SNP.L Regulatory News (SNP)

CONTENTS

This annual report includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve and other estimates and business plans) are forward-looking statements. The Company's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties. The Company makes the forward-looking statements referred to herein as at 27 March 2020 and unless required by regulatory authorities, the Company undertakes no obligation to update these statements.

COMPANY PROFILE

IMPORTANT NOTICE: THE BOARD OF DIRECTORS, THE BOARD OF SUPERVISORS, DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF SINOPEC CORP. WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS IN THIS ANNUAL REPORT, AND JOINTLY AND SEVERALLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS ANNUAL REPORT. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDERS OF SINOPEC CORP. ALL THE DIRECTORS OF SINOPEC CORP. ATTENDED THE 12TH MEETING OF THE SEVENTH SESSION OF THE BOARD. MR. ZHANG YUZHUO, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, PRESIDENT, MS. SHOU DONGHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE FINACIAL DEPARTMENT OF SINOPEC CORP. WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS ANNUAL REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE ANNUAL REPORT OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2019.

THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 OF THE COMPANY PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) HAVE BEEN AUDITED BY PRICEWATERHOUSECOOPERS ZHONG TIAN LLP AND PRICEWATERHOUSECOOPERS RESPECTIVELY. BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED AUDITOR'S REPORT.

AS APPROVED AT THE 12TH MEETING OF THE SEVENTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB 0.19 (TAX INCLUSIVE) PER SHARE FOR 2019, COMBINING WITH THE INTERIM CASH DIVIDEND OF RMB 0.12 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2019 WILL BE RMB 0.31 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS' APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2019.

COMPANY PROFILE

Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information.

DEFINITIONS:

In this report, unless the context otherwise requires, the following terms shall have the meaning as set out below:

Sinopec Corp.: China Petroleum & Chemical Corporation;

Company: Sinopec Corp. and its subsidiaries;

China Petrochemical Corporation: The controlling shareholder of Sinopec Corp., China Petrochemical Corporation;

Sinopec Group: China Petrochemical Corporation and its subsidiaries;

NDRC: China National Development and Reform Commission

RMC: Oil and Natural Gas Reserves Management Committee of the Company;

CSRC: China Securities Regulatory Commission.

Hong Kong Stock Exchange: The Stock Exchange of Hong Kong Limited

Hong Kong Listing Rules: Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

New Lease Standard: IFRS 16, 'Leases'; No. 21 Accounting Standards for Business Enterprises- Leases which was revised and released by the Ministry of Finance in 2018.

CONVERSION:

For domestic production of crude oil, 1 tonne = 7.1 barrels;

For overseas production of crude oil: 1 tonne = 7.21 barrels;

For production of natural gas, 1 cubic meter = 35.31 cubic feet;

Refinery throughput is converted at 1 tonne = 7.35 barrels.

PRINCIPAL FINANCIAL DATA AND INDICATORS

1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs

(1) Principal financial data

(2) Principal financial indicators

(3) Extraordinary items and corresponding amounts

(4) Items measured by fair values

Unit: RMB million

(5) Significant changes of items in the financial statements

The table below sets forth reasons for those changes where the fluctuation was more than 30% during the reporting period:

2 FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS

Unit: RMB million

Unit: RMB million

3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER CASs AND IFRS PLEASE REFER TO PAGE 204 OF THE REPORT.

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

1 CHANGES IN THE SHARE CAPITAL

There is no change in the number and nature of shares of Sinopec Corp. during the reporting period

2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS

As of 31 December 2019, the total number of shareholders of Sinopec Corp. was 478,617 including 472,818 holders of A shares and 5,799 holders of H shares. As of 29 February 2020, the total number of shareholders of Sinopec Corp. was 503,142. Sinopec Corp. has complied with requirement for minimum public float under the Hong Kong Listing Rules.

(1) Shareholdings of top ten shareholders

The shareholdings of top ten shareholders as of 31 December 2019 are listed as below:

Note 1: As compared with the number of shares held as of 31 December 2018.

Note 2: Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of China Petrochemical Corporation, held 553,150,000 H shares, accounting for 0.46% of the total issued share capital of Sinopec Corp. Those shareholdings are included in the total number of the shares held by HKSCC Nominees Limited.

Statement on the connected relationship or acting in concert among the above-mentioned shareholders:

Apart from 中國人壽保險股份有限公司－分紅－個人分紅－005L－FH002滬and 中國人壽保險股份有限公司－傳統－普通保險產品－005L－CT001滬 which were both managed by 中國人壽保險股份有限公司, Sinopec Corp. is not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders.

