Pompe de filtration piscine : pas cher – top 3 – meilleur guide – SINOPEC Engineering : 2020 INTERIM REPORT

  • distripool Groupe de filtration piscine luxe Oregon 9 m3
    Voici le système de filtration pour piscine possède le meilleur rapport qualité / prix du marché. Ce groupe de filtration est composé d'une pompe pour aspirer l'eau de votre bassin ainsi que d'un filtre à sable série SPLASH qui vous permettra de filtrer l'eau de la piscine. Cette filtration est plu
  • distripool kit de filtration piscine luxe Oregon 9 m3 + 4 sacs AQUALOON
    Ce groupe filtration avec filtre à sable pour piscine permet de filtrer simplement et efficacement l'eau de votre bassin. Connexion rapide et facile, il possède le meilleur rapport qualité / prix, composé d'un filtre à sable allant de 400 à 600 mm de diamètre et d'une pompe de filtration de 0.5 HP
  • distripool Groupe de filtration piscine luxe Oregon 7.9 m3
    Ce groupe filtration avec filtre à sable pour piscine permet de filtrer simplement et efficacement l'eau de votre bassin. Connexion rapide et facile, il possède le meilleur rapport qualité / prix, composé d'un filtre à sable allant de 400 à 600 mm de diamètre et d'une pompe de filtration de 0.5 HP
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  • Moover : Moteur pour abri de piscine jusqu'a abri - A
    Moover : Le moteur pour abri piscine ! Vous avez investi dans un abri de piscine mais quand il s’agit de profiter de votre piscine, il vous faut l’ouvrir et le refermer une fois la baignade terminée. Si vous êtes à la recherche d’une solution pour motoriser votre abri de piscine, alors vous êtes au
  • Zodiac Bloc moteur Vortex 3 type A
    <p>Bloc moteur pour robot de piscine Zodiac Vortex type A. Compatibles avec mes modèles Vortex 2, Vortex 3, Vortex 3.2, Vortex RV4200, Vortex RV4400, Vortex OV3300, Vortex OV3400, Vortex OV3480.</p> <p>Référence R0637800, remplace les anciennes références W2123C et W1895C.</p>
  • Moover : Moteur pour abri de piscine jusqu'a abri - B
    Moover : Le moteur pour abri piscine ! Vous avez investi dans un abri de piscine mais quand il s’agit de profiter de votre piscine, il vous faut l’ouvrir et le refermer une fois la baignade terminée. Si vous êtes à la recherche d’une solution pour motoriser votre abri de piscine, alors vous êtes au
  • Moover : Moteur pour abri de piscine jusqu'a abri - C
    Moover : Le moteur pour abri piscine ! Vous avez investi dans un abri de piscine mais quand il s’agit de profiter de votre piscine, il vous faut l’ouvrir et le refermer une fois la baignade terminée. Si vous êtes à la recherche d’une solution pour motoriser votre abri de piscine, alors vous êtes au
  • Volet immergé piscine moteur dans l'axe Roussillon II
    Le volet immergé piscine ROUSSILLON moteur dans l'axe est la solution idéale pour couvrir et sécurisé sa piscine. Le moteur est situé dans l'axe. C'est le modèle idéal quand la piscine est déjà en eau. Ce volet immergé est fabriqué en France, il est aussi conforme à la norme NF P90-308. Prix à part
  • Robot piscine Zodiac OT 3200 Tornax - TILE
    Robot piscine Zodiac OT 3200 Le robot de piscine électrique Zodiac Vortex OT 3200, il permet de nettoyer le fond et les parois pour votre piscine jusqu'à 9 x 4 m. Il permet grâce à ses brosses actives de décoller les débris pour être aspirés grâce à un puissant moteur. Toute la technologie ZODIAC à
  • Robot électrique piscine BWT Ligne B - B200
    Le robot BWT Ligne B200 : MOTEUR ULTRA PUISSANT + FILTRE 2 MICRONS Robot B200 : Le Les robots nettoyeurs BWT ligne B conjuguent performance, esthétique, fonctionnalité et petit budget. Et surtout, ils possèdent un atout qui fait toute la différence : leur filtration ultrafine BWT. Robot BWT B200 :
  • Robot piscine BWT connecté : LadyBOT 200
    Le robot BWT LadyBOT 200 BWT propose un nouveau robot connecté pas chère avec les caractéristiques suivantes Smart Navigation, gyroscope, double moteur d'entrainement, Brosse active PVC, double filtration top access : Nettoyage fond parois et ligne d'eau, longueur de bassins 12m,Des cycles de netto
  • Pompe piscine STA RITE PENTAIR de 16 m3/h (1CV ) - Triphasé
    Pompe piscine STA - RITE modèle P-STR La pompe piscine STA - RITE est la pompe la plus haut de gamme, résistante à toutes épreuves, des rendement surpuissant, un moteur ultra silencieux. Le moteur bénéfice de la technologie PENTAIR éprouvé et efficace renforcé en fibre de verre, une turbine haute p
  • Pompe piscine STA RITE PENTAIR de 12 m3/h ( 3/4 CV ) - Triphasé
