SNP.L Regulatory News (SNP)

China Petroleum & Chemical Corporation

2018 Interim Report

24 August 2018

Beijing, China

CONTENTS

This interim report contains forward-looking statements. All statements, other than statements of historical facts, that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including, but not limited to projections, targets, reserves and other estimates and business plans) are forward-looking statements. The actual results or developments of the Company may differ materially from those forward-looking statements as a result of various factors and uncertainties. The Company makes the forward-looking statements referred to herein as at 24 August 2018 and, unless otherwise required by the relevant regulatory authorities, undertakes no obligation to update these statements.

COMPANY PROFILE

IMPORTANT NOTICE: THE BOARD OF DIRECTORS (BOARD) AND THE BOARD OF SUPERVISORS OF CHINA PETROLEUM & CHEMICAL CORPORATION (SINOPEC CORP.) AND ITS DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS CONTAINED IN THIS INTERIM REPORT, AND SEVERALLY AND JOINTLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS INTERIM REPORT. MR. DAI HOULIANG, CHAIRMAN OF THE BOARD AND PRESIDENT, AND MR. WANG DEHUA, CHIEF FINANCIAL OFFICER AND HEAD OF CORPORATE ACCOUNTING DEPARTMENT WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE INTERIM REPORT OF SINOPEC CORP. FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018.

THE INTERIM FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 OF SINOPEC CORP. AND ITS SUBSIDIARIES, PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (ASBE) OF THE PEOPLES REPUBLIC OF CHINA (PRC), AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS), HAVE NOT BEEN AUDITED.

COMPANY PROFILE

Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include exploration and production, pipeline transportation, and sale of petroleum and natural gas; production, sale, storage and transportation of refining products, petrochemical products, coalchemical products, synthetic fibre, and other chemical products; import and export, including 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 interim report, unless the context otherwise requires, the following terms shall have the meaning 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

CSRC: China Securities Regulatory Commission;

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

Hong Kong Listing Rules: Rules governing the listing of securities on The Stock Exchange of Hong Kong Limited.

CONVERSIONS

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

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

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

Refinery throughput: 1 tonne = 7.35 barrels.

BASIC INFORMATION

LEGAL NAME

中国石油化工股份有限公司

CHINESE ABBREVIATION

中国石化

ENGLISH NAME

China Petroleum & Chemical Corporation

ENGLISH ABBREVIATION

Sinopec Corp.

LEGAL REPRESENTATIVE

Mr. Dai Houliang

AUTHORISED REPRESENTATIVES UNDER THE HONG KONG LISTING RULES

Mr. Dai Houliang

Mr. Huang Wensheng

SECRETARY TO THE BOARD

Mr. Huang Wensheng

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Zheng Baomin

REGISTERED ADDRESS, PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS

22 Chaoyangmen North Street,

Chaoyang District, Beijing, China

Postcode: 100728

Tel: 86-10-59960028

Fax: 86-10-59960386

Website:http://www.sinopec.com/listco

E-mail:ir@sinopec.com

CHANGE OF INFORMATION DISCLOSURE MEDIA AND ACCESS PLACES

There was no change to Sinopec Corp's information disclosure media and access place during the reporting period.

PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES

A Shares: Shanghai Stock Exchange

Stock name: 中国石化

Stock code: 600028

H Shares: Hong Kong Stock Exchange

Stock code: 00386

ADR: New York Stock Exchange

Stock code: SNP

London Stock Exchange

Stock code: SNP

Change of registration during the reporting period

On 8 June 2018, Sinopec Corp. renewed its Business License, whereas the Legal Representative was changed to Mr. Dai Houliang.

PRINCIPAL FINANCIAL DATA AND INDICATORS

1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH ASBE

(1) Principal accounting data

(2) Principal financial indicators

(3) Extraordinary items and corresponding amounts:

2 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS

(1) Principal accounting data

(2) Principal financial indicators

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

1 CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP.

During the reporting period, there was no change in the nature and number of shares of Sinopec Corp.

2 NUMBER OF SHAREHOLDERS AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

As at 30 June 2018 there were a total of 457,903 shareholders of Sinopec Corp., of which 452,051 were holders of A shares and 5,852 were holders of H shares. The public float of Sinopec Corp. satisfied the minimum requirements under the Hong Kong Listing Rules.

(1) Top ten shareholders as of 30 June 2018 Unit: share

Notes:

1. As compared with the number of shares as at 31 December 2017.

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

Statement on the connected relationship or acting in concert among the aforementioned shareholders:

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

(2) Information disclosed by H share shareholders in accordance with the Securities and Futures Ordinance (SFO) as of 30 June 2018

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

3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER

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

CHAIRMAN'S STATEMENT

Dear Shareholders and Friends,

On 15 May 2018, shareholders of Sinopec Corp. elected the members of the seventh session of the board of directors (the "Board") at the annual general meeting. It is my honour to be elected as a board member and the chairman of the Board. There are four independent non-executive directors on the Board and the nomination committee is formed, the Company's corporate governance structure is further enhanced. On behalf of the Board, I would like to express my sincere gratitude to you all for your trust and support!

