Half-year Report

Aug 30 2022 08:00 BSTSource: RNS

RNS Number : 4518X

China Petroleum & Chemical Corp

30 August 2022

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibilities for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 00386)

Interim Results Announcement for the Six Months Ended 30 June 2022

The board of directors (the "Board") of China Petroleum & Chemical Corporation ("Sinopec Corp." or the "Company") hereby announces the unaudited results of Sinopec Corp. and its subsidiaries for the six months ended 30 June 2022. This announcement, containing the full text of the 2022 Interim Report of Sinopec Corp., complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to information to accompany preliminary announcement of interim results. Printed version of the 2022 Interim Report of Sinopec Corp. will be delivered to the shareholders of H shares of Sinopec Corp. in September 2022.

Publication of Results Announcement

Both the Chinese and English versions of this results announcement are available on the websites of Sinopec Corp. (www.sinopec.com/listco/) and The Stock Exchange of Hong Kong Limited (www.hkex.com.hk). In the event of any discrepancies in interpretations between the English version and Chinese version, the Chinese version shall prevail.

By Order of the Board

China Petroleum & Chemical Corporation

Huang Wensheng

Vice President and Secretary to the Board of Directors

Beijing, the PRC,

26 August 2022

As of the date of this announcement, directors of the Company are: Ma Yongsheng^*, Zhao Dong^*, Yu Baocai^#, Ling Yiqun^#, Li Yonglin^#, Liu Hongbin^#, Cai Hongbin⁺, Ng, Kar Ling Johnny⁺, Shi Dan⁺ and Bi Mingjian⁺.

# Executive Director

* Non-executive Director

+ Independent Non-executive Director

CONTENTS

2	Company Profile
4	Principal Financial Data and Indicators
8	Business Review and Prospects
12	Management's Discussion and Analysis
23	Corporate Governance
26	Environment and Social Responsibilities
28	Significant Events
36	Changes in Share Capital and Shareholdings of Shareholders
37	Bond General Information
40	Financial Statements
144	Index of Documents for Inspection

This interim report contains forward-looking statements. Except for statements of historical facts, all statements contained herein that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including, but not limited to projections, targets, reserves and other estimates and business plans) are forward-looking statements. The actual results or developments of the Company in future periods may differ materially from those anticipated in such statements as a result of various factors and uncertainties. None of such forward-looking statements shall be deemed or construed to constitute or imply any commitment of substance on the part of the Company to investors. Investors and relevant parties are cautioned to maintain due awareness of potential risks and to distinguish the difference among plans, projections and commitments. The Company made the forward-looking statements referred to herein as at 26 August 2022 and undertakes no obligation to update these statements except as required by relevant regulatory authorities.

COMPANY PROFILE

IMPORTANT NOTICE: THE BOARD OF DIRECTORS (BOARD) AND THE BOARD OF SUPERVISORS OF CHINA PETROLEUM & CHEMICAL CORPORATION (SINOPEC CORP.) AND ITS DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS CONTAINED IN THIS INTERIM REPORT, AND SEVERALLY AND JOINTLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS INTERIM REPORT. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDERS OF SINOPEC CORP. Mr. MA YONGSHENG, CHAIRMAN OF THE BOARD, MR. YU BAOCAI, DIRECTOR AND PRESIDENT, AND MS. SHOU DONGHUA, CHIEF FINANCIAL OFFICER AND HEAD OF CORPORATE ACCOUNTING DEPARTMENT WARRANT THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE INTERIM REPORT OF SINOPEC CORP. FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022.

THE INTERIM FINANCIAL STATEMENTS OF THE COMPANY, PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) OF THE PEOPLES REPUBLIC OF CHINA (PRC), AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS), HAVE NOT BEEN AUDITED.

COMPANY PROFILE

Sinopec H shares were listed on stock exchanges in Hong Kong, New York and London on 18 and 19 October 2000, respectively, and A shares were listed on the Shanghai Stock Exchange on 8 August 2001.Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information; hydrogen energy business and related services such as hydrogen production, storage, transportation and sales; battery charging and swapping, solar energy, wind energy and other new energy business and related services.

DEFINITIONS

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

Sinopec Corp.: China Petroleum & Chemical Corporation;

Company: Sinopec Corp. and its subsidiaries;

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

Sinopec Group: China Petrochemical Corporation and its subsidiaries;

Sinopec Finance Co.: Sinopec Finance Co., Ltd.;

Century Bright: Sinopec Century Bright Capital Investment Ltd.;

CSRC: China Securities Regulatory Commission;

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

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

CONVERSIONS

The conversion factors for production volume of crude oil and natural gas and crude oil processing volume are set out as follows:

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

For overseas production of crude oil: 1 tonne = 7.26 barrels in the first half of 2022, 1 tonne = 7.21 barrels in the first half of 2021;

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

Refinery throughput: 1 tonne = 7.35 barrels.

BASIC INFORMATION

LEGAL NAME

中國石油化工股份有限公司

CHINESE ABBREVIATION

中國石化

ENGLISH NAME

China Petroleum & Chemical Corporation

ENGLISH ABBREVIATION

Sinopec Corp.

LEGAL REPRESENTATIVE

Mr. Ma Yongsheng

AUTHORISED REPRESENTATIVES UNDER THE HONG KONG LISTING RULES

Mr. Yu Baocai

Mr. Huang Wensheng

SECRETARY TO THE BOARD

Mr. Huang Wensheng

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Zhang Zheng

REGISTERED ADDRESS, PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS

22 Chaoyangmen North Street,

Chaoyang District, Beijing, China

Postcode: 100728

Tel: 86-10-59960028

Fax: 86-10-59960386

Website: http://www.sinopec.com

E-mail: ir@sinopec.com

CHANGE OF INFORMATION DISCLOSURE MEDIA AND ACCESS PLACES

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

PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES

A Shares:	Shanghai Stock Exchange
	Stock name: 中國石化
	Stock code: 600028

H Shares:	Hong Kong Stock Exchange
	Stock code: 00386

ADRs:	New York Stock Exchange
	Stock code: SNP
	London Stock Exchange
	Stock code: SNP

CHANGE OF REGISTERED ADDRESS IN THE REPORTING PERIOD

There was no change to the registered address in the reporting period.

PRINCIPAL FINANCIAL DATA AND INDICATORS

1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs

(1) Principal accounting data

Items	Six-month period ended 30 June
	2022 RMB million	2021 RMB million (adjusted)	2021 RMB million (before adjustment)	Changes   over the same period of the preceding year (%)
Operating income	1,612,126	1,260,773	1,261,603	27.9
Net profit attributable to equity shareholders of the Company	43,530	39,426	39,153	10.4
Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses	42,960	38,420	38,420	11.8
Net cash flow from operating activities	4,947	48,347	47,736	(89.8)

As of

30 June

2022

RMB million

As of

31 December

2021

RMB million

Changes

from the end

of last year

(%)

Total equity attributable to shareholders of the Company

787,134

775,102

1.6

Total assets

2,059,814

1,889,255

9.0

Note: The Company has completed the purchase of certain assets and equity of Sinopec Group on 1 July 2021 and 1 December 2021, for details please refer to Sinopec Corp.'s related announcements. The transactions described above have been accounted as business combination under common control, thus, the Company retroactively adjusted the relevant financial data.

(2) Principal financial indicators

Items	Six-month period ended 30 June
	2022 RMB	2021 RMB (adjusted)	2021 RMB (before adjustment)	Changes over the same period of the preceding year (%)
Basic earnings per share	0.360	0.326	0.323	10.4
Diluted earnings per share	0.360	0.326	0.323	10.4
Basic earnings per share (excluding extraordinary gains and losses)	0.355	0.317	0.317	12.0
Weighted average return on net assets (%)	5.57	5.20	5.19	0.37 percentage points
Weighted average return (excluding extraordinary gains and losses) on net assets (%)	5.50	5.06	5.10	0.44 percentage points

(3) Extraordinary items and corresponding amounts

Items	Six-month period ended 30 June 2022 (income)/expenses
	RMB million
Net gain on disposal of non-current assets	(135)
Donations	101
Government grants	(1,340)
Gain on holding and disposal of various investments	(125)
Other extraordinary income/(expenses), net	288
Subtotal	(1,211)
Tax effect	475
Total	(736)
Attributable to:
Equity shareholders of the Company	(570)
Minority interests	(166)

(4) Significant changes of items in the financial statements

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

			Increase/(Decrease)
Items of Consolidated Balance Sheet	As of 30 June 2022 RMB million	As of 31 December 2021 RMB million	Amount RMB million	Percentage (%)	Main reasons for changes
Financial assets held for trading	1,012	-	1,012	-	The increase of structured deposits in the first half of 2022.
Derivative financial assets	40,389	18,371	22,018	119.9	Impact of changes in profit and loss of crude oil and other products hedging business.
Derivative financial liabilities	15,367	3,223	12,144	376.8
Accounts receivable	63,717	34,861	28,856	82.8	Increase in accounts receivable resulting from increased prices of crude oil and  refined oil products.
Prepayments	13,011	9,267	3,744	40.4	Prepayment for goods increased year-on-year.
Inventories	285,032	207,433	77,599	37.4	Increase in inventory value of crude oil and refined oil products resulting from the significant increase of international crude oil prices.
Short-term loans	43,169	27,366	15,803	57.7	The Company increased short-term loans for supplementary of liquidity during the reporting period.
Employee benefits payable	23,000	14,048	8,952	63.7	The impact of increase in payable performance-based income.
Taxes payable	36,566	81,267	(44,701)	(55.0)	The impact of centralized payment for deferred taxes happened in the fourth quarter of last year.
Non-current liabilities due within one year	66,409	28,651	37,758	131.8	Increase in debentures payable and long-term loans due within one year.
Other current liabilities	114,002	31,762	82,240	258.9	Increase in low-interest debentures for supplementary of liquidity during the reporting period.
Long-term loans	77,556	49,341	28,215	57.2	Increase in project loan of holding subsidiaries for capitalised expenditures.
Debentures payable	14,868	42,649	(27,781)	(65.1)	Some of the amounts were reclassified to the item of non-current liabilities due within one year.
Other comprehensive income	6,557	(690)	7,247	-	The impact on translation of foreign currency statements and changes in effective hedging business.
Specific reserve	3,566	2,664	902	33.9	The impact of changes in the balance of safety fund reserve.

Items of Consolidated Income Statement	For six-month period ended 30 June 2022 RMB Million	For six-month period ended 30 June 2021 RMB Million	Increase/ Amount RMB Million	(Decrease) Percentage (%)	Main reasons for changes
Operating costs	1,330,825	998,286	332,539	33.3	Increase in procurement cost of crude oil due to the increased international oil prices.
Other income	2,121	1,244	877	70.5	Increase in VAT refunds on imported LNG.
Investment (loss)/income	(10,307)	4,890	(15,197)	-	Decrease in investment income of associates and joint ventures and the impact of profit and loss of derivative financial instruments.
(losses)/gains from changes in fair value	(1,558)	116	(1,674)	-	Impact of floating profit and loss of derivative financial instruments.
Impairment losses	(1,456)	(926)	(530)	57.2	Allowance for diminution in value of inventories increased year-on-year.

Items of Consolidated Cash Flow Statement	For six-month period ended 30 June 2022 RMB Million	For six-month period ended 30 June 2021 RMB Million	Increase/ Amount RMB Million	(Decrease) Percentage (%)	Main reasons for changes
Cash received from sale of goods and rendering of services	1,704,813	1,310,197	394,616	30.1	Increase in sales revenue due to the higher prices of petroleum and petrochemical products.
Refund of taxes and levies	3,442	788	2,654	336.8	Increase in VAT refunds on imported LNG.
Other cash received relating to operating activities	128,034	65,782	62,252	94.6	Increase in derivative margins received.
Cash paid for goods and services	(1,420,335)	(1,030,400)	(389,935)	37.8	Increase in procurement cost of crude oil and other feedstocks.
Other cash paid relating to operating activities	(159,834)	(64,700)	(95,134)	147.0	Increase in payment of derivative margins.
Cash received from disposal of investments	442	3,341	(2,899)	(86.8)	Decrease in structured deposits received year-over-year.
Net cash received from disposal of subsidiaries and other business entities	1	4,296	(4,295)	(100.0)	Payment of pipeline transaction received in the same period of 2021 and no such item in the reporting period.
Other cash received relating to investing activities	37,189	21,019	16,170	76.9	Increase in amount received of time deposits with maturities over three months.
Net cash paid for the acquisition of subsidiaries and other business entities	(7,628)	-	(7,628)	-	Cash paid for the prior year-end asset acquisition.
Other cash paid relating to investing activities	(16,544)	(33,016)	16,472	(49.9)	Decrease in time deposits with maturities over three months year-on-year.
Cash received from borrowings	348,900	170,144	178,756	105.1	Increase in loans.
Cash repayments of borrowings	(224,161)	(130,857)	(93,304)	71.3	The scale of interest-bearing expanded and the corresponding repayment of borrowings increased.
Cash paid for dividends, profits distribution or interest	(41,606)	(19,559)	(22,047)	112.7	The payment of dividends for the period increased year on year.

2 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS

(1) Principal accounting data

Items	Six-month period ended 30 June
	2022 RMB million	2021 RMB million (adjusted)	2021 RMB million (before adjustment)	Changes over the same period of the preceding year (%)
Operating profit	62,924	58,486	58,109	7.6
Profit attributable to shareholders of the Company	44,451	40,227	39,954	10.5
Net cash generated from operating activities	4,947	48,347	47,736	(89.8)

As of

30 June

2022

RMB million

As of

31 December

2021

RMB million

Changes

from the end

of last year

(%)

Total equity attributable to shareholders of the Company

786,249

774,182

1.6

Total assets

2,059,814

1,889,255

9.0

(2) Principal financial indicators

Items	Six-month period ended 30 June
	2022 RMB	2021 RMB (adjusted)	2021 RMB (before adjustment)	Changes over the same period of the preceding year (%)
Basic earnings per share	0.367	0.332	0.330	10.5
Diluted earnings per share	0.367	0.332	0.330	10.5
Return on capital employed (%)	5.75	6.14	6.14	(0.39) percentage points

BUSINESS REVIEW AND PROSPECTS

BUSINESS REVIEW

In the first half of 2022, the world economic growth slowed down. China effectively coordinated pandemic prevention and control with economic and social development, registering a GDP growth of 2.5% year-on-year. Domestic demand for natural gas remained stable. Based on the statistics of the Company, the overall domestic demand for refined oil products was weak due to high crude oil price and the pandemic, with a slight increase in the first quarter and a sharp decrease in the second quarter, compared with the same period of last year. The demand for major chemical products in China remained stable, and the ethylene equivalent consumption increased by 0.1% compared with that of the previous year.

In the first half of 2022, international crude oil prices rose sharply and fluctuated drastically. The average spot price of Platts Brent was USD107.69 per barrel, up by 66% year-on-year.

Confronted with severe and complex environment of production and operation, the Company gave full play to its integration advantages, actively responded to market changes, carried out in-depth optimisation of the whole industrial chain, enhanced production and marketing coordination, endeavoured to expand the market and sales, and achieved high-quality results.

1 PRODUCTION & OPERATIONS REVIEW

(1) Exploration and Production

In the first half of 2022, the Company seized the favourable opportunity of high oil price, intensified efforts in exploration and development, consolidated the foundation of resources, improved operational performance, and realised growth in production and profit. In terms of exploration, we enhanced basic research, strengthened risk exploration and trap pre-exploration in new regions and areas, and achieved a number of oil and gas discoveries, including breakthroughs in Shunbei oil and gas in Tarim Basin, shale oilfield exploration in Bohai Bay Basin and Subei Basin, deep exploration of natural gas in Sichuan Basin and continental facies shale gas exploration in Puguang. In terms of development, we accelerated the capacity building of major oilfields, such as Shunbei, Tahe and offshore blocks, and strengthened efficiency adjustment and fine-tuned development of mature oil fields. We also actively promoted the capacity building of key natural gas blocks in Sichuan and Erdos Basin, and enhanced optimisation and profitability improvement of whole natural gas business chain. In the first half of the year, the Company's production of oil and gas reached 242 million barrels of oil equivalent, up by 2.9% year-on-year, with domestic crude oil production reaching 124.6 million barrels, up by 0.8% and natural gas production totalled 613.92 billion cubic feet, up by 5.4% year-on-year.

Exploration and Production: Summary of Operations

	Six-month period ended 30 June		Changes
	2022	2021	(%)
Oil and gas production (mmboe)	242.01	235.29	2.9
Crude oil production (mmbbls)	139.65	138.15	1.1
China	124.63	123.62	0.8
Overseas	15.02	14.53	3.4
Natural gas production (bcf)	613.92	582.60	5.4

(2) Refining

In the first half of 2022, facing the challenges brought by high crude oil price and the pandemic, the Company insisted on optimisation and integration of production and marketing, flexibly adjusted the utilisation rate and product structure, and maintained stable operation. In the first quarter, we seized the good opportunity with high refining margin and comprehensively increased utilisation rate. In the second quarter, we adjusted the structure and increased exports of refined oil products in line with the pandemic situation. The Company optimised the crude oil procurement and resource allocation to reduce procurement costs. We expedited adjustment to increase the yield of chemical feedstock and refining specialities with proportion of high-grade lubricants further increased. We accelerated the construction of advanced capacity and promoted structural adjustment projects in an orderly manner. The Company ensured the supply of hydrogen for the Beijing Winter Olympic Games and the Winter Paralympic Games and continued to promote the hydrogen supply projects. In the first half, the Company processed 121 million tonnes of crude oil, down by 4.2% year-on-year, yielding 68.99 million tonnes of refined oil products, among which diesel output increased by 7.4% year-on-year.