    Pompe piscine STA - RITE modèle P-STR La pompe piscine STA - RITE est la pompe la plus haut de gamme, résistante à toutes épreuves, des rendement surpuissant, un moteur ultra silencieux. Le moteur bénéfice de la technologie PENTAIR éprouvé et efficace renforcé en fibre de verre, une turbine haute p
  • Pompe piscine STA RITE PENTAIR de 12 m3/h en mono ( 3/4 CV )
    Pompe piscine STA - RITE modèle P-STR La pompe piscine STA - RITE est la pompe la plus haut de gamme, résistante à toutes épreuves, des rendement surpuissant, un moteur ultra silencieux. Le moteur bénéfice de la technologie PENTAIR éprouvé et efficace renforcé en fibre de verre, une turbine haute p
  • Pompe piscine STA RITE PENTAIR de 18 m3/h (1.5CV ) - Triphasé
    Pompe piscine STA - RITE modèle P-STR La pompe piscine STA - RITE est la pompe la plus haut de gamme, résistante à toutes épreuves, des rendement surpuissant, un moteur ultra silencieux. Le moteur bénéfice de la technologie PENTAIR éprouvé et efficace renforcé en fibre de verre, une turbine haute p
  • Pompe piscine STA RITE PENTAIR de 8m3/h en mono ( 1/2 CV )
    Pompe piscine STA RITE modèle P-STR La pompe piscine STA RITE P-STR est la pompe la plus haut de gamme, résistante à toutes épreuves, des rendement surpuissant, un moteur ultra silencieux. Le moteur bénéfice de la technologie PENTAIR éprouvé et efficace renforcé en fibre de verre, une turbine haute
  • VIP-POOL Pompe piscine sans pré-filtre série MGD 3.00 CV Mono
    La pompe piscine à gros débit sans pré-filtre série MGD, idéale pour une utilisation en filtration ( skimfiltre ) ou petit pompe de nage à contre courant. Cette gamme possède une puissance moteur de 0.5 à 3 CV pour un débit moyen de 14 à 41 m3/h. Pompe auto-amorçante jusqu'a 50 cm au dessus du nive
  • Enrouleur PRESTIGE auto. bâche pour piscine 4 m
    Enrouleur Prestige + moteur de 3 à 7 m Système autonome et télécommandé adaptable à l'enrouleur prestige 3 à 7 m m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet l'enroule
  • Pahlen Nage à contre courant piscine Jet Swim 2000 : inox
    Nage à contre courant piscine JET SWIM 2000 : PAHLEN Avec une puissance de moteur de 4 kW et une capacité de pompe de 71 m3, elle est destinée au sportif qui veulent développer leur force et leur forme physique. Mettez en service votre Jet Swim en appuyant sur un bouton sur la façade en inox 316L.
  • VIP-POOL Pompe piscine sans pré-filtre série MGD 2.00 CV Mono
    La pompe piscine à gros débit sans pré-filtre série MGD, idéale pour une utilisation en filtration ( skimfiltre ) ou petit pompe de nage à contre courant. Cette gamme possède une puissance moteur de 0.5 à 3 CV pour un débit moyen de 14 à 41 m3/h. Pompe auto-amorçante jusqu'a 50 cm au dessus du nive
  • VIP-POOL Pompe piscine sans pré-filtre série MGD 0.75CV Monophasé
    La pompe piscine à gros débit sans pré-filtre série MGD, idéale pour une utilisation en filtration ( skimfiltre ) ou petit pompe de nage à contre courant. Cette gamme possède une puissance moteur de 0.5 à 3 CV pour un débit moyen de 14 à 41 m3/h. Pompe auto-amorçante jusqu'a 50 cm au dessus du nive
  • Enrouleur PRESTIGE auto. bâche pour piscine 7 m
    Enrouleur Prestige + moteur de 5 à 7 m Système autonome et télécommandé adaptable à l'enrouleur prestige 5 m + Prestige 7 m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet
  • Enrouleur PRESTIGE auto. bâche pour piscine 3 m
    Enrouleur Prestige + moteur de 3 à 7 m Système autonome et télécommandé adaptable à l'enrouleur prestige 3 à 7 m m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet l'enroule
  • Enrouleur PRESTIGE auto. bâche pour piscine 5 m
    Enrouleur Prestige + moteur de 5 à 7 m Système autonome et télécommandé adaptable à l'enrouleur prestige 5 m + Prestige 7 m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet
  • Enrouleur PREMIUM auto. bâche pour piscine 4 m
    Enrouleur PREMIUM + moteur de 4 à 7 m Système autonome et télécommandé adaptable à l'enrouleur PREMIUM 4 à 7 m m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet l'enrouleme
  • Enrouleur PREMIUM auto. bâche pour piscine 7 m
    Enrouleur PREMIUM + moteur de 4 à 7 m Système autonome et télécommandé adaptable à l'enrouleur PREMIUM 4 à 7 m m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet l'enrouleme
  • Enrouleur PREMIUM auto. bâche pour piscine 5 m
    Enrouleur PREMIUM + moteur de 4 à 7 m Système autonome et télécommandé adaptable à l'enrouleur PREMIUM 4 à 7 m m de la gamme DISTRIPOOL. Fini les enroulements manuels de vos couvertures d'été. Installé en moins de 2 minutes sur votre enrouleur, un simple click sur la télécommande permet l'enrouleme







