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Final Results - Part 2

25 Mar 2019 08:19

RNS Number : 8503T

China Petroleum & Chemical Corp

25 March 2019

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/8033T_1-2019-3-24.pdf

CONTENTS

2	Company Profile
3	Principal Financial Data and Indicators
6	Changes in Share Capital and Shareholdings of Principal Shareholders
8	Chairman's Address
11	Business Review and Prospects
19	Management's Discussion and Analysis
31	Significant Events
42	Connected Transactions
45	Corporate Governance
52	Report of the Board of Directors
62	Report of the Board of Supervisors
64	Directors, Supervisors, Senior Management and Employees
80	Principal Wholly-owned and Controlled Subsidiaries
81	Financial Statements
219	Corporate Information
220	Documents for Inspection

This annual report includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve and other estimates and business plans) are forward-looking statements. The Company's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties. The Company makes the forward-looking statements referred to herein as at 22 March 2019 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. MR. LI YONG, DIRECTOR, DID NOT ATTEND THE 5TH MEETING OF THE SEVENTH SESSION OF THE BOARD DUE TO OFFICIAL DUITES. MR. LI YONG AUTHORISED MR. LI YUNPENG TO VOTE ON HIS BEHALF IN RESPECT OF THE RESOLUTIONS PROPOSED AT THE MEETING. MR. DAI HOULIANG, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, PRESIDENT, MR. WANG DEHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE FINACIAL DEPARTMENT OF SINOPEC CORP. WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS ANNUAL REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE FINANCIAL ANNUAL RESULTS OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2018.

THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 OF THE COMPANY PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) HAVE BEEN AUDITED BY PRICEWATERHOUSECOOPERS ZHONG TIAN LLP AND PRICEWATERHOUSECOOPERS RESPECTIVELY. BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED AUDITOR'S REPORT.

AS APPROVED AT THE 5TH MEETING OF THE SEVENTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB 0.26 (TAX INCLUSIVE) PER SHARE FOR 2018, COMBINING WITH THE INTERIM CASH DIVIDEND OF RMB 0.16 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2018 WILL BE RMB 0.42 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS' APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2018.

COMPANY PROFILE

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

DEFINITIONS:

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

Sinopec Corp.: China Petroleum & Chemical Corporation;

Company: Sinopec Corp. and its subsidiaries;

China Petrochemical Corporation: our controlling shareholder, China Petrochemical Corporation;

Sinopec group: China Petrochemical Corporation and its subsidiaries;

NDRC: China National Development and Reform Commission

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

CSRC: China Securities Regulatory Commission.

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

Hong Kong Listing Rules: Listing Rules of the Hong Kong Stock Exchange

CONVERSION:

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

For overseas production of crude oil: 2018, 1 tonne = 7.21 barrels; 2017, 1 tonne = 7.21 barrels; 2016, 1 tonne = 7.20 barrels;

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

Refinery throughput is converted at 1 tonne = 7.35 barrels.

11 INVENTORIES

The Group

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Raw materials	85,469	85,975
Work in progress	13,690	14,774
Finished goods	88,929	84,448
Spare parts and consumables	2,872	2,651
	190,960	187,848
Less: Provision for diminution in value of inventories	6,376	1,155
Total	184,584	186,693

For the year ended 31 December 2018, the provision for diminution in value of inventories of the Group amounted to RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products (2017: RMB 436 million mainly related to the spare parts and consumables in refining segment and chemical segment).

12 LONG-TERM EQUITY INVESTMENTS

The Group

	Investments in joint ventures	Investments in associates	Provision for impairment losses	Total
	RMB million	RMB million	RMB million	RMB million
Balance at 1 January 2018	52,272	80,429	(1,614)	131,087
Additions for the year	2,900	6,413	-	9,313
Share of profits less losses under the equity method	6,723	7,251	-	13,974
Change of other comprehensive loss under the equity method	(7)	(222)	-	(229)
Other equity movements under the equity method	(2)	-	-	(2)
Dividends declared	(5,164)	(4,108)	-	(9,272)
Disposals for the year	(444)	(247)	-	(691)
Foreign currency translation differences	805	757	(78)	1,484
Other movements	51	-	-	51
Movement of provision for impairment	-	-	6	6
Balance at 31 December 2018	57,134	90,273	(1,686)	145,721

The Company

	Investments in subsidiaries	Investments in Joint ventures	Investments in associates	Provision for impairment losses	Total
	RMB million	RMB million	RMB million	RMB million	RMB million
Balance at 1 January 2018	253,011	14,822	15,579	(7,855)	275,557
Additions for the year	8,351	699	5,014	-	14,064
Share of profits less losses under the equity method	-	3,047	1,212	-	4,259
Change of other comprehensive loss under the equity method	-	-	(64)	-	(64)
Other equity movements under the equity method	-	-	1	-	1
Dividends declared	-	(2,204)	(637)	-	(2,841)
Disposals for the year	(1,432)	(327)	-	-	(1,759)
Other movements	4	56	58	-	118
Movement of provision for impairment	-	-	-	(128)	(128)
Balance at 31 December 2018	259,934	16,093	21,163	(7,983)	289,207

For the year ended 31 December 2018, the Group and the Company had no individually significant long-term investment impairment.

Details of the Company's principal subsidiaries are set out in Note 54.

12 LONG-TERM EQUITY INVESTMENTS (Continued)

Principal joint ventures and associates of the Group are as follows:

(a) Principal joint ventures and associates

Name of investees

Principal

place of

business

location

Legal

representative

Principal

activities

Registered

Capital RMB

million

Percentage of

equity/voting

right directly

or indirectly

held by the

Company

1.Joint ventures

Fujian Refining & Petrochemical Company

Limited ("FREP")

PRC

Gu Yuefeng

Manufacturing

refining oil

products

14,758

50.00%

BASF-YPC Company Limited ("BASF-YPC")

PRC

Wang Jingyi

Manufacturing

and distribution

of petrochemical

products

12,547

40.00%

Taihu Limited ("Taihu")

Russia

Cyprus

Crude oil and natural

gas extraction

25,000 USD

49.00%

Yanbu Aramco Sinopec Refining

Company Ltd. ("YASREF")

Saudi Arabia

Petroleum refining

and processing

1,560 million

USD

37.50%

Sinopec SABIC Tianjin Petrochemical

Company Limited ("Sinopec SABIC

Tianjin")

PRC

UWAIDH AL‧

HARETHI

Manufacturing

and distribution

of petrochemical

products

9,796

50.00%

2.Associates

Sinopec Sichuan to East China Gas

Pipeline Co., Ltd. ("Pipeline Ltd")

PRC

Quan Kai

Operation of natural

gas pipelines and

auxiliary facilities

200

50.00%

Sinopec Finance Company Limited

("Sinopec Finance")

PRC

Zhao Dong

Provision of non-

banking financial

services

18,000

49.00%

PAO SIBUR Holding ("SIBUR")

Russia

Processing

natural gas and

manufacturing

petrochemical

products

21,784 million

RUB

10.00%

Zhongtian Synergetic Energy

Company Limited ("Zhongtian

Synergetic Energy")

PRC

Peng Yi

Mining coal and

manufacturing

of coal-chemical

products

17,516

38.75%

Caspian Investments Resources Ltd.

("CIR")

The Republic of

Kazakhstan

British Virgin

Islands

Crude oil and natural

gas extraction

10,000 USD

50.00%

Except that SIBUR is a public joint stock company, other joint ventures and associates above are limited companies.

12 LONG-TERM EQUITY INVESTMENTS (Continued)

(b) Major financial information of principal joint ventures

Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group's principal joint ventures:

	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017
	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	7,388	5,772	1,582	1,800	3,406	2,352	930	4,916	5,110	6,524
Other current assets	9,248	11,013	5,795	5,335	3,689	2,462	10,267	10,816	4,007	2,709
Total current assets	16,636	16,785	7,377	7,135	7,095	4,814	11,197	15,732	9,117	9,233
Non-current assets	19,271	19,740	11,086	12,075	9,216	7,978	51,873	51,553	13,990	13,248
Current liabilities
Current financial liabilities	(1,200)	(1,135)	(725)	(233)	(59)	(20)	(4,806)	(5,407)	(500)	(1,236)
Other current liabilities	(4,939)	(5,049)	(1,822)	(1,982)	(2,124)	(1,914)	(12,217)	(11,864)	(2,507)	(4,546)
Total current liabilities	(6,139)	(6,184)	(2,547)	(2,215)	(2,183)	(1,934)	(17,023)	(17,271)	(3,007)	(5,782)
Non-current liabilities
Non-current financial liabilities	(12,454)	(13,654)	(218)	(955)	(72)	(72)	(32,364)	(35,619)	(3,651)	(4,101)
Other non-current liabilities	(279)	(236)	(17)	(19)	(2,271)	(2,686)	(937)	(890)	(331)	(41)
Total non-current liabilities	(12,733)	(13,890)	(235)	(974)	(2,343)	(2,758)	(33,301)	(36,509)	(3,982)	(4,142)
Net assets	17,035	16,451	15,681	16,021	11,785	8,100	12,746	13,505	16,118	12,557
Net assets attributable to owners of the company	17,035	16,451	15,681	16,021	11,373	7,818	12,746	13,505	16,118	12,557
Net assets attributable to minority interests	-	-	-	-	412	282	-	-	-	-
Share of net assets from joint ventures	8,518	8,226	6,272	6,409	5,573	3,831	4,780	5,064	8,059	6,279
Carrying Amounts	8,518	8,226	6,272	6,409	5,573	3,831	4,780	5,064	8,059	6,279

Summarised income statement

Year ended 31 December	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	52,469	49,356	21,574	21,020	14,944	12,520	77,561	61,587	23,501	22,286
Interest income	157	208	41	36	141	142	101	45	169	104
Interest expense	(647)	(857)	(43)	(71)	(151)	(142)	(1,382)	(1,382)	(167)	(223)
Profit/(loss) before taxation	3,920	6,977	3,625	4,565	3,493	1,697	(1,569)	548	3,916	5,113
Tax expense	(935)	(1,699)	(897)	(1,151)	(729)	(553)	(249)	57	(993)	(1,279)
Profit/(loss) for the year	2,985	5,278	2,728	3,414	2,764	1,144	(1,818)	605	2,923	3,834
Other comprehensive income/(loss)	-	-	-	-	921	25	1,059	(554)	-	-
Total comprehensive income/(loss)	2,985	5,278	2,728	3,414	3,685	1,169	(759)	51	2,923	3,834
Dividends from joint ventures	1,200	1,250	1,226	1,109	-	-	-	-	-	1,375
Share of net profit/(loss) from joint ventures	1,493	2,639	1,091	1,366	1,307	541	(682)	227	1,462	1,917
Share of other comprehensive income/(loss) from joint ventures (ii)	-	-	-	-	435	12	397	(208)	-	-

The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 2,052 million (2017: RMB 3,925 million) and RMB 839 million (2017: other comprehensive income RMB 994 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 22,982 million (31 December 2017: RMB 21,552 million).

12 LONG-TERM EQUITY INVESTMENTS (Continued)

Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group's principal associates:

	Pipeline Ltd		Sinopec Finance		SIBUR (i)		Zhongtian Synergetic Energy		CIR
	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	12,498	11,317	209,837	161,187	22,502	20,719	7,477	8,232	6,712	5,612
Non-current assets	39,320	40,972	16,359	17,782	170,796	158,938	49,961	51,553	1,828	1,673
Current liabilities	(1,020)	(933)	(200,402)	(154,212)	(23,293)	(20,554)	(7,252)	(10,668)	(961)	(908)
Non-current liabilities	(3,026)	(3,176)	(332)	(6)	(58,628)	(61,771)	(31,436)	(31,494)	(673)	(170)
Net assets	47,772	48,180	25,462	24,751	111,377	97,332	18,750	17,623	6,906	6,207
Net assets attributable to owners of the Company	47,772	48,180	25,462	24,751	110,860	96,761	18,750	17,623	6,906	6,207
Net assets attributable to minority interests	-	-	-	-	517	571	-	-	-	-
Share of net assets from associates	23,886	24,090	12,476	12,128	11,086	9,676	7,266	6,829	3,453	3,104
Carrying Amounts	23,886	24,090	12,476	12,128	11,086	9,676	7,266	6,829	3,453	3,104

Summarised income statement

Year ended 31 December	Pipeline Ltd		Sinopec Finance		SIBUR (i)		Zhongtian Synergetic Energy		CIR
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	4,746	5,644	4,536	3,542	59,927	52,496	12,235	3,569	2,856	2,563
Profit/(loss) for the year	2,022	2,543	1,868	1,536	10,400	9,601	1,142	123	583	(610)
Other comprehensive (loss)/income	-	-	(157)	(246)	6,410	(260)	-	-	116	(334)
Total comprehensive income/(loss)	2,022	2,543	1,711	1,290	16,810	9,341	1,142	123	699	(944)
Dividends declared by associates	1,207	-	490	-	271	221	-	-	-	-
Share of profit/(loss) from associates	1,011	1,272	915	753	1,040	960	443	48	292	(305)
Share of other comprehensive (loss)/income from associates (ii)	-	-	(77)	(121)	641	(26)	-	-	58	(167)

The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,550 million (2017: RMB 3,182 million) and RMB 844 million (2017 other comprehensive income: RMB 569 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 31,370 million (31 December 2017: RMB 23,899 million).

Note:

(i) Sinopec is able to exercise significant influence in SIBUR since Sinopec has a member in SIBUR's Board of Director and has a member in SIBUR's Management Board.

(ii) Including foreign currency translation differences.

13 FIXED ASSETS

The Group

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Fixed assets (a)	617,762	650,774
Fixed assets pending for disposal	50	146
Total	617,812	650,920

(a) Fixed assets

	Plants and buildings	Oil and gas properties	Equipment, machinery 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 for the year	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)	-
Decreases for the year	(3,666)	(146)	(22,151)	(25,963)
Exchange adjustments	98	2,142	147	2,387
Balance at 31 December 2018	122,041	695,724	965,495	1,783,260
Accumulated depreciation:
Balance at 1 January 2018	48,368	456,459	498,246	1,003,073
Additions for the year	4,038	48,616	47,250	99,904
Reclassifications	494	76	(570)	-
Decreases for the year	(1,738)	(124)	(16,543)	(18,405)
Exchange adjustments	43	1,744	76	1,863
Balance at 31 December 2018	51,205	506,771	528,459	1,086,435
Provision for impairment losses:
Balance at 1 January 2018	3,832	39,358	30,945	74,135
Additions for the year	274	4,027	1,848	6,149
Decreases for the year	(177)	(1)	(1,178)	(1,356)
Exchange adjustments	-	133	2	135
Balance at 31 December 2018	3,929	43,517	31,617	79,063

Net book value:
Balance at 31 December 2018	66,907	145,436	405,419	617,762
Balance at 31 December 2017	67,813	171,840	411,121	650,774

The Company

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Fixed assets (a)	302,048	329,814
Fixed assets pending for disposal	34	-
Total	302,082	329,814

13 FIXED ASSETS (Continued)

The Company (Continued)

(a) Fixed assets

	Plants and buildings	Oil and gas properties	Equipment, machinery and others	Total
	RMB million	RMB million	RMB million	RMB million
Cost:
Balance at 1 January 2018	49,022	555,133	456,939	1,061,094
Additions for the year	-	1,292	347	1,639
Transferred from construction in progress	825	19,482	19,344	39,651
Reclassifications	1,092	(3)	(1,089)	-
Transferred from subsidiaries	5	132	542	679
Transferred to subsidiaries	(133)	(876)	(71)	(1,080)
Decreases for the year	(1,984)	(223)	(8,655)	(10,862)
Balance at 31 December 2018	48,827	574,937	467,357	1,091,121
Accumulated depreciation:
Balance at 1 January 2018	22,402	379,137	271,849	673,388
Additions for the year	1,624	38,728	21,391	61,743
Reclassifications	202	(2)	(200)	-
Transferred from subsidiaries	3	115	299	417
Transferred to subsidiaries	(64)	(249)	(23)	(336)
Decreases for the year	(998)	(156)	(7,278)	(8,432)
Balance at 31 December 2018	23,169	417,573	286,038	726,780
Provision for impairment losses:
Balance at 1 January 2018	1,797	34,271	21,824	57,892
Additions for the year	107	4,027	575	4,709
Reclassifications	-	-	-	-
Transferred from subsidiaries	-	-	31	31
Decreases for the year	(24)	(1)	(314)	(339)
Balance at 31 December 2018	1,880	38,297	22,116	62,293

Net book value:
Balance at 31 December 2018	23,778	119,067	159,203	302,048
Balance at 31 December 2017	24,823	141,725	163,266	329,814

The additions to oil and gas properties of the Group and the Company for the year ended 31 December 2018 included RMB 1,567 million (2017: RMB 1,627 million) (Note 30) and RMB 1,292 million (2017: RMB 982 million), respectively of the estimated dismantlement costs for site restoration.

Impairment losses on fixed assets for the year ended 31 December 2018 primarily represent impairment losses recognised in the exploration and production ("E&P") segment of RMB 4,274 million (2017: RMB 12,611 million) on fixed assets, for the chemicals segment of RMB 1,252 million (2017: RMB 4,779 million) of fixed assets and for the refining segment of RMB 353 million (2017: RMB 1,836 million) of fixed assets. The primary factor resulting in the E&P segment impairment loss was downward revision of oil and gas reserve in certain fields. The carrying values of these E&P properties were written down to recoverable amounts which were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2017: 10.47%). Further future downward revisions to the Group's oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss in Group's fixed assets relating to oil and gas producing activities by approximately RMB 312 million (2017: RMB 3,145 million). It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment in Group's fixed assets relating to oil and gas producing activities by approximately RMB 315 million (2017:RMB 2,659 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in less impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 5 million (2017: additional RMB 461 million). The assets in the refining segment were written down due to the suspension of operations of certain production facilities, while the assets in the chemical segment were written down because of evidence indicates the economic performance of certain production facilities are worse than expected and due to the suspension of operations of certain production facilities.

At 31 December 2018 and 31 December 2017, the Group and the Company had no individually significant fixed assets which were pledged.

At 31 December 2018 and 31 December 2017, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal.

At 31 December 2018 and 31 December 2017, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use.

14 CONSTRUCTION IN PROGRESS

	The Group	The Company
	RMB million	RMB million
Cost:
Balance at 1 January 2018	120,425	50,459
Additions for the year	108,555	49,426
Disposals for the year	(20)	(4)
Transferred to subsidiaries	-	(378)
Dry hole costs written off	(6,921)	(6,527)
Transferred to fixed assets	(73,210)	(39,651)
Reclassification to other assets	(10,066)	(1,314)
Exchange adjustments	54	-
Balance at 31 December 2018	138,817	52,011
Provision for impairment losses:
Balance at 1 January 2018	1,780	413
Additions for the year	28	-
Decreases for the year	(1)	-
Exchange adjustments	47	-
Balance at 31 December 2018	1,854	413
Net book value:
Balance at 31 December 2018	136,963	51,598
Balance at 31 December 2017	118,645	50,046

At 31 December 2018, major construction projects of the Group are as follows:

					Percentage		Accumulated
					of project		interest
		Balance at		Balance at	investment		capitalised at
	Budgeted	1 January	Net change	31 December	to budgeted	Source of	31 December
Project name	amount	2018	for the year	2018	amount	funding	2018
	RMB million	RMB million	RMB million	RMB million			RMB million
Zhongke Refine Integration Project	34,667	6,990	10,789	17,779	51%	Bank loans & self-financing	184
Wen 23 Gas Storage Project (First-stage)	13,865	1,329	2,099	3,428	25%	Bank loans & self-financing	51
Tianjin LNG Project	13,639	3,154	(1,116)	2,038	86%	Bank loans & self-financing	180
Xinjiang Coal-based Substitute Natural Gas (SNG) Export Pipeline Construction Project (First-stage)	11,589	1,692	3,990	5,682	49%	Bank loans & self-financing	50
Hainan Refine Paraxylene plant and supporting project	3,680	794	1,800	2,594	70%	Bank loans & self-financing	6

15 INTANGIBLE ASSETS

The Group

	Land use rights	Patents	Non-patent technology	Operation rights	Others	Total
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Cost:
Balance at 1 January 2018	75,728	5,160	3,845	48,613	4,662	138,008
Additions for the year	9,699	88	228	3,948	710	14,673
Decreases for the year	(696)	(18)	(44)	(345)	(107)	(1,210)
Balance at 31 December 2018	84,731	5,230	4,029	52,216	5,265	151,471
Accumulated amortisation:
Balance at 1 January 2018	16,978	3,168	2,774	14,206	2,870	39,996
Additions for the year	3,191	230	268	3,010	426	7,125
Decreases for the year	(183)	(1)	(45)	(79)	(96)	(404)
Balance at 31 December 2018	19,986	3,397	2,997	17,137	3,200	46,717
Provision for impairment losses:
Balance at 1 January 2018	224	482	24	139	17	886
Additions for the year	9	-	-	9	-	18
Decreases for the year	(2)	-	-	(3)	-	(5)
Balance at 31 December 2018	231	482	24	145	17	899

Net book value:
Balance at 31 December 2018	64,514	1,351	1,008	34,934	2,048	103,855
Balance at 31 December 2017	58,526	1,510	1,047	34,268	1,775	97,126

Amortisation of the intangible assets of the Group charged for the year ended 31 December 2018 is RMB 5,414 million (2017: RMB 4,468 million).

16 GOODWILL

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

Name of investees	Principal activities	At 31 December	At 31 December
		2018	2017
		RMB million	RMB million
Sinopec Beijing Yanshan Petrochemical Branch ("Sinopec Yanshan")	Manufacturing of intermediate petrochemical products and petroleum products	1,004	1,004
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") (Note 51)	Production and sale of petrochemical products	2,541	2,541
Sinopec (Hong Kong) Limited	Trading of petrochemical products	921	879
Other units without individual significant goodwill		167	167
Total		8,676	8,634

Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 11.7% to 12.3% (2017: 10.8% to 11.4%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognised.

Key assumptions used for cash flow forecasts for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management's expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period.

17 LONG-TERM DEFERRED EXPENSES

Long-term deferred expenses primarily represent prepaid rental expenses and catalysts expenditures.

18 DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities before the consolidated elimination adjustments are as follows:

	Deferred tax assets		Deferred tax liabilities
	At 31 December	At 31 December	At 31 December	At 31 December
	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,563	381	-	-
Payables	1,808	1,925	-	-
Cash flow hedges	1,131	165	(27)	(50)
Fixed assets	15,427	14,150	(8,666)	(9,928)
Tax value of losses carried forward	3,709	2,325	-	-
Available-for-sale securities	-	117	-	-
Other equity instrument investments	117	-	(1)	-
Intangible assets	474	227	(535)	(563)
Others	174	180	(428)	(264)
Deferred tax assets/(liabilities)	25,403	19,470	(9,657)	(10,805)

The consolidated elimination amount between deferred tax assets and liabilities are as follows:

	At 31 December 2018	At 31 December 2017
	RMB million	RMB million
Deferred tax assets	3,709	4,339
Deferred tax liabilities	3,709	4,339

18 DEFERRED TAX ASSETS AND LIABILITIES (Continued)

Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows:

	At 31 December 2018	At 31 December 2017
	RMB million	RMB million
Deferred tax assets	21,694	15,131
Deferred tax liabilities	5,948	6,466

At 31 December 2018, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 18,308 million (2017: RMB 20,821 million), of which RMB 2,437 million (2017: RMB 5,938 million) was incurred for the year ended 31 December 2018, because it was not probable that the related tax benefit will be realised. These deductible losses carried forward of RMB 2,373 million, RMB 3,887 million, RMB 3,673 million, RMB 5,938 million and RMB 2,437 million will expire in 2019, 2020, 2021, 2022, 2023 and after, respectively.

Periodically, management performed assessment on the probability that future taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have sufficient future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the year ended 31 December 2018, write-down of deferred tax assets amounted to RMB 188 million (2017: RMB 26 million) (Note 48).

