideration received and any cumulative gain or loss previously recognised in other comprehensive income, is recognised in retained earnings. While on derecognition of other financial assets, this difference is recognised in profit or loss. (b) Financial liabilities The Group, at initial recognition, classifies financial liabilities as either financial liabilities subsequently measured at amortised cost or financial liabilities at fair value through profit or loss. The Group’s financial liabilities are mainly financial liabilities measured at amortised cost, including bills payable and accounts payable, other payables, loans and debentures payable, etc. These financial liabilities are initially measured at the amount of their fair value after deducting transaction costs and use the effective interest rate method for subsequent measurement. Where the present obligations of financial liabilities are completely or partially discharged, the Group derecognises these financial liabilities or discharged parts of obligations. The differences between the carrying amounts and the consideration received are recognised in profit or loss. (c) Determination of fair value If there is an active market for financial instruments, the quoted price in the active market is used to measure fair values of the financial instruments. If no active market exists for financial instruments, valuation techniques are used to measure fair values. In valuation, the Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it, and selects input values that are consistent with the asset or liability characteristics considered by market participants in the transaction of relevant assets or liabilities, and gives priority to relevant observable input values. Use of unobservable input values where relevant observable input values cannot be obtained or are not practicable. 100 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) Financial Instruments (Continued) (d) Derivative financial instruments and hedge accounting 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 profit or loss, except where the derivatives qualify for 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, to represent the effect of risk management activities. Hedged items are the items that expose the Group to risks of changes in future cash flows and that are designated as being hedged and that must be reliably measurable. The Group’s hedged items include 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 cash flows are expected to offset changes in the cash flows of the hedged item. The hedging relationship meets all of the following hedge effectiveness requirements: (1) There is an economic relationship between the hedged item and the hedging instrument, which shares a risk and that gives rise to opposite changes in fair value that tend to offset each other. (2) The effect of credit risk does not dominate the value changes that result from that economic relationship. (3) The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument. — Cash flow hedges Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the hedging relationship shall be accounted for as follows: — 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 gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income. 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 hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a nonfinancial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity shall remove that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income. For cash flow hedges, other than those covered by the preceding two policy statements, that amount shall be reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss. If the amount that has been accumulated in the cash flow hedge reserve is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, the Group immediately reclassify the amount that is not expected to be recovered into profit or loss. When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective), or when a hedging instrument expires or is sold, terminated, exercised, or there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount shall be immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur, if the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges. 101 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) 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. 102 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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 realise 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 arises in the course of the Group’s ordinary activities, and increases in economic benefits in the form of inflows that result in an increase in equity, other than those relating to contributions from equity participants. The Group sells crude oil, natural gas, petroleum and chemical products, etc. Revenue is recogniesd according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset. Sales of goods Sales are recognised when control of the goods have transferred, being when the products are delivered to the customer. Advance from customers but goods not yet delivered is recorded as contract liabilities and is recognised as revenues when a customer obtains control over the relevant goods. 103 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (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 in the capitalisable period. 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 criteria 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. 104 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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. 105 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies (a) MOF issued Cai Kuai [2018] No. 15 “Announcement of the revision of general enterprise financial statements format for 2018”. The Group has adopted the above guidelines to prepare the financial statements of 2018. The comparative financial statements of 2017 have been adjusted. (i) The impact to the Group’s financial statements is as follows: 31 December 2017 RMB million 1 January 2017 RMB million 84,701 (68,494) (16,207) 146 (146) 206,535 (200,073) (6,462) 6,843 (6,843) 63,486 (50,289) (13,197) — — 180,129 (174,301) (5,828) 2,006 (2,006) Year of 2017 RMB million 6,423 (6,423) 31 December 2017 RMB million 1 January 2017 RMB million 37,766 (37,609) (157) 16,327 (16,327) 86,604 (83,449) (3,155) 38,803 (38,332) (471) 5,454 (5,454) 78,548 (75,787) (2,761) Year of 2017 RMB million 5,445 (5,445) Contents and reasons of the changes Item The Group combined presents bills receivable and accounts receivable into bills and accounts receivable The Group combined presents fixed assets and fixed assets pending for disposal into fixed assets The Group combined presents bills payable and accounts payable into bills and accounts payable The Group combined presents interests payable, dividends payable and other payables into other payables Bills receivable and accounts receivable Accounts receivable Bills receivable Fixed assets Other non-current assets Bills payable and accounts payable Accounts payable Bills payable Other payables Dividends payable Contents and reasons of the changes Item The research and development expenses originally included in the general and administrative expenses were separately Research and development expenses General and administrative expenses presented as the research and development expenses in income statements (ii) The impact to the Company’s financial statements is as follows: Contents and reasons of the changes Item The Company combined presents bills receivable and accounts receivable into bills and accounts receivable The Company combined presents dividends receivable and other receivables into other receivables The Company combined presents bills payable and accounts payable into bills and accounts payable Bills receivable and accounts receivable Accounts receivable Bills receivable Other receivables Dividends receivable Bills payable and accounts payable Accounts payable Bills payable Contents and reasons of the changes Item The research and development expenses originally included in the general and administrative expenses were separately Research and development expenses General and administrative expenses presented as the research and development expenses in income statements 106 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies (Continued) (b) MOF issued revised “No.14 Accounting Standard for Business Enterprises - Revenue” (“New Revenue Standard”) in 2017 and the New Revenue Standard was effective on 1 January 2018. In accordance with the New Revenue Standard, the Group adjusted the first year’s retained earnings and other related items of the financial statements according to the cumulative impact of the New Revenue Standard for the first time, while the comparative financial statements have not been restated.The Group has adopted the above standard to prepare the financial statements of 2018, while the comparative financial statements of 2017 have not been restated. The New Revenue Standard has no significant impact on the shareholder’s equity in the consolidated balance sheet. Other financial statement items that affected by the initial implementation of the standard is as follows: Contents and reasons of the changes Item At 1 January 2018 (RMB million) The Group The Company Advances from customers were reclassified as contract liabilities by implementation of the New Revenue Standard Contract liabilities Advances from customers 120,734 (120,734) 3,413 (3,413) Financial statement items as at 31 December 2018 that affected by the implementation of New Revenue Standard compared to the original revenue standard is as follows: Item Contract liabilities Advances from customers At 31 December 2018 (RMB million) The Company The Group 124,793 (124,793) 4,230 (4,230) (c) MOF issued revised “No.22 Accounting Standards for Business Enterprises - Financial instruments: recognition and measurement”, revised “No.23 Accounting Standards for Business Enterprises - Transfer of financial assets”, revised “No.24 Accounting Standards for Business Enterprises - Hedging” and revised “No.37 Accounting Standards for Business Enterprises - Presentation of financial instruments” (collectively referred to as “New Financial Instruments Standards”). The New Financial Instruments Standards were effective on 1 January 2018. In accordance with the New Financial Instruments Standards, the Group classified and measured financial instruments (including impairment), involving comparative financial statements which are not consistent with the requirements of this standard and need not be adjusted. The difference between the original book value of the financial instrument and the new book value on the date of execution of the New Financial Instruments Standards shall be included in the retained earnings or other comprehensive income at the beginning financial statements. The Group has adopted the above guidelines to prepare financial statements of the year ended 31 December 2018, while the comparative figures for 2017 have not been restated. The New Financial Instruments Standards have no significant impact on the shareholder’s equity. The impact to the Group’s financial statements is presented as below: (i) At 1 January 2018, the comparatives of classification and measurement in the Group’s financial statements between the New Financial Instruments Standards and the Financial Instruments Standards before revision are as below: Item Financial assets at fair value through profit or loss Available-for-sale financial assets Financial Instruments Standards before revision Measurement RMB million Item New Financial Instruments Standards RMB million Measurement Measured at fair value through profit or loss Measured at fair value through other comprehensive income (equity instruments) Measured at cost (equity instruments) 51,196 178 1,498 Financial assets held for trading Other equity instrument investments Measured at fair value through profit or loss Measured at fair value through other comprehensive income 51,196 1,676 107 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies (Continued) At 1 January 2018, the comparatives of classification and measurement in the Company’s financial statements between the New Financial Instruments Standards and the Financial Instruments Standards before revision are as below: Financial Instruments Standards before revision New Financial Instruments Standards Item Financial assets at fair value through profit or loss Available-for-sale financial assets Measurement Measured at fair value through profit or loss Measured at cost (equity instruments) As a consequence: RMB million 48,179 Item Financial assets held for trading 395 Other equity instrument investments Measurement Measured at fair value through profit or loss Measured at fair value through other comprehensive income RMB million 48,179 395 ‧ any adjustments to carrying amounts of financial assets or liabilities are recognised at the beginning of the current reporting period, with the difference recognised in opening retained earnings ‧ financial assets are not reclassified in the balance sheet for the comparative period ‧ provisions for impairment have not been restated in the comparative period (ii) The Group has adopted the simplified expected credit loss model for its receivables and contract assets, and the general expected credit loss model for receivables and contract assets carried at amortised. The Group assessed the loss allowance for receivables under the expected credit loss model on 1 January 2018, no significant difference compared with the loss allowance under accounting policies applied until 31 December 2017. (iii) Hedging The Group has applied the hedging accounting prospectively to the derivatives held for hedging purpose. (d) New and amended standards and interpretations not yet adopted by the Group MoF issued revised “No. 21 Accounting Standard for Business Enterprises – Leases” (“New Leases Standard”) in December 2018 and the New Leases Standard will be effective on 1 January 2019. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Leases to explore for or use oil and natural gas are not applied to the New Leases Standard. The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. All right-of-use assets will be measured at the amount of the lease liabilities on adoption (adjusted for any prepaid or accrued lease expenses). In applying the New Leases Standard for the first time, the Group has used the following practical expedients permitted by the standard: (cid:127) (cid:127) the use of a single discount rate to a portfolio of leases with reasonably similar characteristics the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases The Group has set up a project team which has reviewed all of the Group’s leasing arrangements over the last year in light of the new lease accounting rules in the New Leases Standard. The standard will affect primarily the accounting for the Group’s operating leases. The Group expects to recognise right-of-use assets of approximately RMB 207.5 billion on 1 January 2019, lease liabilities of RMB 198.6 billion (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018). 108 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 4 TAXATION 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 5 CASH AT BANK AND ON HAND The Group Cash on hand Renminbi Cash at bank Renminbi US Dollars Hong Kong Dollars EUR Others Deposits at related parities Renminbi US Dollars EUR Others Total 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 At 31 December 2018 At 31 December 2017 Original currency million Exchange rates 3,377 39 1 6.8632 0.8762 7.8473 2,389 4 6.8632 7.8473 Original currency million Exchange rates 3,760 98 1 6.5342 0.8359 7.8023 2,336 16 6.5342 7.8023 RMB million 82 102,572 23,179 35 11 79 125,958 24,625 16,374 33 25 41,057 167,015 RMB million 14 92,711 24,561 82 10 112 117,490 32,117 15,256 126 15 47,514 165,004 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 2018, time deposits with financial institutions of the Group amounted to RMB 55,093 million (2017: RMB 51,786 million). At 31 December 2018, structured deposits included in cash at bank and on hand with financial institutions of the Group amounted to RMB 77,909 million (2017: RMB 65,250 million). 6 FINANCIAL ASSETS HELD FOR TRADING Structured deposit Equity investments, listed and at quoted market price Total At 31 December 2018 RMB million At 31 December 2017 RMB million 25,550 182 25,732 51,196 — 51,196 The financial assets are primarily the structured deposit with financial institutions, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period. 109 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 7 DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES Derivative financal assets and derivative financial liabilities of the Group are primarily commodity futures and swaps. See Note 58. 8 BILLS RECEIVABLE AND ACCOUNTS RECEIVABLE Bills receivable (a) Accounts receivable (b) Total (a) Bills receivable The Group The Company At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 7,886 56,993 64,879 16,207 68,494 84,701 156 29,989 30,145 157 37,609 37,766 Bills receivable represents mainly the bills of acceptance issued by banks for sales of goods and products. At 31 December 2018, the Group’s derecognised but outstanding bills due to endorsement or discount amounted to RMB 4,385 million (2017: RMB 12,190 million). At 31 December 2018, the Group considers that its bills of acceptance issued by banks do not pose a significant credit risk and will not cause any significant loss due to the default of drawers. (b) Accounts receivable Accounts receivable Less: Allowance for doubtful accounts Total Ageing analysis on accounts receivable is as follows: The Group The Company At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 57,599 606 56,993 69,106 612 68,494 30,120 131 29,989 37,756 147 37,609 At 31 December 2018 At 31 December 2017 The Group Percentage to total accounts receivable Allowance % RMB million 97.9 0.8 0.5 0.8 100.0 — 83 165 358 606 Amount RMB million 56,431 436 289 443 57,599 Percentage of allowance to accounts receivable balance Amount % RMB million — 19.0 57.1 80.8 67,777 715 87 527 69,106 The Company Percentage to total accounts receivable Allowance % RMB million 98.1 1.0 0.1 0.8 100.0 — 142 44 426 612 At 31 December 2018 At 31 December 2017 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 98.9 0.4 0.2 0.5 100.0 — 15 10 106 131 — 12.0 18.5 73.6 37,331 134 154 137 37,756 98.8 0.4 0.4 0.4 100.0 — 17 29 101 147 Amount RMB million 29,797 125 54 144 30,120 Percentage of allowance to accounts receivable balance % — 19.9 50.6 80.8 Percentage of allowance to accounts receivable balance % — 12.7 18.8 73.7 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 110 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 8 BILLS RECEIVABLE AND ACCOUNTS RECEIVABLE (Continued) (b) Accounts receivable (Continued) At 31 December 2018 and 31 December 2017, 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 2018 At 31 December 2017 15,699 27.3% — 17,920 25.9% — 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. Bills receivables and accounts receivable (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. Information about the impairment of trade accounts receivable and the Group exposure to credit risk can be found in Note 58. During 2018 and 2017, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts. During 2018 and 2017, 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. 9 PREPAYMENTS Prepayments Less: Allowance for doubtful accounts Total Ageing analysis of prepayments is as follows: The Group The Company At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 5,990 53 5,937 4,926 25 4,901 2,493 5 2,488 4,433 4 4,429 At 31 December 2018 At 31 December 2017 The Group Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 94.9 2.8 1.0 1.3 100.0 — 38 5 10 53 — 22.5 8.3 12.8 Amount RMB million 5,683 169 60 78 5,990 Percentage to total prepayments % Allowance RMB million 93.5 3.5 1.7 1.3 100.0 — 14 4 7 25 Amount RMB million 4,605 173 85 63 4,926 Percentage of allowance to prepayments balance % — 8.1 4.7 11.1 The Company At 31 December 2018 At 31 December 2017 Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 92.6 2.8 1.4 3.2 100.0 — 1 1 3 5 — 1.4 2.8 3.7 Amount RMB million 2,306 70 36 81 2,493 Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 95.3 2.3 0.6 1.8 100.0 — 1 — 3 4 — 1.0 — 3.8 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 111 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 9 PREPAYMENTS (Continued) At 31 December 2018 and 31 December 2017, 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 10 OTHER RECEIVABLES Other receivables Less: Allowance for doubtful accounts Total Ageing analysis of other receivables is as follows: At 31 December 2018 At 31 December 2017 2,009 33.5% 1,472 29.9% The Group The Company At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 26,793 1,481 25,312 17,427 1,486 15,941 58,549 1,117 57,432 64,982 1,162 63,820 At 31 December 2018 At 31 December 2017 The Group Percentage to total other receivables % 90.7 1.2 1.2 6.9 100.0 Amount RMB million 24,301 329 320 1,843 26,793 Allowance RMB million — 53 21 1,407 1,481 Percentage of allowance to other receivables balance % — 16.1 6.6 76.3 Percentage to total other receivables % 84.2 2.9 2.5 10.4 100.0 Amount RMB million 14,665 509 433 1,820 17,427 Allowance RMB million — 82 44 1,360 1,486 At 31 December 2018 At 31 December 2017 The Company Percentage to total other receivables % 46.3 22.6 16.6 14.5 100.0 Amount RMB million 27,088 13,233 9,747 8,481 58,549 Allowance RMB million — 1 — 1,116 1,117 Percentage of allowance to other receivables balance % — — — 13.2 Percentage to total other receivables % 61.9 19.9 4.0 14.2 100.0 Amount RMB million 40,273 12,920 2,570 9,219 64,982 Allowance RMB million — 1 2 1,159 1,162 Percentage of allowance to other receivables balance % — 16.1 10.2 74.7 Percentage of allowance to other receivables balance % — — 0.1 12.6 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 2018 and 2017, 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 2018 At 31 December 2017 6,837 Within one year 25.5% — 5,947 Within one year 34.1% — During the year ended 31 December 2018 and 2017, 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 2018 and 2017, 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. 