Sinopec Engineering Group Co Ltd. — Annual Report 2020

Mar 21, 2021

Stock Code: 2386

2020 Annual Report Engineering a Better World

IMPORTANT NOTICE

The board of directors (the "Board") and the directors (the "Directors") of SINOPEC ENGINEERING (GROUP) CO., LTD. ("SINOPEC SEG" or the "Company") warrant that there are no false representations, misleading statements or material omissions contained in this annual report and are hereby jointly and severally liable for the authenticity, accuracy and completeness of the content hereof. The Director, Mr. WU Wenxin could not attend the Fifteenth Meeting of the Third Session of the Board (the "Meeting") due to official duties. The Director, Mr. WU Wenxin authorised the Director, Mdm. SUN Lili, to attend the Meeting, and to vote on his behalf. Mdm. SUN Lili (Chairwoman of the Board), Mr. JIANG Dejun (Director and President), Mr. JIA Yiqun (Chief Financial Officer) and Mr. WANG Yi (head of the finance department) warrant the authenticity and completeness of the financial statements contained in this annual report.

The annual financial statements as at 31 December 2020 (the "Reporting Period") of SINOPEC SEG and its subsidiaries (the "Group"), prepared in accordance with the International Financial Reporting Standards, were audited by BDO Limited, which has issued a standard unqualified audit report.

This annual report contains forward-looking statements. All statements (other than statements of historical facts) that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, goals, estimates and business plans) are forward-looking statements. The future actual results or development trends may differ materially from those indicated by the forwardlooking statements due to various factors. The forwardlooking statements contained in this annual report were made by the Company as at 22 March 2021 and, unless otherwise required by the relevant regulatory authorities, the Company undertakes no obligation or responsibility to update these statements.

CONTENTS

COMPANY PROFILE	5
BASIC INFORMATION OF THE COMPANY	6
PRINCIPAL FINANCIAL DATA AND INDICATORS	8
CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS	12
CHAIRWOMAN'S STATEMENT	17
BUSINESS REVIEW AND PROSPECTS	21
MANAGEMENT'S DISCUSSION AND ANALYSIS	34
SIGNIFICANT EVENTS	60
CORPORATE GOVERNANCE	71
REPORT OF THE BOARD	87
REPORT OF THE SUPERVISORY COMMITTEE	102
DIRECTORS, SUPERVISORS, OTHER MEMBERS OF SENIOR MANAGEMENT AND EMPLOYEES	106
FINANCIAL STATEMENTS	120
DOCUMENTS FOR INSPECTION	204

COMPANY PROFILE

The Group is a leading energy and chemical engineering company in the PRC with strong international competitiveness and can provide domestic and overseas clients with overall solutions for petrol refining, petrochemicals, aromatics, coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation facilities, environmental protection and energy saving, among other industry sectors. The Group is an integrated service provider for the whole industry chain and the whole life cycle in energy and chemical industry and can provide overall industry chain services including engineering consulting, technology licensing, project management contracting, financing assistance, EPC (engineering, procurement and construction) contracting, as well as design, procurement, construction and installation, lifting and transportation of large equipment, precommissioning and start-up.

After nearly 70 years of continuous development, the Group currently has an academician of the Chinese Academy of Sciences, three academicians of the Chinese Academy of Engineering and more than 10,000 professionals. The Group has rich project management and implementation experience, and owns and cooperatively owns patents and know-how in core business areas. The Group has delivered on schedule hundreds of modern factories with enormous investment, complicated process, advanced technology and high quality to clients in more than 20 countries and regions around the world, established long-term and steady cooperative relationships with large energy and chemical enterprises at home and abroad, maintained an extensive and stable client base, and enjoys remarkable industrial influence and social reputation.

In the future, adhering to the development orientation of "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry", the Group will base itself on the energy and chemical engineering construction industry, continuously broaden its business scope and extend its value chain, comprehensively improve the level of safe, efficient, green and lowcarbon service in the business chain through "differentiated development, international operation, digital transformation and intelligent upgrading", and create a new momentum in achieving the corporate vision of "building the world ' s l e a d i n g t e c h n o l o g y - o r i e n t e d engineering company".

BASIC INFORMATION OF THE COMPANY

LEGAL NAME 中石化煉化工程(集團)股份有限公司

CHINESE ABBREVIATION 中石化煉化工程

ENGLISH NAME SINOPEC ENGINEERING (GROUP) CO., LTD.

ENGLISH ABBREVIATION SINOPEC SEG

LEGAL REPRESENTATIVE Mdm. SUN Lili

AUTHORISED REPRESENTATIVES Mr. JIANG Dejun Mr. JIA Yiqun

COMPANY SECRETARY Mr. JIA Yiqun

REGISTERED ADDRESS

Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC

CORRESPONDENCE ADDRESS

Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC

Postcode: 100029

Tel: +8610-5673-0522

Website: www.segroup.cn

E-mail: seg.ir@sinopec.com

WEBSITES ON WHICH THIS

ANNUAL REPORT IS PUBLISHED

Website designated by The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"):

http://www.hkex.com.hk The Company's website:

http://www.segroup.cn

PLACE WHERE THIS ANNUAL REPORT IS AVAILABLE FOR INSPECTION

Company Office (Office of the Board) SINOPEC ENGINEERING (GROUP) CO., LTD. Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC

PLACE OF LISTING OF SHARES, STOCK NAME AND STOCK CODE

H Shares: Hong Kong Stock Exchange Stock name: SINOPEC SEG Stock code: 2386

UNIFORM SOCIAL CREDIT CODE 911100007109349087

NAMES AND ADDRESSES OF AUDITORS PRC:

BDO China Shu Lun Pan Certified Public Accountants LLP Room 1410, Fanli Building, No. 22 Chaoyangmenwai Street, Chaoyang District Beijing, the PRC Overseas: BDO Limited

25th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong

NAME AND ADDRESS OF LEGAL ADVISORS PRC:

Beijing King & Wood Mallesons 17th-18th Floor, East Tower, World Financial Center, 1 Dongsanhuan Zhonglu, Chaoyang District, Beijing Hong Kong: Kirkland & Ellis 26th Floor, Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong

PRINCIPAL FINANCIAL DATA AND INDICATORS

Principal Financial Data and Indicators

Summary of Financial Data and Indicators Prepared in Accordance with International Financial Reporting Standards ("IFRS")

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

Unit: RMB'000

			Year ended 31 December			Changes over
Items	2020	2019	2018	2017	2016	the same period of 2019 (%)
Revenue	52,352,584	52,261,051	47,019,024	36,208,723	39,402,331	0.2
Gross prot	5,714,072	5,482,733	5,195,574	4,026,172	4,295,415	4.2
Operating prot	2,204,379	2,017,007	1,435,534	1,112,267	1,942,256	9.3
Prot before taxation	3,010,562	2,827,400	2,121,515	1,635,101	2,376,776	6.5
Prot 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 ow generated from operating activities	2,956,836	300,047	6,104,192	4,240,508	4,670,772	885.5
Net cash ow generated from operating activities per share (RMB)	0.67	0.07	1.38	0.96	1.05	885.5

Unit: RMB'000

		Year ended 31 December
Items	2020	2019	2018	2017	2016
Gross prot margin (%)	10.9	10.5	11.0	11.1	10.9
Net prot 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

Items	As at	As at	As at	As at	As at
	31 December	31 December	31 December	31 December	31 December
	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

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

	As at 31 December 2019			Increase/Decrease during the Reporting Period (+, -)			As at 31 December 2020
	Number	Percentage (%)	New shares issued	Others	Subtotal	Number	Percentage (%)
Promoter shares (Domestic Shares)	2,967,200,000	67.01	–	–	–	2,967,200,000	67.01
Foreign shares listed overseas (H Shares)	1,460,800,000	32.99	–	–	–	1,460,800,000	32.99
Total number of shares	4,428,000,000	100.00	–	–	–	4,428,000,000	100.00

Changes in Share Capital and Shareholdings of Substantial

2 Shareholdings of Substantial Shareholders

1 Changes in the Share Capital of the Company

As at the end of the Reporting Period, there were a total of 937 shareholders of the Company. As at 22 March 2021, the public float of the Company satisfied the minimum requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Hong Kong Listing Rules") according to the information publicly available to the Company and to the knowledge of the Directors.

(1) Shareholdings of the top ten shareholders

Shareholders

		Number of		Percentage as at the end of the Reporting Period
Name of Shareholders	Increase/ Decrease during the Reporting Period (+, -)	Domestic Shares held as at the end of the Reporting Period	Number of H Shares held as at the end of the Reporting Period	In total share capital (%)	In relevant class of shares (%)
China Petrochemical Corporation (1)	0	2,967,200,000	–	67.01	100.00
HKSCC NOMINEES LIMITED	-23,104,550	–	1,433,335,289	32.37	98.12
TANG KEUNG LAM	+20,000,000	–	20,000,000	0.45	1.37
ZHANG SAIYU	+1,600,000	–	3,600,000	0.08	0.25
HUI MO CHEE	+5,000,000	–	500,000	0.01	0.03
POON MING YAU	+310,000	–	310,000	0.01	0.02
WONG CHOK SHUN	+300,000	–	300,000	0.01	0.02
WONG CHUI CHUNG	0	–	295,000	0.01	0.02
HUI SIU SHUN WAN	+200,000	–	200,000	0.00	0.01
CHAN LAI KUEN SELINA	0	–	195,000	0.00	0.01
WONG CHUI CHUNG	0	–	195,500	0.00	0.01
Statement on the connected relationship or acting in concert among or between the		The Company is not aware of any connection or acting in concert among or

aforementioned shareholders

between the aforementioned top ten shareholders

Unit: Share

(2) Information disclosed according to the Securities and Futures Ordinance

In accordance with the archiving notice submitted through Disclosure of Interests Online System, save as the information disclosed below, as at the end of the Reporting Period, to the knowledge of the Board, no person(s) (other than a Director, chief executive of the Company or supervisor of the Company (the "Supervisor")) had an interest or short position in the shares or underlying shares or debentures of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (the "SFO") or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying the rights to vote in all circumstances at general meetings of the Company:

Name of Shareholders	Class of share	Capacity	Number of shares with interests held or regarded as being held (Share)	Percentage in shares of the Company of the same class (%)(7)	Percentage in the total share capital of the Company (%)(8)
China Petrochemical Corporation (1)	Domestic Share	Beneficial owner/Interests of controlled corporation	2,967,200,000 (L)	100.00 (L)	67.01 (L)
		Interests of controlled	109,684,166 (L)	7.50 (L)	2.48 (L)
JPMorgan Chase & Co. (2)	H Share	corporation/Investment manager/Persons having a	10,767,087 (S)	0.73 (S)	0.24 (S)
		security interest in shares/ Approved lending agent	68,560,091 (P)	4.69 (P)	1.54 (P)
Pandanus Associates Inc. (3)	H Share	Interests of controlled corporation	103,552,853 (L)	7.09 (L)	2.34 (L)
Pandanus Partners L.P. (3)	H Share	Interests of controlled corporation	103,552,853 (L)	7.09 (L)	2.34 (L)
FIL Limited (3)	H Share	Interests of controlled corporation	103,552,853 (L)	7.09 (L)	2.34 (L)
Eastspring Investments (4)	H Share	Beneficial owner	88,261,500 (L)	6.04 (L)	1.99 (L)
Prudential plc (5)	H Share	Interests of controlled corporation	114,774,000 (L)	7.85 (L)	2.59 (L)
Brown Brothers Harriman & Co. (6)	H Share	Agent	102,321,779 (L) 102,321,779 (P)	7.00 (L) 7.00 (P)	2.31 (L) 2.31 (P)

Notes: (L): long position; (S): short position; (P): lending pool.

Notes:

• (1) China Petrochemical Corporation ("Sinopec Group") directly and/or indirectly holds 2,967,200,000 domestic shares of the Company ("Domestic Shares"), representing 100% of the Domestic Shares and approximately 67.01% of the total share capital of the Company, respectively. Sinopec Assets Management Co., Ltd. is a wholly-owned subsidiary of Sinopec Group and directly holds 59,344,000 Domestic Shares, representing 2.00% of the Domestic Shares and approximately 1.34% of the total share capital of the Company, respectively. For the purposes of the SFO, Sinopec Group is also deemed to be interested in the Domestic Shares held by Sinopec Assets Management Co., Ltd.
• (2) The information is based on the Corporate Substantial Shareholders Notice dated 7 December 2020 and filed by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.
• (3) The information is based on the Corporate Substantial Shareholders Notices dated 26 November 2020 and filed by Pandanus Associates Inc., Pandanus Partners L.P. and FIL Limited with the Hong Kong Stock Exchange. According to these notices, Pandanus Associates Inc. holds 100% interest in Pandanus Partners L.P. and Pandanus Partners L.P. holds 37.01% interest in FIL Limited.
• (4) The information is based on the Corporate Substantial Shareholders Notice dated 15 June 2020 and filed by Eastspring Investments with the Hong Kong Stock Exchange.
• (5) The information is based on the Corporate Substantial Shareholders Notice dated 2 December 2020 and filed by Prudential plc with the Hong Kong Stock Exchange.
• (6) The information is based on the Corporate Substantial Shareholders Notice dated 7 April 2020 and filed by Brown Brothers Harriman & Co. with the Hong Kong Stock Exchange.
• (7) It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.
• (8) It is calculated on the basis that the Company has issued 4,428,000,000 shares in total.

CHAIRWOMAN'S Statement

Mdm. SUN Li Li Chairwoman of the Board

Dear shareholders and friends,

First of all, I would like to thank all shareholders for the trust. On behalf of the Board, the management and all employees, I would like to express my heartfelt thanks to all shareholders and all sectors of society for their care and support of the Group!

Looking back at the past year, what we faced were immense tasks and severe and complicated external environment caused by the sudden outbreak and spread of COVID-19 epidemic, global economic recession, volatile oil price, and other multiple factors, which severely impacted the industrial chain and supply chain of petrochemical industry. Facing all the challenges, we carried out plans and decisions and continued to advance innovations, giving better play the role of engineering services of refining and petrochemical integration. We attained a series of achievements and scored qualified answers for the whole year.

In 2020, the Group achieved good operating results in adversity. Our operation abides by the international accounting standards, for the year 2020, the revenue of the Company was RMB52.353 billion; the net profit was RMB2.382 billion, representing an increase of 9.1% on a year-on-year basis. The total new contract value was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis; as at the end of 2020, the backlog of the Group was RMB105.655 billion, representing an increase of 11.2% as compared to that as at the end of 2019. After due consideration of the Group's earnings, return to the shareholders and the needs for future sustainable development, the Board recommended a final dividend of RMB0.187 per Share for the year 2020. After taking into account the interim dividend of RMB0.113 per Share, the total dividend for the year will be RMB0.300 per Share, with a dividend payout ratio of 56%.

In 2020, the Group actively responded to changes. Facing the

epidemic, we have merged and coexisted with our customers to overcome the difficulties. We built more than 100 projects in over 20 countries around the world, and we had more than 100,000 people stayed at the project sites. We adhered to sound epidemic prevention and control measures, created conditions for efficient and orderly resumption of work and production, and achieved the completion and commissioning of crude oil commercial storage in only eight months. A number of refining and chemical integration projects, such as Zhongke Refining & Chemical project and Sinochem Quanzhou project , have been completed with high standards, which have actively helped improve quality and efficiency in the petrochemical field. In respect of scientific and technological innovations, the Company closely focused on the new needs of the refining and chemical industry, and simultaneously carried out the research and development of equipment technology and construction methods as well as the research and development of process technology. As a result, the ability of technological efficiency creation was significantly enhanced and the development foundation was more solid.

In 2020, the level of corporate governance has been steadily improved. The Board insisted on standardised operation. All Directors earnestly complied with applicable PRC laws and regulations, the articles of association of the Company (the "Articles") and the responsibilities vested by the shareholders general meetings, worked diligently and responsibly, made sound decisions, and ensured the implementation of the resolutions passed at the general meetings, with the role of independent directors being well recognised. The Board strengthened the corporate governance, emphasised the Shareholders' returns, strengthened communication with stakeholders, continuously improved the transparency of the Company, and achieved satisfactory results in all respects of its work.

In 2020, the Group has actively fulfilled the corporate social responsibility. During the most severe epidemic period, the construction of production line of meltblown cloth was completed in only 27 days, which alleviated the shortage of core raw materials for masks. We quickly established a cloud platform, implemented one-to-one remote diagnosis and optimization of petrochemical plants and coordinated online and offline services, which enabled disinfectant and other production lines to run under high load and ensured the efficient supply of anti-epidemic materials. The Group has actively researched and developed new green and environment friendly technologies, such as zero-emission treatment of high-salt wastewater from the coal chemical industry, to promote the sustainable development of the refining and chemical industry and has taken practical actions to protect the clear water and blue sky.

Looking forward to 2021, the challenges are severe, yet the opportunities are vast. Among them, the challenges are mainly manifested in three aspects: First, the epidemic is still spreading, the endogenous power of world economic growth is insufficient, the growth rate of refining and chemical industry market is obviously slowing down, and there are many uncertain factors in the new coal chemical business. Second, engineering construction enterprises are confronted with the new challenges of "one high and three difficulties", (high project construction goals, difficulty in core technologies breakthrough, difficulty in system integration and innovation, difficulty in project implementation management). Third, the green and low-carbon development strategy with the goal of "carbon peaking" and "carbon neutrality" has put forward new requirements for the Group's technology research and development and engineering transformation capabilities. In the face of challenges, we are making overall analysis, and we will still have many new opportunities in the coming year. First, the new development pattern, in which the domestic circulation will be given priority and the domestic circulation and international circulation promote positive interplay, will bring more market opportunities for the Group. Second, China will strive to expand two-way trade and investment cooperation with countries along the "The Belt and Road", which also provides a more favorable opportunity for the Group to expand overseas business. Third, Sinopec's industrial pattern of "One Foundation of energy and resources, Two Wings of clean fuels and advanced chemicals, and Three Growth Drivers in new energy, new materials and new economy" and "world's leading development strategy" will further stimulate new momentum.

The state's strategic layout, the transformation needs of the industry, the needs of customers and the expectations of shareholders are the inexhaustible motive force for the Company. In 2021, we will continue to improve and implement the development program under the "14th Five-Year Plan", and comprehensively start the new journey of building "the world's leading technology-oriented engineering company". We will take "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry" as our development orientation. First, we will focus on engineering innovation. We will implement the integrated management of the whole process in many fields, continue to build a target system for the integration and symbiosis of refining and chemical engineering, ecological environment and social interests, and increase research efforts in areas such as transitions from refining to petrochemical, high-end materials and key core technologies of hydrogen energy industry chain. At the same time of process research and development, we will simultaneously develop equipment manufacturing and precision control, quickly form technological achievements with market influence, and promote the green and safe development of industry. Second, we will focus on value creation. We will intensify local innovation and system optimization, improve the service ability of engineering and technology in the whole industry chain, and realize the high-quality and efficient construction of projects; coordinate the promotion of engineering digital twinning and intelligent manufacturing of petrochemical plants, and help the transformation and development of traditional petrochemical industry through digitalization.

Our initial intention leads our path ahead, and the mission calls for responsibility. I firmly believe that with the unremitting efforts of the Board, the management and all employees, and with the strong support of shareholders and all sectors of society, we will be able to continuously enhance the core competitiveness, comprehensive strength, ability of sustainable development and risk resistance, delivering benefits to shareholders, customers, society, and our employees.

SUN Lili Chairwoman of the Board Beijing, the PRC 22 March 2021

BUSINESS REVIEW AND PROSPECTS

1 Business Review

Mr. JIANG Dejun

Director and President

(1) Market Environment

In 2020, the COVID-19 epidemic broke out in the world, and the international crude oil price experienced a unprecedented plummet, resulted by the sharply declining market demand. Facing a more complicated and severe external environment, the Chinese government adhered to the general principle of pursuing progress while ensuring stability, coordinating efforts to advance both the epidemic prevention and control and economic and social development. As a result, the economy recovered smoothly. The gross domestic product of China in 2020 increased by 2.3%, making China the only major economy with positive economic growth in the world.

2020 is the final year of the "13th Five-Year Plan". Since the beginning of the "13th Five-Year Plan", fostering new growth drivers and transforming to low-carbon has been taken as the general principle of development by Chinese energy industry. New breakthroughs were made in market-orientated reforms of the entire industrial chain in refining and petrochemical industry, improving the overall productivity and forming a diversified competition pattern.

In 2020, the surplus of global refining capacity was still existed, accelerating integration and shutdown. Because potential projects in overseas were stalled, the domestic petrochemical industry obtained a window of opportunity in expanding capacity and increasing benefits. Numerous refining and petrochemical integration projects came on stream, expanding the scale of the industrial chain and boosting the self-sufficiency of the overall industry. The domestic crude oil stockpiles obtained expansion opportunities because of the plunged international crude oil price in 2020, and the construction of crude oil storage facilities were accelerated. The demand of clean energy, represented by natural gas, increased steadily, making the natural gas and related industries show a considerable potential.

(2) Operation Overview

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-on-year 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:

		Year ended 31 December
	2020			2019
	Revenue	Percentage of total revenue	Revenue	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
Engineering, consulting and licensing	3,695,022	6.2	2,802,805	4.7	31.8
EPC Contracting	33,577,673	56.0	32,438,087	54.4	3.6
Construction	21,912,398	36.5	23,723,645	39.8	(7.6)
Equipment manufacturing	761,389	1.3	611,368	1.1	24.5
Subtotal	59,946,482	100.0	59,575,905	100.0	0.6
Total (after inter-segment elimination)(1)	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. Inter-segment 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.

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

		2020	2019
	Revenue	Percentage of total revenue	Revenue	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
Oil rening	11,941,849	22.8	19,399,122	37.1	(38.4)
Petrochemicals	29,839,940	57.0	25,146,107	48.1	18.7
New coal chemicals	3,649,328	7.0	4,109,700	7.9	(11.2)
Other industries	6,921,467	13.2	3,606,122	6.9	91.9
Total	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-on-year basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong'An Joint Coalification Integration Project.

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

	2020		2019
	Revenue	Percentage of total revenue	Revenue	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
PRC	47,629,649	91.0	42,551,448	81.4	11.9
Overseas	4,722,935	9.0	9,709,603	18.6	(51.4)
Total	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-on-year 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.

(3) Business Highlights

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%.

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-onyear 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.

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.

The advantages of engineering technology innovation are obvious

Steady progress in research and development of engineering technologies and major progress in key scientic 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.

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.

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 this 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.

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 "cross-checking", 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.

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 group-wide 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. The Group has established the Russian subsidiary to provide more efficient service to overseas projects and owners.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 ANNUAL REPORT 31

2 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 highquality 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.

(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.

(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.

(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.

(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.

(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.

(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.

(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.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion and analysis should be read in conjunction with the Group's audited financial statements and the accompanying notes contained in this annual report. The relevant financial data below, unless otherwise stated, are extracted from the Group's audited financial statements prepared according to the IFRS.

Management

s Discussion and Analysis '

1 Consolidated Results of Operations

The following table sets forth the consolidated statement of prot or loss and comprehensive income of the Group for the indicated years.

	2020		2019
	Amount	Percentage of total revenue	Amount	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
Revenue	52,352,584	100.0	52,261,051	100.0	0.2
Cost of sales	(46,638,512)	(89.1)	(46,778,318)	(89.5)	(0.3)
Gross prot	5,714,072	10.9	5,482,733	10.5	4.2
Other income	463,852	0.9	254,958	0.5	81.9
Selling and marketing expenses	(134,841)	(0.3)	(131,243)	(0.3)	2.7
Administrative expenses	(1,255,804)	(2.4)	(1,281,950)	(2.5)	(2.0)
Research and development costs	(2,175,183)	(4.2)	(2,136,152)	(4.1)	1.8
Other operating expenses	(420,877)	(0.8)	(191,263)	(0.4)	120.1
Other gains – net	13,160	0.0	19,924	0.0	(33.9)
Operating prot	2,204,379	4.2	2,017,007	3.9	9.3
Finance income	881,495	1.7	897,375	1.7	(1.8)
Finance expenses	(90,390)	(0.2)	(111,130)	(0.2)	(18.7)
Finance income – net	791,105	1.5	786,245	1.5	0.6
Share of (losses)/prots of joint arrangements	(41)	(0.0)	650	0.0	–
Share of prot of associates	15,119	0.0	23,498	0.0	(35.7)
Prot before taxation	3,010,562	5.8	2,827,400	5.4	6.5
Income tax expense	(628,356)	(1.2)	(643,881)	(1.2)	(2.4)
Prot for the year	2,382,206	4.6	2,183,519	4.2	9.1

(1) Revenue

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

(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.

(3) Gross prot

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-onyear increase in gross profit and gross profit margin.

(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.

(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.

(6) Administrative expenses

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

(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.

(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.

(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.

(10) Operating prot

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.

(11) Finance income – net

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

(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-on-year basis. The change in the effective income tax rate was mainly due to the profit fluctuation of certain subsidiaries with different tax rates.

(13) Prot 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.

2 Discussion on the Results by Business Segments

The following table sets forth the revenue, gross prot, gross prot margin, operating prot and operating prot margin of each of our business segments for the periods indicated:

	Segment revenue			Segment gross prot		Segment gross prot margin		Segment operating prot		Segment operating prot margin
	Year ended 31 December		Year ended 31 December		Year ended 31 December		Year ended 31 December		Year ended 31 December
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
		(RMB'000)		(RMB'000)		(%)	(RMB'000)			(%)
Engineering, consulting and licensing	3,695,022	2,802,805	1,195,430	876,784	32.4	31.3	62,397	28,094	1.7	1.0
EPC Contracting	33,577,673	32,438,087	3,056,335	2,991,727	9.1	9.2	1,696,337	1,666,605	5.0	5.1
Construction	21,912,398	23,723,645	1,406,374	1,597,710	6.4	6.7	296,752	292,169	1.4	1.2
Equipment manufacturing	761,389	611,368	55,933	16,512	7.3	2.7	1,027	(6,882)	0.1	(1.1)
Unallocated	N/A	N/A	N/A	N/A	N/A	N/A	147,866	37,021	N/A	N/A
Subtotal	59,946,482	59,575,905	5,714,072	5,482,733	N/A	N/A	2,204,379	2,017,007	N/A	N/A
Total after inter-segment elimination (3)	52,352,584	52,261,051	5,714,072	5,482,733	10.9(1)	10.5(1)	2,204,379	2,017,007	4.2(2)	3.9(2)

Notes:

(1) Total gross profit margin is calculated based on total gross profit divided by total revenue, and total revenue is the gross earnings generated after inter-segment elimination in all the business segments.

(2) Total operating profit margin of the segment is calculated based on the total operating profit of the segment divided by total revenue, and total revenue is the gross earnings generated after inter-segment elimination in all the business segments.

(3) Inter-segment elimination is mainly caused by the inter-segment sales made by the engineering, consulting and licensing, construction and equipment manufacturing segments to the EPC Contracting segment. Other information on inter-segment sales is set out in Note 7 to the financial statements contained in this annual report.

Engineering, Consulting and Licensing

The operating results of the Group's engineering, consulting and licensing business are as follows:

2020 2019
Percentage of Amount segment revenue Amount	Percentage of segment revenue
(RMB'000) (RMB'000) (%)	(%)
Revenue 3,695,022 100.0 2,802,805	100.0
Cost of sales 2,499,592 (67.6) (1,926,021)	(68.7)
Gross prot 1,195,430 32.4 876,784	31.3
Selling and marketing expenses (32,269) (0.9) (27,975)	(1.0)
Administrative expenses (250,032) (6.8) (240,096)	(8.6)
Research and development costs (674,861) (18.3) (649,574)	(23.2)
Other income and expenses (175,871) (4.8) 68,955	2.5
Operating prot 62,397 1.7 28,094	1.0

(1) Revenue

The revenue generated from the Group's engineering, consulting and licensing segment increased by 31.8% from RMB2.803 billion for the year ended 31 December 2019 to RMB3.695 billion for the year ended 31 December 2020, which was mainly due to the increase in engineering business volume.

(2) Cost of sales

The cost of sales of the Group's engineering, consulting and licensing segment increased by 29.8% from RMB1.926 billion for the year ended 31 December 2019 to RMB2.500 billion for the year ended 31 December 2020, which was mainly due to the cost increase corresponding to the increase of business volume.

(3) Gross prot

The gross profit of the Group's engineering, consulting and licensing segment increased by 36.3% from RMB877 million for the year ended 31 December 2019 to RMB1.195 million for the year ended 31 December 2020, the gross profit margin increased from 31.3% for the same period of last year to 32.4%, which was mainly due to the increase in revenue of the segment being greater than the increase in cost.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's engineering, consulting and licensing segment were RMB32 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's engineering, consulting and licensing segment were RMB250 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's engineering, consulting and licensing segment increased by 3.9% from RMB650 million for the year ended 31 December 2019 to RMB675 million for the year ended 31 December 2020, which was mainly due to the increase in R&D investment in new technologies and new processes by the Group.

(7) Operating prot

Due to the above reasons, the operating profit of the Group's engineering, consulting and licensing segment increased by 122.1% from RMB28 million for the year ended 31 December 2019 to RMB62 million.

EPC Contracting

The operating results of the Group's EPC contracting business are as follows:

		Year ended 31 December
	2020		2019
	Amount	Percentage of segment revenue	Amount	Percentage of segment revenue
	(RMB'000)	(%)	(RMB'000)	(%)
Revenue	33,577,673	100.0	32,438,087	100.0
Cost of sales	(30,521,338)	(90.9)	(29,446,360)	(90.8)
Gross prot	3,056,335	9.1	2,991,727	9.2
Selling and marketing expenses	(53,720)	(0.2)	(51,581)	(0.2)
Administrative expenses	(422,492)	(1.3)	(412,921)	(1.3)
Research and development costs	(922,620)	(2.7)	(903,451)	(2.8)
Other income and expenses	38,834	0.1	42,831	0.1
Operating prot	1,696,337	5.1	1,666,605	5.1

(1) Revenue

The revenue generated from the Group's EPC contracting segment increased by 3.5% from RMB32.438 billion for the year ended 31 December 2019 to RMB33.578 billion for the year ended 31 December 2020, which was mainly due to the revenue contribution 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.

(2) Cost of sales

The cost of sales of the Group's EPC contracting segment increased by 3.7% from RMB29.446 billion for the year ended 31 December 2019 to RMB30.521 billion for the year ended 31 December 2020, which was mainly due to the large EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project and SINOPEC SABIC Polycarbonate Project entering the peak period of equipment and materials procurement, which increased the equipment and materials costs.

(3) Gross prot

Due to the above reasons, the gross profit of the Group's EPC contracting segment increased by 2.2% from RMB2.992 billion for the year ended 31 December 2019 to RMB3.056 billion for the year ended 31 December 2020, and the gross profit margin decreased from 9.2% to 9.1% on a year-on-year basis.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's EPC contracting segment were RMB54 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's EPC contracting segment were RMB422 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's EPC contracting segment were RMB923 million, which remained broadly stable on a year-on-year basis.

(7) Operating prot

Due to the above reasons, the operating profit of the Group's EPC contracting segment increased by 1.8% from RMB1.667 billion for the year ended 31 December 2019 to RMB1.696 billion for the year ended 31 December 2020.

Construction

The operating results of the Group's construction business are as follows:

			Year ended 31 December
	2020		2019
	Amount	Percentage of segment revenue	Amount	Percentage of segment revenue
	(RMB'000)	(%)	(RMB'000)	(%)
Revenue	21,912,398	100.0	23,723,645	100.0
Cost of sales	(20,506,024)	(93.6)	(22,125,935)	(93.3)
Gross prot	1,406,374	6.4	1,597,710	6.7
Selling and marketing expenses	(44,740)	(0.2)	(47,842)	(0.2)
Administrative expenses	(565,219)	(2.6)	(610,989)	(2.6)
Research and development costs	(576,393)	(2.6)	(581,717)	(2.5)
Other income and expenses	76,730	0.4	(64,993)	(0.3)
Operating prot/(losses)	296,752	1.4	292,169	1.2

(1) Revenue

The revenue generated from the Group's construction segment decreased by 7.6% from RMB23.724 billion for the year ended 31 December 2019 to RMB21.912 billion for the year ended 31 December 2020, which was mainly due to the decreased business volume in construction.

(2) Cost of sales

The cost of sales of the Group's construction segment decreased by 7.3% from RMB22.126 billion for the year ended 31 December 2019 to RMB20.506 billion for the year ended 31 December 2020, which was mainly due to the decrease with reduction of business volume.

(3) Gross prot

Due to the above reasons, the gross profit of the Group's construction segment decreased by 12.0% from RMB1.598 billion for the year ended 31 December 2019 to RMB1.406 billion for the year ended 31 December 2020, and the gross profit margin decreased from 6.7% to 6.4% on a year-on-year basis, which were mainly due to the decrease in business volume of the construction segment and the impact of COVID-19 epidemic, the cost decrease is less than the revenue decrease.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's construction segment were RMB45 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's construction segment decreased by 7.5% from RMB611 million for the year ended 31 December 2019 to RMB565 million for the year ended 31 December 2020, which were mainly due to the year-on-year decrease in travel and office expenses.

(6) Research and development costs

The research and development costs of the Group's construction segment were RMB576 million, which remained broadly stable on a year-on-year basis.

(7) Operating prot

Due to the above reasons and the impact of the increase of government subsidies for enterprise's "Water/Electricity/Gas Supply and Property Management" in the Reporting Period, the operating profits of the construction segment of the Group increased by 1.6% from RMB292 million for the year ended 31 December 2019 to RMB297 million for the year ended 31 December 2020.

