58  COMMITMENTS

 

Capital commitments

 

At 31 December 2019 and 31 December 2018, the capital commitments of the Group are as follows:

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Authorised and contracted for (i)	138,088	141,045
Authorised but not contracted for	63,967	54,392
Total	202,055	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).

 

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:

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Within one year	302	380
Between one and two years	69	79
Between two and three years	34	33
Between three and four years	30	28
Between four and five years	29	28
Thereafter	845	852
Total	1,309	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:

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Joint ventures	7,100	5,033
Associates (i)	10,140	12,168
Others (ii)	-	7,197
Total	17,240	24,398

 

Notes:

 

(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.

 

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.

 

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:

 

	2019	2018
	RMB million	RMB million
Income from principal operations
Exploration and production
External sales	111,114	93,499
Inter-segment sales	89,315	95,954
	200,429	189,453
Refining
External sales	141,674	148,930
Inter-segment sales	1,077,018	1,109,088
	1,218,692	1,258,018
Marketing and distribution
External sales	1,393,557	1,408,989
Inter-segment sales	4,159	5,224
	1,397,716	1,414,213
Chemicals
External sales	425,508	457,406
Inter-segment sales	54,865	73,835
	480,373	531,241
Corporate and others
External sales	828,635	716,789
Inter-segment sales	654,337	650,271
	1,482,972	1,367,060
Elimination of inter-segment sales	(1,879,694)	(1,934,372)
Consolidated income from principal operations	2,900,488	2,825,613
Income from other operations
Exploration and production	10,283	10,738
Refining	5,464	5,389
Marketing and distribution	33,247	32,424
Chemicals	14,861	15,492
Corporate and others	1,850	1,523
Consolidated income from other operations	65,705	65,566
Consolidated operating income	2,966,193	2,891,179

 

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 (Continued):

 

	2019	2018
	RMB million	RMB million
Operating profit/(loss)
By segment
Exploration and production	6,289	(11,557)
Refining	30,074	53,703
Marketing and distribution	29,781	24,106
Chemicals	16,586	25,970
Corporate and others	3,530	(8,151)
Elimination	(40)	(3,634)
Total segment operating profit	86,220	80,437
Investment income
Exploration and production	3,148	2,595
Refining	(580)	429
Marketing and distribution	3,499	2,676
Chemicals	5,178	6,905
Corporate and others	1,383	(1,177)
Total segment investment income	12,628	11,428
Less: Financial expenses	9,967	(1,001)
Add: Other income	5,973	6,694
(Losses)/gains from changes in fair value	(3,511)	2,656
Asset disposal losses	(1,318)	(742)
Operating profit	90,025	101,474
Add: Non-operating income	2,598	2,070
Less: Non-operating expenses	2,607	3,042
Profit before taxation	90,016	100,502

 

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Assets
Segment assets
Exploration and production	410,950	321,686
Refining	321,080	271,356
Marketing and distribution	399,242	317,641
Chemicals	175,884	156,865
Corporate and others	131,686	152,799
Total segment assets	1,438,842	1,220,347
Cash at bank and on hand	127,927	167,015
Long-term equity investments	152,204	145,721
Deferred tax assets	17,616	21,694
Other unallocated assets	18,482	37,531
Total assets	1,755,071	1,592,308
Liabilities
Segment liabilities
Exploration and production	162,262	93,874
Refining	120,617	103,709
Marketing and distribution	219,381	159,028
Chemicals	53,515	37,380
Corporate and others	136,420	144,138
Total segment liabilities	692,195	538,129
Short-term loans	31,196	44,692
Non-current liabilities due within one year	69,490	17,450
Long-term loans	39,625	61,576
Debentures payable	19,157	31,951
Deferred tax liabilities	6,809	5,948
Other non-current liabilities	15,364	27,276
Other unallocated liabilities	4,330	7,627
Total liabilities	878,166	734,649

 

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 (Continued):

 

	2019	2018
	RMB million	RMB million
Capital expenditure
Exploration and production	61,739	42,155
Refining	31,372	27,908
Marketing and distribution	29,566	21,429
Chemicals	22,438	19,578
Corporate and others	1,979	6,906
	147,094	117,976
Depreciation, depletion and amortisation
Exploration and production	50,732	60,331
Refining	19,676	18,164
Marketing and distribution	21,572	16,296
Chemicals	13,966	13,379
Corporate and others	2,866	1,797
	108,812	109,967
Impairment losses on long-lived assets
Exploration and production	3	4,274
Refining	245	353
Marketing and distribution	80	264
Chemicals	17	1,374
Corporate and others	-	16
	345	6,281

 

(2)  Geographical information

 

The following tables set out information about the geographical information of the Group's external sales and the Group's non-current assets, excluding financial 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.

 

	2019	2018
	RMB million	RMB million
External sales
Mainland China	2,131,078	2,119,580
Singapore	505,672	395,129
Others	329,443	376,470
	2,966,193	2,891,179

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Non-current assets
Mainland China	1,235,676	989,668
Others	52,705	50,892
	1,288,381	1,040,560

 

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.

 

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
	Carrying amount	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	More than five years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term loans	31,196	31,633	31,633	-	-	-
Derivative financial liabilities	2,729	2,729	2,729	-	-	-
Bills payable	11,834	11,834	11,834	-	-	-
Accounts payable	187,958	187,958	187,958	-	-	-
Other payables and employee benefits payable	77,093	77,093	77,093	-	-	-
Non-current liabilities due within one year	69,490	72,180	72,180	-	-	-
Long-term loans	39,625	49,604	404	6,492	15,610	27,098
Debentures payable	19,157	24,400	764	764	16,667	6,205
Lease liabilities	177,674	351,223	-	15,676	45,008	290,539
Total	616,756	808,654	384,595	22,932	77,285	323,842

 

	At 31 December 2018
	Carrying amount	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	More than five years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term loans	44,692	45,040	45,040	-	-	-
Derivative financial liabilities	13,571	13,571	13,571	-	-	-
Bills payable	6,416	6,416	6,416	-	-	-
Accounts payable	186,341	186,341	186,341	-	-	-
Other payables and employee benefits payable	84,775	84,775	84,775	-	-	-
Non-current liabilities due within one year	17,450	18,053	18,053	-	-	-
Long-term loans	61,576	66,387	792	40,885	13,807	10,903
Debentures payable	31,951	38,674	1,269	14,030	17,124	6,251
Total	446,772	459,257	356,257	54,915	30,931	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.

 

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

 

	At 31 December	At 31 December
	2019	2018
	million	million
Gross exposure arising from loans and lease liabilities
US Dollar	103	668
Singapore Dollar	4	-

 

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

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
US Dollar	27	172
Singapore Dollar	1	-

 

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.

 

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

 

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets held for trading:
- Structured deposits	-	-	3,318	3,318
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	128	709	-	837
Receivables financing:
- Receivables financing	-	-	8,622	8,622
Other equity instrument investments:
- Other Investments	90	-	1,431	1,521
	219	709	13,371	14,299
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	1,209	1,520	-	2,729
	1,209	1,520	-	2,729

 

At 31 December 2018

 

The Group

 

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets held for trading:
- Structured deposits	-	-	25,550	25,550
- Equity investments (listed and at quoted market price)	182	-	-	182
Derivative financial assets:
- Derivative financial assets	874	7,013	-	7,887
Other equity instrument investments:
- Other Investments	127	-	1,323	1,450
	1,183	7,013	26,873	35,069
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	5,500	8,071	-	13,571
	5,500	8,071	-	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.

 

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:

 

	At 31 December	At 31 December
	2019	2018
	RMB million	RMB million
Carrying amount	63,946	63,085
Fair value	62,594	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:

 

	2019	2018
	RMB million	RMB million
Extraordinary (gains)/losses for the year:
Net loss on disposal of non-current assets	1,318	742
Donations	209	180
Government grants	(6,857)	(7,482)
Gain on holding and disposal of various investments	(410)	(1,023)
Other non-operating loss, net	729	1,613
	(5,011)	(5,970)
Tax effect	1,597	2,312
Total	(3,414)	(3,658)
Attributable to:
Equity shareholders of the Company	(3,320)	(3,459)
Minority interests	(94)	(199)

 

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:

 

	2019	2018
Net profit attributable to equity shareholders of the Company (RMB million)	57,591	63,089
Weighted average number of outstanding ordinary shares of the Company (million)	121,071	121,071
Basic earnings per share (RMB/share)	0.476	0.521

 

The calculation of the weighted average number of ordinary shares is as follows:

 

	2019	2018
Weighted average number of outstanding ordinary shares of the Company at 1 January (million)	121,071	121,071
Weighted average number of outstanding ordinary shares of the Company at 31 December (million)	121,071	121,071

 

(ii)  Diluted earnings per share

 

Diluted earnings per share is calculated by the net profit attributable to equity shareholders of the Company (diluted) and the weighted average number of ordinary shares of the Company (diluted):

 

	2019	2018
Net profit attributable to equity shareholders of the Company (diluted) (RMB million)	57,591	63,089
Weighted average number of outstanding ordinary shares of the Company (diluted) (million)	121,071	121,071
Diluted earnings per share (RMB/share)	0.476	0.521

 

The calculation of the weighted average number of ordinary shares (diluted) is as follows:

 

	2019	2018
Weighted average number of the ordinary shares issued at 31 December (million)	121,071	121,071
Weighted average number of the ordinary shares issued at 31 December (diluted) (million)	121,071	121,071

 

64  RETURN ON NET ASSETS AND EARNINGS PER SHARE

 

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	Diluted earnings per share	Weighted average return on net assets	Basic earnings per share	Diluted earnings per share
	(%)	(RMB/Share)	(RMB/Share)	(%)	(RMB/Share)	(RMB/Share)
Net profit attributable to the Company's ordinary equity  shareholders	7.90	0.476	0.476	8.67	0.521	0.521
Net profit deducted extraordinary gains and losses  attributable to the Company's ordinary equity  shareholders	7.45	0.448	0.448	8.20	0.493	0.493

 

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.

 

 

REPORT OF THE INTERNATIONAL AUDITOR

 

 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

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:

 

‧    Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

‧    Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

 

‧    Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

 

‧    Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

‧    Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

‧    Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

The engagement partner on the audit resulting in this independent auditor's report is CHAN KWONG TAK.