(2) Information disclosed by the shareholders of H shares in accordance with the Securities and Futures Ordinance (SFO) as of 31 December 2019

(L): Long position, (S): Short position

3 ISSUANCE AND LISTING OF SECURITIES

(1) Issuance of securities during the reporting period

Not Applicable.

(2) Existing employee shares

Not Applicable.

4 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER

There was no change in the controlling shareholder and the de facto controller of Sinopec Corp. during the reporting period.

(1) Controlling shareholder

The controlling shareholder of Sinopec Corp. is China Petrochemical Corporation. Established in July 1998, China Petrochemical Corporation is a state-authorised investment organisation and a state-owned enterprise. The legal representative is Mr. Zhang Yuzhuo. Through re-organization in 2000, China Petrochemical Corporation injected its principal petroleum and petrochemical businesses into Sinopec Corp. and retained certain petrochemical facilities. It provides well-drilling services, well-logging services, downhole operation services, services in connection with manufacturing and maintenance of production equipment, engineering construction, and utility services including water and power and social services.

Shares of other listed companies directly held by China Petrochemical Corporation

Note: China Petrochemical Corporation holds 2,595,786,987 H shares of Sinopec Oilfield Service Corporation (the "SSC") through Sinopec Century Bright Capital Investment Ltd., a wholly-owned overseas subsidiary of China Petrochemical Corporation, accounting for 13.67% of the total share capital of SSC. Such shareholdings are excluded from the total shares of SSC directly held by China Petrochemical Corporation indicated above.

(2) Other than HKSCC Nominees Limited, there was no other legal person shareholder holding 10% or more of the total issued share capital of Sinopec Corp.

(3) Basic information of the de facto controller

China Petrochemical Corporation is the de facto controller of Sinopec Corp.

(4) Diagram of the equity and controlling relationship between Sinopec Corp. and its de facto controller

*: Inclusive of 553,150,000 H shares held by Sinopec Century Bright Capital Investment Ltd. (overseas wholly-owned subsidiary of China Petrochemical Corporation) through HKSCC Nominees Limited.

CHAIRMAN'S ADDRESS

Dear Shareholders and Friends:

First, I would like to extend my sincere thanks for the trust of our shareholders and support of our directors, and for appointing me as the Chairman of the Company. On behalf of the Board of Directors, management and our entire staff, I would like to express my sincere gratitude to our shareholders and the community for your interest and support.

In 2019, global economy slowdown while China's economy remained overall stable. With international oil prices fluctuating within a wide range and new production capacity for refinery and petrochemicals being excessively released, market competition increased dramatically. As a result, the internal and external risks and challenges faced by the Company have increased significantly. In such a complicated and difficult market, with focus on both short and long-term goals in mind, the Board of Directors adhered to the guideline of pursuing progress while maintaining stability. Furthermore, it concentrated on modernizing the company's corporate governance systems and capabilities, and deepening reforms to sustain continuous growth and development. Under the management's leadership, our employees demonstrated dedication and a conscientious and responsible work spirit, and implemented all practices with discipline and in a professional manner. Significantly, the Company achieved better than expected operating results and made new progress in all fronts as we continuously deepened reform, exercised effective risk management, stabilised growth, and adjusted the operating structure while guaranteeing safety.

Progress achieved and stability ensured. In accordance with International Financial Reporting Standards, our turnover and other operating revenues grew by 2.6% year-on-year to RMB 2.97 trillion while operating profit grew by 4.8% year-on-year to RMB 86.2 billion, and profit attributable to shareholders of the Company amounted to RMB 57.5 billion. The Company remained in a solid financial position with stable cash flow. In view of the Company's funding requirements, return on equity, profitability and cash flow for future development, the Board of Directors recommended the payment of a final dividend of RMB 0.19 per share. Taking into account the interim dividend of RMB 0.12 per share, the total dividend for the year was RMB 0.31 per share, with a dividend payout ratio of 65.3%.

