Company Announcements

Final Results - Part 2

Source: RNS
RNS Number : 0043I
China Petroleum & Chemical Corp
30 March 2020
 

 

 

 

 

 

58  COMMITMENTS

 

Capital commitments

 

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

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Authorised and contracted for (i)

138,088

141,045

Authorised but not contracted for

63,967

54,392

Total

202,055

195,437

 

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

 

Note:

 

(i) The investment commitments of the Group is RMB 6,100 million (2018: RMB 5,553 million).

 

58  COMMITMENTS (Continued)

 

Commitments to joint ventures

 

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

 

Exploration and production licenses

 

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

 

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually which are expensed. Expenses recognised were approximately RMB 179 million for the year ended 31 December 2019 (2018: RMB 231 million).

 

Estimated future annual payments are as follows:

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Within one year

302

380

Between one and two years

69

79

Between two and three years

34

33

Between three and four years

30

28

Between four and five years

29

28

Thereafter

845

852

Total

1,309

1,400

 

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

 

59  CONTINGENT LIABILITIES

 

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

 

(b) At 31 December 2019 and 31 December 2018, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Joint ventures

7,100

5,033

Associates (i)

10,140

12,168

Others (ii)

-

7,197

Total

17,240

24,398

 

Notes:

 

(i) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. At 31 December 2019, the amount withdrawn by Zhongtian Synergetic Energy from banks and guaranteed by the Group was RMB 10,140 million (31 December 2018: RMB 12,168 million).

 

(ii)        The Group provided a guarantee in respect to the loan of New Bright International Development Limited borrowed from Sinopec Overseas Oil & Gas Limited. As at 31 December 2019, the loan agreement was terminated, in consequence, the guarantee agreement was terminated.

 

The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2019 and 31 December 2018, the Group estimates that there is no need to pay for the guarantees. Thus no liabilities have been accrued for a loss related to the Group's obligation under these guarantee arrangements.

 

59  CONTINGENT LIABILITIES (Continued)

 

Environmental contingencies

 

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

 

The Group recognised normal routine pollutant discharge fees of approximately RMB 9,235 million in the consolidated financial statements for the year ended 31 December 2019 (2018: RMB 7,940 million).

 

Legal contingencies

 

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

 

60  SEGMENT REPORTING

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

60             SEGMENT REPORTING (Continued)

 

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

 

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

 

2019

2018

RMB million

RMB million

Income from principal operations

 

 

Exploration and production

 

 

External sales

111,114

93,499

Inter-segment sales

89,315

95,954

 

200,429

189,453

Refining

 

 

External sales

141,674

148,930

Inter-segment sales

1,077,018

1,109,088

 

1,218,692

1,258,018

Marketing and distribution

 

 

External sales

1,393,557

1,408,989

Inter-segment sales

4,159

5,224

 

1,397,716

1,414,213

Chemicals

 

 

External sales

425,508

457,406

Inter-segment sales

54,865

73,835

 

480,373

531,241

Corporate and others

 

 

External sales

828,635

716,789

Inter-segment sales

654,337

650,271

 

1,482,972

1,367,060

Elimination of inter-segment sales

(1,879,694)

(1,934,372)

 

 

 

Consolidated income from principal operations

2,900,488

2,825,613

Income from other operations

 

 

Exploration and production

10,283

10,738

Refining

5,464

5,389

Marketing and distribution

33,247

32,424

Chemicals

14,861

15,492

Corporate and others

1,850

1,523

Consolidated income from other operations

65,705

65,566

 

 

 

Consolidated operating income

2,966,193

2,891,179

 

60  SEGMENT REPORTING (Continued)

 

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

 

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

 

2019

2018

RMB million

RMB million

Operating profit/(loss)

 

 

By segment

 

 

Exploration and production

6,289

(11,557)

Refining

30,074

53,703

Marketing and distribution

29,781

24,106

Chemicals

16,586

25,970

Corporate and others

3,530

(8,151)

Elimination

(40)

(3,634)

Total segment operating profit

86,220

80,437

Investment income

 

 

Exploration and production

3,148

2,595

Refining

(580)

429

Marketing and distribution

3,499

2,676

Chemicals

5,178

6,905

Corporate and others

1,383

(1,177)

Total segment investment income

12,628

11,428

Less: Financial expenses

9,967

(1,001)

Add: Other income

5,973

6,694

(Losses)/gains from changes in fair value

(3,511)

2,656

Asset disposal losses

(1,318)

(742)

 

 

 

Operating profit

90,025

101,474

Add: Non-operating income

2,598

2,070

Less: Non-operating expenses

2,607

3,042

Profit before taxation

90,016

100,502

 

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Assets

 

 

Segment assets

 

 

Exploration and production

410,950

321,686

Refining

321,080

271,356

Marketing and distribution

399,242

317,641

Chemicals

175,884

156,865

Corporate and others

131,686

152,799

Total segment assets

1,438,842

1,220,347

Cash at bank and on hand

127,927

167,015

Long-term equity investments

152,204

145,721

Deferred tax assets

17,616

21,694

Other unallocated assets

18,482

37,531

Total assets

1,755,071

1,592,308

Liabilities

 

 

Segment liabilities

 

 

Exploration and production

162,262

93,874

Refining

120,617

103,709

Marketing and distribution

219,381

159,028

Chemicals

53,515

37,380

Corporate and others

136,420

144,138

Total segment liabilities

692,195

538,129

Short-term loans

31,196

44,692

Non-current liabilities due within one year

69,490

17,450

Long-term loans

39,625

61,576

Debentures payable

19,157

31,951

Deferred tax liabilities

6,809

5,948

Other non-current liabilities

15,364

27,276

Other unallocated liabilities

4,330

7,627

Total liabilities

878,166

734,649

 

60  SEGMENT REPORTING (Continued)

 

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

 

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

 

2019

2018

RMB million

RMB million

Capital expenditure

 

 

Exploration and production

61,739

42,155

Refining

31,372

27,908

Marketing and distribution

29,566

21,429

Chemicals

22,438

19,578

Corporate and others

1,979

6,906

 

147,094

117,976

Depreciation, depletion and amortisation

 

 

Exploration and production

50,732

60,331

Refining

19,676

18,164

Marketing and distribution

21,572

16,296

Chemicals

13,966

13,379

Corporate and others

2,866

1,797

 

108,812

109,967

Impairment losses on long-lived assets

 

 

Exploration and production

3

4,274

Refining

245

353

Marketing and distribution

80

264

Chemicals

17

1,374

Corporate and others

-

16

 

345

6,281

 

(2)  Geographical information

 

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

 

2019

2018

RMB million

RMB million

External sales

 

 

Mainland China

2,131,078

2,119,580

Singapore

505,672

395,129

Others

329,443

376,470

 

2,966,193

2,891,179

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Non-current assets

 

 

Mainland China

1,235,676

989,668

Others

52,705

50,892

 

1,288,381

1,040,560

 

61  FINANCIAL INSTRUMENTS

 

Overview

 

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

 

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

 

credit risk;

 

liquidity risk; and

 

market risk.

 

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

 

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

 

Credit risk

 

(i)   Risk management

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposits) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's accounts receivable relates to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2019, except for the amounts due from Sinopec Group Company and fellow subsidiaries. The Group performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral on accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

 

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

 

(ii)  Impairment of financial assets

 

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

 

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

 

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

 

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

 

The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2019 or 1 January 2019, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the accounts receivable, bills receivable and receivables financing.

 

The detailed analysis of accounts receivable and receivables financing is listed in note 8 and note 9.

 

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

 

61  FINANCIAL INSTRUMENTS (Continued)

 

Liquidity risk

 

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

 

At 31 December 2019, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 379,649 million (2018: RMB 387,748 million) on an unsecured basis, at a weighted average interest rate of 3.57% per annum (2018: 3.87%). At 31 December 2019, the Group's outstanding borrowings under these facilities were RMB 2,947 million (2018: RMB 21,236 million) and were included in loans.

 

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

 

At 31 December 2019

Carrying

amount

Total

contractual

undiscounted

cash flow

Within one

year or

on demand

More than

one year

but less than

two years

More than

two years

but less than

five years

More than

five years

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Short-term loans

31,196

31,633

31,633

-

-

-

Derivative financial liabilities

2,729

2,729

2,729

-

-

-

Bills payable

11,834

11,834

11,834

-

-

-

Accounts payable

187,958

187,958

187,958

-

-

-

Other payables and employee benefits payable

77,093

77,093

77,093

-

-

-

Non-current liabilities due within one year

69,490

72,180

72,180

-

-

-

Long-term loans

39,625

49,604

404

6,492

15,610

27,098

Debentures payable

19,157

24,400

764

764

16,667

6,205

Lease liabilities

177,674

351,223

-

15,676

45,008

290,539

Total

616,756

808,654

384,595

22,932

77,285

323,842

 

At 31 December 2018

Carrying

amount

Total

contractual

undiscounted

cash flow

Within one

year or

on demand

More than

one year but

less than

two years

More than

two years

but less than

five years

More than

five years

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Short-term loans

44,692

45,040

45,040

-

-

-

Derivative financial liabilities

13,571

13,571

13,571

-

-

-

Bills payable

6,416

6,416

6,416

-

-

-

Accounts payable

186,341

186,341

186,341

-

-

-

Other payables and employee benefits payable

84,775

84,775

84,775

-

-

-

Non-current liabilities due within one year

17,450

18,053

18,053

-

-

-

Long-term loans

61,576

66,387

792

40,885

13,807

10,903

Debentures payable

31,951

38,674

1,269

14,030

17,124

6,251

Total

446,772

459,257

356,257

54,915

30,931

17,154

 

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

 

61  FINANCIAL INSTRUMENTS (Continued)

 

Market risk

 

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

 

(a)  Currency risk

 

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

 

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

 

The Group

 

At 31 December

At 31 December

2019

2018

million

million

Gross exposure arising from loans and lease liabilities

 

 

US Dollar

103

668

Singapore Dollar

4

-

 

A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2019 and 31 December 2018 would have increased/decreased net profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2018.

 

The Group

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

US Dollar

27

172

Singapore Dollar

1

-

 

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

 

(b)  Interest rate risk

 

The Group's interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable interest rates and at fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed in Note 23 and Note 31, respectively.

 

At 31 December 2019, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's net profit for the year by approximately RMB 352 million (2018: decrease/increase RMB 424 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group's debts outstanding at the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2018.

