China Petroleum & Chemical Corporation
Annual Report 2019

Plain-text annual report

2019 ANNUAL REPORT AND ACCOUNTS 2 3 6 8 11 19 31 40 43 50 58 60 76 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 Principal Wholly-owned and Controlled Subsidiaries 77 211 212 Financial Statements Corporate Information Documents for Inspection 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 27 March 2020 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. ALL THE DIRECTORS OF SINOPEC CORP. ATTENDED THE 12TH MEETING OF THE SEVENTH SESSION OF THE BOARD. MR. ZHANG YUZHUO, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, PRESIDENT, MS. SHOU DONGHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE FINANCIAL DEPARTMENT OF SINOPEC CORP. WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS ANNUAL REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE ANNUAL REPORT OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2019. THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 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 12TH MEETING OF THE SEVENTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB 0.19 (TAX INCLUSIVE) PER SHARE FOR 2019, COMBINING WITH THE INTERIM CASH DIVIDEND OF RMB 0.12 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2019 WILL BE RMB 0.31 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS’ APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2019. 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: The controlling shareholder of Sinopec Corp., 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: Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited New Lease Standard: IFRS 16, ‘Leases’; No. 21 Accounting Standards for Business Enterprises- Leases which was revised and released by the Ministry of Finance in 2018. CONVERSION: For domestic production of crude oil, 1 tonne = 7.1 barrels; For overseas production of crude oil: 1 tonne = 7.21 barrels; For production of natural gas, 1 cubic meter = 35.31 cubic feet; Refinery throughput is converted at 1 tonne = 7.35 barrels. 2 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Company ProfileCOMPANY PROFILE1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs (1) Principal financial data Items For the year ended 31 December 2019 RMB million 2018 RMB million Change % 2017 RMB million 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 2,966,193 90,025 90,016 57,591 2,891,179 101,474 100,502 63,089 54,271 153,420 59,630 175,868 2.6 (11.3) (10.4) (8.7) (9.0) (12.8) 2,360,193 86,965 86,573 51,119 45,582 190,935 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 of 2019 First Quarter RMB million Second Quarter RMB million Third Quarter RMB million Fourth Quarter RMB million 717,579 14,763 781,417 16,575 734,309 11,943 732,888 14,310 Total RMB million 2,966,193 57,591 14,370 (14,609) 16,081 47,527 11,095 48,480 12,725 72,022 54,271 153,420 As of 31 December 2019 RMB million 1,755,071 878,166 739,169 121,071,210 2018 RMB million 1,592,308 734,649 718,355 121,071,210 Change % 10.2 19.5 2.9 – 2017 RMB million 1,595,504 741,434 727,244 121,071,210 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 (%) 2019 RMB 0.476 0.476 0.448 7.90 2018 RMB 0.521 0.521 0.493 8.67 Weighted average return (excluding extraordinary gains and losses) on net assets (%) 7.45 8.20 Net cash flow from operating activities per share 1.267 1.453 Items Net assets attributable to equity shareholders of the Company per share Liabilities to assets ratio (%) As of 31 December 2019 RMB 6.105 50.04 2018 RMB 5.933 46.14 Change % (8.7) (8.7) (9.1) (0.77) percentage points (0.75) percentage points (12.8) Change % 2.9 3.90 percentage points 2017 RMB 0.422 0.422 0.376 7.14 6.37 1.577 2017 RMB 6.007 46.47 3 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Principal 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 Gain on remeasurement of interests in Shanghai SECCO Other non-operating expenses, net Subtotal Tax effect Total Attributable to: Equity shareholders of the Company Minority interests (4) Items measured by fair values Items Other equity instruments Derivative financial instruments Cash flow hedging Financial assets held for trading Total For the year ended 31 December (Income)/expenses 2019 RMB million 2018 RMB million 2017 RMB million 1,318 209 (6,857) (410) — 729 (5,011) 1,597 (3,414) (3,320) (94) 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 Beginning of the year End of the year 1,450 1,584 (7,268) 25,732 21,498 1,521 48 (1,940) 3,319 2,948 Unit: RMB million Influence on the profit of the year 492 (4,384) (2,333) 215 (6,010) Changes 71 (1,536) 5,328 (22,413) (18,550) (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 As of 31 December 2019 RMB million 2018 RMB million Increase/(decrease) Amount RMB million Percentage (%) Reasons for change Financial assets held for trading Bills receivable 3,319 – 25,732 7,886 (22,413) (7,886) (87.1) Structured deposit withdrawal at maturity of RMB 22.8 billion (100.0) According to the accounting standard, bills receivable held by the Company at the end of last year are presented in receivables financing Long-term deferred expenses 8,930 15,659 (6,729) (43.0) Financial expenses Other cash paid relating to financing activities Short-term loans Non-current liabilities due within one year Long-term loans Debentures payable Impairment losses Cash received from disposal of investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 9,967 (17,187) (1,001) (436) 31,196 69,490 39,625 19,157 (1,789) 35,996 44,692 17,450 61,576 31,951 (11,605) 56,546 10,968 (16,751) (13,496) 52,040 (21,951) (12,794) 9,816 (20,550) (1,095.7) The impact of New Lease Standard 3,842.0 (30.2) Short-term loans repayment at maturity 298.2 Reclassification of items as some of the long-term loans and debentures are about to due (35.6) (40.0) (84.6) Decrease of impairment losses in current year (36.3) Decrease of structured deposit 703 9,666 (8,963) (92.7) Relocation compensation entitled by subsidiaries last year not occurred in current year (141,142) (103,014) (38,128) 37.0 Increase of capital expenditure in natural gas pipelines and product structure adjustment project Cash paid for acquisition of (16,334) (39,666) 23,332 (58.8) Decrease of structured deposit investments Cash paid for dividends, profits distribution or interest (59,523) (87,483) 27,960 (32.0) Decrease of dividend declared 4 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Principal Financial Data and IndicatorsPRINCIPAL FINANCIAL DATA AND INDICATORS (CONTINUED) 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 2018 2017 2016 2015 2,891,179 82,264 99,110 61,618 0.509 0.509 9.25 8.59 1.453 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 Unit: RMB million As of 31 December 2018 2017 2016 2015 1,088,188 60,978 170,675 139,251 717,284 5.924 5.741 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 2019 2,966,193 86,198 89,927 57,465 0.475 0.475 8.99 7.79 1.267 2019 1,309,215 130,518 302,862 137,685 738,150 6.097 5.947 3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER CASs AND IFRS PLEASE REFER TO PAGE 204 OF THE REPORT. 5 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Principal 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 2019, the total number of shareholders of Sinopec Corp. was 478,617 including 472,818 holders of A shares and 5,799 holders of H shares. As of 29 February 2020, the total number of shareholders of Sinopec Corp. was 503,142. 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 2019 are listed as below: Name of shareholders Nature of Shareholders Percentage of shareholdings % Total number of shares held 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 北京誠通金控投資有限公司 香港中央結算有限公司 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 中國人壽保險股份有限公司 － 傳統 － 普通保險產品 －005L－CT001滬 匯添富基金管理股份有限公司 － 社保基金1103組合 State-owned Share H Share A Share A Share A Share A Share A Share A Share A Share A Share Note 1: As compared with the number of shares held as of 31 December 2018. 68.31 20.97 2.16 1.03 0.86 0.47 0.27 0.17 0.14 0.09 82,709,227,393 25,387,409,005 2,609,312,057 1,252,427,354 1,038,859,102 571,844,320 322,037,900 209,777,480 171,333,093 110,000,000 Number of shares subject to pledges or lock-up 0 Unknown 0 0 0 0 0 0 0 0 Changes of shareholding1 0 (3,251,433) 0 (750,400) 91,254,848 (449,937,840) 0 27,819,820 21,596,954 110,000,000 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 Corp. Those shareholdings are included in the total number of the shares held by HKSCC Nominees Limited. Statement on the connected relationship or acting in concert among the above-mentioned shareholders: Apart from 中國人壽保險股份有限公司 － 分紅 － 個人分紅 －005L－FH002滬and 中國人壽保險股份有限公司 － 傳統 － 普通保險產品 －005L－CT001滬 which were both managed by 中國人壽保險股份有限公司, Sinopec Corp. is not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders. 6 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Changes in Share Capital andShareholdings 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 2019 Name of shareholders Status of shareholders Number of shares interested % of Sinopec Corp.’s issued voting shares (H Share) BlackRock, Inc. Citigroup Inc. GIC Private Limited (L): Long position, (S): Short position Interest of corporation controlled by the substantial shareholder Interest of corporation controlled by the substantial shareholder Approved lending agent Investment manager 2,019,237,567 (L) 1,128,000 (S) 75,490,996 (L) 51,630,422 (S) 2,547,370,819 (L) 1,532,082,422 (L) 7.91 (L) 0.00 (S) 0.30 (L) 0.20 (S) 9.98 (L) 6.01 (L) 3 ISSUANCE AND LISTING OF SECURITIES (1) Issuance of securities during the 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-authorised investment organisation and a state-owned enterprise. The legal representative is Mr. Zhang Yuzhuo. Through re-organization in 2000, China Petrochemical Corporation injected its principal petroleum and petrochemical businesses into Sinopec Corp. and (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. retained certain petrochemical facilities. It provides well-drilling services, well-logging services, downhole operation services, services in connection with manufacturing and maintenance of production equipment, engineering construction, and utility services including water and power and social services. Shares of other listed companies directly held by China Petrochemical Corporation Name of Company Sinopec Engineering (Group) Co. Ltd Sinopec Oilfield Service Corporation Sinopec Oilfield Equipment Corporation China Merchants Energy Shipping Co., Ltd Number of Shares Held Shareholding Percentage 2,907,856,000 65.67% 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 2019Changes in Share Capital andShareholdings of Principal Shareholders their duties and functions professionally, making great contributions to our sustainable development. The Company also revised and improved its Articles of Association and other governing documents, as well as implemented effective risk control measures. Additionally, the Company launched the Integrity Compliance Management Manual in its continued effort to further strengthen its compliance management system. Further, the Company deepened management system reforms and adjusted internal departments in an orderly manner so as to continuously improve our professional management. We attached great importance to shareholder returns, enhanced communications with stakeholders, and protected investors’ interests in an effort to consistently increase corporate transparency. Meanwhile, we strived to transform the advantage of Party building into our competitive business advantage through effective integration of these two efforts. The Company was awarded “Best Corporate Governance for a Publicly Listed Company” by the Golden Bauhinia Awards. Quality improved in stable operation. We maintained safe and stable production operations, continued to deepen supply-side structural reforms and sped up the construction of key projects to ensure stable growth and improve the quality of the industry chain. As for the upstream business, greater efforts were made in oil and gas exploration, achieving satisfactory results in increasing reserves, stabilizing oil production, increasing gas output, and reducing costs. The domestic oil and gas reserve replacement ratio reached 138.7%, and market share of natural gas further increased. The refining and marketing businesses navigated through fierce market competition with product portfolio better adapted to market demand. Simultaneously, production and sales volume increased, and the pace of construction of comprehensive services and the application of artificial intelligence at service stations was accelerated. Underpinned by rapid growth of the overall volume and strengthening structural adjustment of the chemicals business, development of high value-added synthetic materials achieved remarkable progress. In addition, we actively nurtured new businesses and operations and provided new impetus for transformation and upgrading. Furthermore, we implemented innovation-driven development strategies, built joint innovation platforms, and achieved breakthroughs in major technologies and a series of R&D projects. The evaluation of the comprehensive advantages of our patents also continued to be at the forefront of our domestic enterprises’ efforts. Corporate social responsibilities effectively fulfilled. We took proactive measures to combat climate change and implement green and low-carbon development strategies, as well as Dear Shareholders and Friends: First, I would like to extend my sincere thanks for the trust of our shareholders and support of our directors, and for appointing me as the Chairman of the Company. On behalf of the Board of Directors, management and our entire staff, I would like to express my sincere gratitude to our shareholders and the community for your interest and support. In 2019, global economy slowdown while China’s economy remained overall stable. With international oil prices fluctuating within a wide range and new production capacity for refinery and petrochemicals being excessively released, market competition increased dramatically. As a result, the internal and external risks and challenges faced by the Company have increased significantly. In such a complicated and difficult market, with focus on both short and long-term goals in mind, the Board of Directors adhered to the guideline of pursuing progress while maintaining stability. Furthermore, it concentrated on modernizing the company’s corporate governance systems and capabilities, and deepening reforms to sustain continuous growth and development. Under the management’s leadership, our employees demonstrated dedication and a conscientious and responsible work spirit, and implemented all practices with discipline and in a professional manner. Significantly, the Company achieved better than expected operating results and made new progress in all fronts as we continuously deepened reform, exercised effective risk management, stabilised growth, and adjusted the operating structure while guaranteeing safety. Progress achieved and stability ensured. In accordance with International Financial Reporting Standards, our turnover and other operating revenues grew by 2.6% year-on-year to RMB 2.97 trillion while operating profit grew by 4.8% year-on-year to RMB 86.2 billion, and profit attributable to shareholders of the Company amounted to RMB 57.5 billion. The Company remained in a solid financial position with stable cash flow. In view of the Company’s funding requirements, return on equity, profitability and cash flow for future development, the Board of Directors recommended the payment of a final dividend of RMB 0.19 per share. Taking into account the interim dividend of RMB 0.12 per share, the total dividend for the year was RMB 0.31 per share, with a dividend payout ratio of 65.3%. Corporate governance continuously improved. The Board of Directors enhanced its scientific approach to decision-making and optimised development strategies and implementation plans. The independent directors performed 8 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Chairman’s AddressCHAIRMAN’S ADDRESSbusiness, the Company will closely monitor market demand, optimize the system, promote construction of advanced production capacity, and fully develop the potential of the marketing network and improve the quality of operations. In terms of the chemicals business, the Company will accelerate the supply of high-end synthetic materials, develop a more competitive and advantageous basic chemical product chain and improve marketing services and efficiency, by ways of focusing on technological progress and extending the production chain, etc.Additionally, the Company will accelerate key research on core technologies, enhance the capability of proprietary innovation, speed up low-carbon transformation, and improve the efficiency of energy conversion to reduce carbon emissions, which we expect will give rise to a core competency in green development. In 2020, the planned capital expenditure of the Company amounts to RMB 143.4 billion. Only with great courage, ambition and momentum can a company strive and thrive. Sinopec Corp. is endowed with a complete industrial chain, and its integrated competitive advantages are clear, especially in the Company’s strong market presence, branding, capital resources, and human talent. I firmly believe that with the concerted efforts of our Board of Directors, management and entire staff, as well as support from our shareholders and the community, Sinopec Corp. will surely develop in distinct ways that are more efficient and of higher quality, which in turn will create greater value for shareholders and the community. Zhang Yuzhuo Chairman Beijing, China 27 March 2020 strived to develop clean energy. Green enterprise and energy efficiency upgrading campaigns were undertaken to reduce greenhouse gas emissions and protect the ecological environment and biodiversity. We also took great care in implementing our HSSE management system that ensures safe production and occupational health, and protects the physical and mental health of all employees. We made greater efforts to implement targeted poverty alleviation and achieved fruitful results, including poverty alleviation programs focused on industry, education and consumption. To benefit as many people as possible, we actively and consistently participated in various social welfare initiatives. In addition, we honored the traditional and cultural characteristics of the communities where we operate, and regularly promoted economic development and environmental protection in the communities around our projects. In so doing, we fully demonstrated our commitment to being a responsible global corporate citizen, which received high recognition at home and abroad. The hard-won achievements in 2019 were attributed to the arduous efforts and altruistic dedication of the Company’s Board of Directors, the Board of Supervisors, the management and the entire staff. Due to reassignment and retirement, Mr. Dai Houliang, Mr. Li Yunpeng, and Mr. Liu Zhongyun no longer hold positions in the Company. During their tenure, they worked diligently, fulfilled their duties and contributed greatly to the Company. In particular, Mr. Dai Houliang, former Chairman of the Board, made outstanding contributions and played an essential role in improving corporate governance, advancing reforms and innovation, and achieving sustainable growth. On behalf of the Board of Directors, I would like to extend my sincere gratitude to all of them! At the beginning of 2020, the sudden outbreak of coronavirus struck China and impacted the global economy. Confronted with the outbreak, President Xi Jinping attached great importance to deploying relief actions by giving overall instructions directly. In response to the outbreak, the Company acted promptly and proactively. While maintaining stable production and operation, the Company gave full play to its industrial advantages, exerted full force to produce raw materials for medical and health supplies, and cooperated with related enterprises to produce medical supplies in urgent need, including masks and protective suits for affected areas. Moreover, with the advantages of our sales network, the Company spared no effort to guarantee the market supply of oil and gas, innovate service models, and enable the public to purchase articles for daily use conveniently, thereby making our contribution to win the battle against the virus. Looking forward, the global economy will face more instability and uncertainty brought by the outbreak. Although the virus may temporarily impact the Chinese economy, we firmly believe that China’s solid economic fundamentals will remain unchanged and the country’s potential and momentum will remain strong. A combination of preferential policies and measures oriented to enterprises set out by the Chinese government is supporting the rapid recovery of the economy while reducing the impact brought by the virus. We believe that as the control and prevention of outbreak continues to improve domestically, the domestic demand for petroleum and petrochemical products that was suppressed and frozen will rebound quickly. Challenges always arise with opportunities. The Company will continue to adhere to the overall strategy of “making progress while maintaining stability,” and to that end will implement new development philosophies and energy security strategies, as well as further strengthen corporate governance. The Company will also continue to focus on supply-side structural reform. Exercising comprehensive and strict governance over the Party, coupled with the strategy of the Talent Empowering Enterprise Scheme, the Company will continue to leverage its advantages of integration, aiming to realize a development pattern with energy resources as the backbone, clean energy and synthetic materials as two development wings, and new energy, new economies, and new fields as important growth points. The Company will continue to deepen the reform of its systems and mechanisms, further improve its corporate governance system and enhance governance capabilities. With headquarters acting as the center of restructuring, the Company will further advance reforms of its management system and market-oriented operation mechanism. It will strengthen construction of its systems, improve management, and better mobilize initiatives in every aspect so as to constantly increase the ability to create synergies, raise efficiency and mitigate risks. The Company will focus on promoting structural adjustment and continuously improving its core competence. In the upstream business, the Company will implement the action plan of vigorously enhancing oil and gas exploration and development, focusing on high-quality exploration and profit-driven production, and further consolidating the oil and gas resource base. In the meantime, the Company will adopt an integrated approach to the clean and efficient use of new energy, renewable energy and coal resources, and promote diversification of the energy mix. As for the refining and marketing 9 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Chairman’s Address10 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and ProspectsBUSINESS REVIEW AND PROSPECTSBUSINESS REVIEW In 2019, the global economy slowed down while China maintained an overall stable with its gross domestic product (GDP) up by 6.1%. International oil prices fluctuated in a wide range while domestic market saw rapid growth demand for natural gas and fierce competition in oil products due to abundant supply, and chemicals prices decreased. The Company actively addressed market changes by pursuing innovative, coordinated, green, open and shared development. Through implementing specialised development, market-oriented operation, internalisation and overall coordination, we pushed forward all aspects of our work, and achieved solid operating results. US$/barrel 100 80 60 40 20 0 WTI-NYMEX ICE BRENT DTD BRENT DUBAI 1 MARKET REVIEW (1) Crude Oil & Natural Gas Market In 2019, international oil prices fluctuated with a wide range. The spot price of Platt’s Brent for the year averaged USD 64.21 per barrel, down by 10.0%. Along with the changes in China’s energy mix, domestic demand for natural gas remained strong. Based on statistics released by the NDRC, domestic apparent consumption of natural gas reached 306.7 billion cubic meters, up by 9.4% year on year. 01/2019 04/2019 07/2019 10/2019 01/2020 Trend of International Crude Oil Prices (2) Refined Oil Products Market (3) Chemical Products Market In 2019, domestic demand for refined oil products maintained its growth while market supply was in surplus. According to statistics released by the NDRC, the apparent consumption of refined oil products (including gasoline, diesel and kerosene) was 330 million tonnes, up by 1.4% from the previous year, with gasoline up by 2.3%, kerosene up by 6.2% and diesel down by 0.5%. There were 21 price adjustments for domestic refined oil products throughout the year with 15 increases and 6 decreases. Domestic demand for chemicals kept stable growth in 2019. Based on our statistics, domestic consumption of ethylene equivalent was 52.71 million tonnes, up by 11.8% from the previous year, and the apparent consumption of synthetic resin, synthetic fibre and synthetic rubber rose by 10.1%, 12.5% and 3.6%, respectively. Average prices of domestic chemical products decreased by 12.6% year on year, and the average margin of chemical products narrowed. 11 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS2 PRODUCTION & OPERATIONS REVIEW (1) Exploration and Production In 2019, we implemented the action plan of redoubling efforts in oil and gas exploration and production, actively pressed ahead with high-efficiency exploration and profit-oriented development, accelerated the systematic integration of natural gas production, supply, storage and marketing, continuously reduced cost and expenditure on all fronts, and achieved tangible results in maintaining oil production, increasing gas output and cutting cost. We reinforced venture exploration and preliminary exploration in new areas which led to new discoveries in Tarim, Sichuan and Erdos basins. The Company’s newly added proved reserves in China reached 587 million barrels of oil equivalent, with domestic reserve replacement ratio at 138.7%. In crude oil development, we proceeded with the capacity building in Shunbei oilfield, strengthened profitable production capacity of hard-to-recover reserves in mature fields, intensified EOR technology breakthrough and application, and ensured steady production. In natural gas development, we constantly pushed forward capacity building in Fuling, Weirong, and West Sichuan gas fields, expanded the market and sales, and promoted coordinated development along the value chain. The Company’s production of oil and gas reached 458.92 million barrels of oil equivalent, with domestic crude production reaching 249.43 million barrels and natural gas production totaling 1,047.78 billion cubic feet, up by 7.2% year on year. 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 2019 458.92 284.22 249.43 34.79 1,047.78 2018 451.46 288.51 248.93 39.58 977.32 2017 448.79 293.66 248.88 44.78 912.50 Change from 2018 to 2019(%) 1.7 (1.5) 0.2 (12.1) 7.2 Crude oil reserves (mmbbls) 31 December 19 31 December 18 1,741 1,588 1,326 1,326 982 344 262 17 245 153 107 107 12 95 46 0 46 1,666 1,533 1,244 1,244 910 334 289 27 261 134 96 96 16 80 38 0 38 12 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)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 19 31 December 18 6,807 5,835 5,822 5,822 1,904 1,149 2,769 13 0 13 972 972 972 195 777 7,225 6,035 6,026 6,026 1,814 1,315 2,897 9 0 9 1,190 1,190 1,190 65 1,125 2018 Wells drilled (as of 31 December) 2019 Exploratory Development Exploratory Development China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total Productive 350 350 195 155 3 0 3 353 Dry 174 174 81 93 1 0 1 175 Productive Dry Productive 2,098 2,098 1,168 930 99 0 99 2,197 5 5 4 1 0 0 0 5 286 286 149 137 0 0 0 286 Dry 131 131 71 60 0 0 0 131 Productive Dry 1,941 1,941 1,201 740 70 0 70 2,011 6 6 5 1 0 0 0 6 Wells drilling (as of 31 December) 2019 2018 Gross Net Gross Net Exploratory Development Exploratory Development Exploratory Development Exploratory Development China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total China Consolidated subsidiaries Shengli Others Overseas Consolidated subsidiaries Equity accounted entities Total 117 117 60 57 0 0 0 117 177 177 20 157 0 0 0 177 117 117 60 57 0 0 0 117 176 176 20 156 0 0 0 176 69 69 25 44 0 0 0 69 277 277 72 205 10 0 10 287 69 69 25 44 0 0 0 69 Oil productive wells (as of 31 December) 2019 2018 Gross 52,112 52,112 33,819 18,293 7,248 28 7,220 59,360 Net 52,112 52,112 33,819 18,293 2,855 14 2,841 54,967 Gross 51,030 51,030 32,805 18,225 7,293 28 7,265 58,323 277 277 72 205 10 0 10 287 Net 51,030 51,030 32,805 18,225 3,939 14 3,925 54,969 13 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business 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 2019, with market-oriented approach, we optimised product mix to produce more gasoline and jet fuel, increased production of high value-added products, and lowered diesel-to-gasoline ratio to 1.05. We optimised the production plan for low sulfur fuel oil and reduced cost. We leveraged our advantage in 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 (%) Natural gas productive wells (as of 31 December) 2019 2018 Gross 6,420 6,420 61 482 5,877 6,420 Net 6,378 6,378 61 482 5,835 6,378 Gross 5,068 5,068 58 368 4,642 5,068 Net 5,028 5,028 58 368 4,602 5,028 Unit: Square kilometers Area under license (as of 31 December) 2019 472,017 472,017 38,697 33,467 5,230 2018 525,269 525,269 36,748 31,643 5,106 realised a growth momentum in high grade lubricants and grease, LPG, asphalt and sulphur. In 2019, the Company processed 249 million tonnes of crude oil, and produced 160 million tonnes of refined oil products, up by 3.4%, with gasoline and kerosene up by 2.6% and 7.8% respectively year on year. production and sales, and moderately increased export of oil products to keep a relatively high utilization rate. We promoted quality upgrading projects and made structural adjustments, comprehensively optimized production and ensured safety and reliability of the refining facilities. We improved the marketing and distribution systems and 2019 248.52 159.99 62.77 66.06 31.16 39.78 76.38 94.98 2018 244.01 154.79 61.16 64.72 28.91 38.52 76.00 94.93 Unit: million tonnes Change from 2018 to 2019 (%) 1.8 3.4 2.6 2.1 7.8 3.3 0.38 percentage points 0.05 percentage points 2017 238.50 150.67 57.03 66.76 26.88 38.60 75.85 94.88 Note: Includes 100% of the production from domestic joint ventures. (3) Marketing and Distribution In 2019, confronted with fierce market competition, the Company brought our advantages of integrated production and marketing network into full play, adhered to the guideline of “achieving gains in both sales volume and profits”, coordinated allocation of resources, expanded sales and increased profit, and achieved sustained growth in both total sales volume and retail scale. With focus on customer need, we adopted a flexible and targeted marketing strategy, and improved our services. We upgraded our distribution network to further strengthen our existing advantages. We accelerated the construction and operation of CNG stations and explored the development of hydrogen fueling stations. Total sales volume of refined oil products for the year was 255 million tonnes, up by 7.3% year on year, of which domestic sales volume accounted for 184 million tonnes, up by 2.3%. Meanwhile, we strengthened development and marketing of company-owned brands, and promoted the innovation of non-fuel business model and its market-oriented reform, to speed up the development of non-fuel business. 14 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)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) 2019 254.95 184.45 122.54 61.91 3,992 2018 237.69 180.24 121.64 58.61 3,979 Change from 2017 2018 to 2019 (%) 231.21 177.76 121.56 56.20 3,969 7.3 2.3 0.7 5.6 0.3 Change from the end of the previous year to the end of the reporting period (%) 31 December 2019 31 December 2018 31 December 2017 Total number of service stations under the Sinopec brand Number of company-operated stations 30,702 30,696 30,661 30,655 30,633 30,627 0.1 0.1 Note: The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume. (4) Chemicals In 2019, the Company followed the development philosophy of “basic plus high-end”, sped up advanced capacity building, and optimised business portfolio layout. We persistently fine-tuned chemical feedstock mix to increase the yield and lower cost. We optimised products slate, enhanced integration among production, marketing, R&D and application, vigorously promoted the development and application of new products, and raised the proportion of new and specialty products. We further adjusted facility structures to enhance the dynamic optimisation of facilities and product chain, and improved the utilisation based on market demand. Ethylene production in 2019 reached 12.49 million tonnes, up by 8.5% year on year. The differential ratio of synthetic fiber reached 90%, and the ratio of new and specialty products in synthetic resin reached 65.3%. We also promoted targeted marketing and service to further expand our business, with total chemical sales volume increased by 3.3% to 89.50 million tonnes, realising full sales. 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. 2019 12,493 17,244 1,047 10,029 1,289 2018 11,512 15,923 896 9,343 1,218 Unit: thousand tonnes Change from 2017 2018 to 2019 (%) 11,610 15,938 848 9,439 1,220 8.5 8.3 16.9 7.3 5.8 (5) Research and Development In 2019, with the emphasis on innovation-driven strategy, the Company accomplished notable results in deepening reform of R&D mechanism, promoting innovation platforms such as joint R&D centers and incubators, and making breakthrough in key and frontier technologies. In upstream, research in gas enrichment theory and exploration technologies of marine phase medium and large gas fields in Sichuan Basin made headway, leading to breakthrough in gas reserve. Our proprietary rotary steering drilling system was successfully applied in Shengli oilfield. In refining, we developed various formulations for low sulphur fuel oil and passed engine tests and endurance tests. Our high-grade gasoline and diesel engine oil met the latest international standards and realised industrial production and commercialization. In chemicals, the start-up of the second generation high-efficiency and environment-friendly aromatics facilities was successfully started up. The anthraquinone method of producing hydrogen peroxide in fluidised-bed reactor and PPTA technology realised industrialization. In addition, the framework type code of a novel structured zeolite SCM-15 synthesised by us has been approved by the Structure Commission of International Zeolite Association. In 2019, the Company had 6,160 patent applications at home and abroad, among which 4,076 were granted. We also won six second prizes of National Sci-Tech Progress and one second prize of National Technology Invention, and one gold, three silver and three excellent prizes of National Patent Awards. 15 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and Prospects(6) Health, Safety, Security and Environment In 2019, the Company constantly promoted and fully implemented the HSSE management system. We enhanced overall health management, and established safeguarding mechanism for occupational, physical and psychological health. We surveyed and rectified safety hazards, took stringent measures to control risks and supervise safety and operations of contractors, and achieved sound results. We upgraded our capacity in all-dimension risk prevention and control as well as emergency response, further enhancing security management. In 2019, we actively practiced green and low-carbon growth strategy, further promoted the green enterprise campaign and ecological conservation, and accomplished all emission reduction targets. Compared with 2018, energy consumption per 10,000 yuan of output was down by 0.4%, industrial fresh water usage was down by 1.1%, COD of discharged water down by 2.1%, and SO2 emissions down by 3.9%. All solid waste was properly treated. For more detailed information, please refer to “Communication on Progress for Sustainable Development 2019 of Sinopec Corp.” (7) Capital Expenditures In 2019, focusing on quality and profitability of investment, the Company continuously optimised its capital projects, with total capital expenditures of RMB 147.1 billion. Capital expenditure for the exploration and production segment was RMB 61.7 billion, mainly for Shengli and Northwest crude oil development projects, Fuling and Weirong shale gas projects, phase I of Xinqi gas pipeline, phase I of Erdos-Anping-Cangzhou gas pipeline, Qingdao-Nanjing gas pipeline, Wen 23 and Jintan gas storage projects, as well as overseas projects. Capital expenditure for the refining segment was RMB 31.4 billion, mainly for Zhongke Refining and Petrochemical project, Zhenhai, Tianjin, Maoming and Luoyang refining upgrading projects. Capital expenditure for the marketing and distribution segment was RMB 29.6 billion, mainly for construction of service stations, oil products depots, pipelines and non-fuel business. Capital expenditure for the chemicals segment was RMB 22.4 billion, mainly for Zhongke, Zhenhai, Gulei and Hainan projects, ethylene revamping for Sinopec-SK and Sinopec-SABIC projects, phase II of Hainan high-efficiency and environment-friendly aromatics project, Sinopec-SABIC polycarbonate project and Zhongan coal chemical project. Capital expenditure for corporate and others was RMB 2 billion, mainly for R&D facilities and information technology projects. BUSINESS PROSPECTS (1) Market Outlook In 2020, despite the increasing instability and uncertainty of the international political and economic situation, and the inevitable impact on China’s economy by coronavirus outbreak in the short term, we expect the fundamentals sustaining sound economic growth in China remain unchanged. Domestic demand for energy and chemical products will be relatively weak in the first half, but the accumulated demand is expected to be released rapidly after outbreak. Considering oil-producing countries’ abundant supply capacity, global demand growth, inventory levels, and geopolitics, we expect that the international oil prices will fluctuate at a low level. (2) Operations In 2020, adhering to the principles of “reform, management, innovation, and development”, the Company will focus on optimisation of the entire business value chain, as well as market expansion, risk prevention, and seizing opportunities so as to do our best to reduce the negative impact of the coronavirus outbreak and the slump of crude oil price, and strive to achieve healthy business performance. Due to the outbreak, the adjustment of the Company’s production plan for 2020 is currently underway. We will confirm the production plan according to the market trends in the future. Exploration and Production, under the low oil price circumstance, we will optimise projects implementation, enhance high-quality exploration, and reduce cost and expenditure to expand resource base and realize sustainable development. In crude oil development, more efforts will be made in promoting capacity building of Shunbei Oilfield, Tahe Oilfield, and the Oilfield at the western margin of the Junggar Basin, and we will strengthen profit-oriented development of mature fields. In natural gas development, we will accelerate capacity construction of key projects, and promote integration of production, supply, storage and marketing so as to maximize the value of the business chain. Preliminarily, we plan to keep a stable production volume of curde oil and realise a positive growth for nature gas. Refining, under low oil price circumstance, with the coordination of production and sales, domestic and overseas markets, the Company will optimize utilization rate and production 16 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)with focuses on the production capacity building of Shengli and Northwest crude oil development projects, Fuling and Weirong shale gas field, and the construction of natural gas pipelines and storage facilities as well as overseas oil and gas projects. The refining segment will account for RMB 22.4 billion, mainly on the construction and commissioning of the Zhongke project, and structural adjustment projects of Zhenhai, Tianjin, Maoming, Luoyang. RMB 22.0 billion is budgeted for marketing and distribution with emphasis on service stations, depots and storage facilities for refined oil products, pipelines and non-fuel business. The share for chemicals will be RMB 32.3 billion which will be used on the construction of Zhongke, Zhenhai and Gulei projects, ethylene revamping of Sinopec-SK and Sinopec-SABIC projects, Sinopec-SABIC polycarbonate project, Jiujiang aromatics project and Zhong An coal chemical project. The capital expenditure for corporate and others will be RMB 5.6 billion, mainly for R&D facilities and information technology projects. scheduling, and promote efficient operation of its refining business chain. We will optimize the allocation of crude oil, coordinate crude oil supply chain, and reduce procurement costs. More efforts will be made in restructuring product slate, increasing products tailoring for market demand and changes. We will accelerate low-sulfur bunker fuel projects and the revamping of storage and transportation facilities to rapidly expand market share. Marketing and Distribution, balancing volume and profit, and leveraging the advantages of integration of production and sales, the Company will continuously improve the quality of its operations. We will vigorously carry out targeted and differentiated marketing to continuously improve our services with focus on customer need. We will accelerate the construction of smart service stations, coordinate the layout of natural gas and hydrogen stations, and consolidate and expand network advantages. More efforts will be made in boosting innovation in non-fuel business models, vigorously developing proprietary brands, creating differentiated competitive advantages, so as to drive rapid growth in non-fuel business. Chemicals, the Company will focus on the “basic + high-end” development concept, speed up advanced capacity building, continuously deepen structural adjustment, and improve our competitiveness and profitability. We will optimize facilities and product chain, and improve utilization rate and production scheduling based on market demand. Efforts will be made in adjusting feedstock slate to improve product yield and reduce cost. We will coordinate production, marketing, research and application, and redouble our efforts in developing new products and increase the production of high value-added products. Meanwhile, we will improve targeted marketing and services, enhance e-commerce platforms, actively explore overseas markets and continuously expand market share. Research and Development, we will continue to implement the innovation-driven development strategy, deepen mechanism reform, accelerate key technology breakthrough, improve innovation capabilities to strive for quality development. In oil and gas exploration and development, we will strive to make technology breakthrough in ultra-deep oil and gas, tight oil and gas, shale oil and gas, etc. In refining, we will accelerate the research of heavy oil processing, oil quality upgrading, and promote the application of technologies such as needle coke. In chemicals, we will continuously improve the package technologies of ethylene and aromatics, strengthen the research and development of photoelectric materials and degradable materials, and accelerate the industrialization of large-tow high-performance carbon fibers. At the same time, we will focus on advancing research on cutting-edge technologies and new areas to achieve future business development through technology innovation. Capital Expenditures, Preliminary capital expenditures for the year 2020 are budgeted at RMB 143.4 billion. We will dynamically optimise capital projects based on future market trends. Preliminarily, RMB 61.1 billion will be invested in exploration and production 17 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Business Review and Prospects18 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND 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 2019, the Company’s turnover and other operating revenues was RMB 2,966.2 billion, increased by 2.6% compared with that of 2018. The operating profit was RMB 86.2 billion, representing a year on year increase of 4.8%. 