Equipment Manufacturing

The operating results of the Group's equipment manufacturing business are as follows:

	Year ended 31 December
	2020		2019
	Amount	Percentage of segment revenue	Amount	Percentage of segment revenue
	(RMB'000)	(%)	(RMB'000)	(%)
Revenue	761,389	100.0	611,368	100.0
Cost of sales	(705,456)	(92.7)	(594,856)	(97.3)
Gross prot	55,933	7.3	16,512	2.7
Selling and marketing expenses	(4,112)	(0.5)	(3,845)	(0.6)
Administrative expenses	(18,061)	(2.4)	(17,944)	(2.9)
Research and development costs	(1,309)	(0.2)	(1,410)	(0.2)
Other income and expenses	(31,424)	(4.1)	(195)	(0.0)
Operating prots/(losses)	1,027	0.1	(6,882)	(1.1)

(1) Revenue

The revenue generated from the Group's equipment manufacturing segment increased by 24.5% from RMB611 million for the year ended 31 December 2019 to RMB761 million for the year ended 31 December 2020, which was mainly due to the increased business volume in equipment manufacturing.

(2) Cost of sales

The cost of sales of the Group's equipment manufacturing segment increased by 18.6% from RMB595 million for the year ended 31 December 2019 to RMB705 million for the year ended 31 December 2020, which was mainly due to the cost increase with the increase of business volume.

(3) Gross prot

The gross profit of the Group's equipment manufacturing segment increased by 238.7% from RMB17 million for the year ended 31 December 2019 to RMB56 million for the year ended 31 December 2020, and gross profit margin increased from 2.7% to 7.3% on a year-on-year basis, which was mainly due to the greater contribution of revenue of some businesses with higher added value.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's equipment manufacturing segment were RMB4 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's equipment manufacturing segment were RMB18 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's equipment manufacturing segment were RMB1 million, which remained broadly stable on a year-on-year basis.

(7) Operating prots/(losses)

Due to the above reasons, the operating profit of the Group's equipment manufacturing segment increased from a loss of RMB7 million for the year ended 31 December 2019 to a profit of RMB1 million for the year ended 31 December 2020.

3 Discussion on the results by other classication

The following table sets forth the revenue generated from different industries in which the Group's clients operate:

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

During the Reporting Period, due to the revenue contribution of EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project and Zhenhai Refining and Chemical Ethylene Expansion 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-on-year basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong'An Joint Coalification Integration Project.

The following table sets forth the revenue generated from different regions where the Group's clients operate:

	Year ended 31 December
	2020		2019
	Revenue	Percentage of total revenue	Revenue	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
PRC	47,629,649	91.0	42,551,448	81.4	11.9
Overseas	4,722,935	9.0	9,709,603	18.6	(51.4)
Total	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 and SINOPEC SABIC Polycarbonate 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 yearon-year basis, which was affected by the global spread of COVID-19 epidemic and the settlement and completion for Kuwait Oil Refining Project.

The following table sets forth the revenue generated from services provided by the Group for (i) Sinopec Group and its associates; and (ii) non-Sinopec Group and its associates:

	Year ended 31 December
	2020		2019
	Revenue	Percentage of total revenue	Revenue	Percentage of total revenue	Change
	(RMB'000)	(%)	(RMB'000)	(%)	(%)
Sinopec Group and its associates	33,114,832	63.3	25,700,995	49.2	28.8
Non-Sinopec Group and its associates	19,237,752	36.7	26,560,056	50.8	(27.6)
Total	52,352,584	100.0	52,261,051	100.0	0.2

During the Reporting Period, the revenue generated from Sinopec Group and its associates was RMB33.115 billion, representing an increase of 28.8% on a year-on-year basis, and affected by the decline in income from overseas projects, the revenue generated from non-Sinopec Group and its associates was RMB19.238 billion, representing a decrease of 27.6% on a year-onyear basis.

4 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.

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

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

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:

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

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

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

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

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:

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

		Year ended 31 December
	2020	2019	Change
		(RMB'000)
Oil rening	14,566,521	14,058,072	3.6
Petrochemicals	28,626,388	24,035,891	19.1
New coal chemicals	1,837,419	7,012,922	(73.8)
Other industries	17,983,303	7,212,262	149.3
Total	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:

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

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:

	Year ended 31 December
	2020	2019	Change
		(RMB'000)
Sinopec Group and its associates	41,745,969	29,195,571	43.0
Non-Sinopec Group and its associates	21,267,662	23,123,576	(8.0)
Total	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.

5 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.

(1) Assets, Liabilities and Equity

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

Unit: RMB'000

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.

(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.

Unit: RMB'000

	Year ended 31 December
Major items of cash ow	2020	2019
Net cash generated from operating activities	2,956,836	300,047
Net cash (used in)/generated from investing activities	(2,951,614)	(5,889,979)
Net cash used in nancing activities	(1,255,306)	(1,505,020)
Net (decrease)/increase in cash and cash equivalents	(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 RMB225 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.

(3) Summary of Financial Ratios

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

	Year ended 31 December
Main nancial ratios	2020	2019
Net prot 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

Main nancial ratios	As at 31 December 2020	As at 31 December 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

		Profit for the year
(1)	Return on assets =	(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
(3)		Earnings before interest and tax (EBIT) for the year x (1 - effective income tax rate)
	Return on invested capital =	Total interest bearing debt at the end of the year - Credit loans + Total equity at the end of the year
(4)	Gearing ratio =	Total interest bearing debt at the end of the year
		Total interest bearing debt at the end of the year + Total equity at the end of the year
		Net debt at the end of the year
(5)	Net debt to equity ratio =	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.

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.

SIGNIFICANT EVENTS

1 Corporate governance

During the Reporting Period, the Company was in compliance with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and did not deviate from any code provision.

2 H Share Appreciation Rights Scheme

For the details of H Shares appreciation rights scheme of the Company, please refer to the announcements of the Company entitled "The Proposed Initial Terms of H Share Appreciation Rights Scheme" dated 21 August 2017, the circular of the Company in relation to the second extraordinary general meeting for the year 2017 dated 3 November 2017, the "Announcement in Relation to the Approval of the Proposed Initial Terms of H Share Appreciation Rights Scheme by the SASAC" dated 12 December 2017, the "Announcement of Resolutions Passed at the Second Extraordinary General Meeting for the Year 2017" dated 20 December 2017, the "Grant of H Share Appreciation Rights" dated 20 December 2017, the "Unfulfillment of the Conditions to the First Effective Phase of the Initial Grant Under the H Share Appreciation Rights Scheme" dated 30 July 2019, the contents in relation to the unfulfillment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme in the 2019 annual report, and the contents in relation to the unfulfillment of the conditions to the third effective phase of the Initial Grant under the H Share Appreciation Rights Scheme in this annual report.

Unfulfillment of the Conditions to the Third Effective Phases of the Initial Grant under the H Share Appreciation Rights Scheme

According to Article 23 of Chapter 7 of the H Share Appreciation Rights Scheme, the conditions upon which the granted H Share Appreciation Rights become effective include conditions based on the Group's performance and conditions based on the performance of the relevant incentive recipients. The performance evaluation benchmarks on the Group for the third effective phase are as follows:

• (1) the ROE of the financial year immediately before the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies
• (2) the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 29.3% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies
• (3) the EVA of the financial year immediately before the effective date shall not be less than RMB2.373 billion

The Company will use the financials prepared in accordance with the China Accounting Standards for Business Enterprises and the net profit after deduction of non-recurring profit or loss for the purposes of computing the ROE, the growth rate of revenue and the EVA stated above. The benchmark companies shall be those with similar business, in similar markets, with similar scale as the Group and with relatively stable historical operating performance.

The H Share Appreciation Rights initially granted by the Company on 20 December 2017 will enter into the third effective phase on 21 December 2021. According to the H Share Appreciation Rights Scheme, the "year before the third effective phase coming into effect" as specified in the conditions of the Initial Grant means the year of 2020. According to the audit report prepared by BDO China Shu Lun Pan Certified Public Accountants LLP, the domestic auditor of the Company, the ROE of the Company for the year of 2020 was 7.8%, the growth rate of revenue for the year of 2020 compared with that for the year of 2016 was 33.3%, and the EVA for the year of 2020 was RMB2.246 billion. Since the ROE for the year of 2020 is lower than 10.0%, and the EVA for the year of 2020 was less than RMB2.373 billion, the conditions to effect the H Share Appreciation Rights in the third effective phase of the Initial Grant were not fulfilled.

According to the authorisation granted to the Board at the second extraordinary general meeting for the year 2017, the Board has considered and approved a total of 4,468,620 units (representing 34% of the H Share Appreciation Rights under the Initial Grant) of H Share Appreciation Rights in the third effective phase of the Initial Grant shall be nullified in the fifteenth meeting of the Third Session of the Board convened on 20 March 2021.

During the Reporting Period, save for the above unfulfillment of the conditions to the third effective phases of the Initial Grant under the H Share Appreciation Rights Scheme, there are no other matters in relation to the number of units and the exercise price of the H Share Appreciation Rights. For details of the Company's H Share Appreciation Rights Scheme, please refer to Note 38 of the consolidated financial statements in this annual report.

3 The annual dividend distribution plan as at 31 December 2020

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 submitted to the annual general meeting of shareholders in 2020 for review and approval.

The final dividend 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 and 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.

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.

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 Shenzhen-Hong 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.

4 Connected Transactions

Continuing Connected Transactions between the Group and Sinopec Group

During the Reporting Period, the Group entered into a series of continuing connected transactions or agreements with Sinopec Group, including the following:

• (1) the Engineering and Construction Services Framework Agreement and the supplemental agreement;
• (2) the Financial Services Framework Agreement and the supplemental agreement;
• (3) the Technology R&D Framework Agreement and the supplemental agreement;
• (4) the General Services Framework Agreement and the supplemental agreement;
• (5) the Land Use Right and Property Lease Framework Agreement;
• (6) the Counter-guarantees provided by Sinopec Group;
• (7) the Safe Production Insurance Fund; and
• (8) the Trademark Licensing Agreement.

For further details, please refer to the section headed "Connected Transactions" in the Company's prospectus published on 10 May 2013, the Company's announcement entitled "Continuing Connected Transactions – Financial Services Framework Agreement" published on 19 August 2013, the contents related to the Financial Services Framework Agreement in the Company's circular to its shareholders published on 10 September 2013, the Company's announcement entitled "Adjustments to Annual Caps for Continuing Connected Transactions under the Technology R&D Framework Agreement" published on 17 March 2014, the contents in relation to the Financial Services Framework Agreement and the Engineering Services Framework Agreement in the Company's circular to its shareholders published on 15 September 2015, the Company's announcement entitled "Renewal of Technology R&D Framework Agreement, Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps" published on 31 August 2015, the Company's announcement entitled "Renewal of Technology R&D Framework Agreement, Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps and the Continuing Connected Transactions and Major Transactions under the Financial Services Framework Agreement" published on 15 September 2015, the Company's announcement entitled "Renewal of the General Services Framework Agreement, the Technology R&D Framework Agreement, the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps and Major Transactions and the Continuing Connected Transactions under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement" published on 21 August 2018 and the contents in relation to the Financial Services Framework Agreement and the Engineering Services Framework Agreement in the Company's circular to its shareholders published on 19 September 2018.

The Group's Connected Transactions

During the Reporting Period, the aggregate value of the connected transactions entered into by the Group was RMB37.334 billion. In particular, the expenses amounted to RMB3.513 billion and the revenue amounted to RMB33.821 billion (including RMB33.135 billion from the sale of products and services and RMB686 million from interest income), thus satisfying the exemption requirements specified by the Hong Kong Stock Exchange.

During the Reporting Period, the engineering and construction services (supply of equipment and materials, procurement of services and equipment leasing, technology licensing and other engineering-related services) provided by Sinopec Group to the Group amounted to RMB3.472 billion, which was within the annual cap. The engineering and construction services (engineering consulting, technology licensing, engineering design, EPC contracting, construction and equipment manufacturing, etc.) provided by the Group to Sinopec Group amounted to RMB32.932 billion, which was within the annual cap.

During the Reporting Period, the service fees in relation to the settlement and other financial services between the Group and Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited were RMB2 million, which was within the annual cap. The maximum daily balance of deposits and interest income was RMB7.873 billion, which was within the annual cap. The maximum daily balance of entrustment loans was RMB21 billion, which was within the annual cap.

During the Reporting Period, the technology R&D services provided by the Group to Sinopec Group amounted to RMB194 million, which was within the annual cap.

During the Reporting Period, the general services provided by Sinopec Group to the Group amounted to RMB35 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease Service provided by the Group to Sinopec Group amounted to RMB9 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease Service provided by Sinopec Group to the Group amounted to RMB3 million, which was within the annual cap.

In terms of the premium payable under the documents on safe production funds, the amount payable by the Group shall not be less than the amount specified in these documents.

For more information on the major related parties transactions (including the above-mentioned connected transactions) during the Reporting Period, please refer to Note 42 of the consolidated financial statements prepared in accordance with the IFRS in this annual report, among which the above transactions constitute connected transactions, and the Company has complied with the relevant requirements under Chapter 14A of the Hong Kong Listing Rules in relation to these connected transactions.

The above-mentioned connected transactions during the Reporting Period were approved at the tenth meeting of the Third Session of the Board. The connected transactions carried out during the Reporting Period are in compliance with the Hong Kong Listing Rules.

The external auditor of the Company was engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagement Other Than Audits or Reviews of Historical Financial Information" and Practice Note 740 "Auditor's Letter on Continuing Connected Transactions" under the Hong Kong Listing Rules" issued by Hong Kong Institute of Certified Public Accountants. The auditor has issued an unqualified letter containing the conclusions in respect of the above-mentioned continuing connected transactions in accordance with Rule 14A.56 of the Hong Kong Listing Rules and submitted a copy of the auditor's letter to the Hong Kong Stock Exchange.

66 SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 ANNUAL REPORT

Opinions of Independent Non-executive Directors on the Above-mentioned Continuing Connected Transactions (including Deposits and Entrustment Loan Transactions under the Financial Services Framework Agreement)

The independent non-executive Directors reviewed the nature, implementation of annual caps, pricing policy and internal control procedure of the above-mentioned continuing connected transactions (including deposits and entrustment loans under the Financial Services Framework Agreement), and confirmed as follows:

• (a) The transactions were entered into in the ordinary and usual course of business of the Group;
• (b) One of the following items was met:
• i The transactions were entered into on normal commercial terms;
• ii If there were not sufficient comparable transactions to decipher whether the transactions were on normal commercial terms, the transactions under the relevant agreements were entered into on terms no less favourable to the Company than terms available to or from independent third parties (as the case may be); or
• iii If there were no appropriate assessments to determine whether the transactions met the conditions under (i) and (ii) above, the transactions were entered into on terms that were fair and reasonable to the shareholders of the Company; and
• (c) The transactions were conducted in accordance with the relevant agreements and the terms are fair and reasonable and in the interests of the Company and the shareholders of the Company as a whole.

5 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.

6 Other Material Contracts

Save as disclosed in this annual report, the Group had no other contracts of significance which should be disclosed during the Reporting Period.

7 Repurchase, Sale and Redemption of Shares

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

8 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 this annual report.

9 Use of IPO Proceeds

During the Reporting Period, the Group used a total of RMB200 million net proceeds from the global offering, which was mainly used for newly added long-term equity investment amounted to RMB120 the purchase of large-scale lifting and transportation equipment and specialized construction equipment amounted to RMB36 million, the construction of engineering technology research and development center, modular construction base and mechanical manufacturing project amounted to RMB20 million, and the construction of information system amounted to RMB24 million. As at the end of the Reporting Period, the total amount of net proceeds from the global offering used by the Group amounted to RMB4.566 billion, and the remaining balance of the net proceeds from the global offering was approximately RMB6.591 billion (approximately RMB580 million of the unused net proceeds for establishing an engineering and technological R&D center, modular construction base and machinery manufacturing projects; approximately RMB300 million of the unused net proceeds for improving and developing overseas marketing networks; approximately RMB453 million of the unused net proceeds for information technology development projects; approximately RMB364 million of the unused net proceeds for purchasing large lifting and transport equipment and specialised construction equipment; approximately RMB1.035 billion of the unused net proceeds for newly added long-term equity investment; and approximately RMB3.859 billion of the unused net proceeds for mergers and acquisitions of engineering companies, purchase of patents and proprietary technologies and other items). The expected timeline for the use of net proceeds will be subject to the business development of the Company. The use of proceeds from the global offering by the Company is in consistence with that previously disclosed in the announcement. For details of the use of proceeds, please refer to the announcements of the Company entitled "Adjustment in Use of Proceeds from the Global Offering" dated 13 December 2013 and the "Adjustment in the Allocations of the Use of Proceeds from the Global Offering" dated 26 October 2018. During the Reporting Period, there was no material change to the use of proceeds from the global offering of the Group.

10 Assets Transactions

During the Reporting Period, the Group has no material assets transactions other than in the ordinary and usual course of business.

11 Insolvency and Restructuring

During the Reporting Period, the Group was not involved in any insolvency or restructuring matters.

12 Material Trusteeship, Contracting and Lease

During the Reporting Period, the Group was not involved in any material trusteeship, contracting or lease of any asset of other companies, nor placing its assets to or under any other companies' trusteeship, contracting or lease which were required to be disclosed.

13 Material Acquisitions and Disposal

During the Reporting Period, the Group has not made any material acquisition or disposal of subsidiaries, associates and joint ventures.

14 Financial Derivatives for Hedging Purposes

During the Reporting Period, the Group did not use any financial derivative for hedging purposes.

15 Pledged Assets

During the Reporting Period, the Group has no pledged assets.

16 Debt

The Group had USD25 million (about RMB163 million) loans to the fellow subsidiaries as at the end of the Reporting Period.

17 Contingent Liabilities

For details of the contingent liabilities of the Group, please refer to Note 41 to the financial statements contained in this annual report.

18 Review of Annual Report

The audit committee of the Company has reviewed this annual report. The audit committee did not have any disagreement concerning the financial statements contained in this 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.

19 Signicant Events Affecting the Group After the Reporting Periods

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

20 Other Important Matters

During the Reporting Period, none of the Company, the Board, any Director or any Supervisor was punished by administrative means or public sanctioned by Hong Kong Securities and Futures Commission, or publicly condemned by the Hong Kong Stock Exchange.

CORPORATE GOVERNANCE

1 Enhancement of Corporate Governance in the Reporting Period

During the Reporting Period, the Company was strictly in compliance with the domestic and foreign laws and regulations on securities regulation and continuously improved its corporate governance.

During the Reporting Period, in accordance with relevant domestic and foreign laws and regulations and its actual situation, the Company strictly standardised corporate governance based on the working rules, systems and norms such as the Rules and Procedures for the Shareholders Meetings, the Rules and Procedures for the Board Meetings and the Rules and Procedures for the Supervisory Committee and updated the internal documents in accordance with the Hong Kong Listing Rules and other applicable laws and regulations in a timely manner; continuously improved the quality of investor relations and information disclosure, receiving the recognition of the capital market; modified its internal control system to intensify the execution thereof.

During the Reporting Period, the Company further enhanced on-the-job trainings to enhance the awareness of responsibility of all Directors, Supervisors and its senior management (the "Senior Management"), optimised the procedures and detailed services. The Company also provided Directors with reports of "Company Information" every month, which provided the Directors with relevant data and information to make reasonable decisions. The Company also continued to enhance voluntary information disclosure and the relationship with investors by strengthening two-way communication and increasing the transparency of the Company. The Company actively performed its social responsibilities and promoted its sustainable development.

During the Reporting Period, the Supervisory Committee had no disagreement to any supervised matters. Furthermore, none of the Company, the Board, any Director, any Supervisor, any senior management member, any of the controlling shareholders or de facto controllers was punished by administrative means or public sanctioned by Hong Kong Securities and Futures Commission, or publicly condemned by the Hong Kong Stock Exchange.

2 Equity Interests of Directors, Supervisors and the Senior Management Members

During the Reporting Period, none of the Directors, Supervisors or any member of the Senior Management, as well as their respective associates had any interests or short positions in any Shares, underlying Shares or debentures of the Company or any associated corporations (as defined under Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 to the Hong Kong Listing Rules, to be notified to the Company and the Hong Kong Stock Exchange that are regarded, or treated as being held, in accordance with the SFO in the shares of the Company or any associated corporation. Based on specific enquiries to all Directors and Supervisors, all Directors and Supervisors have confirmed that they complied with the standards stipulated in the Model Code during the Reporting Period.

3 Conrmation of Independence of Independent Non-executive Directors and Overview of their Performance

The Company has a sufficient number of independent non-executive Directors with appropriate professional qualifications or accounting or related financial management expertise in accordance with the Hong Kong Listing Rules. The Company appointed three independent non-executive Directors, namely Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng. The Company received an annual confirmation letter from each of independent non-executive Directors regarding their compliance with relevant independence requirements set out in Rule 3.13 of the Hong Kong Listing Rules. The Company considers all of its independent non-executive Directors to be independent.

During the Reporting Period, the independent non-executive Directors earnestly fulfilled their responsibilities prescribed by relevant laws, regulations and the Articles of Association and made positive contributions to the development of the Group. They actively attended the meetings of the Board and its special committees (for details about the attendance of the meetings, please refer to the Report of the Board in this annual report), carefully reviewed relevant documents, and made judgment with their own expertise in offering advices and suggestions on the development strategy, production and operation, internal control, risk management and social responsibility of the Company. The independent non-executive Directors also provided independent opinions according to regulations on connected transactions, external guarantee, dividend distribution plan and appointment of senior management members of the Company. The independent non-executive Directors maintained timely and effective communications with the executive Directors, management, external auditors and internal supervision and audit department and conducted several domestic and overseas investigations or surveys to better understand the Company's practice on internal control, internal audit, risk management, environmental protection and social responsibility, information disclosure and oversea project implementation. The independent non-executive Directors also independently and objectively safeguarded the legitimate rights and interests of the Company and investors, especially the medium and minority investors, during the performance of their duties.

4 The Company's Independence from the Controlling Shareholder

After obtaining confirmations from the Company and Sinopec Group, the following statements are declared:

From 1 January 2020 to 31 December 2020, Sinopec Group complied with the principles and terms of the Non-Competition Agreement and the undertakings therein, fulfilled obligations and responsibilities in accordance with the Non-Competition Agreement and the undertakings therein, and did not violate the Non-Competition Agreement and the undertakings therein. The aforesaid was concluded based on Sinopec Group's overall review of the compliance with each provision (including but not limited to the provision of options for new business opportunities, options for acquisitions and pre-emptive rights) under the Non-Competition Agreement and the undertakings therein.

Opinions of the independent non-executive Directors of the Company regarding the compliance with the Non-Competition Agreement of Sinopec Group are as follows:

Based on the review of relevant situations, the independent non-executive Directors of the Company are of the view that during the Reporting Period, Sinopec Group performed and complied with the Non-Competition Agreement entered into with the Company.

5 Construction and Implementation of Internal Control System of the Group

Internal Control Construction

During the Reporting Period, the Company continued to improve the "Internal Control Manual of the Company" (the "Internal Control Manual"). Internal Control Manual regulates internal management, prevents operational risks and guarantees the realisation of the development strategies and operation goals of the Company. The Internal Control Manual was in compliance with domestic and overseas regulatory requirements such as the "Basic Standard for Internal Control of Enterprises", the "Implementation Guidelines for Internal Control of Enterprises", and the "Guidelines for Assessment of Internal Control of Enterprises", which was jointly issued by five ministries and commissions including the Ministry of Finance of PRC, as well as the requirements under the SFO and the Hong Kong Listing Rules, and established a comprehensive internal control system. The risk-oriented Internal Control Manual has realised the top-down integrated management of business processes, unification of internal management standards in business control, business management has realised the integration of risk, internal control and system. The Company pays high attention to the level of internal control and risk prevention. The internal control manual has further taken effective measures to strengthen internal control, leading to all-round enhancement of internal control.

Working Plans for Establishment and Improvement of Internal Control System and Implementation

The Company prepares annual goals and working plans with regard to internal control, and conducts comprehensive trainings, daily management and evaluation. Under the uniform deployment of the Company, the subsidiaries of the Company, through summary, revision and organisation of their respective management systems and implementation of various internal control requirements, has realised effective fusion of internal control, business and system. The Company has established three lines of defense for continuous supervision of internal control, namely, regular testing of departments (units) in charge of internal control, daily management of departments in charge of internal control, and comprehensive audit, inspection and evaluation, which as a whole form an internal control supervision and evaluation system.

Setup of Internal Control Examination and Supervision Department

The Department of Risk Management of the Company, which is assigned to administer the overall supervision of internal control, is responsible for the daily supervision of internal control and the organisation of individual inspection. The Supervision and Audit Department is in charge of internal control evaluations and independent comprehensive inspections and evaluation of internal control. The Company and its subsidiaries have established a two-level internal control inspection and evaluation system where the subsidiaries of the Company conduct self-inspections and evaluate internal control annually and the Company inspects the evaluation of internal control annually in a comprehensive manner.

Improvement of the Internal Control System Associated with Financial Accounting

The Internal Control Manual of the Company specifies the internal control requirements with regard to the financial statements and establishes connections with the professional management system. Fund and asset management, costs and expenses accounting and management, financial analysis and budget, connected transactions and the preparation of financial statements, are respectively included in the related work flow, control procedures and control points. At the same time, items and matters in accounting statements are connected with control measures, so that the internal control measures can provide reasonable assurance that the disclosed financial statements are authentic and reliable.

Internal Control Deciencies and Rectication

During the Reporting Period, no material internal control deficiency was identified. For the other general deficiencies of internal control discovered during the inspection, the management of the Company has designed and adopted various rectification measures, and discussed these measures with external auditors of the Company. After a follow-up examination, all internal control issues relating to financial reporting were rectified during the Reporting Period. Other management deficiencies were rectified or addressed by adopting the relevant rectification measures. The rectification was in compliance with relevant requirements.

Businesses with Sanctioned Countries

In 2016 and 2017, the Group entered into the engineering, procurement and construction ("EPC") contract with National Iranian Oil Engineering and Construction Company in relation to Iranian Abadan Refinery Product Upgrading Project Phase I and Phase II, respectively (the "Pertinent Projects"). For details, please refer to the announcements published by the Company on 22 February 2017, 27 December 2017 and 23 February 2018.

In order to monitor the possible sanction risks faced by the Company and ensure compliance with the related undertakings made to the Hong Kong Stock Exchange, the Company has adopted sufficient and effective internal control measures, including renewal of the appointment of outsourced international legal counsels with necessary expertise and experience in dealing with legal matters related with sanction and convening the risk management committee meetings to evaluate and monitor sanction risks faced by the Group. From 2016 to 2020, the Group completed evaluations on the legal and operating risks related with the Pertinent Projects and sanctions according to the internal control procedures and the relevant information. During the Reporting Period, the Company did not violate the related undertakings.

Arrangement for Internal Control by the Board

The Board will review the updated Internal Control Manual annually. The Board is responsible for the communication, supervision and inspection of internal and external auditing through the Audit Committee, as well as the inspection and supervision of the effectiveness of self-evaluation of internal control.

Inside information management system

During the Reporting Period, with due consideration of the information disclosure requirements under the Hong Kong Listing Rules and the Guideline for Disclosure of Inside Information issued by the Securities and Futures Commission in June 2012, the Group instructed special institution and staff to take responsibilities for the registration and management of persons who are aware of inside information. The Company also established the management archive of persons who are aware of inside information, updated the archive regularly and conducted regular trainings to persons who are aware of inside information and management staff, so as to strengthen their consciousness to comply with the relevant law.

The Group prohibits senior management members and employees who are likely to be aware of the Group's unpublished inside information or other information about the Group from using confidential or inside information without authorisation in accordance with the relevant stipulations of the Inside Information Disclosure Guideline. At the same time, in case of any enquiry about the affairs of the Group, only the secretary to the Board and the relevant authorised personnel are responsible for communicating with external persons.

6 Assessment and Incentive Mechanism for the Senior Management Members

The implementation details of the H shares appreciation rights scheme of the Group are set out in the section headed "SIGNIFICANT EVENTS – 2 H Share Appreciation Rights Scheme" from page 62 to page 63 of this annual report.

7 Corporate Governance Report (pursuant to the Hong Kong Listing Rules)

(1) Compliance with Corporate Governance Code

From the listing date of the Company to 31 December 2020, the Company was in compliance with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and did not deviate from any code provision.

A Board

A.1 Board

a. The Board is the decision-making body of the Company, and all decisions made by the Board are carried out by the management of the Company. The Board follows sound corporate governance practices and procedures, operates standardly, and commits itself to improving the corporate governance of the Company.

b. The Board holds at least four meetings annually. The Board communicates the time and subject matters 14 days prior to the meeting. The documents and materials for the meeting will usually be distributed 10 days in advance to each Director. In 2020, the Company held five Board meetings. For details of the attendance of each Director, please refer to the Report of the Board in this annual report.

c. Each member of the Board may submit proposals to be included in the agenda for Board meetings, and each Director is entitled to request other related information.

d. The Board reviewed and evaluated its performance for the past year. The Board was of the view that the composition of the Board was appropriate and balanced. The Board made decisions in compliance with domestic and foreign laws and regulations and the Company's internal rules, prudently listened to the report of the Supervisory Committee, and safeguarded the rights and interests of the Company and its Shareholders. The Directors and the Senior Management diligently fulfilled their responsibilities and actively took part in trainings and continuing professional development, which led to the improvement of governance of the Company.

e. The secretary to the Board and company secretary will assist the Directors in handling the routine tasks of the Board and continuously provide the Directors with and keep them informed of the regulations, policies and other requirements of domestic and overseas regulatory bodies in relation to corporate governance, and ensure that in performing their duties and responsibilities, the Directors comply with domestic and foreign laws and regulations as well as the Articles of Association. The Company has purchased liability insurance for all the Directors to minimise any risk which may arise from the performance of their duties.

A.2 Chairwoman of the Board and President

a. Mdm. SUN Lili serves as the Chairwoman of the Board, Mr. JIANG Dejun serves as the President. The Chairwoman of the Board is elected by the majority of the Directors, while the President is nominated and appointed by the Board. The duties and responsibilities of the Chairwoman of the Board and the President are clearly distinguished from each other and the scope of their respective duties and responsibilities are set out in the Articles of Association.

b. The Chairwoman of the Board highly values the communication with the independent non-executive Directors and will hold meetings with them at least once each year without the presence of other Directors.

c. The Chairwoman of the Board encourages open and active discussions. Directors may speak freely and actively participate in discussions on production and operation, corporate governance and material investments of the Company in Board meetings.

A.3 Board Composition

a. As at the date of this annual report, the Board consists of seven members, with one female Director (for details, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees" of this annual report). All Directors have rich experience in specialties and governance. Among the seven (7) members, there are 3 independent non-executive Directors. The independent non-executive Directors represent at least one-third of the Board. All the Directors are experienced in the management of refining and chemical engineering, or petroleum and petrochemical enterprise. The independent non-executive Directors are well-known technological experts of chemical engineering, financial and accounting, respectively, and have experiences in managing large corporations, capital operation and finance investments, respectively. The composition of the Board is reasonable and diversified.

b. There is no financial, business, family or other material/relevant relationship between the board members of the Company (especially between the Chairwoman of the Board and the President) except for the working relationship.

c. The Company received the confirmation letter for the year 2020 from each of the independent non-executive Directors regarding his compliance with relevant independence requirements as set out in Rule 3.13 of the Hong Kong Listing Rules. The Company considers each of the independent non-executive Directors to be independent.

A.4 Appointment, Re-election and Dismissal

a. The term of office of each Director (including non-executive Directors) is 3 years, and the term of office (excluding the first tenure) of any independent non-executive Director may not be renewed for more than 6 years. If an independent non-executive Director has already served 9 years, his further appointment shall be subject to a separate resolution to be approved at the Shareholders meeting.

b. All Directors will be elected through legal procedures, and the Board has no power to appoint temporary Directors.

c. For newly appointed Directors, the Company will engage professional consultants to prepare detailed materials, inform such Directors of regulatory requirements of the place where the Company is listed and remind such Directors of their rights, obligations and responsibilities.

A.5 Nomination Committee

a. The Company has established a nomination committee (the "Nomination Committee"). Mdm. SUN Lili, the Chairwoman of the Board, and is the chairwoman of the Nomination Committee. Mr. HUI Chiu Chung, Stephen, an independent non-executive Director, is the vice chairman of the Nomination Committee. Mr. XIANG Wenwu, the Vice Chairman of the Board, and Mr. JIN Yong and Mr. YE Zheng, each an independent non-executive Director, are members of the Nomination Committee. The terms of reference of the Nomination Committee have been established and are available on the websites of the Company and the Hong Kong Stock Exchange. The Nomination Committee will recommend the appointment or re-election of the Directors as well as the succession plan of Directors (especially the Chairwoman of the Board and the President of the Company), seek candidates for directorship with appropriate qualifications and competence; elect and nominate relevant personnel to be appointed as Directors, and propose recommendations thereof to the Board. The Nomination Committee is also responsible for evaluating the independence of independent non-executive directors.

b. After discussions and consideration, the Nomination Committee was of the view that the structure, number of members and composition of the Board in 2020 were reasonable and in consistence with the strategies of the Group.

c. Nomination Committee members may engage independent professionals when performing duties. Reasonable costs arising from or in connection with such consultation are borne by the Group. The expenses of the Nomination Committee will be included in the budget of the Company.

d. Please refer to the "Report of the Board – Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Nomination Committee.

e. The Board has established the Board Diversity Policy, which provides that the nomination and appointment of Board members should be based on the skills and experience necessary for the overall sound operation of the Board, with due considerations given to the goal and requirement for the diversification of Board members. When determining the composition of Board members, the Company should consider their diversity from multiple aspects, including but not limited to sex, age, culture, educational background, race, professional experience, skills, knowledge and length of service.

f. Board Diversity Policy has set up two measurable objectives, (1) to consider candidates for appointment as directors from a wide pool of talents taking into account the culture, educational background, expertise and professional experience, skills, experience, and other contributions that would complement the current needs of the Board, and (2) to review whether the composition and structure of the Board is suitable for the overall development strategy of the Group based on its business operation and the developmental need on an annual basis and to propose adjustment and implementation plans where appropriate.