 

(c)  Commodity price risk

 

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

 

At 31 December 2019, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. At 31 December 2019, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 788 million (2018: RMB 7,844 million) and derivative financial liabilities of RMB 2,728 million (2018: RMB 13,568 million).

 

At 31 December 2019, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would increase/decrease the Group's net profit for the year by approximately RMB 3,134 million (2018: decrease/increase RMB 197 million), and decrease/increase the Group's other comprehensive income by approximately RMB 4,289 million (2018: increase/decrease RMB 6,850 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2018.

 

61  FINANCIAL INSTRUMENTS (Continued)

 

Fair values

 

(i)   Financial instruments carried at fair value

 

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

 

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

 

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

 

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

 

At 31 December 2019

 

The Group

 

Level 1

Level 2

Level 3

Total

RMB million

RMB million

RMB million

RMB million

Assets

 

 

 

 

Financial assets held for trading:

 

 

 

 

- Structured deposits

-

-

3,318

3,318

- Equity investments, listed and at quoted market price

1

-

-

1

Derivative financial assets:

 

 

 

 

- Derivative financial assets

128

709

-

837

Receivables financing:

 

 

 

 

- Receivables financing

-

-

8,622

8,622

Other equity instrument investments:

 

 

 

 

- Other Investments

90

-

1,431

1,521

 

219

709

13,371

14,299

Liabilities

 

 

 

 

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

1,209

1,520

-

2,729

 

1,209

1,520

-

2,729

 

At 31 December 2018

 

The Group

 

Level 1

Level 2

Level 3

Total

RMB million

RMB million

RMB million

RMB million

Assets

 

 

 

 

Financial assets held for trading:

 

 

 

 

- Structured deposits

-

-

25,550

25,550

- Equity investments (listed and at quoted market price)

182

-

-

182

Derivative financial assets:

 

 

 

 

- Derivative financial assets

874

7,013

-

7,887

Other equity instrument investments:

 

 

 

 

- Other Investments

127

-

1,323

1,450

 

1,183

7,013

26,873

35,069

Liabilities

 

 

 

 

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

5,500

8,071

-

13,571

 

5,500

8,071

-

13,571

 

During the year ended 31 December 2019, there was no transfer between instruments in Level 1 and Level 2.

 

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

 

61  FINANCIAL INSTRUMENTS (Continued)

 

Fair values (Continued)

 

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

 

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 2.37% to 4.90% (2018: from 2.76% to 4.90%). The following table presents the carrying amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2019 and 31 December 2018:

 

At 31 December

At 31 December

2019

2018

RMB million

RMB million

Carrying amount

63,946

63,085

Fair value

62,594

62,656

 

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

 

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2019 and 31 December 2018.

 

62  EXTRAORDINARY GAINS AND LOSSES

 

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

 

2019

2018

RMB million

RMB million

Extraordinary (gains)/losses for the year:

 

 

Net loss on disposal of non-current assets

1,318

742

Donations

209

180

Government grants

(6,857)

(7,482)

Gain on holding and disposal of various investments

(410)

(1,023)

Other non-operating loss, net

729

1,613

 

(5,011)

(5,970)

Tax effect

1,597

2,312

Total

(3,414)

(3,658)

Attributable to:

 

 

Equity shareholders of the Company

(3,320)

(3,459)

Minority interests

(94)

(199)

 

63  BASIC AND DILUTED EARNINGS PER SHARE

 

(i)   Basic earnings per share

 

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

 

2019

2018

Net profit attributable to equity shareholders of the Company (RMB million)

57,591

63,089

Weighted average number of outstanding ordinary shares of the Company (million)

121,071

121,071

Basic earnings per share (RMB/share)

0.476

0.521

 

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

 

2019

2018

Weighted average number of outstanding ordinary shares of the Company at 1 January (million)

121,071

121,071

Weighted average number of outstanding ordinary shares of the Company at 31 December (million)

121,071

121,071

 

(ii)  Diluted earnings per share

 

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

 

2019

2018

Net profit attributable to equity shareholders of the Company (diluted) (RMB million)

57,591

63,089

Weighted average number of outstanding ordinary shares of the Company (diluted) (million)

121,071

121,071

Diluted earnings per share (RMB/share)

0.476

0.521

 

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

 

2019

2018

Weighted average number of the ordinary shares issued at 31 December (million)

121,071

121,071

Weighted average number of the ordinary shares issued at 31 December (diluted) (million)

121,071

121,071

 

64  RETURN ON NET ASSETS AND EARNINGS PER SHARE

 

In accordance with "Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 9 - Calculation and Disclosure of the Return on Net Assets and Earnings Per Share" (2010 revised) issued by the CSRC and relevant accounting standards, the Group's return on net assets and earnings per share are calculated as follows:

 

2019

2018

Weighted

average

return on

net assets

Basic

earnings

per share

Diluted

earnings

per share

Weighted

average

return on

net assets

Basic

earnings

per share

Diluted

earnings

per share

(%)

(RMB/Share)

(RMB/Share)

(%)

(RMB/Share)

(RMB/Share)

Net profit attributable to the Company's ordinary equity
shareholders

7.90

0.476

0.476

8.67

0.521

0.521

Net profit deducted extraordinary gains and losses
attributable to the Company's ordinary equity
shareholders

7.45

0.448

0.448

8.20

0.493

0.493

 

65  EVENTS AFTER THE BALANCE SHEET DATE

 

In early 2020, the outbreak of Coronavirus Disease 2019 ("COVID-19") has significant impacts on the consumption of refined oil products and sales of chemical products of the Group. The Group has taken a series of strong and effective measures, and has coordinated the prevention and control of the COVID-19 and the resumption of work and production with all-out efforts to minimize its impact.

 

International crude oil prices dropped significantly in March 2020 under the impact of the outbreak of the COVID-19 and the breakdown of OPEC's production reduction negotiation, which has a significant impact on the Group's operation.

 

The COVID-19 and international crude oil prices drop in March 2020 are events arose after the balance sheet date, which are non-adjusting events after the balance sheet date. The Group will keep continuous attention on the situation of the COVID-19 and future fluctuation in oil prices, take responsive tackling measures, and assess the impact on the financial position and operating results of the Group after the balance sheet date. Up to the date of the issuance of this report, the assessment is still in progress.

 

 

REPORT OF THE INTERNATIONAL AUDITOR

 

 

 

Independent Auditor's Report

To the Shareholders of China Petroleum & Chemical Corporation

(incorporated in the People's Republic of China with limited liability)

 

Opinion

 

What we have audited

 

The consolidated financial statements of China Petroleum & Chemical Corporation (the "Company") and its subsidiaries (the "Group") set out on pages 145 to 199, which comprise:

 

the consolidated balance sheet as at 31 December 2019;

 

the consolidated income statement for the year then ended;

 

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

 

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

 

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

 

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

 

Our opinion

 

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standard Board and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

 

Basis for Opinion

 

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

 

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

 

Independence

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Audit Matters

 

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

 

The key audit matter identified in our audit is "Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities".

 

Key Audit Matter

How our audit addressed the Key Audit Matter

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

 

Refer to note 8 "Other operating expense, net", note 16 "Property, plant and equipment" and note 43 "Accounting estimates and judgements" to the consolidated financial statements.

 

Low crude oil prices gave rise to possible indication that the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2019 might be impaired. The Group has adopted value in use as the  respective recoverable amounts of property, plant and equipment relating to oil and gas producing activities, which involved key estimations or assumptions including:

 

- Future crude oil prices;

 

- Future production profiles;

 

- Future cost profiles; and

 

- Discount rates.

 

Because of the significance of the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2019, together with the use of significant estimations or assumptions in determining their respective value in use, we had placed our audit emphasis on this matter.

 

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

 

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

 

Assessed the methodology adopted in the discounted cash flow projections, tested mathematical accuracy of the projections, and the completeness, accuracy, and relevance of underlying data used in the projections.

 

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

 

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

 

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

 

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

 

Used professionals with specialized skill and knowledge to assist in the evaluation of the appropriateness of discount rates adopted by the management.

 

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

 

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

 

Other Information

 

The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor's report thereon.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

 

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

 

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

PricewaterhouseCoopers

Certified Public Accountants

 

Hong Kong, 27 March 2020

 

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

        CONSOLIDATED INCOME STATEMENT

               for the year ended 31 December 2019

               (Amounts in million, except per share data)

 

 

Notes

Year ended 31 December

2019

2018

RMB

RMB

Turnover and other operating revenues

 

 

 

Turnover

3

2,900,488

2,825,613

Other operating revenues

4

65,705

65,566

 

 

2,966,193

2,891,179

Operating expenses

 

 

 

Purchased crude oil, products and operating supplies and expenses

 

(2,380,907)

(2,292,983)

Selling, general and administrative expenses

5

(55,313)

(65,642)

Depreciation, depletion and amortisation

 

(108,812)

(109,967)

Exploration expenses, including dry holes

 

(10,510)

(10,744)

Personnel expenses

6

(81,482)

(77,721)

Taxes other than income tax

7

(242,535)

(246,498)

Other operating expense, net

8

(436)

(5,360)

Total operating expenses

 

(2,879,995)

(2,808,915)

 

 

 

 

Operating profit

 

86,198

82,264

Finance costs

 

 

 

Interest expense

9

(17,003)

(7,321)

Interest income

 

7,206

7,726

Foreign currency exchange (losses)/gains, net

 

(170)

596

Net finance costs

 

(9,967)

1,001

Investment income

 

919

1,871

Share of profits less losses from associates and joint ventures

20, 21

12,777

13,974

 

 

 

 

Profit before taxation

 

89,927

99,110

Income tax expense

10

(17,894)

(20,213)

Profit for the year

 

72,033

78,897

Attributable to:

 

 

 

Shareholders of the Company

 

57,465

61,618

Non-controlling interests

 

14,568

17,279

Profit for the year

 

72,033

78,897

Earnings per share:

15

 

 

Basic

 

0.475

0.509

Diluted

 

0.475

0.509

 

The notes on pages 152 to 199 form part of these consolidated financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in Note 13.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2019

(Amounts in million)

 

Notes

Year ended 31 December

2019

2018

RMB

RMB

Profit for the year

 

72,033

78,897

Other comprehensive income:

14

 

 

Items that may not be reclassified subsequently to profit or loss

 

 

 

Equity investments at fair value through other comprehensive income

 

(31)

(53)

Total items that may not be reclassified subsequently to profit or loss

 

(31)

(53)

Items that may be reclassified subsequently to profit or loss

 

 

 

Share of other comprehensive loss of associates and joint ventures

 