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, 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 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 2019 RMB million 2018 RMB million Change (%) 2,966,193 2,900,488 65,705 (2,879,995) (2,380,907) (55,313) (108,812) (10,510) (81,482) (242,535) (436) 86,198 (9,967) 13,696 89,927 (17,894) 72,033 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 57,465 14,568 61,618 17,279 2.6 2.6 0.2 2.5 3.8 (15.7) (1.1) (2.2) 4.8 (1.6) (91.9) 4.8 — (13.6) (9.3) (11.5) (8.7) (6.7) (15.7) In 2019, the Company’s turnover was RMB 2,900.5 billion, representing an increase of 2.6% over 2018. This was mainly attributed to expansion of business scale and trading volume. The following table sets forth the external sales volume, average realised prices and respective rates of change of the Company’s major products in 2019 and 2018: 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 2019 6,034 27,073 92,233 87,083 27,041 41,022 14,019 16,103 1,370 1,280 924 2018 Change (%) 6,595 24,197 88,057 84,630 25,787 40,520 11,127 14,433 1,314 1,114 794 (8.5) 11.9 4.7 2.9 4.9 1.2 26.0 11.6 4.3 14.9 16.4 2019 3,000 1,562 7,387 5,811 4,298 4,578 5,714 7,717 8,438 9,583 2,110 2018 Change (%) 3,100 1,400 7,870 5,996 4,562 5,488 6,971 8,634 9,712 10,619 2,096 (3.2) 11.6 (6.1) (3.1) (5.8) (16.6) (18.0) (10.6) (13.1) (9.8) 0.7 19 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND 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 2019, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 111.1 billion, an increase of 18.8% over 2018. The change was mainly due to increases in natural gas sales volume and prices as the result of promoting natural gas production-supply-storage-sale system, and actively expanding market share. In 2019, 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 1,535.2 billion (accounting for 51.8% of the Company’s turnover and other operating revenues), representing a decrease of 1.5% over 2018, mainly due to the decrease in petroleum products’ prices. The sales revenue of gasoline, diesel and kerosene was RMB 1,303.6 billion, representing a decrease of 1.1% over 2018, and accounting for 85% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 231.6 billion, representing a decrease of 3.4% compared with 2018, accounting for 15% of the total sales revenue of petroleum products. The Company’s external sales revenue of chemical products was RMB 425.5 billion, representing a decrease of 7% over 2018, accounting for 14.3% of the Company’s total turnover and other operating revenues. This was mainly due to the decrease in price of chemical products, which resulting from the increase of supply in chemical market. (2) Operating expenses In 2019, the Company’s operating expenses was RMB 2,880 billion, increased by 2.5% compared with 2018. The operating expenses mainly consisted of the following: Purchased crude oil, products and operating supplies and expenses was RMB 2,380.9 billion, representing an increase of 3.8% over the same period of 2018, accounting for 82.7% of the total operating expenses, of which: Crude oil purchasing expenses was RMB 681.2 billion, representing a decrease of 2.9% over the same period of 2018. Throughput of crude oil purchased externally in 2019 was 228.74 million tonnes (excluding the volume processed for third parties), representing an increase of 0.7% over the same period of 2018. The average cost of crude oil purchased externally was RMB 3,326 per tonne, representing a decrease by 3.6% over 2018. The Company’s purchasing expenses of refined oil products was RMB 364.9 billion, representing an increase of 2.6% over the same period of 2018. The Company’s purchasing expense related to trading activities was RMB 738.3 billion, representing an increase of 12.6% over the same period of 2018. The Company’s other purchasing expenses was RMB 596.5 billion, representing an increase of 2.7% over the same period of 2018. Selling, general and administrative expenses was RMB 55.3 billion, representing a decrease of 15.7% over 2018. This was mainly because the company significantly reduced non-operating costs, and adjusted accounting of some of the gas station, land and other rental expenses to depreciation and interests expense as required by the New Leasing Rules. Depreciation, depletion and amortisation was RMB 108.8 billion, representing a decrease of 1.1% compared with 2018. That was mainly due to the depletion of oil and gas assets decreased as a result of the Company’s proved reserves of crude oil and natural gas increased. Exploration expenses was RMB 10.5 billion, representing a decrease of 2.2% year on year. Personnel expenses was RMB 81.5 billion, representing an increase of 4.8% over 2018. Taxes other than income tax was RMB 242.5 billion, representing a decrease of 1.6% compared with 2018. That was mainly due to the decrease of RMB 3.2 billion in urban maintenance and construction tax and education surcharges resulting from the decrease of value added tax rate. Other operating expense, net was RMB 440 million. (3) Operating profit was RMB 86.2 billion, representing an increase of 4.8% compared with 2018. That was mainly due to a significant increase of profit in upstream business. (4) Profit before taxation was RMB 89.9 billion, representing a decrease of 9.3% compared with 2018. That was mainly because the margin of major refining products shrank. (5) Income tax expense was RMB 17.9 billion, representing a decrease of 11.5% year on year. (6) Profit attributable to non-controlling interests was RMB 14.6 billion, representing a decrease of RMB 2.7 billion compared with 2018. (7) Profit attributable to shareholders of the Company was RMB 57.5 billion, representing a decrease of 6.7% year on year. 20 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)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 RMB million 2019 121,379 89,315 210,712 104,237 95,954 200,191 147,138 1,077,018 1,224,156 154,319 1,109,088 1,263,407 1,426,804 4,159 1,430,963 1,441,413 5,224 1,446,637 440,369 54,856 495,234 472,898 73,835 546,733 830,485 654,337 1,484,822 4,845,887 (1,879,694) 2,966,193 718,312 650,271 1,368,583 4,825,551 (1,934,372) 2,891,179 As a percentage of consolidated operating revenue before elimination of inter-segment sales Year ended 31 December 2018 (%) 2019 (%) As a percentage of consolidated operating revenue after elimination of inter-segment sales Year ended 31 December 2018 (%) 2019 (%) 2.5 1.8 4.3 3.0 22.4 25.4 29.4 0.1 29.5 9.1 1.1 10.2 17.1 13.5 30.6 100.0 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 28.4 100.0 4.1 3.6 5.0 5.3 48.1 49.9 14.8 16.4 28.0 24.8 100.0 100.0 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 2019Management’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 2019 compared to 2018. 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 2019, the operating revenues of this segment was RMB 210.7 billion, representing an increase of 5.3% over 2018. This was mainly attributed to the rise of realised price and sales volume in natural gas as a result of the expansion of natural gas business. In 2019, the segment sold 34.35 million tonnes of crude oil, representing a decrease of 1.3% over 2018. Natural gas sales volume was 28.78 billion cubic meters (bcm), representing an increase of 9.7% over 2018. Regasified LNG sales volume was 11.16 bcm, representing an increase of 33.9% over 2018. LNG sales volume was 4.74 million tonnes, representing an increase of 65.9% over 2018. Average realised prices of crude oil, natural gas, Regasified LNG, and LNG were RMB 2,862 per tonne, RMB 1,566 per thousand cubic meters, RMB 2,040 per thousand cubic meters, and RMB 3,305 per tonne, representing decrease of 6.0%, increase of 11.1%, 5.5%, and decrease of 12.6% respectively over 2018. 22 Year ended 31 December 2019 RMB million 2018 RMB million Change (%) 210,712 201,428 9,284 1,224,156 1,193,524 30,632 1,430,963 1,401,856 29,107 495,234 478,083 17,151 1,484,822 1,484,758 64 (40) 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) 5.3 (4.2) – (3.1) (1.2) (44.1) (1.1) (1.5) 24.0 (9.4) (8.0) (36.5) 8.5 7.8 — — In 2019, the operating expenses of this segment was RMB 201.4 billion, representing a decrease of 4.2% over 2018. That was mainly due to the following: (cid:127) Depreciation, depletion and amortisation decreased by RMB 9.6 billion year on year; (cid:127) Payment of land use right and community services expenses decreased by RMB 5.7 billion year on year; (cid:127) Impairment losses on long-lived assets decreased by RMB 4.3 billion year on year; (cid:127) Resource Tax and special oil income levy decreased by RMB 2.0 billion year on year; (cid:127) Procurement cost increased by RMB 10.6 billion year on year, as a result of expansion of LNG business scale; (cid:127) Personnel expenses increased by RMB 1.7 billion year on year. In 2019, the oil and gas lifting cost was RMB 782 per tonne, representing a year on year decrease of 1.8%. In 2019, the operating profit of the exploration and production segment was RMB 9.3 billion, representing an increase of RMB 19.4 billion compared with 2018. The segment reinforced efficient exploration and profit-oriented development, enhanced stable production of crude oil, accelerated construction of natural gas production-supply-storage-sale system and actively expanding market and promoting sales, strengthened cost control, and effectively improved profitability. (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 2019, the operating revenues of this segment was RMB 1,224.2 billion, representing a decrease of 3.1% over 2018. This was mainly attributed to the decrease in products prices compared with the same period of last year. CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) 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 2019 and 2018. Gasoline Diesel Kerosene Chemical feedstock Other refined petroleum products In 2019, sales revenues of gasoline was RMB 428.7 billion, representing a decrease of 2.9% over 2018. The sales revenues of diesel was RMB 347.8 billion, representing a decrease of 3.7% over 2018. The sales revenues of kerosene was RMB 101.6 billion, representing an increase of 0.4% over 2018. The sales revenues of chemical feedstock was RMB 140.2 billion, representing a decrease of 6.9% over 2018. The sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock was RMB 200.3 billion, representing a decrease of 1.6% over 2018. In 2019, the segment’s operating expenses was RMB 1,193.5 billion, representing a decrease of 1.2% over 2018. This was mainly attributed to the decrease in procurement cost of crude oil. Sales Volume (thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2019 60,750 63,509 23,890 39,720 61,890 2018 Change (%) 59,746 62,676 22,418 38,524 61,439 1.7 1.3 6.6 3.1 0.7 2019 7,057 5,477 4,252 3,531 3,237 2018 Change (%) 7,386 5,766 4,515 3,910 3,312 (4.5) (5.0) (5.8) (9.7) (2.3) In 2019, the average processing cost for crude oil was RMB 3,403 per tonne, representing a decrease of 4.1% over 2018. Total crude oil processed was 252.5 million tonnes (excluding volume processed for third parties), representing an increase of 1.7% over 2018. The total cost of crude oil processed was RMB 859.3 billion, representing a decrease of 2.4% over 2018. In 2019, refining gross margin was RMB 366 per tonne, decreased by RMB 96 per tonne representing a reduction of 20.8% compared with 2018. This is mainly due to the fluctuation of price spread between heavy and light crude oil, increase of freight and insurance costs for overseas shipments, as well as the narrowed gross margin of refined petroleum products other than gasoline, diesel and kerosene. In 2019, 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 178 per tonne, a decrease of 1.4% over 2018. In 2019, the operating profit of the segment totaled RMB 30.6 billion, representing a decline of RMB 24.2 billion compared with 2018. (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 2019, the operating revenues of this segment was RMB 1,431 billion, representing a decrease of 1.1% over 2018, of which: the sales revenues of gasoline totaled RMB 681.5 billion, representing a decrease of 1.7% compared with 2018; the sales revenues of diesel was RMB 507.5 billion, representing a decrease of 0.3% over 2018, and the sales revenues of kerosene was RMB 116.3 billion, representing a decrease of 1.1% over 2018. 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 2019 and 2018, 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 2019 92,261 66,440 25,820 87,335 43,503 43,832 27,068 21,772 2018 Change (%) 88,076 66,855 21,221 84,865 43,327 41,537 25,787 23,372 4.8 (0.6) 21.7 2.9 0.4 5.5 5.0 (6.8) 2019 7,387 7,968 5,892 5,812 6,227 5,399 4,297 3,072 2018 Change (%) 7,870 8,296 6,524 5,998 6,435 5,541 4,562 2,974 (6.1) (4.0) (9.7) (3.1) (3.2) (2.6) (5.8) 3.3 23 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisIn 2019, the operating expenses of the segment was RMB 1,401.9 billion, representing a decrease of RMB 21.3 billion or 1.5% as compared with that of 2018. This was mainly due to the decrease in refined oil products procured price which resulting in the decrease of procurement cost for RMB 22 billion. In 2019, 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 183 per tonne, representing a decrease of 11.9% compared with that of 2018. This was mainly due to the adjusted accounting of some of the gas station, land and other right of use assets as required by the New Leasing Rules. In 2019, the segment exerted advantages of integrated business and distribution network into full play, reinforced the coordination of internal and external resources, promoted targeted marketing and differentiated marketing to improve service quality, and constantly increased profits and sales volume. Meanwhile, we enhanced the development and sales of company-owned brand and put efforts to expand non-fuel business scale and profitability. In 2019, the operating profit of this segment was RMB 29.1 billion, representing an increase of 24% compared with 2018. (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 2019, the operating revenue of the chemicals segment was RMB 495.2 billion, representing a decrease of 9.4% as compared with that of 2018. This was mainly due to sharp decrease in prices of chemical products as a result of the concentrated release of new capacity, as well as the change of supply-demand structure. 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 465.9 billion, representing a decrease of 9.7% as compared with 2018, and accounted for 94.1% 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 2019 and 2018. Basic organic chemicals Synthetic fibre monomer and polymer Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser In 2019, the operating expenses of the chemicals segment was RMB 478.1 billion, representing a decrease of 8.0% over 2018, mainly because of the decrease in the price of externally procured raw materials as compared with the same period in 2018. In 2019, confronted with the business cycle correction and decreased chemical margin, the Company strengthened the coordination among research, development, production and marketing, continuously reinforced the profit prediction based on the market, optimised the structures of feedstock, product and facilities, intensified Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2019 52,007 14,089 16,131 1,370 1,284 925 2018 Change (%) 52,450 11,252 15,325 1,314 1,278 796 (0.8) 25.2 5.3 4.3 0.5 16.2 2019 4,518 5,722 7,718 8,438 9,595 2,109 2018 Change (%) 5,281 6,978 8,646 9,712 10,750 2,093 (14.4) (18.0) (10.7) (13.1) (10.7) 0.8 allocation of resources, pushed ahead with targeted marketing and precise service strategy, and achieved steadily growing sales volume of petrochemicals. The operating profit of this segment was RMB 17.2 billion (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 2019, the operating revenues generated from corporate and others was RMB 1,484.8 billion, representing an increase of 8.5% over 2018. This was mainly attributed to the increase in value of trade from crude oil and overseas refined oil products, as well as the rapid growth of the equipment and petrochemicals business transaction scale through Epec platform. In 2019, the operating expenses of corporate and others was RMB 1,484.7 billion, representing an increase of 7.8% over 2018. In 2019, the operating profit from corporate and others was RMB 0.1 billion. 24 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)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 2019, the Company’s total assets was RMB 1,755.1 billion, representing an increase of RMB 162.8 billion compared with that of the end of 2018, of which: Current assets was RMB 445.9 billion, representing a decrease of RMB 58.3 billion compared with that of the end of 2018, mainly because the cash and cash equivalents decreased by RMB 51.6 billion, financial assets at fair value through profit or loss decreased by RMB 20.8 billion, accounts receivable and bills receivable decreased by RMB 10.0 billion, and the time deposits with financial institution increased by RMB 12.5 billion, inventories and other current assets increased by RMB 11.7 billion. Non-current assets was RMB 1,309.2 billion, representing an increase of RMB 221.0 billion as compared with that of the end of 2018. This was mainly due to the right-of-use assets increased by 267.9 As of 31 December 2019 As of 31 December 2018 1,755,071 445,856 1,309,215 879,236 576,374 302,862 738,150 121,071 617,079 137,685 875,835 1,592,308 504,120 1,088,188 735,773 565,098 170,675 717,284 121,071 596,213 139,251 856,535 Unit: RMB million Change 162,763 (58,264) 221,027 143,463 11,276 132,187 20,866 0 20,866 (1,566) 19,300 and the lease prepayments decreased by RMB 64.5 billion in accordance with New Leasing Rules, construction in progress and net value of property, plant and equipment increased by RMB 41.2 billion, equity of associates and joint ventures increased by RMB 6.2 billion, and deferred tax assets decreased by RMB 4.1 billion. The Company’s total liabilities was RMB 879.2 billion, representing an increase of RMB 143.5 billion compared with that of the end of 2018, of which: Current liabilities was RMB 576.4 billion, representing an increase of RMB 11.3 billion as compared with that of the end of 2018. This was mainly due to the short-term debts and borrowings from Sinopec Group increased by RMB 22.7 billion, lease liabilities increased by RMB 15.2 billion, accounts payable, bills payable and liabilities from contracts increased by RMB 9.0 billion, and derivative financial liabilities decreased by RMB 10.8 billion, other payables decreased by RMB 21.3 billion. Non-current liabilities was RMB 302.9 billion, representing an increase of RMB 132.2 billion compared with that of the end of 2018. This was mainly due to lease liabilities increased by RMB 177.7 billion in accordance with New Leasing Rules, long-term debts and borrowings from Sinopec Group decreased by RMB 34.7 billion, and other non-current assets decreased by RMB 12.0 billion. Total equity attributable to owners of the Company was RMB 738.2 billion, representing an increase of RMB 20.9 billion compared with that of the end of 2018, which was mainly due to the capital reserve increased by RMB 20.9 billion. 25 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand Analysis(2) Cash Flow The following table sets forth the major items in the consolidated cash flow statements for 2019 and 2018. Major items of cash flows Net cash generated from operating activities Net cash used in investing activities Net cash used in financing activities In 2019, the net cash generated from operating activities of the company was RMB 153.4 billion, representing a decrease of RMB 22.4 billion as compared with 2018. Of which: profit before taxation decreased by RMB 9.2 billion, loss from assets impairment decreased by RMB 9.8 billion, depreciation, depletion & amortization and amortization for dry wells write-off decreased by RMB 2.2 billion, interest expenses increased by RMB 9.7 billion, exchange rate and derivatives financial instruments loss/(gain) increased by 5.5 billion, net change of accounts receivable and other current assets decreased by RMB 10.8 billion, net change of inventory decreased by RMB 60.0 billion, net change of accounts payable and other current liabilities decreased by RMB 17.3 billion, and the paid income tax decreased by RMB 13.6 billion as compared with 2018. In 2019, the net cash used in investing activities was RMB 120.5 billion, representing an increase of cash outflow of RMB 54.0 billion over 2018. Of which: capital expenditure and wildcat expenditure increased by RMB 38.1 billion, purchasing investment and associates and joint ventures investments decreased by RMB 6.6 billion, cash inflow from changes of financial assets which are measured at fair value through profit or loss decreased by RMB 3.0 billion, outcome from time deposit with maturities over three months increased by RMB 9.2 billion. In 2019, the net cash used in the Company’s financing activities was RMB 84.7 billion, representing a decrease of cash outflow by RMB 26.5 billion over 2018. This was mainly due to the cash out flow from the changes of loans increased to RMB 13.2 billion, cash paid for dividends decrease the expenditure by RMB 21.8 billion, subsidiary companies allocated to non-controlling shareholders reduced expenses by 6.3 billion yuan, investments from non-controlling shareholders increased by RMB 2.0 billion, and repayment for lease liabilities increased by RMB 16.8 billion. At the end of 2019, the cash and cash equivalents was RMB 60.3 billion. (3) Contingent Liabilities Please refer to “Material Guarantee Contracts and Their Performances” in the “Significant Events” section of this report. Unit: RMB million Year ended 31 December 2019 153,420 (120,463) (84,713) 2018 175,868 (66,422) (111,260) (4) Capital Expenditures Please refer to “Capital Expenditures” in the “Business Review and Prospects” section of this report. (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 2019, the expenditures for R&D was RMB 15.539 billion, of which expense was RMB 9.395 billion, and capitalised cost was RMB 6.144 billion. Environmental expenditures refer to the normal routine pollutant discharge fees paid by the Company, excluding capitalised cost of pollutant treatment properties. In 2019, the Company paid environmental expenditures of RMB 9.235 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 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Items relevant to measurement of main fair values Unit: RMB million Items Available for sale financial assets Structured Deposit Stock Derivative financial instruments Cash flow hedges Other equity instruments investment Total 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 215 187 28 (4,384) (222) 0 (4,391) 0 0 0 0 5,258 (38) 5,220 0 0 0 0 0 0 0 Funding source Self-owned fund Self-owned fund Self-owned fund – – – – Beginning of the year End of the year 25,732 25,550 182 1,584 (7,268) 1,450 21,498 3,319 3,318 1 48 (1,940) 1,521 2,948 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 204 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 profit/(loss) 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 2019 RMB million 2018 RMB million 210,712 1,224,156 1,430,963 495,234 1,484,822 (1,879,694) 2,966,193 6,289 30,074 29,781 16,586 3,530 (40) 3,805 90,025 57,591 200,191 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 Operating profit: In 2019, the operating profit of the Company was RMB 90.0 billion, representing a decrease of RMB 11.4 billion as compared with 2018. Net profit: In 2019, the net profit attributable to the equity shareholders of the Company was RMB 57.6 billion, representing a decrease of RMB 5.5 billion or 8.7% compared with 2018. 27 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand Analysis (2) Financial data prepared under CASs Total assets Non-current liabilities Shareholders’ equity As of 31 December 2019 RMB million As of 31 December 2018 RMB million 1,755,071 301,792 876,905 1,592,308 169,551 857,659 Change 162,763 132,241 19,246 At the end of 2019, the Company’s total assets was RMB 1,755.1 billion, representing an increase of RMB 162.8 billion compared with that of the end of 2018. At the end of 2019, the Company’s non-current liabilities was RMB 301.8 billion, representing an increase of RMB 132.2 billion compared with that of the end of 2018. At the end of 2019, the shareholders’ equity of the Company was RMB 876.9 billion, representing an increase of RMB 19.2 billion compared with that of the end of 2018. (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 210,712 1,224,156 1,430,963 495,234 1,484,822 (1,879,694) 2,966,193 Operation cost RMB million Gross profit margin* (%) 168,548 943,484 1,333,672 453,951 1,468,851 (1,879,654) 2,488,852 15.5 4.3 6.6 8.0 1.1 N/A 7.9 Increase/ (decrease) of operation income on a year-on-year basis (%) Increase/ (decrease) of operation cost on a year-on- year basis (%) Increase/ (decrease) of gross profit margin on a year-on-year basis (%) 5.3 (3.1) (1.1) (9.4) 8.5 N/A 2.6 1.9 (1.0) (1.6) (7.9) 7.6 N/A 3.7 3.9 (2.1) 0.5 (1.4) 0.9 N/A (0.5) *: Gross profit margin = (operation income – operation cost, tax and surcharges)/operation income. 28 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)5 THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY’S ACCOUNTING POLICY Please refer to the note 3(26) in the financial statement complying with the PRC Accounting Standards for Business Enterprises (CASs) and the note 1 in the financial statement complying with the IFRS. 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 2019Management’s Discussionand Analysis30 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant EventsSIGNIFICANT EVENTS1 MAJOR PROJECTS (1) 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. It achieved mechanical completion on 28 December 2019. 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 2019, the aggregate investment was RMB 30.3 billion. (2) 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 achieve the mechanical completion in December 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 2019, the aggregate investment was RMB 3.1 billion. (3) 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 was put into operation in September 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 2019, the aggregate investment was RMB 5.6 billion. (4) Wuhan de-bottleneck project Wuhan de-bottleneck project mainly consists of an 800,000 tpa-to-1,100,000 tpa ethylene capacity expansion project. The project started at the end of October 2018 and is expected to achieve the mechanical completion in December 2020. 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 2019, the aggregate investment was RMB 2.5 billion. (5) Weirong shale gas project Under the guidance of “overall deployment, stage-wise implementation and fully consideration”, the building of first phase of production capacity, which is 1 billion cubic meters per year, was promoted comprehensively since August 2018. It is expected to be completed and put into operation in December 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 2019, the aggregate investment was RMB 2.3 billion. (6) 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 2019, the aggregate investment was RMB 8.0 billion. (7) Erdos-Anping-Cangzhou 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 was completed and put into operation in September 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 2019, the aggregate investment was RMB 6.4 billion. (8) 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 2019, the aggregate investment was RMB 12.1 billion. 31 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant 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 9 9 4.05 Sinopec Corp 2015 Corporate bond (first issue) 15石化02 136040 19 November 2015 19 November 2020 4 4 3.70 Sinopec Corp. 2012 Corporate bond 12石化02 122150 1 June 2012 1 June 2022 7 7 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. 15石化02 was 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 credit rating for 10石化02, 12石化02 and 15石 化02 and reaffirmed AAA credit rating in the continuing credit rating report. The long term credit rating of Sinopec Corp. remained AAA with its outlook being stable. Pursuant to relevant regulations, Sinopec Corp. has published latest credit rating results through media designated by regulators within six months commencing from the end date of the reporting period. During the reporting period, there is no arrangement to credit addition mechanism and change of the repayment for the above-mentioned corporate bonds. Sinopec Corp. strictly followed the provisions in the corporate bond prospectus to repay interests of the corporate bonds to bondholders. The guarantee 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 in April 2020 on website of Shanghai Stock Exchange by China Petrochemical Corporation. During the reporting period, the bondholders’ meeting was not convened. During the durations of the above-mentioned bonds, the bond trustee, China International Capital Corporation Limited, has strictly followed the Bond Trustee Management Agreement and continuously tracked the Company’s credit status, utilisation of bond proceeds and repayment of principals and interests of the bond. The bond trustee has also advised the Company to fulfil obligations as described in the corporate bond prospectus and exercised its duty to protect the bondholders’ legitimate rights and interests. The bond trustee will disclose the Trustee Management Affairs Report after the announcement of annual report. The full disclosure is 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 2019Significant EventsSIGNIFICANT EVENTS (CONTINUED) Principal accounting data and financial indicators for the two years ended 31 December 2019 Principal data EBITDA (RMB million) Current ratio Quick ratio Liability-to-asset ratio (%) EBITDA to total debt ratio Interest coverage ratio Cash flow interest coverage ratio EBITDA-to-interest coverage ratio Loan repayment rate (%) Interest payment rate (%) 2019 2018 Change Reasons for change 214,413 216,352 (1,939) Mainly due to the decrease of earnings compared 0.77 0.44 50.04 1.25 6.42 29.07 12.92 100 100 0.89 0.57 46.14 1.33 16.76 35.92 33.93 100 100 with last year (0.12) Mainly due to the decrease of current asset (0.13) Mainly due to the increase of inventories Due to the impact of New Lease Standard 3.9 percentage points (0.08) Due to the decrease of EBITDA (10.34) Due to the impact of New Lease Standard (6.85) Due to the impact of New Lease Standard (21.01) Due to the increase of interest expense as a result of New Lease Standard – – During the reporting period, the Company paid in full the interest accrued for the other bonds and debt financing instruments. As at 31 December 2019, the standby credit line provided by several domestic financial institutions to the Company was RMB 379.6 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 The Share Option Incentive Scheme of Shanghai Petro took effect from 23 December 2014, with a validity period of 10 years until 22 December 2024. The first grant of Shanghai Petro’s A-share share options under the Share Option Incentive Scheme was on 6 January 2015. For details, please refer to the relevant announcements uploaded on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and Shanghai Petro on 6 January 2015. All the exercise periods of the first grant have ended on 28 December 2018. For details, please refer to the relevant announcements uploaded on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and Shanghai Petro on 28 December 2018. At present, Shanghai Petro has no other granting scheme. During the reporting period, Shanghai Petro did not grant A-share share options under the Share Option Incentive Scheme, nor did the grantees exercise any A-share share options, and no A-share share options were cancelled or lapsed. 33 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant Events Whether bears deadline or not Whether strictly performed or not No Yes Yes Yes 4 PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION Background Type of Undertaking Party Contents Term for performance Undertakings related to Initial Public Offerings (IPOs) IPOs China Petrochemical Corporation Other undertakings Other China Petrochemical Corporation 1 2 3 4 5 6 From 22 June 2001 Compliance with the connected transaction agreements; Solving the issues regarding the legality of land- use rights certificates and property ownership rights certificates within a specified period of time; Implementation of the Reorganisation Agreement (please refer to the definition of Reorganisation Agreement in the H share prospectus of Sinopec Corp.); Granting licenses for intellectual property rights; Avoiding competition within the same industry; Abandonment of business competition and conflicts of interest with Sinopec Corp. Within 10 years after 29 April 2014 or the date when China Petrochemical Corporation acquires the assets 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. 34 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant EventsSIGNIFICANT EVENTS (CONTINUED) 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 CAPITAL INCREASE AND ASSETS TRANSFER TO SINOPEC-SK (WUHAN) PETROCHEMICAL CO., LTD. (SINOPEC-SK) On 29 April 2019, Sinopec Corp. entered into the Sinopec-SK Capital Increase Agreement with Sinopec Group Asset Management Co., Ltd. (Sinopec Asset), SK GLOBAL CHEMICAL CO., LTD. (SKGC) and Sinopec-SK, jointly, to agree upon the Capital Increase in Sinopec-SK. Pursuant to the Sinopec-SK Capital Increase Agreement, (i) Sinopec Corp. shall contribute the Capital Increase Assets of Sinopec equivalent to RMB 549.0 million to Sinopec-SK, of which to subscribe for the newly increased registered capital of Sinopec-SK of RMB 168.37 million and the remaining part shall be included in the capital reserve of Sinopec-SK, (ii) Sinopec Asset shall contribute the Capital Increase Assets of Sinopec Asset equivalent to RMB 1.5022 billion to Sinopec-SK, of which to subscribe for the newly increased registered capital of Sinopec-SK of RMB 431.58 million and the remaining part shall be included in the capital reserve of Sinopec-SK, and (iii) SKGC shall contribute cash in RMB 1.1045 billion or equivalent USD to Sinopec-SK, of which to subscribe for the newly increased registered capital of Sinopec-SK of RMB 323.05 million and the remaining part shall be included in the capital reserve of Sinopec-SK. Upon completion of the Capital Increase, Sinopec Corp.’s shareholding in Sinopec-SK reduced from 65% to 59%, Sinopec Asset’s shareholding increased from 0% to 6% and SKGC’s shareholding remained unchanged at 35%. On the same date, Sinopec Corp. entered into the Asset Transfer Agreement with Sinopec-SK. The Capital Increase will help reduce the connected transactions between Sinopec Corp. and China Petrochemical Corporation and further improve the integrated operation level of Sinopec Corp., so as to enhance the comprehensive competitiveness of Sinopec Corp. in its business locations, the overall capability of risk resistance and expand its regional influence. The Sinopec-SK Capital Increase and the Asset Transfer were completed on 8 July 2019. As Sinopec Asset is a subsidiary of the controlling shareholder of Sinopec Corp., China Petrochemical Corporation, pursuant to Chapter 14A of the Hong Kong Listing Rules, Sinopec Asset is an associate of China Petrochemical Corporation and thus constitutes a connected person of Sinopec Corp. As the Capital Increase constitutes deemed disposal of Sinopec Corp. under Rule 14.29 of the Hong Kong Listing Rules, accordingly, the Capital Increase constitutes a connected transaction of Sinopec Corp. under Chapter 14A of the Hong Kong Listing Rules. As the highest applicable percentage ratio in respect of the Capital Increase exceeds 0.1% but is less than 5%, the Capital Increase is subject to the reporting and announcement requirements, but exempt from the independent shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules. As Sinopec-SK is a subsidiary of Sinopec Corp., the Asset Transfer did not constitute a connected transaction of Sinopec Corp. under Chapter 14A of the Hong Kong Listing Rules. In addition, as the highest applicable percentage ratio in respect of the Asset Transfer was less than 5%, it did not constitute a notifiable transaction under Chapter 14 of the Hong Kong Listing Rules. For details, please refer to the announcements published by Sinopec Corp. in China Securities Journal, Shanghai Securities News and, Securities Times, and on the website of Shanghai Stock Exchange on 30 April 2019 and 9 July 2019, and on the website of Hong Kong Stock Exchange on 29 April 2019 and on 8 July 2019. 