During the Reporting Period, the progress made by the Group regarding such measurable objectives are as follows: (1) selection and appointment of the Directors of the Company is in compliance with the requirements of the Board Diversity Policy and in line with the overall development strategy of the Group. The Nomination Committee will identify the candidates for directorships and make recommendation to the Board according to the Board Diversity Policy of the Company for any replacement of Director or an addition to the Board. The Board would also appoint suitable candidates for directorship based on the overall development of the Group and the Board Diversity Policy of the Company; and (2) the current composition and structure of the Board of the Company is appropriate for the development need of the existing business operation of the Group and is conducive for providing the Company with extensive valuable advice and supervision on decision-making. The Company will continually assess the diversity of the Board and objectively consider the composition and effectiveness of the Board.

A.6 Responsibility of Directors

a. All the non-executive Directors of the Company have the same duties and authorities as executive Directors. In addition, the non-executive Directors, especially the independent non-executive Directors, are vested certain specific powers. The rights and obligations of Directors and non-executive Directors (including the independent non-executive Directors) are clearly defined in the Articles of Association and the Rules and Procedures for the Board Meetings.

b. All Directors were able to devote sufficient time and effort in handling the matters of the Company.

c. The Company has adopted Model Code as code of conduct regarding the Directors' securities transactions. All Directors of the Company have confirmed that they have been in compliance with the Model Code during the Reporting Period.

d. The Company is responsible for arranging trainings for Directors and providing for the corresponding expenses. The Directors actively participated in continuing professional development. The Company has received the training records from Directors. For details, please refer to the Report of the Board in this annual report.

A.7 Provision for and Access to Information

a. The meeting agenda as well as other reference documents of the Board and each special committee will be distributed prior to the meetings so that each member will have sufficient time to review, which enables them to have comprehensive discussions at the meetings. Each Director can obtain all related information in a comprehensive and timely manner, and may seek advice from professional consultants if needed.

b. The secretary to the Board is responsible for organising and preparing materials for the Board meetings, including the explanation for each proposal to ensure thorough understanding by each Director. The management of the Group shall provide the Directors with necessary information and materials. The Director may request the President, or request, via the President, relevant departments to provide necessary information of the Group or related explanations.

B Remuneration of Directors and the Senior Management

a. The Company has established a remuneration committee (the "Remuneration Committee"). Mr. HUI Chiu Chung, Stephen, an independent non-executive Director, is the chairman of the Remuneration Committee, and Mr. YE Zheng and Mr. JIN Yong, each an independent non-executive Director, are members of the Remuneration Committee. The terms of reference of the Remuneration Committee are available on the websites of the Company and the Hong Kong Stock Exchange. The Remuneration Committee is responsible for studying the compensation structures and policies of all Directors, Supervisors and Senior Management members and making recommendations to the Board or determining the compensation and welfare of individual executive Director and Senior Management member as authorised by the Board or making recommendations to the Board. The remuneration of Directors shall be determined in accordance with relevant laws and regulations of the PRC and the internal measures on remuneration of the Company. The Remuneration Committee appointed the advisory member to assist the Remuneration Committee in carrying out daily works. The expenses of the Remuneration Committee are included in the budget of the Company.

b. The Remuneration Committee consults the Chairman and Vice Chairman of the Board regarding the remuneration recommendations for other executive Directors. As assessed by the Remuneration Committee, it considered that for the year 2020, each of the executive Directors has fulfilled his/her responsibilities as stipulated under the service contract entered into with the Company.

c. Please refer to "Report of the Board – Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Remuneration Committee.

C Accountability and Auditing

C.1 Financial Reporting

a. The Directors are responsible for supervising the compilation of accounts in each financial period, which shall be prepared on a going concern basis, and should ensure that the accounts can authentically and fairly reflect the business conditions, operating results and cash flows of the Group during the corresponding period. The Board approved the financial statements for the year 2020 and warranted that there were no misrepresentations, misleading statements or material omissions contained in this annual report, and take jointly and severally responsibility for the authenticity, accuracy and integrity of the contents therein.

b. The Company provides financial information, production and operation status to the Directors every month to ensure that the Directors are informed of the Company's latest developments in a timely manner.

c. The Company adopted an internal control mechanism to ensure that the management and relevant departments provide sufficient financial data and related explanations to the Board and the Audit Committee.

d. The external auditors of the Company issued a statement about their reporting responsibilities in the financial statements contained in the independent auditors' report.

C.2 Risk Management and Internal Control

a. The Company has established a comprehensive and basic process for risk management that is composed of target setting, risk identification, risk assessment, risks reaction, supervision and improvement. At the beginning of each year, the Company and its subsidiaries will take into account then production and operation situation to analyse the changes and impact of the internal and external environment, identify the risk factors and major risk areas confronting various professional fields, rank and evaluate the identified risks, work out countermeasures and indicators of monitoring and early warning, to address the major and principal risks and place operation risks under dynamic monitoring.

b. The Company has deeply integrated risk management with internal control. In the internal control matrix, risks are described according to the Company's list of risks and, on this basis, the internal control measures have been modified and improved to take risk prevention counter-measures in daily business management activities. The Company has clarified the responsible parties and strengthened supervision and inspection through means including internal control evaluation to ensure that its internal risks are controllable and being under control.

c. The Board is the highest decision-making authority for the Company's overall risk control measures. The Board acknowledges that it is its responsibility to ensure that the Company has established and maintained appropriate and effective risk management and internal control systems, and has the responsibility to review the effectiveness of these systems. Such systems are designed to manage rather than eliminate risks such as failure to achieve business objectives, and can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Company has established the Risk Management Committee to organise and lead the comprehensive risk management and internal control efforts of the Company. The departments and subsidiaries of the Company specifically implement overall risk management and internal control measures. They are responsible for promptly identifying, analysing and evaluating the risks in production and operations to put forward the counter-measures and solutions for internal control that are to be implemented afterwards.

d. For the purpose of inspecting and evaluating the internal risk control measures of the Company, the risk management departments of the Company and its subsidiaries will test on the implementation of internal control on a quarterly basis. The supervision and audit department of the Company will carry out comprehensive annual inspections and evaluations on the effectiveness of the risk-oriented internal control design and operation of the Company. The general procedures of inspection and evaluation mainly include drawing up a plan for inspection and evaluation of internal control, setting up a working group for inspection and evaluation of internal control, implementing online testing of the internal control system or onsite inspection and evaluation, identifying the deficiencies in internal control, re-checking and confirming the deficiencies, arriving at a conclusion based on onsite evaluation, summarising and analysing the results of inspection and evaluation, compiling the seasonal test report of internal control as well as the annual and interim work report on risk management and internal control, and regularly reporting to the management members and the Board.

e. The Company prepares and issues regular reports such as annual reports and interim reports in accordance with the requirements of the place where the Company is listed. The regular reports are reviewed by the executives and considered by the management of the Company before being submitted to the Board and the Supervisory Committee for approval. The Company office (office of the Board) will finalise the regular reports according to the opinions of the Board and disclose the reports together with other relevant documents required to be submitted and disclosed on the designated websites within the given timeframe. The Company has established procedures on disclosure of inside information to ensure that inside information is promptly identified, assessed and submitted, where applicable, for the attention of the Board. In case of the occurrence of any significant event that needs to be disclosed, the Company office (office of the Board) will organise the drafting of a report according to the actual conditions and go through the relevant approval procedures according to the Articles of Association and rules and procedures of the Company before disclosing the information.

f. Statement of risk management and internal control: Internal risk control departments of the Company and its subsidiaries carry out risk management and internal control inspection and evaluation at least quarterly, and supervision and audit departments organise and implement risk-oriented internal control comprehensive inspection evaluation at least annually. During the Reporting Period, risk management and internal control inspection of the Company cover the Reporting Period, and the scope of inspection covers all major control aspects (including finance, business operation, compliance control and risk management function). In particular, the Board considers that the Company has adequacy of resources, staff qualifications and experience in accounting, internal audit and financial reporting functions, and the training courses received by the staff and relevant budget are also sufficient. The risk management and internal control evaluation results of the Company indicated that the Company has gradually enhanced consciousness on internal control as well as risk prevention from top down, revised internal control manual and realised online publication, further adopted effective measures to strengthen internal control management, and comprehensively increased internal control management level. The Company is not aware of any material deficiency, and the internal control of the Company (including financial report and compliance procedures according to the Hong Kong Listing Rules) is effective in general.

C.3 Audit Committee

a. The Company has established the Audit Committee. Mr. YE Zheng, an independent non-executive Director, is the chairman of the Audit Committee, and Mr. HUI Chiu Chung, Stephen and Mr. JIN Yong, each an independent non-executive Director, are members of the Audit Committee. Terms of reference of the Audit Committee have been established, and are available on the websites of the Company and the Hong Kong Stock Exchange. The Audit Committee advises on the appointment, reappointment, termination of the independent auditors and their remuneration, reviews the financial statements to be submitted to the Board, and examines the Company's financial policies, internal audit system, internal control system and risk management system. As confirmed, none of the members of the Audit Committee had served as a partner or former partner in the Company's existing auditing firm.

According to the Letter to Issuers released by the Hong Kong Stock Exchange dated 19 December 2014 and relevant amendments to the "Corporate Governance Code" set out in Appendix 14 to the Hong Kong Listing Rules, and in order to improve the corporate governance practice and reinforce the risk management and internal control functions of the Board, the third meeting of the Second Session of the Board held by the Company on 18 March 2016 has resolved to incorporate the risk management function into the scope of authority of the Audit Committee and also to amend the terms of reference of the Audit Committee as appropriate. Such amendment was aim to add and specify the description of risk management function. This resolution has been implemented after the approval by the Board.

b. Please refer to "Report of the Board – Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Audit Committee. Review opinions signed by the members of the Audit Committee were issued at such meetings and submitted to the Board. During the Reporting Period, there was no disagreement between the Board and the Audit Committee.

c. Members of the Audit Committee may engage independent professionals when performing duties. Reasonable costs arising from or in connection with such consultation are borne by the Group. Meanwhile, the Audit Committee appointed the advisory member to assist the Audit Committee in specific daily routines. The expenses of the Audit Committee are included in the budget of the Group.

d. During the Reporting Period, the Audit Committee held meetings with the auditors twice without the presence of the management members, either in writing or through meeting in person, discussing the audit situations of financial reports and the auditors' fees for the year as well as coordinating the work allocation between the internal and external auditors. The Audit Committee considered the adequacy of resources, staff qualifications and experiences, as well as the training programmes provided to the relevant staffs and the budget of the Company's accounting, internal audit and financial reporting functions during the Reporting Period. The Audit Committee considers that the Company's management performed their duties and established an effective internal control system. In addition, the Audit Committee also considered the adequacy of the resource of the Company's internal audit function, reviewed and monitored the effectiveness of the internal audit function on a constant basis. According to the Company's internal control mechanism, the Company has established whistle-blowing mechanism, whereby the staff and stakeholders may have a channel, such as online reporting, reporting through letters, meeting with reporters, complaint mail box, to report and complain on their discovered activities that have breached the Company's internal control system. The Audit Committee has reviewed and approved such system.

D Delegation of Power by the Board

a. The Board, the management and the special committees of the Board have clear terms of references. The Articles of Association, the Rules and Procedures for the Shareholders Meetings, the Rules and Procedures for the Board Meetings, and the Working Rules for the President specify clear scopes of duties, authorities and authorisations of the Board and the management.

b. In addition to the Nomination Committee, Audit Committee and Remuneration Committee, the Board has also established the Strategy and Development Committee. The Chairwoman of the Board, Mdm. SUN Lili, serves as the chairwoman of the committee. Mr. JIN Yong, an independent non-executive Director, serves as the vice chairman of the committee. Mr. XIANG Wenwu (the Vice Chairman of the Board), Mr. JIANG Dejun (a Director and the President) and Mr. WU Wenxin (a Director), serve as members of the committee. The Strategy and Development Committee is responsible for studying the long-term development strategies as well as major decisions on capital expenditure, investment and financing of the Company. Please refer to "Report of the Board – Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Strategy and Development Committee.

Corporate Governance

c. All special committees under the Board have clear written scope of responsibilities. The terms of reference of all special committees under the Board specify that such committees should report its decisions or recommendations to the Board.

d. The Board confirms that corporate governance should be joint responsibilities of directors, and corporate governance functions include:

(i) to develop and review the policies and practices on corporate governance of the Company;

(ii) to review and monitor the training and continuous professional development of Directors, Supervisors and Senior Management;

(iii) to review and monitor the policies and practices on compliance with legal and regulatory requirements of the Company;

(iv) to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees, Directors and Supervisors; and

(v) to review the compliance with Corporate Governance Code and disclosure in the Corporate Governance Report of the Company.

E Investor Relations

a. The Company places great emphasis on investor relations. The Senior Management conducts road shows for investors every year to introduce matters that investors may be concerned about, such as development strategies, production and business performance of the Company. The Company office (office of the Board) is responsible for communicating with investors in compliance with regulatory requirements through meetings with, site visits by and setting up email accounts for investors, which enhanced communications with investors.

b. During the Reporting Period, for each substantially separate issue at a general meeting, a separate resolution was proposed. All resolutions were voted by poll to safeguard the interests of all the shareholders of the Company. A meeting notice was delivered to each shareholder at least 45 days (exclusive of the day of the meeting) prior to shareholders meetings.

c. The Chairwoman of the Board hosted the shareholders meetings as the chairman of such meeting. Members of the Board and the Senior Management also attended shareholders meetings and answered questions raised by the shareholders of the Company.

d. During the Reporting Period, the Company has made the following three amendments to the Articles of Association. According to the Company Law and other relevant laws and regulations, as the headquarters of the Information Technology Branch of SINOPEC Engineering (Group) Co., Ltd. (中石化煉化工程(集團)股份有限公司信息科技分公司) ("Information Center"), the Company shall have the business scope covering the business activities to be carried out by the Information Center. According to the responsibility, position and development plan of the Information Center, the relevant contents of the business scope of the Company were added, and the second paragraph of Article 12 of the Articles of Association was revised; in view of the fact that the revisions of the provisions regarding repurchase by a company of its own shares in the Company Law supplements and refines the circumstances under which a company is allowed to repurchase shares its own shares, Articles 26, 27, 29 and 54 of the Articles of Association were amended; Article 117 of the Articles of Association was amended to be applicable to the current laws and regulations. For details, please refer to the Articles of Association of SINOPEC ENGINEERING (GROUP) CO., LTD. (H shares) issued by the Company on 8 May 2020.

F Company Secretary

a. The company secretary of the Company is recognised by the Hong Kong Stock Exchange as the professional, and is nominated by the Chairwoman of the Board and appointed by the Board. Company secretary is a Senior Management and reports to the Company and the Board. The company secretary of the Company gives opinions on corporate governance to the Board and arranges orientation training and professional development of the Directors.

b. The company secretary of the Company actively participated in professional development training and has taken no less than 15 hours of relevant professional training during the Reporting Period.

G Shareholders' Rights

a. Shareholders who individually or collectively hold 10% or more of the total voting shares issued by the Company may request in writing for the Board to convene an extraordinary shareholders meeting or class meetings. If the Board fails to grant the request to call the meeting according to the Rules and Procedures for Shareholders Meetings, shareholders may call and hold the meeting at their discretion according to laws, and reasonable expenses arising therefrom are to be borne by the Company. The aforesaid provisions are subject to the following conditions: the proposals proposed at the shareholders meeting shall fall within the scope of authorities of the shareholders meetings, with specified proposals and resolutions, and in compliance with the relevant laws, administrative regulations and the Articles of Association.

b. When the Company holds a shareholders meeting, shareholders who individually or collectively hold 3% or more of the total voting shares issued by the Company may propose a provisional proposal 10 days before the date of the meeting.

c. The eligibility for attending the general meeting, the shareholders' rights and the meeting agenda are clearly stated in the notices to the shareholders of the Company.

d. The Company requires that the company secretary is responsible for establishing an effective communication channel between the Company and its shareholders, setting up a special organisation for contacting shareholders, and passing their opinions and advice to the Board and the management members in a timely manner. Contact details of the Company can be found under the "Investor Center" section on the website of the Company.

(2) Auditors

At the 2019 annual general meeting of the Company held on 8 May 2020, the Company approved the appointment of BDO China Shu Lun Pan Certified Public Accountants LLP and BDO Limited as the domestic and international auditors of the Company for the year 2020 and authorised the Board to determine their remuneration for the year 2020. As approved at the tenth meeting of the Third Session of the Board, the audit fee for 2020 is RMB4.57 million. The financial statement of 2020 was audited by BDO Limited.

During the Reporting Period, BDO China Shu Lun Pan Certified Public Accountants LLP and BDO Limited did not provide any material non-audit services to the Company.

(3) Other Information about Corporate Governance of the Company

For the composition of the Board, please refer to page 88; for information regarding changes in share capital and shareholdings of substantial shareholders, please refer to page 14 to page 15; for information regarding meetings of the Board, please refer to page 88 to page 89; for the attendance of each Director in Board meetings and Shareholders meetings, please refer to page 89 to page 90; for information regarding the equity interests of Directors, Supervisors and other Senior Management members, please refer to page 72; for information regarding the resume and annual remuneration of Directors, Supervisors and other Senior Management members, please refer to page 108 to page 117.

REPORT OF THE BOARD

The Board is pleased to present the report for the year ended 31 December 2020 for Shareholders' review.

1 Board Composition

As at the date of this annual report, the composition of the Third Session of the Board consists Mdm. SUN Lili (Chairwoman of the Board, appointed on 30 December 2020), Mr. XIANG Wenwu (Vice Chairman of the Board, appointed on 30 December 2020), Mr. JIANG Dejun (appointed on 22 February 2021) and Mr. WU Wenxin, as Directors; and Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, as the independent Directors. The resigned Directors were Mr. YU Renming (Chairman of the Board, resigned on 30 December 2020) and Mr. ZHOU Yingguan (resigned on 30 December 2020).

2 Principal Business Activities

The Group is a leading energy and chemical engineering company in the PRC with strong international competitiveness and can provide domestic and overseas clients with overall solutions for petrol refining, chemical engineering, aromatics, coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation facilities, environmental protection and energy saving, among other industry sectors. The Group is a service provider for the whole life cycle from project planning to project operation and can provide overall industry chain services including engineering consulting, technology licensing, project management contracting, financing assistance, EPC (engineering, procurement and construction) contracting, as well as design, procurement, construction and installation, lifting and transportation of large equipment, pre-commissioning and start-up.

The list of the Company's major subsidiaries as at 31 December 2020, together with (among others) details of their principal countries of operation, places of incorporation or establishment and particulars of their issued share capital, is set out in Note 44 to the financial statements contained in this annual report.

3 Meetings of the Board

During the Reporting Period, the Company held four 5 Board meetings. The details are as follows:

The ninth meeting of the Third Session of the Board was held in Beijing, the PRC, on 18 February 2020, whereby the following resolutions were considered and approved: proposal on election of chairman, proposal on adjustment of members of the Special Committees of the Board, proposal on application for approval of revision of guidelines on internal control authority.

The tenth meeting of the Third Session of the Board was held in Beijing, the PRC, on 20 March 2020, whereby the following resolutions were considered and approved: the report of the Board for the year 2019, the report on the business operation for the year 2019 and the work arrangements for the year 2020; the report on the operating results, financial performance and other relevant matters for the year 2019; independent auditor's audit opinion on the Company's 2019 annual financial report; review opinions of Auditing Committee regarding 2019 annual financial report and relevant matters; proposal on the audited financial statements for the year of 2019; proposal on the 2019 annual report and results announcement; proposal on the environmental, social and governance report for the year 2019; proposal on the business operation plan, investment plan and financial budget for the year 2020; the proposed cap for the amount of performance guarantee(s) to be provided by the Company (as the parent company) for the benefit of its subsidiaries for the year 2020; proposal on the final dividend distribution plan for the year 2019 and the authorisation to the Board to determine the interim profit distribution plan for the year 2020 to be put forward for approval at the Company's annual general meeting; proposal on change and appointment of independent auditor and authorization to the Board to fix audit remuneration for the year 2020; proposal on 2020 annual business plan of financial derivatives; proposal on grant of a general mandate to the Board to repurchase domestic shares and/or H shares to be put forward for approval at the annual general meeting and the class meetings; proposal on grant of a general mandate to the Board to issue domestic shares and/or H shares of the Company to be put forward for approval at the annual general meeting; proposal to expand the business scope of the Company and amend the Articles of Association; proposal to amend the Rules and Procedures for the Meetings of the Shareholders and Rules and Procedures for the Meetings of the Board.

The eleventh meeting of the Third Session of the Board was held in Beijing, the PRC, on 9 June 2020, whereby the proposal on the establishment of Russian Subsidiary was considered and approved.

The twelfth meeting of the Third Session of the Board was held in Beijing, the PRC, on 21 August 2020, whereby the following resolutions were considered and approved: the report on the fulfillment of the key targets for the first half of 2020 and the report on the work arrangements for the second half of 2020, report on the operating results, financial performance and other relevant matters for the first half of 2020, audit opinion of the independent auditor on the Company's 2020 interim financial report, review opinion of the Audit Committee regarding 2020 interim financial report and relevant matters, proposal on audited 2020 interim financial report, proposal on 2020 interim report and results announcement, proposal on 2020 interim dividend distribution plan, proposal on the establishment of Singapore Branch.

The thirteenth meeting of the Third Session of the Board was held in Beijing, the PRC, on 30 December 2020, whereby the following resolutions were considered and approved: proposal on resignation of directors, a supervisor and recommendation for appointment of a director; proposal on appointment of chairwoman and vice chairman of the Board; proposal on recommendation for appointment of a non-representative of the employees supervisor; proposal on appointment of president; proposal to convene the first extraordinary general meeting for the year 2021.

4 Implementation of Resolutions Approved at Shareholders Meetings by the Board

During the Reporting Period, in accordance with relevant laws and regulations as well as the Articles of Association, all members of the Board diligently implemented the resolutions approved at the Shareholders meetings, and have completed various tasks delegated to them at the Shareholders meetings.

5 Attendance of Board Meetings and Shareholders Meetings

During the Reporting Period, the attendance of each Director of the Third Session of the Board to the Board meetings and Shareholders meetings, and the trainings they received, are as follows:

		Board Meetings	Attendance at the
Name	Attend in person	Attend by proxy	general meeting for the year 2020 and the 2020 extraordinary shareholders meeting	Trainings
YU Renming (1)	5	0	4	2
SUN Lili (2)	5	0	4	2
XIANG Wenwu (2)	5	0	4	2
JIANG Dejun (3)	0	0	0	0
WU Wenxin	4	1	4	2
ZHOU Yingguan (1)	5	0	4	2
HUI Chiu Chung, Stephen	5	0	4	2
JIN Yong	4	1	4	2
YE Zheng	5	0	4	2

Report of the Board

Notes: (1) Due to work adjustment, Mr. YU Renming and Mr. ZHOU Yingguan ceased to serve as directors of the Company from 30 December 2020.

(2) On 30 December 2020, Mdm. SUN Lili was appointed as Chairwoman of the Third Session of the Board of the Company upon the approval of the thirteenth meeting of the Third Session of the Board of the Company, Mr. XIANG Wenwu was appointed as the vice chairman of the Third Session of the Board of the Company.

6 Meetings held by the Special Committees of the Board

The Board has established four special committees, namely, the Audit Committee, the Remuneration Committee, the Nomination Committee and the Strategy and Development Committee. The Company's management has established four special committees, namely, the Risk Control Committee, the Confidentiality Committee, the QHSE Committee and the Sustainable Development Committee. During the Reporting Period, the Audit Committee held two meetings, the Remuneration Committee and the Nomination Committee each held one meeting. As there are no particular issues that need to be discussed and considered, the Strategy and Development Committee did not convene any meeting during the Reporting Period. The attendance of special committee meetings by members of each committee are as follows:

Name	Number of meetings required to be attended	Number of meetings attended in person	Number of meetings attended by proxy
Audit Committee
YE Zheng	2	2	0
HUI Chiu Chung, Stephen	2	2	0
JIN Yong	2	0	2
Remuneration Committee
YE Zheng	1	1	0
HUI Chiu Chung, Stephen	1	1	0
JIN Yong	1	0	1
Nomination Committee
YU Renming (1)	2	1	0
SUN Lili (2)	0	0	0
XIANG Wenwu (2)	0	0	0
HUI Chiu Chung, Stephen	2	2	0
JIN Yong	2	1	1
YE Zheng	2	2	0

Notes:

(1) Due to work adjustment, Mr. YU Renming ceased to serve as the member of the Nomination Committee of the Company from 30 December 2020.

(2) On 22 February 2021, with the approval of the fourteenth meeting of the Third Session of the Board of the Company, Mdm. SUN Lili was appointed as the chairwoman of the Nomination Committee of the Company, Mr. XIANG Wenwu was appointed as the member of the Nomination Committee of the Company.

⁽³⁾ On 22 February 2021, Mr. JIANG Dejun was elected as a director of the Third Session of the Board of the Company upon the approval of the first extraordinary general meeting of the Company for the year 2021.

Specific situations of meetings of each committee are as follows:

The third meeting of the Remuneration Committee of the Third Session of the Board was held in Beijing, the PRC, on 19 March 2020, whereby they reviewed the proposal that the unfulfillment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme;

The third meeting of the Audit Committee of the Third Session of the Board was held in Beijing, the PRC, on 19 March 2020, whereby it reviewed and provided opinion on the following: the audited opinion of independent auditor on financial statements of 2019, explanation of appointment of independent auditor and authorisation to the Board to determine audit remuneration for the year 2020, resolution in relation to the 2020 annual business plan for financial derivatives, execution of the continuing connected transactions in 2019, description of 2019 annual report of the Company, description of non-competition situation for the year 2019, work report of internal control audit for the year 2019, description of work report of risk management and internal control for the year 2019, description of environmental, social and governance report for the year 2019.

The fourth meeting of the Audit Committee of the Third Session of the Board was held in Beijing, the PRC, on 20 August 2020, whereby it reviewed and provided opinions on the following: audit opinion of the independent auditor on the Company's 2020 interim financial report, description on the 2020 interim report of the Company, work report of comprehensive risk management and internal control in the interim of 2020, execution of the continuing connected transactions in the first half of 2020.

The third meeting of the Nomination Committee of the Third Session of the Board was held in Beijing, the PRC, on 30 December 2020, whereby it reviewed and provided opinions on the proposal on resignation of directors, resignation of supervisors and recommendation for appointment of a director of the Third Session of the Board, proposal on election of chairwoman and vice chairman, and proposal on resignation of president and recommendation for appointment of president.

7 Performance

The financial results of the Group for the year ended 31 December 2020 were prepared in accordance with the IFRS and its financial position as at that date and the corresponding analysis are set out from page 36 to page 59 in this annual report.

8 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.

Report of the Board

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.

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.

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.

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 Shenzhen-Hong 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.

9 Major Suppliers and Clients

During the Reporting Period, the total purchases from the top five suppliers of the Group accounted for 11.1% of the total purchases of the Group, of which the purchases from the largest supplier accounted for 6.3% of the total purchases of the Group.

During the Reporting Period, the total sales to the top five clients of the Group accounted for 60.8% of the total sales of the Group, of which sales to the largest client accounted for 33.0% of the total sales. For details on the Group's relationships with major clients and the risks that the Group's business may face due to such relationships, please see the section headed "Report of the Board – 27 Risk Factors – Risks relating to decreased orders from major clients" in this annual report.

During the Reporting Period, other than the connected transactions with the controlling shareholder, Sinopec Group, and its subsidiaries, as disclosed in the section headed "Connected Transactions" of this annual report, to the knowledge of the Board, none of the Directors, Supervisors and their close associates or any Shareholder holding 5% or more of the share capital of the Company had any interest in any of the above-mentioned major suppliers and clients.

10 Bank Loans and Other Borrowings

The Group had USD25 million (about RMB163 million) loans to the fellow subsidiaries as at the end of the Reporting Period.

11 Fixed Assets

During the Reporting Period, changes to the fixed assets of the Group are set out in Note 17 to the financial statements prepared in accordance with the IFRS in this annual report.

12 Donations

During the Reporting Period, the amount of charity donations made by the Group amounted to approximately RMB1.1676 million.

13 Pre-emptive Right

According to the Articles of Association and the applicable PRC laws, the Shareholders are not entitled to any preemptive rights. Therefore, the existing Shareholders cannot request the Company for the right of first refusal in proportion to their shareholdings.

14 Issuance of Equity Securities or Debentures

During the Reporting Period, neither the Company nor any of its subsidiaries has issued any equity securities (including securities convertible into equity securities) or debentures.

15 Management Contract

During the Reporting Period, neither the Company nor any of its subsidiaries has entered into any contract by which a person undertakes the management and administration of the whole or any substantial part of any business of the Company or any of its subsidiaries.

16 Equity-Linked Agreements

During the Reporting Period, neither the Company nor any of its subsidiaries has entered into or there subsisted any equity-linked agreement, or any agreement requiring the Company or any of its subsidiaries to enter into the agreement that will or may result in the issuance of shares by the Company.

17 Resignation of Director and Supervisor

The resignation of Directors and Supervisors of the Company during the Reporting Period is set out in the section headed "Directors, Supervisors, Other Members of Senior Management and Employees – 2 Appointment and Resignation of Directors, Supervisors and Other Members of the Senior Management during and after the Reporting Period" in this annual report.

18 Permitted Indemnity Provisions

During the Reporting Period, the Company purchased liability insurance for Directors to reduce their risks in the normal course of performing their duties. Save for this, there has been no permitted indemnity provision being in force for the benefit of any existing directors or the then directors of the Company (whether made by the Company or otherwise) or any associated company of the Company (if made by the Company).

Report of the Board

19 Signicant Investment

During the Reporting Period, the Company has made no significant investment (including any investment with a value of 5% or more of the Company's total assets as at 31 December 2020).

20 Accounting Standard

The difference between the main accounting policies adopted by the Company for compilation of 2020 audited consolidated financial statement and the main accounting policies for compilation of 2019 audited consolidated financial statement are indicated in details in Note 3.1 to the financial statements.

21 Retirement and Employee Benet Plan

Details of the Group's retirement and employee benefit plan are set out in Note 34 to the financial statements.

For the disclosures in relation to the employees of the Group, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees – 7 Employees" in this annual report.

22 Compliance with Laws and Regulations

In 2020, the Group was strictly in compliance with laws and regulations such as the Civil Code of the People's Republic of China,the Company Law of the People's Republic of China, the Contract Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Construction Law of the People's Republic of China, the Tendering/Bidding Law of the People's Republic of China and the Safe Production Law of the People's Republic of China and other applicable environmental policies in China. The Company also continuously increased or improved various systems, established a relatively complete compliance operation mechanism, prevented and avoided the occurrence of major legal risks to the maximum extent, and provided strong compliance guarantee for the Company's operation and development under the existing system.

23 The Directors and Supervisors Interests in Acquiring Shares or Debentures

During the Reporting Period, there has not subsisted any arrangement to which the Company, a subsidiary of the Company, the parent company of the Company or a subsidiary of the Company's parent company is a party and whose objects are to enable directors, supervisors or any of their respective associates of the Company or any of its subsidiaries to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate.

24 Interests of Directors and Supervisors in Material Transactions, Arrangements and Contracts of Signicance

During the Reporting Period, for details of the interests of Directors and Supervisors in material transactions, arrangements and contracts of significance, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees – 5 Contract Benefits of Directors and Supervisors" in this annual report.

25 Change of Auditors

The Company has not changed auditors since the date of preparation for listing to 8 May 2020, when the annual general meeting for the year 2019 was held.

Sinopec Group is a controlling shareholder of the Company, which in turn is a state-owned enterprise under the control of the State-owned Assets Supervision and Administration Commission of the State Council of the People's Republic of China (the "SASAC"). According to the relevant regulations issued by the Ministry of Finance of the People's Republic of China and the SASAC, there are restrictions in respect of the number of years of audit services that an accounting firm can continuously provide to a state-owned enterprise and its subsidiaries. In accordance with such requirements, the annual general meeting for the year 2019 of the Company has approved the appointment of BDO China Shu Lun Pan Certified Public Accountants LLP and BDO Limited as the domestic and international auditors of the Company, respectively. For details of the resolution, please refer to the announcement and circular of the Company dated 23 March 2020, and the resolution of the annual general meeting for the year 2019 issued on 8 May 2020.

26 Core Competitiveness Analysis

The Group is a leading energy and chemical engineering company in the PRC. The Group has the legacy of being among very first oil refining and petrochemical engineering enterprises established in the PRC in the 1950s. Leveraging on long operating history and sophisticated industry experiences, we have developed the strong execution capabilities in the PRC with respect to engineering and constructing large-scale oil refining, petrochemical and new coal chemicals complexes, etc., which usually include a series of process units and public utilities, and we are highly competitive in the international engineering markets.

The competitive strengths of the Group are particularly reflected in the large business scale, strong executive capacity, excellent management and technical team, advanced industrialised proprietary and patented technologies, sound management system, advanced software and equipment, rich and reliable suppliers and subcontractors resources, complete service chain in the technology R&D and licensing, preliminary project consulting, financing assistance, engineering, procurement, construction, trial test/commissioning and maintenance services and excellent one-stop engineering service capability.

Given our competitive advantages in industry chain, business chain, technology chain and supply chain, the Group is now a leader in China's oil refining and engineering industry. The Group is also on the cutting edge of the rapidly developing China and international engineering markets.

Report of the Board

27 Risk Factors

The global macro-economy situation trend is going down

The business performance of the Group is closely related to the economic situation of the PRC as well as the global economic situation. China's economic development has entered into a new normal, economic growth slowed down. In the beginning of 2020, although the COVID-19 was effectively under control in the PRC, its influence on the China's economy is yet to be evaluated. Although all countries in the world have adopted various macro-economic policies to eliminate the negative influence caused by factors such as the slowdown of world economic growth, the economic globalisation has regressed at present, coupled with the anti-globalization wave, with the spread of COVID-19 abroad, the prospect of global economic recovery remained uncertain. The Company's operation may also be adversely affected by various other factors, such as the negative influence upon overseas refinery/chemical projects brought by discontinuity and unpredictability of international geopolitics as well as uncertainty of international oil price fluctuation, and the negative influence upon oil product and chemical product demand brought by slowdown of economic growth rate.