 

 

 

 

PricewaterhouseCoopers

Certified Public Accountants

 

Hong Kong, 27 March 2020

 

(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)

 

 

	Notes	Year ended 31 December
		2019	2018
		RMB	RMB
Turnover and other operating revenues
Turnover	3	2,900,488	2,825,613
Other operating revenues	4	65,705	65,566
		2,966,193	2,891,179
Operating expenses
Purchased crude oil, products and operating supplies and expenses		(2,380,907)	(2,292,983)
Selling, general and administrative expenses	5	(55,313)	(65,642)
Depreciation, depletion and amortisation		(108,812)	(109,967)
Exploration expenses, including dry holes		(10,510)	(10,744)
Personnel expenses	6	(81,482)	(77,721)
Taxes other than income tax	7	(242,535)	(246,498)
Other operating expense, net	8	(436)	(5,360)
Total operating expenses		(2,879,995)	(2,808,915)
Operating profit		86,198	82,264
Finance costs
Interest expense	9	(17,003)	(7,321)
Interest income		7,206	7,726
Foreign currency exchange (losses)/gains, net		(170)	596
Net finance costs		(9,967)	1,001
Investment income		919	1,871
Share of profits less losses from associates and joint ventures	20, 21	12,777	13,974
Profit before taxation		89,927	99,110
Income tax expense	10	(17,894)	(20,213)
Profit for the year		72,033	78,897
Attributable to:
Shareholders of the Company		57,465	61,618
Non-controlling interests		14,568	17,279
Profit for the year		72,033	78,897
Earnings per share:	15
Basic		0.475	0.509
Diluted		0.475	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.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2019

(Amounts in million)

 

	Notes	Year ended 31 December
		2019	2018
		RMB	RMB
Profit for the year		72,033	78,897
Other comprehensive income:	14
Items that may not be reclassified subsequently to profit or loss
Equity investments at fair value through other comprehensive income		(31)	(53)
Total items that may not be reclassified subsequently to profit or loss		(31)	(53)
Items that may be reclassified subsequently to profit or loss
Share of other comprehensive loss of associates and joint ventures		(810)	(229)
Cash flow hedges		4,941	(9,741)
Foreign currency translation differences		1,480	3,399
Total items that may be reclassified subsequently to profit or loss		5,611	(6,571)
Total other comprehensive income		5,580	(6,624)
Total comprehensive income for the year		77,613	72,273
Attributable to:
Shareholders of the Company		62,880	54,000
Non-controlling interests		14,733	18,273
Total comprehensive income for the year		77,613	72,273

 

The notes on pages 156 to 203 form part of these consolidated financial statements.

 

CONSOLIDATED BALANCE SHEET

As at 31 December 2019

(Amounts in million)

 

	Notes	31 December	31 December
		2019	2018
		RMB	RMB
Non-current assets
Property, plant and equipment, net	16	622,409	617,762
Construction in progress	17	173,482	136,963
Right-of-use assets	18, 1(a)	267,860	-
Goodwill	19	8,697	8,676
Interest in associates	20	95,737	89,537
Interest in joint ventures	21	56,467	56,184
Financial assets at fair value through other comprehensive income	26	1,521	1,450
Deferred tax assets	29	17,616	21,694
Lease prepayments		-	64,514
Long-term prepayments and other assets	22	65,426	91,408
Total non-current assets		1,309,215	1,088,188
Current assets
Cash and cash equivalents		60,313	111,922
Time deposits with financial institutions		67,614	55,093
Financial assets at fair value through profit or loss	23	3,319	25,732
Derivative financial assets	24	837	7,887
Trade accounts receivable and bills receivable	25	54,865	64,879
Financial assets at fair value through other comprehensive income	26	8,622	-
Inventories	27	192,442	184,584
Prepaid expenses and other current assets	28	57,844	54,023
Total current assets		445,856	504,120
Current liabilities
Short-term debts	30	40,521	29,462
Loans from Sinopec Group Company and fellow subsidiaries	30	43,289	31,665
Lease liabilities	31, 1(a)	15,198	-
Derivative financial liabilities	24	2,729	13,571
Trade accounts payable and bills payable	32	199,792	192,757
Contract liabilities	33	126,735	124,793
Other payables	34	144,846	166,151
Income tax payable		3,264	6,699
Total current liabilities		576,374	565,098
Net current liabilities		130,518	60,978
Total assets less current liabilities		1,178,697	1,027,210
Non-current liabilities
Long-term debts	30	49,156	51,011
Loans from Sinopec Group Company and fellow subsidiaries	30	9,626	42,516
Lease liabilities	31, 1(a)	177,674	-
Deferred tax liabilities	29	6,809	5,948
Provisions	35	43,163	42,800
Other long-term liabilities		16,434	28,400
Total non-current liabilities		302,862	170,675
		875,835	856,535
Equity
Share capital	36	121,071	121,071
Reserves		617,079	596,213
Total equity attributable to shareholders of the Company		738,150	717,284
Non-controlling interests		137,685	139,251
Total equity		875,835	856,535

 

Approved and authorised for issue by the board of directors on 27 March 2020.

 

 

 

 

 

 

 

 

 

Zhang Yuzhuo	Ma Yongsheng	Shou Donghua
Chairman	President	Chief Financial Officer

 

The notes on pages 156 to 203 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2018

(Amounts in million)

 

 

	Share capital	Capital reserve	Share premium	Statutory surplus reserve	Discretionary surplus reserve	Other reserves	Retained earnings	Total equity attributable to shareholders of the Company	Non- controlling interests	Total equity
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Balance at 31 December 2017	121,071	26,326	55,850	82,682	117,000	(2,934)	326,125	726,120	126,770	852,890
Change in accounting policy	-	-	-	-	-	(12)	12	-	-	-
Balance at 1 January 2018	121,071	26,326	55,850	82,682	117,000	(2,946)	326,137	726,120	126,770	852,890
Profit for the year	-	-	-	-	-	-	61,618	61,618	17,279	78,897
Other comprehensive income (Note 14)	-	-	-	-	-	(7,618)	-	(7,618)	994	(6,624)
Total comprehensive income for the year	-	-	-	-	-	(7,618)	61,618	54,000	18,273	72,273
Amounts transferred to initial carrying amount of  hedged items	-	-	-	-	-	5,269	-	5,269	-	5,269
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2017 (Note 13)	-	-	-	-	-	-	(48,428)	(48,428)	-	(48,428)
Interim dividend for 2018 (Note 13)	-	-	-	-	-	-	(19,371)	(19,371)	-	(19,371)
Appropriation (Note (a))	-	-	-	3,996	-	-	(3,996)	-	-	-
Distributions to non-controlling interests	-	-	-	-	-	-	-	-	(7,476)	(7,476)
Contributions to subsidiaries from non-controlling  interests	-	-	-	-	-	-	-	-	2,060	2,060
Total contributions by and distributions to owners	-	-	-	3,996	-	-	(71,795)	(67,799)	(5,416)	(73,215)
Transaction with non-controlling interests	-	(12)	-	-	-	-	-	(12)	(299)	(311)
Total transactions with owners	-	(12)	-	3,996	-	-	(71,795)	(67,811)	(5,715)	(73,526)
Others	-	(261)	-	-	-	818	(851)	(294)	(77)	(371)
Balance at 31 December 2018	121,071	26,053	55,850	86,678	117,000	(4,477)	315,109	717,284	139,251	856,535

 

The notes on pages 156 to 203 form part of these consolidated financial statements.

 

	Share capital	Capital reserve	Share premium	Statutory surplus reserve	Discretionary surplus reserve	Other reserves	Retained earnings	Total equity attributable to shareholders of the Company	Non- controlling interests	Total equity
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Balance at 1 January 2019	121,071	26,053	55,850	86,678	117,000	(4,477)	315,109	717,284	139,251	856,535
Profit for the year	-	-	-	-	-	-	57,465	57,465	14,568	72,033
Other comprehensive income (Note 14)	-	-	-	-	-	5,415	-	5,415	165	5,580
Total comprehensive income for the year	-	-	-	-	-	5,415	57,465	62,880	14,733	77,613
Amounts transferred to initial carrying amount of  hedged items	-	-	-	-	-	1,038	-	1,038	55	1,093
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2018 (Note 13)	-	-	-	-	-	-	(31,479)	(31,479)	-	(31,479)
Interim dividend for 2019 (Note 13)	-	-	-	-	-	-	(14,529)	(14,529)	-	(14,529)
Appropriation (Note (a))	-	-	-	3,745	-	-	(3,745)	-	-	-
Distributions to non-controlling interests	-	-	-	-	-	-	-	-	(18,989)	(18,989)
Contributions to subsidiaries from  non-controlling interests	-	-	-	-	-	-	-	-	5,495	5,495
Total contributions by and distributions to owners	-	-	-	3,745	-	-	(49,753)	(46,008)	(13,494)	(59,502)
Transaction with non-controlling interests	-	2,933	-	-	-	-	-	2,933	(2,933)	-
Total transactions with owners	-	2,933	-	3,745	-	-	(49,753)	(43,075)	(16,427)	(59,502)
Others	-	7	-	-	-	(35)	51	23	73	96
Balance at 31 December 2019	121,071	28,993	55,850	90,423	117,000	1,941	322,872	738,150	137,685	875,835

 

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.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

(Amounts in million)

 

	Notes	Year ended 31 December
		2019	2018
		RMB	RMB
Net cash generated from operating activities	(a)	153,420	175,868
Investing activities
Capital expenditure		(129,645)	(94,753)
Exploratory wells expenditure		(11,497)	(8,261)
Purchase of investments, investments in associates and investments in joint ventures		(3,483)	(10,116)
Payment for financial assets at fair value through profit or loss		(12,851)	(29,550)
Proceeds from sale of financial assets at fair value through profit or loss		35,292	55,000
Payment for acquisition of subsidiary, net of cash acquired		(1,031)	(3,188)
Proceeds from disposal of investments and investments in associates		704	1,557
Proceeds from disposal of property, plant, equipment and other non-current assets		703	9,666
Increase in time deposits with maturities over three months		(103,231)	(81,708)
Decrease in time deposits with maturities over three months		90,710	78,401
Interest received		7,094	5,810
Investment and dividend income received		10,272	10,720
Repayments of other investing activities		(3,500)	-
Net cash used in investing activities		(120,463)	(66,422)
Financing activities
Proceeds from bank and other loans		599,866	746,655
Repayments of bank and other loans		(612,108)	(772,072)
Contributions to subsidiaries from non-controlling interests		3,919	1,886
Dividends paid by the Company		(46,008)	(67,799)
Distributions by subsidiaries to non-controlling interests		(7,354)	(13,700)
Interest paid		(6,161)	(5,984)
Payments made to acquire non-controlling interests		(8)	(160)
Repayments of lease liabilities (2018: Finance lease payment)		(16,859)	(86)
Proceeds from other financing activities		320	-
Repayments of other financing activities		(320)	-
Net cash used in financing activities		(84,713)	(111,260)
Net decrease in cash and cash equivalents		(51,756)	(1,814)
Cash and cash equivalents at 1 January		111,922	113,218
Effect of foreign currency exchange rate changes		147	518
Cash and cash equivalents at 31 December		60,313	111,922

 

The notes on pages 156 to 203 form part of these consolidated financial statements.