6 SIGNIFICANT EQUITY INVESTMENT During the reporting period, there is no significant equity investment made by the Company. 7 SIGNIFICANT ASSETS AND EQUITY SALE During the reporting period, there is no significant assets or equity sale of the Company. 35 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant Events8 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE Unit: RMB million Major external guarantees (excluding guarantees for controlled subsidiaries) Guarantor Sinopec Corp. Relationship with the Company Name of guaranteed company The listed company itself Zhongtian Hechuang Energy Co., Ltd Amount 10,140 Transaction date (date of signing) 25-May-16 Sinopec Corp. The listed company itself Zhong An United Coal Chemical Co., Ltd. 7,100 18-Apr-18 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) Period of guarantee Type 25 May 2016 -31 December 2023 (the mature date is estimated) 18 April 2018-31 December 2031 Joint liability guarantee Joint liability guarantee Whether completed or not Whether overdue or not Amount of overdue guarantee Counter- guaranteed No No No No – – No No 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 Rules Governing the Listing of Stocks on Shanghai Stock Exchange. Whether guaranteed for connected parties yes or no)*1 Yes No None 17,240 None 12,157 29,397 3.98% None None None None None None *2: The amount of guarantees provided during the reporting period and the outstanding balance of guarantees amount at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.’s subsidiaries by the percentage of shareholding of Sinopec Corp. in such subsidiaries. 36 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant EventsSIGNIFICANT EVENTS (CONTINUED) 9 SPECIFIC STATEMENTS AND We hereby present the following opinions: 12 OTHER MATERIAL CONTRACTS INDEPENDENT OPINIONS FROM INDEPENDENT NON-EXECUTIVE DIRECTORS REGARDING EXTERNAL GUARANTEES PROVIDED BY THE COMPANY DURING AND BY THE END OF 2019: 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 2019 in accordance with the requirements of the domestic regulatory authorities: The external guarantees prior to 2019 had been disclosed in previous annual report. The aggregate balance of external guarantees provided by Sinopec Corp. for the year 2019 was RMB 29.4 billion, accounting for approximately 3.98% 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. 10 SIGNIFICANT LITIGATION, ARBITRATION RELATING TO THE COMPANY No significant litigation, arbitration relating to the Company occurred during the reporting period. 11 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 material contracts subject to disclosure obligations during the reporting period. 13 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. 14 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. 37 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant 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 NON-OPERATIONAL 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 RECOGNISED BY ENVIRONMENTAL PROTECTION DEPARTMENTS In 2019, certain 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 national pollutant discharge license management information platform (http:// permit.mee.gov.cn/permitExt/defaults/ default-index!getInformation.action) and the local government website. Sinopec Corp. built prevention and control facilities for sewage, flue gas, solid waste and noise in accordance with the requirements of the national and local pollution prevention and environmental protection standards, kept effective and stable operation of pollution prevention and control facilities, and realised standardised discharges and emissions of sewage, flue gas, solid waste and factory noise. For details, please refer to the Company’s Communication on Progress for Sustainable Development. 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 been obtained approvals from the environment authorities. Sinopec Corp. strictly complies with relevant national requirements on environment emergency plan management and continuously 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 acquired discharge permit and modified the self-monitoring plan, 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. Combining with practical situation, 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 2019 Targeted Poverty Alleviations In 2019, the Company invested nearly RMB 0.19 billion in Targeted Poverty Alleviation, including RMB 0.12 billion invested in 53 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. 38 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant EventsSIGNIFICANT EVENTS (CONTINUED)(3) 2019 Targeted Poverty Alleviation Work Statistics Index I. Overview 1. Funds 2. Value of goods and materials 3. Number of people lifted out of poverty II. Input breakdowns 1. Poverty elimination through industrial development 1.1 Categories of poverty alleviation programs through industrial development Unit: RMB million Data 187.44 1.76 31,003 √□ Poverty alleviation through agriculture and forestry development √□ Poverty alleviation through tourism development √□ Poverty alleviation through e-commerce √□ Poverty alleviation through assets income √□ Poverty alleviation through science and technology development √□ Others 1.2 Number of poverty alleviation programs 1.3 Input in poverty alleviation projects through industrial development 1.4 Number of people lifted out of poverty 2. Poverty elimination through provision of employment 2.1 Input in professional skill training 2.2 Participants of professional skill trainings (person time) 2.3 Number of people employed 3. Poverty elimination through relocation 3.1 Number of relocated people provided with employment 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. Poverty alleviation through ecological protection 6.1 Items 6.2 Input in ecological protection 7. Guarantee basic living standard 7.1 Input in left-behind children, women and senior people 7.2 Number of left-behind children, women and senior people assisted 7.3 Input in assisting the disabled 7.4 Number of the disabled helped 8. Poverty alleviation through social projects 8.1 Input in coordinated poverty alleviation 8.2 Input in targeted poverty alleviation programs 8.3 Public Welfare funds for poverty alleviation 9. Other projects 9.1 Number of projects 9.2 Total input 9.3 Number of people lifted out of poverty 9.4 Other 274 96.20 41,698 2.65 3,015 10,990 243 4.35 2.19 1,955 23.48 2.76 √□ Conduct ecological protection and construction √□ Develop ways for ecological protection and compensation √□ Set up ecological public welfare positions √□ Others 0.23 0.59 433 0.50 141 123.59 0.60 137 54.49 7,152 (4) Subsequent targeted poverty alleviation plan In 2020, the Company will further strengthen poverty alleviation key-problem tackling work, continue to carry on targeted poverty alleviation and targeted lifting of poor people out of poverty. The Company will focus on poverty alleviation in terms of consumption, education, industry, employment to overcome the bastion of deep poverty and maintain a stable achievement. The Company will strengthen the supervision of projects and funds, enhance risks and source management, and constantly improve the level of work, to ensure that the actual results of winning the fight against poverty. 21 OTHER EVENTS 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. Sinopec Corp. published indicative announcement on the restructuring of oil and gas pipeline network assets. 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 11 December 2019 and on the website of Hong Kong Stock Exchange on 10 December 2019. 39 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Significant 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 auxiliary 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 Sinopec Corp. 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 2019 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 447.608 billion. Among which, purchases expenses amounted to RMB 286.769 billion, representing 9.45% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage and transportation, exploration and development services, and production-related services) of RMB 270.499 billion, purchases of auxiliary and community services of RMB 3.097 billion, payment of property rent of RMB 509 million, payment of land use right of RMB 11.330 billion, and the interest expenses amounted to RMB 1.334 billion. The sales income amounted to RMB 160.839 billion, representing 5.17% of the total amount of this type of transaction for the reporting period, including RMB 159.681 billion for sales of products and services, RMB 92 million for agency commission income, and RMB 1,066 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. 40 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Connected 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 announce and implement 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 38 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 2019 were approved at the 12th 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; and (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 “Capital Increase and Assets Transfer to SIONOPEC-SK (Wuhan) Petrochemical Co., Ltd. (SINOPEC-SK)” 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 29,415 (18,648) 10,767 30,232 (14,496) 15,736 1,431 30,846 307 (18,341) 1,738 12,505 333 30,565 59 (14,437) 392 16,128 Loans and other accounts receivable and payable No material negative impact 41 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Connected Transactions 42 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceCORPORATE GOVERNANCE1 IMPROVEMENTS IN CORPORATE GOVERNANCE DURING THE REPORTING PERIOD During the reporting period, Sinopec Corp. committed itself to comply with the Articles of Association as well as domestic and overseas laws and regulations, and continuously improving its corporate governance. It timely amended the Articles of Association and the internal control procedures, and implemented the campaign of promoting the execution effectiveness of internal control with good results. The role of independent directors is well played. It also completed the information disclosure with high quality and further strengthened investor relations work to promote enterprise value. Its sustainable development achieved positive results and earned social recognition. It carried out campaign themed “staying true to our founding mission”, completed related work in exercising full and rigorous governance over the Party and implemented the campaign of “talents strengthening enterprise”. All the aforesaid work has promoted the company’s high-quality development. During the reporting period, there is 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 2018 annual general meeting on 9 May 2019 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 on 10 May 2019 and on the websites of Hong Kong Stock Exchange on 9 May 2019. 3 EQUITY INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT As of 31 December 2019, 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 notify 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. NON-EXECUTIVE DIRECTORS During the reporting period, the Independent Non-Executive Directors of Sinopec Corp. fulfilled their duties in good faith as required by Terms of Reference of the Independent Non-Executive Directors, 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), exercised their profession advantages to offer advice and suggestions to Sinopec Corp.’s development strategy, operations and reform, and promoted the company’s scientific decision-making. The independent non-executive directors maintained timely and effective communications with management, external auditors and the internal auditing department, gave their independent opinions on matters such as connected transactions and dividend distribution, and protected the legitimate interests of the minority shareholders’ interests. 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 senior management 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 fulfil 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.” 43 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate 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 2019, Sinopec Corp. held four 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. Zhang Yuzhuo 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 two 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. 44 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)A.3 Board composition a. For details of the composition of the Board of Directors, please refer to the section “Directors, Supervisors, Other Senior Management and Employees” of this annual report. b. Sinopec Corp. has received from each of the Independent Non-executive directors a letter of confirmation for 2019 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. During the reporting period, the Board of Directors has not nominated any new director according to the actual situation of Sinopec Corp., and no re-election and dismissal of directors occurred. 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. A.5 Nomination Committee a. The Board of Sinopec Corp. established Nomination Committee, consisting of Chairman of the Board, Mr. Zhang Yuzhuo, who serves as the Chairman, and Independent Non-Executive Directors Mr. Tang Min and Mr. Ng, Kar Ling Johnny, who serve 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. Procedures to Propose a Person for Election as a Director of Sinopec Corp. is published on the Sinopec Corp.’s website at http://www.sinopec. com/. 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. Pursuant to Articles of Association, 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, which help to ensure that the Board of Directors has a proper balance between continuous experience and new thinking, and enhance the level of diversity. Sinopec Corp. focuses on the implementation of the Board Diversity Policy. The Directors come from different industries at home and abroad, and have rich work experience. Professional backgrounds of Directors include petroleum and petrochemical, as well as economics, accounting and finance, which are conductive to scientific decision-making. 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.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/ 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. 45 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate 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 2019 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 Executive Director Mr. Ma Yongsheng 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 2019. 46 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)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/) for the details of the information disclosure policy. c. In terms of risk management, Sinopec Corp. adopted the enterprise risk management framework provided by COSO, and established its risk management policy and risk management organisation system. The Company annually conducts risk evaluation to identify major and important risks and perform risk management duties. It has designed major and important risks tackling measures combined with its internal control system and periodically monitor their implementation to ensure adequate care, monitor and tackling of major risks. d. Based upon the review and evaluation of internal control and risk management of the reporting period, the Board is of the view that the internal control and risk management of the Company are effective. C.3 Audit Committee a. The Board has established an Audit Committee. The Audit Committee consists of Independent Non-executive Director Mr. 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 four 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. 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. 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. 47 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceInvestor Relations a. According to the actual situation of Sinopec Corp., as approved at the annual general meeting of shareholders for the year 2018, Sinopec Corp. amended the Articles of Association. 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 on the website of Shanghai Stock Exchange on 10 May 2019 and the announcement published on the website of the Hong Kong Stock Exchange on 9 May 2019. 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 2018. Some members of the Board of Directors and Board of Supervisors 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 recognised 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/. 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 of Strategy Committee consists of five directors, including Chairman of the Board Mr. Zhang Yuzhuo, who serves as Chairman, as well as Executive Directors Mr. Ma Yongsheng, Mr. Ling Yiqun 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. Zhang Yuzhuo, 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/. 48 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)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 50; for information about meetings held by Board Committees, please refer to page 52; for information about tenure of non-executive directors, please refer to page 64; for information about equity interests of Directors, Supervisors and other senior Management, please refer to page 43; for information about the biographies and annual remuneration of Directors, Supervisors and other senior Management, please refer to page 60 to page 74. 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 2019 and the authorisation of the Board to determine their remuneration were approved at Sinopec Corp.’s annual general meeting for the year 2018 on 9 May 2019. The audit fee for 2019 is RMB 47.48 million (including audit fee of internal control), which was approved at the 12th 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 Gao Peng from PricewaterhouseCoopers Zhong Tian LLP. During the reporting period, neither PricewaterhouseCoopers Zhong Tian LLP nor PricewaterhouseCoopers provided any non-audit service to the Company. 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 resolutions at the meeting and the voting procedures are clearly stated in the notice of the general meeting of Sinopec Corp. dispatched to the shareholders. 49 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate GovernanceThe Board is pleased to present the directors’ report for the year ended 31 December 2019 for shareholders’ review. 1 MEETINGS OF THE BOARD During this reporting period, Sinopec Corp. held four (4) Board meetings. The details are as follows: (1) The 5th meeting of the seventh session of the Board was held by on site meeting and via video conference on 22 March 2019, whereby the proposals in relation to the following matters were approved: (i) the Work Report of the Board for the year 2018, (ii) the business performance of 2018 and work plan of 2019,(iii) Financial results and business performance of the Company for the year 2018(including A.provision for impairment for the year 2018; B. The connected transactions for the year 2018; C. Profit distribution plan for the year 2018; D. Audit costs for the year 2018; E. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company,), (iv) 2018 Communication on Progress for Sustainable Development Report of Sinopec Corp., (v) Financial Statements of Sinopec Corp. for the year 2018, (vi) Annual Report and form 20F of the Company for the year 2018, (vii) Internal control assessment report of Sinopec Corp. for the year 2018, and the internal control manual (2019) (viii) Re-appointment of external auditors of Sinopec Corp. for the year of 2019 and to authorise the Board to determine their remunerations, (ix) the amendments to the articles of association of Sinopec Corp. (x) to authorize the Board to determine the interim profit distribution plan of Sinopec Corp. for the year 2019 (xi) Authorising the Board to determine the proposed plan for issuance of debt financing instrument(s) (xii) Granting to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp., (xiii) Convening the annual general meeting of Sinopec Corp. for the year 2018 and to dispatch the notice of the annual general meeting. (2) The 6th meeting of the seventh session of the Board was held by written resolution on 29 April 2019, whereby the proposals in relation to the following matters were approved: (i)first quarterly results of Sinopec Corp. for the three months ended 31 March 2019 was approved at the meeting. (ii) the capital increase and assets transfer to Sinopec-SK. (3) The 7th meeting of the seventh session of the Board was held by on site meeting and via video conference on 23 August 2019, 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 2019 and the work arrangements for the second half of the year 2019, (ii) Financial results and business performance of the Company for the first half of the year 2019 (including a.the 2019 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 the year 2019, (iv) interim report for the 6 months ended 30 June 2019, (v) Three years rolling development plan of Sinopec Corp. (2019 to 2021). (4) The 8th meeting of the seventh session of the Board was held by written resolution on 30 October 2019, whereby the proposal in relation to the third quarterly results of Sinopec Corp. for the nine months ended 30 September 2019 was 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 various tasks delegated to them at the general meetings 50 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS3 DIRECTORS’ ATTENDANCE TO THE BOARD MEETINGS AND TO THE GENERAL MEETINGS. (1) Directors attendance to the board meeting and general meeting during this reporting period 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 Director Director Director Director Independent Director Independent Director Independent Director Independent Director Ma Yongsheng Yu Baocai Ling Yiqun Li Yong Tang Min Fan Gang Cai Hongbin Ng, Kar Ling Johnny 4 4 4 4 4 4 4 4 2 2 2 1 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 0 1 0 0 0 0 (2) Former directors attendance to the board meetings during this reporting period Director Titles Names Former Chairman Former Director Former Director Dai Houliang Li Yunpeng Liu Zhongyun No. of meeting held Actual Attendance Board Meetings Attended By communication 4 4 4 2 2 1 2 2 2 Attended by proxy 0 0 1 Absent 0 0 0 General Meetings. No. of meeting held Actual Attendance 1 1 1 1 0 1 1. No directors were absent from two consecutive meetings of the Board. 2. Mr. Liu Zhongyun resigned as a director of the Board on 9 December 2019. 3. Mr. Dai Houliang resigned as the Chairman, director of the Board on 19 January 2020. 4. Mr. Li Yunpeng resigned as a director of the Board on 24 March 2020. (3) The Independent Director’s attendance to the General Meetings. During the reporting period, none of the Independent Non-executive Directors had attended the general meetings of shareholders in person due to official duties. 51 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of Directors4 MEETINGS HELD BY THE BOARD COMMITTEES During the reporting period, the board committees held eight(8) meetings, Audit Committee held four (4) meetings. Strategy Committee held two (2) meetings, the Remuneration Committee held one (1) meeting, the Social Responsibility Management Committee held one (1) meeting. All members of each committee had attended the relevant meetings. Details of those meetings are as follows: (1) The 4th meeting of the seventh session of the Audit Committee was held by on site meeting and via video conference on 20 March 2019, whereby the following matters were approved in the meeting: (i) Annual Report and 20F of 2018； (ii)Financial results and business performance of the Company for the year 2018(including A. provision for impairment for the year 2018; B. The connected transactions for the year 2018; C. Profit distribution plan for the year 2018; D. Audit costs for the year 2018; E. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company,); (iii) Internal control assessment report of the Company for the year 2018 and the internal control manual (2019) (iv) Work report on the internal auditing work for the year 2018; (v) Reports on the auditing of the financial statements for the year 2018 prepared by the domestic and overseas auditors. (2) The 5th meeting of the seventh session of the Audit Committee was held by written resolution on 29 April 2019,whereby the proposals in relation to the following matters were approved: (i)first quarterly results of Sinopec Corp. for the three months ended 31 March 2019 was approved at the meeting. (ii) the capital increase and assets transfer to SINOPEC-SK. (3) The 6th meeting of the seventh session of the Audit Committee was held by on site meeting on 21 August 2019, whereby (i) the financial statements for the first half year of 2019 (ii) the interim report for the first half of 2019,(iii) Financial results and business performance of the Company for the first half of the year 2019(including a.the 2019 interim dividend distribution plan, b. the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company) (iv) the reports on internal auditing work for the first half of 2019 were approved at the meeting. (4) The 7th meeting of the seventh session of the Audit Committee was held by written resolution on 29 October 2019, whereby the third quarterly report for nine months ended 30 September 2019 was approved at the meeting. (5) The 2nd meeting of the seventh session of the Strategy Committee was held by written resolution on 20 March 2019, whereby the proposal in relation to the plan of investments of 2019 of Sinopec Corp. was approved at the meeting. (6) The 3rd meeting of the seventh session of the Strategy Committee was held by written resolution on 21 August 2019, whereby the three years rolling development plan of Sinopec corp. (2019-2021) was approved at the meeting. (7) The 1st meeting of the seventh session of the Remuneration Committee was held by written resolution on 20 March 2019 whereby the proposal in relation to implementation of the rules of the remuneration of directors, supervisors and other senior management for 2018. (8) The 1st meeting of the seventh session of the Social Responsibility Management Committee was held by written resolution on 20 March 2019, whereby the 2018 Communication on Progress for the Sustainable Development Report of Sinopec Corp. was approved at the meeting. 5 BOARD COMMITTEES ISSUED REVIEW OPINIONS TO THE BOARD WHEN PERFORMING THEIR DUTIES DURING THE REPORTING PERIOD, WITHOUT OBJECTION. 6 BUSINESS PERFORMANCE The financial results of the Company for the year ended 31 December 2019, which is prepared in accordance with IFRS and the financial position as at that date and the accompanying analysis are set out from page 146 to page 203 in this annual report. A fair review of the Company’s business, a discussions and analysis on business performance using financial key performance indicators and the material factors underlying our results and financial position during the reporting period, particulars of significant events affecting the Company and the outlook of the Company’s business are discussed throughout this annual report included in the chapters of Chairman’s Address, Business Review and Prospects, Management’s Discussion and Analysis and Significant Events. All above discussions constitute parts of the 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. 52 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)Proposals for dividend distribution At the 12th meeting of the seventh session of the Board, the Board approved the proposal to distribute a final cash dividend of RMB 0.19 (tax inclusive) per share, combining with an interim distributed dividend of RMB 0.12 (tax inclusive) per share, the total dividend for the whole year is RMB 0.31 (tax included) per share. The final cash dividend will be distributed on or before 19 June 2020 (Friday) to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 9 June 2020 (Tuesday). 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 2 June 2020 (Tuesday) for registration. The H shares register of members of Sinopec Corp. will be closed from 3 June 2020 (Wednesday) to 9 June 2020 (Tuesday) (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, on this basis, enterprise income tax shall be withheld from dividends payable to such shareholders. If holders of H Shares intend to change their 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. will 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) and the Shenzhen-Hong Kong Stock Connect《關於深 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[2016] No.127): For domestic investors investing in the H Shares of Sinopec Corp. through Shanghai-Hong Kong and Shenzhen-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. 53 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report 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 listed company in the consolidated statement (%) Note: The final cash dividend for 2019 is subject to the approval at the 2019 annual general meeting. The aggregate cash dividend declared by Sinopec Corp. during three years from 2017 to 2019 is RMB 1.23 per share, and the total dividend payment from 2017 to 2019 as a percentage of average net profit attributed to the shareholders of the listed company in the three years is 262.5%. 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 2019, 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 2019. The internal control system of Sinopec Corp. related to the financial statements is sound and effective. 2019 Internal Control Assessment Report of Sinopec Corp. was reviewed and approved at the 12th meeting of the seventh Session of the Board on 27 March 2020, and all members of the Board warrant that the contents of the report are true, accurate and complete, and there are no false representations, misleading statements or material omissions contained in the report. 9 DURING THIS REPORTING PERIOD, THE IMPLEMENTATION OF ENVIRONMENTAL POLICIES BY THE COMPANY 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 2019 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 49.1% 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 19.3% 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 2019 was RMB 261,811 million, accounted for 8.8% 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 111,110 million, accounted for 3.7% of the total sales value for the year. 2019 0.31 37.53 57.47 65.31 2018 0.42 50.85 61.62 82.52 2017 0.50 60.54 51.12 118.42 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 2019 are set out in Note 30 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 0.209 billion. 54 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED) 16 PRE-EMPTIVE RIGHTS 21 PERMITTED INDEMNITY PROVISIONS 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 As at the end of the reporting period, the Company has resolved its competition with Sinopec Group in the chemical 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. 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 2019, 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 headquarters, Petroleum Exploration and Production Research Institute of Sinopec (PEPRIS) and senior managers of oilfield branches. Mr. Liu Hongbin, the Chairman of RMC is Senior Vice President of Sinopec Corp., 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. 55 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report 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 strength. 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 fully opening up of exploration and mining rights, the opening up of crude oil import licenses and the right of tenure, removing the restriction of share ratio of refining projects to foreign enterprises, further improvement in pricing mechanism of refined oil products, cancellation of wholesale right and decentralization of retail right of refined oil products, and gas stations investment are fully opened to foreign investment, 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 56 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)stricter environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly. Risks from the uncertainties of obtaining additional oil and gas resources: The future sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline 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. 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 crude 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. 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, injuries 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 Zhang Yuzhuo Chairman Beijing, China, 27 March 2020 57 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of DirectorsOn 30 October 2019, the 7th meeting of the seventh session of the Board of Supervisors was held, and the Third Quarterly Report of Sinopec Corp. for 2019 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 some of the 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. 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 in 2019, facing the difficult conditions such as the complex and severe production and operation situation, rising internal and external risk challenges, slowing down of global economic growth, volatile international oil prices, increasing of domestic refining capacity, fall of chemical products prices, and the market competition is extremely fierce, the company conscientiously implements the decision-making and deployment of the board of directors, focuses on laying a decisive foundation for comprehensive and sustainable development, strives for progress in stability, takes on actions, pays close attention to implementation, promotes all work as a whole to maintains the growth of production indicators, and achieves better than expected business performance. 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. The senior management diligently executed the resolutions approved by the Board, continued to 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. Dear Shareholders: In 2019, 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 four (4) 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 and working report of the Board of Supervisors etc. On 22 March 2019, the 4th meeting of the seventh session of the Board of Supervisors was held, and the proposals in relation to Annual Report of Sinopec Corp. for 2018, the Financial Statements of Sinopec Corp. for 2018, 2018 Communication on Progress for Sustainable Development of Sinopec Corp., Internal Control Assessment Report of Sinopec Corp. for 2018, Work Report of the Board of Supervisors of Sinopec Corp. for 2018, were reviewed and approved at the meeting. On 29 April 2019, the 5th meeting of the seventh session of the Board of Supervisors was held, and the proposal in relation to the First Quarterly Report of Sinopec Corp. for 2019, capital increase and assets transfer to Sinopec-SK (Wuhan) Petrochemical Co., Ltd., (SINOPEC-SK) were reviewed and approved at the meeting. On 23 August 2019, the 6th meeting of the seventh session of the Board of Supervisors was held, and the Interim Report of Sinopec Corp. for 2019, the Interim Financial Statements of Sinopec Corp. for 2019, were reviewed and approved at the meeting. 58 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of SupervisorsREPORT OF THE BOARD OF SUPERVISORSSecondly, the reports and financial statements prepared by Sinopec Corp. in 2019 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. 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 behaviors which is detrimental to the interests of Sinopec Corp. or its shareholders was discovered. In 2020, 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 27 March 2020 59 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Report of the Board of SupervisorsZhang Yuzhuo Ma Yongsheng 1 INTRODUCTION OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT (1) Directors Zhang Yuzhuo, aged 58, Chairman of the Board of Directors of Sinopec Corp. Mr. Zhang is Ph.D. in engineering, Research Fellow and Academician of the Chinese Academy of Engineering. Mr. Zhang is an alternate member of the nineteenth Central Committee of the Communist Party of China. In January 1997, he was appointed as Vice President of China Coal Research Institute. In February 1998, he temporarily served as Deputy General Manager of Yankuang Group Co. Ltd. In July 1998, he was appointed as Vice President of China Coal Research Institute, Director and Deputy General Manager of China Coal Technology Corporation. In March 1999, he served as President of China Coal Research Institute and Chairman of China Coal Technology Corporation. In June 1999, he was appointed as President and Deputy Secretary of CPC Committee of China Coal Research Institute, Chairman and Deputy Secretary of CPC Committee of China Coal Technology Corporation. In January 2002, he was appointed as Deputy General Manager of Shenhua Group Corporation Limited, and served concurrently as Chairman and General Manager of China Shenhua Coal Liquefaction Company Limited. In August 2003, he was appointed as Deputy General Manager and 60 Ma Yongsheng, aged 58, 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 January 2017, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation; in April 2019, he was appointed as director, president and vice Secretary of the Leading Party Member Group of China Petrochemical Corporation; in October 2018, he was appointed as President of Sinopec Corp. In February 2016, he was elected as Director of Sinopec Corp. Member of the Leading Party Member Group of Shenhua Group Corporation Limited, and served concurrently as Chairman of China Shenhua Coal Liquefaction Company Limited. In December 2008, he was appointed as Director, General Manager and Member of the Leading Party Member Group of Shenhua Group Corporation Limited. In July 2009, he served concurrently as Vice Chairman of All-China Federation of Returned Overseas Chinese. In May 2014, he was appointed as Chairman and Secretary of the Leading Party Member Group of Shenhua Group Corporation Limited, and served concurrently as Chairman of China Shenhua Energy Company Limited. In March 2017, he served as a member of the Standing Committee of the CPC Tianjin Municipal Committee and Secretary of the CPC Binhai New Area Committee. In July 2017, he served concurrently as Chairman of Sino-Singapore Tianjin Eco-City Investment & Development Co., Ltd. In May 2018, he served concurrently as Director of China (Tianjin) Pilot Free Trade Zone Administration. In January 2020, he was appointed as Chairman and Secretary of the Leading Party Member Group of China Petrochemical Corporation; in March 2020, he was appointed as the Chairman of the Board of Directors of Sinopec Corp. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Yu Baocai Ling Yiqun Yu Baocai, aged 55, 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 October 2018, Mr. Yu was elected as Director of Sinopec Corp. Ling Yiqun, aged 57, 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 March 2017, he was appointed as Vice President of China Petrochemical Corporation; Since April 2019, he has been a member of the Leading Party Member Group of China Petrochemical Corporation; in February 2018, he was appointed as Senior Vice President of Sinopec Corp. In May 2018, he was elected as Director of Sinopec Corp. 61 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Li Yong Tang Min Fan Gang Li Yong, aged 56, 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 66, 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 66, 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. 62 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Cai Hongbin Ng, Kar Ling Johnny Ng, Kar Ling Johnny, aged 59, 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 Senior member of the Institute of Chartered Accountants in England and Wales (FCA). 