Corporate governance continuously improved. The Board of Directors enhanced its scientific approach to decision-making and optimised development strategies and implementation plans. The independent directors performed their duties and functions professionally, making great contributions to our sustainable development. The Company also revised and improved its Articles of Association and other governing documents, as well as implemented effective risk control measures. Additionally, the Company launched the Integrity Compliance Management Manual in its continued effort to further strengthen its compliance management system. Further, the Company deepened management system reforms and adjusted internal departments in an orderly manner so as to continuously improve our professional management. We attached great importance to shareholder returns, enhanced communications with stakeholders, and protected investors' interests in an effort to consistently increase corporate transparency. Meanwhile, we strived to transform the advantage of Party building into our competitive business advantage through effective integration of these two efforts. The Company was awarded "Best Corporate Governance for a Publicly Listed Company" by the Golden Bauhinia Awards.

Quality improved in stable operation. We maintained safe and stable production operations, continued to deepen supply-side structural reforms and sped up the construction of key projects to ensure stable growth and improve the quality of the industry chain. As for the upstream business, greater efforts were made in oil and gas exploration, achieving satisfactory results in increasing reserves, stabilizing oil production, increasing gas output, and reducing costs. The domestic oil and gas reserve replacement ratio reached 138.7%, and market share of natural gas further increased. The refining and marketing businesses navigated through fierce market competition with product portfolio better adapted to market demand. Simultaneously, production and sales volume increased, and the pace of construction of comprehensive services and the application of artificial intelligence at service stations was accelerated. Underpinned by rapid growth of the overall volume and strengthening structural adjustment of the chemicals business, development of high value-added synthetic materials achieved remarkable progress. In addition, we actively nurtured new businesses and operations and provided new impetus for transformation and upgrading. Furthermore, we implemented innovation-driven development strategies, built joint innovation platforms, and achieved breakthroughs in major technologies and a series of R&D projects. The evaluation of the comprehensive advantages of our patents also continued to be at the forefront of our domestic enterprises' efforts.

Corporate social responsibilities effectively fulfilled. We took proactive measures to combat climate change and implement green and low-carbon development strategies, as well as strived to develop clean energy. Green enterprise and energy efficiency upgrading campaigns were undertaken to reduce greenhouse gas emissions and protect the ecological environment and biodiversity. We also took great care in implementing our HSSE management system that ensures safe production and occupational health, and protects the physical and mental health of all employees. We made greater efforts to implement targeted poverty alleviation and achieved fruitful results, including poverty alleviation programs focused on industry, education and consumption. To benefit as many people as possible, we actively and consistently participated in various social welfare initiatives. In addition, we honored the traditional and cultural characteristics of the communities where we operate, and regularly promoted economic development and environmental protection in the communities around our projects. In so doing, we fully demonstrated our commitment to being a responsible global corporate citizen, which received high recognition at home and abroad.

The hard-won achievements in 2019 were attributed to the arduous efforts and altruistic dedication of the Company's Board of Directors, the Board of Supervisors, the management and the entire staff. Due to reassignment and retirement, Mr. Dai Houliang, Mr. Li Yunpeng, and Mr. Liu Zhongyun no longer hold positions in the Company. During their tenure, they worked diligently, fulfilled their duties and contributed greatly to the Company. In particular, Mr. Dai Houliang, former Chairman of the Board, made outstanding contributions and played an essential role in improving corporate governance, advancing reforms and innovation, and achieving sustainable growth. On behalf of the Board of Directors, I would like to extend my sincere gratitude to all of them!

At the beginning of 2020, the sudden outbreak of coronavirus struck China and impacted the global economy. Confronted with the outbreak, President Xi Jinping attached great importance to deploying relief actions by giving overall instructions directly. In response to the outbreak, the Company acted promptly and proactively. While maintaining stable production and operation, the Company gave full play to its industrial advantages, exerted full force to produce raw materials for medical and health supplies, and cooperated with related enterprises to produce medical supplies in urgent need, including masks and protective suits for affected areas. Moreover, with the advantages of our sales network, the Company spared no effort to guarantee the market supply of oil and gas, innovate service models, and enable the public to purchase articles for daily use conveniently, thereby making our contribution to win the battle against the virus.

Looking forward, the global economy will face more instability and uncertainty brought by the outbreak. Although the virus may temporarily impact the Chinese economy, we firmly believe that China's solid economic fundamentals will remain unchanged and the country's potential and momentum will remain strong. A combination of preferential policies and measures oriented to enterprises set out by the Chinese government is supporting the rapid recovery of the economy while reducing the impact brought by the virus. We believe that as the control and prevention of outbreak continues to improve domestically, the domestic demand for petroleum and petrochemical products that was suppressed and frozen will rebound quickly.