 

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

(Amounts in million)

 

(a)  Reconciliation from profit before taxation to net cash generated from operating activities

 

	Year ended 31 December
	2019	2018
	RMB	RMB
Operating activities
Profit before taxation	89,927	99,110
Adjustments for:
Depreciation, depletion and amortisation	108,812	109,967
Dry hole costs written off	5,831	6,921
Share of profits from associates and joint ventures	(12,777)	(13,974)
Investment income	(919)	(1,871)
Interest income	(7,206)	(7,726)
Interest expense	17,003	7,321
Loss/(gain) on foreign currency exchange rate changes and derivative financial instruments	3,624	(1,835)
Loss on disposal of property, plant, equipment and other non-current assets, net	1,918	1,526
Impairment losses on assets	1,789	11,605
Credit impairment losses	1,264	141
	209,266	211,185
Net changes from:
Accounts receivable and other current assets	(11,802)	(1,043)
Inventories	(9,285)	(3,312)
Accounts payable and other current liabilities	(15,236)	2,111
	172,943	208,941
Income tax paid	(19,523)	(33,073)
Net cash generated from operating activities	153,420	175,868

 

The notes on pages 156 to 203 form part of these consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2019

 

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.

 

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

 

	RMB million
Operating lease commitments disclosed as at 31 December 2018	352,794
Discounted using the lessee's incremental borrowing rate of at the date of initial application	200,867
(Less): short-term leases and low-value leases recognised on a straight-line basis as expense	(2,303)
Lease liabilities recognised as at 1 January 2019	198,564
Of which are:
Current lease liabilities	13,894
Non-current lease liabilities	184,670
	198,564

 

(iii) Measurement of right-of-use assets

 

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	1 January 2019
	RMB million	RMB million
Land	239,374	244,588
Others	28,486	27,381
Total right-of-use assets	267,860	271,969

 

(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:

 

	Increase in
	Segment assets	Segment liabilities
	RMB million	RMB million
Exploration and production	79,263	78,041
Refining	32,839	26,094
Marketing and distribution	120,983	62,237
Chemicals	19,124	12,252
Corporate and others	15,651	14,248
	267,860	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.

 

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.

 

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.

 

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:

 

	Estimated usage period	Estimated residuals rate
Buildings	12 to 50 years	3%
Equipment, machinery and others	4 to 30 years	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.

 

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.

 

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.

 

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).

 

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.

 

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.

 

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.

 

	2019	2018
	RMB million	RMB million
Gasoline	699,202	711,236
Diesel	615,342	594,008
Crude oil	553,848	519,910
Basic chemical feedstock	214,911	250,884
Kerosene	191,636	168,823
Synthetic resin	124,271	124,618
Synthetic fiber monomers and polymers	80,100	77,572
Natural gas	53,839	43,205
Others (i)	367,339	335,357
	2,900,488	2,825,613

 

(i)    Others are primarily liquefied petroleum gas and other refinery and chemical by-products and joint products.

 

4    OTHER OPERATING REVENUES

 

	2019	2018
	RMB million	RMB million
Sale of materials and others	64,489	64,503
Rental income	1,216	1,063
	65,705	65,566

 

5    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

The following items are included in selling, general and administrative expenses:

 

	2019	2018
	RMB million	RMB million
Operating lease charges	1,856	12,297
Auditor's remuneration:
- audit services	70	94
- others	6	9
Impairment losses:
- trade accounts receivable	1,283	6
- other receivables	(2)	9

 

6    PERSONNEL EXPENSES

 

	2019	2018
	RMB million	RMB million
Salaries, wages and other benefits	69,817	68,425
Contributions to retirement schemes (Note 39)	11,665	9,296
	81,482	77,721

 

7    TAXES OTHER THAN INCOME TAX

 

	2019	2018
	RMB million	RMB million
Consumption tax (i)	202,671	201,901
City construction tax (ii)	16,247	18,237
Education surcharge	12,011	13,187
Resources tax	5,883	6,021
Others	5,723	7,152
	242,535	246,498

 

Notes:

 

(i)    Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below:

 

Products	Effective from 13 January 2015
	RMB/Ton
Gasoline	2,109.76
Diesel	1,411.20
Naphtha	2,105.20
Solvent oil	1,948.64
Lubricant oil	1,711.52
Fuel oil	1,218.00
Jet fuel oil	1,495.20

 

(ii)   City construction tax is levied on an entity based on its total paid amount of value-added tax and consumption tax.

 

8    OTHER OPERATING EXPENSE, NET

 

	2019	2018
	RMB million	RMB million
Government grants (i)	6,911	7,539
Ineffective portion of change in fair value of cash flow hedges	(222)	(1,978)
Net realised and unrealised (loss)/gain on derivative financial instruments not qualified as hedging	(4,384)	191
Impairment losses on long-lived assets (ii)	(345)	(6,281)
Loss on disposal of property, plant, equipment and other non-current assets, net	(1,918)	(1,526)
Fines, penalties and compensations	(173)	(276)
Donations	(209)	(180)
Others	(96)	(2,849)
	(436)	(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

 

	2019	2018
	RMB million	RMB million
Interest expense incurred	6,954	6,376
Less: Interest expense capitalised*	(1,015)	(493)
	5,939	5,883
Interest expense on lease liabilities	9,646	-
Accretion expenses (Note 35)	1,418	1,438
Interest expense	17,003	7,321
* Interest rates per annum at which borrowing costs were capitalised for construction in progress	2.92% to 4.66%	2.37% to 4.66%

 

10  INCOME TAX EXPENSE

 

Income tax expense in the consolidated income statement represents:

 

	2019	2018
	RMB million	RMB million
Current tax
- Provision for the year	14,976	27,176
- Adjustment of prior years	(467)	(719)
Deferred taxation (Note 29)	3,385	(6,244)
	17,894	20,213

 

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:

 

	2019	2018
	RMB million	RMB million
Profit before taxation	89,927	99,110
Expected PRC income tax expense at a statutory tax rate of 25%	22,482	24,778
Tax effect of non-deductible expenses	2,300	2,351
Tax effect of non-taxable income	(4,458)	(5,033)
Tax effect of preferential tax rate (i)	(2,003)	(1,259)
Effect of income taxes at foreign operations	(312)	77
Tax effect of utilisation of previously unrecognised tax losses and temporary differences	(335)	(779)
Tax effect of tax losses not recognised	498	609
Write-down of deferred tax assets	189	188
Adjustment of prior years	(467)	(719)
Actual income tax expense	17,894	20,213

 

Note:

 

(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:

 

	Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking			Emoluments paid  or receivable in respect of a person's services as a director, whether of the Company or its subsidiary  undertaking
	2019
Name	Salaries,  allowances and benefits in kind	Bonuses	Retirement scheme contributions	Directors'/ Supervisors' fee	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Directors
Dai Houliang	-	-	-	-	-
Ma Yongsheng	294	1,173	96	-	1,563
Li Yunpeng	-	-	-	-	-
Yu Baocai	-	-	-	-	-
Ling Yiqun	-	-	-	-	-
Liu Zhongyun (i)	-	-	-	-	-
Li Yong	-	-	-	-	-
Independent non-executive directors
Tang Min	-	-	-	350	350
Fan Gang	-	-	-	350	350
Cai Hongbin	-	-	-	350	350
Johnny Karling Ng	-	-	-	350	350
Supervisors
Zhao Dong	-	-	-	-	-
Jiang Zhenying	369	865	88	-	1,322
Yang Changjiang	-	-	-	-	-
Zhang Baolong	-	-	-	-	-
Zou Huiping	369	989	88	-	1,446
Yu Xizhi	369	880	88	-	1,337
Zhou Hengyou	369	874	88	-	1,331
Yu Renming	369	889	88	-	1,346
Total	2,139	5,670	536	1,400	9,745

 

11  DIRECTORS' AND SUPERVISORS' EMOLUMENTS (Continued)

 

(a)  Directors' and supervisors' emoluments (Continued)

 

The emoluments of every director and supervisor is set out below: (Continued)

 

	Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking			Emoluments paid or receivable in respect of a person's services as a director, whether of the Company or its subsidiary undertaking
	2018
Name	Salaries,  allowances and benefits in kind	Bonuses	Retirement scheme contributions	Directors'/ Supervisors' fee	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Directors
Dai Houliang	224	179	65	-	468
Li Yunpeng	-	-	-	-	-
Yu Baocai	-	-	-	-	-
Ma Yongsheng	53	328	14	-	395
Ling Yiqun	-	-	-	-	-
Liu Zhongyun (i)	-	-	-	-	-
Li Yong	-	-	-	-	-
Wang Zhigang (ii)	21	456	6	-	483
Zhang Haichao (ii)	-	-	-	-	-
Jiao Fangzheng (iii)	-	-	-	-	-
Independent non-executive directors
Tang Min	-	-	-	333	333
Fan Gang	-	-	-	333	333
Cai Hongbin	-	-	-	233	233
Johnny Karling Ng	-	-	-	233	233
Jiang Xiaoming (iv)	-	-	-	125	125
Andrew Y. Yan (iv)	-	-	-	125	125
Supervisors
Zhao Dong	-	-	-	-	-
Jiang Zhenying	-	-	-	-	-
Yang Changjiang	-	-	-	-	-
Zhang Baolong	-	-	-	-	-
Zou Huiping	298	663	74	-	1,035
Zhou Hengyou	174	122	44	-	340
Yu Renming	298	613	74	-	985
Yu Xizhi	298	636	74	-	1,008
Total	1,366	2,997	351	1,382	6,096

 

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.

 

13  DIVIDENDS

 

Dividends payable to shareholders of the Company attributable to the year represent:

 

	2019	2018
	RMB million	RMB million
Dividends declared and paid during the year of RMB 0.12 per share (2018: RMB 0.16 per share)	14,529	19,371
Dividends declared after the balance sheet date of RMB 0.19 per share (2018: RMB 0.26 per share)	23,004	31,479
	37,533	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:

 

	2019	2018
	RMB million	RMB million
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)	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

 

	2019			2018
	Before tax	Tax	Net of tax	Before tax	Tax	Net of tax
	amount	effect	amount	amount	effect	amount
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Cash flow hedges:
Effective portion of changes in fair value of hedging  instruments recognised during the year	5,258	(974)	4,284	(12,500)	2,159	(10,341)
Reclassification adjustments for amounts transferred  to the consolidated income statement	853	(196)	657	730	(130)	600
Net movement during the year recognised in other  comprehensive income (i)	6,111	(1,170)	4,941	(11,770)	2,029	(9,741)
Changes in the fair value of instruments at fair value  through other comprehensive income	(39)	8	(31)	(41)	(12)	(53)
Net movement during the year recognised in other  comprehensive income	(39)	8	(31)	(41)	(12)	(53)
Share of other comprehensive loss of associates and  joint ventures	(810)	-	(810)	(240)	11	(229)
Foreign currency translation differences	1,480	-	1,480	3,399	-	3,399
Other comprehensive income	6,742	(1,162)	5,580	(8,652)	2,028	(6,624)

 

Note:

 

(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).