(810)

(229)

Cash flow hedges

 

4,941

(9,741)

Foreign currency translation differences

 

1,480

3,399

Total items that may be reclassified subsequently to profit or loss

 

5,611

(6,571)

Total other comprehensive income

 

5,580

(6,624)

 

 

 

 

Total comprehensive income for the year

 

77,613

72,273

Attributable to:

 

 

 

Shareholders of the Company

 

62,880

54,000

Non-controlling interests

 

14,733

18,273

Total comprehensive income for the year

 

77,613

72,273

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED BALANCE SHEET

As at 31 December 2019

(Amounts in million)

 

Notes

31 December

31 December

2019

2018

RMB

RMB

Non-current assets

 

 

 

Property, plant and equipment, net

16

622,409

617,762

Construction in progress

17

173,482

136,963

Right-of-use assets

18, 1(a)

267,860

-

Goodwill

19

8,697

8,676

Interest in associates

20

95,737

89,537

Interest in joint ventures

21

56,467

56,184

Financial assets at fair value through other comprehensive income

26

1,521

1,450

Deferred tax assets

29

17,616

21,694

Lease prepayments

 

-

64,514

Long-term prepayments and other assets

22

65,426

91,408

Total non-current assets

 

1,309,215

1,088,188

Current assets

 

 

 

Cash and cash equivalents

 

60,313

111,922

Time deposits with financial institutions

 

67,614

55,093

Financial assets at fair value through profit or loss

23

3,319

25,732

Derivative financial assets

24

837

7,887

Trade accounts receivable and bills receivable

25

54,865

64,879

Financial assets at fair value through other comprehensive income

26

8,622

-

Inventories

27

192,442

184,584

Prepaid expenses and other current assets

28

57,844

54,023

Total current assets

 

445,856

504,120

Current liabilities

 

 

 

Short-term debts

30

40,521

29,462

Loans from Sinopec Group Company and fellow subsidiaries

30

43,289

31,665

Lease liabilities

31, 1(a)

15,198

-

Derivative financial liabilities

24

2,729

13,571

Trade accounts payable and bills payable

32

199,792

192,757

Contract liabilities

33

126,735

124,793

Other payables

34

144,846

166,151

Income tax payable

 

3,264

6,699

Total current liabilities

 

576,374

565,098

 

 

 

 

Net current liabilities

 

130,518

60,978

 

 

 

 

Total assets less current liabilities

 

1,178,697

1,027,210

Non-current liabilities

 

 

 

Long-term debts

30

49,156

51,011

Loans from Sinopec Group Company and fellow subsidiaries

30

9,626

42,516

Lease liabilities

31, 1(a)

177,674

-

Deferred tax liabilities

29

6,809

5,948

Provisions

35

43,163

42,800

Other long-term liabilities

 

16,434

28,400

Total non-current liabilities

 

302,862

170,675

 

 

 

 

 

 

875,835

856,535

Equity

 

 

 

Share capital

36

121,071

121,071

Reserves

 

617,079

596,213

Total equity attributable to shareholders of the Company

 

738,150

717,284

Non-controlling interests

 

137,685

139,251

Total equity

 

875,835

856,535

 

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

 

 

 

 

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

Chairman

President

Chief Financial Officer

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2018

(Amounts in million)

 

 

Share

capital

Capital

reserve

Share

premium

Statutory

surplus

reserve

Discretionary

surplus

reserve

Other

reserves

Retained

earnings

Total equity

attributable

to

shareholders

of the

Company

Non-

controlling

interests

Total

equity

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

Balance at 31 December 2017

121,071

26,326

55,850

82,682

117,000

(2,934)

326,125

726,120

126,770

852,890

Change in accounting policy

-

-

-

-

-

(12)

12

-

-

-

Balance at 1 January 2018

121,071

26,326

55,850

82,682

117,000

(2,946)

326,137

726,120

126,770

852,890

Profit for the year

-

-

-

-

-

-

61,618

61,618

17,279

78,897

Other comprehensive income (Note 14)

-

-

-

-

-

(7,618)

-

(7,618)

994

(6,624)

Total comprehensive income for the year

-

-

-

-

-

(7,618)

61,618

54,000

18,273

72,273

Amounts transferred to initial carrying amount of
hedged items

-

-

-

-

-

5,269

-

5,269

-

5,269

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

 

 

 

 

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

Final dividend for 2017 (Note 13)

-

-

-

-

-

-

(48,428)

(48,428)

-

(48,428)

Interim dividend for 2018 (Note 13)

-

-

-

-

-

-

(19,371)

(19,371)

-

(19,371)

Appropriation (Note (a))

-

-

-

3,996

-

-

(3,996)

-

-

-

Distributions to non-controlling interests

-

-

-

-

-

-

-

-

(7,476)

(7,476)

Contributions to subsidiaries from non-controlling
interests

-

-

-

-

-

-

-

-

2,060

2,060

Total contributions by and distributions to owners

-

-

-

3,996

-

-

(71,795)

(67,799)

(5,416)

(73,215)

Transaction with non-controlling interests

-

(12)

-

-

-

-

-

(12)

(299)

(311)

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners

-

(12)

-

3,996

-

-

(71,795)

(67,811)

(5,715)

(73,526)

Others

-

(261)

-

-

-

818

(851)

(294)

(77)

(371)

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2018

121,071

26,053

55,850

86,678

117,000

(4,477)

315,109

717,284

139,251

856,535

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 


Share

capital

Capital

reserve

Share

premium

Statutory

surplus

reserve

Discretionary

surplus

reserve

Other

reserves

Retained

earnings

Total equity

attributable

to

shareholders

of the

Company

Non-

controlling

interests

Total

equity

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

RMB

Balance at 1 January 2019

121,071

26,053

55,850

86,678

117,000

(4,477)

315,109

717,284

139,251

856,535

Profit for the year

-

-

-

-

-

-

57,465

57,465

14,568

72,033

Other comprehensive income (Note 14)

-

-

-

-

-

5,415

-

5,415

165

5,580

Total comprehensive income for the year

-

-

-

-

-

5,415

57,465

62,880

14,733

77,613

Amounts transferred to initial carrying amount of
hedged items

-

-

-

-

-

1,038

-

1,038

55

1,093

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

 

 

 

 

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

Final dividend for 2018 (Note 13)

-

-

-

-

-

-

(31,479)

(31,479)

-

(31,479)

Interim dividend for 2019 (Note 13)

-

-

-

-

-

-

(14,529)

(14,529)

-

(14,529)

Appropriation (Note (a))

-

-

-

3,745

-

-

(3,745)

-

-

-

Distributions to non-controlling interests

-

-

-

-

-

-

-

-

(18,989)

(18,989)

Contributions to subsidiaries from

non-controlling interests

-

-

-

-

-

-

-

-

5,495

5,495

Total contributions by and distributions to owners

-

-

-

3,745

-

-

(49,753)

(46,008)

(13,494)

(59,502)

Transaction with non-controlling interests

-

2,933

-

-

-

-

-

2,933

(2,933)

-

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners

-

2,933

-

3,745

-

-

(49,753)

(43,075)

(16,427)

(59,502)

Others

-

7

-

-

-

(35)

51

23

73

96

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2019

121,071

28,993

55,850

90,423

117,000

1,941

322,872

738,150

137,685

875,835

 

Notes:

 

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

 

During the year ended 31 December 2019, the Company transferred RMB 3,745 million (2018: RMB 3,996 million) to the statutory surplus reserve, being 10% of the current year's net profit determined in accordance with the accounting policies complying with CASs.

 

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

 

(c) As at 31 December 2019, the amount of retained earnings available for distribution was RMB 130,645 million (2018: RMB 143,148 million), being the amount determined in accordance with CASs. According to the Articles of Association of the Company, the amount of retained earnings available for distribution to shareholders of the Company is lower of the amount determined in accordance with the accounting policies complying with CASs and the amount determined in accordance with the accounting policies complying with International Financial Reporting Standards ("IFRS").

 

(d) The capital reserve represents (i) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation (Note 1); and (ii) the difference between the considerations paid over or received the amount of the net assets of entities and related operations acquired from or sold to Sinopec Group Company and non-controlling interests.

 

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

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

(Amounts in million)

 

Notes

Year ended 31 December

2019

2018

RMB

RMB

Net cash generated from operating activities

(a)

153,420

175,868

Investing activities

 

 

 

Capital expenditure

 

(129,645)

(94,753)

Exploratory wells expenditure

 

(11,497)

(8,261)

Purchase of investments, investments in associates and investments in joint ventures

 

(3,483)

(10,116)

Payment for financial assets at fair value through profit or loss

 

(12,851)

(29,550)

Proceeds from sale of financial assets at fair value through profit or loss

 

35,292

55,000

Payment for acquisition of subsidiary, net of cash acquired

 

(1,031)

(3,188)

Proceeds from disposal of investments and investments in associates

 

704

1,557

Proceeds from disposal of property, plant, equipment and other non-current assets

 

703

9,666

Increase in time deposits with maturities over three months

 

(103,231)

(81,708)

Decrease in time deposits with maturities over three months

 

90,710

78,401

Interest received

 

7,094

5,810

Investment and dividend income received

 

10,272

10,720

Repayments of other investing activities

 

(3,500)

-

Net cash used in investing activities

 

(120,463)

(66,422)

Financing activities

 

 

 

Proceeds from bank and other loans

 

599,866

746,655

Repayments of bank and other loans

 

(612,108)

(772,072)

Contributions to subsidiaries from non-controlling interests

 

3,919

1,886

Dividends paid by the Company

 

(46,008)

(67,799)

Distributions by subsidiaries to non-controlling interests

 

(7,354)

(13,700)

Interest paid

 

(6,161)

(5,984)

Payments made to acquire non-controlling interests

 

(8)

(160)

Repayments of lease liabilities (2018: Finance lease payment)

 

(16,859)

(86)

Proceeds from other financing activities

 

320

-

Repayments of other financing activities

 

(320)

-

Net cash used in financing activities

 

(84,713)

(111,260)

 

 

 

 

Net decrease in cash and cash equivalents

 

(51,756)

(1,814)

Cash and cash equivalents at 1 January

 

111,922

113,218

Effect of foreign currency exchange rate changes

 

147

518

Cash and cash equivalents at 31 December

 

60,313

111,922

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

(Amounts in million)

 

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

 

Year ended 31 December

2019

2018

RMB

RMB

Operating activities

 

 

Profit before taxation

89,927

99,110

Adjustments for:

 

 

Depreciation, depletion and amortisation

108,812

109,967

Dry hole costs written off

5,831

6,921

Share of profits from associates and joint ventures

(12,777)

(13,974)

Investment income

(919)

(1,871)

Interest income

(7,206)

(7,726)

Interest expense

17,003

7,321

Loss/(gain) on foreign currency exchange rate changes and derivative financial instruments

3,624

(1,835)

Loss on disposal of property, plant, equipment and other non-current assets, net

1,918

1,526

Impairment losses on assets

1,789

11,605

Credit impairment losses

1,264

141

 

209,266

211,185

Net changes from:

 

 

Accounts receivable and other current assets

(11,802)

(1,043)

Inventories

(9,285)

(3,312)

Accounts payable and other current liabilities

(15,236)

2,111

 

172,943

208,941

Income tax paid

(19,523)

(33,073)

Net cash generated from operating activities

153,420

175,868

 

The notes on pages 152 to 199 form part of these consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2019

 

1    PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION

 

Principal activities

 

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

 

Organisation

 

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

 

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

 

Basis of preparation

 

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

 

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

 

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

 

A number of new or amended standards became applicable for the current reporting period and the Group had changed its accounting policies as a result of adopting IFRS 16 Leases.

 

IFRS 16 Leases - Impact of adoption

 

The Group has adopted IFRS 16 Leases from 1 January 2019, but has not restated comparative amounts for the 2018 reporting period, as permitted under the specific transition provision in the standard. The reclassifications and the adjustments arising from IFRS 16 Leases are therefore recognised in the opening balance sheet on 1 January 2019.

 

Lease accounting policy applied until 31 December 2018 is disclosed in Note 2(x)(iii).

 

On adoption of IFRS 16 Leases, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases'. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The lessee's incremental borrowing rates applied to the lease liabilities on 1 January 2019 ranged from 4.35% to 4.90%.

 

(i)   Practical expedients applied

 

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

 

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

 

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

 

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application.

 

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

 

Basis of preparation (Continued)

 

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

 

(ii)  Measurement of lease liabilities

 

RMB million

Operating lease commitments disclosed as at 31 December 2018

352,794

Discounted using the lessee's incremental borrowing rate of at the date of initial application

200,867

(Less): short-term leases and low-value leases recognised on a straight-line basis as expense

(2,303)

Lease liabilities recognised as at 1 January 2019

198,564

Of which are:

 

Current lease liabilities

13,894

Non-current lease liabilities

184,670

 

198,564

 

(iii) Measurement of right-of-use assets

 

Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018.

 

The recognised right-of-use assets relate to the following types of assets:

 

31 December

2019

1 January

2019

RMB million

RMB million

Land

239,374

244,588

Others

28,486

27,381

Total right-of-use assets

267,860

271,969

 

(iv) Adjustments recognised in the balance sheet on 1 January 2019

 

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

 

right-of-use assets - increase by RMB 271,969 million

 

lease prepayments - decrease by RMB 64,514 million

 

prepaid expenses and other current assets - decrease by RMB 766 million

 

long-term prepayments and other assets - decrease by RMB 8,125 million

 

lease liabilities - increase by RMB 198,564 million

 

(v)  Impact on segment disclosures

 

Segment assets and segment liabilities for 31 December 2019 all increased as a result of the changes in accounting policy. The following segments were affected by the changes in accounting policy:

 

Increase in

Segment assets

Segment liabilities

RMB million

RMB million

Exploration and production

79,263

78,041

Refining

32,839

26,094

Marketing and distribution

120,983

62,237

Chemicals

19,124

12,252

Corporate and others

15,651

14,248

 

267,860

192,872

 

Comparative segment information has not been restated. As a consequence, the segment information disclosure for the items noted above is not entirely comparable to the information disclosed for the prior year.

 

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

 

Basis of preparation (Continued)

 

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

 

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

 

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

 

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

 

Key assumptions and estimation made by management in the application of IFRS that have significant effect on the consolidated financial statements and the major sources of estimation uncertainty are disclosed in Note 43.

 

2    SIGNIFICANT ACCOUNTING POLICIES

 

(a)  Basis of consolidation

 

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

 

(i)   Subsidiaries and non-controlling interests

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The particulars of the Group's principal subsidiaries are set out in Note 41.

 

(ii)  Associates and joint ventures

 

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

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(a)  Basis of consolidation (Continued)

 

(ii)  Associates and joint ventures (Continued)

 

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

 

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

 

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

 

(iii) Transactions eliminated on consolidation

 

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

 

(iv) Merger accounting for common control combination

 

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

 

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

 

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

 

(b)  Translation of foreign currencies

 

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

 

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

 

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

 

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

 

(c)  Cash and cash equivalents

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(d)  Trade, bills and other receivables

 

Trade, bills and other receivables are recognised initially at their transaction price, unless they contain significant financing components when they are recognised at fair value. They are subsequently measured at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(j)). Trade, bills and other receivables are derecognised if the Group's contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets.

 

(e)  Inventories

 

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

 

(f)  Property, plant and equipment

 

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

 

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

 

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

 

Estimated

usage period

Estimated

residuals rate

Buildings

12 to 50 years

3%

Equipment, machinery and others

4 to 30 years

3%

 

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

 

(g)  Oil and gas properties

 

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

 

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

 

(h)  Construction in progress

 

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

 

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

 

No depreciation is provided in respect of construction in progress.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(i)   Goodwill

 

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

 

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

 

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

 

(j)   Financial assets

 

(i)   Classification and measurement

 

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

 

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

 

Debt instruments

 

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

 

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

 

FVOCI: The business model for managing such financial assets by the Group are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, foreign exchange gains and losses and interest income calculated using the effective interest rate method, which are recognised in profit or loss.

 

Equity instruments

 

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

 

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

 

(ii)  Impairment

 

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

 

The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions.

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(j)   Financial assets (Continued)

 

(ii)  Impairment (Continued)

 

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

 

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

 

For trade accounts receivable and bills receivable and financial assets at FVOCI related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.

 

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

 

(iii) Derecognition

 

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

 

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

 

(k)  Financial liabilities

 

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

 

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

 

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

 

(l)   Determination of fair value for financial instruments

 

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

 

(m) Derivative financial instruments and hedge accounting

 

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

 

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

 

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

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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

 

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

 

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

 

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

 

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

 

Cash flow hedges

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(n)  Impairment of assets

 

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

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(n)  Impairment of assets (Continued)

 

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

 

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

 

(o)  Trade, bills and other payables

 

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

 

(p)  Interest-bearing borrowings

 

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

 

(q)  Provisions and contingent liability

 

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

 

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

 

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

 

(r)  Revenue recognition

 

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

 

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

 

Sales of goods

 

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

 

(s)  Government grants

 

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

 

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

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(t)   Borrowing costs

 

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

 

(u)  Repairs and maintenance expenditure

 

Repairs and maintenance expenditure is expensed as incurred.

 

(v)  Environmental expenditures

 

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

 

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

 

(w) Research and development expense

 

Research and development expenditures that cannot be capitalised are expensed in the period in which they are incurred. Research and development expense amounted to RMB 9,395 million for the year ended 31 December 2019 (2018: RMB 7,956 million).

 

(x)  Leases

 

A lease is a contract that a lessor transfers the right to use an identified asset for a period of time to a lessee in exchange for consideration.

 

(i)   As lessee

 

The Group recognises a right-of-use asset at the date at which the leased asset is available for use by the Group, and recognises a lease liability measured at the present value of the remaining lease payments. The lease payments include fixed payments, the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the Group exercising that option, etc. Variable payments that are based on a percentage of sales are not included in the lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) from balance sheet date is presented in current liabilities.

 

Right-of-use assets of the Group mainly comprise land. Right-of-use assets are measured at cost which comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee, less any lease incentives received. The Group depreciates the right-of-use assets over the shorter of the asset's useful life and the lease term on a straight-line basis. When the recoverable amount of a right-of-use asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount.

 

Payments associated with short-term leases with lease terms within 12 months and all leases of low-value assets are recognised on a straight-line basis over the lease term as an expense in profit or loss or as cost of relevant assets, instead of recognising right-of-use assets and lease liabilities.

 

(ii)  As lessor

 

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease.

 

When the Group leases self-owned plants and buildings, equipment and machinery, lease income from an operating lease is recognised on a straight-line basis over the period of the lease. The Group recognises variable lease income which is based on a certain percentage of sales as rental income when occurred.

 

(iii)  Accounting policy applied until 31 December 2018

 

Lease prepayments

 

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

 

Operating leases

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(y)  Employee benefits

 

The contributions payable under the Group's retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 39.

 

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

 

(z)  Income tax

 

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

 

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

 

(aa)  Dividends

 

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

 

(bb)  Segment reporting

 

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

 

3    TURNOVER

 

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

 

2019

2018

RMB million

RMB million

Gasoline

699,202

711,236

Diesel

615,342

594,008

Crude oil

553,848

519,910

Basic chemical feedstock

214,911

250,884

Kerosene

191,636

168,823

Synthetic resin

124,271

124,618

Synthetic fiber monomers and polymers

80,100

77,572

Natural gas

53,839

43,205

Others (i)

367,339

335,357

 

2,900,488

2,825,613

 

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

 

4    OTHER OPERATING REVENUES

 

2019

2018

RMB million

RMB million

Sale of materials and others

64,489

64,503

Rental income

1,216

1,063

 

65,705

65,566

 

5    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

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

 

2019

2018

RMB million

RMB million

Operating lease charges

1,856

12,297

Auditor's remuneration:

 

 

- audit services

70

94

- others

6

9

Impairment losses:

 

 

- trade accounts receivable

1,283

6

- other receivables

(2)

9

 

6    PERSONNEL EXPENSES

 

2019

2018

RMB million

RMB million

Salaries, wages and other benefits

69,817

68,425

Contributions to retirement schemes (Note 39)

11,665

9,296

 

81,482

77,721

 

7    TAXES OTHER THAN INCOME TAX

 

2019

2018

RMB million

RMB million

Consumption tax (i)

202,671

201,901

City construction tax (ii)

16,247

18,237

Education surcharge

12,011

13,187

Resources tax

5,883

6,021

Others

5,723

7,152

 

242,535

246,498

 

Notes:

 

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

 

Products

Effective from

13 January 2015

RMB/Ton

Gasoline

2,109.76

Diesel

1,411.20

Naphtha

2,105.20

Solvent oil

1,948.64

Lubricant oil

1,711.52

Fuel oil

1,218.00

Jet fuel oil

1,495.20

 

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

 

8    OTHER OPERATING EXPENSE, NET

 

2019

2018

RMB million

RMB million

Government grants (i)

6,911

7,539

Ineffective portion of change in fair value of cash flow hedges

(222)

(1,978)

Net realised and unrealised (loss)/gain on derivative financial instruments not qualified as hedging

(4,384)

191

Impairment losses on long-lived assets (ii)

(345)

(6,281)

Loss on disposal of property, plant, equipment and other non-current assets, net

(1,918)

(1,526)

Fines, penalties and compensations

(173)

(276)

Donations

(209)

(180)

Others

(96)

(2,849)

 

(436)

(5,360)

 

Notes:

 

(i) Government grants for the years ended 31 December 2019 and 2018 primarily represent financial appropriation income and non-income tax refunds received from respective government agencies without conditions or other contingencies attached to the receipts of the grants.

 

(ii)  Impairment losses on long-lived assets for the year ended 31 December 2019 primarily represent impairment losses recognised in the refining segment of RMB 245 million (2018: RMB 353 million), the marketing and distribution segment of RMB 80 million (2018: RMB 264 million), the chemicals segment of RMB 17 million (2018: RMB 1,374 million) and the exploration and production ("E&P") segment of RMB 3 million (2018: RMB 4,274 million). The primary factor resulting in the E&P segment impairment loss in the prior year was downward revision of oil and gas reserve in certain fields. E&P segment determines recoverable amounts of properties, plant and equipment relating to oil and gas producing activities, which include significant judgments and assumptions. The recoverable amounts were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2018: 10.47%). Further future downward revisions to the Group's oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 184 million (2018: RMB 312 million). It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 180 million (2018: RMB 315 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 7 million (2018: less RMB 5 million).

 

9    INTEREST EXPENSE

 

2019

2018

RMB million

RMB million

Interest expense incurred

6,954

6,376

Less: Interest expense capitalised*

(1,015)

(493)

 

5,939

5,883

Interest expense on lease liabilities

9,646

-

Accretion expenses (Note 35)

1,418

1,438

Interest expense

17,003

7,321

* Interest rates per annum at which borrowing costs were capitalised for construction in progress

2.92% to 4.66%

2.37% to 4.66%

 

10  INCOME TAX EXPENSE

 

Income tax expense in the consolidated income statement represents:

 

2019

2018

RMB million

RMB million

Current tax

 

 

- Provision for the year

14,976

27,176

- Adjustment of prior years

(467)

(719)

Deferred taxation (Note 29)

3,385

(6,244)

 

17,894

20,213

 

10  INCOME TAX EXPENSE (Continued)

 

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

 

2019

2018

RMB million

RMB million

Profit before taxation

89,927

99,110

Expected PRC income tax expense at a statutory tax rate of 25%

22,482

24,778

Tax effect of non-deductible expenses

2,300

2,351

Tax effect of non-taxable income

(4,458)

(5,033)

Tax effect of preferential tax rate (i)

(2,003)

(1,259)

Effect of income taxes at foreign operations

(312)

77

Tax effect of utilisation of previously unrecognised tax losses and temporary differences

(335)

(779)

Tax effect of tax losses not recognised

498

609

Write-down of deferred tax assets

189

188

Adjustment of prior years

(467)

(719)

Actual income tax expense

17,894

20,213

 

Note:

 

(i) The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in western regions in the PRC are taxed at preferential income tax rate of 15% through the year 2020.

 

11  DIRECTORS' AND SUPERVISORS' EMOLUMENTS

 

(a)  Directors' and supervisors' emoluments

 

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

 

Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking

Emoluments paid

 or receivable

in respect of a

person's services

as a director,

whether of the

Company or

its subsidiary

 undertaking

2019

Name

Salaries,

 allowances and

benefits in kind

Bonuses

Retirement

scheme

contributions

Directors'/

Supervisors' fee

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Directors

 

 

 

 

 

Dai Houliang

-

-

-

-

-

Ma Yongsheng

294

1,173

96

-

1,563

Li Yunpeng

-

-

-

-

-

Yu Baocai

-

-

-

-

-

Ling Yiqun

-

-

-

-

-

Liu Zhongyun (i)

-

-

-

-

-

Li Yong

-

-

-

-

-

Independent non-executive directors

 

 

 

 

 

Tang Min

-

-

-

350

350

Fan Gang

-

-

-

350

350

Cai Hongbin

-

-

-

350

350

Johnny Karling Ng

-

-

-

350

350

Supervisors

 

 

 

 

 

Zhao Dong

-

-

-

-

-

Jiang Zhenying

369

865

88

-

1,322

Yang Changjiang

-

-

-

-

-

Zhang Baolong

-

-

-

-

-

Zou Huiping

369

989

88

-

1,446

Yu Xizhi

369

880

88

-

1,337

Zhou Hengyou

369

874

88

-

1,331

Yu Renming

369

889

88

-

1,346

Total

2,139

5,670

536

1,400

9,745

 

11  DIRECTORS' AND SUPERVISORS' EMOLUMENTS (Continued)

 

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

 

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

 

Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking

Emoluments paid

or receivable

in respect of a

person's services

as a director,

whether of the

Company or

its subsidiary

undertaking

2018

Name

Salaries,

 allowances and

benefits in kind

Bonuses

Retirement

scheme

contributions

Directors'/

Supervisors' fee

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Directors

 

 

 

 

 

Dai Houliang

224

179

65

-

468

Li Yunpeng

-

-

-

-

-

Yu Baocai

-

-

-

-

-

Ma Yongsheng

53

328

14

-

395

Ling Yiqun

-

-

-

-

-

Liu Zhongyun (i)

-

-

-

-

-

Li Yong

-

-

-

-

-

Wang Zhigang (ii)

21

456

6

-

483

Zhang Haichao (ii)

-

-

-

-

-

Jiao Fangzheng (iii)

-

-

-

-

-

Independent non-executive directors

 

 

 

 

 

Tang Min

-

-

-

333

333

Fan Gang

-

-

-

333

333

Cai Hongbin

-

-

-

233

233

Johnny Karling Ng

-

-

-

233

233

Jiang Xiaoming (iv)

-

-

-

125

125

Andrew Y. Yan (iv)

-

-

-

125

125

Supervisors

 

 

 

 

 

Zhao Dong

-

-

-

-

-

Jiang Zhenying

-

-

-

-

-

Yang Changjiang

-

-

-

-

-

Zhang Baolong

-

-

-

-

-

Zou Huiping

298

663

74

-

1,035

Zhou Hengyou

174

122

44

-

340

Yu Renming

298

613

74

-

985

Yu Xizhi

298

636

74

-

1,008

Total

1,366

2,997

351

1,382

6,096

 

Notes:

 

(i) Mr. Liu Zhongyun was elected to be director from 15 May 2018. Due to change of working arrangement, Mr. Liu Zhongyun has tendered his resignation as executive director, member of Strategy Committee of the Board and Senior Vice President of the Company from 9 December 2019.

 

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

 

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

 

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

 

12  SENIOR MANAGEMENT'S EMOLUMENTS

 

For the year ended 31 December 2019, the five highest paid individuals in the Company included one director and four senior management. The emolument paid to each of one director and four senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 7,294 thousand, and the total amount of their retirement scheme contributions was RMB 448 thousand. For the year ended 31 December 2018, the five highest paid individuals in the Company included two supervisors and three senior management.

 

13  DIVIDENDS

 

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

 

2019

2018

RMB million

RMB million

Dividends declared and paid during the year of RMB 0.12 per share (2018: RMB 0.16 per share)

14,529

19,371

Dividends declared after the balance sheet date of RMB 0.19 per share (2018: RMB 0.26 per share)

23,004

31,479

 

37,533

50,850

 

Pursuant to the Company's Articles of Association and a resolution passed at the Directors' meeting on 23 August 2019, the directors authorised to declare the interim dividends for the year ending 31 December 2019 of RMB 0.12 (2018: RMB 0.16) per share totaling RMB 14,529 million (2018: RMB 19,371 million). Dividends were paid on 17 September 2019.

 

Pursuant to a resolution passed at the director's meeting on 27 March 2020, final dividends in respect of the year ended 31 December 2019 of RMB 0.19 (2018: RMB 0.26) per share totaling RMB 23,004 million (2018: RMB 31,479 million) were proposed for shareholders' approval at the Annual General Meeting. Final cash dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

 

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

 

2019

2018

RMB million

RMB million

Final cash dividends in respect of the previous financial year, approved during the year of

RMB 0.26 per share (2018: RMB 0.40 per share)

31,479

48,428

 

Pursuant to the shareholders' approval at the Annual General Meeting on 9 May 2019, a final dividend of RMB 0.26 per share totaling RMB 31,479 million according to total shares on 10 June 2019 was approved. All dividends have been paid in the year ended 31 December 2019.

 

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

 

14  OTHER COMPREHENSIVE INCOME

 

2019

2018

Before tax

Tax

Net of tax

Before tax

Tax

Net of tax

amount

effect

amount

amount

effect

amount

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Cash flow hedges:

 

 

 

 

 

 

Effective portion of changes in fair value of hedging
instruments recognised during the year

5,258

(974)

4,284

(12,500)

2,159

(10,341)

Reclassification adjustments for amounts transferred
to the consolidated income statement

853

(196)

657

730

(130)

600

Net movement during the year recognised in other
 comprehensive income (i)

6,111

(1,170)

4,941

(11,770)

2,029

(9,741)

Changes in the fair value of instruments at fair value
through other comprehensive income

(39)

8

(31)

(41)

(12)

(53)

Net movement during the year recognised in other
 comprehensive income

(39)

8

(31)

(41)

(12)

(53)

Share of other comprehensive loss of associates and
joint ventures

(810)

-

(810)

(240)

11

(229)

Foreign currency translation differences

1,480

-

1,480

3,399

-

3,399

Other comprehensive income

6,742

(1,162)

5,580

(8,652)

2,028

(6,624)

 

Note:

 

(i) As at 31 December 2019, cash flow hedge reserve amounted to a gain of RMB 1,102 million (31 December 2018: a loss of RMB 4,932 million), of which a gain of RMB 1,037 million was attribute to shareholders of the Company (31 December 2018: a loss of RMB 4,917 million).

 

15  BASIC AND DILUTED EARNINGS PER SHARE

 

The calculation of basic earnings per share for the year ended 31 December 2019 is based on the profit attributable to ordinary shareholders of the Company of RMB 57,465 million (2018: RMB 61,618 million) and the weighted average number of shares of 121,071,209,646 (2018: 121,071,209,646) during the year.

 

The calculation of diluted earnings per share for the year ended 31 December 2019 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 57,465 million (2018: RMB 61,618 million) and the weighted average number of shares of 121,071,209,646 (2018: 121,071,209,646) calculated as follows:

 

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

 

2019

2018

RMB million

RMB million

Profit attributable to ordinary shareholders of the Company

57,465

61,618

Profit attributable to ordinary shareholders of the Company (diluted)

57,465

61,618

 

(ii)  Weighted average number of shares (diluted)

 

2019

2018

Number of shares

Number of shares

Weighted average number of shares at 31 December

121,071,209,646

121,071,209,646

Weighted average number of shares (diluted) at 31 December

121,071,209,646

121,071,209,646

 

16  PROPERTY, PLANT AND EQUIPMENT

 

Equipment,

Plants and

Oil and gas,

machinery

buildings

properties

and others

Total

RMB million

RMB million

RMB million

RMB million

Cost:

 

 

 

 

Balance at 1 January 2018

120,013

667,657

940,312

1,727,982

Additions

221

1,567

3,856

5,644

Transferred from construction in progress

3,741

24,366

45,103

73,210

Reclassifications

1,634

138

(1,772)

-

Reclassification to other long-term assets

(483)

-

(3,828)

(4,311)

Disposals

(3,183)

(146)

(18,323)

(21,652)

Exchange adjustments

98

2,142

147

2,387

Balance at 31 December 2018

122,041

695,724

965,495

1,783,260

Balance at 1 January 2019

122,041

695,724

965,495

1,783,260

Additions

160

1,408

3,856

5,424

Transferred from construction in progress

6,192

31,378

54,275

91,845

Reclassifications

1,051

(76)

(975)

-

Invest into the joint ventures and associated companies

(8)

-

(303)

(311)

Reclassification to other long-term assets

(748)

-

(729)

(1,477)

Disposals

(237)

(1,549)

(13,467)

(15,253)

Exchange adjustments

42

667

71

780

Balance at 31 December 2019

128,493

727,552

1,008,223

1,864,268

Accumulated depreciation:

 

 

 

 

Balance at 1 January 2018

52,200

495,817

529,191

1,077,208

Depreciation for the year

4,038

48,616

47,250

99,904

Impairment losses for the year

274

4,027

1,848

6,149

Reclassifications

494

76

(570)

-

Reclassification to other long-term assets

(120)

-

(1,390)

(1,510)

Written back on disposals

(1,795)

(125)

(16,331)

(18,251)

Exchange adjustments

43

1,877

78

1,998

Balance at 31 December 2018

55,134

550,288

560,076

1,165,498

Balance at 1 January 2019

55,134

550,288

560,076

1,165,498

Depreciation for the year

4,095

36,289

47,583

87,967

Impairment losses for the year

11

-

185

196

Reclassifications

292

(46)

(246)

-

Invest into the joint ventures and associated companies

-

-

(216)

(216)

Reclassification to other long-term assets

3

-

(94)

(91)

Written back on disposals

(763)

(6)

(11,454)

(12,223)

Exchange adjustments

21

667

40

728

Balance at 31 December 2019

58,793

587,192

595,874

1,241,859

Net book value:

 

 

 

 

Balance at 1 January 2018

67,813

171,840

411,121

650,774

Balance at 31 December 2018

66,907

145,436

405,419

617,762

Balance at 31 December 2019

69,700

140,360

412,349

622,409

 

16  PROPERTY, PLANT AND EQUIPMENT (Continued)

 

The additions to oil and gas properties of the Group for the year ended 31 December 2019 included RMB 1,408 million (2018: RMB 1,567 million) of estimated dismantlement costs for site restoration (Note 35).

 

At December 31, 2019 and December 31, 2018, the Group had no individual substantial property, plant and equipment which have been pledged.

 

At December 31, 2019 and December 31, 2018, the Group had no individual significant property, plant and equipment which were temporarily idle or pending for disposal.

 

At December 31, 2019 and December 31, 2018, the Group had no individual significant fully depreciated property, plant and equipment which were still in use.

 

17  CONSTRUCTION IN PROGRESS

 

2019

2018

RMB million

RMB million

Balance at 1 January

136,963

118,645

Additions

144,369

108,555

Dry hole costs written off

(5,831)

(6,921)

Transferred to property, plant and equipment

(91,845)

(73,210)

Reclassification to other long-term assets

(10,086)

(10,066)

Impairment losses for the year

(135)

(28)

Disposals and others

46

(19)

Exchange adjustments

1

7

Balance at 31 December

173,482

136,963

 

As at 31 December 2019, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 8,961 million (2018: RMB 7,296 million). The geological and geophysical costs paid during the year ended 31 December 2019 were RMB 4,024 million (2018: RMB 3,511 million).

 

18  RIGHT-OF-USE ASSETS

 

Land

Others

Total

RMB million

RMB million

RMB million

Cost:

 

 

 

Change in accounting policy (Note 1(a))

244,588

27,381

271,969

Balance at 1 January 2019

244,588

27,381

271,969

Increase

8,650

7,555

16,205

Decrease

(4,760)

(748)

(5,508)

Balance at 31 December 2019

248,478

34,188

282,666

Accumulated depreciation:

 

 

 

Balance at 1 January 2019

-

-

-

Increase

9,233

5,728

14,961

Decrease

(129)

(26)

(155)

Balance at 31 December 2019

9,104

5,702

14,806

Impairment loss:

 

 

 

Balance at 1 January 2019

-

-

-

Increase

-

-

-

Decrease

-

-

-

Balance at 31 December 2019

-

-

-

Net book value:

 

 

 

Balance at 1 January 2019

244,588

27,381

271,969

Balance at 31 December 2019

239,374

28,486

267,860

 

19  GOODWILL

 

31 December

31 December

2019

2018

RMB million

RMB million

Cost

16,558

16,537

Less: Accumulated impairment losses

(7,861)

(7,861)

 

8,697

8,676

 

Impairment tests for cash-generating units containing goodwill

 

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

 

Principal activities

31 December

31 December

2019

2018

RMB million

RMB million

Sinopec Zhenhai Refining and Chemical Branch
("Sinopec Zhenhai")

Manufacturing of intermediate petrochemical
products and petroleum products

4,043

4,043

Shanghai SECCO Petrochemical Company Limited
("Shanghai SECCO")

Production and sale of petrochemical products

 

2,541

2,541

Sinopec Beijing Yanshan Petrochemical Branch
("Sinopec Yanshan")

Manufacturing of intermediate petrochemical
products and petroleum products

1,004

1,004

Other units without individually significant goodwill

 

1,109

1,088

 

 

8,697

8,676

 

Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 11.0% to 11.9% (2018: 11.7% to 12.3%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognised.

 

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

 

20  INTEREST IN ASSOCIATES

 

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

 

The Group's principal associates are as follows:

 

Name of company

% of

ownership

interests

Principal activities

 

Measurement

method

Country of

incorporation

Principal place

of business

Sinopec Sichuan To East China Gas
Pipeline Co., Ltd. ("Pipeline Ltd")

50.00

Operation of natural gas pipelines

and auxiliary facilities

Equity method

PRC

PRC

Sinopec Finance Company Limited
("Sinopec Finance")

49.00

Provision of non-banking financial

services

Equity method

PRC

PRC

PAO SIBUR Holding ("SIBUR") (i)


10.00


Processing natural gas and

manufacturing petrochemical

products

Equity method


Russia


Russia


Zhongtian Synergetic Energy Company Limited ("Zhongtian Synergetic Energy")

38.75

Mining coal and manufacturing of

coal-chemical products

Equity method

PRC

PRC

Caspian Investments Resources Ltd.
("CIR")

50.00

Crude oil and natural gas

extraction

Equity method

British Virgin
Islands

The Republic of
Kazakhstan

 

20  INTEREST IN ASSOCIATES (Continued)

 

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

 

Pipeline Ltd

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

13,245

12,498

180,383

209,837

31,634

22,502

4,219

7,477

7,612

6,712

Non-current assets

37,842

39,320

18,926

16,359

182,646

170,796

56,424

49,961

971

1,828

Current liabilities

(721)

(1,020)

(170,621)

(200,402)

(31,295)

(23,293)

(13,887)

(7,252)

(936)

(961)

Non-current liabilities

(2,910)

(3,026)

(582)

(332)

(71,289)

(58,628)

(26,227)

(31,436)

(166)

(673)

Net assets

47,456

47,772

28,106

25,462

111,696

111,377

20,529

18,750

7,481

6,906

Net assets attributable to owners
of the Company

47,456

47,772

28,106

25,462

111,250

110,860

20,529

18,750

7,481

6,906

Net assets attributable to
non-controlling interests

-

-

-

-

446

517

-

-

-

-

Share of net assets from associates

23,728

23,886

13,772

12,476

11,125

11,086

7,955

7,266

3,741

3,453

Carrying Amounts

23,728

23,886

13,772

12,476

11,125

11,086

7,955

7,266

3,741

3,453

 

Summarised statement of comprehensive income

 

Year ended 31 December

Pipeline Ltd

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Turnover

5,008

4,746

4,966

4,536

56,706

59,927

13,329

12,235

2,334

2,856

Profit for the year

2,191

2,022

2,234

1,868

6,513

10,400

1,994

1,142

424

583

Other comprehensive income/(loss)

-

-

411

(157)

(1,435)

6,410

-

-

151

116

Total comprehensive income

2,191

2,022

2,645

1,711

5,078

16,810

1,994

1,142

575

699

Dividends declared by associates

1,259

1,207

-

490

468

271

219

-

-

-

Share of profit from associates

1,096

1,011

1,095

915

651

1,040

773

443

212

292

Share of other comprehensive income/(loss)
from associates (ii)

-

-

201

(77)

(144)

641

-

-

76

58

 

The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial associates accounted for using equity method in aggregate was RMB 4,565 million (2018: RMB 3,550 million) and RMB 155 million (2018: RMB 844 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 35,416 million (2018: RMB 31,370 million).

 

Notes:

 

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

 

(ii)  Including foreign currency translation differences.