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 of China Vanke Co., Ltd. and Fangdd Network Group Ltd. In May 2018, Mr. Ng acted as Independent Director of Sinopec Corp. Cai Hongbin, aged 52, 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 Ping An Bank Co., Ltd., In May 2018, Mr. Cai acted as Independent Director of Sinopec Corp. 63 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018LIST OF MEMBERS OF THE BOARD Name Gender Age Position in Sinopec Corp. Tenure Zhang Yuzhuo Ma Yongsheng Yu Baocai Ling Yiqun Li Yong Tang Min Fan Gang Cai Hongbin Ng, Kar Ling Johnny Male Male Male Male Male Male Male Male Male Chairman 2020.03-2021.05 58 58 Board Director, President 2016.02-2021.05 Board Director 2018.10-2021.05 55 2018.05-2021.05 Board Director, 57 56 66 66 52 59 Senior Vice President Board Director 2018.05-2021.05 Independent Director 2015.05-2021.05 Independent Director 2015.05-2021.05 Independent Director 2018.05-2021.05 Independent Director 2018.05-2021.05 LIST OF FORMER MEMBERS OF THE BOARD Name Gender Age Dai Houliang Li Yunpeng Liu Zhongyun Male Male Male 56 61 56 Position in Sinopec Corp. Tenure Former Chairman 2009.05-2020.01 Former Director 2017.06-2020.03 2018.05-2019.12 Former Director and Senior Vice President Remuneration paid by in 2019 (RMB 1,000, before tax) – 1,563.0 – – – 350.0 350.0 350.0 350.0 Whether paid by Equity interests in Sinopec Corp. the holding Company No No Yes Yes Yes No No No No (as at 31 December) 2019 0 0 0 13,000 0 0 0 0 0 2018 0 0 0 13,000 0 0 0 0 0 Remuneration paid by in 2019 (RMB 1,000, before tax) Whether paid by Equity interests in Sinopec Corp. the holding Company (as at 31 December) 2019 2018 – – – Yes Yes Yes 0 0 0 0 0 0 64 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisDirectors, Supervisors,Senior Management and EmployeesDIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Zhao Dong Jiang Zhenying (2) Supervisors Zhao Dong, aged 49, 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 55, 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 2018, he was appointed as Director of Audit Bureau of China Petrochemical Corporation, and Director of Audit Department of Sinopec Corp.; Since December 2019, he was appointed as president of Audit Bureau of Sinopec Corp. and the Director of the Office of Audit Committee of Leading Party Member Group of China Petrochemical Corporation; since December 2010, he was elected as the Employee’s Representative Supervisor of Sinopec Corp. In May 2018, he was elected as Supervisor of Sinopec Corp. 65 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Yang Changjiang Zhang Baolong Zhang Baolong, aged 60, 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 December 2019, he was appointed as Vice President 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 59, 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. In 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 December 2019, he has served as Director General of Party Affairs and Employee Relations Department, 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. 66 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Zou Huiping Yu Xizhi Zou Huiping, aged 59, 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. Yu Xizhi, aged 57, 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 an 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. Since December 2019, he was appointed as president of human resource department of Sinopec Corp. and the Director General of organization department of China Petrochemical Corporation. In January 2020, he was elected as Employee’s Representative Supervisor of China Petrochemical Corporation. In June 2017, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 67 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Zhou Hengyou Yu Renming Yu Renming, aged 56, 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.; Since December 2019, he was elected as Chairman of Board of Directors and Secretary of CPC committee of Sinopec Engineering(Group) Co., Ltd.; and in December 2010, he was elected as Employee’s Representative Supervisor of Sinopec Corp. Zhou Hengyou, aged 56, 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; Since December 2019, he was appointed as the director of the Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation. In January 2020, he was appointed as Secretary of the board of directors of China Petrochemical Corporation. 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. 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 OF SUPERVISORS Position in Sinopec Corp. Tenure Remuneration paid by Sinopec Corp. in 2019 (RMB 1,000, before tax) Whether paid by the Equity interests in Sinopec Corp. holding Company (as of 31 December) 2019 2018 Name Zhao Dong Gender Male Age 49 Chairman of the 2017.06-2021.05 – Jiang Zhenying Yang Changjiang Zhang Baolong Zou Huiping Yu Xizhi Zhou Hengyou Yu Renming Male Male Male Male Male Male Male Board of Supervisors Supervisor 2018.05-2021.05 Supervisor 2018.05-2021.05 Supervisor 2006.05-2021.05 Supervisor 2006.05-2021.05 2017.06-2021.05 55 59 60 59 57 Employee’s Representative Supervisor 56 Employee’s Representative 2018.05-2021.05 Supervisor 56 Employee’s Representative 2010.12-2021.05 Supervisor 1,321.6 – – 1,445.7 1,337.4 1,330.6 1,346.5 Yes No Yes Yes No No No No 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 69 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Directors, Supervisors,Senior Management and Employees Liu Hongbin Lei Dianwu (3) Other Members of Senior Management Liu Hongbin, aged 57. Mr. Liu is a senior engineer with a bachelor degree. In June 1995, he was appointed as the chief engineer of Tuha Petroleum Exploration & Development Headquarters; in July 1999, he was appointed as the deputy general manager of PetroChina Tuha Oilfield Company; in July 2000, he was appointed as the commander and Deputy Secretary of CPC Committee of Tuha Petroleum Exploration & Development Headquarters; in March 2002, he served as the general manager of the Planning Department of PetroChina Company Limited (“PetroChina”); in September 2005, he served as the director of the Planning Department of China National Petroleum Corporation (“CNPC”); in June 2007, he was appointed as the Vice President of PetroChina, and in November 2007, he served concurrently as the general manager and Secretary of CPC Committee of the Marketing Branch of PetroChina; in June 2009, he served concurrently as the general manager and Deputy Secretary of CPC Committee of the Marketing Branch of PetroChina; in July 2013, he was appointed as Member of the Leading Party Member Group and the deputy general manager of CNPC and in August 2013, he served concurrently as an executive director and general manager of Daqing Oilfield Company Limited, director of Daqing Petroleum Administration Bureau and Deputy Secretary of CPC Committee of Daqing Oilfield; in May 2014, he served concurrently as a director of PetroChina; in November 2019, he was appointed as Member of the Leading Party Member Group and Vice President of China Petrochemical Corporation; in March 2020, he was concurrently appointed as the Senior Vice President of Sinopec Corp. Lei Dianwu, aged 57, 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. 70 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Chen Ge Shou Donghua Chen Ge, aged 57, 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. Shou Donghua, aged 50, Chief Financial Officer of Sinopec Corp. Ms. Shou is a professor level senior accountant with a MBA degree. In July 2010, she was appointed as the Chief Financial Officer of Sinopec Zhenhai Refining & Chemical Company; in October 2014, she was appointed as Deputy Director General of Human Resource Department of Sinopec Corp.; in August 2017, she was appointed as the Secretary of CPC Committee of Sinopec Zhenhai Refining & Chemical Company and Deputy General Manager of Sinopec Zhenhai Refining & Chemical Company; in August 2018, she was appointed as the Director General of Finance Department of China Petrochemical Corporation and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited; in December 2019, she was appointed as General Manager of Finance Department of Sinopec Corp. and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited.; in January 2020, she was appointed as Chief Financial Officer of Sinopec Corp. 71 Directors, Supervisors,Senior Management and EmployeesCHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2018Zhao Rifeng Huang Wensheng Zhao Rifeng, aged 57, 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 Director General of the Marketing Department of China Petrochemical Corporation and Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited. In December 2019, he was appointed as the president of the Marketing Department of China Petrochemical Corporation and 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 53, 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. Since July 2018, he was appointed concurrently as Chairman, and Secretary of CPC Committee of Sinopec Capital Co., Ltd.; In December 2019, he was appointed as President of Department of Capital Management and Financial Services of China Petrochemical Corporation. In May 2014, he was appointed as Vice President of Sinopec Corp. 72 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 Liu Hongbin Lei Dianwu Chen Ge Shou Donghua Zhao Rifeng Huang Wensheng Gender Male Male Male Female Male Male Position in Sinopec Corp. Senior Vice President Senior Vice President Senior Vice President CFO Vice President Vice President, Board Secretary Age 57 57 57 50 57 53 LIST OF FORMER MEMBERS OF THE SENIOR MANAGEMENT Name Wang Dehua Gender Age Male 53 Position in Sinopec Corp. Former CFO Remuneration paid by Sinopec Corp. in 2019 (RMB 1,000, before tax) – 1,592.8 1,600.4 – 1,457.5 1,497.3 Remuneration paid by Sinopec Corp. in 2019 (RMB 1,000, before tax) 1,487.0 Whether paid by Equity interests in Sinopec Corp. the holding Company (as of 31 December) 2019 2018 Yes No No Yes No No 0 0 0 0 0 0 0 0 0 0 0 0 Whether paid by Equity interests in Sinopec Corp. the holding Company No (as of 31 December) 2019 0 2018 0 2 INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT On 9 December 2019, Mr. Liu Zhongyun resigned as Executive Director, member of Strategy Committee of the Board and the Senior Vice President of Sinopec Corp. due to change of working arrangement On 9 December 2019, Mr. Wang Dehua resigned as CFO of Sinopec Corp. due to change of working arrangement. On 13 January 2020, Ms. Shou Donghua was appointed as CFO of Sinopec Corp. On 19 January 2020, Mr. Dai Houliang resigned as Chairman of the Board, Non-executive Director and Chairman of each of the Strategy Committee, Nomination Committee and Social Responsibility Management Committee of the Board of Sinopec Corp. due to change of working arrangement. On 24 March 2020, Mr. Li Yunpeng resigned as Non-executive Director and member of Remuneration and Appraisal Committee of Sinopec Corp. Chairman of each of the Strategy Committee, Nomination Committee and Social Responsibility Management Committee of the Board of Sinopec Corp. On 25 March 2020, Mr. Zhang Yuzhuo was appointed as Chairman of the Board, Non-executive Director and On 25 March 2020, Mr. Liu Hongbin was appointed as Senior Vice President of Sinopec Corp. 73 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Directors, Supervisors,Senior Management and Employees3 CHANGE OF SHAREHOLDING 4 CONTRACTUAL 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 2019 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 15 directors, supervisors and other senior management received remuneration from Sinopec Corp. with a total amount of RMB 17.3798 million, including 11 persons’ bonus from 2016 to 2018 of them (does not contain independent directors). 6 THE COMPANY’S EMPLOYEES As at 31 December 2019, the Company has a total of 402,206 employees. There are a total of 250,175 retired employees to be reimbursed by Sinopec Corp. Sinopec Marketing Co. Limited, principal subsidiary of Sinopec Corp., has 131,039 employees. THE BREAKDOWN ACCORDING TO THE MEMBERS OF EACH OPERATION SEGMENT AS FOLLOWS: Marketing and Distribution 131,039 33% R&D Other Segments 5,874 5,601 2% 1% Exploration and Production 136,980 34% Refining 65,268 16% Chemicals 57,444 14% Technology 82,341 21% Finance Administration Others 8,937 32,176 13,050 2% 8% 3% Production 146,610 36% Sales 119,092 30% EMPLOYEES’ PROFESSIONAL STRUCTURE AS FOLLOWS: 74 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Management’s Discussionand AnalysisDirectors, Supervisors,Senior Management and EmployeesDIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES (CONTINUED)EDUCATIONAL BACKGROUND STRUCTURE FOR EMPLOYEES AS FOLLOWS: Senior high school and technical school degrees or below 153,296 38% Master’s degree or above 18,123 5% Undergraduate 107,740 27% Junior college 89,642 22% Technical secondary school 33,405 8% 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. 8 EMPLOYEE BENEFITS SCHEME Details of the Company’s employee benefits scheme are set out in Note 39 of the financial statements prepared under IFRS of this annual report. As at 31 December 2019, the Company has a total of 250,175 retired employees. All of them participated in the basic pension schemes administered by provincial (autonomous region or municipalities) governments. Government-administered pension schemes are responsible for the payments of basic pensions. 9 REMUNERATION POLICY Based on a relatively united basic remuneration system, Sinopec Corp. has established its remuneration distribution system based on the value of positions, performance & contribution, with an aim to improve employee capabilities, and constantly improve employee performance evaluation and incentive & discipline mechanisms. 10 TRAINING PROGRAMS In 2019, the Company continuously improved the management training system. With an arm to cultivate a team with ‘firm political stance, strong will and highly skilled’, the Company launched training courses for 145 leaders, middle-youth-age cadres and young cadres. Centring on enterprise development strategy and key work of the year, the Company organised training programs at headquarters level which were attended by 3,700 Key employees. To highlight high-end guidance and demonstration drive, the Company held strategic expert innovation leading project, senior expert integration innovation project, scientific research team leader innovation and development project, and realised the breakthrough in “top” talent training mode. To enhance the management of transnational operation, finance, taxation, law marketing and trading, the company organised a series of training programs covering 780 overseas managers. In addition, the Company focused on the inheritance of craftsman spirit and skills, and continuously enhanced the training of famous craftsmen, chief technicians and top skilled personnel. 75 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Directors, Supervisors,Senior Management and EmployeesOn 31 December, 2019, details of the principal wholly-owned and controlled subsidiaries of the Company were as follows: 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 Percentage of shares held by Sinopec Corp. (%) 100 100 100 100 100 100 100 100 Total Assets RMB million 32,385 Net Assets RMB million 14,977 33,061 14,219 Net Profit/ (Net Loss) RMB million Principal Activities 2,831 Investment in exploration, production and 　sale of petroleum and natural gas (795) Coal chemical industry investment 　management, production and sale of coal chemical products 30,763 19,985 1,609 Manufacturing of intermediate petrochemical 43,756 21,767 8,372 5,468 　products and petroleum products 2,525 Pipeline storage and transportation 　of crude oil 4 Production and sale of polyester chips and 　polyester fibres 9,219 4,091 478 Production and sale of refined petroleum 　products, lubricant base oil, and petrochemical materials 4,226 519 29 Manufacturing of intermediate petrochemical 17,019 3,460 　products and petroleum products 787 Marketing and distribution of petrochemical products 100 153,897 32,415 3,129 Trading of crude oil and Registered Capital RMB million 8,000 22,761 15,651 12,000 4,000 3,374 1,595 1,000 5,000 USD 1,662 million 1,500 1,400 100 100 100 20,985 12,552 　petrochemical products (139) Overseas investment holding 10,417 19,468 5,129 4,279 763 Production and sale of catalyst products 136 Trading of petrochemical products 5,294 98.98 18,063 13,020 1,362 Import and processing of crude oil, production, 　storage and sale of petroleum products and 　petrochemical products 5,000 9,628 85 75 18,951 10,285 1,070 Manufacturing of intermediate petrochemical 　products and petroleum products 30,426 17,914 1,961 Manufacturing of intermediate petrochemical 28,403 70.42 469,622 218,784 　products and petroleum products 22,984 Marketing and distribution of refined petroleum products 7,801 67.60 23,331 18,508 3,137 Production and sale of petrochemical products 7,193 59 26,904 11,860 HKD 248 million 10,000 60.33 14,061 10,942 10,824 50.44 45,636 30,016 664 Production, sale, research and development of petroleum, petrochemical, ethylene and downstream by-products 1,131 Oil jetty and nature gas pipeline 　products and petroleum products 2,225 Manufacturing of synthetic fibres, resin 　and plastics, intermediate petrochemical products and petroleum products 477 Manufacturing of plastics, intermediate 　petrochemical products and petroleum products 55 37,744 17,791 2,452 Manufacturing of intermediate petrochemical Fujian Petrochemical Company Limited 8,140 50 13,346 11,854 Note 1: All above subsidiaries except Fujian Petrochemical Company Limited are audited by PricewaterhouseCoopers Zhong Tian LLP or PricewaterhouseCoopers in 2019. 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. 76 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Principal Wholly-Ownedand Controlled SubsidiariesPRINCIPAL WHOLLY-OWNED AND CONTROLLED SUBSIDIARIES To the Shareholders of China Petroleum & Chemical Corporation, OPINION What we have audited We have audited the accompanying financial statements China Petroleum & Chemical Corporation (hereinafter “Sinopec Corp.”), which comprise: PwC ZT Shen Zi (2020) No. 10001 (cid:127) the consolidated and company balance sheets as at 31 December 2019; (cid:127) the consolidated and company income statements for the year then ended; (cid:127) the consolidated and company cash flow statements for the year then ended; (cid:127) the consolidated and company statements of changes in shareholders’ equity for the year then ended; and (cid:127) 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 2019, 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. 77 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)REPORT OF THE PRC AUDITOR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. The key audit matter identified in our audit is “Recoverability of the carrying amount of fixed assets relating to oil and gas producing activities”. Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of fixed assets relating to oil and gas producing activities In auditing the respective value in use calculations 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: Refer to Note 14 “Fixed assets” and Note 56 “Principal accounting estimates and judgements” to the financial statements. Low crude oil prices gave rise to possible indication that the carrying amount of fixed assets relating to oil and gas producing activities as at 31 December 2019 might be impaired. The Group has adopted value in use as 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 2019, 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. (cid:127) 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. (cid:127) Assessed the methodology adopted in the discounted cash flow projections, tested mathematical accuracy of the projections, and the completeness, accuracy, and relevance of underlying data used in the projections. (cid:127) Compared estimates of future crude oil prices adopted by the Group against a range of published crude oil price forecasts. (cid:127) 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 relevant external data. (cid:127) Compared the future cost profiles against historical costs and relevant budgets of the Group. (cid:127) 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. (cid:127) Used professionals with specialized skill and knowledge to assist in the evaluation of the appropriateness of discount rates adopted by the management. (cid:127) 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. 78 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)OTHER INFORMATION Management of Sinopec Corp. is responsible for the other information. The other information comprises all of the information included in 2019 annual report of Sinopec Corp. other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS Management of Sinopec Corp. is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing these financial statements, management is responsible for assessing Sinopec Corp.’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intend to liquidate Sinopec Corp. or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing Sinopec Corp.’s financial reporting process. 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: (cid:127) 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. (cid:127) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. (cid:127) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. (cid:127) Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Sinopec Corp.’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Sinopec Corp. to cease to continue as a going concern. (cid:127) Evaluate the overall presentation (including the disclosures), structure and content of the financial statements, and whether the 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 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. 79 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (Cont’d) 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 27 March 2020 Signing CPA Zhao Jianrong (Engagement Partner) Signing CPA Gao Peng 80 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)Assets Current assets Cash at bank and on hand Financial assets held for trading Derivative financial assets Bills receivable Accounts receivable Receivables financing Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Long-term equity investments Other equity instrument investments Fixed assets Construction in progress Right-of-use assets 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 liabilities Bills payable Accounts payable Contract liabilities Employee benefits payable Taxes payable Other payables Non-current liabilities due within one year Total current liabilities Non-current liabilities Long-term loans Debentures payable Lease liabilities Provisions Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserves Retained earnings Total equity attributable to shareholders of the Company Minority interests Total shareholders’ equity Total liabilities and shareholders’ equity These financial statements have been approved for issue by the board of directors on 27 March 2020. Notes At 31 December 2019 RMB million At 31 December 2018 RMB million 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 7 24 25 26 27 28 29 30 31 32 33 34 20 35 36 37 38 39 127,927 3,319 837 – 54,865 8,622 5,066 24,109 192,442 28,669 445,856 152,204 1,521 622,423 173,482 198,051 108,956 8,697 8,930 17,616 17,335 1,309,215 1,755,071 31,196 2,729 11,834 187,958 126,735 4,769 69,339 72,324 69,490 576,374 39,625 19,157 177,674 43,163 6,809 15,364 301,792 878,166 121,071 122,127 (321) 1,741 207,423 287,128 739,169 137,736 876,905 1,755,071 167,015 25,732 7,887 7,886 56,993 – 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 6,416 186,341 124,793 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 Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 81 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)(A) FINANCIAL STATEMENTS PREPARED UNDER CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES CONSOLIDATED BALANCE SHEET As at 31 December 2019 Assets Current assets Cash at bank and on hand Financial assets held for trading Derivative financial assets Bills receivable Accounts receivable Receivables financing Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Long-term equity investments Other equity instrument investments Fixed assets Construction in progress Right-of-use assets 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 liabilities Bills payable Accounts payable Contract liabilities Employee benefits payable Taxes payable Other payables Non-current liabilities due within one year Total current liabilities Non-current liabilities Long-term loans Debentures payable Lease liabilities Provisions 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 2019 RMB million At 31 December 2018 RMB million 8 10 11 13 14 15 16 54,072 – 940 – 21,544 207 2,665 78,872 49,116 25,149 232,565 304,687 395 291,547 60,493 112,832 8,809 2,630 7,315 2,490 791,198 1,023,763 19,919 157 4,766 75,352 5,112 1,214 43,025 118,064 59,596 327,205 12,680 7,000 107,783 34,514 4,471 166,448 493,653 121,071 68,841 1,181 949 207,423 130,645 530,110 1,023,763 82,879 22,500 – 156 29,989 – 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 2,075 82,343 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 These financial statements have been approved for issue by the board of directors on 27 March 2020. Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 82 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)BALANCE SHEETAs at 31 December 2019 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 Add: Other income Investment income (Losses)/gains from changes in fair value Credit impairment losses Impairment losses Asset disposal losses 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 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 for issue by the board of directors on 27 March 2020. Notes 40 40/43 41 43 43 43/44 42 43/45 46 47 48 49 50 51 52 63 63 38 2019 RMB million 2018 RMB million 2,966,193 2,488,852 242,535 63,516 62,112 9,395 9,967 10,510 5,973 12,628 (3,511) (1,264) (1,789) (1,318) 90,025 2,598 2,607 90,016 17,894 72,122 72,122 – 57,591 14,531 0.476 0.476 2,891,179 2,401,012 246,498 59,396 73,390 7,956 (1,001) 10,744 6,694 11,428 2,656 (141) (11,605) (742) 101,474 2,070 3,042 100,502 20,213 80,289 80,289 – 63,089 17,200 0.521 0.521 (31) (53) (810) 4,941 1,480 5,580 77,702 63,006 14,696 (229) (9,741) 3,399 (6,624) 73,665 55,471 18,194 Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 83 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2019 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 Add: Other income Investment income Losses from changes in fair value Credit impairment losses Impairment losses Asset disposal gains 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 income 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 for issue by the board of directors on 27 March 2020. Notes 40 40 47 2019 RMB million 2018 RMB million 1,021,272 799,566 161,820 3,420 28,302 8,597 7,628 9,417 3,497 28,062 (278) 132 (534) 6,407 39,808 665 1,135 39,338 1,886 37,452 37,452 – 201 1,384 1,585 39,037 1,058,493 812,355 168,905 3,078 36,169 7,453 1,029 9,796 2,777 28,336 (20) (42) (6,766) 12 44,005 599 1,687 42,917 2,960 39,957 39,957 – (64) (617) (681) 39,276 Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 84 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)INCOME STATEMENTFor the year ended 31 December 2019 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 for issue by the board of directors on 27 March 2020. Notes 2019 RMB million 2018 RMB million 3,174,862 2,027 98,327 3,275,216 (2,598,630) (83,082) (315,668) (124,416) (3,121,796) 153,420 35,996 10,272 703 97,804 – 144,775 (141,142) (16,334) (106,731) (1,031) (265,238) (120,463) 3,919 3,919 599,866 320 604,105 (612,108) (59,523) (7,354) (17,187) (688,818) (84,713) 147 (51,609) 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) 54(a) 54(d) 54(b) Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 85 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2019 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 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 Other cash received relating to financing activities Sub-total of cash inflows Cash repayments of borrowings Cash paid for dividends or interest Other cash paid relating to financing activities Sub-total of cash outflows Net cash flow from financing activities Net decrease in cash and cash equivalents These financial statements have been approved for issue by the board of directors on 27 March 2020. Notes 2019 RMB million 2018 RMB million 1,162,870 1,769 6,239 1,170,878 (842,996) (45,524) (209,863) (18,719) (1,117,102) 53,776 23,584 31,385 690 42,037 97,696 (64,100) (16,884) (53,138) (134,122) (36,426) 109,579 91,865 201,444 (106,920) (50,230) (104,780) (261,930) (60,486) (43,136) 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) Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 86 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)CASH FLOW STATEMENTFor the year ended 31 December 2019 Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity attributable to equity shareholders of the Company RMB million Minority interests RMB million Total shareholders’ equity RMB million (4,413) (12) (4,425) – (7,618) (7,618) 5,269 – – – – – – – – (6,774) (6,774) – 5,415 5,415 1,038 – – – – – – – – (321) 888 – 888 – – – – – – – – – – 818 – 1,706 1,706 – – – – – – – – – – 35 – 1,741 199,682 – 199,682 – – – – 3,996 – – – – 3,996 – – 203,678 203,678 – – – – 3,745 – – – – 3,745 – – 207,423 290,459 12 290,471 63,089 – 63,089 – (3,996) (67,799) – – – (71,795) – (2,283) 279,482 279,482 57,591 – 57,591 – (3,745) (46,008) – – – (49,753) – (192) 287,128 727,244 – 727,244 63,089 (7,618) 55,471 5,269 – (67,799) – (12) – (67,811) 818 (2,636) 718,355 718,355 57,591 5,415 63,006 1,038 – (46,008) – 2,933 – (43,075) 35 (190) 739,169 126,826 – 126,826 17,200 994 18,194 – – – 2,060 (299) (7,476) (5,715) 91 (92) 139,304 139,304 14,531 165 14,696 55 – – 5,495 (2,933) (18,989) (16,427) 34 74 137,736 854,070 – 854,070 80,289 (6,624) 73,665 5,269 – (67,799) 2,060 (311) (7,476) (73,526) 909 (2,728) 857,659 857,659 72,122 5,580 77,702 1,093 – (46,008) 5,495 – (18,989) (59,502) 69 (116) 876,905 Share capital RMB million Capital reserve RMB million 121,071 – 121,071 119,557 – 119,557 – – – – – – – – – – – – 121,071 121,071 – – – – – – – – – – – – 121,071 – – – – – – – (12) – (12) – (353) 119,192 119,192 – – – – – – – 2,933 – 2,933 – 2 122,127 Balance at 31 December 2017 Change in accounting policy Balance at 1 January 2018 Change for the year 1. Net profit 2. Other comprehensive income (Note 38) Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves – Distributions to shareholders (Note 53) Contributions to subsidiaries from minority interests 4. 5. Transaction with minority 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 Balance at 1 January 2019 Change for the year 1. Net profit 2. Other comprehensive income (Note 38) Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves – Distributions to shareholders (Note 53) Contributions to subsidiaries from minority interests 4. 5. Transaction with minority 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 2019 These financial statements have been approved for issue by the board of directors on 27 March 2020. Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 87 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2019 Balance at 31 December 2017 Change in accounting policy 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: －Appropriations for surplus reserves －Distributions to shareholders (Note 53) 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 Balance at 1 January 2019 Change for the year 1. Net profit 2. Other comprehensive income Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: －Appropriations for surplus reserves －Distributions to shareholders (Note 53) Total transactions with owners, recorded directly in shareholders’ equity 4. Net increase in specific reserve for the year 5. Others Balance at 31 December 2019 Share capital Capital reserve RMB million RMB million Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity RMB million 121,071 – 121,071 – – – – – – – – 121,071 121,071 – – – – – – – – – 121,071 68,789 – 68,789 – – – – – – – 6 68,795 68,795 – – – – – – – – 46 68,841 196 – 196 – (681) (681) – – – – – (485) (485) – 1,585 1,585 81 – – – – – 1,181 482 – 482 – – – – – – 507 – 989 989 – – – – – – – (40) – 949 199,682 – 199,682 – – – 3,996 – 3,996 – – 203,678 203,678 – – – – 3,745 – 3,745 – – 207,423 177,049 – 177,049 39,957 – 39,957 (3,996) (67,799) (71,795) – (2,063) 143,148 143,148 37,452 – 37,452 – (3,745) (46,008) (49,753) – (202) 130,645 567,269 – 567,269 39,957 (681) 39,276 – (67,799) (67,799) 507 (2,057) 537,196 537,196 37,452 1,585 39,037 81 – (46,008) (46,008) (40) (156) 530,110 These financial statements have been approved for issue by the board of directors on 27 March 2020. Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 88 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2019 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 27 March 2020. 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, 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 57, and there are no significant changes related to the consolidation scope in the current year. 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 2019, and the consolidated and company financial performance and the consolidated and company cash flows for the year ended 31 December 2019. 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(11)) – Other equity instrument investments (see Note 3(11)) – Derivative financial instruments (see Note 3(11)) – Receivables financing (see Note 3(11)) (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. 89 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2019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(11)), valuation of inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(7), (8)), measurement of provisions (Note 3(16)), etc. Principal accounting estimates and judgements of the Group are set out in Note 56. (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(10)) 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. 90 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019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 original 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. (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 mainly 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. 91 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (4) Inventories (Continued) 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(12)) 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. (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. 92 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (5) Long-term equity investments (Continued) (b) Investment in joint ventures and associates (Continued) 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(12). (6) Leases A lease is a contract that a lessor transfers the right to use an identified asset for a period of time to a lessee in exchange for consideration. (a) As Lessee The Group recognises a right-of-use asset at the commencement date, and recognises the lease liability at the present value of the lease payments that are not paid at that date. The lease payments include fixed payments, the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the Group exercising that option, etc. Variable payments that are based on a percentage of sales are not included in the lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) from balance sheet date is presented in non- current liabilities due within one year. Right-of-use assets of the Group mainly comprise land. Right-of-use assets are measured at cost which comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee, less any lease incentives received. The Group depreciates the right-of-use assets over the shorter of the asset’s useful life and the lease term on a straight-line basis. When the recoverable amount of a right-of-use asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. Payments associated with short-term leases with lease terms within 12 months and leases for which the underlying assets are individually of low value when it is new are recognised on a straight-line basis over the lease term as an expense in profit or loss or as cost of relevant assets, instead of recognising right-of-use assets and lease liabilities. (b) As Lessor A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease. When the Group leases self-owned plants and buildings, equipment and machinery, lease income from an operating lease is recognised on a straight-line basis over the period of the lease. The Group recognises variable lease income which is based on a certain percentage of sales as rental income when occurred. 93 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (7) 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(12)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(12)). 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(19)), 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 12-50 years 4-30 years Estimated rate of residual value 3% 3% (8) 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. (9) 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(12)). 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. 94 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (10) 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(12)). 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. (11) 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. However, accounts receivable or bills 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 The debt instruments held by the Group refer to the instruments that meet the definition of financial liabilities from the perspective of the issuer, and are measured in the following ways: – 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. The financial assets include cash at bank and on hand and receivables. – Measured at fair value through other comprehensive income: The business model for managing such financial assets by the Group are held for collection of contractual cash flows and for selling the financial assets, the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, foreign exchange gains and losses and interest income calculated using the effective interest rate method, which are recognised in profit or loss. The financial assets include receivables financing. 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 is transferred to retained earnings. (ii) Impairment The Group recognises a loss allowance for expected credit losses on financial assets measured at amortised cost and receivables financing measured at fair value through other comprehensive income. 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. 95 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments (Continued) (a) Financial assets (Continued) (ii) Impairment (Continued) 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 accounts receivable, bills receivable and receivables financing 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, 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. (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. 96 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments (Continued) (d) Derivative financial instruments and hedge accounting (Continued) 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 share 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 non-financial 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. (12) 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, right-of-use assets, 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. 97 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (12) Impairment of other non-financial long-term assets (Continued) 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. (13) Long-term deferred expenses Long-term deferred expenses are amortised on a straight-line basis over their beneficial periods. (14) 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. (15) 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. 98 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (15) Income tax (Continued) 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. (16) 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. (17) 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 recognised 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. (18) 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. (19) 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. 