 

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)

 

	2019	2018
	RMB million	RMB million
Profit attributable to ordinary shareholders of the Company	57,465	61,618
Profit attributable to ordinary shareholders of the Company (diluted)	57,465	61,618

 

(ii)  Weighted average number of shares (diluted)

 

	2019	2018
	Number of shares	Number of shares
Weighted average number of shares at 31 December	121,071,209,646	121,071,209,646
Weighted average number of shares (diluted) at 31 December	121,071,209,646	121,071,209,646

 

16  PROPERTY, PLANT AND EQUIPMENT

 

			Equipment,
	Plants and	Oil and gas,	machinery
	buildings	properties	and others	Total
	RMB million	RMB million	RMB million	RMB million
Cost:
Balance at 1 January 2018	120,013	667,657	940,312	1,727,982
Additions	221	1,567	3,856	5,644
Transferred from construction in progress	3,741	24,366	45,103	73,210
Reclassifications	1,634	138	(1,772)	-
Reclassification to other long-term assets	(483)	-	(3,828)	(4,311)
Disposals	(3,183)	(146)	(18,323)	(21,652)
Exchange adjustments	98	2,142	147	2,387
Balance at 31 December 2018	122,041	695,724	965,495	1,783,260
Balance at 1 January 2019	122,041	695,724	965,495	1,783,260
Additions	160	1,408	3,856	5,424
Transferred from construction in progress	6,192	31,378	54,275	91,845
Reclassifications	1,051	(76)	(975)	-
Invest into the joint ventures and associated companies	(8)	-	(303)	(311)
Reclassification to other long-term assets	(748)	-	(729)	(1,477)
Disposals	(237)	(1,549)	(13,467)	(15,253)
Exchange adjustments	42	667	71	780
Balance at 31 December 2019	128,493	727,552	1,008,223	1,864,268
Accumulated depreciation:
Balance at 1 January 2018	52,200	495,817	529,191	1,077,208
Depreciation for the year	4,038	48,616	47,250	99,904
Impairment losses for the year	274	4,027	1,848	6,149
Reclassifications	494	76	(570)	-
Reclassification to other long-term assets	(120)	-	(1,390)	(1,510)
Written back on disposals	(1,795)	(125)	(16,331)	(18,251)
Exchange adjustments	43	1,877	78	1,998
Balance at 31 December 2018	55,134	550,288	560,076	1,165,498
Balance at 1 January 2019	55,134	550,288	560,076	1,165,498
Depreciation for the year	4,095	36,289	47,583	87,967
Impairment losses for the year	11	-	185	196
Reclassifications	292	(46)	(246)	-
Invest into the joint ventures and associated companies	-	-	(216)	(216)
Reclassification to other long-term assets	3	-	(94)	(91)
Written back on disposals	(763)	(6)	(11,454)	(12,223)
Exchange adjustments	21	667	40	728
Balance at 31 December 2019	58,793	587,192	595,874	1,241,859
Net book value:
Balance at 1 January 2018	67,813	171,840	411,121	650,774
Balance at 31 December 2018	66,907	145,436	405,419	617,762
Balance at 31 December 2019	69,700	140,360	412,349	622,409

 

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

 

	2019	2018
	RMB million	RMB million
Balance at 1 January	136,963	118,645
Additions	144,369	108,555
Dry hole costs written off	(5,831)	(6,921)
Transferred to property, plant and equipment	(91,845)	(73,210)
Reclassification to other long-term assets	(10,086)	(10,066)
Impairment losses for the year	(135)	(28)
Disposals and others	46	(19)
Exchange adjustments	1	7
Balance at 31 December	173,482	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

 

	Land	Others	Total
	RMB million	RMB million	RMB million
Cost:
Change in accounting policy (Note 1(a))	244,588	27,381	271,969
Balance at 1 January 2019	244,588	27,381	271,969
Increase	8,650	7,555	16,205
Decrease	(4,760)	(748)	(5,508)
Balance at 31 December 2019	248,478	34,188	282,666
Accumulated depreciation:
Balance at 1 January 2019	-	-	-
Increase	9,233	5,728	14,961
Decrease	(129)	(26)	(155)
Balance at 31 December 2019	9,104	5,702	14,806
Impairment loss:
Balance at 1 January 2019	-	-	-
Increase	-	-	-
Decrease	-	-	-
Balance at 31 December 2019	-	-	-
Net book value:
Balance at 1 January 2019	244,588	27,381	271,969
Balance at 31 December 2019	239,374	28,486	267,860

 

19  GOODWILL

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Cost	16,558	16,537
Less: Accumulated impairment losses	(7,861)	(7,861)
	8,697	8,676

 

Impairment tests for cash-generating units containing goodwill

 

Goodwill is allocated to the following Group's cash-generating units:

 

	Principal activities	31 December	31 December
		2019	2018
		RMB million	RMB million
Sinopec Zhenhai Refining and Chemical Branch  ("Sinopec Zhenhai")	Manufacturing of intermediate petrochemical  products and petroleum products	4,043	4,043
Shanghai SECCO Petrochemical Company Limited  ("Shanghai SECCO")	Production and sale of petrochemical products	2,541	2,541
Sinopec Beijing Yanshan Petrochemical Branch  ("Sinopec Yanshan")	Manufacturing of intermediate petrochemical  products and petroleum products	1,004	1,004
Other units without individually significant goodwill		1,109	1,088
		8,697	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	% of ownership interests	Principal activities	Measurement method	Country of incorporation	Principal place of business
Sinopec Sichuan To East China Gas  Pipeline Co., Ltd. ("Pipeline Ltd")	50.00	Operation of natural gas pipelines  and auxiliary facilities	Equity method	PRC	PRC
Sinopec Finance Company Limited  ("Sinopec Finance")	49.00	Provision of non-banking financial  services	Equity method	PRC	PRC
PAO SIBUR Holding ("SIBUR") (i)	10.00	Processing natural gas and  manufacturing petrochemical  products	Equity method	Russia	Russia
Zhongtian Synergetic Energy Company Limited ("Zhongtian Synergetic Energy")	38.75	Mining coal and manufacturing of  coal-chemical products	Equity method	PRC	PRC
Caspian Investments Resources Ltd.  ("CIR")	50.00	Crude oil and natural gas  extraction	Equity method	British Virgin  Islands	The Republic of  Kazakhstan

 

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		Zhongtian Synergetic Energy		CIR
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	13,245	12,498	180,383	209,837	31,634	22,502	4,219	7,477	7,612	6,712
Non-current assets	37,842	39,320	18,926	16,359	182,646	170,796	56,424	49,961	971	1,828
Current liabilities	(721)	(1,020)	(170,621)	(200,402)	(31,295)	(23,293)	(13,887)	(7,252)	(936)	(961)
Non-current liabilities	(2,910)	(3,026)	(582)	(332)	(71,289)	(58,628)	(26,227)	(31,436)	(166)	(673)
Net assets	47,456	47,772	28,106	25,462	111,696	111,377	20,529	18,750	7,481	6,906
Net assets attributable to owners  of the Company	47,456	47,772	28,106	25,462	111,250	110,860	20,529	18,750	7,481	6,906
Net assets attributable to  non-controlling interests	-	-	-	-	446	517	-	-	-	-
Share of net assets from associates	23,728	23,886	13,772	12,476	11,125	11,086	7,955	7,266	3,741	3,453
Carrying Amounts	23,728	23,886	13,772	12,476	11,125	11,086	7,955	7,266	3,741	3,453

 

Summarised statement of comprehensive income

 

Year ended 31 December	Pipeline Ltd		Sinopec Finance		SIBUR		Zhongtian Synergetic Energy		CIR
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	5,008	4,746	4,966	4,536	56,706	59,927	13,329	12,235	2,334	2,856
Profit for the year	2,191	2,022	2,234	1,868	6,513	10,400	1,994	1,142	424	583
Other comprehensive income/(loss)	-	-	411	(157)	(1,435)	6,410	-	-	151	116
Total comprehensive income	2,191	2,022	2,645	1,711	5,078	16,810	1,994	1,142	575	699
Dividends declared by associates	1,259	1,207	-	490	468	271	219	-	-	-
Share of profit from associates	1,096	1,011	1,095	915	651	1,040	773	443	212	292
Share of other comprehensive 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 (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	% of ownership interests	Principal activities	Measurement method	Country of incorporation	Principal place of business
Fujian Refining & Petrochemical  Company Limited ("FREP")	50.00	Manufacturing refining  oil products	Equity method	PRC	PRC
BASF-YPC Company Limited  ("BASF-YPC")	40.00	Manufacturing and  distribution of  petrochemical products	Equity method	PRC	PRC
Taihu Limited ("Taihu")	49.00	Crude oil and natural gas  extraction	Equity method	Cyprus	Russia
Yanbu Aramco Sinopec Refining  Company Ltd. ("YASREF")	37.50	Petroleum refining and  processing business	Equity method	Saudi Arabia	Saudi Arabia
Sinopec SABIC Tianjin Petrochemical  Company Limited  ("Sinopec SABIC Tianjin")	50.00	Manufacturing and  distribution of  petrochemical products	Equity method	PRC	PRC

 

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		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets
Cash and cash equivalents	5,603	7,388	1,154	1,582	4,485	3,406	733	930	3,242	5,110
Other current assets	11,977	9,248	4,937	5,795	2,336	3,689	11,311	10,267	4,501	4,007
Total current assets	17,580	16,636	6,091	7,377	6,821	7,095	12,044	11,197	7,743	9,117
Non-current assets	17,267	19,271	10,498	11,086	10,453	9,216	50,548	51,873	14,878	13,990
Current liabilities
Current financial liabilities	(1,280)	(1,200)	(237)	(725)	(57)	(59)	(7,445)	(4,806)	(500)	(500)
Other current liabilities	(7,090)	(4,939)	(1,808)	(1,822)	(1,815)	(2,124)	(12,504)	(12,217)	(2,896)	(2,507)
Total current liabilities	(8,370)	(6,139)	(2,045)	(2,547)	(1,872)	(2,183)	(19,949)	(17,023)	(3,396)	(3,007)
Non-current liabilities
Non-current financial liabilities	(11,185)	(12,454)	-	(218)	(125)	(72)	(29,445)	(32,364)	(4,592)	(3,651)
Other non-current liabilities	(290)	(279)	(35)	(17)	(1,984)	(2,271)	(1,963)	(937)	(368)	(331)
Total non-current liabilities	(11,475)	(12,733)	(35)	(235)	(2,109)	(2,343)	(31,408)	(33,301)	(4,960)	(3,982)
Net assets	15,002	17,035	14,509	15,681	13,293	11,785	11,235	12,746	14,265	16,118
Net assets attributable to owners of the company	15,002	17,035	14,509	15,681	12,829	11,373	11,235	12,746	14,265	16,118
Net assets attributable to non-controlling interests	-	-	-	-	464	412	-	-	-	-
Share of net assets from joint ventures	7,501	8,518	5,804	6,272	6,286	5,573	4,213	4,780	7,133	8,059
Carrying Amounts	7,501	8,518	5,804	6,272	6,286	5,573	4,213	4,780	7,133	8,059