112 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial 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 2018 RMB million At 31 December 2017 RMB million 85,469 13,690 88,929 2,872 190,960 6,376 184,584 85,975 14,774 84,448 2,651 187,848 1,155 186,693 For the year ended 31 December 2018, the provision for diminution in value of inventories of the Group amounted to RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products (2017: RMB 436 million mainly related to the spare parts and consumables in refining segment and chemical segment). 12 LONG-TERM EQUITY INVESTMENTS The Group Balance at 1 January 2018 Additions for the year Share of profits less losses under the equity method Change of other comprehensive loss under the equity method Other equity movements under the equity method Dividends declared Disposals for the year Foreign currency translation differences Other movements Movement of provision for impairment Balance at 31 December 2018 The Company Balance at 1 January 2018 Additions for the year Share of profits less losses under the equity method Change of other comprehensive loss under the equity method Other equity movements under the equity method Dividends declared Disposals for the year Other movements Movement of provision for impairment Balance at 31 December 2018 Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million 52,272 2,900 6,723 (7) (2) (5,164) (444) 805 51 — 57,134 80,429 6,413 7,251 (222) — (4,108) (247) 757 — — 90,273 (1,614) — — — — — — (78) — 6 (1,686) Total RMB million 131,087 9,313 13,974 (229) (2) (9,272) (691) 1,484 51 6 145,721 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 253,011 8,351 — — — — (1,432) 4 — 259,934 14,822 699 3,047 — — (2,204) (327) 56 — 16,093 15,579 5,014 1,212 (64) 1 (637) — 58 — 21,163 (7,855) — — — — — — — (128) (7,983) 275,557 14,064 4,259 (64) 1 (2,841) (1,759) 118 (128) 289,207 For the year ended 31 December 2018, 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 54. 113 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 12 LONG-TERM EQUITY INVESTMENTS (Continued) Principal joint ventures and associates of the Group are as follows: (a) Principal joint ventures and associates Name of investees Principal place of business Register location Legal representative Principal activities 1.Joint ventures Fujian Refining & Petrochemical Company Limited (“FREP”) PRC BASF-YPC Company Limited (“BASF-YPC”) PRC PRC PRC 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 PRC PRC PRC PRC Gu Yuefeng Wang Jingyi NA NA UWAIDH AL(cid:127) HARETHI Quan Kai 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 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 Processing natural gas and manufacturing petrochemical products Mining coal and manufacturing of coal-chemical products Crude oil and natural gas extraction 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 RUB 10.00% 17,516 38.75% 10,000 USD 50.00% Except that SIBUR is a public joint stock company, other joint ventures and associates above are limited companies. 114 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 12 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 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities 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 Carrying Amounts Summarised income statement 7,388 9,248 16,636 19,271 (1,200) (4,939) (6,139) (12,454) (279) (12,733) 17,035 5,772 11,013 16,785 19,740 (1,135) (5,049) (6,184) (13,654) (236) (13,890) 16,451 1,582 5,795 7,377 11,086 (725) (1,822) (2,547) (218) (17) (235) 15,681 1,800 5,335 7,135 12,075 (233) (1,982) (2,215) (955) (19) (974) 16,021 3,406 3,689 7,095 9,216 (59) (2,124) (2,183) (72) (2,271) (2,343) 11,785 2,352 2,462 4,814 7,978 (20) (1,914) (1,934) (72) (2,686) (2,758) 8,100 930 10,267 11,197 51,873 (4,806) (12,217) (17,023) (32,364) (937) (33,301) 12,746 4,916 10,816 15,732 51,553 (5,407) (11,864) (17,271) (35,619) (890) (36,509) 13,505 5,110 4,007 9,117 13,990 (500) (2,507) (3,007) (3,651) (331) (3,982) 16,118 6,524 2,709 9,233 13,248 (1,236) (4,546) (5,782) (4,101) (41) (4,142) 12,557 17,035 16,451 15,681 16,021 11,373 7,818 12,746 13,505 16,118 12,557 — 8,518 8,518 — 8,226 8,226 — 6,272 6,272 — 6,409 6,409 412 5,573 5,573 282 3,831 3,831 — 4,780 4,780 — 5,064 5,064 — 8,059 8,059 — 6,279 6,279 Year ended 31 December FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million Turnover Interest income Interest expense Profit/(loss) before taxation Tax expense Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) Dividends from joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive 52,469 157 (647) 3,920 (935) 2,985 — 2,985 1,200 49,356 208 (857) 6,977 (1,699) 5,278 — 5,278 1,250 21,574 41 (43) 3,625 (897) 2,728 — 2,728 1,226 21,020 36 (71) 4,565 (1,151) 3,414 — 3,414 1,109 14,944 141 (151) 3,493 (729) 2,764 921 3,685 — 1,493 2,639 1,091 1,366 1,307 income/(loss) from joint ventures (ii) — — — — 435 12,520 142 (142) 1,697 (553) 1,144 25 1,169 — 541 12 77,561 101 (1,382) (1,569) (249) (1,818) 1,059 (759) — (682) 397 61,587 45 (1,382) 548 57 605 (554) 51 — 227 (208) 23,501 169 (167) 3,916 (993) 2,923 — 2,923 — 22,286 104 (223) 5,113 (1,279) 3,834 — 3,834 1,375 1,462 1,917 — — The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 2,052 million (2017: RMB 3,925 million) and RMB 839 million (2017: other comprehensive income RMB 994 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 22,982 million (31 December 2017: RMB 21,552 million). 115 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 12 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 2018 RMB million At 31 December 2017 RMB million Sinopec Finance At 31 December 2018 RMB million At 31 December 2017 RMB million SIBUR (i) At 31 December 2018 RMB million At 31 December 2017 RMB million Zhongtian Synergetic Energy At 31 December 2017 RMB million At 31 December 2018 RMB million CIR At 31 December 2018 RMB million At 31 December 2017 RMB million 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 12,498 39,320 (1,020) (3,026) 47,772 11,317 40,972 (933) (3,176) 48,180 209,837 16,359 (200,402) (332) 25,462 161,187 17,782 (154,212) (6) 24,751 22,502 170,796 (23,293) (58,628) 111,377 20,719 158,938 (20,554) (61,771) 97,332 7,477 49,961 (7,252) (31,436) 18,750 8,232 51,553 (10,668) (31,494) 17,623 47,772 48,180 25,462 24,751 110,860 96,761 18,750 17,623 — 23,886 23,886 — 24,090 24,090 — 12,476 12,476 — 12,128 12,128 517 11,086 11,086 571 9,676 9,676 — 7,266 7,266 — 6,829 6,829 6,712 1,828 (961) (673) 6,906 6,906 — 3,453 3,453 5,612 1,673 (908) (170) 6,207 6,207 — 3,104 3,104 Year ended 31 December Pipeline Ltd 2018 RMB million 2017 RMB million Sinopec Finance SIBUR (i) 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million Zhongtian Synergetic Energy 2017 RMB million 2018 RMB million CIR 2018 RMB million 2017 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 (ii) 4,746 2,022 — 2,022 1,207 1,011 — 5,644 2,543 — 2,543 — 1,272 — 4,536 1,868 (157) 1,711 490 915 3,542 1,536 (246) 1,290 — 753 59,927 10,400 6,410 16,810 271 1,040 52,496 9,601 (260) 9,341 221 960 12,235 1,142 — 1,142 — 443 (77) (121) 641 (26) — 3,569 123 — 123 — 48 — 2,856 583 116 699 — 292 2,563 (610) (334) (944) — (305) 58 (167) The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,550 million (2017: RMB 3,182 million) and RMB 844 million (2017 other comprehensive income: RMB 569 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 31,370 million (31 December 2017: RMB 23,899 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) Including foreign currency translation differences. 116 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018Financial Statements (PRC) 13 FIXED ASSETS The Group Fixed assets (a) Fixed assets pending for disposal Total (a) Fixed assets Cost: Balance at 1 January 2018 Additions for the year Transferred from construction in progress Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2018 Accumulated depreciation: Balance at 1 January 2018 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2018 Provision for impairment losses: Balance at 1 January 2018 Additions for the year Decreases for the year Exchange adjustments Balance at 31 December 2018 Net book value: Balance at 31 December 2018 Balance at 31 December 2017 The Company Fixed assets (a) Fixed assets pending for disposal Total At 31 December 2018 RMB million At 31 December 2017 RMB million 617,762 50 617,812 650,774 146 650,920 Plants and buildings RMB million Oil and gas properties RMB million Equipment, machinery and others RMB million Total RMB million 120,013 221 3,741 1,634 (3,666) 98 122,041 48,368 4,038 494 (1,738) 43 51,205 3,832 274 (177) — 3,929 66,907 67,813 667,657 1,567 24,366 138 (146) 2,142 695,724 456,459 48,616 76 (124) 1,744 506,771 39,358 4,027 (1) 133 43,517 145,436 171,840 940,312 3,856 45,103 (1,772) (22,151) 147 965,495 498,246 47,250 (570) (16,543) 76 528,459 30,945 1,848 (1,178) 2 31,617 405,419 411,121 1,727,982 5,644 73,210 — (25,963) 2,387 1,783,260 1,003,073 99,904 — (18,405) 1,863 1,086,435 74,135 6,149 (1,356) 135 79,063 617,762 650,774 At 31 December 2018 RMB million At 31 December 2017 RMB million 302,048 34 302,082 329,814 — 329,814 117 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 13 FIXED ASSETS (Continued) The Company (Continued) (a) Fixed assets Cost: Balance at 1 January 2018 Additions for the year Transferred from construction in progress Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2018 Accumulated depreciation: Balance at 1 January 2018 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2018 Provision for impairment losses: Balance at 1 January 2018 Additions for the year Reclassifications Transferred from subsidiaries Decreases for the year Balance at 31 December 2018 Net book value: Balance at 31 December 2018 Balance at 31 December 2017 Plants and buildings RMB million Oil and gas properties RMB million Equipment, machinery and others RMB million 49,022 — 825 1,092 5 (133) (1,984) 48,827 22,402 1,624 202 3 (64) (998) 23,169 1,797 107 — — (24) 1,880 23,778 24,823 555,133 1,292 19,482 (3) 132 (876) (223) 574,937 379,137 38,728 (2) 115 (249) (156) 417,573 34,271 4,027 — — (1) 38,297 119,067 141,725 456,939 347 19,344 (1,089) 542 (71) (8,655) 467,357 271,849 21,391 (200) 299 (23) (7,278) 286,038 21,824 575 — 31 (314) 22,116 159,203 163,266 Total RMB million 1,061,094 1,639 39,651 — 679 (1,080) (10,862) 1,091,121 673,388 61,743 — 417 (336) (8,432) 726,780 57,892 4,709 — 31 (339) 62,293 302,048 329,814 The additions to oil and gas properties of the Group and the Company for the year ended 31 December 2018 included RMB 1,567 million (2017: RMB 1,627 million) (Note 30) and RMB 1,292 million (2017: RMB 982 million), respectively of the estimated dismantlement costs for site restoration. Impairment losses on fixed assets for the year ended 31 December 2018 primarily represent impairment losses recognised in the exploration and production (“E&P”) segment of RMB 4,274 million (2017: RMB 12,611 million) on fixed assets, for the chemicals segment of RMB 1,252 million (2017: RMB 4,779 million) of fixed assets and for the refining segment of RMB 353 million (2017: RMB 1,836 million) of fixed assets. The primary factor resulting in the E&P segment impairment loss was downward revision of oil and gas reserve in certain 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% (2017: 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 312 million (2017: 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 315 million (2017: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 less impairment loss on the Group’s properties, plant and equipment relating to oil and gas producing activities by approximately RMB 5 million (2017: additional 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 2018 and 31 December 2017, the Group and the Company had no individually significant fixed assets which were pledged. At 31 December 2018 and 31 December 2017, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal. At 31 December 2018 and 31 December 2017, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use. 118 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 14 CONSTRUCTION IN PROGRESS Cost: Balance at 1 January 2018 Additions for the year Disposals for the year Transferred to subsidiaries Dry hole costs written off Transferred to fixed assets Reclassification to other assets Exchange adjustments Balance at 31 December 2018 Provision for impairment losses: Balance at 1 January 2018 Additions for the year Decreases for the year Exchange adjustments Balance at 31 December 2018 Net book value: Balance at 31 December 2018 Balance at 31 December 2017 The Group RMB million The Company RMB million 120,425 108,555 (20) — (6,921) (73,210) (10,066) 54 138,817 1,780 28 (1) 47 1,854 50,459 49,426 (4) (378) (6,527) (39,651) (1,314) — 52,011 413 — — — 413 136,963 118,645 51,598 50,046 At 31 December 2018, major construction projects of the Group are as follows: Project name Zhongke Refine Integration Project Wen 23 Gas Storage Project (First-stage) Tianjin LNG Project Xinjiang Coal-based Substitute Natural Gas (SNG) Export Pipeline Construction Project (First-stage) Hainan Refine Paraxylene plant and supporting project 15 INTANGIBLE ASSETS The Group Cost: Balance at 1 January 2018 Additions for the year Decreases for the year Balance at 31 December 2018 Accumulated amortisation: Balance at 1 January 2018 Additions for the year Decreases for the year Balance at 31 December 2018 Provision for impairment losses: Balance at 1 January 2018 Additions for the year Decreases for the year Balance at 31 December 2018 Net book value: Balance at 31 December 2018 Balance at 31 December 2017 Budgeted amount RMB million 34,667 13,865 13,639 11,589 Balance at 1 January 2018 RMB million 6,990 1,329 3,154 1,692 Net change for the year RMB million Balance at 31 December 2018 RMB million 10,789 17,779 2,099 (1,116) 3,990 3,428 2,038 5,682 Percentage of project investment to budgeted amount 51% 25% 86% 49% 3,680 794 1,800 2,594 70% Source of funding Bank loans & self-financing Bank loans & self-financing Bank loans & self-financing Bank loans & self-financing Bank loans & self-financing Accumulated interest capitalised at 31 December 2018 RMB million 184 51 180 50 6 Land use rights RMB million Patents RMB million Non-patent technology RMB million Operation rights RMB million Others RMB million Total RMB million 75,728 9,699 (696) 84,731 16,978 3,191 (183) 19,986 224 9 (2) 231 64,514 58,526 5,160 88 (18) 5,230 3,168 230 (1) 3,397 482 — — 482 1,351 1,510 3,845 228 (44) 4,029 2,774 268 (45) 2,997 24 — — 24 48,613 3,948 (345) 52,216 14,206 3,010 (79) 17,137 139 9 (3) 145 4,662 710 (107) 5,265 2,870 426 (96) 3,200 17 — — 17 138,008 14,673 (1,210) 151,471 39,996 7,125 (404) 46,717 886 18 (5) 899 1,008 1,047 34,934 34,268 2,048 1,775 103,855 97,126 Amortisation of the intangible assets of the Group charged for the year ended 31 December 2018 is RMB 5,414 million (2017: RMB 4,468 million). 119 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 16 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 51) 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 2018 RMB million At 31 December 2017 RMB million 1,004 1,004 4,043 4,043 2,541 921 167 8,676 2,541 879 167 8,634 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 11.7% to 12.3% (2017: 10.8% to 11.4%). 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. 17 LONG-TERM DEFERRED EXPENSES Long-term deferred expenses primarily represent prepaid rental expenses and catalysts expenditures. 18 DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities before the consolidated elimination adjustments are as follows: Receivables and inventories Payables Cash flow hedges Fixed assets Tax value of losses carried forward Available-for-sale securities Other equity instrument investments Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 2,563 1,808 1,131 15,427 3,709 — 117 474 174 25,403 381 1,925 165 14,150 2,325 117 — 227 180 19,470 — — (27) (8,666) — — (1) (535) (428) (9,657) — — (50) (9,928) — — — (563) (264) (10,805) The consolidated elimination amount between deferred tax assets and liabilities are as follows: At 31 December 2018 RMB million At 31 December 2017 RMB million 3,709 3,709 4,339 4,339 Deferred tax assets Deferred tax liabilities 120 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 18 DEFERRED TAX ASSETS AND LIABILITIES (Continued) Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows: Deferred tax assets Deferred tax liabilities At 31 December 2018 RMB million At 31 December 2017 RMB million 21,694 5,948 15,131 6,466 At 31 December 2018, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 18,308 million (2017: RMB 20,821 million), of which RMB 2,437 million (2017: RMB 5,938 million) was incurred for the year ended 31 December 2018, because it was not probable that the related tax benefit will be realised. These deductible losses carried forward of RMB 2,373 million, RMB 3,887 million, RMB 3,673 million, RMB 5,938 million and RMB 2,437 million will expire in 2019, 2020, 2021, 2022, 2023 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 2018, write-down of deferred tax assets amounted to RMB 188 million (2017: RMB 26 million) (Note 48). 19 OTHER NON-CURRENT ASSETS Other non-current assets mainly represent long-term receivables, prepayments for construction projects and purchases of equipment. 20 DETAILS OF IMPAIRMENT LOSSES At 31 December 2018, impairment losses of the Group are analysed as follows: Allowance for doubtful accounts Included: Bills receivable and accounts receivable Prepayments Other receivables Inventories Long-term equity investments Fixed assets Construction in progress Intangible assets Goodwill Others Total Note 8 9 10 11 12 13 14 15 16 Changes in significant accounting policies (Note 3(26)) RMB million Balance at 1 January 2018 RMB million Balance at 31 December 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 2018 RMB million 612 25 1,486 2,123 1,155 1,614 74,135 1,780 886 7,861 49 89,603 — — — — — — — — — — (16) (16) 612 25 1,486 2,123 1,155 1,614 74,135 1,780 886 7,861 33 89,587 83 31 78 192 5,535 7 6,149 28 — — 97 12,008 (77) (2) (69) (148) (114) — — — — — — (262) (19) (1) (18) (38) (217) (13) (1,195) (1) (2) — — (1,466) 7 — 4 11 17 78 (26) 47 15 — (28) 114 606 53 1,481 2,140 6,376 1,686 79,063 1,854 899 7,861 102 99,981 The reasons for recognising impairment losses are set out in the respective notes of respective assets. 121 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 21 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 –Singapore Dollar loans –Euro loans Total At 31 December 2018 At 31 December 2017 Original currency million Exchange rates 566 6.8632 3,319 1,645 — 3 6.8632 0.8762 — 7.8473 Original currency million Exchange rates 1,136 6.5342 3,010 2,277 4 — 6.5342 0.8359 4.8831 7.8023 RMB million 17,088 13,201 3,887 300 300 27,304 3,061 22,780 1,441 — 22 44,692 RMB million 31,105 23,685 7,420 299 299 23,297 1,706 19,668 1,903 20 — 54,701 At 31 December 2018, the Group’s interest rates on short-term loans were from interest 0.80% to 5.22% (At 31December 2017: from interest 0.70% to 6.09%). The majority of the above loans are by credit. At 31 December 2018 and 31 December 2017, the Group had no significant overdue short-term loans. 22 BILLS PAYABLE AND ACCOUNTS PAYABLE The Group Bills payable (a) Accounts payable (b) Total (a) Bills payable At 31 December 2018 RMB million At 31 December 2017 RMB million 6,416 186,341 192,757 6,462 200,073 206,535 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 2018 and 31 December 2017, the Group had no overdue unpaid bills. (b) Accounts payable At 31 December 2018 and 31 December 2017, the Group had no individually significant accounts payable aged over one year. 23 CONTRACT LIABILITIES As at 31 December 2018, the Group's contract liabilities primarily present advances from customers. Related performance obligations are satisfied and revenue is recognised within one year. As at 1 January 2018, the Group's contract liabilities was RMB 120,734 million, of which RMB 119,138 million was recognised as revenue in 2018. 24 EMPLOYEE BENEFITS PAYABLE At 31 December 2018 and 31 December 2017, the Group’s employee benefits payable primarily represented wages payable and social insurance payables. 