Since the establishment of the Company, each and every session of the boards and management teams has led and motivated our staff to pioneer in innovation and to propel the Company to forge ahead. Riding on the robust growth of China's economy, the Company expanded the operational scale and reinforced our competitive edges substantially, hence laying a solid foundation for our sustainable development. In the first half of this year, the Company closely followed the macro-environment and planned strategically with the whole domain. We carried out businesses in a practical manner and fully realised the strengths of our integrated value chain to improve profitability. While stepping up efforts to strengthen production and operations and pursue market expansion, we took various measures to optimise our corporate structure, deepen reform, and enhance management standards, work safety and environment protection. Remarkable progress and achievements were made in our endeavours. We secured stable and higher-quality growth of the Company along with improved performance. Our operational results for the reporting period substantially improved when compared with the same period last year.

In accordance with the International Financial Reporting Standards, the Company recorded turnover and other operating revenue of RMB 1.3 trillion for the first half of 2018, representing an 11.5% year-on-year growth. Profit attributable to shareholders of the Company surged by 51.8% year-on-year to RMB 42.4 billion. Earnings per share reached RMB 0.35. The asset-liability ratio was 47.1% as at the end of the reporting period. Taken into account the Company's profitability, cash flow, shareholder returns and the future development, the Board resolved to pay an interim dividend of RMB 0.16 per share, representing a 60% growth from a year ago.

While China's economy is entering a period of important strategic opportunities, it gains a strong foothold for its long-term development. The energy sector is undergoing a profound transformation. We are also experiencing an unprecedented boom in technological innovations. The Company will therefore take a proactive approach to adapt to changes in the macro-environment and grasp the opportunities that may arise. We will implement the strategies for the next two Three-Year periods and another two decades period going forward to drive our sustainable development, insist on deepening reform and ensure a full compliance with laws and regulations in corporate governance. The advantages created by the Party building will be utilised to promote our corporate development. By adhering to the guiding principles of "reform, management, innovation and development", we will ensure our comprehensive, sustainable and high-quality development and strive to become a long-lasting world-class energy and chemical company.

The board of directors approved Sinopec Corp.'s Three-Year Rolling Development Program for 2018-2020. Going forward, Sinopec Corp. will continue to implement the strategies of "value-orientation, innovation-driven, integrated resource allocation, openness to cooperation, and green and low carbon growth". We will deepen the supply-side structural reform, make technological innovation as the primary driving force for development, reinforce our value chain, consolidate traditional businesses, strengthen extended businesses, cultivate new businesses and seize the opportunities brought forth by the "Belt and Road" initiative to expand overseas operations. Our efforts are to make substantial progress by strengthening our core competence and extending our value chain to middle-end and high-end.

We will accelerate the development of traditional businesses. As for upstream, we will ensure stable oil output, increase gas production, reduce costs and boost efficiency. At the same time, we will reinforce our resources base by placing emphasis on expanding proved reserves through high-efficiency exploration. While attaching great importance to production quality, efficiency enhancement and cost management, we will step up efficient plan to stabilise oil production. Meanwhile, we will concentrate on resources coordination, pipeline networks and marketing to promote a rapid and sustainable development of natural gas business. As for refining, we will pursue structural adjustments, improve production efficiency and profitability, increase the concentration of production capacity and speed up the construction of large-scale refining and chemical bases such as Maoming-Zhanjiang Base. In response to the changes in market demand, we will accelerate the improvement in production facilities and product mix and promote the upgrading of refined oil products. As for marketing distribution, we will coordinate efforts to strengthen our network and reinforce our competitive advantages. We will focus on developing a premier marketing network with better logistic support, expand proprietary trade, enlarge operational scale, optimize non-fuel business, improvement in services. As for chemical, we will continue to adhere to the "basic + high-end" principle and speed up the pace of optimisation and adjustment: we will expand production capacity through the construction of refining and chemical bases to enhance our competitive advanced capacity and optimise our feedstock structure. Moreover, we will vigorously promote the upgrading of three major synthetic materials and the development of new materials and drive the development of fine chemical, biochemical and coal-chemical products in an orderly manner. The sales volume of our chemical products will be further enhanced through the integration of "production, marketing, and research and development" to enhance our competitiveness in the market.

We will accelerate to realise the coordination of extended business. We will expand the value chain of our natural gas operation, actively exploring direct distribution to high-end users and the vehicle and vessel gas market. With the support of "Internet Plus" business model, we will develop our service station into a Life-Style comprehensive station. Meanwhile, our logistic network will be further strengthened through the enhancement of storage and transportation facilities as well as the accelerated development of aviation fuel, natural gas and chemicals storage and transportation facilities. We will also optimise our global trading network, expand new energy trading operation on a timely basis, and vigorously develop our E-commerce and Internet of Things network, thereby facilitating the integration of our trading and services businesses and creating an E-commerce ecosystem for petrochemical industry, and substantially improving our operating efficiency and coordination capability.

We will accelerate the cultivation of new drivers for sustainable development. By utilising Sinopec Capital Co., Ltd., as an investment platform jointly set up by the Company and Sinopec Group, we will focus on strategic emerging businesses which have synergies with our traditional business such as new energy, new materials, energy-saving and environmental friendly products and intelligent manufacturing, and grasp the strategic opportunities to facilitate the Company's sustainable and high-quality development.

We will accelerate to achieve new advantages in green development. By improving HSSE management system, creating a long-term work safety management mechanism, promoting the comprehensive implementation of 'Green Enterprise Campaign', improving our energy efficiency, and promoting resource recycling, we will make the green and safe development as our core competence.