 

Summarised statement of comprehensive income

 

Year ended 31 December	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	57,047	52,469	19,590	21,574	15,222	14,944	75,940	77,561	20,541	23,501
Depreciation, depletion and amortisation	(2,541)	(2,250)	(1,474)	(1,521)	(629)	(664)	(3,048)	(2,823)	(1,094)	(1,104)
Interest income	124	157	32	41	94	141	58	101	171	169
Interest expense	(597)	(647)	(26)	(43)	(265)	(151)	(1,470)	(1,382)	(134)	(167)
Profit/(loss) before taxation	964	3,920	2,314	3,625	3,320	3,493	(1,292)	(1,569)	2,178	3,916
Tax expense	(197)	(935)	(579)	(897)	(708)	(729)	(8)	(249)	(533)	(993)
Profit/(loss) for the year	767	2,985	1,735	2,728	2,612	2,764	(1,300)	(1,818)	1,645	2,923
Other comprehensive (loss)/income	-	-	-	-	(1,105)	921	(261)	1,059	-	-
Total comprehensive income/(loss)	767	2,985	1,735	2,728	1,507	3,685	(1,561)	(759)	1,645	2,923
Dividends declared by joint ventures	1,400	1,200	1,224	1,226	-	-	-	-	1,750	-
Share of net profit/(loss) from joint ventures	384	1,493	694	1,091	1,235	1,307	(488)	(682)	823	1,462
Share of other comprehensive (loss)/income  from joint ventures (i)	-	-	-	-	(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.

 

22  LONG-TERM PREPAYMENTS AND OTHER ASSETS

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Operating rights of service stations	34,013	34,934
Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries	1,562	26,513
Prepayments for construction projects to third parties	3,926	5,502
Others (i)	25,925	24,459
	65,426	91,408

 

Note:

 

(i)    Others mainly comprise catalyst expenditures and improvement expenditures of property, plant and equipment.

 

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:

 

	2019	2018
	RMB million	RMB million
Operating rights of service stations
Cost:
Balance at 1 January	52,216	48,613
Additions	1,494	3,948
Decreases	(161)	(345)
Balance at 31 December	53,549	52,216
Accumulated amortisation:
Balance at 1 January	17,282	14,345
Additions	2,357	3,019
Decreases	(103)	(82)
Balance at 31 December	19,536	17,282
Net book value at 31 December	34,013	34,934

 

23  FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Structured deposits	3,318	25,550
Equity investments, listed and at quoted market price	1	182
	3,319	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.

 

25  TRADE ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Amounts due from third parties	43,728	50,108
Amounts due from Sinopec Group Company and fellow subsidiaries	6,570	3,170
Amounts due from associates and joint ventures	6,415	4,321
	56,713	57,599
Less: Impairment losses for bad and doubtful debts	(1,848)	(606)
Trade accounts receivable, net	54,865	56,993
Bills receivable	-	7,886
	54,865	64,879

 

The ageing analysis of trade accounts receivable and bills receivable (net of impairment losses for bad and doubtful debts) is as follows:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Within one year	54,517	64,317
Between one and two years	190	353
Between two and three years	64	124
Over three years	94	85
	54,865	64,879

 

Impairment losses for bad and doubtful debts are analysed as follows:

 

	2019	2018
	RMB million	RMB million
Balance at 1 January	606	612
Provision for the year	1,566	83
Written back for the year	(283)	(77)
Written off for the year	(41)	(19)
Others	-	7
Balance at 31 December	1,848	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.

 

26  FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Non-current assets
Unlisted equity instruments	1,431	1,323
Listed equity instruments	90	127
Current assets
Trade accounts receivable and bills receivable (i)	8,622	-
	10,143	1,450

 

Note:

 

(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

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Crude oil and other raw materials	88,465	85,469
Work in progress	12,615	13,690
Finished goods	91,368	88,929
Spare parts and consumables	2,576	2,872
	195,024	190,960
Less: Allowance for diminution in value of inventories	(2,582)	(6,376)
	192,442	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

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Other receivables	25,586	26,455
Advances to suppliers	5,066	5,937
Value-added input tax to be deducted	25,313	21,331
Prepaid income tax	1,879	300
	57,844	54,023

 

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:

 

	Deferred tax assets		Deferred tax liabilities
	31 December	31 December	31 December	31 December
	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,546	2,563	-	-
Payables	1,142	1,808	-	-
Cash flow hedges	116	1,131	(384)	(27)
Property, plant and equipment	16,463	15,427	(12,317)	(8,666)
Tax losses carried forward	3,594	3,709	-	-
Financial assets at fair value through other comprehensive income	131	117	(7)	(1)
Intangible assets	595	474	(508)	(535)
Others	318	174	(882)	(428)
Deferred tax assets/(liabilities)	24,905	25,403	(14,098)	(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:

 

		Recognised in	Recognised
	Balance at	consolidated	in other		Transferred	Balance at
	1 January	income	comprehensive		from	31 December
	2018	statement	income	Others	reserve	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	381	2,176	3	3	-	2,563
Payables	1,925	(117)	-	-	-	1,808
Cash flow hedges	115	(10)	2,029	1	(1,031)	1,104
Property, plant and equipment	4,222	2,650	(130)	19	-	6,761
Tax losses carried forward	2,325	1,414	6	(36)	-	3,709
Available-for-sale financial assets	117	-	-	(117)	-	-
Financial assets at fair value through other  comprehensive income	-	-	(1)	117	-	116
Intangible assets	(336)	273	-	2	-	(61)
Others	(84)	(142)	(2)	(26)	-	(254)
Net deferred tax assets/(liabilities)	8,665	6,244	1,905	(37)	(1,031)	15,746

 

		Recognised in	Recognised
	Balance at	consolidated	in other		Transferred	Balance at
	1 January	income	comprehensive		from	31 December
	2019	statement	income	Others	reserve	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,563	(17)	-	-	-	2,546
Payables	1,808	(667)	-	1	-	1,142
Cash flow hedges	1,104	73	(1,195)	-	(250)	(268)
Property, plant and equipment	6,761	(2,575)	(39)	(1)	-	4,146
Tax losses carried forward	3,709	(151)	38	(2)	-	3,594
Financial assets at fair value through other  comprehensive income	116	-	8	-	-	124
Intangible assets	(61)	148	-	-	-	87
Others	(254)	(196)	(49)	(65)	-	(564)
Net deferred tax assets/(liabilities)	15,746	(3,385)	(1,237)	(67)	(250)	10,807

 

30  SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES

 

Short-term debts represent:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Third parties' debts
Short-term bank loans	25,709	17,088
RMB denominated	25,619	13,201
US Dollar ("USD") denominated	90	3,887
Short-term other loans	22	300
RMB denominated	22	300
Current portion of long-term bank loans	1,790	12,074
RMB denominated	1,765	12,039
USD denominated	25	35
Current portion of long-term corporate bonds	13,000	-
RMB denominated	13,000	-
	14,790	12,074
	40,521	29,462
Loans from Sinopec Group Company and fellow subsidiaries
Short-term loans	5,465	27,304
RMB denominated	2,709	3,061
USD denominated	2,236	22,780
Hong Kong Dollar ("HKD") denominated	495	1,441
EUR denominated	25	22
Current portion of long-term loans	37,824	4,361
RMB denominated	37,824	4,361
	43,289	31,665
	83,810	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.

 

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	31 December	31 December
		2019	2018
		RMB million	RMB million
Third parties' debts
Long-term bank loans
RMB denominated	Interest rates ranging from 1.08% to	31,714	31,025
	5.23% per annum at 31 December 2019
	with maturities through 2034
USD denominated	Interest rates ranging from 1.55% to	75	109
	4.29% per annum at 31 December 2019
	with maturities through 2031
		31,789	31,134
Corporate bonds (i)
RMB denominated	Fixed interest rates ranging from 3.70% to	20,000	20,000
	4.90% per annum at 31 December 2019
	with maturities through 2022
USD denominated	Fixed interest rates ranging from 3.13% to	12,157	11,951
	4.25% per annum at 31 December 2019
	with maturities through 2043
		32,157	31,951
Total third parties' long-term debts		63,946	63,085
Less: Current portion		(14,790)	(12,074)
		49,156	51,011
Long-term loans from Sinopec Group Company and fellow subsidiaries
RMB denominated	Interest rates ranging from interest free to	47,450	46,877
	5.50% per annum at 31 December 2019
	with maturities through 2034
Less: Current portion		(37,824)	(4,361)
		9,626	42,516
		58,782	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

 

	31 December	1 January
	2019	2019
	RMB million	RMB million
Lease liabilities
Current	15,198	13,894
Non-current	177,674	184,670
	192,872	198,564

 

32  TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Amounts due to third parties	166,480	170,818
Amounts due to Sinopec Group Company and fellow subsidiaries	11,370	9,142
Amounts due to associates and joint ventures	10,108	6,381
	187,958	186,341
Bills payable	11,834	6,416
Trade accounts payable and bills payable measured at amortised cost	199,792	192,757

 

The ageing analysis of trade accounts payable and bills payable is as follows:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Within 1 month or on demand	185,377	182,763
Between 1 month and 6 months	8,808	6,670
Over 6 months	5,607	3,324
	199,792	192,757

 

33  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.

 

34  OTHER PAYABLES

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Salaries and welfare payable	4,769	7,312
Interest payable	612	634
Payables for constructions	50,612	54,992
Other payables	22,778	22,852
Financial liabilities carried at amortised costs	78,771	85,790
Taxes other than income tax	66,075	80,361
	144,846	166,151

 

35  PROVISIONS

 

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:

 

	2019	2018
	RMB million	RMB million
Balance at 1 January	42,007	39,407
Provision for the year	1,408	1,567
Accretion expenses	1,418	1,438
Decrease for the year	(2,439)	(598)
Exchange adjustments	44	193
Balance at 31 December	42,438	42,007

 

36  SHARE CAPITAL

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Registered, issued and fully paid
95,557,771,046 listed A shares (2018: 95,557,771,046) of RMB 1.00 each	95,558	95,558
25,513,438,600 listed H shares (2018: 25,513,438,600) of RMB 1.00 each	25,513	25,513
	121,071	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.