Challenges always arise with opportunities. The Company will continue to adhere to the overall strategy of "making progress while maintaining stability," and to that end will implement new development philosophies and energy security strategies, as well as further strengthen corporate governance. The Company will also continue to focus on supply-side structural reform. Exercising comprehensive and strict governance over the Party, coupled with the strategy of the Talent Empowering Enterprise Scheme, the Company will continue to leverage its advantages of integration, aiming to realize a development pattern with energy resources as the backbone, clean energy and synthetic materials as two development wings, and new energy, new economies, and new fields as important growth points.

The Company will continue to deepen the reform of its systems and mechanisms, further improve its corporate governance system and enhance governance capabilities. With headquarters acting as the center of restructuring, the Company will further advance reforms of its management system and market-oriented operation mechanism. It will strengthen construction of its systems, improve management, and better mobilize initiatives in every aspect so as to constantly increase the ability to create synergies, raise efficiency and mitigate risks.

The Company will focus on promoting structural adjustment and continuously improving its core competence. In the upstream business, the Company will implement the action plan of vigorously enhancing oil and gas exploration and development, focusing on high-quality exploration and profit-driven production, and further consolidating the oil and gas resource base. In the meantime, the Company will adopt an integrated approach to the clean and efficient use of new energy, renewable energy and coal resources, and promote diversification of the energy mix. As for the refining and marketing business, the Company will closely monitor market demand, optimize the system, promote construction of advanced production capacity, and fully develop the potential of the marketing network and improve the quality of operations. In terms of the chemicals business, the Company will accelerate the supply of high-end synthetic materials, develop a more competitive and advantageous basic chemical product chain and improve marketing services and efficiency, by ways of focusing on technological progress and extending the production chain, etc.Additionally, the Company will accelerate key research on core technologies, enhance the capability of proprietary innovation, speed up low-carbon transformation, and improve the efficiency of energy conversion to reduce carbon emissions, which we expect will give rise to a core competency in green development. In 2020, the planned capital expenditure of the Company amounts to RMB 143.4 billion.

Only with great courage, ambition and momentum can a company strive and thrive. Sinopec Corp. is endowed with a complete industrial chain, and its integrated competitive advantages are clear, especially in the Company's strong market presence, branding, capital resources, and human talent. I firmly believe that with the concerted efforts of our Board of Directors, management and entire staff, as well as support from our shareholders and the community, Sinopec Corp. will surely develop in distinct ways that are more efficient and of higher quality, which in turn will create greater value for shareholders and the community.

Zhang Yuzhuo

Chairman

Beijing, China

27 March 2020

BUSINESS REVIEW AND PROSPECTS

BUSINESS REVIEW

In 2019, the global economy slowed down while China maintained an overall stable with its gross domestic product (GDP) up by 6.1%. International oil prices fluctuated in a wide range while domestic market saw rapid growth demand for natural gas and fierce competition in oil products due to abundant supply, and chemicals prices decreased. The Company actively addressed market changes by pursuing innovative, coordinated, green, open and shared development. Through implementing specialised development, market-oriented operation, internalisation and overall coordination, we pushed forward all aspects of our work, and achieved solid operating results.

1 MARKET REVIEW

(1) Crude Oil & Natural Gas Market

In 2019, international oil prices fluctuated with a wide range. The spot price of Platt's Brent for the year averaged USD 64.21 per barrel, down by 10.0%. Along with the changes in China's energy mix, domestic demand for natural gas remained strong. Based on statistics released by the NDRC, domestic apparent consumption of natural gas reached 306.7 billion cubic meters, up by 9.4% year on year.

(2) Refined Oil Products Market

In 2019, domestic demand for refined oil products maintained its growth while market supply was in surplus. According to statistics released by the NDRC, the apparent consumption of refined oil products (including gasoline, diesel and kerosene) was 330 million tonnes, up by 1.4% from the previous year, with gasoline up by 2.3%, kerosene up by 6.2% and diesel down by 0.5%. There were 21 price adjustments for domestic refined oil products throughout the year with 15 increases and 6 decreases.

(3) Chemical Products Market

Domestic demand for chemicals kept stable growth in 2019. Based on our statistics, domestic consumption of ethylene equivalent was 52.71 million tonnes, up by 11.8% from the previous year, and the apparent consumption of synthetic resin, synthetic fibre and synthetic rubber rose by 10.1%, 12.5% and 3.6%, respectively. Average prices of domestic chemical products decreased by 12.6% year on year, and the average margin of chemical products narrowed.

