Sinopec Engineering Group Co Ltd. — Annual Report 2021

Mar 21, 2021

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility 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.

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中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.*

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

(Stock Code: 2386)

Annual Results Announcement for the Year ended 31 December 2020

1 Important Notice

• 1.1 This announcement is extracted from the content of the 2020 annual report (the “ 2020 Annual Report ”) of SINOPEC Engineering (Group) Co., Ltd. (“ SINOPEC SEG ” or the “ Company ”), which is also published on the websites of The Stock Exchange of Hong Kong Limited (the “ Hong Kong Stock Exchange ”) (www.hkex.com.hk) and the Company (www.segroup.cn). The investors should read the 2020 Annual Report for more details.

• 1.2 The financial statements for the year ended 31 December 2020 (the “ Reporting Period ”) of SINOPEC SEG and its subsidiaries (the “ Group ”), prepared in accordance with the International Financial Reporting Standards (the “ IFRS ”), have been audited by BDO Limited, which has issued standard unqualified opinions on the financial statements.

2 Basic Information of the Company

2.1 Company Profile

Stock Name of H Shares Stock Code of H Shares Place of Listing of H Shares Legal Representative Authorised Representatives Company Secretary Place of Business and Correspondence Address

Telephone Website E-mail address

: SINOPEC SEG : 2386 : Hong Kong Stock Exchange : Mdm. SUN Lili : Mr. JIANG Dejun, Mr. JIA Yiqun : Mr. JIA Yiqun : Building 8, Shenggu Jiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC (Postcode: 100029) : +86 10 5673 0522 : www.segroup.cn : seg.ir@sinopec.com

• For identification purposes only

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2.2 Principal Financial Data and Indicators

Summary of Financial Data and Indicators Prepared in Accordance with IFRS

Unit: RMB’000

Items Non-current assets Current assets Current liabilities Non-current liabilities Consolidated equity attributable to equity holders of the Company Net assets per share of equity holders of the Company (RMB)	As at 31 December 2020 7,409,911 64,055,416 40,672,278 2,537,011 28,251,172 6.38	As at 31 December 2019 7,256,957 60,616,791 37,791,658 2,811,549 27,265,976 6.16	As at 31 December 2018 7,034,787 63,837,953 41,998,840 2,890,751 25,978,646 5.87	As at 31 December 2017 7,540,799 51,864,822 31,015,076 2,799,540 25,586,839 5.78	As at 31 December 2016 7,871,988 51,016,799 30,724,440 2,899,238 25,261,201 5.70	Changes from the end of 2019 (%) 2.1 5.7 7.6 (9.8) 3.6 3.6

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Unit: RMB’000

													Changes over
													the same
				Year ended 31 December									period of
Items		2020		2019	2018		2017				2016		2019 (%)
Revenue	52,352,584		52,261,051		47,019,024		36,208,723				39,402,331		0.2
Gross profit	5,714,072		5,482,733		5,195,574		4,026,172				4,295,415		4.2
Operating profit	2,204,379		2,017,007		1,435,534		1,112,267				1,942,256		9.3
Profit before taxation	3,010,562		2,827,400		2,121,515		1,635,101				2,376,776		6.5
Profit attributable to equity
holders of the Company	2,381,905		2,183,457		1,679,472		1,129,974				1,670,888		9.1
Basic earnings per
share (RMB)		0.54		0.49	0.38		0.26				0.38		9.1
Net cash flow generated
from operating activities	2,956,836		300,047		6,104,192		4,240,508				4,670,772		885.5
Net cash flow generated
from operating activities
per share (RMB)		0.67		0.07	1.38		0.96				1.05		885.5
					Year ended 31 December
Items			2020		2019		2018				2017		2016
Gross profit margin (%)			10.9		10.5		11.0				11.1		10.9
Net profit margin (%)			4.6		4.2		3.6				3.1		4.2
Return on assets (%)(1)			3.4		3.1		2.6				1.9		2.8
			As at		As at		As at				As at		As at
		31 December		31 December		31 December			31		December		31 December
Items			2020		2019		2018				2017		2016
Asset-liability ratio (%)(2)			60.5		59.8		63.3				56.9		57.1

Notes:

• (1) Return on assets =

Profit for the year

(Opening balance of total assets + Closing balance of total assets)/2

• Total liabilities as at the end of the year

• (2) Asset-liability ratio = Total assets as at the end of the year

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3 Business Review and Prospects

3.1 Business Review

During the Reporting Period, the Group’s total revenue and profits attributable to equity holders of the Company were RMB52.353 billion and RMB2.382 billion, respectively. As at the end of the Reporting Period, the Group’s backlog was RMB105.655 billion. The value of new contracts entered into by the Group during the Reporting Period was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis, among them, the newly signed overseas contracts amounted to approximately RMB10.161 billion, representing an increase of 50.9% on a year-onyear basis.

The business of the Group mainly comprises four segments: (1) engineering, consulting and licensing; (2) engineering, procurement and construction contracting (“EPC Contracting”); (3) construction and (4) equipment manufacturing.

The following table sets forth the revenue generated from each of the segments and their respective percentage of the Group’s total revenue (before inter-segment elimination) during the periods indicated:

Engineering, consulting and licensing EPC Contracting Construction Equipment manufacturing Subtotal Total (after inter-segment elimination)(1)		Year ended 31 December 2020 2019 Revenue Percentage of total revenue Revenue Percentage of total revenue Change (RMB’000) (%) (RMB’000) (%) (%) 3,695,022 6.2 2,802,805 4.7 31.8 33,577,673 56.0 32,438,087 54.4 3.5 21,912,398 36.5 23,723,645 39.8 (7.6) 761,389 1.3 611,368 1.1 24.5 59,946,482 100.0 59,575,905 100.0 0.6 52,352,584 N/A 52,261,051 N/A 0.2

Note:

• (1) “Total (after inter-segment elimination)” means the aggregate revenue generated from each business segment after inter-segment elimination to exclude the impact of inter-segment transactions. Intersegment elimination mainly arises from the inter-segment sales to the EPC Contracting segment made by the engineering, consulting and licensing, construction and equipment manufacturing segments.

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The following table sets forth the revenue generated from different industries in which the Group’s clients operate for the periods indicated:

Oil refining Petrochemicals New coal chemicals Other industries Total	Year ended 31 December 2020 2019 Revenue Percentage of total revenue Revenue Percentage of total revenue Change (RMB’000) (%) (RMB’000) (%) (%) 11,941,849 22.8 19,399,122 37.1 (38.4) 29,839,940 57.0 25,146,107 48.1 18.7 3,649,328 7.0 4,109,700 7.9 (11.2) 6,921,467 13.2 3,606,122 6.9 91.9 52,352,584 100.0 52,261,051 100.0 0.2

The Group derived its revenue mainly from services provided to clients in oil refining, petrochemicals, new coal chemicals and other industries. During the Reporting Period, due to the steady construction development of EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project and SINOPEC SABIC Polycarbonate Project, revenue generated from petrochemicals industry was RMB29.840 billion, representing an increase of 18.7% on a year-on-year basis; due to the contribution of crude oil storage facility project and natural gas pipeline network as well as gas storage facilities project, revenue generated from other industries was RMB6.921 billion, representing an increase of 91.9% on a year-on-year basis. Revenue generated from oil refining industry was RMB11.942 billion, representing a decrease of 38.4% on a year-on-year basis, which was affected by the settlement and completion for refining projects such as Kuwait Oil Refining Project and Sinopec Tianjin Oil Product Upgrade Project; revenue generated from new coal chemicals industry was RMB3.649 billion, representing a decrease of 11.2% on a year-onyear basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong’An Joint Coalification Integration Project.