 

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:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Within one year	-	15,625
Later than one year but not later than five years	-	55,882
Later than five years	-	281,287
	-	352,794

 

Capital commitments

 

At 31 December 2019 and 2018, capital commitments of the Group are as follows:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Authorised and contracted for (i)	138,088	141,045
Authorised but not contracted for	63,967	54,392
	202,055	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:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Within one year	302	380
Between one and two years	69	79
Between two and three years	34	33
Between three and four years	30	28
Between four and five years	29	28
Thereafter	845	852
	1,309	1,400

 

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:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Joint ventures	7,100	5,033
Associates (ii)	10,140	12,168
Others (iii)	-	7,197
	17,240	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.

 

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:

 

	Note	2019	2018
		RMB million	RMB million
Sales of goods	(i)	295,532	272,789
Purchases	(ii)	197,308	192,224
Transportation and storage	(iii)	8,206	7,319
Exploration and development services	(iv)	33,310	23,489
Production related services	(v)	38,668	28,472
Ancillary and social services	(vi)	3,098	6,664
Operating lease charges for land	(vii)	-	7,765
Operating lease charges for buildings	(vii)	-	521
Other operating lease charges	(vii)	-	869
Agency commission income	(viii)	116	113
Interest income	(ix)	1,066	848
Interest expense	(x)	1,334	1,110
Net deposits withdrawn from related parties	(ix)	5,350	6,457
Net funds obtained from related parties	(xi)	3,438	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.

 

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.

 

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:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Trade accounts receivable and bills receivable	12,968	7,555
Financial assets at fair value through other comprehensive income	407	-
Prepaid expenses and other current assets	12,723	7,665
Long-term prepayments and other assets	734	23,482
Total	26,832	38,702
Trade accounts payable and bills payable	25,296	17,530
Contract liabilities	4,464	3,273
Other payables	16,141	18,160
Other long-term liabilities	-	12,470
Short-term loans and current portion of long-term loans from Sinopec Group Company  and fellow subsidiaries	43,289	31,665
Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries	9,626	42,516
Lease liabilities (including to be paid within one year)	171,402	-
Total	270,218	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:

 

	2019	2018
	RMB'000	RMB'000
Short-term employee benefits	9,209	5,745
Retirement scheme contributions	536	351
	9,745	6,096

 

(c)  Contributions to defined contribution retirement plans

 

The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group's employee benefits plan are disclosed in Note 39. As at 31 December 2019 and 2018, the accrual for the contribution to post-employment benefit plans was not material.

 

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.

 

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:

 

	2019	2018
	RMB million	RMB million
Turnover
Exploration and production
External sales	111,114	93,499
Inter-segment sales	89,315	95,954
	200,429	189,453
Refining
External sales	141,674	148,930
Inter-segment sales	1,077,018	1,109,088
	1,218,692	1,258,018
Marketing and distribution
External sales	1,393,557	1,408,989
Inter-segment sales	4,159	5,224
	1,397,716	1,414,213
Chemicals
External sales	425,508	457,406
Inter-segment sales	54,865	73,835
	480,373	531,241
Corporate and others
External sales	828,635	716,789
Inter-segment sales	654,337	650,271
	1,482,972	1,367,060
Elimination of inter-segment sales	(1,879,694)	(1,934,372)
Turnover	2,900,488	2,825,613
Other operating revenues
Exploration and production	10,283	10,738
Refining	5,464	5,389
Marketing and distribution	33,247	32,424
Chemicals	14,861	15,492
Corporate and others	1,850	1,523
Other operating revenues	65,705	65,566
Turnover and other operating revenues	2,966,193	2,891,179

 

40  SEGMENT REPORTING (Continued)

 

(1)  Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

 

	2019	2018
	RMB million	RMB million
Result
Operating profit/(loss)
By segment
- Exploration and production	9,284	(10,107)
- Refining	30,632	54,827
- Marketing and distribution	29,107	23,464
- Chemicals	17,151	27,007
- Corporate and others	64	(9,293)
- Elimination	(40)	(3,634)
Total segment operating profit	86,198	82,264
Share of profits/(losses) from associates and joint ventures
- Exploration and production	3,167	2,598
- Refining	(640)	109
- Marketing and distribution	3,309	3,155
- Chemicals	4,611	6,298
- Corporate and others	2,330	1,814
Aggregate share of profits from associates and joint ventures	12,777	13,974
Investment (losses)/income
- Exploration and production	(19)	(3)
- Refining	59	315
- Marketing and distribution	73	43
- Chemicals	578	596
- Corporate and others	228	920
Aggregate investment income	919	1,871
Net finance costs	(9,967)	1,001
Profit before taxation	89,927	99,110

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Assets
Segment assets
- Exploration and production	410,950	321,686
- Refining	321,080	271,356
- Marketing and distribution	399,242	317,641
- Chemicals	175,884	156,865
- Corporate and others	131,686	152,799
Total segment assets	1,438,842	1,220,347
Interest in associates and joint ventures	152,204	145,721
Financial assets at fair value through other comprehensive income	1,521	1,450
Deferred tax assets	17,616	21,694
Cash and cash equivalents, time deposits with financial institutions	127,927	167,015
Other unallocated assets	16,961	36,081
Total assets	1,755,071	1,592,308
Liabilities
Segment liabilities
- Exploration and production	167,933	94,170
- Refining	122,264	103,809
- Marketing and distribution	226,531	159,536
- Chemicals	54,462	37,413
- Corporate and others	137,881	144,216
Total segment liabilities	709,071	539,144
Short-term debts	40,521	29,462
Income tax payable	3,264	6,699
Long-term debts	49,156	51,011
Loans from Sinopec Group Company and fellow subsidiaries	52,915	74,181
Deferred tax liabilities	6,809	5,948
Other unallocated liabilities	17,500	29,328
Total liabilities	879,236	735,773

 

40  SEGMENT REPORTING (Continued)

 

(1)  Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

 

	2019	2018
	RMB million	RMB million
Capital expenditure
Exploration and production	61,739	42,155
Refining	31,372	27,908
Marketing and distribution	29,566	21,429
Chemicals	22,438	19,578
Corporate and others	1,979	6,906
	147,094	117,976
Depreciation, depletion and amortisation
Exploration and production	50,732	60,331
Refining	19,676	18,164
Marketing and distribution	21,572	16,296
Chemicals	13,966	13,379
Corporate and others	2,866	1,797
	108,812	109,967
Impairment losses on long-lived assets
Exploration and production	3	4,274
Refining	245	353
Marketing and distribution	80	264
Chemicals	17	1,374
Corporate and others	-	16
	345	6,281

 

(2)  Geographical information

 

The following tables set out information about the geographical information of the Group's external sales and the Group's non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets.

 

	2019	2018
	RMB million	RMB million
External sales
Mainland China	2,131,078	2,119,580
Singapore	505,672	395,129
Others	329,443	376,470
	2,966,193	2,891,179

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Non-current assets
Mainland China	1,235,676	989,668
Others	52,705	50,892
	1,288,381	1,040,560

 

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.

 

	Particulars		Interests
	of issued capital	Interests held by the	held by non-controlling
Name of company	(million)	Company %	interests %	Principal activities
Sinopec Great Wall Energy & Chemical  Company Limited	RMB 22,761	100.00	-	Coal chemical industry investment  management, production and sale
				of coal chemical products
Sinopec Yangzi Petrochemical Company Limited	RMB 15,651	100.00	-	Manufacturing of intermediate
				petrochemical products and petroleum
				products
Sinopec Pipeline Storage & Transportation	RMB 12,000	100.00	-	Pipeline storage and transportation of
Company Limited				crude oil
Sinopec Overseas Investment Holding Limited	USD 1,662	100.00	-	Investment holding of overseas business
("SOIH")
Sinopec International Petroleum Exploration and	RMB 8,000	100.00	-	Investment in exploration, production and
Production Limited ("SIPL")				sale of petroleum and natural gas
Sinopec Yizheng Chemical Fibre Limited	RMB 4,000	100.00	-	Production and sale of polyester chips
Liability Company				and polyester fibres
Sinopec Lubricant Company Limited	RMB 3,374	100.00	-	Production and sale of refined petroleum
				products, lubricant base oil, and
				petrochemical materials
China International United Petroleum and Chemical	RMB 5,000	100.00	-	Trading of crude oil and petrochemical
Company Limited				products
Sinopec Qingdao Petrochemical Company Limited	RMB 1,595	100.00	-	Manufacturing of intermediate
				petrochemical products and petroleum
				products
Sinopec Catalyst Company Limited	RMB 1,500	100.00	-	Production and sale of catalyst products
China Petrochemical International Company Limited	RMB 1,400	100.00	-	Trading of petrochemical products
Sinopec Chemical Sales Company Limited	RMB 1,000	100.00	-	Marketing and distribution of
				petrochemical products
Sinopec Beihai Refining and Chemical Limited	RMB 5,294	98.98	1.02	Import and processing of crude oil,
Liability Company				production, storage and sale of petroleum
				products and petrochemical products
Sinopec Qingdao Refining and Chemical	RMB 5,000	85.00	15.00	Manufacturing of intermediate petrochemical
Company Limited				products and petroleum products
Sinopec Hainan Refining and Chemical	RMB 9,628	75.00	25.00	Manufacturing of intermediate petrochemical
Company Limited				products and petroleum products
Sinopec Marketing Company Limited	RMB 28,403	70.42	29.58	Marketing and distribution of refined
("Marketing Company")				petroleum products
Shanghai SECCO	RMB 7,801	67.60	32.40	Production and sale of petrochemical
				products
Sinopec-SK (Wuhan) Petrochemical Company	RMB 7,193	59.00	41.00	Production, sale, research and development
Limited ("Sinopec-SK")				of petrochemical products, ethylene and
				downstream byproducts
Sinopec Kantons Holdings Limited	HKD 248	60.33	39.67	Provision of crude oil jetty services and
("Sinopec Kantons")				natural gas pipeline transmission services
Gaoqiao Petrochemical Company Limited	RMB 10,000	55.00	45.00	Manufacturing of intermediate petrochemical
				products and petroleum products
Sinopec Shanghai Petrochemical Company Limited	RMB 10,824	50.44	49.56	Manufacturing of synthetic fibres, resin and
("Shanghai Petrochemical")				plastics, intermediate petrochemical
				products and petroleum products
Fujian Petrochemical Company Limited	RMB 8,140	50.00	50.00	Manufacturing of plastics, intermediate
("Fujian Petrochemical") (i)				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.