2 PRODUCTION & OPERATIONS REVIEW

(1) Exploration and Production

In 2019, we implemented the action plan of redoubling efforts in oil and gas exploration and production, actively pressed ahead with high-efficiency exploration and profit-oriented development, accelerated the systematic integration of natural gas production, supply, storage and marketing, continuously reduced cost and expenditure on all fronts, and achieved tangible results in maintaining oil production, increasing gas output and cutting cost. We reinforced venture exploration and preliminary exploration in new areas which led to new discoveries in Tarim, Sichuan and Erdos basins. The Company's newly added proved reserves in China reached 587 million barrels of oil equivalent, with domestic reserve replacement ratio at 138.7%. In crude oil development, we proceeded with the capacity building in Shunbei oilfield, strengthened profitable production capacity of hard-to-recover reserves in mature fields, intensified EOR technology breakthrough and application, and ensured steady production. In natural gas development, we constantly pushed forward capacity building in Fuling, Weirong, and West Sichuan gas fields, expanded the market and sales, and promoted coordinated development along the value chain. The Company's production of oil and gas reached 458.92 million barrels of oil equivalent, with domestic crude production reaching 249.43 million barrels and natural gas production totaling 1,047.78 billion cubic feet, up by 7.2% year on year.

Summary of Operations for the Exploration and Production Segment

Summary of Reserves of Crude Oil and Natural Gas

Exploration and Production Activities

Unit: Square kilometers

(2) Refining

In 2019, with market-oriented approach, we optimised product mix to produce more gasoline and jet fuel, increased production of high value-added products, and lowered diesel-to-gasoline ratio to 1.05. We optimised the production plan for low sulfur fuel oil and reduced cost. We leveraged our advantage in production and sales, and moderately increased export of oil products to keep a relatively high utilization rate. We promoted quality upgrading projects and made structural adjustments, comprehensively optimized production and ensured safety and reliability of the refining facilities. We improved the marketing and distribution systems and realised a growth momentum in high grade lubricants and grease, LPG, asphalt and sulphur. In 2019, the Company processed 249 million tonnes of crude oil, and produced 160 million tonnes of refined oil products, up by 3.4%, with gasoline and kerosene up by 2.6% and 7.8% respectively year on year.

Summary of Operations for the Refining Segment Unit: million tonnes

Note: Includes 100% of the production from domestic joint ventures.

(3) Marketing and Distribution

In 2019, confronted with fierce market competition, the Company brought our advantages of integrated production and marketing network into full play, adhered to the guideline of "achieving gains in both sales volume and profits", coordinated allocation of resources, expanded sales and increased profit, and achieved sustained growth in both total sales volume and retail scale. With focus on customer need, we adopted a flexible and targeted marketing strategy, and improved our services. We upgraded our distribution network to further strengthen our existing advantages. We accelerated the construction and operation of CNG stations and explored the development of hydrogen fueling stations. Total sales volume of refined oil products for the year was 255 million tonnes, up by 7.3% year on year, of which domestic sales volume accounted for 184 million tonnes, up by 2.3%. Meanwhile, we strengthened development and marketing of company-owned brands, and promoted the innovation of non-fuel business model and its market-oriented reform, to speed up the development of non-fuel business.

Summary of Operations for the Marketing and Distribution Segment

Note: The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume.

(4) Chemicals

In 2019, the Company followed the development philosophy of "basic plus high-end", sped up advanced capacity building, and optimised business portfolio layout. We persistently fine-tuned chemical feedstock mix to increase the yield and lower cost. We optimised products slate, enhanced integration among production, marketing, R&D and application, vigorously promoted the development and application of new products, and raised the proportion of new and specialty products. We further adjusted facility structures to enhance the dynamic optimisation of facilities and product chain, and improved the utilisation based on market demand. Ethylene production in 2019 reached 12.49 million tonnes, up by 8.5% year on year. The differential ratio of synthetic fiber reached 90%, and the ratio of new and specialty products in synthetic resin reached 65.3%. We also promoted targeted marketing and service to further expand our business, with total chemical sales volume increased by 3.3% to 89.50 million tonnes, realising full sales.

Summary of Operations for the Chemicals Segment Unit: thousand tonnes

Note: Includes 100% of the production of domestic joint ventures.