Refining: Summary of Operations

Unit: million tonnes

	Six-month period ended 30 June		Changes
	2022	2021	(%)
Refinery throughput	120.76	126.11	(4.2)
Gasoline, diesel and kerosene production	68.99	72.19	(4.4)
Gasoline	30.03	32.40	(7.3)
Diesel	30.65	28.54	7.4
Kerosene	8.31	11.24	(26.1)
Light chemical feedstock production	22.01	22.26	(1.1)

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

(3) Marketing and Distribution

In the first half of 2022, facing fierce market competition and once severe pandemic situation, the Company strengthened the integration of production and marketing, adjusted business strategy in a timely manner, dynamically optimised the allocation of resources, and spared no effort to expand sales and increase profitability. We focused on customer experience and carried out targeted marketing strategies. We actively expanded the low-sulphur bunker fuel market and further consolidated our market position. We also promoted company branding products and improved the quality and profitability of non-fuel business. In addition, Efforts were made to accelerate sales network development, digitisation and transformation to an integrated energy service provider of petrol, gas, hydrogen, power and services. In the first half, total sales volume of refined oil products was 98.42 million tonnes, of which total domestic sales volume accounted for 78.46 million tonnes.

Marketing and Distribution: Summary of Operations

	Six-month period ended 30 June		Change
	2022	2021	(%)
Total sales volume of refined oil products (million tonnes)	98.42	109.13	(9.8)
Total domestic sales volume of refined oil products (million tonnes)	78.46	84.01	(6.6)
Retail (million tonnes)	51.23	55.50	(7.7)
Direct sales and Distribution (million tonnes)	27.23	28.51	(4.5)
Annualised average throughput per station (tonne/station)	3,333	3,614	(7.8)

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

As of

30 June

2022

As of

31 December

2021

Change

from the end

of last year

(%)

Total number of Sinopec-branded service stations

30,740

30,725

0.05

Number of convenience stores

27,950

27,618

1.2

(4) Chemicals

In the first half of 2022, facing difficult situation of high cost, high inventory, low utilisation and low margin in domestic chemical industry, the Company optimised the structure of facilities, feedstock and products, properly scheduled maintenance operations, and maintained high utilisation rate in profitable facilities, responding to market demand. We comprehensively promoted the construction of advanced capacity in Zhenhai, Jiujiang, Tianjin Nangang and Hainan. We also promoted operation stabling and production increasing in coal chemical business, and its profits realised an significant increase. The proportion of high value-added products continued to increase, with ratio of new and specialty products of synthetic resin reached 69.5%, increased by 1.4 percentage points year-on-year, ratio of high-value-added products of synthetic rubber and fibre reached 36.8% and 40.7%, increased by 0.7 and 6.8 percentage points year-on-year respectively, and ratio of fine chemicals reached 35.8%, increased by 1.1 percentage points over the previous year. Ethylene production in the first half was 6.85 million tonnes, with a year-on-year increase of 5.9%. We made full efforts to ensure sufficient supply to our strategic customers, actively increased export, and vigorously expanded high-end markets. In the first half, the total sales volume of chemical products was 40.38 million tonnes, up by 1% year-on-year.

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

	Six-month period ended 30 June		Changes
	2022	2021	(%)
Ethylene	6,846	6,463	5.9
Synthetic resin	9,275	9,292	(0.2)
Synthetic fiber monomer and polymer	4,656	4,507	3.3
Synthetic fiber	555	676	(17.9)
Synthetic rubber	646	594	8.8

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

2 HEALTH AND SAFETY

In the first half of 2022, the Company spared no effort to promote the HSE management system, further promoted the centralised management of safety risks and gas safety, and put in place special programme of contractors' safety management. We strengthened pandemic prevention and control, continuously consolidated the foundation of employee health management, and safeguarded the occupational, physical and psychological health of employees at home and abroad.

3 SCIENCE AND TECHNOLOGY INNOVATION

In the first half of 2022, the Company deepened the reform of its science and technology system and mechanism, enhanced investment in science and technology, and strengthened the protection of intellectual property rights, leading to the overall results of science and technology innovation continuing to improve and scientific research payoffs emerging. In upstream, breakthroughs were made in the geological theory and exploration and production of continental facies shale oil, high-efficiency exploration and production of ultra-deep oil and gas, and EOR in mature oilfields. In refining, new progress was made in core technologies such as direct crude oil cracking to ethylene, high-end carbon materials, high-end lubricants, and catalytic materials for fuel cells. In chemicals, the first unit of the third generation aromatics was completed and put into operation. New progress was made in the research and development of key technologies, such as the high isotactic polybutene-1. The one-million-tonne CCUS project was completed and commissioned. Bio-jet fuel achieved large-scale trial production. National pilot demonstration projects such as "Industrial Internet+" and the construction of smart "fields, plants, stations and institutes" progressed smoothly.

4 CAPITAL EXPENDITURES

The Company continued to optimise its investment management and focused on improving the quality and return of its investments. Capex in the first half of 2022 was RMB64.65 billion, of which RMB33.34 billion was spent in the E&P segment, mainly on the crude oil production capacity building in Shunbei and Tahe, natural gas capacity building in western Sichuan and Dongsheng, and the construction of storage and transportation facilities such as the relocation of Dongying crude oil depot and Longkou LNG projects; RMB8.93 billion was spent in the refining segment, mainly for Anqing and Yangzi refining upgrading projects and the second phase of Zhenhai refining and chemical project; RMB3.07 billion was spent in the marketing and distribution segment, mainly for the construction of gas stations, integrated energy stations covering gasoline, gas, hydrogen, power and service and logistics facilities; RMB18.21 billion was spent in the chemicals segment, mainly for Hainan and Tianjin Nangang ethylene projects, Jiujiang aromatics project, Zhenhai Refining and Chemical project Phase II and Yizheng PTA project; RMB1.10 billion was used on corporate and others, mainly for science and technology research and IT.

BUSINESS OUTLOOK

Looking ahead to the second half of the year, the risk of stagflation in the global economy is expected to rise, while China's economic growth is anticipated to rebound and remain within a reasonable range. Domestic demands for refined oil products and chemical products are expected to pick up, and demand for natural gas will maintain growth. Taking into account the comprehensive impact of geopolitics and changes in global supply and demand, international crude oil prices are expected to remain high and volatile.

In the face of the current situation, the Company will pay more attention to enhancing market foresight, strengthening operational synergies, prioritising innovation and development, synergy and optimisation, market expansion, reform management and safety and environmental protection. We will focus on the following aspects:

In E&P, the Company will continue to increase exploration efforts, strive to achieve strategic breakthroughs in exploration and increase reserves with scale and profit, boost oil and gas production and profitability, and lower the oil and gas break-even point. We will accelerate the oil and gas production capacity building in Shunbei, Tahe, western Sichuan and Zhongjiang, promote the construction of the national demonstration area for continental shale oil in Jiyang, strengthen the research and application of EOR technologies, and continue to promote profitable oil and gas production. In the second half of the year, we plan to produce 141 million barrels of crude oil and 642.9 billion cubic feet of natural gas.

In refining, the Company will integrate and coordinate production and marketing, optimise utilisation rate closely in line with the market and flexibly adjust the product slate. We will dynamically optimise the procurement structure and pace and strive to reduce procurement cost. We will vigorously shift from producing refined oil products to chemicals and specialty products, increase production of high value-added products and specialty products, and promote the growth of lubricants, sulphur and asphalt. In the second half of the year, we plan to process 120 million tonnes of crude oil.

In marketing and distribution, the Company will seize the opportunity of rebounding market demand, with leverage on our integration advantages, to precisely implement targeted marketing strategy, improve retail volume and profits, provide tailor-made services for direct sale and distribution customers, and strive to increase the total sales volume and market share. We will further optimise the network layout and consolidate and reinforce network advantages, seize market opportunities and further expand low-sulphur bunker fuel sales, enhance the comprehensive service capability and synergy of non-fuel business. In the second half of the year, we plan to sell 87.1 million tonnes of refined oil products in domestic market.

In chemicals, the Company will closely follow market demand, optimise feedstocks, products, facilities and regional resources, and strive to achieve efficient plant operation. We will integrate production, marketing, research and application, strengthen the research and development of high-end products and new materials. We will improve the quality and profitability of coal chemical business and maintain good profit momentum. We will also strengthen the integration of internal and external resources, improve export business and make every effort to expand the market and increase the volume. In the second half of the year, we plan to produce 7.2 million tonnes of ethylene.

In Capex, the Company plans to spend RMB133.35 billion in the second half of the year, and will dynamically optimise and adjust its investment projects in the future in accordance with market changes. RMB48.16 billion will be spent in the E&P segment, mainly for the crude oil production capacity building in Shunbei and Tahe, natural gas production capacity building in western Sichuan and Dongsheng, and LNG storage and transportation facilities. RMB11.47 billion will be spent in the refining segment, mainly for Anqing and Yangzi refining upgrading projects and the second phase of Zhenhai refining and chemical project. RMB20.63 billion will be spent in the marketing and distribution segment, mainly for the construction of gas stations, "petrol, gas, hydrogen, power and services" integrated energy stations and logistics facilities. RMB47.89 billion will be spent in the chemicals segment, mainly for the construction of ethylene projects in Hainan and Tianjin Nangang, the second phase of Zhenhai refining and chemical project and the PTA project in Yizheng. RMB5.20 billion will be spent for corporate and others, mainly for the scientific and technological research and IT.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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

1 CONSOLIDATED RESULTS OF OPERATIONS

In the first half of 2022, facing the situation of significant increase and drastic fluctuation of international crude oil price, resurging of domestic pandemic, and weak demand for petroleum and petrochemical products, the Company fully leveraged on the advantages of integration and coordination, flexibly adjusted structure of feedstock, products and facilities, expanded market and sales, and realised revenue and operating profit of RMB1,612.1 billion and RMB62.9 billion, increased by 27.9% and 7.6% year-on-year respectively.

The following table sets forth the principal revenue and expense items from the Company's consolidated income statement for the first half of 2022 and the corresponding period in 2021:

	Six-month period ended 30 June
	2022	2021	Change
	RMB million	RMB million	(%)
Revenue	1,612,126	1,260,773	27.9
Revenue from primary business	1,582,236	1,231,523	28.5
Other operating revenues	29,890	29,250	2.2
Operating expenses	(1,549,202)	(1,202,287)	28.9
Purchased crude oil, products and operating supplies and expenses	(1,262,183)	(945,555)	33.5
Selling, general and administrative expenses	(26,797)	(25,810)	3.8
Depreciation, depletion and amortisation	(53,638)	(54,466)	(1.5)
Exploration expenses, including dry holes	(5,738)	(4,846)	18.4
Personnel expenses	(49,223)	(45,195)	8.9
Taxes other than income tax	(134,409)	(120,900)	11.2
Impairment reversal on trade and other receivables	72	55	30.9
Other operating expenses, net	(17,286)	(5,570)	210.3
Operating profit	62,924	58,486	7.6
Net finance costs	(5,337)	(4,902)	8.9
Investment income and share of profits less losses from associates and joint ventures	7,453	11,247	(33.7)
Profit before taxation	65,040	64,831	0.3
Income tax expense	(14,461)	(15,052)	(3.9)
Profit for the period	50,579	49,779	1.6
Attributable to:
Shareholders of the Company	44,451	40,227	10.5
Non-controlling interests	6,128	9,552	(35.8)

(1) Revenue

In the first half of 2022, the Company's revenue from primary business was RMB1,582.2 billion, representing an increase of 28.5% year-on-year. This was mainly due to the increased prices of major refined oil and chemical products and the increased sales volume of some petroleum and petrochemical products.

The following table sets forth the external sales volume, average realised prices and respective change rates of the Company's major products in the first half of 2022 as compared with the first half of 2021.

	Sales Volume (thousand tonnes)			Average realised price (VAT excluded) (RMB/tonne, RMB/thousand cubic meters)
	Six-month period ended 30 June		Change	Six-month period ended 30 June		Change
	2022	2021	(%)	2022	2021	(%)
Crude oil	4,280	3,537	21.0	4,513	2,794	61.5
Natural gas (million cubic meters)	14,824	14,371	3.2	1,736	1,522	14.1
Gasoline	39,525	45,597	(13.3)	9,272	7,307	26.9
Diesel	36,668	34,648	5.8	7,558	5,388	40.3
Kerosene	8,575	11,016	(22.2)	5,771	3,397	69.9
Basic chemical feedstock	18,063	17,665	2.3	6,475	5,159	25.5
Synthetic fibre monomer and polymer	3,812	3,408	11.9	6,607	6,216	6.3
Synthetic resin	8,595	8,652	(0.7)	8,662	8,174	6.0
Synthetic fibre	588	714	(17.6)	8,347	7,356	13.5
Synthetic rubber	663	622	6.6	11,720	10,584	10.7

Most of the crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production with the remaining sold to other customers. In the first half of 2022, the revenue from crude oil, natural gas and other upstream products sold externally amounted to RMB95.8 billion, up by 41.5% year-on-year, accounting for 5.9% of the Company's revenue from primary business and other operating revenues. This change was mainly due to the increased crude oil and natural gas prices and sales volume.

Petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold externally by the refining segment and the marketing and distribution segment achieved external sales revenues of RMB866.1 billion, representing an increase of 24.9% year-on-year and accounting for 53.7% of the Company's revenue from primary business and other operating revenues. This change was mainly due to the increased price of refined oil products and the increased diesel sales volume. The sales revenue of gasoline, diesel and kerosene was RMB693.1 billion, representing an increase of 24.4% year-on-year, accounting for 80.0% of the total sales revenue of petroleum products. The sales revenue of other refined petroleum products was RMB173.0 billion, accounting for 20.0% of the sales revenue of petroleum products, up by 27.2% year-on-year.

The Company's external sales revenue of chemical products was RMB234.2 billion, accounting for 14.5% of its revenue from primary business and other operating revenues, up by 18.4% year-on-year. The change was mainly due to the increased chemical products price and sales volume of some chemical products.

(2) Operating expenses

In the first half of 2022, the Company's operating expenses were RMB1,549.2 billion, up by 28.9% year-on-year, mainly due to the increased price of outsourced crude oil, refined oil products and chemical feedstock resulting from the significant increase in international commodities and raw materials price. The operating expenses mainly consisted of the following:

Purchased crude oil, products and operating supplies and expenses were RMB1,262.2 billion, representing an increase of 33.5% year-on-year, accounting for 81.5% of total operating expenses, of which:

‧ Crude oil purchasing expenses were RMB471.6 billion, representing an increase of 57.2% year-on-year. Throughput of outsourced crude oil in the first half of 2022 was 112.79 million tonnes (excluding the volume processed for third parties), down by 4.4% year-on-year. The average unit processing cost of outsourced crude oil was RMB4,649 per tonne, up by 63.3% year-on-year.

‧ The Company's purchasing expenses of refined oil products were RMB138.2 billion, up by 1.7% year-on-year.

‧ The Company's purchasing expenses related to trading activities were RMB354.7 billion, up by 36.4% year-on-year, mainly due to the increased prices of outsourced crude oil and refined oil products.

‧ Other purchasing expenses were RMB297.7 billion, up by 19.3% year-on-year, mainly due to the increased price of raw materials.

Selling, general and administrative expenses of the Company totalled RMB26.8 billion, representing an increase of 3.8% year-on-year.

Depreciation, depletion and amortisation of the Company were RMB53.6 billion, representing a decrease of 1.5% year-on-year. This was mainly due to the decreased depreciation and depletion of oil and gas assets resulting from the increase of proved reserves.

Exploration expenses were RMB5.7 billion, representing an increase of 18.4% year-on-year. This was mainly because the Company accordingly increased high efficient exploration investment for discovering good quality reserves.

Personnel expenses were RMB49.2 billion, representing an increase of 8.9% year-on-year. This was mainly due to the increased payment base, which led to the increase in social insurance and other wage surcharges, and the increased performance wages.

Taxes other than income tax were RMB134.4 billion, representing an increase of 11.2% year-on-year, mainly due to the increased special oil income levy, as well as the increase of resource tax on oil and gas products and consumption tax on refined oil products.

Other operating expenses, net was RMB17.3 billion, representing an increase of RMB11.7 billion over the same period of 2021, mainly due to the loss on derivative financial instruments.

(3) Operating profit

In the first half of 2022, the Company's operating profit was RMB62.9 billion, representing an increase of 7.6% year-on-year. This was mainly due to the significant improve in upstream profitability. In addition, the Company fully leveraged on its integration advantages, strengthened optimisation of industrial chain, and maintained stable operation in downstream business.

(4) Net finance costs

In the first half of 2022, the Company's net finance costs were RMB5.3 billion, up by RMB0.4 billion or 8.9% over the same period of last year, mainly due to the increased interest-bearing debt scale led to the increase of interest expenses year-on-year.

(5) Profit before taxation

In the first half of 2022, the Company's profit before taxation amounted to RMB65.0 billion, representing an increase of 0.3% year-on-year.

(6) Income tax expense

In the first half of 2022, the Company's income tax expense totalled RMB14.5 billion, representing a decrease of 3.9% year-on-year.