122 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 25 TAXES PAYABLE The Group Value-added tax payable Consumption tax payable Income tax payable Mineral resources compensation fee payable Other taxes Total 26 OTHER PAYABLES At 31 December 2018 RMB million At 31 December 2017 RMB million 9,810 59,944 6,699 138 10,469 87,060 8,899 39,623 13,015 175 10,228 71,940 At 31 December 2018 and 31 December 2017, other payables of the Group over one year primarily represented payables for constructions. 27 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 2018 At 31 December 2017 Original currency million Exchange rates 5 6.8632 — — Original currency million Exchange rates 4 6.5342 1,000 6.5342 RMB million 12,039 35 12,074 4,361 4,361 16,435 — — — 1,015 17,450 RMB million 1,379 23 1,402 2,014 2,014 3,416 16,000 6,532 22,532 733 26,681 At 31 December 2018 and 31 December 2017, the Group had no significant overdue long-term loans. 123 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 28 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 2018 with maturities through 2033 Interest rates ranging from interest 1.55% to 4.29% per annum at 31 December 2018 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 2018 with maturities through 2030 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. 29 DEBENTURES PAYABLE The Group Debentures payable: – Corporate Bonds (i) Less: Current portion Total Note: At 31 December 2018 At 31 December 2017 Original currency million Exchange rates Original currency million Exchange rates RMB million 31,025 RMB million 25,644 16 6.8632 109 29 6.5342 192 (12,074) 19,060 46,877 (4,361) 42,516 61,576 (1,402) 24,434 45,334 (2,014) 43,320 67,754 At 31 December 2018 RMB million At 31 December 2017 RMB million 40,004 11,999 9,573 61,576 16,822 48,238 2,694 67,754 At 31 December 2018 RMB million At 31 December 2017 RMB million 31,951 — 31,951 53,902 (22,532) 31,370 (i) These corporate bonds are carried at amortised cost, including USD denominated corporate bonds of RMB 11,951 million, and RMB denominated corporate bonds of RMB 20,000 million (2017: USD denominated corporate bonds of RMB 17,902 million, and RMB denominated corporate bonds of RMB 36,000 million). At 31 December 2018, corporate bonds of RMB 11,951 million (2017: RMB 17,902 million) are guaranteed by Sinopec Group Company. 124 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 30 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 2018 Provision for the year Accretion expenses Utilised for the year Exchange adjustments Balance at 31 December 2018 31 OTHER NON-CURRENT LIABILITIES The Group RMB million 39,407 1,567 1,438 (598) 193 42,007 Other non-current liabilities primarily represent long-term payables, special payables and deferred income. 32 SHARE CAPITAL The Group Registered, issued and fully paid: 95,557,771,046 domestic listed A shares (2017: 95,557,771,046) of RMB 1.00 each 25,513,438,600 overseas listed H shares (2017: 25,513,438,600) of RMB 1.00 each Total At 31 December 2018 RMB million At 31 December 2017 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 reserve 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. 125 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 32 SHARE CAPITAL (Continued) 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 2018, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 11.5% (2017: 12.0%) and 46.1% (2017: 46.5%), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 28 and 55, 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. 33 CAPITAL RESERVE The movements in capital reserve of the Group are as follows: Balance at 1 January 2018 Transaction with minority interests Others Balance at 31 December 2018 RMB million 119,557 (12) (353) 119,192 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. 34 OTHER COMPREHENSIVE INCOME The Group (a) The changes of other comprehensive income in consolidated income statement Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year (Less)/Add: Reclassification adjustments for amounts transferred to the consolidated income statement Subtotal Changes in fair value of other equity instrument investments Subtotal Other comprehensive income that can be converted into profit or loss under the equity method Subtotal Foreign currency translation differencess Subtotal Other comprehensive income Year ended 31 December 2018 Before-tax amount RMB million Tax effect RMB million Net-of-tax amount RMB million (12,500) 2,159 (10,341) (730) (11,770) (41) (41) (240) (240) 3,399 3,399 (8,652) 130 2,029 (12) (12) 11 11 — — 2,028 (600) (9,741) (53) (53) (229) (229) 3,399 3,399 (6,624) 126 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 34 OTHER COMPREHENSIVE INCOME (Continued) The Group (Continued) (a) The changes of other comprehensive income in consolidated income statement (Continued) Year ended 31 December 2017 Before-tax amount RMB million 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 Reclassification adjustments for amounts transferred to the consolidated income statement Subtotal Changes in fair value of available-for-sale financial assets recognised during the year Subtotal Share of other comprehensive loss in associates and joint ventures Subtotal Foreign currency translation differences Subtotal Other comprehensive income (1,314) 4 575 (1,893) (57) (57) 1,053 1,053 (3,792) (3,792) (4,689) (b) The change of each item in other comprehensive income Equity Attributable to shareholders of the company 240 (1) (72) 313 — — — — — — 313 (1,074) 3 503 (1,580) (57) (57) 1,053 1,053 (3,792) (3,792) (4,376) Minority interests Total other comprehensive income Other comprehensive income that can be converted into profit or loss under the equity method RMB million (4,161) 680 (3,481) — (3,481) (183) (3,664) Changes in fair value of available-for-sale financial assets RMB million Changes in fair value of other equity instrument investments Cash flow hedges RMB million RMB million Foreign currency translation differences RMB million 97 (40) 57 (57) — — — — — — 45 45 (41) 4 1,132 (1,642) (510) — (510) (4,407) (4,917) 2,000 (2,479) (479) — (479) 2,282 1,803 Subtotal RMB million RMB million RMB million (932) (3,481) (4,413) (12) (4,425) (2,349) (6,774) (1,888) (895) (2,783) — (2,783) 994 (1,789) (2,820) (4,376) (7,196) (12) (7,208) (1,355) (8,563) 31 December 2016 Changes in 2017 31 December 2017 Change in accounting policy 1 January 2018 Changes in 2018 31 December 2018 As at 31 December 2018, cash flow hedge reserve amounted to a loss of RMB 4,932 million (31 December 2017: a loss of RMB 460 million), of which a loss of RMB 4,917 million was attribute to shareholders of the Company (31 December 2017: a loss of RMB 510 million). 127 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 35 SURPLUS RESERVES Movements in surplus reserves are as follows: Balance at 1 January 2018 Appropriation Balance at 31 December 2018 Statutory surplus reserve RMB million The Group Discretionary surplus reserves RMB million 82,682 3,996 86,678 117,000 — 117,000 Total RMB million 199,682 3,996 203,678 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. 36 OPERATING INCOME AND OPERATING COSTS Income from principal operations Income from other operations Total Operating costs The Group 2018 RMB million 2,825,613 65,566 2,891,179 2,401,012 2017 RMB million 2,300,470 59,723 2,360,193 1,890,398 The Company 2018 RMB million 2017 RMB million 1,022,195 36,298 1,058,493 812,355 824,100 33,378 857,478 633,114 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 57. The detailed information about the Group’s operating income is as follows: Income from principal operations Crude oil Gasoline Diesel Basic chemical feedstock Kerosene Synthetic resin Natural gas Synthetic fiber monomers and polymers Others (i) Income from other operations Sale of materials and others Rental income Total (i) Others are primarily liquefied petroleum gas and other refinery and chemical by-products and joint products. 37 TAXES AND SURCHARGES The Group Consumption tax City construction tax Education surcharge Resources tax Others Total The applicable tax rate of the taxes and surcharges are set out in Note 4. 2018 RMB million 2017 RMB million 2,825,613 519,910 711,236 594,008 250,884 168,823 124,618 43,205 77,572 335,357 65,566 64,503 1,063 2,891,179 2,300,470 421,585 600,113 503,406 205,722 115,739 107,633 34,277 61,998 249,997 59,723 58,930 793 2,360,193 2018 RMB million 2017 RMB million 201,901 18,237 13,187 6,021 7,152 246,498 192,907 18,274 13,811 4,841 5,459 235,292 128 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 38 FINANCIAL EXPENSES The Group Interest expenses incurred Less: Capitalised interest expenses Net interest expenses Accretion expenses (Note 30) Interest income Net foreign exchange gain Total 2018 RMB million 2017 RMB million 6,376 493 5,883 1,438 (7,726) (596) (1,001) 6,368 723 5,645 1,501 (5,254) (332) 1,560 The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2018 by the Group ranged from 2.37% to 4.66% (2017: 2.37% to 4.41%). 39 CLASSIFICATION OF EXPENSES BY NATURE The operation costs, selling and distribution expenses, general and administrative expenses, research and development 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 amortisation Exploration expenses (including dry holes) Other expenses Total 40 RESEARCH AND DEVELOPMENT EXPENSES 2018 RMB million 2017 RMB million 2,292,983 77,721 109,967 10,744 61,083 2,552,498 1,770,651 74,854 115,310 11,089 64,566 2,036,470 The research and development expenditures are mainly used for the replacement of resources in upstream, optimising structure and operation upgrades in refining sector, structured adjustment of materials and products in chemical segment. 41 EXPLORATION EXPENSES Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs. 42 IMPAIRMENT LOSSES The Group Receivables Inventories Long-term equity investment Fixed assets Construciton in Progress Intangible assets Others Total 43 OTHER INCOME Other income are mainly the government grants related to the business activities. 2018 RMB million 2017 RMB million — 5,421 7 6,149 28 — — 11,605 110 423 936 19,836 252 19 215 21,791 129 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 44 INVESTMENT INCOME Income from investment of subsidiaries accounted for under cost method Income from investment accounted for under equity method Investment income/(loss) from disposal of long-term equity investments Dividend income from holding of other equity instruments Investment income from holding/disposal of available-for sale financial assets Investment (loss)/income from disposal of financial assets and liabilities and derivative financial instruments at fair value through profit or loss (Loss)/gain from ineffective portion of cash flow hedges Gain on remeasurement of interests in Shanghai SECCO Others Total 45 GAIN FROM CHANGES IN FAIR VALUE The Group The Group 2018 RMB million 2017 RMB million The Company 2018 RMB million 2017 RMB million — 13,974 397 515 — (1,940) (1,604) — 86 11,428 — 16,525 (26) — 199 (752) (916) 3,941 89 19,060 25,390 4,259 (2,768) 14 — 692 7 — 742 28,336 31,118 5,774 (21) — 13 — (88) — 1,262 38,058 2018 RMB million 2017 RMB million 3,008 (374) 22 2,656 (157) 103 41 (13) 2018 RMB million 2017 RMB million 788 1,282 2,070 427 890 1,317 2018 RMB million 2017 RMB million 276 180 2,586 3,042 89 152 1,468 1,709 2018 RMB million 2017 RMB million 27,176 (6,244) (719) 20,213 26,668 (10,317) (72) 16,279 Changes in fair value of financial assets and financial liabilities at fair value through gain/(loss), net Unrealised (losses)/gains from ineffective portion cash flow hedges, net Others Total 46 NON-OPERATING INCOME The Group Government grants Others Total 47 NON-OPERATING EXPENSES The Group Fines, penalties and compensation Donations Others Total 48 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 130 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 48 INCOME TAX EXPENSE (Continued) The Group (Continued) 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 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: 2018 RMB million 2017 RMB million 100,502 25,126 1,989 (5,019) (1,259) 77 (779) 609 188 (719) 20,213 86,573 21,643 1,936 (5,939) (793) (1,394) (613) 1,485 26 (72) 16,279 (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. 49 DIVIDENDS (a) Dividends of ordinary shares declared after the balance sheet date Pursuant to a resolution passed at the director’s meeting on 22 March 2019, final dividends in respect of the year ended 31 December 2018 of RMB 0.26 (2017: RMB 0.40) per share totaling RMB 31,479 million (2017: RMB 48,428 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. (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 24 August 2018, the directors authorised to declare the interim dividends for the year ending 31 December 2018 of RMB 0.16 (2017: RMB 0.10) per share totaling RMB 19,371 million (2017: RMB 12,107 million). Pursuant to the shareholders’ approval at the Annual General Meeting on 15 May 2018, a final dividend of RMB 0.40 per share totaling RMB 48,428 million according to total shares of 4 June 2018 was approved. All dividends have been paid in the year ended 31 December 2018. 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. 50 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 Credit impairment losses 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 (gain)/loss Financial expenses Investment income Increase in deferred tax assets Decrease in deferred tax liabilities Increase in inventories Safety fund reserve Increase in operating receivables (Decrease)/increase in operating payables Net cash flow from operating activities 2018 RMB million 2017 RMB million 80,289 11,605 141 99,462 10,505 6,921 1,526 (2,656) (359) (11,428) (5,079) (1,165) (3,312) 909 (1,043) (10,448) 175,868 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) 63,762 190,935 131 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 50 SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT (Continued) The Group (Continued) (b) Net change in cash: Cash balance at the end of the year Less: Cash at the beginning of the year Net decrease 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 51 BUSINESS COMBAINATION 2018 RMB million 2017 RMB million 111,922 113,218 (1,296) 113,218 124,468 (11,250) 2018 RMB million 2017 RMB million 82 111,840 111,922 14 113,204 113,218 Business combination involving entities not under common control For the year ended 31 December 2018, significant business combination didn’t occur in the Group. 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 Basis of determination on acquisition date Acquirer gaining actual control over acquiree Details of combination cost and goodwill are as follows: 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 16) Income of the acquiree from acquisition date to end of year RMB 5,222 million Net profits of the acquiree from acquisition date to end of year RMB 726 million Operating cash flow of the acquiree from acquisition date to end of year RMB 1,639 million Net cash flow of the acquiree from acquisition date to end of year RMB 7,205 million Shanghai SECCO RMB million 10,135 10,135 20,270 17,729 2,541 132 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 51 BUSINESS COMBAINATION (Continued) Business combination involving entities not under common control (Continued) 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 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 44) in the Group’s consolidated income statement for the year ended 31 December 2017. 133 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 52 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 Dai Houliang RMB 274,900 million Sinopec Group Company is an enterprise controlled by the PRC government. Sinopec Group Company directly and indirectly holds 68.77% 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. 134 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 52 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 withdrawn from/(placed with) related parties Net funds obtained from related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (ix) (x) (ix) (xi) The Group 2018 RMB million 2017 RMB million 272,789 192,224 7,319 23,489 28,472 6,664 7,765 521 869 113 848 1,110 6,457 31,684 244,211 165,993 7,716 21,210 20,824 6,653 8,015 510 626 127 807 554 (7,441) 19,661 The amounts set out in the table above in respect of the year ended 31 December 2018 and 2017 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 2018 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 140,570 million (2017: RMB 128,863 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 123,772 million (2017: RMB 112,619 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 6,664 million (2017: RMB 6,652 million), operating lease charges for land, buildings and others paid by the Group of RMB 7,765 million, RMB 521 million and RMB 738 million (2017: RMB 8,015 million, RMB 510 million and RMB 513 million), respectively and interest expenses of RMB 1,110 million (2017: RMB 554 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 59,472 million (2017: RMB 60,045 million), comprising RMB 58,606 million (2017: RMB 59,213 million) for sales of goods, RMB 848 million (2017: RMB 807 million) for interest income and RMB 18 million (2017: RMB 25 million) for agency commission income. As at 31 December 2018 and 31 December 2017 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 56(b). Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 56(b). Notes: (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, and management services. (vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens and property maintenance. (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 obtained from Sinopec Group Company and fellow subsidiaries. (xi) The Group obtained loans, discounted bills and others from to Sinopec Group Company and fellow subsidiaries. 135 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 52 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 2018. 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. (f) On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on August 24, 2018, which took effect on January 1, 2019 and made adjustment to “Mutual Supply Agreement”, “Agreement for Provision of Cultural and Educational, Health Care and Community Services”, “Buildings Leasing Contract”, “Intellectual Property Contract” and “Land Use Rights Leasing Contract” etc.,. The memorandum was effective since January 1, 2019. Sinopec Group Company agreed to lease 410 million square meters of land to the Company, and to adjust the total fee of land to about RMB 14 billion, according to the newly confirmed area of leasing land and the situation of land market. 136 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 52 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 2018 and 31 December 2017 are as follows: Cash and cash equivalents Bills receivable and accounts receivable Other receivables Prepayments and other current assets Other non-current assets Bills payable and accounts payable Advances from customers Contract liabilities 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 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million — 11 33 — — 19 — 25 2 — — — — 19 33 — — 43 12 — 104 — — — 41,057 7,544 6,901 731 23,482 17,511 — 3,248 18,158 12,470 27,304 46,877 47,514 13,155 5,411 189 20,726 24,061 2,763 — 18,111 10,165 23,297 45,334 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 21 and Note 28. As at and for the year ended 31 December 2018, and as at and for the year ended 31 December 2017, 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 53 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS 2018 RMB thousand 2017 RMB thousand 5,745 351 6,096 5,344 424 5,768 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. 137 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 53 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (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 “CASs 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) Measurement of expected credit losses The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group regularly monitors and reviews the assumptions used for estimating expected credit losses. (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. 138 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 54 PRINCIPAL SUBSIDIARIES The Company’s principal subsidiaries have been consolidated into the Group’s financial statements for the year ended 31 December 2018. 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 2018 million Percentage of equity interest/ voting right held by the Group % Minority Interests at 31 December 2018 RMB million Trading of petrochemical products Trading of crude oil and petrochemical products RMB 1,400 RMB 3,000 RMB 1,856 RMB 4,585 (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 Co. 