99 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (20) Repairs and maintenance expenses Repairs and maintenance (including overhauling expenses) expenses are recognised in profit or loss when incurred. (21) 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. (22) Research and development costs Research costs and development costs that cannot meet the capitalisation criteria are recognised in profit or loss when incurred. (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. (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, except for the two parties significantly influenced by a party. 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: (cid:127) engage in business activities from which it may earn revenues and incur expenses; (cid:127) 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 (cid:127) 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. 100 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies Ministry of Finance (MOF) issued revised “No. 21 Accounting Standards for Business Enterprises – Lease” (“New Lease Standard”) in 2018, then also issued Cai Kuai [2019] No. 6 “Announcement of the revision of general enterprise financial statements format for 2019” and the revised Accounting Standards for Business Enterprises No. 7 – Exchange of Non-monetary Assets (hereinafter referred to as “revised standards for exchange of non-monetary assets) and Accounting Standards for Business Enterprises No. 12 – Debt Restructuring (hereinafter referred to as “revised standards for debt restructuring). The Group has adopted the above standards and guidelines to prepare the financial statements of 2019. The revised standards for exchange of non-monetary assets and debt restructuring have no significant impacts on the Group and the Company, the impact of other revises to the Group and the Company’s financial statements is as follows: (a) Lease According to the provisions of new lease standard, the Group and the Company would not reassess the contracts that have already existed prior to the date of initial application. The Group and the Company adjust the cumulative impact of first implementation of the standards into relevant items in the financial statements of 2019, and the comparative financial statements of 2018 have not been restated. (i) For operating lease contracts that already exist before the first implementation of the new lease standard, the Group and the Company apply different methods based on the remaining lease period: If the remaining lease term is more than one year, the Group and the Company recognise the lease liabilities based on the remaining lease payment and the incremental borrowing interest rate on 1 January 2019. Right-of-use assets are measured at the amount equivalent to lease liabilities and adjusted as necessary depending on prepaid rent. If the remaining lease period is 12 months or less, or leases for which the underlying assets are individually of low value when it is new, the Group and the Company adopt the simplified method that do not recognise the right-of-use assets and lease liabilities, which has no significant impact on the financial statements. The affected financial statement line item Right-of-use assets Lease liabilities Current portion of non-current liabilities Long-term deferred expenses Prepayments Affected amount on January 1 2019 (RMB million) The Group The Company 207,455 184,670 13,894 (8,125) (766) 119,776 112,322 7,454 – – On 1 January 2019, the Group and the Company use the same discount rate for lease contracts with similar characteristics when measuring lease liabilities. The incremental borrowing interest rates range from 4.35% to 4.90%. (ii) On 1 January 2019, the Group reconciled the unpaid minimum operating lease payment that disclosed under the original lease standard to the lease liabilities recognised under the new lease standard as follows: The minimum future operating lease payments disclosed on 31 December 2018 The present value of the above-mentioned minimum operating lease payments discounted at the incremental borrowing rate Deduct: Present value of payments with terms of 12 months or less and leases for which the underlying assets are individually of low value when it is new Lease liabilities recognised on 1 January 2019 (including Non-current liabilities due within one year) (Note 33) (b) The revision of general enterprise financial statements format (i) The impact to the Group’s financial statements is as follows: The Group (RMB million) 352,794 200,867 (2,303) 198,564 Contents and reasons of the changes Item The Group separately presents bills and accounts receivable into bills receivable and accounts receivable The Group separately presents bills and accounts payable into bills payable and accounts payable Accounts receivable Bills receivable Bills receivable and accounts receivable Accounts payable Bills payable Bills payable and accounts payable 31 December 2018 RMB million 1 January 2018 RMB million 56,993 7,886 (64,879) 186,341 6,416 (192,757) 68,494 16,207 (84,701) 200,073 6,462 (206,535) 101 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20193 SIGNIFICANT ACCOUNTING POLICIES (Continued) (26) Changes in significant accounting policies (Continued) (b) The revision of general enterprise financial statements format (Continued) (ii) The impact to the Company’s financial statements is as follows: Contents and reasons of the changes Item The Company separately presents bills and accounts receivable into bills receivable and accounts receivable The Company separately presents bills and accounts payable into bills payable and accounts payable Accounts receivable Bills receivable Bills receivable and accounts receivable Accounts payable Bills payable Bills payable and accounts payable 31 December 2018 RMB million 1 January 2018 RMB million 29,989 156 (30,145) 82,343 2,075 (84,418) 37,609 157 (37,766) 83,449 3,155 (86,604) 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 Dollar Hong Kong Dollar EUR Others Deposits at related parities Renminbi US Dollar 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 2019 At 31 December 2018 Original currency Exchange rates million 1,889 17 1 6.9762 0.8958 7.8155 2,560 14 6.9762 7.8155 Original currency Exchange rates million 3,377 39 1 6.8632 0.8762 7.8473 2,389 4 6.8632 7.8473 RMB million 14 78,924 13,174 15 8 85 92,220 17,684 17,862 106 55 35,707 127,927 RMB million 82 102,572 23,179 35 11 79 125,958 24,625 16,374 33 25 41,057 167,015 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 2019, time deposits with financial institutions of the Group amounted to RMB 67,614 million (2018: RMB 55,093 million). At 31 December 2019, structured deposits included in cash at bank and on hand with financial institutions of the Group amounted to RMB 19,210 million (2018: RMB 77,909 million). 102 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 6 FINANCIAL ASSETS HELD FOR TRADING Structured deposits Equity investments, listed and at quoted market price Total At 31 December 2019 RMB million 3,318 1 At 31 December 2018 RMB million 25,550 182 3,319 25,732 The financial assets are primarily the structured deposits 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. 7 DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps contracts. See Note 61. 8 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 2019 RMB million 56,713 1,848 At 31 December 2018 RMB million 57,599 606 At 31 December 2019 RMB million 21,675 131 At 31 December 2018 RMB million 30,120 131 54,865 56,993 21,544 29,989 At 31 December 2019 At 31 December 2018 The Group Percentage to total accounts receivable % 98.2 0.5 0.2 1.1 Allowance RMB million 1,204 70 65 509 Percentage of allowance to accounts receivable balance % 2.2 26.9 50.4 84.4 Percentage to total accounts receivable % 97.9 0.8 0.5 0.8 Allowance RMB million – 83 165 358 Amount RMB million 56,431 436 289 443 Amount RMB million 55,721 260 129 603 56,713 100.0 1,848 57,599 100.0 606 At 31 December 2019 At 31 December 2018 The Company Percentage to total accounts receivable % 98.6 0.5 0.2 0.7 Allowance RMB million – 17 15 99 Percentage of allowance to accounts receivable balance % – 16.2 29.4 65.6 Percentage to total accounts receivable % 98.9 0.4 0.2 0.5 Allowance RMB million – 15 10 106 Amount RMB million 29,797 125 54 144 Amount RMB million 21,368 105 51 151 21,675 100.0 131 30,120 100.0 131 Percentage of allowance to accounts receivable balance % – 19.0 57.1 80.8 Percentage of allowance to accounts receivable balance % – 12.0 18.5 73.6 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 2019 and 31 December 2018, 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 2019 9,878 17.4% – At 31 December 2018 15,699 27.3% – Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from China Petrochemical Corporation (“Sinopec Group Company”) and fellow subsidiaries are repayable under the same terms. Accounts receivable (net of allowance for doubtful accounts) 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 accounts receivable and the Group exposure to credit risk can be found in Note 61. During 2019 and 2018, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts. During 2019 and 2018, 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. 103 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 9 RECEIVABLES FINANCING Receivables financing represents mainly the bills of acceptance issued by banks for sales of goods and products. At 31 December 2019, the Group’s derecognised but outstanding bills due to endorsement or discount amounted to RMB 31,004 million. At 31 December 2019, 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. 10 PREPAYMENTS Prepayments Less: Allowance for doubtful accounts Total Ageing analysis of prepayments is as follows: The Group The Company At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million 5,146 80 5,066 5,990 53 5,937 2,671 6 2,665 2,493 5 2,488 At 31 December 2019 At 31 December 2018 The Group Percentage to total prepayments % 85.6 11.5 0.6 2.3 100.0 Amount RMB million 4,405 589 33 119 5,146 Allowance RMB million – 26 5 49 80 Percentage of allowance to prepayments balance % – 4.4 15.2 41.2 Percentage to total prepayments % 94.9 2.8 1.0 1.3 100.0 Amount RMB million 5,683 169 60 78 5,990 Allowance RMB million – 38 5 10 53 At 31 December 2019 At 31 December 2018 The Company Percentage to total prepayments % 90.7 4.6 1.5 3.2 100.0 Amount RMB million 2,424 123 39 85 2,671 Allowance RMB million – 1 2 3 6 Percentage of allowance to prepayments balance % – 0.8 5.1 3.5 Percentage to total prepayments % 92.6 2.8 1.4 3.2 100.0 Amount RMB million 2,306 70 36 81 2,493 Allowance RMB million – 1 1 3 5 Percentage of allowance to prepayments balance % – 22.5 8.3 12.8 Percentage of allowance to prepayments balance % – 1.4 2.8 3.7 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 At 31 December 2019 and 31 December 2018, the total amounts of the top five prepayments of the Group are set out below: Total amount (RMB million) Percentage to the total balance of prepayments At 31 December 2019 At 31 December 2018 1,940 37.7% 2,009 33.5% 104 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 11 OTHER RECEIVABLES Other receivables Less: Allowance for doubtful accounts Total Ageing analysis of other receivables is as follows: The Group The Company At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million 25,565 1,456 24,109 26,793 1,481 25,312 79,827 955 78,872 58,549 1,117 57,432 At 31 December 2019 At 31 December 2018 The Group Percentage to total other receivables % 86.5 6.1 0.8 6.6 100.0 Amount RMB million 22,115 1,554 198 1,698 25,565 Allowance RMB million 87 52 71 1,246 1,456 Percentage of allowance to other receivables balance % 0.4 3.3 35.9 73.4 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 At 31 December 2019 At 31 December 2018 The Company Percentage to total other receivables % 55.6 17.3 8.7 18.4 100.0 Amount RMB million 44,402 13,826 6,933 14,666 79,827 Allowance RMB million – 3 1 951 955 Percentage of allowance to other receivables balance % – – – 6.5 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 % – 16.1 6.6 76.3 Percentage of allowance to other receivables balance % – – – 13.2 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 2019 and at 31 December 2018, 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 2019 At 31 December 2018 10,561 Within one year 41.3% – 6,837 Within one year 25.5% – During the year ended 31 December 2019 and 2018, 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 2019 and 2018, 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. 105 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 12 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 2019 RMB million At 31 December 2018 RMB million 88,465 12,615 91,368 2,576 195,024 2,582 192,442 85,469 13,690 88,929 2,872 190,960 6,376 184,584 For the year ended 31 December 2019, the provision for diminution in value of inventories of the Group was primarily due to the costs of finished goods were higher than net realisable value. 13 LONG-TERM EQUITY INVESTMENTS The Group Balance at 1 January 2019 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 2019 The Company Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million Total RMB million 57,134 2,884 4,385 (788) 101 (6,494) (68) 279 – – 57,433 90,273 1,697 8,392 (22) (8) (3,695) (398) 267 (25) – 96,481 (1,686) – – – – – – (27) – 3 (1,710) 145,721 4,581 12,777 (810) 93 (10,189) (466) 519 (25) 3 152,204 Balance at 1 January 2019 Additions for the year Share of profits less losses under the equity method Change of other comprehensive income under the equity method Other equity movements under the equity method Dividends declared Disposals for the year Movement of provision for impairment Balance at 31 December 2019 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 259,934 15,272 – – – – (986) – 274,220 16,093 362 2,069 – 40 (3,034) – – 15,530 21,163 39 1,510 201 1 (54) (44) – 22,816 (7,983) – – – – – – 104 (7,879) 289,207 15,673 3,579 201 41 (3,088) (1,030) 104 304,687 For the year ended 31 December 2019, 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 57. 106 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 13 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 Registered Capital RMB million Percentage of equity/voting right directly or indirectly held by the Company 1. Joint ventures Fujian Refining & Petrochemical Company Limited (“FREP”) BASF-YPC Company Limited (“BASF-YPC”) PRC PRC PRC PRC Gu Yuefeng Manufacturing refining oil products 14,758 50.00% Hong Jianqiao Manufacturing 12,704 40.00% Taihu Limited (“Taihu”) Russia Cyprus Yanbu Aramco Sinopec Refining Company Ltd. (“YASREF”) Sinopec SABIC Tianjin Petrochemical Company Limited (“Sinopec SABIC Tianjin”) Saudi Arabia Saudi Arabia PRC PRC 2. Associates Sinopec Sichuan to East China Gas Pipeline Co., Ltd. (“Pipeline Ltd”) Sinopec Finance Company Limited (“Sinopec Finance”) PAO SIBUR Holding (“SIBUR”) (i) PRC PRC PRC PRC 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 Islands NA NA NA UWAIDH AL(cid:127) HARETHI Quan Kai 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 25,000 USD 49.00% 1,560 million USD 9,796 37.50% 50.00% 200 50.00% Zhao Dong Provision of non-banking 18,000 49.00% financial services Processing natural gas and manufacturing petrochemical products Mining coal and manufacturing of coal-chemical products Crude oil and natural gas extraction 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. 107 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 13 LONG-TERM EQUITY INVESTMENTS (Continued) (b) Major financial information of principal joint ventures Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal joint ventures: FREP Taihu Sinopec SABIC Tianjin At At At 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2018 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million At At At At At BASF-YPC At YASREF At 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 shareholders of the company Net assets attributable to minority interests Share of net assets from joint ventures Carrying Amounts Summarised income statement 5,603 11,977 17,580 17,267 (1,280) (7,090) (8,370) (11,185) (290) (11,475) 15,002 7,388 9,248 16,636 19,271 (1,200) (4,939) (6,139) (12,454) (279) (12,733) 17,035 1,154 4,937 6,091 10,498 (237) (1,808) (2,045) – (35) (35) 14,509 1,582 5,795 7,377 11,086 (725) (1,822) (2,547) (218) (17) (235) 15,681 4,485 2,336 6,821 10,453 (57) (1,815) (1,872) (125) (1,984) (2,109) 13,293 3,406 3,689 7,095 9,216 (59) (2,124) (2,183) (72) (2,271) (2,343) 11,785 733 11,311 12,044 50,548 (7,445) (12,504) (19,949) (29,445) (1,963) (31,408) 11,235 930 10,267 11,197 51,873 (4,806) (12,217) (17,023) (32,364) (937) (33,301) 12,746 3,242 4,501 7,743 14,878 (500) (2,896) (3,396) (4,592) (368) (4,960) 14,265 5,110 4,007 9,117 13,990 (500) (2,507) (3,007) (3,651) (331) (3,982) 16,118 15,002 17,035 14,509 15,681 12,829 11,373 11,235 12,746 14,265 16,118 – 7,501 7,501 – 8,518 8,518 – 5,804 5,804 – 6,272 6,272 464 6,286 6,286 412 5,573 5,573 – 4,213 4,213 – 4,780 4,780 – 7,133 7,133 – 8,059 8,059 FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 2019 2018 RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million 2018 2018 2018 2018 2019 2019 2019 2019 Turnover Interest income Interest expense Profit/(loss) before taxation Tax expense Profit/(loss) for the year Other comprehensive loss/(income) Total comprehensive income/(loss) Dividends from joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive loss/(income) from joint ventures (ii) 57,047 124 (597) 964 (197) 767 – 767 1,400 52,469 157 (647) 3,920 (935) 2,985 – 2,985 1,200 19,590 32 (26) 2,314 (579) 1,735 – 1,735 1,224 21,574 41 (43) 3,625 (897) 2,728 – 2,728 1,226 15,222 94 (265) 3,320 (708) 2,612 (1,105) 1,507 – 14,944 141 (151) 3,493 (729) 2,764 921 3,685 – 75,940 58 (1,470) (1,292) (8) (1,300) (261) (1,561) – 384 1,493 694 1,091 1,235 1,307 (488) 77,561 101 (1,382) (1,569) (249) (1,818) 1,059 (759) – (682) 20,541 171 (134) 2,178 (533) 1,645 – 1,645 1,750 23,501 169 (167) 3,916 (993) 2,923 – 2,923 – 823 1,462 – – – – (522) 435 (98) 397 – – The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 1,737 million (2018: RMB 2,052 million) and RMB 168 million (2018: RMB 839 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 25,530 million (31 December 2018: RMB 22,982 million). 108 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 13 LONG-TERM EQUITY INVESTMENTS (Continued) (c) Major financial information of principal associates Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal associates: Pipeline Ltd Sinopec Finance At At At 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2018 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million At At At At SIBUR At Zhongtian Synergetic Energy At At CIR Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to shareholders of the Company Net assets attributable to minority interests Share of net assets from associates Carrying Amounts Summarised income statement 13,245 37,842 (721) (2,910) 47,456 12,498 39,320 (1,020) (3,026) 47,772 180,383 18,926 (170,621) (582) 28,106 209,837 16,359 (200,402) (332) 25,462 31,634 182,646 (31,295) (71,289) 111,696 22,502 170,796 (23,293) (58,628) 111,377 4,219 56,424 (13,887) (26,227) 20,529 7,477 49,961 (7,252) (31,436) 18,750 47,456 47,772 28,106 25,462 111,250 110,860 20,529 18,750 – 23,728 23,728 – 23,886 23,886 – 13,772 13,772 – 12,476 12,476 446 11,125 11,125 517 11,086 11,086 – 7,955 7,955 – 7,266 7,266 7,612 971 (936) (166) 7,481 7,481 – 3,741 3,741 6,712 1,828 (961) (673) 6,906 6,906 – 3,453 3,453 Pipeline Ltd 2019 Sinopec Finance 2019 2018 RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million 2018 2018 2018 2018 2019 2019 2019 SIBUR Zhongtian Synergetic Energy CIR Turnover Profit for the year Other comprehensive income/(loss) Total comprehensive income Dividends declared by associates Share of profit from associates Share of other comprehensive 5,008 2,191 – 2,191 1,259 1,096 4,746 2,022 – 2,022 1,207 1,011 4,966 2,234 411 2,645 – 1,095 4,536 1,868 (157) 1,711 490 915 56,706 6,513 (1,435) 5,078 468 651 59,927 10,400 6,410 16,810 271 1,040 13,329 1,994 – 1,994 219 773 12,235 1,142 – 1,142 – 443 2,334 424 151 575 – 212 2,856 583 116 699 – 292 income/(loss) from associates (ii) – – 201 (77) (144) 641 – – 76 58 The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial associates accounted for using equity method in aggregate was RMB 4,565 million (2018: RMB 3,550 million) and RMB 155 million (2018: RMB 844 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 35,416 million (31 December 2018: RMB 31,370 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. 109 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 At 31 December 2019 RMB million At 31 December 2018 RMB million 622,409 14 622,423 617,762 50 617,812 Plants and buildings RMB million Oil and gas properties RMB million 122,041 160 6,192 1,051 (993) 42 128,493 51,205 4,095 292 (609) 21 55,004 3,929 11 – (151) – 3,789 695,724 1,408 31,378 (76) (1,549) 667 727,552 506,771 36,289 (46) (6) 621 543,629 43,517 – – – 46 43,563 Equipment, machinery and others RMB million 965,495 3,856 54,275 (975) (14,499) 71 1,008,223 528,459 47,583 (246) (10,149) 39 565,686 31,617 185 – (1,615) 1 30,188 Total RMB million 1,783,260 5,424 91,845 – (17,041) 780 1,864,268 1,086,435 87,967 – (10,764) 681 1,164,319 79,063 196 – (1,766) 47 77,540 69,700 66,907 140,360 145,436 412,349 405,419 622,409 617,762 At 31 December 2019 RMB million At 31 December 2018 RMB million 291,544 3 291,547 302,048 34 302,082 14 FIXED ASSETS The Group Fixed assets (a) Fixed assets pending for disposal Total (a) Fixed assets Cost: Balance at 1 January 2019 Additions for the year Transferred from construction in progress Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2019 Accumulated depreciation: Balance at 1 January 2019 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2019 Provision for impairment losses: Balance at 1 January 2019 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 The Company Fixed assets (a) Fixed assets pending for disposal Total 110 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 14 FIXED ASSETS (Continued) The Company (Continued) (a) Fixed assets Cost: Balance at 1 January 2019 Additions for the year Transferred from construction in progress Reclassifications Transferred from subsidiaries Transferred to subsidiaries (i) Decreases for the year Balance at 31 December 2019 Accumulated depreciation: Balance at 1 January 2019 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries (i) Decreases for the year Balance at 31 December 2019 Provision for impairment losses: Balance at 1 January 2019 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries (i) Decreases for the year Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 Plants and buildings RMB million Oil and gas properties RMB million Equipment, machinery and others RMB million 48,827 66 946 715 262 (629) (1,187) 49,000 23,169 1,527 240 112 (325) (491) 24,232 1,880 2 – 66 (24) (129) 1,795 574,937 1,131 23,780 (78) – (1,458) (8) 598,304 417,573 29,069 (43) – (521) (2) 446,076 38,297 – – – (914) – 37,383 467,357 656 20,189 (637) 1,777 (8,751) (8,341) 472,250 286,038 20,904 (197) 1,530 (5,270) (5,323) 297,682 22,116 127 – 174 (194) (1,381) 20,842 Total RMB million 1,091,121 1,853 44,915 – 2,039 (10,838) (9,536) 1,119,554 726,780 51,500 – 1,642 (6,116) (5,816) 767,990 62,293 129 – 240 (1,132) (1,510) 60,020 22,973 23,778 114,845 119,067 153,726 159,203 291,544 302,048 (i) In 2019, the total amount transferred to subsidiaries is RMB 10,838 million, which is mainly caused by Sinopec Wuhan Petrochemical Branch transferring its fixed assets related to refining production to its subsidiary Sinopec-SK (Wuhan) Petrochemical Company Limited (“Sinopec-SK”). The original cost of transferred fixed assets is RMB 9,122 million, the depreciation is RMB 5,537 million, the impairment is RMB 22 million, and the total net book value of transferred fixed assets is RMB 3,563 million. The additions to oil and gas properties of the Group and the Company for the year ended 31 December 2019 included RMB 1,408 million (2018: RMB 1,567 million) (Note 34) and RMB 1,131 million (2018: RMB 1,292 million), respectively of the estimated dismantlement costs for site restoration. Impairment losses on fixed assets for the year ended 31 December 2019 primarily represent impairment losses recognised in the refining segment of RMB 140 million (2018: RMB 353 million), the marketing and distribution segment of RMB 52 million (2018: RMB 254 million), the chemicals segment of RMB 4 million (2018: RMB 1,252 million) and the exploration and production (“E&P”) segment of RMB 0 million (2018: RMB 4,274 million). The primary factor resulting in the E&P segment impairment loss in the prior year was downward revision of oil and gas reserve in certain fields. Exploration and production (“E&P”) segment determines recoverable amounts of fixed assets relating to oil and gas producing activities include significant judgments and assumptions. The recoverable amounts were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2018: 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 184 million (2018: RMB 312 million). It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result additional impairment loss in Group’s fixed assets relating to oil and gas producing activities by approximately RMB 180 million (2018: RMB 315 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result additional impairment loss in Group’s fixed assets relating to oil and gas producing activities by approximately RMB 7 million (2018: less RMB 5 million). At 31 December 2019 and 31 December 2018, the Group and the Company had no individually significant fixed assets which were pledged. At 31 December 2019 and 31 December 2018, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal. At 31 December 2019 and 31 December 2018, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use. 111 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 15 CONSTRUCTION IN PROGRESS Cost: Balance at 1 January 2019 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 2019 Provision for impairment losses: Balance at 1 January 2019 Additions for the year Decreases for the year Exchange adjustments Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 At 31 December 2019, major construction projects of the Group are as follows: The Group RMB million The Company RMB million 138,817 144,369 (115) – (5,831) (91,845) (10,086) 17 175,326 1,854 135 (161) 16 1,844 52,011 61,438 (163) (903) (5,432) (44,915) (1,130) – 60,906 413 – – – 413 173,482 136,963 60,493 51,598 Budgeted amount RMB million 34,667 13,865 Balance at 1 January 2019 RMB million 17,779 3,428 Net change for the year RMB million 10,803 8,692 11,589 5,682 26,787 9,961 309 51 2,248 1,499 Percentage of project investment to budgeted amount Source of funding 87% 87% Bank loans & self-financing Bank loans & self-financing 68% Bank loans & self-financing 12% Self-financing Balance at 31 December 2019 RMB million 28,582 12,120 7,930 1,808 973 1,024 10% Bank loans & self-financing Accumulated interest capitalised at 31 December 2019 RMB million 720 267 204 – 6 Project name Zhongke Refine Integration Project Wen 23 Gas Storage Project (First-stage) Xinjiang Coal-based Substitute Natural Gas (SNG) Export Pipeline Construction Project (First-stage) Zhenhai Refining and Chemical ethylene expansion project Western Sichuan Gas Field Leikoupo Formation Gas Reservoir Development and Construction Project 112 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 16 RIGHT-OF-USE ASSETS The Group Cost: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Accumulated depreciation: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Provision for impairment losses: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 The Company Cost: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Accumulated depreciation: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Provision for impairment losses: Balance at 31 December 2018 Change in accounting policy Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 Land RMB million Others RMB million Total RMB million – 180,074 180,074 1,072 (5,014) 176,132 – – – 6,578 (11) 6,567 – – – – – – – 27,381 27,381 7,555 (748) 34,188 – – – 5,728 (26) 5,702 – – – – – – – 207,455 207,455 8,627 (5,762) 210,320 – – – 12,306 (37) 12,269 – – – – – – 169,565 – 28,486 – 198,051 – Land RMB million Others RMB million Total RMB million – 119,142 119,142 29 (3,098) 116,073 – – – 3,801 (5) 3,796 – – – – – – – 634 634 624 (137) 1,121 – – – 584 (18) 566 – – – – – – – 119,776 119,776 653 (3,235) 117,194 – – – 4,385 (23) 4,362 – – – – – – 112,277 – 555 – 112,832 – 113 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 17 INTANGIBLE ASSETS The Group Cost: Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Accumulated amortisation: Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Provision for impairment losses: Balance at 1 January 2019 Additions for the year Decreases for the year Balance at 31 December 2019 Net book value: Balance at 31 December 2019 Balance at 31 December 2018 Land use rights RMB million Patents RMB million Non-patent technology RMB million Operation rights RMB million Others RMB million Total RMB million 84,731 8,252 (423) 92,560 19,986 2,655 (118) 22,523 231 12 (15) 228 69,809 64,514 5,230 114 – 5,344 3,397 204 – 3,601 482 – – 482 1,261 1,351 4,029 1,002 – 5,031 2,997 278 – 3,275 24 3 – 27 52,216 1,494 (161) 53,549 17,137 2,357 (103) 19,391 145 – – 145 5,265 643 (241) 5,667 3,200 448 (142) 3,506 17 – – 17 151,471 11,505 (825) 162,151 46,717 5,942 (363) 52,296 899 15 (15) 899 1,729 1,008 34,013 34,934 2,144 2,048 108,956 103,855 Amortisation of the intangible assets of the Group charged for the year ended 31 December 2019 is RMB 5,695 million (2018: RMB 5,414 million). 18 GOODWILL Goodwill is allocated to the following Group’s cash-generating units: Name of investees Principal activities Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”) Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) Sinopec Beijing Yanshan Petrochemical Branch (“Sinopec Yanshan”) Other units without individual significant goodwill Total Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products Manufacturing of intermediate petrochemical products and petroleum products At 31 December 2019 RMB million At 31 December 2018 RMB million 4,043 2,541 1,004 1,109 8,697 4,043 2,541 1,004 1,088 8,676 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 11.0% to 11.9% (2018: 11.7% to 12.3%). 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. 19 LONG-TERM DEFERRED EXPENSES Long-term deferred expenses primarily represent catalysts expenditures and improvement expenditures of fixed assets. 114 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 20 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 Other equity instrument investments Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million 2,546 1,142 116 16,463 3,594 131 595 318 24,905 2,563 1,808 1,131 15,427 3,709 117 474 174 25,403 – – (384) (12,317) – (7) (508) (882) (14,098) – – (27) (8,666) – (1) (535) (428) (9,657) The consolidated elimination amount between deferred tax assets and liabilities are as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows: Deferred tax assets Deferred tax liabilities At 31 December 2019 RMB million At 31 December 2018 RMB million 7,289 7,289 3,709 3,709 At 31 December 2019 RMB million At 31 December 2018 RMB million 17,616 6,809 21,694 5,948 At 31 December 2019, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 16,605 million (2018: RMB 18,308 million), of which RMB 1,992 million (2018: RMB 2,437 million) was incurred for the year ended 31 December 2019, because it was not probable that the related tax benefit will be realised. These deductible losses carried forward of RMB 3,163 million, RMB 3,156 million, RMB 5,938 million, RMB 2,356 million and RMB 1,992 million will expire in 2020, 2021, 2022, 2023, 2024 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 2019, write-down of deferred tax assets amounted to RMB 189 million (2018: RMB 188 million) (Note 52). 115 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201921 OTHER NON-CURRENT ASSETS Other non-current assets mainly represent long-term receivables, prepayments for construction projects and purchases of equipment. 22 DETAILS OF IMPAIRMENT LOSSES At 31 December 2019, impairment losses of the Group are analysed as follows: Allowance for doubtful accounts Included: Accounts receivable Prepayments Other receivables Inventories Long-term equity investments Fixed assets Construction in progress Intangible assets Goodwill Others Total Note 8 10 11 12 13 14 15 17 18 Balance at 1 January 2019 Provision for the year Written back for the year Written off for the year 2019 RMB million RMB million RMB million RMB million RMB million RMB million Other increase/ (decrease) Balance at 31 December 606 53 1,481 2,140 6,376 1,686 79,063 1,854 899 7,861 102 99,981 1,566 35 165 1,766 1,616 – 196 135 – – 1 3,714 (283) (5) (167) (455) (189) – – – – – (17) (661) (41) (3) (24) (68) (5,233) (1) (1,692) (110) – – (81) (7,185) – – 1 1 12 25 (27) (35) – – 1 (23) 1,848 80 1,456 3,384 2,582 1,710 77,540 1,844 899 7,861 6 95,826 The reasons for recognising impairment losses are set out in the respective notes of respective assets. 23 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 – Hong Kong Dollar loans – Euro loans Total At 31 December 2019 At 31 December 2018 Original currency million Exchange rates 13 6.9762 321 553 3 6.9762 0.8958 7.8155 Original currency million Exchange rates 566 6.8632 3,319 1,645 3 6.8632 0.8762 7.8473 RMB million 25,709 25,619 90 22 22 5,465 2,709 2,236 495 25 31,196 RMB million 17,088 13,201 3,887 300 300 27,304 3,061 22,780 1,441 22 44,692 At 31 December 2019, the Group’s interest rates on short-term loans were from interest 0.80% to 6.53% (At 31 December 2018: from interest 0.80% to 5.22%) per annum. The majority of the above loans are by credit. At 31 December 2019 and 31 December 2018, the Group had no significant overdue short-term loans. 116 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 24 BILLS PAYABLE Bills payable primarily represented bank accepted bills for the purchase of material, goods and products. Bills payable were due within one year. At 31 December 2019 and 31 December 2018, the Group had no overdue unpaid bills. 25 ACCOUNTS PAYABLE At 31 December 2019 and 31 December 2018, the Group had no individually significant accounts payable aged over one year. 26 CONTRACT LIABILITIES As at 31 December 2019, the Group’s contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year. 27 EMPLOYEE BENEFITS PAYABLE At 31 December 2019 and 31 December 2018, the Group’s employee benefits payable primarily represented wages payable and social insurance payables. 28 TAXES PAYABLE The Group Value-added tax payable Consumption tax payable Income tax payable Mineral resources compensation fee payable Other taxes Total 29 OTHER PAYABLES At 31 December 2019 RMB million At 31 December 2018 RMB million 4,932 52,863 3,264 136 8,144 69,339 9,810 59,944 6,699 138 10,469 87,060 At 31 December 2019 and 31 December 2018, other payables of the Group over one year primarily represented payables for constructions. 30 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 Debentures payable due within one year Lease liabilities due within one year Others Non-current liabilities due within one year At 31 December 2019 At 31 December 2018 Original currency million Exchange rates RMB million Original currency million Exchange rates RMB million 4 6.9762 1,765 25 37,824 39,614 13,000 13,000 15,198 1,678 69,490 5 6.8632 12,039 35 4,361 16,435 – – – 1,015 17,450 At 31 December 2019 and 31 December 2018, the Group had no significant overdue long-term loans. 117 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 31 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 5.23% per annum at 31 December 2019 with maturities through 2034 Interest rates ranging from interest 1.55% to 4.29% per annum at 31 December 2019 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 5.50% per annum at 31 December 2019 with maturities through 2034 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. 32 DEBENTURES PAYABLE The Group Debentures payable: – Corporate Bonds (i) Less: Current portion Total Note: At 31 December 2019 At 31 December 2018 Original currency million Exchange rates Original currency million Exchange rates RMB million 31,714 RMB million 31,025 11 6.9762 75 16 6.8632 109 (1,790) 29,999 47,450 (37,824) 9,626 39,625 (12,074) 19,060 46,877 (4,361) 42,516 61,576 At 31 December 2019 RMB million At 31 December 2018 RMB million 5,089 12,123 22,413 39,625 40,004 11,999 9,573 61,576 At 31 December 2019 RMB million At 31 December 2018 RMB million 32,157 (13,000) 19,157 31,951 – 31,951 (i) These corporate bonds are carried at amortised cost, including USD denominated corporate bonds of RMB 12,157 million, and RMB denominated corporate bonds of RMB 20,000 million (2018: USD denominated corporate bonds of RMB 11,951 million, and RMB denominated corporate bonds of RMB 20,000 million). At 31 December 2019, corporate bonds of RMB 12,157 million (2018: RMB 11,951 million) are guaranteed by Sinopec Group Company. 118 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 33 LEASE LIABILITY The Group Lease liabilities Deduct: Current portion of lease liabilities (Note 30) Total 34 PROVISIONS At 31 December 2019 RMB million At 31 December 2018 RMB million 192,872 15,198 177,674 – – – 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 2019 Provision for the year Accretion expenses Decrease for the year Exchange adjustments Balance at 31 December 2019 35 OTHER NON-CURRENT LIABILITIES The Group RMB million 42,007 1,408 1,418 (2,439) 44 42,438 Other non-current liabilities primarily represent long-term payables, special payables and deferred income. 36 SHARE CAPITAL The Group Registered, issued and fully paid: 95,557,771,046 listed A shares (2018: 95,557,771,046) of RMB 1.00 each 25,513,438,600 listed H shares (2018: 25,513,438,600) of RMB 1.00 each Total At 31 December 2019 RMB million At 31 December 2018 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 SAR 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 SAR 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. 119 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 36 SHARE CAPITAL (Continued) The Group (Continued) 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. 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 shareholders 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 2019, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 7.4% (2018: 11.5%) and 50.0% (2018: 46.1%), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 31 and 58, 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. 37 CAPITAL RESERVE The movements in capital reserve of the Group are as follows: Balance at 1 January 2019 Transaction with minority interests Others Balance at 31 December 2019 RMB million 119,192 2,933 2 122,127 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. 120 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201938 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: 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 differences Subtotal Other comprehensive income 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 differences Subtotal Other comprehensive income Before-tax amount RMB million 2019 Tax effect RMB million Net-of-tax amount RMB million 5,258 (853) 6,111 (39) (39) (810) (810) 1,480 1,480 6,742 (974) 196 (1,170) 8 8 – – – – (1,162) 4,284 (657) 4,941 (31) (31) (810) (810) 1,480 1,480 5,580 Before-tax amount RMB million 2018 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) 121 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 38 OTHER COMPREHENSIVE INCOME (Continued) The Group (Continued) (b) The change of each item in other comprehensive income Equity Attributable to shareholders of the company Other comprehensive income that can be converted into profit or loss under the equity method RMB million Changes in fair value of available-for-sale financial assets RMB million (3,481) – (3,481) (183) (3,664) (3,664) (424) (4,088) 57 (57) — — — — — — Changes in fair value of other equity instrument investments RMB million — 45 45 (41) 4 4 (20) (16) Foreign currency translation differences RMB million (479) – (479) 2,282 1,803 1,803 943 2,746 Cash flow hedges RMB million (510) – (510) (4,407) (4,917) (4,917) 5,954 1,037 Minority interests RMB million Total other comprehensive income RMB million Subtotal RMB million (4,413) (12) (4,425) (2,349) (6,774) (6,774) 6,453 (321) (2,783) – (2,783) 994 (1,789) (1,789) 220 (1,569) (7,196) (12) (7,208) (1,355) (8,563) (8,563) 6,673 (1,890) 31 December 2017 Change in accounting policy 1 January 2018 Changes in 2018 31 December 2018 1 January 2019 Changes in 2019 31 December 2019 As at 31 December 2019, cash flow hedge reserve amounted to a gain of RMB 1,102 million (31 December 2018: a loss of RMB 4,932 million), of which a gain of RMB 1,037 million was attribute to shareholders of the Company (31 December 2018: a loss of RMB 4,917 million). 