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

In the first half of 2022, profit attributable to non-controlling interests was RMB6.1 billion, representing a decrease of RMB3.4 billion and 35.8% year-on-year, mainly due to the decreased profits of non-controlling enterprises of the Company.

(8) Profit attributable to shareholders of the Company

In the first half of 2022, profit attributable to shareholders of the Company was RMB44.5 billion, representing an increase of 10.5% year-on-year.

2 RESULTS OF SEGMENT OPERATIONS

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

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

	Operating revenues		As a percentage of consolidated operating revenues before elimination of inter-segment sales		As a percentage of consolidated operating revenues after elimination of inter-segment sales
	Six-month period ended 30 June		Six-month period ended 30 June		Six-month period ended 30 June
	2022	2021	2022	2021	2022	2021
	RMB million		(%)		(%)
Exploration and Production Segment
External sales*	97,854	70,135	3.4	3.2	6.1	5.6
Inter-segment sales	60,314	39,391	2.1	1.8
Operating revenues	158,168	109,526	5.5	5.0
Refining Segment
External sales*	100,845	82,184	3.5	3.7	6.3	6.5
Inter-segment sales	674,791	543,681	23.0	24.5
Operating revenues	775,636	625,865	26.5	28.2
Marketing and Distribution Segment
External sales*	787,077	632,203	27.0	28.5	48.8	50.1
Inter-segment sales	4,916	2,967	0.2	0.1
Operating revenues	791,993	635,170	27.2	28.6
Chemicals Segment
External sales*	239,121	202,613	8.2	9.1	14.8	16.1
Inter-segment sales	39,089	30,030	1.3	1.4
Operating revenues	278,210	232,643	9.5	10.5
Corporate and Others
External sales*	387,229	273,638	13.3	12.3	24.0	21.7
Inter-segment sales	525,043	340,701	18.0	15.4
Operating revenues	912,272	614,339	31.3	27.7
Operating revenue before elimination of inter-segment sales	2,916,279	2,217,543	100.0	100.0
Elimination of inter-segment sales	(1,304,153)	(956,770)
Consolidated operating revenues	1,612,126	1,260,773			100.0	100.0

* Other operating revenues are included.

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage change between the first half of 2022 and the first half of 2021.

	Six-month period ended 30 June
	2022	2021	Change
	RMB million		(%)
Exploration and Production Segment
Operating revenues	158,168	109,526	44.4
Operating expenses	131,866	103,293	27.7
Operating profit	26,302	6,233	322.0
Refining Segment
Operating revenues	775,636	625,865	23.9
Operating expenses	745,868	586,467	27.2
Operating profit	29,768	39,398	(24.4)
Marketing and Distribution Segment
Operating revenues	791,993	635,170	24.7
Operating expenses	775,138	619,102	25.2
Operating profit	16,855	16,068	4.9
Chemicals Segment
Operating revenues	278,210	232,643	19.6
Operating expenses	277,400	219,261	26.5
Operating profit	810	13,382	(93.9)
Corporate and Others
Operating revenues	912,272	614,339	48.5
Operating expenses	911,873	618,074	47.5
Operating profit/(loss)	399	(3,735)	−
Elimination	(11,210)	(12,860)	−

(1) Exploration and Production Segment

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

In the first half of 2022, operating revenues of the segment were RMB158.2 billion, representing an increase of 44.4% year-on-year. This was mainly due to the increased sales prices and volume of domestic crude oil and natural gas.

In the first half of 2022, the segment sold 16.97 million tonnes of crude oil, representing an increase of 0.2% year-on-year. Natural gas sales volume was 15.3 bcm, representing an increase of 3.3% year-on-year. Regasified LNG sales volume was 11.2 bcm, representing an increase of 20.3% year-on-year. LNG sales volume was 0.91 million tonnes, representing a decrease of 72.6% year-on-year. This was mainly because the Company flexibly adjusted marketing strategy in line with market demand and resource situation. Average realised prices of crude oil, natural gas, regasified LNG, and LNG were RMB4,391 per tonne, RMB1,743 per thousand cubic meters, RMB3,037 per thousand cubic meters, and RMB5,695 per tonne respectively, representing an increase of 64.1%, 14.5%, 57.1% and 83.3% year-on-year respectively.

In the first half of 2022, the operating expenses of the segment were RMB131.9 billion, representing an increase of 27.7% year-on-year. This was mainly because that LNG procurement cost increased by RMB16.4 billion year-on-year, special oil income levy and resource tax increased by RMB9.8 billion year-on-year, personnel expenses increased by RMB2.2 billion year-on-year, exploration expenses increased by RMB900 million year-on-year, and depreciation, depletion and amortization decreased by RMB2.1 billion year-on-year resulting from increased proved reserves.

In the first half of 2022, the oil and gas lifting cost was RMB767.08 per tonne, representing an increase of 3.6% year-on-year. This was mainly due to the increased cost of outsourced raw materials and fuel.

In the first half of 2022, the segment seized the opportunity of high oil price, enhanced exploration and production, accelerated capacity building, strengthened optimisation of the whole natural gas industry chain, and improved profitability. In the first half, the segment realised an operating profit of RMB26.3 billion, representing an increase of RMB20.1 billion or 322.0% year-on-year.

(2) Refining Segment

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

In the first half of 2022, operating revenues of the segment were RMB775.6 billion, representing an increase of 23.9% year-on-year. This was mainly because of an increase in price of refined oil products, as well as an increase in diesel sales volume.

The following table sets forth the sales volumes, average realised prices and the respective changes of the Company's major refined oil products of the segment in the first half of 2022 and that of the same period of 2021.

	Sales Volume (thousand tonnes)			Average realised price (VAT excluded) (RMB/tonne)
	Six-month period ended 30 June		Change	Six-month period ended 30 June		Change
	2022	2021	(%)	2022	2021	(%)
Gasoline	28,945	31,795	(9.0)	8,919	6,786	31.4
Diesel	29,388	28,021	4.9	7,317	5,056	44.7
Kerosene	6,629	8,991	(26.3)	5,662	3,371	68.0
Chemical feedstock	20,902	22,337	(6.4)	5,311	3,609	47.2
Other refined petroleum products	32,785	33,752	(2.9)	4,637	4,596	0.9

In the first half of 2022, the sales revenues of gasoline were RMB258.2 billion, representing an increase of 19.6% year-on-year, accounting for 33.3% of the segment's operating revenues.

In the first half of 2022, the sales revenues of diesel were RMB215.0 billion, representing an increase of 51.8% year-on-year, accounting for 27.7% of the segment's operating revenues.

In the first half of 2022, the sales revenues of kerosene were RMB37.5 billion, representing an increase of 23.9% year-on-year, accounting for 4.8% of the segment's operating revenues.

In the first half of 2022, the sales revenues of chemical feedstock were RMB111.0 billion, representing an increase of 37.7% year-on-year, accounting for 14.3% of the segment's operating revenues.

In the first half of 2022, the sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB152.0 billion, representing a decrease of 2.0% year-on-year, accounting for 19.6% of the segment's operating revenues.

In the first half of 2022, the segment's operating expenses were RMB745.9 billion, representing an increase of 27.2% year-on-year, which was mainly attributable to the significant increase in the cost of outsourced crude, fuels and power resulting from increased international crude oil price.

In the first half of 2022, the average processing cost of refining feedstock was RMB4,754 per tonne, representing an increase of 60.7% year-on-year. Total refining feedstock throughput was 123.07 million tonnes (excluding volume processed for third parties), representing a decrease of 5.5% year-on-year. In the first half of 2022, the total processing cost for crude oil was RMB585.1 billion, representing an increase of 51.8% year-on-year. This was mainly due to the increased crude procurement cost.

In the first half of 2022, the refining margin was RMB533 per tonne, decreased by RMB28 per tonne year-on-year, representing a decrease of 5.1% year-on-year. This was mainly due to the increased crude procurement cost, overseas transportation and insurance cost, and decreased refined oil products margin ratio under the high crude price circumstance.

In the first half of 2022, the unit refining cash operating cost (defined as operating expenses less cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, divided by the throughput of crude oil and refining feedstock) was RMB222.76 per tonne, representing an increase of 18.2% year-on-year, which was mainly due to the increased cost of auxiliary material and fuels resulting from increased international commodity prices.

In the first half of 2022, the segment proactively reduced the utilisation rate to address the resurging pandemic and weak demand of refined oil products, but impacted by the increased processing cost of crude oil and shrank margin ratio, operating profit was RMB29.8 billion, decreased by RMB9.6 billion or 24.4% year-on-year.

(3) Marketing and Distribution Segment

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

In the first half of 2022, the operating revenues of this segment were RMB792.0 billion, increased by 24.7% year-on-year. This was mainly attributable to increased prices of refined oil products. Among which, sales revenues of gasoline were RMB366.7 billion, increased by 10.0% year-on-year, sales revenues of diesel were RMB278.0 billion, increased by 48.5% year-on-year and sales revenues of kerosene were RMB49.5 billion, increased by 32.2% year-on-year.

The following table sets forth the sales volume, average realised prices and respective changes of the segment's four major refined oil products in the first half of 2022 and 2021, including the detailed information about the retail, direct sales and distribution of gasoline and diesel.

	Sales volume (thousand tonnes)			Average realised price (VAT excluded, RMB/tonne)
	Six-month period ended 30 June		Change	Six-month period ended 30 June		Change
	2022	2021	(%)	2022	2021	(%)
Gasoline	39,554	45,606	(13.3)	9,271	7,307	26.9
Retail	28,669	32,383	(11.5)	9,783	7,807	25.3
Direct sales and distribution	10,885	13,222	(17.7)	7,925	6,082	30.3
Diesel	36,792	34,742	5.9	7,556	5,388	40.2
Retail	15,212	15,065	1.0	8,072	6,079	32.8
Direct sales and distribution	21,580	19,677	9.7	7,192	4,860	48.0
Kerosene	8,575	11,016	(22.2)	5,771	3,397	69.9
Fuel oil	11,159	12,751	(12.5)	5,122	3,103	65.1

In the first half of 2022, the operating expenses of this segment were RMB775.1 billion, representing an increase of RMB156.0 billion, up by 25.2% year-on-year. This was mainly due to increased procurement cost of refined oil products resulting from increased international crude oil price.

In the first half of 2022, the segment's marketing cash operating cost (defined as the operating expenses less the purchase costs, taxed other than income tax, depreciation and amortization, divided by sales volume) was RMB198.71 per tonne, up by 13.0% year-on-year. This was mainly attributable to the increased unit fixed cost as a result of resurging pandemic, weak demand for refined oil products and decreased sales volume.

In the first half of 2022, the operating revenues of non-fuel business of this segment were RMB19.3 billion, representing an increase of RMB1.3 billion year-on-year, and the profit of non-fuel business was RMB2.6 billion, representing an increase of RMB300 million year-on-year. This was mainly because the Company proactively promoted the sales volume of company branding products and expanded new business models.

In the first half of 2022, the segment proactively integrated and coordinated production and marketing, expanded market to address the severe situation of resurging pandemic, and realised an operating profit of RMB16.9 billion, representing an increase of RMB800 million or 4.9% year-on-year.

(4) Chemicals

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

In the first half of 2022, the operating revenues of this segment were RMB278.2 billion, increased by 19.6% year-on-year. This was mainly due to the increased chemical prices, as well as sales volume growth of some products.

In the first half of 2022, the operating revenue generated by the segment's six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fiber monomer and polymer, synthetics fibre, synthetic rubber and chemical fertiliser) was RMB262.4 billion, increased by 18.5% year-on-year, accounting for 94.3% of the operating revenues of the segment.

The following table sets forth the sales volume, average realised prices and respective changes of each of the segment's six categories of chemical products in the first half of 2022 and 2021.

	Sales volume (thousand tonnes)			Average realised price (VAT excluded, RMB/tonne)
	Six-month period ended 30 June		Change	Six-month period ended 30 June		Change
	2022	2021	(%)	2022	2021	(%)
Basic organic chemicals	23,105	23,377	(1.2)	6,423	4,961	29.5
Synthetic fibre monomer and polymer	3,843	3,432	12.0	6,633	6,253	6.1
Synthetic resin	8,596	8,652	(0.6)	8,662	8,174	6.0
Synthetics fibre	588	714	(17.7)	8,350	7,356	13.5
Synthetic rubber	664	624	6.5	11,728	10,589	10.8
Chemical fertiliser	408	505	(19.3)	3,329	2,666	24.9

In the first half of 2022, the operating expenses of this segment were RMB277.4 billion, increased by 26.5% year-on-year, mainly due to the increased cost of outsourced feedstock and fuels as a result of increased international crude oil price.

In the first half of 2022, The segment vigorously optimised structural of feedstock, product and facilities, increased production of high value-added products, but impacted by significant decrease in chemical margin, resulting from significant increase of naphtha and other feedstock prices, weak chemical demand, and relatively low downstream utilisation rate, operating profit was RMB800 million, decreased by RMB12.6 billion year-on-year.

(5) Corporate and Others

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

In the first half of 2022, the operating revenue generated from the corporate and others was RMB912.3 billion, increased by 48.5% year-on-year, mainly due to a significant increase in the trading prices of crude oil and refined oil products.

In the first half of 2022, the operating expenses for corporate and others were RMB911.9 billion, increased by 47.5% year-on-year.

In the first half of 2022, the segment's operating profit was RMB400 million.

3 ASSETS, LIABILITIES, EQUITY AND CASH FLOWS

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

(1) Assets, Liabilities and Equity Unit：RMB million

	As of 30 June 2022	As of 31 December 2021	Change
Total assets	2,059,814	1,889,255	170,559
Current assets	706,433	558,024	148,409
Non-current assets	1,353,381	1,331,231	22,150
Total liabilities	1,129,073	974,181	154,892
Current liabilities	793,623	641,280	152,343
Non-current liabilities	335,450	332,901	2,549
Total equity attributable to the shareholders of the Company	786,249	774,182	12,067
Share capital	121,071	121,071	−
Reserves	665,178	653,111	12,067
Non-controlling interests	144,492	140,892	3,600
Total equity	930,741	915,074	15,667

As of 30 June 2022, the Company's total assets were RMB2,059.8 billion, representing an increase of RMB170.6 billion compared with the 2021 year-end balance, of which:

Current assets were RMB706.4 billion, representing an increase of RMB148.4 billion compared with the 2021 year-end balance, mainly because inventories and accounts receivable increased by RMB77.6 billion and RMB28.9 billion respectively resulting from the increase of international crude oil price, as well as cash and cash equivalents increased by RMB30.6 billion.

Non-current assets were RMB1,353.4 billion, representing an increase of RMB22.2 billion compared with the 2021 year-end balance, mainly because construction in progress increased by RMB13.1 billion and interest in associates increased by RMB9.6 billion.

As of 30 June 2022, the Company's total liabilities were RMB1,129.1 billion, representing an increase of RMB154.9 billion compared with the end of last year, of which:

Current liabilities were RMB793.6 billion, representing an increase of RMB152.3 billion compared with the 2021 year-end balance, mainly because short-term debts increased by RMB124.3 billion and accounts payable and bills payable increased by RMB32.6 billion.

Non-current liabilities were RMB335.5 billion, representing an increase of RMB2.5 billion compared with the 2021 year-end balance.

As of 30 June 2022, total equity attributable to shareholders of the Company was RMB786.2 billion, representing an increase of RMB12.1 billion compared with the 2021 year-end balance.

(2) Cash Flows

The following table sets forth the major items in the consolidated cash flow statements for the first half of 2022 and of 2021:

Unit: RMB million

Major items of cash flows	Six-month period ended 30 June		Change
	2022	2021
Net cash generated from operating activities	4,947	48,347	(43,400)
Net cash used in investing activities	(51,138)	(65,990)	14,852
Net cash generated from financing activities	75,212	8,650	66,562
Net increase/(decrease) in cash and cash equivalents	29,021	(8,993)	38,014

In the first half of 2022, net cash generated from operating activities was RMB4.9 billion, representing a decrease of RMB43.4 billion year-on-year, mainly due to net change of inventories increasing the outflow of cash by RMB31.0 billion, net change of accounts payable and other current liabilities decreasing inflow of cash by RMB22.5 billion, net change of income tax paid decreasing outflow of cash by RMB6.2 billion and share of profits from associates and joint ventures decreasing outflow of cash by RMB3.8 billion.

In the first half of 2022, the Company's net cash used in investing activities was RMB51.1 billion, representing a decrease of cash outflow of RMB14.9 billion year-on-year, mainly due to a year-on-year decrease of cash outflow of RMB34.2 billion in time deposits with maturities over three months, an increased cash outflow of RMB7.6 billion used to pay for acquisition of subsidiaries, an increase of cash outflow RMB5.3 billion in capital expenditures and a decrease of cash inflow of RMB4.5 billion in the proceeds from sale of investments.

In the first half of 2022, the Company's net cash generated from financing activities was RMB75.2 billion, representing an increase of cash inflow of RMB66.6 billion year-on-year, mainly due to proceeds from bank and other loans increased by RMB178.8 billion, repayments of bank and other loans increased by RMB93.3 billion and dividends distribution increased by RMB21.8 billion.

As of 30 June 2022, the Company's cash and cash equivalents were RMB139.2 billion.