08/23/2020 | 07:09am EDT

Stock Code: 2386

ENGINEERING

A BETTER WORLD

2020 INTERIM REPORT

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 interim 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 Twelfth Meeting of the Third Session of the Board (the « Meeting ») due to official duties. The Director, Mr. WU Wenxin, authorised the Director, Mr. YU Renming, to attend the Meeting, and to vote on his behalf. Mr. YU Renming (Chairman of the Board), Mr. XIANG Wenwu (Director and President), Mr. JIA Yiqun (Chief Financial Officer and Company Secretary) and Mr. WANG Yi (Head of the Finance Department) warrant the authenticity and completeness of the nancial statements contained in this interim report.

The interim financial statements for the six months ended 30 June 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 interim 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 forward- looking statements due to various factors. The forward- looking statements contained in this interim report were made by the Company as at 21 August 2020 and, unless otherwise required by the relevant regulatory authorities, the Company undertakes no obligation or responsibility to update these statements.

2

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

3

CONTENTS

COMPANY PROFILE

4

BASIC INFORMATION OF THE COMPANY

6

PRINCIPAL FINANCIAL DATA AND INDICATORS

8

CHANGES IN SHARE CAPITAL AND

12

SHAREHOLDINGS OF SUBSTANTIAL

SHAREHOLDERS

BUSINESS REVIEW AND PROSPECTS

16

MANAGEMENT’S DISCUSSION AND ANALYSIS

28

SIGNIFICANT EVENTS

52

DIRECTORS, SUPERVISORS AND OTHER

62

MEMBERS OF SENIOR MANAGEMENT

FINANCIAL STATEMENTS

66

DOCUMENTS FOR INSPECTION

140

4

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

5

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, chemical engineering, aromatics, coal chemicals, inorganic chemicals, pharmaceutical engineering, clean energy, storage and transportation facilities, environmental protection and energy saving, and other industry sectors. The Group 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,start-up, digital delivery and digital factory.