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: 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”) 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 Provision of crude oil jetty services and natural gas pipeline transmission services Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical products and petroleum products Investment in exploration, production and sale of petroleum and natural gas Investment holding of overseas business 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 (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 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: 100.00 100.00 100.00 100.00 RMB 1,500 RMB 15,651 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 HKD 3,952 RMB 10,824 RMB 5,820 70.42 60.33 50.44 27 4,355 271 — — 65 — 66,827 4,085 15,168 RMB 8,140 RMB 4,070 50.00 5,761 RMB 8,000 RMB 8,000 100.00 17,952 USD 1,662 RMB 1,000 RMB 22,761 USD 1,662 RMB 1,165 RMB 22,795 100.00 100.00 100.00 RMB 5,294 RMB 5,240 98.98 RMB 5,000 RMB 4,250 RMB 6,270 RMB 4,076 85.00 65.00 — 70 (28) 119 1,810 4,560 RMB 3,986 RMB 2,990 75.00 2,582 RMB 1,595 RMB 7,233 100.00 — RMB 10,000 RMB 4,804 55.00 6,851 Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) (note 51) Production and sale of petrochemical products RMB 7,801 RMB 7,801 67.60 5,802 * 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. 139 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 54 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 2018 RMB million At 31 December 2017 RMB million SIPL Shanghai Petrochemical Fujian Petrochemical At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million Sinopec Kantons At 31 December 2018 RMB million At 31 December 2017 RMB million Shanghai SECCO At 31 December 2018 RMB million At 31 December 2017 RMB million Zhonghan Wuhan At 31 December 2018 RMB million At 31 December 2017 RMB million Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets 130,861 (181,766) (50,905) 261,062 (2,086) 258,976 156,494 (212,620) (56,126) 253,455 (1,774) 251,681 16,731 (483) 16,248 38,020 (31,050) 6,970 19,555 (7,118) 12,437 34,769 (28,523) 6,246 25,299 (13,913) 11,386 19,241 (140) 19,101 19,866 (10,922) 8,944 19,743 (146) 19,597 816 (50) 766 11,444 (688) 10,756 992 (376) 616 9,925 (681) 9,244 1,209 (3,722) (2,513) 12,895 (132) 12,763 1,196 (2,351) (1,155) 13,089 (2,430) 10,659 9,537 (2,233) 7,304 12,301 (1,698) 10,603 11,602 (4,174) 7,428 12,797 (1,740) 11,057 2,750 (2,333) 417 12,612 — 12,612 1,636 (3,975) (2,339) 13,598 — 13,598 Summarised consolidated statement of comprehensive income and cash flow Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million Sinopec Kantons 2018 RMB million 2017 RMB million Shanghai SECCO (ii) 2018 RMB million 2017 RMB million Zhonghan Wuhan 2018 RMB million 2017 RMB million Turnover Profit for the year Total comprehensive income Comprehensive income/ (loss) attributable to minority interests Dividends paid to minority interests Net cash generated from/ (used in) operating activities Note: 1,443,698 21,995 22,538 1,221,530 27,517 26,983 7,780 3,964 9,033 9,544 5,037 3,272 4,536 2,737 — 6,136 1,075 396 (38) — 24,825 51,038 3,467 2,758 107,765 5,277 5,270 2,612 1,616 6,695 92,014 6,152 6,152 3,081 1,344 7,078 5,261 1,595 1,595 798 600 38 6,068 2,757 2,757 1,378 625 (558) 1,398 1,065 1,067 399 104 738 1,498 1,046 1,146 433 70 968 26,320 3,099 3,099 1,004 1,191 3,766 5,222 726 726 235 — 17,134 1,879 1,879 658 — 16,139 2,733 2,733 957 — 1,639 3,308 2,976 (ii) 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. Therefore summarised consolidated statement of comprehensive income and cash flow of Shanghai SECCO presents the results from the acquisition date to 31 December 2017. 140 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 55 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 2018 and 31 December 2017, 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 Thereafter Total Capital commitments At 31 December 2018 and 31 December 2017, the capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for Total At 31 December 2018 RMB million At 31 December 2017 RMB million 15,625 14,668 13,986 13,734 13,494 281,287 352,794 11,114 11,492 10,730 10,552 10,428 202,806 257,122 At 31 December 2018 RMB million At 31 December 2017 RMB million 141,045 54,392 195,437 120,386 57,997 178,383 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 5,553 million (2017: RMB 3,364 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 Natural 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 Natural 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 Natural Resources annually and recognised in profit and loss. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2018 (2017: RMB 308 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 Thereafter Total At 31 December 2018 RMB million At 31 December 2017 RMB million 380 79 33 28 28 852 1,400 205 83 32 28 28 882 1,258 The implementation of commitments in previous year and the Group’s commitments did not have material discrepancy. 141 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 56 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 2018 and 31 December 2017, the 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 2018 RMB million At 31 December 2017 RMB million 5,033 12,168 7,197 24,398 940 13,520 9,732 24,192 (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. At 31 December 2018, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 12,168 million (2017:RMB 13,520 million). The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss has occurred, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2018 and 31 December 2017, 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 7,940 million in the consolidated financial statements for the year ended 31 December 2018 (2017: RMB 7,851 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. 57 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) 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. 142 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 57 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: 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 2018 RMB million 2017 RMB million 93,499 95,954 189,453 148,930 1,109,088 1,258,018 1,408,989 5,224 1,414,213 457,406 73,835 531,241 716,789 650,271 1,367,060 (1,934,372) 2,825,613 10,738 5,389 32,424 15,492 1,523 65,566 2,891,179 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 2,360,193 143 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 57 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 Less: Financial expenses Add: Other income Gain/(loss) from changes in fair value Loss from asset disposal 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 144 2018 RMB million 2017 RMB million (11,557) 53,703 24,106 25,970 (8,151) (3,634) 80,437 2,595 429 2,676 6,905 (1,177) 11,428 (1,001) 6,694 2,656 (742) 101,474 2,070 3,042 100,502 (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 4,356 (13) (1,518) 86,965 1,317 1,709 86,573 At 31 December 2018 RMB million At 31 December 2017 RMB million 321,686 271,356 317,641 156,865 152,799 1,220,347 167,015 145,721 21,694 37,531 1,592,308 93,874 103,709 159,028 37,380 144,138 538,129 44,692 17,450 61,576 31,951 5,948 27,276 7,627 734,649 343,404 273,123 309,727 158,472 170,045 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 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 57 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 (2) Geographical information 2018 RMB million 2017 RMB million 42,155 27,908 21,429 19,578 6,906 117,976 60,331 18,164 16,296 13,379 1,797 109,967 4,274 353 264 1,374 16 6,281 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 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 2018 RMB million 2017 RMB million 2,119,580 395,129 376,470 2,891,179 1,758,365 269,349 332,479 2,360,193 At 31 December 2018 RMB million At 31 December 2017 RMB million 989,668 50,892 1,040,560 979,329 48,572 1,027,901 145 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 58 FINANCIAL INSTRUMENTS Overview Financial assets of the Group include cash at bank and on hand, financial assets held for trading, derivative financial assets, bills receivable and accounts receivable, other equity instrument investments and other receivables. Financial liabilities of the Group include short-term, derivative financial liabilities, bills payable and accounts payable, debentures payable, employee benefits payable, other payables and long-term loans. The Group has exposure to the following risks from its uses of financial instruments: ‧ credit risk; ‧ liquidity risk; and ‧ 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 (i) Risk management 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 2018, 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 and on hand, financial assets held for trading, derivative financial assets, bills receivable and accounts receivable and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets. (ii) Impairment of financial assets The Group’s primary type of financial assets that are subject to the expected credit loss model is trade accounts receivables and other receivables. The Group’s cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified. For trade accounts receivables, the group applies the “No.22 Accounting Standards for Business Enterprises - Financial instruments: recognition and measurement” simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivables. To measure the expected credit losses, trade accounts receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2018 or 1 Janurary 2018, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The detailed analysis of trade accounts receivables, based on which the Group generated its payment profile is listed in note 8. All of the entity’s other receivables are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months expected losses. The Group considers “low credit risk” for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term. 146 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 58 FINANCIAL INSTRUMENTS (Continued) 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 2018, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 387,748 million (2017: RMB 361,852 million) on an unsecured basis, at a weighted average interest rate of 3.87% (2017: 3.40 %). At 31 December 2018, the Group’s outstanding borrowings under these facilities were RMB 21,236 million (2017: RMB 56,567 million) and were included in loans. 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 Derivative financial liabilties Bills payable and accounts payable Other payables and employee benefits payable Total Short-term loans Non-current liabilities due within one year Long-term loans Debentures payable Derivative financial liabilties Bills payable and accounts payable Other payables and employee benefits payable Total At 31 December 2018 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 44,692 17,450 61,576 31,951 13,571 192,757 84,775 446,772 45,040 18,053 66,387 38,674 13,571 192,757 84,775 459,257 45,040 18,053 792 1,269 13,571 192,757 84,775 356,257 — — 40,885 14,030 — — — 54,915 — — 13,807 17,124 — — — 30,931 — — 10,903 6,251 — — — 17,154 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 More than five years RMB million 55,451 27,261 70,613 39,122 2,665 206,535 96,190 497,837 55,451 27,261 1,003 1,250 2,665 206,535 96,190 390,355 — — 17,666 1,250 — — — 18,916 — — 49,038 22,285 — — — 71,323 — — 2,906 14,337 — — — 17,243 Carrying amount RMB million 54,701 26,681 67,754 31,370 2,665 206,535 96,190 485,896 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. 147 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 58 FINANCIAL INSTRUMENTS (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. (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 2018 million At 31 December 2017 million 668 204 A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2018 and 31 December 2017 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 2017. The Group US Dollars At 31 December 2018 million At 31 December 2017 million 172 50 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 21 and Note 28, respectively. At 31 December 2018, 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 424 million (at 31 December 2017: decrease/ increase RMB 450 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 2017. (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 2018, 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 2018, the net fair value of such derivative hedging financial instruments is derivative financial assets of RMB 7,844 million (2017: RMB 515 million) recognised in other receivables and derivative financial liabilities of RMB 13,568 million (2017: RMB 2,624 million) recognised in other payables. At 31 December 2018, 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 197 million (2017: decrease/increase RMB 4,049 million), and increase/decrease the Group’s other comprehensive income by approximately RMB 6,850 million (2017: decrease/increase RMB 701 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 2017. 148 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 58 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 2018 The Group Assets Financial assets held for trading – Structured deposits – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Other equity security investments: – Other Investments Liabilities Derivative financial liabilities: – Derivative financial liabilities At 31 December 2017 The Group Assets Financial assets held for trading – Structured deposits Derivative financial assets: – Derivative financial assets Available-for-sale financial assets: – Listed Liabilities Derivative financial liabilities: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million — 182 874 127 1,183 5,500 5,500 — — 7,013 — 7,013 8,071 8,071 25,550 — — 1,323 26,873 — — 25,550 182 7,887 1,450 35,069 13,571 13,571 Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million — 343 178 521 — 183 — 183 1,277 1,277 1,388 1,388 51,196 51,196 — — 51,196 — — 526 178 51,900 2,665 2,665 During the year ended 31 December 2018, there was no transfer between instruments in Level 1 and Level 2. Management of the Group 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 structured deposits classified as Level 3 financial assets. 149 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 58 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 2.76% to 4.90% (2017: 1.79% 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 2018 and 31 December 2017: Carrying amount Fair value At 31 December 2018 RMB million At 31 December 2017 RMB million 63,085 62,656 79,738 78,040 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. 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 2018 and 31 December 2017. 59 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 Gain on remeasurement of interests in the Shanghai SECCO (Note 51) Other non-operating loss, net Tax effect Total Attributable to: Equity shareholders of the Company Minority interests 2018 RMB million 2017 RMB million 742 180 (7,482) (1,023) — 1,613 (5,970) 2,312 (3,658) (3,459) (199) 1,518 152 (4,783) (148) (3,941) 690 (6,512) 976 (5,536) (5,537) 1 150 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 60 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) (ii) Diluted earnings per share 2018 63,089 121,071 0.521 2018 121,071 121,071 2017 51,119 121,071 0.422 2017 121,071 121,071 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) 61 RETURN ON NET ASSETS AND EARNINGS PER SHARE 2018 63,089 121,071 0.521 2018 121,071 121,071 2017 51,117 121,071 0.422 2017 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 2018 Weighted average return on net assets (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) Weighted average return on net assets (%) 2017 Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) 8.67 0.521 0.521 7.14 0.422 0.422 8.20 0.493 0.493 6.37 0.376 0.376 151 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2018 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 155 to 211, which comprise: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) the consolidated balance sheet as at 31 December 2018; 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 2018, 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. Key audit matters identified in our audit are summarised as follows: (cid:127) Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities (cid:127) Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products 152 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities Refer to note 8 “Other operating expense, net”, note 16 “Property, plant and equipment” and note 42 “Accounting estimates and judgements” to the consolidated financial statements. Decrease in prices of international crude oil in the fourth quarter of the year ended 31 December 2018 gave rise to possible indication that the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2018 might be impaired. The Group has adopted value in use as the respective recoverable amounts of property, plant and equipment relating 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 relating to oil and gas producing activities as at 31 December 2018, together with the use of significant estimations or assumptions in determining their respective value in use, we had placed our audit emphasis on this matter. In auditing the respective value in use calculations of property, plant and equipment relating to oil and gas producing activities, we performed the following key procedures on the relevant discounted cash flow projections prepared by management: ‧ Evaluated and tested the key controls in respect of the preparation of the discounted cash flow projections of property, plant and equipment relating to oil and gas producing activities. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of the discounted cash flow projections. ‧ 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 and relevant budgets of the Group. ‧ 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. ‧ Independently estimated a range of relevant discount rates, and found that the discount rates adopted by management were within the range. ‧ 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 obtained. Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products Refer to note 2(e) “Inventories”, note 26 “Inventories” and note 42 “Accounting estimates and judgements” to the consolidated financial statements. Decrease in prices of international crude oil along with its highly- correlated products, such as refined oil products, in the fourth quarter of the year ended 31 December 2018 gave rise to the risk that net realisable values of crude oil, finished goods and work in progress of refined oil products were lower than their respective book values as at 31 December 2018. Management has determined the NRVs of crude oil, finished goods and work in progress of refined oil products based on the respective estimated selling prices less the estimated costs to completion, other necessary costs of sales and the related taxes, which involved key estimations or assumptions including: In auditing the NRVs of crude oil, finished goods and work in progress of refined oil products, we performed the following key procedures on the inventory NRV models prepared by the management. ‧ Evaluated and tested the key controls relating to the preparation of the NRV models of crude oil, finished goods and work in progress of refined oil products. ‧ Assessed the methodology adopted in, and tested mathematical accuracy of the NRV models. ‧ On a sampling basis, compared the estimated selling prices of inventories used in the NRV models against the recently realised selling prices, and the prices available on domestic and international markets. ‧ On a sampling basis, compared the costs to completion, other necessary costs of sales and related taxes against historical data of the Group. Based on the work, we found that the key assumptions and data adopted in the NRV models were supported by the evidence we obtained. – Estimated selling prices; – Estimated costs to completion, other necessary costs of sales and related taxes. Because of the significance of the book value of crude oil, finished goods and work in progress of refined oil products as at 31 December 2018, together with the use of significant estimations or assumptions in determining their respective NRVs, we had placed our audit emphasis on this matter. 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. 153 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED) 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 relating 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. 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: (cid:127) 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. (cid:127) 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. (cid:127) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. (cid:127) 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 relating 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. (cid:127) 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. (cid:127) 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. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (cont’d) 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 CHAN KWONG TAK. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 22 March 2019 154 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial 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, net Total operating expenses Operating profit Finance costs Interest expense Interest income Foreign currency exchange gains, net Net finance costs Investment income Share of profits less losses from associates and joint ventures Profit before taxation Income 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 2018 RMB 2017 RMB 3 4 5 6 7 8 9 19, 20 10 15 2,825,613 65,566 2,891,179 (2,292,983) (65,642) (109,967) (10,744) (77,721) (246,498) (5,360) (2,808,915) 82,264 (7,321) 7,726 596 1,001 1,871 13,974 99,110 (20,213) 78,897 61,618 17,279 78,897 0.509 0.509 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 The notes on pages 162 to 211 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. 