 

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		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	At	At	At	At	At	At	At	At	At	At	At	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
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	129,266	130,861	19,151	16,731	22,309	25,299	1,788	816	1,284	1,209	11,858	9,537	5,337	2,750
Current liabilities	(192,106)	(181,766)	(456)	(483)	(15,479)	(13,913)	(804)	(50)	(2,961)	(3,722)	(3,196)	(2,233)	(15,037)	(2,333)
Net current  (liabilities)/assets	(62,840)	(50,905)	18,695	16,248	6,830	11,386	984	766	(1,677)	(2,513)	8,662	7,304	(9,700)	417
Non-current assets	340,356	261,062	13,234	38,020	23,185	19,087	11,558	11,444	12,777	12,895	11,473	12,301	21,567	12,612
Non-current liabilities	(58,732)	(2,086)	(16,952)	(31,050)	(21)	(10)	(688)	(688)	(158)	(132)	(1,627)	(1,698)	(7)	-
Net non-current  assets/(liabilities)	281,624	258,976	(3,718)	6,970	23,164	19,077	10,870	10,756	12,619	12,763	9,846	10,603	21,560	12,612
Net assets	218,784	208,071	14,977	23,218	29,994	30,463	11,854	11,522	10,942	10,250	18,508	17,907	11,860	13,029
Attributable to owners of  the Company	148,256	141,244	6,308	5,266	14,998	15,295	5,927	5,761	6,583	6,165	12,511	12,105	6,997	8,469
Attributable to  non-controlling interests	70,528	66,827	8,669	17,952	14,996	15,168	5,927	5,761	4,359	4,085	5,997	5,802	4,863	4,560

 

Summarised consolidated statement of comprehensive income

 

Year ended 31 December	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	1,427,705	1,443,698	3,282	5,037	100,270	107,689	5,535	5,261	1,274	1,398	28,341	26,320	31,016	17,134
Profit for the year	22,992	22,046	2,831	3,272	2,227	5,336	477	1,576	1,131	1,065	3,137	3,099	701	1,879
Total comprehensive income	23,362	22,589	2,693	4,536	2,235	5,336	477	1,576	1,140	1,067	3,137	3,099	701	1,879
Comprehensive income  attributable to  non-controlling interests	8,289	7,794	1,651	2,737	1,113	2,645	238	788	433	399	1,016	1,004	245	658
Dividends paid to  non-controlling interests	4,830	3,964	10,926	-	1,344	1,616	650	600	159	104	822	1,191	-	-

 

Summarised statement of cash flows

 

Year ended 31 December	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Net cash generated from  operating activities	40,260	24,825	2,128	3,467	5,057	6,659	622	38	716	738	4,601	3,766	5,532	3,308
Net cash (used in)/generated  from investing activities	(25,923)	8,339	678	4,096	(4,623)	(1,928)	(472)	(215)	397	648	(91)	(480)	(4,987)	(3,099)
Net cash (used in)/generated  from financing activities	(21,535)	(32,084)	(116)	(5,419)	(1,737)	(3,507)	(163)	43	(1,208)	(1,551)	(2,050)	(3,676)	250	525
Net (decrease)/increase in  cash and cash equivalents	(7,198)	1,080	2,690	2,144	(1,303)	1,224	(13)	(134)	(95)	(165)	2,460	(390)	795	734
Cash and cash equivalents  at 1 January	14,142	12,921	5,993	3,605	8,742	7,504	92	226	198	343	6,817	7,205	798	64
Effect of foreign currency  exchange rate changes	(43)	141	150	244	11	14	-	-	14	20	1	2	-	-
Cash and cash equivalents  at 31 December	6,901	14,142	8,833	5,993	7,450	8,742	79	92	117	198	9,278	6,817	1,593	798

 

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.

 

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:

 

	31 December 2019
		Total
		contractual	Within	More than 1	More than 2
	Carrying	undiscounted	1 year or	year but less	years but less	More than
	amount	cash flow	on demand	than 2 years	than 5 years	5 years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term debts	40,521	42,240	42,240	-	-	-
Long-term debts	49,156	62,903	952	6,271	25,189	30,491
Loans from Sinopec Group Company and  fellow subsidiaries	52,915	54,508	43,623	985	7,088	2,812
Lease liabilities	192,872	367,711	16,488	15,676	45,008	290,539
Derivative financial liabilities	2,729	2,729	2,729	-	-	-
Trade accounts payable and bills payable	199,792	199,792	199,792	-	-	-
Other payables	78,771	78,771	78,771	-	-	-
	616,756	808,654	384,595	22,932	77,285	323,842

 

	31 December 2018
		Total
		contractual	Within	More than 1	More than 2
	Carrying	undiscounted	1 year or	year but less	years but less	More than
	amount	cash flow	on demand	than 2 years	than 5 years	5 years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term debts	29,462	30,123	30,123	-	-	-
Long-term debts	51,011	61,809	1,889	16,938	27,190	15,792
Loans from Sinopec Group Company and  fellow subsidiaries	74,181	75,207	32,127	37,977	3,741	1,362
Derivative financial liabilities	13,571	13,571	13,571	-	-	-
Trade accounts payable and bills payable	192,757	192,757	192,757	-	-	-
Other payables	85,790	85,790	85,790	-	-	-
	446,772	459,257	356,257	54,915	30,931	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.

 

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:

 

	31 December	31 December
	2019	2018
	million	million
Gross exposure arising from loans and lease liabilities
USD	103	668
SGD	4	-

 

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.

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
USD	27	172
SGD	1	-

 

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.

 

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

 

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets at fair value through profit or loss:
- Structured deposits	-	-	3,318	3,318
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	128	709	-	837
Financial assets at fair value through other comprehensive income:
- Equity instruments	90	-	1,431	1,521
- Trade accounts receivable and bills receivable	-	-	8,622	8,622
	219	709	13,371	14,299
Liabilities
Derivative financial liabilities
- Derivative financial liabilities	1,209	1,520	-	2,729
	1,209	1,520	-	2,729

 

At 31 December 2018

 

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets at fair value through profit or loss:
- Structured deposits	-	-	25,550	25,550
- Equity investments, listed and at quoted market price	182	-	-	182
Derivative financial assets:
- Derivative financial assets	874	7,013	-	7,887
Financial assets at fair value through other comprehensive income:
- Equity instruments	127	-	1,323	1,450
	1,183	7,013	26,873	35,069
Liabilities
Derivative financial liabilities
- Derivative financial liabilities	5,500	8,071	-	13,571
	5,500	8,071	-	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.

 

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:

 

	31 December	31 December
	2019	2018
	RMB million	RMB million
Carrying amount	63,946	63,085
Fair value	62,594	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.

 

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.

 

46  BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

 

BALANCE SHEET OF THE COMPANY (Amounts in million)	Note	31 December	31 December
		2019	2018
		RMB	RMB
Non-current assets
Property, plant and equipment, net		291,544	302,048
Construction in progress		60,493	51,598
Right-of-use assets		120,037	-
Investment in subsidiaries		266,359	251,970
Interest in associates		22,798	21,143
Interest in joint ventures		15,530	16,094
Financial assets at fair value through other comprehensive income		395	395
Deferred tax assets		7,315	11,021
Lease prepayments		-	7,101
Long-term prepayments and other assets		6,727	13,129
Total non-current assets		791,198	674,499
Current assets
Cash and cash equivalents		15,984	59,120
Time deposits with financial institutions		38,088	23,759
Financial assets at fair value through profit or loss		-	22,500
Derivative financial assets		940	-
Trade accounts receivable and bills receivable		21,544	30,145
Financial assets at fair value through other comprehensive income		207	-
Dividends receivable		41	2,313
Inventories		49,116	45,825
Prepaid expenses and other current assets		106,645	73,442
Total current assets		232,565	257,104
Current liabilities
Short-term debts		32,329	14,511
Loans from Sinopec Group Company and fellow subsidiaries		39,439	5,815
Lease liabilities		7,198	-
Derivative financial liabilities		157	967
Trade accounts payable and bills payable		80,118	84,418
Contract liabilities		5,112	4,230
Other payables		162,852	178,936
Total current liabilities		327,205	288,877
Net current liabilities		94,640	31,773
Total assets less current liabilities		696,558	642,726
Non-current liabilities
Long-term debts		12,999	27,200
Loans from Sinopec Group Company and fellow subsidiaries		6,681	40,904
Lease liabilities		107,783	-
Provisions		34,514	33,094
Other long-term liabilities		5,404	5,310
Total non-current liabilities		167,381	106,508
		529,177	536,218
Equity
Share capital		121,071	121,071
Reserves	(a)	408,106	415,147
Total equity		529,177	536,218

 

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:

 

	The Company
	2019	2018
	RMB million	RMB million
Capital reserve
Balance at 1 January	9,201	9,195
Others	46	6
Balance at 31 December	9,247	9,201
Share premium
Balance at 1 January	55,850	55,850
Balance at 31 December	55,850	55,850
Statutory surplus reserve
Balance at 1 January	86,678	82,682
Appropriation	3,745	3,996
Balance at 31 December	90,423	86,678
Discretionary surplus reserve
Balance at 1 January	117,000	117,000
Balance at 31 December	117,000	117,000
Other reserves
Balance at 1 January	2,286	2,460
Share of other comprehensive income/(loss) of associates and joint ventures, net of deferred tax	201	(64)
Cash flow hedges, net of deferred tax	1,465	(617)
Special reserve	(40)	507
Balance at 31 December	3,912	2,286
Retained earnings
Balance at 1 January	144,132	177,989
Profit for the year	37,256	38,460
Distribution to owners (Note 13)	(46,008)	(67,799)
Appropriation	(3,745)	(3,996)
Special reserve	40	(507)
Others	(1)	(15)
Balance at 31 December	131,674	144,132
	408,106	415,147

 

 

(C)   DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE    ITH THE ACCOUNTING POLICIES COMPLYING WITH CASs AND IFRS (UNAUDITED)

 

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:

 

	Note	31 December	31 December
		2019	2018
		RMB million	RMB million
Shareholders' equity under CASs		876,905	857,659
Adjustments:
Government grants	(i)	(1,070)	(1,124)
Total equity under IFRS*		875,835	856,535

 

Effects of major differences between the net profit under CASs and the profit for the year under IFRS are analysed as follows:

 

	Note	2019	2018
		RMB million	RMB million
Net profit under CASs		72,122	80,289
Adjustments:
Government grants	(i)	54	56
Safety production fund	(ii)	69	909
Others		(212)	(2,357)
Profit for the year under IFRS*		72,033	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.