(3) Contingent Liabilities

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

(4) Capital Expenditure

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

(5) Research & Development and Environmental Expenditure

Research and Development expenditures referred to fees incurred in the period and recognised as expenses. In the first half of 2022, the Company's research and development expenditure amounted to RMB9.48 billion, of which expenditure was RMB6.31 billion and capitalised expenditure was RMB3.17 billion.

Environmental expenditures refer to the routine pollutant cleaning fees paid by the Company, excluding capitalised cost of pollutant treatment facilities. In the first half of 2022, the environmental expenditures amounted to RMB4.355 billion.

(6) Measurement of Fair Values of Derivatives and Relevant System

The Company has established sound decision-making mechanism, business process and internal control systems relevant to financial instrument accounting and information disclosure. The following table sets forth items relevant to measurement of fair values.

Items relevant to measurement of fair values Unit: RMB million

Items	Beginning of the reporting period	End of the reporting period	Profits and losses from variation of fair values in the current reporting period	Accumulated variation of fair values recorded as equity	Impairment loss provision of the current reporting period	Funding source
Financial assets held for trading	−	1,012	9	−	−	Self-owned fund
Structured deposit	−	1,009	9	−	−	Self-owned fund
Fund	−	3	−	−	−	Self-owned fund
Derivative financial instruments	1,350	1,038	(19,312)	−	−
Cash flow hedges	15,148	25,023	(16)	2,330	−
Receivables financing	5,939	5,889	−	−	−
Other equity instrument investments	767	771	−	(14)	−
Total	23,204	33,733	(19,319)	2,316	−

4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER CASs

The major differences between the Company's financial statements prepared under CASs and IFRS are set out in Section C of the financial statements of the Company on page 143 of this report.

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

	Six-month period ended 30 June
	2022	2021
	RMB million	RMB million
Operating income
Exploration and Production Segment	158,168	109,526
Refining Segment	775,636	625,865
Marketing and Distribution Segment	791,993	635,170
Chemicals Segment	278,210	232,643
Corporate and Others	912,272	614,339
Elimination of inter-segment sales	(1,304,153)	(956,770)
Consolidated operating income	1,612,126	1,260,773
Operating profit/(loss)
Exploration and Production Segment	25,358	5,218
Refining Segment	28,751	39,177
Marketing and Distribution Segment	17,964	16,583
Chemicals Segment	120	12,845
Corporate and Others	18,164	1,646
Elimination	(11,210)	(12,860)
Financial expenses, losses/gains from changes in fair value, investment income and disposal income	(17,067)	385
Other income	2,121	1,244
Consolidated operating profit	64,201	64,238
Net profit attributable to equity shareholders of the Company	43,530	39,426

Operating profit: In the first half of 2022, the operating profit of the Company was RMB64.2 billion, representing a decrease of 0.1% year-on-year.

Net profit: In the first half of 2022, net profit attributable to the equity shareholders of the Company was RMB43.5 billion, representing an increase of 10.4% year-on-year.

(2) Financial data prepared under CASs:

	At 30 June	At 31 December
	2022	2021	Changes
	RMB million	RMB million	RMB million
Total assets	2,059,814	1,889,255	170,559
Non-current liabilities	334,519	331,934	2,585
Shareholders' equity	931,672	916,041	15,631

Changes analysis:

Total assets: As of 30 June 2022, the Company's total assets were RMB2,059.8 billion, representing an increase of RMB170.6 billion compared with the 2021 year-end balance. This was mainly due to inventories increased by RMB77.6 billion, accounts receivable increased by RMB28.9 billion, cash at bank and on hand increased by RMB11.9 billion, derivative financial assets increased by RMB22.0 billion, other receivables increased by RMB9.0 billion, long-term equity investments increased by RMB10.2 billion and construction in progress increased by RMB13.1 billion.

Non-current liabilities: As of 30 June 2022, the Company's non-current liabilities were RMB334.5 billion, representing an increase of RMB2.6 billion compared with the 2021 year-end balance.

Shareholders' equity: As of 30 June 2022, total shareholders' equity of the Company was RMB931.7 billion, representing an increase of RMB15.6 billion compared with the 2021 year-end balance.

(3) The results of the principal operations by segments

Segments	Operating income (RMB million)	Operating cost (RMB million)	Gross profit margin* (%)	Increase of operating income on a year-on-year basis (%)	Increase of operating cost on a year-on-year basis (%)	Increase of gross profit margin on a year-on-year basis (percentage points)
Exploration and Production	158,168	105,879	23.9	44.4	20.6	8.4
Refining	775,636	622,979	4.6	23.9	35.1	(3.7)
Marketing and Distribution	791,993	742,258	6.1	24.7	26.8	(1.5)
Chemicals	278,210	268,075	3.0	19.6	31.5	(8.7)
Corporate and Others	912,272	884,577	3.0	48.5	46.4	1.4
Elimination of inter-segment sales	(1,304,153)	(1,292,943)	N/A	N/A	N/A	N/A
Total	1,612,126	1,330,825	9.1	27.9	33.3	(2.1)

* Gross profit margin = (Operating income - Operating cost - taxes and surcharges)/Operating income

5. THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY'S ACCOUNTING POLICY, ACCOUNTING ESTIMATES AND ACCOUNTING METHODS

For details, please refer to Note 3(26) to the financial statements prepared in accordance with CASs and Note 2 to the financial statement prepared in accordance with IFRS.

CORPORATE GOVERNANCE

1. IMPROVEMENTS IN CORPORATE GOVERNANCE

During the reporting period, Sinopec Corp. adhered to the standard operation, complied with the Articles of Association as well as domestic and applicable overseas laws and regulations on securities, and strengthened the edifice of the fundamental system of corporate governance by revising several internal rules according to the updated securities regulations. The Board fulfilled its duties, strengthened its strategic planning roles, and formulated medium-term and long-term development plans. The Company continuously promoted the execution effectiveness of internal control policy and strengthened compliance management and risk control, so as to improve enterprise management. The Party participated in the corporate governance of the Company, which promoted the effective implementation of the decisions of the Board. The Company continuously conducted the information disclosure and investor relations work with high quality, strengthened communication with stakeholders, and fulfilled the social responsibilities to contribute to economic growth and social progress by ensuring a stable supply of oil and gas and supporting the actions fighting against the pandemic, etc.

2. GENERAL MEETINGS

During the reporting period, Sinopec Corp. convened the annual general meeting for 2021, the first A shareholders class meeting for 2022, and the first H shareholders class meeting for 2022 on 18 May 2022 in Beijing, China, strictly in compliance with the relevant laws, regulations, and the notice requirement, convening and holding procedures under the Articles of Association. The annual general meeting for 2021 approved the proposals in relation to the following matters: (i) Report of the Board of Directors for 2021; (ii) Report of the Board of Supervisors for 2021; (iii) The audited financial reports of Sinopec Corp. for the year ended 31 December 2021 prepared by KPMG Huazhen (Special General Partnership) and KPMG; (iv) The profit distribution plan of Sinopec Corp. for 2021; (v) To authorise the Board to determine the interim profit distribution plan for 2022; (vi) To re-appoint KPMG Huazhen (Special General Partnership) and KPMG as the external auditors of Sinopec Corp. for the year 2022, and to authorise the Board to determine their remunerations; (vii) To authorise the Board to determine the proposed plan for issuance of debt financing instrument(s); (viii) To grant to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp.; (ix) To grant to the Board a mandate to buy back domestic shares and/or overseas-listed foreign shares of Sinopec Corp.; (x) Resolutions on the election of supervisors (excluding employee representative supervisors). The first A shareholders class meeting for 2022 and the first H shareholders class meeting for 2022 approved respectively the proposal on granting to the Board a mandate to buy back domestic shares and/or overseas-listed foreign shares of Sinopec Corp. For details of the meetings, please refer to the poll results announcement published on China Securities Journal, Shanghai Securities News, and Securities Times and on the websites of Shanghai Stock Exchange and Hong Kong Stock Exchange after the meetings.

3. DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT

(1) Information on Appointment or Termination

On 18 May 2022, Mr. Jiang Zhenying resigned as Supervisor of Sinopec Corp. due to a change of working arrangement. Mr. Li Defang and Mr. Lv Dapeng resigned as Employee Representative Supervisors due to age. Mr. Guo Hongjin and Mr. Yin Zhaolin were re-designated from Non-employee Representative Supervisors to Employee Representative Supervisors. On the same day, Mr. Qiu Fasen, Mr. Lv Lianggong, Mr. Wu Bo and Mr. Zhai Yalin were elected as Supervisors of Sinopec Corp.

On 2 June 2022, Mr. Zhao Dong was appointed as the President of China Petrochemical Corporation.

On 18 July 2022, Mr. Ng, Kar Ling Johnny resigned as Independent Non-executive Director of Fangdd Network Group Ltd.

On 20 July 2022, Mr. Chen Ge resigned as Senior Vice President due to age.

(2) Equity Interests of Directors, Supervisors, and Other Senior Management

As of 30 June 2022, Mr. Ling Yiqun, Director and Senior Vice President, held 13,000 A shares of Sinopec Corp., and Mr. Li Defang, the former Supervisor, held 40,000 A shares of Sinopec Corp. (held by his spouse).

Save as disclosed above, as of 30 June 2022, none of the Directors, Supervisors and Senior Management of Sinopec Corp. and their respective associates had any interests or short positions (including any interests or short positions that are regarded or treated as being held in accordance with the SFO) in any shares, underlying shares or debentures of Sinopec Corp. or any associated corporations (as defined in Part XV of SFO), as recorded in the registry pursuant to Section 352 of the SFO or as otherwise notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (Model Code) contained in the Hong Kong Listing Rules.

As required under the related Hong Kong regulations, Sinopec Corp. has formulated the Rules Governing Shares and Changes in Shares Held by Company Directors, Supervisors and Senior Management and the Model Code of Securities Transactions by Company Employees (the Rules and the Code) to regulate securities transactions by relevant personnel. The standards of the Rules and the Code are no less strict than those set out in the Model Code. Upon the specific inquiries made by Sinopec Corp., all the directors confirmed that they had complied with the required standards in the Model Code as well as those set out in the Rules and the Code during the reporting period.

4 DIVIDEND

(1) Dividend distribution for the year ended 31 December 2021

Upon the approval at its annual general meeting for 2021, Sinopec Corp. distributed the final cash dividend of RMB0.31 per share (tax inclusive) for 2021. The final dividend for 2021 has been distributed on or before 23 June 2022 to shareholders whose names appeared on the register of members of Sinopec Corp. on 9 June 2022. Combined with the 2021 interim cash dividend of RMB0.16 per share (tax inclusive), the total cash dividend for the whole year of 2021 amounted to RMB0.47 per share (tax inclusive).

(2) Interim dividend distribution plan for the six months ended 30 June 2022

As approved at the 12th meeting of the eighth session of the Board, the interim dividend of RMB0.16 per share (tax inclusive) for the six months ended 30 June 2022 will be distributed based on the total number of shares as of 16 September 2022 (record date) in cash.

The 2022 interim dividend distribution plan of Sinopec Corp., having considered the interest of shareholders and development of the Company, is in compliance with the Articles of Association and relevant procedures. The independent non-executive directors have issued independent opinions on such plan. The interim dividend will be distributed on or before 29 September 2022 to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 16 September 2022. In order to be qualified for the interim dividend, holders of H shares shall lodge their share certificates and transfer documents with Hong Kong Registrars Limited at 1712-1716, 17th floor, Hopewell Centre, No. 183 Queen's Road East, Wanchai, Hong Kong, for registration, no later than 4:30 p.m. on 9 September 2022. The register of members of H shares of Sinopec Corp. will be closed from 10 September 2022 to 16 September 2022 (both days inclusive). The dividend will be denominated and declared in RMB and distributed to domestic shareholders and shareholders under Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program in RMB and to the overseas shareholders in Hong Kong Dollars. The exchange rate for dividend to be paid in Hong Kong Dollars is based on the average benchmark exchange rate of Hong Kong Dollar against RMB as published by the People's Bank of China one week ahead of the date of declaration of the interim dividend (1 Hong Kong dollar=RMB0.864426).

In accordance with the Enterprise Income Tax Law of the People's Republic of China and its implementation regulations which came into effect on 1 January 2008, Sinopec Corp. is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise shareholders whose names appear on the register of members for H Shares of Sinopec Corp. when distributing the cash dividends or issuing bonus shares by way of capitalisation from retained earnings. Any H Shares of the Sinopec Corp. which are not registered under the name of an individual shareholder, including those registered under HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non-resident enterprise shareholders. On such basis, enterprise income tax shall be withheld from dividends payable to such shareholders. If holders of H Shares intend to change their shareholder status, please enquire about the relevant procedures with your agents or trustees. Sinopec Corp. will strictly comply with the law or the requirements of the relevant government authority to withhold and pay enterprise income tax on behalf of the relevant shareholders based on the registration of members for H shares of Sinopec Corp. as at the record date. If the individual holders of H shares are residents of Hong Kong, Macau or countries which had an agreed tax rate of 10% for cash dividends or bonus shares by way of capitalisation from retained earnings with China under the relevant tax agreement, Sinopec Corp. should withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. If the individual holders of H Shares are residents of countries which had an agreed tax rate of less than 10% with China under relevant tax agreement, Sinopec Corp. shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. In that case, if the relevant individual holders of H Shares wish to reclaim the extra amount withheld due to the application of 10% tax rate, Sinopec Corp. would apply for the relevant agreed preferential tax treatment pursuant to the relevant tax agreement provided that the relevant shareholders submit the evidence required by the notice of the tax agreement to the share register of H shares of Sinopec Corp. in a timely manner. Sinopec Corp. will assist with the tax refund after the approval of the competent tax authority. If the individual holders of H Shares are residents of countries which had an agreed tax rate of over 10% but less than 20% with China under the tax agreement, Sinopec Corp. shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreements. If the individual holders of H Shares are residents of countries which had an agreed tax rate of 20% with China, or which had not entered into any tax agreement with China, or otherwise, Sinopec Corp. shall withhold and pay the individual income tax at a rate of 20%. Pursuant to the Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect (關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知) (Caishui [2014] No. 81) and the Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect (《關於深港股票市場交易互聯互通機制試點有關稅收政策的通知》) (Caishui[2016] No.127): For dividend of domestic investors investing in the H Shares of Sinopec Corp. through Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program, the Company shall withhold and pay income tax at the rate of 20% on behalf of individual investors and securities investment funds. The Company will not withhold or pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax by themselves. For dividends of investors of the Hong Kong Stock Exchange (including enterprises and individuals) investing in the A Shares of Sinopec Corp. through Shanghai-Hong Kong Stock Connect Program, the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the competent tax authorities for the withholding. For investors who are tax residents of other countries which have entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, the enterprises and individuals may, or may entrust a withholding agent to, apply to the competent tax authorities for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the amount paid in excess of the tax payable based on the tax rate according to such tax treaty will be refunded.

5 DETAILED IMPLEMENTATION OF THE SHARE INCENTIVE SCHEME

Sinopec Corp. and its subsidiaries did not implement any share incentive scheme during the reporting period.

6 COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

During the reporting period, Sinopec Corp. complied with all the code provisions of the Corporate Governance Code set out in Appendix 14 of the Hong Kong Listing Rules.

7 REVIEW OF THE INTERIM REPORT

The Audit Committee of the Board of Sinopec Corp. has reviewed and confirmed the Interim Report.

ENVIRONMENT AND SOCIAL RESPONSIBILITIES

1 Work conducted in ecological protection, pollution prevention and environmental responsibilities performance in the reporting period

In the reporting period, the Company actively practiced the green and clean development strategy, comprehensively promoted the construction and operation of HSE system, persistently carried out Green Enterprise Action, deepened the campaign of pollution prevention, enhanced ecological environment protection of enterprises in key river basins such as the Yangtze River and Yellow River, kept environment risk from occurring, thus no substantial or sudden environmental incident happened. The COD and sulphur dioxide emissions decreased by 2.1% and 4.1% respectively, and the solid waste was 100% properly treated.

2 Measures taken to mitigate carbon emission and its effect in the reporting period

In the reporting period, the Company, guided by the carbon peak and carbon neutrality target, advanced the Energy Efficiency Improvement Plan in depth, actively implemented emissions reduction measures of GHG, such as CO₂ and methane, and continuously promoted the clean utilisation of fossil energy, scaling up of clean energy, and low-carbon of production process. In the first half of 2022, the Company continuously promoted energy conservation and consumption reduction and GHG emissions decreased by 1.59 million tonnes of CO₂ equivalent, 745 thousand tonnes of CO₂ were recycled, 390 million cubic meters of methane were recovered which was equivalent to reducing 5.85 million tonnes of CO₂ emissions.

3 ENVIRONMENTAL PROTECTION SOLUTIONS OF COMPANIES AND THEIR SUBSIDIARIES AS MAJOR POLLUTANT DISCHARGING COMPANIES IDENTIFIED BY ENVIRONMENTAL PROTECTION DEPARTMENTS

(1) Pollutant discharge information

In the reporting period, certain subsidiaries of Sinopec Corp. listed as major pollutant discharge units announced by national or local ecological and environmental authorities have acquired their pollutant discharge license in accordance with the requirements of the national list of fixed pollution source emission permit classification management and disclosed environmental information as required by the relevant authorities and local government. The details of such information was published on national pollutant discharge license management information platform (http://permit.mee.gov.cn/permitExt/defaults/default-index!getInformation.action) and the local government website.