155 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2018 (Amounts in million, except per share data) Note Year ended 31 December Profit for the year Other comprehensive income: 14 Items that maynot be reclassified subsequently to profit or loss Equity investments at fair value through other comprehensive income Total items that maynot be reclassified subsequently to profit or loss Items that may be reclassified subsequently to profit or loss Share of other comprehensive (income)/loss of associates and joint ventures Available-for-sale securities Cash flow hedges 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 2018 RMB 78,897 (53) (53) (229) — (9,741) 3,399 (6,571) (6,624) 72,273 54,000 18,273 72,273 2017 RMB 70,418 — — 1,053 (57) (1,580) (3,792) (4,376) (4,376) 66,042 47,763 18,279 66,042 The notes on pages 162 to 211 form part of these consolidated financial statements. 156 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2018(Amounts in million)Financial Statements (International) Non–current assets Property, plant and equipment, net Construction in progress Goodwill Interest in associates Interest in joint ventures Available–for–sale financial assets Financial assets at fair value through other comprehensive income 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 Derivatives financial assets Trade accounts receivable and 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 Derivatives financial liabilities Trade accounts payable and bills payable Contract liabilities 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 22 March 2019. Notes 31 December 2018 RMB 31 December 2017 RMB 16 17 18 19 20 1(a) 1(a) 28 21 22 23 24 25 26 27 29 29 24 30 31,1(a) 32,1(a) 29 29 28 33 34 617,762 136,963 8,676 89,537 56,184 — 1,450 21,694 64,514 91,408 1,088,188 111,922 55,093 25,732 7,887 64,879 184,584 54,023 504,120 29,462 31,665 13,571 192,757 124,793 166,151 6,699 565,098 60,978 1,027,210 51,011 42,516 5,948 42,800 28,400 170,675 856,535 121,071 596,213 717,284 139,251 856,535 650,774 118,645 8,634 79,726 51,361 1,676 — 15,131 58,526 81,982 1,066,455 113,218 51,786 51,196 526 84,701 186,693 40,929 529,049 55,338 25,311 2,665 206,535 — 276,582 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 Dai Houliang Chairman (Legal representative) Ma Yongsheng President Wang Dehua Chief Financial Officer The notes on pages 162 to 211 form part of these consolidated financial statements. 157 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CONSOLIDATED BALANCE SHEETAs at 31 December 2018(Amounts in million)Financial Statements (International) Share capital RMB 121,071 — — — — — — — — — — — 121,071 Capital reserve RMB 26,290 — — — — — — — — (13) (13) 49 26,326 Share premium RMB 55,850 — — — — — — — — — — — 55,850 Statutory surplus reserve RMB Discretionary surplus reserve RMB 79,640 — — — — — 3,042 — 3,042 — 3,042 — 82,682 117,000 — — — — — — — — — — — 117,000 Other reserves RMB 424 — (3,481) (3,481) — — — — — — — 123 (2,934) Total equity attributable to shareholders of the Company RMB 710,994 51,244 (3,481) 47,763 (20,582) (12,107) — — (32,689) (13) (32,702) 65 726,120 Retained earnings RMB 310,719 51,244 — 51,244 (20,582) (12,107) (3,042) — (35,731) — (35,731) (107) 326,125 Non- controlling interests RMB 120,241 19,174 (895) 18,279 — — — (12,501) (12,501) 724 (11,777) 27 126,770 Total equity RMB 831,235 70,418 (4,376) 66,042 (20,582) (12,107) — (12,501) (45,190) 711 (44,479) 92 852,890 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 Transaction with non-controlling interests Total transactions with owners Others Balance at 31 December 2017 The notes on pages 162 to 211 form part of these consolidated financial statements. 158 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2017(Amounts in million) Share capital RMB 121,071 — 121,071 — — — — — — — — — — — — — 121,071 Capital reserve RMB 26,326 — 26,326 — — — — — — — — — — (12) (12) (261) 26,053 Share premium RMB 55,850 — 55,850 — — — — — — — — — — — — — 55,850 Statutory surplus reserve RMB Discretionary surplus reserve RMB 82,682 — 82,682 — — — — — — 3,996 — — 3,996 — 3,996 — 86,678 117,000 — 117,000 — — — — — — — — — — — — — 117,000 Other reserves RMB (2,934) (12) (2,946) — (7,618) (7,618) 5,269 — — — — — — — — 818 (4,477) Total equity attributable to shareholders of the Company RMB 726,120 — 726,120 61,618 (7,618) 54,000 Retained earnings RMB 326,125 12 326,137 61,618 — 61,618 Non- controlling interests RMB 126,770 — 126,770 17,279 994 18,273 Total equity RMB 852,890 — 852,890 78,897 (6,624) 72,273 — 5,269 — 5,269 (48,428) (19,371) (3,996) — — (71,795) — (71,795) (851) 315,109 (48,428) (19,371) — — — (67,799) (12) (67,811) (294) 717,284 — — — (7,476) 2,060 (5,416) (299) (5,715) (77) 139,251 (48,428) (19,371) — (7,476) 2,060 (73,215) (311) (73,526) (371) 856,535 Balance at 31 December 2017 Change in accounting policy (Note 1(a)) Balance at 1 January 2018 Profit for the year Other comprehensive income (Note 14) Total comprehensive income for the year Amounts transferred to cash flow hedge reserves initially recognised by hedged items Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2017 (Note 13) Interim dividend for 2018 (Note 13) Appropriation (Note (a)) Distributions to non-controlling interests Contributions to subsidiaries from non-controlling interests Total contributions by and distributions to owners Transaction with non-controlling interests Total transactions with owners Others Balance at 31 December 2018 Note: (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 (“CASs”), 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 2018, the Company transferred RMB 3,996 million (2017: RMB 3,042 million) to the statutory surplus reserve, being 10% of the current year’s net profit determined in accordance with the accounting policies complying with CASs to this reserve. (b) The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve. (c) As at 31 December 2018, the amount of retained earnings available for distribution was RMB 143,148 million (2017: RMB 177,049 million), being the amount determined in accordance with CASs. 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 CASs 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 162 to 211 form part of these consolidated financial statements. 159 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)for the year ended 31 December 2018(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 financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss 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 Payments made to acquire non-controlling interests Finance lease payment Net cash used in financing activities Net decrease 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 2018 RMB 2017 RMB (a) 175,868 190,935 (94,753) (8,261) (10,116) (29,550) 55,000 (3,188) 1,557 9,666 (81,708) 78,401 5,810 10,720 (66,422) 746,655 (772,072) 1,886 (67,799) (13,700) (5,984) (160) (86) (111,260) (1,814) 113,218 518 111,922 (63,541) (7,407) (6,431) (51,196) — (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 The notes on pages 162 to 211 form part of these consolidated financial statements. 160 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2018(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 remeasurement of interests in the Shanghai SECCO (Note 36) Interest income Interest expense Gain 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 Credit impairment losses Net changes 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 2018 RMB 2017 RMB 99,110 86,697 109,967 6,921 (13,974) (1,871) — (7,726) 7,321 (1,835) 1,526 11,605 141 211,185 (1,043) (3,312) 2,111 208,941 (33,073) 175,868 115,310 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 The notes on pages 162 to 211 form part of these consolidated financial statements. 161 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Financial Statements (International)NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2018(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. The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of new and amended standards as set out below. (a) New and amended standards and interpretations adopted by the Group A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards: (cid:127) (cid:127) IFRS 9 ‘Financial Instruments’, and IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’- Impact of adoption The adoption of IFRS 9 ‘Financial Instruments’ (‘IFRS 9’) and IFRS 15 ‘Revenue from Contracts with Customers’ (‘IFRS 15’) from 1 January 2018 by the Group resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. Transition options of IFRS 9 ‘Financial Instruments’ Classification and measurement The Group has elected to apply the limited exemption in IFRS 9 relating to transition for classification and measurement and impairment, and accordingly has not restated comparative periods in the year of initial application: (a) any adjustments to carrying amounts of financial assets or liabilities are recognised at the beginning of the current reporting period, with the difference recognised in opening retained earnings (b) financial assets are not reclassified in the balance sheet for the comparative period (c) provisions for impairment have not been restated in the comparative period Impairment The Group has adopted the simplified expected credit loss model for its trade receivables and contract assets, as required by IFRS 9, and the general expected credit loss model for receivables and contract assets carried at amortised. The Group assessed the loss allowance for receivables under the expected credit loss model on 1 January 2018, no significant difference compared with the loss allowance under accounting policies applied until 31 December 2017. 162 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2018Financial Statements (International) 1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION (Continued) Basis of preparation (Continued) (a) New and amended standards and interpretations adopted by the Group (Continued) Hedging The Group has applied the hedging accounting prospectively to the derivatives held for hedging purpose. Financial instruments accounting policy applied until 31 December 2017 is disclosed in Note 2 (k) (iv). Transition options of IFRS 15 ‘Revenue from Contracts with Customers’ The Group has elected to apply the simplified transition method, retrospectively with the cumulative effect of initially applying IFRS 15 as an adjustment to the balance on 1 January 2018. Presentation and description of contract assets and contract liabilities The Group has decided to reclassify contract assets and contract liabilities and present them as a separate line item in the balance sheet based on the significance of the item. The adjustments arising from the new accounting policies are therefore recognised in the opening balance sheet on 1 January 2018, comparative figures have not been restated. The new accounting policies are disclosed in Note 2. The adoption of IFRS 9 and IFRS 15 has no significant impact on the Group’s financial statements. The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. Consolidated balance sheet (extract) Non-current assets Financial assets at fair value through other comprehensive income Available-for-sale financial assets Total non-current assets Current assets Total current assets Current liabilities Contract liabilities(i) Other payables(i) Total current liabilities Non-current liabilities Total non-current liabilities Equity Other reserves Retained earnings Total equity 31 December 2017 RMB million Adjustment from Adoption of IFRS 9 RMB million Adjustment from Adoption of IFRS 15 RMB million — 1,676 1,066,455 1,676 (1,676) — 529,049 — 276,582 579,446 163,168 852,890 (2,934) 326,125 852,890 — — — — — — (12) 12 — — — — — 120,734 (120,734) — — — — — — 1 January 2018 RMB million 1,676 — 1,066,455 529,049 120,734 155,848 579,446 163,168 852,890 (2,946) 326,137 852,890 (i) Advances from customers were reclassified as contract liabilities by implementation of IFRS 15 ‘Revenue from Contracts with Customers’. (b) New and amended standards and interpretations not yet adopted by the Group IFRS 16, ‘Leases’, was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Leases to explore for or use oil and natural gas are not applied to IFRS 16. The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. All right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: (cid:127) (cid:127) the use of a single discount rate to a portfolio of leases with reasonably similar characteristics the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases The Group has set up a project team which has reviewed all of the Group’s leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group’s operating leases. The Group expects to recognise right-of-use assets of approximately RMB 207.5 billion on 1 January 2019, lease liabilities of RMB 198.6 billion (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018). 163 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 (Continued) 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 42. 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 40. (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. 164 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (a) Basis of consolidation (Continued) (ii) Associates and joint ventures (Continued) 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. (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 approximates 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. 165 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (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. (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 to explore for or use oil and natural gas, 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. 166 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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) Financial assets (i) Classification and measurement The Group classifies financial assets into different categories depending on the business model for managing the financial assets and the contractual terms of cash flows of the financial assets: a) financial assets measured at amortised cost, b) financial assets measured at fair value through other comprehensive income, c) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset. Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. Trade accounts receivable and bills receivable arising from sale of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Group. Debt instruments Debt instruments held by the Group mainly includes cash and cash equivalents, time deposits with financial institutions, receivables. These financial assets are measured at amortised cost. The business model for managing such financial assets by the Group are held for collection of contractual cash flows. The contractual cash flow characteristics are to give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount out-standing. Interest income from these financial assets is recognised using the effective interest rate method. Equity instruments Equity instruments that the Group has no power to control, jointly control or exercise significant influence over, are measured at fair value through profit or loss and presented in financial assets at fair value through profit or loss. In addition, the Group designates some equity instruments that are not held for trading as financial assets at fair value through other comprehensive income, are presented in financial assets at fair value through other comprehensive income. The relevant dividends of these financial assets are recognised in profit or loss. When derecognised, the cumulative gain or loss previously recognised in other comprehensive income is transferred to retained earnings. (ii) Impairment The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost. The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group measures the expected credit losses of financial instruments on different stages at each balance sheet date. For financial instruments that have no significant increase in credit risk since the initial recognition, on first stage, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk since the initial recognition of a financial instrument but credit impairment has not occurred, on second stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. For financial instruments that have low credit risk at the balance sheet date, the Group assumes that there is no significant increase in credit risk since the initial recognition, and measures the loss allowance at an amount equal to 12-month expected credit losses. For financial instruments on the first stage and the second stage, and that have low credit risk, the Group calculates interest income according to carrying amount without deducting the impairment allowance and effective interest rate. For financial instruments on the third stage, interest income is calculated according to the carrying amount minus amortised cost after the provision of impairment allowance and effective interest rate. For receivables related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses. The Group recognises the loss allowance accrued or written back in profit or loss. 167 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (k) Financial assets (Continued) (iii) Derecognition The Group derecognises a financial asset when: a) the contractual right to receive cash flows from the financial asset expires; b) the Group transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset; c) the financial asset has been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but the Group has not retained control. On derecognition of financial assets at fair value through other comprehensive income, the difference between the carrying amounts and the sum of the consideration received and any accumulated gain or loss previously recognised in other comprehensive income, is recognised in retained earnings. While on derecognition of other financial assets, this difference is recognised in profit or loss. (iv) Accounting policy applied until 31 December 2017 Classification Until 31 December 2017, the group classified its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition. Subsequent measurement The measurement at initial recognition did not change on adoption of IFRS 9. Subsequent to the initial recognition, loans and receivables and held-to-maturity investments were carried at amortised cost using the effective interest method. Available-for-sale financial assets and financial assets at fair value through profit or loss were subsequently carried at fair value. Gains or losses arising from changes in the fair value were recognised as follows: for financial assets at fair value through profit or loss - in profit or loss within other gains/(losses), for available-for-sale financial assets - in other comprehensive income. When securities classified as available-for-sale were derecognised or impaired, the accumulated gains or losses recognised in other comprehensive income were reclassified to the consolidated income statement. Impairment Trade accounts receivables, 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. (l) Financial liabilities The Group, at initial recognition, classifies financial liabilities as either financial liabilities subsequently measured at amortised cost or financial liabilities at fair value through profit or loss. The Group’s financial liabilities are mainly financial liabilities measured at amortised cost, including bills payable, trade accounts payable, other payables, and loans, etc. These financial liabilities are initially measured at the amount of their fair value after deducting transaction costs and use the effective interest rate method for subsequent measurement. Where the present obligations of financial liabilities are completely or partially discharged, the Group derecognises these financial liabilities or discharged parts of obligations. The differences between the carrying amounts and the consideration received are recognised in profit or loss. 168 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Determination of fair value for financial instruments If there is an active market for financial instruments, the quoted price in the active market is used to measure fair values of the financial instruments. If no active market exists for financial instruments, valuation techniques are used to measure fair values. In valuation, the Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it, and selects input values that are consistent with the asset or liability characteristics considered by market participants in the transaction of relevant assets or liabilities, and gives priority to relevant observable input values. Use of unobservable input values where relevant observable input values cannot be obtained or are not practicable. (n) Derivative financial instruments and hedge accounting 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 profit or loss, except where the derivatives qualify for hedge accounting. Hedge accounting is a method which recognises the offsetting effects on profit or loss (or other comprehensive income) of changes in the fair values of the hedging instrument and the hedged item in the same accounting period, to represent the effect of risk management activities. Hedged items are the items that expose the Group to risks of changes in future cash flows and that are designated as being hedged and that must be reliably measurable. The Group’s hedged items include 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 cash flows are expected to offset changes in cash flows of the hedged item. The hedging relationship meets all of the following hedge effectiveness requirements: (i) There is an economic relationship between the hedged item and the hedging instrument, which shares a risk and that gives rise to opposite changes in fair value that tend to offset each other. (ii) The effect of credit risk does not dominate the value changes that result from that economic relationship. (iii) The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation does not reflect an imbalance between the weightings of the hedged item and the hedging instrument. Cash flow hedges Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts): (i) The cumulative gain or loss on the hedging instrument from inception of the hedge; and (ii) The cumulative change in fair value (present value) of the hedged item (i.e. the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. The gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income. 