While opportunities and challenges coexist, glory comes from struggle. I am confident that Sinopec Corp. will have a brighter future under your patronage. I believe that with your continuing support, the Board and management team will not lose sight of our objectives. We will lead the entire staff to drive the sustainable and healthy growth of Sinopec Corp, giving back to our country, shareholders, employees, customers and the society by delivering better operating results.

Dai Houliang

Chairman and President

Beijing, China

24 August 2018

Business Review and Prospects

BUSINESS REVIEW

In the first half of 2018, global economy recorded slow recovery, while China economy, maintained an overall stable performance securing progress in its economic development with gross domestic product (GDP) grew by 6.8%. While the domestic demand for oil products maintained steady growth, the market witnessed strong competition because of abundant supply. According to the statistics of NDRC, domestic consumption of refined oil products increased by 5.7% compared with the first half of 2017, among which gasoline consumption increased by 4.6%, consumption growth for kerosene and diesel was 10.9% and 5.6%, respectively. Domestic demand for natural gas recorded higher growth rate, up by 17.5% compared with the first half of 2017. Domestic consumption of major chemicals maintained significant growth with consumption of ethylene equivalent up by 9.3% year on year, and gross margin for chemical products remained at a high level.

For the first half of 2018, international crude oil prices fluctuated with upward trend. The average spot price of Platts Brent for the first half of 2018 was USD 70.55 per barrel, increased by 36.2% year on year.

1 OPERATIONS REVIEW

(1) Exploration and production

In the first half of 2018, capturing the recovery of crude oil price, the Company promoted efficient exploration and effective production to increase proved reserves, reduced costs and expenses and achieved good results. Our continuing efforts in exploration paid off with new oil and gas discoveries in Sichuan Basin, Tarim Basin, and Yin'e Basin. In development, we adopted a profit-oriented approach in resumption of crude oil production.) We also accelerated natural gas development by enhancing production-supply-storage-marketing system building to realise synergy along the entire value chain. Production in the first half of 2018 was 224.59 million barrels of oil equivalent, of which domestic crude production was 123.68 million barrels, overseas crude production was 19.95 million barrels, and total gas production was 476.2 billion cubic feet, increased by 5.3% compared to the same period of last year.

Exploration and Production: Summary of Operations

(2) Refining

In the first half of 2018, with the market-oriented approach, we optimised product mix to produce more gasoline and jet fuel, and the diesel-to-gasoline ratio further decreased. We actively promoted the GB VI refined oil products quality upgrading. Export of refined oil products was increased to help maintain high utilisation of refining facilities. Crude oil sourcing and allocation optimisation continued to lower our feedstock cost. We comprehensively optimised our production plans to ensure safe and reliable operations. The advantage of centralised marketing was given full play, and profitability of LPG, asphalt, and sulphur maintained at a high level. In the first half of 2018, we processed 121 million tonnes of crude oil, and produced 76.37 million tonnes of refined oil products, with production of gasoline and kerosene up by 5.7% and 9.4% respectively from levels in the first half of 2017.

Refining: Summary of Operations Unit: million tonnes

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

(3) Marketing and distribution

In the first half of 2018, confronted with fierce competition, the Company brought our advantages in distribution network into full play, and achieved good operational results. We coordinated internal and external resources, intensified efforts to explore more markets, expanded retail scale, and achieved sustained growth in total domestic sales volume. We proactively promoted precision marketing and differentiated marketing, and improved our marketing network to reinforce existing advantages. The total sales volume of refined oil products in the first half of 2018 was 96.48 million tonnes, of which domestic sales accounted for 88.45 million tonnes, up by 1.4% year on year. We strengthened development of key convenience store goods and proprietary brand to promote a rapid growth of non-fuel business.

Marketing and Distribution: Summary of Operations

(4) Chemicals

In the first half of 2018, we constantly fine-tuned chemical feedstock mix to further lower costs, optimised product mix by enhancing the dynamic optimisation of facilities and product chains to provide more products needed by the market. We strengthened the integration among production, marketing, R&D, and application, and intensified efforts on R&D, production and sales of high value-added products, with the ratio of specialty products of synthetic resin reached 64.0% and our differential ratio of synthetic fibre reached 90.3%. Ethylene production for the first half of 2018 was 5.786 million tonnes, up by 3.2% year on year. We coordinated internal and external resources, implemented precision marketing and further expanded the market, with total chemical sales volume increased by 14.1% from the corresponding period in 2017 to 42.56 million tonnes.

Major Chemical Products: Summary of Operations Unit: 1,000 tonnes

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

2. SAFETY MANAGEMENT AND ENVIRONMENTAL PROTECTION

The Company prioritised safe production and intensified safety supervision. In the first half of this year, we promote the construction of tiered risk control and operation hazard identification, prevention and rectification system. We advanced safety control of contractors and on-site operation, enhanced process safety of chemicals business, security and staff healthy management, and further consolidated the foundation of safe production at operational level. Above all, we achieved safe production and operations.

The Company actively implemented its green and low-carbon strategy and launched "Green Enterprise Campaign". We effectively carried out pollution prevention and control and constantly pushed forward energy efficiency improvement. We also accelerated carbon asset management and made great progress in energy and environment work.