(5) Research and Development

In 2019, with the emphasis on innovation-driven strategy, the Company accomplished notable results in deepening reform of R&D mechanism, promoting innovation platforms such as joint R&D centers and incubators, and making breakthrough in key and frontier technologies. In upstream, research in gas enrichment theory and exploration technologies of marine phase medium and large gas fields in Sichuan Basin made headway, leading to breakthrough in gas reserve. Our proprietary rotary steering drilling system was successfully applied in Shengli oilfield. In refining, we developed various formulations for low sulphur fuel oil and passed engine tests and endurance tests. Our high-grade gasoline and diesel engine oil met the latest international standards and realised industrial production and commercialization. In chemicals, the start-up of the second generation high-efficiency and environment-friendly aromatics facilities was successfully started up. The anthraquinone method of producing hydrogen peroxide in fluidised-bed reactor and PPTA technology realised industrialization. In addition, the framework type code of a novel structured zeolite SCM-15 synthesised by us has been approved by the Structure Commission of International Zeolite Association. In 2019, the Company had 6,160 patent applications at home and abroad, among which 4,076 were granted. We also won six second prizes of National Sci-Tech Progress and one second prize of NationalTechnology Invention, and one gold, three silver and three excellent prizes of National Patent Awards.

(6) Health, Safety, Security and Environment

In 2019, the Company constantly promoted and fully implemented the HSSE management system. We enhanced overall health management, and established safeguarding mechanism for occupational, physical and psychological health. We surveyed and rectified safety hazards, took stringent measures to control risks and supervise safety and operations of contractors, and achieved sound results. We upgraded our capacity in all-dimension risk prevention and control as well as emergency response, further enhancing security management. In 2019, we actively practiced green and low-carbon growth strategy, further promoted the green enterprise campaign and ecological conservation, and accomplished all emission reduction targets. Compared with 2018, energy consumption per 10,000 yuan of output was down by 0.4%, industrial fresh water usage was down by 1.1%, COD of discharged water down by 2.1%, and SO2 emissions down by 3.9%. All solid waste was properly treated. For more detailed information, please refer to "Communication on Progress for Sustainable Development 2019 of Sinopec Corp."

(7) Capital Expenditures

In 2019, focusing on quality and profitability of investment, the Company continuously optimised its capital projects, with total capital expenditures of RMB 147.1 billion. Capital expenditure for the exploration and production segment was RMB 61.7 billion, mainly for Shengli and Northwest crude oil development projects, Fuling and Weirong shale gas projects, phase I of Xinqi gas pipeline, phase I of Erdos-Anping-Cangzhou gas pipeline, Qingdao-Nanjing gas pipeline, Wen 23 and Jintan gas storage projects, as well as overseas projects. Capital expenditure for the refining segment was RMB 31.4 billion, mainly for Zhongke Refining and Petrochemical project, Zhenhai, Tianjin, Maoming and Luoyang refining upgrading projects. Capital expenditure for the marketing and distribution segment was RMB 29.6 billion, mainly for construction of service stations, oil products depots, pipelines and non-fuel business. Capital expenditure for the chemicals segment was RMB 22.4 billion, mainly for Zhongke, Zhenhai, Gulei and Hainan projects, ethylene revamping for Sinopec-SK and Sinopec-SABIC projects, phase II of Hainan high-efficiency and environment-friendly aromatics project, Sinopec-SABIC polycarbonate project and Zhongan coal chemical project. Capital expenditure for corporate and others was RMB 2 billion, mainly for R&D facilities and information technology projects.

BUSINESS PROSPECTS

(1) Market Outlook

In 2020, despite the increasing instability and uncertainty of the international political and economic situation, and the inevitable impact on China's economy by coronavirus outbreak in the short term, we expect the fundamentals sustaining sound economic growth in China remain unchanged. Domestic demand for energy and chemical products will be relatively weak in the first half, but the accumulated demand is expected to be released rapidly after outbreak. Considering oil-producing countries' abundant supply capacity, global demand growth, inventory levels, and geopolitics, we expect that the international oil prices will fluctuate at a low level.

(2) Operations

In 2020, adhering to the principles of "reform, management, innovation, and development", the Company will focus on optimisation of the entire business value chain, as well as market expansion, risk prevention, and seizing opportunities so as to do our best to reduce the negative impact of the coronavirus outbreak and the slump of crude oil price, and strive to achieve healthy business performance.

Due to the outbreak, the adjustment of the Company's production plan for 2020 is currently underway. We will confirm the production plan according to the market trends in the future.