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 hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a nonfinancial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity removes that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income. For cash flow hedges, other than those covered by the preceding policy statements, that amount is reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss. 169 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Derivative financial instruments and hedge accounting (Continued) Cash flow hedges (Continued) If the amount that has been accumulated in the cash flow hedge reserve is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, the Group immediately reclassifies the amount that is not expected to be recovered into profit or loss. When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective), or when a hedging instrument expires or is sold, terminated, exercised, or there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount is immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur, if the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges. (o) Impairment of assets The carrying amounts of 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 an 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. (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. 170 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (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 Revenue arises in the course of the Group’s ordinary activities, and increases in economic benefits in the form of inflows that result in an increase in equity, other than those relating to contributions from equity participants. The Group sells crude oil, natural gas, petroleum and chemical products, etc. Revenue is recogniesd according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset. (i) Sales of goods Sales are recognised when control of the goods have transferred, being when the products are delivered to the customer. Advance from customers but goods not yet delivered is recorded as contract liabilities and is recognised as revenues when a customer obtains control over the relevant goods. (ii) Accounting policy applied until 31 December 2017 The Group has applied IFRS 15 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy. 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. (t) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets. 171 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 2 SIGNIFICANT ACCOUNTING POLICIES (Continued) (u) 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. (v) Repairs and maintenance expenditure Repairs and maintenance expenditure is expensed as incurred. (w) 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. (x) 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 7,956 million for the year ended 31 December 2018 (2017: RMB 6,423 million). (y) Operating leases Operating lease payments are charged to the consolidated income statement on a straight-line basis over the period of the respective leases. (z) 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 38. 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. (aa) 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. (bb) 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. (cc) 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. 172 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 3 TURNOVER Turnover primarily represents revenue from the sales of crude oil, refined petroleum products, chemical products and natural gas. Crude oil Gasoline Diesel Basic chemical feedstock Kerosene Synthetic resin Natural gas Synthetic fiber monomers and polymers Others(i) (i) Others are primarily liquefied petroleum gas and other refinery and chemical by-products and joint products. 4 OTHER OPERATING REVENUES Sale of materials 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 38) 2018 RMB million 2017 RMB million 519,910 711,236 594,008 250,884 168,823 124,618 43,205 77,572 335,357 2,825,613 421,585 600,113 503,406 205,722 115,739 107,633 34,277 61,998 249,997 2,300,470 2018 RMB million 2017 RMB million 64,503 1,063 65,566 58,930 793 59,723 2018 RMB million 12,297 2017 RMB million 12,104 94 9 6 9 29 72 5 (51) 159 2 2018 RMB million 2017 RMB million 68,425 9,296 77,721 65,873 8,981 74,854 173 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 7 TAXES OTHER THAN INCOME TAX Consumption tax (i) City construction tax (ii) Education surcharge Resources tax Others 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 (ii) City construction tax is levied on an entity based on its total paid amount of value-added tax and consumption tax. 8 OTHER OPERATING EXPENSE, NET Government grant (i) Ineffective portion of change in fair value of cash flow hedges Net realised and unrealised gain/(loss) on derivative financial instruments not qualified as hedging Impairment losses on long-lived assets (ii) Loss on disposal of property, plant, equipment and other non-currents assets, net Fines, penalties and compensations Donations Gain on remeasurement of interests in the Shanghai SECCO (Note 36) Others 2018 RMB million 2017 RMB million 201,901 18,237 13,187 6,021 7,152 246,498 192,907 18,274 13,811 4,841 5,459 235,292 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 2018 RMB million 2017 RMB million 7,539 (1,978) 191 (6,281) (1,526) (276) (180) — (2,849) (5,360) 4,893 (813) (909) (21,258) (1,518) (89) (152) 3,941 (649) (16,554) Note: (i) Government grants for the years ended 31 December 2018 and 2017 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 2018 primarily represent impairment losses recognised in the exploration and production (“E&P”) segment of RMB 4,274 million (2017: RMB 13,556 million), the chemicals segment of RMB 1,374 million (2017: RMB 4,922 million) and for the refining segment of RMB 353 million (2017: RMB 1,894 million), most of which are impairment losses on property, plant and equipment. The primary factor resulting in the E&P segment impairment loss was downward revision of oil and gas reserve in certain 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% (2017: 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 312 million (2017: 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 315 million (2017: 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 less impairment loss on the Group’s properties, plant and equipment relating to oil and gas producing activities by approximately RMB 5 million (2017: additional 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. 174 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 9 INTEREST EXPENSE Interest expense incurred Less: Interest expense capitalised* Accretion expenses (Note 33) Interest expense * Interest rates per annum at which borrowing costs were capitalised for construction in progress 10 INCOME TAX EXPENSE Income tax expense in the consolidated income statement represents: Current tax – Provision for the year – Adjustment of prior years Deferred taxation (Note 28) 2018 RMB million 6,376 (493) 5,883 1,438 7,321 2.37% to 4.66% 2017 RMB million 6,368 (723) 5,645 1,501 7,146 2.37% to 4.41% 2018 RMB million 2017 RMB million 27,176 (719) (6,244) 20,213 26,668 (72) (10,317) 16,279 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 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: 2018 RMB million 2017 RMB million 99,110 24,778 2,351 (5,033) (1,259) 77 (779) 609 188 (719) 20,213 86,697 21,674 1,905 (5,939) (793) (1,394) (613) 1,485 26 (72) 16,279 (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. 175 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 2018 Retirement scheme contributions RMB’000 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’000 224 — — 53 — — — 21 — — — — — — — — — — — — 298 174 298 298 1,366 179 — — 328 — — — 456 — — — — — — — — — — — — 663 122 613 636 2,997 65 — — 14 — — — 6 — — — — — — — — — — — — 74 44 74 74 351 — — — — — — — — — — 333 333 233 233 125 125 — — — — — — — — 1,382 468 — — 395 — — — 483 — — 333 333 233 233 125 125 — — — — 1,035 340 985 1,008 6,096 Name Directors Dai Houliang (i) Li Yunpeng Yu Baocai (ii) Ma Yongsheng (i) Ling Yiqun (iii) Liu Zhongyun (iii) Li Yong (iii) Wang Zhigang (iv) Zhang Haichao (iv) Jiao Fangzheng (v) Independent non-executive directors Tang Min Fan Gang Cai Hongbin (iii) Johnny Karling Ng (iii) Jiang Xiaoming (vi) Andrew Y. Yan (vi) Supervisors Zhao Dong Jiang Zhenying Yang Changjiang (iii) Zhang Baolong (iii) Zou Huiping Zhou Hengyou Yu Renming Yu Xizhi Total 176 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 Salaries, allowances and benefits in kind RMB’000 Bonuses RMB’000 2017 Retirement scheme contributions RMB’000 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 — 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 — — — — — — — 300 300 300 300 — — — — — — — — — 1,200 — 840 — 770 — — — 300 300 300 300 — — — 758 758 758 267 — 417 5,768 Name Directors Wang Yupu(vii) 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 Liu Yun(vii) Wang Yajun(vii) Total Notes: (i) Mr. Ma Yongsheng was appointed as president from 30 October 2018. Mr. Dai Houliang ceased being president and executive director and was elected as non- executive director from 30 October 2018. (ii) Mr. Yu Baocai was elected to be director from 23 October 2018. (iii) Mr. Ling Yiqun was elected to be director from 15 May 2018; Mr. Liu Zhongyun was elected to be director from 15 May 2018; Mr. Li Yong was elected to be director from 15 May 2018; Mr. Cai Hongbin was elected to be independent non-executive director from 15 May 2018; Mr. Johnny Karling Ng was elected to be independent non-executive director from 15 May 2018; Mr. Yang Changjiang was elected to be supervisor from 15 May 2018; Mr. Zhang Baolong was elected to be supervisor from 15 May 2018; (iv) Mr. Wang Zhigang ceased being director from 29 January 2018; Mr. Zhang Haichao ceased being director from 29 January 2018. (v) Mr. Jiao Fangzheng ceased being director from 7 June 2018. (vi) Mr. Jiang Xiaoming ceased being independent non-executive director from 15 May 2018; Mr. Andrew Y. Yan ceased being independent non-executive director from 15 May 2018. (vii) Mr. Wang Yupu ceased being chairman and independent director from 22 September 2017; Mr. Liu Yun ceased being supervisor and chairman of board of supervisor from 16 March 2017; Mr. Wang Yajun ceased being supervisor from 28 June 2017. 177 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 12 SENIOR MANAGEMENT’S EMOLUMENTS For the year ended 31 December 2018, the five highest paid individuals in the Company included two supervisors and three senior management. The emolument paid to each of two supervisors and three senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 5,089 thousand, and the total amount of their retirement scheme contributions was RMB 370 thousand. For the year ended 31 December 2017, 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 0.16 per share (2017: RMB 0.10 per share) Dividends declared after the balance sheet date of RMB 0.26 per share (2017: RMB 0.40 per share) 2018 RMB million 2017 RMB million 19,371 31,479 50,850 12,107 48,428 60,535 Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 24 August 2018, the directors authorised to declare the interim dividends for the year ending 31 December 2018 of RMB 0.16 (2017: RMB 0.10) per share totaling RMB 19,371 million (2017: RMB 12,107 million). Dividends were paid on 12 September 2018. Pursuant to a resolution passed at the director’s meeting on 22 March 2019, final dividends in respect of the year ended 31 December 2018 of RMB 0.26 (2017: RMB 0.40) per share totaling RMB 31,479 million (2017: RMB 48,428 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 during the year of RMB 0.40 per share (2017: RMB 0.17 per share) 2018 RMB million 2017 RMB million 48,428 20,582 Pursuant to the shareholders’ approval at the Annual General Meeting on 15 May 2018, a final dividend of RMB 0.40 per share totaling RMB 48,428 million according to total shares of 4 June 2018 was approved. All dividends have been paid in the year ended 31 December 2018. 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. 178 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 14 OTHER COMPREHENSIVE INCOME Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year 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 in other comprehensive income(i) Available-for-sale financial assets: Changes in fair value recognised during the year Changes in the fair value of instruments at fair value through other comprehensive income 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 2018 Before tax amount RMB million Tax effect RMB million Net of tax amount RMB million Before tax amount RMB million 2017 Tax effect RMB million Net of tax amount RMB million (12,500) 2,159 (10,341) (1,314) 240 (1,074) — 730 — (130) — 600 (4) (575) 1 72 (3) (503) (11,770) 2,029 (9,741) (1,893) 313 (1,580) — (41) (41) (240) 3,399 (8,652) — (12) (12) 11 — 2,028 — (53) (53) (57) — (57) (229) 3,399 (6,624) 1,053 (3,792) (4,689) — — — — — 313 (57) — (57) 1,053 (3,792) (4,376) (i) As at 31 December 2018, cash flow hedge reserve amounted to a loss of RMB 4,932 million (31 December 2017: a loss of RMB 460 million), of which a loss of RMB 4,917 million was attribute to shareholders of the Company (31 December 2017: a loss of RMB 510 million). 15 BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic earnings per share for the year ended 31 December 2018 is based on the profit attributable to ordinary shareholders of the Company of RMB 61,618 million (2017: RMB 51,244 million) and the weighted average number of shares of 121,071,209,646 (2017: 121,071,209,646) during the year. The calculation of diluted earnings per share for the year ended 31 December 2018 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 61,618 million (2017: RMB 51,242 million) and the weighted average number of shares of 121,071,209,646 (2017: 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 2018 RMB million 2017 RMB million 61,618 — 61,618 51,244 (2) 51,242 2017 Number of shares Number of shares 2018 121,071,209,646 121,071,209,646 121,071,209,646 121,071,209,646 179 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 16 PROPERTY, PLANT AND EQUIPMENT Cost: 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 Balance at 1 January 2018 Additions Transferred from construction in progress Reclassifications Reclassification to lease prepayments and other long-term assets Disposals Exchange adjustments Balance at 31 December 2018 Accumulated depreciation: Balance at 1 January 2017 Depreciation for the year Impairment losses for the year Reclassifications Reclassification to lease prepayments and other long-term assets Disposals Exchange adjustments Balance at 31 December 2017 Balance at 1 January 2018 Depreciation for the year Impairment losses for the year Reclassifications Reclassification to lease prepayments and other long-term assets Disposals Exchange adjustments Balance at 31 December 2018 Net book value: Balance at 1 January 2017 Balance at 31 December 2017 Balance at 31 December 2018 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) (859) (878) (140) 120,013 120,013 221 3,741 1,634 (483) (3,183) 98 122,041 48,572 4,075 554 (122) (238) (584) (57) 52,200 52,200 4,038 274 494 (120) (1,795) 43 55,134 66,348 67,813 66,907 650,685 1,627 19,881 (50) (1,702) (211) (2,573) 667,657 667,657 1,567 24,366 138 — (146) 2,142 695,724 435,561 55,057 8,832 (77) (1,305) (195) (2,056) 495,817 495,817 48,616 4,027 76 — (125) 1,877 550,288 215,124 171,840 145,436 892,936 11,983 54,605 723 (8,751) (10,985) (199) 940,312 940,312 3,856 45,103 (1,772) (3,828) (18,323) 147 965,495 483,814 46,585 10,450 199 (2,682) (9,079) (96) 529,191 529,191 47,250 1,848 (570) (1,390) (16,331) 78 560,076 409,122 411,121 405,419 1,658,541 14,464 81,275 — (11,312) (12,074) (2,912) 1,727,982 1,727,982 5,644 73,210 — (4,311) (21,652) 2,387 1,783,260 967,947 105,717 19,836 — (4,225) (9,858) (2,209) 1,077,208 1,077,208 99,904 6,149 — (1,510) (18,251) 1,998 1,165,498 690,594 650,774 617,762 The additions to oil and gas properties of the Group for the year ended 31 December 2018 included RMB 1,567 million (2017: RMB 1,627 million) of estimated dismantlement costs for site restoration (Note 33). At 31 December 2018 and 31 December 2017, the Group had no individually significant fixed assets which were pledged. At 31 December 2018 and 31 December 2017, the Group had no individually significant fixed assets which were temporarily idle or pending for disposal. At 31 December 2018 and 31 December 2017, the Group had no individually significant fully depreciated fixed assets which were still in use. 180 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 2018 RMB million 2017 RMB million 118,645 108,555 (6,921) (73,210) (10,066) (28) (19) 7 136,963 129,581 85,552 (6,876) (81,229) (7,773) (252) (315) (43) 118,645 As at 31 December 2018, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 7,296 million (2017: RMB 9,737 million). The geological and geophysical costs paid during the year ended 31 December 2018 were RMB 3,511 million (2017: RMB 3,710 million). 18 GOODWILL Cost Less: Accumulated impairment losses 31 December 2018 RMB million 31 December 2017 RMB million 16,537 (7,861) 8,676 16,495 (7,861) 8,634 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”) (Note36) 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 2018 RMB million 31 December 2017 RMB million 1,004 4,043 2,541 921 167 8,676 1,004 4,043 2,541 879 167 8,634 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 11.7% to 12.3% (2017: 10.8% to 11.4%). 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. 181 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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”) extraction % 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 38.75 50.00 financial services Processing natural gas and manufacturing petrochemical products Mining coal and manufacturing of coal-chemical products Crude oil and natural gas extraction Equity method Russia Russia Equity method PRC PRC 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: Pipeline Ltd Sinopec Finance SIBUR(i) 31 December 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million Zhongtian Synergetic Energy 31 December 2017 RMB million 31 December 2018 RMB million CIR 31 December 2018 RMB million 31 December 2017 RMB million 12,498 39,320 (1,020) (3,026) 47,772 11,317 40,972 (933) (3,176) 48,180 209,837 16,359 (200,402) (332) 25,462 161,187 17,782 (154,212) (6) 24,751 22,502 170,796 (23,293) (58,628) 111,377 20,719 158,938 (20,554) (61,771) 97,332 7,477 49,961 (7,252) (31,436) 18,750 8,232 51,553 (10,668) (31,494) 17,623 47,772 48,180 25,462 24,751 110,860 96,761 18,750 17,623 — 23,886 23,886 — 24,090 24,090 — 12,476 12,476 — 12,128 12,128 517 11,086 11,086 571 9,676 9,676 — 7,266 7,266 — 6,829 6,829 6,712 1,828 (961) (673) 6,906 6,906 — 3,453 3,453 5,612 1,673 (908) (170) 6,207 6,207 — 3,104 3,104 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 Summarised statement of comprehensive income 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 (ii) Pipeline Ltd 2018 RMB million 2017 RMB million Sinopec Finance 2018 RMB million 2017 RMB million SIBUR(i) 2018 RMB million 2017 RMB million Zhongtian Synergetic Energy 2017 RMB million 2018 RMB million CIR 2018 RMB million 2017 RMB million 4,746 2,022 — 2,022 1,207 1,011 — 5,644 2,543 — 2,543 — 1,272 — 4,536 1,868 (157) 1,711 490 915 3,542 1,536 (246) 1,290 — 753 59,927 10,400 6,410 16,810 271 1,040 52,496 9,601 (260) 9,341 221 960 12,235 1,142 — 1,142 — 443 (77) (121) 641 (26) — 3,569 123 — 123 — 48 — 2,856 583 116 699 — 292 2,563 (610) (334) (944) — (305) 58 (167) The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,550 million (2017: RMB 3,182 million) and RMB 844 million (2017: other comprehensive income RMB 569 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 31,370 million (2017: RMB 23,899 million). Notes: (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) Including foreign currency translation differences. 