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The following table sets forth the Group’s revenue generated in the PRC and overseas for the periods indicated:

PRC Overseas Total		Year ended 31 December 2020 2019 Revenue Percentage of total revenue Revenue Percentage of total revenue Change (RMB’000) (%) (RMB’000) (%) (%) 47,629,649 91.0 42,551,448 81.4 11.9 4,722,935 9.0 9,709,603 18.6 (51.4) 52,352,584 100.0 52,261,051 100.0 0.2

During the Reporting Period, thanks to the rapid control of the domestic epidemic and the active resumption of production in China, we are benefited from the steady construction development of large EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, revenue of the Group generated in the PRC was RMB47.630 billion, representing an increase of 11.9% on a year-on-year basis; revenue generated from overseas was RMB4.723 billion, representing a decrease of 51.4% on a year-onyear basis, which was affected by the global spread of COVID-19 epidemic and the settlement and completion for Kuwait Oil Refining Project.

As at the end of the Reporting Period, the backlog of the Group amounted to RMB105.655 billion, representing an increase of 11.2% as compared to that as at the end of 2019, and was 2.02 times of the total revenue of RMB52.353 billion in 2020. During the Reporting Period, the value of new contracts amounted to RMB63.014 billion, representing an increase of 20.4% on a yearon-year basis.

During the Reporting Period, representative domestic projects that the Group entered into include Zhenhai Refining and Chemical Ethylene Expansion Project, Hainan Refining & Chemical Ethylene and Oil Refining Reconstruction and Expansion Project, Sinopec Tianjin Liquefied Natural Gas (LNG) Expansion Project (Phase II) Receiving Station Project, Sinopec Shandong Liquefied Natural Gas (LNG) Project Phase II, Shandong Yulong Island Refining and Chemical Integration Project, Shenghong Refining and Chemical Integration Project, Zhejiang Petrochemical Zhoushan Refining and Chemical Integration Project (Phase II), etc.. Representative overseas projects that were entered into by the Group include Saudi Aramco’s Crude Oil Pumping Station Upgrading and Improvement Project, Russia Amur AGCC Polyolefin EPSS Project, Hengyi (Brunei) PMB Petrochemical Phase II Project and so on.

During the Reporting Period, the Group’s capital expenditure was approximately RMB0.918 billion, which was mainly used for purchase and renewal of engineering facilities and equipment, office facilities and other supporting auxiliary construction, contract energy management investment, construction of temporary facilities for engineering projects, informatization construction, lease of use right assets.

The discussions on the Group’s environmental policies, relationships with its major stakeholders and compliance with applicable laws and regulations are set out in the “Report on Corporate Environmental, Social and Governance” to be issued on 12 April 2021.

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3.2 Business Highlights

3.2.1 Successful implementation of major projects

Zhongke Refining and Chemical Integration Project: please refer to the announcements dated 18 January 2018 and 17 April 2018 published by the Company for further details. As at the end of the Reporting Period, the project has been completed and put into operation.

Fujian Gulei Refining and Petrochemical Integration Project: please refer to the announcement dated 15 April 2019 published by the Company for further details. As at the end of the Reporting Period, the project is in the final stage of construction, with an overall progress of about 90%.

SINOPEC SABIC Polycarbonate Project: please refer to the announcement dated 11 June 2018 published by the Company for further details. As at the end of the Reporting Period, the project is in the final stage of construction, with an overall progress exceeding 90%.

Sinochem Quanzhou Ethylene Project: please refer to the announcement dated 6 June 2017 published by the Company for further details. As at the end of the Reporting Period, the project has been completed and put into operation.

Zhenhai Refining and Chemical Ethylene Expansion Project: please refer to the announcements dated 28 February 2020 and 16 April 2020 published by the Company for further details. As at the end of the Reporting Period, the project is in the stage of construction and installation, with an overall progress exceeding 40%.

Zhejiang Petrochemical Zhoushan Refining and Chemical Integration Project (Phase II): please refer to the announcements dated 28 February 2020 published by the Company for further details. As at the end of the Reporting Period, the project is in the stage of construction and installation, with an overall progress exceeding 60%.

Saudi Arabia SABIC GAS Phase-9 Air Separation Project: please refer to the announcement dated 17 April 2018 published by the Company for further details. As at the end of the Reporting Period, this project is in the peak stage of construction, with an overall progress exceeding 80%.

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3.2.2 Forge ahead in market development

During the Reporting Period, the Group worked hard to overcome the impact of the epidemic and kept a close eye on key project contracts, and made full use of its overall advantages in its industry, business and technical chains, the value of new contracts entered into by the Group was RMB63.014 billion, reaching a new high in recent years, among which, the value of newly signed domestic contracts amounted to RMB52.852 billion, representing an increase of 15.9% on a year-on-year basis, and the value of newly signed overseas contracts amounted to approximately RMB10.161 billion, representing an increase of 50.9% on a year-on-year basis.

During the Reporting Period, the Group continued the intensive work in the domestic market. The Group entered into new contracts for a number of large projects, include Zhenhai Refining and Chemical Ethylene Expansion Project with a total contract value of approximately RMB12.093 billion, Hainan Refining & Chemical Ethylene and Oil Refining Reconstruction and Expansion Project with a total contract value of approximately RMB3.597 billion, Sinopec Tianjin Liquefied Natural Gas (LNG) Expansion Project (Phase II) Receiving Station Project with a total contract value of approximately RMB3.183 billion, Zhejiang Petrochemical Zhoushan Refining and Chemical Integration Project (Phase II) with a total contract value of approximately RMB2.870 billion, Shenghong Refining and Chemical Integration Project with a total contract value of approximately RMB1.676 billion, Shandong Yulong Island Refining and Chemical Integration Project with a total contract value of approximately RMB1.189 billion.

During the Reporting Period, the Group successfully reversed the adverse situation of overseas market development. In the Middle East, the channel and resource advantages formed by long-term operation in Saudi Arabia were brought into play, and the total amount of newly signed contracts was equivalent to about RMB5.8 billion, achieving strong growth; in Russia, Amur AGCC Polyolefin EPSS Project was successfully signed, with a total contract value of approximately RMB1.651 billion; in Southeast Asia, we signed the construction contract for Thailand Clean Oil Products Project with a total contract value of approximately RMB470 million, Contract for Design and Consulting Services of Hengyi (Brunei) PMB Petrochemical Phase II Project with a total contract value of approximately RMB368 million.

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3.2.3 Strong support for engineering service

During the Reporting Period, the Group overcame the impact of the epidemic, promoted the orderly resumption of work and production for the relevant projects, and actively launched campaign to overcome difficulties and ensure the smooth operation of the projects; strengthened the coordination of key projects construction, ensured the continuous advancement of all work by relying on the remote collaborative work system; focusing on profitability and progress, the Group implemented the “triple warning” for progress deviation, revenue deviation and budget deviation, rectified the deviation in a timely manner, and strengthened closed-loop management; through optimising the design workflow and professional division interface, the Group strengthened standardization, integration, modular design and modular construction to improve the efficiency of design and construction.

During the Reporting Period, the Group continued to strengthen the construction of subcontracting management system, and dynamically evaluated the operational effectiveness of the QHSSE system of strategic subcontractors; continued to strengthen the cultivation of strategic subcontractors, optimized the allocation of subcontracting resources, and ensured the quality, safety, progress and cost control of project construction; improved the subcontracting resources and information sharing platform, realized the integrated management of subcontractor resource pool and subcontractor evaluation, and optimized the subcontracting management cost. While ensuring the supply of materials for various construction projects, the Group has actively explored ways and means to improve procurement management, procurement efficiency, cost reduction and efficiency promotion, continued to promote the practice of framework agreement procurement and centralized procurement, and strengthened procurement management for overseas projects, areas of which witnessed remarkable progress.

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3.2.4 The advantages of engineering technology innovation are obvious

Steady progress in research and development of engineering technologies and major progress in key scientific research projects

During the Reporting Period, the Group has newly set up 172 key scientific research projects. Relevant scientific research projects closely focused on the development trend and demand of engineering market technologies. Key research and development projects have steadily moved forward. For “Solid Superacid C5, C6 Isomerization Technology Development and Industrial Test”, we have completed the steam opening and calibration of the plant in Zhanjiang, and passed the acceptance of Sinopec Science and Technology Department on 1 December; for the key environmental protection research project “Research and Demonstration of Packaged Technologies for Safe and Reliable Large-flux Plasma Treatment of VOCs”, we have completed the construction, commissioning and calibration of the plant in Jingmen, and achieved the target for key problem tackling. For other key environmental protection projects, such as “Development and Industrial Application of Second-Generation High Efficiency Environmental-friendly Aromatics Packaged Technology” and “Integration and Development of Heavy Oil Catalytic Cracking Technology with High Slag Content and Low Emission”, we have completed the plant construction, commissioning and calibration work in Hainan and Jingmen respectively as scheduled, and the progress of scientific research projects is under overall control.

Increasing number of patent applications and numerous fruitful results in technological innovation

During the Reporting Period, the Group completed 660 new patent applications, among which, 401 or 60.8% applications were invention patents applications. The Group also had 361 newly licensed patents, 131 of which were invention patents.

During the Reporting Period, the Group received a total of 81 scientific advancement awards in scientific innovation and engineering construction fields at the provincial and above level. Among these awards, “development and application of packaged technologies for ultra-low sulfur emission and resource utilization of sulfur-containing waste gas from refining and chemical industry” won the second prize of National Scientific and Technological Progress Award; further, there were 24 provincial and ministerial scientific advancement awards, 2 provincial and ministerial invention awards, 2 national excellent design awards, 8 national high quality projects awards, and 35 provincial and ministerial high quality projects awards.

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3.2.5 New breakthroughs have been made in digital engineering construction

During the Reporting Period, the Group vigorously promoted digital transformation and intelligent upgrading. According to the model of “data + platform + application”, we sorted out the “three-in-one” scenario of whole business life cycle flow, phased management process flow and production tool flow, compiled the information and digital development planning framework under the “14th Five-Year Plan”, and comprehensively developed the overall planning and action roadmap of the Group’s digital transformation. During the Reporting Period, the Group strengthened the pilot application of and promotion of the “Implementation Detailed Rules for Digital Delivery of Petrochemical Engineering”, upgraded the engineering data transfer system and ensured the progress and quality of digital delivery of key projects; focused on smart factory services, deepened the application of engineering master data, explored and studied the integrated application of equipment domain, participated in the construction of petrochemical intelligent cloud, and won the bid for the MIIT’s project of design simulation industrial software adaptation and verification center.

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3.2.6 Environmental protection and low-carbon business continued to expand

During the Reporting Period, the Group continued to expand its energy saving and environmental protection business, and signed a series of contracts such as delayed coking unit closed decoking renovation project, low temperature methanol washing (rectisol) system tail gas treatment project, waste residue landfill site restoration project and circulating water system energy saving renovation project. In the field of energy conservation, the Group actively promoted the existing contracted energy management projects and carbon footprint evaluation services, undertook a number of research work on energy conservation issues, and promoted the construction projects of photovoltaic power stations in gas stations and oil depots. In the field of soil remediation, the Group closely followed the remediation projects of contaminated sites in many areas within the territory of China, and organized partners to participate in the bidding of KOC crude oil contaminated soil remediation project in Kuwait.

As of the date of the 2020 Annual Report, in order to promote the research on the strategic path of “carbon peaking and carbon neutrality”, the Group has established a joint research and development center for carbon neutrality green technology by working with the Institute of Process Engineering, Chinese Academy of Sciences and Yanshan Petrochemical Company. In the future, the Group will give full play to its experience and advantages in engineering technology innovation and engineering transformation, boost the transformation of scientific and technological achievements, and make continuous contributions to energy conservation and emission reduction in both China and the world.

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3.2.7 The quality and safety responsibility system is consistently implemented

During the Reporting Period, under the difficult conditions of double superposition of epidemic risk and safety production, the Group always adhered to the core value of QHSSE (quality, health, safety, security and environment) as People-oriented and Quality First, constantly improved QHSSE management system and effectively implemented corporate responsibility, continuously promoted the construction of dual preventive mechanisms of hierarchical risk control and hidden danger investigation and management, strived to thoroughly identify security risks and major latent risks, strengthened risk control and cemented “Three Foundations” management. The Group advanced the establishment of quality safety standardisation and intrinsic safe construction capability, adhered to the combination of “raided front-line inspection without notice” and “crosschecking”, innovatively carried out remote video inspection, and carried out diagnostic evaluation and continuous follow-up on key areas, key nodes, major hidden dangers and outstanding issues. The Group also constantly improved its QHSSE management by organising multi-level trainings, deepening the design of intrinsic safety management, and fully promoting quality elevation activities. In line with its management philosophy of “all staffs, all process, all dimension and all time”, the Group kept improving its QHSSE management of domestic and overseas projects, so as to ensure the successful implementation of domestic and overseas projects.

3.2.8 Deepening reform and promoting sustainable development

Adhering to the vision of “building the world’s leading technology-oriented engineering company”, the Group comprehensively promoted enterprise resource optimization, reform and restructuring in accordance with the development model of “integrated operation and groupwide management and control”, and made great efforts to achieve internationalized layout, differentiated development, digital transformation and intelligent upgrading, striving to build a brand of “Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry”. The Group promoted the Company reform in depth, coordinated the development of all business segments, formed the advantages of collectivization scale, exerted the integration synergy effect, improved and extended the business chain on the basis of consolidating the traditional and core business areas, and made the high-end business bigger and stronger.

During the Reporting Period, the Group continued to promote and improve the reform of the Company’s information technology branch. At present, the top-level design of the information technology branch has been promoted as a whole, the key points have been broken through for market development, and various production and operation tasks has been steadily pushed forward. During the Reporting Period, the Group has established the Russian subsidiary of Refining & Chemical Engineering Group to provide more efficient service to overseas projects and owners.

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3.3 Business Prospects

Looking forward to 2021, without ignoring any kinds of derivative risks under the impact of the epidemic, we realize that the world political and economic situation is still complicated and grim. However, with the recovery of global trade demand, the restoration of economic growth momentum, and the construction of a new domestic and international dual-cycle development pattern, China’s economic growth is expecting a continuous steady improvement in quality and efficiency. In the future, it is predictable that the epidemic will reshape the global energy pattern, the growth rate of crude oil demand will be weaker than supply, and the international oil price will rise to a limited margin; the newly-built refining and chemical production capacity in China will be released intensively, the market players are becoming diversified, the replacement of new energy is accelerated, the green and low-carbon standards are upgraded, and opportunities and challenges coexist.

2021 is the first year of the “14th Five-Year Plan”. China’s energy and chemical industry is moving towards a new stage of high-quality development. China will continue to exert its strength in accelerating energy transformation, improving energy security, accelerating technological innovation and releasing the vitality of the industry, and will promote the development of the industry to a higher level. Multiple petrochemical projects in the PRC continue to advance, private enterprises keep active investment, international giants such as ExxonMobil, BASF and Saudi Aramco actively deploy their resources in the Chinese market, and the refining and chemical engineering market remains to be the arena full of opportunities and challenges. For the situation overseas, emerging economies and developing countries still have greater demand for energy and basic chemical materials. With the expansion of vaccination scale, the recovery of economy after the alleviation of global epidemic is expected to drive the overseas engineering market to revive.

In 2021, the Group will adhere to the development orientation of “Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry”, base itself on the energy and chemical engineering construction industry, continuously broaden its business scope, extend its value chain, strengthen engineering innovation and value creation, and provide customers with high-quality one-stop overall solutions. In 2021, the Group’s target of domestic new contract value is RMB49 billion, and the target of overseas new contract value is USD1.5 billion.

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3.3.1 Join hands with stakeholders to overcome difficulties and start a new journey of the 14th Five-Year Plan

2021 is the year when the “14th Five-Year Plan” sets sail, and it is also a new starting point for China’s petrochemical industry to move towards a new stage of high-quality development. Faced with new opportunities, new challenges, new patterns and new requirements, the Group will anchor the development vision of “building the world’s leading technology-oriented engineering company” and the development orientation of “Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry”, base itself on the energy and chemical engineering construction industry, broaden its business scope, extend its value chain, and comprehensively enhance the safety, efficiency and intelligence of its business chain through “differentiated development, international operation, digital transformation and intelligent upgrading”.

In the future, the Group will focus on “engineering innovation” and “value creation”. The Group will continuously strengthen its engineering innovation capability, build an engineering innovation platform with engineering technology as the guide, engineering consultation as the link, engineering design as the main body and engineering construction as the support, give full play to the advantages of integration of engineering transformation and engineering implementation, and cultivate, lead and drive the market and serve customers with innovation. The Group will focus on value creation, explore and establish a new format of collaborative work based on digital engineering, create a collaborative consortium integrating all links in the whole life cycle of the project, strive to build an efficient value chain in which service demand and interests of relevant parties are coupled with each other, and enhance the value creation ability of the whole industry chain.

3.3.2 Adhere to technological innovation and empower high-quality development

Innovation is the first driving force for development. In 2021, the Group will focus on building an innovation system with technological innovation as the core, make more efforts in independent innovation, strengthen the optimization and integration of internal and external scientific research resources, and strengthen cooperative innovation with open thinking; seek to lead the market expansion, enhance competitive strength and promote value increase through technological innovation. At the same time, the Group will promote innovation in terms of development concept, system and mechanism, business model and corporate culture, so as to provide assurance for improving innovation efficiency and achieving high-quality development.

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3.3.3 Focusing on energy transformation and upgrading, creating new highlights of performance growth

In 2021, the Group will adhere to customer-centered service pattern, keep close to customer needs, coordinate internal resources and integrate external resources, strengthen and extend the business chain of engineering service while expanding the energy and chemical industry business chain, and do its best to serve the transformation and upgrading of the energy and chemical industry. Make more efforts of overall development in traditional fields such as refining and chemical integration, comprehensive utilization of light hydrocarbons, new coal chemicals and LNG, and accelerate the growth of the Company’s business scale and efficiency.

In 2021, the Group will also strengthen market research on new energy, new materials and new economy, continuously promote the development of new markets for clean energy, new materials, energy conservation and environmental protection, promote the scale growth of energy conservation business and soil remediation business, and extend business chains in digital delivery, intelligent factories and other fields to accelerate the formation of new performance growth points.

3.3.4 Turning crisis into opportunity, we are making steady progress in global business development

In 2021, the Group will strengthen and optimize the global deployment, give full play to the advantages of integration, and comprehensively enhance the internationalization capability of the Company. Maintain the dominant position in traditional regional markets such as the Middle East, Central Asia, Russia and Southeast Asia, do a good job in bidding and quotation of key projects. Actively cultivate new regional markets such as Africa, South Asia and South America, expand market development channels and models, actively cultivate “one-stop overall solutions”, strive to provide customers with all-round high-quality services, and continuously improve the level of internationalized business operation.

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3.3.5 Strengthen the construction of digital engineering and promote the engineering digital twin planning as a whole

In 2021, the Group will strengthen the top-level design of digital transformation and comprehensively develop the overall arrangement and action plan of digital transformation. The Group will continue to promote the construction of digital engineering system, strengthen system construction and system integration by taking customer demand as the starting point, promote process reengineering, integrate all links in the whole life cycle of the projects, realize information management and intelligent association in the process of engineering construction, and automatically collect digital information in the whole process of engineering construction, so as to realize digital twinning of petrochemical engineering at a higher level. The Group will speed up the research and development of core key technologies of desktop refining and chemical plants, realize the dynamic correlation of technological processes, provide customers with high-quality real-time optimization and remote diagnosis services, and interconnect with plant operation and maintenance data on this basis, providing important support for further promoting the digital transformation and intelligent manufacturing of refining and chemical enterprises.

3.3.6 Strengthen project process management, take various measures to enhance cost efficiency

In 2021, the Group will continue to strengthen project control and coordination, fully guarantee the smooth implementation of projects under construction. Focusing on revenue conversion and cost reduction, we will strengthen production management and operation plans, and enhance economic benefits from the projects. The Group will further strengthen the refined management of project costs, continue to advance design optimisation, promote centralized procurement, emphasise inventory and contract asset management, strengthen the process management of project implementation, confirm the progress and contract changes in time, and further reduce costs and increase efficiency.

3.3.7 Promote the innovation of human resource management system

In 2021, the Group will strengthen the in-depth integration of corporate strategy, corporate culture and human resources management, promote the continuous deepening and innovation of the reform of the HR strategy management system, and create a driving force and atmosphere for innovation and creation. The Group will continue to improve the value creation and sharing mechanism of the whole industrial chain, promote the reform of the three systems of labor, personnel and remuneration, further improve the market-oriented employment mechanism, and attract more and better talents to support the Company’s development and value creation. Aiming at improving overall operational efficiency and enhancing input-output efficiency, the Group will further give play to the governance advantages of listed companies, establish a more flexible and diverse incentive system, and stimulate the enthusiasm and initiative of all employees to create value.

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4 Management Discussion and Analysis

4.1 Analysis of the reasons of the significant changes in the revenue structure compared to last financial year

The following discussion and analysis should be read in conjunction with the Group’s audited financial statements and the accompanying notes contained in the 2020 Annual Report. Parts of the financial data below, unless otherwise stated, were extracted from the Group’s audited financial statements prepared according to the IFRS.

4.1.1 Revenue

The revenue of the Group was RMB52.353 billion, representing an increase of 0.2% on a yearon-year basis.

4.1.2 Cost of sales

The cost of sales of the Group decreased by 0.3% from RMB46.778 billion for the year ended 31 December 2019 to RMB46.639 billion for the year ended 31 December 2020.

4.1.3 Gross profit

The gross profit of the Group increased by 4.2% from RMB5.483 billion for the year ended 31 December 2019 to RMB5.714 billion for the year ended 31 December 2020, the gross profit margin increased from 10.5% for the same period of last year to 10.9%, which was mainly due to the Company’s successive efforts to tackle key problems and create efficiency, resulting in a year-on-year increase in gross profit and gross profit margin.

4.1.4 Other income

The other income of the Group increased by 81.9% from RMB255 million for the year ended 31 December 2019 to RMB464 million for the year ended 31 December 2020, a year-on-year increase of RMB209 million. The main reason is that during the reporting period, we received the proceeding of government subsidies for enterprise’s electricity supply, water supply, heat supply and property management cost.

4.1.5 Selling and marketing expenses

The selling and marketing expenses of the Group were RMB135 million, which remained broadly stable on a year-on-year basis.

– 18 –

4.1.6 Administrative expenses

The administrative expenses of the Group were RMB1.256 billion, which remained broadly stable on a year-on-year basis.

4.1.7 Research and development costs

The research and development costs of the Group were RMB2.175 billion, which remained broadly stable on a year-on-year basis.

4.1.8 Other operating expenses

Other operating expenses of the Group increased by 120.1% from RMB191 million for the year ended 31 December 2019 to RMB421 million for the year ended 31 December 2020. Main reasons were the impairment allowance and the exchange loss in the Reporting Period.

4.1.9 Other gains - net

The net other gains of the Group decreased by 33.9% from RMB20 million for the year ended 31 December 2019 to a gain of RMB13 million for the year ended 31 December 2020, which was mainly due to the year-on-year decline in asset disposal gain.

4.1.10 Operating profit

Due to the above reasons, the operating profit of the Group increased by 9.3% from RMB2.017 billion for the year ended 31 December 2019 to RMB2.204 billion for the year ended 31 December 2020.

4.1.11 Finance income - net

The net finance income of the Group was RMB791 million, which remained broadly stable on a year-on-year basis.

4.1.12 Income tax expense

The Group’s income tax expense was RMB628 million, which remained broadly stable on a year-on-year basis. The effective income tax rate decreased from 22.8% to 20.9% on a year-onyear basis. The change in the effective income tax rate was mainly due to the profit fluctuation of certain subsidiaries with different tax rates.

4.1.13 Profit for the year

Due to the above reasons, the profit for the year increased by 9.1% from RMB2.184 billion for the year ended 31 December 2019 to RMB2.382 billion for the year ended 31 December 2020.

– 19 –

4.2 Discussion on the backlog and new contracts

Backlog represents the total estimated contract value of work that remains to be completed pursuant to outstanding contracts as at a certain date, net of estimated value added tax and is calculated based on the Group’s assumption that the relevant contracts will be performed in accordance with their terms. Backlog is not a measure defined by generally accepted accounting principles. Any modification, termination or suspension of these contracts by the Group’s clients may have a substantial and immediate effect on the Group’s backlog. Projects may also remain in the Group’s backlog for an extended period of time beyond what was initially anticipated due to various factors beyond the Group’s control.

The following table sets forth the total value of backlog for each business segment of the Group as at the dates indicated:

Engineering, consulting and licensing EPC Contracting Construction Equipment manufacturing Total		As at 31 December 2020 (RMB’000) 8,636,102 76,223,009 20,003,498 791,998 105,654,607	As at 31 December 2019 Change (RMB’000) (%) 8,192,663 5.4 72,662,664 4.9 13,653,862 46.5 484,371 63.5 94,993,560 11.2

The following table sets forth the total value of backlog categorised by the industries in which the Group’s clients operate as at the dates indicated:

Oil refining Petrochemicals New coal chemicals Other industries Total		As at 31 December 2020 (RMB’000) 30,826,320 27,071,948 11,582,761 36,173,578 105,654,607		As at 31 December 2019 Change (RMB’000) (%) 28,201,648 9.3 28,285,500 (4.3) 13,394,670 (13.5) 25,111,742 44.1 94,993,560 11.2

– 20 –

The following table sets forth the total value of the backlog by regions as at the dates indicated:

PRC Overseas Total		As at 31 December 2020 (RMB’000) 79,977,151 25,677,456 105,654,607		As at 31 December 2019 Change (RMB’000) (%) 74,754,485 7.0 20,239,075 26.9 94,993,560 11.2

The following table sets forth the total value of backlog categorised by the clients of each of (i) Sinopec Group and its associates, and (ii) non-Sinopec Group and its associates as at the dates indicated:

Sinopec Group and its associates Non-Sinopec Group and its associates Total		As at 31 December 2020 (RMB’000) 58,420,185 47,234,422 105,654,607		As at 31 December 2019 Change (RMB’000) (%) 49,789,049 17.3 45,204,511 4.5 94,993,560 11.2

As at 31 December 2020, the Group’s backlog was RMB105.655 billion, representing an increase of 11.2% compared to that as at 31 December 2019, and 2.02 times of the total revenue of RMB52.353 billion in 2020.

– 21 –

The following table sets forth the total value of new contracts entered into categorised by the Group’s each business segment in the periods indicated:

Engineering, consulting and licensing EPC Contracting Construction Equipment manufacturing Total		Year ended 31 December 2020 2019 Change (RMB’000) (RMB’000) (%) 4,046,963 2,713,103 49.2 37,138,017 31,208,711 19.0 21,154,013 18,142,304 16.6 674,638 255,029 164.5 63,013,631 52,319,147 20.4

The following table sets forth the total value of new contracts entered into by the Group categorised by the industries in which the Group’s clients operate in the periods indicated:

Oil refining Petrochemicals New coal chemicals Other industries Total		Year ended 31 December 2020 2019 Change (RMB’000) (RMB’000) (%) 14,566,521 14,058,072 3.6 28,626,388 24,035,891 19.1 1,837,419 7,012,922 (73.8) 17,983,303 7,212,262 149.3 63,013,631 52,319,147 20.4

The following table sets forth the total value of new contracts entered into by the Group by regions in the periods indicated:

PRC Overseas Total		Year ended 31 December 2020 2019 Change (RMB’000) (RMB’000) (%) 52,852,315 45,585,147 15.9 10,161,316 6,734,000 50.9 63,013,631 52,319,147 20.4

– 22 –

The following table sets forth the total value of new contracts entered into by the Group with the clients of each of (i) Sinopec Group and its associates, and (ii) non-Sinopec Group and its associates in the periods indicated:

Sinopec Group and its associates Non-Sinopec Group and its associates Total		Year ended 31 December 2020 2019 Change (RMB’000) (RMB’000) (%) 41,745,969 29,195,571 43.0 21,267,662 23,123,576 (8.0) 63,013,631 52,319,147 20.4

During the Reporting Period, the value of the Group’s new contracts was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis.

4.3 Assets, Liabilities, Equity and Cash Flows

The Group’s funds mainly came from operating activities and were primarily used for working capital, capital expenditure and dividend distribution.

4.3.1 Assets, Liabilities and Equity

Units: RMB’000

Total assets Current assets Non-current assets Total liabilities Current liabilities Non-current liabilities Net assets Share capital Reserves Equity attributable to equity holders of the Company Non-controlling interests	As at 31 December 2020 71,465,327 64,055,416 7,409,911 43,209,289 40,672,278 2,537,011 28,256,038 4,428,000 23,823,172 28,251,172 4,866	As at 31 December 2019 67,873,748 60,616,791 7,256,957 40,603,207 37,791,658 2,811,549 27,270,541 4,428,000 22,837,976 27,265,976 4,565	Changes 3,591,579 3,438,625 152,954 2,606,082 2,880,620 (274,538) 985,497 – 985,196 985,196 301

– 23 –

As at the end of the Reporting Period, the total assets of the Group were RMB71.465 billion, the total liabilities were RMB43.209 billion, the non-controlling interests were RMB5 million, and the equity attributable to the equity holders of the Company was RMB28.251 billion. The changes in the assets and liabilities as compared with those as at the end of 2019 and the main reasons are as follows:

As at the end of the Reporting Period, the total assets were RMB71.465 billion, increased by RMB3.592 billion as compared with that as at the end of 2019. In particular, the current assets were RMB64.055 billion, increased by RMB3.439 billion as compared with that as at the end of 2019, which was mainly due to the increase of RMB2 billion in loans receivable from the ultimate holding company as compared with the beginning of the year, an increase of RMB1.187 billion in time deposits as compared with the beginning of the year, an increase of RMB1.041 billion in prepayments and other receivables, an increase of RMB740 million in contract assets as compared with the beginning of the year, a decrease of RMB1.495 billion in cash and cash equivalents as compared with the beginning of the year, a decrease of RMB189 million in notes and trade receivables; non-current assets amounted to RMB7.410 billion, an increase of RMB153 million over the end of 2019, which was mainly due to an increase of RMB284 million in property, plant and equipment.

As at the end of the Reporting Period, the total liabilities were RMB43.209 billion, increased by RMB2.606 billion as compared with that as at the end of 2019. In particular, the current liabilities were RMB40.672 billion, increased by RMB2.881 billion as compared with that as at the end of 2019, which was mainly due to the increase of contract liabilities by RMB2.196 billion, the increase of other payables by RMB888 million and the decrease of notes and trade payables by RMB438 million. The non-current liabilities were RMB2.537 billion, decreased by RMB275 million as compared with that as at the end of 2019, which was mainly due to a decrease of RMB236 million in retirement and other supplementary benefit obligations.

The equity attributable to equity holders of the Company was RMB28.251 billion, increased by RMB985 million as compared with that as at the end of 2019, which was mainly due to the increase in retained earnings in the Reporting Period.

– 24 –

4.3.2 Cash Flows

During the Reporting Period, the net decrease in cash and cash equivalents was RMB1.250 billion and net cash generated from operating activities was RMB2.957 billion. The following table sets forth the main items and their changes in the Group’s consolidated cash flow statements for the year ended 31 December 2020 and 2019, respectively.

Units: RMB’000

Major items of cash flow Net cash generated from operating activities Net cash used in from investing activities Net cash used in financing activities Net decrease in cash and cash equivalents		Year ended 31 December 2020 2019 2,956,836 300,047 (2,951,614) (5,889,979) (1,255,306) (1,505,020) (1,250,084) (7,094,952)

During the Reporting Period, the profit before taxation was RMB3.011 billion, and the profit was RMB3.197 billion after adjusting the items (non-cash expense items) in expenses that did not affect the cash flow in operating activities. Major non-cash expense items included depreciation and amortisation of RMB650 million; gains on disposal of property, plant, equipment and land use rights of RMB18 million; provision for ECL on trade and other receivables and contract assets of 225 million; exchange losses of RMB138 million, net interest income and expenditure of RMB791 million. Changes in working capital increased cash inflows of RMB203 million, which were mainly shown in: the increase in trade and other receivables balance which caused the cash outflow from operating activities of RMB1.230 billion; the increase in contract assets which caused the cash inflow from operating activities of RMB762 million; the increase in inventory balance which caused the cash outflow from operating activities of RMB155 million; the increase in trade and other payables balance which caused the cash inflow from operating activities of RMB152 million; the increase in contract liabilities which caused cash inflow from operating activities of RMB2.196 billion. After adjusting non-cash expense items, receivables and payables for the profit before taxation, deducting the income tax paid amounting to RMB565 million, and increasing inflow of received interest by RMB122 million, the net cash generated from operating activities was RMB2.957 billion.

Net cash used in investing activities was RMB2.952 billion, which was mainly due to the increase in time deposits and loans to the ultimate holding company.

Net cash used in financing activities was RMB1.255 billion, which was mainly due to the dividend distribution and rental expenses of the leased right-of-use assets.

Based on the cash flows during the Reporting Period, the Group has adequate working capital. The Group will continue to strengthen the settlement of trade debts and reduce the use of working capital in operating activities. The Group will also continue to effectively manage the investment risk, as well as to expand the scale of investment and increase the return on capital.

– 25 –

4.3.3 Summary of Financial Ratios

The following table sets forth the Group’s key financial ratios for the periods indicated:

	Year ended 31 December	Year ended 31 December
Main financial ratios	2020	2019
Net profit margin (%)	4.6	4.2
Return on assets (%)(1)	3.4	3.1
Return on equity (%)(2)	8.4	8.0
Return on invested capital (%)(3)	8.6	8.3
	As at	As at
	31 December	31 December
Main financial ratios	2020	2019
Gearing ratio (%)(4)	1.1	0.7
Net debt to equity ratio (%)(5)	Net cash	Net cash
Current ratio(6)	1.6	1.6
Quick ratio(7)	1.5	1.6

– 26 –

• (1) Return on assets =

Profit for the year

(Opening balance of total assets + Closing balance of total assets)/2

• (2) Return on equity =

Profit for the year

Total equity at the end of the year

Earnings before interest and tax (EBIT) for the year x (1 - effective income tax rate) (3) Return on invested capital = Total interest bearing debt at the end of the year - Credit loans + Total equity at the end of the year

Total interest bearing debt at the end of the year

• (4) Gearing ratio = Total interest bearing debt at the end of the year + Total equity at the end of the year

• (5) Net debt to equity ratio =

Net debt at the end of the year

Total equity at the end of the year

Current assets

(6) Current ratio = Current liabilities

Current assets - Inventories (7) Quick ratio = Current liabilities

Return on assets

During the Reporting Period, the Group’s return on assets increased to 3.4% from 3.1% for the same period in 2019, mainly due to the increase in the profit during the Reporting Period.

Return on equity

The Group’s return on equity increased to 8.4% from 8.0% for the same period in 2019, mainly due to the increase in the profit during the Reporting Period.

Return on invested capital

The Group’s return on invested capital increased to 8.6% from 8.3% for the same period in 2019 for the same reason as the increase in return on equity.

Gearing ratio

The Group’s gearing ratio increased to 1.1% from 0.7% at the end of 2019, mainly due to the increase in interest-bearing borrowings at the end of the Reporting Period.

– 27 –

Net debt to equity ratio

The Group maintained positive net cash as at 31 December 2019 and as at 31 December 2020.

Current ratio

The Group’s current ratio was 1.6, which was basically the same as at the end of 2019.

Quick ratio

The Group’s quick ratio was 1.5, which was basically the same as at the end of 2019.

5 Significant Events

5.1 Dividends

In accordance with the Company Law and other relevant laws and regulations, the Company attaches great importance to the reasonable return on investment to investors and ensures the continuity and stability of the Company’s profit distribution policy. The Company’s distributable profits in the form of cash each year shall be no less than 30% of the net profits attributable to the Company’s shareholders in the year, under the circumstances that there are net profits attributable to the Company’s shareholders and accumulated undistributable profits, and that the Company’s investment plan and cash expenses can be satisfied. A decision to declare or to pay any dividends in the future, and the amount of any dividends, will depend on, among other things, the Company’s results of operations, cash flows and financial condition, operating and capital expenditure requirements, distributable profits as determined under PRC GAAP or IFRS (whichever is lower), the Articles of Association, the Company Law and any other applicable PRC law and regulations and other relevant requirements of the supervisory authorities of the place where the Company is listed.

At the annual general meeting for the year 2019 convened on 8 May 2020, an ordinary resolution was passed to approve the authorisation to the Board to determine the interim profit distribution plan for the year 2020. The dividend distribution plan of RMB0.113 per share (inclusive of applicable tax) for the six months ended 30 June 2020 was approved at the twelfth meeting of the Third Session of the Board convened on 21 August 2020. The dividend distribution plan was implemented.

– 28 –

The fifteenth meeting of the third session of the Board approved the dividend distribution plan for the year ended 31 December 2020. A final cash dividend of RMB0.187 (inclusive of applicable taxes) per share would be distributed based on 4,428,000,000 shares (including 1,460,800,000 H shares and 2,967,200,000 domestic shares), being the total share capital of the Company as at 31 December 2020. The above dividend distribution plan will be implemented after being reviewed and approved at the annual general meeting to be held by the Company on 10 May 2021.

The final dividend for the year of 2020 will be paid on or before Monday, 19 July 2021 to all Shareholders whose names appear on the register of members of the Company at the close of business on Thursday, 20 May 2021. In order to qualify for the final dividend, the holders of H Shares must lodge all share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. (address: Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong) before 4:30 p.m. on Friday, 14 May 2021 for registration. For the purpose of ascertaining Shareholders who qualify for the dividend, the register of members for H Shares will be closed from Saturday, 15 May 2021 to Thursday, 20 May 2021 (both days inclusive).

The dividend will be denominated and declared in Renminbi. The holders of Domestic Shares will be paid in Renminbi and the holders of H Shares will be paid in Hong Kong dollars. The exchange rate for the dividend to be paid in Hong Kong dollars will be the mean of the exchange rates of Renminbi to Hong Kong dollars as announced by the People’s Bank of China during the five business days preceding the date of approval of the final dividend by the annual general meeting to be convened on 10 May 2021.

In accordance with the Enterprise Income Tax Law of the People’s Republic of China (中華 人民共和國企業所得稅法) and its implementation regulations, the Company 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 when distributing the cash dividends. Any H Shares not registered under the name of an individual Shareholder, including HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non-resident enterprise shareholders. Therefore, 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 their agents or trustees. The Company will strictly comply with the law or the requirements of the relevant government authority and withhold and pay enterprise income tax on behalf of the relevant Shareholders based on the register of members for H Shares as at Thursday, 20 May 2021.

– 29 –

If the individual holders of H Shares are Hong Kong or Macau residents or residents of the countries which had an agreed tax rate of 10% for the cash dividends given to them under the relevant tax agreement with the PRC, the Company should withhold and pay individual income tax on behalf of the relevant Shareholders at a rate of 10%. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of less than 10% under the relevant tax agreement with the PRC, the Company 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, the Company can apply for the relevant agreed preferential tax treatment provided that the relevant Shareholders submit the information required by the notice of the tax agreement to the H share registrar of the Company. The Company will assist with the tax refund of the extra amount withheld after obtaining the approval of the competent tax authority. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of over 10% but less than 20% under the tax agreement with the PRC, the Company shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreement. In the case that the individual holders of H Shares are residents of the countries which have had an agreed tax rate of 20% under the relevant tax agreement with the PRC, or which has not entered into any tax agreement with PRC, or otherwise, the Company shall withhold and pay the individual income tax at a rate of 20%.

For investors investing in the H Shares of the Company listed on the Hong Kong Stock Exchange through the Shanghai Stock Exchange or Shenzhen Stock Exchange (including enterprises and individuals) (the “Southbound Trading”), the Company has entered into the Agreement on Appropriation of Cash Dividends of H Shares for Southbound Trading (《港股通H股股票現金 紅利派發協議》) with China Securities Depository and Clearing Corporation Limited, pursuant to which, China Securities Depository and Clearing Corporation Limited, as the nominee of the holders of H Shares for Southbound Trading, will receive all cash dividends distributed by the Company and distribute the cash dividends to the relevant investors of H Shares of Southbound Trading through its depositary and clearing system. The cash dividends for the investors of H Shares of Southbound Trading will be paid in Renminbi.

– 30 –

Pursuant to the relevant requirements under the “Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect” (Caishui [2014] No. 81) (《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》 (財稅[2014]81號) and the “Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect” (Caishui [2016] No. 127) (《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》 (財稅 [2016]127號)), for dividends received by domestic investors from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect or ShenzhenHong Kong Stock Connect, the company of such H shares shall withhold and pay individual income tax at the rate of 20% on behalf of the investors. For dividends received by domestic securities investment funds from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect, the tax payable shall be the same as that for individual investors. The company of such H shares will not withhold and pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax themselves.

5.2 Material litigation or arbitration events

The Company was involved in claims which arose in connection with the collapse of a partially completed oil storage tank of the oil and gas storage tank project in Alberta, Canada on 24 April 2007, which resulted in the deaths of two workers and injuries of four others. The case has not progressed for a long time. At present, the Company has submitted an application for formal withdrawal to the court, waiting for the court to hear the application.

There were no other material litigation or arbitration events during the Reporting Period.

5.3 Repurchase, sale and redemption of shares

During the Reporting Period, the Group did not repurchase, sell or redeem any securities of the Company.

5.4 Reserves

During the Reporting Period, movements in the reserves of the Group were set out in the consolidated statement of changes in equity of the financial report, which was prepared in accordance with IFRS in the 2020 Annual Report.

– 31 –

5.5 Review of Annual Results

The audit committee of the Company has reviewed the annual results. The Audit Committee has not expressed any dissent concerning the financial statements in the 2020 Annual Report.

The Audit Committee is comprised of all independent non-executive Directors, namely, Mr. YE Zheng, Mr. HUI Chiu Chung, Stephen and Mr. JIN Yong. Among them, Mr. YE Zheng has the appropriate professional qualifications (including being a member of the Hong Kong Institute of Certified Public Accountants) and more than 25 years of experience in auditing, internal control and consultancy.

5.6 Significant events affecting the Group after the Reporting Period

From 31 December 2020 and up to the date of this announcement, the Group has no other significant events.

6 Compliance with Corporate Governance Code

During the Reporting Period, the Company complied with all code provisions in the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and did not conduct any acts which deviated from such code provisions.

7 Financial Report

7.1 Auditor’s opinion

The financial statements for the year ended 31 December 2020 of the Group, prepared in accordance with the IFRS and contained in the Annual Report, have been audited by BDO Limited, which has issued standard unqualified opinions on the financial statements.

7.2 Accounting policies

Details of the changes in the Company’s accounting policies during the Record Period are set out in Note 3 to the financial statement in the Company’s 2020 Annual Report.

– 32 –

7.3 Financial Statements

The financial statements prepared in accordance with the IFRS for the year ended 31 December 2020:

7.3.1 Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2020

Revenue Cost of sales Gross profit Other income Selling and marketing expenses Administrative expenses Research and development costs Other operating expenses Other gains – net Operating profit Finance income Finance expenses Finance income – net Share of (loss)/profit of a joint arrangement Share of profit of associates Profit before taxation Income tax expense Profit for the year	2020 RMB’000 52,352,584 (46,638,512) 5,714,072 463,852 (134,841) (1,255,804) (2,175,183) (420,877) 13,160 2,204,379 881,495 (90,390) 791,105 (41) 15,119 3,010,562 (628,356) 2,382,206	2019 RMB’000 52,261,051 (46,778,318) 5,482,733 254,958 (131,243) (1,281,950) (2,136,152) (191,263) 19,924 2,017,007 897,375 (111,130) 786,245 650 23,498 2,827,400 (643,881) 2,183,519

– 33 –

		2020		2019
		RMB’000		RMB’000
Other comprehensive income for the year,
net of tax
Item that may be reclassified subsequently
to profit or loss:
Exchange differences arising on translation of
foreign operations		(54,247)		95,848
Item that will not be reclassified subsequently
to profit or loss:
Gains on revaluation of retirement benefit
plans obligations, net of income tax effect		90,278		35,650
Other comprehensive income for the year,
net of tax		36,031		131,498
Total comprehensive income for the year		2,418,237		2,315,017
Profit attributable to:
Equity holders of the Company		2,381,905		2,183,457
Non-controlling interests		301		62
Profit for the year		2,382,206		2,183,519
Total comprehensive income attributable to:
Equity holders of the Company		2,417,936		2,314,955
Non-controlling interests		301		62
Total comprehensive income for the year		2,418,237		2,315,017
		RMB		RMB
Earnings per share for profit attributable to
equity holders of the Company
during the year
(expressed in RMB per share)
– Basic and diluted		0.54		0.49

– 34 –

7.3.2 Consolidated Statement of Financial Position

As at 31 December 2020

ASSETS Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Investment in a joint arrangement Investment in associates Deferred income tax assets Total non-current assets Current assets Inventories Notes and trade receivables Prepayments and other receivables Contract assets Loans due from the ultimate holding company Restricted cash Time deposits Cash and cash equivalents Total current assets Total assets		2020 RMB’000 3,881,466 2,448,301 218,959 2,475 149,680 709,030 7,409,911 1,348,122 8,424,388 7,705,785 8,826,268 21,000,000 36,661 8,273,435 8,440,757 64,055,416 71,465,327		2019 RMB’000 3,597,352 2,523,770 233,315 2,516 161,952 738,052
				7,256,957
				1,193,480 8,613,198 6,664,671 8,085,951 19,000,000 38,087 7,086,066 9,935,338
				60,616,791
				67,873,748

– 35 –

EQUITY Share capital Reserves Equity attributable to equity holders of the Company Non-controlling interests Total equity LIABILITIES Non-current liabilities Lease liabilities Retirement and other supplemental benefit obligations Provision for litigation claims Total non-current liabilities Current liabilities Notes and trade payables Other payables Loan due to a fellow subsidiary Contract liabilities Lease liabilities Current income tax liabilities Total current liabilities Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities		2020 RMB’000 4,428,000 23,823,172 28,251,172 4,866 28,256,038 97,629 2,252,789 186,593 2,537,011 21,675,887 2,897,093 163,123 15,511,149 66,314 358,712 40,672,278 43,209,289 71,465,327 23,383,138 30,793,049		2019 RMB’000 4,428,000 22,837,976
				27,265,976 4,565
				27,270,541
				125,678 2,488,926 196,945
				2,811,549
				22,114,039 2,008,917 — 13,314,941 55,275 298,486
				37,791,658
				40,603,207
				67,873,748
				22,825,133
				30,082,090

– 36 –

7.4 Notes to the Consolidated Financial Statements prepared in accordance with the IFRS

7.4.1 Revenue

The Group’s revenue is set out below:

Engineering, consulting and licensing EPC Contracting Construction Equipment manufacturing Income Tax Expense Current tax PRC enterprise income tax Overseas enterprise income tax (Over)/under provision for income tax in prior years Deferred tax Origination of temporary differences Income tax expense	2020 RMB’000 3,603,524 33,577,673 14,804,376 367,011 52,352,584 2020 RMB’000 520,989 106,628 (8,981) 618,636 9,720 628,356	2019 RMB’000 2,317,552 32,438,087 17,219,628 285,784
		52,261,051
		2019 RMB’000 392,908 170,023 49,232
		612,163
		31,718
		643,881

7.4.2 Income Tax Expense

According to the Corporate Income Tax Law of the PRC, the applicable income tax of the years ended 31 December 2020 and 2019 is 25%.

According to the normal statutory PRC corporate income tax and relevant rules, for the years ended 31 December 2020 and 2019, several subsidiaries of the Company have been qualified as new high-tech enterprises which can enjoy 15% preferential tax rate in the related period, other members of the Group are subject to 25% income tax rate.

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The tax of other countries is based on the nation’s tax laws, where the relevant subsidiary of the Group operates in.

The difference between the actual income tax charge in the consolidated statement of profit or loss and other comprehensive income and the amounts which would result from applying the enacted tax rate to profit before income tax can be reconciled as follows:

Profit before taxation Taxation calculated at the statutory tax rate Income tax effects of: Preferential income tax treatments of certain companies Difference in overseas profits tax rates Non-deductible expenses Income not subject to tax Unrecognised tax losses Utilisation of previously unrecognised tax losses (Over)/under provision for income tax in prior years Income tax expense Effective income tax rate	2020 RMB’000 3,010,562 752,640 (217,349) (31,415) 133,938 (24,014) 35,717 (12,180) (8,981) 628,356 20.9%	2019 RMB’000 2,827,400 706,850 (195,910) (63,675) 167,333 (46,836) 31,789 (4,902) 49,232 643,881 22.8%

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7.4.3 Earnings Per Share

(a) Basic

The basic earnings per share for each of the years ended 31 December 2020 and 2019 is calculated based on the profit attributable to the equity holders of the Company and the weighted average number of ordinary shares in issue.

Profit attributable to equity holders of the Company (RMB’000) Weighted average number of ordinary shares in issue Basic earnings per share (RMB)		2020 2,381,905 4,428,000,000 0.54		2019 2,183,457 4,428,000,000 0.49

(b) Diluted

As the Company had no dilutive shares for the each of the years ended 31 December 2020 and 2019, dilutive earnings per share for the years ended 31 December 2020 and 2019 are the same as basic earnings per share.

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7.4.4 Dividends

Dividends represented dividends declared by the Company during each of years ended 31 December 2020 and 2019.

Interim dividends of RMB0.113 (2019: RMB0.108) per ordinary share(1) Proposed final dividends of RMB0.187 (2019: RMB0.212) per ordinary share(2)		2020 RMB’000 500,364 828,036		2019 RMB’000 478,224 938,736

Notes:

• (1) Pursuant to a resolution passed at the board of Directors’ meeting on 21 August 2020, the Directors authorised to declare the interim dividends for the year ended 31 December 2020 of RMB0.113 (2019: RMB0.108) per share totalling RMB500,364,000 (2019: RMB478,224,000).

• (2) Pursuant to the board of Directors’ meeting on 20 March 2021, the Directors recommended to declare the final dividends for the year ended 31 December 2020 of RMB0.187 (2019: RMB0.212) per share totalling RMB828,036,000 (2019: RMB938,736,000). Such recommendation is to be approved by the shareholders at the Annual General Meeting. Dividends declared after the year end of the reporting period are not recognised as a liability at the end of the reporting period.

8 Language

This announcement is published in both Chinese and English languages. Should there be any discrepancy between the English language and the Chinese language, the Chinese language version shall prevail.

By the Order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD.

JIA Yiqun

Chief Financial Officer, Company Secretary

Beijing, the PRC 22 March 2021

As at the date of this announcement, directors of the Company are: SUN Lili[#] , XIANG Wenwu[#] , JIANG Dejun[#] ; WU Wenxin*, HUI Chiu Chung, Stephen[+] , JIN Yong[+] and YE Zheng[+] .

Executive Directors

• Non-executive Director

• • Independent non-executive Directors

This announcement is available on the website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk) and on the website of the Company (www.segroup.cn).

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