39 SURPLUS RESERVES Movements in surplus reserves are as follows: Balance at 1 January 2019 Appropriation Balance at 31 December 2019 Statutory surplus reserve RMB million The Group Discretionary surplus reserves RMB million 86,678 3,745 90,423 117,000 – 117,000 Total RMB million 203,678 3,745 207,423 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. 122 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201940 OPERATING INCOME AND OPERATING COSTS Income from principal operations Income from other operations Total Operating costs The Group 2019 RMB million 2018 RMB million The Company 2019 RMB million 2018 RMB million 2,900,488 65,705 2,966,193 2,488,852 2,825,613 65,566 2,891,179 2,401,012 984,185 37,087 1,021,272 799,566 1,022,195 36,298 1,058,493 812,355 The income from principal operations mainly represents revenue from the sales of refined petroleum products, chemical products, crude oil and natural gas. 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 60. The detailed information about the Group’s operating income is as follows: Income from principal operations Gasoline Diesel Crude oil Basic chemical feedstock Kerosene Synthetic resin Synthetic fiber monomers and polymers Natural gas Others (i) Income from other operations Sale of materials and others Rental income Total Note: (i) Others are primarily liquefied petroleum gas and other refinery and chemical by-products and joint products. 41 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. 2019 RMB million 2018 RMB million 2,900,488 699,202 615,342 553,848 214,911 191,636 124,271 80,100 53,839 367,339 65,705 64,489 1,216 2,966,193 2,825,613 711,236 594,008 519,910 250,884 168,823 124,618 77,572 43,205 335,357 65,566 64,503 1,063 2,891,179 2019 RMB million 2018 RMB million 202,671 16,247 12,011 5,883 5,723 242,535 201,901 18,237 13,187 6,021 7,152 246,498 123 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201942 FINANCIAL EXPENSES The Group Interest expenses incurred Less: Capitalised interest expenses Add: Interest expense on lease liabilities Net interest expenses Accretion expenses (Note 34) Interest income Net foreign exchange loss/(gain) Total 2019 RMB million 2018 RMB million 6,954 1,015 9,646 15,585 1,418 (7,206) 170 9,967 6,376 493 — 5,883 1,438 (7,726) (596) (1,001) The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2019 by the Group ranged from 2.92% to 4.66% (2018: 2.37% to 4.66%). 43 CLASSIFICATION OF EXPENSES BY NATURE The operating 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 44 RESEARCH AND DEVELOPMENT EXPENSES 2019 RMB million 2018 RMB million 2,380,907 81,482 108,812 10,510 52,674 2,634,385 2,292,983 77,721 109,967 10,744 61,083 2,552,498 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. 45 EXPLORATION EXPENSES Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs. 46 OTHER INCOME Other income are mainly the government grants related to the business activities. 47 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 instrument investments Investment (loss)/income from holding/disposal of financial assets and liabilities and derivative financial instruments at fair value through profit or loss Gain/(loss) from ineffective portion of cash flow hedges Others Total The Group 2019 RMB million 2018 RMB million The Company 2019 RMB million 2018 RMB million – 12,777 185 492 (1,467) 587 54 12,628 – 13,974 397 515 (1,940) (1,604) 86 11,428 25,416 3,579 (1,543) 53 142 1 414 28,062 25,390 4,259 (2,768) 14 692 7 742 28,336 124 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 48 (LOSSES)/GAINS FROM CHANGES IN FAIR VALUE The Group Net fair value (losses)/gains on financial assets and financial liabilities at fair value through profit or loss Unrealised losses from ineffective portion cash flow hedges, net Others Total 49 IMPAIRMENT LOSSES The Group Prepayments Inventories Long-term equity investment Fixed assets Construction in progress Others Total 50 NON-OPERATING INCOME The Group Government grants Others Total 51 NON-OPERATING EXPENSES The Group Fines, penalties and compensation Donations Others Total 2019 RMB million 2018 RMB million (2,702) (809) – (3,511) 3,008 (374) 22 2,656 2019 RMB million 2018 RMB million 30 1,427 – 196 135 1 1,789 – 5,421 7 6,149 28 – 11,605 2019 RMB million 2018 RMB million 884 1,714 2,598 788 1,282 2,070 2019 RMB million 2018 RMB million 173 209 2,225 2,607 276 180 2,586 3,042 125 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201952 INCOME TAX EXPENSE The Group Provision for income tax for the year Deferred taxation Under-provision for income tax in respect of preceding year Total Reconciliation between actual income tax expense and accounting profit at applicable tax rates is as follows: Profit before taxation Expected income tax expense at a tax rate of 25% Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of preferential tax rate (i) Effect of income taxes at foreign operations 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: 2019 RMB million 2018 RMB million 14,976 3,385 (467) 17,894 27,176 (6,244) (719) 20,213 2019 RMB million 2018 RMB million 90,016 22,504 2,278 (4,458) (2,003) (312) (335) 498 189 (467) 17,894 100,502 25,126 1,989 (5,019) (1,259) 77 (779) 609 188 (719) 20,213 (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. 53 DIVIDENDS (a) Dividends of ordinary shares declared after the balance sheet date Pursuant to a resolution passed at the director’s meeting on 27 March 2020, final dividends in respect of the year ended 31 December 2019 of RMB 0.19 (2018: RMB 0.26) per share totaling RMB 23,004 million (2018: RMB 31,479 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 23 August 2019, the directors authorized to declare the interim dividends for the year ending 31 December 2019 of RMB 0.12 (2018: RMB 0.16) per share totaling RMB 14,529 million (2018: RMB 19,371 million). Pursuant to the shareholders’ approval at the Annual General Meeting on 9 May 2019, a final dividend of RMB 0.26 per share totaling RMB 31,479 million according to total shares on 10 June 2019 was approved. All dividends have been paid in the year ended 31 December 2019. 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 on 4 June 2018 was approved. All dividends have been paid in the year ended 31 December 2018. 126 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201954 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 right-of-use assets Depreciation of fixed assets Amortisation of intangible assets and long-term deferred expenses Dry hole costs written off Net loss on disposal of non-current assets Fair value loss/(gain) Financial expenses Investment income Decrease/(increase) in deferred tax assets Increase/(decrease) in deferred tax liabilities Increase in inventories Safety fund reserve Increase in operating receivables Decrease in operating payables Net cash flow from operating activities (b) Net change in cash: Cash balance at the end of the year Less: Cash at the beginning of the year Net decrease 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 (d) Other cash paid relating to financing activities: Repayments of lease liabilities Others Total 2019 RMB million 2018 RMB million 72,122 1,789 1,264 12,246 87,612 8,954 5,831 1,918 3,511 10,352 (12,628) 3,124 261 (9,285) 69 (11,802) (21,918) 153,420 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 2019 RMB million 2018 RMB million 60,313 111,922 (51,609) 111,922 113,218 (1,296) 2019 RMB million 2018 RMB million 14 60,299 60,313 82 111,840 111,922 2019 RMB million 2018 RMB million 16,859 328 17,187 – 436 436 127 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 55 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 Zhang Yuzhuo RMB 326,547 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. 128 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201955 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 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 2019 RMB million 295,532 197,308 8,206 33,310 38,668 3,098 – – – 116 1,066 1,334 5,350 3,438 2018 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 The amounts set out in the table above in respect of the year ended 31 December 2019 and 2018 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 2019 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 159,086 million (2018: RMB 140,427 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 142,433 million (2018: RMB 123,772 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 3,097 million (2018: RMB 6,664 million), lease charges for land, buildings and others paid by the Group of RMB 11,330 million, RMB 509 million and RMB 383 million (2018: RMB 7,636 million, RMB 643 million and RMB 602 million), respectively and interest expenses of RMB 1,334 million (2018: RMB 1,110 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 74,453 million (2018: RMB 59,472 million), comprising RMB 73,365 million (2018: RMB 58,606 million) for sales of goods, RMB 1,066 million (2018: RMB 848 million) for interest income and RMB 22 million (2018: RMB 18 million) for agency commission income. For the year ended 31 December 2019, no individually significant right-of-use assets were leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures by the Group. The interest expense recognised for the year ended 31 December 2019 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB 8,518 million. For the year ended 31 December 2019, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB 11,333 million, RMB 518 million and RMB 468 million (2018: RMB 7,636 million, RMB 653 million and RMB 836 million). As at 31 December 2019 and 31 December 2018, 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 59(b). Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 59(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 incurred for operating leases in respect of land, buildings and equipment leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures. No lease charges have incurred in the current year because of the adoption of the new lease standard. 129 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201955 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): Notes (Continued): (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 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 2019. 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 24 August 2018, which took effect on 1 January 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. 130 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201955 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (4) Balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures The balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures at 31 December 2019 and 31 December 2018 are as follows: Cash at bank and on hand Bills receivable Accounts receivable Receivables financing Other receivables Prepayments and other current assets Other non-current assets Bills payable Accounts payable Contract liabilities Other payables Other non-current liabilities Short-term loans Long-term loans (including current portion) (Note) Lease liabilities (including current portion) The ultimate holding company Other related companies At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million – – 52 – 8 6 – 17 94 51 64 – – – 82,255 – – 11 – 33 – – 16 3 25 2 – – – – 35,707 – 12,916 407 11,424 1,285 734 3,801 21,384 4,413 16,077 – 5,465 47,450 89,147 41,057 74 7,470 – 6,901 731 23,482 1,991 15,520 3,248 18,158 12,470 27,304 46,877 – Note: As at 31 December 2019, the long-term borrowings (including current portion) mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from Sinopec Group Company through 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 23 and Note 31. As at and for the year ended 31 December 2019, and as at and for the year ended 31 December 2018, 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 2019 RMB thousand 2018 RMB thousand 9,209 536 9,745 5,745 351 6,096 131 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201956 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change. The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The significant accounting policies are set forth in Note 3. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements. (a) Oil and gas properties and reserves The accounting for the exploration and production segment’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. The Group has used the successful efforts method to account for oil and gas business activities. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Engineering estimates of the Group’s oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”. Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, the Group’s earnings could be affected by changes in depreciation expense or an immediate write-down of the carrying amount of oil and properties. 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 period. 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 periods 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. 132 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201957 PRINCIPAL SUBSIDIARIES The Company’s principal subsidiaries have been consolidated into the Group’s financial statements for the year ended 31 December 2019. 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 Actual investment at 31 December 2019 million Percentage of equity interest/voting right held by the Group % Minority Interests at 31 December 2019 RMB million Registered capital/ paid-up capital million (a) Subsidiaries acquired through group restructuring: China Petrochemical International Company Limited China International United Petroleum and Chemical Company Limited Sinopec Catalyst Company Limited Sinopec Yangzi Petrochemical Company Limited Sinopec Pipeline Storage & Transportation Company Limited Sinopec Lubricant Company Limited Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Marketing 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 Trading of petrochemical products Trading of crude oil and petrochemical products RMB 1,400 RMB 5,000 RMB 1,856 RMB 6,585 Production and sale of catalyst products Manufacturing of intermediate petrochemical products and RMB 1,500 RMB 15,651 RMB 2,424 RMB 15,651 petroleum products 100.00 100.00 100.00 100.00 Pipeline storage and transportation of crude oil RMB 12,000 RMB 12,000 100.00 Production and sale of refined petroleum products, lubricant RMB 3,374 RMB 3,374 100.00 base oil, and petrochemical materials Production and sale of polyester chips and polyester fibres RMB 4,000 RMB 6,713 100.00 24 4,593 298 – – 70 – Marketing and distribution of refined petroleum products Provision of crude oil jetty services and natural gas pipeline RMB 28,403 HKD 248 RMB 20,000 HKD 3,952 70.42 60.33 70,528 4,359 transmission services Manufacturing of synthetic fibres, resin and plastics, RMB 10,824 RMB 5,820 50.44 14,942 intermediate petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical RMB 8,140 RMB 4,646 50.00 5,927 products and petroleum products Investment in exploration, production and sale of petroleum RMB 8,000 RMB 8,000 100.00 8,669 and natural gas Investment holding of overseas business Marketing and distribution of petrochemical products Coal chemical industry investment management, production USD 1,662 RMB 1,000 RMB 22,761 USD 1,662 RMB 1,165 RMB 22,795 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 RMB 5,294 RMB 5,240 RMB 5,000 RMB 4,250 Production, sale, research and development of ethylene and RMB 7,193 RMB 7,193 100.00 100.00 100.00 98.98 85.00 59.00 – 74 (88) 133 1,543 4,863 (c) Subsidiaries acquired through business combination under common control: downstream byproducts Sinopec Hainan Refining and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited Manufacturing of intermediate petrochemical products and RMB 9,628 RMB 7,205 75.00 4,479 petroleum products Manufacturing of intermediate petrochemical products and RMB 1,595 RMB 7,233 100.00 – petroleum products Gaoqiao Petrochemical Company Limited Manufacturing of intermediate petrochemical products and RMB 10,000 RMB 4,804 55.00 8,006 petroleum products (d) Subsidiaries acquired through business combination not under common control: Shanghai SECCO Production and sale of petrochemical products RMB 7,801 RMB 7,801 67.60 5,997 * 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 SAR, 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. 133 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 57 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 whose minority interests that are material to the Group. Summarised consolidated balance sheet Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Shanghai SECCO At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million At 31 December 2019 RMB million At 31 December 2018 RMB million Sinopec-SK At 31 December 2019 RMB million At 31 December 2018 RMB million 129,266 (192,106) (62,840) 340,356 (58,732) 130,861 (181,766) (50,905) 261,062 (2,086) 19,151 (456) 18,695 13,234 (16,952) 16,731 (483) 16,248 38,020 (31,050) 22,309 (15,479) 6,830 23,327 (141) 25,299 (13,913) 11,386 19,241 (140) 1,788 (804) 984 11,558 (688) 816 (50) 766 11,444 (688) 1,284 (2,961) (1,677) 12,777 (158) 1,209 (3,722) (2,513) 12,895 (132) 11,858 (3,196) 8,662 11,473 (1,627) 9,537 (2,233) 7,304 12,301 (1,698) 5,337 (15,037) (9,700) 21,567 (7) 2,750 (2,333) 417 12,612 – 281,624 258,976 (3,718) 6,970 23,186 19,101 10,870 10,756 12,619 12,763 9,846 10,603 21,560 12,612 Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets/ (liabilities) Summarised consolidated statement of comprehensive income and cash flow Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million Sinopec Kantons 2019 RMB million 2018 RMB million Shanghai SECCO 2019 RMB million 2018 RMB million Sinopec-SK 2019 RMB million 2018 RMB million Turnover Profit for the year Total comprehensive income Comprehensive income attributable to minority interests Dividends paid to minority interests Net cash generated from/ (used in) operating activities 1,427,705 22,984 23,354 1,443,698 21,995 22,538 3,282 2,831 2,693 5,037 3,272 4,536 100,346 2,225 2,233 107,765 5,277 5,270 8,285 4,830 7,780 3,964 1,651 2,737 10,926 – 40,260 24,825 2,128 3,467 1,112 1,344 5,121 2,612 1,616 6,695 5,535 477 477 238 650 622 5,261 1,595 1,595 798 600 38 1,274 1,131 1,140 433 159 716 1,398 1,065 1,067 399 104 738 28,341 3,137 3,137 1,016 822 4,601 26,320 3,099 3,099 1,004 1,191 3,766 31,016 664 664 232 – 17,134 1,879 1,879 658 – 5,532 3,308 58 COMMITMENTS Capital commitments At 31 December 2019 and 31 December 2018, the capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for Total At 31 December 2019 RMB million At 31 December 2018 RMB million 138,088 63,967 202,055 141,045 54,392 195,437 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 6,100 million (2018: RMB 5,553 million). 134 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 58 COMMITMENTS (Continued) 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 which are expensed. Expenses recognised were approximately RMB 179 million for the year ended 31 December 2019 (2018: RMB 231 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 Total At 31 December 2019 RMB million At 31 December 2018 RMB million 302 69 34 30 29 845 1,309 380 79 33 28 28 852 1,400 The implementation of commitments in previous year and the Group’s commitments did not have material discrepancy. 59 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 2019 and 31 December 2018, the guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures Associates (i) Others (ii) Total Notes: At 31 December 2019 RMB million At 31 December 2018 RMB million 7,100 10,140 – 17,240 5,033 12,168 7,197 24,398 (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 2019, the amount withdrawn by Zhongtian Synergetic Energy from banks and guaranteed by the Group was RMB 10,140 million (31 December 2018: RMB 12,168 million). (ii) The Group provided a guarantee in respect to the loan of New Bright International Development Limited borrowed from Sinopec Overseas Oil & Gas Limited. As at 31 December 2019, the loan agreement was terminated, in consequence, the guarantee agreement was terminated. The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2019 and 31 December 2018, the Group estimates that there is no need to pay for the guarantees. Thus no liabilities have been accrued for a loss related to the Group’s obligation under these guarantee arrangements. 135 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201959 CONTINGENT LIABILITIES (Continued) 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 recognised normal routine pollutant discharge fees of approximately RMB 9,235 million in the consolidated financial statements for the year ended 31 December 2019 (2018: RMB 7,940 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. 60 SEGMENT REPORTING Segment information is presented in respect of the Group’s operating segments. The format is based on the Group’s management and internal reporting structure. In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments. (i) Exploration and production – which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers. (ii) Refining – which processes and purifies crude oil, which is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers. (iii) Marketing and distribution – which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks. (iv) Chemicals – which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products to external customers. (v) Corporate and others – which largely comprise the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries. The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed separately because they manufacture and/ or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics. (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, non-current liabilities due within one year, long-term loans, debentures payable, deferred tax liabilities, other non-current liabilities and other unallocated liabilities. 136 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201960 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) 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 2019 RMB million 2018 RMB million 111,114 89,315 200,429 141,674 1,077,018 1,218,692 1,393,557 4,159 1,397,716 425,508 54,865 480,373 828,635 654,337 1,482,972 (1,879,694) 2,900,488 10,283 5,464 33,247 14,861 1,850 65,705 2,966,193 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 2,891,179 137 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 60 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Operating profit/(loss) 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 (Losses)/gains from changes in fair value Asset disposal losses 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 138 2019 RMB million 2018 RMB million 6,289 30,074 29,781 16,586 3,530 (40) 86,220 3,148 (580) 3,499 5,178 1,383 12,628 9,967 5,973 (3,511) (1,318) 90,025 2,598 2,607 90,016 (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 At 31 December 2019 RMB million At 31 December 2018 RMB million 410,950 321,080 399,242 175,884 131,686 1,438,842 127,927 152,204 17,616 18,482 1,755,071 162,262 120,617 219,381 53,515 136,420 692,195 31,196 69,490 39,625 19,157 6,809 15,364 4,330 878,166 321,686 271,356 317,641 156,865 152,799 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 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 60 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 2019 RMB million 2018 RMB million 61,739 31,372 29,566 22,438 1,979 147,094 50,732 19,676 21,572 13,966 2,866 108,812 3 245 80 17 – 345 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 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 assets 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 2019 RMB million 2018 RMB million 2,131,078 505,672 329,443 2,966,193 2,119,580 395,129 376,470 2,891,179 At 31 December 2019 RMB million At 31 December 2018 RMB million 1,235,676 52,705 1,288,381 989,668 50,892 1,040,560 139 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 61 FINANCIAL INSTRUMENTS Overview Financial assets of the Group include cash at bank and on hand, financial assets held for trading, derivative financial assets, accounts receivable, bills receivable, receivables financing, other receivables and other equity instrument investments. Financial liabilities of the Group include short-term loans, derivative financial liabilities, bills payable, accounts payable, employee benefits payable, other payables, long-term loans, debentures payable and lease liabilities. 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 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 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 deposits) 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 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 2019, 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, accounts receivable, bills receivable, receivables financing 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 accounts receivable, bills receivable, receivables financing 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 accounts receivable, bills receivable and receivables financing, 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 accounts receivable, bills receivable and receivables financing. To measure the expected credit losses, accounts receivable, bills receivable and receivables financing 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 months before 31 December 2019 or 1 January 2019, 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 accounts receivable, bills receivable and receivables financing. The detailed analysis of accounts receivable and receivables financing is listed in note 8 and note 9. The Group’s other receivables are considered to have low credit risk, and the loss allowance recognised during the year was therefore limited to 12 months expected credit 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. 140 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201961 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 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 liquidity risk. At 31 December 2019, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 379,649 million (2018: RMB 387,748 million) on an unsecured basis, at a weighted average interest rate of 3.57% per annum (2018: 3.87%). At 31 December 2019, the Group’s outstanding borrowings under these facilities were RMB 2,947 million (2018: RMB 21,236 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: At 31 December 2019 Total contractual undiscounted cash flow Within one year or on demand More than one year but less than two years More than two years but less than five years Carrying amount More than five years RMB million RMB million RMB million RMB million RMB million RMB million Short-term loans Derivative financial liabilities Bills payable Accounts payable Other payables and employee benefits payable Non-current liabilities due within one year Long-term loans Debentures payable Lease liabilities Total 31,196 2,729 11,834 187,958 77,093 69,490 39,625 19,157 177,674 616,756 31,633 2,729 11,834 187,958 77,093 72,180 49,604 24,400 351,223 808,654 31,633 2,729 11,834 187,958 77,093 72,180 404 764 – 384,595 – – – – – – 6,492 764 15,676 22,932 – – – – – – 15,610 16,667 45,008 77,285 – – – – – – 27,098 6,205 290,539 323,842 At 31 December 2018 Total contractual undiscounted cash flow Within one year or on demand More than one year but less than two years More than two years but less than five years Carrying amount More than five years RMB million RMB million RMB million RMB million RMB million RMB million Short-term loans Derivative financial liabilities Bills payable Accounts payable Other payables and employee benefits payable Non-current liabilities due within one year Long-term loans Debentures payable Total 44,692 13,571 6,416 186,341 84,775 17,450 61,576 31,951 446,772 45,040 13,571 6,416 186,341 84,775 18,053 66,387 38,674 459,257 45,040 13,571 6,416 186,341 84,775 18,053 792 1,269 356,257 – – – – – – 40,885 14,030 54,915 – – – – – – 13,807 17,124 30,931 – – – – – – 10,903 6,251 17,154 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. 141 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 201961 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 USD and lease liabilities denominated in SGD. The Group enters into foreign exchange contracts to manage currency risk exposure. Included primarily in short-term and long-term debts and lease liabilities 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 lease liabilities US Dollar Singapore Dollar At 31 December 2019 million At 31 December 2018 million 103 4 668 – A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2019 and 31 December 2018 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 2018. The Group US Dollar Singapore Dollar At 31 December 2019 RMB million At 31 December 2018 RMB million 27 1 172 – 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 23 and Note 31, respectively. At 31 December 2019, 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 352 million (2018: decrease/increase RMB 424 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 2018. (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 contracts, to manage a portion of such risk. At 31 December 2019, 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 2019, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 788 million (2018: RMB 7,844 million) and derivative financial liabilities of RMB 2,728 million (2018: RMB 13,568 million). At 31 December 2019, 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 increase/decrease the Group’s net profit for the year by approximately RMB 3,134 million (2018: decrease/increase RMB 197 million), and decrease/increase the Group’s other comprehensive income by approximately RMB 4,289 million (2018: increase/decrease RMB 6,850 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 2018. 142 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 61 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 2019 The Group Assets Financial assets held for trading: – Structured deposits – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Receivables financing: – Receivables financing Other equity instrument investments: – Other Investments Liabilities Derivative financial liabilities: – Derivative financial liabilities 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 instrument investments: – Other Investments Liabilities Derivative financial liabilities: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million – 1 128 – 90 219 – – 709 – – 709 3,318 – – 3,318 1 837 8,622 8,622 1,431 13,371 1,521 14,299 1,209 1,209 1,520 1,520 – – 2,729 2,729 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 – 25,550 182 – 7,887 1,323 26,873 – – 1,450 35,069 13,571 13,571 During the year ended 31 December 2019, 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 and receivables financing classified as Level 3 financial assets. 143 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 61 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 2.37% to 4.90% (2018: from 2.76% 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 2019 and 31 December 2018: Carrying amount Fair value At 31 December 2019 RMB million At 31 December 2018 RMB million 63,946 62,594 63,085 62,656 The Group has not developed an internal valuation model necessary to estimate 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 2019 and 31 December 2018. 62 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 Other non-operating loss, net Tax effect Total Attributable to: Equity shareholders of the Company Minority interests 2019 RMB million 2018 RMB million 1,318 209 (6,857) (410) 729 (5,011) 1,597 (3,414) (3,320) (94) 742 180 (7,482) (1,023) 1,613 (5,970) 2,312 (3,658) (3,459) (199) 144 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019 63 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 2019 57,591 121,071 0.476 2019 121,071 121,071 2018 63,089 121,071 0.521 2018 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) 64 RETURN ON NET ASSETS AND EARNINGS PER SHARE 2019 57,591 121,071 0.476 2019 121,071 121,071 2018 63,089 121,071 0.521 2018 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: 2019 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 (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) 7.90 0.476 0.476 8.67 0.521 0.521 7.45 0.448 0.448 8.20 0.493 0.493 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 65 EVENTS AFTER THE BALANCE SHEET DATE In early 2020, the outbreak of Coronavirus Disease 2019 (“COVID-19”) has significant impacts on the consumption of refined oil products and sales of chemical products of the Group. The Group has taken a series of strong and effective measures, and has coordinated the prevention and control of the COVID-19 and the resumption of work and production with all-out efforts to minimize its impact. International crude oil prices dropped significantly in March 2020 under the impact of the outbreak of the COVID-19 and the breakdown of OPEC’s production reduction negotiation, which has a significant impact on the Group’s operation. The COVID-19 and international crude oil prices drop in March 2020 are events arose after the balance sheet date, which are non-adjusting events after the balance sheet date. The Group will keep continuous attention on the situation of the COVID-19 and future fluctuation in oil prices, take responsive tackling measures, and assess the impact on the financial position and operating results of the Group after the balance sheet date. Up to the date of the issuance of this report, the assessment is still in progress. 145 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2019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 149 to 203, which comprise: ‧ the consolidated balance sheet as at 31 December 2019; ‧ 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 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) 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. 146 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR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. The key audit matter identified in our audit is “Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities”. Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities Refer to note 8 “Other operating expense, net”, note 16 “Property, plant and equipment” and note 43 “Accounting estimates and judgements” to the consolidated financial statements. Low crude oil prices gave rise to possible indication that the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2019 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 2019, 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 the discounted cash flow projections, tested mathematical accuracy of the projections, and the completeness, accuracy, and relevance of underlying data used in the projections. ‧ Compared estimates of future crude oil prices adopted by the Group against a range of 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 relevant 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. ‧ Used professionals with specialized skill and knowledge to assist in the evaluation of the appropriateness of discount rates adopted by the management. ‧ 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. OTHER INFORMATION The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 147 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED)RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. 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 related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. (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. 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, 27 March 2020 148 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial 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 (losses)/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 Notes Year ended 31 December 2019 RMB 2018 RMB 3 4 5 6 7 8 9 20, 21 10 15 2,900,488 65,705 2,966,193 (2,380,907) (55,313) (108,812) (10,510) (81,482) (242,535) (436) (2,879,995) 86,198 (17,003) 7,206 (170) (9,967) 919 12,777 89,927 (17,894) 72,033 57,465 14,568 72,033 0.475 0.475 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 The notes on pages 156 to 203 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. 149 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2019 (Amounts in million, except per share data) Profit for the year Other comprehensive income: Items that may not be reclassified subsequently to profit or loss Equity investments at fair value through other comprehensive income Total items that may not be reclassified subsequently to profit or loss Items that may be reclassified subsequently to profit or loss Share of other comprehensive loss of associates and joint ventures 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 Notes Year ended 31 December 14 2019 RMB 72,033 (31) (31) (810) 4,941 1,480 5,611 5,580 77,613 62,880 14,733 77,613 2018 RMB 78,897 (53) (53) (229) (9,741) 3,399 (6,571) (6,624) 72,273 54,000 18,273 72,273 The notes on pages 156 to 203 form part of these consolidated financial statements. 150 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2019(Amounts in million) Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Goodwill Interest in associates Interest in joint ventures 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 Derivative financial assets Trade accounts receivable and bills receivable Financial assets at fair value through other comprehensive income Inventories Prepaid expenses and other current assets Total current assets Current liabilities Short-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Derivative 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 Lease liabilities 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 27 March 2020. Notes 31 December 31 December 2018 RMB 2019 RMB 16 17 18, 1(a) 19 20 21 26 29 22 23 24 25 26 27 28 30 30 31, 1(a) 24 32 33 34 30 30 31, 1(a) 29 35 36 622,409 173,482 267,860 8,697 95,737 56,467 1,521 17,616 — 65,426 1,309,215 60,313 67,614 3,319 837 54,865 8,622 192,442 57,844 445,856 40,521 43,289 15,198 2,729 199,792 126,735 144,846 3,264 576,374 130,518 1,178,697 49,156 9,626 177,674 6,809 43,163 16,434 302,862 875,835 121,071 617,079 738,150 137,685 875,835 617,762 136,963 — 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 Zhang Yuzhuo Chairman Ma Yongsheng President Shou Donghua Chief Financial Officer The notes on pages 156 to 203 form part of these consolidated financial statements. 151 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)CONSOLIDATED BALANCE SHEETAs at 31 December 2019(Amounts in million) Balance at 31 December 2017 Change in accounting policy Balance at 1 January 2018 Profit for the year Other comprehensive income (Note 14) Total comprehensive income for the year Amounts transferred to initial carrying amount of 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 Share capital RMB 121,071 – 121,071 – – – – – – – – Capital reserve RMB 26,326 – 26,326 – – – Share premium RMB 55,850 – 55,850 – – – – – – – – – – – – – – – – – – 121,071 – – (12) (12) (261) 26,053 – – – – – 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 The notes on pages 156 to 203 form part of these consolidated financial statements. 152 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2018(Amounts in million) Share capital RMB 121,071 – – – Capital reserve RMB 26,053 – – – Share premium RMB 55,850 – – – – – – – – – – – – – – – – – – – – – – – 121,071 – – 2,933 2,933 7 28,993 – – – – – 55,850 Statutory surplus reserve RMB Discretionary surplus reserve RMB 86,678 – – – – – – 3,745 – – 3,745 – 3,745 – 90,423 117,000 – – – – – – – – – – – – – 117,000 Total equity attributable to shareholders of the Company RMB 717,284 57,465 5,415 62,880 Other reserves RMB (4,477) – 5,415 5,415 Retained earnings RMB 315,109 57,465 – 57,465 Non- controlling interests RMB 139,251 14,568 165 14,733 Total equity RMB 856,535 72,033 5,580 77,613 1,038 – 1,038 55 1,093 – – – – – – – – (35) 1,941 (31,479) (14,529) (3,745) – – (49,753) – (49,753) 51 322,872 (31,479) (14,529) – – – (46,008) 2,933 (43,075) 23 738,150 – – – (18,989) 5,495 (13,494) (2,933) (16,427) 73 137,685 (31,479) (14,529) – (18,989) 5,495 (59,502) – (59,502) 96 875,835 Balance at 1 January 2019 Profit for the year Other comprehensive income (Note 14) Total comprehensive income for the year Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2018 (Note 13) Interim dividend for 2019 (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 2019 Notes: (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 2019, the Company transferred RMB 3,745 million (2018: RMB 3,996 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. (b) The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve. (c) As at 31 December 2019, the amount of retained earnings available for distribution was RMB 130,645 million (2018: RMB 143,148 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 (Note 1); 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 156 to 203 form part of these consolidated financial statements. 