182 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million 31 December 2018 RMB million 31 December 2017 RMB million 7,388 9,248 16,636 19,271 (1,200) (4,939) (6,139) (12,454) (279) (12,733) 17,035 5,772 11,013 16,785 19,740 (1,135) (5,049) (6,184) (13,654) (236) (13,890) 16,451 1,582 5,795 7,377 11,086 (725) (1,822) (2,547) (218) (17) (235) 15,681 1,800 5,335 7,135 12,075 (233) (1,982) (2,215) (955) (19) (974) 16,021 3,406 3,689 7,095 9,216 (59) (2,124) (2,183) (72) (2,271) (2,343) 11,785 2,352 2,462 4,814 7,978 (20) (1,914) (1,934) (72) (2,686) (2,758) 8,100 930 10,267 11,197 51,873 (4,806) (12,217) (17,023) (32,364) (937) (33,301) 12,746 4,916 10,816 15,732 51,553 (5,407) (11,864) (17,271) (35,619) (890) (36,509) 13,505 5,110 4,007 9,117 13,990 (500) (2,507) (3,007) (3,651) (331) (3,982) 16,118 6,524 2,709 9,233 13,248 (1,236) (4,546) (5,782) (4,101) (41) (4,142) 12,557 17,035 16,451 15,681 16,021 11,373 7,818 12,746 13,505 16,118 12,557 — 8,518 8,518 — 8,226 8,226 — 6,272 6,272 — 6,409 6,409 412 5,573 5,573 282 3,831 3,831 — 4,780 4,780 — 5,064 5,064 — 8,059 8,059 — 6,279 6,279 Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities 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 Carrying Amounts 183 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 20 INTEREST IN JOINT VENTURES (Continued) Summarised statement of comprehensive income Year ended 31 December FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 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 income/ (loss) from joint ventures 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million 52,469 (2,250) 157 (647) 3,920 (935) 2,985 — 2,985 1,200 1,493 49,356 (16) 208 (857) 6,977 (1,699) 5,278 — 5,278 1,250 2,639 21,574 (1,521) 41 (43) 3,625 (897) 2,728 — 2,728 1,226 1,091 21,020 (1,793) 36 (71) 4,565 (1,151) 3,414 — 3,414 1,109 1,366 14,944 (664) 141 (151) 3,493 (729) 2,764 921 3,685 — 1,307 12,520 (715) 142 (142) 1,697 (553) 1,144 25 1,169 — 541 77,561 (2,823) 101 (1,382) (1,569) (249) (1,818) 1,059 (759) — (682) 61,587 (2,763) 45 (1,382) 548 57 605 (554) 51 — 227 23,501 (1,104) 169 (167) 3,916 (993) 2,923 — 2,923 — 1,462 22,286 (36) 104 (223) 5,113 (1,279) 3,834 — 3,834 1,375 1,917 — — — — 435 12 397 (208) — — The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 2,052 million (2017: RMB 3,925 million) and RMB 839 million (2017: other comprehensive income RMB 994 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 22,982 million (2017: RMB 21,552 million). 2018 RMB million 2017 RMB million 75,728 249 7,829 1,402 (544) (152) 219 84,731 17,202 2,519 617 (154) (31) 64 20,217 64,514 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 21 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 Disposals Exchange adjustments Balance at 31 December Net book value: 184 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 22 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 and catalyst expenditures. 31 December 2018 RMB million 31 December 2017 RMB million 34,934 26,513 5,502 24,459 91,408 34,268 20,726 4,999 21,989 81,982 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 23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Structured deposit Equity investments, listed and at quoted market price 2018 RMB million 2017 RMB million 48,613 3,948 (345) 52,216 14,345 3,019 (82) 17,282 34,934 36,908 11,837 (132) 48,613 10,012 4,361 (28) 14,345 34,268 31 December 2018 RMB million 31 December 2017 RMB million 25,550 182 25,732 51,196 — 51,196 The financial assets are the structured deposit with financial institutions, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period. 24 DERIVATIVES FINANCIAL ASSETS AND DERIVATIVES FINANCIAL LIABILITIES Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps. See Note 41. 185 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 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 2018 RMB million 31 December 2017 RMB million 50,108 3,170 4,321 57,599 (606) 56,993 7,886 64,879 56,203 7,941 4,962 69,106 (612) 68,494 16,207 84,701 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 2018 RMB million 31 December 2017 RMB million 64,317 353 124 85 64,879 83,984 573 43 101 84,701 2018 RMB million 2017 RMB million 612 83 (77) (19) 7 606 683 49 (100) (21) 1 612 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. Information about the impairment of trade accounts receivable and the Group’s exposure to credit risk can be found in Note 41. 186 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 2018 RMB million 31 December 2017 RMB million 85,469 13,690 88,929 2,872 190,960 (6,376) 184,584 85,975 14,774 84,448 2,651 187,848 (1,155) 186,693 The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 2,366,199 million for the year ended 31 December 2018 (2017: RMB 1,854,629 million). It includes the write-down of inventories of RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products (2017: RMB 436 million 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 28 DEFERRED TAX ASSETS AND LIABILITIES 31 December 2018 RMB million 31 December 2017 RMB million 26,455 5,937 21,331 300 54,023 17,704 4,901 17,926 398 40,929 Deferred tax assets and deferred tax liabilities before offset are attributable to the items detailed in the table below: Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale financial assets Financial assets at fair value through other comprehensive income Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities 31 December 2018 RMB million 2,563 1,808 1,131 15,427 3,709 — 117 474 174 25,403 31 December 2017 RMB million 381 1,925 165 14,150 2,325 117 — 227 180 19,470 31 December 2018 RMB million — — (27) (8,666) — — (1) (535) (428) (9,657) 31 December 2017 RMB million — — (50) (9,928) — — — (563) (264) (10,805) At 31 December 2018, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 18,308 million (2017: RMB 20,821 million), of which RMB 2,437 million (2017: RMB 5,938 million) was incurred for the year ended 31 December 2018, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 2,373 million, RMB 3,887 million, RMB 3,673 million, RMB 5,938 million and RMB 2,437 will expire in 2019, 2020, 2021, 2022,2023 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 2018, write-down of deferred tax assets amounted to RMB 188 million (2017: RMB 26 million) (Note 10). 187 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 28 DEFERRED TAX ASSETS AND LIABILITIES (Continued) Movements in the deferred tax assets and liabilities are as follows: Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale financial assets Intangible assets Others Net deferred tax (liabilities)/assets Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Available-for-sale financial assets Financial assets at fair value through other comprehensive income Intangible assets Others Net deferred tax assets/(liabilities) Balance at 1 January 2017 RMB million 87 391 (215) (3,351) 2,477 — 260 (96) (447) Recognised in consolidated income statement RMB million 300 1,534 9 8,475 (135) 117 (27) 44 10,317 Recognised in other comprehensive income RMB million (5) — 313 287 (17) — — 4 582 Acquisition of Shanghai SECCO RMB million — — — (1,181) — — (569) (36) (1,786) Balance at 31 December 2017 RMB million 381 1,925 115 4,222 2,325 117 (336) (84) 8,665 Others RMB million (1) — 8 (8) — — — — (1) Balance at 1 January 2018 RMB million 381 1,925 115 4,222 2,325 117 Recognised in consolidated income statement Recognised in other comprehensive income RMB million 2,176 (117) (10) 2,650 1,414 — RMB million 3 — 2,029 (130) 6 — Others RMB million 3 — 1 19 (36) (117) Transferred from reserve RMB million — — (1,031) — — — Balance at 31 December 2018 RMB million 2,563 1,808 1,104 6,761 3,709 — — (336) (84) 8,665 — 273 (142) 6,244 (1) — (2) 1,905 117 2 (26) (37) — — — (1,031) 116 (61) (254) 15,746 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 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 2018 RMB million 31 December 2017 RMB million 17,088 13,201 3,887 300 300 12,074 12,039 35 — — — 12,074 29,462 27,304 3,061 22,780 1,441 22 — 4,361 4,361 31,665 61,127 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 The Group’s weighted average interest rates on short-term loans were 3.37% (2017: 2.72 %) at 31 December 2018. The above borrowings are unsecured. 188 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 (i) RMB denominated USD denominated Interest rate and final maturity Interest rates ranging from 1.08% to 4.66% per annum at 31 December 2018 with maturities through 2033 Interest rates ranging from 1.55% to 4.29% per annum at 31 December 2018 with maturities through 2031 Fixed interest rates ranging from 3.70% to 4.90% per annum at 31 December 2018 with maturity through 2022 Fixed interest rates ranging from 3.13% to 4.25% per annum at 31 December 2018 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 2018 with maturities through 2030 Less: Current portion 31 December 2018 RMB million 31 December 2017 RMB million 31,025 25,644 109 192 31,134 20,000 25,836 36,000 11,951 17,902 31,951 63,085 (12,074) 51,011 53,902 79,738 (23,934) 55,804 46,877 45,334 (4,361) 42,516 93,527 (2,014) 43,320 99,124 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) These corporate bonds are carried at amortised cost. At 31 December 2018, RMB 11,951 million (2017: RMB 17,902 million) (USD denominated corporate bonds) are guaranteed by Sinopec Group Company. 189 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 30 TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE 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 CONTRACT LIABILITIES 31 December 2018 RMB million 31 December 2017 RMB million 170,818 9,142 6,381 186,341 6,416 192,757 177,224 13,350 9,499 200,073 6,462 206,535 31 December 2018 RMB million 31 December 2017 RMB million 182,763 6,670 3,324 192,757 195,189 8,076 3,270 206,535 As at 31 December 2018, the Group’s contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year. As at 1 January 2018, the Group’s contract liabilities was RMB 120,734 million, of which RMB 119,138 million was recognised as revenue in 2018. 32 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 (Note 1 (a)) 33 PROVISIONS 31 December 2018 RMB million 31 December 2017 RMB million 7,312 634 54,992 22,852 85,790 80,361 — 166,151 7,162 723 60,010 29,028 96,923 58,925 120,734 276,582 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: 2018 RMB million 2017 RMB million 39,407 1,567 1,438 (598) 193 42,007 36,918 1,627 1,501 (467) (172) 39,407 Balance at 1 January Provision for the year Accretion expenses Utilised for the year Exchange adjustments Balance at 31 December 190 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 34 SHARE CAPITAL Registered, issued and fully paid 95,557,771,046 listed A shares (2017: 95,557,771,046) of RMB 1.00 each 25,513,438,600 listed H shares (2017: 25,513,438,600) of RMB 1.00 each 31 December 2018 RMB million 31 December 2017 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. 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 2018, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 11.5% (2017: 12.0 %) and 46.2% (2017: 46.5 %), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 29 and 35, 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. 191 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 35 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 2018 and 2017, 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 Thereafter Capital commitments At 31 December 2018 and 2017, the capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for 31 December 2018 RMB million 31 December 2017 RMB million 15,625 14,668 13,986 13,734 13,494 281,287 352,794 11,114 11,492 10,730 10,552 10,428 202,806 257,122 31 December 2018 RMB million 31 December 2017 RMB million 141,045 54,392 195,437 120,386 57,997 178,383 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 5,553 million (2017: RMB 3,364 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 Natural 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 Natural 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 Natural Resources annually which are expensed. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2018 (2017: RMB 308 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 192 31 December 2018 RMB million 31 December 2017 RMB million 380 79 33 28 28 852 1,400 205 83 32 28 28 882 1,258 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2018Financial Statements (International) 35 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Contingent liabilities At 31 December 2018 and 2017, the guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures Associates(ii) Others 31 December 2018 RMB million 31 December 2017 RMB million 5,033 12,168 7,197 24,398 940 13,520 9,732 24,192 Management 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 reliabily estimable. At 31 December 2018 and 2017, 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. At 31 December 2018, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 12,168 million (2017: 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 7,940 million in the consolidated financial statements for the year ended 31 December 2018 (2017: RMB 7,851 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. 193 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 36 BUSINESS COMBINATION For the year ended 31 December 2018, significant business combination didn’t occur in the Group. 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 at the Acquisition Date 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. 194 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 37 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 withdrawn from/(placed with) related parties Net funds obtained from related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (ix) (x) (ix) (xi) 2018 RMB million 2017 RMB million 272,789 192,224 7,319 23,489 28,472 6,664 7,765 521 869 113 848 1,110 6,457 31,684 244,211 165,993 7,716 21,210 20,824 6,653 8,015 510 626 127 807 554 (7,441) 19,661 The amounts set out in the table above in respect of the year ended 31 December 2018 and 2017 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 2018 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 140,570 million (2017: RMB 128,863 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 123,772 million (2017: RMB 112,619 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 6,664 million (2017: RMB 6,652 million), operating lease charges for land, buildings and others paid by the Group of RMB 7,765 million, RMB 521 million and RMB 738 million (2017: RMB 8,015 million, RMB 510 million and RMB 513 million), respectively and interest expenses of RMB 1,110 million (2017: RMB 554 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 59,472 million (2017: RMB 60,045 million), comprising RMB 58,606 million (2017: RMB 59,213 million) for sales of goods, RMB 848 million (2017: RMB 807 million) for interest income and RMB 18 million (2017: RMB 25 million) for agency commission income. At 31 December 2018 and 2017, 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 35. 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, environmental protection and management services. 195 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 37 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) (vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, and property maintenance. (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 2018 was RMB 41,057 million (2017: RMB 47,514 million). (x) Interest expense represents interest charges on the loans obtained from Sinopec Group Company and fellow subsidiaries. (xi) The Group obtained loans, discounted bills and others from Sinopec Group Company and fellow subsidiaries. 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 2018. The terms of these agreements are summarised as follows: (cid:127) 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%. (cid:127) 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. (cid:127) 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. (cid:127) 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. (cid:127) 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. (cid:127) On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on August 24, 2018, which took effect on January 1, 2019 and made adjustment to “Mutual Supply Agreement”, “Agreement for Provision of Cultural and Educational, Health Care and Community Services”, “Buildings Leasing Contract”, “Intellectual Property Contract” and “Land Use Rights Leasing Contract” etc.,. The memorandum was effective since January 1, 2019. Sinopec Group Company agreed to lease 410 million square meters of land to the Company, and to adjust the total fee of land to about RMB 14 billion, according to the newly confirmed area of leasing land and the situation of land market. 196 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 37 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) 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 and bills receivable Prepaid expenses and other current assets Long-term prepayments and other assets Total Trade accounts payable and bills payable Contract liabilities 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 2018 RMB million 31 December 2017 RMB million 7,555 7,665 23,482 38,702 17,530 3,273 18,160 12,470 31,665 42,516 125,614 13,174 5,633 20,726 39,533 24,104 — 20,990 10,165 25,311 43,320 123,890 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 2018, and as at and for the year ended 31 December 2017, 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. (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 (c) Contributions to defined contribution retirement plans 2018 RMB’000 5,745 351 6,096 2017 RMB’000 5,344 424 5,768 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 38. As at 31 December 2018 and 2017, the accrual for the contribution to post-employment benefit plans was not material. 197 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 37 RELATED PARTY TRANSACTIONS (Continued) (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. 38 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 13.0% 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 2018 were RMB 9,296 million (2017: RMB 8,981 million). 39 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. 198 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 39 SEGMENT REPORTING (Continued) The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, 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 debts, long-term debts, loans from Sinopec Group Company and fellow subsidiaries, income tax payable, 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 2018 RMB million 2017 RMB million 93,499 95,954 189,453 148,930 1,109,088 1,258,018 1,408,989 5,224 1,414,213 457,406 73,835 531,241 716,789 650,271 1,367,060 (1,934,372) 2,825,613 10,738 5,389 32,424 15,492 1,523 65,566 2,891,179 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 2,360,193 199 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 39 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 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 (losses)/income – 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 Financial assets at fair value through other comprehensive income Deferred tax assets Cash and cash equivalents, 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 200 2018 RMB million 2017 RMB million (10,107) 54,827 23,464 27,007 (9,293) (3,634) 82,264 2,598 109 3,155 6,298 1,814 13,974 (3) 315 43 596 920 1,871 1,001 99,110 (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 31 December 2018 RMB million 31 December 2017 RMB million 321,686 271,356 317,641 156,865 152,799 1,220,347 145,721 — 1,450 21,694 167,015 36,081 1,592,308 94,170 103,809 159,536 37,413 144,216 539,144 29,462 6,699 51,011 74,181 5,948 29,328 735,773 343,404 273,123 309,727 158,472 170,045 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 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 39 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 (2) Geographical information 2018 RMB million 2017 RMB million 42,155 27,908 21,429 19,578 6,906 117,976 60,331 18,164 16,296 13,379 1,797 109,967 4,274 353 264 1,374 16 6,281 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 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 2018 RMB million 2017 RMB million 2,119,580 395,129 376,470 2,891,179 1,758,365 269,349 332,479 2,360,193 31 December 2018 RMB million 31 December 2017 RMB million 989,668 50,892 1,040,560 979,329 48,572 1,027,901 201 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 40 PRINCIPAL SUBSIDIARIES At 31 December 2018, 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 Particulars of issued capital (million) Interests held by the Company % RMB 22,761 100.00 Sinopec Yangzi Petrochemical Company Limited Sinopec Pipeline Storage & Transportation Company Limited Sinopec Overseas Investment Holding Limited (“SOIH”) Sinopec International Petroleum Exploration and Production Limited (“SIPL”) Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Lubricant Company Limited RMB 15,651 100.00 RMB 12,000 100.00 USD 1,662 100.00 RMB 8,000 100.00 RMB 4,000 100.00 RMB 3,374 100.00 China International United Petroleum and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Chemical Sales Company Limited RMB 3,000 100.00 RMB 1,595 100.00 RMB 1,500 100.00 RMB 1,400 100.00 RMB 1,000 100.00 Interests held by non- controlling interests % — — — — — — — — — — — — Sinopec Beihai Refining and Chemical Limited Liability Company Sinopec Qingdao Refining and Chemical Company Limited Sinopec Hainan Refining and Chemical Company Limited Sinopec Marketing Co. Limited (“Marketing Company”) Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) (Note 36) Sinopec–SK (Wuhan) Petrochemical Company Limited (“Zhonghan Wuhan”) Sinopec Kantons Holdings Limited (“Sinopec Kantons”) Gaoqiao Petrochemical Company Limited Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) RMB 5,294 98.98 1.02 RMB 5,000 RMB 3,986 RMB 28,403 RMB 7,801 RMB 6,270 HKD 248 RMB 10,000 RMB 10,824 85.00 75.00 70.42 67.60 65.00 60.33 55.00 50.44 15.00 25.00 29.58 32.40 35.00 39.67 45.00 49.56 Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) RMB 8,140 50.00 50.00 Principal activities 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 Investment holding of overseas business Investment in exploration, 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 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 Marketing and distribution of refined petroleum products Production and sale of petrochemical products Production, sale, research and development of ethylene and downstream byproducts Provision of crude oil jetty services and natural gas pipeline transmission services 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 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. 