Exploration and Production, under the low oil price circumstance, we will optimise projects implementation, enhance high-quality exploration, and reduce cost and expenditure to expand resource base and realize sustainable development. In crude oil development, more efforts will be made in promoting capacity building of Shunbei Oilfield, Tahe Oilfield, and the Oilfield at the western margin of the Junggar Basin, and we will strengthen profit-oriented development of mature fields. In natural gas development, we will accelerate capacity construction of key projects, and promote integration of production, supply, storage and marketing so as to maximize the value of the business chain. Preliminarily, we plan to keep a stable production volume of curde oil and realise a positive growth for nature gas.

Refining, under low oil price circumstance, with the coordination of production and sales, domestic and overseas markets, the Company will optimize utilization rate and production scheduling, and promote efficient operation of its refining business chain. We will optimize the allocation of crude oil, coordinate crude oil supply chain, and reduce procurement costs. More efforts will be made in restructuring product slate, increasing products tailoring for market demand and changes. We will accelerate low-sulfur bunker fuel projects and the revamping of storage and transportation facilities to rapidly expand market share.

Marketing and Distribution, balancing volume and profit, and leveraging the advantages of integration of production and sales, the Company will continuously improve the quality of its operations. We will vigorously carry out targeted and differentiated marketing to continuously improve our services with focus on customer need. We will accelerate the construction of smart service stations, coordinate the layout of natural gas and hydrogen stations, and consolidate and expand network advantages. More efforts will be made in boosting innovation in non-fuel business models, vigorously developing proprietary brands, creating differentiated competitive advantages, so as to drive rapid growth in non-fuel business.

Chemicals, the Company will focus on the "basic + high-end" development concept, speed up advanced capacity building, continuously deepen structural adjustment, and improve our competitiveness and profitability. We will optimize facilities and product chain, and improve utilization rate and production scheduling based on market demand. Efforts will be made in adjusting feedstock slate to improve product yield and reduce cost. We will coordinate production, marketing, research and application, and redouble our efforts in developing new products and increase the production of high value-added products. Meanwhile, we will improve targeted marketing and services, enhance e-commerce platforms, actively explore overseas markets and continuously expand market share.

Research and Development, we will continue to implement the innovation-driven development strategy, deepen mechanism reform, accelerate key technology breakthrough, improve innovation capabilities to strive for quality development. In oil and gas exploration and development, we will strive to make technology breakthrough in ultra-deep oil and gas, tight oil and gas, shale oil and gas, etc. In refining, we will accelerate the research of heavy oil processing, oil quality upgrading, and promote the application of technologies such as needle coke. In chemicals, we will continuously improve the package technologies of ethylene and aromatics, strengthen the research and development of photoelectric materials and degradable materials, and accelerate the industrialization of large-tow high-performance carbon fibers. At the same time, we will focus on advancing research on cutting-edge technologies and new areas to achieve future business development through technology innovation.

Capital Expenditures, Preliminary capital expenditures for the year 2020 are budgeted at RMB 143.4 billion. We will dynamically optimise capital projects based on future market trends. Preliminarily, RMB 61.1 billion will be invested in exploration and production with focuses on the production capacity building of Shengli and Northwest crude oil development projects, Fuling and Weirong shale gas field, and the construction of natural gas pipelines and storage facilities as well as overseas oil and gas projects. The refining segment will account for RMB 22.4 billion, mainly on the construction and commissioning of the Zhongke project, and structural adjustment projects of Zhenhai, Tianjin, Maoming, Luoyang. RMB 22.0 billion is budgeted for marketing and distribution with emphasis on service stations, depots and storage facilities for refined oil products, pipelines and non-fuel business. The share for chemicals will be RMB 32.3 billion which will be used on the construction of Zhongke, Zhenhai and Gulei projects, ethylene revamping of Sinopec-SK and Sinopec-SABIC projects, Sinopec-SABIC polycarbonate project, Jiujiang aromatics project and Zhong An coal chemical project. The capital expenditure for corporate and others will be RMB 5.6 billion, mainly for R&D facilities and information technology projects.

MANAGEMENT'S DISCUSSION AND ANALYSIS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING FINANCIAL DATA WERE ABSTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO THE IFRS, UNLESS OTHERWISE STATED. THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX.

1 CONSOLIDATED RESULTS OF OPERATIONS

In 2019, the Company's turnover and other operating revenues was RMB 2,966.2 billion, increased by 2.6% compared with that of 2018. The operating profit was RMB 86.2 billion, representing a year on year increase of 4.8%.