 

21  INTEREST IN JOINT VENTURES

 

The Group's principal interests in joint ventures are as follows:

 

Name of entity

% of

ownership

interests

Principal activities

 

Measurement

method

Country of

incorporation

Principal place

of business

Fujian Refining & Petrochemical
Company Limited ("FREP")

50.00

Manufacturing refining

oil products

Equity method

PRC

PRC

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

40.00


Manufacturing and

distribution of

petrochemical products

Equity method


PRC


PRC


Taihu Limited ("Taihu")

49.00

Crude oil and natural gas

extraction

Equity method

Cyprus

Russia

Yanbu Aramco Sinopec Refining
Company Ltd. ("YASREF")

37.50

Petroleum refining and

processing business

Equity method

Saudi Arabia

Saudi Arabia

Sinopec SABIC Tianjin Petrochemical
Company Limited
("Sinopec SABIC Tianjin")

50.00


Manufacturing and

distribution of

petrochemical products

Equity method


PRC


PRC


 

21  INTEREST IN JOINT VENTURES (Continued)

 

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

 

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

5,603

7,388

1,154

1,582

4,485

3,406

733

930

3,242

5,110

Other current assets

11,977

9,248

4,937

5,795

2,336

3,689

11,311

10,267

4,501

4,007

Total current assets

17,580

16,636

6,091

7,377

6,821

7,095

12,044

11,197

7,743

9,117

Non-current assets

17,267

19,271

10,498

11,086

10,453

9,216

50,548

51,873

14,878

13,990

Current liabilities

 

 

 

 

 

 

 

 

 

 

Current financial liabilities

(1,280)

(1,200)

(237)

(725)

(57)

(59)

(7,445)

(4,806)

(500)

(500)

Other current liabilities

(7,090)

(4,939)

(1,808)

(1,822)

(1,815)

(2,124)

(12,504)

(12,217)

(2,896)

(2,507)

Total current liabilities

(8,370)

(6,139)

(2,045)

(2,547)

(1,872)

(2,183)

(19,949)

(17,023)

(3,396)

(3,007)

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

Non-current financial liabilities

(11,185)

(12,454)

-

(218)

(125)

(72)

(29,445)

(32,364)

(4,592)

(3,651)

Other non-current liabilities

(290)

(279)

(35)

(17)

(1,984)

(2,271)

(1,963)

(937)

(368)

(331)

Total non-current liabilities

(11,475)

(12,733)

(35)

(235)

(2,109)

(2,343)

(31,408)

(33,301)

(4,960)

(3,982)

Net assets

15,002

17,035

14,509

15,681

13,293

11,785

11,235

12,746

14,265

16,118

Net assets attributable to owners of the company

15,002

17,035

14,509

15,681

12,829

11,373

11,235

12,746

14,265

16,118

Net assets attributable to non-controlling interests

-

-

-

-

464

412

-

-

-

-

Share of net assets from joint ventures

7,501

8,518

5,804

6,272

6,286

5,573

4,213

4,780

7,133

8,059

Carrying Amounts

7,501

8,518

5,804

6,272

6,286

5,573

4,213

4,780

7,133

8,059

 

Summarised statement of comprehensive income

 

Year ended 31 December

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Turnover

57,047

52,469

19,590

21,574

15,222

14,944

75,940

77,561

20,541

23,501

Depreciation, depletion and amortisation

(2,541)

(2,250)

(1,474)

(1,521)

(629)

(664)

(3,048)

(2,823)

(1,094)

(1,104)

Interest income

124

157

32

41

94

141

58

101

171

169

Interest expense

(597)

(647)

(26)

(43)

(265)

(151)

(1,470)

(1,382)

(134)

(167)

Profit/(loss) before taxation

964

3,920

2,314

3,625

3,320

3,493

(1,292)

(1,569)

2,178

3,916

Tax expense

(197)

(935)

(579)

(897)

(708)

(729)

(8)

(249)

(533)

(993)

Profit/(loss) for the year

767

2,985

1,735

2,728

2,612

2,764

(1,300)

(1,818)

1,645

2,923

Other comprehensive (loss)/income

-

-

-

-

(1,105)

921

(261)

1,059

-

-

Total comprehensive income/(loss)

767

2,985

1,735

2,728

1,507

3,685

(1,561)

(759)

1,645

2,923

Dividends declared by joint ventures

1,400

1,200

1,224

1,226

-

-

-

-

1,750

-

Share of net profit/(loss) from joint ventures

384

1,493

694

1,091

1,235

1,307

(488)

(682)

823

1,462

Share of other comprehensive (loss)/income

from joint ventures (i)

-

-

-

-

(522)

435

(98)

397

-

-

 

The share of profit and other comprehensive loss for the year ended 31 December 2019 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 1,737 million (2018: RMB 2,052 million) and RMB 168 million (2018: RMB 839 million) respectively. As at 31 December 2019, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 25,530 million (2018: RMB 22,982 million).

 

Note:

 

(i) Including foreign currency translation differences.

 

22  LONG-TERM PREPAYMENTS AND OTHER ASSETS

 

31 December

31 December

2019

2018

RMB million

RMB million

Operating rights of service stations

34,013

34,934

Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries

1,562

26,513

Prepayments for construction projects to third parties

3,926

5,502

Others (i)

25,925

24,459

 

65,426

91,408

 

Note:

 

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

 

The cost of operating rights of service stations is charged to expense on a straight-line basis over the respective periods of the rights. The movement of operating rights of service stations is as follows:

 

2019

2018

RMB million

RMB million

Operating rights of service stations

 

 

Cost:

 

 

Balance at 1 January

52,216

48,613

Additions

1,494

3,948

Decreases

(161)

(345)

Balance at 31 December

53,549

52,216

Accumulated amortisation:

 

 

Balance at 1 January

17,282

14,345

Additions

2,357

3,019

Decreases

(103)

(82)

Balance at 31 December

19,536

17,282

Net book value at 31 December

34,013

34,934

 

23  FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

31 December

31 December

2019

2018

RMB million

RMB million

Structured deposits

3,318

25,550

Equity investments, listed and at quoted market price

1

182

 

3,319

25,732

 

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

 

24  DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES

 

Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps contracts. See Note 42.

 

25  TRADE ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE

 

31 December

31 December

2019

2018

RMB million

RMB million

Amounts due from third parties

43,728

50,108

Amounts due from Sinopec Group Company and fellow subsidiaries

6,570

3,170

Amounts due from associates and joint ventures

6,415

4,321

 

56,713

57,599

Less: Impairment losses for bad and doubtful debts

(1,848)

(606)

Trade accounts receivable, net

54,865

56,993

Bills receivable

-

7,886

 

54,865

64,879

 

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

 

31 December

31 December

2019

2018

RMB million

RMB million

Within one year

54,517

64,317

Between one and two years

190

353

Between two and three years

64

124

Over three years

94

85

 

54,865

64,879

 

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

 

2019

2018

RMB million

RMB million

Balance at 1 January

606

612

Provision for the year

1,566

83

Written back for the year

(283)

(77)

Written off for the year

(41)

(19)

Others

-

7

Balance at 31 December

1,848

606

 

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

 

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

 

Information about the impairment of trade accounts receivable and bills receivable and the Group's exposure to credit risk can be found in Note 42.

 

26  FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

 

31 December

31 December

2019

2018

RMB million

RMB million

Non-current assets

 

 

Unlisted equity instruments

1,431

1,323

Listed equity instruments

90

127

Current assets

 

 

Trade accounts receivable and bills receivable (i)

8,622

-

 

10,143

1,450

 

Note:

 

(i) As at 31 December 2019, bills receivable and certain trade accounts receivable were classified as financial assets at FVOCI, as the Group's business model is achieved both by collecting contractual cash flows and selling of these assets.

 

27  INVENTORIES

 

31 December

31 December

2019

2018

RMB million

RMB million

Crude oil and other raw materials

88,465

85,469

Work in progress

12,615

13,690

Finished goods

91,368

88,929

Spare parts and consumables

2,576

2,872

 

195,024

190,960

Less: Allowance for diminution in value of inventories

(2,582)

(6,376)

 

192,442

184,584

 

The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 2,450,911 million for the year ended 31 December 2019 (2018: RMB 2,366,199 million). It includes the write-down of inventories of RMB 1,616 million mainly related to finished goods (2018: RMB 5,535 million mainly related to crude oil, finished goods and work in progress of refined oil products and chemical products).

 

28  PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

31 December

31 December

2019

2018

RMB million

RMB million

Other receivables

25,586

26,455

Advances to suppliers

5,066

5,937

Value-added input tax to be deducted

25,313

21,331

Prepaid income tax

1,879

300

 

57,844

54,023

 

29  DEFERRED TAX ASSETS AND LIABILITIES

 

Deferred tax assets and deferred tax liabilities before offset are attributable to the items detailed in the table below:

 

Deferred tax assets

Deferred tax liabilities

31 December

31 December

31 December

31 December

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

Receivables and inventories

2,546

2,563

-

-

Payables

1,142

1,808

-

-

Cash flow hedges

116

1,131

(384)

(27)

Property, plant and equipment

16,463

15,427

(12,317)

(8,666)

Tax losses carried forward

3,594

3,709

-

-

Financial assets at fair value through other comprehensive income

131

117

(7)

(1)

Intangible assets

595

474

(508)

(535)

Others

318

174

(882)

(428)

Deferred tax assets/(liabilities)

24,905

25,403

(14,098)

(9,657)

 

As at 31 December 2019, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 16,605 million (2018: RMB 18,308 million), of which RMB 1,992 million (2018: RMB 2,437 million) was incurred for the year ended 31 December 2019, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 3,163 million, RMB 3,156 million, RMB 5,938 million, RMB 2,356 million and RMB 1,992 million will expire in 2020, 2021, 2022, 2023,2024 and after, respectively.

 

Periodically, management performed assessment on the probability that future taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have sufficient future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the year ended 31 December 2019, write-down of deferred tax assets amounted to RMB 189 million (2018: RMB 188 million) (Note 10).

 

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

 

Recognised in

Recognised

Balance at

consolidated

in other

Transferred

Balance at

1 January

income

comprehensive

from

31 December

2018

statement

income

Others

reserve

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Receivables and inventories

381

2,176

3

3

-

2,563

Payables

1,925

(117)

-

-

-

1,808

Cash flow hedges

115

(10)

2,029

1

(1,031)

1,104

Property, plant and equipment

4,222

2,650

(130)

19

-

6,761

Tax losses carried forward

2,325

1,414

6

(36)

-

3,709

Available-for-sale financial assets

117

-

-

(117)

-

-

Financial assets at fair value through other
comprehensive income

-

-

(1)

117

-

116

Intangible assets

(336)

273

-

2

-

(61)

Others

(84)

(142)

(2)

(26)

-

(254)

Net deferred tax assets/(liabilities)

8,665

6,244

1,905

(37)

(1,031)

15,746

 

Recognised in

Recognised

Balance at

consolidated

in other

Transferred

Balance at

1 January

income

comprehensive

from

31 December

2019

statement

income

Others

reserve

2019

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Receivables and inventories

2,563

(17)

-

-

-

2,546

Payables

1,808

(667)

-

1

-

1,142

Cash flow hedges

1,104

73

(1,195)

-

(250)

(268)

Property, plant and equipment

6,761

(2,575)

(39)

(1)

-

4,146

Tax losses carried forward

3,709

(151)

38

(2)

-

3,594

Financial assets at fair value through other
comprehensive income

116

-

8

-

-

124

Intangible assets

(61)

148

-

-

-

87

Others

(254)

(196)

(49)

(65)

-

(564)

Net deferred tax assets/(liabilities)

15,746

(3,385)

(1,237)

(67)

(250)

10,807

 

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

 

Short-term debts represent:

 

31 December

31 December

2019

2018

RMB million

RMB million

Third parties' debts

 

 

Short-term bank loans

25,709

17,088

RMB denominated

25,619

13,201

US Dollar ("USD") denominated

90

3,887

Short-term other loans

22

300

RMB denominated

22

300

Current portion of long-term bank loans

1,790

12,074

RMB denominated

1,765

12,039

USD denominated

25

35

Current portion of long-term corporate bonds

13,000

-

RMB denominated

13,000

-

 

14,790

12,074

 

 

 

 

40,521

29,462

Loans from Sinopec Group Company and fellow subsidiaries

 

 

Short-term loans

5,465

27,304

RMB denominated

2,709

3,061

USD denominated

2,236

22,780

Hong Kong Dollar ("HKD") denominated

495

1,441

EUR denominated

25

22

Current portion of long-term loans

37,824

4,361

RMB denominated

37,824

4,361

 

43,289

31,665

 

 

 

 

83,810

61,127

 

The Group's weighted average interest rates on short-term loans were 3.11% (2018: 3.37%) per annum at 31 December 2019. The above borrowings are unsecured.

 

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

 

Long-term debts represent:

 

Interest rate and final maturity

31 December

31 December

2019

2018

RMB million

RMB million

Third parties' debts

 

 

 

Long-term bank loans

 

 

 

RMB denominated

Interest rates ranging from 1.08% to

31,714

31,025

5.23% per annum at 31 December 2019

 

with maturities through 2034

 

 

USD denominated

Interest rates ranging from 1.55% to

75

109

4.29% per annum at 31 December 2019

 

with maturities through 2031

 

 

 

 

31,789

31,134

Corporate bonds (i)

 

 

 

RMB denominated

Fixed interest rates ranging from 3.70% to

20,000

20,000

4.90% per annum at 31 December 2019

 

with maturity through 2022

 

 

USD denominated

Fixed interest rates ranging from 3.13% to

12,157

11,951

4.25% per annum at 31 December 2019

 

with maturities through 2043

 

 

 

 

32,157

31,951

 

 

 

 

Total third parties' long-term debts

 

63,946

63,085

Less: Current portion

 

(14,790)

(12,074)

 

 

49,156

51,011

Long-term loans from Sinopec Group Company and fellow subsidiaries

RMB denominated

Interest rates ranging from interest free to

47,450

46,877

5.50% per annum at 31 December 2019

 

with maturities through 2034

 

 

Less: Current portion

 

(37,824)

(4,361)

 

 

9,626

42,516

 

 

 

 

 

 

58,782

93,527

 

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

 

Note:

 

(i) These corporate bonds are carried at amortised cost. As at 31 December 2019, RMB 12,157 million (2018: RMB 11,951 million) (USD denominated corporate bonds) are guaranteed by Sinopec Group Company.

 

31  LEASE LIABILITIES

 

31 December

1 January

2019

2019

RMB million

RMB million

Lease liabilities

 

 

Current

15,198

13,894

Non-current

177,674

184,670

 

192,872

198,564

 

32  TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE

 

31 December

31 December

2019

2018

RMB million

RMB million

Amounts due to third parties

166,480

170,818

Amounts due to Sinopec Group Company and fellow subsidiaries

11,370

9,142

Amounts due to associates and joint ventures

10,108

6,381

 

187,958

186,341

Bills payable

11,834

6,416

Trade accounts payable and bills payable measured at amortised cost

199,792

192,757

 

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

 

31 December

31 December

2019

2018

RMB million

RMB million

Within 1 month or on demand

185,377

182,763

Between 1 month and 6 months

8,808

6,670

Over 6 months

5,607

3,324

 

199,792

192,757

 

33  CONTRACT LIABILITIES

 

As at 31 December 2019, the Group's contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year.

 

34  OTHER PAYABLES

 

31 December

31 December

2019

2018

RMB million

RMB million

Salaries and welfare payable

4,769

7,312

Interest payable

612

634

Payables for constructions

50,612

54,992

Other payables

22,778

22,852

Financial liabilities carried at amortised costs

78,771

85,790

Taxes other than income tax

66,075

80,361

 

144,846

166,151

 

35  PROVISIONS

 

Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has mainly committed to the PRC government to establish certain standardised measures for the dismantlement of its oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its oil and gas properties.

 

Movement of provision of the Group's obligations for the dismantlement of its oil and gas properties is as follow:

 

2019

2018

RMB million

RMB million

Balance at 1 January

42,007

39,407

Provision for the year

1,408

1,567

Accretion expenses

1,418

1,438

Decrease for the year

(2,439)

(598)

Exchange adjustments

44

193

Balance at 31 December

42,438

42,007

 

36  SHARE CAPITAL

 

31 December

31 December

2019

2018

RMB million

RMB million

Registered, issued and fully paid

 

 

95,557,771,046 listed A shares (2018: 95,557,771,046) of RMB 1.00 each

95,558

95,558

25,513,438,600 listed H shares (2018: 25,513,438,600) of RMB 1.00 each

25,513

25,513

 

121,071

121,071

 

The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each. Such shares were issued to Sinopec Group Company in consideration for the assets and liabilities transferred to the Company (Note 1).

 

Pursuant to the resolutions passed at an Extraordinary General Meeting held on 25 July 2000 and approvals from relevant government authorities, the Company is authorised to increase its share capital to a maximum of 88.3 billion shares with a par value of RMB 1.00 each and offer not more than 19.5 billion shares with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group Company is authorised to offer not more than 3.5 billion shares of its shareholdings in the Company to investors outside the PRC. The shares sold by Sinopec Group Company to investors outside the PRC would be converted into H shares.

 

In October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares ("ADSs", each representing 100 H shares), at prices of HKD 1.59 per H share and USD 20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong and overseas investors. As part of the global initial public offering, 1,678,049,000 state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong and overseas investors.

 

In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural persons and institutional investors in the PRC.

 

During the year ended 31 December 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each, as a result of exercise of 188,292 warrants entitled to the Bonds with Warrants.

 

During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

 

During the year ended 31 December 2012, the Company issued 117,724,450 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

 

On 14 February 2013, the Company issued 2,845,234,000 listed H shares ("the Placing") with a par value of RMB 1.00 each at the Placing Price of HKD 8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD 24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD 23,970,100,618.00.

 

In June 2013, the Company issued 21,011,962,225 listed A shares and 5,887,716,600 listed H shares as a result of bonus issues of 2 shares converted from the retained earnings, and 1 share transferred from the share premium for every 10 existing shares.

 

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

 

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

 

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

 

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

 

Capital management

 

Management optimises the structure of the Group's capital, which comprises of equity and debts. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion), including long-term debts and loans from Sinopec Group Company and fellow subsidiaries, by the total of equity attributable to shareholders of the Company and long-term loans (excluding current portion), and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management's strategy is to make appropriate adjustments according to the Group's operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2019, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 7.4% (2018: 11.5%) and 50.1% (2018: 46.2%), respectively.

 

The schedule of the contractual maturities of loans and commitments are disclosed in Notes 30 and 37, respectively.

 

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

 

37  COMMITMENTS AND CONTINGENT LIABILITIES

 

Operating lease commitments

 

The Group leases land and other assets under non-cancellable operating leases expiring within three months to thirty years. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contains escalation provisions that may require higher future rental payments.

 

From 1 January 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low-value leases, see Note 1(a) and Note 18 for further information.

 

As at 31 December 2019 and 2018, the future minimum lease payments under operating leases are as follows:

 

31 December

31 December

2019

2018

RMB million

RMB million

Within one year

-

15,625

Later than one year but not later than five years

-

55,882

Later than five years

-

281,287

 

-

352,794

 

Capital commitments

 

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

 

31 December

31 December

2019

2018

RMB million

RMB million

Authorised and contracted for (i)

138,088

141,045

Authorised but not contracted for

63,967

54,392

 

202,055

195,437

 

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

 

Note:

 

(i) The investment commitments of the Group is RMB 6,100 million (2018: RMB 5,553 million).

 

Commitments to joint ventures

 

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

 

Exploration and production licenses

 

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

 

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually which are expensed. Expenses recognised were approximately RMB 179 million for the year ended 31 December 2019 (2018: RMB 231 million).

 

Estimated future annual payments are as follows:

 

31 December

31 December

2019

2018

RMB million

RMB million

Within one year

302

380

Between one and two years

69

79

Between two and three years

34

33

Between three and four years

30

28

Between four and five years

29

28

Thereafter

845

852

 

1,309

1,400

 

37  COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

 

Contingent liabilities

 

At 31 December 2019 and 2018, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

 

31 December

31 December

2019

2018

RMB million

RMB million

Joint ventures

7,100

5,033

Associates (ii)

10,140

12,168

Others (iii)

-

7,197

 

17,240

24,398

 

Management monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2019 and 2018, the Group estimates that there is no need to pay for the guarantees. Thus no liability has been accrued for a loss related to the Group's obligation under these guarantee arrangements.

 

Notes:

 

(ii)  The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy Company Limited ("Zhongtian Synergetic Energy")by banks amount to RMB 17,050 million. As at 31 December 2019, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 10,140 million (2018: RMB 12,168 million).

 

(iii) The Group provided a guarantee in respect to the loan of New Bright International Development Limited borrowed from Sinopec Overseas Oil & Gas Limited. As at 31 December 2019, the loan agreement was terminated, in consequence, the guarantee agreement was terminated.

 

Environmental contingencies

 

Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the a