202 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 40 PRINCIPAL SUBSIDIARIES (Continued) 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 Marketing Company SIPL At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million Shanghai Petrochemical At 31 December 2017 RMB million At 31 December 2018 RMB million Fujian Petrochemical Sinopec Kantons Shanghai SECCO Zhonghan Wuhan At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million At 31 December 2018 RMB million At 31 December 2017 RMB million 130,861 (181,766) (50,905) 261,062 (2,086) 258,976 208,071 141,244 66,827 156,494 (212,620) (56,126) 253,455 (1,774) 251,681 195,555 132,549 63,006 16,731 (483) 16,248 38,020 (31,050) 6,970 23,218 5,266 17,952 19,555 (7,118) 12,437 34,769 (28,523) 6,246 18,683 3,468 15,215 25,299 (13,913) 11,386 19,087 (10) 19,077 30,463 15,295 15,168 19,866 (10,922) 8,944 19,577 (6) 19,571 28,515 14,253 14,262 816 (50) 766 11,444 (688) 10,756 11,522 5,761 5,761 992 (376) 616 9,925 (681) 9,244 9,860 4,930 4,930 1,209 (3,722) (2,513) 12,895 (132) 12,763 10,250 6,165 4,085 1,196 (2,351) (1,155) 13,089 (2,430) 10,659 9,504 5,716 3,788 9,537 (2,233) 7,304 12,301 (1,698) 10,603 17,907 12,105 5,802 11,602 (4,174) 7,428 12,797 (1,740) 11,057 18,485 12,496 5,989 2,750 (2,333) 417 12,612 — 12,612 13,029 8,469 4,560 1,636 (3,975) (2,339) 13,598 — 13,598 11,259 7,318 3,941 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 Summarised consolidated statement of comprehensive income Year ended 31 December Turnover Profit for the year Total comprehensive income Comprehensive income/ (loss) attributable to non-controlling interests Dividends paid to non-controlling interests Marketing Company 2018 RMB million 2017 RMB million 1,443,698 22,046 22,589 1,221,530 27,520 26,986 7,794 3,964 9,033 9,544 SIPL 2018 RMB million 2017 RMB million Shanghai Petrochemical 2017 RMB million 2018 RMB million Fujian Petrochemical 2018 RMB million 2017 RMB million Sinopec Kantons 2018 RMB million 2017 RMB million Shanghai SECCO (ii) 2018 RMB million 2017 RMB million Zhonghan Wuhan 2018 RMB million 2017 RMB million 5,037 3,272 4,536 2,737 — 6,136 1,075 396 (38) — 107,689 5,336 5,336 2,645 1,616 91,962 6,154 6,153 3,052 1,344 5,261 1,576 1,576 788 600 6,068 2,726 2,726 1,363 625 1,398 1,065 1,067 399 104 1,498 1,046 1,146 433 70 26,320 3,099 3,099 1,004 1,191 5,222 726 726 235 — 17,134 1,879 1,879 658 — 16,139 2,730 2,730 956 — Summarised statement of cash flows Year ended 31 December Net cash generated from/ (used in) operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities Net increase/(decrease) 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 Marketing Company SIPL 2018 RMB million 2017 RMB million 2018 RMB million 2017 RMB million Shanghai Petrochemical 2017 RMB million 2018 RMB million Fujian Petrochemical 2018 RMB million 2017 RMB million Sinopec Kantons 2018 RMB million 2017 RMB million Shanghai SECCO (ii) 2018 RMB million 2017 RMB million Zhonghan Wuhan 2018 RMB million 2017 RMB million 24,825 51,038 3,467 2,758 6,659 7,061 38 8,339 (35,738) 4,096 (2,211) (1,928) (2,401) (215) (558) 225 738 648 968 193 3,766 1,639 3,308 2,976 (480) 5,567 (3,099) (2,415) (32,084) (16,499) (5,419) 243 (3,507) (2,590) 43 (158) (1,551) (1,093) (3,676) — 1,080 12,921 141 14,142 (1,199) 14,373 (253) 12,921 2,144 3,605 244 5,993 790 3,045 (230) 3,605 1,224 7,504 14 8,742 2,070 5,441 (7) 7,504 (134) 226 — 92 (491) 717 — 226 (165) 343 20 198 68 289 (14) 343 (390) 7,205 2 6,817 7,206 — (1) 7,205 525 734 64 — 798 (631) (70) 134 — 64 (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. 203 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 41 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, derivative financial assets, bills receivable, trade accounts receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due from associates and joint ventures, financial assets at fair value through other comprehensive income and other receivables. Financial liabilities of the Group include short-term debts, loans from Sinopec Group Company and fellow subsidiaries, derivative financial liabilities, bills payable, trade accounts payable, amounts due to Sinopec Group Company and fellow subsidiaries, other payables and long- term debts. The Group has exposure to the following risks from its uses of financial instruments: ‧ credit risk; ‧ liquidity risk; and ‧ 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 (i) Risk management 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 2018, 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. (ii) Impairment of financial assets The Group’s primary type of financial assets that are subject to the expected credit loss model is trade accounts receivables and other receivables. The Group’s cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified. For trade accounts receivables, the group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivables. To measure the expected credit losses, trade accounts receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2018 or 1 January 2018, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The detailed analysis of trade accounts receivables, based on which the Group generated its payment profile is listed in note 25. All of the entity’s other receivables (Note 25) are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months expected losses. The Group considers ‘low credit risk’ for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term. 204 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 41 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 2018, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 387,748 million (2017: RMB 361,852 million) on an unsecured basis, at a weighted average interest rate of 3.87% per annum (2017: 3.40%). At 31 December 2018, the Group’s outstanding borrowings under these facilities were RMB 21,236 million (2017: RMB 56,567 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 Derivatives financial liabilities Trade accounts payable and bills payable Other payables Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Derivatives financial liabilities Trade accounts payable and bills payable Other payables Total contractual Carrying undiscounted cash flow RMB million amount RMB million 29,462 51,011 74,181 13,571 192,757 85,790 446,772 30,123 61,809 75,207 13,571 192,757 85,790 459,257 Total contractual Carrying undiscounted cash flow amount RMB million RMB million 55,338 55,804 68,631 2,665 206,535 96,923 485,896 56,562 66,202 68,950 2,665 206,535 96,923 497,837 31 December 2018 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 30,123 1,889 32,127 13,571 192,757 85,790 356,257 — 16,938 37,977 — — — 54,915 — 27,190 3,741 — — — 30,931 — 15,792 1,362 — — — 17,154 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 2,665 206,535 96,923 390,355 — 14,477 4,439 — — — 18,916 — 32,316 39,007 — — — 71,323 — 17,243 — — — — 17,243 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. 205 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 41 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 2018 million 31 December 2017 million 668 204 A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2018 and 2017 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 2017. USD 31 December 2018 million 31 December 2017 million 172 50 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 2018, 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 424 million (2017: decrease/increase by approximately RMB 450 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 2017. 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 2018, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. As at 31 December 2018, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 7,844 million (2017: RMB 515 million) and derivative financial liabilities of RMB 13,568 million (2017: RMB 2,624 million). As at 31 December 2018, 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 197 million (2017: decrease/increase RMB 4,049 million), and increase/decrease the Group’s other reserves by approximately RMB 6,850 million (2017: decrease/increase RMB 701 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 2017. 206 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 41 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 2018 Assets Financial assets at fair value through profit or loss: – Structured deposit – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Financial assets at fair value through other comprehensive income: – Equity investments Liabilities Derivative financial liabilities: – Derivative financial liabilities At 31 December 2017 Assets Financial assets at fair value through profit or loss: – Structured deposit Available-for-sale financial assets: – Listed Derivative financial assets: – Derivative financial assets Liabilities Derivative financial liabilities: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million — 182 874 127 1,183 5,500 5,500 — — 7,013 — 7,013 8,071 8,071 25,550 — — 1,323 26,873 — — 25,550 182 7,887 1,450 35,069 13,571 13,571 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 During the years ended 31 December 2018 and 2017, there was no transfer between instruments in Level 1 and Level 2. Management of the Group 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. 207 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 41 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 IFRS 9 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 2.76% to 4.90% (2017: 1.79% 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 2018 and 2017: Carrying amount Fair value 31 December 2018 RMB million 63,085 62,656 31 December 2017 RMB million 79,738 78,040 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. 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 2018 and 2017. 42 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. 208 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 42 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. Measurement of expected credit losses The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group regularly monitors and reviews the assumptions used for estimating expected credit losses. 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. 43 PARENT AND ULTIMATE HOLDING COMPANY The directors consider the parent and ultimate holding company of the Group as at 31 December 2018 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use. 209 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 44 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY BALANCE SHEET OF THE COMPANY (Amounts in million) 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 Financial assets at fair value through other comprehensive income 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 and 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 Derivative financial liabilities Trade accounts payable and bills payable Contract liabilities Other payables Total current liabilities Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity Note 31 December 2018 RMB 31 December 2017 RMB 302,048 51,598 251,970 21,143 16,094 — 395 11,021 7,101 13,129 674,499 59,120 23,759 22,500 30,145 2,313 45,825 73,442 257,104 14,511 5,815 967 84,418 4,230 178,936 288,877 (31,773) 642,726 27,200 40,904 33,094 5,310 106,508 536,218 121,071 415,147 536,218 329,814 50,046 245,156 15,579 14,822 395 — 6,834 6,916 14,072 683,634 72,309 20,236 48,179 37,766 16,327 44,933 79,111 318,861 33,454 3,214 — 86,604 — 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 (a) 210 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial Statements (International) 44 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 Special reserve Balance at 31 December Retained earnings Balance at 1 January Profit for the year Distribution to owners (Note 13) Appropriation Special reserve Others Balance at 31 December The Company 2018 RMB million 2017 RMB million 9,195 6 9,201 55,850 55,850 82,682 3,996 86,678 9,175 20 9,195 55,850 55,850 79,640 3,042 82,682 117,000 117,000 117,000 117,000 2,460 (64) (617) 507 2,286 177,989 38,460 (67,799) (3,996) (507) (15) 144,132 415,147 2,438 (120) 53 89 2,460 183,321 30,488 (32,689) (3,042) (89) — 177,989 445,176 211 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2018Financial 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 CASs 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 CASs, 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 CASs, 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 CASs and the total equity under IFRS are analysed as follows: Shareholders’ equity under CASs Adjustments: Government grants Total equity under IFRS* Note (i) 31 December 2018 RMB million 31 December 2017 RMB million 857,659 854,070 (1,124) 856,535 (1,180) 852,890 Effects of major differences between the net profit under CASs and the profit for the year under IFRS are analysed as follows: Net profit under CASs Adjustments: Government grants Safety production fund Others Profit for the year under IFRS* Note (i) (ii) 2018 RMB million 80,289 2017 RMB million 70,294 56 909 (2,357) 78,897 110 126 (112) 70,418 * 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 2017 and 2018 which have been audited by PricewaterhouseCoopers. 212 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH CASs AND IFRS (UNAUDITED)Financial Statements (Differences Between the CASs and IFRS)(Unaudited) In accordance with “Accounting Standards Codification (ASC) Topic 932 Extractive Activities - Oil and Gas”, issued by the Financial Accounting Standards Board of the United States, “Rule 4-10 of Regulation S-X”, issued by Securities and Exchange Commission (SEC), 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 2018 and 2017, 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 2018 RMB million Other countries Total China 2017 RMB million Other countries Total China 695,724 199,321 40,778 935,823 651,531 199,304 40,770 891,605 44,193 17 8 44,218 667,657 210,711 41,397 919,765 625,621 210,694 41,389 877,704 42,036 17 8 42,061 (658,093) 277,730 (618,593) 273,012 (39,500) 4,718 (601,318) 318,447 (565,651) 312,053 (35,667) 6,394 6,304 — 6,304 6,357 — 6,357 284,034 273,012 11,022 324,804 312,053 12,751 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 investments’ exploration and development costs Total China 12,108 27,453 39,561 12,108 27,329 39,437 793 — 40,354 39,437 2018 RMB million Other countries — 124 124 793 917 Total China 11,589 30,844 42,433 11,589 30,710 42,299 724 — 43,157 42,299 2017 RMB million Other countries — 134 134 724 858 213 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 2018 RMB million Other countries Total China 2017 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 57,860 89,569 147,429 (47,227) (10,744) (62,832) (11,400) 15,226 709 15,935 9,530 9,530 (2,455) — (1,163) (4,075) 1,837 (667) 1,170 57,860 84,532 142,392 (45,953) (10,744) (60,877) (11,400) 13,418 — 13,418 — — — — — — — — — — 5,037 5,037 (1,274) — (1,955) — 1,808 709 2,517 9,530 9,530 (2,455) — (1,163) (4,075) 1,837 (667) 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) 1,170 114 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 17,105 13,418 3,687 (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 The results of operations for producing activities for the years ended 31 December 2018 and 2017 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 2018 and 2017 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. 214 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 2018 2017 Total China Other countries Total China Other countries 1,293 160 95 79 (260) 1,367 12 1,156 1,271 137 96 6,985 (40) 142 680 (974) 6,793 6,000 5,822 985 971 1,261 158 90 79 (249) 1,339 — 1,124 1,244 137 95 6,985 (40) 142 680 (974) 6,793 6,000 5,822 985 971 32 2 5 — (11) 28 12 32 27 — 1 — — — — — — — — — — 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 — — — — — — — — — — — — 215 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 2018 2017 Total China Other countries Total China Other countries 306 12 4 5 (28) 299 273 261 33 38 12 2 2 — (3) 13 12 13 — — — — — — — — — — — — — — — — — — — — — — 1,599 1,666 6,997 6,806 1,261 1,339 6,985 6,793 306 12 4 5 (28) 299 273 261 33 38 12 2 2 — (3) 13 12 13 — — 338 327 12 13 296 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 12 216 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 standardized measure of discounted future net cash flows, related to the above proved oil and gas reserves, is calculated in accordance with the requirements of “ASC Topic 932 Extractive Activities - Oil and Gas”, “SEC Rule 4-10 of Regulation S-X”, 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 2018 and 2017 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. 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 2018 RMB million Other countries Total China 2017 RMB million Other countries Total China 868,058 (381,893) (22,310) (42,728) 421,127 854,563 (376,532) (19,300) (40,651) 418,080 13,495 (5,361) (3,010) (2,077) 3,047 639,336 (292,789) (24,999) (1,374) 320,174 628,187 (287,914) (20,314) — 319,959 (126,910) (126,617) (293) (97,082) (97,115) 294,217 291,463 2,754 223,092 222,844 1,239 48,778 (12,462) (4,433) (5,632) 26,251 (13,012) 13,239 — — — — — — — — 1,239 112 48,778 (12,462) (4,433) (5,632) 26,251 43,587 (12,131) (4,692) (4,406) 22,358 (13,012) (9,803) 13,239 12,555 — — — — — — — — 11,149 (4,875) (4,685) (1,374) 215 33 248 112 43,587 (12,131) (4,692) (4,406) 22,358 (9,803) 12,555 of discounted future net cash flows 307,456 291,463 15,993 235,647 222,844 12,803 217 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 2018 RMB million 2017 RMB million (88,802) 98,952 (5,468) 41,385 22,040 9,507 22,405 (28,894) 71,125 (3,001) 1,620 (196) 341 818 272 1,196 (366) 684 71,809 (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 17,309 218 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018(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 Zhong Tian LLP Address : 11th Floor PricewaterhouseCoopers, 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai, PRC 200021 Overseas Auditors : PricewaterhouseCoopers Address : 22nd Floor, Prince’s Building, Central, Hong Kong CHINESE ABBREVIATION 中国石化 ENGLISH ABBREVIATION Sinopec Corp. LEGAL REPRESENTATIVE Mr. Dai Houliang AUTHORISED REPRESENTATIVES Mr. Ma Yongsheng 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 : 100728 : 86-10-59960028 : 86-10-59960386 : http://www.sinopec.com/ E-mail addresses : ir@sinopec.com listco/ 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. 219 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018CORPORATE INFORMATIONCorporate Information The following documents will be available for inspection during normal business hours after 22 March 2019 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 2018 annual report signed by Mr. Dai Houliang, the Chairman; b) The original copies of financial statements and consolidated financial statements as of 31 December 2018 prepared under IFRS and CASs, signed by Mr. Dai Houliang, the Chairman, Mr. Wang Dehua, the Chief Financial Officer and head of the financial department of Sinopec Corp.; c) The original auditors’ reports signed by the auditors; and d) Copies of the documents and announcements that Sinopec Corp. has published in the newspapers designated by the CSRC during the reporting period. By Order of the Board Dai Houliang Chairman Beijing, PRC, 22 March 2019 If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail. 220 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Documents for InspectionDOCUMENTS FOR INSPECTION 中國北京市朝陽區朝陽門北大街 22 號 22 Chaoyangmen North Street, Chaoyang District, Beijing, China www.sinopec.com Printed on environmentally friendly paper