3. CAPITAL EXPENDITURES

Focusing on quality and return on investment, the Company continuously optimised its investment projects. In the first half of 2018, total capital expenditures were RMB 23.687 billion. Capital expenditures for the exploration and production segment were RMB 10.762 billion, mainly for oil and gas capacity building, Wen 23 Gas Storage Project, Erdos-Anping-Cangzhou Gas Pipeline Project, the first phase of Xinjiang Coal Gas Pipeline Project as well as overseas projects. Capital expenditures for the refining segment were RMB 4.61 billion, mainly for the Zhongke integrated refining and chemical project, product mix optimisation of Zhenhai, Maoming and Tianjin, and GB VI gasoline and diesel quality upgrading projects. Capital expenditures for the marketing and distribution segment were RMB 5.373 billion, mainly for constructing refined oil products depots, pipelines and service stations and revamping of underground oil tanks, as well as other safety and environmental protection hazard removal projects. Capital expenditures for the chemicals segment were RMB 2.635 billion, mainly for integrated refining and chemical projects of Zhongke and Gulei, high-efficiency and environment-friendly aromatics project in Hainan and Zhong'an United Coal Chemical project. Capital expenditures for corporate and others were RMB 307 million, mainly for R&D facilities and information technology application projects.

BUSINESS PROSPECTS

Looking into the second half of 2018, we expect China's economy to maintain steady growth and the demand for refined oil products and petrochemicals to increase steadily with more robust demand for high-end products. Along with the adjustments of China's energy structure, demand for natural gas will maintain robust growth. For the second half of 2018, the uncertainty of international crude oil prices will increase due to trade frictions and geopolitical tensions.

Confronted with the present situation, the Company will integrate reform, management, innovation and development, to fully improve operational performances, expand markets, reduce costs, prevent risks and realise structural adjustments. Our focuses are on the following aspects:

For Exploration and Production, we will continue to advance high-efficiency exploration, profitable production and cost reduction. In crude oil development, we will accelerate profitable development of new oilfields and resumed production of suspended wells, deepen the structural adjustments of mature fields, and increase yields of profitable crude oil. In natural gas development, we will advance key projects for capacity construction, enhance the efficiency and quality of developed gas fields, as well as promote synergy of production, supply, storage and marketing to push forward the development of natural gas. In the second half of 2018, we plan to produce 146 million barrels of crude oil, of which domestic production will account for 125 million barrels and overseas production will account for 21 million barrels. We plan to produce 497.8 billion cubic feet of natural gas during the period.

For Refining, with efficiency-oriented approach, we will optimise our production plans based on market demand to consolidate our competitive advantages in refining business. We will continue to adjust our product mix by further lowering the diesel-to-gasoline ratio and increasing the production of gasoline, jet fuel and light chemical feedstock. We will complete GB VI refined oil products upgrading project as scheduled. We will fully optimise operations and ensure safe and stable production, and we plan to process 121 million tonnes of crude oil in the second half of the year.

For Marketing and Distribution, we will intensify our marketing strategy of balancing profit and volume by optimising resources allocation and operational efficiency. We will make efforts to expand retail scale through implementing precision marketing as well as differentiated marketing. We will further improve our marketing network to reinforce existing advantages and enhance the ability of exporting refined oil products. We will push forward the construction and operation of natural gas stations and expand natural gas market for automobiles. We will take the advantage of "Internet +" marketing strategy and accelerate the development and marketing of proprietary brand and products to advance the growth of non-fuel business. In the second half, we plan to sell 90.50 million tonnes of refined oil products in the domestic market in the second half of 2018.

For Chemicals, we will focus on the"basic and high-end" development concept to adjust our feedstock structure and lower cost. We will fine-tune our product slate, improve the coordination among mechanism combining production, marketing, research and application, advance new product development, promotion and application, and deliver more high-end products. We will put more emphasis on the dynamic optimisation of facilities and product chains and improving the utilisation and production scheduling based on market demands. Meanwhile, we will promote the precision marketing and services, improve customer services and provide total solutions and value-added services. We plan to produce 5.734 million tonnes of ethylene in the second half of 2018.

In the second half of the year, the Company will continue to focus on growth pattern upgrading, insist on specialised development, market-oriented operation, optimised global presence and integrated planning to enhance efficiency and deliver superior operating results.

MANAGEMENT'S DISCUSSION AND ANALYSIS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S INTERIM FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING FINANCIAL DATA, UNLESS OTHERWISE STATED, WERE CONSISTENT WITH THE COMPANY'S INTERIM FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO IFRS.

1 CONSOLIDATED RESULTS OF OPERATIONS

In the first half of 2018, the Company's turnover and other operating revenues were RMB 1,300.3 billion, representing an increase of 11.5% year on year, and operating profit was RMB 61.6 billion, representing an increase of 56.6% year on year.

The following table sets forth the principal revenue and expenses items from the Company's consolidated financial statements for the first half of 2018 and the corresponding period in 2017:

(1) Turnover and other operating revenues

In the first half of 2018, the Company's turnover was RMB 1,268.8 billion, representing an increase of 11.5% year on year. The change was mainly attributable to the increase of international crude oil prices as well as the Company's efforts in exploiting our advantages in distribution network, implementing precision marketing, coordinating internal and external resources and expanding the market in the market competition.