Risks brought by changes in market environment

In 2021, all kinds of derivative risks caused by the impact of the epidemic can not be ignored, the global trade is still in severe friction situation, and the factors of instability and uncertainty have increased significantly. The global industrial chain and supply chain will become more diversified and regionalized, the pace of capacity expansion in the refining industry will slow down, the ethylene industrial chain will face excessive pressure, and the integration and substitution of production capacity will accelerate. China is facing an increasingly complex international environment with downward pressure on its economy. The production capacity of newly-built refining and chemical projects in China has been released intensively, and some chemical products have been subject to a situation of excessive supply, which may enter a new platform period after this round of production capacity building. Under the influence of the peak carbon emission target, the substitution of non-fossil energy is increasing, the development environment of energy and chemical industry will face deep adjustment, the pattern of industry supply and demand, operating entities and market layout will be reconstructed, and the refining and chemical industry will face more harsh state of survival of the fittest. As far as the engineering market is concerned, diversified investment subjects, diversified competition subjects, insufficient market capacity, declining contract benefits and rising execution risks will become the new normal faced by engineering companies for a long time.

Risks relating to changes in policies

(1) Nationalisation, cancellation, seizure, confiscation, suspension and other risks with regard to projects

undertaken by us

Turbulent and unstable political situation in the countries where the Group has overseas projects, policy discontinuity due to partisan policy, and government intervention in overseas investments may elevate political risks. In some regions, government nationalisation, cancellation, seizure, confiscation, and suspension of refinery projects occur from time to time. Little or even no compensation is paid to investors. Thus, relevant project participants may suffer huge losses. Under such circumstances, the risks relating to exploration of new markets in affected countries are relatively high and this may hinder market expansion of the Group.

(2) Risks relating to host country's inadequate policy and regulation

If the host country's public policies, in particular, security policies, are flawed, for instance, if the regulations on rallies, demonstrations and strikes are imperfect, in the event that certain events occur, project implementation will be directly affected, and even legal proceedings could be initiated. These conditions will indirectly affect any new market exploration in the country hereof.

(3) Risks relating to changes in nancial and legal systems

Changes in value-added tax, income tax, customs tax and other aspects of host countries' financial and tax systems will directly affect the economic results of the projects and may reduce the profitability of the project. The Group pays taxes in countries and regions where it operates. It is difficult for the Company to predict changes in tax policies of the host countries or regions, and such policy changes may have a material adverse effect on our profitability and financial performance.

Meanwhile, if changes are made in the legal system of the host regions of projects in the Middle East or Middle Asia, such as changes in environmental protection law, investment law, labour law and other relevant law, and if regulations may become restrictive, the execution of our projects will become more difficult and potentially affect the development of new projects in relevant countries. If laws and regulations on environmental protection, safety and health are revised or updated, or standards are raised, the costs of compliance and business operations will be affected.

Risks relating to project delay and budget overview

(1) Risks relating to inaccurate project quotation and preliminary budget

Insufficient accumulation of basic data required for project quotation and budget (man hour, procurement and construction price), coupled with the impact of the epidemic on the global supply chain, inquiry is difficult, may affect the efficiency and accuracy of preparing quotations and budget, which will in turn affect the decision-making of projects and subsequent project implementation. For large projects with higher complexity, particularly the EPC contracting projects and emerging projects of investmentconstruction-operation integration, some projects have a long cooperative operation period, inaccurate initial project quotations and estimations may cause difficulties in implementing the projects as planned.

(2) Risks relating to sub-contractor management

The Group usually engages sub-contractors to provide assistance in completing projects; however, if the resource distribution of sub-contractors is inadequate, it will delay current project completion and impede undertaking of other projects. Concurrently, the delay in sub-contractors' progress will increase the risk of project delay. In addition, the Group assumes joint liability for subcontracted projects, which means that the Group may be subject to compensation liability due to quality problems of subcontracted projects and may be subject to lawsuits and compensation claims, may undertake joint liability for the on-site security accidents of the sub-contractors and bear the risk of the losses in project performance and damages to company image. It is possible that our business and financial status as well as our business operations will be adversely affected by these matters.

(3) Risks relating to regular uctuation of raw material prices for construction

The price of steel, cement and other raw materials used in our domestic and overseas projects fluctuates frequently. Any increase in the price of raw materials will lead to a direct increase in procurement costs for our refining projects. This is especially relevant in the international market where competition is intense, and sub-contractors compete by providing low bids in order to win contracts. This, to some degree, directly leads to a decrease in the contractor's profit. If the price of raw materials increases significantly, the risk of completing a project outside the limits of our budget will be elevated.

(4) Risks relating to ination, including the increase in cost of human resources

The Middle East and Central Asia are the primary target markets of the Group's international business. Currently, we are vigorously developing the regional markets in Southeast Asia. Considering that the economy of areas in such areas as a whole is unstable with high inflation rates, this may directly lead to increase in price of sub-contracting and labour markets. Concurrently, due to the fluctuation in the exchange rate of Renminbi, the cost of exported labour services increases, which further increases project costs.

(5) Risk relating to project management

Risks relating to project management are mainly reflected in financing service support, engineering design and capability for claiming indemnity. Some of our on-going overseas projects are financing projects. Insufficient financing service support may lead to delays in construction because we may not solve problems in a timely manner. For projects where design standards are substantially different from standards of the PRC, the Group's design team's abilities may be hampered. Delay in design implementation will result in difficulties in the execution of procurement and construction. Due to the complexity of the construction projects, the capability for claiming indemnity may directly affect the profitability of a project. If the project team's experience in claims and counter claims is inadequate to meet the requirements of the undertaken project, especially for our overseas projects, if we fail to properly deal with claims and counter claims in some EPC contracting projects where the conditions are complex and the demand is high, especially for the overseas projects, these will cause a negative impact on the effectiveness and profitability of such projects.

Risks relating to QHSE

In recent years, both the domestic and overseas markets require better QHSE management, and the social media has also become increasingly concerned about QHSE. Thus, the QHSE management ability of a company has become much more important to its survival and future development. The Group is a participant in the petrochemical engineering industry, which has both "petrochemical" and "engineering" production characteristics. The high-risk features of the petrochemical and engineering industries in fact increase the pressure on and difficulty in our QHSE management, the triple pressures of construction timeline, cost and resources are superimposed, and the risk of instability related to safety and quality remains high.

Any non-standard, non-regulated, imperfect situation or insufficient execution in the Group's QHSE management principles, models and system may result in QHSE incidents. On the other hand, the social situation confronted by the Company's overseas projects is relatively unstable, coupled with the impact of the COVID-19 epidemic, the overseas public safety risks are under great pressure, which may lead to overseas public safety incidents.

Risks relating to exchange rate

During the Reporting Period, there were accounts receivable and payable and cash balances in relation to our overseas projects, which are settled in foreign currencies. During the Reporting Period, our foreign currencies mainly consist of U.S. dollars, Kuwaiti dinar and Saudi Riyals, etc. Exchange rates will affect the pricing of our services as well as our material procurement costs settled in foreign currencies. Thus, fluctuation in exchange rates may affect our business performance and financial status. Moreover, the exchange and remittance of foreign currencies are subject to PRC laws and regulations on foreign currency, and therefore, it cannot be guaranteed that foreign trade policies of current accounts and capital accounts will remain unchanged. Foreign currency policies may limit our ability to obtain adequate foreign currencies. We cannot ensure that we have enough foreign currencies to meet the demand of the Group under certain exchange rates. This will affect the execution of our projects settled in foreign currencies.

During the Reporting Period, relevant hedge transactions implemented by the Company regarding exchange rate fluctuation are set out in the section headed "SIGNIFICANT EVENTS – 14 Financial Derivatives For Hedging Purposes" in this annual report.

Risks relating to the uncertainty of obtaining new projects

The Group's revenue mainly comes from offering services in petrochemical and new coal chemicals industries services, as well as refining services. Client demands are affected by periodic variation of traditional resources and overall business levels. Resource supply and price variations will significantly affect our ability to obtain new projects. At the same time, the competitiveness of traditional resources in the resource market is the prerequisite of ensuring service demand. If government subsidies or other economic stimulating measures are implemented to lower the prices of substitute resources, and if technological breakthroughs for substitute resource suppliers and users may be achieved, the cost advantages of traditional resources will diminish. This will decrease our new business volume on a large scale.

Risks relating to decreased orders from major clients

The industries in which our clients are involved are capital and technology-intensive with high entrance thresholds. Our major clients are relatively concentrated, resulting in the Group being dependent on a small group of clients, especially on the largest client which is SINOPEC SEG's controlling shareholder (and its associates). If our major clients choose to switch to a competitor of the Group, or reduce orders because of financial difficulties and other factors, we will face severe business or income fluctuations or decreases. We endeavour to attract more new clients for both our domestic and international businesses. However, it is likely that the majority of our clients and revenue will continue to come from our current major clients. Therefore, we cannot guarantee stability and growth of our revenue due to potential risks which may result in significant negative impact on our business performance.

Risks relating to changes in investment strategies and tactics

In recent years, both domestic and overseas engineering companies have placed emphasis on investment strategies such as acquisition, sales and new market exploration. Entering a new business domain by acquisition may result in additional business risks which differ from our previous risk factors. There might be great difficulties in how to recognise all significant risks during our due diligence investigation, how to achieve synergy and resource integration, and how to successfully operate an expanded company after acquisition. We will strive to assist potential buyers to assume liabilities of the business, and execute the contracts and other rights should we sell any part of the Group or pursue acquisitions in the future. The Group plans to explore the overseas markets and potential new businesses. It may also increase research investment in substitute resources and substitute chemical raw materials. The future of these investments and trades will be mainly under the influence of government policies, which is out of our control, superimposition of the impact of unclear global macro-economic situation and fluctuations in international oil prices, we cannot guarantee maintaining our powerful growth momentum. If the investments are not successful, this may result in a significant negative impact on the business and financial status of the Group.

Risks relating to new business segments

The Group is vigorously exploring new businesses such as new coal chemicals engineering, energy saving and environmental protection and LNG. Faced with the intricate market environment, the Group's technical reserves in new fields may not be perfect enough, project engineering and constructional experience may be insufficient, if it has little knowledge of the credit status of the clients, it is very difficult for the Group to fully identify and avoid major risks existing in the new businesses.

Risks relating to the new business models

The Group proactively explores new business models such as contract environmental protection management and contract energy management. The Group will invest in the whole process of a project, and scale back on costs and earn profits by sharing environmental protection and energy saving benefits with its clients. As it involves the corporate operation and project operation of its clients, the Group will face, for instance, credit risks due to the transferring of project benefits by the clients, the risks brought about by improper corporate operation of the clients or by legal disputes, the project risks in failure to achieve expected targets in terms of energy saving and environmental protection benefits and failures in timely pay-back of investments.

Risks associated with pursuit of petroleum and natural gas projects in sanctioned countries

In addition, new sanctions requirements may be imposed, or original sanctions requirements may be reimposed, in relevant jurisdictions, including Iran, which could increase scrutiny on the Group's business or result in one of or more of the Group's business activities being deemed to violate sanctions laws. In view of this, the Group can provide no assurances that its future business will be free of risk under U.S. or other sanctions, or that the Group will conform its business to the expectations and requirements of U.S. authorities or the authorities of any other government that does not have jurisdiction over the Group's business but may impose sanctions on an extraterritorial basis. Shareholders and potential investors should consider (1) if investment in the Company would expose them to any OFAC or sanctions law risk arising from their nationality or residency, and (2) the risk that, if the Group engages in oil and gas engineering business in sanctioned countries, such business may result in reduction of the marketability of the shares of the Company and may have an adverse effect on the share price of the Company.

Risks of COVID-19 Epidemic to the Group's Operation

The outbreak and spread of the Novel Coronavirus Pneumonia Epidemic in China and many countries around the world pose challenges to the Group's market development and project implementation. The Group's current overseas key markets and project implementation are mainly concentrated in such regions as the Middle East, Central Asia, Russia and Southeast Asia. If the epidemic situation continues to spread in the above regions, the development of the Group's new projects may face great difficulties. In terms of project implementation, it may also be adversely affected by projects suspension, delays in construction period, increased difficulty in project management, delays in project payment, and increased operating costs, etc.

28 Report on Corporate Environmental, Social and Governance

For details of the Group's environmental, social and governance practices, please refer to the 2020 environmental, social and governance report to be issued by the Company on 12 April 2021.

By Order of the Board SUN Lili Chairwoman of the Board Beijing, the PRC 22 March 2021

REPORT OF THE SUPERVISORY COMMITTEE

Mr. ZHU Fei

Chairman of the Supervisory Committee

Dear Shareholders,

Under the leadership of shareholders' general meetings of the Company and under the support of the Board, the Supervisory Committee and all supervisors of the Company earnestly perform the duties assigned by relevant laws and regulations, Articles of Association of the Company, and the shareholders general meetings. The Supervisory Committee's responsibilities mainly include inspecting the financial status of the Company timely, supervising directors and senior management members of the Company to perform duties in the Company, convening meetings of the Supervisory Committee as scheduled, verifying and reviewing relevant proposals to be submitted by the Board to the shareholders general meetings, exercising the powers of Supervisory Committee in accordance with relevant laws and regulations as well as the Articles of Association and submitting proposals to shareholders general meetings at appropriate time, adhering to work in a honest, diligent and pious manner, combining normalised supervision with good service, and supporting the chairman of the Board, President and other senior management members of the Company to sufficiently exercise their legitimate rights and exert the functions of Supervisory Committee for the sustainable development of the Company.

During the Reporting Period, the Supervisory Committee held two meetings, in which the 2019 annual report, the 2020 interim report, financial reports, the report of the Supervisory Committee and the dividend distribution plan were reviewed and considered.

The fourth meeting of the Third Session of the Supervisory Committee of the Company was held on 18 March 2020. The 2019 annual report, the financial statements of 2019, the dividend distribution plan for the year 2019 and the report of the Supervisory Committee for the year 2019 were considered and approved at the meeting.

The fifth meeting of the Third Session of the Supervisory Committee of the Company was held on 21 August 2020. The 2020 interim report, the 2020 interim financial statements, the 2020 interim dividend distribution plan and so on were considered and approved at the meeting.

Furthermore, the Supervisory Committee organised supervisors to attend the shareholders general meetings of the Company and attended the Board meetings as nonvoting delegates, and supervision of the decision-making process for major issues of the Company.

Through the supervision of production, business operation and financial of the Company, the Supervisory Committee and all supervisors believe that in 2020, the Board and senior management members of the Company have faithfully fulfilled the responsibilities and obligations assigned by relevant laws and regulations, the Articles of Association and the shareholders general meetings, further optimised the internal control system and maintained its effective implementation, and the operational standards, as well as the decision-making procedures of the Company are in compliance with the relevant requirements of the PRC Company Law and the Articles of Association. The Supervisory Committee did not identify any behavior of any Directors and senior management members of the Company in violation of applicable PRC laws, regulations or the Articles of Association or in infringement of the interests of the Company and Shareholders in performing of their duties. The financial statements of the Company are in compliance with the China Business Accounting Standards, the International Financial Reporting Standard and related regulations. The Company's financial operation is in good condition, and the financial statements truly and fairly represented financial status and operating results of the Company. The Company strictly implements relevant stipulations on the use of proceeds, and the actual use of the proceeds were consistent with the previous disclosure. The decision-making procedure for connected transactions between the Company and Sinopec Group complied with the stipulations of relevant laws, regulations and Articles of Association, and there was no infringement of the interests of the Company and independent Shareholders.

This session of the Supervisory Committee will stick to the principle of integrity, perform its supervisory duties, actively participate in the supervision of key decision-making processes of the Company, put greater efforts in inspection and supervision and protect the interests of the Company and its Shareholders.

ZHU Fei Chairman of the Supervisory Committee Beijing, the PRC 22 March 2021

DIRECTORS, SUPERVISORS, OTHER MEMBERS OF SENIOR MANAGEMENT AND EMPLOYEES

1 Directors, Supervisors and Other Members of Senior Management

(1) Directors

Mdm. SUN Lili (孫麗麗) – Chairwoman of the Board

Mdm. SUN Lili (孫麗麗), aged 59, is an expert in petrochemical engineering technology and management, a master of national engineering survey and design, and the academician of Chinese Academy of Engineering. Chairwoman of the Company, and an executive Director of Sinopec Engineering Incorporation (中國石化工程建設公司). Mdm. SUN is a senior engineer with a university diploma. From June 2004 to April 2012, she served as the vice president of Sinopec Engineering Incorporation. From January 2006 to May 2008, she served as the vice president of SINOPEC International Petroleum Exploration and Development Co., Ltd. (中國石化國際石油勘探開發有限公司). From September 2011 to March 2015, she has served as the chairwoman of the Project Supervision and Management Committee of Saudi Yanbu Refinery Joint Venture (沙特延布煉廠合資公司). From December 2011 to March 2015, she has served as the president of Saudi Yanbu Refinery Project and a member of the remuneration committee and audit committee of the board of directors of Saudi Yanbu Refinery Joint Venture. From April 2012 to October 2013, she served as the vice president of SINOPEC Engineering Incorporation. From November 2013 to October 2019, she served as the president of Sinopec Engineering Incorporation. Since November 2013, she has served as a director of Sinopec Engineering Incorporation. From January 2014 to November 2014, she served as the Vice President of SINOPEC SEG. She served as a Director of SINOPEC SEG since January 2015. Since December 2020, she has been the chairwoman of SINOPEC SEG.

Mr. XIANG Wenwu (向文武) – Vice Chairman of the Board

Mr. XIANG Wenwu (向文武), aged 54, is the Vice Chairman of the Board and a Director of the Company, and executive Director of Sinopec Group Fourth Construction Company. Mr. XIANG is a senior economist and holds a Ph.D. diploma. Mr. XIANG served as deputy manager of Sinopec Group Second Construction Company (中國石化集團第二建設公司) ("Sinopec Group SCC") from June 1999 to March 2004, the manager of Sinopec Group SCC from March 2004 to December 2008, the general manager of Sinopec Group SCC from December 2008 to July 2010, a director and the general manager of Sinopec Group Nanjing Engineering Co., Ltd. (中國石化集團南京工 程有限公司) from December 2009 to April 2012, an executive director and the general manager of Sinopec Nanjing Engineering Co., Ltd. (中石化南京工程有限公司) from April 2012 to November 2014, and the vice president of the Company from August 2012 to January 2017. Mr. XIANG has been the President of SINOPEC SEG from January 2017 to December 2020, a Director of SINOPEC SEG since February 2017. He has been the Vice Chairman of the Board of SINOPEC SEG and an executive Director of Sinopec Group Fourth Construction Company since December 2020.

Mr. JIANG Dejun (蔣德軍) – Director and President

Mr. JIANG Dejun (蔣德軍), aged 55, is a Director and President of the Company. Mr. JIANG is a senior engineer with a Ph. D degree. From November 2001 to September 2003, he was the deputy head of Lanzhou Design Institute of Sinopec Group (中國石化集團蘭州設計院). From September 2003 to June 2007, he was the director and vice president of Sinopec Ningbo Engineering Co., Ltd. (中石化寧波工程有限公司). From June 2007 to December 2008, he was the deputy manager of SINOPEC Engineering Co., Ltd. (中石化集團煉化工程有限公司). From December 2008 to September 2012, he was the Vice President of SINOPEC SEG and deputy Director of Engineering Enterprise Management Department of Sinopec Group. From September 2012 to October 2019, he has been the vice president of Sinopec Fifth Construction Co., Ltd. (中石化第五建設有限公司). He has been an employee representative Supervisor of SINOPEC SEG from January 2015 to December 2020, and has been the general manager of Sinopec Engineering Incorporation from October 2019 to December 2020. Since December 2020, he has been the President of SINOPEC SEG. Since February 2021, he has been a Director of SINOPEC SEG.

Mr. WU Wenxin (吳文信) – Director

Mr. WU Wenxin (吳文信), aged 57, is a Director of the Company and also serves as the general manager of the engineering department of Sinopec Group (中國石化集團有限公司工程部), and the general manager of the engineering department of Sinopec Corp. (中國石油化工股份有限公司工 程部). Mr. WU is a senior engineer with a Master degree. From May 2007 to September 2010, he served as the deputy general manager of Fujian Petrochemical Company Limited (福建煉油化工有 限公司). From December 2007 to September 2010, he was the director of the refining and ethylene integration project of Fujian Refining & Petrochemical Co., Ltd. (福建聯合石油化工有限公司). From November 2009 to September 2010, he served as a director of Fujian Petrochemical Co., Ltd. (福建 煉油化工有限公司). From July 2010 to March 2018, he served as a deputy director of the engineering department of Sinopec Corp. From September 2013 to March 2018, he was a deputy director of the engineering department of Sinopec Group. From October 2017 to October 2018, he was an executive director and general manager of Sinopec Engineering Quality Supervision Co., Ltd. (中石化工程質 量監測有限公司). From March 2018 to December 2019, he served as the director of the engineering department of Sinopec Group (中國石化集團工程部) and the director of the engineering department of Sinopec Corp. (中國石油化工股份有限公司工程部). He has been a Director of SINOPEC SEG since October 2018, and has been the general manager of the engineering department of Sinopec Group (中國石化集團工程部) and the general manager of the engineering department of Sinopec Corp. (中國石油化工股份有限公司工程部) since December 2019.

Directors, Supervisors, Other Members of Senior Management and Employees

Mr. HUI Chiu Chung, Stephen (許照中) – Independent Director

Mr. HUI Chiu Chung (許照中), J.P., aged 73, is an independent Director of the Company. Mr. HUI is currently the chairman and chief executive officer of Luk Fook Financial Services Limited. He also serves as an independent non-executive director of Zhuhai Holdings Investment Group Limited (Stock Code: 908), Gemdale Properties and Investment Corporation Limited (Stock Code: 535), Lifestyle International Holdings Limited (Stock Code: 1212), China South City Holdings Limited (Stock Code: 1668), Agile Group Holdings Limited (Stock Code: 3383) and FSE Engineering Holdings Limited (Stock Code: 331) and a non-executive director of Luk Fook Holdings (International) Limited (Stock Code: 590), whose shares are listed on the Hong Kong Stock Exchange. Mr. HUI has been appointed as the independent non-executive director of Hong Kong Exchanges and Clearing Limited (Stock Code: 388) by the Hong Kong SAR Government since April 2009, at which his term expires in April 2015. Mr. HUI has over 47 years of experience in the securities and investment industry. He was the managing director of UOB Kay Hian (Asia) Limited (大華繼顯(亞洲)有限公司) from 2002 to 2005; group managing director of OSK Asia Holdings Limited (僑豐金融集團有限公司) ("OSK") from August 2005 to March 2007; chief executive officer of OSK from April 2007 to March 2011; and the vice chairman of OSK Asia Holdings Hong Kong Limited (僑豐金融集團(香港)限公司) from April 2011 to September 2011. He served for years as a council member and vice chairman of the Hong Kong Stock Exchange, a member of the Advisory Committee and the Committee on Real Estate Investment Trusts of the Hong Kong Securities and Futures Commission, a director of the Hong Kong Securities Clearing Company Limited, a member of the Listing Committee of the Hong Kong Exchanges and Clearing Limited, an appointed member of the Securities and Futures Appeal Tribunal, a member of the Standing Committee on Company Law Reform, and an appointed member of the Hong Kong Institute of Certified Public Accountants Investigation Panel. Mr. HUI became a senior fellow member of the Hong Kong Securities and Investment Institute and fellow member of the Hong Kong Institute of Directors in 2011 and 2002, respectively. Mr. HUI has been an independent Director of SINOPEC SEG since April 2013.

Mr. JIN Yong (金涌) – Independent Director

Mr. JIN Yong (金涌), aged 85, is an independent Director of the Company. Mr JIN currently is a member of Chinese Academy of Engineering, the dean of the Chemical Engineering Science and Technology Research Institute of Tsinghua University (清華大學化工科學與技術研究院), a professor of the Chemical Engineering department of Tsinghua University, an executive officer of China Society of Particuology (中國顆粒學會) and an executive officer of Chemical Industry and Engineering Society of China (中國化工學會). Mr. JIN worked as an assistant teacher in Electrical Engineering Research Office in the University of Science and Technology of China ("USTC") (中國科學技術大學電工程教研 室) from October 1959 to February 1960. He also served as a teacher engaging in advanced studies in the Chemical Research Office in Tianjin University (天津大學化工教研室) from February 1960 to February 1961, and worked as a teacher in the Chemistry Department in USTC from February 1961 to May 1973. Since 1973, Mr. JIN has been a lecturer, associate professor, professor and tutor of doctoral candidates at the Chemical Engineering Department of Tsinghua University. Mr. Jin has been an independent Director of SINOPEC SEG since April 2013.

Mr. YE Zheng (葉政) – Independent Director

Mr. YE Zheng (葉政), aged 56, is an independent Director of the Company. Mr. YE is a practicing director of Mazars CPA Limited. He worked in Shanghai Municipal Finance Bureau (上海市財政局) from October 1982 to January 1989. Mr. YE has over 25 years of experience in audit, internal control and consultancy. He served as an auditor in Ernst & Young (安永會計師事務所) from October 1995 to April 2000; an audit manager in KPMG (畢馬威會計師事務所) from May 2000 to December 2001; a senior audit manager in Grant Thornton (香港均富會計師事務所) from January 2002 to July 2005 and a director in Ernst &Young from August 2005 to October 2006. Mr. YE obtained a bachelor's degree in accounting and finance in May 1993, and a master's degree in business administration in December 1994, both from California State University, Long Beach. Mr. YE became a member of the American Institute of Certified Public Accountants in September 1998 and a member of the Hong Kong Institute of Certified Public Accountants in May 2003. He has been a practicing director of Mazars CPA Limited since November 2006 and an independent Director of SINOPEC SEG since April 2013. Mr. YE was a consulting expert for the third session of the committee for enterprise internal control standards appointed by the Ministry of Finance of the People's Republic of China from 1 November 2014 to 31 October 2016.

Prole of the Directors of the Third Session of the Board as at the date of this annual report

Name	Gender	Age (1)	Position in the Company	Term of Office as Director
SUN Lili	Female	59	Chairwoman of the Board	October 2018 – October 2021
XIANG Wenwu	Male	54	Vice Chairman of the Board	October 2018 – October 2021
JIANG Dejun	Male	55	Director and President	February 2021 – October 2021
WU Wenxin	Male	57	Director	October 2018 – October 2021
HUI Chiu Chung, Stephen	Male	73	Independent Director	October 2018 – October 2021
JIN Yong	Male	85	Independent Director	October 2018 – October 2021
YE Zheng	Male	56	Independent Director	October 2018 – October 2021

Note:

(1) The age of each of the Directors of the Third Session of the Board was that as at the end of the Reporting Period.

List of relevant information of the resigned Directors as at the date of this annual report

Name	Gender	Age (1)	Position in the Company	Term of office
YU Renming	Male	57	Chairman of the Board	February 2020 – December 2020
ZHOU Yingguan	Male	52	Director	October 2018 – December 2020

Note:

(1) The age of retired Directors was that as at the end of the Reporting Period.

(2) Supervisors

Mr. ZHU Fei (朱斐) – Chairman of the Supervisory Committee, Chairman of the Trade Union

Mr. ZHU Fei (朱斐), aged 56, is the Chairman of the Supervisory Committee and the Chairman of the Trade Union of the Company. Mr. ZHU is a senior engineer with a university diploma. From October 1998 to July 1999, he was the deputy head of Beijing Design Institute (北京設計院). From July 1999 to December 2002, he undertook different roles at Sinopec Engineering Incorporation (中國石化 工程建設公司). From December 2002 to April 2012, he worked as the vice president of Sinopec Engineering Incorporation. From April 2012 to October 2014, he was the vice president of Sinopec Engineering Incorporation. From November 2014 to April 2017, he was the vice president of Sinopec Fourth Construction Co., Ltd. (中石化第四建設有限公司). He has been an employee representative Supervisor of the SINOPEC SEG since January 2015, has been the Chairman of the Supervisory Committee of SINOPEC SEG since May 2017, and has been the Chairman of the Trade Union of SINOPEC SEG since November 2019.

Mr. ZHOU Yingguan (周贏冠) – Supervisor

Mr. ZHOU Yingguan (周贏冠), aged 52, is a supervisor of the Company, as well as an executive director of Sinopec Nanjing Engineering Co., Ltd. (中石化南京工程有限公司). Mr. ZHOU is a senior economist with a university diploma. From March 2004 to July 2010, Mr. ZHOU served as the vice president of the Sinopec Group Second Construction Company (中國石化集團第二建設公司). From July 2010 to April 2012, he served as the vice president of Sinopec Group Nanjing Engineering Co., Ltd. (中國石化集團南京工程有限公司). From April 2012 to April 2017, he has been the vice president of Sinopec Nanjing Engineering Co., Ltd. (中石化南京工程有限公司). He was the Supervisor of SINOPEC SEG from January 2015 to October 2018. He has been an executive director and president of Sinopec Fourth Construction Co., Ltd. from April 2017 to December 2020. He has been a Director of SINOPEC SEG from October 2018 to December 2020. Since December 2020, he has been an executive director of Sinopec Nanjing Engineering Co., Ltd. (中石化南京工程有限公司). Since February 2021, he has been a supervisor of SINOPEC SEG.

Mr. XU Yijun (許一君) – Employee Representative Supervisor

Mr. XU Yijun (許一君), aged 57, is an employee representative Supervisor of the Company, who is also an executive director of Sinopec Ningbo Engineering Co., Ltd. (中石化寧波工程有限公司) Mr. XU is a senior economist with a Ph. D degree. From April 2001 to September 2003, he was the deputy manager of the Third Construction Company of Sinopec Group (中國石化集團第三建設公司). From September 2003 to April 2012, he was the vice president of Sinopec Group Ningbo Engineering Co., Ltd (中國石化集團寧波工程有限公司). He was the vice president of Sinopec Ningbo Engineering Co., Ltd. from April 2012 to November 2017. He has been an employee representative Supervisor of SINOPEC SEG since January 2015. He has been an executive director of Sinopec Ningbo Engineering Co. Ltd. since November 2017.

Mr. WU Zhongxian (吳忠憲) – Employee Representative Supervisor

Mr. WU Zhongxian (吳忠憲), aged 58, is an employee representative Supervisor of the Company and also serves as a executive director of Sinopec Tenth Construction Company Limited (中石化第十建 設有限公司). Mr. WU is a senior engineer with a university diploma. From March 1996 to April 2012, Mr. WU was the chief engineer of Sinopec Tenth Construction Company Limited. From October 2006 to December 2008, he was the deputy manager of Sinopec Tenth Construction Company Limited. From December 2008 to April 2012, he was the vice president of Sinopec Tenth Construction Company Limited. From April 2012 to December 2015, he was the vice president and the chief engineer of Sinopec Tenth Construction Company Limited. From December 2015 to August 2020, he was the vice president of Sinopec Tenth Construction Company Limited. He has been an employee representative Supervisor of SINOPEC SEG since October 2018. Since August 2020, he has been the executive director of Sinopec Tenth Construction Company Limited.

Profile of the Supervisors of the Third Session of the Supervisory Committee during the Reporting Period

Name	Gender	Age (1)	Position in the Company	Term of Office as Supervisor
ZHU Fei	Male	56	Chairman of the Supervisory Committee and Chairman of the Trade Union	October 2018 – October 2021
ZHOU Yingguan	Male	53	Supervisor	February 2021 – October 2021
XU Yijun	Male	57	Employee Representative Supervisor	October 2018 – October 2021
WU Zhongxian	Male	58	Employee Representative Supervisor	October 2018 – October 2021

Note:

(1) The age of each of the Supervisors of the Third Session of the Supervisory Committee was that as at the end of the Reporting Period. List of relevant information of the resigned Supervisors as at the date of this annual report

Name Gender Age (1) Position in the Company Term of office JIANG Dejun Male 55 Employee Representative Supervisor October 2018 – February 2021 WANG Guoliang Male 60 Supervisor October 2018 – March 2021 YE Wenbang Male 58 Supervisor October 2018 – March 2021 WU Jibo Male 52 Supervisor October 2018 – March 2021

Notes:

(1) Due to work adjustment, Mr. JIANG Dejun ceased to be the employee representative supervisor of the Company since 30 December 2020, Mr. ZHOU Yingguan ceased to be the Director of the Company since 30 December 2020.

(2) On 22 February 2021, Mr. ZHOU Yingguan was elected as a supervisor of the Third Session of the Supervisory Committee of the Company upon the approval of the first extraordinary general meeting of the Company for the year 2021.

(3) Due to his age, Mr. WANG Guoliang ceased to be the supervisor of the Company since 20 March 2021.

(4) Due to work adjustment, Mr. YE Wenbang and Mr. WU Jibo ceased to be the supervisors of the Company since 20 March 2021.

(3) Other Senior Management

Please refer to the subsection headed "Directors" in this section for biographical details of Mr. JIANG Dejun. Please refer to the subsection headed "Supervisors" in this section for biographical details of Mr. ZHU Fei.

Mr. WANG Guohua (王國華) – Vice President

Mr. WANG Guohua (王國華), aged 51, is the Vice President of SINOPEC SEG and the president of Sinopec Heavy Lifting and Transportation Co., Ltd. (中石化重型起重運輸工程有限公司). Mr. WANG is a senior economist with a bachelor degree. Mr. WANG served as the deputy manager of Sinopec Fourth Construction Company (中石化第四建設公司) (the "FCC") from July 2003 to December 2008, the deputy general manager of FCC from December 2008 to April 2012, the deputy general manager of Sinopec Fourth Construction Co., Ltd (中石化第四建設有限公司) (the "SFCC") from April 2012 to October 2014, an executive director and the president of the SFCC from October 2014 to April 2017, and the vice president of the SFCC from April 2017 to March 2019. Mr. WANG has been the president of Sinopec Heavy Lifting and Transportation Co., Ltd. (中石化重型起重運輸工程有限公司) since March 2019, and has been a Vice President of SINOPEC SEG since April 2019.

Mr. JIA Yiqun (賈益群) – Chief Financial Officer, Company Secretary

Mr. JIA Yiqun (賈益群), aged 53, is the Chief Financial Officer and Company Secretary of SINOPEC SEG. Mr. JIA is a senior engineer with a master degree. From July 1990 to April 2003, Mr. JIA has held positions in Sinopec Research Institute of Petroleum Engineering (中國石化石油化工科學研究 院), China Petrochemical International Company (中國石化國際事業公司), foreign affairs bureau of Sinopec Group (中國石化集團外事局). Mr. JIA served as deputy chief representative of the Hong Kong representative office of Sinopec Corp. from April 2003 to June 2012, has been the Chief Financial Officer of SINOPEC SEG since August 2012 and the Company Secretary of SINOPEC SEG since July 2019. Mr. JIA obtained the qualifications of Chartered Financial Analyst issued by CFA Institute in September 2006.

Mr. ZHENG Lijun (鄭立軍) – Vice President

Mr. ZHENG Lijun (鄭立軍), aged 52, is the vice president of SINOPEC SEG. Mr. ZHENG is a senior engineer with a university diploma. From August 1990 to March 2017, Mr. Zheng held positions in SINOPEC Beijing Design Institute (中國石化北京設計院) and SINOPEC Engineering Incorporation (中 國石化工程建設有限公司). He served as a vice president of SINOPEC Engineering Incorporation (中 國石化工程建設有限公司) from March 2017 to November 2019, and has served as a vice president of SINOPEC SEG since November 2019.

Prole of other members of the Senior Management during the Reporting Period

Name	Gender	Age (1)	Position in the Company	Date of Taking Office
JIANG Dejun	Male	55	President	December 2020
WANG Guohua	Male	51	Vice President	March 2019
JIA Yiqun	Male	53	Chief Financial Officer Company Secretary	August 2012 August 2019
ZHENG Lijun	Male	52	Vice President	October 2019

Note:

(1) The age of each of senior management members was that as at the end of the Reporting Period.

List of relevant information of the Senior Management as at the date of this annual report

Name	Gender	Age	Position in the Company	Term of office
XIANG Wenwu	Male	54	President	January 2017 – December 2020
QI Guosheng	Male	60	Vice President	November 2014 – November 2020
WANG Yi	Male	50	Vice President	July 2019 – August 2020

Notes:

(1) Due to his age, Mr. QI Guosheng ceased to be the Vice President of the Company since 24 November 2020.

(2) Due to work adjustment, Mr. WANG Yi ceased to be the Vice President of the Company since 28 August 2020.

2 Appointment and Resignation of Directors, Supervisors and Other Members of the Senior Management during and after the Reporting Period

Due to work adjustment, Mr. YU Renming ceased to be the Director of the Company from 30 December 2020. On 30 December 2020, Mdm. SUN Lili was elected as Chairwoman of the Third Session of the Board of the Company upon the approval of the thirteenth meeting of the Third Session of the Board of the Company, Mr. XIANG Wenwu was elected as the Vice Chairman of the Third Session of the Board of the Company. Mr. JIANG Dejun was appointed as a Director of the Third Session of the Board upon the approval of the first extraordinary general meeting of the Company on 22 February 2020. For further details, please refer to the section headed "DIRECTORS, SUPERVISORS, OTHER MEMBERS OF SENIOR MANAGEMENT AND EMPLOYEES – 1 Directors, Supervisors and Other Members of Senior Management" of this annual report.

3 Relationship among Directors, Supervisors and Other Members of the Senior Management

There is no financial, business, family or other material relationship between Directors, Supervisors and other members of the Senior Management except for the working relationship.

4 Positions Held by the Directors and Supervisors in Shareholders and Their Competition Interests during the Reporting Period

During the Reporting Period and as at the date of this annual report, (i) Mr. YU Renmin (who resigned as a Director on 30 December 2020) served as the employee representative Supervisor of Sinopec Corp.; and (ii) Mr. WU Wenxin served as the general manager of the engineering department of Sinopec Group, and the general manager of the engineering department of Sinopec Corp. Save for the above, to the knowledge of the Board, none of the Directors and Supervisors is a director or employee of a company which has an interest in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance, or owns interest in any other business which competes or is likely to compete, directly or indirectly, with the business of the Group.

5 Contract Benets of Directors and Supervisors

As at 31 December 2020 or any time during the Reporting Period, there is no any transaction, arrangement or contract of significance to which the Company, a parent company of the Company, a subsidiary of the Company or a subsidiary of the Company's parent company is a party, and in which the Directors or Supervisors or any entity connected with any of the Directors or Supervisors is or was materially interested, either directly or indirectly.

All executive Directors and non-executive Directors have entered into service agreements with the Company. Such service agreements are effective from the date of approval by the shareholders to the expiry of the term of the Third Session of the Board. The service agreements can be renewed in accordance with the Articles of Association and applicable laws and regulations. There is no service contract signed between the Directors and the Company which is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

All Supervisors have entered into agreements with the Company concerning the compliance with relevant laws and regulations, the Articles of Association and arbitration regulations. The term of office for Supervisors starts from the date of their respective appointment to the expiry of the Third Session of the Supervisory Committee. The service agreements can be renewed in accordance with the Articles of Association and applicable laws and regulations. There is no service contract signed between the Supervisors and the Company which is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

6 Remuneration of Directors, Supervisors and other Senior Management Members

During the Reporting Period, the total number of Directors, Supervisors and other Senior Management members paid by the Company was 19, and the annual total remuneration paid was RMB15.82 million. For details of the remuneration of Directors, Supervisors and the five highest paid individuals for the year ended 31 December 2020, please see notes 15 and 42(b) to the financial statements in this annual report.

7 Employees

As at 31 December 2020, there were a total of 17,301 employees in the Group.

The following table lists the information of employees classified by business as at 31 December 2020.

The following table lists the information of employees classified based on education background as at 31 December 2020.

Total 17,301 (100%)

8 Employee Remuneration

During the Reporting Period, we maintained good labour relationship. The remuneration of our employees mainly consists of salary, discretionary bonuses and contributions to the compulsory social security funds. In accordance with the laws and regulations of the PRC, the Group participates in different retirement pension related programmes for our employees, including the programmes organised by the provincial and municipal governments of the PRC and other complementary retirement pension related plans. Bonuses are usually determined in accordance with the overall performance of the Group's business. For the years ended 31 December 2019 and 31 December 2020, the employment costs of the Group were approximately RMB6.066 billion and RMB6.04 billion, respectively. The details of H shares appreciation rights scheme adopted by the Group are set out in the section headed "SIGNIFICANT EVENTS – 2 H Share Appreciation Rights Scheme" of this annual report.

9 Employee Training Programmes

During the Reporting Period, over 20 key special trainings have been organised by the Group. Throughout the year, a total of 36.5 thousand attendees attended the trainings inside and outside the Group, of which there were 3.6 thousand attendees who were operation management staff, 28.8 thousand attendees who were engineering and technical staff, and 4.1 thousand attendees who were operational staff.

FINANCIAL STATEMENTS

Independent Auditor's Report

To the Shareholders of SINOPEC Engineering (Group) Co., Ltd.

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

OPINION

We have audited the consolidated financial statements of SINOPEC Engineering (Group) Co., Ltd. (the "Company") and its subsidiaries (together the "Group") set out on pages 125 to 203, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Group in accordance with Hong Kong Institute of Certified Public Accountants' "Code of Ethics for Professional Accountants" (the "Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

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

Revenue recognition of construction contracts Our responses:

(Refer to notes 3.23, 5(a) and 6 to the consolidated financial statements)

The Group recognised revenue of RMB52,352,584,000 for the year ended 31 December 2020.

Revenue from construction contracts is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation, depending on the nature of the contract, is measured by reference to the proportion of contract costs incurred for work performed to date to estimated total contract costs for each contract. Management estimates the total contract revenue and total contract costs at the inception of each contract. As the contract progresses, management regularly reviews and revises the estimates of contract revenue and contract costs if circumstances change, such as variations in contract work, claims and incentive payments. The increases or decreases in estimated total contract revenue or total contract costs resulted in the adjustments to the extent of progress toward completion and revenue recognised in the period in which the circumstances that give rise to the revision becomes known by management.

These transactions require individual consideration and involve management's estimates and judgment. We have identified the revenue recognition related to construction contracts as a key audit matter.

Our procedures in relation to the revenue recognition of construction contracts included:

• assessing and testing the related internal control of the management's accounting estimates and judgment of construction contracts;
• obtaining material construction contracts to review key contract terms and verify the total contract revenues;
• checking, on a sample basis, the principal terms set out in the relevant construction contracts and the implementation status and testing on the accuracy of the calculation of percentage of completion and revenue and costs recognised during the year;
• testing, on a sample basis, the amount and timing of the construction contract cost recognised and performing cut-off testing procedures to check that cost had been recognised in the appropriate account period; and
• performing analytical review procedures on the gross margins of material construction contracts of the Group.

KEY AUDIT MATTERS (CONTINUED)

Provision for expected credit losses ("ECL") of trade receivables and contract assets

(Refer to notes 3.8(c), 21 and 23(a) to the consolidated financial statements)

ECL for trade receivables and contract assets are based on management's estimate of the lifetime ECL to be incurred, which is estimated by taking into account the credit loss experience, ageing of overdue trade receivables, customers' repayment history and customers' financial position and an assessment of both the current and forecast general economic conditions, all of which involve a significant degree of management judgment.

We have identified ECL assessment of trade receivables and contract assets as a key audit matter because their assessment is a subjective area as it requires the management's judgment and uses of estimates.

Our responses:

Our procedures in relation to management's ECL assessment on trade receivables and contract assets included:

• reviewing and assessing the application of the Group's policy for calculating the ECL;
• evaluating techniques and methodology in the ECL model against the requirements of IFRS 9;
• assessing the reasonableness of management's loss allowance estimates by examining the information used by management to form such judgments, including testing the accuracy of the historical default data, evaluating whether the expected credit loss rates are appropriately adjusted based on current economic conditions and forward-looking information and examining the actual losses recorded during the current financial year and assessing whether there was an indication of management bias when recognising loss allowances;
• evaluating the design, implementation and operating effectiveness of key internal controls which govern credit control, debt collection and estimation of ECL; and
• discussing with management the estimates of the recoverable amounts for those material trade receivables balances which are past due over 180 days, including customers' payment history and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates.

OTHER INFORMATION

The directors are responsible for the other information. The other information comprises all the information in the annual report of the Company, but does not include the consolidated financial statements and our auditor's report thereon.

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

DIRECTORS' RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

The directors are also responsible for overseeing the Group's financial reporting process. The Audit Committee assists the directors in discharging their responsibility in this regard.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue the auditor's report that includes our opinion. The report is made solely to you, as a body, in accordance with the terms of our engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

• • identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• • conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• • evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

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

OTHER MATTER

The consolidated financial statements of the Group for the year ended 31 December 2019, were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on 20 March 2020.

BDO Limited Certified Public Accountants

Ng Wai Man Practising Certificate number P05309

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2020

		2020	2019
	Notes	RMB'000	RMB'000
Revenue	6	52,352,584	52,261,051
Cost of sales		(46,638,512)	(46,778,318)
Gross prot		5,714,072	5,482,733
Other income	8	463,852	254,958
Selling and marketing expenses		(134,841)	(131,243)
Administrative expenses		(1,255,804)	(1,281,950)
Research and development costs		(2,175,183)	(2,136,152)
Other operating expenses		(420,877)	(191,263)
Other gains – net	9	13,160	19,924
Operating prot		2,204,379	2,017,007
Finance income	10	881,495	897,375
Finance expenses	10	(90,390)	(111,130)
Finance income – net		791,105	786,245
Share of (loss)/profit of a joint arrangement	20(a)	(41)	650
Share of profit of associates	20(b)	15,119	23,498
Prot before taxation	11	3,010,562	2,827,400
Income tax expense	12	(628,356)	(643,881)
Prot for the year		2,382,206	2,183,519

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (CONTINUED)

		2020	2019
	Notes	RMB'000	RMB'000
Other comprehensive income for the year, net of tax
Item that may be reclassied subsequently to prot or loss:
Exchange differences arising on translation of foreign operations		(54,247)	95,848
Item that will not be reclassied subsequently to prot 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
Prot attributable to:
Equity holders of the Company		2,381,905	2,183,457
Non-controlling interests		301	62
Prot 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 prot attributable to equity holders of the Company during the year (expressed in RMB per share)
– Basic and diluted	13	0.54	0.49

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

		2020	2019
	Notes	RMB'000	RMB'000
ASSETS
Non-current assets
Property, plant and equipment	17	3,881,466	3,597,352
Right-of-use assets	18	2,448,301	2,523,770
Intangible assets	19	218,959	233,315
Investment in a joint arrangement	20(a)	2,475	2,516
Investments in associates	20(b)	149,680	161,952
Deferred income tax assets	36	709,030	738,052
Total non-current assets		7,409,911	7,256,957
Current assets
Inventories	24	1,348,122	1,193,480
Notes and trade receivables	21	8,424,388	8,613,198
Prepayments and other receivables	22	7,705,785	6,664,671
Contract assets	23(a)	8,826,268	8,085,951
Loans due from the ultimate holding company	25	21,000,000	19,000,000
Restricted cash	26	36,661	38,087
Time deposits	27	8,273,435	7,086,066
Cash and cash equivalents	28	8,440,757	9,935,338
Total current assets		64,055,416	60,616,791
Total assets		71,465,327	67,873,748

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

		2020	2019
	Notes	RMB'000	RMB'000
EQUITY
Share capital	29	4,428,000	4,428,000
Reserves		23,823,172	22,837,976
Equity attributable to equity holders of the Company		28,251,172	27,265,976
Non-controlling interests		4,866	4,565
Total equity		28,256,038	27,270,541
LIABILITIES
Non-current liabilities
Lease liabilities	31	97,629	125,678
Retirement and other supplemental benefit obligations	32	2,252,789	2,488,926
Provision for litigation claims	33	186,593	196,945
Total non-current liabilities		2,537,011	2,811,549
Current liabilities
Notes and trade payables	34	21,675,887	22,114,039
Other payables	35	2,897,093	2,008,917
Loan due to a fellow subsidiary	37	163,123	–
Contract liabilities	23(b)	15,511,149	13,314,941
Lease liabilities	31	66,314	55,275
Current income tax liabilities		358,712	298,486
Total current liabilities		40,672,278	37,791,658
Total liabilities		43,209,289	40,603,207
Total equity and liabilities		71,465,327	67,873,748
Net current assets		23,383,138	22,825,133
Total assets less current liabilities		30,793,049	30,082,090

On behalf of the directors

Chairwoman of the Board Director, President Chief Financial Officer

SUN Lili JIANG Dejun JIA Yiqun

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2020

		Attributable to equity shareholders of the Company
	Share capital	Capital reserve	Statutory surplus reserve	Specic reserve	Exchange translation reserve	Retained earnings	Total	Non controlling interests	Total equity
	RMB'000 (Note 29)	RMB'000 (Note 30(v))	RMB'000 (Note 30(iv))	RMB'000 (Note 30(vi))	RMB'000 (Note 30(vii))	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2020	4,428,000	10,092,369	1,357,583	191,889	14	11,196,121	27,265,976	4,565	27,270,541
Prot for the year	–	–	–	–	–	2,381,905	2,381,905	301	2,382,206
Other comprehensive income:
Defined benefits obligation revaluation of actuarial gain and loss – gross	–	–	–	–	–	109,580	109,580	–	109,580
Defined benefits obligation revaluation of actuarial gain and loss – tax	–	–	–	–	–	(19,302)	(19,302)	–	(19,302)
Exchange differences arising on translation of foreign operations	–	–	–	–	(54,247)	–	(54,247)	–	(54,247)
Total comprehensive income	–	–	–	–	(54,247)	2,472,183	2,417,936	301	2,418,237
Transactions with owners:
Final dividends for 2019	–	–	–	–	–	(938,736)	(938,736)	–	(938,736)
Interim dividends for 2020	–	–	–	–	–	(500,364)	(500,364)	–	(500,364)
Appropriation of specific reserve	–	–	–	123,988	–	(123,988)	–	–	–
Utilisation of specific reserve	–	–	–	(140,829)	–	140,829	–	–	–
Appropriation of statutory surplus reserve	–	–	113,415	–	–	(113,415)	–	–	–
Other	–	6,360	–	–	–	–	6,360	–	6,360
Total transactions with owners	–	6,360	113,415	(16,841)	–	(1,535,674)	(1,432,740)	–	(1,432,740)
At 31 December 2020	4,428,000	10,098,729	1,470,998	175,048	(54,233)	12,132,630	28,251,172	4,866	28,256,038

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

		Attributable to equity shareholders of the Company
	Share capital	Capital reserve	Statutory surplus reserve	Specific reserve	Exchange translation reserve	Retained earnings	Total	Non controlling interests	Total equity
	RMB'000 (Note 29)	RMB'000 (Note 30(v))	RMB'000 (Note 30(iv))	RMB'000 (Note 30(vi))	RMB'000 (Note 30(vii))	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2019	4,428,000	10,092,369	999,155	182,340	(95,834)	10,372,616	25,978,646	4,503	25,983,149
Prot for the year	–	–	–	–	–	2,183,457	2,183,457	62	2,183,519
Other comprehensive income:
Defined benefits obligation revaluation of actuarial gain and loss – gross	–	–	–	–	–	47,319	47,319	–	47,319
Defined benefits obligation revaluation of actuarial gain and loss – tax	–	–	–	–	–	(11,669)	(11,669)	–	(11,669)
Exchange differences arising on translation of foreign operations	–	–	–	–	95,848	–	95,848	–	95,848
Total comprehensive income	–	–	–	–	95,848	2,219,107	2,314,955	62	2,315,017
Transactions with owners:
Final dividends for 2018	–	–	–	–	–	(549,072)	(549,072)	–	(549,072)
Interim dividends for 2019	–	–	–	–	–	(478,224)	(478,224)	–	(478,224)
Appropriation of specific reserve	–	–	–	149,401	–	(149,401)	–	–	–
Utilisation of specific reserve	–	–	–	(139,852)	–	139,852	–	–	–
Transfer to Statutory surplus reserve	–	–	358,428	–	–	(358,428)	–	–	–
Proceed from financial assets at fair value through other comprehensive income	–	–	–	–	–	(329)	(329)	–	(329)
Total transactions with owners	–	–	358,428	9,549	–	(1,395,602)	(1,027,625)	–	(1,027,625)
At 31 December 2019	4,428,000	10,092,369	1,357,583	191,889	14	11,196,121	27,265,976	4,565	27,270,541

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2020

		2020	2019
	Notes	RMB'000	RMB'000
Cash ows from operating activities
Cash generated from operations	40	3,400,159	430,588
Income tax paid		(564,914)	(573,908)
Interest received		121,591	443,367
Net cash generated from operating activities		2,956,836	300,047
Cash ows from investing activities
Purchase of property, plant and equipment		(406,607)	(226,992)
Purchase of intangible assets		(45,592)	(143,984)
Interest income on the loans to the ultimate holding company		617,893	588,656
Proceeds from disposal of property, plant and equipment		6,638	8,709
Settlement of derivative financial liabilities		–	(231,168)
Proceeds from disposal of financial assets at fair value through other comprehensive income		–	351
Proceeds from disposal of land use rights		–	56,109
Proceeds from disposal of an associate		37,479	–
Dividends received from joint arrangements		25,944	2,000
Net increase in time deposits		(1,187,369)	(4,943,660)
Loans to the ultimate holding company		(21,000,000)	(21,000,000)
Loans repaid by the ultimate holding company		19,000,000	20,000,000
Net cash used in investing activities		(2,951,614)	(5,889,979)
Cash ows from nancing activities	43
Drawdown/(repayment) of borrowings from a fellow subsidiary		170,140	(384,339)
Interest paid		–	(19,624)
Dividends paid		(1,382,895)	(1,027,296)
Payments of lease liabilities		(42,551)	(73,761)
Net cash used in nancing activities		(1,255,306)	(1,505,020)
Net decrease in cash and cash equivalents		(1,250,084)	(7,094,952)
Cash and cash equivalents at beginning of year		9,935,338	16,997,663
Exchange (losses)/gains on cash and cash equivalents		(244,497)	32,627
Cash and cash equivalents at end of year	28	8,440,757	9,935,338

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31 December 2020

1. GENERAL INFORMATION

1.1 Principal activities

SINOPEC Engineering (Group) Co., Ltd. (中石化煉化工程(集團)股份有限公司, the "Company") and its subsidiaries (together, the "Group") is principally engaged locally and overseas in (1) engineering, consulting and licensing, (2) EPC Contracting, (3) construction and (4) equipment manufacturing in respect of oil refining, petrochemical engineering, storage and transportation etc.

1.2 Organisation and reorganisation

The Company was established as a company with limited liability under the name of Sinopec Engineering Co., Ltd (中國石化集 團煉化工程有限公司) in the People's Republic of China (the "PRC") on 24 July 2007 under the Company Law of the PRC. The address of the Company's registered office is No. 8 Building, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, PRC.

The directors of the Company (the "Directors") regard China Petrochemical Corporation (中國石油化工集團有限公司, "Sinopec Group") as being the ultimate holding company of the Group, which is owned and controlled by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

Pursuant to a reorganisation of engineering, consulting and licensing, EPC Contracting, construction and equipment manufacturing in respect of oil refining, petrochemical engineering, storage and transportation of Sinopec Group in preparation for the primary listing (the "Listing") of the Company's shares on the Main Board of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") ("the Reorganisation"), Sinopec Group transferred the equity interests of its refining and engineering entities to the Company and the Company became the holding company of the subsidiaries now comprising the Group. Subsequent to the above reorganisation transactions which were completed in April 2012, the Company was transformed into a joint stock company with limited liability and renamed as SINOPEC Engineering (Group) Co., Ltd. (中石化煉化工程(集團)股 份有限公司) on 28 August 2012.

The Company has completed its listing on the Main Board of the Hong Kong Stock Exchange on 23 May 2013.

These consolidated financial statements are presented in Renminbi ("RMB"), unless otherwise stated.

The consolidated financial statements have been approved for issue by the Board of Directors on 20 March 2021.

2. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with all International Financial Reporting Standards, International Accounting Standards ("IASs") and Interpretations (hereinafter collectively referred to as the "IFRSs") issued by the International Accounting Standards Board (the "IASB") and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules").

The consolidated financial statements have been prepared under the historical cost basis except for certain financial instruments that are measured at fair values as explained in the accounting policies set out below.

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies of the Group. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 New or amended IFRS

The IASB has issued a number of new or amended IFRSs that are first effective for the current accounting period of the Group:

Amendments to IFRS 3	Definition of a Business
Amendments to IAS 1 and IAS 8	Definition of Material
Amendments to IAS 39,IFRS 7 and IFRS 9	Interest Rate Benchmark Reform

Other than as noted below, the adoption of the new or amended IFRSs had no material impact on how the results and financial position for the current and prior periods have been prepared and presented. The Group has not early applied any new or amended IFRSs that is not yet effective for the current accounting period.

Amendments to IFRS 3 "Denition of a Business"

The amendments clarify that a business must include, as a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs, together with providing extensive guidance on what is meant by a "substantive process".

Additionally, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs, whilst narrowing the definition of "outputs" and a "business" to focus on returns from selling goods and services to customers, rather than on cost reductions.

An optional concentration test has also been added that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

Amendments to IAS 1 and IAS 8 "Denition of Material"

The amendments clarify the definition and explanation of "material", aligning the definition across all IFRS Standards and the Conceptual Framework, and incorporating supporting requirements in IAS 1 into the definition.

3.1 New or amended IFRS (CONTINUED)

Amendments to IFRS 9, IAS 39 and IFRS 17 "Interest Rate Benchmark Reform"

The amendments modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainties caused by interest rate benchmark reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties.

The following new or amended IFRSs, potentially relevant to the Group's consolidated financial statements, have been issued, but not yet effective and have not been early adopted by the Group. The Group's current intention is to apply these changes on the date they become effective.

Amendments to IFRS 16	COVID-19 Related Rent Concessions1
Amendments to IAS 1	Classification of Liabilities as Current or Non-current4
Amendment to IAS 16	Proceeds before Intended Use2
Amendments to IAS 37	Onerous Contracts – Cost of Fulfilling a Contract2
Amendments to IFRS 3	Reference to the Conceptual Framework3
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture5
Amendments to IAS 39, IFRS 4, IFRS 7, IFRS 9 and IFRS 16	Interest Rate Benchmark Reform – Phase 21
Annual Improvements to IFRSs	Annual Improvements to IFRSs 2018-20202

1 Effective for annual periods beginning on or after 1 June 2020.

2 Effective for annual periods beginning on or after 1 January 2021.

Effective for annual periods beginning on or after 1 January 2022.

4 Effective for annual periods beginning on or after 1 January 2023.

5 The amendments shall be applied prospectively to the sale or contribution of assets occurring in annual periods beginning on or after a date to be determined.

The directors of the Company anticipate that the application of other new or amended IFRSs will have no material impact on the results and the financial position of the Group.

3.2 Consolidation

Subsidiaries

Subsidiaries are entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has the 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 existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that the Group ceases control.

Merger accounting for common control combinations

The transfer/acquisition of equity interests in subsidiaries which are regarded as common control combinations are accounted for in a manner similar to a uniting of interests. Assets and liabilities are transferred at book value, adjusted only to harmonies accounting policies, and no goodwill arises. Any difference between the consideration given and the aggregate book value of the assets and liabilities acquired (as of the date of the transaction) is included in equity. The financial statements incorporate the acquired entity's results as if both entities (acquirer and acquiree) had always been combined. Consequently, the financial statements reflect both entities' full year's results, even though the business combinations may have occurred part of the way throughout the year. In addition, the corresponding amounts for the previous year also reflect the combined results of both entities, even though the transaction did not occur until the current year.

3.2 Consolidation (CONTINUED)

Subsidiaries (CONTINUED)

Acquisition method of accounting for non-common control combinations

The acquisition method of accounting is used to account for business combinations other than common control combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests' proportionate share of the acquiree's net assets.

In the statement of financial position of the Company, investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment.

The excess of the consideration transferred the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of bargain purchase, the difference is recognised directly in the consolidated statement of profit or loss and other comprehensive income.

Inter-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated in preparing the consolidated financial statements. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity holders of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying value for the purposes of subsequent accounting for the retained interest as an associate, joint arrangement or financial asset as the fair value on initial recognition for subsequent accounting under IFRS 9 "Financial Instruments". In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred directly to retained earnings.

Joint Arrangement

A joint arrangement is an arrangement which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes the Group and other parties have joint control of the arrangement.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Assets, liabilities, revenue and expenses of a joint operation are apportioned between the joint operators in accordance with the agreement.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Group recognises its interest in a joint venture using the equity method. The equity method is detailed in accounting policies of interests in associates as below. The unrealised gains and losses will be eliminated in accordance with the Group's share of the interests in a joint venture if the Group enters into transactions with the joint venture.

3.2 Consolidation (CONTINUED)

Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss (Note 3.8).

The Group's shares of its associates' post-acquisition profits or losses is recognised in the profit or loss and its share of postacquisition movements in other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amounts of the investments. When the Group's share of losses in an associate equals or exceeds its interest in that associate (which includes any other unsecured receivables that, in substance, form part of the Group's net investment in the associate), the Group does not recognise further losses, unless the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interests in the associates. Where unrealised losses on assets sales between the Group and its associate are reversed on equity accounting, the underlying asset is also tested for impairment from the Group's prospective. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group discontinues the use of equity method from the date when it ceases to have significant influence over an associate. If the retained interest in that former associate is a financial asset, the retained interest is measured at fair value, which is regarded as its fair value on initial recognition as a financial asset in accordance with IFRS 9. The difference between (i) the fair value of any retained interest and any proceeds from disposing of a part interest in the associate; and (ii) the carrying amount of the investment at the date the equity method was discontinued, is recognised in the profit or loss. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would have been required if the associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

3.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors and certain senior management (including chief financial officer) (together referred to as the "Senior Management") that makes strategic decisions.

3.4 Foreign currency translation

Functional currency and presentation currency

Items included in the individual financial statements of each of the entities within the Group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Renminbi ("RMB"), which is the Group's functional currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents and all other foreign exchange gains and losses are presented in the consolidated statement of profit or loss and other comprehensive income within "other gains – net" and "other operating expenses".

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated (i.e. only translated using the exchange rates at the transaction date).

3.4 Foreign currency translation (CONTINUED)

Group companies

The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• (a) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
• (b) income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
• (c) all resulting exchange differences are recognised in other comprehensive income and accumulated separately in the exchange translation reserve.

3.5 Property, plant and equipment

Property, plant and equipment, except for construction-in-progress ("CIP"), are stated at historical cost less accumulated depreciation and accumulated impairment loss. Historical cost includes expenditures that are directly attributable to the acquisition of the items, including the purchase price, import duties, non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Depreciation is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

Buildings and other facilities	12 – 40 years
Machinery, transportation equipment and other equipment	4 – 30 years

CIP represents buildings and plant under construction and is stated at cost less accumulated impairment loss. Cost includes costs of construction of buildings, cost of plant and other direct costs. No depreciation is made on CIP until such time as the relevant assets are completed and ready for intended use. When the assets concerned are brought into use, the costs are transferred to the relevant asset categories and depreciated in accordance with the policy as stated above.

The estimates of assets' residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 3.7).

Gains or losses on disposals are determined by comparing the proceeds on disposal with the carrying amount and are included within "other (losses)/gains – net" in the consolidated statement of profit or loss and other comprehensive income.

Subsequent costs are included in the asset's carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of profit or loss and other comprehensive income during the financial period in which they are incurred.

3.6 Intangible assets

Computer software

Acquired computer software are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. After initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. These costs are amortised over their estimated useful lives of 5 years, and recorded in "depreciation and amortisation" within administrative expenses in the consolidated statement of profit or loss and other comprehensive income.

Patent and proprietary technologies

Patents and proprietary technologies are initially recorded at cost. After initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. These intangibles assets are amortised on a straight-line basis over their estimated useful lives of 8 to 10 years, and recorded in "depreciation and amortisation" within administrative expenses in the consolidated statement of profit or loss and other comprehensive income.

Amortisation methods and useful lives on computer software, patent and proprietary technologies are reviewed and adjusted if appropriates, at each reporting period.

3.7 Impairment of non-nancial assets

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Property, plant and equipment, intangible assets and interest in associate and joint venture that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Corporate assets are allocated to individual cash-generating units, when a reasonable and consistent basis of allocation can be identified, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment if there has been a favourable change in the estimates used to determine the asset's recoverable amount and only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised at each reporting date.

3.8 Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statements of financial position when the Group becomes a party to the contractual provision of the financial instrument. Financial assets and financial liabilities are initially measured at fair value.

A financial asset or financial liability (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at fair value through profit or loss ("FVTPL"), transaction costs that are directly attributable to its acquisition or issue. Transaction costs of financial assets carried at FVTPL are expensed in the consolidated statement of profit or loss and other comprehensive income. A trade receivable without a significant financing component is initially measured at the transaction price.

(a) Classication and measurement of nancial assets

On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income ("FVTOCI") – debt investment; FVTOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Group changes its business model for managing financial assets.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• (i) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortised cost or FVTOCI as described above are measured at FVTPL. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVTOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets: Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group's continuing recognition of the assets.

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

3.8 Financial instruments (CONTINUED)

(a) Classication and measurement of nancial assets (CONTINUED)

Financial assets: Assessment whether contractual cash ows are solely payments of principal and interest

For the purposes of this assessment, "principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

• (i) contingent events that would change the amount or timing of cash flows;
• (ii) terms that may adjust the contractual coupon rate, including variable rate features;
• (iii) prepayment and extension features; and
• (iv) terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse features).

A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a significant discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

Financial assets: Subsequent measurement and gains and losses

Financial assets at amortised cost

Notes and trade receivables, other receivables, loans due from the ultimate holding company, restricted cash, time deposits and cash and cash equivalents are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in the profit or loss. Any gain or loss on derecognition is recognised in the profit or loss.

Financial assets at FVTOCI

They are measured at fair value with gains and losses arising from changes in fair value recognised in OCI and accumulated in the fair value reserve (non-recycling); and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will continue to be held in the fair value reserve (nonrecycling).

Dividends on these investments in equity instruments are recognised in profit or loss when the Group's right to receive the dividends is established in accordance with IFRS 9, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the "other income" line item in profit or loss.

3.8 Financial instruments (CONTINUED)

(b) Derecognition of nancial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In such cases, the transferred assets are not derecognised.

(c) Impairment of nancial assets

The Group recognises loss allowances for ECL on financial assets measured at amortised cost.

The Group measures loss allowances at an amount equal to lifetime ECL. For trade receivables and contract assets, the Group applies the simplified approach to providing for ECL prescribed by IFRS 9, which requires the use of the lifetime expected losses provision for all trade receivables. The Group determines the ECL on these items by using a provision matrix, estimated based on historical credit losses experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

Lifetime ECL are the ECL that result from all possible default events over the expected life of a financial instrument.

12-month ECL are the portion of ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

In all cases, the maximum period considered when estimating ECL is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECL

The Group assesses on a forward-looking basis the ECL associated with its debt instruments carried at amortised cost. ECL are a probability-weighted estimation of credit losses (i.e. the present value of all cash shortfalls) over the expected life of the financial assets.

The Group has the following types of assets that are subject to IFRS 9's new ECL model:

• • notes and trade receivables
• • contract assets
• • cash and cash equivalents
• • restricted cash
• • time deposits
• • loans due from the ultimate holding company
• • other receivables

While cash and cash equivalents, restricted cash, time deposits, loans due from the ultimate holding company and other receivables are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

3.8 Financial instruments (CONTINUED)

(c) Impairment of nancial assets (CONTINUED)

Measurement of ECL (CONTINUED)

For trade receivables and contract assets with no significant financing component, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the assets. The provision matrix is determined based on historical observed default rates over the expected life of the trade receivables and contract assets with similar credit risk characteristics and is adjusted for forward-looking estimates. At every reporting date the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

Impairment on other financial assets measured at amortised cost are measured as either 12-month ECL or lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, then impairment is measured as lifetime ECL.

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

The Group assesses on in particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• • an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;
• • significant deterioration in external market indication of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;
• • existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;
• • an actual or expected significant deterioration in the operating results of the debtor;
• • an actual or expected significant adverse change in the regulatory, economic or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in profit or loss.

Credit-impaired nancial assets

At each reporting date, the Group assesses on a forward-looking basis whether financial assets carried at amortised cost are credit-impaired. A financial asset is "credit-impaired" when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

• (i) significant financial difficulty of the borrower or issuer;
• (ii) a breach of contract such as a default or past due event;
• (iii) the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
• (iv) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• (v) the disappearance of an active market for a security because of financial difficulties.

The Group recognises an impairment loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade and other receivables and contract assets where the corresponding adjustment is recognised through a loss allowance account.

3.8 Financial instruments (CONTINUED)

(c) Impairment of nancial assets (CONTINUED)

Write-off

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due, taking into account legal advice where appropriate.

A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(d) Classication and measurement of nancial liabilities

The Group's financial liabilities include notes and trade payables, other payables, dividend payables and lease liabilities. Financial liabilities (other than lease liabilities) are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in the profit or loss. Other financial liabilities (other than lease liabilities) are subsequently measured at amortised cost using the effective interest method, in the case of loans and borrowings, net of directly attributable transaction costs. Interest expense and foreign exchange gains and losses are recognised in the profit or loss. Any gain or loss on derecognition is also recognised in the profit or loss. Accounting policies of lease liabilities are set out in note 3.27.

(e) Derecognition of nancial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in the profit or loss.

(f) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions.

3.9 Derivative nancial instruments

Derivative financial instruments are recognised at fair value at the end of each reporting period with gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify for hedged accounting under IFRS 9.

3.10 Inventories

Inventories are stated at the lower of cost and net realisable value. Inventories are expensed to relevant operating expenses when used, sold or capitalised to property, plant and equipment when installed, as appropriate, using moving weighted average method. The cost of finished goods and work-in-progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

3.11 Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

3.12 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

3.13 Share-based payment transactions

Cash-settled share-based payment transactions

The Group operates a cash-settled H share appreciation rights plan. The related cost of services received from the employees and the liability to pay for such services are measured at fair value of the liability. Fair value is established at the grant date and re-measured at each reporting date until the liability settled. The fair value of the liability at each reporting date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the cash-settled share appreciation rights that will eventually vest. At the end of each reporting period, the Group revises its estimation of the number of the cash-settled share appreciation rights expected to vest. The impact of the revision and remeasurement, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimation. After the vesting date, changes in fair value of the liability is recognised in profit or loss until the liability is settled.

3.14 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has contractual or an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

3.15 Payables

Payables primarily include notes and trade payables and other payables, and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

3.16 Employee benets

Pension obligations

The full-time employees of the Group in the PRC are covered by various government-sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. The Group contributes on a monthly basis to these pension plans. Under these plans, the Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred.

The Group also provides supplementary pension subsidies to certain employees in the PRC. Such supplementary pension subsidies are considered to be defined benefit plans as the Group is obligated to provide post-employment benefits to these employees. The liability recognised in the consolidated statement of financial position in respect of these defined benefit plans is the present value of the defined benefit obligation at the end of the reporting period, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent qualified actuaries using the projected unit credit method. Net interests are recognised to the profit or loss and are calculated by the discount rate, which is determined by reference to the market yields of the high-quality government bonds at the end of the reporting period, multiplied the net defined benefit liabilities or assets at each of the beginning of the reporting period. The differences between the actual return on plan assets and with the passage of time in the plan assets are recognised in other comprehensive income.

The Group has various defined contribution plans in accordance with the local conditions and practices in the municipalities and provinces in which they operate. Defined contribution plans are pension and/or other social benefit plans under which the Group pay fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The contributions are recognised as labour costs when they are due.

3.16 Employee benets (CONTINUED)

Other post-employment obligations

Some of the companies comprising the Group provide post-retirement medical benefits to their retired employees. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. These obligations are valued annually by independent qualified actuaries.

Termination and early retirement benets

Termination and early retirement benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination and early retirement benefits when it is demonstrably committed to either: (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy. The specific terms vary among the terminated and early retired employees depending on various factors including position, length of service and district of the employee concerned. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

Housing benets

The Group contributes to the state-prescribed housing fund. Such costs are charged to the consolidated statement of profit or loss and other comprehensive income as incurred. Apart from those described above, the Group does not have other legal or constructive obligations over such benefits.

Bonus entitlements

The expected cost of bonus payments is recognised as a liability when the Group has a present contractual or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for bonus are expected to be settled within twelve months and are measured at the amounts expected to be paid when they are settled.

3.17 Borrowing costs

Borrowing costs incurred, net of any investment income earned on the temporary investment of the specific borrowings, for the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. A qualifying asset is an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are expensed when incurred.

Borrowing costs are capitalised as part of the cost of a qualifying asset when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are being undertaken. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are completed.

3.18 Taxation

Current and deferred income tax

The tax expense for the year comprises current and deferred income tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the income tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax rates and tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Changes in deferred tax assets or liabilities are recognised in profit or loss, or in other comprehensive income or directly in equity if they relate to items that are charged or credited to other comprehensive income or directly in equity.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, a joint arrangement and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and deferred income tax liabilities are offset when meeting all the conditions below:

• • The Group has the legally enforceable right to settle current income tax assets and current income tax liabilities; and
• • The deferred income tax assets and liabilities relate to income tax levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Value-added taxation ("VAT")

Sales of goods and provision of engineering, consulting and licensing services of the Group are subjected to VAT. VAT payable is determined by applying 13% or 6% on the taxable revenue arising from sales of goods and provision of engineering, consulting and licensing service in certain regions after offsetting deductible input VAT of the period.

Taxable revenue from construction services is subject to VAT at the rate of 9% after offsetting deductible input VAT. Certain revenue resulting from providing construction services was taxed by using applicable simple tax method, paying VAT at 3%.

3.19 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of the obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the consolidated financial statements unless the probability of outflow of resources embodying economic benefits is remote. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.

A contingent asset is not recognised in the consolidated financial statements unless virtually certain but disclosed when an inflow of economic benefits is probable.

3.20 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

3.21 Government grants

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

Government grants relating to purchase of assets are deferred and recognised in the consolidated statement of profit or loss and other comprehensive income over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to income is presented in gross under "other income" in the consolidated statement of profit or loss and other comprehensive income.

3.22 Contract assets and contract liabilities

The contract asset is the Group's right to consideration in the exchange for services that the Group has transferred to customer. The contract assets transferred to trade receivables when receipt of the consideration is conditional only on the passage of time.

The Group expects that contract assets have the same risk characteristics as trade receivables. The ECL assessment of contract assets in accordance with the accounting policy set out in Note 3.8.

A contract liability is recognised when the customer pays consideration before the Group recognises the related revenue. A contract liability would also be recognised if the Group has an unconditional right to receive consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised.

For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.

3.23 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the construction contracts and sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

To determine whether to recognise revenue, the Group follows a 5-step process:

• (1) Identifying the contract with a customer;
• (2) Identifying the performance obligations;
• (3) Determining the transaction price;
• (4) Allocating the transaction price to the performance obligations; and
• (5) Recognising revenue when/as performance obligation(s) are satisfied.

In all cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

Where the contract contains a financing component which provides a significant financing benefit to the customer for more than 12 months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the Group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method.

Further details of the Group's revenue and other income recognition policies are as follows:

Revenue from construction and service contracts

According to the nature of the contracts, the stage of contract completion is based on that the customer is able to control goods in progress during the Group's performance, revenue on construction contracts is recognised based on the Group's efforts or input to the satisfaction of the performance obligation over time. The input method recognises revenue based on the proportion of the actual costs incurred relative to the estimated total costs for satisfaction of the construction services. Variations in contract work are recognised as contract revenue to the extent that the modification has been approved by the parties to the contracts and it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur.

When the outcome of the contract cannot be reasonably measured, revenue is recognised only to the extent of contract costs incurred that are expected to be recovered.

Services rendered

Revenue for services rendered mainly includes technological development, engineering, consultation and supervision is recognised at a point in time when services are rendered.

Sales of products

Revenue from sales of products is recognised when i) control of the products has transferred, being when the products are delivered to the customers and there is no unfulfilled obligation that could affect the customer's acceptance of the products; and ii) collectability of the related receivables is reasonably assured. No contract liability and right to the returned goods are recognised as insignificant amount of returns are expected based on previous experience.

3.23 Revenue recognition (CONTINUED)

Dividend income

Dividend income is recognised when the right to receive payment is established.

Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.

3.24 Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

• (i) it is technically feasible to complete the intangible asset so that it will be available for use or sale;
• (ii) management intends to complete the intangible asset and use or sell it;
• (iii) the Group's an ability to use or sell the intangible asset is demonstrated;
• (iv) it can be demonstrated how the intangible asset will generate probable future economic benefits;
• (v) adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and
• (vi) the expenditure attributable to the intangible asset during its development can be reliably measured.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life.

3.25 Dividend distribution

Dividend distribution to the Company's equity holders is recognised as a liability in the consolidated financial statements in the year in which the dividends are approved by the Company's equity holders or directors, where appropriate.

3.26 Financial guarantee contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of:

• • The amount determined in accordance with the ECL model under IFRS 9 "Financial Instruments"; and
• • The amount initially recognised less, where appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

The fair value of financial guarantees is determined based on the present value of the difference in cash flows between the contractual payments required under the debt instruments and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group's policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

3.27 Leases

(a) Denition of a lease and the Group as a lessee

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an identified asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition, the Group assesses whether the contract meets three key evaluations which are whether:

• • the contracts contain an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;
• • the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and
• • the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

For contracts that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for leases of properties in which the Group is a lessee, the Group elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.

Measurement and recognition of leases as a lessee

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the condensed consolidated statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the underlying asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any lease incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term unless the Group is reasonably certain to obtain ownership at the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicator exists.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable payments based on an index or rate, and amounts expected to be payable under a residual value guarantee. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payment of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

Subsequent to initial measurement, the liability will be reduced for lease payments made and increased for interest cost on the lease liability. It is remeasured to reflect any reassessment or lease modification, or if there are changes in in-substance fixed payments. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.

The Group remeasures lease liabilities whenever:

• • there are changes in lease term, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.
• • the lease payments changes due to changes in market rental rates following a market rent review in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

For lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of modification.

When the lease is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-ofuse asset is already reduced to zero.

3.27 Leases (CONTINUED)

(a) Denition of a lease and the Group as a lessee (CONTINUED)

Measurement and recognition of leases as a lessee (CONTINUED)

The Group has elected to account for short-term leases using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these leases are recognised as an expense in profit or loss on a straight-line basis over the lease term. Short-term leases are leases with a lease term of 12 month or less.

Refundable rental deposits paid are accounted for under IFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

(b) The Group as a lessor

As a lessor, the Group classifies its leases as either operating or finance leases.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating lease if it does not.

The Group also earns rental income from operating leases. Rental income is recognised on a straight-line basis over the term of the lease.

3.28 Related parties

For the purposes of these consolidated financial statements, a party is considered to be related to the Group if:

(a) the party is a person or a close member of that person's family and if that person:

• (i) has control or joint control over the Group;
• (ii) has significant influence over the Group, or
• (iii) is a member of the key management personnel of the Group or of a parent of the Group.

(b) the party is an entity and if any of the following conditions applies:

(i) the entity and the Group are members of the same group;

• (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);
• (iii) the entity and the Group are joint ventures of the same third party;
• (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
• (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
• (vi) the entity is controlled or jointly controlled by a person identified in (a);
• (vii) a person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
• (viii) the entity, or any member of a group of which it is a part, provided key management personnel services to the Group or to the parent of the Group.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

4. FINANCIAL AND CAPITAL RISKS MANAGEMENT

The Group works out general principles for overall risk management, including management of financial risks, as well as management policies covering specific areas. In considering the importance of risks, the Group identifies and evaluates risks at head office and individual subsidiary level, and requires analysis and proper communication for the information collected periodically.

4.1 Financial risk management

The activities of the Group expose them to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The overall risk management program of the Group focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance of the Group.

The carrying amounts presented in the consolidated statement of financial position relate to the following categories of financial assets and financial liabilities:

	2020	2019
	RMB'000	RMB'000
Financial assets
Financial assets at amortised cost
Notes, trade and other receivables	9,629,241	9,675,307
Restricted cash	36,661	38,087
Time deposits	8,273,435	7,086,066
Cash and cash equivalents	8,440,757	9,935,338
Loans due from the ultimate holding company	21,000,000	19,000,000
Total nancial assets	47,380,094	45,734,798
Financial liabilities
Financial liabilities measured at amortised cost
Notes, trade and other payables	23,939,645	23,655,333
Lease liabilities	163,943	180,953
Total nancial liabilities	24,103,588	23,836,286

4.1 Financial risk management (CONTINUED)

(a) Market risk

Foreign exchange risk

The functional currency of the entities within the Group is RMB and most of the transactions are settled in RMB.

The Group carries out operations outside the PRC where transactions are usually denominated in the United States Dollars ("USD") which are translated into RMB at the prevailing exchange rates on the dates of the transactions.

The Group is exposed to currency risk primarily through provision of engineering contracting services which give rise to notes, trade and other receivables, notes, trade and other payables, restricted cash, time deposits and cash and cash equivalents that are denominated in a foreign currency. The currency that gives rise to this risk is primarily in USD as at 31 December 2020 and 31 December 2019.

On the other hand, RMB is not a freely convertible currency and the PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. Changes in the foreign exchange control system may prevent the Group from satisfying sufficient foreign currency demands.

The following table details the Group's exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than RMB to which they relate.

	USD	Others
At 31 December 2020	RMB'000	RMB'000
Restricted cash, time deposits and cash and cash equivalents	2,954,607	1,824,105
Notes, trade and other receivables	66,386	731,626
Notes, trade and other payables	(440,165)	(1,306,556)
Lease liabilities	(300)	(19,649)
Net exposure in RMB	2,580,528	1,229,526

	USD	Others
At 31 December 2019	RMB'000	RMB'000
Restricted cash, time deposits and cash and cash equivalents	3,853,855	1,955,368
Notes, trade and other receivables	514,025	761,457
Notes, trade and other payables	(409,313)	(1,830,626)
Lease liabilities	(1,251)	(9,391)
Net exposure in RMB	3,957,316	876,808

A 5% strengthening of RMB against the USD as at 31 December 2020 and 31 December 2019 would have changed the equity and net profit by the amounts shown below:

	2020	2019
	RMB'000	RMB'000
Decrease in equity and net profit
– USD	(96,770)	(148,400)

A 5% weakening of RMB as at 31 December 2020 and 31 December 2019 would have had the equal but opposite effect on the above currency to the amounts shown above, on the basis that all other variables remain constant.

The stated changes represent management's assessment of reasonably possible changes in foreign exchange rates over the period until the end of the next annual reporting period. The analysis is performed on the same basis at the relevant period.

4.1 Financial risk management (CONTINUED)

(a) Market risk (CONTINUED)

Interest rate risk

The Group's ordinary income and operating cash flows are substantially independent of changes in market interest rates. The interests arise from the loans between the Group and the ultimate holding company and time deposits are mainly based on fixed interest rate.

Price risk

The Group is not exposed to equity securities price risk because the Group's equity securities investments are classified as financial assets at FVTOCI which are stated at fair value.

(b) Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instrument and cause a financial loss to the Group. The Group's exposure to credit risk mainly arises from restricted cash, time deposit, cash and cash equivalent, notes, trade and other receivables, contract assets and loans due from the ultimate holding company.

In order to minimise credit risk, the Group has developed and maintained the Group's credit risk grading to categorise exposures according to their degree of risk of default. The credit rating information is based on the Group's own trading records to rate its major customers and other debtors. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

For financial assets measured at amortised cost and contract assets, the exposures to credit risk are monitored such that any outstanding debtors are reviewed and followed up on an ongoing basis. In the opinion of the Directors, the Group has no significant concentration of credit risk arising from its ordinary course of business due to its large customer base. The Group does not hold any collateral from its debtors.

Impairment assessment under ECL model

The Group's current credit risk grading framework comprises the following categories:

Category	Description	Basis for recognising ECL
Performing	The counterparty has a low risk of default and does not have any past-due amounts	12-month ECL
Doubtful	There has been a significant increase in credit risk since initial recognition	Lifetime ECL – not credit-impaired
In default	There is evidence indicating the asset is credit-impaired	Lifetime ECL – credit-impaired
Write-off	There is evidence indicating that the debtor is in severe financial difficulty and the Group has no realistic prospect of recovery	Amount is written off

Trade receivables and contract assets

As set out in Note 3.8, the Group assesses ECL under IFRS 9 on trade receivables and contract assets based on provision matrix, the expected loss rates are based on the payment profile for sales in the past 5 years as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer's ability to settle the amount outstanding. At each reporting date, the historical default rates are updated and changes in the forward-looking estimates are analysed.

Based on the Group's assessment of historical credit loss experience of the existing debtors and all available forward looking information, for trade receivables and contract assets, the Group used estimated loss rates based on aging for classes with different credit risk characteristics and exposures.

4.1 Financial risk management (CONTINUED)

(b) Credit risk (CONTINUED)

Impairment assessment under ECL model (CONTINUED)

Other receivables

The Group measures the loss allowance equal to 12-month ECL of other receivables. For those balances expected to have significant increase in credit risk since initial recognition, the Group apply lifetime ECL based on aging for classes with different credit risk characteristics and exposures.

Restricted cash, time deposits and cash and cash equivalents

Restricted cash, time deposits and cash and cash equivalents are placed at financial institutions that have sound credit ratings assigned by international credit-rating agencies and the Group considers the credit risk to be insignificant.

Loans due from the ultimate holding company

The 12-month ECL calculated by the Group is not significant and there has been no significant increase in credit risk since initial recognition.

4.1 Financial risk management (CONTINUED)

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying business, the Group aims to maintain flexibility in funding by keeping committed credit lines available.

Management monitors the cash flow forecasts of the Group in meeting its liabilities.

The table below analyses the Group's non-derivative financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period from the end of the reporting period to the contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

	Weighted average effective interest rate	Within 1 year	1-2 years	2-5 years	Over 5 years	Total undiscounted cash ows	Carrying amount
		RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
At 31 December 2020
Notes, trade and other payables	N/A	23,940,359	–	–	–	23,940,359	23,940,359
Lease liabilities	4.83%	70,354	44,317	37,857	32,922	185,450	163,943
Total other liabilities		24,010,713	44,317	37,857	32,922	24,125,809	24,104,302

Weighted average effective interest rate	Within 1 year	1-2 years	2-5 years	Over 5 years	Total undiscounted cash flows	Carrying amount
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
N/A	23,655,333	–	–	–	23,655,333	23,655,333
4.81%	63,275	105,705	38,432	–	207,412	180,953
	23,718,608	105,705	38,432	–	23,862,745	23,836,286

4.2 Capital risk management

The objectives of the Group when managing capital are to safeguard the ability of the Group in continuing as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debts.

The Group monitors their capital structure on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debts are calculated as other liabilities (including notes and trade payables, other payables, and lease liabilities, as shown in the consolidated statement of financial position) less restricted cash, time deposits and cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated statement of financial position, plus net debts less non-controlling interests.

	2020	2019
	RMB'000	RMB'000
Total other liabilities	24,104,302	23,836,286
Less: Restricted cash, time deposits and cash and cash equivalents	(16,750,853)	(17,059,491)
Net debt	7,353,449	6,776,795
Total equity (excluding non-controlling interests)	28,251,172	27,265,976
Total capital	35,604,621	34,042,771
Gearing ratio	21%	20%

4.3 Fair value measurement of nancial instruments

Fair value measurements

Apart from the below mentioned, the carrying amounts of the Group's financial assets and financial liabilities as re-elected in the consolidated statement of financial position approximate their respective fair values.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group discloses fair value measurements of financial instruments by level of the following fair value measurement hierarchy:

• • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2).
• • Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs) (level 3).

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes accounting estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Construction contracts

Revenue from individual contracts is recognised according to progress of the project. The determination of the progress of the construction service involves judgments. According to the nature of contract, the Group recognises revenue by reference to the stage of completion of the contract activity at the end of the reporting period as measured by the proportion that the actual costs incurred relative to the estimated total costs for satisfaction of the construction services. In addition, when determining the transaction price, the Group consider factors such as whether there is any financing component. The Group considers whether the payment schedule is commensurate with the Group's performance and whether the delayed payment is for finance purpose. The Group does not consider the arrangement with customers have significant financing component. The Group has, therefore, recognised revenue on progress confirmation over the period during which the services are rendered and transferred to customers. As at 31 December 2020 the contract assets (Note 23(a)) and contract liabilities (Note 23(b)) are RMB8,826,268,000 (31 December 2019: RMB8,085,951,000) and RMB15,511,149,000 (31 December 2019: RMB13,314,941,000) respectively.

(b) Useful lives of property, plant and equipment

The Group determines the estimated useful lives and related depreciation charges for the Group's property, plant and equipment (Note 17). This estimate is based on projected wear and tear incurred during the useful life of property, plant and equipment. This could change significantly as a result of technical renovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives or residual values vary with previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. As at 31 December 2020, the net carrying amount of property, plant and equipment is RMB3,881,466,000 (31 December 2019: RMB3,597,352,000).

(c) Provision for ECL of trade receivables and contract assets

The Group determines the provision for ECL on trade receivables (Note 21) and contract assets (Note 23(a)). This estimate is based on the credit history of the customers and the current market condition and forward-looking information. Management reassesses the adequacy of provision on a regular basis by reviewing the individual account based on past credit history and any prior knowledge of debtor insolvency or other credit risk which might not be easily accessible public information and market volatility might bear a significant impact which might not be easily ascertained. As at 31 December 2020, the provision for impairment on trade receivables and contract assets are RMB1,541,497,000 (31 December 2019: RMB1,346,804,000) and RMB214,459,000 (31 December 2019: RMB193,086,000) respectively.

(d) Deferred taxes

The estimates of deferred income tax assets (Note 36) require estimates over future taxable profit and corresponding applicable income tax rates of respective years. The change in future income tax rates and timing would affect income tax expense or benefit, as well as deferred income tax balance. The realisation of deferred income tax assets also depends on the realisation of sufficient profitability (taxable profit) of the Group. Deviation of future profitability from the estimate could result in material adjustments to the carrying amount of deferred income tax assets. Deferred tax assets relating to certain temporary differences and tax losses are recognised as management considers it is probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. Where the expectation is different from the original estimate, such differences will impact the recognition of deferred tax assets and taxation in the years in which such estimates are changed. As at 31 December 2020, deferred tax assets recognised in the consolidated statement of financial position is RMB709,030,000 (31 December 2019: RMB738,052,000).

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)

(e) Pension obligations

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for provisions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of corporate securities which have maturity approximating to the terms of the related pension liability. Other key assumptions for pension obligations are based on current market conditions. As at 31 December 2020, the net liabilities of retirement benefit plan obligations (Note 32(b)) is RMB2,252,789,000 (31 December 2019: RMB2,488,926,000).

(f) Provision for litigation claims

The Group are from time to time involved in legal proceedings arising in the ordinary course of our business. If the management believes that the legal proceedings may result claims for compensation to third parties against the Group, the best estimate of provision for litigation claims will be recognised. If the management believes that the legal proceedings may be more likely not to result claims for compensation to third parties against the Group, no provision will be recognised under any potential litigation claims. Except to the extent that the situations and uncertainties involved, that will be disclosed as contingent liabilities. To access the outcome of legal proceedings and any potential amount of litigation claims, significant judgment is required. As at 31 December 2020, provision for litigation claims (Note 33) is RMB186,593,000 (31 December 2019: RMB196,945,000).

6. REVENUE

The Group's revenue is set out below:

	2020	2019
	RMB'000	RMB'000
Engineering, consulting and licensing	3,603,524	2,317,552
EPC Contracting	33,577,673	32,438,087
Construction	14,804,376	17,219,628
Equipment manufacturing	367,011	285,784
	52,352,584	52,261,051

Remaining performance obligations

As at 31 December 2020, amount of remaining performance obligations is RMB105,654,607,000 (2019: RMB94,993,560,000), which is expected to be completed in the coming 60 months (2019: 60 months).

7. SEGMENT INFORMATION

Management has determined the operating segments based on the reports reviewed by the Senior Management that are used to make strategic decisions.

The Senior Management considers the business from a product and service perspective, which mainly includes four reportable operating segments:

• (i) Engineering, consulting and licensing providing design, consulting, research and development, feasibility studies, compliance certification services to oil refining and chemical etc industries;
• (ii) EPC Contracting providing integrated engineering, procurement, construction, maintenance and project management services to oil refining and chemical etc industries;
• (iii) Construction providing infrastructure for oil refining and chemical etc industries, oil and gas storage, pipelines transportation, construction, renovation, expansion, repair and maintenance services and large equipment lifting and transportation services in construction projects; and
• (iv) Equipment manufacturing providing design, development, manufacture and sales of equipment and spare parts for facilities including oil refining and chemical facilities.

Inter-segment sales were conducted at prices no less than cost and with terms mutually agreed among those business segments. Operating expenses of a functional unit are allocated to the relevant segment which is the predominant user of the services provided by the unit. Operating expenses of other shared services which cannot be allocated to a specific segment and corporate expenses are included as unallocated costs.

Segment assets consist primarily of property, plant and equipment, rights of use assets, construction in progress, intangible assets, investment in a joint arrangement and investment in associates, other non-current assets, inventories, notes and trade receivables, prepayments and other receivables, restricted cash and cash and cash equivalents. Unallocated assets comprise items such as some of the time deposits, loans due from the ultimate holding company, deferred income tax assets and other unallocated assets.

Segment liabilities comprise operating liabilities.

Capital expenditure comprises additions to property, plant and equipment (Note 17), right-of-use assets (Note 18), intangible assets (Note 19) and other non-current assets.

The segment information provided to the Senior Management for the reportable segments is as follow:

(i) As at and for the year ended 31 December 2020:

The segment results for the year ended 31 December 2020 are as follows:

	Engineering, consulting and licensing	EPC contracting	Construction	Equipment manufacturing	Unallocated	Elimination	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Segment revenue and results
Revenue from external customers	3,603,524	33,577,673	14,804,376	367,011	–	–	52,352,584
Inter-segment revenue	91,498	–	7,108,022	394,378	–	(7,593,898)	–
Segment revenue	3,695,022	33,577,673	21,912,398	761,389	–	(7,593,898)	52,352,584
Segment results	62,397	1,696,337	296,752	1,027	147,866	–	2,204,379
Finance income							881,495
Finance expenses							(90,390)
Share of loss of a joint arrangement	(41)	–	–	–	–	–	(41)
Share of profit of associates	3,515	11,604	–	–	–	–	15,119
Profit before taxation							3,010,562
Income tax expense							(628,356)
Profit for the year							2,382,206
Other segment items
Depreciation	201,608	82,341	296,938	18,158	23,079	(32,540)	589,584
Amortisation	15,565	27,783	3,184	–	13,416	–	59,948
Capital expenditures
– Property, plant and equipment	232,868	34,638	485,143	3,143	4,415	–	760,207
– Right-of-use assets	36,222	10,780	64,622	–	752	–	112,376
– Intangible assets	13,919	10,624	5,352	–	15,886	–	45,781
Provision/(Reversal of provision) for ECL on trade and other receivables and contract assets, net	(211,277)	322,429	107,923	4,518	1,849	–	225,442

The segment assets and liabilities as at 31 December 2020 are as follows:

	Engineering, Consulting and licensing	EPC Contracting	Construction	Equipment manufacturing	Elimination	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Assets
Segment assets	8,154,079	23,789,296	16,042,430	1,028,556	(11,106,981)	37,907,380
Investment in a joint arrangement	2,475	–	–	–	–	2,475
Investment in associates	48,822	100,858	–	–	–	149,680
Unallocated assets						33,405,792
Total assets						71,465,327
Liabilities
Segment liabilities	1,935,053	17,156,567	12,078,301	702,871	(11,204,287)	20,668,505
Unallocated liabilities						22,540,784
Total liabilities						43,209,289

(ii) As at and for the year ended 31 December 2019:

The segment results for the year ended 31 December 2019 are as follows:

	Engineering, consulting and licensing	EPC contracting	Construction	Equipment manufacturing	Unallocated	Elimination	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Segment revenue and results
Revenue from external customers	2,317,552	32,438,087	17,219,628	285,784	–	–	52,261,051
Inter-segment revenue	485,253	–	6,504,017	325,584	–	(7,314,854)	–
Segment revenue	2,802,805	32,438,087	23,723,645	611,368	–	(7,314,854)	52,261,051
Segment results	28,094	1,666,605	292,169	(6,882)	37,021	–	2,017,007
Finance income							897,375
Finance expenses							(111,130)
Share of profit of a joint arrangement	650	–	–	–	–	–	650
Share of profit of associates	5,463	14,294	3,741	–	–	–	23,498
Profit before taxation							2,827,400
Income tax expense							(643,881)
Profit for the year							2,183,519
Other segment items
Depreciation	64,578	188,414	343,313	12,421	–	–	608,726
Amortisation	2,376	69,741	2,633	–	–	–	74,750
Capital expenditures
– Property, plant and equipment	55,725	270,881	264,467	1,040	–	–	592,113
– Right-of-use assets	2,095	23,545	41,123	6,782	–	–	73,545
– Intangible assets	–	139,766	4,218	–	–	–	143,984
Provision/(Reversal of provision) for ECL on trade and other receivables and contract assets, net	(23,443)	5,217	108,044	(832)	–	–	88,986

The segment assets and liabilities as at 31 December 2019 are as follows:

Engineering, consulting and licensing	EPC contracting	Construction	Equipment manufacturing	Elimination	Total
RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
4,334,365	26,984,887	15,466,872	877,664	(5,291,173)	42,372,615
2,516	–	–	–	–	2,516
139,531	–	22,421	–	–	161,952
					25,336,665
					67,873,748
1,910,225	28,558,826	14,861,104	564,225	(5,291,173)	40,603,207
					40,603,207

Analysis of information by geographical regions:

The following table lists out the information about geographical regions. The geographical regions of the sales to external customers are based on the locations where the services are rendered or the places where the goods are delivered. The specific non-current assets include property, plant and equipment, right-of-use assets, intangible assets, investment in a joint arrangement and investment in associates, which the geographical regions are based on the places where the assets are located for property, plant and equipment and land use rights, the places where they are allocated to for intangible assets and the places where the business are conducted for a joint arrangement and associates.

Revenue

	2020	2019
	RMB'000	RMB'000
The PRC	47,629,649	42,551,448
Saudi Arabia	2,516,112	2,446,953
Kuwait	1,357,639	4,664,958
Oman	246,816	43,480
Other countries	602,368	2,554,212
	52,352,584	52,261,051

Information about major customers

The customers accounted for more than 10% of the total revenue of the Group and revenue from them for the year ended 31 December 2020 and 2019, the details are as follows:

	2020	2019
	RMB'000	RMB'000
Fellow subsidiary and its subsidiaries
– Customer group A	17,262,576	20,162,602

The revenue from the customers are derived from the segment of engineering, consulting and licensing, EPC contracting, construction and equipment manufacturing.

Specied non-current assets

	2020	2019
	RMB'000	RMB'000
The PRC	6,434,643	6,230,199
Other countries	275,538	288,706
	6,710,181	6,518,905

Disaggregation of revenue from contracts with customer

The Group derives revenue from the transfer of goods and service at a point in time and over time in the following customers' segment for engineering, consulting and licensing, EPC contracting, construction and equipment manufacturing:

	Engineering, consulting and licensing	EPC contracting	Construction	Equipment manufacturing	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Timing of revenue recognition
For the year ended 31 December 2020
– At a point in time	–	–	–	367,011	367,011
– Over time	3,603,524	33,577,673	14,804,376	–	51,985,573
Total revenue	3,603,524	33,577,673	14,804,376	367,011	52,352,584
For the year ended 31 December 2019
– At a point in time	–	–	–	285,784	285,784
– Over time	2,317,552	32,438,087	17,219,628	–	51,975,267
Total revenue	2,317,552	32,438,087	17,219,628	285,784	52,261,051
For the year ended 31 December 2020
– Oil refining	1,139,202	7,680,939	3,110,637	11,071	11,941,849
– Petrochemicals	1,683,755	18,913,180	8,888,692	354,313	29,839,940
– New coal chemicals	125,964	2,882,663	640,073	628	3,649,328
– Other industries	654,603	4,100,891	2,164,974	999	6,921,467
Total revenue	3,603,524	33,577,673	14,804,376	367,011	52,352,584
For the year ended 31 December 2019
– Oil refining	610,463	13,934,085	4,745,901	108,673	19,399,122
– Petrochemicals	1,378,038	14,388,215	9,207,390	172,464	25,146,107
– New coal chemicals	97,213	3,204,899	807,033	555	4,109,700
– Other industries	231,838	910,888	2,459,304	4,092	3,606,122
Total revenue	2,317,552	32,438,087	17,219,628	285,784	52,261,051

8. OTHER INCOME

	2020	2019
	RMB'000	RMB'000
Operating lease rental income on property, plant and equipment	76,420	67,892
Income from write back long outstanding payables	21,149	23,587
Government grants (note)	339,683	64,946
Others	26,600	98,533
	463,852	254,958

Note:

Government grants mainly represent financial subsidies from "Water/electricity/gas supply and property management", Talent Development Fund and job stabilisation subsidies.

9. OTHER GAINS – NET

	2020	2019
	RMB'000	RMB'000
Gains on disposal/write-off of property, plant and equipment	17,215	4,232
Gains on disposal/write-off of land use rights	846	54,637
Gain on disposal of investment in an associate (note 20(b)(2))	13,072	–
Loss on separation and transfer of "Water/electricity/gas supply and property management"	(17,973)	(38,945)
	13,160	19,924

10. FINANCE INCOME AND FINANCE EXPENSES

	2020	2019
	RMB'000	RMB'000
Finance income
Interest income from the ultimate holding company	617,893	588,656
Interest income from the fellow subsidiaries	68,415	109,112
Bank interest income	195,187	199,607
	881,495	897,375
Finance expenses
Interest expenses to a fellow subsidiary on balances wholly repayable within 5 years	(2,957)	(19,624)
Interest expenses on retirement and other supplementary benefit obligation	(76,674)	(81,758)
Finance charges on lease liabilities	(8,817)	(9,748)
Other interest expense	(1,942)	–
	(90,390)	(111,130)
	791,105	786,245

11. PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging/(crediting):

	2020	2019
	RMB'000	RMB'000
Staff costs, including directors and supervisors emoluments (Note 16)	6,040,323	6,066,225
Retirement benefit plan contribution (including in the above mentioned staff costs)	712,050	808,505
Cost of goods sold	19,907,162	17,415,941
Subcontracting costs	17,496,313	19,521,556
Depreciation and amortisation
– Property, plant and equipment	458,904	485,154
– Right of use assets	130,680	123,572
– Intangible assets	59,948	74,750
Operating lease rentals
Short term leases expenses	358,245	332,066
Provision for ECL on trade and other receivables and contract assets, net	225,442	88,986
Rental income from property, plant and equipment after relevant expenses	(47,785)	(62,387)
Research and development costs	2,175,183	2,136,152
Gains on disposal/write-off of property, plant and equipment	(17,215)	(4,232)
Gains on disposal/write-off of land use rights	(846)	(54,637)
Auditor's remuneration
– Audit service	4,570	4,700
Exchange losses, net	122,154	40,719
Reversal of cash-settled share-based payment	(6,344)	(5,100)

12. INCOME TAX EXPENSE

	2020	2019
	RMB'000	RMB'000
Current tax
PRC enterprise income tax	520,989	392,908
Overseas enterprise income tax	106,628	170,023
(Over)/under provision for income tax in prior years	(8,981)	49,232
	618,636	612,163
Deferred tax
Origination and reversal of temporary differences (note 36)	9,720	31,718
Income tax expense	628,356	643,881

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, certain 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.

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:

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

(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.

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

14. DIVIDENDS

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

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

(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.

15. DIRECTORS' AND SUPERVISORS' EMOLUMENTS AND FIVE HIGHEST INDIVIDUALS' EMOLUMENTS

(a) Directors' and supervisors' emoluments

Details of directors and supervisors of the Company are as follows:

(i) For the year ended 31 December 2020

	Fee	Basic salaries, other allowances and benets-in-kind	Discretionary bonus	Contributions to pension plans	Cash-settled share-based payment	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Executive directors
LU Dong(2)	–	–	–	–	–	–
XIANG Wenwu	–	489	592	127	–	1,208
SUN Lili	–	520	670	126	–	1,316
ZHOU Yingguan(4)	–	258	449	96	–	803
YU Renming(3)(4)	–	526	766	127	–	1,419
JIANG Dejun(5)	–	–	–	–	–	–
		1,793	2,477	476	–	4,746
Non-executive directors
YU Baocai(2)	–	–	–	–	–	–
WU Wenxin
	–	–	–	–	–	–
Independent non-executive directors
HUI Chiu Chung, Stephen	200	–	–	–	–	200
JIN Yong	200	–	–	–	–	200
YE Zheng	200	–	–	–	–	200
	600	–	–	–	–	600
Supervisors
WANG Guoliang(1)	–	147	486	33	–	666
ZHU Fei	–	300	523	126	–	949
JIANG Dejun(1)(4)	–	280	508	126	–	914
XU Yijun(1)	–	278	538	95	–	911
YE Wenbang(1)	–	510	307	113	–	930
WU Jibo(1)	–	258	465	97	–	820
WU Zhongxian(1)	–	258	422	94	–	774
ZHOU Yingguan(1)(5)	–	–	–	–	–	–
	–	2,031	3,249	684	–	5,964
	600	3,824	5,726	1,160	–	11,310

15. DIRECTORS' AND SUPERVISORS' EMOLUMENTS AND FIVE HIGHEST INDIVIDUALS' EMOLUMENTS (CONTINUED)

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

Details of directors and supervisors of the Company are as follows (CONTINUED):

(ii) For the year ended 31 December 2019

	Fee	Basic salaries, other allowances and benefits-in-kind	Discretionary bonus	Contributions to pension plans	Cash-settled share-based payment	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Executive directors
LU Dong(2)	–	386	780	99	89	1,354
XIANG Wenwu	–	415	770	99	89	1,373
SUN Lili	–	339	865	99	85	1,388
ZHOU Yingguan(4)	–	346	570	84	–	1,000
YU Renming(3)(4)	–	–	–	–	–	–
	–	1,486	2,985	381	263	5,115
Non-executive directors
YU Baocai(2)	–	–	–	–	–	–
WU Wenxin	–	–	–	–	–	–
	–	–	–	–	–	–
Independent non-executive directors
HUI Chiu Chung, Stephen	200	–	–	–	–	200
JIN Yong	200	–	–	–	–	200
YE Zheng	200	–	–	–	–	200
	600	–	–	–	–	600
Supervisors
WANG Guoliang(1)	–	318	707	76	–	1,101
ZHU Fei	–	341	665	86	–	1,092
JIANG Dejun(1)(4)	–	282	555	66	–	903
XU Yijun(1)	–	298	644	67	–	1,009
YE Wenbang(1)	–	301	668	89	68	1,126
WU Jibo(1)	–	285	547	76	64	972
WU Zhongxian(1)	–	277	577	75	–	929
	–	2,102	4,363	535	132	7,132
	600	3,588	7,348	916	395	12,847

15. DIRECTORS' AND SUPERVISORS' EMOLUMENTS AND FIVE HIGHEST INDIVIDUALS' EMOLUMENTS (CONTINUED)

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

Details of directors and supervisors of the Company are as follows (CONTINUED):

Notes:

• (1) These supervisors receive no emoluments for their services provided to the Company but they however receive emoluments from the Group for their services as directors and/or supervisors of a number of subsidiaries.
• (2) Resigned on 18 February 2020
• (3) Appointed on 18 February 2020
• (4) Resigned on 30 December 2020 (5) Appointed on 22 February 2021

For the years ended 31 December 2020 and 2019, Mr. XIANG Wenwu was also the president of the Company and his emoluments disclosed above including his service as the president. On 30 December 2020, Mr. XIANG Wenwu resigned as the president of the Company and JIANG Dejun appointed as the president of the Company.

(b) Five highest paid individuals

The number of director or supervisor and non-director or supervisor included in the five highest paid individuals for the years ended 31 December 2020 and 2019 are set forth below:

	2020	2019
	Number of individuals	Number of individuals
Director or supervisor	2	2
Non-director or supervisor	3	3
	5	5

The aggregate of the emoluments in respect of the remaining highest paid non-director or supervisor are as follows:

	2020	2019
	RMB'000	RMB'000
Basic salaries, other allowances and benefits-in-kind	1,231	1,154
Discretionary bonuses	2,033	3,209
Contributions to pensions plans	318	277
	3,582	4,640

The emoluments of three (2019:three) highest paid individuals who are non-director or supervisor are within the following bands:

	2020	2019
	Number of individuals	Number of individuals
HK\$1,500,001 to HK\$2,000,000	1	3
HK\$1,000,001 to HK\$1,500,000	2	–
Nil to HK\$1,000,000	–	–
	3	3

No emoluments were paid by the Group to any director or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office during the year (2019: nil).

16. EMPLOYMENT BENEFITS

	2020	2019
	RMB'000	RMB'000
Salaries, wages and bonuses	4,061,612	4,005,135
Retirement benefits(1)	608,716	683,392
Early retirement and supplemental pension benefit (Note 32(b))
– service cost	26,661	43,355
– interest cost	76,674	81,758
Immediate recognition of actuarial losses	1,605	7,106
Housing fund(2)	368,958	338,489
Welfare, medical and other expenses	902,441	912,090
Reversal of cash-settled shared-based payment (Note 38)	(6,344)	(5,100)
	6,040,323	6,066,225

Notes:

(1) Retirement benets

The Group is required to make specific contributions to the state-managed retirement plan at a rate of 14% to 19% (2019: 19% to 21%) of the specified salaries of the PRC employees for the year ended 31 December 2020. The PRC government is responsible for the pension liability to the retired employees. The PRC employees of the Group are entitled to a monthly pension upon their retirements.

(2) Housing fund

In accordance with the PRC housing reform regulations, the Group is required to make contributions to the state-managed housing fund at rates of 12% of the specified salaries of the PRC employees. At the same time, the employees are required to make a contribution based on certain percentages. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further obligations for housing benefits beyond the contributions made above.

17. PROPERTY, PLANT AND EQUIPMENT

	Buildings and other facilities	Machinery, transportation equipment and other equipment	Construction In-progress	Total
	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2019
Cost	3,441,090	4,389,607	301,534	8,132,231
Accumulated depreciation and impairment	(1,431,061)	(3,204,696)	–	(4,635,757)
Net book amount	2,010,029	1,184,911	301,534	3,496,474
Year ended 31 December 2019
Opening net book amount	2,010,029	1,184,911	301,534	3,496,474
Transfers	9,069	103,514	(112,583)	–
Additions	–	262,075	330,038	592,113
Depreciation	(119,172)	(365,982)	–	(485,154)
Disposals/write-off	(3)	(6,078)	–	(6,081)
Closing net book amount	1,899,923	1,178,440	518,989	3,597,352
At 31 December 2019 and 1 January 2020
Cost	3,450,076	4,630,885	518,989	8,599,950
Accumulated depreciation and impairment	(1,550,153)	(3,452,445)	–	(5,002,598)
Net book amount	1,899,923	1,178,440	518,989	3,597,352
Year ended 31 December 2020
Opening net book amount	1,899,923	1,178,440	518,989	3,597,352
Transfers	3,969	314,221	(318,190)	–
Additions	48,843	219,567	491,797	760,207
Depreciation	(117,093)	(341,811)	–	(458,904)
Disposals/write-off	(14,158)	(3,031)	–	(17,189)
Closing net book amount	1,821,484	1,367,386	692,596	3,881,466
At 31 December 2020
Cost	3,454,045	4,896,970	692,596	9,043,611
Accumulated depreciation and impairment	(1,632,561)	(3,529,584)	–	(5,162,145)
Net book amount	1,821,484	1,367,386	692,596	3,881,466

17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Depreciation expense recognised is analysed as follows:

	2020	2019
	RMB'000	RMB'000
Cost of sales	414,720	465,015
Selling and marking expenses	255	1,438
Administrative expenses	43,929	18,701
	458,904	485,154

18. RIGHT-OF-USE ASSETS

The Group leases assets including buildings and other facilities, Machinery, transportation equipment and other equipment and lands. Information about leases for which the Group is a lessee is presented below:

	Buildings and other facilities	Machinery, transportation equipment and other equipment	Land use right	Total
	RMB'000	RMB'000	RMB'000	RMB'000
Balance at 1 January 2019	179,730	7,707	–	187,437
Impact on initial application of IFRS 16 (note 1)	–	–	2,442,793	2,442,793
Additions	68,189	5,356	–	73,545
Depreciation for the year	(59,420)	(5,585)	(58,567)	(123,572)
Disposal/written off (note 2)	–	–	(38,945)	(38,945)
Modification	(15,736)	(280)	(1,472)	(17,488)
Balance at 31 December 2019 and 1 January 2020	172,763	7,198	2,343,809	2,523,770
Additions	68,375	40,063	3,938	112,376
Depreciation	(68,692)	(4,360)	(57,628)	(130,680)
Disposal/written off	(109)	–	(56,727)	(56,836)
Modification	(3,811)	3,482	–	(329)
Balance at 31 December 2020	168,526	46,383	2,233,392	2,448,301

Note:

(1) IFRS 16 has been applied using the modified retrospective approach, has therefore recognised the cumulative effect of initial application as an adjustment to the opening balance at 1 January 2019.

(2) As at 31 December 2020 and 2019, land use rights amounted to approximately RMB3,976,000 and RMB38,945,000 have been transferred under separation and transfer "Water/electricity/gas supply and property management", respectively.

Depreciation recognised is analysed as follows:

	2020	2019
	RMB'000	RMB'000
Cost of sales	76,752	71,367
Selling and marking expenses	1,091	166
Administrative expenses	52,837	52,039
	130,680	123,572

19. INTANGIBLE ASSETS

	Patent	Computer software	Total
	RMB'000	RMB'000	RMB'000
At 1 January 2019
Cost	479,882	369,372	849,254
Accumulated amortisation	(378,662)	(306,511)	(685,173)
Net book amount	101,220	62,861	164,081
Year ended 31 December 2019
Opening net book amount	101,220	62,861	164,081
Additions	–	143,984	143,984
Amortisation	(52,980)	(21,770)	(74,750)
Closing net book amount	48,240	185,075	233,315
At 31 December 2019 and 1 January 2020
Cost	479,882	513,356	993,238
Accumulated amortisation	(431,642)	(328,281)	(759,923)
Net book amount	48,240	185,075	233,315
Year ended 31 December 2020
Opening net book amount	48,240	185,075	233,315
Additions	–	45,781	45,781
Amortisation	(24,120)	(35,828)	(59,948)
Written-off	–	(189)	(189)
Closing net book amount	24,120	194,839	218,959
At 31 December 2020
Cost	479,882	552,630	1,032,512
Accumulated amortisation	(455,762)	(357,791)	(813,553)
Net book amount	24,120	194,839	218,959

Amortisation recognised is analysed as follows:

	2020	2019
	RMB'000	RMB'000
Cost of sales	16,002	69,874
Selling and marketing expenses	–	3
Administrative expenses	43,946	4,873
	59,948	74,750

20. INVESTMENT IN A JOINT ARRANGEMENT AND ASSOCIATES

(a) Investment in a joint arrangement

	2020	2019
	RMB'000	RMB'000
Joint venture
Beginning of the year	2,516	1,866
Share of total comprehensive (expense)/income	(41)	650
End of the year	2,475	2,516

The Group's joint venture, is unlisted and established in a form of limited company, is as follows:

Name	Establishment/Place of incorporation	Registered and fully paid capital	Indirect effective interest held	Principal activities and place of operations
		RMB'000
Hainan Great Wall Machinery Engineering Co., Ltd. (海南長城機械工程有限公司)	The PRC	3,000 (2019: 3,000)	50%	Technical development, sales of equipment/The PRC

The above joint venture is accounted for by using the equity method.

	2020	2019
	RMB'000	RMB'000
Current assets	18,924	19,409
Non-current assets	1,210	1,352
Total assets	20,134	20,761
Current liabilities	(15,184)	(15,728)
Total liabilities	(15,184)	(15,728)
Equity	4,950	5,033
Share of equity by the Group (50%) (2019: 50%)	2,475	2,516
	2020	2019
	RMB'000	RMB'000
Revenue	–	8,088
(Loss)/profit and total comprehensive (expense)/income for the year	(82)	1,300
Share of total comprehensive (expense)/income (50%) (2019:50%)	(41)	650

There are no material contingent liabilities and commitments relating to the Group's interests in the joint venture and no material contingent liabilities and commitments of the joint venture itself.

20. INVESTMENT IN A JOINT ARRANGEMENT AND ASSOCIATES (CONTINUED)

(b) Investments in associates

	2020	2019
	RMB'000	RMB'000
Beginning of the year	161,952	147,454
Share of total comprehensive income	21,479	23,498
Dividend distribution	(9,344)	(9,000)
Disposal	(24,407)	–
End of the year	149,680	161,952

The Group's associates, all of which are unlisted and established in a form of limited company, are as follows:

Name	Establishment/ Place of incorporation	Registered and fully paid capital	Indirect effective interest held	Principal activities and place of operations
		RMB'000
China Petrochemical Technology Co., Ltd. (中國石油化工科技開發有限公司) (1)	The PRC	50,000 (2019: 50,000)	35.00% (2019: 35.00%)	Technical development, Technical service/The PRC
Huizhou Tianxin Petrochemical Engineering Co., Ltd. (惠州天鑫石化工程有限公司) (2)	The PRC	– (2019: 15,000)	0% (2019: 40.00%)	Construction contracting/ The PRC
Shanghai KSD Bulk Solids Engineering Co., Ltd. (上海金申德粉體工程有限公司) (3)	The PRC	5,500 (2019: 5,500)	36.36% (2019: 36.36%)	Powder engineering services/ The PRC

The above associates are accounted for by using the equity method.

(1) The Group's share of the results of China Petrochemical Technology Co., Ltd., its aggregated assets and liabilities, are as follows:

	2020	2019
	RMB'000	RMB'000
Current assets	1,311,532	897,634
Non-current assets	31,709	39,694
Total assets	1,343,241	937,328
Current liabilities	(959,949)	(600,419)
Non-current liabilities	(31)	(21)
Total liabilities	(959,980)	(600,440)
Equity attributable to equity holders	348,730	305,451
Non-controlling interests	34,531	31,437
	383,261	336,888
Share of equity by the Group (35%) (2019: 35%)	122,056	106,908

	2020	2019
	RMB'000	RMB'000
Revenue	640,083	459,068
Profit and total comprehensive income for the year attributable to equity holders	25,107	34,878
Profit and total comprehensive income for the year attributable to non-controlling interest holders	5,594	7,876
Share of total comprehensive income (35%) (2019: 35%)	8,787	12,207

For the year ended 31 December 2020, China Petrochemical Technology Co., Ltd. did not declare any dividends (2019: RMB7,000,000).

20. INVESTMENT IN A JOINT ARRANGEMENT AND ASSOCIATES (CONTINUED)

(b) Investments in associates (CONTINUED)

(2) The Group's share of the results of Huizhou Tianxin Petrochemical Engineering Co., Ltd., its aggregated assets and liabilities, are as follows:

	2020	2019
	RMB'000	RMB'000
Current assets	–	97,678
Non-current assets	–	55,226
Total assets	–	152,904
Current liabilities	–	(78,165)
Total liabilities	–	(78,165)
Equity	–	74,739
Share of equity by the Group (0%) (2019: 40%)	–	29,895

	2020	2019
	RMB'000	RMB'000
Revenue	–	156,391
Profit and total comprehensive income for the year	–	12,474
Share of total comprehensive income (0%) (2019: 40%)	–	4,989

For the period from 1 January 2020 to 14 July 2020, Huizhou Tianxin Petrochemical Engineering Co., Ltd declared dividends of RMB7,344,000 (for the year ended 31 December 2019: Nil).

The Group held a 40% interest in Huizhou Tianxin Petrochemical Engineering Co., Ltd ("Huizhou Tianxin"). In July 2020, the Group disposed of all the interests in Huizhou Tianxin to another shareholder of Huizhou Tianxin for cash proceeds of approximately RMB37,479,000. This transaction has resulted in the Group recognising a gain of disposal of RMB13,072,000 in profit or loss, calculated as follows:

	RMB'000
Proceeds of disposal	37,479
Less:
Cost of investment in associate	(24,407)
Gain on disposal	13,072

(3) The Group's share of the results of Shanghai KSD Bulk Solids Engineering Co., Ltd., its aggregated assets and liabilities, are as follows:

	2020	2019
	RMB'000	RMB'000
Current assets	158,641	136,485
Non-current assets	1,553	1,552
Total assets	160,194	138,037
Current liabilities	(84,215)	(68,866)
Non-current liabilities	(4)	(4)
Total liabilities	(84,219)	(68,870)
Equity	75,975	69,167
Share of equity by the Group (36.36%) (2019: 36.36%)	27,625	25,149

20. INVESTMENT IN A JOINT ARRANGEMENT AND ASSOCIATES (CONTINUED)

(b) Investments in associates (CONTINUED)

(3) The Group's share of the results of Shanghai KSD Bulk Solids Engineering Co., Ltd., its aggregated assets and liabilities, are as follows (CONTINUED):

	2020	2019
	RMB'000	RMB'000
Revenue	65,780	77,868
Profit and total comprehensive income for the year	12,308	17,332
Share of total comprehensive income (36.36%) (2019: 36.36%)	4,474	6,302

For the year ended 31 December 2020, Shanghai KSD Bulk Solids Engineering Co., Ltd. declared dividends of RMB2,000,000 (2019: RMB2,000,000).

There are no material contingent liabilities and commitments relating to the Group's interests in the associates and no material contingent liabilities and commitments of the associates themselves.

21. NOTES AND TRADE RECEIVABLES

	2020	2019
	RMB'000	RMB'000
Trade receivables
Fellow subsidiaries	2,486,417	2,527,233
Joint ventures of fellow subsidiaries	513,944	721,605
Associates of fellow subsidiaries	39,031	134,362
Joint venture	–	1,309
Associates	–	27,978
Third parties	6,104,710	5,287,290
	9,144,102	8,699,777
Less: ECL allowance for impairment	(1,541,497)	(1,346,804)
Trade receivables – net	7,602,605	7,352,973
Notes receivables	821,783	1,260,225
Notes and trade receivables – net	8,424,388	8,613,198

The carrying amounts of the Group's notes and trade receivables as at 31 December 2020 and 31 December 2019 approximate their fair values.

All notes receivables of the Group are bank's acceptance bills and commercial's acceptance bills and usually collected within year from the date of issue.

The Group usually provides customers with a credit term between 15 and 180 days. For the settlement of trade receivables from provision of services, the Group usually reaches an agreement on the term of each payment with the customer by taking into account of factors such as, among other things, the credit history of the customer, its liquidity position and the Group's working capital needs, which varies on a case-by-case basis that requires the judgment and experience of the management. The Group does not hold any collateral as security.

21. NOTES AND TRADE RECEIVABLES (CONTINUED)

Ageing analysis of notes and trade receivables, net of ECL allowance, by invoice date is as follows:

	2020	2019
	RMB'000	RMB'000
Within 1 year	6,606,543	7,219,493
Between 1 and 2 years	1,316,446	1,113,044
Between 2 and 3 years	391,939	157,823
Between 3 and 4 years	33,511	51,333
Between 4 and 5 years	32,830	20,946
Over 5 years	43,119	50,559
	8,424,388	8,613,198

The movements of ECL allowance on trade receivables are as follows:

	2020	2019
	RMB'000	RMB'000
At the beginning of the year	1,346,804	1,313,283
ECL allowance	390,643	385,752
Receivables written off as uncollectible	(75)	(15,244)
Reversal	(195,875)	(336,987)
At the end of the year	1,541,497	1,346,804

The carrying amounts of the Group's notes and trade receivables are denominated in the following currencies:

	2020	2019
	RMB'000	RMB'000
RMB	7,720,739	7,429,090
USD	56,854	508,013
SAR	372,066	267,525
Others	274,729	408,570
	8,424,388	8,613,198

22. PREPAYMENTS AND OTHER RECEIVABLES

	2020	2019
	RMB'000	RMB'000
Prepayments
Prepayments for fellow subsidiaries	1,804,424	1,178,566
Prepayments for associates	6,336	–
Prepayments for joint ventures of fellow subsidiaries	385	543
Prepayments for construction	1,096,386	832,966
Prepayments for materials and equipment	3,053,850	2,680,834
Prepayments for labour costs	6,157	487,548
Prepayments for rent	1,287	1,946
Others	80,687	73,503
	6,049,512	5,255,906
Other receivables
Amounts due from fellow subsidiaries(1)	47,519	54,160
Amounts due from joint ventures of fellow subsidiaries(1)	153,990	189,451
Amounts due from associates of fellow subsidiaries(1)	247,138	250,152
Dividends receivable	7,600	24,200
Interests receivable	311,101	169,091
Petty cash funds	6,919	10,362
Other guarantee deposits and deposits	118,238	120,184
Payment in advance	246,109	199,993
Maintenance funds	67,557	55,203
Value-added tax credit	321,294	253,011
Prepaid value-added tax	33,833	18,013
Prepaid income tax	85,230	59,424
Value-added tax to be certified	11,063	16,208
Land disposal	36,515	36,515
Others	94,892	81,908
	1,788,998	1,537,875
Less: ECL allowance for impairment	(132,725)	(129,110)
Prepayments and other receivables – net	7,705,785	6,664,671

(1) The amounts due from related parties are unsecured, interest free and repayable on demand.

The carrying amounts of the Group's prepayments and other receivables as at 31 December 2020 and 31 December 2019 approximate their fair values.

The movements of ECL allowance on other receivables are as follows:

	2020	2019
	RMB'000	RMB'000
At the beginning of the year	129,110	117,979
ECL allowance	30,448	39,639
Write-off of irrecoverable receivable	(332)	(1,066)
Reversal	(26,501)	(27,442)
At the end of the year	132,725	129,110

23. CONTRACT ASSETS AND CONTRACT LIABILITIES

(a) Contract assets

	2020	2019
	RMB'000	RMB'000
Contract assets arising from construction contracts	8,826,268	8,085,951

Typical payment terms which impact on the amount of contract assets recognised are as follows:

The Group's construction contracts include payment schedules which require progress payments over the construction period once certain specified milestones are reached. The Group requires customers to pay deposits, normally 10% of total contract sum, as part of its credit risk management policies. The Group also agrees to have 1 to 2 years retention period for, normally 5% of the contract value. This amount is included in contract assets until the end of retention period as the Group's entitlement to this final payment is conditional on the Group's satisfactory work.

The amount of contract assets that is expected to be recovered after more than one year is RMB474,762,000 (2019: RMB585,816,000), all of which relates to retentions.

The movements of ECL allowance on contract assets are as follows:

	2020	2019
	RMB'000	RMB'000
At the beginning of the year	193,086	164,750
ECL allowance	79,487	148,495
Reversal	(57,493)	(120,159)
Write-off of irrecoverable contract assets	(621)	–
At the end of the year	214,459	193,086

(b) Contract liabilities

	2020	2019
	RMB'000	RMB'000
Contract liabilities arising from construction contracts	15,511,149	13,314,941

Notes:

When the Group receives a deposit before the production activity commences, this will give rise to contract liabilities at the start of a contract until the revenue recognised on the project exceeds the amount of the deposit.

The balance of contract liabilities as at 1 January 2020 is RMB13,314,941,000 (2019: RMB9,968,594,000), in which RMB12,292,559,000 (2019: RMB7,892,011,000) was recognised as revenue during the year.

Unsatisfied performance obligation:

The Group has signed construction contracts with a number of clients to provide construction services for a certain period of time in the future. These contracts normally constitute a single performance obligation as a whole. As at 31 December 2020, part of the construction projects of the Group was still in the process, and the total transaction price apportioned to the unsatisfied performance obligation was RMB105,654,607,000 (2019: RMB94,993,560,000), the amount of which was related to the progress of the performance of each construction contract, and will be recognised as revenue in accordance with the percentage of work performed in the future.

24. INVENTORIES

	2020	2019
	RMB'000	RMB'000
Raw materials	1,120,990	923,519
Turnover materials	226,162	231,855
Goods in transit	970	38,106
	1,348,122	1,193,480

As at 31 December 2020 and 31 December 2019, no provision for impairment on inventories of the Group has been made.

For the year ended 31 December 2020 and 2019, the cost of inventories recognised as expense and included in cost of sales amounted to RMB19,907,162,000 and RMB17,415,941,000 respectively.

25. LOANS DUE FROM THE ULTIMATE HOLDING COMPANY

Loans due from the ultimate holding company are unsecured, repayable within one year and interest bearings as follows:

	2020	2019
Loans due from the ultimate holding company	3.60%	3.60%

26. RESTRICTED CASH

	2020	2019
	RMB'000	RMB'000
Restricted cash
– RMB	36,661	38,087

Restricted cash mainly represented restricted funds frozen by the order of Justice, bank deposits for guarantees and deposit for farmers' salaries.

As at 31 December 2020 and 31 December 2019, the weighted average effective interest rates per annum on restricted cash with maturities ranging from one to twelve months was determined in accordance with the interest rate per annum of bank current account.

The maximum exposure to credit risk approximates to carrying amounts of the Group's restricted cash at the end of the respective reporting periods.

27. TIME DEPOSITS

	2020	2019
	RMB'000	RMB'000
Time deposits with initial term over three months:
Time deposits in banks	6,726,574	5,576,785
Time deposits in fellow subsidiaries	1,546,861	1,509,281
	8,273,435	7,086,066

	2020	2019
	RMB'000	RMB'000
Denominated in:
– RMB	6,252,175	5,670,352
– USD	1,795,652	1,398,728
– MYR	225,608	16,986
	8,273,435	7,086,066

The fellow subsidiaries are Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited.

The effective interest rates per annum on time deposits, with maturities of three months to five years (2019: half year to three years), are approximately 0.17% to 3.4% as at 31 December 2020 (2019: 1.83% to 4.30%).

The maximum exposure to credit risk approximates to carrying amounts of the Group's time deposits at the end of the respective reporting periods.

28. CASH AND CASH EQUIVALENTS

	2020	2019
	RMB'000	RMB'000
Cash at bank and in hand
– less than three months time deposits	594,824	1,495,716
– cash deposits	1,600,617	2,133,032
	2,195,441	3,628,748
Deposits in fellow subsidiaries
– less than three months time deposits	117,447	952,549
– cash deposits	6,127,869	5,354,041
	6,245,316	6,306,590
	8,440,757	9,935,338
	2020	2019
	RMB'000	RMB'000
Denominated in:
– RMB	5,683,300	5,541,829
– USD	1,158,955	2,455,127
– SAR	575,244	442,209
– EUR	287,378	573,511
– KZT	940	2,100
– KWD	454,373	705,060
– THB	20,484	50,860
– MYR	54,782	115,390
– Others	205,301	49,252

The fellow subsidiaries are Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited.

As at 31 December 2020 and 31 December 2019, the weighted average effective interest rates per annum on cash at bank are determined in accordance with the interest rate per annum of bank current account.

8,440,757 9,935,338

The effective interest rates per annum on deposits less than three months, with maturities of seven days to three months (2019: one to three months), are approximately 0.10% to 1.50% as at 31 December 2020 (2019: 1.96% to 2.70%).

The maximum exposure to credit risk approximates the carrying amounts of cash and cash equivalents at the end of the respective reporting periods.

29. SHARE CAPITAL

	As at 31 December 2020		As at 31 December 2019
	Number of shares	Share capital	Number of shares	Share capital
		RMB'000		RMB'000
Registered, issued and fully paid
– Domestic shares of RMB1.00 each(1)	2,967,200,000	2,967,200	2,967,200,000	2,967,200
– H Shares of RMB1.00 each	1,460,800,000	1,460,800	1,460,800,000	1,460,800
	4,428,000,000	4,428,000	4,428,000,000	4,428,000

(1) The 2,967,200,000 domestic shares comprise as follows:

(a) 2,907,856,000 shares are held by Sinopec Group; and

(b) 59,344,000 shares are held by SAMC (a fellow subsidiary).

30. THE STATEMENT OF FINANCIAL POSITION, THE STATEMENT OF CHANGES IN EQUITY AND RESERVES OF THE COMPANY

(i) The statement of nancial position of the Company

	2020	2019
	RMB'000	RMB'000
ASSETS
Non-current assets
Property, plant and equipment	158,088	161,155
Right-of-use assets	100,900	131,596
Intangible assets	130,189	127,384
Investment in subsidiaries	7,848,422	7,788,786
Deferred income tax assets	3,566	2,847
Total non-current assets	8,241,165	8,211,768
Current assets
Inventories	61	45
Notes and trade receivables	73,285	489,523
Prepayments and other receivables	1,003,902	909,528
Contract assets	21,025	44,547
Loans due from the ultimate holding company	21,000,000	19,000,000
Restricted cash	–	–
Time deposits	6,897,414	6,067,503
Cash and cash equivalents	4,919,113	5,884,076
Total current assets	33,914,800	32,395,222
Total assets	42,155,965	40,606,990

30. THE STATEMENT OF FINANCIAL POSITION, THE STATEMENT OF CHANGES IN EQUITY AND RESERVES OF THE COMPANY (CONTINUED)

(i) The statement of nancial position of the Company (CONTINUED)

	2020	2019
	RMB'000	RMB'000
Equity
Share capital	4,428,000	4,428,000
Reserves	14,430,960	14,311,852
Total equity	18,858,960	18,739,852
LIABILITIES
Non-current liabilities
Lease liabilities	22,440	51,741
Retirement and other supplemental benefit obligations	558	586
Total non-current liabilities	22,998	52,327
Current liabilities
Trade payables	432,286	729,331
Other payables	22,620,711	20,727,925
Contract liabilities	60,464	78,347
Lease liabilities	23,679	28,524
Current income tax liabilities	136,867	250,684
Total current liabilities	23,274,007	21,814,811
Total liabilities	23,297,005	21,867,138
Total equity and liabilities	42,155,965	40,606,990
Net current assets	10,640,793	10,580,411
Total assets less current liabilities	18,881,958	18,792,179

Approved and authorised for issue by the board of directors on 20 March 2021.