153 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)for the year ended 31 December 2019(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 Repayments of other investing activities 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 Repayments of lease liabilities (2018: Finance lease payment) Proceeds from other financing activities Repayments of other financing activities 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 Notes Year ended 31 December 2019 RMB 2018 RMB (a) 153,420 175,868 (129,645) (11,497) (3,483) (12,851) 35,292 (1,031) 704 703 (103,231) 90,710 7,094 10,272 (3,500) (120,463) 599,866 (612,108) 3,919 (46,008) (7,354) (6,161) (8) (16,859) 320 (320) (84,713) (51,756) 111,922 147 60,313 (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 The notes on pages 156 to 203 form part of these consolidated financial statements. 154 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2019(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 Interest income Interest expense Loss/(gain) on foreign currency exchange rate changes and derivative financial instruments Loss on disposal of property, plant, equipment and other non-current 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 2019 RMB 2018 RMB 89,927 99,110 108,812 5,831 (12,777) (919) (7,206) 17,003 3,624 1,918 1,789 1,264 209,266 (11,802) (9,285) (15,236) 172,943 (19,523) 153,420 109,967 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 The notes on pages 156 to 203 form part of these consolidated financial statements. 155 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2019(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 changed its accounting policies as a result of adopting IFRS 16 Leases. IFRS 16 Leases – Impact of adoption The Group has adopted IFRS 16 Leases from 1 January 2019, but has not restated comparative amounts for the 2018 reporting period, as permitted under the specific transition provision in the standard. The reclassifications and the adjustments arising from IFRS 16 Leases are therefore recognised in the opening balance sheet on 1 January 2019. Lease accounting policy applied until 31 December 2018 is disclosed in Note 2(x)(iii). On adoption of IFRS 16 Leases, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The lessee’s incremental borrowing rates applied to the lease liabilities on 1 January 2019 ranged from 4.35% to 4.90%. (i) Practical expedients applied In applying IFRS 16 Leases for the first time, the Group has used the following practical expedients permitted by the standard: ‧ 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 also elected not to reassess whether a contract is, or contains a lease at the date of initial application. 156 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2019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) (ii) Measurement of lease liabilities Operating lease commitments disclosed as at 31 December 2018 Discounted using the lessee’s incremental borrowing rate of at the date of initial application (Less): short-term leases and low-value leases recognised on a straight-line basis as expense Lease liabilities recognised as at 1 January 2019 Of which are: Current lease liabilities Non-current lease liabilities (iii) Measurement of right-of-use assets RMB million 352,794 200,867 (2,303) 198,564 13,894 184,670 198,564 Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. The recognised right-of-use assets relate to the following types of assets: 31 December 2019 RMB million 239,374 28,486 267,860 1 January 2019 RMB million 244,588 27,381 271,969 Land Others Total right-of-use assets (iv) Adjustments recognised in the balance sheet on 1 January 2019 The change in accounting policy affected the following items in the balance sheet on 1 January 2019: ‧ right-of-use assets – increase by RMB 271,969 million ‧ lease prepayments – decrease by RMB 64,514 million ‧ prepaid expenses and other current assets – decrease by RMB 766 million ‧ long-term prepayments and other assets – decrease by RMB 8,125 million ‧ lease liabilities – increase by RMB 198,564 million (v) Impact on segment disclosures Segment assets and segment liabilities for 31 December 2019 all increased as a result of the changes in accounting policy. The following segments were affected by the changes in accounting policy: Exploration and production Refining Marketing and distribution Chemicals Corporate and others Increase in Segment assets Segment liabilities RMB million RMB million 79,263 32,839 120,983 19,124 15,651 267,860 78,041 26,094 62,237 12,252 14,248 192,872 Comparative segment information has not been restated. As a consequence, the segment information disclosure for the items noted above is not entirely comparable to the information disclosed for the prior year. 157 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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 Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 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 43. 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(j)) 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(n)). The particulars of the Group’s principal subsidiaries are set out in Note 41. (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. 158 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (a) Basis of consolidation (Continued) (ii) Associates and joint ventures (Continued) 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 (Notes 2(i) and (n)). The Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition, post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income. When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(j)) or, when appropriate, the cost on initial recognition of an investment in an associate. (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. 159 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (d) Trade, bills and other receivables Trade, bills and other receivables are recognised initially at their transaction price, unless they contain significant financing components when they are recognised at fair value. They are subsequently measured at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(j)). Trade, bills and other receivables are derecognised if the Group’s contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets. (e) Inventories Inventories are stated at the lower of cost and net realisable value. Cost mainly 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(n)). 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) 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(n)). 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. 160 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) 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(n)). 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(n)). (j) 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 (“FVOCI”), 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. However, 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 and FVOCI. ‧ 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. ‧ FVOCI: The business model for managing such financial assets by the Group are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, foreign exchange gains and losses and interest income calculated using the effective interest rate method, which are recognised in profit or loss. 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 FVOCI, are presented in financial assets at FVOCI. 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 and a debt instrument that is measured at FVOCI. 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. 161 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Financial assets (Continued) (ii) Impairment (Continued) 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 trade accounts receivable and bills receivable and financial assets at FVOCI 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 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 equity instruments at FVOCI, 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. (k) 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 trade accounts payable and bills 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. (l) 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. (m) 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. 162 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Derivative financial instruments and hedge accounting (Continued) 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 non-financial 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. 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. (n) Impairment of assets The carrying amounts of assets, including property, plant and equipment, construction in progress, right-of-use assets 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). 163 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Impairment of assets (Continued) 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. (o) 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. (p) 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. (q) 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. (r) 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 recognised 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. (s) 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. 164 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (t) Borrowing costs Borrowing costs are expensed in the consolidated income statement in the period in which they are incurred, except to the extent that they are capitalised as being attributable to the construction of an asset which necessarily takes a period of time to get ready for its intended use. (u) Repairs and maintenance expenditure Repairs and maintenance expenditure is expensed as incurred. (v) Environmental expenditures Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed as incurred. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures. (w) Research and development expense Research and development expenditures that cannot be capitalised are expensed in the period in which they are incurred. Research and development expense amounted to RMB 9,395 million for the year ended 31 December 2019 (2018: RMB 7,956 million). (x) Leases A lease is a contract that a lessor transfers the right to use an identified asset for a period of time to a lessee in exchange for consideration. (i) As lessee The Group recognises a right-of-use asset at the date at which the leased asset is available for use by the Group, and recognises a lease liability measured at the present value of the remaining lease payments. The lease payments include fixed payments, the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the Group exercising that option, etc. Variable payments that are based on a percentage of sales are not included in the lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) from balance sheet date is presented in current liabilities. Right-of-use assets of the Group mainly comprise land. Right-of-use assets are measured at cost which comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee, less any lease incentives received. The Group depreciates the right-of-use assets over the shorter of the asset’s useful life and the lease term on a straight-line basis. When the recoverable amount of a right-of-use asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. Payments associated with short-term leases with lease terms within 12 months and all leases of low-value assets are recognised on a straight-line basis over the lease term as an expense in profit or loss or as cost of relevant assets, instead of recognising right-of-use assets and lease liabilities. (ii) As lessor A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease. When the Group leases self-owned plants and buildings, equipment and machinery, lease income from an operating lease is recognised on a straight-line basis over the period of the lease. The Group recognises variable lease income which is based on a certain percentage of sales as rental income when occurred. (iii) Accounting policy applied until 31 December 2018 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. The cost of lease prepayments is charged to expense on a straight-line basis over the respective periods of the rights. Operating leases Operating lease payments are charged to the consolidated income statement on a straight-line basis over the period of the respective leases. 165 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20192 SIGNIFICANT ACCOUNTING POLICIES (Continued) (y) Employee benefits The contributions payable under the Group’s retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 39. 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. (z) Income tax Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes only to the extent that it is probable that future taxable income will be available against which the assets can be utilised. Deferred tax is calculated on the basis of the enacted tax rates or substantially enacted tax rates that are expected to apply in the period when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited to other comprehensive income or directly in equity. The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability within the same legal tax unit and jurisdiction to the extent appropriate, and is not available for set off against the taxable profit of another legal tax unit. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that the related tax benefit will be realised. (aa) Dividends Dividends and distributions of profits proposed in the profit appropriation plan which will be authorized and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared. (bb) Segment reporting Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group’s various lines of business. 3 TURNOVER Turnover primarily represents revenue from the sales of refined petroleum products, chemical products, crude oil and natural gas. Gasoline Diesel Crude oil Basic chemical feedstock Kerosene Synthetic resin Synthetic fiber monomers and polymers Natural gas 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 2019 RMB million 2018 RMB million 699,202 615,342 553,848 214,911 191,636 124,271 80,100 53,839 367,339 2,900,488 711,236 594,008 519,910 250,884 168,823 124,618 77,572 43,205 335,357 2,825,613 2019 RMB million 2018 RMB million 64,489 1,216 65,705 64,503 1,063 65,566 166 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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 6 PERSONNEL EXPENSES Salaries, wages and other benefits Contributions to retirement schemes (Note 39) 7 TAXES OTHER THAN INCOME TAX Consumption tax (i) City construction tax (ii) Education surcharge Resources tax Others Notes: (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. 2019 RMB million 1,856 2018 RMB million 12,297 70 6 1,283 (2) 94 9 6 9 2019 RMB million 2018 RMB million 69,817 11,665 81,482 68,425 9,296 77,721 2019 RMB million 2018 RMB million 202,671 16,247 12,011 5,883 5,723 242,535 201,901 18,237 13,187 6,021 7,152 246,498 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 1,495.20 167 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 8 OTHER OPERATING EXPENSE, NET Government grants (i) Ineffective portion of change in fair value of cash flow hedges Net realised and unrealised (loss)/gain 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-current assets, net Fines, penalties and compensations Donations Others 2019 RMB million 2018 RMB million 6,911 (222) (4,384) (345) (1,918) (173) (209) (96) (436) 7,539 (1,978) 191 (6,281) (1,526) (276) (180) (2,849) (5,360) Notes: (i) Government grants for the years ended 31 December 2019 and 2018 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 2019 primarily represent impairment losses recognised in the refining segment of RMB 245 million (2018: RMB 353 million), the marketing and distribution segment of RMB 80 million (2018: RMB 264 million), the chemicals segment of RMB 17 million (2018: RMB 1,374 million) and the exploration and production (“E&P”) segment of RMB 3 million (2018: RMB 4,274 million). The primary factor resulting in the E&P segment impairment loss in the prior year was downward revision of oil and gas reserve in certain fields. E&P segment determines recoverable amounts of properties, plant and equipment relating to oil and gas producing activities, which include significant judgments and assumptions. The recoverable amounts were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2018: 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 184 million (2018: RMB 312 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 180 million (2018: RMB 315 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in additional impairment loss on the Group’s properties, plant and equipment relating to oil and gas producing activities by approximately RMB 7 million (2018: less RMB 5 million). 9 INTEREST EXPENSE Interest expense incurred Less: Interest expense capitalised* Interest expense on lease liabilities Accretion expenses (Note 35) 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 29) 2019 RMB million 2018 RMB million 6,376 (493) 5,883 — 1,438 7,321 2.92% to 4.66% 2.37% to 4.66% 6,954 (1,015) 5,939 9,646 1,418 17,003 2019 RMB million 2018 RMB million 14,976 (467) 3,385 17,894 27,176 (719) (6,244) 20,213 168 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 10 INCOME TAX EXPENSE (Continued) 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: 2019 RMB million 2018 RMB million 89,927 22,482 2,300 (4,458) (2,003) (312) (335) 498 189 (467) 17,894 99,110 24,778 2,351 (5,033) (1,259) 77 (779) 609 188 (719) 20,213 (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. 11 DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (a) Directors’ and supervisors’ emoluments The emoluments of every director and supervisor is set out below: Name Directors Dai Houliang Ma Yongsheng Li Yunpeng Yu Baocai Ling Yiqun Liu Zhongyun (i) Li Yong Independent non-executive directors Tang Min Fan Gang Cai Hongbin Johnny Karling Ng Supervisors Zhao Dong Jiang Zhenying Yang Changjiang Zhang Baolong Zou Huiping Yu Xizhi Zhou Hengyou Yu Renming Total 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 2019 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 – 294 – – – – – – – – – – 369 – – 369 369 369 369 2,139 – 1,173 – – – – – – – – – – 865 – – 989 880 874 889 5,670 – 96 – – – – – – – – – – 88 – – 88 88 88 88 536 – – – – – – – 350 350 350 350 – – – – – – – – 1,400 – 1,563 – – – – – 350 350 350 350 – 1,322 – – 1,446 1,337 1,331 1,346 9,745 169 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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 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 Li Yunpeng Yu Baocai Ma Yongsheng Ling Yiqun Liu Zhongyun (i) Li Yong Wang Zhigang (ii) Zhang Haichao (ii) Jiao Fangzheng (iii) Independent non-executive directors Tang Min Fan Gang Cai Hongbin Johnny Karling Ng Jiang Xiaoming (iv) Andrew Y. Yan (iv) Supervisors Zhao Dong Jiang Zhenying Yang Changjiang Zhang Baolong Zou Huiping Zhou Hengyou Yu Renming Yu Xizhi Total Notes: (i) Mr. Liu Zhongyun was elected to be director from 15 May 2018. Due to change of working arrangement, Mr. Liu Zhongyun has tendered his resignation as executive director, member of Strategy Committee of the Board and Senior Vice President of the Company from 9 December 2019. (ii) Mr. Wang Zhigang ceased being director from 29 January 2018; Mr. Zhang Haichao ceased being director from 29 January 2018. (iii) Mr. Jiao Fangzheng ceased being director from 7 June 2018. (iv) 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. 12 SENIOR MANAGEMENT’S EMOLUMENTS For the year ended 31 December 2019, the five highest paid individuals in the Company included one director and four senior management. The emolument paid to each of one director and four senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 7,294 thousand, and the total amount of their retirement scheme contributions was RMB 448 thousand. For the year ended 31 December 2018, the five highest paid individuals in the Company included two supervisors and three senior management. 170 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 13 DIVIDENDS Dividends payable to shareholders of the Company attributable to the year represent: Dividends declared and paid during the year of RMB 0.12 per share (2018: RMB 0.16 per share) Dividends declared after the balance sheet date of RMB 0.19 per share (2018: RMB 0.26 per share) 2019 RMB million 2018 RMB million 14,529 23,004 37,533 19,371 31,479 50,850 Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 23 August 2019, the directors authorised to declare the interim dividends for the year ending 31 December 2019 of RMB 0.12 (2018: RMB 0.16) per share totaling RMB 14,529 million (2018: RMB 19,371 million). Dividends were paid on 17 September 2019. Pursuant to a resolution passed at the director’s meeting on 27 March 2020, final dividends in respect of the year ended 31 December 2019 of RMB 0.19 (2018: RMB 0.26) per share totaling RMB 23,004 million (2018: RMB 31,479 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 0.26 per share (2018: RMB 0.40 per share) 2019 RMB million 2018 RMB million 31,479 48,428 Pursuant to the shareholders’ approval at the Annual General Meeting on 9 May 2019, a final dividend of RMB 0.26 per share totaling RMB 31,479 million according to total shares on 10 June 2019 was approved. All dividends have been paid in the year ended 31 December 2019. 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 on 4 June 2018 was approved. All dividends have been paid in the year ended 31 December 2018. 14 OTHER COMPREHENSIVE INCOME Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year Reclassification adjustments for amounts transferred to the consolidated income statement Net movement during the year recognised in other comprehensive income (i) 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 loss of associates and joint ventures Foreign currency translation differences Other comprehensive income Note: 2019 Before tax amount RMB million Tax effect RMB million Net of tax amount RMB million Before tax amount RMB million 2018 Tax effect RMB million Net of tax amount RMB million 5,258 853 (974) (196) 4,284 (12,500) 2,159 (10,341) 657 730 (130) 600 6,111 (1,170) 4,941 (11,770) 2,029 (9,741) (39) (39) (810) 1,480 6,742 8 8 – – (1,162) (31) (31) (810) 1,480 5,580 (41) (41) (240) 3,399 (8,652) (12) (12) 11 – 2,028 (53) (53) (229) 3,399 (6,624) (i) As at 31 December 2019, cash flow hedge reserve amounted to a gain of RMB 1,102 million (31 December 2018: a loss of RMB 4,932 million), of which a gain of RMB 1,037 million was attribute to shareholders of the Company (31 December 2018: a loss of RMB 4,917 million). 171 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 15 BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic earnings per share for the year ended 31 December 2019 is based on the profit attributable to ordinary shareholders of the Company of RMB 57,465 million (2018: RMB 61,618 million) and the weighted average number of shares of 121,071,209,646 (2018: 121,071,209,646) during the year. The calculation of diluted earnings per share for the year ended 31 December 2019 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 57,465 million (2018: RMB 61,618 million) and the weighted average number of shares of 121,071,209,646 (2018: 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 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 16 PROPERTY, PLANT AND EQUIPMENT Cost: Balance at 1 January 2018 Additions Transferred from construction in progress Reclassifications Reclassification to other long-term assets Disposals Exchange adjustments Balance at 31 December 2018 Balance at 1 January 2019 Additions Transferred from construction in progress Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Disposals Exchange adjustments Balance at 31 December 2019 Accumulated depreciation: Balance at 1 January 2018 Depreciation for the year Impairment losses for the year Reclassifications Reclassification to other long-term assets Written back on disposals Exchange adjustments Balance at 31 December 2018 Balance at 1 January 2019 Depreciation for the year Impairment losses for the year Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Written back on disposals Exchange adjustments Balance at 31 December 2019 Net book value: Balance at 1 January 2018 Balance at 31 December 2018 Balance at 31 December 2019 172 2019 RMB million 2018 RMB million 57,465 57,465 61,618 61,618 2018 Number of shares Number of shares 2019 121,071,209,646 121,071,209,646 121,071,209,646 121,071,209,646 Equipment, machinery and others RMB million 940,312 3,856 45,103 (1,772) (3,828) (18,323) 147 965,495 965,495 3,856 54,275 (975) (303) (729) (13,467) 71 1,008,223 529,191 47,250 1,848 (570) (1,390) (16,331) 78 560,076 560,076 47,583 185 (246) (216) (94) (11,454) 40 595,874 411,121 405,419 412,349 Total RMB million 1,727,982 5,644 73,210 – (4,311) (21,652) 2,387 1,783,260 1,783,260 5,424 91,845 – (311) (1,477) (15,253) 780 1,864,268 1,077,208 99,904 6,149 – (1,510) (18,251) 1,998 1,165,498 1,165,498 87,967 196 – (216) (91) (12,223) 728 1,241,859 650,774 617,762 622,409 Plants and buildings RMB million Oil and gas, properties RMB million 120,013 221 3,741 1,634 (483) (3,183) 98 122,041 122,041 160 6,192 1,051 (8) (748) (237) 42 128,493 52,200 4,038 274 494 (120) (1,795) 43 55,134 55,134 4,095 11 292 – 3 (763) 21 58,793 67,813 66,907 69,700 667,657 1,567 24,366 138 – (146) 2,142 695,724 695,724 1,408 31,378 (76) – – (1,549) 667 727,552 495,817 48,616 4,027 76 – (125) 1,877 550,288 550,288 36,289 – (46) – – (6) 667 587,192 171,840 145,436 140,360 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 16 PROPERTY, PLANT AND EQUIPMENT (Continued) The additions to oil and gas properties of the Group for the year ended 31 December 2019 included RMB 1,408 million (2018: RMB 1,567 million) of estimated dismantlement costs for site restoration (Note 35). At December 31, 2019 and December 31, 2018, the Group had no individual substantial property, plant and equipment which have been pledged. At December 31, 2019 and December 31, 2018, the Group had no individual significant property, plant and equipment which were temporarily idle or pending for disposal. At December 31, 2019 and December 31, 2018, the Group had no individual significant fully depreciated property, plant and equipment which were still in use. 17 CONSTRUCTION IN PROGRESS Balance at 1 January Additions Dry hole costs written off Transferred to property, plant and equipment Reclassification to other long-term assets Impairment losses for the year Disposals and others Exchange adjustments Balance at 31 December 2019 RMB million 2018 RMB million 136,963 144,369 (5,831) (91,845) (10,086) (135) 46 1 173,482 118,645 108,555 (6,921) (73,210) (10,066) (28) (19) 7 136,963 As at 31 December 2019, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 8,961 million (2018: RMB 7,296 million). The geological and geophysical costs paid during the year ended 31 December 2019 were RMB 4,024 million (2018: RMB 3,511 million). 18 RIGHT-OF-USE ASSETS Cost: Change in accounting policy (Note 1(a)) Balance at 1 January 2019 Increase Decrease Balance at 31 December 2019 Accumulated depreciation: Balance at 1 January 2019 Increase Decrease Balance at 31 December 2019 Impairment loss: Balance at 1 January 2019 Increase Decrease Balance at 31 December 2019 Net book value: Balance at 1 January 2019 Balance at 31 December 2019 Land RMB million Others RMB million Total RMB million 244,588 244,588 8,650 (4,760) 248,478 – 9,233 (129) 9,104 – – – – 27,381 27,381 7,555 (748) 34,188 – 5,728 (26) 5,702 – – – – 271,969 271,969 16,205 (5,508) 282,666 – 14,961 (155) 14,806 – – – – 244,588 239,374 27,381 28,486 271,969 267,860 173 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 19 GOODWILL Cost Less: Accumulated impairment losses Impairment tests for cash-generating units containing goodwill Goodwill is allocated to the following Group’s cash-generating units: Principal activities Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”) Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) Sinopec Beijing Yanshan Petrochemical Branch (“Sinopec Yanshan”) Other units without individually significant goodwill Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products Manufacturing of intermediate petrochemical products and petroleum products 31 December 2019 RMB million 31 December 2018 RMB million 16,558 (7,861) 8,697 16,537 (7,861) 8,676 31 December 2019 RMB million 31 December 2018 RMB million 4,043 2,541 1,004 1,109 8,697 4,043 2,541 1,004 1,088 8,676 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 11.0% to 11.9% (2018: 11.7% to 12.3%). 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. 20 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”) (i) % of ownership interests Principal activities Measurement method Country of incorporation Principal place of business 50.00 Operation of natural gas pipelines Equity method PRC and auxiliary facilities 49.00 Provision of non-banking financial Equity method PRC PRC PRC 10.00 services Processing natural gas and manufacturing petrochemical products Equity method Russia Russia Zhongtian Synergetic Energy Company Limited (“Zhongtian Synergetic Energy”) Caspian Investments Resources Ltd. (“CIR”) 38.75 Mining coal and manufacturing of Equity method PRC PRC coal-chemical products 50.00 Crude oil and natural gas Equity method British Virgin extraction Islands The Republic of Kazakhstan 174 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 20 INTEREST IN ASSOCIATES (Continued) Summarised financial information and reconciliation to their carrying amounts in respect of the Group’s principal associates: Pipeline Ltd Sinopec Finance SIBUR 31 December 2019 RMB million 31 December 2018 RMB million 31 December 2019 RMB million 31 December 2018 RMB million 31 December 2019 RMB million 31 December 2018 RMB million Zhongtian Synergetic Energy 31 December 2018 RMB million 31 December 2019 RMB million CIR 31 December 2019 RMB million 31 December 2018 RMB million 13,245 37,842 (721) (2,910) 47,456 12,498 39,320 (1,020) (3,026) 47,772 180,383 18,926 (170,621) (582) 28,106 209,837 16,359 (200,402) (332) 25,462 31,634 182,646 (31,295) (71,289) 111,696 22,502 170,796 (23,293) (58,628) 111,377 4,219 56,424 (13,887) (26,227) 20,529 7,477 49,961 (7,252) (31,436) 18,750 47,456 47,772 28,106 25,462 111,250 110,860 20,529 18,750 – 23,728 23,728 – 23,886 23,886 – 13,772 13,772 – 12,476 12,476 446 11,125 11,125 517 11,086 11,086 – 7,955 7,955 – 7,266 7,266 7,612 971 (936) (166) 7,481 7,481 – 3,741 3,741 6,712 1,828 (961) (673) 6,906 6,906 – 3,453 3,453 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 Pipeline Ltd 2019 RMB million 2018 RMB million Sinopec Finance 2019 RMB million 2018 RMB million SIBUR 2019 RMB million 2018 RMB million Zhongtian Synergetic Energy 2018 RMB million 2019 RMB million CIR 2019 RMB million 2018 RMB million Turnover Profit for the year Other comprehensive income/(loss) Total comprehensive income Dividends declared by associates Share of profit from associates Share of other comprehensive income/(loss) from associates (ii) 5,008 2,191 – 2,191 1,259 1,096 – 4,746 2,022 – 2,022 1,207 1,011 – 4,966 2,234 411 2,645 – 1,095 201 4,536 1,868 (157) 1,711 490 915 56,706 6,513 (1,435) 5,078 468 651 59,927 10,400 6,410 16,810 271 1,040 13,329 1,994 – 1,994 219 773 12,235 1,142 – 1,142 – 443 (77) (144) 641 – – 2,334 424 151 575 – 212 76 2,856 583 116 699 – 292 58 The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial associates accounted for using equity method in aggregate was RMB 4,565 million (2018: RMB 3,550 million) and RMB 155 million (2018: RMB 844 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 35,416 million (2018: RMB 31,370 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. 21 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”) % of ownership interests Principal activities Measurement method Country of incorporation Principal place of business 50.00 Manufacturing refining Equity method PRC 40.00 oil products Manufacturing and distribution of petrochemical products Equity method PRC PRC PRC Taihu Limited (“Taihu”) 49.00 Crude oil and natural gas Equity method Cyprus Russia Yanbu Aramco Sinopec Refining Company Ltd. (“YASREF”) Sinopec SABIC Tianjin Petrochemical Company Limited (“Sinopec SABIC Tianjin”) extraction 37.50 Petroleum refining and Equity method Saudi Arabia Saudi Arabia 50.00 processing business Manufacturing and distribution of petrochemical products Equity method PRC PRC 175 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 21 INTEREST IN JOINT VENTURES (Continued) Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal joint ventures: FREP Taihu 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2018 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million Sinopec SABIC Tianjin BASF-YPC YASREF 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 5,603 11,977 17,580 17,267 (1,280) (7,090) (8,370) (11,185) (290) (11,475) 15,002 15,002 – 7,501 7,501 7,388 9,248 16,636 19,271 (1,200) (4,939) (6,139) (12,454) (279) (12,733) 17,035 17,035 – 8,518 8,518 1,154 4,937 6,091 10,498 (237) (1,808) (2,045) – (35) (35) 14,509 14,509 – 5,804 5,804 1,582 5,795 7,377 11,086 (725) (1,822) (2,547) (218) (17) (235) 15,681 15,681 – 6,272 6,272 4,485 2,336 6,821 10,453 (57) (1,815) (1,872) (125) (1,984) (2,109) 13,293 12,829 464 6,286 6,286 3,406 3,689 7,095 9,216 (59) (2,124) (2,183) (72) (2,271) (2,343) 11,785 11,373 412 5,573 5,573 733 11,311 12,044 50,548 (7,445) (12,504) (19,949) (29,445) (1,963) (31,408) 11,235 11,235 – 4,213 4,213 930 10,267 11,197 51,873 (4,806) (12,217) (17,023) (32,364) (937) (33,301) 12,746 12,746 – 4,780 4,780 3,242 4,501 7,743 14,878 (500) (2,896) (3,396) (4,592) (368) (4,960) 14,265 14,265 – 7,133 7,133 5,110 4,007 9,117 13,990 (500) (2,507) (3,007) (3,651) (331) (3,982) 16,118 16,118 – 8,059 8,059 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 (loss)/income Total comprehensive income/(loss) Dividends declared by joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive (loss)/income from joint ventures (i) 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million 57,047 (2,541) 124 (597) 964 (197) 767 – 767 1,400 384 52,469 (2,250) 157 (647) 3,920 (935) 2,985 – 2,985 1,200 1,493 19,590 (1,474) 32 (26) 2,314 (579) 1,735 – 1,735 1,224 694 21,574 (1,521) 41 (43) 3,625 (897) 2,728 – 2,728 1,226 1,091 15,222 (629) 94 (265) 3,320 (708) 2,612 (1,105) 1,507 – 1,235 14,944 (664) 141 (151) 3,493 (729) 2,764 921 3,685 – 1,307 75,940 (3,048) 58 (1,470) (1,292) (8) (1,300) (261) (1,561) – (488) 77,561 (2,823) 101 (1,382) (1,569) (249) (1,818) 1,059 (759) – (682) 20,541 (1,094) 171 (134) 2,178 (533) 1,645 – 1,645 1,750 823 23,501 (1,104) 169 (167) 3,916 (993) 2,923 – 2,923 – 1,462 – – – – (522) 435 (98) 397 – – The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 1,737 million (2018: RMB 2,052 million) and RMB 168 million (2018: RMB 839 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 25,530 million (2018: RMB 22,982 million). Note: (i) Including foreign currency translation differences. 176 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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) Note: (i) Others mainly comprise catalyst expenditures and improvement expenditures of property, plant and equipment. 31 December 2019 RMB million 31 December 2018 RMB million 34,013 1,562 3,926 25,925 65,426 34,934 26,513 5,502 24,459 91,408 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 deposits Equity investments, listed and at quoted market price 2019 RMB million 2018 RMB million 52,216 1,494 (161) 53,549 17,282 2,357 (103) 19,536 34,013 48,613 3,948 (345) 52,216 14,345 3,019 (82) 17,282 34,934 31 December 2019 RMB million 31 December 2018 RMB million 3,318 1 3,319 25,550 182 25,732 The financial assets are the structured deposits 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 DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps contracts. See Note 42. 177 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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 2019 RMB million 31 December 2018 RMB million 43,728 6,570 6,415 56,713 (1,848) 54,865 – 54,865 50,108 3,170 4,321 57,599 (606) 56,993 7,886 64,879 The ageing analysis of trade accounts receivable and bills receivable (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 2019 RMB million 31 December 2018 RMB million 54,517 190 64 94 54,865 64,317 353 124 85 64,879 2019 RMB million 2018 RMB million 606 1,566 (283) (41) – 1,848 612 83 (77) (19) 7 606 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 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 bills receivable and the Group’s exposure to credit risk can be found in Note 42. 178 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 26 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Non-current assets Unlisted equity instruments Listed equity instruments Current assets Trade accounts receivable and bills receivable (i) Note: 31 December 2019 RMB million 31 December 2018 RMB million 1,431 90 8,622 10,143 1,323 127 – 1,450 (i) As at 31 December 2019, bills receivable and certain trade accounts receivable were classified as financial assets at FVOCI, as the Group’s business model is achieved both by collecting contractual cash flows and selling of these assets. 27 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 2019 RMB million 31 December 2018 RMB million 88,465 12,615 91,368 2,576 195,024 (2,582) 192,442 85,469 13,690 88,929 2,872 190,960 (6,376) 184,584 The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 2,450,911 million for the year ended 31 December 2019 (2018: RMB 2,366,199 million). It includes the write-down of inventories of RMB 1,616 million mainly related to finished goods (2018: RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products). 28 PREPAID EXPENSES AND OTHER CURRENT ASSETS Other receivables Advances to suppliers Value-added input tax to be deducted Prepaid income tax 31 December 2019 RMB million 31 December 2018 RMB million 25,586 5,066 25,313 1,879 57,844 26,455 5,937 21,331 300 54,023 179 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 29 DEFERRED TAX ASSETS AND LIABILITIES 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 Financial assets at fair value through other comprehensive income Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities 31 December 2019 RMB million 31 December 2018 RMB million 31 December 2019 RMB million 31 December 2018 RMB million 2,546 1,142 116 16,463 3,594 131 595 318 24,905 2,563 1,808 1,131 15,427 3,709 117 474 174 25,403 – – (384) (12,317) – (7) (508) (882) (14,098) – – (27) (8,666) – (1) (535) (428) (9,657) As at 31 December 2019, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 16,605 million (2018: RMB 18,308 million), of which RMB 1,992 million (2018: RMB 2,437 million) was incurred for the year ended 31 December 2019, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 3,163 million, RMB 3,156 million, RMB 5,938 million, RMB 2,356 million and RMB 1,992 million will expire in 2020, 2021, 2022, 2023,2024 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 2019, write-down of deferred tax assets amounted to RMB 189 million (2018: RMB 188 million) (Note 10). 