The following table sets forth the external sales volume, average realised prices and respective change rates of the Company's major products in the first half of 2018 as compared with the first half of 2017.

Most of the crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production with the remaining sold to other customers. In the first half of 2018, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 41.1 billion, increased by 24.5% year on year, accounting for 3.2% of the Company's turnover and other operating revenues. The change was mainly attributable to the increase of realised price of crude oil and natural gas, and external sales volume as the Company seized the opportunity of crude oil price recovery to expedite crude oil capacity reconstruction and promote the building of natural gas production-supply-stroage-sale system.

Petroleum products (mainly consisting of oil products and other refined petroleum products) sold externally by the Refining Segment and the Marketing and Distribution Segment achieved external sales revenues of RMB 718.6 billion, representing an increase of 9.9% year on year and accounting for 55.3% of the Company's turnover and other operating revenues. Those changes were mainly due to the rise of downstream product prices, high utilisation rates maintained by the Company when actively respond to the challenge of market over-supply, as well as increase of gasoline sales volume as the result of actively expanding market and promoting sales. The sales revenue of gasoline, diesel and kerosene was RMB 610.6 billion, representing an increase of 10.3% year on year, accounting for 85.0% of the sales revenue of petroleum products. Sales revenue of other refined petroleum products was RMB 108.0 billion, representing an increase of 7.6% year on year, accounting for 15.0% of the sales revenue of petroleum products.

The Company's external sales revenue of chemical products was RMB 218.8 billion, representing an increase of 22.5% year on year, accounting for 16.8% of its turnover and other operating revenues. The change was mainly due to the increases in chemical product sales volume and prices as the result of the Company seizing opportunities to expand trade scale and explore market.

(2) Operating expenses

In the first half of 2018, the Company's operating expenses were RMB 1,238.7 billion, representing an increase of 10.0% year on year. The change was mainly due to the increase of crude oil prices and relevant petroleum and petrochemical products prices. The operating expenses mainly consisted of the following:

Purchased crude oil, products and operating supplies and expenses were RMB 994.8 billion, representing an increase of 12.1% year on year, accounting for 80.3% of total operating expenses, of which:

‧ Crude oil purchasing expenses were RMB 314.5 billion, representing an increase of 30.0% year on year. Throughput of crude oil purchased externally in the first half of 2018 was 98.25 million tonnes (excluding the volume processed for third parties), increased by 10.8% year on year. The average cost of crude oil purchased externally was RMB 3,201 per tonne, increased by 17.3% year on year.

‧ The Company's purchasing expenses of refined oil products were RMB 160.8 billion, representing an increase of 9.6% over the same period of 2017.

‧ The Company's purchasing expense related to trading activities were RMB 263.6 billion, representing an increase of 3.0% over the same period of 2017. This was mainly due to the increase in prices of purchased crude oil and refined oil.

‧ Other purchasing expenses were RMB 255.9 billion, increased by 5.6% year on year. The change was mainly due to the upward trend of other petrochemical market and the increase in prices of petrochemical products over the same period of 2017.

Selling, general and administrative expenses of the Company totalled RMB 31.3 billion, representing an increase of 4.0% year on year. This was mainly because the Company increased input in research and development activities and promoted sales volume resulting in rise of freight and miscellaneous fee.

Depreciation, depletion and amortisation expenses of the Company were RMB 51.9 billion, representing a decrease of 6.0% year on year. This was mainly due to the decrease of depletion rate as the Company's proved reserves increased following the increase of crude oil price.

Exploration expenses in the first half of 2018 were RMB 4.4 billion, representing a decrease of 4.0% year on year. This was mainly due to the Company's constant strengthening of exploration investment control to increase success rate of exploration operation.

Personnel expenses were RMB 37.3 billion, representing an increase of 19.2% year on year. The change was mainly due to: the Company achieved strong result and increased personnel remuneration in 2017, which leads to the increased base of social insurance, housing fund and enterprise annuity in 2018, thus increased fringe payment; Shanghai SECCO was consolidated into the financial statement of the Company at the end of 2017; as the Company improved its profit significantly in the first half of 2018, income of employee was increased accordingly in line with its incentive mechanism.

Taxes other than income tax were RMB 118.7 billion, representing an increase of 2.1% year on year.

Net other operating income were RMB 0.2 billion, representing a decrease of 88.8% year on year. This was mainly due to the decrease of the impairment of oil and gas assets.

(3) Operating profit

In the first half of 2018, the Company's operating profit was RMB 61.6 billion, representing an increase of 56.6% year on year. This was mainly due to significant decrease of losses in upstream business and steady increase of earning in midstream and downstream businesses.

(4) Net finance costs

In the first half of 2018, the Company's net finance costs were RMB 0.3 billion, down by RMB 1.0 billion, representing a decrease of 79.6% year on year, which was mainly because the Company enhanced cash flow management and increased cash at bank and on hand. The Company also gained interest income by cash management and optimised debt structure by replacing loans with favourable rates to decrease finance cost.

(5) Profit before taxation

In the first half of 2018, the Company's profit before taxation amounted to RMB 68.8 billion, representing an increase of 49.6% year on year.

(6) Tax expense

In the first half of 2018, the Company's tax expense totalled RMB 14.6 billion, up by RMB 5.7 billion, representing an increase of 63.6% year on year. This was mainly due to the increase of earnings and decrease of franked investment income year on year.