19 OTHER NON-CURRENT ASSETS

Other non-current assets mainly represent long-term receivables, prepayments for construction projects and purchases of equipment.

20 DETAILS OF IMPAIRMENT LOSSES

At 31 December 2018, impairment losses of the Group are analysed as follows:

	Note	Balance at 31 December 2017	Changes in significant accounting policies (Note 3(26))	Balance at 1 January 2018	Provision for the year	Written back for the year	Written off for the year	Other increase/ (decrease)	Balance at 31 December 2018
		RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Allowance for doubtful accounts
Included: Bills receivable and accounts receivable	8	612	-	612	83	(77)	(19)	7	606
Prepayments	9	25	-	25	31	(2)	(1)	-	53
Other receivables	10	1,486	-	1,486	78	(69)	(18)	4	1,481
		2,123	-	2,123	192	(148)	(38)	11	2,140
Inventories	11	1,155	-	1,155	5,535	(114)	(217)	17	6,376
Long-term equity investments	12	1,614	-	1,614	7	-	(13)	78	1,686
Fixed assets	13	74,135	-	74,135	6,149	-	(1,195)	(26)	79,063
Construction in progress	14	1,780	-	1,780	28	-	(1)	47	1,854
Intangible assets	15	886	-	886	-	-	(2)	15	899
Goodwill	16	7,861	-	7,861	-	-	-	-	7,861
Others		49	(16)	33	97	-	-	(28)	102
Total		89,603	(16)	89,587	12,008	(262)	(1,466)	114	99,981

The reasons for recognising impairment losses are set out in the respective notes of respective assets.

21 SHORT-TERM LOANS

The Group's short-term loans represent:

	At 31 December 2018			At 31 December 2017
	Original currency million	Exchange rates	RMB million	Original currency million	Exchange rates	RMB million
Short-term bank loans			17,088			31,105
-Renminbi loans			13,201			23,685
-US Dollar loans	566	6.8632	3,887	1,136	6.5342	7,420
Short-term other loans			300			299
-Renminbi loans			300			299
Short-term loans from Sinopec Group Company and fellow subsidiaries			27,304			23,297
-Renminbi loans			3,061			1,706
-US Dollar loans	3,319	6.8632	22,780	3,010	6.5342	19,668
-HK Dollar loans	1,645	0.8762	1,441	2,277	0.8359	1,903
-Singapore Dollar loans	-	-	-	4	4.8831	20
-Euro loans	3	7.8473	22	-	7.8023	-
Total			44,692			54,701

At 31 December 2018, the Group's interest rates on short-term loans were from interest 0.80% to 5.22% (At 31December 2017: from interest 0.70% to 6.09%). The majority of the above loans are by credit.

At 31 December 2018 and 31 December 2017, the Group had no significant overdue short-term loans.

22 BILLS PAYABLE AND ACCOUNTS PAYABLE

The Group

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Bills payable (a)	6,416	6,462
Accounts payable (b)	186,341	200,073
Total	192,757	206,535

(a) Bills payable

Bills payable primarily represented bank accepted bills for the purchase of material, goods and products. Bills payable were due within one year.

At 31 December 2018 and 31 December 2017, the Group had no overdue unpaid bills.

(b) Accounts payable

At 31 December 2018 and 31 December 2017, the Group had no individually significant accounts payable aged over one year.

23 CONTRACT LIABILITIES

As at 31 December 2018, the Group's contract liabilities primarily present advances from customers. Related performance obligations are satisfied and revenue is recognised within one year.

As at 1 January 2018, the Group's contract liabilities was RMB 120,734 million, of which RMB 119,138 million was recognised as revenue in 2018.

24 EMPLOYEE BENEFITS PAYABLE

At 31 December 2018 and 31 December 2017, the Group's employee benefits payable primarily represented wages payable and social insurance payables.

25 TAXES PAYABLE

The Group

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Value-added tax payable	9,810	8,899
Consumption tax payable	59,944	39,623
Income tax payable	6,699	13,015
Mineral resources compensation fee payable	138	175
Other taxes	10,469	10,228
Total	87,060	71,940

26 OTHER PAYABLES

At 31 December 2018 and 31 December 2017, other payables of the Group over one year primarily represented payables for constructions.

27 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR

The Group's non-current liabilities due within one year represent:

	At 31 December 2018			At 31 December 2017
	Original currency million	Exchange rates	RMB million	Original currency million	Exchange rates	RMB million
Long-term bank loans
- Renminbi loans			12,039			1,379
- US Dollar loans	5	6.8632	35	4	6.5342	23
			12,074			1,402
Long-term loans from Sinopec Group Company and fellow subsidiaries
- Renminbi loans			4,361			2,014
			4,361			2,014

Long-term loans due within one year			16,435			3,416
Debentures payable due within one year
- Renminbi debentures			-			16,000
- US Dollar debentures	-	-	-	1,000	6.5342	6,532
			-			22,532
Others			1,015			733
Non-current liabilities due within one year			17,450			26,681

At 31 December 2018 and 31 December 2017, the Group had no significant overdue long-term loans.

28 LONG-TERM LOANS

The Group's long-term loans represent:

		At 31 December 2018			At 31 December 2017
	Interest rate and final maturity	Original currency million	Exchange rates	RMB million	Original currency million	Exchange rates	RMB million
Long-term bank loans
- Renminbi loans	Interest rates ranging from interest 1.08% to 4.66% per annum at 31 December 2018 with maturities through 2033			31,025			25,644
- US Dollar loans	Interest rates ranging from interest 1.55% to 4.29% per annum at 31 December 2018 with maturities through 2031	16	6.8632	109	29	6.5342	192
Less: Current portion				(12,074)			(1,402)
Long-term bank loans				19,060			24,434
Long-term loans from Sinopec Group Company and fellow subsidiaries
- Renminbi loans	Interest rates ranging from interest free to 4.99% per annum at 31 December 2018 with maturities through 2030			46,877			45,334
Less: Current portion				(4,361)			(2,014)
Long-term loans from Sinopec Group Company and fellow subsidiaries				42,516			43,320

Total				61,576			67,754

The maturity analysis of the Group's long-term loans is as follows:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Between one and two years	40,004	16,822
Between two and five years	11,999	48,238
After five years	9,573	2,694
Total	61,576	67,754

Long-term loans are primarily unsecured, and carried at amortised costs.

29 DEBENTURES PAYABLE

The Group

	At 31 December 2018 RMB million	At 31 December 2017 RMB million
Debentures payable:
- Corporate Bonds (i)	31,951	53,902
Less: Current portion	-	(22,532)
Total	31,951	31,370

Note:

(i) These corporate bonds are carried at amortised cost, including USD denominated corporate bonds of RMB 11,951 million, and RMB denominated corporate bonds of RMB 20,000 million (2017: USD denominated corporate bonds of RMB 17,902 million, and RMB denominated corporate bonds of RMB 36,000 million). At 31 December 2018, corporate bonds of RMB 11,951 million (2017: RMB 17,902 million) are guaranteed by Sinopec Group Company.

30 PROVISIONS

Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has established certain standardised measures for the dismantlement of its retired oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its retired oil and gas properties. Movement of provision of the Group's obligations for the dismantlement of its retired oil and gas properties is as follows:

	The Group
	RMB million
Balance at 1 January 2018	39,407
Provision for the year	1,567
Accretion expenses	1,438
Utilised for the year	(598)
Exchange adjustments	193
Balance at 31 December 2018	42,007

31 OTHER NON-CURRENT LIABILITIES

Other non-current liabilities primarily represent long-term payables, special payables and deferred income.

32 SHARE CAPITAL

The Group

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Registered, issued and fully paid:
95,557,771,046 domestic listed A shares (2017: 95,557,771,046) of RMB 1.00 each	95,558	95,558
25,513,438,600 overseas listed H shares (2017: 25,513,438,600) of RMB 1.00 each	25,513	25,513
Total	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 capital reserve for every 10 existing shares.

During the year ended 31 December 2013, the Company issued 114,076 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2014, the Company issued 1,715,081,853 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2015, the Company issued 2,790,814,006 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

All A shares and H shares rank pari passu in all material aspects.

32 SHARE CAPITAL (Continued)

Capital management

Management optimises the structure of the Group's capital, which comprises of equity and debts and bonds. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans and bonds. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion) and debentures payable, by the total of equity attributable to owners of the Company and long-term loans (excluding current portion) and debentures payable, and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management's strategy is to make appropriate adjustments according to the Group's operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2018, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 11.5% (2017: 12.0%) and 46.1% (2017: 46.5%), respectively.

The schedule of the contractual maturities of loans and commitments are disclosed in Notes 28 and 55, respectively.

There were no changes in the management's approach to capital management of the Group during the year. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.

33 CAPITAL RESERVE

The movements in capital reserve of the Group are as follows:

	RMB million
Balance at 1 January 2018	119,557
Transaction with minority interests	(12)
Others	(353)
Balance at 31 December 2018	119,192

Capital reserve represents mainly: (a) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation; (b) share premiums derived from issuances of H shares and A shares by the Company and excess of cash paid by investors over their proportionate shares in share capital, the proportionate shares of unexercised portion of the Bond with Warrants at the expiration date, and the amount transferred from the proportionate liability component and the derivative component of the converted portion of the 2011 Convertible Bonds; (c) difference between consideration paid for the combination of entities under common control and the transactions with minority interests over the carrying amount of the net assets acquired.

34 OTHER COMPREHENSIVE INCOME

The Group

(a) The changes of other comprehensive income in consolidated income statement

	Year ended 31 December 2018
	Before-tax amount	Tax effect	Net-of-tax amount
	RMB million	RMB million	RMB million
Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the year	(12,500)	2,159	(10,341)
(Less)/Add: Reclassification adjustments for amounts transferred to the consolidated income statement	(730)	130	(600)
Subtotal	(11,770)	2,029	(9,741)
Changes in fair value of other equity instrument investments	(41)	(12)	(53)
Subtotal	(41)	(12)	(53)
Other comprehensive income that can be converted into profit or loss under the equity method	(240)	11	(229)
Subtotal	(240)	11	(229)
Foreign currency translation differencess	3,399	-	3,399
Subtotal	3,399	-	3,399
Other comprehensive income	(8,652)	2,028	(6,624)

34 OTHER COMPREHENSIVE INCOME (Continued)

The Group (Continued)

(a) The changes of other comprehensive income in consolidated income statement (Continued)

	Year ended 31 December 2017
	Before-tax amount	Tax effect	Net-of-tax amount
	RMB million	RMB million	RMB million
Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the year	(1,314)	240	(1,074)
Less/(Add): Adjustments of amounts transferred to initial carrying amount of hedged items	4	(1)	3
Reclassification adjustments for amounts transferred to the consolidated income statement	575	(72)	503
Subtotal	(1,893)	313	(1,580)
Changes in fair value of available-for-sale financial assets recognised during the year	(57)	-	(57)
Subtotal	(57)	-	(57)
Share of other comprehensive loss in associates and joint ventures	1,053	-	1,053
Subtotal	1,053	-	1,053
Foreign currency translation differences	(3,792)	-	(3,792)
Subtotal	(3,792)	-	(3,792)
Other comprehensive income	(4,689)	313	(4,376)

(b) The change of each item in other comprehensive income

	Equity Attributable to shareholders of the company						Minority interests	Total other comprehensive income
	Other comprehensive income that can be converted into profit or loss under the equity method	Changes in fair value of available-for-sale financial assets	Changes in fair value of other equity instrument investments	Cash flow hedges	Foreign currency translation differences	Subtotal
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
31 December 2016	(4,161)	97	-	1,132	2,000	(932)	(1,888)	(2,820)
Changes in 2017	680	(40)	-	(1,642)	(2,479)	(3,481)	(895)	(4,376)
31 December 2017	(3,481)	57	-	(510)	(479)	(4,413)	(2,783)	(7,196)
Change in accounting policy	-	(57)	45	-	-	(12)	-	(12)
1 January 2018	(3,481)	-	45	(510)	(479)	(4,425)	(2,783)	(7,208)
Changes in 2018	(183)	-	(41)	(4,407)	2,282	(2,349)	994	(1,355)
31 December 2018	(3,664)	-	4	(4,917)	1,803	(6,774)	(1,789)	(8,563)

As at 31 December 2018, cash flow hedge reserve amounted to a loss of RMB 4,932 million (31 December 2017: a loss of RMB 460 million), of which a loss of RMB 4,917 million was attribute to shareholders of the Company (31 December 2017: a loss of RMB 510 million).

35 SURPLUS RESERVES

Movements in surplus reserves are as follows:

	The Group
	Statutory surplus reserve	Discretionary surplus reserves	Total
	RMB million	RMB million	RMB million
Balance at 1 January 2018	82,682	117,000	199,682
Appropriation	3,996	-	3,996
Balance at 31 December 2018	86,678	117,000	203,678

The PRC Company Law and Articles of Association of the Company have set out the following profit appropriation plans:

(a) 10% of the net profit is transferred to the statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is needed;

(b) After the transfer to the statutory surplus reserve, a transfer to discretionary surplus reserve can be made upon the passing of a resolution at the shareholders' meeting.

36 OPERATING INCOME AND OPERATING COSTS

	The Group		The Company
	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million
Income from principal operations	2,825,613	2,300,470	1,022,195	824,100
Income from other operations	65,566	59,723	36,298	33,378
Total	2,891,179	2,360,193	1,058,493	857,478
Operating costs	2,401,012	1,890,398	812,355	633,114

The income from principal operations mainly represents revenue from sales of crude oil, natural gas, refined petroleum products and chemical products. The income from other operations mainly represents revenue from sale of materials, service, rental income and others. Operating costs primarily represent the products cost related to the principal operations. The Group's segmental information is set out in Note 57.

The detailed information about the Group's operating income is as follows:

	2018	2017
	RMB million	RMB million
Income from principal operations	2,825,613	2,300,470
Crude oil	519,910	421,585
Gasoline	711,236	600,113
Diesel	594,008	503,406
Basic chemical feedstock	250,884	205,722
Kerosene	168,823	115,739
Synthetic resin	124,618	107,633
Natural gas	43,205	34,277
Synthetic fiber monomers and polymers	77,572	61,998
Others (i)	335,357	249,997
Income from other operations	65,566	59,723
Sale of materials and others	64,503	58,930
Rental income	1,063	793
Total	2,891,179	2,360,193

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

37 TAXES AND SURCHARGES

The Group

	2018	2017
	RMB million	RMB million
Consumption tax	201,901	192,907
City construction tax	18,237	18,274
Education surcharge	13,187	13,811
Resources tax	6,021	4,841
Others	7,152	5,459
Total	246,498	235,292

The applicable tax rate of the taxes and surcharges are set out in Note 4.

38 FINANCIAL EXPENSES

The Group

	2018	2017
	RMB million	RMB million
Interest expenses incurred	6,376	6,368
Less: Capitalised interest expenses	493	723
Net interest expenses	5,883	5,645
Accretion expenses (Note 30)	1,438	1,501
Interest income	(7,726)	(5,254)
Net foreign exchange gain	(596)	(332)
Total	(1,001)	1,560

The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2018 by the Group ranged from 2.37% to 4.66% (2017: 2.37% to 4.41%).

39 CLASSIFICATION OF EXPENSES BY NATURE

The operation costs, selling and distribution expenses, general and administrative expenses, research and development expenses and exploration expenses (including dry holes) in consolidated income statement classified by nature are as follows:

	2018	2017
	RMB million	RMB million
Purchased crude oil, products and operating supplies and expenses	2,292,983	1,770,651
Personnel expenses	77,721	74,854
Depreciation, depletion and amortisation	109,967	115,310
Exploration expenses (including dry holes)	10,744	11,089
Other expenses	61,083	64,566
Total	2,552,498	2,036,470

40 RESEARCH AND DEVELOPMENT EXPENSES

The research and development expenditures are mainly used for the replacement of resources in upstream, optimising structure and operation upgrades in refining sector, structured adjustment of materials and products in chemical segment.

41 EXPLORATION EXPENSES

Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs.

42 IMPAIRMENT LOSSES

The Group

	2018	2017
	RMB million	RMB million
Receivables	-	110
Inventories	5,421	423
Long-term equity investment	7	936
Fixed assets	6,149	19,836
Construciton in Progress	28	252
Intangible assets	-	19
Others	-	215
Total	11,605	21,791

43 OTHER INCOME

Other income are mainly the government grants related to the business activities.

44 INVESTMENT INCOME

	The Group		The Company
	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million
Income from investment of subsidiaries accounted for under cost method	-	-	25,390	31,118
Income from investment accounted for under equity method	13,974	16,525	4,259	5,774
Investment income/(loss) from disposal of long-term equity investments	397	(26)	(2,768)	(21)
Dividend income from holding of other equity instruments	515	-	14	-
Investment income from holding/disposal of available-for sale financial assets	-	199	-	13
Investment (loss)/income from disposal of financial assets and liabilities and derivative financial instruments at fair value through profit or loss	(1,940)	(752)	692	-
(Loss)/gain from ineffective portion of cash flow hedges	(1,604)	(916)	7	(88)
Gain on remeasurement of interests in Shanghai SECCO	-	3,941	-	-
Others	86	89	742	1,262
Total	11,428	19,060	28,336	38,058

45 GAIN FROM CHANGES IN FAIR VALUE

The Group

	2018	2017
	RMB million	RMB million
Changes in fair value of financial assets and financial liabilities at fair value through gain/(loss), net	3,008	(157)
Unrealised (losses)/gains from ineffective portion cash flow hedges, net	(374)	103
Others	22	41
Total	2,656	(13)

46 NON-OPERATING INCOME

The Group

	2018	2017
	RMB million	RMB million
Government grants	788	427
Others	1,282	890
Total	2,070	1,317

47 NON-OPERATING EXPENSES

The Group

	2018	2017
	RMB million	RMB million
Fines, penalties and compensation	276	89
Donations	180	152
Others	2,586	1,468
Total	3,042	1,709

48 INCOME TAX EXPENSE

The Group

	2018	2017
	RMB million	RMB million
Provision for income tax for the year	27,176	26,668
Deferred taxation	(6,244)	(10,317)
Under-provision for income tax in respect of preceding year	(719)	(72)
Total	20,213	16,279

48 INCOME TAX EXPENSE (Continued)

The Group (Continued)

Reconciliation between actual income tax expense and accounting profit at applicable tax rates is as follows:

	2018	2017
	RMB million	RMB million
Profit before taxation	100,502	86,573
Expected income tax expense at a tax rate of 25%	25,126	21,643
Tax effect of non-deductible expenses	1,989	1,936
Tax effect of non-taxable income	(5,019)	(5,939)
Tax effect of preferential tax rate (i)	(1,259)	(793)
Effect of income taxes at foreign operations	77	(1,394)
Tax effect of utilisation of previously unrecognised tax losses and temporary differences	(779)	(613)
Tax effect of tax losses not recognised	609	1,485
Write-down of deferred tax assets	188	26
Adjustment for under provision for income tax in respect of preceding years	(719)	(72)
Actual income tax expense	20,213	16,279

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.

49 DIVIDENDS

(a) Dividends of ordinary shares declared after the balance sheet date

Pursuant to a resolution passed at the director's meeting on 22 March 2019, final dividends in respect of the year ended 31 December 2018 of RMB 0.26 (2017: RMB 0.40) per share totaling RMB 31,479 million (2017: RMB 48,428 million) were proposed for shareholders' approval at the Annual General Meeting. Final cash dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

(b) Dividends of ordinary shares declared during the year

Pursuant to the Company's Articles of Association and a resolution passed at the Directors' meeting on 24 August 2018, the directors authorised to declare the interim dividends for the year ending 31 December 2018 of RMB 0.16 (2017: RMB 0.10) per share totaling RMB 19,371 million (2017: RMB 12,107 million).

Pursuant to the shareholders' approval at the Annual General Meeting on 15 May 2018, a final dividend of RMB 0.40 per share totaling RMB 48,428 million according to total shares of 4 June 2018 was approved. All dividends have been paid in the year ended 31 December 2018.

Pursuant to the shareholders' approval at the Annual General Meeting on 28 June 2017, a final dividend of RMB 0.17 per share totaling RMB 20,582 million according to total shares of 18 July 2017 was approved. All dividends have been paid in the year ended 31 December 2017.

50 SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT

The Group

(a) Reconciliation of net profit to cash flows from operating activities:

		2018	2017
		RMB million	RMB million
Net profit		80,289	70,294
Add:	Impairment losses on assets	11,605	21,791
	Credit impairment losses	141	-
	Depreciation of fixed assets	99,462	106,149
	Amortisation of intangible assets and long-term deferred expenses	10,505	9,161
	Dry hole costs written off	6,921	6,876
	Net loss on disposal of non-current assets	1,526	1,518
	Fair value (gain)/loss	(2,656)	13
	Financial expenses	(359)	676
	Investment income	(11,428)	(19,060)
	Increase in deferred tax assets	(5,079)	(4,707)
	Decrease in deferred tax liabilities	(1,165)	(5,610)
	Increase in inventories	(3,312)	(28,903)
	Safety fund reserve	909	126
	Increase in operating receivables	(1,043)	(31,151)
	(Decrease)/increase in operating payables	(10,448)	63,762
Net cash flow from operating activities		175,868	190,935

50 SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT (Continued)

The Group (Continued)

(b) Net change in cash:

	2018	2017
	RMB million	RMB million
Cash balance at the end of the year	111,922	113,218
Less: Cash at the beginning of the year	113,218	124,468
Net decrease of cash	(1,296)	(11,250)

	2018	2017
	RMB million	RMB million
Cash at bank and on hand
- Cash on hand	82	14
- Demand deposits	111,840	113,204
Cash at the end of the year	111,922	113,218

51 BUSINESS COMBAINATION

Business combination involving entities not under common control

For the year ended 31 December 2018, significant business combination didn't occur in the Group.

On 26 October 2017, a subsidiary of the Company, Gaoqiao Petrochemical Co., Ltd., purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited with a cash consideration of RMB 10,135 million ("the Transaction"). Before the Transaction, the Company and one of its subsidiaries held 30% and 20% equity interest in Shanghai SECCO, respectively. After the Transaction, the Company, together with its subsidiaries, hold 100% equity interest of Shanghai SECCO, which became a subsidiary of the Company.

Shanghai SECCO is principally engaged in the production and sale of petrochemical products including acrylonitrile, polystyrene, polyethylene, etc.

			Share of			Basis of	Income of the acquiree from acquisition	Net profits of the acquiree from acquisition	Operating cash flow of the acquiree from acquisition	Net cash flow of the acquiree from acquisition
Acquiree	Time of acquisition	Cost of acquisition	acquired equity	Acquisition method	Acquisition date	determination on acquisition date	date to end of year	date to end of year	date to end of year	date to end of year
Shanghai	26/10/2017	RMB 10,135	50%	Cash	26/10/2017	Acquirer gaining	RMB 5,222	RMB 726	RMB 1,639	RMB 7,205
SECCO		million				actual control over acquiree	million	million	million	million

Details of combination cost and goodwill are as follows:

	Shanghai SECCO
	RMB million
Purchase consideration
- Cash consideration for the purchase of 50% equity interest acquired	10,135
- Acquisition-date fair value of the 50% equity interest held before the acquisition	10,135
Total purchase consideration	20,270
Less: Net assets acquired	17,729
Goodwill (Note 16)	2,541

51 BUSINESS COMBAINATION (Continued)

Business combination involving entities not under common control (Continued)

Details of the net assets acquired are as follows:

	Fair value	Book value	Book value
	at the Acquisition Date	at the Acquisition Date	At December 31 2016
Cash and cash equivalents	5,653	5,653	2,343
Bills receivable	641	641	621
Accounts and other receivables	558	558	251
Inventories	1,702	1,558	1,643
Prepayments	1,349	1,349	354
Other current assets	761	791	386
Total current assets	10,664	10,550	5,598
Fixed assets	9,587	4,860	5,665
Construction in progress	231	229	117
Intangible assets	2,937	662	613
Long-term deferred expenses	117	117	168
Deferred tax assets	11	12	19
Other non-current assets	-	7	-
Total non-current assets	12,883	5,887	6,582
Total assets	23,547	16,437	12,180
Accounts and other payables	(2,115)	(2,115)	(936)
Bills payable	-	-	(35)
Advances from customers	(383)	(383)	(376)
Employee benefits payable	(96)	(96)	(99)
Taxes payable	(1,438)	(1,438)	(538)
Total current liabilities	(4,032)	(4,032)	(1,984)
Deferred tax liabilities	(1,786)	-	-
Net assets acquired	17,729	12,405	10,196

The goodwill is attributable to the high profitability of the acquired business and synergy to be achieved post the Transaction among Shanghai SECCO and the Group's existing petrochemical operations located in eastern China.