(2) Construction and operation of pollution prevention facilities

In the reporting period, the Company built prevention and control facilities for sewage, flue gas, solid waste and noise in accordance with the requirements of the national and local pollution prevention and environmental protection standards, kept effective and stable operation of pollution prevention and control facilities.

(3) Environmental influence evaluation for construction projects and other administrative permit for environmental protection

In the reporting period, the Company standardized environmental protection management for construction projects, enforced whole process construction and operation management, with measures of the "simultaneous three" implemented, all new projects have acquired approval for environmental evaluation from government.

(4) Contingent scheme for sudden environmental incident

In the reporting period, the Company complied with the requirements for environmental incident contingent scheme by the State and persistently improved its contingent scheme against sudden environmental incidents of enterprises and severe pollution weather.

(5) Scheme for environment self-monitoring

In the reporting period, the Company improved its self-monitoring scheme in accordance with the industry guideline, enforced the new requirements for sewage, flue gas and noise monitoring, and disclosed the monitor information as required.

(6) Administrative penalties due to environmental problems in the reporting period

In the reporting period, no penalty for significant environmental protection incident was imposed on the Company. The Company and its subsidiaries' administrative penalties have been disclosed on the website of environment departments and other related departments of local government.

(7) Other environmental information to be disclosed

In the reporting period, for subsidiaries not listed as major pollution units, the Company has acquired related permissions from national and local government, and enforces environmental protection measures. The above mentioned subsidiaries are not obliged to disclose in accordance with the requirements of national and local ecological environment authorities.

4 EXPAND THE ACHIEVEMENTS IN POVERTY-ALLEVIATION AND RURAL REVITALIZATION

During the reporting period, the Company earnestly implemented the decisions and plans of rural revitalization of the State and coordinated to promote the support of industry, education and consumption and employment. According to the actual needs of rural revitalization, the Company persistently supported the revitalization of talents and conducted 5,037 person-times of training for village cadres, revitalization leaders and professionals. The Company constantly promoted the industry & consumption mode of support with production leading sales and sales promoting production and supported local consumption by RMB359 million in the first half of the year.

5 SUPPORT THE WINTER OLYMPIC AND PARALYMPIC GAMES BEIJING 2022

In the first half of 2022, as an official sponsor for Winter Olympic and Paralympic Games Beijing 2022, Sinopec Corp. proactively implemented its concept of clean energy, serve the Winter Olympic Games, dedicated itself to service, supply and promotion for the Olympic Games. Sinopec Corp. developed and manufactured the carbon fibre synthetic material used in the Flying Upward torch, supplied clean energy for the Games and actively promoted the construction of service stations integrated with oil, gas and hydrogen. During the period of Winter Olympic and Paralympic Games Beijing 2022, Sinopec Corp. built 4 hydrogen service stations for the Games and cumulatively served 12.6 thousand vehicles for the Winter Olympics.

SIGNIFICANT EVENTS

1. MAJOR PROJECTS

(1) Zhenhai Refining & Chemical expansion project (phase 2)

Zhenhai Refining & Chemical expansion project (phase 2) consists of building a 11 million tpa refinery project and a 600,000 tpa propane dehydrogenatin and downstream projects. The refinery project began construction in June 2022 and is expected to achieve mechanical completion by December of 2024. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining 70%. As of 30 June 2022, the aggregate investment was RMB3.3 billion.

(2) Tianjin Nangang ethylene and downstream high-end new material industry cluster project

Tianjin Nangang Ethylene and downstream High-End New Material Industry Cluster Project consists of 1.2 million tpa ethylene project and downstream processing units. The project began in May 2021 and is expected to achieve mechanical completion by the end of 2023. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 30 June 2022, the aggregate investment was RMB6.4 billion.

(3) Hainan Refining & Chemical 1 million tpa ethylene and refinery revamping and expansion project

Hainan Ethylene and Refining Expansion project mainly consists of 1 million tpa ethylene and auxiliary units. The project started in December 2018 and achieved the mechanical completion in June 2022. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 30 June 2022, the aggregate investment was RMB23.8 billion.

(4) Jiujiang Refining & Chemical PX project

Jiujiang Refining & Chemical PX project mainly consists of aromatics extraction, xylene fractionation, disproportionation and transalkylation, adsorption separation and isomerization units. Aromatics production capacity will increase 0.89 million tons per year after the project is completed. The project started construction in May 2020 and was put into operation in June 2022. The main source of the investment funds is bank loans. As of 30 June 2022, the aggregate investment was RMB3.5 billion.

(5) Yizheng Chemical Fiber PTA project

Yizheng Chemical Fiber 3 million tpa PTA project mainly consists of oxidation, purification units and auxiliary units. The project started in July 2021 and is expected to achieve mechanical completion in August 2023. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining funds. As of 30 June 2022, the aggregate investment was RMB1.3 billion.

(6) Weirong shale gas project (phase 1 and phase 2)

Under the guidance of the principle of "overall deployment, stage-wise implementation and fully consideration", the capacity construction was promoted comprehensively from August 2018. The construction of phase 1 project with a production capacity of 1 billion cubic meters per year was completed and put into operation in December 2020. The phase 2 project with a production capacity of 2 billion cubic meters per year is expected to be completed and put into operation in December 2022. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2022, the aggregate investment was RMB7.0 billion.

(7) Tianjin LNG project (phase 2)

Tianjin LNG project (phase 2) mainly consists of a new wharf, five new 220,000-cubic-meter storage tanks etc. LNG processing capacity will reach 11 million tpa after phase 2 expansion project is completed. The project started in January 2019 and is expected to be put into operation in August 2023. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2022, the aggregate investment was RMB3.5 billion.

(8) Longkou LNG project

Longkou LNG project mainly consists of a wharf, terminal and power plant warm drainage and water Intake. The first phase designed LNG capacity is 6 million tons per year. One LNG berth with 0.266 million cubic meter capacity will be modified and four 0.22 million cubic meter capacity storage tanks will be newly built up. The project started in November 2021 and is expected to put into operation in November 2024. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 30 June 2022, the aggregate investment was RMB2.4 billion.

2. CORE COMPETITIVENESS ANALYSIS

The Company is a large-scale integrated energy and petrochemical company with upstream, mid-stream and downstream operations. The Company is a large oil and gas producer in China with the largest refining capacity in China. The Company is equipped with a well-developed refined oil products sales network, being the largest supplier of refined oil products in China. The Company ranks first in terms of ethylene production and marketing capacity and has a well-established marketing network for chemical products.

The integrated business structure of the Company carries strong advantages in synergy among its various business segments, enabling the Company to continuously tap onto potentials in attaining an efficient and comprehensive utilisation of its resources, and endowed the Company with strong resistance against risks, as well as remarkable capabilities in sustaining profitability.

The Company enjoys a favourable positioning with its operations located close to the consumer markets. The steady growth in the Chinese economy is helpful to the development of both refined oil business and chemical business of the Company; through continuous and specialised marketing efforts, the Company's capability in international operations and market expansion has been further enhanced.

The Company owns a team of professionals with expertise in the production of oil and gas, operation of refineries and chemical plants, as well as marketing activities. The Company applies outstanding fine management measures with its remarkable capabilities in management of operations, and enjoys a favourable operational cost advantage in its downstream businesses.

The Company has formulated a well-established technology system and mechanism, and owns competent teams specialised in R&D covering a wide range of subjects; the four platforms for technology advancement are taking shape, which includes exploration and development of oil and gas, refining, petrochemicals and strategic emerging technology. With its overall technologies reaching state of the art level in the global arena, and some of the technologies taking the lead globally, the Company enjoys a strong technical strength.

The Company always attaches great importance to the fulfilment of social responsibilities and carries out the green and low carbon development strategy to pursue a sustainable development. Moreover, the Company enjoys an outstanding "Sinopec" brand name, plays an important role in the national economy and is a renowned and reputable company in China.

3. INTENTION TO DELIST AMERICAN DEPOSITARY SHARES FROM THE NEW YORK STOCK EXCHANGE

Based on several comprehensive considerations, including the small volume of the underlying H Shares of its outstanding American depositary shares ("ADSs") compared to the total volume of its H Shares, the limited trading volume of its ADSs relative to the worldwide trading volume of its H Shares and the considerable administrative burden of maintaining the listing of the ADSs on the New York Stock Exchange ("NYSE"), the registration of the ADSs and the underlying H Shares with the United States Securities and Exchange Commission and complying with the periodic reporting and related obligations of the U.S. Securities Exchange Act of 1934 (as amended) in the long term, Sinopec Corp. determined to apply for the voluntary delisting of its ADSs from the NYSE and notified the NYSE on 12 August 2022 (Eastern Time in the U.S.). For details, please refer to the announcements published by Sinopec Corp. on China Securities Journal, Shanghai Securities News, Securities Times, and on the website of Shanghai Stock Exchange on 13 August 2022, and on the website of Hong Kong Stock Exchange on 12 August 2022.

4. ASSET TRANSACTIONS WITH INEOS

On 28 July 2022, the Company entered into transaction documents with certain of subsidiaries of INEOS Limited ("INEOS") with respect to the cooperation on Shanghai SECCO Petrochemical Co., Ltd. ("Shanghai SECCO") and other projects. Pursuant to the relevant transaction documents, the Company conditionally agreed to sell, and INEOS Investment (Shanghai) Company Limited conditionally agreed to purchase, 50% equity interest in Shanghai SECCO; Sinopec Corp. agreed to purchase, and INEOS Styrolution APAC Pte Limited agreed to sell, 50% equity interest in INEOS Styrolution Advanced Materials (Ningbo) Pte Ltd ("Ningbo Styrolution") and Sinopec Corp. agreed to provide corresponding shareholders' loans to Ningbo Styrolution; Sinopec Corp. and INEOS Tianjin Holdings Limited also agreed to form the INEOS Sinopec HDPE (Tianjin) Limited (tentative name) as a joint venture on a 50:50 basis, for the construction of a 500,000 tonnes/year High Density Polyethylene (HDPE) project in Tianjin.

For details and definitions, please refer to the announcements published by Sinopec Corp. on China Securities Journal, Shanghai Securities News, Securities Times, and on the website of Shanghai Stock Exchange on 29 July 2022, and on the website of Hong Kong Stock Exchange on 28 July 2022.

5. ACTUAL CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BY THE COMPANY DURING THE REPORTING PERIOD

Sinopec Corp. and China Petrochemical Corporation entered into a number of continuing connected transactions agreements, including the mutual supply agreement, the land use rights leasing agreement, the properties leasing agreement, the intellectual property license agreement and safety production insurance fund document.

In the reporting period, purchases expenses of the actual continuing connected transactions of the Company were RMB112.784 billion, representing 7.05% of the total amount of this type of transactions for the reporting period, including purchases of products and services (procurement, storage, transportation, exploration and production services, and production-related services) of RMB106.529 billion, payment of property rent of RMB470 million (the annual value of right-of-use assets relating to property lease of RMB2,570 million), payment of land rent of RMB5.568 billion (annual value of right-of-use assets relating to land lease of RMB30.468 billion), and interest expenses of RMB217 million. The sales income from continuing connected transactions amounted to RMB69.714 billion, representing 4.16% of the total amount of this type of transactions for the reporting period, including sales of products of RMB69.290 billion, agency commission income of RMB40 million, and interest income of RMB384 million. In addition, entrusted loan provided by the Company to the connected subsidiaries was RMB850 million. For definitions, please refer to the announcements published by Sinopec Corp. on China Securities Journal, Shanghai Securities News, Securities Times and on the website of Shanghai Stock Exchange on 30 August 2021 and on the website of Hong Kong Stock Exchange on 29 August 2021 and 3 September 2021.

The amounts of continuing connected transactions between the Company and Sinopec Group did not exceed the relevant caps for the continuing connected transactions as approved by the general meeting of shareholders and the Board.

6. FUNDS PROVIDED BETWEEN RELATED PARTIES

Unit: RMB million

		Funds to related parties			Funds from related parties
Related parties	Relations	Balance at the beginning of the reporting period	Amount incurred	Balance at the end of the reporting period	Balance at the beginning of the reporting period	Amount incurred	Balance at the end of the reporting period
Sinopec Group	Parent company and affiliated companies	9,797	2,007	11,804	30,682	1,823	32,505
Other related parties	Associates and joint ventures	7,143	289	7,432	3,593	1,086	4,679
Total		16,940	2,296	19,236	34,275	2,909	37,184
Reason for provision of funds between related parties		Loans and other accounts receivable and payable
Impacts of the provision of funds on the Company		No material negative impact

Note: Affiliated companies include subsidiaries, associates and joint ventures.

7. ACTUAL DAILY RELATED TRANSACTIONS ENTERED INTO BY THE COMPANY AND CHINA OIL & GAS PIPELINE NETWORK CORPORATION (PIPECHINA) DURING THE REPORTING PERIOD

On 27 January 2022, the Board of Sinopec Corp. approved the daily related transaction cap in relation to refined oil pipeline transportation services between Sinopec Marketing Company Limited and China Oil & Gas Pipeline Network Corporation for the period from 1 January 2022 to 31 December 2022. The actual executed amount of the daily related transaction of the Company and PipeChina regarding refined oil pipeline transportation services from 1 January 2022 to 30 June 2022 was RMB2.48 billion.

8. SIGNIFICANT LITIGATION, ARBITRATION RELATING TO THE COMPANY

No significant litigation or arbitration relating to the Company occurred during the reporting period.

9. CREDIBILITY OF THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER

During the reporting period, the Company and its controlling shareholder did not have any unperformed court's effective judgments which should be performed or any large amount of debt which should be repaid.

10. MATERIAL CONTRACTS AND PERFORMANCE THEREOF

During the reporting period, the Company did not enter into any undisclosed material contracts which should have been disclosed.

11. SIGNIFICANT EQUITY INVESTMENT

In the reporting period, no significant equity investment occurred by the Company.

12. SIGNIFICANT SALE OF ASSETS OR EQUITY

In the reporting period, no significant sale of assets or equity occurred by the Company.

13. BUSINESS WITH SINOPEC FINANCE CO. AND CENTURY BRIGHT

(1) DEPOSIT BUSINESS

Unit: RMB Million

Related party	Related party relationship	Daily cap	Interest rate range	Amount incurred
				Balance at the beginning of the reporting period	Total deposit	Total withdrawn	Balance at the end of the reporting period
Sinopec Finance Co.	Sinopec Group 51%; Sinopec Corp.49%	RMB80 billion by Sinopec	current：0.35% - 1.725%; time deposit: 1.62% - 7.4%	15,708	5,649	5,260	22,455
Century Bright	Sinopec Group 100%	Finance Co. and Century Bright	current：0% - 0.25%; time deposit: 0.10% - 3.23%	45,974	85,145	54,746	56,637

Note 1: In general, the deposit interest rate offered by Sinopec Finance Co. and Century Bright to Sinopec Corp. is no lower than those of similar nature available from major commercial banks for the same period.

Note 2: The amount incurred in the reporting period is in the calibre of time deposits.

(2) LOAN BUSINESS

Unit: RMB Million

Related party	Related party relationship	Daily cap	Interest rate range	Amount incurred
				Balance at the beginning of the reporting period	Total loan	Total withdrawn	Balance at the end of the reporting period
Century Bright	Sinopec Group 100%	112,674	1% - 4.05%	3,199	93,646	93,996	2,849
Sinopec Finance Co.	Sinopec Group 51%; Sinopec Corp. 49%	15,558	1.08% - 5.23%	13,364	27,527	25,391	15,500

Note: In general, the loan interest rate offered by Sinopec Finance Co. and Century Bright to Sinopec Corp. is no higher than those of similar nature available from major commercial banks for the same period.

(3) CREDIT BUSINESS AND OTHER FINANCE BUSINESS

Unit: RMB Million

Related party	Related party relationship	Business nature	Total amount	Amount incurred
Sinopec Finance	Sinopec Group 51%;	Acceptance bill	5,685	13,429
	Sinopec Corp. 49%	Discounted bill	╱	14,480

Note: The amount incurred is that of the newly-issued bill in the reporting period.

14. MATERIAL GUARANTEE CONTRACTS AND PERFORMANCE THEREOF

Unit: RMB million

Major external guarantees (excluding guarantees for controlled subsidiaries)

Guarantor

Relationship with

the Company

Name of

guaranteed company

Amount*¹

Transaction date

(date of signing)

Period of guarantee

Type

Principal

debt condition

guaranty

Whether

completed

or not

Whether

overdue

or not

Amount of

overdue

guarantee

Counter-

guaranteed

Whether

guaranteed

for connected

parties*²

Sinopec Corp.

The listed company
itself

Zhongtian Hechuang
Energy Co., Ltd.

4,394

May-2016

May 2016-December
2023 (the maturity date
is estimated)

Joint and several liability guarantee

Due performance

−

Sinopec Corp.

The listed company
itself

Zhong An United Coal Chemical Co., Ltd.

5,467

April-2018

April 2018-December 2031

Joint and several liability guarantee

Due performance

−

Sinopec Corp.

The listed company
itself

Amur Gas Chemical Complex Limited Liability Company

3,538*³

December-2021

December 2021-December 2035 (the maturity date
is estimated)

Joint and several liability guarantee*⁵

Due performance

−

Sinopec Corp.

The listed company
itself

Amur Gas Chemical Complex Limited Liability Company

January-2021

January 2021-June
2026 (the maturity date
is estimated)

Joint and several liability guarantee

Due performance

−

Total amount of guarantees provided during the reporting period*⁴

Total amount of guarantees outstanding at the end of reporting period*⁴ (A)

13,419

Guarantees by the Company to the controlled subsidiaries

Total amount of guarantee provided to controlled subsidiaries during the reporting period

Total amount of guarantee for controlled subsidiaries outstanding at the end of the reporting period (B)

11,745

Total amount of guarantees provided by the Company (including those provided for controlled subsidiaries)

Total amount of guarantees (A+B)

25,164

The proportion of the total amount of guarantees to the Sinopec Corp.'s net assets (%)

2.7

Among which:

Guarantees provided for shareholder, de facto controller and its related parties (C)

Amount of debt guarantees provided directly or indirectly to the companies with liabilities to assets ratio over 70% (D)

9,026

The amount of guarantees in excess of 50% of the net assets (E)

Total amount of the above three guarantee items (C+D+E)

9,026

Statement of guarantee undue that might be involved in any joint and several liabilities

None

Statement of guarantee status

None

*1: Guarantee amount refers to the actual amount of guarantee liability that the Company may undertake during the reporting period within the approved guarantee limit.

*2: As defined in the Rules Governing the Listing of Stocks on Shanghai Stock Exchange.

*3: Excluding the interest corresponding to the loan principal agreed in the guarantee contract, export credit premium and other expenses.

*4: The amount of guarantees provided during the reporting period and the outstanding balance of guarantees amount at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.'s subsidiaries by the percentage of shareholding of Sinopec Corp. in such subsidiaries.

*5: In addition to the credit guarantee, Sinopec Corp. subsidiary SOIHL HONG KONG HOLDING LIMITED pledged its 40% equity interest in Amur Gas Chemical Complex Limited Liability Company as a supplementary guarantee.

For specific details of the guarantees provided by Sinopec Corp. for Zhongtian Hechuang Energy Co., Ltd., Zhong An United Coal Chemical Co., Ltd. and Amur Gas Chemical Complex Limited Liability Company in the above table, please refer to the Company's announcements dated 29 December 2015, 26 March 2018, 16 April 2020, 26 January 2021, 16 December 2021 disclosed on the website of the Shanghai Stock Exchange and the circulars dated 7 January 2016, 23 March 2018 and an announcement dated 15 December 2021 disclosed on the website of the Stock Exchange of Hong Kong.

15. PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION

Background

Type of

Undertaking

Party

Contents

Term for performance

Whether bears deadline or not

Whether strictly performed or not

Undertakings related to
Initial Public
Offerings (IPOs)

IPOs

China Petrochemical Corporation

1 Compliance with the connected transaction agreements;

2 Solving the issues regarding the legality of land-use rights certificates and property ownership rights certificates within a specified period of time;

3 Implementation of the Reorganisation Agreement (please refer to the definition of Reorganisation Agreement in the H share prospectus of Sinopec Corp.);

4 Granting licenses for intellectual property rights;

5 Avoiding competition within the same industry;

6 Abandonment of business competition and conflicts of interest with Sinopec Corp.

From 22 June 2001

Yes

Other undertakings

Other

China Petrochemical

Corporation

Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the exploration and production of overseas petroleum and natural gas, China Petrochemical Corporation hereby grants a 10-year option to Sinopec Corp. with the following provisions: (i) within ten years from the issuance date of this undertaking, after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell its overseas oil and gas assets owned as of the date of the undertaking and still in its possession upon Sinopec Corp.'s exercise of the option to Sinopec Corp.; (ii) in relation to the overseas oil and gas assets acquired by China Petrochemical Corporation after the issuance of the undertaking, within 10 years of the completion of such acquisition, after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell these assets to Sinopec Corp. China Petrochemical Corporation undertakes to transfer the assets as required by Sinopec Corp. under aforesaid items (i) and (ii) to Sinopec Corp., provided that the exercise of such option complies with applicable laws and regulations, contractual obligations and other procedural requirements.

Within 10 years after 29 April 2014 or the date when China Petrochemical Corporation acquires the assets

Yes

As of the date of this report, Sinopec Corp. had no undertakings in respect of financial performance, asset injections or asset restructuring that had not been fulfilled, nor did Sinopec Corp. make any profit forecast in relation to any asset or project.

16. STRUCTURED ENTITY CONTROLLED BY THE COMPANY

None

17. REPURCHASE, SALES AND REDEMPTION OF SHARES

During this reporting period, neither Sinopec Corp. nor any of its subsidiaries repurchased, sold or redeemed any listed securities of Sinopec Corp.

18. INFORMATION ON MAJOR SUBSIDIARIES OR THE ASSOCIATES OR JOINT VENTURES

During the reporting period, the net profit from the subsidiary or investment income from the associate or joint venture accounts for more than 10% of the Company's net profit:

Unit: RMB million

Company name

Registered

capital

Percentage of

shares held by

Sinopec Corp.

(%)

Total assets

Net Assets

Net Profit

Operating

Income

Operating

Profit

Primary Activities

Sinopec Marketing
Co., Ltd.

28,403

70.42

508,873

246,544

12,771

790,246

17,245

Sales of refined
oil products

19. RISK FACTORS

In the course of its production and operations, Sinopec Corp. will actively take various measures to circumvent operational risks. However, in practice, it may not be possible to prevent the occurrence of all risks and uncertainties described below.

Risks with regard to the variations from macroeconomic situation: The business results of the Company are closely related to China's and global economic situation. China achieved remarkable results in pandemic prevention and control, and its economy continued to grow. The inflationary pressure and uncertainty of the world economy have increased. The development of economy is increasingly constrained by climate change and environmental issues. The Company's business could also be adversely affected by other factors such as the impact on export due to carbon tariff and trade protectionism from certain countries, and negative impact on the investment return on domestic and overseas upstream projects and investment in refining and chemical storage projects which results from the uncertainty of geopolitics, international crude oil price and etc.

Risks with regard to the cyclical effects from the industry: The majority of the Company's operating income comes from the sales of refined oil products and petrochemical products, and part of those businesses and their related products are cyclic and are sensitive to macro-economy, cyclic changes of regional and global economy, industrial policies, the changes of the production capacity and output, demand of consumers, prices and supply of the raw materials, as well as prices and supply of the alternative products etc. Although the Company is an integrated company with upstream, midstream and downstream operations, it can only counteract the adverse influences of industry cycle to a certain extent.

Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalizing the market entry regulations on petroleum and petrochemicals sector, the petroleum and petrochemical industries in China are still subject to entry regulations to a certain degree, which include: issuing exploration and mining permits in relation to crude oil and natural gas, issuing licenses in relation to exploration and development of crude oil and natural gas, issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and other oil products, the imposition of the special oil income levy; the formulation of refined oil import and export quotas and procedures; the formulation of safety, quality and environmental protection standards and the formulation of energy conservation policies; and the imposition of constraints on projects of high energy consumption and high contamination; in addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up of crude oil import licenses and the right of tenure and the possible strengthened control of export quota of refined oil; deepening the reform and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party and accelerating the establishment of a uniform gas energy metering and pricing system; cancellation of qualification approval of the wholesale and storage of refined oil business, decentralisation of retail business authorisation of refined oil products to regional and city level government, further improvement in pricing mechanism of refined oil products, gas stations investment being fully opened to foreign investment; reforming in resource tax and environmental tax; and the introduction of measures for energy conservation and carbon reduction in key areas to strictly restrict energy efficiency; and the introduction of transforming policy from "double control" of energy consumption to "double control" of carbon emissions and intensity, etc. Such changes might have certain effects on the industry development and market environment and the operations and profitability of the Company.

Risks with regard to the changes from environmental legislation requirements: Our production activities generate waste liquids, gases, solids and noise. The Company has built up the pollution prevention and risk control facilities to prevent and reduce the pollution to the environment. However, the relevant government authorities may issue and implement much stricter environmental protection laws and regulations, adopt much stricter environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly.

Risks from the uncertainties of obtaining additional oil and gas resources: The future sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline over time which may adversely affect the Company's financial situation and operation performance.

Risks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is satisfied through external purchases. In recent years, especially influenced by the continues spread of COVID-19 pandemic, mismatch between supply and demand of crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fluctuate sharply. Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions. Although the Company has taken flexible countermeasures, it may not fully avoid risks associated with any significant fluctuation of international crude oil prices and sudden disruption of supply of crude oil from certain regions.

Risks with regard to the operation and natural disasters: The process of petroleum chemical production is exposed to the high risks of inflammation, explosion, toxicity, harm and environmental pollution and is vulnerable to extreme natural disasters. Such contingencies may cause serious impacts to the society, major financial losses to the Company and grievous injuries to people. The Company has always been laying great emphasis on the safety production, and has implemented a strict HSSE management system as an effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the possibility of damage to a third party have been insured. However, such measures may not shield the Company from financial losses or adverse impact resulting from such contingencies.

Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company has adopted a prudent investment strategy, refined the investment management rules, developed negative investment lists, and conducted rigorous feasibility study and risk evaluation on investment projects, which consists of special verifications in raw material market, technical scheme, profitability, safety and environmental protection, legal compliance, etc., certain investment risks will still exist and expected returns may not be achieved due to major changes in factors such as market environment, prices of equipment and raw materials, and construction period during the implementation of the projects.

Risks with regard to overseas business development and management: The Company engages in oil and gas exploration, refining and chemical, warehouse logistics and international trading businesses in some regions outside China. The Company's overseas businesses and assets are subject to the jurisdiction of the host country's laws and regulations. In light of the complicated factors such as changes in international geopolitics, persistence of COVID-19, uncertainty of economic recovery, imbalance of global economy, competitiveness of industry and trade structure, exclusiveness of regional trading blocs, polarisation of benefits distribution in trade, and politicisation of economic and trade issues, including sanctions, barriers to entry, instability in the financial and taxation policies, contract defaults, tax dispute, the Company's risks with regard to overseas business development and management could be increased.

Currency risks: At present, China implements an administered floating exchange rate regime based on market supply and demand which is regulated with reference to a basket of currencies in terms of the exchange rate of Renminbi. As the Company purchases a significant portion of crude oil in foreign currency which is based on US dollar-denominated prices, the realized price of crude oil is based on international crude oil price. Despite the fact that, the price of the domestic refined oil products will change as the exchange rate of the Renminbi changes according to the pricing mechanism for the domestic refined oil products, and the price of other domestic petrochemical products will also be influenced by the price of the imported products, which to a large extent, smooths the impact of the Renminbi exchange rate on the processing and sales of the Company's crude oil refined products. However, the fluctuation of the Renminbi exchange rate will still have an effect on the income of the upstream sector.

Cyber-security risks: The Company has a well-established network safety system. We establish an emergency response mechanism in relation to network security operation and information system, build an information platform of network security risk management and control, continuously operated by a professional network security team, and devote significant resources to protecting our digital infrastructure and data against cyber-attacks. However, the coverage and effectiveness of these cyber security tools should be constantly monitored, and in the event of insufficient coverage and reduced effectiveness, we could be adversely affected by, among other things, disruptions to our business operations, and loss of proprietary information, thus causing harm to our personnel, property, environment and reputation. As cyber-security attacks continue to evolve, we may be required to expend additional resources, in particular, to increase investment in security for new technologies and issues such as data security, business security, cloud computing and the internet of things devices, to enhance our protective measures against cyber-security breaches.

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SHAREHOLDERS

1 CHANGES IN THE SHARE CAPITAL

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

2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS

As at 30 June 2022, there were a total of 524,909 shareholders of Sinopec Corp., of which 519,348 were holders of A shares and 5,561 were holders of H shares. Sinopec Corp. has complied with requirement for minimum public float under the Hong Kong Listing Rules.

(1) Top ten shareholders as of 30 June 2022

Unit: share

Name of Shareholders	Nature of shareholders	Percentage of shareholdings %	Total number of shares held	Changes of shareholding¹	Number of shares subject to pledges or lock up
China Petrochemical Corporation	State-owned share	68.31	82,709,227,393	0	0
HKSCC (Nominees) Limited²	H share	20.96	25,375,624,441	(10,582,718)	unknown
中國證券金融股份有限公司	A share	1.92	2,325,374,407	0	0
香港中央結算有限公司	A share	0.99	1,201,021,890	146,068,069	0
中央匯金資產管理有限責任公司	A share	0.26	315,223,600	0	0
中國人壽保險股份有限公司－傳統－普通保險產品－005L－CT001滬	A share	0.22	268,492,268	(565,668,163)	0
國信證券股份有限公司	A share	0.19	235,021,624	32,658,039	0
招商銀行股份有限公司－上證紅利交易型開放式指數證券投資基金	A share	0.08	95,509,106	10,106,840	0
中國工商銀行－上證50交易型開放式指數證券投資基金	A share	0.08	91,348,276	(22,088,000)	0
全國社保基金一一八組合	A share	0.07	83,162,900	62,984,800	0

Note 1: As compared with the number of shares as at 31 December 2021.

Note 2: Century Bright, a wholly-owned overseas subsidiary of China Petrochemical Corporation, holds 767,916,000 H shares, accounting for 0.6343% of the total share capital of Sinopec Corp. Such shareholdings are included in the total number of shares held by HKSCC Nominees Limited.

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

Sinopec Corp. is not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders.

(2) Information disclosed by the holders of H shares in accordance with the Securities and Futures Ordinance (SFO) as of 30 June 2022

Name of shareholders	Status of shareholders	Number of shares interests held or regarded as held	Approximate percentage of Sinopec Corp.'s issued share capital (H share) (%)
BlackRock, Inc.	Interests of corporation controlled by the substantial shareholder	1,546,222,314(L)	6.06(L)
Citigroup Inc.	Interests of corporation controlled by	96,213,825(L)	0.37(L)
	the substantial shareholder	96,761,047(S)	0.37(S)
	Approved lending agent	1,404,385,633(L)	5.50(L)

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

3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER

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

BOND GENERAL INFORMATION

1. NON-FINANCIAL ENTERPRISE DEBT FINANCING INSTRUMENTS IN INTER-BANK BOND MARKET

Bond name	The first medium-term notes in 2020	The second medium-term notes in 2020	The third medium-term notes in 2020	The first medium-term notes in 2021	The second medium-term notes in 2021	The third medium-term notes in 2021	The first green medium-term notes in 2021	The fourth to the twentieth super short-term commercial papers in 2022
Abbreviation	20中石化MTN001	20中石化MTN002	20中石化MTN003	21中石化MTN001	21中石化MTN002	21中石化MTN003	21中石化GN001	22中石化SCP004-020
Code	102000568	102000569	102001109	102101386	102101480	102101489	132100172	12280357
								12280585
								12280586
								12281441
								12281436
								12281433
								12281834
								12281836
								12281829
								12281835
								12281837
								12282026
								12282033
								12282031
								12282038
								12282024
								12282034
Issuance date	2020/3/31	2020/3/31	2020/5/27	2021/7/23	2021/8/5	2021/8/5	2021/12/27	2022/1/20
								2022/2/17
								2022/5/17
								2022/6/7
								For details, please refer to the issuance
								announcement
Interest commencement date	2020/4/1	2020/4/1	2020/5/28	2021/7/27	2021/8/6	2021/8/9	2021/12/28	2022/2/18
								2022/5/18
								2022/6/8
								For details, please refer to the issuance
								announcement
Maturity date	2023/4/1	2023/4/1	2023/5/28	2026/7/27	2024/8/6	2023/8/9	2024/12/28	2022/10/18
								2022/11/15
								2022/12/14
								2022/12/22
								2022/9/6
								2022/11/16
								For details, please refer to the issuance
								announcement
Amount issued (RMB billion)	5	5	10	5	2	2	2.55	Total 70.5
								For details of offering size of each issue, please refer to the issuance
								announcement
Outstanding balance (RMB billion)	5	5	10	5	2	2	2.55	Total 70.5
								For details, please refer to the issuance
								announcement
Interest rate (%)	2.7	2.7	2.2	3.2	2.95	2.8	2.5	1.7 - 2.23
								For details, please refer to the issuance
								announcement

Bond name	The first medium-term notes in 2020	The second medium-term notes in 2020	The third medium-term notes in 2020	The first medium-term notes in 2021	The second medium-term notes in 2021	The third medium-term notes in 2021	The first green medium-term notes in 2021	The fourth to the twentieth super short-term commercial papers in 2022
Principal and interest repayment	Interest shall be paid once a year. The principal shall be paid at maturity with last instalment of interest.							The principal shall be paid at maturity with interest.
Investor qualification arrangement	Nationwide inter-bank bond market institutional investors
Applicable trading mechanism	Circulated and transferred in nationwide inter-bank bond market
Risk of suspension for listed trading (if any), and countermeasures	Not applicable
Trading market	Nationwide inter-bank bond market
Use of proceeds	Proceeds from the above-mentioned corporate bonds have been used for their designated purpose as disclosed in the corporate bond prospectus. All the proceeds have been completely used.
Credit rating	During the reporting period, United Credit Ratings Co., Ltd. issued the continuing credit rating report on 23 May. The long-term credit rating of Sinopec Corp. remained AAA with stable outlook.
Special terms for Issuer or investor option or investor protection, whether triggered or executed	Not applicable
Guarantee, repayment scheme and other related events during the reporting period	No guarantee. Interest was paid as usual during the reporting period without triggering any guarantee.
Convening of corporate bond holders' meeting	Not applicable
Performance of corporate bonds trustee	Corporate bonds trustee has performed its duties in accordance with regulatory requirements

Note: As of the date of the report, the Company issued seventeen super short-term commercial papers which will reach maturity date within 2022, Please refer to the relevant prospectus, issuance announcements and other documents published on the website of China Money Network (www.chinamoney.com.cn) for details such as issuance date, maturity date, amount issued and interest rate.

Principal accounting data and financial indicators at the end of reporting period

Principal data	At the end of the reporting period	At the end of last year	Change	Reason for change
Current ratio	0.89	0.87	0.02	Because the increase of current assets is higher than that of current liabilities
Quick ratio	0.53	0.55	(0.02)	Because the increase of current assets (excluding inventory) is lower than that of current liabilities
Liability-to-asset ratio	54.77%	51.51%	3.26 percentage points	Because the increase of liabilities is higher than that of assets
Loan repayment rate	100%	100%	−

	The reporting period for 2022 (January-June)	The reporting period for 2021 (January-June)	Change	Reason for change
Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses (RMB Million)	42,960	38,420	4,540	Due to increase of net profit
Net profit excluding extraordinary gains and losses (RMB Million)	48,780	47,618	1,162	Due to increase of net profit
EBITDA-to-total debt ratio	0.56	0.78	(0.22)	Because the increase of EBITDA is lower than that of total debt
EBITDA-to-interest coverage ratio	14.47	16.24	(1.77)	Due to increase of interest expense
Interest coverage ratio	8.80	9.73	(0.93)	Due to increase of interest expense
Cash interest coverage ratio	5.84	29.61	(23.77)	Due to significant decrease of net cash generated from operating activities
Interest payment rate	100%	100%	−

Note: Liability-to-asset ratio = total liability/total assets

During the reporting period, the Company paid in full the interest accrued for all bonds and debt financing instruments. As at 30 June 2022, the standby credit line provided by several domestic financial institutions to the Company was RMB453.6 billion in total, facilitating the Company to get such amount of unsecured loans. The Company has fulfilled all the relevant undertakings in the offering circular of corporate bonds and had no significant matters which could affect the Company's operation and solvency.

On 18 April 2013, Sinopec Capital (2013) Limited, a wholly-owned overseas subsidiary of Sinopec Corp., issued senior notes guaranteed by the Company with four different maturities, namely 3 years, 5 years, 10 years and 30 years. The 3-year notes principal totalled USD750 million, with an annual interest rate of 1.250% and had been repaid and delisted; the 5-year notes principal totalled USD1.0 billion, with an annual interest rate of 1.875% and had been repaid and delisted; the 10-year notes principal totalled USD1.25 billion, with an annual interest rate of 3.125%; and the 30-year notes principal totalled USD500 million, with an annual interest rate of 4.250%. These notes were listed on the Hong Kong Stock Exchange on 25 April 2013, with interest payable semi-annually. The first payment of interest was made on 24 October 2013. During the reporting period, the Company has paid in full the current-period interests of all notes with maturity of 10 years and 30 years.

AUDITOR'S REPORT

To the Shareholders of China Petroleum & Chemical Corporation,

We have reviewed the accompanying interim financial statements of China Petroleum & Chemical Corporation ("Sinopec Corp."), which comprise the consolidated and company balance sheets as of 30 June 2022, and the consolidated and company income statements, the consolidated and company cash flow statements and the consolidated and company statements of changes in shareholders' equity for the period from 1 January 2022 to 30 June 2022, and the notes to the financial statements. Management of Sinopec Corp. is responsible for the preparation of these financial statements. Our responsibility is to issue a report on these financial statements based on our review.

We conducted our review in accordance with China Standard on Review No. 2101-Engagements to Review Financial Statements. This standard requires that we plan and perform the review to obtain limited assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements of Sinopec Corp. are not prepared in accordance with the requirements of Accounting Standards for Business Enterprises ("CASs"), and do not present fairly, in all material respects, the consolidated and the company's financial position of Sinopec Corp. as at 30 June 2022, and the consolidated and the company's financial performance and cash flows for the period from 1 January 2022 to 30 June 2022.

KPMG Huazhen LLP Certified Public Accountants

Registered in the People's Republic of China

Yang Jie (Engagement Partner)

Beijing, China He Shu

26 August 2022

(a) financial statements prepared under china accounting STANDARDS for business enterprises

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 30 June 2022

	Note	At 30 June	At 31 December
		2022	2021
		RMB million	RMB million
Assets
Current assets
Cash at bank and on hand	5	233,937	221,989
Financial assets held for trading	6	1,012	-
Derivative financial assets	7	40,389	18,371
Accounts receivable	8	63,717	34,861
Receivables financing	9	5,889	5,939
Prepayments	10	13,011	9,267
Other receivables	11	44,646	35,664
Inventories	12	285,032	207,433
Other current assets		18,800	24,500
Total current assets		706,433	558,024
Non-current assets
Long-term equity investments	13	219,347	209,179
Other equity instrument investments		771	767
Fixed assets	14	599,316	598,932
Construction in progress	15	169,056	155,939
Right-of-use assets	16	182,933	184,974
Intangible assets	17	119,378	119,210
Goodwill	18	8,727	8,594
Long-term deferred expenses	19	10,658	10,007
Deferred tax assets	20	20,179	19,389
Other non-current assets	21	23,016	24,240
Total non-current assets		1,353,381	1,331,231

Total assets		2,059,814	1,889,255
Liabilities and shareholders' equity
Current liabilities
Short-term loans	23	43,169	27,366
Derivative financial liabilities	7	15,367	3,223
Bills payable	24	11,347	11,721
Accounts payable	25	236,871	203,919
Contract liabilities	26	124,411	124,622
Employee benefits payable	27	23,000	14,048
Taxes payable	28	36,566	81,267
Other payables	29	122,481	114,701
Non-current liabilities due within one year	30	66,409	28,651
Other current liabilities	31	114,002	31,762
Total current liabilities		793,623	641,280
Non-current liabilities
Long-term loans	32	77,556	49,341
Debentures payable	33	14,868	42,649
Lease liabilities	34	168,646	170,233
Provisions	35	44,443	43,525
Deferred tax liabilities	20	8,860	7,910
Other non-current liabilities	36	20,146	18,276
Total non-current liabilities		334,519	331,934

Total liabilities		1,128,142	973,214
Shareholders' equity
Share capital	37	121,071	121,071
Capital reserve	38	118,089	120,188
Other comprehensive income	39	6,557	(690)
Specific reserve		3,566	2,664
Surplus reserves	40	213,224	213,224
Undistributed profits		324,627	318,645
Total equity attributable to shareholders of the Company		787,134	775,102
Minority interests		144,538	140,939
Total shareholders' equity		931,672	916,041

Total liabilities and shareholders' equity		2,059,814	1,889,255

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED BALANCE SHEET

As at 30 June 2022

	Note	At 30 June	At 31 December
		2022	2021
		RMB million	RMB million
Assets
Current assets
Cash at bank and on hand		129,589	110,691
Financial assets held for trading		3	-
Derivative financial assets		13,377	4,503
Accounts receivable	8	36,279	21,146
Receivables financing		1,528	227
Prepayments	10	4,491	4,540
Other receivables	11	43,176	46,929
Inventories		81,515	63,661
Other current assets		16,961	23,408
Total current assets		326,919	275,105
Non-current assets
Long-term equity investments	13	365,927	360,847
Other equity instrument investments		201	201
Fixed assets	14	278,961	284,622
Construction in progress	15	75,398	66,146
Right-of-use assets		16	99,096
Intangible assets		9,011	9,334
Long-term deferred expenses		2,559	2,875
Deferred tax assets		9,164	8,715
Other non-current assets		38,709	34,227

Total non-current assets		879,026	872,679
Total assets		1,205,945	1,147,784
Liabilities and shareholders' equity
Current liabilities
Short-term loans		21,230	16,550
Derivative financial liabilities		6,601	1,121
Bills payable		4,371	6,058
Accounts payable		97,340	85,307
Contract liabilities		7,663	7,505
Employee benefits payable		15,376	8,398
Taxes payable		22,086	46,333
Other payables		188,266	211,179
Non-current liabilities due within one year		39,710	16,737
Other current liabilities		87,461	13,702
Total current liabilities		490,104	412,890
Non-current liabilities
Long-term loans		51,859	34,258
Debentures payable		11,536	31,522
Lease liabilities		98,292	104,426
Provisions		35,851	35,271
Other non-current liabilities		2,850	3,103

Total non-current liabilities		200,388	208,580
Total liabilities		690,492	621,470
Shareholders' equity
Share capital		121,071	121,071
Capital reserve		66,455	67,897
Other comprehensive income		6,269	6,024
Specific reserve		2,034	1,658
Surplus reserves		213,224	213,224
Undistributed profits		106,400	116,440
Total shareholders' equity		515,453	526,314

Total liabilities and shareholders' equity		1,205,945	1,147,784

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six-month period ended 30 June 2022

	Note	Six-month period ended 30 June
		2022	2021
		RMB million	RMB million
Operating income	41	1,612,126	1,260,773
Less: Operating costs	41	1,330,825	998,286
Taxes and surcharges	42	134,409	120,900
Selling and distribution expenses	45	28,130	31,731
General and administrative expenses	46	26,183	36,170
Research and development expenses	47	6,310	5,360
Financial expenses	43	5,337	4,902
Including: Interest expenses		8,124	7,660
Interest income		3,012	2,663
Exploration expenses, including dry holes	48	5,738	4,846
Add: Other income	49	2,121	1,244
Investment (loss)/income	50	(10,307)	4,890
Including: Income from investment in associates and joint ventures		7,327	11,133
(losses)/gains from changes in fair value	51	(1,558)	116
Credit impairment reversals		72	55
Impairment losses	52	(1,456)	(926)
Asset disposal gains		135	281
Operating profit		64,201	64,238
Add: Non-operating income	53	855	696
Less: Non-operating expenses	54	1,079	1,081
Profit before taxation		63,977	63,853
Less: Income tax expense	55	14,461	15,052
Net profit		49,516	48,801
Including: net profit of acquiree before business combination under common control		-	273
Classification by going concern:
Continuous operating net profit		49,516	48,801
Termination of net profit		-	-
Classification by ownership:
Equity shareholders of the Company		43,530	39,426
Minority interests		5,986	9,375
Basic earnings per share	66	0.360	0.326
Diluted earnings per share	66	0.360	0.326
Other comprehensive income	39
Items that may not be reclassified subsequently to profit or loss
Changes in fair value of other equity instrument investments		(17)	8
Items that may be reclassified subsequently to profit or loss
Other comprehensive income that can be converted into profit or loss under the equity method		3,397	121
Cost of hedging reserve		(844)	(40)
Cash flow hedges		10,258	8,640
Foreign currency translation differences		3,913	(621)
Total other comprehensive income		16,707	8,108

Total comprehensive income		66,223	56,909
Attributable to:
Equity shareholders of the Company		59,563	47,410
Minority interests		6,660	9,499

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED INCOME STATEMENT

For the six-month period ended 30 June 2022

	Note	Six-month period ended 30 June
		2022	2021
		RMB million	RMB million
Operating income	41	650,430	469,122
Less: Operating costs	41	521,323	363,427
Taxes and surcharges		86,457	72,725
Selling and distribution expenses		1,215	1,866
General and administrative expenses		11,665	16,386
Research and development expenses		5,843	4,962
Financial expenses		4,995	5,382
Including: Interest expenses		6,793	4,193
Interest income		1,736	1,160
Exploration expenses, including dry holes		4,794	4,182
Add: Other income		1,445	743
Investment income	50	17,300	10,602
Including: Income from investment in associates and joint ventures		3,014	4,366
Gains from changes in fair value		241	232
Credit impairment (losses)/reversals		(1)	2
Impairment losses		(736)	(753)
Asset disposal gains/(losses)		121	(3)
Operating profit		32,508	11,015
Add: Non-operating income		181	203
Less: Non-operating expenses		671	519
Profit before taxation		32,018	10,699
Less: Income tax expense		4,515	2,813
Net profit		27,503	7,886
Classification by going concern:
Continuous operating net profit		27,503	7,886
Termination of net profit		-	-
Other comprehensive income
Items that may not be reclassified subsequently to profit or loss
Changes in fair value of other equity instrument investments		(5)	-
Items that may be reclassified subsequently to profit or loss
Other comprehensive income that can be converted into profit or loss under the equity method		139	18
Cash flow hedges		4,622	5,936
Total other comprehensive income		4,756	5,954

Total comprehensive income		32,259	13,840

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the six-month period ended 30 June 2022

	Note	Six-month period ended 30 June
		2022	2021
		RMB million	RMB million
Cash flows from operating activities:
Cash received from sale of goods and rendering of services		1,704,813	1,310,197
Refund of taxes and levies		3,442	788
Other cash received relating to operating activities		128,034	65,782
Sub-total of cash inflows		1,836,289	1,376,767
Cash paid for goods and services		(1,420,335)	(1,030,400)
Cash paid to and for employees		(40,058)	(37,297)
Payments of taxes and levies		(211,115)	(196,023)
Other cash paid relating to operating activities		(159,834)	(64,700)
Sub-total of cash outflows		(1,831,342)	(1,328,420)

Net cash flow from operating activities	57(a)	4,947	48,347
Cash flows from investing activities:
Cash received from disposal of investments		442	3,341
Cash received from returns on investments		4,345	3,316
Net cash received from disposal of fixed assets, intangible assets and other long-term assets		107	502
Net cash received from disposal of subsidiaries and other business entities	57(d)	1	4,296
Other cash received relating to investing activities		37,189	21,019
Sub-total of cash inflows		42,084	32,474
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets		(63,023)	(56,222)
Cash paid for acquisition of investments		(6,027)	(9,226)
Net cash paid for the acquisition of subsidiaries and other business entities		(7,628)	-
Other cash paid relating to investing activities		(16,544)	(33,016)
Sub-total of cash outflows		(93,222)	(98,464)

Net cash flow from investing activities		(51,138)	(65,990)
Cash flows from financing activities:
Cash received from capital contributions		987	302
Including: Cash received from minority shareholders' capital contributions to subsidiaries		987	302
Cash received from borrowings		348,900	170,144
Other cash received relating to financing activities		32	78
Sub-total of cash inflows		349,919	170,524
Cash repayments of borrowings		(224,161)	(130,857)
Cash paid for dividends, profits distribution or interest		(41,606)	(19,559)
Including: Subsidiaries' cash payments for distribution of dividends or profits to minority shareholders		(1,088)	(1,581)
Other cash paid relating to financing activities	57(e)	(8,940)	(11,458)
Sub-total of cash outflows		(274,707)	(161,874)

Net cash flow from financing activities		75,212	8,650
Effects of changes in foreign exchange rate		1,567	(452)

Net increase/(decrease) in cash and cash equivalents	57(b)	30,588	(9,445)
Add: Cash and cash equivalents at the beginning of the year		108,590	87,559
Cash and cash equivalents at the end of the period	57(c)	139,178	78,114

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED CASH FLOW STATEMENT

For the six-month period ended 30 June 2022

	Note	Six-month period ended 30 June
		2022	2021
		RMB million	RMB million
Cash flows from operating activities:
Cash received from sale of goods and rendering of services		719,791	512,907
Refund of taxes and levies		2,374	492
Other cash received relating to operating activities		9,561	6,052
Sub-total of cash inflows		731,726	519,451
Cash paid for goods and services		(541,234)	(369,090)
Cash paid to and for employees		(20,623)	(19,181)
Payments of taxes and levies		(122,524)	(110,031)
Other cash paid relating to operating activities		(34,763)	(9,587)
Sub-total of cash outflows		(719,144)	(507,889)

Net cash flow from operating activities		12,582	11,562
Cash flows from investing activities:
Cash received from disposal of investments		3,334	12,101
Cash received from returns on investments		15,739	4,676
Net cash received from disposal of fixed assets, intangible assets and other long-term assets		25	39
Other cash received relating to investing activities		85,079	58,662
Sub-total of cash inflows		104,177	75,478
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets		(27,989)	(25,419)
Cash paid for acquisition of investments		(10,920)	(19,726)
Net cash paid for the acquisition of subsidiaries and other business entities		(4,221)	-
Other cash paid relating to investing activities		(98,036)	(61,762)
Sub-total of cash outflows		(141,166)	(106,907)

Net cash flow from investing activities		(36,989)	(31,429)
Cash flows from financing activities:
Cash received from borrowings		184,910	88,635
Other cash received relating to financing activities		186,614	136,030
Sub-total of cash inflows		371,524	224,665
Cash repayments of borrowings		(87,141)	(63,205)
Cash paid for dividends or interest		(41,593)	(19,812)
Other cash paid relating to financing activities		(196,723)	(127,904)
Sub-total of cash outflows		(325,457)	(210,921)

Net cash flow from financing activities		46,067	13,744

Effects of changes in foreign exchange rate		4	(1)
Net increase/(decrease) in cash and cash equivalents		21,664	(6,124)
Add:Cash and cash equivalents at the beginning of the year		34,575	28,081
Cash and cash equivalents at the end of the period		56,239	21,957

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six-month period ended 30 June 2022

	Share capital	Capital reserve	Other comprehensive income	Specific reserve	Surplus reserves	Retained earnings	Total shareholders' equity attributable to equity shareholders of the Company	Minority interests	Total shareholders' equity
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Balance at 31 December 2020	121,071	122,558	1,038	1,941	209,280	286,575	742,463	141,413	883,876
Adjustment for business combination of entities under common control (Note 61)	-	4,831	-	-	-	-	4,831	13	4,844
Balance at 1 January 2021	121,071	127,389	1,038	1,941	209,280	286,575	747,294	141,426	888,720
Change for the period
1. Net profit	-	-	-	-	-	39,426	39,426	9,375	48,801
2. Other comprehensive income (Note 39)	-	-	7,984	-	-	-	7,984	124	8,108
Total comprehensive income	-	-	7,984	-	-	39,426	47,410	9,499	56,909
Amounts transferred to initial carrying amount of hedged items	-	-	(8,121)	-	-	-	(8,121)	(549)	(8,670)
Transactions with owners, recorded directly in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 56)	-	-	-	-	-	(15,739)	(15,739)	-	(15,739)
4. Contributions to subsidiaries from minority interests	-	-	-	-	-	-	-	559	559
5. Transaction with minority interests	-	(1,384)	-	-	-	-	(1,384)	(6,818)	(8,202)
6. Distributions to minority interests	-	-	-	-	-	-	-	(1,885)	(1,885)
Total transactions with owners, recorded directly in shareholders' equity	-	(1,384)	-	-	-	(15,739)	(17,123)	(8,144)	(25,267)
7. Net increase in specific reserve for the period	-	-	-	778	-	-	778	175	953
8. Others	-	121	-	-	-	(273)	(152)	(247)	(399)

Balance at 30 June 2021	121,071	126,126	901	2,719	209,280	309,989	770,086	142,160	912,246
Balance at 1 January 2022	121,071	120,188	(690)	2,664	213,224	318,645	775,102	140,939	916,041
Change for the period
1. Net profit	-	-	-	-	-	43,530	43,530	5,986	49,516
2. Other comprehensive income (Note 39)	-	-	16,033	-	-	-	16,033	674	16,707
Total comprehensive income	-	-	16,033	-	-	43,530	59,563	6,660	66,223
Amounts transferred to initial carrying amount of hedged items	-	-	(8,786)	-	-	-	(8,786)	(430)	(9,216)
Transactions with owners, recorded directly in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 56)	-	-	-	-	-	(37,532)	(37,532)	-	(37,532)
4. Contributions from minority interests	-	-	-	-	-	-	-	1,420	1,420
5. Transactions with minority interests	-	-	-	-	-	-	-	(1,713)	(1,713)
6. Distributions to minority interests	-	-	-	-	-	-	-	(2,337)	(2,337)
Total transactions with owners, recorded directly in shareholders' equity	-	-	-	-	-	(37,532)	(37,532)	(2,630)	(40,162)
7. Net increase in specific reserve for the period	-	-	-	902	-	-	902	141	1,043
8. Other equity movements under the equity method	-	(2,102)	-	-	-	-	(2,102)	-	(2,102)
9. Others	-	3	-	-	-	(16)	(13)	(142)	(155)

Balance at 30 June 2022	121,071	118,089	6,557	3,566	213,224	324,627	787,134	144,538	931,672

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

UNAUDITED STATEMENT OF CHANGES IN EQUITY

For the six-month period ended 30 June 2022

	Share capital	Capital reserve	Other comprehensive income	Specific reserve	Surplus reserves	Retained earnings	Total shareholders' equity
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Balance at 1 January 2021	121,071	68,976	5,910	1,189	209,280	115,849	522,275
Change for the period
1. Net profit	-	-	-	-	-	7,886	7,886
2. Other comprehensive income	-	-	5,954	-	-	-	5,954
Total comprehensive income	-	-	5,954	-	-	7,886	13,840
Amounts transferred to initial carrying amount of hedged items	-	-	(6,045)	-	-	-	(6,045)
Transactions with owners, recorded directly in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 56)	-	-	-	-	-	(15,739)	(15,739)
Total transactions with owners, recorded directly in shareholders' equity	-	-	-	-	-	(15,739)	(15,739)
4. Net increase in specific reserve for the period	-	-	-	278	-	-	278
5. Others	-	36	-	-	-	198	234

Balance at 30 June 2021	121,071	69,012	5,819	1,467	209,280	108,194	514,843
Balance at 1 January 2022	121,071	67,897	6,024	1,658	213,224	116,440	526,314
Change for the period
1. Net profit	-	-	-	-	-	27,503	27,503
2. Other comprehensive income	-	-	4,756	-	-	-	4,756
Total comprehensive income	-	-	4,756	-	-	27,503	32,259
Amounts transferred to initial carrying amount of hedged items	-	-	(4,511)	-	-	-	(4,511)
Transactions with owners, recorded directly in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 56)	-	-	-	-	-	(37,532)	(37,532)
Total transactions with owners, recorded directly in shareholders' equity	-	-	-	-	-	(37,532)	(37,532)
4. Net increase in specific reserve for the period	-	-	-	376	-	-	376
5. Other equity movements under the equity method	-	(1,437)	-	-	-	-	(1,437)
6. Others	-	(5)	-	-	-	(11)	(16)

Balance at 30 June 2022	121,071	66,455	6,269	2,034	213,224	106,400	515,453

These financial statements have been approved for issue by the board of directors on 26 August 2022.

Ma Yongsheng	Yu Baocai	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The accompanying notes form part of these financial statements.

1 STATUS OF THE COMPANY

China Petroleum & Chemical Corporation (the "Company") was established on 25 February 2000 as a joint stock limited company. The company is registered in Beijing, the People's Republic of China, and the headquarter is located in Beijing, the People's Republic of China. The approval date of the financial report is 26 August 2022.

According to the State Council's approval to the "Preliminary Plan for the Reorganisation of China Petrochemical Corporation" (the "Reorganisation"), the Company was established by China Petrochemical Corporation, which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation Corporation. The net asset value was determined at RMB98,249,084,000. The valuation was reviewed and approved by the Ministry of Finance (the "MOF") (Cai Ping Zi 2000 No. 20 "Comments on the Review of the Valuation Regarding the Formation of a Joint Stock Limited Company by China Petrochemical Corporation").

In addition, pursuant to the notice Cai Guan Zi 2000 No. 34 "Reply to the Issue Regarding Management of State-Owned Equity by China Petroleum and Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned shares with a par value of RMB1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation.

Pursuant to the notice Guo Jing Mao Qi Gai 2000 No. 154 "Reply on the Formation of China Petroleum and Chemical Corporation", the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the formation of a joint stock limited company.

The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and related sales and marketing business of Sinopec Group Company after the establishment of the Company.

The Company and its subsidiaries (the "Group") engage in the oil and gas and chemical operations and businesses, including:

(1) the exploration, development and production of crude oil and natural gas;

(2) the refining, transportation, storage and marketing of crude oil and petroleum product; and

(3) the production and sale of chemical.

Details of the Company's principal subsidiaries are set out in Note 60.

2 BASIS OF PREPARATION

(1) Statement of compliance of China Accounting Standards for Business Enterprises ("CASs")

The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises - Basic Standards, specific standards and relevant regulations (hereafter referred as CASs collectively) issued by the MOF on or after 15 February 2006. These financial statements also comply with the disclosure requirements of "Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No.15: General Requirements for Financial Reports" issued by the China Securities Regulatory Commission ("CSRC"). These financial statements present truly and completely the consolidated and company financial position as at 30 June 2022, and the consolidated and company financial performance and the consolidated and company cash flows for the six-month period ended 30 June 2022.

These financial statements are prepared on a basis of going concern.

(2) Accounting period

The accounting year of the Group is from 1 January to 31 December.

(3) Measurement basis

The financial statements of the Group have been prepared under the historical cost convention, except for the assets and liabilities set out below:

- Financial assets held for trading (see Note 3(11))

- Other equity instrument investments (see Note 3(11))

- Derivative financial instruments (see Note 3(11))

- Receivables financing (see Note 3(11))

(4) Functional currency and presentation currency

The functional currency of the Company's and most of its subsidiaries are Renminbi. The Company and its subsidiaries determine their functional currency according to the main economic environment in where they operate. The Group's consolidated financial statements are presented in Renminbi. Some of subsidiaries use other currency as the functional currency. The Company translates the financial statements of subsidiaries from their respective functional currencies into Renminbi (see Note 3(2)) if the subsidiaries' functional currencies are not Renminbi.

3 SIGNIFICANT ACCOUNTING POLICIES

The Group determines specific accounting policies and accounting estimates based on the characteristics of production and operational activities, mainly reflected in the accounting for allowance for financial assets (Note 3(11)), valuation of inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(7), (8)), measurement of provisions (Note 3(16)), etc.

Principal accounting estimates and judgements of the Group are set out in Note 59.

(1) Accounting treatment of business combination involving entities under common control and not under common control

(a) Business combination involving entities under common control

A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition are accounted for at the acquiree's carrying amount on the acquisition date. The difference between the carrying amount of the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit or loss for the current period when occurred. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. The combination date is the date on which the acquirer effectively obtains control of the acquiree.

(b) Business combination involving entities not under common control

A business combination involving entities or businesses not under common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, and the Group's interest in the fair value of the identifiable net assets of the acquiree, is recognised as goodwill (Note 3(10)) if it is an excess, otherwise in the profit or loss. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in the profit or loss for the year. The difference between the fair value and the book value of the assets given is recognised in profit or loss. The acquiree's identifiable assets, liabilities and contingent liabilities, if satisfying the recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries. Control means an entity 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 commences until the date that control ceases.

Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary's assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary's financial statements, from the date that common control was established.

Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, based on the fair value of those identifiable assets and liabilities at the acquisition date.

Where the Company acquired a minority interest from a subsidiary's minority shareholders, the difference between the investment cost and the newly acquired interest into the subsidiary's identifiable net assets at the acquisition date is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is adjusted to retained profits.

In a business combination involving entities not under common control achieved in stages, the Group remeasures its previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net book value is recognised as investment income for the year. If other comprehensive income was recognised regarding the equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is transferred to investment income in the period in which the acquisition occurs.

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(1) Accounting treatment of business combination involving entities under common control and not under common control (Continued)

Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other reasons, the Group derecognises assets, liabilities, minority interests and other equity items related to the subsidiary. The remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of the Group's previous share of the subsidiary's identifiable net assets recorded from the acquisition date, is recognised in investment income in the period in which control is lost. Other comprehensive income related to the previous equity investment in the subsidiary, is transferred to investment income when control is lost. Other comprehensive income related to the equity investment of the original subsidiary shall be converted into the current investment income in the event of loss of control.

Minority interest is presented separately in the consolidated balance sheet within shareholders' equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item.

The excess of the loss attributable to the minority interests during the period over the minority interests' share of the equity at the beginning of the reporting period is deducted from minority interests.

Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the Company, adjustments are made to the subsidiaries' financial statements according to the Company's accounting policies and accounting period. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

The unrealised profit or loss arising from the sale of assets by the Company to its subsidiaries is eliminated in full against the net profit attributed to shareholders; the unrealised profit or loss from the sale of assets by subsidiaries to the Company is eliminated according to the distribution ratio between shareholders of the parent company and minority interests. For sale of assets that occurred between subsidiaries, the unrealised gains and losses is eliminated according to the distribution ratio for its subsidiaries seller between net profit attributable to shareholders of the parent company and minority interests.

(2) Transactions in foreign currencies and translation of financial statements in foreign currencies

Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by the People's Bank of China ("PBOC rates") at the transaction dates.

Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Non-monetary items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference between the translated amount and the original currency amount is recognised as other comprehensive income, if it is classified as other equity instrument investments; or charged to the income statement if it is measured at fair value through profit or loss.

The assets and liabilities of foreign operation are translated into Renminbi at the spot exchange rates at the balance sheet date. The equity items, excluding "Retained earnings", are translated into Renminbi at the spot exchange rates at the transaction dates. 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 separately presented as other comprehensive income in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs.

(3) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(4) Inventories

Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the inventories to their present location and condition. The cost of inventories is mainly calculated using the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing overhead costs.

At the balance sheet date, inventories are stated at the lower of cost and net realisable value.

Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices.

Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss.

Inventories are recorded by perpetual method.

(5) Long-term equity investments

(a) Investment in subsidiaries

In the Company's separate financial statements, long-term equity investments in subsidiaries are accounted for using the cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or profit distributions declared by the investee as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment losses (see Note 3(12)) in the balance sheet. At initial recognition, such investments are measured as follows:

The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company's share of the carrying amount of the subsidiary's equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings.

For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity investment obtained through a business combination not involving enterprises under common control, if it is achieved in stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date.

An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors.

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(5) Long-term equity investments (Continued)

(b) Investment in joint ventures and associates

A joint venture is an incorporated entity over which the Group, based on legal form, contractual terms and other facts and circumstances, has joint control with the other parties to the joint venture and rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the Group and the parties sharing control.

An associate is the investee that the Group has significant influence on their financial and operating policies. Significant influence represents the right to participate in the financial and operating policy decisions of the investee but is not control or joint control over the establishment of these policies. The Group generally considers the following circumstances in determining whether it can exercise significant influence over the investee: whether there is representative appointed to the board of directors or equivalent governing body of the investee; whether to participate in the investee's policy-making process; whether there are significant transactions with the investees; whether there is management personnel sent to the investee; whether to provide critical technical information to the investee.

An investment in a joint ventures or an associate is accounted for using the equity method, unless the investment is classified as held for sale.

The initial cost of investment in joint ventures and associates is stated at the consideration paid except for cash dividends or profits distributions declared but unpaid at the time of acquisition and therefore included in the consideration paid should be deducted if the investment is made in cash. Under the circumstances that the long-term investment is obtained through non-monetary asset exchange, the initial cost of the investment is stated at the fair value of the assets exchanged if the transaction has commercial substance, the difference between the fair value of the assets exchanged and its carrying amount is charged to profit or loss; or stated at the carrying amount of the assets exchanged if the transaction lacks commercial substance.

The Group's accounting treatments when adopting the equity method include:

Where the initial investment cost of a long-term equity investment exceeds the Group's interest in the fair value of the investee's identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group's interest in the fair value of the investee's identifiable net assets at the time of acquisition, the investment is initially recognised at the investor's share of the fair value of the investee's identifiable net assets, and the difference is charged to profit or loss.

After the acquisition of the investment, the Group recognises its share of the investee's net profits or losses and other comprehensive income as investment income or losses and other comprehensive income, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group.

The Group recognises its share of the investee's net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee's net identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group's interest in the associates or joint ventures. Unrealised losses resulting from transactions between the Group and its associates or joint ventures are fully recognised in the event that there is an evidence of impairment.

The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that is in substance forms part of the Group's net investment in the associate or the joint venture is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. Where net profits are subsequently made by the associate or joint venture, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

The Group adjusts the carrying amount of the long-term equity investment for changes in owners' equity of the investee other than those arising from net profits or losses and other comprehensive income, and recognises the corresponding adjustment in capital reserve.

The impairment assessment and provision accrual on investments in subsidiaries, associates and joint ventures are stated in Note 3(12).

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(6) 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.

(a) As Lessee

The Group recognises a right-of-use asset at the commencement date, and recognises the lease liability at the present value of the lease payments that are not paid at that date. 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 non-current liabilities due within one year.

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 leases for which the underlying assets are individually of low value when it is new 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.

(b) 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.

(7) Fixed assets and construction in progress

Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year.

Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(12)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(12)).

The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(19)), and any other costs directly attributable to bringing the asset to working condition for its intended use. According to legal or contractual obligations, costs of dismantling and removing the items and restoring the site on which the related assets located are included in the initial cost.

Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is provided against construction in progress.

The external sales of products or by-products which are produced before the fixed assets reach its intended use, the Group accounts for the related revenues and costs separately in accordance with the provisions of "CASs 14 - Revenue", "CASs 1 - Inventory", and are recognised in profit or loss for the current period.

Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset.

The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred.

The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(7) Fixed assets and construction in progress (Continued)

Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held for sale. The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed assets are as follows:

	Estimated	Estimated rate
	useful life	of residual value
Plants and buildings	12-50 years	3%
Equipment, machinery and others	4-30 years	3%

Useful lives, residual values and depreciation methods are reviewed at least each year end.

(8) Oil and gas properties

Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil and gas exploration and production activities.

The acquisition cost of mineral interest is capitalised as oil and gas properties. Costs of development wells and related support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and geophysical costs, are charged to profit or loss in the year as incurred.

The Group 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. These estimated future dismantlement costs are discounted at credit-adjusted 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.

Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

(9) Intangible assets

Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated amortisation and provision for impairment losses (see Note 3(12)). For an intangible asset with finite useful life, its cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the expected useful lives, unless the intangible assets are classified as held for sale.

An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the year over which the asset is expected to generate economic benefits for the Group.

Useful lives and amortisation methods are reviewed at least each year end.

The external sales of products or by-products which are produced in the research and development process, the Group accounts for the related revenues and costs separately in accordance with the provisions of "CASs 14 - Revenue", "CASs 1 - Inventory", and are recognised in profit or loss for the current period.

3 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(10) Goodwill

The initial cost of goodwill represents the excess of cost of acquisition over the acquirer's interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control.

Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(12)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal.

(11) Financial Instruments

Financial instruments, refer to the contracts that form one party's financial assets and form the financial liabilities or equity instruments of the other party. The Group recognises a financial asset or a financial liability when the Group enters into and becomes a party to the underlining contract of the financial instrument.

(a) 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: (1) financial assets measured at amortised cost, (2) financial assets measured at fair value through other comprehensive income, (3) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset.

Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. However, accounts receivable arising

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