 

 

(D)   SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (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

 

			2019			2018
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Property cost, wells and related equipments  and facilities	727,552	684,246	43,306	695,724	651,531	44,193
Supporting equipments and facilities	202,208	202,192	16	199,321	199,304	17
Uncompleted wells, equipments and facilities	46,712	46,526	186	40,778	40,770	8
Total capitalised costs	976,472	932,964	43,508	935,823	891,605	44,218
Accumulated depreciation, depletion, amortisation  and impairment losses	(702,392)	(661,177)	(41,215)	(658,093)	(618,593)	(39,500)
Net capitalised costs	274,080	271,787	2,293	277,730	273,012	4,718
Equity method investments
Share of net capitalised costs of associates  and joint ventures	5,743	-	5,743	6,304	-	6,304
Total of the Group's and its equity method  investments' net capitalised costs	279,823	271,787	8,036	284,034	273,012	11,022

 

Table II: Costs incurred in oil and gas exploration and development

 

			2019			2018
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Exploration	16,295	16,295	-	12,108	12,108	-
Development	37,412	37,245	167	27,453	27,329	124
Total costs incurred	53,707	53,540	167	39,561	39,437	124
Equity method investments
Share of costs of exploration and development  of associates and joint ventures	747	-	747	793	-	793
Total of the Group's and its equity method  investments' exploration and development costs	54,454	53,540	914	40,354	39,437	917

 

Table III: Results of operations related to oil and gas producing activities

 

			2019			2018
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Revenues
Sales	59,552	59,262	290	57,860	57,860	-
Transfers	83,633	80,641	2,992	89,569	84,532	5,037
	143,185	139,903	3,282	147,429	142,392	5,037
Production costs excluding taxes	(47,969)	(46,725)	(1,244)	(47,227)	(45,953)	(1,274)
Exploration expenses	(10,510)	(10,510)	-	(10,744)	(10,744)	-
Depreciation, depletion, amortisation and  impairment losses	(48,630)	(47,580)	(1,050)	(62,832)	(60,877)	(1,955)
Taxes other than income tax	(9,395)	(9,395)	-	(11,400)	(11,400)	-
Profit before taxation	26,681	25,693	988	15,226	13,418	1,808
Income tax expense	338	-	338	709	-	709
Results of operation from producing activities	27,019	25,693	1,326	15,935	13,418	2,517
Equity method investments
Revenues
Sales	9,325	-	9,325	9,530	-	9,530
	9,325	-	9,325	9,530	-	9,530
Production costs excluding taxes	(2,516)	-	(2,516)	(2,455)	-	(2,455)
Exploration expenses	-	-	-	-	-	-
Depreciation, depletion, amortisation and  impairment losses	(1,124)	-	(1,124)	(1,163)	-	(1,163)
Taxes other than income tax	(4,068)	-	(4,068)	(4,075)	-	(4,075)
Profit before taxation	1,617	-	1,617	1,837	-	1,837
Income tax expense	(486)	-	(486)	(667)	-	(667)
Share of profit for producing activities of associates  and joint ventures	1,131	-	1,131	1,170	-	1,170
Total of the Group's and its equity method investments'  results of operations for producing activities	28,150	25,693	2,457	17,105	13,418	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.

 

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.

 

	2019			2018
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Proved developed and undeveloped reserves (oil)  (million barrels)
Beginning of year	1,367	1,339	28	1,293	1,261	32
Revisions of previous estimates	81	85	(4)	160	158	2
Improved recovery	160	160	-	95	90	5
Extensions and discoveries	98	98	-	79	79	-
Production	(256)	(249)	(7)	(260)	(249)	(11)
End of year	1,450	1,433	17	1,367	1,339	28
Non-controlling interest in proved developed  and undeveloped reserves at the end of year	8	-	8	12	-	12
Proved developed reserves
Beginning of year	1,271	1,244	27	1,156	1,124	32
End of year	1,343	1,326	17	1,271	1,244	27
Proved undeveloped reserves
Beginning of year	96	95	1	137	137	-
End of year	107	107	-	96	95	1
Proved developed and undeveloped reserves  (gas) (billion cubic feet)
Beginning of year	6,793	6,793	-	6,985	6,985	-
Revisions of previous estimates	123	123	-	(40)	(40)	-
Improved recovery	469	469	-	142	142	-
Extensions and discoveries	875	875	-	680	680	-
Production	(1,044)	(1,044)	-	(974)	(974)	-
End of year	7,216	7,216	-	6,793	6,793	-
Proved developed reserves
Beginning of year	5,822	5,822	-	6,000	6,000	-
End of year	6,026	6,026	-	5,822	5,822	-
Proved undeveloped reserves
Beginning of year	971	971	-	985	985	-
End of year	1,190	1,190	-	971	971	-

 

Table IV: Reserve quantities information (Continued)

 

	2019			2018
			Other			Other
	Total	China	countries	Total	China	countries
Equity method investments
Proved developed and undeveloped reserves of  associates and joint ventures (oil) (million barrels)
Beginning of year	299	-	299	306	-	306
Revisions of previous estimates	(8)	-	(8)	12	-	12
Improved recovery	2	-	2	4	-	4
Extensions and discoveries	25	-	25	5	-	5
Production	(28)	-	(28)	(28)	-	(28)
End of year	290	-	290	299	-	299
Proved developed reserves
Beginning of year	261	-	261	273	-	273
End of year	245	-	245	261	-	261
Proved undeveloped reserves
Beginning of year	38	-	38	33	-	33
End of year	45	-	45	38	-	38
Proved developed and undeveloped reserves  of associates and joint ventures (gas)  (billion cubic feet)
Beginning of year	13	-	13	12	-	12
Revisions of previous estimates	(1)	-	(1)	2	-	2
Improved recovery	-	-	-	2	-	2
Extensions and discoveries	-	-	-	-	-	-
Production	(3)	-	(3)	(3)	-	(3)
End of year	9	-	9	13	-	13
Proved developed reserves
Beginning of year	13	-	13	12	-	12
End of year	9	-	9	13	-	13
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	1,666	1,339	327	1,599	1,261	338
End of year	1,740	1,433	307	1,666	1,339	327
Proved developed and undeveloped reserves  (gas) (billion cubic feet)
Beginning of year	6,806	6,793	13	6,997	6,985	12
End of year	7,225	7,216	9	6,806	6,793	13

 

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.

 

			2019			2018
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Future cash flows	869,402	856,037	13,365	868,058	854,563	13,495
Future production costs	(384,417)	(377,692)	(6,725)	(381,893)	(376,532)	(5,361)
Future development costs	(27,065)	(22,216)	(4,849)	(22,310)	(19,300)	(3,010)
Future income tax expenses	(40,720)	(39,634)	(1,086)	(42,728)	(40,651)	(2,077)
Undiscounted future net cash flows	417,200	416,495	705	421,127	418,080	3,047
10% annual discount for estimated timing  of cash flows	(126,203)	(126,175)	(28)	(126,910)	(126,617)	(293)
Standardised measure of discounted future  net cash flows	290,997	290,320	677	294,217	291,463	2,754
Discounted future net cash flows attributable  to non-controlling interests	305	-	305	1,239	-	1,239
Equity method investments
Future cash flows	41,796	-	41,796	48,778	-	48,778
Future production costs	(13,141)	-	(13,141)	(12,462)	-	(12,462)
Future development costs	(5,603)	-	(5,603)	(4,433)	-	(4,433)
Future income tax expenses	(3,995)	-	(3,995)	(5,632)	-	(5,632)
Undiscounted future net cash flows	19,057	-	19,057	26,251	-	26,251
10% annual discount for estimated timing  of cash flows	(8,852)	-	(8,852)	(13,012)	-	(13,012)
Standardised measure of discounted future  net cash flows	10,205	-	10,205	13,239	-	13,239
Total of the Group's and its equity method  investments' results of standardised measure  of discounted future net cash flows	301,202	290,320	10,882	307,456	291,463	15,993

 

Table VI: Changes in the standardised measure of discounted cash flows

 

	2019	2018
	RMB million	RMB million
The Group
Sales and transfers of oil and gas produced, net of production costs	(85,821)	(88,802)
Net changes in prices and production costs	(25,442)	98,952
Net changes in estimated future development cost	(10,108)	(5,468)
Net changes due to extensions, discoveries and improved recoveries	61,465	41,385
Revisions of previous quantity estimates	12,995	22,040
Previously estimated development costs incurred during the year	9,737	9,507
Accretion of discount	32,407	22,405
Net changes in income taxes	1,547	(28,894)
Net changes for the year	(3,220)	71,125
Equity method investments
Sales and transfers of oil and gas produced, net of production costs	(2,741)	(3,001)
Net changes in prices and production costs	(2,804)	1,620
Net changes in estimated future development cost	(881)	(196)
Net changes due to extensions, discoveries and improved recoveries	1,321	341
Revisions of previous quantity estimates	(423)	818
Previously estimated development costs incurred during the year	355	272
Accretion of discount	1,438	1,196
Net changes in income taxes	701	(366)
Net changes for the year	(3,034)	684
Total of the Group's and its equity method investments' results of net changes for the year	(6,254)	71,809

 

 

CORPORATE INFORMATION

 

STATUTORY NAME

中国石油化工股份有限公司

 

ENGLISH NAME

China Petroleum & Chemical Corporation

 

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	:	100728
Tel.	:	86-10-59960028
Fax	:	86-10-59960386
Website	:	http://www.sinopec.com/listco/
E-mail addresses	:	ir@sinopec.com

 

PLACE OF BUSINESS IN HONG KONG

20th Floor, Office Tower

Convention Plaza

1 Harbour Road

Wanchai

Hong Kong

 

INFORMATION DISCLOSURE AND PLACES FOR

 COPIES OF RELATIVE REPORTS

No change during the reporting period

 

LEGAL ADVISORS

People's Republic of China:

Haiwen & Partners

20th Floor, Fortune Financial Centre

No. 5, Dong San Huan Central Road

Chaoyang District

Beijing PRC

Postcode: 100020

 

Hong Kong:

Herbert Smith Freehills

23rd Floor, Gloucester Tower

15 Queen's Road

Central, Hong Kong

 

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.

 

PLACES OF LISTING OF SHARES, STOCK

 NAMES AND STOCK CODES

A Shares:

Shanghai Stock Exchange

Stock name	:	SINOPEC CORP
Stock code	:	600028

 

H Shares:

Hong Kong Stock Exchange

Stock code

:

00386

 

ADRs:

New York Stock Exchange

Stock code

:

SNP

 

London Stock Exchange

Stock code

:

SNP

 

NAMES AND ADDRESSES OF AUDITORS OF

 SINOPEC CORP.

Domestic Auditors	:	PricewaterhouseCoopers
		Zhong Tian LLP
Address	:	11th Floor
		PricewaterhouseCoopers,
		2 Corporate Avenue,
		202 Hu Bin Road,
		Huangpu District,
		Shanghai, PRC 200021
Overseas Auditors	:	PricewaterhouseCoopers
Address	:	22nd Floor,
		Prince's Building,
		Central, Hong Kong

 

 

DOCUMENTS FOR INSPECTION

 

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.