The following table sets forth the main revenue and expenses from the Company's consolidated financial statements:

(1) Turnover and other operating revenues

In 2019, the Company's turnover was RMB 2,900.5 billion, representing an increase of 2.6% over 2018. This was mainly attributed to expansion of business scale and trading volume.

The following table sets forth the external sales volume, average realised prices and respective rates of change of the Company's major products in 2019 and 2018:

Most crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production, with the remaining sold to external customers. In 2019, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 111.1 billion, an increase of 18.8% over 2018. The change was mainly due to increases in natural gas sales volume and prices as the result of promoting natural gas production-supply-storage-sale system, and actively expanding market share.

In 2019, petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold by Refining Segment and Marketing and Distribution Segment achieved external sales revenues of RMB 1,535.2 billion (accounting for 51.8% of the Company's turnover and other operating revenues), representing a decrease of 1.5% over 2018, mainly due to the decrease in petroleum products' prices. The sales revenue of gasoline, diesel and kerosene was RMB 1,303.6 billion, representing a decrease of 1.1% over 2018, and accounting for 85% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 231.6 billion, representing a decrease of 3.4% compared with 2018, accounting for 15% of the total sales revenue of petroleum products.

The Company's external sales revenue of chemical products was RMB 425.5 billion, representing a decrease of 7% over 2018, accounting for 14.3% of the Company's total turnover and other operating revenues. This was mainly due to the decrease in price of chemical products, which resulting from the increase of supply in chemical market.

(2) Operating expenses

In 2019, the Company's operating expenses was RMB 2,880 billion, increased by 2.5% compared with 2018. The operating expenses mainly consisted of the following:

Purchased crude oil, products and operating supplies and expenses was RMB 2,380.9 billion, representing an increase of 3.8% over the same period of 2018, accounting for 82.7% of the total operating expenses, of which:

Crude oil purchasing expenses was RMB 681.2 billion, representing a decrease of 2.9% over the same period of 2018. Throughput of crude oil purchased externally in 2019 was 228.74 million tonnes (excluding the volume processed for third parties), representing an increase of 0.7% over the same period of 2018. The average cost of crude oil purchased externally was RMB 3,326 per tonne, representing a decrease by 3.6% over 2018.

The Company's purchasing expenses of refined oil products was RMB 364.9 billion, representing an increase of 2.6% over the same period of 2018.

The Company's purchasing expense related to trading activities was RMB 738.3 billion, representing an increase of 12.6% over the same period of 2018.

The Company's other purchasing expenses was RMB 596.5 billion, representing an increase of 2.7% over the same period of 2018.

Selling, general and administrative expenses was RMB 55.3 billion, representing a decrease of 15.7% over 2018. This was mainly because the company significantly reduced non-operating costs, and adjusted accounting of some of the gas station, land and other rental expenses to depreciation and interests expense as required by the New Leasing Rules.

Depreciation, depletion and amortisation was RMB 108.8 billion, representing a decrease of 1.1% compared with 2018. That was mainly due to the depletion of oil and gas assets decreased as a result of the Company's proved reserves of crude oil and natural gas increased.

Exploration expenses was RMB 10.5 billion, representing a decrease of 2.2% year on year.

Personnel expenses was RMB 81.5 billion, representing an increase of 4.8% over 2018.

Taxes other than income tax was RMB 242.5 billion, representing a decrease of 1.6% compared with 2018. That was mainly due to the decrease of RMB 3.2 billion in urban maintenance and construction tax and education surcharges resulting from the decrease of value added tax rate.

Other operating expense, net was RMB 440 million.

(3) Operating profit was RMB 86.2 billion, representing an increase of 4.8% compared with 2018. That was mainly due to a significant increase of profit in upstream business.

(4) Profit before taxation was RMB 89.9 billion, representing a decrease of 9.3% compared with 2018. That was mainly because the margin of major refining products shrank.

(5) Income tax expense was RMB 17.9 billion, representing a decrease of 11.5% year on year.

(6) Profit attributable to non-controlling interests was RMB 14.6 billion, representing a decrease of RMB 2.7 billion compared with 2018.

(7) Profit attributable to shareholders of the Company was RMB 57.5 billion, representing a decrease of 6.7% year on year.

2 RESULTS OF SEGMENT OPERATIONS

The Company manages its operations through four business segments, namely exploration and production segment, refining segment, marketing and distribution segment and chemicals segment, and corporate and others. Unless otherwise specified, the inter-segment transactions have not been eliminated from financial data discussed in this section. In addition, the operating revenue data of each segment include other operating revenues.

The following table shows the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated.