Company Announcements

Annual Financial Report-part 2

Source: RNS
RNS Number : 7197T
China Petroleum & Chemical Corp
29 March 2021
 

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58  CHANGE IN THE SCOPE OF CONSOLIDATION

 

Business combination under common control

 

Business combination under common control in 2020

 

Pursuant to the resolution passed at the Directors' meeting on 28 October 2020, the Company entered into an Agreement with Sinopec Assets Management Corporation ("SAMC") in relation to the formation of the Baling Petrochemical. According to the Agreement, the Company and SAMC subscribed capital contribution with the business of Baling area respectively and some cash. After the capital injection the Company remained to hold 55% of Baling Petrochemical's voting rights and was still able to control Baling Petrochemical.

 

As Sinopec Group Company controls both the Company and SAMC, the transaction described above between Sinopec and SAMC has been accounted as business combination under common control. Accordingly, the assets and liabilities of which SAMC subscribed have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Baling Branch of SAMC on a combined basis.

 

Baling Petrochemical is mainly engaged in the production and sales of petrochemicals, chemical fibers, fertilizers, fine chemical products and other chemical products.

 

58  CHANGE IN THE SCOPE OF CONSOLIDATION (Continued)

 

Business combination under common control (Continued)

 

Business combination under common control in 2020 (Continued)

 

(1)  The relavent financial information disclosed for changes in the scope of consolidation are as follows:

 

Acquiree

Share of

acquired equity

The basis for the business combination under the common control

Date of

acquisition

Basis of

Determination on

the acquisition date

Income of the

acquiree from

1 January 2020

to the

acquisition date

Net profits of

the acquiree

from

1 January 2020

to the

acquisition date

Income of the

acquiree from

1 January 2019

to 31 December

2019

Net profits of

the acquiree

from 1 January

2019 to

31 December

2019

Net cash flow

from operating

activities of the

acquiree from

1 January 2020

to the

acquisition date

Net cash flow

of the acquiree

from 1 January

2020 to the

acquisition date

 

 

 

 

 

RMB Million

RMB Million

RMB Million

RMB Million

RMB Million

RMB Million

Baling Branch of SAMC

55%

The acquiree and the company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory

1 November 2020

According to the agreement

10,973

119

16,906

50

1,639

7,205

 

 

 

 

 

 

 

 

 

 

 

 

(2)  Cost of acquisition:

 

Cost of acquisition (RMB Million)

972

 

(3)  Details of the assets and liabilities acquired are as follows:

 

 

Book value at

Book value at

 

the Acquisition Date

December 31 2019

 

RMB Million

RMB Million

Total current assets

2,634

2,097

Total assets

6,633

5,858

Total current liabilities

4,892

4,247

Total liabilities

4,955

4,389

Total shareholders' equity

1,678

1,469

 

The principal subsidiaries included in the scope of consolidation this year are disclosed in Note 57.

 

59  COMMITMENTS

 

Capital commitments

 

At 31 December 2020 and 31 December 2019, capital commitments of the Group are as follows:

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Authorised and contracted for (i)

171,335

138,088

Authorised but not contracted for

33,942

63,967

Total

205,277

202,055

 

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 13,172 million (2019: RMB 6,100 million).

 

59  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 231 million for the year ended 31 December 2020 (2019: RMB 179 million).

 

Estimated future annual payments are as follows:

 

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Within one year

390

302

Between one and two years

99

69

Between two and three years

66

34

Between three and four years

63

30

Between four and five years

56

29

Thereafter

824

845

Total

1,498

1,309

 

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

 

60  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 2020 and 31 December 2019, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Joint ventures

6,390

7,100

Associates (i)

8,450

10,140

Total

14,840

17,240

 

Note:

 

(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 2020, the amount withdrawn by Zhongtian Synergetic Energy from banks and guaranteed by the Group was RMB 8,450 million (31 December 2019: RMB 10,140 million).

 

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 2020 and 31 December 2019, 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.

 

60  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 11,362 million in the consolidated financial statements for the year ended 31 December 2020 (2019: RMB 9,271 million).

 

Legal contingencies

 

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

 

61  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.

 

61  SEGMENT REPORTING (Continued)

 

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

 

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

 

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

 

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

 

 

2020

2019

 

RMB million

RMB million

Income from principal operations

 

 

Exploration and production

 

 

External sales

104,524

111,114

Inter-segment sales

57,513

89,315

 

162,037

200,429

Refining

 

 

External sales

114,064

141,674

Inter-segment sales

825,812

1,077,018

 

939,876

1,218,692

Marketing and distribution

 

 

External sales

1,062,447

1,393,557

Inter-segment sales

4,854

4,159

 

1,067,301

1,397,716

Chemicals

 

 

External sales

322,121

428,830

Inter-segment sales

40,518

78,165

 

362,639

506,995

Corporate and others

 

 

External sales

458,154

824,507

Inter-segment sales

430,073

654,337

 

888,227

1,478,844

Elimination of inter-segment sales

(1,370,624)

(1,902,994)

Consolidated income from principal operations

2,049,456

2,899,682

Income from other operations

 

 

Exploration and production

5,718

10,283

Refining

4,634

5,464

Marketing and distribution

34,905

33,247

Chemicals

9,215

9,273

Corporate and others

2,056

1,850

Consolidated income from other operations

56,528

60,117

Consolidated operating income

2,105,984

2,959,799

 

61  SEGMENT REPORTING (Continued)

 

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

 

 

2020

2019

 

RMB million

RMB million

Operating (loss)/profit

 

 

By segment

 

 

Exploration and production

(20,570)

6,289

Refining

(6,556)

30,074

Marketing and distribution

19,634

29,781

Chemicals

9,147

16,665

Corporate and others

(2,048)

3,530

Elimination

4,417

(40)

Total segment operating profit

4,024

86,299

Investment income

 

 

Exploration and production

13,837

3,148

Refining

13,085

(580)

Marketing and distribution

12,230

3,499

Chemicals

1,662

5,178

Corporate and others

6,672

1,383

Total segment investment income

47,486

12,628

Less: Financial expenses

9,506

10,048

Add: Other income

7,513

5,995

(Losses)/gains from changes in fair value

(1,253)

(3,511)

Asset disposal gains/(losses)

2,067

(1,229)

Operating profit

50,331

90,134

Add: Non-operating income

2,370

2,601

Less: Non-operating expenses

4,732

2,624

Profit before taxation

47,969

90,111

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Assets

 

 

Segment assets

 

 

Exploration and production

354,024

410,950

Refining

270,431

321,080

Marketing and distribution

373,430

399,242

Chemicals

189,678

180,974

Corporate and others

118,458

131,686

Total segment assets

1,306,021

1,443,932

Cash at bank and on hand

184,412

128,052

Long-term equity investments

188,342

152,204

Deferred tax assets

25,054

17,616

Other unallocated assets

29,976

18,482

Total assets

1,733,805

1,760,286

Liabilities

 

 

Segment liabilities

 

 

Exploration and production

157,430

162,262

Refining

135,046

120,617

Marketing and distribution

213,455

219,381

Chemicals

47,871

57,119

Corporate and others

117,684

136,420

Total segment liabilities

671,486

695,799

Short-term loans

20,756

31,196

Non-current liabilities due within one year

22,493

69,490

Long-term loans

45,459

39,677

Debentures payable

38,356

19,157

Deferred tax liabilities

8,124

6,809

Other non-current liabilities

17,942

15,454

Other unallocated liabilities

25,313

4,330

Total liabilities

849,929

881,912

 

61  SEGMENT REPORTING (Continued)

 

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

 

 

2020

2019

 

RMB million

RMB million

Capital expenditure

 

 

Exploration and production

56,416

61,739

Refining

24,722

31,372

Marketing and distribution

25,403

29,566

Chemicals

26,202

22,438

Corporate and others

2,312

1,979

 

135,055

147,094

Depreciation, depletion and amortisation

 

 

Exploration and production

46,273

50,732

Refining

20,048

19,676

Marketing and distribution

23,196

21,572

Chemicals

14,376

14,326

Corporate and others

3,072

2,866

 

106,965

109,172

Impairment losses on long-lived assets

 

 

Exploration and production

8,495

3

Refining

1,923

245

Marketing and distribution

536

80

Chemicals

3,606

17

Corporate and others

-

-

 

14,560

345

 

(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.

 

 

2020

2019

 

RMB million

RMB million

External sales

 

 

Mainland China

1,721,955

2,124,684

Singapore

215,846

505,672

Others

168,183

329,443

 

2,105,984

2,959,799

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Non-current assets

 

 

Mainland China

1,211,441

1,239,437

Others

36,782

52,705

 

1,248,223

1,292,142

 

62  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, 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 2020, 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, 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, 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 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 and receivables financing.

 

To measure the expected credit losses, accounts 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 2020 or 31 December 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 and receivables financing.

 

The detailed analysis of accounts receivable and receivables financing is listed in note 7 and note 8.

 

The Group's other receivables are considered to have low credit risk(Note10), 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.

 

62  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 2020, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to
RMB 443,966 million (2019: RMB 379,649 million) on an unsecured basis, at a weighted average interest rate of 2.85% per annum (2019: 3.57%). At 31 December 2020, the Group's outstanding borrowings under these facilities were RMB 4,041 million (2019: RMB 2,947 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 2020

 

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

20,756

20,950

20,950

-

-

-

Derivative financial liabilities

4,826

4,826

4,826

-

-

-

Bills payable

10,394

10,394

10,394

-

-

-

Accounts payable

151,262

151,262

151,262

-

-

-

Other payables and employee benefits payable

91,681

91,681

91,681

-

-

-

Non-current liabilities due within one year

22,493

23,880

23,880

-

-

-

Debentures payable due within one year

3,018

3,024

3,024

-

-

-

Long-term loans

45,459

49,074

936

4,638

41,009

2,491

Debentures payable

38,356

44,791

1,240

8,044

29,514

5,993

Lease liabilities

172,306

313,126

-

15,456

43,513

254,157

Total

560,551

713,008

308,193

28,138

114,036

262,641

 

 

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

188,189

188,189

188,189

-

-

-

Other payables and employee benefits payable

80,183

80,183

80,183

-

-

-

Non-current liabilities due within one year

69,490

72,180

72,180

-

-

-

Long-term loans

39,677

49,656

404

6,492

15,610

27,150

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

620,129

812,027

387,916

22,932

77,285

323,894

 

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.

 

62  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

 

2020

2019

 

million

million

Gross exposure arising from loans and lease liabilities

 

 

US Dollar

22

103

Singapore Dollar

-

4

 

A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2020 and 31 December 2019 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 2019.

 

The Group

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

US Dollar

5

27

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 22 and Note 31, respectively.

 

At 31 December 2020, 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 245 million (2019: decrease/increase RMB 352 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 2019.

 

(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 2020, 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 2020, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 12,353 million (2019: RMB 788 million) and derivative financial liabilities of RMB 4,808 million (2019:
RMB 2,728 million).

 

At 31 December 2020, 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 3,592 million (2019: increase/decrease RMB 3,134 million), and increase/decrease the Group's other comprehensive income by approximately RMB 10,379 million (2019: decrease/increase RMB 4,289 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 2019.

 

62  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 2020

 

The Group

 

 

Level 1

Level 2

Level 3

Total

 

RMB million

RMB million

RMB million

RMB million

Assets

 

 

 

 

Financial assets held for trading:

 

 

 

 

- Equity investments, listed and at quoted market price

1

-

-

1

Derivative financial assets:

 

 

 

 

- Derivative financial assets

9,628

2,900

-

12,528

Receivables financing:

 

 

 

 

- Receivables financing

-

-

8,735

8,735

Other equity instrument investments:

 

 

 

 

- Other Investments

149

-

1,376

1,525

 

9,778

2,900

10,111

22,789

Liabilities

 

 

 

 

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

2,471

2,355

-

4,826

 

2,471

2,355

-

4,826

 

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

-

-

8,661

8,661

Other equity instrument investments:

 

 

 

 

- Other Investments

90

-

1,431

1,521

 

219

709

13,410

14,338

Liabilities

 

 

 

 

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

1,209

1,520

-

2,729

 

1,209

1,520

-

2,729

 

During the year ended 31 December 2020 and 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.

 

62  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 0.77% to 4.65% (2019: from 2.37% 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 2020 and 31 December 2019:

 

 

At 31 December

At 31 December

 

2020

2019

 

RMB million

RMB million

Carrying amount

76,674

63,998

Fair value

74,282

62,646

 

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 2020 and 31 December 2019.

 

63  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:

 

 

2020

2019

 

RMB million

RMB million

Extraordinary (gains)/losses for the year:

 

 

Net (gains)/losses on disposal of non-current assets

(973)

1,318

Donations

301

209

Government grants

(8,605)

(6,857)

Gain on holding and disposal of business and various investments

(37,520)

(410)

Other non-operating losses, net

2,992

634

 

(43,805)

(5,106)

Tax effect

6,611

1,642

Total

(37,194)

(3,464)

Attributable to:

 

 

Equity shareholders of the Company

(34,489)

(3,339)

Minority interests

(2,705)

(125)

 

64  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:

 

 

 

2020

2019

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

32,924

57,619

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

121,071

121,071

Basic earnings per share (RMB/share)

0.272

0.476

 

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

 

 

2020

2019

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):

 

 

2020

2019

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

32,924

57,619

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

121,071

121,071

Diluted earnings per share (RMB/share)

0.272

0.476

 

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

 

 

2020

2019

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

 

65  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:

 

 

2020

2019

 

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

4.44

0.272

0.272

7.90

0.476

0.476

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

(0.21)

(0.013)

(0.013)

7.44

0.448

0.448

 

 

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 144 to 199, which comprise:

 

   the consolidated balance sheet as at 31 December 2020;

 

   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 2020, 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 17 "Property, plant and equipment" and note 44 "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 2020 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 2020, 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:

 

   Obtained an understanding of the management's internal control and assessment process of impairment of property, plant and equipment relating to oil and gas producing activities and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity, changes and susceptibility to management bias or fraud.

 

   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, actions taken to eliminate threats or safeguards applied.

 

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, 26 March 2021

 

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

        CONSOLIDATED INCOME STATEMENT

               for the year ended 31 December 2020

               (Amounts in million, except per share data)

 

 

Note

Year ended 31 December

 

 

2020

2019

 

 

RMB

RMB

Turnover and other operating revenues

 

 

 

Turnover

3

2,049,456

2,899,682

Other operating revenues

4

56,528

60,117

 

 

2,105,984

2,959,799

Operating expenses

 

 

 

Purchased crude oil, products and operating supplies and expenses

 

(1,594,130)

(2,370,699)

Selling, general and administrative expenses

5

(55,315)

(55,438)

Depreciation, depletion and amortisation

 

(106,965)

(109,172)

Exploration expenses, including dry holes

 

(9,716)

(10,510)

Personnel expenses

6

(86,006)

(82,743)

Taxes other than income tax

7

(234,947)

(244,517)

Other operating expense, net

8

(5,712)

(346)

Total operating expenses

 

(2,092,791)

(2,873,425)

Operating profit

 

13,193

86,374

Finance costs

 

 

 

Interest expense

9

(15,194)

(17,088)

Interest income

 

4,803

7,210

Foreign currency exchange gains/(losses), net

 

885

(170)

Net finance costs

 

(9,506)

(10,048)

Investment income

10

37,744

919

Share of profits less losses from associates and joint ventures

21,22

6,712

12,777

Profit before taxation

 

48,143

90,022

Income tax expense

11

(6,219)

(17,939)

Profit for the year

 

41,924

72,083

Attributable to:

 

 

 

Shareholders of the Company

 

33,096

57,493

Non-controlling interests

 

8,828

14,590

Profit for the year

 

41,924

72,083

Earnings per share:

 

 

 

Basic

16

0.273

0.475

Diluted

16

0.273

0.475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 151 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 14.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2020

(Amounts in million)

 

 

Note

Year ended 31 December

 

 

2020

2019

 

 

RMB

RMB

Profit for the year

 

41,924

72,083

Other comprehensive income:

15

 

 

Items that may not be reclassified subsequently to profit or loss

 

 

 

Equity investments at fair value through other comprehensive income

 

(22)

(31)

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

 

(22)

(31)

Items that may be reclassified subsequently to profit or loss

 

 

 

Fair value hedges

 

162

-

Share of other comprehensive loss of associates and joint ventures

 

(2,441)

(810)

Cash flow hedges

 

7,073

4,941

Foreign currency translation differences

 

(4,457)

1,480

Total items that may be reclassified subsequently to profit or loss

 

337

5,611

Total other comprehensive income

 

315

5,580

Total comprehensive income for the year

 

42,239

77,663

Attributable to:

 

 

 

Shareholders of the Company

 

34,490

62,908

Non-controlling interests

 

7,749

14,755

Total comprehensive income for the year

 

42,239

77,663

 

 

 

 

 

The notes on pages 151 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED BALANCE SHEET

As at 31 December 2020

(Amounts in million)

 

 

Note

31 December

31 December

 

 

2020

2019

 

 

RMB

RMB

Non-current assets

 

 

 

Property, plant and equipment, net

17

589,247

625,692

Construction in progress

18

124,765

173,872

Right-of-use assets

19

266,368

267,937

Goodwill

20

8,620

8,697

Interest in associates

21

136,163

95,737

Interest in joint ventures

22

52,179

56,467

Financial assets at fair value through other comprehensive income

26

1,525

1,521

Deferred tax assets

29

25,054

17,616

Long-term prepayments and other assets

23

74,489

65,437

Total non-current assets

 

1,278,410

1,312,976

Current assets

 

 

 

Cash and cash equivalents

 

87,559

60,438

Time deposits with financial institutions

 

100,498

67,614

Financial assets at fair value through profit or loss

 

1

3,319

Derivative financial assets

24

12,528

837

Trade accounts receivable

25

35,587

54,375

Financial assets at fair value through other comprehensive income

26

8,735

8,661

Inventories

27

151,895

194,142

Prepaid expenses and other current assets

28

58,592

57,924

Total current assets

 

455,395

447,310

Current liabilities

 

 

 

Short-term debts

30

23,769

40,521

Loans from Sinopec Group Company and fellow subsidiaries

30

5,264

43,289

Lease liabilities

31

15,292

15,198

Derivative financial liabilities

24

4,826

2,729

Trade accounts payable and bills payable

32

161,656

200,023

Contract liabilities

33

126,160

126,833

Other payables

34

178,637

148,118

Income tax payable

 

6,586

3,267

Total current liabilities

 

522,190

579,978

Net current liabilities

 

66,795

132,668

Total assets less current liabilities

 

1,211,615

1,180,308

Non-current liabilities

 

 

 

Long-term debts

30

72,037

49,208

Loans from Sinopec Group Company and fellow subsidiaries

30

11,778

9,626

Lease liabilities

31

172,306

177,674

Deferred tax liabilities

29

8,124

6,809

Provisions

35

45,552

43,163

Other long-term liabilities

 

18,960

16,524

Total non-current liabilities

 

328,757

303,004

 

 

882,858

877,304

Equity

 

 

 

Share capital

36

121,071

121,071

Reserves

 

620,423

617,875

Total equity attributable to shareholders of the Company

 

741,494

738,946

Non-controlling interests

 

141,364

138,358

Total equity

 

882,858

877,304

 

Approved and authorised for issue by the board of directors on 26 March 2021.

 

 

 

 

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

Chairman

President

Chief Financial Officer

(Legal representative)

 

 

 

 

The notes on pages 151 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2019

(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 2018

121,071

26,053

55,850

86,678

117,000

(4,477)

315,109

717,284

139,251

856,535

Contribution from SAMC in the Acquisition
 of Baling Branch of SAMC (Note 38)

-

735

-

-

-

-

58

793

670

1,463

Balance at 1 January 2019

121,071

26,788

55,850

86,678

117,000

(4,477)

315,167

718,077

139,921

857,998

Profit for the year

-

-

-

-

-

-

57,493

57,493

14,590

72,083

Other comprehensive income (Note 15)

-

-

-

-

-

5,415

-

5,415

165

5,580

Total comprehensive income for the year

-

-

-

-

-

5,415

57,493

62,908

14,755

77,663

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 14)

-

-

-

-

-

-

(31,479)

(31,479)

-

(31,479)

Interim dividend for 2019 (Note 14)

-

-

-

-

-

-

(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

-

9

-

-

-

(35)

24

(2)

54

52

Balance at 31 December 2019

121,071

29,730

55,850

90,423

117,000

1,941

322,931

738,946

138,358

877,304

 

 

 

 

The notes on pages 151 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 2020

121,071

29,730

55,850

90,423

117,000

1,941

322,931

738,946

138,358

877,304

Profit for the year

-

-

-

-

-

-

33,096

33,096

8,828

41,924

Other comprehensive income (Note 15)

-

-

-

-

-

1,406

(12)

1,394

(1,079)

315

Total comprehensive income for the year

-

-

-

-

-

1,406

33,084

34,490

7,749

42,239

Amounts transferred to initial carrying amount of
 hedged items

-

-

-

-

-

(47)

-

(47)

48

1

Transactions with owners, recorded directly in equity:

 

 

 

 

 

 

 

 

 

 

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

Final dividend for 2019 (Note 14)

-

-

-

-

-

-

(23,004)

(23,004)

-

(23,004)

Interim dividend for 2020 (Note 14)

-

-

-

-

-

-

(8,475)

(8,475)

-

(8,475)

Appropriation (Note (a))

-

-

-

1,857

-

-

(1,857)

-

-

-

Distributions to non-controlling interests

-

-

-

-

-

-

-

-

(6,726)

(6,726)

Contributions to subsidiaries from
 non-controlling interests

-

-

-

-

-

-

-

-

3,325

3,325

Distribution to SAMC in the Acquisition of
 Baling Branch of SAMC (Note 38)

-

(972)

-

-

-

-

-

(972)

972

-

Total contributions by and distributions to owners

-

(972)

-

1,857

-

-

(33,336)

(32,451)

(2,429)

(34,880)

Transaction with non-controlling interests

-

(138)

-

-

-

-

-

(138)

13

(125)

Total transactions with owners

-

(1,110)

-

1,857

-

-

(33,336)

(32,589)

(2,416)

(35,005)

Others

-

812

-

-

-

200

(318)

694

(2,375)

(1,681)

Balance at 31 December 2020

121,071

29,432

55,850

92,280

117,000

3,500

322,361

741,494

141,364

882,858

 

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 2020, the Company transferred RMB 1,857 million (2019: RMB 3,745 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 2020, the amount of retained earnings available for distribution was RMB 115,849 million (2019: RMB 130,645 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 151 to 199 form part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2020

(Amounts in million)

 

 

Note

Year ended 31 December

 

 

2020

2019

 

 

RMB

RMB

Net cash generated from operating activities

(a)

167,518

153,619

Investing activities

 

 

 

Capital expenditure

 

(117,874)

(130,057)

Exploratory wells expenditure

 

(13,315)

(11,497)

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

 

(6,040)

(3,483)

Payment for financial assets at fair value through profit or loss

 

(6,700)

(12,851)

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

 

10,000

35,292

Payment for acquisition of subsidiary, net of cash acquired

 

(340)

(1,031)

Proceeds from disposal of investments and investments in associates

 

51,520

704

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

 

2,656

709

Increase in time deposits with maturities over three months

 

(84,689)

(103,231)

Decrease in time deposits with maturities over three months

 

54,950

90,710

Interest received

 

2,305

7,094

Investment and dividend income received

 

11,510

10,272

Repayments of other investing activities

 

(6,186)

(3,682)

Net cash used in investing activities

 

(102,203)

(121,051)

Financing activities

 

 

 

Proceeds from bank and other loans

 

558,680

602,467

Repayments of bank and other loans

 

(540,015)

(614,108)

Contributions to subsidiaries from non-controlling interests

 

4,219

3,919

Dividends paid by the Company

 

(31,479)

(46,008)

Distributions by subsidiaries to non-controlling interests

 

(4,157)

(7,357)

Interest paid

 

(7,508)

(6,250)

Payments made to acquire non-controlling interests

 

(1,121)

(8)

Repayments of lease liabilities

 

(15,327)

(16,859)

Proceeds from other financing activities

 

514

320

Repayments of other financing activities

 

(761)

(320)

Net cash used in financing activities

 

(36,955)

(84,204)

Net increase/(decrease) in cash and cash equivalents

 

28,360

(51,636)

Cash and cash equivalents at 1 January

 

60,438

111,927

Effect of foreign currency exchange rate changes

 

(1,239)

147

Cash and cash equivalents at 31 December

 

87,559

60,438

 

 

 

The notes on pages 151 to 199 form part of these consolidated financial statements.

 

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2020

(Amounts in million)

 

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

 

 

Year ended 31 December

 

2020

2019

 

RMB

RMB

Operating activities

 

 

Profit before taxation

48,143

90,022

Adjustments for:

 

 

Depreciation, depletion and amortisation

106,965

109,172

Dry hole costs written off

5,928

5,831

Share of profits from associates and joint ventures

(6,712)

(12,777)

Investment income

(37,744)

(919)

Interest income

(3,433)

(7,210)

Interest expense

14,449

17,088

Loss on foreign currency exchange rate changes and derivative financial instruments

2,003

3,624

(Gain)/loss on disposal of property, plant, equipment and other non-current assets, net

(398)

1,829

Impairment losses on assets

26,018

1,779

Credit impairment losses

2,066

1,264

 

157,285

209,703

Net changes from:

 

 

Accounts receivable and other current assets

(17,623)

(11,915)

Inventories

22,703

(9,748)

Accounts payable and other current liabilities

14,175

(14,898)

 

176,540

173,142

Income tax paid

(9,022)

(19,523)

Net cash generated from operating activities

167,518

153,619

`

 

 

 

The notes on pages 151 to 199 form part of these consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2020

 

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

 

On 28 May 2020, the IASB published IFRS 16 COVID-19-Related Rent Concessions Amendment, which has no material impact on the Group for 31 December 2020 reporting periods.

 

A number of new or amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

 

(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 2020 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 44.

 

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 42.

 

(ii)  Associates and joint ventures

 

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

 

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

 

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

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(a)  Basis of consolidation (Continued)

 

(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.

 

(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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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.

 

(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)).

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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. Howerver, 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.

 

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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(j)   Financial assets (Continued)

 

(iii) Derecognition

 

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

 

On derecognition of 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.

 

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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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

 

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).

 

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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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 recogniesd according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset.

 

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.

 

(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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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 10,086 million for the year ended 31 December 2020 (2019: RMB 9,450 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.

 

A lessee shall account for a lease modification as a separate lease if both: (1) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (2) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the articular contract.

 

For a lease modification that is not accounted for as a separate lease, except for the practical expedient which applies only to rent concessions occurring as a direct consequence of the COVID-19 pandemic, the group determine the lease term of the modified lease at the effective date of the modification, and remeasure the lease liability by discounting the revised lease payments using a revised discount rate. The group decrease the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope or shorten the term of the lease, and shall recognise in profit or loss any gain or loss relating to the partial or full termination of the lease. The group make a corresponding adjustment to the right-of-use asset for all other lease modifications.

 

(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.

 

(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 40.

 

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.

 

2    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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 authorised 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, which are recognised at a point in time.

 

 

2020

2019

 

RMB million

RMB million

Gasoline

557,605

699,202

Diesel

422,569

615,342

Crude oil

351,707

549,720

Basic chemical feedstock

155,687

215,773

Synthetic resin

122,313

125,658

Kerosene

72,385

191,636

Natural gas

48,121

53,839

Synthetic fiber monomers and polymers

41,640

80,100

Others (i)

277,429

368,412

 

2,049,456

2,899,682

 

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

 

4    OTHER OPERATING REVENUES

 

 

2020

2019

 

RMB million

RMB million

Sale of materials and others

55,441

58,886

Rental income

1,087

1,231

 

56,528

60,117

 

5    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

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

 

 

2020

2019

 

RMB million

RMB million

Operating lease charges

2,685

1,858

Auditor's remuneration:

 

 

- Audit services

73

70

- Others

8

6

Impairment losses:

 

 

- Trade accounts receivable

2,105

1,283

- Other receivables

(25)

(2)

 

6    PERSONNEL EXPENSES

 

 

2020

2019

 

RMB million

RMB million

Salaries, wages and other benefits

77,202

70,921

Contributions to retirement schemes (Note 40)

8,804

11,822

 

86,006

82,743

 

7    TAXES OTHER THAN INCOME TAX

 

 

2020

2019

 

RMB million

RMB million

Consumption tax (i)

197,542

204,388

City construction tax (ii)

15,699

16,387

Education surcharge

11,670

12,111

Resources tax

4,572

5,883

Others

5,464

5,748

 

234,947

244,517

 

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

 

 

2020

2019

 

RMB million

RMB million

Government grants (i)

8,775

6,933

Ineffective portion of change in fair value of cash flow hedges

3,052

(222)

Net realised and unrealised loss on derivative financial instruments not qualified as hedging

(1,252)

(4,384)

Impairment losses on long-lived assets (ii)

(14,560)

(345)

Gain/(loss) on disposal of property, plant, equipment and other non-current assets, net

398

(1,829)

Fines, penalties and compensations

(43)

(173)

Donations

(301)

(210)

Others

(1,781)

(116)

 

(5,712)

(346)

 

Notes:

 

(i)    Government grants for the years ended 31 December 2020 and 2019 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 2020 primarily represent impairment losses recognised in the exploration and production ("E&P") segment of RMB 8,495 million (2019: RMB 3 million), the chemicals segment of RMB 3,606 million (2019: RMB 17 million), the refining segment of RMB 1,923 million (2019: RMB 245 million), and the marketing and distribution segment of RMB 536 million (2019: RMB 80 million). The impairment losses in the E&P segment were mainly the impairment losses of properties, plant and equipment relating to oil and gas producing activities. The primary factors resulting in the E&P segment impairment loss were low oil price outlook and 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% (2019: 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 4,548 million (2019: RMB 184 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 2,836 million (2019: RMB 180 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 287 million (2019: RMB 7 million).The assets in the chemicals segment were written down because evidence indicates the economic performance of certain production facilities are worse than expected.

 

9    INTEREST EXPENSE

 

 

2020

2019

 

RMB million

RMB million

Interest expense incurred

6,513

7,039

Less: Interest expense capitalised*

(2,011)

(1,015)

 

4,502

6,024

Interest expense on lease liabilities

9,349

9,646

Accretion expenses (Note 35)

1,343

1,418

Interest expense

15,194

17,088

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

2.60% to 4.66%

2.92% to 4.66%

 

10  INVESTMENT INCOME

 

 

2020

2019

 

RMB million

RMB million

Investment income from disposal of business and long-term equity investments (i)

37,525

185

Dividend income from holding of other equity instrument investments

156

492

Others

63

242

 

37,744

919

 

Note:

 

(i)    The Company and Sinomart KTS Development Limited, Sinopec Natural Gas Limited Company and Sinopec Marketing Company Limited ("Marketing Company"), the subsidiaries of the Company entered into the Agreement on Cash Payment to Purchase Equity in Sinopec Yu Ji Pipeline Company Limited, the Agreement on Additional Issuance of Equity and Cash Payment to Purchase Assets, the Agreement on Cash Payment to Purchase Assets and the Agreement on Additional Issuance of Equity to Purchase Assets with China Oil & Gas Pipeline Network Corporation ("PipeChina"), on 21 July 2020 and on 23 July 2020 respectively, pursuant to which the Company and its subsidiaries proposed to dispose target business, including equity interests in the relevant companies, oil and gas pipeline and ancillary facilities, to PipeChina. The above transactions were considered and approved by the 15th Session of 7th Directorate Meeting on 23 July 2020 and the second Extraordinary General Meeting on 28 September 2020. The transaction consideration was mainly additional issuance of equity and/or cash payment by PipeChina and the gain on above transactions was RMB 37,731 million. Main assets and liabilities of disposed target business are as follows:

 

 

30 September 2020

 

RMB million

Property, plant and equipment, net

83,510

Construction in progress

19,843

Interest in associates

26,412

Inventories

8,191

Long-term debts and Loans from Sinopec Group Company and fellow subsidiaries

(41,800)

Other financial statement items

(9,035)

Net Assets

87,121

 

11  INCOME TAX EXPENSE

 

Income tax expense in the consolidated income statement represents:

 

 

2020

2019

 

RMB million

RMB million

Current tax

 

 

- Provision for the year

14,209

15,021

- Adjustment of prior years

(117)

(467)

Deferred taxation (Note 29)

(7,873)

3,385

 

6,219

17,939

 

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

 

 

2020

2019

 

RMB million

RMB million

Profit before taxation

48,143

90,022

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

12,036

22,506

Tax effect of non-deductible expenses

3,274

2,321

Tax effect of non-taxable income (i)

(8,330)

(4,458)

Tax effect of preferential tax rate (ii)

(1,011)

(2,003)

Effect of income taxes at foreign operations

(730)

(312)

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

(65)

(335)

Tax effect of tax losses not recognised

1,087

498

Write-down of deferred tax assets

75

189

Adjustment of prior years

(117)

(467)

Actual income tax expense

6,219

17,939

 

Notes:

 

(i)    For the year ended 31 December 2020, the tax effect of non-taxable income includes the tax exempt investment income of joint ventures and associates and the tax exempt part of the gain related to the disposal of oil and gas pipeline and ancillary facilities.

 

(ii)   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. According to Announcement [2020] No. 23 of the MOF "Announcement of the MOF, the State Taxation Administration and the National Development and Reform Commission on continuation of the income tax policy of western development enterprises", the preferential tax rate of 15% extends from 1 January 2021 to 31 December 2030.

 

12  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

 

 

2020

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

 

 

 

 

 

Zhang Yuzhuo (i)

-

-

-

-

-

Ma Yongsheng

299

620

94

-

1,013

Yu Baocai

-

-

-

-

-

Liu Hongbin (ii)

-

-

-

-

-

Ling Yiqun

-

-

-

-

-

Zhang Shaofeng (iii)

-

-

-

-

-

Dai Houliang (iv)

-

-

-

-

-

Li Yunpeng (v)

-

-

-

-

-

Li Yong (vi)

-

-

-

-

-

Independent non-executive directors

 

 

 

 

 

Tang Min

-

-

-

350

350

Cai Hongbin

-

-

-

350

350

Johnny Karling Ng

-

-

-

350

350

Fan Gang (vii)

-

-

-

-

-

Supervisors

 

 

 

 

 

Zhao Dong

-

-

-

-

-

Jiang Zhenying

366

710

83

-

1,159

Zou Huiping

272

555

59

-

886

Sun Huanquan (viii)

247

160

60

-

467

Yu Renming

-

-

-

-

-

Li Defang (viii)

-

-

-

-

-

Yu Xizhi (ix)

125

613

23

-

761

Zhou Hengyou (ix)

125

611

23

-

759

Yang Changjiang (x)

-

-

-

-

-

Zhang Baolong (x)

-

-

-

-

-

Total

1,434

3,269

342

1,050

6,095

 

12  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

 

 

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 (iv)

-

-

-

-

-

Ma Yongsheng

294

1,173

96

-

1,563

Li Yunpeng (v)

-

-

-

-

-

Yu Baocai

-

-

-

-

-

Ling Yiqun

-

-

-

-

-

Liu Zhongyun (xi)

-

-

-

-

-

Li Yong (vi)

-

-

-

-

-

Independent non-executive directors

 

 

 

 

 

Tang Min

-

-

-

350

350

Fan Gang (vii)

-

-

-

350

350

Cai Hongbin

-

-

-

350

350

Johnny Karling Ng

-

-

-

350

350

Supervisors

 

 

 

 

 

Zhao Dong

-

-

-

-

-

Jiang Zhenying

369

865

88

-

1,322

Yang Changjiang (x)

-

-

-

-

-

Zhang Baolong (x)

-

-

-

-

-

Zou Huiping

369

989

88

-

1,446

Yu Xizhi (ix)

369

880

88

-

1,337

Zhou Hengyou (ix)

369

874

88

-

1,331

Yu Renming

369

889

88

-

1,346

Total

2,139

5,670

536

1,400

9,745

 

Notes:

 

(i)    Mr. Zhang Yuzhuo was elected to be chairman and non-executive director from 25 March 2020.

 

(ii)   Mr. Liu Hongbin was elected to be executive director from 19 May 2020.

 

(iii) Mr. Zhang Shaofeng was elected to be non-executive director from 28 September 2020.

 

(iv)  Mr. Dai Houliang ceased being chairman and non-executive director from 19 January 2020.

 

(v)   Mr. Li Yunpeng ceased being non-executive director from 24 March 2020.

 

(vi)  Mr. Li Yong ceased being non-executive director from 22 September 2020.

 

(vii)                       Mr. Fan Gang ceased being independent non-executive director from 28 August 2020.

 

(viii)  Mr. Sun Huanquan was elected to be supervisor from 18 May 2020; Mr. Li Defang was elected to be supervisor from 18 May 2020.

 

(ix)  Mr. Yu Xizhi ceased being supervisor from 18 May 2020; Mr. Zhou Hengyou ceased being supervisor from 18 May 2020.

 

(x)   Mr. Yang Changjiang ceased being supervisor from 9 September 2020; Mr. Zhang Baolong ceased being supervisor from 9 September 2020.

 

(xi)  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.

 

13  SENIOR MANAGEMENT'S EMOLUMENTS

 

For the year ended 31 December 2020, the five highest paid individuals in the Company included one supervisor and four senior management. The emolument paid to each of one supervisor and four senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 6,378 thousand, and the total amount of their retirement scheme contributions was RMB 339 thousand. For the year ended 31 December 2019, the five highest paid individuals in the Company included one director and four senior management.

 

 

Number of individuals

 

2020

2019

Emoluments

 

 

HKD1,000,001 to HKD1,500,000

3

-

HKD1,500,001 to HKD2,000,000

2

5

 

During 2020 and 2019, the Company did not incur any emoluments paid or receivable in respect of a person accepting office as a director, or any payments to any director for loss of office.

 

14  DIVIDENDS

 

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

 

 

2020

2019

 

RMB million

RMB million

Dividends declared and paid during the year of RMB 0.07 per share (2019: RMB 0.12 per share)

8,475

14,529

Dividends declared after the balance sheet date of RMB 0.13 per share (2019: RMB 0.19 per share)

15,739

23,004

 

24,214

37,533

 

Pursuant to the shareholders' approval at the General Meeting on 28 September 2020, the interim dividends for the year ending 31 December 2020 of RMB 0.07 (2019: RMB 0.12) per share totaling RMB 8,475 million (2019: RMB 14,529 million) were approved. Dividends were paid on 23 October 2020.

 

Pursuant to a resolution passed at the director's meeting on 26 March 2021, final dividends in respect of the year ended 31 December 2020 of RMB 0.13 (2019: RMB 0.19) per share totaling RMB 15,739 million (2019: RMB 23,004 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:

 

 

2020

2019

 

RMB million

RMB million

Final cash dividends in respect of the previous financial year, approved during the year of
 RMB 0.19 per share (2019: RMB 0.26 per share)

23,004

31,479

 

Pursuant to the shareholders' approval at the Annual General Meeting on 19 May 2020, a final dividend of RMB 0.19 per share totaling RMB 23,004 million according to total shares on 9 June 2020 was approved. All dividends have been paid in the year ended 31 December 2020.

 

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.

 

15  OTHER COMPREHENSIVE INCOME

 

 

2020

2019

 

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

9,207

(2,295)

6,912

5,258

(974)

4,284

Reclassification adjustments for amounts
 transferred to the consolidated income statement

198

(37)

161

853

(196)

657

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

9,405

(2,332)

7,073

6,111

(1,170)

4,941

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

(6)

(4)

(10)

(39)

8

(31)

Transfer of loss on disposal of equity investments at
 fair value through other comprehensive income to
 retained earnings

(12)

-

(12)

-

-

-

Net movement during the year recognised
 in other comprehensive income

(18)

(4)

(22)

(39)

8

(31)

Fair value hedges

162

-

162

-

-

-

Share of other comprehensive loss of associates
 and joint ventures

(2,441)

-

(2,441)

(810)

-

(810)

Foreign currency translation differences

(4,457)

-

(4,457)

1,480

-

1,480

Other comprehensive income

2,651

(2,336)

315

6,742

(1,162)

5,580

 

Note:

 

(i)    As at 31 December 2020, cash flow hedge reserve amounted to a gain of RMB 8,176 million (31 December 2019: a gain of RMB 1,102 million), of which a gain of RMB 7,805 million was attributable to shareholders of the Company (31 December 2019: a gain of RMB 1,037 million).

 

16  BASIC AND DILUTED EARNINGS PER SHARE

 

The calculation of basic earnings per share for the year ended 31 December 2020 is based on the profit attributable to ordinary shareholders of the Company of RMB 33,096 million (2019: RMB 57,493 million) and the weighted average number of shares of 121,071,209,646 (2019: 121,071,209,646) during the year.

 

The calculation of diluted earnings per share for the year ended 31 December 2020 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 33,096 million (2019: RMB 57,493 million) and the weighted average number of shares of 121,071,209,646 (2019: 121,071,209,646) calculated as follows:

 

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

 

 

2020

2019

 

RMB million

RMB million

Profit attributable to ordinary shareholders of the Company

33,096

57,493

Profit attributable to ordinary shareholders of the Company (diluted)

33,096

57,493

 

(ii)  Weighted average number of shares (diluted)

 

 

2020

2019

 

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

 

17  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 2019

123,946

695,724

973,688

1,793,358

Additions

159

1,408

3,993

5,560

Transferred from construction in progress

6,261

31,378

54,684

92,323

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

(469)

(1,549)

(13,635)

(15,653)

Exchange adjustments

42

667

71

780

Balance at 31 December 2019

130,234

727,552

1,016,794

1,874,580

Balance at 1 January 2020

130,234

727,552

1,016,794

1,874,580

Additions

390

1,563

5,147

7,100

Transferred from construction in progress

10,848

32,214

98,095

141,157

Reclassifications

1,443

(125)

(1,318)

-

Invest into the joint ventures and associated companies

-

-

(115)

(115)

Reclassification to other long-term assets

(38)

-

(1,052)

(1,090)

Disposals (i)

(6,291)

(806)

(131,231)

(138,328)

Exchange adjustments

(141)

(2,806)

(226)

(3,173)

Balance at 31 December 2020

136,445

757,592

986,094

1,880,131

Accumulated depreciation:

 

 

 

 

Balance at 1 January 2019

56,242

550,288

565,830

1,172,360

Depreciation for the year

4,144

36,289

47,902

88,335

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

(854)

(6)

(11,564)

(12,424)

Exchange adjustments

21

667

40

728

Balance at 31 December 2019

59,859

587,192

601,837

1,248,888

Balance at 1 January 2020

59,859

587,192

601,837

1,248,888

Depreciation for the year

4,628

32,054

48,380

85,062

Impairment losses for the year

683

4,739

6,292

11,714

Reclassifications

393

(98)

(295)

-

Invest into the joint ventures and associated companies

-

-

(54)

(54)

Reclassification to other long-term assets

(8)

-

(161)

(169)

Written back on disposals (i)

(3,209)

(464)

(47,994)

(51,667)

Exchange adjustments

(49)

(2,703)

(138)

(2,890)

Balance at 31 December 2020

62,297

620,720

607,867

1,290,884

Net book value:

 

 

 

 

Balance at 1 January 2019

67,704

145,436

407,858

620,998

Balance at 31 December 2019

70,375

140,360

414,957

625,692

Balance at 31 December 2020

74,148

136,872

378,227

589,247

 

(i)    Disposals for the year ended 31 December 2020 mainly due to the Company and its subsidiaries disposed their oil and gas pipeline and ancillary facilities to PipeChina.

 

The additions to oil and gas properties of the Group for the year ended 31 December 2020 included RMB 1,563 million (2019: RMB 1,408 million) of estimated dismantlement costs for site restoration (Note 35).

 

At 31 December 2020 and 31 December 2019, the Group had no individual substantial property, plant and equipment which had been pledged.

 

At 31 December 2020 and 31 December 2019, the Group had no individual significant property, plant and equipment which were temporarily idle or pending for disposal.

 

At 31 December 2020 and 31 December 2019, the Group had no individual significant fully depreciated property, plant and equipment which were still in use.

 

18  CONSTRUCTION IN PROGRESS

 

 

2020

2019

 

RMB million

RMB million

Balance at 1 January

173,872

137,449

Additions

130,283

144,751

Dry hole costs written off

(5,928)

(5,831)

Transferred to property, plant and equipment

(141,157)

(92,323)

Reclassification to other long-term assets

(11,464)

(10,086)

Impairment losses for the year

(844)

(135)

Disposals and others

(19,944)

46

Exchange adjustments

(53)

1

Balance at 31 December

124,765

173,872

 

As at 31 December 2020, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 11,129 million (2019: RMB 8,961 million). The geological and geophysical costs paid during the year ended 31 December 2020 were RMB 3,166 million (2019: RMB 4,024 million).

 

19 RIGHT-OF-USE ASSETS

 

 

Land

Others

Total

 

RMB million

RMB million

RMB million

Cost

 

 

 

Balance at 1 January 2019

244,595

27,381

271,976

Additions

8,737

7,555

16,292

Decreases

(4,766)

(748)

(5,514)

Balance at 31 December 2019

248,566

34,188

282,754

Balance at 1 January 2020

248,566

34,188

282,754

Additions

13,983

10,222

24,205

Decreases

(9,405)

(3,142)

(12,547)

Balance at 31 December 2020

253,144

41,268

294,412

Accumulated depreciation

 

 

 

Balance at 1 January 2019

-

-

-

Additions

9,246

5,728

14,974

Decreases

(131)

(26)

(157)

Balance at 31 December 2019

9,115

5,702

14,817

Balance at 1 January 2020

9,115

5,702

14,817

Additions

9,247

6,354

15,601

Decreases

(799)

(1,575)

(2,374)

Balance at 31 December 2020

17,563

10,481

28,044

Impairment loss

 

 

 

Balance at 1 January 2019

-

-

-

Additions

-

-

-

Decreases

-

-

-

Balance at 31 December 2019

-

-

-

Balance at 1 January 2020

-

-

-

Additions

-

-

-

Decreases

-

-

-

Balance at 31 December 2020

-

-

-

Net book value

 

 

 

Balance at 1 January 2019

244,595

27,381

271,976

Balance at 31 December 2019

239,451

28,486

267,937

Balance at 31 December 2020

235,581

30,787

266,368

 

20  GOODWILL

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Cost

16,481

16,558

Less: Accumulated impairment losses

(7,861)

(7,861)

 

8,620

8,697

 

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

2020

2019

 

 

RMB million

RMB million

Sinopec Zhenhai Refining and Chemical Branch
 

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
 

Manufacturing of intermediate petrochemical
 products and petroleum products

1,004

1,004

Other units without individually significant goodwill

 

1,032

1,109

 

 

8,620

8,697

 

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 11.4% to 13.4% (2019: 11.0% to 11.9%). 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.

 

21  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

PipeChina (i)
 

14.00
 


 

Operation of oil and natural gas
 pipeline 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") (ii)

 

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

 

21  INTEREST IN ASSOCIATES (Continued)

 

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

 

 

PipeChina

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

 

2020

2020

2019

2020

2019

2020

2019

2020

2019

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

74,012

175,139

180,383

30,678

31,634

3,721

4,219

2,402

7,612

Non-current assets

655,982

53,008

18,926

147,140

182,646

53,124

56,424

903

971

Current liabilities

(55,562)

(197,872)

(170,621)

(31,157)

(31,295)

(8,315)

(13,887)

(699)

(936)

Non-current liabilities

(104,150)

(514)

(582)

(58,941)

(71,289)

(28,422)

(26,227)

(286)

(166)

Net assets

570,282

29,761

28,106

87,720

111,696

20,108

20,529

2,320

7,481

Net assets attributable to
 owners of the Company

505,336

29,761

28,106

87,280

111,250

20,108

20,529

2,320

7,481

Net assets attributable to
 non-controlling interests

64,946

-

-

440

446

-

-

-

-

Share of net assets from
 associates

70,747

14,583

13,772

8,728

11,125

7,792

7,955

1,160

3,741

Carrying Amounts

70,747

14,583

13,772

8,728

11,125

7,792

7,955

1,160

3,741

 

Summarised statement of comprehensive income

 

Year ended 31 December

PipeChina (iii)

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

 

2020

2020

2019

2020

2019

2020

2019

2020

2019

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Turnover

22,766

4,742

4,966

49,793

56,706

11,707

13,329

1,252

2,334

Profit/(loss) for the year

6,444

2,027

2,234

(1,936)

6,513

551

1,994

181

424

Other comprehensive
 (loss)/income

-

(372)

411

(19,180)

(1,435)

-

-

(308)

151

Total comprehensive
 income/(loss)

6,444

1,655

2,645

(21,116)

5,078

551

1,994

(127)

575

Dividends declared by associates

-

-

-

285

468

284

219

2,517

-

Share of profit/(loss) from
associates

709

993

1,095

(194)

651

214

773

91

212

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

-

(182)

201

(1,918)

(144)

-

-

(154)

76

 

The share of profit and other comprehensive income for the year ended 31 December 2020 in all individually immaterial associates accounted for using equity method in aggregate was RMB 4,264 million (2019: RMB 5,661 million) and RMB 817 million (2019: other comprehensive loss RMB 155 million) respectively. As at 31 December 2020, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 33,153 million (2019: RMB 59,144 million).

 

Notes:

 

(i)    The Group has a member in the Board of Directors of PipeChina. According to the structure and the resolution mechanism of the Board of Directors, the Group can exercise significant influence on PipeChina.

 

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

 

(iii) The summarised statement of comprehensive income for the year 2020 presents the operating results from the date when the Group can exercise significant influence on PipeChina to 31 December 2020.

 

(iv)  Including foreign currency translation differences.

 

22  INTEREST IN JOINT VENTURES

 

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

 

Name of entity

% of

ownership

interests

 

Principal activities

Measurement

method

Country of

incorporation

Principal place

of business

Fujian Refining & Petrochemical
 Company Limited ("FREP")

50.00
 


 

Manufacturing refining oil products
 

Equity method
 

PRC
 

PRC
 

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

40.00
 


 

Manufacturing and distribution
 of petrochemical products

Equity method
 

PRC
 

PRC
 

Taihu Limited ("Taihu")
 

49.00
 


 

Crude oil and natural gas extraction
 

Equity method
 

Cyprus
 

Russia
 

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

37.50
 


 

Petroleum refining and processing
 business

Equity method
 

Saudi Arabia
 

Saudi Arabia
 

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

50.00

 



 

Manufacturing and distribution
 of petrochemical products

 

Equity method

 

PRC

 

PRC

 

 

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

 

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

31 December

2020

31 December

2019

31 December

2020

31 December

2019

31 December

2020

31 December

2019

31 December

2020

31 December

2019

31 December

2020

31 December

2019

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

7,448

5,603

1,838

1,154

1,280

4,485

1,408

733

5,259

3,242

Other current assets

7,492

11,977

4,777

4,937

1,223

2,336

7,516

11,311

2,665

4,501

Total current assets

14,940

17,580

6,615

6,091

2,503

6,821

8,924

12,044

7,924

7,743

Non-current assets

15,237

17,267

9,993

10,498

12,531

10,453

45,413

50,548

18,258

14,878

Current liabilities

 

 

 

 

 

 

 

 

 

 

Current financial liabilities

(1,203)

(1,280)

(456)

(237)

(38)

(57)

(9,520)

(7,445)

(998)

(500)

Other current liabilities

(5,147)

(7,090)

(2,190)

(1,808)

(1,043)

(1,815)

(8,644)

(12,504)

(3,052)

(2,896)

Total current liabilities

(6,350)

(8,370)

(2,646)

(2,045)

(1,081)

(1,872)

(18,164)

(19,949)

(4,050)

(3,396)

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

Non-current financial liabilities

(8,761)

(11,185)

-

-

(85)

(125)

(29,650)

(29,445)

(6,773)

(4,592)

Other non-current liabilities

(235)

(290)

(42)

(35)

(2,017)

(1,984)

(2,008)

(1,963)

(378)

(368)

Total non-current liabilities

(8,996)

(11,475)

(42)

(35)

(2,102)

(2,109)

(31,658)

(31,408)

(7,151)

(4,960)

Net assets

14,831

15,002

13,920

14,509

11,851

13,293

4,515

11,235

14,981

14,265

Net assets attributable to owners of the company

14,831

15,002

13,920

14,509

11,439

12,829

4,515

11,235

14,981

14,265

Net assets attributable to non-controlling interests

-

-

-

-

412

464

-

-

-

-

Share of net assets from joint ventures

7,416

7,501

5,568

5,804

5,605

6,286

-

4,213

7,491

7,133

Carrying Amounts

7,416

7,501

5,568

5,804

5,605

6,286

-

4,213

7,491

7,133

 

Summarised statement of comprehensive income

 

Year ended 31 December

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Turnover

38,691

57,047

15,701

19,590

9,528

15,222

37,337

75,940

14,881

20,541

Depreciation, depletion and amortisation

(2,222)

(2,541)

(1,244)

(1,474)

(541)

(629)

(3,140)

(3,048)

(1,085)

(1,094)

Interest income

118

124

27

32

291

94

17

58

183

171

Interest expense

(535)

(597)

(16)

(26)

(20)

(265)

(1,136)

(1,470)

(131)

(134)

Profit/(loss) before taxation

520

964

1,518

2,314

2,304

3,320

(7,193)

(1,292)

954

2,178

Tax expense

(87)

(197)

(379)

(579)

(378)

(708)

1,057

(8)

(236)

(533)

Profit/(loss) for the year

433

767

1,139

1,735

1,926

2,612

(6,136)

(1,300)

718

1,645

Other comprehensive loss

-

-

-

-

(3,368)

(1,105)

(584)

(261)

-

-

Total comprehensive income/(loss)

433

767

1,139

1,735

(1,442)

1,507

(6,720)

(1,561)

718

1,645

Dividends declared by joint ventures

300

1,400

691

1,224

-

-

-

-

-

1,750

Share of net profit/(loss) from joint ventures

217

384

456

694

911

1,235

(2,301)

(488)

359

823

Share of other comprehensive loss from joint ventures (i)

-

-

-

-

(1,593)

(522)

(219)

(98)

-

-

 

The share of profit and other comprehensive income for the year ended 31 December 2020 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 993 million (2019: RMB 1,737 million) and RMB 808 million (2019: other comprehensive loss RMB 168 million) respectively. As at 31 December 2020, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 26,099 million (2019: RMB 25,530 million).

 

Note:

 

(i)    Including foreign currency translation differences.

 

23  LONG-TERM PREPAYMENTS AND OTHER ASSETS

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Operating rights of service stations

31,856

34,013

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

2,801

1,562

Prepayments for construction projects to third parties

5,861

3,926

Others (i)

33,971

25,936

 

74,489

65,437

 

Note:

 

(i)    Others mainly comprise time deposits with terms of three years, 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:

 

 

2020

2019

 

RMB million

RMB million

Operating rights of service stations

 

 

Cost:

 

 

Balance at 1 January

53,549

52,216

Additions

493

1,494

Decreases

(475)

(161)

Balance at 31 December

53,567

53,549

Accumulated amortisation:

 

 

Balance at 1 January

19,536

17,282

Additions

2,365

2,357

Decreases

(190)

(103)

Balance at 31 December

21,711

19,536

Net book value at 31 December

31,856

34,013

 

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 43.

 

25  TRADE ACCOUNTS RECEIVABLE

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Amounts due from third parties

22,536

43,735

Amounts due from Sinopec Group Company and fellow subsidiaries

12,120

6,062

Amounts due from associates and joint ventures

4,791

6,426

 

39,447

56,223

Less: Impairment losses for bad and doubtful debts

(3,860)

(1,848)

 

35,587

54,375

 

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

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Within one year

34,509

54,027

Between one and two years

931

190

Between two and three years

64

64

Over three years

83

94

 

35,587

54,375

 

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

 

 

2020

2019

 

RMB million

RMB million

Balance at 1 January

1,848

606

Provision for the year

2,173

1,566

Written back for the year

(68)

(283)

Written off for the year

(23)

(41)

Others

(70)

-

Balance at 31 December

3,860

1,848

 

25  TRADE ACCOUNTS RECEIVABLE (Continued)

 

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

 

Information about the impairment of trade accounts receivable and the Group's exposure to credit risk can be found in Note 43.

 

26  FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Non-current assets

 

 

Unlisted equity instruments

1,376

1,431

Listed equity instruments

149

90

Current assets

 

 

Trade accounts receivable and bills receivable (i)

8,735

8,661

 

10,260

10,182

 

Note:

 

(i)    As at 31 December 2020 and 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

 

2020

2019

 

RMB million

RMB million

Crude oil and other raw materials

60,155

89,908

Work in progress

13,053

12,687

Finished goods

78,415

91,554

Spare parts and consumables

3,372

2,578

 

154,995

196,727

Less: Allowance for diminution in value of inventories

(3,100)

(2,585)

 

151,895

194,142

 

The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 1,659,355 million for the year ended 31 December 2020 (2019: RMB 2,441,380 million). It includes the write-down of inventories of RMB 11,689 million mainly related to crude oil and finished goods (2019: RMB 1,616 million mainly related to finished goods).

 

28  PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Receivables

34,974

25,669

Advances to suppliers

4,862

5,063

Value-added input tax to be deducted

18,625

25,313

Prepaid income tax

131

1,879

 

58,592

57,924

 

29  DEFERRED TAX ASSETS AND LIABILITIES

 

Deferred tax assets and 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

 

2020

2019

2020

2019

 

RMB million

RMB million

RMB million

RMB million

Receivables and inventories

2,411

2,546

-

-

Payables

1,286

1,142

-

-

Cash flow hedges

1,790

116

(4,420)

(384)

Property, plant and equipment

15,793

16,463

(13,415)

(12,317)

Tax losses carried forward

13,322

3,594

-

-

Financial assets at fair value through other comprehensive income

127

131

(11)

(7)

Intangible assets

869

595

(517)

(508)

Others

371

318

(676)

(882)

Deferred tax assets/(liabilities)

35,969

24,905

(19,039)

(14,098)

 

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

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Deferred tax assets

10,915

7,289

Deferred tax liabilities

10,915

7,289

 

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

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Deferred tax assets

25,054

17,616

Deferred tax liabilities

8,124

6,809

 

As at 31 December 2020, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 17,718 million (2019: RMB 16,605 million), of which RMB 4,349 million (2019: RMB 1,992 million) was incurred for the year ended 31 December 2020, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 3,089 million, RMB 5,938 million, RMB 2,356 million, RMB 1,986 million and RMB 4,349 million will expire in 2021, 2022, 2023, 2024, 2025 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 2020, write-down of deferred tax assets amounted to RMB 75 million (2019: RMB 189 million) (Note 11).

 

29  DEFERRED TAX ASSETS AND LIABILITIES (Continued)

 

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

 

 

Balance at

1 January

2019

Recognised in

consolidated

income

statement

Recognised

in other

comprehensive

income

Others

Transferred

from reserve

Balance at

31 December

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

 

 

Balance at

1 January

2020

Recognised in

consolidated

income

statement

Recognised

in other

comprehensive

income

Others

Transferred

from reserve

Balance at

31 December

2020

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Receivables and inventories

2,546

(122)

(12)

(1)

-

2,411

Payables

1,142

144

-

-

-

1,286

Cash flow hedges

(268)

(42)

(2,316)

-

(4)

(2,630)

Property, plant and equipment

4,146

(2,244)

127

349

-

2,378

Tax losses carried forward

3,594

9,960

(84)

(148)

-

13,322

Financial assets at fair value through other
 comprehensive income

124

(4)

(4)

-

-

116

Intangible assets

87

19

-

246

-

352

Others

(564)

162

24

73

-

(305)

Net deferred tax assets/(liabilities)

10,807

7,873

(2,265)

519

(4)

16,930

 

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

 

Short-term debts represent:

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Third parties' debts

 

 

Short-term bank loans

16,111

25,709

RMB denominated

16,111

25,619

US Dollar ("USD") denominated

-

90

Short-term other loans

3

22

RMB denominated

3

22

Current portion of long-term bank loans

4,637

1,790

RMB denominated

4,613

1,765

USD denominated

24

25

Current portion of long-term corporate bonds

-

13,000

RMB denominated

-

13,000

 

4,637

14,790

Corporate bonds (i)

3,018

-

RMB denominated

3,018

-

 

23,769

40,521

Loans from Sinopec Group Company and fellow subsidiaries

 

 

Short-term loans

4,642

5,465

RMB denominated

1,141

2,709

USD denominated

3,298

2,236

Hong Kong Dollar ("HKD") denominated

31

495

European Dollar ("EUR") denominated

172

25

Current portion of long-term loans

622

37,824

RMB denominated

622

37,824

 

5,264

43,289

 

29,033

83,810

 

The Group's weighted average interest rates on short-term loans were 2.53% (2019: 3.11%) per annum at 31 December 2020. 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

 

 

2020

2019

 

 

RMB million

RMB million

Third parties' debts

 

 

 

Long-term bank loans

 

 

 

RMB denominated

Interest rates ranging from 1.08% to

38,226

31,714

 

 5.23% per annum at 31 December 2020

 

 

 

 with maturities through 2030

 

 

USD denominated

Interest rates at 1.55% per annum

92

127

 

 at 31 December 2020 with maturities

 

 

 

 through 2039

 

 

 

 

38,318

31,841

Corporate bonds (ii)

 

 

 

RMB denominated

Fixed interest rates ranging from 2.20% to

26,977

20,000

 

 4.90% per annum at 31 December 2020

 

 

 

 with maturity through 2023

 

 

USD denominated

Fixed interest rates ranging from 3.13% to

11,379

12,157

 

 4.25% per annum at 31 December 2020

 

 

 

 with maturities through 2043

 

 

 

 

38,356

32,157

Total third parties' long-term debts

 

76,674

63,998

Less: Current portion

 

(4,637)

(14,790)

 

 

72,037

49,208

Long-term loans from Sinopec Group Company and fellow subsidiaries

RMB denominated

Interest rates ranging from 1.08% to

11,013

47,450

 

 5.23% per annum at 31 December 2020

 

 

 

 with maturities through 2036

 

 

USD denominated
 

Interest rates at 1.60% per annum at 31 December
 2020 with maturities in 2027

 1,387

-

Less: Current portion

 

(622)

(37,824)

 

 

11,778

9,626

 

 

83,815

58,834

 

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.

 

Notes:

 

(i)    The Company issued Super & Short-term Commercial Paper on 20 August 2020 at par value of RMB 100, and the interest will be paid at its maturity. The total issued amount of the 169-day corporate bonds is RMB 3 billion with a fixed rate at 1.70% per annum.

 

(ii)   The Company issued corporate bonds with a maturity of three years on 31 March 2020 at par value of RMB 100. The total issued amount of the corporate bonds is RMB 10 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.70% per annum and the interest is paid once a year.

 

The Company issued corporate bonds with a maturity of three years on 27 May 2020 at par value of RMB 100. The total issued amount of the corporate bonds is RMB 10 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.20% per annum and the interest is paid once a year.

 

These corporate bonds are carried at amortised cost.

 

31  LEASE LIABILITIES

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Lease liabilities

 

 

Current

15,292

15,198

Non-current

172,306

177,674

 

187,598

192,872

 

32  TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Amounts due to third parties

132,136

166,830

Amounts due to Sinopec Group Company and fellow subsidiaries

11,384

11,251

Amounts due to associates and joint ventures

7,742

10,108

 

151,262

188,189

Bills payable

10,394

11,834

Trade accounts payable and bills payable measured at amortised cost

161,656

200,023

 

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

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Within 1 month or on demand

146,295

185,377

Between 1 month and 6 months

9,665

8,981

Over 6 months

5,696

5,665

 

161,656

200,023

 

33  CONTRACT LIABILITIES

 

As at 31 December 2020 and 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

 

2020

2019

 

RMB million

RMB million

Salaries and welfare payable

7,081

4,807

Interest payable

667

612

Payables for constructions

41,724

50,824

Other payables

58,908

25,618

Financial liabilities carried at amortised costs

108,380

81,861

Taxes other than income tax

70,257

66,257

 

178,637

148,118

 

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:

 

 

2020

2019

 

RMB million

RMB million

Balance at 1 January

42,438

42,007

Provision for the year

1,563

1,408

Accretion expenses

1,343

1,418

Decrease for the year

(1,490)

(2,439)

Exchange adjustments

(141)

44

Balance at 31 December

43,713

42,438

 

36  SHARE CAPITAL

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Registered, issued and fully paid

 

 

95,557,771,046 listed A shares (2019: 95,557,771,046) of RMB 1.00 each

95,558

95,558

25,513,438,600 listed H shares (2019: 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, debts and bonds. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans and bonds. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion) and debentures payable, 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 debentures payable, and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management's strategy is to make appropriate adjustments according to the Group's operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2020, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 10.2% (2019: 7.4%) and 49.1% (2019: 50.2%), 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

 

Capital commitments

 

At 31 December 2020 and 2019, capital commitments of the Group are as follows:

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Authorised and contracted for (i)

171,335

138,088

Authorised but not contracted for

33,942

63,967

 

205,277

202,055

 

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 13,172 million (2019: RMB 6,100 million).

 

Commitments to joint ventures

 

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

 

Exploration and production licenses

 

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

 

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually which are expensed. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2020 (2019: RMB 179 million).

 

Estimated future annual payments are as follows:

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Within one year

390

302

Between one and two years

99

69

Between two and three years

66

34

Between three and four years

63

30

Between four and five years

56

29

Thereafter

824

845

 

1,498

1,309

 

Contingent liabilities

 

At 31 December 2020 and 2019, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Joint ventures

6,390

7,100

Associates (ii)

8,450

10,140

 

14,840

17,240

 

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 2020 and 2019, 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.

 

Note:

 

(ii)   The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. As at 31 December 2020, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 8,450 million (2019: RMB 10,140 million).

 

37 COMMITMENTS AND 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 management's ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas,whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material.

 

The Group paid normal routine pollutant discharge fees of approximately RMB 11,362 million in the consolidated financial statements for the year ended 31 December 2020 (2019: RMB 9,271 million).

 

Legal contingencies

 

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

 

38 BUSINESS COMBINATION

 

Pursuant to the resolution passed at the Directors' meeting on 28 October 2020, the Company entered into an Agreement with Sinopec Assets Management Corporation ("SAMC") in relation to the formation of Sinopec Baling Petrochemical Co. Ltd ("Baling Petrochemical"). According to the Agreement, the Company and SAMC subscribed capital contribution with the business of Baling area respectively and some cash. After the capital injection, the Company remained to hold 55% of Baling Petrochemical's voting rights and was still able to control Baling Petrochemical.

 

As Sinopec Group Company controls both the Company and SAMC, the transaction described above between Sinopec and SAMC has been accounted as business combination under common control. Accordingly, the assets and liabilities of which SAMC subscribed have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Baling Branch of SAMC on a combined basis.

 

Baling Petrochemical is mainly engaged in the production and sales of petrochemicals, chemical fibers, fertilizers, fine chemical products and other chemical products.

 

The financial condition as at 31 December 2019 and the results of operation for the year ended 31 December 2019 previously reported by the Group have been restated, as set out below:

 

 

The Group, as

Baling

Elimination

The Group,

 

previously

Branch

and

as restated

 

reported

of SAMC

Adjustment*

 

 

RMB million

RMB million

RMB million

RMB million

Summarised consolidated income statement
 for the year ended 31 December 2019:

 

 

 

 

Turnover and other operating revenues

2,966,193

16,906

(23,300)

2,959,799

Profit attributable to shareholders of the Company

57,465

50

(22)

57,493

Profit attributable to non-controlling interests

14,568

-

22

14,590

Basic earnings per share (RMB)

0.475

0.0004

-

0.475

Diluted earnings per share (RMB)

0.475

0.0004

-

0.475

Summarised consolidated balance sheet as at 31 December 2019:

 

 

 

 

Current assets

445,856

2,097

(643)

447,310

Total assets

1,755,071

5,858

(643)

1,760,286

Current liabilities

576,374

4,247

(643)

579,978

Total liabilities

879,236

4,389

(643)

882,982

Total equity attributable to shareholders of the Company

738,150

1,448

(652)

738,946

Non-controlling interests

137,685

21

652

138,358

Summarised consolidated statement of cash flows
 for the year ended 31 December 2019:

 

 

 

 

Net cash generated from operating activities

153,420

199

-

153,619

Net cash used in investing activities

(120,463)

(588)

-

(121,051)

Net cash (used in)/generated from financing activities

(84,713)

509

-

(84,204)

Net (decrease)/increase in cash and cash equivalents

(51,756)

120

-

(51,636)

 

At the completion date, the non-controlling interests amount to RMB 972 million was recognised in relation to SAMC's 45% interest in Baling Branch of the Company.

 

39 RELATED PARTY TRANSACTIONS

 

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

 

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

 

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

 

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

 

 

Note

2020

2019

 

 

RMB million

RMB million

Sales of goods

(i)

233,283

285,853

Purchases

(ii)

158,963

189,914

Transportation and storage

(iii)

8,848

8,206

Exploration and development services

(iv)

31,444

33,310

Production related services

(v)

32,106

38,827

Ancillary and social services

(vi)

3,099

3,098

Agency commission income

(vii)

160

116

Interest income

(viii)

704

1,066

Interest expense

(ix)

919

1,334

Net deposits (placed with)/withdrawn from related parties

(viii)

(17,585)

5,230

Net funds (repaid to)/obtained from related parties

(x)

(31,144)

3,438

 

The amounts set out in the table above in respect of the year ended 31 December 2020 and 2019 represent the relevant costs and income as determined by the corresponding contracts with the related parties.

 

Included in the transactions disclosed above, for the year ended 31 December 2020 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 150,239 million (2019: RMB 151,851 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 134,359 million (2019: RMB 135,198 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 3,099 million (2019: RMB 3,097 million), lease charges for land, buildings and others paid by the Group of RMB 11,086 million, RMB 565 million and RMB 211 million (2019: RMB 11,330 million, RMB 509 million and RMB 383 million), respectively and interest expenses of RMB 919 million (2019: RMB 1,334 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 71,862 million (2019: RMB 64,774 million), comprising RMB 71,075 million (2019: RMB 63,686 million) for sales of goods, RMB 704 million (2019: RMB 1,066 million) for interest income and RMB 83 million (2019: RMB 22 million) for agency commission income.

 

For the year ended 31 December 2020, no individually significant right-of-use assets were leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures by the Group. The interest expense recognised for the year ended 31 December 2020 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB 8,160 million (2019: RMB 8,518 million).

 

For the year ended 31 December 2020, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB 11,090 million, RMB 571 million and RMB 330 million (2019: RMB 11,333 million, RMB 518 million and RMB 468 million).

 

As at 31 December 2020 and 2019, there was no guarantee given to banks by the Group in respect of banking facilities to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, except for the guarantees disclosed in Note 37. Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 37.

 

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

 

39 RELATED PARTY TRANSACTIONS (Continued)

 

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

 

Notes:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(viii)                     Interest income represents interest received from deposits placed with Sinopec Finance and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. The balance of deposits at 31 December 2020 was RMB 53,417 million (2019: RMB 35,832 million).

 

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

 

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

 

In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the year ended 31 December 2020. The terms of these agreements are summarised as follows:

 

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

 

(1)  the government-prescribed price;

 

(2)  where there is no government-prescribed price, the government-guidance price;

 

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

 

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

 

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

 

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

 

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

 

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

 

39 RELATED PARTY TRANSACTIONS (Continued)

 

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

 

   On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on 24 August 2018, which took effect on 1 January 2019 and made adjustment to "Mutual Supply Agreement", "Agreement for Provision of Cultural and Educational, Health Care and Community Services", "Buildings Leasing Contract", "Intellectual Property Contract" and "Land Use Rights Leasing Contract", etc.

 

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

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Trade accounts receivable

16,896

12,470

Financial assets at fair value through other comprehensive income

760

407

Prepaid expenses and other current assets

19,305

12,771

Long-term prepayments and other assets

6,435

734

Total

43,396

26,382

Trade accounts payable and bills payable

22,805

25,177

Contract liabilities

5,940

4,456

Other payables

12,116

18,793

Other long-term liabilities

3,010

-

Short-term loans and current portion of long-term loans from Sinopec Group Company and
 fellow subsidiaries

5,264

43,289

Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries

11,778

9,626

Lease liabilities (including to be paid within one year)

162,048

171,402

Total

222,961

272,743

 

Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 30.

 

As at and for the year ended 31 December 2020, and as at and for the year ended 31 December 2019, no individually significant impairment losses for bad and doubtful debts were recognised in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures.

 

(b)  Key management personnel emoluments

 

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

 

 

2020

2019

 

RMB'000

RMB'000

Short-term employee benefits

5,753

9,209

Retirement scheme contributions

342

536

 

6,095

9,745

 

(c)  Contributions to defined contribution retirement plans

 

The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group's employee benefits plan are disclosed in Note 40. As at 31 December 2020 and 2019, the accrual for the contribution to post-employment benefit plans was not material.

 

39 RELATED PARTY TRANSACTIONS (Continued)

 

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

 

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

 

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

 

   sales and purchases of goods and ancillary materials;

 

   rendering and receiving services;

 

   lease of assets;

 

   depositing and borrowing money; and

 

   uses of public utilities.

 

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

 

40 EMPLOYEE BENEFITS PLAN

 

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The Group is required to make contributions to the retirement plans at rates ranging from 13.0% to 16.0% of the salaries, bonuses and certain allowances of its staff. In addition, the Group provides a supplementary retirement plan for its staff at rates not exceeding 8% of the salaries. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. The Group's contributions for the year ended 31 December 2020 were RMB 8,804 million (2019: RMB 11,822 million).

 

41 SEGMENT REPORTING

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

41 SEGMENT REPORTING (Continued)

 

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

 

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

 

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

 

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

 

 

2020

2019

 

RMB million

RMB million

Turnover

 

 

Exploration and production

 

 

External sales

104,524

111,114

Inter-segment sales

57,513

89,315

 

162,037

200,429

Refining

 

 

External sales

114,064

141,674

Inter-segment sales

825,812

1,077,018

 

939,876

1,218,692

Marketing and distribution

 

 

External sales

1,062,447

1,393,557

Inter-segment sales

4,854

4,159

 

1,067,301

1,397,716

Chemicals

 

 

External sales

322,121

428,830

Inter-segment sales

40,518

78,165

 

362,639

506,995

Corporate and others

 

 

External sales

458,154

824,507

Inter-segment sales

430,073

654,337

 

888,227

1,478,844

Elimination of Inter-segment sales

(1,370,624)

(1,902,994)

Turnover

2,049,456

2,899,682

Other operating revenues

 

 

Exploration and production

5,718

10,283

Refining

4,634

5,464

Marketing and distribution

34,905

33,247

Chemicals

9,215

9,273

Corporate and others

2,056

1,850

Other operating revenues

56,528

60,117

Turnover and other operating revenues

2,105,984

2,959,799

 

41 SEGMENT REPORTING (Continued)

 

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

 

 

2020

2019

 

RMB million

RMB million

Result

 

 

Operating (loss)/profit

 

 

By segment

 

 

- Exploration and production

(16,476)

9,284

- Refining

(5,555)

30,632

- Marketing and distribution

20,828

29,107

- Chemicals

10,372

17,327

- Corporate and others

(393)

64

- Elimination

4,417

(40)

Total segment operating profit

13,193

86,374

Share of profit/(loss) from associates and joint ventures

 

 

- Exploration and production

2,117

3,167

- Refining

(2,516)

(640)

- Marketing and distribution

2,200

3,309

- Chemicals

1,723

4,611

- Corporate and others

3,188

2,330

Aggregate share of profits from associates and joint ventures

6,712

12,777

Investment income/(loss)

 

 

- Exploration and production

13,118

(19)

- Refining

14,941

59

- Marketing and distribution

8,980

73

- Chemicals

(61)

578

- Corporate and others

766

228

Aggregate investment income

37,744

919

Net finance costs

(9,506)

(10,048)

Profit before taxation

48,143

90,022

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Assets

 

 

Segment assets

 

 

- Exploration and production

354,024

410,950

- Refining

270,431

321,080

- Marketing and distribution

373,430

399,242

- Chemicals

186,033

180,974

- Corporate and others

118,458

131,686

Total segment assets

1,302,376

1,443,932

Interest in associates and joint ventures

188,342

152,204

Financial assets at fair value through other comperhensive income

1,525

1,521

Deferred tax assets

25,054

17,616

Cash and cash equivalents, time deposits with financial institutions

188,057

128,052

Other unallocated assets

28,451

16,961

Total assets

1,733,805

1,760,286

Liabilities

 

 

Segment liabilities

 

 

- Exploration and production

163,588

167,933

- Refining

136,869

122,264

- Marketing and distribution

234,309

226,531

- Chemicals

49,497

58,066

- Corporate and others

119,215

137,881

Total segment liabilities

703,478

712,675

Short-term debts

23,769

40,521

Income tax payable

6,586

3,267

Long-term debts

72,037

49,208

Loans from Sinopec Group Company and fellow subsidiaries

17,042

52,915

Deferred tax liabilities

8,124

6,809

Other unallocated liabilities

19,911

17,587

Total liabilities

850,947

882,982

 

41 SEGMENT REPORTING (Continued)

 

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

 

 

2020

2019

 

RMB million

RMB million

Capital expenditure

 

 

Exploration and production

56,416

61,739

Refining

24,722

31,372

Marketing and distribution

25,403

29,566

Chemicals

26,202

22,438

Corporate and others

2,312

1,979

 

135,055

147,094

Depreciation, depletion and amortisation

 

 

Exploration and production

46,273

50,732

Refining

20,048

19,676

Marketing and distribution

23,196

21,572

Chemicals

14,376

14,326

Corporate and others

3,072

2,866

 

106,965

109,172

Impairment losses on long-lived assets

 

 

Exploration and production

8,495

3

Refining

1,923

245

Marketing and distribution

536

80

Chemicals

3,606

17

Corporate and others

-

-

 

14,560

345

 

(2)  Geographical information

 

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

 

 

2020

2019

 

RMB million

RMB million

External sales

 

 

Mainland China

1,721,955

2,124,684

Singapore

215,846

505,672

Others

168,183

329,443

 

2,105,984

2,959,799

 

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Non-current assets

 

 

Mainland China

1,211,441

1,239,437

Others

36,782

52,705

 

1,248,223

1,292,142

 

42 PRINCIPAL SUBSIDIARIES

 

As at 31 December 2020, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group.

 

Name of company

Particulars of

issued capital

(million)

Interests

held by the

Company

%

Interests

held by

non-controlling

interests

%

 

Principal activities

Sinopec Great Wall Energy & Chemical
 Company Limited

 

RMB 22,761

 

 

100.00

 

 

-

 

 

 

Coal chemical industry investment
 management, production and sale of
 coal chemical products

Sinopec Yangzi Petrochemical Company
 Limited

RMB 15,651

 

100.00

 

-

 

 

Manufacturing of intermediate petrochemical
 products and petroleum products

Sinopec Overseas Investment Holding
 Limited ("SOIH")

USD1,662

 

100.00

 

-

 

 

Investment holding of overseas business
 

Sinopec International Petroleum Exploration
 and Production Limited ("SIPL")

RMB 8,250

 

100.00

 

-

 

 

Investment in exploration, production and
 sale of petroleum and natural gas

Sinopec Yizheng Chemical Fibre Limited
 Liability Company

RMB 4,000

 

100.00

 

-

 

 

Production and sale of polyester chips and
 polyester fibres

Sinopec Lubricant Company Limited

 

RMB 3,374
 

 

100.00
 

 

-
 

 

 

Production and sale of refined petroleum
 products, lubricant base oil, and
 petrochemical materials

China International United Petroleum and
 Chemical Company Limited

RMB 5,000

 

100.00

 

-

 

 

Trading of crude oil and petrochemical
 products

Sinopec Qingdao Petrochemical
 Company Limited

RMB 1,595

 

100.00

 

-

 

 

Manufacturing of intermediate petrochemical
 products and petroleum products

Sinopec Catalyst Company Limited

RMB 1,500

100.00

-

 

Production and sale of catalyst products

China Petrochemical International
 Company Limited

RMB 1,400

 

100.00

 

-
 

 

Trading of petrochemical products
 

Sinopec Chemical Sales Company Limited
 

RMB 1,000

 

100.00

 

-

 

 

Marketing and distribution of
 petrochemical products

Sinopec Beihai Refining and Chemical Limited
 Liability Company

 

RMB 5,294

 

 

98.98

 

 

1.02

 

 

 

Import and processing of crude oil,

 production, storage and sale of petroleum

 products and petrochemical products

ZhongKe (Guangdong) Refinery &
 Petrochemical Company Limited

RMB 6,397

 

90.30

 

9.70

 

 

Crude oil processing and petroleum
 products manufacturing

Sinopec Qingdao Refining and Chemical
 Company Limited

RMB 5,000

 

85.00

 

15.00

 

 

Manufacturing of intermediate petrochemical
 products and petroleum products

Sinopec Hainan Refining and Chemical
 Company Limited

RMB 9,606

 

75.00

 

25.00

 

 

Manufacturing of intermediate petrochemical
 products and petroleum products

Marketing Company

 

RMB 28,403

 

70.42

 

29.58

 

 

Marketing and distribution of refined
 petroleum products

Shanghai SECCO

 

RMB 7,801

 

67.60

 

32.40

 

 

Production and sale of petrochemical
 products

Sinopec Kantons Holdings Limited
 ("Sinopec Kantons")

 

HKD248
 

 

60.33

  

39.67

 

 

 

Provision of crude oil jetty services
 and natural gas pipeline transmission
 services

Sinopec-SK (Wuhan) Petrochemical Company
 Limited ("Sinopec-SK")

 

RMB 7,193

 

 

59.00

 

 

41.00

 

 

 

Production, sale, research and development
 of petrochemical products, ethylene and
  downstream byproducts

Gaoqiao Petrochemical Company Limited

 

RMB 10,000

 

55.00

 

45.00

 

 

Manufacturing of intermediate petrochemical
 products and petroleum products

Baling Petrochemical (i)

 

RMB 3,000

 

55.00

 

45.00

 

 

Crude oil processing and petroleum
 products manufacturing

Sinopec Shanghai Petrochemical Company
 Limited ("Shanghai Petrochemical")

 

RMB 10,824
 

 

50.44

 

 

49.56

 

 

 

Manufacturing of synthetic fibres, resin and
 plastics, intermediate petrochemical
 products and petroleum products

Fujian Petrochemical Company Limited
 ("Fujian Petrochemical") (ii)

 

RMB 10,492

 

 

50.00

 

 

50.00

 

 

 

Manufacturing of plastics, intermediate
 petrochemical products and petroleum
 products

 

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

 

The Group entered into an Agreement on transferring equity interests in the relevant oil and pipeline companies with PipeChina, which included 100% equity of Sinopec Pipeline Storage & Transportation Company Limited. See Note 10.

 

Notes:

 

(i)    See Note 38.

 

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

 

42 PRINCIPAL SUBSIDIARIES (Continued)

 

Summarised financial information on subsidiaries with material non-controlling interests

 

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

 

Summarised consolidated balance sheet

 

 

Marketing Company

SIPL

Shanghai Petrochemical

Fujian Petrochemical

Sinopec Kantons

Shanghai SECCO

Sinopec-SK

 

At

At

At

At

At

At

At

At

At

At

At

At

At

At

 

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

31 December

 

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

172,352

129,266

22,620

19,151

17,305

22,309

1,582

1,788

4,373

1,284

10,431

11,858

3,639

5,337

Current liabilities

(201,678)

(192,106)

(475)

(456)

(15,232)

(15,479)

(458)

(804)

(924)

(2,961)

(2,783)

(3,196)

(6,377)

(15,037)

Net current (liabilities)/
 assets

(29,326)

(62,840)

22,145

18,695

2,073

6,830

1,124

984

3,449

(1,677)

7,648

8,662

(2,738)

(9,700)

Non-current assets

323,571

340,356

8,951

13,234

27,314

23,185

12,568

11,558

9,106

12,777

12,177

11,473

22,187

21,567

Non-current liabilities

(59,554)

(58,732)

(18,270)

(16,952)

(52)

(21)

(693)

(688)

(170)

(158)

(1,553)

(1,627)

(8,509)

(7)

Net non-current assets/
 (liabilities)

264,017

281,624

(9,319)

(3,718)

27,262

23,164

11,875

10,870

8,936

12,619

10,624

9,846

13,678

21,560

Net assets

234,691

218,784

12,826

14,977

29,335

29,994

12,999

11,854

12,385

10,942

18,272

18,508

10,940

11,860

Attributable to owners of
 the Company

159,205

148,256

5,876

6,308

14,727

14,998

6,499

5,927

7,454

6,583

12,352

12,511

6,455

6,997

Attributable to
 non-controlling interests

75,486

70,528

6,950

8,669

14,608

14,996

6,500

5,927

4,931

4,359

5,920

5,997

4,485

4,863

 

Summarised consolidated statement of comprehensive income

 

Year ended 31 December

Marketing Company

SIPL

Shanghai Petrochemical

Fujian Petrochemical

Sinopec Kantons

Shanghai SECCO

Sinopec-SK

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Turnover

1,099,680

1,427,705

2,017

3,282

74,624

100,270

4,871

5,535

1,064

1,274

21,626

28,341

28,702

31,016

Profit/(loss) for the year

22,415

22,992

1,160

2,831

656

2,227

243

477

2,047

1,131

2,132

3,137

(920)

701

Total comprehensive
 income/(loss)

21,149

23,362

(720)

2,693

645

2,235

243

477

1,814

1,140

2,132

3,137

(920)

701

Comprehensive income/
 (loss) attributable to
 non-controlling interests

7,205

8,289

(287)

1,651

325

1,113

121

238

707

433

691

1,016

(377)

245

Dividends paid to
 non-controlling interests

2,766

4,830

316

10,926

649

1,344

150

650

175

159

767

822

-

-

 

Summarised statement of cash flows

 

Year ended 31 December

Marketing Company

SIPL

Shanghai Petrochemical

Fujian Petrochemical

Sinopec Kantons

Shanghai SECCO

Sinopec-SK

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Net cash generated from/
 (used in) operating
 activities

54,139

40,260

281

2,128

1,680

5,057

(244)

622

586

716

3,119

4,601

(363)

5,532

Net cash (used in)/
 generated from investing
 activities

(40,010)

(25,923)

(2,659)

678

(3,888)

(4,623)

(649)

(472)

3,846

397

(4,335)

(91)

(2,340)

(4,987)

Net cash (used in)/
 generated from financing
 activities

(12,402)

(21,535)

1,683

(116)

1,682

(1,737)

882

(163)

(1,250)

(1,208)

(2,879)

(2,050)

2,176

250

Net increase/(decrease) in
 cash and cash equivalents

1,727

(7,198)

(695)

2,690

(526)

(1,303)

(11)

(13)

3,182

(95)

(4,095)

2,460

(527)

795

Cash and cash equivalents
 at 1 January

6,901

14,142

8,833

5,993

7,450

8,742

79

92

117

198

9,278

6,817

1,593

798

Effect of foreign currency
 exchange rate changes

14

(43)

(439)

150

(8)

11

-

-

(117)

14

(2)

1

-

-

Cash and cash equivalents
 at 31 December

8,642

6,901

7,699

8,833

6,916

7,450

68

79

3,182

117

5,181

9,278

1,066

1,593

 

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES

 

Overview

 

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

 

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

 

   credit risk;

 

   liquidity risk; and

 

   market risk.

 

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

 

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

 

Credit risk

 

(i)   Risk management

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposits) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's trade accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total trade accounts receivable at 31 December 2020, except the amounts due from Sinopec Group Company and fellow subsidiaries. Management performs ongoing credit evaluations of the Group's customers' financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

 

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

 

(ii)  Impairment of financial assets

 

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

 

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

 

For trade accounts receivable and financial assets at FVOCI, the Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivable and financial assets at FVOCI.

 

To measure the expected credit losses, trade accounts receivable and financial assets at FVOCI have been grouped based on shared credit risk characteristics and the days past due.

 

The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2020 or 31 December 2019, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

 

The detailed analysis of trade accounts receivable and financial assets at FVOCI, based on which the Group generated its payment profile is listed in Notes 25 and 26.

 

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

 

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

 

Liquidity risk

 

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

 

As at 31 December 2020, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 443,966 million (2019: RMB 379,649 million) on an unsecured basis, at a weighted average interest rate of 2.85% per annum (2019: 3.57%). As at 31 December 2020, the Group's outstanding borrowings under these facilities were RMB 4,041 million (2019: RMB 2,947 million) and were included in debts.

 

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

 

 

31 December 2020

 

 

Total

 

 

 

 

 

 

contractual

Within

More than 1

More than 2

 

 

Carrying

undiscounted

1 year or

year but less

years but less

More than

 

amount

cash flow

on demand

than 2 years

than 5 years

5 years

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Short-term debts

23,769

25,280

25,280

-

-

-

Long-term debts

72,037

80,562

1,339

11,753

60,414

7,056

Loans from Sinopec Group Company
 and fellow subsidiaries

17,042

17,978

5,512

929

10,109

1,428

Lease liabilities

187,598

329,083

15,957

15,456

43,513

254,157

Derivative financial liabilities

4,826

4,826

4,826

-

-

-

Trade accounts payable and bills payable

161,656

161,656

161,656

-

-

-

Other payables

93,623

93,623

93,623

-

-

-

 

560,551

713,008

308,193

28,138

114,036

262,641

 

 

31 December 2019

 

 

Total

 

 

 

 

 

 

contractual

Within

More than 1

More than 2

 

 

Carrying

undiscounted

1 year or

year but less

years but less

More than

 

amount

cash flow

on demand

than 2 years

than 5 years

5 years

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Short-term debts

40,521

42,240

42,240

-

-

-

Long-term debts

49,208

62,955

952

6,271

25,189

30,543

Loans from Sinopec Group Company
 and fellow subsidiaries

52,915

54,508

43,623

985

7,088

2,812

Lease liabilities

192,872

367,711

16,488

15,676

45,008

290,539

Derivative financial liabilities

2,729

2,729

2,729

-

-

-

Trade accounts payable and bills payable

200,023

200,023

200,023

-

-

-

Other payables

81,861

81,861

81,861

-

-

-

 

620,129

812,027

387,916

22,932

77,285

323,894

 

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.

 

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (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 and loans from Sinopec Group Company and fellow subsidiaries denominated in USD and lease liabilities denominated in Singapore Dollar ("SGD"). The Group enters into foreign exchange contracts to manage its currency risk exposure.

 

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

 

 

31 December

31 December

 

2020

2019

 

million

million

Gross exposure arising from loans and lease liabilities

 

 

USD

22

103

SGD

-

4

 

A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2020 and 2019 would have increased/decreased profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2019.

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

USD

5

27

SGD

-

1

 

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

 

(b)  Interest rate risk

 

The Group's interest rate risk exposure arises primarily from its short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries. Debts bearing interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 30.

 

As at 31 December 2020, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's profit for the year by approximately RMB 245 million (2019: decrease/increase by approximately RMB 352 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 2019.

 

(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 this risk.

 

As at 31 December 2020, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. As at 31 December 2020, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 12,353 million (2019: RMB 788 million) and derivative financial liabilities of RMB 4,808 million (2019:
RMB 2,728 million).

 

As at 31 December 2020, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would increase/decrease the Group's profit for the year by approximately RMB 3,592 million (2019: increase/decrease RMB 3,134 million), and increase/decrease the Group's other reserves by approximately RMB 10,379 million (2019: decrease/increase RMB 4,289 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 2019.

 

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

 

Fair values

 

(i)   Financial instruments carried at fair value

 

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

 

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

 

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

 

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

 

At 31 December 2020

 

 

Level 1

Level 2

Level 3

Total

 

RMB million

RMB million

RMB million

RMB million

Assets

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

- Equity investments, listed and at quoted market price

1

-

-

1

Derivative financial assets:

 

 

 

 

- Derivative financial assets

9,628

2,900

-

12,528

Financial assets at fair value through other comprehensive income:

 

 

 

 

- Equity instruments

149

-

1,376

1,525

- Trade accounts receivable and bills receivable

-

-

8,735

8,735

 

9,778

2,900

10,111

22,789

Liabilities

 

 

 

 

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

2,471

2,355

-

4,826

 

2,471

2,355

-

4,826

 

At 31 December 2019

 

 

Level 1

Level 2

Level 3

Total

 

RMB million

RMB million

RMB million

RMB million

Assets

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

- Structured deposits

-

-

3,318

3,318

- Equity investments, listed and at quoted market price

1

-

-

1

Derivative financial assets:

 

 

 

 

- Derivative financial assets

128

709

-

837

Financial assets at fair value through other comprehensive income:

 

 

 

 

- Equity instruments

90

-

1,431

1,521

- Trade accounts receivable and bills receivable

-

-

8,661

8,661

Liabilities

219

709

13,410

14,338

Derivative financial liabilities:

 

 

 

 

- Derivative financial liabilities

1,209

1,520

-

2,729

 

1,209

1,520

-

2,729

 

During the years ended 31 December 2020 and 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 trade accounts receivable and bills receivable classified as Level 3 financial assets.

 

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

 

Fair values (Continued)

 

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

 

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

 

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 0.77% to 4.65% (2019: 2.37% 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 2020 and 2019:

 

 

31 December

31 December

 

2020

2019

 

RMB million

RMB million

Carrying amount

76,674

63,998

Fair value

74,282

62,646

 

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

 

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2020 and 2019.

 

44 ACCOUNTING ESTIMATES AND JUDGEMENTS

 

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

 

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

 

Oil and gas properties and reserves

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

 

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

 

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

 

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

 

44 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

 

Impairment for long-lived assets

 

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

 

Depreciation

 

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

 

Measurement of expected credit losses

 

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

 

Allowance for diminution in value of inventories

 

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

 

45 PARENT AND ULTIMATE HOLDING COMPANY

 

The directors consider the parent and ultimate holding company of the Group as at 31 December 2020 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.

 

46 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

 

BALANCE SHEET OF THE COMPANY (Amounts in million)

Note

31 December

31 December

 

 

2020

2019

 

 

RMB

RMB

Non-current assets

 

 

 

Property, plant and equipment, net

 

283,691

291,544

Construction in progress

 

59,880

60,493

Right-of-use assets

 

115,992

120,037

Investment in subsidiaries

 

259,087

266,359

Interest in associates

 

69,508

22,798

Interest in joint ventures

 

14,761

15,530

Financial assets at fair value through other comprehensive income

 

428

395

Deferred tax assets

 

12,661

7,315

Long-term prepayments and other assets

 

30,855

6,727

Total non-current assets

 

846,863

791,198<