As of Acquisition Date, a gain of RMB 3,941 million was recognised as a result of remeasuring the 50% equity interest held before the Transaction to its fair value, which is included in investment income (Note 44) in the Group's consolidated income statement for the year ended 31 December 2017.

52 RELATED PARTIES AND RELATED PARTY TRANSACTIONS

(1) Related parties having the ability to exercise control over the Group

The name of the company	:	China Petrochemical Corporation
Unified social credit identifier	:	9111000010169286X1
Registered address	:	No. 22, Chaoyangmen North Street, Chaoyang District, Beijing
Principal activities	:	Exploration, production, storage and transportation (including pipeline transportation), sales and utilisation of crude oil and natural gas; refining; wholesale and retail of gasoline, kerosene and diesel; production, sales, storage and transportation of petrochemical and other chemical products; industrial investment and investment management; exploration, construction, installation and maintenance of petroleum and petrochemical constructions and equipments; manufacturing electrical equipment; research, development, application and consulting services of information technology and alternative energy products; import & export of goods and technology.
Relationship with the Group	:	Ultimate holding company
Types of legal entity	:	State-owned
Authorised representative	:	Dai Houliang
Registered capital	:	RMB 274,900 million

Sinopec Group Company is an enterprise controlled by the PRC government. Sinopec Group Company directly and indirectly holds 68.77% shareholding of the Company.

(2) Related parties not having the ability to exercise control over the Group

Related parties under common control of a parent company with the Company:

Sinopec Finance (Note)

Sinopec Shengli Petroleum Administration Bureau

Sinopec Zhongyuan Petroleum Exploration Bureau

Sinopec Assets Management Corporation

Sinopec Engineering Incorporation

Sinopec Century Bright Capital Investment Limited

Sinopec Petroleum Storage and Reserve Limited

Associates of the Group:

Pipeline Ltd

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

Joint ventures of the Group:

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

Note: Sinopec Finance is under common control of a parent company with the Company and is also the associate of the Group.

52 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

(3) The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business, are as follows:

		The Group
	Note	2018	2017
		RMB million	RMB million
Sales of goods	(i)	272,789	244,211
Purchases	(ii)	192,224	165,993
Transportation and storage	(iii)	7,319	7,716
Exploration and development services	(iv)	23,489	21,210
Production related services	(v)	28,472	20,824
Ancillary and social services	(vi)	6,664	6,653
Operating lease charges for land	(vii)	7,765	8,015
Operating lease charges for buildings	(vii)	521	510
Other operating lease charges	(vii)	869	626
Agency commission income	(viii)	113	127
Interest income	(ix)	848	807
Interest expense	(x)	1,110	554
Net deposits withdrawn from/(placed with) related parties	(ix)	6,457	(7,441)
Net funds obtained from related parties	(xi)	31,684	19,661

The amounts set out in the table above in respect of the year ended 31 December 2018 and 2017 represent the relevant costs and income as determined by the corresponding contracts with the related parties.

Included in the transactions disclosed above, for the year ended 31 December 2018 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 140,570 million (2017: RMB 128,863 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 123,772 million (2017: RMB 112,619 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 6,664 million (2017: RMB 6,652 million), operating lease charges for land, buildings and others paid by the Group of RMB 7,765 million, RMB 521 million and RMB 738 million (2017: RMB 8,015 million, RMB 510 million and RMB 513 million), respectively and interest expenses of RMB 1,110 million (2017: RMB 554 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 59,472 million (2017: RMB 60,045 million), comprising RMB 58,606 million (2017: RMB 59,213 million) for sales of goods, RMB 848 million (2017: RMB 807 million) for interest income and RMB 18 million (2017: RMB 25 million) for agency commission income.

As at 31 December 2018 and 31 December 2017 there was no guarantee given to banks by the Group in respect of banking facilities to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, except for the disclosure set out in Note 56(b). Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 56(b).

Notes:

(i) Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials.

(ii) Purchases represent the purchase of materials and utility supplies directly related to the Group's operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas.

(iii) Transportation and storage represent the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities.

(iv) Exploration and development services comprise direct costs incurred in the exploration and development such as geophysical, drilling, well testing and well measurement services.

(v) Production related services represent ancillary services rendered in relation to the Group's operations such as equipment repair and general maintenance, insurance premium, technical research, communications, firefighting, security, product quality testing and analysis, information technology, design and engineering, construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management and environmental protection, and management services.

(vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens and property maintenance.

(vii) Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment.

(viii) Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company.

(ix) Interest income represents interest received from deposits placed with Sinopec Finance and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate.

(x) Interest expense represents interest charges on the loans obtained from Sinopec Group Company and fellow subsidiaries.

(xi) The Group obtained loans, discounted bills and others from to Sinopec Group Company and fellow subsidiaries.

52 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the year ended 31 December 2018. The terms of these agreements are summarised as follows:

(a) The Company has entered into a non-exclusive "Agreement for Mutual Provision of Products and Ancillary Services" ("Mutual Provision Agreement") with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months' notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows:

‧ the government-prescribed price;

‧ where there is no government-prescribed price, the government-guidance price;

‧ where there is neither a government-prescribed price nor a government-guidance price, the market price; or

‧ where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%.

(b) The Company has entered into a non-exclusive "Agreement for Provision of Cultural and Educational, Health Care and Community Services" with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as agreed to in the above Mutual Provision Agreement.

(c) The Company has entered into a number of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party.

(d) The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company.

(e) The Company has entered into a service station franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group.

(f) On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on August 24, 2018, which took effect on January 1, 2019 and made adjustment to "Mutual Supply Agreement", "Agreement for Provision of Cultural and Educational, Health Care and Community Services", "Buildings Leasing Contract", "Intellectual Property Contract" and "Land Use Rights Leasing Contract" etc.,. The memorandum was effective since January 1, 2019. Sinopec Group Company agreed to lease 410 million square meters of land to the Company, and to adjust the total fee of land to about RMB 14 billion, according to the newly confirmed area of leasing land and the situation of land market.

52 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

(4) Balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures

The balances with the Group's related parties at 31 December 2018 and 31 December 2017 are as follows:

	The ultimate holding company		Other related companies
	At 31 December 2018	At 31 December 2017	At 31 December 2018	At 31 December 2017
	RMB million	RMB million	RMB million	RMB million
Cash and cash equivalents	-	-	41,057	47,514
Bills receivable and accounts receivable	11	19	7,544	13,155
Other receivables	33	33	6,901	5,411
Prepayments and other current assets	-	-	731	189
Other non-current assets	-	-	23,482	20,726
Bills payable and accounts payable	19	43	17,511	24,061
Advances from customers	-	12	-	2,763
Contract liabilities	25	-	3,248	-
Other payables	2	104	18,158	18,111
Other non-current liabilities	-	-	12,470	10,165
Short-term loans	-	-	27,304	23,297
Long-term loans (including current portion) (Note)	-	-	46,877	45,334

Note: The long-term borrowings mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from the Sinopec Group Company through the Sinopec Finance. This borrowing is a special arrangement to reduce financing costs and improve liquidity of the Company during its initial global offering in 2000.

Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 21 and Note 28.

As at and for the year ended 31 December 2018, and as at and for the year ended 31 December 2017, no individually significant impairment losses for bad and doubtful debts were recorded in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures.

(5) Key management personnel emoluments

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensations are as follows:

	2018	2017
	RMB thousand	RMB thousand
Short-term employee benefits	5,745	5,344
Retirement scheme contributions	351	424
Total	6,096	5,768

53 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group's financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The significant accounting policies are set forth in Note 3. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements.

53 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(a) Oil and gas properties and reserves

The accounting for the exploration and production segment's oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. The Group has used the successful efforts method to account for oil and gas business activities. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense. These costs primarily include dry hole costs, seismic costs and other exploratory costs.

Engineering estimates of the Group's oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as "proved". Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property's carrying amount.

Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in the similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment expense and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

(b) Impairment for assets

If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered "impaired", and an impairment loss may be recognised in accordance with "CASs 8 - Impairment of Assets". The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows. It is difficult to precisely estimate the fair value because quoted market prices for the Group's assets or cash-generating units are not readily available. In determining the value of expected future cash flows, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to sales volume, selling price, amount of operating costs and discount rate. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volume, selling price, amount of operating costs and discount rate.

Fixed assets are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting year. The useful lives are based on the Group's historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future years is adjusted if there are significant changes from previous estimates.

(d) Measurement of expected credit losses

The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group regularly monitors and reviews the assumptions used for estimating expected credit losses.

(e) Allowance for diminution in value of inventories

If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories would be higher than estimated.

54 PRINCIPAL SUBSIDIARIES

The Company's principal subsidiaries have been consolidated into the Group's financial statements for the year ended 31 December 2018. The following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group:

Full name of enterprise	Principal activities	Registered capital/ paid-up capital	Actual investment at 31 December 2018	Percentage of equity interest/ voting right held by the Group	Minority Interests at 31 December 2018
		million	million	%	RMB million
(a) Subsidiaries acquired through group restructuring:
China Petrochemical International Company Limited	Trading of petrochemical products	RMB 1,400	RMB 1,856	100.00	27
China International United Petroleum and Chemical Company Limited	Trading of crude oil and petrochemical products	RMB 3,000	RMB 4,585	100.00	4,355
Sinopec Catalyst Company Limited	Production and sale of catalyst products	RMB 1,500	RMB 1,562	100.00	271
Sinopec Yangzi Petrochemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products	RMB 15,651	RMB 15,651	100.00	-
Sinopec Pipeline Storage & Transportation Company Limited	Pipeline storage and transportation of crude oil	RMB 12,000	RMB 12,000	100.00	-
Sinopec Lubricant Company Limited	Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials	RMB 3,374	RMB 3,374	100.00	65
Sinopec Yizheng Chemical Fibre Limited Liability Company	Production and sale of polyester chips and polyester fibres	RMB 4,000	RMB 6,713	100.00	-
Sinopec Marketing Co. Limited ("Marketing Company")	Marketing and distribution of refined petroleum products	RMB 28,403	RMB 20,000	70.42	66,827
Sinopec Kantons Holdings Limited ("Sinopec Kantons")	Provision of crude oil jetty services and natural gas pipeline transmission services	HKD 248	HKD 3,952	60.33	4,085
Sinopec Shanghai Petrochemical Company Limited ("Shanghai Petrochemical")	Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products	RMB 10,824	RMB 5,820	50.44	15,168
Fujian Petrochemical Company Limited ("Fujian Petrochemical") (i)	Manufacturing of plastics, intermediate petrochemical products and petroleum products	RMB 8,140	RMB 4,070	50.00	5,761
(b) Subsidiaries established by the Group:
Sinopec International Petroleum Exploration and Production Limited ("SIPL")	Investment in exploration, production and sale of petroleum and natural gas	RMB 8,000	RMB 8,000	100.00	17,952
Sinopec Overseas Investment Holding Limited ("SOIH")	Investment holding of overseas business	USD 1,662	USD 1,662	100.00	-
Sinopec Chemical Sales Company Limited	Marketing and distribution of petrochemical products	RMB 1,000	RMB 1,165	100.00	70
Sinopec Great Wall Energy & Chemical Company Limited	Coal chemical industry investment management, production and sale of coal chemical products	RMB 22,761	RMB 22,795	100.00	(28)
Sinopec Beihai Refining and Chemical Limited Liability Company	Import and processing of crude oil, production, storage and sale of petroleum products and petrochemical products	RMB 5,294	RMB 5,240	98.98	119
Sinopec Qingdao Refining and Chemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products	RMB 5,000	RMB 4,250	85.00	1,810
Sinopec-SK (Wuhan) Petrochemical Company Limited ("Zhonghan Wuhan")	Production, sale, research and development of ethylene and downstream byproducts	RMB 6,270	RMB 4,076	65.00	4,560
(c) Subsidiaries acquired through business combination under common control:
Sinopec Hainan Refining and Chemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products	RMB 3,986	RMB 2,990	75.00	2,582
Sinopec Qingdao Petrochemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products	RMB 1,595	RMB 7,233	100.00	-
Gaoqiao Petrochemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products	RMB 10,000	RMB 4,804	55.00	6,851
(d) Subsidiaries acquired through business combination not under common control:
Shanghai SECCO Petrochemical Company Limited ("Shanghai SECCO") (note 51)	Production and sale of petrochemical products	RMB 7,801	RMB 7,801	67.60	5,802

* The minority interests of subsidiaries which the Group holds 100% of equity interests at the end of the year are the minority interests of their subsidiaries.

Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong, respectively, all of the above principal subsidiaries are incorporated and operate their businesses principally in the PRC.

Note:

(i) The Group consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those return through its power over the entity.

54 PRINCIPAL SUBSIDIARIES (Continued)

Summarised financial information on subsidiaries with material minority interests

Set out below are the summarised financial information which the amount before inter-company eliminations for each subsidiary that has minority interests that are material to the Group.

Summarised consolidated balance sheet

	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Zhonghan Wuhan
	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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	130,861	156,494	16,731	19,555	25,299	19,866	816	992	1,209	1,196	9,537	11,602	2,750	1,636
Current liabilities	(181,766)	(212,620)	(483)	(7,118)	(13,913)	(10,922)	(50)	(376)	(3,722)	(2,351)	(2,233)	(4,174)	(2,333)	(3,975)
Net current (liabilities)/assets	(50,905)	(56,126)	16,248	12,437	11,386	8,944	766	616	(2,513)	(1,155)	7,304	7,428	417	(2,339)
Non-current assets	261,062	253,455	38,020	34,769	19,241	19,743	11,444	9,925	12,895	13,089	12,301	12,797	12,612	13,598
Non-current liabilities	(2,086)	(1,774)	(31,050)	(28,523)	(140)	(146)	(688)	(681)	(132)	(2,430)	(1,698)	(1,740)	-	-
Net non-current assets	258,976	251,681	6,970	6,246	19,101	19,597	10,756	9,244	12,763	10,659	10,603	11,057	12,612	13,598

Summarised consolidated statement of comprehensive income and cash flow

Year ended 31 December	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO (ii)		Zhonghan Wuhan
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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	1,443,698	1,221,530	5,037	6,136	107,765	92,014	5,261	6,068	1,398	1,498	26,320	5,222	17,134	16,139
Profit for the year	21,995	27,517	3,272	1,075	5,277	6,152	1,595	2,757	1,065	1,046	3,099	726	1,879	2,733
Total comprehensive income	22,538	26,983	4,536	396	5,270	6,152	1,595	2,757	1,067	1,146	3,099	726	1,879	2,733
Comprehensive income/ (loss) attributable to minority interests	7,780	9,033	2,737	(38)	2,612	3,081	798	1,378	399	433	1,004	235	658	957
Dividends paid to minority interests	3,964	9,544	-	-	1,616	1,344	600	625	104	70	1,191	-	-	-
Net cash generated from/ (used in) operating activities	24,825	51,038	3,467	2,758	6,695	7,078	38	(558)	738	968	3,766	1,639	3,308	2,976

Note:

(ii) On 26 October 2017, a subsidiary of the Company, Gaoqiao Petrochemical Co., Ltd., purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited. Therefore summarised consolidated statement of comprehensive income and cash flow of Shanghai SECCO presents the results from the acquisition date to 31 December 2017.

55 COMMITMENTS

Operating lease commitments

The Group lease land and buildings, service stations and other equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contains escalation provisions that may require higher future rental payments.

At 31 December 2018 and 31 December 2017, the future minimum lease payments of the Group under operating leases are as follows:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Within one year	15,625	11,114
Between one and two years	14,668	11,492
Between two and three years	13,986	10,730
Between three and four years	13,734	10,552
Between four and five years	13,494	10,428
Thereafter	281,287	202,806
Total	352,794	257,122

Capital commitments

At 31 December 2018 and 31 December 2017, the capital commitments of the Group are as follows:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Authorised and contracted for (i)	141,045	120,386
Authorised but not contracted for	54,392	57,997
Total	195,437	178,383

These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects, the construction of service stations and oil depots and investment commitments.

Note:

(i) The investment commitments of the Group is RMB 5,553 million (2017: RMB 3,364 million).

Commitments to joint ventures

Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices.

Exploration and production licenses

Exploration licenses for exploration activities are registered with the Ministry of Natural Resources. The maximum term of the Group's exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Natural Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of the production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group's production license is renewable upon application by the Group 30 days prior to expiration.

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually and recognised in profit and loss. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2018 (2017: RMB 308 million).

Estimated future annual payments of the Group are as follows:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Within one year	380	205
Between one and two years	79	83
Between two and three years	33	32
Between three and four years	28	28
Between four and five years	28	28
Thereafter	852	882
Total	1,400	1,258

The implementation of commitments in previous year and the Group's commitments did not have material discrepancy.

56 CONTINGENT LIABILITIES

(a) The Company has been advised by its PRC lawyers that, except for liabilities constituting or arising out of or relating to the business assumed by the Company in the Reorganisation, no other liabilities were assumed by the Company, and the Company is not jointly and severally liable for other debts and obligations incurred by Sinopec Group Company prior to the Reorganisation.

(b) At 31 December 2018 and 31 December 2017, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Joint ventures	5,033	940
Associates (i)	12,168	13,520
Others	7,197	9,732
Total	24,398	24,192

(i) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. At 31 December 2018, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 12,168 million (2017:RMB 13,520 million).

The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss has occurred, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2018 and 31 December 2017, it was not probable that the Group will be required to make payments under the guarantees. Thus no liabilities have been accrued for a loss related to the Group's obligation under these guarantee arrangements.

Environmental contingencies

Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect the Group's ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material.

The Group paid normal routine pollutant discharge fees of approximately RMB 7,940 million in the consolidated financial statements for the year ended 31 December 2018 (2017: RMB 7,851 million).

Legal contingencies

The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group.

57 SEGMENT REPORTING

Segment information is presented in respect of the Group's operating segments. The format is based on the Group's management and internal reporting structure.

In a manner consistent with the way in which information is reported internally to the Group's chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

(i) Exploration and production - which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers.

(ii) Refining - which processes and purifies crude oil, which is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers.

(iii) Marketing and distribution - which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.

(iv) Chemicals - which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products to external customers.

(v) Others - which largely comprise the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries.

The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed separately because they manufacture and/or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics.

57 SEGMENT REPORTING (Continued)

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

The Group's chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating profit basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group's policy.

Assets and liabilities dedicated to a particular segment's operations are included in that segment's total assets and liabilities. Segment assets include all tangible and intangible assets, except for cash at bank and on hand, long-term equity investments, deferred tax assets and other unallocated assets. Segment liabilities exclude short-term loans, short-term debentures payable, non-current liabilities due within one year, long-term loans, debentures payable, deferred tax liabilities, other non-current liabilities and other unallocated liabilities.

Reportable information on the Group's operating segments is as follows:

	2018	2017
	RMB million	RMB million
Income from principal operations
Exploration and production
External sales	93,499	69,168
Inter-segment sales	95,954	77,804
	189,453	146,972
Refining
External sales	148,930	132,478
Inter-segment sales	1,109,088	874,271
	1,258,018	1,006,749
Marketing and distribution
External sales	1,408,989	1,191,902
Inter-segment sales	5,224	3,962
	1,414,213	1,195,864
Chemicals
External sales	457,406	373,814
Inter-segment sales	73,835	49,615
	531,241	423,429
Corporate and others
External sales	716,789	533,108
Inter-segment sales	650,271	440,303
	1,367,060	973,411
Elimination of inter-segment sales	(1,934,372)	(1,445,955)

Consolidated income from principal operations	2,825,613	2,300,470
Income from other operations
Exploration and production	10,738	10,533
Refining	5,389	5,104
Marketing and distribution	32,424	28,333
Chemicals	15,492	14,314
Corporate and others	1,523	1,439
Consolidated income from other operations	65,566	59,723

Consolidated operating income	2,891,179	2,360,193

57 SEGMENT REPORTING (Continued)

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

	2018	2017
	RMB million	RMB million
Operating (loss)/profit
By segment
Exploration and production	(11,557)	(47,399)
Refining	53,703	64,047
Marketing and distribution	24,106	32,011
Chemicals	25,970	22,796
Corporate and others	(8,151)	(3,160)
Elimination	(3,634)	(1,655)
Total segment operating profit	80,437	66,640
Investment income
Exploration and production	2,595	1,401
Refining	429	1,017
Marketing and distribution	2,676	2,951
Chemicals	6,905	13,648
Corporate and others	(1,177)	43
Total segment investment income	11,428	19,060
Less: Financial expenses	(1,001)	1,560
Add: Other income	6,694	4,356
Gain/(loss) from changes in fair value	2,656	(13)
Loss from asset disposal	(742)	(1,518)

Operating profit	101,474	86,965
Add: Non-operating income	2,070	1,317
Less: Non-operating expenses	3,042	1,709
Profit before taxation	100,502	86,573

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Assets
Segment assets
Exploration and production	321,686	343,404
Refining	271,356	273,123
Marketing and distribution	317,641	309,727
Chemicals	156,865	158,472
Corporate and others	152,799	170,045
Total segment assets	1,220,347	1,254,771
Cash at bank and on hand	167,015	165,004
Long-term equity investments	145,721	131,087
Deferred tax assets	21,694	15,131
Other unallocated assets	37,531	29,511
Total assets	1,592,308	1,595,504
Liabilities
Segment liabilities
Exploration and production	93,874	99,367
Refining	103,709	101,429
Marketing and distribution	159,028	163,680
Chemicals	37,380	35,207
Corporate and others	144,138	117,756
Total segment liabilities	538,129	517,439
Short-term loans	44,692	54,701
Non-current liabilities due within one year	17,450	26,681
Long-term loans	61,576	67,754
Debentures payable	31,951	31,370
Deferred tax liabilities	5,948	6,466
Other non-current liabilities	27,276	16,440
Other unallocated liabilities	7,627	20,583
Total liabilities	734,649	741,434

57 SEGMENT REPORTING (Continued)

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

	2018	2017
	RMB million	RMB million
Capital expenditure
Exploration and production	42,155	31,344
Refining	27,908	21,075
Marketing and distribution	21,429	21,539
Chemicals	19,578	23,028
Corporate and others	6,906	2,398
	117,976	99,384
Depreciation, depletion and amortisation
Exploration and production	60,331	66,843
Refining	18,164	18,408
Marketing and distribution	16,296	15,463
Chemicals	13,379	12,873
Corporate and others	1,797	1,723
	109,967	115,310
Impairment losses on long-lived assets
Exploration and production	4,274	13,556
Refining	353	1,894
Marketing and distribution	264	675
Chemicals	1,374	4,922
Corporate and others	16	211
	6,281	21,258

(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.

	2018	2017
	RMB million	RMB million
External sales
Mainland China	2,119,580	1,758,365
Singapore	395,129	269,349
Others	376,470	332,479
	2,891,179	2,360,193

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Non-current assets
Mainland China	989,668	979,329
Others	50,892	48,572
	1,040,560	1,027,901

58 FINANCIAL INSTRUMENTS

Overview

Financial assets of the Group include cash at bank and on hand, financial assets held for trading, derivative financial assets, bills receivable and accounts receivable, other equity instrument investments and other receivables. Financial liabilities of the Group include short-term, derivative financial liabilities, bills payable and accounts payable, debentures payable, employee benefits payable, other payables and long-term loans.

The Group has exposure to the following risks from its uses of financial instruments:

‧ credit risk;

‧ liquidity risk; and

‧ market risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework, and developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group's audit committee.

Credit risk

(i) Risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposit) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institution in the PRC with acceptable credit ratings. The majority of the Group's accounts receivable relates to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2018, except for the amounts due from Sinopec Group Company and fellow subsidiaries. The Group performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral on accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

The carrying amounts of cash at bank and on hand, financial assets held for trading, derivative financial assets, bills receivable and accounts receivable and other receivables, represent the Group's maximum exposure to credit risk in relation to financial assets.

(ii) Impairment of financial assets

The Group's primary type of financial assets that are subject to the expected credit loss model is trade accounts receivables and other receivables.

The Group's cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified.

For trade accounts receivables, the group applies the "No.22 Accounting Standards for Business Enterprises - Financial instruments: recognition and measurement" simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivables.

To measure the expected credit losses, trade accounts receivables have been grouped based on shared credit risk characteristics and the days past due.

The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2018 or 1 Janurary 2018, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

The detailed analysis of trade accounts receivables, based on which the Group generated its payment profile is listed in note 8.

All of the entity's other receivables are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months expected losses. The Group considers "low credit risk" for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

58 FINANCIAL INSTRUMENTS (Continued)

Liquidity risk

Liquidity risk is the risk that the Group encounters short fall of capital when meeting its obligation of financial liabilities. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed capital conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group prepares monthly cash flow budget to ensure that they will always have sufficient liquidity to meet its financial obligation as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the liquidity risk.

At 31 December 2018, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 387,748 million (2017: RMB 361,852 million) on an unsecured basis, at a weighted average interest rate of 3.87% (2017: 3.40 %). At 31 December 2018, the Group's outstanding borrowings under these facilities were RMB 21,236 million (2017: RMB 56,567 million) and were included in loans.

The following table sets out the remaining contractual maturities at the balance sheet date of the Group's financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the balance sheet date) and the earliest date the Group would be required to repay:

	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	-	-	-
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
Derivative financial liabilties	13,571	13,571	13,571	-	-	-
Bills payable and accounts payable	192,757	192,757	192,757	-	-	-
Other payables and employee benefits payable	84,775	84,775	84,775	-	-	-
Total	446,772	459,257	356,257	54,915	30,931	17,154

	At 31 December 2017
	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	54,701	55,451	55,451	-	-	-
Non-current liabilities due within one year	26,681	27,261	27,261	-	-	-
Long-term loans	67,754	70,613	1,003	17,666	49,038	2,906
Debentures payable	31,370	39,122	1,250	1,250	22,285	14,337
Derivative financial liabilties	2,665	2,665	2,665	-	-	-
Bills payable and accounts payable	206,535	206,535	206,535	-	-	-
Other payables and employee benefits payable	96,190	96,190	96,190	-	-	-
Total	485,896	497,837	390,355	18,916	71,323	17,243

Management believes that the Group's current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group's short-term and long-term capital requirements.

58 FINANCIAL INSTRUMENTS (Continued)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

(a) Currency risk

Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group's currency risk exposure primarily relates to short-term and long-term debts denominated in US Dollars, and the Group enters into foreign exchange contracts to manage currency risk exposure.

Included in short-term and long-term debts are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

The Group

	At 31 December	At 31 December
	2018	2017
	million	million
Gross exposure arising from loans and borrowings
US Dollars	668	204

A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2018 and 31 December 2017 would have increased/decreased net profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2017.

The Group

	At 31 December	At 31 December
	2018	2017
	million	million
US Dollars	172	50

Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the functional currency of respective entity of the Group.

(b) Interest rate risk

The Group's interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable interest rates and at fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed in Note 21 and Note 28, respectively.

At 31 December 2018, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's net profit for the year by approximately RMB 424 million (at 31 December 2017: decrease/increase RMB 450 million). This sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and the change was applied to the Group's loans outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2017.

The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity futures and swaps, to manage a portion of such risk.

At 31 December 2018, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. At 31 December 2018, the net fair value of such derivative hedging financial instruments is derivative financial assets of RMB 7,844 million (2017: RMB 515 million) recognised in other receivables and derivative financial liabilities of RMB 13,568 million (2017: RMB 2,624 million) recognised in other payables.

At 31 December 2018, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments which would decrease/increase the Group's profit for the year by approximately RMB 197 million (2017: decrease/increase RMB 4,049 million), and increase/decrease the Group's other comprehensive income by approximately RMB 6,850 million (2017: decrease/increase RMB 701 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2017.

58 FINANCIAL INSTRUMENTS (Continued)

Fair values

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy. With the fair value of each financial instrument categorised in its entirely based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

‧ Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.

‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

At 31 December 2018

The Group

	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 security 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

At 31 December 2017

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	-	-	51,196	51,196
Derivative financial assets:
- Derivative financial assets	343	183	-	526
Available-for-sale financial assets:
- Listed	178	-	-	178
	521	183	51,196	51,900
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	1,277	1,388	-	2,665
	1,277	1,388	-	2,665

During the year ended 31 December 2018, there was no transfer between instruments in Level 1 and Level 2.

Management of the Group uses discounted cash flow model with inputted interest rate and commodity index, which were influenced by historical fluctuation and the probability of market fluctuation, to evaluate the fair value of the structured deposits classified as Level 3 financial assets.

58 FINANCIAL INSTRUMENTS (Continued)

Fair values (Continued)

(ii) Fair values of financial instruments carried at other than fair value

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 2.76% to 4.90% (2017: 1.79% to 4.90%). The following table presents the carrying amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2018 and 31 December 2017:

	At 31 December	At 31 December
	2018	2017
	RMB million	RMB million
Carrying amount	63,085	79,738
Fair value	62,656	78,040

The Group has not developed an internal valuation model necessary to make the estimate of the fair value of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair value because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation of the Group, its existing capital structure and the terms of the borrowings.

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2018 and 31 December 2017.

59 EXTRAORDINARY GAINS AND LOSSES

Pursuant to "Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public- Extraordinary Gain and Loss" (2008), the extraordinary gains and losses of the Group are as follows:

	2018	2017
	RMB million	RMB million
Extraordinary (gains)/losses for the year:
Net loss on disposal of non-current assets	742	1,518
Donations	180	152
Government grants	(7,482)	(4,783)
Gain on holding and disposal of various investments	(1,023)	(148)
Gain on remeasurement of interests in the Shanghai SECCO (Note 51)	-	(3,941)
Other non-operating loss, net	1,613	690
	(5,970)	(6,512)
Tax effect	2,312	976
Total	(3,658)	(5,536)
Attributable to:
Equity shareholders of the Company	(3,459)	(5,537)
Minority interests	(199)	1

60 BASIC AND DILUTED EARNINGS PER SHARE

(i) Basic earnings per share

Basic earnings per share is calculated by the net profit attributable to equity shareholders of the Company and the weighted average number of outstanding ordinary shares of the Company:

	2018	2017
Net profit attributable to equity shareholders of the Company (RMB million)	63,089	51,119
Weighted average number of outstanding ordinary shares of the Company (million)	121,071	121,071
Basic earnings per share (RMB/share)	0.521	0.422

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

	2018	2017
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):

	2018	2017
Net profit attributable to equity shareholders of the Company (diluted) (RMB million)	63,089	51,117
Weighted average number of outstanding ordinary shares of the Company (diluted) (million)	121,071	121,071
Diluted earnings per share (RMB/share)	0.521	0.422

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

	2018	2017
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

61 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:

	2018			2017
	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	8.67	0.521	0.521	7.14	0.422	0.422
Net profit deducted extraordinary gains and losses attributable to the Company's ordinary equity shareholders	8.20	0.493	0.493	6.37	0.376	0.376

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 155 to 211, which comprise:

‧ the consolidated balance sheet as at 31 December 2018;

‧ the consolidated income statement for the year then ended;

‧ the consolidated statement of comprehensive income for the year then ended;

‧ the consolidated statement of changes in equity for the year then ended;

‧ the consolidated statement of cash flows for the year then ended; and

‧ the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Our opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2018, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standard Board and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters identified in our audit are summarised as follows:

‧ Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities

‧ Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products

Key Audit Matter

How our audit addressed the Key Audit Matter

Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities

Refer to note 8 "Other operating expense, net", note 16 "Property, plant and equipment" and note 42 "Accounting estimates and judgements" to the consolidated financial statements.

Decrease in prices of international crude oil in the fourth quarter of the year ended 31 December 2018 gave rise to possible indication that the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2018 might be impaired. The Group has adopted value in use as the respective recoverable amounts of property, plant and equipment relating to oil and gas producing activities, which involved key estimations or assumptions including:

- Future crude oil prices;

- Future production profiles;

- Future cost profiles; and

- Discount rates.

Because of the significance of the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2018, together with the use of significant estimations or assumptions in determining their respective value in use, we had placed our audit emphasis on this matter.

In auditing the respective value in use calculations of property, plant and equipment relating to oil and gas producing activities, we performed the following key procedures on the relevant discounted cash flow projections prepared by management:

‧ Evaluated and tested the key controls in respect of the preparation of the discounted cash flow projections of property, plant and equipment relating to oil and gas producing activities.

‧ Assessed the methodology adopted in, and tested mathematical accuracy of the discounted cash flow projections.

‧ Compared estimates of future crude oil prices adopted by the Group against a range of reputable published crude oil price forecasts.

‧ Compared the future production profiles against the oil and gas reserve estimation report approved by the management. Evaluated the competence, capability and objectivity of the management's experts engaged in estimating the oil and gas reserves. Assessed key estimations or assumptions used in the reserve estimation, by reference to historical data, management plans and/or reputable external data.

‧ Compared the future cost profiles against historical costs and relevant budgets of the Group.

‧ Tested selected other key data inputs, such as natural gas prices and production profiles in the projections by reference to historical data and/or relevant budgets of the Group.

‧ Independently estimated a range of relevant discount rates, and found that the discount rates adopted by management were within the range.

‧ Evaluated the sensitivity analyses prepared by the Group, and assessed the potential impacts of a range of possible outcomes.

Based on our work, we found the key assumptions and input data adopted were supported by the evidence we obtained.

Net realisable value (NRV) of crude oil, finished goods and work in progress of refined oil products

Refer to note 2(e) "Inventories", note 26 "Inventories" and note 42 "Accounting estimates and judgements" to the consolidated financial statements.

Decrease in prices of international crude oil along with its highly-correlated products, such as refined oil products, in the fourth quarter of the year ended 31 December 2018 gave rise to the risk that net realisable values of crude oil, finished goods and work in progress of refined oil products were lower than their respective book values as at 31 December 2018.

Management has determined the NRVs of crude oil, finished goods and work in progress of refined oil products based on the respective estimated selling prices less the estimated costs to completion, other necessary costs of sales and the related taxes, which involved key estimations or assumptions including:

- Estimated selling prices;

- Estimated costs to completion, other necessary costs of sales and related taxes.

Because of the significance of the book value of crude oil, finished goods and work in progress of refined oil products as at 31 December 2018, together with the use of significant estimations or assumptions in determining their respective NRVs, we had placed our audit emphasis on this matter.

In auditing the NRVs of crude oil, finished goods and work in progress of refined oil products, we performed the following key procedures on the inventory NRV models prepared by the management.

‧ Evaluated and tested the key controls relating to the preparation of the NRV models of crude oil, finished goods and work in progress of refined oil products.

‧ Assessed the methodology adopted in, and tested mathematical accuracy of the NRV models.

‧ On a sampling basis, compared the estimated selling prices of inventories used in the NRV models against the recently realised selling prices, and the prices available on domestic and international markets.

‧ On a sampling basis, compared the costs to completion, other necessary costs of sales and related taxes against historical data of the Group.

Based on the work, we found that the key assumptions and data adopted in the NRV models were supported by the evidence we obtained.

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 relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

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

‧ 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.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (cont'd)

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

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

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

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

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 22 March 2019

(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2018

(Amounts in million, except per share data)

	Note	Year ended 31 December
		2018	2017
		RMB	RMB
Turnover and other operating revenues
Turnover	3	2,825,613	2,300,470
Other operating revenues	4	65,566	59,723
		2,891,179	2,360,193
Operating expenses
Purchased crude oil, products and operating supplies and expenses		(2,292,983)	(1,770,651)
Selling, general and administrative expenses	5	(65,642)	(64,973)
Depreciation, depletion and amortisation		(109,967)	(115,310)
Exploration expenses, including dry holes		(10,744)	(11,089)
Personnel expenses	6	(77,721)	(74,854)
Taxes other than income tax	7	(246,498)	(235,292)
Other operating expense, net	8	(5,360)	(16,554)
Total operating expenses		(2,808,915)	(2,288,723)

Operating profit		82,264	71,470
Finance costs
Interest expense	9	(7,321)	(7,146)
Interest income		7,726	5,254
Foreign currency exchange gains, net		596	332
Net finance costs		1,001	(1,560)
Investment income		1,871	262
Share of profits less losses from associates and joint ventures	19, 20	13,974	16,525

Profit before taxation		99,110	86,697
Income tax expense	10	(20,213)	(16,279)
Profit for the year		78,897	70,418
Attributable to:
Shareholders of the Company		61,618	51,244
Non-controlling interests		17,279	19,174
Profit for the year		78,897	70,418
Earnings per share:	15
Basic		0.509	0.423
Diluted		0.509	0.423

The notes on pages 162 to 211 form part of these consolidated financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in Note 13.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2018

(Amounts in million)

	Note	Year ended 31 December
		2018	2017
		RMB	RMB
Profit for the year		78,897	70,418
Other comprehensive income:	14
Items that maynot be reclassified subsequently to profit or loss
Equity investments at fair value through other comprehensive income		(53)	-
Total items that maynot be reclassified subsequently to profit or loss		(53)	-
Items that may be reclassified subsequently to profit or loss
Share of other comprehensive (income)/loss of associates and joint ventures		(229)	1,053
Available-for-sale securities		-	(57)
Cash flow hedges		(9,741)	(1,580)
Foreign currency translation differences		3,399	(3,792)
Total items that may be reclassified subsequently to profit or loss		(6,571)	(4,376)
Total other comprehensive income		(6,624)	(4,376)

Total comprehensive income for the year		72,273	66,042
Attributable to:
Shareholders of the Company		54,000	47,763
Non-controlling interests		18,273	18,279
Total comprehensive income for the year		72,273	66,042

The notes on pages 162 to 211 form part of these consolidated financial statements.

CONSOLIDATED BALANCE SHEET

As at 31 December 2018

(Amounts in million)

	Notes	31 December	31 December
		2018	2017
		RMB	RMB
Non-current assets
Property, plant and equipment, net	16	617,762	650,774
Construction in progress	17	136,963	118,645
Goodwill	18	8,676	8,634
Interest in associates	19	89,537	79,726
Interest in joint ventures	20	56,184	51,361
Available-for-sale financial assets	1(a)	-	1,676
Financial assets at fair value through other comprehensive income	1(a)	1,450	-
Deferred tax assets	28	21,694	15,131
Lease prepayments	21	64,514	58,526
Long-term prepayments and other assets	22	91,408	81,982
Total non-current assets		1,088,188	1,066,455
Current assets
Cash and cash equivalents		111,922	113,218
Time deposits with financial institutions		55,093	51,786
Financial assets at fair value through profit or loss	23	25,732	51,196
Derivatives financial assets	24	7,887	526
Trade accounts receivable and bills receivable	25	64,879	84,701
Inventories	26	184,584	186,693
Prepaid expenses and other current assets	27	54,023	40,929
Total current assets		504,120	529,049
Current liabilities
Short-term debts	29	29,462	55,338
Loans from Sinopec Group Company and fellow subsidiaries	29	31,665	25,311
Derivatives financial liabilities	24	13,571	2,665
Trade accounts payable and bills payable	30	192,757	206,535
Contract liabilities	31,1(a)	124,793	-
Other payables	32,1(a)	166,151	276,582
Income tax payable		6,699	13,015
Total current liabilities		565,098	579,446
Net current liabilities		60,978	50,397
Total assets less current liabilities		1,027,210	1,016,058
Non-current liabilities
Long-term debts	29	51,011	55,804
Loans from Sinopec Group Company and fellow subsidiaries	29	42,516	43,320
Deferred tax liabilities	28	5,948	6,466
Provisions	33	42,800	39,958
Other long-term liabilities		28,400	17,620
Total non-current liabilities		170,675	163,168

		856,535	852,890
Equity
Share capital	34	121,071	121,071
Reserves		596,213	605,049
Total equity attributable to shareholders of the Company		717,284	726,120
Non-controlling interests		139,251	126,770
Total equity		856,535	852,890

Approved and authorised for issue by the board of directors on 22 March 2019.

Dai Houliang	Ma Yongsheng	Wang Dehua
Chairman	President	Chief Financial Officer
(Legal representative)

The notes on pages 162 to 211 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2017

(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 1 January 2017	121,071	26,290	55,850	79,640	117,000	424	310,719	710,994	120,241	831,235
Profit for the year	-	-	-	-	-	-	51,244	51,244	19,174	70,418
Other comprehensive income (Note 14)	-	-	-	-	-	(3,481)	-	(3,481)	(895)	(4,376)
Total comprehensive income for the year	-	-	-	-	-	(3,481)	51,244	47,763	18,279	66,042
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2016 (Note 13)	-	-	-	-	-	-	(20,582)	(20,582)	-	(20,582)
Interim dividend for 2017 (Note 13)	-	-	-	-	-	-	(12,107)	(12,107)	-	(12,107)
Appropriation (Note (a))	-	-	-	3,042	-	-	(3,042)	-	-	-
Distributions to non-controlling interests	-	-	-	-	-	-	-	-	(12,501)	(12,501)
Total contributions by and distributions to owners	-	-	-	3,042	-	-	(35,731)	(32,689)	(12,501)	(45,190)
Transaction with non-controlling interests	-	(13)	-	-	-	-	-	(13)	724	711

Total transactions with owners	-	(13)	-	3,042	-	-	(35,731)	(32,702)	(11,777)	(44,479)
Others	-	49	-	-	-	123	(107)	65	27	92

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

The notes on pages 162 to 211 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 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 (Note 1(a))	-	-	-	-	-	(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 cash flow hedge reserves initially recognised by 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

Note:

(a) According to the PRC Company Law and the Articles of Association of the Company, the Company is required to transfer 10% of its net profit determined in accordance with the accounting policies complying with Accounting Standards for Business Enterprises ("CASs"), adopted by the Group to statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is required. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years' losses, if any, and may be converted into share capital by issuing of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

During the year ended 31 December 2018, the Company transferred RMB 3,996 million (2017: RMB 3,042 million) to the statutory surplus reserve, being 10% of the current year's net profit determined in accordance with the accounting policies complying with CASs to this reserve.

(b) The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve.

(c) As at 31 December 2018, the amount of retained earnings available for distribution was RMB 143,148 million (2017: RMB 177,049 million), being the amount determined in accordance with CASs. According to the Articles of Association of the Company, the amount of retained earnings available for distribution to shareholders of the Company is lower of the amount determined in accordance with the accounting policies complying with CASs and the amount determined in accordance with the accounting policies complying with International Financial Reporting Standards ("IFRS").

(d) The capital reserve represents (i) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation (Note1); and (ii) the difference between the considerations paid over or received the amount of the net assets of entities and related operations acquired from or sold to Sinopec Group Company and non-controlling interests.

(e) The application of the share premium account is governed by Sections 167 and 168 of the PRC Company Law.

The notes on pages 162 to 211 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2018

(Amounts in million)

	Note	Year ended 31 December
		2018	2017
		RMB	RMB
Net cash generated from operating activities	(a)	175,868	190,935
Investing activities
Capital expenditure		(94,753)	(63,541)
Exploratory wells expenditure		(8,261)	(7,407)
Purchase of investments, investments in associates and investments in joint ventures		(10,116)	(6,431)
Payment for financial assets at fair value through profit or loss		(29,550)	(51,196)
Proceeds from sale of financial assets at fair value through profit or loss		55,000	-
Payment for acquisition of subsidiary, net of cash acquired		(3,188)	(1,288)
Proceeds from disposal of investments and investments in associates		1,557	4,809
Proceeds from disposal of property, plant, equipment and other
non-current assets		9,666	1,313
Increase in time deposits with maturities over three months		(81,708)	(82,577)
Decrease in time deposits with maturities over three months		78,401	48,820
Interest received		5,810	3,669
Investment and dividend income received		10,720	8,506
Net cash used in investing activities		(66,422)	(145,323)
Financing activities
Proceeds from bank and other loans		746,655	524,843
Repayments of bank and other loans		(772,072)	(536,380)
Contributions to subsidiaries from non-controlling interests		1,886	946
Dividends paid by the Company		(67,799)	(32,689)
Distributions by subsidiaries to non-controlling interests		(13,700)	(7,539)
Interest paid		(5,984)	(5,535)
Payments made to acquire non-controlling interests		(160)	-
Finance lease payment		(86)	(155)
Net cash used in financing activities		(111,260)	(56,509)

Net decrease in cash and cash equivalents		(1,814)	(10,897)
Cash and cash equivalents at 1 January		113,218	124,468
Effect of foreign currency exchange rate changes		518	(353)
Cash and cash equivalents at 31 December		111,922	113,218

The notes on pages 162 to 211 form part of these consolidated financial statements.

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2018

(Amounts in million)

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

	Year ended 31 December
	2018	2017
	RMB	RMB
Operating activities
Profit before taxation	99,110	86,697
Adjustments for:
Depreciation, depletion and amortisation	109,967	115,310
Dry hole costs written off	6,921	6,876
Share of profits from associates and joint ventures	(13,974)	(16,525)
Investment income	(1,871)	(262)
Gain on remeasurement of interests in the Shanghai SECCO (Note 36)	-	(3,941)
Interest income	(7,726)	(5,254)
Interest expense	7,321	7,146
Gain on foreign currency exchange rate changes and derivative financial instruments	(1,835)	(1,547)
Loss on disposal of property, plant, equipment and other non-currents assets, net	1,526	1,518
Impairment losses on assets	11,605	21,791
Credit impairment losses	141	-
	211,185	211,809
Net changes from:
Accounts receivable and other current assets	(1,043)	(31,151)
Inventories	(3,312)	(28,903)
Accounts payable and other current liabilities	2,111	59,210
	208,941	210,965
Income tax paid	(33,073)	(20,030)
Net cash generated from operating activities	175,868	190,935

The notes on pages 162 to 211 form part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2018

1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION

Principal activities

China Petroleum & Chemical Corporation (the "Company") is an energy and chemical company that, through its subsidiaries (hereinafter collectively referred to as the "Group"), engages in oil and gas and chemical operations in the People's Republic of China (the "PRC"). Oil and gas operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil and natural gas by pipelines; refining crude oil into finished petroleum products; and marketing crude oil, natural gas and refined petroleum products. Chemical operations include the manufacture and marketing of a wide range of chemicals for industrial uses.

Organisation

The Company was established in the PRC on 25 February 2000 as a joint stock limited company as part of the reorganisation (the "Reorganisation") of China Petrochemical Corporation ("Sinopec Group Company"), the ultimate holding company of the Group and a ministry-level enterprise under the direct supervision of the State Council of the PRC. Prior to the incorporation of the Company, the oil and gas and chemical operations of the Group were carried on by oil administration bureaux, petrochemical and refining production enterprises and sales and marketing companies of Sinopec Group Company.

As part of the Reorganisation, certain of Sinopec Group Company's core oil and gas and chemical operations and businesses together with the related assets and liabilities were transferred to the Company. On 25 February 2000, in consideration for Sinopec Group Company transferring such oil and gas and chemical operations and businesses and the related assets and liabilities to the Company, the Company issued 68.8 billion domestic state-owned ordinary shares with a par value of RMB 1.00 each to Sinopec Group Company. The shares issued to Sinopec Group Company on 25 February 2000 represented the entire registered and issued share capital of the Company on that date. The oil and gas and chemical operations and businesses transferred to the Company were related to (i) the exploration, development and production of crude oil and natural gas, (ii) the refining, transportation, storage and marketing of crude oil and petroleum products, and (iii) the production and sales of chemicals.

Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with all applicable IFRS as issued by the International Accounting Standards Board ("IASB"). IFRS includes International Accounting Standards ("IAS") and related interpretations ("IFRIC"). These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group are set out in Note 2.

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of new and amended standards as set out below.

(a) New and amended standards and interpretations adopted by the Group

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards:

‧ IFRS 9 'Financial Instruments', and

‧ IFRS 15 'Revenue from Contracts with Customers'

IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'- Impact of adoption

The adoption of IFRS 9 'Financial Instruments' ('IFRS 9') and IFRS 15 'Revenue from Contracts with Customers' ('IFRS 15') from 1 January 2018 by the Group resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements.

Transition options of IFRS 9 'Financial Instruments'

Classification and measurement

The Group has elected to apply the limited exemption in IFRS 9 relating to transition for classification and measurement and impairment, and accordingly has not restated comparative periods in the year of initial application:

(a) any adjustments to carrying amounts of financial assets or liabilities are recognised at the beginning of the current reporting period, with the difference recognised in opening retained earnings

(b) financial assets are not reclassified in the balance sheet for the comparative period

Impairment

The Group has adopted the simplified expected credit loss model for its trade receivables and contract assets, as required by IFRS 9, and the general expected credit loss model for receivables and contract assets carried at amortised. The Group assessed the loss allowance for receivables under the expected credit loss model on 1 January 2018, no significant difference compared with the loss allowance under accounting policies applied until 31 December 2017.

1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION (Continued)

Basis of preparation (Continued)

(a) New and amended standards and interpretations adopted by the Group (Continued)

Hedging

The Group has applied the hedging accounting prospectively to the derivatives held for hedging purpose.

Financial instruments accounting policy applied until 31 December 2017 is disclosed in Note 2 (k) (iv).

Transition options of IFRS 15 'Revenue from Contracts with Customers'

The Group has elected to apply the simplified transition method, retrospectively with the cumulative effect of initially applying IFRS 15 as an adjustment to the balance on 1 January 2018.

Presentation and description of contract assets and contract liabilities

The Group has decided to reclassify contract assets and contract liabilities and present them as a separate line item in the balance sheet based on the significance of the item.

The adjustments arising from the new accounting policies are therefore recognised in the opening balance sheet on 1 January 2018, comparative figures have not been restated. The new accounting policies are disclosed in Note 2. The adoption of IFRS 9 and IFRS 15 has no significant impact on the Group's financial statements.

The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided.

Consolidated balance sheet (extract)	31 December 2017	Adjustment from Adoption of IFRS 9	Adjustment from Adoption of IFRS 15	1 January 2018
	RMB million	RMB million	RMB million	RMB million
Non-current assets
Financial assets at fair value through other comprehensive income	-	1,676	-	1,676
Available-for-sale financial assets	1,676	(1,676)	-	-
Total non-current assets	1,066,455	-	-	1,066,455
Current assets
Total current assets	529,049	-	-	529,049
Current liabilities
Contract liabilities(i)	-	-	120,734	120,734
Other payables(i)	276,582	-	(120,734)	155,848
Total current liabilities	579,446	-	-	579,446
Non-current liabilities
Total non-current liabilities	163,168	-	-	163,168

	852,890	-	-	852,890

Equity
Other reserves	(2,934)	(12)	-	(2,946)
Retained earnings	326,125	12	-	326,137
Total equity	852,890	-	-	852,890

(i) Advances from customers were reclassified as contract liabilities by implementation of IFRS 15 'Revenue from Contracts with Customers'.

(b) New and amended standards and interpretations not yet adopted by the Group

IFRS 16, 'Leases', was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Leases to explore for or use oil and natural gas are not applied to IFRS 16.

The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. All right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

‧ the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

‧ the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases

The Group has set up a project team which has reviewed all of the Group's leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group's operating leases.

The Group expects to recognise right-of-use assets of approximately RMB 207.5 billion on 1 January 2019, lease liabilities of RMB 198.6 billion (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018).

1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION (Continued)

Basis of preparation (Continued)

(b) New and amended standards and interpretations not yet adopted by the Group (Continued)

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key assumptions and estimation made by management in the application of IFRS that have significant effect on the consolidated financial statements and the major sources of estimation uncertainty are disclosed in Note 42.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements comprise the Company and its subsidiaries, and interest in associates and joint ventures.

(i) Subsidiaries and non-controlling interests

Subsidiaries are those entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases.

Non-controlling interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated balance sheet and consolidated statement of changes in equity within equity, separately from equity attributable to the shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the shareholders of the Company.

Changes in the Group's interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

If a business combination involving entities not under common control is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in the consolidated income statement.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 2(a) (ii)).

In the Company's balance sheet, investments in subsidiaries are stated at cost less impairment losses (Note 2(o)).

The particulars of the Group's principal subsidiaries are set out in Note 40.

(ii) Associates and joint ventures

An associate is an entity, not being a subsidiary, in which the Group exercises significant influence over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Investments in associates and joint ventures are accounted for in the consolidated and separate financial statements using the equity method from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group's share of the investee's net assets and any impairment loss relating to the investment (Note 2(j) and (o)).

The Group's share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group's share of the post-acquisition, post-tax items of the investees' other comprehensive income is recognised in the consolidated statement of comprehensive income.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(a) Basis of consolidation (Continued)

(ii) Associates and joint ventures (Continued)

When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate (see Note 2(a) (ii)).

(iii) Transactions eliminated on consolidation

Inter-company balances and transactions and any unrealised gains arising from inter-company transactions are eliminated on consolidation. Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(iv) Merger accounting for common control combination

The consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties' perspective. No amount is recognised as consideration for goodwill or excess of acquirers' interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party's interest.

The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination. The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter.

A uniform set of accounting policies is adopted by those entities. All intra-group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation. Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses, etc., incurred in relation to the common control combination that is to be accounted for by using merger accounting is recognised as an expense in the period in which it is incurred.

(b) Translation of foreign currencies

The presentation currency of the Group is Renminbi. Foreign currency transactions during the year are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China (''PBOC'') prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into Renminbi at the PBOC's rates at the balance sheet date.

Exchange differences, other than those capitalised as construction in progress, are recognised as income or expense in the "finance costs" section of the consolidated income statement.

The results of foreign operations are translated into Renminbi at the applicable rates quoted by the PBOC prevailing on the transaction dates. Balance sheet items, including goodwill arising on consolidation of foreign operations are translated into Renminbi at the closing foreign exchange rates at the balance sheet date. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or an exchange rate that approximates the spot exchange rates on the transaction dates. The resulting exchange differences are recognised in other comprehensive income and accumulated in equity in the other reserves.

On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to the consolidated income statement when the profit or loss on disposal is recognised.

Cash equivalents consist of time deposits with financial institutions with an initial term of less than three months when purchased. Cash equivalents are stated at cost, which approximates fair value.

(d) Trade, bills and other receivables

Trade, bills and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(o)). Trade, bills and other receivables are derecognised if the Group's contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(e) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes the cost of purchase computed using the weighted average method and, in the case of work in progress and finished goods, direct labour and an appropriate proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(f) Property, plant and equipment

An item of property, plant and equipment is initially recorded at cost, less accumulated depreciation and impairment losses (Note 2(o)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, when it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other expenditure is recognised as an expense in the consolidated income statement in the year in which it is incurred.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment, other than oil and gas properties, are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised as income or expense in the consolidated income statement on the date of retirement or disposal.

Depreciation is provided to write off the cost amount of items of property, plant and equipment, other than oil and gas properties, over its estimated useful life on a straight-line basis, after taking into account its estimated residual value, as follows:

Estimated

usage period

Estimated

residuals rate

Buildings

12 to 50 years

Equipment, machinery and others

4 to 30 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reassessed annually.

(g) Oil and gas properties

The Group uses the successful efforts method of accounting for its oil and gas producing activities. Under this method, costs of development wells, the related supporting equipment and proved mineral interests in properties are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. The impairment of exploratory well costs occurs upon the determination that the well has not found proved reserves. The exploratory well costs are usually not carried as an asset for more than one year following completion of drilling, unless (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made; (ii) drilling of the additional exploratory wells is under way or firmly planned for the near future; or (iii) other activities are being undertaken to sufficiently progress the assessing of the reserves and the economic and operating viability of the project. All other exploration costs, including geological and geophysical costs, other dry hole costs and annual lease rentals to explore for or use oil and natural gas, are expensed as incurred. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

Management estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices and the future cash flows are adjusted to reflect such risks specific to the liability, as appropriate. These estimated future dismantlement costs are discounted at pre-tax risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties.

(h) Lease prepayments

Lease prepayments represent land use rights paid to the relevant government authorities. Land use rights are carried at cost less accumulated amount charged to expense and impairment losses (Note 2(o)). The cost of lease prepayments is charged to expense on a straight-line basis over the respective periods of the rights.

(i) Construction in progress

Construction in progress represents buildings, oil and gas properties, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (Note 2(o)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the periods of construction.

Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j) Goodwill

Goodwill represents amounts arising on acquisition of subsidiaries, associates or joint ventures. Goodwill represents the difference between the cost of acquisition and the fair value of the net identifiable assets acquired.

Prior to 1 January 2008, the acquisition of the non-controlling interests of a consolidated subsidiary was accounted for using the acquisition method whereby the difference between the cost of acquisition and the fair value of the net identifiable assets acquired (on a proportionate share) was recognised as goodwill. From 1 January 2008, any difference between the amount by which the non-controlling interest is adjusted (such as through an acquisition of the non-controlling interests) and the cash or other considerations paid is recognised in equity.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit the synergies of the combination and is tested annually for impairment (Note 2(o)). In respect of associates or joint ventures, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or joint venture and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (Note 2(o)).

(k) Financial assets

(i) Classification and measurement

The Group classifies financial assets into different categories depending on the business model for managing the financial assets and the contractual terms of cash flows of the financial assets: a) financial assets measured at amortised cost, b) financial assets measured at fair value through other comprehensive income, c) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset.

Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. Trade accounts receivable and bills receivable arising from sale of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Group.

Debt instruments

Debt instruments held by the Group mainly includes cash and cash equivalents, time deposits with financial institutions, receivables. These financial assets are measured at amortised cost.

The business model for managing such financial assets by the Group are held for collection of contractual cash flows. The contractual cash flow characteristics are to give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount out-standing. Interest income from these financial assets is recognised using the effective interest rate method.

Equity instruments

Equity instruments that the Group has no power to control, jointly control or exercise significant influence over, are measured at fair value through profit or loss and presented in financial assets at fair value through profit or loss.

In addition, the Group designates some equity instruments that are not held for trading as financial assets at fair value through other comprehensive income, are presented in financial assets at fair value through other comprehensive income. The relevant dividends of these financial assets are recognised in profit or loss. When derecognised, the cumulative gain or loss previously recognised in other comprehensive income is transferred to retained earnings.

(ii) Impairment

The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost.

The Group measures the expected credit losses of financial instruments on different stages at each balance sheet date. For financial instruments that have no significant increase in credit risk since the initial recognition, on first stage, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk since the initial recognition of a financial instrument but credit impairment has not occurred, on second stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses.

For financial instruments that have low credit risk at the balance sheet date, the Group assumes that there is no significant increase in credit risk since the initial recognition, and measures the loss allowance at an amount equal to 12-month expected credit losses.

For financial instruments on the first stage and the second stage, and that have low credit risk, the Group calculates interest income according to carrying amount without deducting the impairment allowance and effective interest rate. For financial instruments on the third stage, interest income is calculated according to the carrying amount minus amortised cost after the provision of impairment allowance and effective interest rate.

For receivables related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.

The Group recognises the loss allowance accrued or written back in profit or loss.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(k) Financial assets (Continued)

(iii) Derecognition

The Group derecognises a financial asset when: a) the contractual right to receive cash flows from the financial asset expires; b) the Group transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset; c) the financial asset has been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but the Group has not retained control.

On derecognition of financial assets at fair value through other comprehensive income, the difference between the carrying amounts and the sum of the consideration received and any accumulated gain or loss previously recognised in other comprehensive income, is recognised in retained earnings. While on derecognition of other financial assets, this difference is recognised in profit or loss.

(iv) Accounting policy applied until 31 December 2017

Classification

Until 31 December 2017, the group classified its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets.

The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition.

Subsequent measurement

The measurement at initial recognition did not change on adoption of IFRS 9.

Subsequent to the initial recognition, loans and receivables and held-to-maturity investments were carried at amortised cost using the effective interest method.

Available-for-sale financial assets and financial assets at fair value through profit or loss were subsequently carried at fair value. Gains or losses arising from changes in the fair value were recognised as follows: for financial assets at fair value through profit or loss - in profit or loss within other gains/(losses), for available-for-sale financial assets - in other comprehensive income.

When securities classified as available-for-sale were derecognised or impaired, the accumulated gains or losses recognised in other comprehensive income were reclassified to the consolidated income statement.

Impairment

Trade accounts receivables, other receivables and investment in equity securities that do not have a quoted market price in an active market are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is determined and recognised.

The impairment loss is measured as the difference between the asset's carrying amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognised as an expense in the consolidated income statement. Impairment losses for trade and other receivables are reversed through the consolidated income statement if in a subsequent period the amount of the impairment losses decreases. Impairment losses for equity securities carried at cost are not reversed.

(l) Financial liabilities

The Group, at initial recognition, classifies financial liabilities as either financial liabilities subsequently measured at amortised cost or financial liabilities at fair value through profit or loss.

The Group's financial liabilities are mainly financial liabilities measured at amortised cost, including bills payable, trade accounts payable, other payables, and loans, etc. These financial liabilities are initially measured at the amount of their fair value after deducting transaction costs and use the effective interest rate method for subsequent measurement.

Where the present obligations of financial liabilities are completely or partially discharged, the Group derecognises these financial liabilities or discharged parts of obligations. The differences between the carrying amounts and the consideration received are recognised in profit or loss.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m) Determination of fair value for financial instruments

If there is an active market for financial instruments, the quoted price in the active market is used to measure fair values of the financial instruments. If no active market exists for financial instruments, valuation techniques are used to measure fair values. In valuation, the Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it, and selects input values that are consistent with the asset or liability characteristics considered by market participants in the transaction of relevant assets or liabilities, and gives priority to relevant observable input values. Use of unobservable input values where relevant observable input values cannot be obtained or are not practicable.

(n) Derivative financial instruments and hedge accounting

Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify for hedge accounting.

Hedge accounting is a method which recognises the offsetting effects on profit or loss (or other comprehensive income) of changes in the fair values of the hedging instrument and the hedged item in the same accounting period, to represent the effect of risk management activities.

Hedged items are the items that expose the Group to risks of changes in future cash flows and that are designated as being hedged and that must be reliably measurable. The Group's hedged items include a forecast transaction that is settled with an undetermined future market price and exposes the Group to risk of variability in cash flows, etc.

A hedging instrument is a designated derivative whose changes in cash flows are expected to offset changes in cash flows of the hedged item.

The hedging relationship meets all of the following hedge effectiveness requirements:

(i) There is an economic relationship between the hedged item and the hedging instrument, which shares a risk and that gives rise to opposite changes in fair value that tend to offset each other.

(ii) The effect of credit risk does not dominate the value changes that result from that economic relationship.

(iii) The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation does not reflect an imbalance between the weightings of the hedged item and the hedging instrument.

Cash flow hedges

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.

As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts):

(i) The cumulative gain or loss on the hedging instrument from inception of the hedge; and

(ii) The cumulative change in fair value (present value) of the hedged item (i.e. the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge.

The gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income.

The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in profit or loss.

If a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a nonfinancial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity removes that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income.

For cash flow hedges, other than those covered by the preceding policy statements, that amount is reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(n) Derivative financial instruments and hedge accounting (Continued)

Cash flow hedges (Continued)

If the amount that has been accumulated in the cash flow hedge reserve is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, the Group immediately reclassifies the amount that is not expected to be recovered into profit or loss.

When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective), or when a hedging instrument expires or is sold, terminated, exercised, or there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount is immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur, if the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges.

(o) Impairment of assets

The carrying amounts of assets, including property, plant and equipment, construction in progress, lease prepayments and other assets, are reviewed at each balance sheet date to identify indicators that the assets may be impaired. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. For goodwill, the recoverable amount is estimated at each balance sheet date.

The recoverable amount is the greater of the fair value less costs to disposal and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

The amount of the reduction is recognised as an expense in the consolidated income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to disposal, or value in use, if determinable.

Management assesses at each balance sheet date whether there is any indication that an impairment loss recognised for an asset, except in the case of goodwill, in prior years may no longer exist. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognised as an income. The reversal is reduced by the amount that would have been recognised as depreciation had the write-down or write-off not occurred. An impairment loss in respect of goodwill is not reversed.

(p) Trade, bills and other payables

Trade, bills and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(q) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the period of borrowings using the effective interest method.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(r) Provisions and contingent liability

A provision is recognised for liability of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, when it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group's expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest cost, is reflected as an adjustment to the provision and oil and gas properties.

(s) Revenue recognition

Revenue arises in the course of the Group's ordinary activities, and increases in economic benefits in the form of inflows that result in an increase in equity, other than those relating to contributions from equity participants.

The Group sells crude oil, natural gas, petroleum and chemical products, etc. Revenue is recogniesd according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset.

(i) Sales of goods

Sales are recognised when control of the goods have transferred, being when the products are delivered to the customer. Advance from customers but goods not yet delivered is recorded as contract liabilities and is recognised as revenues when a customer obtains control over the relevant goods.

(ii) Accounting policy applied until 31 December 2017

The Group has applied IFRS 15 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy.

Revenues associated with the sale of crude oil, natural gas, petroleum and chemical products and ancillary materials are recorded when the customer accepts the goods and the significant risks and rewards of ownership and title have been transferred to the buyer. Revenue from the rendering of services is recognised in the consolidated income statement upon performance of the services. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

(t) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(u) Borrowing costs

Borrowing costs are expensed in the consolidated income statement in the period in which they are incurred, except to the extent that they are capitalised as being attributable to the construction of an asset which necessarily takes a period of time to get ready for its intended use.

(v) Repairs and maintenance expenditure

Repairs and maintenance expenditure is expensed as incurred.

(w) Environmental expenditures

Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed as incurred.

Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures.

(x) Research and development expense

Research and development expenditures that cannot be capitalised are expensed in the period in which they are incurred. Research and development expense amounted to RMB 7,956 million for the year ended 31 December 2018 (2017: RMB 6,423 million).

(y) Operating leases

Operating lease payments are charged to the consolidated income statement on a straight-line basis over the period of the respective leases.

(z) Employee benefits

The contributions payable under the Group's retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 38.

Termination benefits, such as employee reduction expenses, are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(aa) Income tax

Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes only to the extent that it is probable that future taxable income will be available against which the assets can be utilised. Deferred tax is calculated on the basis of the enacted tax rates or substantially enacted tax rates that are expected to apply in the period when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited to other comprehensive income or directly in equity.

The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability within the same legal tax unit and jurisdiction to the extent appropriate, and is not available for set off against the taxable profit of another legal tax unit. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(bb) Dividends

Dividends and distributions of profits proposed in the profit appropriation plan which will be authorized and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared.

(cc) Segment reporting

Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group's chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group's various lines of business.

3 TURNOVER

Turnover primarily represents revenue from the sales of crude oil, refined petroleum products, chemical products and natural gas.

	2018	2017
	RMB million	RMB million
Crude oil	519,910	421,585
Gasoline	711,236	600,113
Diesel	594,008	503,406
Basic chemical feedstock	250,884	205,722
Kerosene	168,823	115,739
Synthetic resin	124,618	107,633
Natural gas	43,205	34,277
Synthetic fiber monomers and polymers	77,572	61,998
Others(i)	335,357	249,997
	2,825,613	2,300,470

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

4 OTHER OPERATING REVENUES

	2018	2017
	RMB million	RMB million
Sale of materials and others	64,503	58,930
Rental income	1,063	793
	65,566	59,723

5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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

	2018	2017
	RMB million	RMB million
Operating lease charges	12,297	12,104
Auditor's remuneration:
- audit services	94	72
- others	9	5
Impairment losses:
- trade accounts receivable	6	(51)
- other receivables	9	159
- accounts prepayments	29	2

6 PERSONNEL EXPENSES

	2018	2017
	RMB million	RMB million
Salaries, wages and other benefits	68,425	65,873
Contributions to retirement schemes (Note 38)	9,296	8,981
	77,721	74,854

7 TAXES OTHER THAN INCOME TAX

	2018	2017
	RMB million	RMB million
Consumption tax (i)	201,901	192,907
City construction tax (ii)	18,237	18,274
Education surcharge	13,187	13,811
Resources tax	6,021	4,841
Others	7,152	5,459
	246,498	235,292

Note:

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

	Effective from
Products	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

	2018	2017
	RMB million	RMB million
Government grant (i)	7,539	4,893
Ineffective portion of change in fair value of cash flow hedges	(1,978)	(813)
Net realised and unrealised gain/(loss) on derivative financial instruments not qualified as hedging	191	(909)
Impairment losses on long-lived assets (ii)	(6,281)	(21,258)
Loss on disposal of property, plant, equipment and other non-currents assets, net	(1,526)	(1,518)
Fines, penalties and compensations	(276)	(89)
Donations	(180)	(152)
Gain on remeasurement of interests in the Shanghai SECCO (Note 36)	-	3,941
Others	(2,849)	(649)
	(5,360)	(16,554)

Note:

(i) Government grants for the years ended 31 December 2018 and 2017 primarily represent financial appropriation income and non-income tax refunds received from respective government agencies without conditions or other contingencies attached to the receipts of the grants.

(ii) Impairment losses on long-lived assets for the year ended 31 December 2018 primarily represent impairment losses recognised in the exploration and production ("E&P") segment of RMB 4,274 million (2017: RMB 13,556 million), the chemicals segment of RMB 1,374 million (2017: RMB 4,922 million) and for the refining segment of RMB 353 million (2017: RMB 1,894 million), most of which are impairment losses on property, plant and equipment. The primary factor resulting in the E&P segment impairment loss was downward revision of oil and gas reserve in certain fields. The carrying values of these E&P properties were written down to recoverable amounts which were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2017: 10.47%). Further future downward revisions to the Group's oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 312 million (2017: RMB 3,145 million). It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 315 million (2017: RMB 2,659 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in less impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 5 million (2017: additional RMB 461 million). The assets in the refining segment were written down due to the suspension of operations of certain production facilities, while the assets in the chemical segment were written down because of evidence indicates the economic performance of certain production facilities are worse than expected and due to the suspension of operations of certain production facilities.

9 INTEREST EXPENSE

	2018	2017
	RMB million	RMB million
Interest expense incurred	6,376	6,368
Less: Interest expense capitalised*	(493)	(723)
	5,883	5,645
Accretion expenses (Note 33)	1,438	1,501
Interest expense	7,321	7,146
* Interest rates per annum at which borrowing costs were capitalised for construction in progress	2.37% to 4.66%	2.37% to 4.41%

10 INCOME TAX EXPENSE

Income tax expense in the consolidated income statement represents:

	2018	2017
	RMB million	RMB million
Current tax
- Provision for the year	27,176	26,668
- Adjustment of prior years	(719)	(72)
Deferred taxation (Note 28)	(6,244)	(10,317)
	20,213	16,279

Reconciliation between actual income tax expense and the expected income tax expense at applicable statutory tax rates is as follows:

	2018	2017
	RMB million	RMB million
Profit before taxation	99,110	86,697
Expected PRC income tax expense at a statutory tax rate of 25%	24,778	21,674
Tax effect of non-deductible expenses	2,351	1,905
Tax effect of non-taxable income	(5,033)	(5,939)
Tax effect of preferential tax rate (i)	(1,259)	(793)
Effect of income taxes at foreign operations	77	(1,394)
Tax effect of utilisation of previously unrecognised tax losses and temporary differences	(779)	(613)
Tax effect of tax losses not recognised	609	1,485
Write-down of deferred tax assets	188	26
Adjustment of prior years	(719)	(72)
Actual income tax expense	20,213	16,279

Note:

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
	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 (i)	224	179	65	-	468
Li Yunpeng	-	-	-	-	-
Yu Baocai (ii)	-	-	-	-	-
Ma Yongsheng (i)	53	328	14	-	395
Ling Yiqun (iii)	-	-	-	-	-
Liu Zhongyun (iii)	-	-	-	-	-
Li Yong (iii)	-	-	-	-	-
Wang Zhigang (iv)	21	456	6	-	483
Zhang Haichao (iv)	-	-	-	-	-
Jiao Fangzheng (v)	-	-	-	-	-
Independent non-executive directors
Tang Min	-	-	-	333	333
Fan Gang	-	-	-	333	333
Cai Hongbin (iii)	-	-	-	233	233
Johnny Karling Ng (iii)	-	-	-	233	233
Jiang Xiaoming (vi)	-	-	-	125	125
Andrew Y. Yan (vi)	-	-	-	125	125
Supervisors
Zhao Dong	-	-	-	-	-
Jiang Zhenying	-	-	-	-	-
Yang Changjiang (iii)	-	-	-	-	-
Zhang Baolong (iii)	-	-	-	-	-
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

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
	2017
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
Wang Yupu(vii)	-	-	-	-	-
Dai Houliang	227	537	76	-	840
Li Yunpeng	-	-	-	-	-
Wang Zhigang	207	487	76	-	770
Zhang Haichao	-	-	-	-	-
Jiao Fangzheng	-	-	-	-	-
Ma Yongsheng	-	-	-	-	-
Independent non-executive directors
Jiang Xiaoming	-	-	-	300	300
Andrew Y. Yan	-	-	-	300	300
Tang Min	-	-	-	300	300
Fan Gang	-	-	-	300	300
Supervisors
Zhao Dong	-	-	-	-	-
Liu Zhongyun	-	-	-	-	-
Zhou Hengyou	-	-	-	-	-
Zou Huiping	207	480	71	-	758
Jiang Zhenying	207	480	71	-	758
Yu Renming	207	480	71	-	758
Yu Xizhi	122	103	42	-	267
Liu Yun(vii)	-	-	-	-	-
Wang Yajun(vii)	51	349	17	-	417
Total	1,228	2,916	424	1,200	5,768

Notes:

(i) Mr. Ma Yongsheng was appointed as president from 30 October 2018. Mr. Dai Houliang ceased being president and executive director and was elected as non-executive director from 30 October 2018.

(ii) Mr. Yu Baocai was elected to be director from 23 October 2018.

(iii) Mr. Ling Yiqun was elected to be director from 15 May 2018; Mr. Liu Zhongyun was elected to be director from 15 May 2018; Mr. Li Yong was elected to be director from 15 May 2018; Mr. Cai Hongbin was elected to be independent non-executive director from 15 May 2018; Mr. Johnny Karling Ng was elected to be independent non-executive director from 15 May 2018; Mr. Yang Changjiang was elected to be supervisor from 15 May 2018; Mr. Zhang Baolong was elected to be supervisor from 15 May 2018;

(iv) Mr. Wang Zhigang ceased being director from 29 January 2018; Mr. Zhang Haichao ceased being director from 29 January 2018.

(v) Mr. Jiao Fangzheng ceased being director from 7 June 2018.

(vi) Mr. Jiang Xiaoming ceased being independent non-executive director from 15 May 2018; Mr. Andrew Y. Yan ceased being independent non-executive director from 15 May 2018.

(vii) Mr. Wang Yupu ceased being chairman and independent director from 22 September 2017; Mr. Liu Yun ceased being supervisor and chairman of board of supervisor from 16 March 2017; Mr. Wang Yajun ceased being supervisor from 28 June 2017.

12 SENIOR MANAGEMENT'S EMOLUMENTS

For the year ended 31 December 2018, the five highest paid individuals in the Company included two supervisors and three senior management. The emolument paid to each of two supervisors and three senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 5,089 thousand, and the total amount of their retirement scheme contributions was RMB 370 thousand. For the year ended 31 December 2017, the five highest paid individuals in the Company included one director and four senior management.

13 DIVIDENDS

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

	2018	2017
	RMB million	RMB million
Dividends declared and paid during the year of RMB 0.16 per share (2017: RMB 0.10 per share)	19,371	12,107
Dividends declared after the balance sheet date of RMB 0.26 per share (2017: RMB 0.40 per share)	31,479	48,428
	50,850	60,535

Dividends payable to shareholders of the Company attributable to the previous financial year, approved during the year represent:

	2018	2017
	RMB million	RMB million
Final cash dividends in respect of the previous financial year, approved during the year of RMB 0.40 per share (2017: RMB 0.17 per share)	48,428	20,582

14 OTHER COMPREHENSIVE INCOME

	2018			2017
	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	(12,500)	2,159	(10,341)	(1,314)	240	(1,074)
Amounts transferred to initial carrying
amount of hedged items	-	-	-	(4)	1	(3)
Reclassification adjustments for amounts
transferred to the consolidated income statement	730	(130)	600	(575)	72	(503)
Net movement during the year
recognised in other comprehensive income(i)	(11,770)	2,029	(9,741)	(1,893)	313	(1,580)
Available-for-sale financial assets:
Changes in fair value recognised
during the year	-	-	-	(57)	-	(57)
Changes in the fair value of instruments at fair value through other comprehensive income	(41)	(12)	(53)	-	-	-
Net movement during the year
recognised in other comprehensive income	(41)	(12)	(53)	(57)	-	(57)
Share of other comprehensive profit
of associates and joint ventures	(240)	11	(229)	1,053	-	1,053
Foreign currency translation differences	3,399	-	3,399	(3,792)	-	(3,792)
Other comprehensive income	(8,652)	2,028	(6,624)	(4,689)	313	(4,376)

(i) As at 31 December 2018, cash flow hedge reserve amounted to a loss of RMB 4,932 million (31 December 2017: a loss of RMB 460 million), of which a loss of RMB 4,917 million was attribute to shareholders of the Company (31 December 2017: a loss of RMB 510 million).

15 BASIC AND DILUTED EARNINGS PER SHARE

The calculation of basic earnings per share for the year ended 31 December 2018 is based on the profit attributable to ordinary shareholders of the Company of RMB 61,618 million (2017: RMB 51,244 million) and the weighted average number of shares of 121,071,209,646 (2017: 121,071,209,646) during the year.

The calculation of diluted earnings per share for the year ended 31 December 2018 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 61,618 million (2017: RMB 51,242 million) and the weighted average number of shares of 121,071,209,646 (2017: 121,071,209,646) calculated as follows:

(i) Profit attributable to ordinary shareholders of the Company (diluted)

	2018	2017
	RMB million	RMB million
Profit attributable to ordinary shareholders of the Company	61,618	51,244
After tax effect of employee share option scheme of Shanghai Petrochemical	-	(2)
Profit attributable to ordinary shareholders of the Company (diluted)	61,618	51,242

(ii) Weighted average number of shares (diluted)

	2018	2017
	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 2017	114,920	650,685	892,936	1,658,541
Additions	854	1,627	11,983	14,464
Transferred from construction in progress	6,789	19,881	54,605	81,275
Reclassifications	(673)	(50)	723	-
Reclassification to lease prepayments and other long-term assets	(859)	(1,702)	(8,751)	(11,312)
Disposals	(878)	(211)	(10,985)	(12,074)
Exchange adjustments	(140)	(2,573)	(199)	(2,912)
Balance at 31 December 2017	120,013	667,657	940,312	1,727,982
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 lease prepayments and 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
Accumulated depreciation:
Balance at 1 January 2017	48,572	435,561	483,814	967,947
Depreciation for the year	4,075	55,057	46,585	105,717
Impairment losses for the year	554	8,832	10,450	19,836
Reclassifications	(122)	(77)	199	-
Reclassification to lease prepayments and other long-term assets	(238)	(1,305)	(2,682)	(4,225)
Disposals	(584)	(195)	(9,079)	(9,858)
Exchange adjustments	(57)	(2,056)	(96)	(2,209)
Balance at 31 December 2017	52,200	495,817	529,191	1,077,208
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 lease prepayments and other long-term assets	(120)	-	(1,390)	(1,510)
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
Net book value:
Balance at 1 January 2017	66,348	215,124	409,122	690,594
Balance at 31 December 2017	67,813	171,840	411,121	650,774
Balance at 31 December 2018	66,907	145,436	405,419	617,762

The additions to oil and gas properties of the Group for the year ended 31 December 2018 included RMB 1,567 million (2017: RMB 1,627 million) of estimated dismantlement costs for site restoration (Note 33).

At 31 December 2018 and 31 December 2017, the Group had no individually significant fixed assets which were pledged.

At 31 December 2018 and 31 December 2017, the Group had no individually significant fixed assets which were temporarily idle or pending for disposal.

At 31 December 2018 and 31 December 2017, the Group had no individually significant fully depreciated fixed assets which were still in use.

17 CONSTRUCTION IN PROGRESS

	2018	2017
	RMB million	RMB million
Balance at 1 January	118,645	129,581
Additions	108,555	85,552
Dry hole costs written off	(6,921)	(6,876)
Transferred to property, plant and equipment	(73,210)	(81,229)
Reclassification to lease prepayments and other long-term assets	(10,066)	(7,773)
Impairment losses for the year	(28)	(252)
Disposals	(19)	(315)
Exchange adjustments	7	(43)
Balance at 31 December	136,963	118,645

As at 31 December 2018, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 7,296 million (2017: RMB 9,737 million). The geological and geophysical costs paid during the year ended 31 December 2018 were RMB 3,511 million (2017: RMB 3,710 million).

18 GOODWILL

	31 December	31 December
	2018	2017
	RMB million	RMB million
Cost	16,537	16,495
Less: Accumulated impairment losses	(7,861)	(7,861)
	8,676	8,634

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
		2018	2017
		RMB million	RMB million
Sinopec Beijing Yanshan Petrochemical Branch ("Sinopec Yanshan")	Manufacturing of intermediate petrochemical products and petroleum products	1,004	1,004
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") (Note36)	Production and sale of petrochemical products	2,541	2,541
Sinopec (Hong Kong) Limited	Trading of petrochemical products	921	879
Other units without individually significant goodwill		167	167
		8,676	8,634

19 INTEREST IN ASSOCIATES

The Group's investments in associates are with companies primarily engaged in the oil and gas, petrochemical, and marketing and distribution operations in the PRC.

The Group's principal associates are as follows:

Name of company	% of ownership interests	Principal activities	Measurement method	Country of incorporation	Principal place of business
Sinopec Sichuan To East China Gas	50.00	Operation of natural gas	Equity method	PRC	PRC
Pipeline Co., Ltd. ("Pipeline Ltd")		pipelines and auxiliary
		facilities
Sinopec Finance Company Limited	49.00	Provision of non-banking	Equity method	PRC	PRC
("Sinopec Finance")		financial services
PAO SIBUR Holding ("SIBUR")	10.00	Processing natural gas	Equity method	Russia	Russia
		and manufacturing
		petrochemical products
Zhongtian Synergetic Energy Company Limited	38.75	Mining coal and manufacturing of	Equity method	PRC	PRC
("Zhongtian Synergetic Energy")		coal-chemical products
Caspian Investments Resources Ltd. ("CIR") extraction	50.00	Crude oil and natural gas extraction	Equity method	British Virgin Islands	The Republic of Kazakhstan

Summarised financial information and reconciliation to their carrying amounts in respect of the Group's principal associates:

	Pipeline Ltd		Sinopec Finance		SIBUR(i)		Zhongtian Synergetic Energy		CIR
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	12,498	11,317	209,837	161,187	22,502	20,719	7,477	8,232	6,712	5,612
Non-current assets	39,320	40,972	16,359	17,782	170,796	158,938	49,961	51,553	1,828	1,673
Current liabilities	(1,020)	(933)	(200,402)	(154,212)	(23,293)	(20,554)	(7,252)	(10,668)	(961)	(908)
Non-current liabilities	(3,026)	(3,176)	(332)	(6)	(58,628)	(61,771)	(31,436)	(31,494)	(673)	(170)
Net assets	47,772	48,180	25,462	24,751	111,377	97,332	18,750	17,623	6,906	6,207
Net assets attributable to owners of the Company	47,772	48,180	25,462	24,751	110,860	96,761	18,750	17,623	6,906	6,207
Net assets attributable to non-controlling interests	-	-	-	-	517	571	-	-	-	-
Share of net assets from associates	23,886	24,090	12,476	12,128	11,086	9,676	7,266	6,829	3,453	3,104
Carrying Amounts	23,886	24,090	12,476	12,128	11,086	9,676	7,266	6,829	3,453	3,104

Summarised statement of comprehensive income

Year ended 31 December	Pipeline Ltd		Sinopec Finance		SIBUR(i)		Zhongtian Synergetic Energy		CIR
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	4,746	5,644	4,536	3,542	59,927	52,496	12,235	3,569	2,856	2,563
Profit/(loss) for the year	2,022	2,543	1,868	1,536	10,400	9,601	1,142	123	583	(610)
Other comprehensive (loss)/income	-	-	(157)	(246)	6,410	(260)	-	-	116	(334)
Total comprehensive income/(loss)	2,022	2,543	1,711	1,290	16,810	9,341	1,142	123	699	(944)
Dividends declared by associates	1,207	-	490	-	271	221	-	-	-	-
Share of profit/(loss) from associates	1,011	1,272	915	753	1,040	960	443	48	292	(305)
Share of other comprehensive (loss) / income from associates (ii)	-	-	(77)	(121)	641	(26)	-	-	58	(167)

The share of profit and other comprehensive loss for the year ended 31 December 2018 in all individually immaterial associates accounted for using equity method in aggregate was RMB 3,550 million (2017: RMB 3,182 million) and RMB 844 million (2017: other comprehensive income RMB 569 million) respectively. As at 31 December 2018, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 31,370 million (2017: RMB 23,899 million).

Notes:

(i) Sinopec is able to exercise significant influence in SIBUR since Sinopec has a member in SIBUR's Board of Director and has a member in SIBUR's Management Board.

(ii) Including foreign currency translation differences.

20 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

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
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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	7,388	5,772	1,582	1,800	3,406	2,352	930	4,916	5,110	6,524
Other current assets	9,248	11,013	5,795	5,335	3,689	2,462	10,267	10,816	4,007	2,709
Total current assets	16,636	16,785	7,377	7,135	7,095	4,814	11,197	15,732	9,117	9,233
Non-current assets	19,271	19,740	11,086	12,075	9,216	7,978	51,873	51,553	13,990	13,248
Current liabilities
Current financial liabilities	(1,200)	(1,135)	(725)	(233)	(59)	(20)	(4,806)	(5,407)	(500)	(1,236)
Other current liabilities	(4,939)	(5,049)	(1,822)	(1,982)	(2,124)	(1,914)	(12,217)	(11,864)	(2,507)	(4,546)
Total current liabilities	(6,139)	(6,184)	(2,547)	(2,215)	(2,183)	(1,934)	(17,023)	(17,271)	(3,007)	(5,782)
Non-current liabilities
Non-current financial liabilities	(12,454)	(13,654)	(218)	(955)	(72)	(72)	(32,364)	(35,619)	(3,651)	(4,101)
Other non-current liabilities	(279)	(236)	(17)	(19)	(2,271)	(2,686)	(937)	(890)	(331)	(41)
Total non-current liabilities	(12,733)	(13,890)	(235)	(974)	(2,343)	(2,758)	(33,301)	(36,509)	(3,982)	(4,142)
Net assets	17,035	16,451	15,681	16,021	11,785	8,100	12,746	13,505	16,118	12,557
Net assets attributable to owners of the company	17,035	16,451	15,681	16,021	11,373	7,818	12,746	13,505	16,118	12,557
Net assets attributable to non-controlling interests	-	-	-	-	412	282	-	-	-	-
Share of net assets from joint ventures	8,518	8,226	6,272	6,409	5,573	3,831	4,780	5,064	8,059	6,279
Carrying Amounts	8,518	8,226	6,272	6,409	5,573	3,831	4,780	5,064	8,059	6,279

20 INTEREST IN JOINT VENTURES (Continued)

Summarised statement of comprehensive income

Year ended 31 December	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	52,469	49,356	21,574	21,020	14,944	12,520	77,561	61,587	23,501	22,286
Depreciation, depletion and amortisation	(2,250)	(16)	(1,521)	(1,793)	(664)	(715)	(2,823)	(2,763)	(1,104)	(36)
Interest income	157	208	41	36	141	142	101	45	169	104
Interest expense	(647)	(857)	(43)	(71)	(151)	(142)	(1,382)	(1,382)	(167)	(223)
Profit/(loss) before taxation	3,920	6,977	3,625	4,565	3,493	1,697	(1,569)	548	3,916	5,113
Tax expense	(935)	(1,699)	(897)	(1,151)	(729)	(553)	(249)	57	(993)	(1,279)
Profit/(loss) for the year	2,985	5,278	2,728	3,414	2,764	1,144	(1,818)	605	2,923	3,834
Other comprehensive income/(loss)	-	-	-	-	921	25	1,059	(554)	-	-
Total comprehensive income/(loss)	2,985	5,278	2,728	3,414	3,685	1,169	(759)	51	2,923	3,834
Dividends declared by joint ventures	1,200	1,250	1,226	1,109	-	-	-	-	-	1,375
Share of net profit/(loss) from joint ventures	1,493	2,639	1,091	1,366	1,307	541	(682)	227	1,462	1,917
Share of other comprehensive income/ (loss) from joint ventures	-	-	-	-	435	12	397	(208)	-	-

21 LEASE PREPAYMENTS

	2018	2017
	RMB million	RMB million
Cost:
Balance at 1 January	75,728	68,467
Additions	249	2,614
Transferred from construction in progress	7,829	4,151
Transferred from other long-term assets	1,402	3,987
Reclassification to other assets	(544)	(2,603)
Disposals	(152)	(531)
Exchange adjustments	219	(357)
Balance at 31 December	84,731	75,728
Accumulated amortisation:
Balance at 1 January	17,202	14,226
Amortisation charge for the year	2,519	2,076
Transferred from other long-term assets	617	2,027
Reclassification to other assets	(154)	(770)
Disposals	(31)	(266)
Exchange adjustments	64	(91)
Balance at 31 December	20,217	17,202
Net book value:	64,514	58,526

22 LONG-TERM PREPAYMENTS AND OTHER ASSETS

	31 December	31 December
	2018	2017
	RMB million	RMB million
Operating rights of service stations	34,934	34,268
Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries	26,513	20,726
Prepayments for construction projects to third parties	5,502	4,999
Others (i)	24,459	21,989
Balance at 31 December	91,408	81,982

Note:

(i) Others mainly comprise prepaid operating lease charges and catalyst expenditures.

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:

	2018	2017
	RMB million	RMB million
Operating rights of service stations
Cost:
Balance at 1 January	48,613	36,908
Additions	3,948	11,837
Decreases	(345)	(132)
Balance at 31 December	52,216	48,613
Accumulated amortisation:
Balance at 1 January	14,345	10,012
Additions	3,019	4,361
Decreases	(82)	(28)
Balance at 31 December	17,282	14,345
Net book value at 31 December	34,934	34,268

23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	31 December	31 December
	2018	2017
	RMB million	RMB million
Structured deposit	25,550	51,196
Equity investments, listed and at quoted market price	182	-
	25,732	51,196

The financial assets are the structured deposit with financial institutions, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period.

24 DERIVATIVES FINANCIAL ASSETS AND DERIVATIVES FINANCIAL LIABILITIES

Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps. See Note 41.

25 TRADE ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE

	31 December	31 December
	2018	2017
	RMB million	RMB million
Amounts due from third parties	50,108	56,203
Amounts due from Sinopec Group Company and fellow subsidiaries	3,170	7,941
Amounts due from associates and joint ventures	4,321	4,962
	57,599	69,106
Less: Impairment losses for bad and doubtful debts	(606)	(612)
Trade accounts receivable, net	56,993	68,494
Bills receivable	7,886	16,207
	64,879	84,701

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

	31 December	31 December
	2018	2017
	RMB million	RMB million
Within one year	64,317	83,984
Between one and two years	353	573
Between two and three years	124	43
Over three years	85	101
	64,879	84,701

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

	2018	2017
	RMB million	RMB million
Balance at 1 January	612	683
Provision for the year	83	49
Written back for the year	(77)	(100)
Written off for the year	(19)	(21)
Others	7	1
Balance at 31 December	606	612

Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from Sinopec Group Company and fellow subsidiaries are repayable under the same terms.

Trade accounts receivable and bills receivables (net of impairment losses for bad and doubtful debts) primarily represent receivables that are neither past due nor impaired. These receivables relate to a wide range of customers for whom there is no recent history of default.

Information about the impairment of trade accounts receivable and the Group's exposure to credit risk can be found in Note 41.

26 INVENTORIES

	31 December	31 December
	2018	2017
	RMB million	RMB million
Crude oil and other raw materials	85,469	85,975
Work in progress	13,690	14,774
Finished goods	88,929	84,448
Spare parts and consumables	2,872	2,651
	190,960	187,848
Less: Allowance for diminution in value of inventories	(6,376)	(1,155)
	184,584	186,693

The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 2,366,199 million for the year ended 31 December 2018 (2017: RMB 1,854,629 million). It includes the write-down of inventories of RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products (2017: RMB 436 million mainly related to the spare parts and consumables in refining segment and chemical segment).

27 PREPAID EXPENSES AND OTHER CURRENT ASSETS

	31 December	31 December
	2018	2017
	RMB million	RMB million
Other receivables	26,455	17,704
Advances to suppliers	5,937	4,901
Value-added input tax to be deducted	21,331	17,926
Prepaid income tax	300	398
	54,023	40,929

28 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
	2018	2017	2018	2017
	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,563	381	-	-
Payables	1,808	1,925	-	-
Cash flow hedges	1,131	165	(27)	(50)
Property, plant and equipment	15,427	14,150	(8,666)	(9,928)
Tax losses carried forward	3,709	2,325	-	-
Available-for-sale financial assets	-	117	-	-
Financial assets at fair value through other comprehensive income	117	-	(1)	-
Intangible assets	474	227	(535)	(563)
Others	174	180	(428)	(264)
Deferred tax assets/(liabilities)	25,403	19,470	(9,657)	(10,805)

At 31 December 2018, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 18,308 million (2017: RMB 20,821 million), of which RMB 2,437 million (2017: RMB 5,938 million) was incurred for the year ended 31 December 2018, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 2,373 million, RMB 3,887 million, RMB 3,673 million, RMB 5,938 million and RMB 2,437 will expire in 2019, 2020, 2021, 2022,2023 and after, respectively.

28 DEFERRED TAX ASSETS AND LIABILITIES (Continued)

Movements in the deferred tax assets and liabilities are as follows:

		Recognised in	Recognised
	Balance at	consolidated	in other		Acquisition of	Balance at
	1 January 2017	income statement	comprehensive income	Others	Shanghai SECCO	31 December 2017
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	87	300	(5)	(1)	-	381
Payables	391	1,534	-	-	-	1,925
Cash flow hedges	(215)	9	313	8	-	115
Property, plant and equipment	(3,351)	8,475	287	(8)	(1,181)	4,222
Tax losses carried forward	2,477	(135)	(17)	-	-	2,325
Available-for-sale financial assets	-	117	-	-	-	117
Intangible assets	260	(27)	-	-	(569)	(336)
Others	(96)	44	4	-	(36)	(84)
Net deferred tax (liabilities)/assets	(447)	10,317	582	(1)	(1,786)	8,665


		Recognised in	Recognised
	Balance at	consolidated	in other		Transferred	Balance at
	1 January 2018	income statement	comprehensive income	Others	from reserve	31 December 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

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

Short-term debts represent:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Third parties' debts
Short-term bank loans	17,088	31,105
RMB denominated	13,201	23,685
US Dollar ("USD") denominated	3,887	7,420
Short-term other loans	300	299
RMB denominated	300	299
Current portion of long-term bank loans	12,074	1,402
RMB denominated	12,039	1,379
USD denominated	35	23
Current portion of long-term corporate bonds	-	22,532
RMB denominated	-	16,000
USD denominated	-	6,532
	12,074	23,934
	29,462	55,338
Loans from Sinopec Group Company and fellow subsidiaries
Short-term loans	27,304	23,297
RMB denominated	3,061	1,706
USD denominated	22,780	19,668
Hong Kong Dollar ("HKD") denominated	1,441	1,903
EUR denominated	22	-
Singapore Dollar ("SGD") denominated	-	20
Current portion of long-term loans	4,361	2,014
RMB denominated	4,361	2,014
	31,665	25,311
	61,127	80,649

The Group's weighted average interest rates on short-term loans were 3.37% (2017: 2.72 %) at 31 December 2018. The above borrowings are unsecured.

29 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)

Long-term debts represent:

		31 December	31 December
	Interest rate and final maturity	2018	2017
		RMB million	RMB million
Third parties' debts
Long-term bank loans
RMB denominated	Interest rates ranging from 1.08% to 4.66% per annum at 31 December 2018 with maturities through 2033	31,025	25,644
USD denominated	Interest rates ranging from 1.55% to 4.29% per annum at 31 December 2018 with maturities through 2031	109	192
		31,134	25,836
Corporate bonds (i)
RMB denominated	IFixed interest rates ranging from 3.70% to 4.90% per annum at 31 December 2018 with maturity through 2022	20,000	36,000
USD denominated	Fixed interest rates ranging from 3.13% to 4.25% per annum at 31 December 2018 with maturities through 2043	11,951	17,902
		31,951	53,902
Total third parties' long-term debts		63,085	79,738
Less: Current portion		(12,074)	(23,934)
		51,011	55,804
Long-term loans from Sinopec Group Company and fellow subsidiaries
RMB denominated	Interest rates ranging from interest free to 4.99% per annum at 31 December 2018 with maturities through 2030	46,877	45,334
Less: Current portion		(4,361)	(2,014)

		42,516	43,320
		93,527	99,124

Short-term and long-term bank loans, short-term other loans and loans from Sinopec Group Company and fellow subsidiaries are primarily unsecured and carried at amortised cost.

Note:

(i) These corporate bonds are carried at amortised cost. At 31 December 2018, RMB 11,951 million (2017: RMB 17,902 million) (USD denominated corporate bonds) are guaranteed by Sinopec Group Company.

30 TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE

	31 December	31 December
	2018	2017
	RMB million	RMB million
Amounts due to third parties	170,818	177,224
Amounts due to Sinopec Group Company and fellow subsidiaries	9,142	13,350
Amounts due to associates and joint ventures	6,381	9,499
	186,341	200,073
Bills payable	6,416	6,462
Trade accounts and bills payables measured at amortised cost	192,757	206,535

The ageing analysis of trade accounts and bills payables are as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Within 1 month or on demand	182,763	195,189
Between 1 month and 6 months	6,670	8,076
Over 6 months	3,324	3,270
	192,757	206,535

31 CONTRACT LIABILITIES

As at 31 December 2018, the Group's contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year.

As at 1 January 2018, the Group's contract liabilities was RMB 120,734 million, of which RMB 119,138 million was recognised as revenue in 2018.

32 OTHER PAYABLES

	31 December	31 December
	2018	2017
	RMB million	RMB million

Salaries and welfare payable	7,312	7,162
Interest payable	634	723
Payables for constructions	54,992	60,010
Other payables	22,852	29,028
Financial liabilities carried at amortised costs	85,790	96,923
Taxes other than income tax	80,361	58,925
Receipts in advance (Note 1 (a))	-	120,734
	166,151	276,582

33 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:

	2018	2017
	RMB million	RMB million
Balance at 1 January	39,407	36,918
Provision for the year	1,567	1,627
Accretion expenses	1,438	1,501
Utilised for the year	(598)	(467)
Exchange adjustments	193	(172)
Balance at 31 December	42,007	39,407

34 SHARE CAPITAL

	31 December	31 December
	2018	2017
	RMB million	RMB million
Registered, issued and fully paid
95,557,771,046 listed A shares (2017: 95,557,771,046) of RMB 1.00 each	95,558	95,558
25,513,438,600 listed H shares (2017: 25,513,438,600) of RMB 1.00 each	25,513	25,513
	121,071	121,071

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.

During the year ended 31 December 2013, the Company issued 114,076 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2014, the Company issued 1,715,081,853 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2015, the Company issued 2,790,814,006 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

All A shares and H shares rank pari passu in all material aspects.

Capital management

Management optimises the structure of the Group's capital, which comprises of equity and debts. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion), including long-term debts and loans from Sinopec Group Company and fellow subsidiaries, by the total of equity attributable to shareholders of the Company and long-term loans (excluding current portion), and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management's strategy is to make appropriate adjustments according to the Group's operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2018, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 11.5% (2017: 12.0 %) and 46.2% (2017: 46.5 %), respectively.

The schedule of the contractual maturities of loans and commitments are disclosed in Notes 29 and 35, respectively.

35 COMMITMENTS AND CONTINGENT LIABILITIES

Operating lease commitments

The Group leases land and buildings, service stations and other equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contains escalation provisions that may require higher future rental payments.

At 31 December 2018 and 2017, the future minimum lease payments of the Group under operating leases are as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Within one year	15,625	11,114
Between one and two years	14,668	11,492
Between two and three years	13,986	10,730
Between three and four years	13,734	10,552
Between four and five years	13,494	10,428
Thereafter	281,287	202,806
	352,794	257,122

Capital commitments

At 31 December 2018 and 2017, the capital commitments of the Group are as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Authorised and contracted for (i)	141,045	120,386
Authorised but not contracted for	54,392	57,997
	195,437	178,383

Note:

(i) The investment commitments of the Group is RMB 5,553 million (2017: RMB 3,364 million).

Commitments to joint ventures

Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices.

Exploration and production licenses

Exploration licenses for exploration activities are registered with the Ministry of Natural Resources. The maximum term of the Group's exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Natural Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group's production license is renewable upon application by the Group 30 days prior to expiration.

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually which are expensed. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2018 (2017: RMB 308 million).

Estimated future annual payments are as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Within one year	380	205
Between one and two years	79	83
Between two and three years	33	32
Between three and four years	28	28
Between four and five years	28	28
Thereafter	852	882
	1,400	1,258

35 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

Contingent liabilities

At 31 December 2018 and 2017, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Joint ventures	5,033	940
Associates(ii)	12,168	13,520
Others	7,197	9,732
	24,398	24,192

Management monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliabily estimable. At 31 December 2018 and 2017, it was not probable that the Group will be required to make payments under the guarantees. Thus no liability has been accrued for a loss related to the Group's obligation under these guarantee arrangements.

Note:

(ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. At 31 December 2018, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 12,168 million (2017: RMB 13,520 million).

Environmental contingencies

Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect management's ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material.

The Group paid normal routine pollutant discharge fees of approximately RMB 7,940 million in the consolidated financial statements for the year ended 31 December 2018 (2017: RMB 7,851 million).

Legal contingencies

36 BUSINESS COMBINATION

For the year ended 31 December 2018, significant business combination didn't occur in the Group.

Shanghai SECCO is principally engaged in the production and sale of petrochemical products including acrylonitrile, polystyrene, polyethylene, etc.

Based on the purchase price allocation performed, details of the purchase consideration, the net assets acquired and goodwill are as follows:

	RMB million
Purchase consideration:
Acquisition Date (26 October 2017)
- Cash consideration for the purchase of 50% equity interest acquired	10,135
- Acquisition-date fair value of the 50% equity interest held before the acquisition	10,135
Total purchase consideration	20,270

	Fair value at the Acquisition Date
	RMB million
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash and cash equivalents	5,653
Bills receivable	641
Inventories	1,702
Trade and other receivables	558
Prepayments	1,349
Other current assets	761
Total current assets	10,664
Property, plant and equipment, net	9,587
Lease prepayments	1,920
Intangible assets	1,017
Construction in progress	231
Long-term prepaid expenses	117
Deferred tax assets	11
Total non-current assets	12,883
Total assets	23,547
Trade and other payables	(2,115)
Advances received	(383)
Employee benefits payable	(96)
Tax payable	(1,438)
Total current liabilities	(4,032)
Deferred tax liabilities (Note 28)	(1,786)
Net assets acquired	17,729
Goodwill	2,541

As of Acquisition Date, a gain of RMB 3,941 million was recognised as a result of remeasuring the 50% equity interest held before the Transaction to its fair value, which is included in other operating (expense)/income in the Group's consolidated income statement for the year ended 31 December 2017.

Shanghai SECCO contributed revenue of RMB 5,222 million and net profit of RMB 726 million to the Group for the period from the Acquisition Date to 31 December 2017.

If the acquisition had occurred on 1 January 2017, consolidated pro-forma revenue and profit for the year ended 31 December 2017 would have been RMB 2,365,632 million and RMB 74,930 million respectively. These amounts have been calculated using the subsidiary's results and adjusting them for the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2017, together with the consequential tax effects.

37 RELATED PARTY TRANSACTIONS

Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to control or common control. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures

The Group is part of a larger group of companies under Sinopec Group Company, which is controlled by the PRC government, and has significant transactions and relationships with Sinopec Group Company and fellow subsidiaries. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business are as follows:

	Note	2018	2017
		RMB million	RMB million
Sales of goods	(i)	272,789	244,211
Purchases	(ii)	192,224	165,993
Transportation and storage	(iii)	7,319	7,716
Exploration and development services	(iv)	23,489	21,210
Production related services	(v)	28,472	20,824
Ancillary and social services	(vi)	6,664	6,653
Operating lease charges for land	(vii)	7,765	8,015
Operating lease charges for buildings	(vii)	521	510
Other operating lease charges	(vii)	869	626
Agency commission income	(viii)	113	127
Interest income	(ix)	848	807
Interest expense	(x)	1,110	554
Net deposits withdrawn from/(placed with) related parties	(ix)	6,457	(7,441)
Net funds obtained from related parties	(xi)	31,684	19,661

At 31 December 2018 and 2017, there was no guarantee given to banks by the Group in respect of banking facilities to related parties, except for the guarantees disclosed in Note 35.

The directors of the Company are of the opinion that the above transactions with related parties were conducted in the ordinary course of business and on normal commercial terms or in accordance with the agreements governing such transactions, and this has been confirmed by the independent non-executive directors.

Note:

(i) Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials.

(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.

37 RELATED PARTY TRANSACTIONS (Continued)

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued)

(vii) Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment.

(viii) Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company.

(ix) Interest income represents interest received from deposits placed with Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. The balance of deposits at 31 December 2018 was RMB 41,057 million (2017: RMB 47,514 million).

(x) Interest expense represents interest charges on the loans obtained from Sinopec Group Company and fellow subsidiaries.

(xi) The Group obtained loans, discounted bills and others from Sinopec Group Company and fellow subsidiaries.

‧ 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.

‧ On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on August 24, 2018, which took effect on January 1, 2019 and made adjustment to "Mutual Supply Agreement", "Agreement for Provision of Cultural and Educational, Health Care and Community Services", "Buildings Leasing Contract", "Intellectual Property Contract" and "Land Use Rights Leasing Contract" etc.,. The memorandum was effective since January 1, 2019. Sinopec Group Company agreed to lease 410 million square meters of land to the Company, and to adjust the total fee of land to about RMB 14 billion, according to the newly confirmed area of leasing land and the situation of land market.

37 RELATED PARTY TRANSACTIONS (Continued)

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued)

Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures included in the following accounts captions are summarised as follows:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Trade accounts receivable and bills receivable	7,555	13,174
Prepaid expenses and other current assets	7,665	5,633
Long-term prepayments and other assets	23,482	20,726
Total	38,702	39,533
Trade accounts payable and bills payable	17,530	24,104
Contract liabilities	3,273	-
Other payables	18,160	20,990
Other long-term liabilities	12,470	10,165
Short-term loans and current portion of long-term loans from Sinopec Group Company and fellow subsidiaries	31,665	25,311
Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries	42,516	43,320
Total	125,614	123,890

The long-term borrowings mainly include an interest-free loan with a maturity period of 20 years amounting to RMB 35,560 million from the Sinopec Group Company (a state-owned enterprise) through the Sinopec Finance. This borrowing is a special arrangement to reduce financing costs and improve liquidity of the Company during its initial global offering in 2000.

As at and for the year ended 31 December 2018, and as at and for the year ended 31 December 2017, no individually significant impairment losses for bad and doubtful debts were recognised in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures.

(b) Key management personnel emoluments

	2018	2017
	RMB'000	RMB'000
Short-term employee benefits	5,745	5,344
Retirement scheme contributions	351	424
	6,096	5,768

The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group's employee benefits plan are disclosed in Note 38. As at 31 December 2018 and 2017, the accrual for the contribution to post-employment benefit plans was not material.

37 RELATED PARTY TRANSACTIONS (Continued)

(d) Transactions with other state-controlled entities in the PRC

The Group is a state-controlled energy and chemical enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government through its government authorities, agencies, affiliations and other organisations (collectively referred as "state-controlled entities").

Apart from transactions with Sinopec Group Company and fellow subsidiaries, the Group has transactions with other state-controlled entities, include but not limited to the followings:

‧ sales and purchases of goods and ancillary materials;

‧ rendering and receiving services;

‧ lease of assets;

‧ depositing and borrowing money; and

‧ uses of public utilities.

These transactions are conducted in the ordinary course of the Group's business on terms comparable to those with other entities that are not state-controlled.

38 EMPLOYEE BENEFITS PLAN

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The Group is required to make contributions to the retirement plans at rates ranging from 13.0% to 20.0% of the salaries, bonuses and certain allowances of its staff. In addition, the Group provides a supplementary retirement plan for its staff at rates not exceeding 5% of the salaries. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. The Group's contributions for the year ended 31 December 2018 were RMB 9,296 million (2017: RMB 8,981 million).

39 SEGMENT REPORTING

Segment information is presented in respect of the Group's business segments. The format is based on the Group's management and internal reporting structure.

(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.

39 SEGMENT REPORTING (Continued)

The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and others businesses separately. The reportable segments are each managed separately because they manufacture and/or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics.

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

Assets and liabilities dedicated to a particular segment's operations are included in that segment's total assets and liabilities. Segment assets include all tangible and intangible assets, except for interest in associates and joint ventures, investments, deferred tax assets, cash and cash equivalents, time deposits with financial institutions and other unallocated assets. Segment liabilities exclude short-term debts, long-term debts, loans from Sinopec Group Company and fellow subsidiaries, income tax payable, deferred tax liabilities and other unallocated liabilities.

Information of the Group's reportable segments is as follows:

	2018	2017
	RMB million	RMB million
Turnover
Exploration and production
External sales	93,499	69,168
Inter-segment sales	95,954	77,804
	189,453	146,972
Refining
External sales	148,930	132,478
Inter-segment sales	1,109,088	874,271
	1,258,018	1,006,749
Marketing and distribution
External sales	1,408,989	1,191,902
Inter-segment sales	5,224	3,962
	1,414,213	1,195,864
Chemicals
External sales	457,406	373,814
Inter-segment sales	73,835	49,615
	531,241	423,429
Corporate and others
External sales	716,789	533,108
Inter-segment sales	650,271	440,303
	1,367,060	973,411
Elimination of inter-segment sales	(1,934,372)	(1,445,955)

Turnover	2,825,613	2,300,470
Other operating revenues
Exploration and production	10,738	10,533
Refining	5,389	5,104
Marketing and distribution	32,424	28,333
Chemicals	15,492	14,314
Corporate and others	1,523	1,439
Other operating revenues	65,566	59,723

Turnover and other operating revenues	2,891,179	2,360,193

39 SEGMENT REPORTING (Continued)

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

	2018	2017
	RMB million	RMB million
Result
Operating (loss)/profit
By segment
- Exploration and production	(10,107)	(45,944)
- Refining	54,827	65,007
- Marketing and distribution	23,464	31,569
- Chemicals	27,007	26,977
- Corporate and others	(9,293)	(4,484)
- Elimination	(3,634)	(1,655)
Total segment operating profit	82,264	71,470
Share of profits from associates and joint ventures
- Exploration and production	2,598	1,449
- Refining	109	989
- Marketing and distribution	3,155	2,945
- Chemicals	6,298	9,621
- Corporate and others	1,814	1,521
Aggregate share of profits from associates and joint ventures	13,974	16,525
Investment (losses)/income
- Exploration and production	(3)	40
- Refining	315	28
- Marketing and distribution	43	90
- Chemicals	596	86
- Corporate and others	920	18
Aggregate investment income	1,871	262
Net finance costs	1,001	(1,560)

Profit before taxation	99,110	86,697

	31 December	31 December
	2018	2017
	RMB million	RMB million
Assets
Segment assets
- Exploration and production	321,686	343,404
- Refining	271,356	273,123
- Marketing and distribution	317,641	309,727
- Chemicals	156,865	158,472
- Corporate and others	152,799	170,045
Total segment assets	1,220,347	1,254,771
Interest in associates and joint ventures	145,721	131,087
Available-for-sale financial assets	-	1,676
Financial assets at fair value through other comprehensive income	1,450	-
Deferred tax assets	21,694	15,131
Cash and cash equivalents, time deposits with financial institutions	167,015	165,004
Other unallocated assets	36,081	27,835
Total assets	1,592,308	1,595,504
Liabilities
Segment liabilities
- Exploration and production	94,170	99,568
- Refining	103,809	101,429
- Marketing and distribution	159,536	164,101
- Chemicals	37,413	35,293
- Corporate and others	144,216	117,781
Total segment liabilities	539,144	518,172
Short-term debts	29,462	55,338
Income tax payable	6,699	13,015
Long-term debts	51,011	55,804
Loans from Sinopec Group Company and fellow subsidiaries	74,181	68,631
Deferred tax liabilities	5,948	6,466
Other unallocated liabilities	29,328	25,188
Total liabilities	735,773	742,614

39 SEGMENT REPORTING (Continued)

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

	2018	2017
	RMB million	RMB million
Capital expenditure
Exploration and production	42,155	31,344
Refining	27,908	21,075
Marketing and distribution	21,429	21,539
Chemicals	19,578	23,028
Corporate and others	6,906	2,398
	117,976	99,384
Depreciation, depletion and amortisation
Exploration and production	60,331	66,843
Refining	18,164	18,408
Marketing and distribution	16,296	15,463
Chemicals	13,379	12,873
Corporate and others	1,797	1,723
	109,967	115,310
Impairment losses on long-lived assets
Exploration and production	4,274	13,556
Refining	353	1,894
Marketing and distribution	264	675
Chemicals	1,374	4,922
Corporate and others	16	211
	6,281	21,258

(2) Geographical information

	2018	2017
	RMB million	RMB million
External sales
Mainland China	2,119,580	1,758,365
Singapore	395,129	269,349
Others	376,470	332,479
	2,891,179	2,360,193

	31 December	31 December
	2018	2017
	RMB million	RMB million
Non-current assets
Mainland China	989,668	979,329
Others	50,892	48,572
	1,040,560	1,027,901

40 PRINCIPAL SUBSIDIARIES

At 31 December 2018, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group.

			Interests held
	Particulars	Interests	by non-
	of issued capital	held by the	controlling
Name of company	(million)	Company %	interests %	Principal activities
Sinopec Great Wall Energy & Chemical	RMB 22,761	100.00	-	Coal chemical industry investment
Company Limited				management, production and sale
				of coal chemical products
Sinopec Yangzi Petrochemical Company	RMB 15,651	100.00	-	Manufacturing of intermediate
Limited				petrochemical products and petroleum products
Sinopec Pipeline Storage & Transportation	RMB 12,000	100.00	-	Pipeline storage and transportation of crude oil
Company Limited
Sinopec Overseas Investment Holding	USD 1,662	100.00	-	Investment holding of overseas business
Limited ("SOIH")
Sinopec International Petroleum Exploration	RMB 8,000	100.00	-	Investment in exploration, production
and Production Limited ("SIPL")				and sale of petroleum and natural gas
Sinopec Yizheng Chemical Fibre Limited	RMB 4,000	100.00	-	Production and sale of polyester
Liability Company				chips 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	RMB 3,000	100.00	-	Trading of crude oil and
Chemical Company Limited				petrochemical products
Sinopec Qingdao Petrochemical Company	RMB 1,595	100.00	-	Manufacturing of intermediate petrochemical
Limited				products and petroleum products
Sinopec Catalyst Company Limited	RMB 1,500	100.00	-	Production and sale of catalyst products

China Petrochemical International Company	RMB 1,400	100.00	-	Trading of petrochemical products
Limited
Sinopec Chemical Sales Company Limited	RMB 1,000	100.00	-	Marketing and distribution of
				petrochemical products
Sinopec Beihai Refining and Chemical	RMB 5,294	98.98	1.02	Import and processing of crude oil, production,
Limited Liability Company				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 3,986	75.00	25.00	Manufacturing of intermediate petrochemical
Company Limited				products and petroleum products
Sinopec Marketing Co. Limited	RMB 28,403	70.42	29.58	Marketing and distribution of refined petroleum
("Marketing Company")				products
Shanghai SECCO Petrochemical Company	RMB 7,801	67.60	32.40	Production and sale of petrochemical products
Limited ("Shanghai SECCO") (Note 36)
Sinopec-SK (Wuhan) Petrochemical	RMB 6,270	65.00	35.00	Production, sale, research and development
Company Limited ("Zhonghan Wuhan")				of 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	RMB 10,824	50.44	49.56	Manufacturing of synthetic fibres, resin
Limited ("Shanghai Petrochemical")				and plastics, intermediate petrochemical
				products and petroleum products
Fujian Petrochemical Company Limited	RMB 8,140	50.00	50.00	Manufacturing of plastics,
("Fujian Petrochemical") (i)				intermediate petrochemical
				products and petroleum products

Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong respectively, all of the above principal subsidiaries are incorporated and operate their businesses principally in the PRC. All of the above principal subsidiaries are limited companies.

Note:

40 PRINCIPAL SUBSIDIARIES (Continued)

Summarised financial information on subsidiaries with material non-controlling interests

Set out below are the summarised financial information which the amount before inter-company eliminations for each subsidiary that has non-controlling interests that are material to the Group.

Summarised consolidated balance sheet

	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Zhonghan Wuhan
	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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	130,861	156,494	16,731	19,555	25,299	19,866	816	992	1,209	1,196	9,537	11,602	2,750	1,636
Current liabilities	(181,766)	(212,620)	(483)	(7,118)	(13,913)	(10,922)	(50)	(376)	(3,722)	(2,351)	(2,233)	(4,174)	(2,333)	(3,975)
Net current (liabilities)/ assets	(50,905)	(56,126)	16,248	12,437	11,386	8,944	766	616	(2,513)	(1,155)	7,304	7,428	417	(2,339)
Non-current assets	261,062	253,455	38,020	34,769	19,087	19,577	11,444	9,925	12,895	13,089	12,301	12,797	12,612	13,598
Non-current liabilities	(2,086)	(1,774)	(31,050)	(28,523)	(10)	(6)	(688)	(681)	(132)	(2,430)	(1,698)	(1,740)	-	-
Net non-current assets	258,976	251,681	6,970	6,246	19,077	19,571	10,756	9,244	12,763	10,659	10,603	11,057	12,612	13,598
Net assets	208,071	195,555	23,218	18,683	30,463	28,515	11,522	9,860	10,250	9,504	17,907	18,485	13,029	11,259
Attributable to owners of the Company	141,244	132,549	5,266	3,468	15,295	14,253	5,761	4,930	6,165	5,716	12,105	12,496	8,469	7,318
Attributable to non-controlling interests	66,827	63,006	17,952	15,215	15,168	14,262	5,761	4,930	4,085	3,788	5,802	5,989	4,560	3,941

Summarised consolidated statement of comprehensive income

	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO (ii)		Zhonghan Wuhan
Year ended 31 December	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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	1,443,698	1,221,530	5,037	6,136	107,689	91,962	5,261	6,068	1,398	1,498	26,320	5,222	17,134	16,139
Profit for the year	22,046	27,520	3,272	1,075	5,336	6,154	1,576	2,726	1,065	1,046	3,099	726	1,879	2,730
Total comprehensive income	22,589	26,986	4,536	396	5,336	6,153	1,576	2,726	1,067	1,146	3,099	726	1,879	2,730
Comprehensive income/ (loss) attributable to non-controlling interests	7,794	9,033	2,737	(38)	2,645	3,052	788	1,363	399	433	1,004	235	658	956
Dividends paid to non-controlling interests	3,964	9,544	-	-	1,616	1,344	600	625	104	70	1,191	-	-	-

Summarised statement of cash flows

	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO (ii)		Zhonghan Wuhan
Year ended 31 December	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
	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/ (used in) operating activities	24,825	51,038	3,467	2,758	6,659	7,061	38	(558)	738	968	3,766	1,639	3,308	2,976
Net cash generated from/(used in) investing activities	8,339	(35,738)	4,096	(2,211)	(1,928)	(2,401)	(215)	225	648	193	(480)	5,567	(3,099)	(2,415)
Net cash (used in)/generated from financing activities	(32,084)	(16,499)	(5,419)	243	(3,507)	(2,590)	43	(158)	(1,551)	(1,093)	(3,676)	-	525	(631)
Net increase/(decrease) in cash and cash equivalents	1,080	(1,199)	2,144	790	1,224	2,070	(134)	(491)	(165)	68	(390)	7,206	734	(70)
Cash and cash equivalents at 1 January	12,921	14,373	3,605	3,045	7,504	5,441	226	717	343	289	7,205	-	64	134
Effect of foreign currency exchange rate changes	141	(253)	244	(230)	14	(7)	-	-	20	(14)	2	(1)	-	-
Cash and cash equivalents at 31 December	14,142	12,921	5,993	3,605	8,742	7,504	92	226	198	343	6,817	7,205	798	64

(ii) The summarized consolidated statement of comprehensive income and the summarized statement of cash flow of Shanghai SECCO present the results from the acquisition date to 31 December 2017.

41 FINANCIAL RISK MANAGEMENT AND FAIR VALUES

Overview

Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, investments, financial assets at fair value through profit or loss, derivative financial assets, bills receivable, trade accounts receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due from associates and joint ventures, financial assets at fair value through other comprehensive income and other receivables. Financial liabilities of the Group include short-term debts, loans from Sinopec Group Company and fellow subsidiaries, derivative financial liabilities, bills payable, trade accounts payable, amounts due to Sinopec Group Company and fellow subsidiaries, other payables and long-term debts.

The Group has exposure to the following risks from its uses of financial instruments:

‧ credit risk;

‧ liquidity risk; and

‧ market risk.

The Board of Directors has overall responsibility for the establishment, oversight of the Group's risk management framework, and developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management controls and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group's audit committee.

Credit risk

(i) Risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposit) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's trade accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2018, except the amounts due from Sinopec Group Company and fellow subsidiaries. Management performs ongoing credit evaluations of the Group's customers' financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

The carrying amounts of cash and cash equivalents, time deposits with financial institutions, trade accounts and bills receivables, derivative financial instruments, financial assets at fair value through profit or loss and other receivables, represent the Group's maximum exposure to credit risk in relation to financial assets.

(ii) Impairment of financial assets

The Group's primary type of financial assets that are subject to the expected credit loss model is trade accounts receivables and other receivables.

The Group's cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified.

For trade accounts receivables, the group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivables.

To measure the expected credit losses, trade accounts receivables have been grouped based on shared credit risk characteristics and the days past due.

The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2018 or 1 January 2018, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

The detailed analysis of trade accounts receivables, based on which the Group generated its payment profile is listed in note 25.

All of the entity's other receivables (Note 25) are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months expected losses. The Group considers 'low credit risk' for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

41 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach in managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. Management prepares monthly cash flow budget to ensure that the Group will always have sufficient liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the Group's liquidity risk.

At 31 December 2018, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 387,748 million (2017: RMB 361,852 million) on an unsecured basis, at a weighted average interest rate of 3.87% per annum (2017: 3.40%). At 31 December 2018, the Group's outstanding borrowings under these facilities were RMB 21,236 million (2017: RMB 56,567 million) and were included in debts.

The following table sets out the remaining contractual maturities at the balance sheet date of the Group's financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would be required to repay:

	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
Derivatives 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

	31 December 2017
		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	55,338	56,562	56,562	-	-	-
Long-term debts	55,804	66,202	2,166	14,477	32,316	17,243
Loans from Sinopec Group Company and fellow subsidiaries	68,631	68,950	25,504	4,439	39,007	-
Derivatives financial liabilities	2,665	2,665	2,665	-	-	-
Trade accounts payable and bills payable	206,535	206,535	206,535	-	-	-
Other payables	96,923	96,923	96,923	-	-	-
	485,896	497,837	390,355	18,916	71,323	17,243

41 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Market risk

Currency risk

Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group's currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries denominated in USD. The Group enters into foreign exchange contracts to manage its currency risk exposure.

Included in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

	31 December	31 December
	2018	2017
	million	million
Gross exposure arising from loans
USD	668	204

A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2018 and 2017 would have increased/decreased net profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2017.

	31 December	31 December
	2018	2017
	million	million
USD	172	50

Interest rate risk

The Group's interest rate risk exposure arises primarily from its short-term and long-term debts. Debts bearing interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates of short-term and long-term debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 29.

As at 31 December 2018, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's net profit for the year by approximately RMB 424 million (2017: decrease/increase by approximately RMB 450 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group's debts outstanding at the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2017.

Commodity price risk

As at 31 December 2018, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. As at 31 December 2018, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 7,844 million (2017: RMB 515 million) and derivative financial liabilities of RMB 13,568 million (2017: RMB 2,624 million).

As at 31 December 2018, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would decrease/increase the Group's profit for the period by approximately RMB 197 million (2017: decrease/increase RMB 4,049 million), and increase/decrease the Group's other reserves by approximately RMB 6,850 million (2017: decrease/increase RMB 701 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2017.

41 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Fair values

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS 7, 'Financial Instruments: Disclosures', with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

At 31 December 2018

	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 deposit	-	-	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 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

At 31 December 2017

	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 deposit	-	-	51,196	51,196
Available-for-sale financial assets:
- Listed	178	-	-	178
Derivative financial assets:
- Derivative financial assets	343	183	-	526
	521	183	51,196	51,900
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	1,277	1,388	-	2,665
	1,277	1,388	-	2,665

During the years ended 31 December 2018 and 2017, there was no transfer between instruments in Level 1 and Level 2.

Management of the Group uses discounted cash flow model with inputted interest rate and commodity index, which were influenced by historical fluctuation and the probability of market fluctuation, to evaluate the fair value of the structural deposits classified as Level 3 financial assets.

41 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Fair values (Continued)

(ii) Fair values of financial instruments carried at other than fair value

The disclosures of the fair value estimates, and their methods and assumptions of the Group's financial instruments, are made to comply with the requirements of IFRS 7 and IFRS 9 and should be read in conjunction with the Group's consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group that range from 2.76% to 4.90% (2017: 1.79% to 4.90%). The following table presents the carrying amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2018 and 2017:

	31 December	31 December
	2018	2017
	RMB million	RMB million
Carrying amount	63,085	79,738
Fair value	62,656	78,040

The Group has not developed an internal valuation model necessary to estimate the fair values of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation, the Group's existing capital structure and the terms of the borrowings.

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2018 and 2017.

42 ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group's financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. Management bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of such policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 2. Management believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the consolidated financial statements.

42 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

Oil and gas properties and reserves

The accounting for the exploration and production's oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time.

Engineering estimates of the Group's oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as "proved". Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in relation to depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property's carrying amount.

Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment loss and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

Impairment for long-lived assets

If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered "impaired", and an impairment loss may be recognised in accordance with IAS 36 "Impairment of Assets". The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group's assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price, amount of operating costs and discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price, amount of operating costs and discount rate.

Depreciation

Property, plant and equipment, other than oil and gas properties, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group's historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

Measurement of expected credit losses

Allowance for diminution in value of inventories

43 PARENT AND ULTIMATE HOLDING COMPANY

The directors consider the parent and ultimate holding company of the Group as at 31 December 2018 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.

44 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

BALANCE SHEET OF THE COMPANY (Amounts in million)	Note	31 December	31 December
		2018	2017
		RMB	RMB
Non-current assets
Property, plant and equipment, net		302,048	329,814
Construction in progress		51,598	50,046
Investment in subsidiaries		251,970	245,156
Interest in associates		21,143	15,579
Interest in joint ventures		16,094	14,822
Available-for-sale financial assets		-	395
Financial assets at fair value through other comprehensive income		395	-
Deferred tax assets		11,021	6,834
Lease prepayments		7,101	6,916
Long-term prepayments and other assets		13,129	14,072
Total non-current assets		674,499	683,634
Current assets
Cash and cash equivalents		59,120	72,309
Time deposits with financial institutions		23,759	20,236
Financial assets at fair value through profit or loss		22,500	48,179
Trade accounts receivable and bills receivable		30,145	37,766
Dividends receivable		2,313	16,327
Inventories		45,825	44,933
Prepaid expenses and other current assets		73,442	79,111
Total current assets		257,104	318,861
Current liabilities
Short-term debts		14,511	33,454
Loans from Sinopec Group Company and fellow subsidiaries		5,815	3,214
Derivative financial liabilities		967	-
Trade accounts payable and bills payable		84,418	86,604
Contract liabilities		4,230	-
Other payables		178,936	194,291
Total current liabilities		288,877	317,563

Net current (liabilities)/assets		(31,773)	1,298
Total assets less current liabilities		642,726	684,932
Non-current liabilities
Long-term debts		27,200	40,442
Loans from Sinopec Group Company and fellow subsidiaries		40,904	43,225
Provisions		33,094	31,405
Other long-term liabilities		5,310	3,613
Total non-current liabilities		106,508	118,685

		536,218	566,247
Equity
Share capital		121,071	121,071
Reserves	(a)	415,147	445,176
Total equity		536,218	566,247

44 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued)

(a) RESERVES MOVEMENT OF THE COMPANY

The reconciliation between the opening and closing balances of each component of the Group's consolidated reserves is set out in the consolidated statement of changes in equity. Details of the change in the Company's individual component of reserves between the beginning and the end of the year are as follows:

	The Company
	2018	2017
	RMB million	RMB million
Capital reserve
Balance at 1 January	9,195	9,175
Others	6	20
Balance at 31 December	9,201	9,195
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	82,682	79,640
Appropriation	3,996	3,042
Balance at 31 December	86,678	82,682
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	2,460	2,438
Share of other comprehensive loss of associates and joint ventures, net of deferred tax	(64)	(120)
Cash flow hedges, net of deferred tax	(617)	53
Special reserve	507	89
Balance at 31 December	2,286	2,460
Retained earnings
Balance at 1 January	177,989	183,321
Profit for the year	38,460	30,488
Distribution to owners (Note 13)	(67,799)	(32,689)
Appropriation	(3,996)	(3,042)
Special reserve	(507)	(89)
Others	(15)	-

Balance at 31 December	144,132	177,989

	415,147	445,176

(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH 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
		2018	2017
		RMB million	RMB million
Shareholders' equity under CASs		857,659	854,070
Adjustments:
Government grants	(i)	(1,124)	(1,180)
Total equity under IFRS*		856,535	852,890

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

	Note	2018	2017
		RMB million	RMB million
Net profit under CASs		80,289	70,294
Adjustments:
Government grants	(i)	56	110
Safety production fund	(ii)	909	126
Others		(2,357)	(112)
Profit for the year under IFRS*		78,897	70,418

* The figures are extracted from the consolidated financial statements prepared in accordance with the accounting policies complying with IFRS during the year ended 31 December 2017 and 2018 which have been audited by PricewaterhouseCoopers.

(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 2018 and 2017, and for the years then ended in the following six separate tables. Tables I through III provide historical cost information under IFRS pertaining to capitalised costs related to oil and gas producing activities; costs incurred in oil and gas exploration and development; and results of operation related to oil and gas producing activities. Tables IV through VI present information on the Group's and its equity method investments' estimated net proved reserve quantities; standardised measure of discounted future net cash flows; and changes in the standardised measure of discounted cash flows.

Tables I to VI of supplemental information on oil and gas producing activities set out below represent information of the Company and its consolidated subsidiaries and equity method investments.

Table I: Capitalised costs related to oil and gas producing activities

			2018			2017
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Property cost, wells and related equipments and facilities	695,724	651,531	44,193	667,657	625,621	42,036
Supporting equipments and facilities	199,321	199,304	17	210,711	210,694	17
Uncompleted wells, equipments and facilities	40,778	40,770	8	41,397	41,389	8
Total capitalised costs	935,823	891,605	44,218	919,765	877,704	42,061
Accumulated depreciation, depletion, amortisation and impairment losses	(658,093)	(618,593)	(39,500)	(601,318)	(565,651)	(35,667)
Net capitalised costs	277,730	273,012	4,718	318,447	312,053	6,394
Equity method investments
Share of net capitalised costs of associates and joint ventures	6,304	-	6,304	6,357	-	6,357
Total of the Group's and its equity method investments' net capitalised costs	284,034	273,012	11,022	324,804	312,053	12,751

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

			2018			2017
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Exploration	12,108	12,108	-	11,589	11,589	-
Development	27,453	27,329	124	30,844	30,710	134
Total costs incurred	39,561	39,437	124	42,433	42,299	134
Equity method investments
Share of costs of exploration and development of associates and joint ventures	793	-	793	724	-	724
Total of the Group's and its equity method investments' exploration and development costs	40,354	39,437	917	43,157	42,299	858

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

			2018			2017
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Revenues
Sales	57,860	57,860	-	43,644	43,644	-
Transfers	89,569	84,532	5,037	73,447	67,311	6,136
	147,429	142,392	5,037	117,091	110,955	6,136
Production costs excluding taxes	(47,227)	(45,953)	(1,274)	(46,311)	(44,977)	(1,334)
Exploration expenses	(10,744)	(10,744)	-	(11,089)	(11,089)	-
Depreciation, depletion, amortisation and impairment losses	(62,832)	(60,877)	(1,955)	(80,399)	(74,856)	(5,543)
Taxes other than income tax	(11,400)	(11,400)	-	(8,726)	(8,726)	-
Profit before taxation	15,226	13,418	1,808	(29,434)	(28,693)	(741)
Income tax expense	709	-	709	1,188	-	1,188
Results of operation from producing activities	15,935	13,418	2,517	(28,246)	(28,693)	447
Equity method investments
Revenues
Sales	9,530	-	9,530	8,080	-	8,080
	9,530	-	9,530	8,080	-	8,080
Production costs excluding taxes	(2,455)	-	(2,455)	(2,748)	-	(2,748)
Exploration expenses	-	-	-	-	-	-
Depreciation, depletion, amortisation and impairment losses	(1,163)	-	(1,163)	(1,243)	-	(1,243)
Taxes other than income tax	(4,075)	-	(4,075)	(3,628)	-	(3,628)
Profit before taxation	1,837	-	1,837	461	-	461
Income tax expense	(667)	-	(667)	(347)	-	(347)
Share of profit for producing activities of associates and joint ventures	1,170	-	1,170	114	-	114
Total of the Group's and its equity method investments'
results of operations for producing activities	17,105	13,418	3,687	(28,132)	(28,693)	561

The results of operations for producing activities for the years ended 31 December 2018 and 2017 are shown above. Revenues include sales to unaffiliated parties and transfers (essentially at third-party sales prices) to other segments of the Group. Income taxes are based on statutory tax rates, reflecting allowable deductions and tax credits. General corporate overhead and interest income and expense are excluded from the results of operations.

Table IV: Reserve quantities information

The Group's and its equity method investments' estimated net proved underground oil and gas reserves and changes thereto for the years ended 31 December 2018 and 2017 are shown in the following table.

Proved oil and gas reserves are those quantities of oil and gas, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change as additional information becomes available.

Proved developed oil and gas reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

"Net" reserves exclude royalties and interests owned by others and reflect contractual arrangements and obligation of rental fee in effect at the time of the estimate.

Table IV: Reserve quantities information (Continued)

	2018			2017
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Proved developed and undeveloped reserves (oil) (million barrels)
Beginning of year	1,293	1,261	32	1,256	1,216	40
Revisions of previous estimates	160	158	2	151	148	3
Improved recovery	95	90	5	90	86	4
Extensions and discoveries	79	79	-	60	60	-
Production	(260)	(249)	(11)	(264)	(249)	(15)
End of year	1,367	1,339	28	1,293	1,261	32
Non-controlling interest in proved developed and undeveloped reserves at the end of year	12	-	12	14	-	14
Proved developed reserves
Beginning of year	1,156	1,124	32	1,120	1,080	40
End of year	1,271	1,244	27	1,156	1,124	32
Proved undeveloped reserves
Beginning of year	137	137	-	136	136	-
End of year	96	95	1	137	137	-
Proved developed and undeveloped reserves (gas) (billion cubic feet)
Beginning of year	6,985	6,985	-	7,160	7,160	-
Revisions of previous estimates	(40)	(40)	-	(107)	(107)	-
Improved recovery	142	142	-	72	72	-
Extensions and discoveries	680	680	-	769	769	-
Production	(974)	(974)	-	(909)	(909)	-
End of year	6,793	6,793	-	6,985	6,985	-
Proved developed reserves
Beginning of year	6,000	6,000	-	6,436	6,436	-
End of year	5,822	5,822	-	6,000	6,000	-
Proved undeveloped reserves
Beginning of year	985	985	-	724	724	-
End of year	971	971	-	985	985	-

Table IV: Reserve quantities information (Continued)

	2018			2017
			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	306	-	306	296	-	296
Revisions of previous estimates	12	-	12	12	-	12
Improved recovery	4	-	4	8	-	8
Extensions and discoveries	5	-	5	20	-	20
Production	(28)	-	(28)	(30)	-	(30)
End of year	299	-	299	306	-	306
Proved developed reserves
Beginning of year	273	-	273	273	-	273
End of year	261	-	261	273	-	273
Proved undeveloped reserves
Beginning of year	33	-	33	23	-	23
End of year	38	-	38	33	-	33
Proved developed and undeveloped reserves of associates and joint ventures (gas) (billion cubic feet)
Beginning of year	12	-	12	18	-	18
Revisions of previous estimates	2	-	2	(2)	-	(2)
Improved recovery	2	-	2	-	-	-
Extensions and discoveries	-	-	-	-	-	-
Production	(3)	-	(3)	(4)	-	(4)
End of year	13	-	13	12	-	12
Proved developed reserves
Beginning of year	12	-	12	18	-	18
End of year	13	-	13	12	-	12
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	1,599	1,261	338	1,552	1,216	336
End of year	1,666	1,339	327	1,599	1,261	338
Proved developed and undeveloped reserves (gas) (billion cubic feet)
Beginning of year	6,997	6,985	12	7,178	7,160	18
End of year	6,806	6,793	13	6,997	6,985	12

Table V: Standardised measure of discounted future net cash flows

The standardized measure of discounted future net cash flows, related to the above proved oil and gas reserves, is calculated in accordance with the requirements of "ASC Topic 932 Extractive Activities - Oil and Gas", "SEC Rule 4-10 of Regulation S-X", and "Industrial Information Disclosure Guidelines for Public Company - No.8 Oil and Gas Exploitation". Estimated future cash inflows from production are computed by applying the average, first-day-of-the-month price for oil and gas during the twelve-month period before the ending date of the period covered by the report to year-end quantities of estimated net proved reserves. Future price changes are limited to those provided by contractual arrangements in existence at the end of each reporting year. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end estimated proved reserves based on year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates to estimated future pre-tax net cash flows, less the tax basis of related assets. Discounted future net cash flows are calculated using 10% discount factors. This discounting requires a year-by-year estimate of when the future expenditure will be incurred and when the reserves will be produced.

The information provided does not represent management's estimate of the Group's and its equity method investments' expected future cash flows or value of proved oil and gas reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation requires assumptions as to the timing and amount of future development and production costs. The calculations are made for the years ended 31 December 2018 and 2017 and should not be relied upon as an indication of the Group's and its equity method investments' future cash flows or value of its oil and gas reserves.

			2018			2017
			RMB million			RMB million
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Future cash flows	868,058	854,563	13,495	639,336	628,187	11,149
Future production costs	(381,893)	(376,532)	(5,361)	(292,789)	(287,914)	(4,875)
Future development costs	(22,310)	(19,300)	(3,010)	(24,999)	(20,314)	(4,685)
Future income tax expenses	(42,728)	(40,651)	(2,077)	(1,374)	-	(1,374)
Undiscounted future net cash flows	421,127	418,080	3,047	320,174	319,959	215
10% annual discount for estimated timing of cash flows	(126,910)	(126,617)	(293)	(97,082)	(97,115)	33
Standardised measure of discounted future net cash flows	294,217	291,463	2,754	223,092	222,844	248
Discounted future net cash flows attributable to non-controlling interests	1,239	-	1,239	112	-	112
Equity method investments
Future cash flows	48,778	-	48,778	43,587	-	43,587
Future production costs	(12,462)	-	(12,462)	(12,131)	-	(12,131)
Future development costs	(4,433)	-	(4,433)	(4,692)	-	(4,692)
Future income tax expenses	(5,632)	-	(5,632)	(4,406)	-	(4,406)
Undiscounted future net cash flows	26,251	-	26,251	22,358	-	22,358
10% annual discount for estimated timing of cash flows	(13,012)	-	(13,012)	(9,803)	-	(9,803)
Standardised measure of discounted future net cash flows	13,239	-	13,239	12,555	-	12,555
Total of the Group's and its equity method investments' results of standardised measure of discounted future net cash flows	307,456	291,463	15,993	235,647	222,844	12,803

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

	2018	2017
	RMB million	RMB million
The Group
Sales and transfers of oil and gas produced, net of production costs	(88,802)	(62,054)
Net changes in prices and production costs	98,952	7,487
Net changes in estimated future development cost	(5,468)	(7,320)
Net changes due to extensions, discoveries and improved recoveries	41,385	29,799
Revisions of previous quantity estimates	22,040	20,608
Previously estimated development costs incurred during the year	9,507	5,747
Accretion of discount	22,405	20,909
Net changes in income taxes	(28,894)	(231)
Net changes for the year	71,125	14,945
Equity method investments
Sales and transfers of oil and gas produced, net of production costs	(3,001)	(1,704)
Net changes in prices and production costs	1,620	2,479
Net changes in estimated future development cost	(196)	(856)
Net changes due to extensions, discoveries and improved recoveries	341	1,205
Revisions of previous quantity estimates	818	688
Previously estimated development costs incurred during the year	272	206
Accretion of discount	1,196	967
Net changes in income taxes	(366)	(621)
Net changes for the year	684	2,364
Total of the Group's and its equity method investments' results of net changes for the year	71,809	17,309

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.

LEGAL REPRESENTATIVE

Mr. Dai Houliang

AUTHORISED REPRESENTATIVES

Mr. Ma Yongsheng

Mr. Huang Wensheng

SECRETARY TO THE BOARD

Mr. Huang Wensheng

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Zheng Baomin

REGISTERED ADDRESS AND PLACE OF BUSINESS

No.22 Chaoyangmen North Street,

Chaoyang District

Beijing, PRC

Postcode	:	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 22 March 2019 at the registered address of Sinopec Corp. upon requests by the relevant regulatory authorities and shareholders in accordance with the Articles of Association and the laws and regulations of PRC:

a) The original copies of the 2018 annual report signed by Mr. Dai Houliang, the Chairman;

b) The original copies of financial statements and consolidated financial statements as of 31 December 2018 prepared under IFRS and CASs, signed by Mr. Dai Houliang, the Chairman, Mr. Wang Dehua, the Chief Financial Officer and head of the financial department of Sinopec Corp.;

c) The original auditors' reports signed by the auditors; and

d) Copies of the documents and announcements that Sinopec Corp. has published in the newspapers designated by the CSRC during the reporting period.

By Order of the Board

Dai Houliang

Chairman

Beijing, PRC, 22 March 2019

If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR CKPDQOBKKKNB

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