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 Financial assets at fair value through other comprehensive income Intangible assets Others Net deferred tax assets/(liabilities) Balance at 1 January 2018 RMB million 381 1,925 115 4,222 2,325 117 – (336) (84) 8,665 Recognised in consolidated Recognised in other income comprehensive income RMB million statement RMB million 2,176 (117) (10) 2,650 1,414 – – 273 (142) 6,244 3 – 2,029 (130) 6 – (1) – (2) 1,905 Others RMB million 3 – 1 19 (36) (117) 117 2 (26) (37) Balance at 1 January 2019 RMB million Recognised in consolidated Recognised in other income comprehensive statement RMB million income RMB million Others RMB million Transferred Balance at from 31 December 2018 RMB million reserve RMB million – – (1,031) – – – – – – (1,031) 2,563 1,808 1,104 6,761 3,709 – 116 (61) (254) 15,746 Transferred Balance at from 31 December 2019 RMB million reserve RMB million Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Financial assets at fair value through other comprehensive income Intangible assets Others Net deferred tax assets/(liabilities) 2,563 1,808 1,104 6,761 3,709 116 (61) (254) 15,746 (17) (667) 73 (2,575) (151) – 148 (196) (3,385) – – (1,195) (39) 38 8 – (49) (1,237) – 1 – (1) (2) – – (65) (67) – – (250) – – – – – (250) 2,546 1,142 (268) 4,146 3,594 124 87 (564) 10,807 180 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201930 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 Loans from Sinopec Group Company and fellow subsidiaries Short-term loans RMB denominated USD denominated Hong Kong Dollar (“HKD”) denominated EUR denominated Current portion of long-term loans RMB denominated 31 December 2019 RMB million 31 December 2018 RMB million 25,709 25,619 90 22 22 1,790 1,765 25 13,000 13,000 14,790 40,521 5,465 2,709 2,236 495 25 37,824 37,824 43,289 83,810 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 The Group’s weighted average interest rates on short-term loans were 3.11% (2018: 3.37%) per annum at 31 December 2019. The above borrowings are unsecured. 181 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 30 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued) Long-term debts represent: Interest rate and final maturity Third parties’ debts Long-term bank loans RMB denominated USD denominated Corporate bonds (i) RMB denominated USD denominated Interest rates ranging from 1.08% to 5.23% per annum at 31 December 2019 with maturities through 2034 Interest rates ranging from 1.55% to 4.29% per annum at 31 December 2019 with maturities through 2031 Fixed interest rates ranging from 3.70% to 4.90% per annum at 31 December 2019 with maturities through 2022 Fixed interest rates ranging from 3.13% to 4.25% per annum at 31 December 2019 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 Less: Current portion Interest rates ranging from interest free to 5.50% per annum at 31 December 2019 with maturities through 2034 31 December 2019 RMB million 31 December 2018 RMB million 31,714 31,025 75 109 31,789 20,000 31,134 20,000 12,157 11,951 32,157 63,946 (14,790) 49,156 31,951 63,085 (12,074) 51,011 47,450 46,877 (37,824) 9,626 58,782 (4,361) 42,516 93,527 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. As at 31 December 2019, RMB 12,157 million (2018: RMB 11,951 million) (USD denominated corporate bonds) are guaranteed by Sinopec Group Company. 31 LEASE LIABILITIES Lease liabilities Current Non-current 31 December 2019 RMB million 1 January 2019 RMB million 15,198 177,674 192,872 13,894 184,670 198,564 182 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 32 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 payable and bills payable measured at amortised cost The ageing analysis of trade accounts payable and bills payable is as follows: Within 1 month or on demand Between 1 month and 6 months Over 6 months 33 CONTRACT LIABILITIES 31 December 2019 RMB million 31 December 2018 RMB million 166,480 11,370 10,108 187,958 11,834 199,792 170,818 9,142 6,381 186,341 6,416 192,757 31 December 2019 RMB million 31 December 2018 RMB million 185,377 8,808 5,607 199,792 182,763 6,670 3,324 192,757 As at 31 December 2019, the Group’s contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year. 34 OTHER PAYABLES Salaries and welfare payable Interest payable Payables for constructions Other payables Financial liabilities carried at amortised costs Taxes other than income tax 35 PROVISIONS 31 December 2019 RMB million 31 December 2018 RMB million 4,769 612 50,612 22,778 78,771 66,075 144,846 7,312 634 54,992 22,852 85,790 80,361 166,151 Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has mainly committed to the PRC government to establish certain standardised measures for the dismantlement of its oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its oil and gas properties. Movement of provision of the Group’s obligations for the dismantlement of its oil and gas properties is as follow: Balance at 1 January Provision for the year Accretion expenses Decrease for the year Exchange adjustments Balance at 31 December 2019 RMB million 2018 RMB million 42,007 1,408 1,418 (2,439) 44 42,438 39,407 1,567 1,438 (598) 193 42,007 183 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 36 SHARE CAPITAL Registered, issued and fully paid 95,557,771,046 listed A shares (2018: 95,557,771,046) of RMB 1.00 each 25,513,438,600 listed H shares (2018: 25,513,438,600) of RMB 1.00 each 31 December 2019 RMB million 31 December 2018 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 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 exercise 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 2019, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 7.4% (2018: 11.5%) and 50.1% (2018: 46.2%), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 30 and 37, 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. 184 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 37 COMMITMENTS AND CONTINGENT LIABILITIES Operating lease commitments The Group leases land and other assets under non-cancellable operating leases expiring within three months to thirty years. 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. From 1 January 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low-value leases, see Note 1(a) and Note 18 for further information. As at 31 December 2019 and 2018, the future minimum lease payments under operating leases are as follows: Within one year Later than one year but not later than five years Later than five years Capital commitments At 31 December 2019 and 2018, capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for 31 December 2019 RMB million 31 December 2018 RMB million – – – – 15,625 55,882 281,287 352,794 31 December 2019 RMB million 31 December 2018 RMB million 138,088 63,967 202,055 141,045 54,392 195,437 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 6,100 million (2018: RMB 5,553 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 179 million for the year ended 31 December 2019 (2018: RMB 231 million). Estimated future annual payments are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Thereafter 31 December 2019 RMB million 31 December 2018 RMB million 302 69 34 30 29 845 1,309 380 79 33 28 28 852 1,400 185 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 37 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Contingent liabilities At 31 December 2019 and 2018, the guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures Associates (ii) Others (iii) 31 December 2019 RMB million 31 December 2018 RMB million 7,100 10,140 – 17,240 5,033 12,168 7,197 24,398 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 reliably estimable. At 31 December 2019 and 2018, the Group estimates that there is no need to pay for the guarantees. Thus no liability has been accrued for a loss related to the Group’s obligation under these guarantee arrangements. Notes: (ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy Company Limited (“Zhongtian Synergetic Energy”) by banks amount to RMB 17,050 million. As at 31 December 2019, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 10,140 million (2018: RMB 12,168 million). (iii) The Group provided a guarantee in respect to the loan of New Bright International Development Limited borrowed from Sinopec Overseas Oil & Gas Limited. As at 31 December 2019, the loan agreement was terminated, in consequence, the guarantee agreement was terminated. 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 9,235 million in the consolidated financial statements for the year ended 31 December 2019 (2018: RMB 7,940 million). Legal contingencies The Group is defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group. 186 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 38 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 related parties Net funds obtained from related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (ix) (x) (ix) (xi) 2019 RMB million 2018 RMB million 295,532 197,308 8,206 33,310 38,668 3,098 – – – 116 1,066 1,334 5,350 3,438 272,789 192,224 7,319 23,489 28,472 6,664 7,765 521 869 113 848 1,110 6,457 31,684 The amounts set out in the table above in respect of the year ended 31 December 2019 and 2018 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 2019 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 159,086 million (2018: RMB 140,427 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 142,433 million (2018: RMB 123,772 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 3,097 million (2018: RMB 6,664 million), lease charges for land, buildings and others paid by the Group of RMB 11,330 million, RMB 509 million and RMB 383 million (2018: RMB 7,636 million, RMB 643 million and RMB 602 million), respectively and interest expenses of RMB 1,334 million (2018: RMB 1,110 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 74,453 million (2018: RMB 59,472 million), comprising RMB 73,365 million (2018: RMB 58,606 million) for sales of goods, RMB 1,066 million (2018: RMB 848 million) for interest income and RMB 22 million (2018: RMB 18 million) for agency commission income. For the year ended 31 December 2019, no individually significant right-of-use assets were leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures by the Group. The interest expense recognised for the year ended 31 December 2019 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB 8,518 million. For the year ended 31 December 2019, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB 11,333 million, RMB 518 million and RMB 468 million (2018: RMB 7,636 million, RMB 653 million and RMB 836 million). As at 31 December 2019 and 2018, 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 guarantees disclosed in Note 37. Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 37. 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. 187 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201938 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) 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, 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 incurred for operating leases in respect of land, buildings and equipment leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures. No lease charges have incurred during the current year because of the adoption of IFRS 16 Leases. (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. The balance of deposits at 31 December 2019 was RMB 35,707 million (2018: RMB 41,057 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 2019. The terms of these agreements are summarised as follows: ‧ The Company has entered into a non-exclusive “Agreement for Mutual Provision of Products and Ancillary Services” (“Mutual Provision Agreement”) with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows: (1) the government-prescribed price; (2) where there is no government-prescribed price, the government-guidance price; (3) where there is neither a government-prescribed price nor a government-guidance price, the market price; or (4) where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%. ‧ The Company has entered into a non-exclusive “Agreement for Provision of Cultural and Educational, Health Care and Community Services” with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as described in the above Mutual Provision Agreement. ‧ The Company has entered into a series of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party. ‧ The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company. ‧ The Company has entered into a service stations franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group. 188 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201938 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) ‧ 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 24 August 2018, which took effect on 1 January 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. 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 Financial assets at fair value through other comprehensive income 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 Lease liabilities (including to be paid within one year) Total 31 December 2019 RMB million 31 December 2018 RMB million 12,968 407 12,723 734 26,832 25,296 4,464 16,141 – 43,289 9,626 171,402 270,218 7,555 – 7,665 23,482 38,702 17,530 3,273 18,160 12,470 31,665 42,516 — 125,614 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 30. As at 31 December 2019, the current portion of long-term loans mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from Sinopec Group Company (a state-owned enterprise) through 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 2019, and as at and for the year ended 31 December 2018, 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 2019 RMB’ 000 9,209 536 9,745 2018 RMB’ 000 5,745 351 6,096 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 39. As at 31 December 2019 and 2018, the accrual for the contribution to post-employment benefit plans was not material. 189 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 38 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. 39 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 8% 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 2019 were RMB 11,665 million (2018: RMB 9,296 million). 40 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. 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. 190 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201940 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 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, income tax payable, long-term debts, loans from Sinopec Group Company and fellow subsidiaries, deferred tax liabilities and other unallocated liabilities. Information of the Group’s reportable segments is as follows: Turnover Exploration and production External sales Inter-segment sales Refining External sales Inter-segment sales Marketing and distribution External sales Inter-segment sales Chemicals External sales Inter-segment sales Corporate and others External sales Inter-segment sales Elimination of inter-segment sales Turnover Other operating revenues Exploration and production Refining Marketing and distribution Chemicals Corporate and others Other operating revenues Turnover and other operating revenues 2019 RMB million 2018 RMB million 111,114 89,315 200,429 141,674 1,077,018 1,218,692 1,393,557 4,159 1,397,716 425,508 54,865 480,373 828,635 654,337 1,482,972 (1,879,694) 2,900,488 10,283 5,464 33,247 14,861 1,850 65,705 2,966,193 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 2,891,179 191 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 40 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Result Operating profit/(loss) By segment – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others – Elimination Total segment operating profit Share of profits/(losses) from associates and joint ventures – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Aggregate share of profits from associates and joint ventures Investment (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 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 192 2019 RMB million 2018 RMB million 9,284 30,632 29,107 17,151 64 (40) 86,198 3,167 (640) 3,309 4,611 2,330 12,777 (19) 59 73 578 228 919 (9,967) 89,927 (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 31 December 2019 RMB million 31 December 2018 RMB million 410,950 321,080 399,242 175,884 131,686 1,438,842 152,204 1,521 17,616 127,927 16,961 1,755,071 167,933 122,264 226,531 54,462 137,881 709,071 40,521 3,264 49,156 52,915 6,809 17,500 879,236 321,686 271,356 317,641 156,865 152,799 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 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 40 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 2019 RMB million 2018 RMB million 61,739 31,372 29,566 22,438 1,979 147,094 50,732 19,676 21,572 13,966 2,866 108,812 3 245 80 17 – 345 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 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 2019 RMB million 2018 RMB million 2,131,078 505,672 329,443 2,966,193 2,119,580 395,129 376,470 2,891,179 31 December 2019 RMB million 31 December 2018 RMB million 1,235,676 52,705 1,288,381 989,668 50,892 1,040,560 193 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 41 PRINCIPAL SUBSIDIARIES As at 31 December 2019, 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 RMB 15,651 100.00 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 China International United Petroleum and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited 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 RMB 5,000 100.00 Interests held by non-controlling interests % 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 – – – – – – RMB 1,595 100.00 – Manufacturing of intermediate Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Chemical Sales Company Limited RMB 1,500 RMB 1,400 RMB 1,000 100.00 100.00 100.00 Sinopec Beihai Refining and Chemical Limited Liability Company RMB 5,294 98.98 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 1.02 Sinopec Qingdao Refining and Chemical Company Limited Sinopec Hainan Refining and Chemical Company Limited Sinopec Marketing Company Limited (“Marketing Company”) Shanghai SECCO Sinopec-SK (Wuhan) Petrochemical Company Limited (“Sinopec-SK”) Sinopec Kantons Holdings Limited (“Sinopec Kantons”) Gaoqiao Petrochemical Company Limited Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) RMB 5,000 RMB 9,628 RMB 28,403 RMB 7,801 RMB 7,193 HKD 248 RMB 10,000 RMB 10,824 85.00 75.00 70.42 67.60 59.00 60.33 55.00 50.44 15.00 Manufacturing of intermediate petrochemical products and petroleum products 25.00 Manufacturing of intermediate petrochemical products and petroleum products 29.58 Marketing and distribution of refined 32.40 41.00 39.67 petroleum products Production and sale of petrochemical products Production, sale, research and development of petrochemical products, ethylene and downstream byproducts Provision of crude oil jetty services and natural gas pipeline transmission services 45.00 Manufacturing of intermediate petrochemical products and petroleum products 49.56 Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products RMB 8,140 50.00 50.00 Manufacturing of plastics, intermediate petrochemical products and petroleum products Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong SAR 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. 194 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 41 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 At At 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2018 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2019 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million 2018 RMB million At At At At At At At At Shanghai Petrochemical At At Fujian Petrochemical Sinopec Kantons Shanghai SECCO Sinopec-SK At Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets/(liabilities) Net assets Attributable to owners of the Company Attributable to non-controlling interests 129,266 (192,106) 130,861 (181,766) (62,840) 340,356 (58,732) (50,905) 261,062 (2,086) 281,624 218,784 258,976 208,071 19,151 (456) 18,695 13,234 (16,952) (3,718) 14,977 16,731 (483) 16,248 38,020 (31,050) 6,970 23,218 22,309 (15,479) 25,299 (13,913) 6,830 23,185 (21) 23,164 29,994 11,386 19,087 (10) 19,077 30,463 148,256 141,244 6,308 5,266 14,998 15,295 70,528 66,827 8,669 17,952 14,996 15,168 1,788 (804) 984 11,558 (688) 10,870 11,854 5,927 5,927 816 (50) 766 11,444 (688) 10,756 11,522 5,761 5,761 1,284 (2,961) (1,677) 12,777 (158) 12,619 10,942 6,583 4,359 1,209 (3,722) (2,513) 12,895 (132) 12,763 10,250 11,858 (3,196) 8,662 11,473 (1,627) 9,846 18,508 9,537 (2,233) 7,304 12,301 (1,698) 10,603 17,907 6,165 12,511 12,105 4,085 5,997 5,802 5,337 (15,037) 2,750 (2,333) (9,700) 21,567 (7) 21,560 11,860 6,997 4,863 417 12,612 – 12,612 13,029 8,469 4,560 Summarised consolidated statement of comprehensive income Year ended 31 December Marketing Company SIPL 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million Shanghai Petrochemical 2018 RMB million 2019 RMB million Fujian Petrochemical 2019 RMB million 2018 RMB million Sinopec Kantons 2019 RMB million 2018 RMB million Shanghai SECCO 2019 RMB million 2018 RMB million Sinopec-SK 2019 RMB million 2018 RMB million Turnover Profit for the year Total comprehensive income Comprehensive income attributable to non-controlling interests Dividends paid to non-controlling interests 1,427,705 22,992 23,362 1,443,698 22,046 22,589 3,282 2,831 2,693 5,037 3,272 4,536 100,270 2,227 2,235 107,689 5,336 5,336 8,289 4,830 7,794 1,651 2,737 3,964 10,926 – 1,113 1,344 2,645 1,616 5,535 477 477 238 650 5,261 1,576 1,576 788 600 1,274 1,131 1,140 433 159 1,398 1,065 1,067 399 104 28,341 3,137 3,137 1,016 822 26,320 3,099 3,099 1,004 1,191 31,016 701 701 17,134 1,879 1,879 245 – 658 – Summarised statement of cash flows Year ended 31 December Marketing Company SIPL 2019 RMB million 2018 RMB million 2019 RMB million 2018 RMB million Shanghai Petrochemical 2018 RMB million 2019 RMB million Fujian Petrochemical 2019 RMB million 2018 RMB million Sinopec Kantons 2019 RMB million 2018 RMB million Shanghai SECCO 2019 RMB million 2018 RMB million Sinopec-SK 2019 RMB million 2018 RMB million Net cash generated from operating activities Net cash (used in)/generated from investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign currency exchange rate changes Cash and cash equivalents at 31 December 40,260 24,825 2,128 3,467 5,057 6,659 (25,923) 8,339 678 4,096 (4,623) (1,928) (21,535) (32,084) (116) (5,419) (1,737) (3,507) 622 (472) (163) 38 (215) 716 397 738 648 4,601 3,766 5,532 3,308 (91) (480) (4,987) (3,099) 43 (1,208) (1,551) (2,050) (3,676) 2,144 (1,303) 1,224 (13) (134) (95) (165) 2,460 (390) (7,198) 1,080 14,142 12,921 (43) 141 2,690 5,993 150 3,605 8,742 7,504 244 11 14 6,901 14,142 8,833 5,993 7,450 8,742 9,278 6,817 1,593 92 – 79 226 – 92 198 14 117 343 20 198 6,817 7,205 1 2 250 795 798 – 525 734 64 – 798 195 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 42 FINANCIAL RISK MANAGEMENT AND FAIR VALUES Overview Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, financial assets at fair value through profit or loss, derivative financial assets, trade accounts receivable and bills receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due from associates and joint ventures, financial assets at FVOCI and other receivables. Financial liabilities of the Group include short-term debts, loans from Sinopec Group Company and fellow subsidiaries, derivative financial liabilities, trade accounts payable and bills payable, amounts due to Sinopec Group Company and fellow subsidiaries, amounts due to associates and joint ventures, other payables, long-term debts and lease liabilities. 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 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 deposits) 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 trade accounts receivable at 31 December 2019, 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, financial assets at fair value through profit or loss, derivative financial assets, trade accounts receivable and bills receivable, financial assets at FVOCI 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 receivable and bills receivable, financial assets at FVOCI 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 receivable and bills receivable and financial assets at FVOCI, the Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivable and bills receivable and financial assets at FVOCI. To measure the expected credit losses, trade accounts receivable and bills receivable and financial assets at FVOCI 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 months before 31 December 2019 or 1 January 2019, 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 receivable and bills receivable and financial assets at FVOCI, based on which the Group generated its payment profile is listed in Notes 25 and 26. All of the entity’s other receivables (Note 28) 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. 196 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201942 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 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 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. As at 31 December 2019, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 379,649 million (2018: RMB 387,748 million) on an unsecured basis, at a weighted average interest rate of 3.57% per annum (2018: 3.87%). As at 31 December 2019, the Group’s outstanding borrowings under these facilities were RMB 2,947 million (2018: RMB 21,236 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 Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Other payables Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Derivative financial liabilities Trade accounts payable and bills payable Other payables Total contractual undiscounted cash flow RMB million 42,240 62,903 54,508 367,711 2,729 199,792 78,771 808,654 Total contractual undiscounted cash flow RMB million 30,123 61,809 75,207 13,571 192,757 85,790 459,257 Carrying amount RMB million 40,521 49,156 52,915 192,872 2,729 199,792 78,771 616,756 Carrying amount RMB million 29,462 51,011 74,181 13,571 192,757 85,790 446,772 31 December 2019 Within 1 year or on demand RMB million More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years RMB million More than 5 years RMB million 42,240 952 43,623 16,488 2,729 199,792 78,771 384,595 – 6,271 985 15,676 – – – 22,932 31 December 2018 – 25,189 7,088 45,008 – – – 77,285 – 30,491 2,812 290,539 – – – 323,842 Within 1 year or on demand RMB million More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years 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 Management believes that the Group’s current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group’s short-term and long-term capital requirements. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. 197 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 42 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Currency risk Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries denominated in USD and lease liabilities denominated in Singapore Dollar (“SGD”). The Group enters into foreign exchange contracts to manage its currency risk exposure. Included primarily in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group and lease liabilities 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 and lease liabilities USD SGD 31 December 2019 million 31 December 2018 million 103 4 668 – A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2019 and 2018 would have increased/decreased 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 2018. USD SGD 31 December 2019 RMB million 31 December 2018 RMB million 27 1 172 – 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 and loans from Sinopec Group Company and fellow subsidiaries. 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 and terms of repayment of short-term and long-term debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 30. As at 31 December 2019, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group’s profit for the year by approximately RMB 352 million (2018: decrease/increase by approximately RMB 424 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 2018. 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 contracts, to manage a portion of this risk. As at 31 December 2019, 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 2019, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 788 million (2018: RMB 7,844 million) and derivative financial liabilities of RMB 2,728 million (2018: RMB 13,568 million). As at 31 December 2019, 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 increase/decrease the Group’s profit for the year by approximately RMB 3,134 million (2018: decrease/increase RMB 197 million), and decrease/increase the Group’s other reserves by approximately RMB 4,289 million (2018: increase/decrease RMB 6,850 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 2018. 198 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 42 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 2019 Assets Financial assets at fair value through profit or loss: – Structured deposits – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Financial assets at fair value through other comprehensive income: – Equity instruments – Trade accounts receivable and bills receivable Liabilities Derivative financial liabilities – Derivative financial liabilities At 31 December 2018 Assets Financial assets at fair value through profit or loss: – Structured deposits – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Financial assets at fair value through other comprehensive income: – Equity instruments Liabilities Derivative financial liabilities – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million – 1 128 90 – 219 – – 709 – – 709 1,209 1,209 1,520 1,520 3,318 – – 1,431 8,622 13,371 – – 3,318 1 837 1,521 8,622 14,299 2,729 2,729 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 During the years ended 31 December 2019 and 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 and trade accounts receivable and bills receivable classified as Level 3 financial assets. 199 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 42 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 for debt with substantially the same characteristic and maturities range from 2.37% to 4.90% (2018: 2.76% 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 2019 and 2018: Carrying amount Fair value 31 December 2019 RMB million 63,946 62,594 31 December 2018 RMB million 63,085 62,656 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 of the Group, 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 2019 and 2018. 43 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. 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 estimates of proved and proved developed reserves also change. 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. 200 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201943 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) 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 units 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. 44 EVENTS AFTER THE BALANCE SHEET DATE In early 2020, the outbreak of Coronavirus Disease 2019 (“COVID-19”) has significant impacts on the consumption of refined oil products and sales of chemical products of the Group. The Group has taken a series of strong and effective measures, and has coordinated the prevention and control of the COVID-19 and the resumption of work and production with all-out efforts to minimize its impact. International crude oil prices dropped significantly in March 2020 under the impact of the outbreak of the COVID-19 and the breakdown of OPEC’s production reduction negotiation, which has a significant impact on the Group’s operation. The COVID-19 and international crude oil prices drop in March 2020 are events arose after the balance sheet date, which are non-adjusting events after the balance sheet date. The Group will keep continuous attention on the situation of the COVID-19 and future fluctuation in oil prices, take responsive tackling measures, and assess the impact on the financial position and operating results of the Group after the balance sheet date. Up to the date of the issuance of the consolidated financial statements, the assessment is still in progress. 45 PARENT AND ULTIMATE HOLDING COMPANY The directors consider the parent and ultimate holding company of the Group as at 31 December 2019 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use. 201 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 201946 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY BALANCE SHEET OF THE COMPANY (Amounts in million) Note 31 December 2019 RMB 31 December 2018 RMB Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Investment in subsidiaries Interest in associates Interest in joint ventures 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 Derivative financial assets Trade accounts receivable and bills receivable Financial assets at fair value through other comprehensive income 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 Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Contract liabilities Other payables 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 Lease liabilities Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity 291,544 60,493 120,037 266,359 22,798 15,530 395 7,315 — 6,727 791,198 15,984 38,088 – 940 21,544 207 41 49,116 106,645 232,565 32,329 39,439 7,198 157 80,118 5,112 162,852 327,205 94,640 696,558 12,999 6,681 107,783 34,514 5,404 167,381 529,177 121,071 408,106 529,177 302,048 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 (a) 202 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 46 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 income/(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 2019 RMB million 2018 RMB million 9,201 46 9,247 55,850 55,850 86,678 3,745 90,423 9,195 6 9,201 55,850 55,850 82,682 3,996 86,678 117,000 117,000 117,000 117,000 2,286 201 1,465 (40) 3,912 144,132 37,256 (46,008) (3,745) 40 (1) 131,674 408,106 2,460 (64) (617) 507 2,286 177,989 38,460 (67,799) (3,996) (507) (15) 144,132 415,147 203 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2019 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 2019 RMB million 31 December 2018 RMB million 876,905 857,659 (1,070) 875,835 (1,124) 856,535 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) 2019 RMB million 72,122 2018 RMB million 80,289 54 69 (212) 72,033 56 909 (2,357) 78,897 * 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 2018 and 2019 which have been audited by PricewaterhouseCoopers. 204 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Differences between Consolidated Financial Statements Prepared in Accordance with the Accounting Policies Complying with CASs and IFRS (Unaudited)(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH 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 2019 and 2018, 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 2019 RMB million Other countries Total China 2018 RMB million Other countries Total China 727,552 202,208 46,712 976,472 684,246 202,192 46,526 932,964 43,306 16 186 43,508 695,724 199,321 40,778 935,823 651,531 199,304 40,770 891,605 44,193 17 8 44,218 (702,392) 274,080 (661,177) 271,787 (41,215) 2,293 (658,093) 277,730 (618,593) 273,012 (39,500) 4,718 5,743 – 5,743 6,304 – 6,304 279,823 271,787 8,036 284,034 273,012 11,022 Table II: Costs incurred in oil and gas exploration and development The Group Exploration Development Total costs incurred Equity method investments Share of costs of exploration and development of associates and joint ventures Total of the Group’s and its equity method Total China 16,295 37,412 53,707 16,295 37,245 53,540 747 – investments’ exploration and development costs 54,454 53,540 2019 RMB million Other countries – 167 167 747 914 Total China 12,108 27,453 39,561 12,108 27,329 39,437 793 – 40,354 39,437 2018 RMB million Other countries – 124 124 793 917 205 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) Table III: Results of operations related to oil and gas producing activities 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 Total of the Group’s and its equity method investments’ results of operations for producing activities 2019 RMB million Other countries 2018 RMB million Other countries Total China Total China 59,552 83,633 143,185 (47,969) (10,510) (48,630) (9,395) 26,681 338 27,019 9,325 9,325 (2,516) – (1,124) (4,068) 1,617 (486) 1,131 59,262 80,641 139,903 (46,725) (10,510) (47,580) (9,395) 25,693 – 25,693 – – – – – – – – – 290 2,992 3,282 (1,244) – (1,050) – 988 338 1,326 9,325 9,325 (2,516) – (1,124) (4,068) 1,617 (486) 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) 1,131 1,170 57,860 84,532 142,392 (45,953) (10,744) (60,877) (11,400) 13,418 – 13,418 – – – – – – – – – 28,150 25,693 2,457 17,105 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) 1,170 3,687 The results of operations for producing activities for the years ended 31 December 2019 and 2018 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. 206 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 2019 and 2018 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. 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 2019 2018 Total China Other countries Total China Other countries 1,367 81 160 98 (256) 1,450 8 1,271 1,343 96 107 6,793 123 469 875 (1,044) 7,216 5,822 6,026 971 1,190 1,339 85 160 98 (249) 1,433 – 1,244 1,326 95 107 6,793 123 469 875 (1,044) 7,216 5,822 6,026 971 1,190 28 (4) – – (7) 17 8 27 17 1 – – – – – – – – – – – 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 – – – – – – – – – – 207 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 2019 2018 Total China Other countries Total China Other countries 299 (8) 2 25 (28) 290 261 245 38 45 13 (1) – – (3) 9 13 9 – – – – – – – – – – – – – – – – – – – – – – 1,666 1,740 6,806 7,225 1,339 1,433 6,793 7,216 299 (8) 2 25 (28) 290 261 245 38 45 13 (1) – – (3) 9 13 9 – – 327 307 13 9 306 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 13 208 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 adjusted for differential 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 2019 and 2018 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 2019 RMB million Other countries Total China 2018 RMB million Other countries Total China 869,402 (384,417) (27,065) (40,720) 417,200 856,037 (377,692) (22,216) (39,634) 416,495 13,365 (6,725) (4,849) (1,086) 705 868,058 (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 (126,203) (126,175) (28) (126,910) (126,617) (293) 294,217 291,463 290,997 290,320 305 41,796 (13,141) (5,603) (3,995) 19,057 (8,852) 10,205 – – – – – – – – 677 305 41,796 (13,141) (5,603) (3,995) 19,057 1,239 48,778 (12,462) (4,433) (5,632) 26,251 (8,852) (13,012) 10,205 13,239 2,754 1,239 48,778 (12,462) (4,433) (5,632) 26,251 (13,012) 13,239 – – – – – – – – of discounted future net cash flows 301,202 290,320 10,882 307,456 291,463 15,993 209 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 2019 RMB million 2018 RMB million (85,821) (25,442) (10,108) 61,465 12,995 9,737 32,407 1,547 (3,220) (2,741) (2,804) (881) 1,321 (423) 355 1,438 701 (3,034) (6,254) (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 71,809 210 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) STATUTORY NAME 中国石油化工股份有限公司 ENGLISH NAME China Petroleum & Chemical Corporation Hong Kong: Herbert Smith Freehills 23rd Floor, Gloucester Tower 15 Queen’s Road Central, Hong Kong PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES A Shares: Shanghai Stock Exchange Stock name Stock code : SINOPEC CORP : 600028 H Shares: Hong Kong Stock Exchange Stock code : 00386 ADRs: New York Stock Exchange Stock code : SNP London Stock Exchange Stock code : SNP NAMES AND ADDRESSES OF AUDITORS OF SINOPEC CORP. Domestic Auditors : PricewaterhouseCoopers Address Overseas Auditors Address Zhong Tian LLP : 11th Floor PricewaterhouseCoopers, 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai, PRC 200021 : PricewaterhouseCoopers : 22nd Floor, Prince’s Building, Central, Hong Kong CHINESE ABBREVIATION 中国石化 ENGLISH ABBREVIATION Sinopec Corp. AUTHORISED REPRESENTATIVES Mr. Ma Yongsheng Mr. Huang Wensheng SECRETARY TO THE BOARD Mr. Huang Wensheng REPRESENTATIVE ON SECURITIES MATTERS Mr. Zhang Zheng 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. 211 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Corporate InformationCORPORATE INFORMATIONThe following documents will be available for inspection during normal business hours after 27 March 2020 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 2019 annual report signed by Mr. Zhang Yuzhuo, the Chairman; b) The original copies of financial statements and consolidated financial statements as of 31 December 2019 prepared under IFRS and CASs, signed by Mr. Zhang Yuzhuo, the Chairman, Mr. Ma Yongsheng, the President, Ms. Shou Donghua, 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 Zhang Yuzhuo Chairman Beijing, PRC, 27 March 2020 If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail. 212 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2019Documents 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 

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