SUN Lili Chairwoman of the Board

JIANG Dejun Director, President

JIA Yiqun Chief Financial Officer

30. THE STATEMENT OF FINANCIAL POSITION, THE STATEMENT OF CHANGES IN EQUITY AND RESERVES OF THE COMPANY (CONTINUED)

(ii) The statement of changes in equity of the Company

	Share capital	Capital reserve	Statutory surplus reserve	Retained earnings	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2019	4,428,000	11,207,894	998,048	1,299,105	17,933,047
Prot for the year	–	–	–	1,824,796	1,824,796
Other comprehensive income:
Defined benefits obligation revaluation of actuarial gain and loss – gross	–	–	–	12,407	12,407
Defined benefits obligation revaluation of actuarial gain and loss – tax	–	–	–	(3,102)	(3,102)
Total comprehensive income	–	–	–	1,834,101	1,834,101
Transactions with owners:
Final dividends for 2018	–	–	–	(549,072)	(549,072)
Interim dividends for 2019	–	–	–	(478,224)	(478,224)
Transfer to Statutory surplus reserve	–	–	186,374	(186,374)	–
Total transactions with owners	–	–	186,374	(1,213,670)	(1,027,296)
At 31 December 2019 and 1 January 2020	4,428,000	11,207,894	1,184,422	1,919,536	18,739,852
Prot for the year	–	–	–	1,616,177	1,616,177
Other comprehensive income:
Defined benefits obligation revaluation of actuarial gain and loss – gross	–	–	–	20	20
Defined benefits obligation revaluation of actuarial gain and loss – tax	–	–	–	(5)	(5)
Exchange differences arising on foreign operations	–	–	–	(57,984)	(57,984)
Total comprehensive income	–	–	–	1,558,208	1,558,208
Transactions with owners:
Final dividends for 2019	–	–	–	(938,736)	(938,736)
Interim dividends for 2020	–	–	–	(500,364)	(500,364)
Transfer to Statutory surplus reserve	–	–	113,415	(113,415)	–
Total transactions with owners	–	–	113,415	(1,552,515)	(1,439,100)
At 31 December 2020	4,428,000	11,207,894	1,297,837	1,925,229	18,858,960

30. THE STATEMENT OF FINANCIAL POSITION, THE STATEMENT OF CHANGES IN EQUITY AND RESERVES OF THE COMPANY (CONTINUED)

(iii) Distributable prots

The distributable profits of the Company are as follows:

	2020	2019
	RMB'000	RMB'000
Distributable profits	1,925,229	1,919,536

(iv) Statutory surplus reserve

In accordance with the relevant laws and regulations of the PRC and the articles of association of the Company, it is required to appropriate 10% of its net profit determined in accordance with China Accounting Standards for Enterprises issued by the Ministry of Finance of PRC, after offsetting any prior years' losses, to the statutory surplus reserve. When the balance of such a reserve reaches 50% of the respective companies registered capital, any further appropriation is optional. The reserve must be made before distribution of dividends to shareholders.

The statutory surplus reserve can be used to offset prior years' losses, if any, and may be converted into share capital by issuing new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the remaining balance of the reserve after such an issue is not less than 25% of registered capital. The statutory surplus reserve is non-distributable.

(v) Capital reserve

Capital reserve arising from event-driven revaluation represented reserve recognised due to the revaluation arising from the Reorganisation, being the excess of fair value over carrying value net of the deferred tax liabilities. Apart from the above mentioned event-driven revaluation, capital reserve included transactions with holding company such as assets transferred from/ to Sinopec Group and also the share premium account and the fair value change arising from the financial assets designated as a fair value through other comprehensive income of associate.

(vi) Specic reserve

Pursuant to certain regulations issued by the State Administration of Work Safety of the PRC, the Group is required to set aside an amount to a safety fund for its engineering and construction contracting business. The fund can be used for improvements of safety at the worksite, and is not available for distribution to shareholders. Upon incurring qualifying safety expenditures, an equivalent amount is transferred from safety fund to retained earnings.

(vii) Exchange translation reserve

Exchange translation reserve represents exchange differences arising on the translation of financial statements of foreign operations and is treated according to accounting policies Note 3.4.

31. LEASE LIABILITIES

	2020	2019
	RMB'000	RMB'000
Total minimum lease payments:
Due within one year	70,354	63,275
Due in the second to fifth years	82,174	105,705
Due after the fifth year	32,922	38,432
	185,450	207,412
Future finance charges on leases liabilities	(21,507)	(26,459)
Present value of leases liabilities	163,943	180,953
Present value of minimum lease payments:
Due within one year	67,164	55,275
Due in the second to fifth years	72,170	92,823
Due after the fifth year	24,609	32,855
	163,943	180,953
Less:
Portion due within one year included under current liabilities	(66,314)	(55,275)
Portion due after one year included under non-current liabilities	97,629	125,678

During the year ended 31 December 2020, the Group entered into a number of lease agreements for usage of residential properties, office and equipment for 1 to 20 years (2019: 1 to 20 years). The Group makes fixed payments and additional variable payments depends on the usage of the buildings, plant and machinery, transportation equipment and other equipment during the contract period. On lease commencement, the Group recognised right-of-use assets included in property, plant equipment and lease liabilities amounting to RMB46,383,000 (2019: RMB73,545,000).

During the year ended 31 December 2020, the total cash outflows for the leases are RMB457,709,000 (2019: RMB405,827,000).

Details of the lease activities

As at 31 December 2020, the Group has entered into leases for office and staff quarter.

Types of	Financial statements items of	Number of leases	Range of remaining
right-of-use assets	right-of-use assets included in		lease term
Office and staff quarter	Building and other facilities carried at cost in	76	1 to 12 years
	"property, plant and equipment"	(2019:54)	(1 to 13 years)
Land use rights in PRC	Prepaid land use rights payments	114 (2019: 131)	22 to 62 years (2019: 23 to 63 years)

The Group considered that no extension option or termination option would be exercised at the lease commencement date.

32. RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS

(a) State-managed retirement plan

For the year ended 31 December 2020, the Chinese employees of the Group participate in employee social security plans organised and administrated by the PRC government authority. The PRC companies are required to contribute from 14% to 19%, (2019: 19% to 21%) depending on the applicable legal regulations, of salaries, wages and bonuses to the state-managed retirement plans. The obligation of these PRC companies with respect to the state-managed retirement plans is to make the specified contributions (Note 16(1)).

The total costs charged to the consolidated statement of comprehensive income during the years ended 31 December 2020 and 2019 are as follows:

	2020	2019
	RMB'000	RMB'000
Contributions to state-managed retirement plan	608,716	683,392

(b) Group employee retirement benet plans

The Group has implemented a retirement benefit plan to employees in the PRC who were retired on or before 30 June 2012. Such supplementary pension subsidies are considered to be defined benefit plans as the Group is obligated to provide postemployment benefits to these employees.

According to the plans, such employees after retirement can enjoy retirement pension, welfare allowance, part of medical expenses claim, living expenses and insurance and housing fund and other benefits. The employees' lifetime is guaranteed by the plans.

The exposure to actuarial risks of the Group's retirement benefit plans include: discount rate risk, benefit growth rate risk.

The Group is not obligated to provide post-employment benefits to incumbent employees.

The most recent actuarial valuation as at 31 December 2020 was performed by an independent qualified actuarial firm: Towers Watson Management Consulting (Shenzhen) Co., Ltd. Beijing Branch. The present value, related current service cost and past service cost of the Group's retirement benefit plan obligation are prepared by qualified actuary using the projected unit credit actuarial cost method.

(i) Discount rates adopted (per annum):

	2020	2019
Retirement with honors benefit plan	3.00%	3.00%
Retirement benefit plan	3.25%	3.25%
Early retirement benefit plan	3.00%	2.75%

(ii) Benet growth rates (per annum):

	2020	2019
Retirement with honors benefit plan	1.70%	2.50%
Retirement benefit plan	2.50%	2.70%
Early retirement benefit plan	1.50%	1.80%

(iii) Duration:

	2020	2019
Retirement with honors benefit plan	5.0 years	8.0 years
Retirement benefit plan	14.0 years	15.0 years
Early retirement benefit plan	4.0 years	4.0 years

32. RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS (CONTINUED)

(b) Group employee retirement benet plans (CONTINUED)

(iii) Duration (CONTINUED):

The below sensitivity analysis details how the Group's retirement benefit plan obligation as at the reporting date would have increased/(decreased) as a result of 0.25% reasonably possible increase or decrease assessed by management in each of the significant actuarial assumptions:

	As at 31 December 2020 Increase/(decrease) in retirement benet plan obligation		As at 31 December 2019 Increase/(decrease) in retirement benefit plan obligation
	Increase in assumption	Decrease in assumption	Increase in assumption	Decrease in assumption
	RMB'000	RMB'000	RMB'000	RMB'000
Discount rates	(48,541)	50,535	(55,590)	57,939
Benefit growth rates	48,544	(46,855)	58,115	(56,020)

The above sensitivity analysis is based on a change in an actuarial assumption while holding all other actuarial assumptions constant. Also, it is based on the assumption that changes in actuarial assumptions are not correlated.

(iv) Mortality: Average life expectancy of residents in the PRC.

(v) Benet costs paid to the retirees are assumed to continue until the death of the retirees.

32. RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS (CONTINUED)

(b) Group employee retirement benet plans (CONTINUED)

The total costs of retirement benefit plans in the consolidated statement of comprehensive income are as follows:

	Retirement with honors benet plan	Retirement benet plan	Early retirement benet plan	Total
	RMB'000	RMB'000	RMB'000	RMB'000
For the year ended 31 December 2019
Service costs:
Past service cost	–	–	43,355	43,355
Net interest expenses	2,039	75,127	4,592	81,758
Immediate recognition of actuarial gains	–	–	7,106	7,106
Benefit cost recognised in profit or loss	2,039	75,127	55,053	132,219
Revaluation of net benet obligation liabilities
Actuarial revaluation of economic assumptions change	(350)	21,837	–	21,487
Actuarial revaluation of other assumptions change	12,728	(81,534)	–	(68,806)
Benefit cost recognised in other comprehensive income	12,378	(59,697)	–	(47,319)
Total benefit cost recognised consolidated statement of comprehensive income	14,417	15,430	55,053	84,900
For the year ended 31 December 2020
Service costs:
Past service cost	–	–	26,661	26,661
Net interest expenses	2,028	70,412	4,234	76,674
Immediate recognition of actuarial losses	–	–	1,605	1,605
Benefit cost recognised in profit or loss	2,028	70,412	32,500	104,940
Revaluation of net benet obligation liabilities
Actuarial revaluation of economic assumptions change	(1,289)	(37,681)	–	(38,970)
Actuarial revaluation of other assumptions change	(14,895)	(55,713)	–	(70,608)
Benefit cost recognised in other comprehensive income	(16,184)	(93,394)	–	(109,578)
Total benefit cost recognised in the consolidated statement of comprehensive income	(14,156)	(22,982)	32,500	(4,638)

The Group's benefit plans do not include incumbent employees. No current service cost of each benefit plan incurred during each financial period. Meanwhile, the Group's benefit plans do not provide reserve of plan assets, therefore, there is no reserve of earnings from plan assets during each financial year.

Service cost and net interest expenses are recognised in employment benefits, part of the administrative expenses and finance expenses of the consolidated statement of comprehensive income. Revaluation of net liabilities of benefit obligation is recognised as other comprehensive income in the consolidated statement of profit or loss and other comprehensive income.

32. RETIREMENT AND OTHER SUPPLEMENTAL BENEFIT OBLIGATIONS (CONTINUED)

(b) Group employee retirement benet plans (CONTINUED)

As at the end of each reporting period, no assets reserve is under the Group's benefit plans. The net liabilities of retirement benefit plan obligations are recognised in the consolidated statement of financial position as follows:

	2020	2019
	RMB'000	RMB'000
Net liabilities of retirement benefit plan obligation	2,252,789	2,488,926

The movement of retirement benefit plan obligation as follows:

	Retirement with honors benet plan	Retirement benet plan	Early retirement benet plan	Total
	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2019	72,992	2,389,169	174,654	2,636,815
Past service cost	–	–	43,355	43,355
Net interest expenses	2,039	75,127	4,592	81,758
Immediate recognition of actuarial gains	–	–	7,106	7,106
Revaluation gain/(loss):
Actuarial revaluation of economic assumptions change	(350)	21,837	–	21,487
Actuarial revaluation of other assumptions change	12,728	(81,534)	–	(68,806)
Direct benefit paid by the Group	(14,822)	(164,035)	(53,932)	(232,789)
At 31 December 2019 and 1 January 2020	72,587	2,240,564	175,775	2,488,926
Past service cost	–	–	26,661	26,661
Net interest expenses	2,028	70,412	4,234	76,674
Immediate recognition of actuarial losses	–	–	1,605	1,605
Revaluation gain/(loss):
Actuarial revaluation of economic assumptions change	(1,289)	(37,681)	–	(38,970)
Actuarial revaluation of other assumptions change	(14,895)	(55,713)	–	(70,608)
Direct benefit paid by the Group	(13,065)	(168,046)	(50,388)	(231,499)
At 31 December 2020	45,366	2,049,536	157,887	2,252,789

The Group has no reserve of plan assets, no capital injection of plan assets is established and no future contribution is arranged.

33. PROVISION FOR LITIGATION CLAIMS

	2020	2019
	RMB'000	RMB'000
Beginning of the year	196,945	253,936
Reversal	–	(70,718)
Exchange difference	(8,508)	14,673
Payment	(1,844)	(946)
End of the year	186,593	196,945

The amounts represented the provision provided by a subsidiary of the Group for litigation.

The subsidiary of the Group has been sued during Year 2007 to Year 2009 due to a construction contract disputes and the case is ongoing process. The management of the Group has calculated all provision for the expected compensation incurred in accordance with the progress and solutions of the case.

For the years ended December 2020 and 2019, no additional provision for litigation claims is provided.

34. NOTES AND TRADE PAYABLES

	2020	2019
	RMB'000	RMB'000
Trade payables
– Fellow subsidiaries	919,162	219,344
– Associates of fellow subsidiaries	–	2,256
– Joint ventures of fellow subsidiaries	1,326	1,196
– Associates	195	40
– Third parties	18,733,926	20,174,375
	19,654,609	20,397,211
Notes payables	2,021,278	1,716,828
Notes and trade payables	21,675,887	22,114,039

The carrying amounts of the Group's notes and trade payables as at 31 December 2020 and 31 December 2019 approximate their fair values.

Ageing analysis of notes and trade payables based on invoice date is as follows:

	2020	2019
	RMB'000	RMB'000
Within 1 year	17,839,807	18,773,812
Between 1 and 2 years	2,155,967	1,844,766
Between 2 and 3 years	818,865	572,916
Over 3 years	861,248	922,545
	21,675,887	22,114,039

	2020	2019
	RMB'000	RMB'000
RMB	20,739,337	20,226,099
USD	61,298	173,299
EUR	18,957	5,066
KZT	76,102	11,168
SAR	683,160	976,439
Others	97,033	721,968
	21,675,887	22,114,039

35. OTHER PAYABLES

	2020	2019
	RMB'000	RMB'000
Salaries payables	293,607	214,210
Other taxation payables	621,526	457,206
Output value-added tax to be recognised	11,095	10,417
Payable of separation and transfer of "Water/electricity/gas supply and property management"	36,591	127,495
Deposits and guarantee deposits payables	58,498	82,550
Advanced payables	1,100,821	499,986
Rent, property management and maintenance payables	106,234	120,332
Contracts payables	305,972	195,373
Amounts due to ultimate holding company(1)	197	–
Amounts due to fellow subsidiaries(1)	285,451	86,788
Amounts due to a joint venture(1)	7	71
Amounts due to joint ventures of fellow subsidiaries(1)	4,961	5,627
Amounts due to associates of fellow subsidiaries(1)	888	888
Interest payables	714	–
Others	70,531	207,974
Total other payables	2,897,093	2,008,917

Note:

(1) Amounts due to related parties are unsecured, interest free and repayable on demand.

The carrying amounts of the Group's other payables as at 31 December 2020 and 31 December 2019 approximate their fair values.

36. DEFERRED INCOME TAX ASSETS

Deferred income tax assets recognised:

	2020	2019
	RMB'000	RMB'000
Deferred income tax assets	709,030	738,052

The gross movement on the deferred income tax account is as follows:

	2020	2019
	RMB'000	RMB'000
At the beginning of the year	738,052	781,439
Credited to equity for defined benefit obligations revaluation of actuarial gain or loss	(19,302)	(11,669)
Tax credited to profit for the year (Note 12)	(9,720)	(31,718)
At the end of the year	709,030	738,052

The movement in deferred income tax assets during the years ended 31 December 2020 and 2019, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

36. DEFERRED INCOME TAX ASSETS (CONTINUED)

Deferred income tax assets

	Tax losses	Provision for retirement and other supplemental benet obligation	Provision for impairment on assets	Others	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
At 1 January 2019	12,127	458,888	270,811	39,613	781,439
Credited/(Charged) to:
Profit for the year	(12,127)	(24,689)	11,444	(6,346)	(31,718)
Equity	–	(11,669)	–	–	(11,669)
At 31 December 2019 and 1 January 2020	–	422,530	282,255	33,267	738,052
Credited/(Charged) to:
Profit for the year	–	(35,017)	29,570	(4,273)	(9,720)
Equity	–	(19,302)	–	–	(19,302)
At 31 December 2020	–	368,211	311,825	28,994	709,030

Deferred income tax assets not recognised

Deferred income tax assets are recognised for tax losses carried-forward to the extent that the realisation of the related income tax benefits through the future taxable profits is probable. In accordance with the PRC tax law applicable to those companies in their respective jurisdictions, tax losses may be carried forward against future taxable income. Deferred income tax assets not recognised in the Group is as follows:

	2020	2019
	RMB'000	RMB'000
Tax losses for which no deferred income tax asset was recognised	1,322,717	1,299,180

The Group did not recognise deferred income tax assets as the management believes it is not likely that such tax losses would be realised before they expire. The tax loss for which no deferred income tax assets recognised mentioned would be expired in five years.

37. LOAN DUE TO A FELLOW SUBSIDIARY

Loan due to a fellow subsidiary is unsecured, repayable within one year and interest bearing at 1.52% to 1.88% per annum. The fellow subsidiary is Sinopec Century Bright Capital Investment Limited.

38. CASH-SETTLED SHARE-BASED PAYMENT

Pursuant to the announcement in relation to the approval of the proposed initial terms of H share appreciation rights scheme by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC (the "SASAC") on 12 December 2017 and the resolution passed at the second extraordinary general meeting for the year 2017 dated 20 December 2017, the proposed adoption of the H share appreciation rights scheme and the proposed initial grant have been approved at the second extraordinary general meeting.

According to the Company's H Share appreciation rights scheme, the Company granted 13,143,000 units of cash settled H share appreciation rights to a total of 89 incentive recipients on 20 December 2017. The H Share appreciation rights are valid for 10 years from the date of grant. Subject to a lock-up period of two years following the date of grant, H share appreciation rights should be exercised from the second anniversary of the date of grant in 3 years on equal proportion, subject to the following conditions:

Conditions based on the Group's performance:

Effective Phases	Performance Evaluation Targets
First Effective Phase	• the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 14.2% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the EVA of the financial year immediately before the year of the effective date shall not be less than RMB2.099 billion.
Second Effective Phase	• the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 21.6% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the EVA of the financial year immediately before the effective date shall not be less than RMB2.233 billion.
Third Effective Phase	• the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 29.3% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies; • the EVA of the financial year immediately before the effective date shall not be less than RMB2.373 billion.

If the aforementioned conditions based on the Group's performance are satisfied, the H share appreciation rights granted to the incentive recipients shall become effective as determined based on the following:

• • If the incentive recipient's performance evaluation rating for the previous year is "A", then 100% of the share appreciation rights in the relevant phase shall become effective;
• • If the incentive recipient's performance evaluation rating for the previous year is "B", then 90% of the share appreciation rights in the relevant phase shall become effective;
• • If the incentive recipient's performance evaluation rating for the previous year is "C", then 30% of the share appreciation rights in the relevant phase shall become effective;
• • If the incentive recipient's performance evaluation rating for the previous year is "D", irrespective of whether the Company has satisfied the performance conditions or not, all the share appreciation rights in the relevant phase shall lapse; or
• • If the incentive recipient does not satisfy the condition precedent set out above, then the share appreciation rights granted to such incentive recipient for the corresponding effective phase shall lapse.

38. CASH-SETTLED SHARE-BASED PAYMENT (CONTINUED)

As at 31 December 2020, the details of the H share appreciation rights were as follows:

			Number of underlying H share appreciation rights
Date of grant	Exercise price	Effective period	Exercisable period	Outstanding at 1 January 2020	Lapse during the year	Outstanding at 31 December 2020
	(HKD)
Directors
20 December 2017	6.35	20 December 2017 to 19 December 2027	20 December 2021 to 20 December 2024	27,200	(27,200)	–
Employees
20 December 2017	6.35	20 December 2017 to 19 December 2027	20 December 2021 to 20 December 2024	4,441,420	(4,441,420)	–
				4,468,620	(4,468,620)	–

As at 31 December 2020, the conditions to effect the H share appreciation rights in the Third Effective Phase of 4,468,620 units (representing 34% of the H share appreciation rights) were not fulfilled. Therefore, those H share appreciation rights have be lapsed.

As at 31 December 2019, the conditions to effect the H share appreciation rights in the First and Second Effective Phase of 8,674,380 units (representing 66% of the H share appreciation rights) were not fulfilled. Therefore, those H share appreciation rights have be lapsed.

The total fair value of share options as at 31 December 2019 has been valued using Black-Scholes valuation model.

The significant inputs into the model were as follows:

	2020	2019
	RMB'000	RMB'000
Exercise price	N/A	HKD5.80
Expected volatility	N/A	33.93%
Expected life (years)	N/A	4.5 years
Risk-free interest rate	N/A	1.740%
Expected dividend yield	N/A	0%

At 31 December 2020, the Group did not record any liabilities (2019: RMB6,344,000), which RMB6,344,000 (2019: RMB5,100,000) was reversed in accrued charges during the year in respect of the lapse of H Share appreciation rights.

39. COMMITMENTS

(a) Capital commitments

Capital commitments for the purchase of property, plant and equipment outstanding as at 31 December 2020 and 31 December 2019 not provided for in the consolidated financial statements are as follows:

	2020	2019
	RMB'000	RMB'000
Contracted but not provided for
– Property, plant and equipment	2,193	3,628

(b) Operating leasing commitments

At the reporting date, the lease commitments for short-term leases are as follows:

	2020	2019
	RMB'000	RMB'000
Less than 1 year	58,789	62,236

As at 31 December 2020 and 31 December 2019, the Group leases a number of residential properties, offices and equipment with a lease period of 6 to 12 months, which are qualified to be accounted for under short-term lease exemption under IFRS 16.

40. CASH GENERATED FROM OPERATIONS

	2020	2019
	RMB'000	RMB'000
Prot before taxation	3,010,562	2,827,400
Adjustments for:
Provision for ECL on trade and other receivables and contract assets, net	225,442	88,986
Cash-settled share-based reversal	(6,344)	(5,100)
Depreciation of property, plant and equipment	458,904	485,154
Depreciation of right-of-use assets	130,680	123,572
Amortisation of intangible assets	59,948	74,750
Net gains on disposal/write-off of property, plant and equipment	(17,215)	(4,232)
Gain on disposal of investment in an associate	(13,072)	–
Net profits on disposal/write-off land use rights and intangible assets	(846)	(54,637)
Losses on separation and transfer of property, plant and equipment and land use rights	17,973	38,945
Interest income	(881,495)	(897,375)
Interest expense	90,390	111,130
Net foreign exchange losses	137,526	78,206
Share of loss/(profit) of a joint arrangement	41	(650)
Share of profit of associates	(15,119)	(23,498)
Cash ows from operating activities before changes in working capital	3,197,375	2,842,651
Changes in working capital:
– Inventories	(154,642)	(792,559)
– Contract assets	(762,326)	3,459,617
– Contract liabilities	2,196,208	3,346,347
– Notes, trade and other receivables	(1,229,794)	(771,284)
– Notes, trade and other payables	151,912	(7,645,565)
– Restricted cash	1,426	(8,619)
Cash generated from operations	3,400,159	430,588

41. CONTINGENCIES

The Group has been named in a number of lawsuits and other legal proceedings arising in the ordinary course of business. Provisions have been made for the probable losses to the Group on those claims when management can reasonably estimate the outcome of the lawsuits based on management's judgments and the legal advice. No provision has been made for pending lawsuits when the outcome of the lawsuits cannot be reasonably estimated or management believes the outflow of resources is not probable.

It is not anticipated that any material liabilities will arise from the contingent liabilities other than those provided for (Note 33).

42. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

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

In addition to the related party information shown elsewhere in this report, the following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties during the year ended 31 December 2020 and 2019 and balances as at 31 December 2020 and 31 December 2019.

The transactions with related parties are carried out on pricing and settlement terms agreed with counter parties in the ordinary course of business.

(a) Signicant related party transactions and year end balances arising with the Sinopec Group, fellow subsidiaries, associates, joint ventures of fellow subsidiaries and associates of fellow subsidiaries:

	2020	2019
	RMB'000	RMB'000
Construction and services provided to
– Ultimate holding company	75	753
– Joint ventures of fellow subsidiaries	10,470,908	4,470,664
– Associates of fellow subsidiaries	222,436	262,890
– Fellow subsidiaries	22,215,907	20,785,457
– Associates	22,621	64,627
	32,931,947	25,584,391
Construction and services received from
– Ultimate holding company	12,251	28,142
– Joint ventures of fellow subsidiaries	1,121	92,926
– Associates of fellow subsidiaries	–	2,881
– Fellow subsidiaries	3,458,883	2,833,153
– Associates	184	25,397
	3,472,439	2,982,499
Technology research and development provided to
– Ultimate holding company	8,401	9,802
– Fellow subsidiaries	185,753	182,738
	194,154	192,540
General services received from
– Fellow subsidiaries	34,748	48,452
Interest income on loans
– Ultimate holding company	617,893	588,656
Interest expense on borrowings
– Fellow subsidiaries	2,956	19,624
Expenses in relation to settlement and other nancial services
– Fellow subsidiaries	1,824	1,732
Deposit interest income from fellow subsidiaries	68,415	109,112

42. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)

(a) Signicant related party transactions and year end balances arising with the Sinopec Group, fellow subsidiaries, associates, joint ventures of fellow subsidiaries and associates of fellow subsidiaries (CONTINUED):

	2020	2019
	RMB'000	RMB'000
Deposits and time deposits placed in fellow subsidiaries	7,792,177	7,815,871
	2020	2019
	USD'000	USD'000
Guarantee received
– Ultimate holding company	–	52,000

Besides, in respect of the Project RAPID (total contract value of approximately USD1.329 billion) between the Group and PETRONAS company, Sinopec Group provided guarantee to PETRONAS company. The Group provided counter guarantee to Sinopec Group.

The majority of these significant related party transactions with Sinopec Group and fellow subsidiaries also constitute continuing connected transactions as defined under Chapter 14A of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange.

Apart from transactions with Sinopec Group, fellow subsidiaries, associates, joint ventures of fellow subsidiaries and associates of fellow subsidiaries, the Group has transactions with other state-owned enterprises including but not limited to the following:

• Sales and purchases of goods and services;
• Purchases of assets;
• Lease of assets; and
• Bank deposits and borrowings.

In the ordinary course of business, the Group sells goods and services to, and purchase goods and services from other stateowned enterprises based on terms as set out in the underlying agreements, market price or actual cost incurred, or as mutually agreed.

In the ordinary course of business, the Group places deposits and borrowings mainly in state-owned financial institutions. The deposits and borrowings are in accordance with terms as set out in the respective agreement, and the interest rates are set at prevailing market rates.

Apart from the disclosure of loans due from the ultimate holding company in Note 25, trade receivables, prepayments and other receivables are unsecured, interest free and repayable on demand.

(b) Key management personnel remuneration

Key management includes directors, supervisors, and other key management personnel to the Board of Directors. The compensation paid or payable to key management for employee services is shown below:

	Year ended 31 December
	2020	2019
	RMB'000	RMB'000
Fee	600	600
Basic salaries, other allowances and benefits-in-kind	5,210	5,306
Discretionary bonus (i)	8,313	10,399
Contributions to pension plans	1,700	1,382
Cash-settled share-based payment	–	549
	15,823	18,236

(i) The Group determines and pays discretionary bonus based on the actual financial results and performance of employee.

43. RECONCILIATIONS OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The changes in the Group's liabilities arising from financing activities can be classified as follows:

	Loans due to a fellow subsidiary	Lease liabilities
	RMB'000	RMB'000
At 1 January 2019	384,339	–
Impact on initial application of IFRS 16	–	185,393
At 1 January 2019, as restated	384,339	185,393
Cash-flow:
– Repayment	(384,339)	–
– Capital element of lease rentals paid	–	(64,013)
– Interest element of lease rentals paid	–	(9,748)
Non-cash:
– Entered into new lease	–	73,545
– Interest expenses	–	9,748
– Modification	–	(17,488)
– Exchange difference	–	3,516
At 31 December 2019 and 1 January 2020	–	180,953
Cash-flow:
– Drawdown	170,140	–
– Capital element of lease rentals paid	–	(118,581)
– Interest element of lease rentals paid	–	(7,736)
Non-cash:
– Entered into new lease	–	103,454
– Interest expenses	–	8,807
– Modification	–	(1,637)
– Exchange difference	(7,017)	(1,317)
At 31 December 2020	163,123	163,943

44. PARTICULARS OF PRINCIPAL SUBSIDIARIES

As at 31 December 2020, the Company has direct and indirect interests in the following principal subsidiaries:

			Effective interest held
Name	Establishment/Place of incorporation and type of legal entity	Registered and fully paid capital RMB'000	Direct held	Indirect held	Principal activities and place of operation
SEI (中國石化工程建設有限公司)	The PRC/Limited liability company	500,000	100%	–	Engineering contracting, engineering and consulting/The PRC
LPEC (中石化洛陽工程有限公司)	The PRC/Limited liability company	500,000	100%	–	Engineering contracting, engineering and consulting/The PRC
SSEC (中石化上海工程有限公司)	The PRC/Limited liability company	200,000	100%	–	Engineering contracting, engineering and consulting/The PRC
SNEC (中石化寧波工程有限公司)	The PRC/Limited liability company	300,000	100%	–	Engineering contracting, design, equipment manufacturing/The PRC
SNEI (中石化南京工程有限公司)	The PRC/Limited liability company	556,005	100%	–	Engineering contracting, design/The PRC
FCC (中石化第四建設有限公司)	The PRC/Limited liability company	350,000	100%	–	Engineering contracting /The PRC
SFCC (中石化第五建設有限公司)	The PRC/Limited liability company	350,000	100%	–	Engineering contracting /The PRC
TCC (中石化第十建設有限公司)	The PRC/Limited liability company	350,000	100%	–	Engineering contracting /The PRC
Sinopec Guangzhou Engineering Co., Ltd. (中石化廣州工程有限公司)	The PRC/Limited liability company	50,000	100%	–	Engineering contracting /The PRC
Ningbo Institute (中石化寧波技術研究院有限公司)	The PRC/Limited liability company	10,000	100%	–	Technical services /The PRC
Sinopec Heavy Lifting and Transportation Co., Ltd. (中石化重型起重運輸工程 有限責任公司)	The PRC/Limited liability company	500,000	100%	–	Engineering contracting technical service, equipment selling and leasing/The PRC
Sinopec Engineering Group Saudi Arabia Co., Ltd. (中石化煉化工程(集團)股份 有限公司沙特公司)	Saudi Arabia/ Limited liability company	3,356 (SAR18,000,000)	100%	–	Engineering contracting/ Saudi Arabia
Sinopec Engineering Group America, L.L.C (中石化煉化工程 (集團)股份有限公司美國公司)	United States/ Limited liability company	3,075 (USD500,000)	100%	–	Engineering contracting, engineering and consulting/United States
Sinopec Energy-Saving Technology Service Co., Ltd (中石化節能技術服務有限公司)	The PRC/Limited liability company	500,000	100%	–	Technical service, contractual energy management and engineering research /The PRC
SINOPEC Engineering Group Malaysia SDN BHD (中石化煉化工程(集團)股份 有限公司馬來西亞公司)	Malaysia/Limited liability company	5,157 (MYR360,700)	100%	–	Engineering contracting/ Malaysia
Sinopec Shanghai Pharmaceutical Industry Designing Institute Co., Ltd. (中石化上海醫藥工業設計 研究院有限公司)	The PRC/Limited liability company	8,046	–	100%	Medicine, pesticide, chemical research /The PRC
Shanghai Petrochemical Machine Manufacturing Co., Ltd. (上海石化機械製造有限公司)	The PRC/Limited liability company	133,640	–	100%	Petrochemical equipment manufacturing/The PRC
Ningbo Tianyi Equipment Technology Co., Ltd. (寧波天翼裝備技術有限公司)	The PRC/Limited liability company	60,000	–	100%	Petrochemical equipment design, manufacturing and installation/The PRC
Ningbo Tianyi Petrochemical Heavy Equipment Manufacturing Co., Ltd. (寧波天翼石化重型設備 製造有限公司)	The PRC/Limited liability company	60,000	–	97%	Petrochemical equipment manufacturing and installation/The PRC
SINOPEC Engineering Group (Thailand) Co., Ltd. (中石化煉化 工程(集團)股份有限公司泰國公司)	Thailand/Limited liability company	6,228 (THB3,300,000)	–	100%	Engineering contracting/ Thailand

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the period or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, results in particulars of excessive length.

DOCUMENTS FOR INSPECTION

The following documents will be available for inspection during normal business hours after 22 March 2021 (Monday) at the registered address of the Company upon request by the relevant regulatory authorities and shareholders in accordance with the laws and regulations of the PRC and the Articles of Association:

• a) The original annual report signed by the Chairwoman of the Board and the President;
• b) The original audited financial report and consolidated financial report for the twelve months ended 31 December 2020 prepared in accordance with IFRS and signed by the Chairwoman of the Board, the President, the Chief Financial Officer and the Head of the Finance Department; and
• c) The original auditor's report in respect of the above financial report signed by BDO Limited.

By Order of the Board SUN Lili Chairwoman of the Board Beijing, the PRC 22 March 2021

This annual report is printed in both Chinese and English languages. Should there be any discrepancy between the English language and the Chinese language, the Chinese language shall prevail.

Address: Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, PRC Postcode: 100029 Web: www.segroup.cn

Email: seg.ir@sinopec.com