(7) Profit attributable to non-controlling interests of the Company

In the first half of 2018, profit attributable to non-controlling shareholders was RMB 11.8 billion, up by RMB 2.7 billion, representing an increase of 29.3% year on year.

(8) Profit attributable to owners of the Company

In the first half of 2018, profit attributable to owners of the Company was RMB 42.4 billion, representing an increase of 51.8% year on year.

2 RESULTS OF SEGMENT OPERATIONS

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

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

* Other operating revenues are included.

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage change between the first half of 2018 and the first half of 2017.

(1) Exploration and Production Segment

Most of the crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Company's refining and chemical operations. Most of the natural gas and a small portion of the crude oil produced by the Company were sold to external customers.

In the first half of 2018, operating revenues of the segment were RMB 87.9 billion, representing an increase of 18.6% year on year. This was mainly the increase of crude oil and natural gas prices as well as expansion of scale of natural gas and LNG business over the same period of 2017.

In the first half of 2018, the segment sold 17.30 million tonnes of crude oil, representing a decrease of 1.8% over the same period of 2017. Natural gas sales volume was 12.8 bcm, representing an increase of 4.4% over the same period of 2017. Regasified LNG sales volume was 3.55 bcm, representing an increase of 75.2% over the same period of 2017. LNG sales volume was 1.12 million tonnes, representing an increase of 90.7% over the same period of 2017. Average realised prices of crude oil, natural gas, Regasified LNG, and LNG were RMB 2,866 per tonne, RMB 1,374 per thousand cubic meters, RMB 1,822 per thousand cubic meters, and RMB 3,640 per tonne, representing increase of 23.7%, 7.7%, 7.1% and 32.4% respectively over the same period of 2017.

In the first half of 2018, the operating expenses of the segment were RMB 88.3 billion, representing a decrease of 4.4% year on year. This was mainly due to:

‧ Depreciation, depletion and amortisation decreased by RMB 4.8 billion year on year;

‧ Oil and gas assets impairment decreased by RMB 3.5 billion year on year;

‧ LNG business expanded, purchase expense increased by RMB 3.2 billion;

‧ Resource Tax and special oil income levy increased by RMB 0.4 billion and 0.4 billion respectively due to increase of crude oil and natural gas prices.

In the first half of 2018, the oil and gas lifting cost was RMB 768 per tonne, representing an increase of 0.1% year on year.

In the first half of 2018, the operating loss of the segment was RMB 0.4 billion, representing a decrease of loss of RMB 17.9 billion compared with the same period of last year. This was mainly because the segment seized the opportunity of crude oil price recovery to promote efficient exploration, effective production, reduce costs and expenses, and achieved good results.

(2) Refining Segment

Business activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment of the Company as well as processing crude oil into refined petroleum products. Gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the Company; part of the chemical feedstock is sold to the chemicals segment of the Company; and other refined petroleum products are sold to both domestic and overseas customers through the refining segment.

In the first half of 2018, operating revenues of the segment were RMB 593.3 billion, representing an increase of 21.5% year on year. This was mainly attributable to increased prices of refined oil products, and the high utilisation rate maintained by the Company by proactively confronting with the over-supplied market.

The following table sets forth the sales volumes, average realised prices and the respective changes of the Company's major refined oil products of the segment in the first half of 2018 and of 2017.

In the first half of 2018, the sales revenues of gasoline were RMB 209.5 billion, representing an increase of 18.6% year on year, accounting for 35.3% of the segment's operating revenue.

In the first half of 2018, the sales revenues of diesel were RMB 171.1 billion, representing an increase of 19.1% year on year, accounting for 28.8% of the segment's operating revenue.

In the first half of 2018, the sales revenues of kerosene were RMB 44.6 billion, representing an increase of 68.4% year on year, accounting for 7.5% of the segment's operating revenue.

In the first half of 2018, the sales revenues of chemical feedstock were RMB 70.8 billion, representing an increase 22.8% year on year, accounting for 11.9% of the segment's operating revenue.

In the first half of 2018, the sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB 94.9 billion, representing an increase of 16.5% year on year, accounting for 16.0% of the segment's operating revenue.

In the first half of 2018, the segment's operating expenses were RMB 554.4 billion, representing an increase of 20.8% year on year, which was mainly attributable to increased crude purchasing cost resulting from higher crude oil prices, and increase of tax and surcharges resulting from increase of refinery throughput and adjustment of product mix.

In the first half of 2018, the average cost of processed crude oil was RMB 3,274 per tonne, representing an increase of 17.3% year on year. Total crude oil throughput was 121.55 million tonnes (excluding volume processed for third parties), representing an increase of 9.8% year on year. In the first half of 2018, the total cost of crude oil processed was RMB 397.9 billion, representing an increase of 28.9% year on year, accounting for 71.8% of the segment's operating expenses, an increase of 4.5 percentage points year on year.

In the first half of 2018, the refining margin was RMB 544.1 per tonne, up by RMB 70.4 per tonne, representing an increase of 14.9% year on year, which was mainly because the Segment put great efforts to reduce crude oil purchasing cost and enhanced product mix by optimising operation plan according to market demand.

In the first half of 2018, the unit refining cash operating cost (defined as operating expenses less cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, divided by the throughput of crude oil and refining feedstock) was RMB 167.7 per tonne, representing a decrease of 0.3% year on year, which was mainly because the segment ensured safe and reliable operations, increased total throughput, advanced economical efficiency and technological level, and further enhanced cost control management.

The segment constantly optimised product mix, increased export of refined oil products, optimised crude oil sourcing to lower feedstock cost and achieved good result. In the first half of 2018, the segment realised an operating profit of RMB 38.9 billion, up by RMB 9.5 billion, representing an increase of 32.5% year on year.

(3) Marketing and Distribution Segment

The business activities of the marketing and distribution segment include purchasing refined oil products from the refining segment and the third parties, conducting direct sales and wholesale to domestic customers and retailing, distributing oil products through the segment's retail and distribution network, as well as providing related services.

In the first half of 2018, the operating revenues of the segment were RMB 668.3 billion, increased by 10.3% year on year. This was mainly due to the increasing refined oil products prices and gasoline sales volume. The sales revenues of gasoline were RMB 333.1 billion, representing an increase of 15.5% year on year; the sales revenue of diesel was RMB 227.3 billion, up by 3.0% year on year and the sales revenue of kerosene was RMB 50.9 billion, up by 12.7% year on year.

The following table sets forth the sales volumes, average realised prices and respective percentage changes of the segment's four major refined oil products in the first half of 2018 and 2017, including detailed information about retail, direct sales and distribution of gasoline and diesel:

In the first half of 2018, the operating expenses of the segment were RMB 651.1 billion, up by RMB 61.7 billion, representing an increase of 10.5% year on year. This was mainly due to: procurement costs of refined oil products increased RMB 57.7 billion as the result of rising oil price; non-fuel business cost increased RMB 1.8 billion as a result of volume expansion; employee expense increased by RMB 0.5 billion; depreciation increased RMB 0.4 billion.

In the first half of 2018, the segment's marketing cash operating cost (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortisation, divided by the sales volume) was RMB 198 per tonne, representing an increase of 8.7% year on year. This was mainly due to total sales volume decreased 4.97 million tonne and labor costs increased.

In the first half of 2018, the operating revenues of non-fuel business was RMB 16.3 billion, representing an increase of RMB 2.2 billion compared with the same period of 2017; the profit of non-fuel business was RMB 1.7 billion representing an increase of RMB 0.4 billion compared with the same period of 2017.

In the first half of 2018, the segment brought our advantages in integrated business and distribution network into full play, enhanced efforts to optimise internal and external resources, actively responded to market rebalancing, expanded markets, balanced profits and volume and achieved good result.

In the first half of 2018, the segment's operating profit was RMB 17.2 billion, up by RMB 0.6 billion, representing an increase of 3.7% year on year.

(4) Chemicals Segment

Business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and the third parties and producing, marketing and distributing petrochemical and inorganic chemical products.

In the first half of 2018, operating revenues of the chemicals segment were RMB 256.3 billion, representing an increase of 23.0% year on year, which was mainly due to increased petrochemical products sales volume and prices year on year as the Company seized market opportunities to expand market, promote sales and optimise structure.

The sales revenue generated by the segment's six major categories of chemical products (namely basic organic chemicals, synthetic fibre monomer and polymer, synthetic resin, synthetic fibre, synthetic rubber, and chemical fertiliser) totalled RMB 242.5 billion, representing an increase of 23.4% year on year, accounting for 94.6% of the operating revenues of the segment.

The following table sets forth the sales volume, average realised price and respective changes of each of the segment's six categories of chemical products in for the first half of 2018 and 2017.

In the first half of 2018, the operating expenses of the segment were RMB 240.5 billion, representing an increase of 22.5% year on year, which was mainly due to increased feedstock price following the increase of crude oil price.

In the first half of 2018, the segment seized the opportunity of good margin, continued the 'basic and high-end' chemical business development concept, strengthened the integration among production, sales, R&D and application, further promoted optimisation of feedstock, product and facilities to lower feedstock cost, increase high value added products' proportion and achieved good result.

The segment's operating profit in the first half of 2018 was RMB 15.8 billion, up by RMB 3.6 billion, representing an increase of 29.7% year on year.

(5) Corporate and Others

The business activities of corporate and others mainly consist of import and export business activities of Sinopec Corp.'s subsidiaries, research and development activities of the Company, and managerial activities of the headquarters.

In the first half of 2018, the operating revenues generated from Corporate and Others were RMB 585.4 billion, representing an increase of 20.0% year on year. This was mainly due to increase of international oil prices and refined oil product trading.

In the first half of 2018, the operating expenses for corporate and others were RMB 589.9 billion, representing an increase of 21.1% year on year. This was mainly due to increase of procurement costs as the result of higher international oil prices.

In the first half of 2018, the segment's operating loss amounted to RMB 4.5 billion.

3 ASSETS, LIABILITIES, EQUITY AND CASH FLOWS

The major funding sources of the Company are its operating activities and short-term and long-term loans. The major use of funds includes operating expenses, capital expenditures, and repayment of the short-term and long-term debts.

(1) Assets, liabilities and equity Unit: RMB million

As of 30 June 2018, the Company's total assets were RMB 1,617.3 billion, representing an increase of RMB 21.8 billion compared with that at the end of 2017, of which:

‧ Current assets were RMB 568.9 billion, representing an increase of RMB 39.9 billion compared with that as of the end of 2017. This was mainly attributable to increased RMB 38.9 billion in inventories as the result of increased crude oil prices, refined oil prices and inventory volume.

‧ Non-current assets were RMB 1,048.4 billion, representing a decrease of RMB 18.1 billion compared with that as of the end of 2017. The change of RMB 30.8 billion was mainly due to depreciation & depletion of PPE and etc. an increase of RMB 3.8 billion in interest in associates and joint ventures, an increase of RMB 3.9 billion in deferred tax assets and an increase of RMB 3.6 billion in long-term prepayments and other non-current assets.

As of 30 June 2018, the Company's total liabilities were RMB 761.1 billion, representing an increase of RMB 18.5 billion compared with that as of the end of 2017, of which:

‧ Current liabilities were RMB 577.1 billion, representing a decrease of RMB 2.4 billion compared with that as of the end of 2017.

‧ Non-current liabilities were RMB 184.1 billion, representing an increase of RMB 20.9 billion compared with that as of the end of 2017. This was mainly due to the increase of long-term loans as the result of building natural gas and pipeline projects. Meanwhile, other non-current liabilities increased because subsidiary companies received relocation compensation from government.

As of 30 June 2018, total equity attributable to owners of the Company was RMB 720.1 billion, representing a decrease of RMB 6.0 billion compared with that as of the end of 2017, which was mainly due to a decrease of RMB 6.0 billion in reserves as the result of dividend payment partly offset by increase of net earnings in the first half of 2018.

(2) Cash Flow

The following table sets forth the major items in the consolidated cash flow statements for the first half of 2018 and of 2017.

Unit: RMB million

In the first half of 2018, net cash generated from operating activities was RMB 71.6 billion, representing an increase of RMB 10.8 billion in net cash inflow year on year. This was mainly due to significant progress in business performance over the same period of 2017.

In the first half of 2018, net cash generated from investing activities was RMB 19.3 billion, representing an increase of RMB 59.3 billion in cash inflow year on year. This was mainly due to: RMB 48 billion proceeds from sales of financial assets which are measured at fair value and whose changes are recorded into current period profit or loss; increase of RMB 21.8 billion in principal and interests of time deposits received at maturity; and net cash used in investing activities increased by RMB 18.5 billion.

On 30 June 2018, net cash used in financing activities was RMB 49.3 billion, representing an increase of cash outflow of RMB 33.3 billion year on year. This was mainly due to cash dividend distribution of RMB 48.4 billion. In 2017, dividend was paid in July.

As of 30 June 2018, the Cash and Cash equivalents were RMB 154.8 billion.

(3) Contingent Liabilities

Please refer to "Material Guarantee Contracts and Their Performances" in the "Significant Events" section of this report.

(4) Capital Expenditures

Please refer to "Capital Expenditures" in the "Business Review and Prospects" section of this report.

(5) Research & Development expenditure and enviornmental expenditure

Research and Development expenditure includes expensed expenditure that are recorded in the profit and loss of the period and capitalised expenditure. In the first half of 2018, the Company's research and development expenditure amounted to RMB 4.2 billion, among which expensed expenditure was RMB 4.1 billion.

Environmental expenditures refer to the normal routine pollutant cleaning fees paid by the Company, excluding capitalised cost of pollutant treatment facilities. In the first half of 2018, the environmental expenses amounted to RMB 3 billion.

(6) Measurement of fair values of derivatives and relevant system

The Company has established sound decision-making mechanism, business process and internal control systems relevant to financial instrument accounting and information disclosure.

Items relevant to measurement of fair values

Unit: RMB million

4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER ASBE

The major differences between the Company's financial statements prepared under ASBE and IFRS are set out in Section C of the financial statements of the Company from page 135 in this report.

(1) Under ASBE, the operating income and operating profit or loss by reportable segments were as follows:

Operating profit: In the first half of 2018, the operating profit of the Company was RMB 67.9 billion, representing an increase of 51.3% year on year. This was mainly due to significant decrease of loss in upstream business and steady increase of earning in midstream and downstream businesses as a result of value creation, improvement of assets quality and profitability, operation upgrades, and new achievements in management made by the company.

Net profit: In the first half of 2018, net profit attributable to the equity shareholders of the Company was RMB 41.6 billion, representing an increase of 53.6% year on year.

(2) Financial data prepared under ASBE:

Total assets: As of 30 June 2018, the Company's total assets were RMB 1,617.3 billion, representing an increase of RMB 21.8 billion compared with that at the end of 2017. This was mainly due to the increase of inventories resulting from increase of crude oil and refined oil prices, and inventory volume.

Non-current liabilities: As of 30 June 2018, the Company's non-current liabilities were RMB 182.9 billion, representing an increase of RMB 20.9 billion from that at the end of 2017. This was mainly due to the increase of long-term loans as the result of building natural gas and pipeline projects. Meanwhile, other non-current liabilities increased because subsidiary companies received relocation compensation from government.

Shareholders' equity: As of 30 June 2018, total shareholders' equity of the Company was RMB 857.3 billion, representing an increase of RMB 3.2 billion compared with that at the end of 2017.

(3) The results of the principal operations by segments