After more than 60 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 nearly 10,000 high-quality professionals. The Group has extensive project management and implementation experience, and owns and cooperatively owns advanced 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. The Group has long- term and steady cooperative relationships with large energy and chemical enterprises at home and abroad, maintains an extensive and stable client base, and enjoys remarkable

industrial inuence and social reputation.

In the future, the Group will embrace the development positioning of « a service provider for the whole life cycle from project tracking to project operation », continue to focus on the development strategies of  » energy and petrochemical – oriented, innovation-driven,globalization-targeted and value-focused », promote international expansion, differentiated evolution, digital transformation, smart upgrade, strengthen the exploration and development in the field of renewable energy and new materials, and create a new m o m e n t u m i n a c h i e v i n g t h e corporate vision of « building a world-leading engineering

company ».

6

Company The Of Information Basic

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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

Mr. YU Renming

AUTHORISED REPRESENTATIVES

Mr. XIANG Wenwu

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 INTERIM 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 INTERIM 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

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

7

Company The Of Information Basic

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 Certied Public Accountants LLP

Room 703, 7th Floor, Union Plaza, 20th Chao Wai Street, Chaoyang District, Beijing, the PRC

Overseas:

BDO Limited

25th Floor, Wing On Centre, 111 Connaught Road Central Office, 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

8

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

PRINCIPAL FINANCIAL DATA AND INDICATORS

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

9

10

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Indicators and Data Financial Principal

Principal Financial Data and Indicators

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

Unit: RMB’ 000

Items

As at 30 June 2020

As at 31 December 2019

Changes from the end of 2019 (%)

Total assets

67,497,829

67,873,748

(0.6)

Equity attributable to equity

holders of the Company

27,549,243

27,265,976

1.0

Net assets per share of equity

holders of the Company (RMB)

6.22

6.16

1.0

Unit: RMB’ 000

Six-month periods ended 30 June

Changes over the same

2020

Items

2019

period of 2019 (%)

Revenue

23,797,156

22,682,018

4.9

Gross prot

2,191,775

2,371,953

(7.6)

Operating prot

1,150,453

1,101,143

4.5

Prot before taxation

1,562,823

1,513,464

3.3

Prot attributable to equity

holders of the Company

1,260,191

1,198,685

5.1

Basic earnings per share (RMB)

0.28

0.27

5.1

Net cash ow used in

operating activities

(1,962,757)

(4,964,239)

(60.5)

Net cash ow used in operating

activities per share (RMB)

(0.44)

(1.12)

(60.5)

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

11

Indicators and Data Financial Principal

Six-month periods ended 30 June

Items

2020

2019

Gross prot margin (%)

9.2

10.5

Net prot margin (%)

5.3

5.3

Return on assets (%)

1.9

1.7

Return on equity (%)

4.6

4.5

Return on invested capital (%)

4.7

4.5

Item

As at 30 June 2020

As at 31 December 2019

Asset-liability ratio (%)

59.2

59.8

12

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

13

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

14

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Shareholders Substantial of Shareholdings and Capital Share in Changes

Changes In Share Capital and Shareholdings of Substantial Shareholders

1 Changes in the Share Capital of the Company

Unit: Share

As at 31 December 2019

Increase/Decrease during the Reporting Period (+, -)

As at 30 June 2020

New

Number

Percentage (%)

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

2 Shareholdings of Substantial Shareholders

As at the end of the Reporting Period, there were a total of 991 shareholders of the Company. The public oat of the Company satised 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

Unit: Share

Number of

Number of

Percentage as at the end

of the Reporting Period

Increase/Decrease

Domestic Shares

H Shares held

during the

held as at the end of

as at the end of

In total

In relevant

Name of Shareholders

Reporting Period (+, -)

the Reporting Period

the Reporting Period

share capital (%)

class of shares (%)

China Petrochemical Corporation (1)

0

2,967,200,000

67.01

100.00

HKSCC NOMINEES LIMITED

-21,215,550

1,435,224,289

32.41

98.25

TANG KEUNG LAM

+20,000,000

20,000,000

0.45

1.37

ZHANG SAIYU

+1,100,000

3,100,000

0.07

0.21

WONG CHUI CHUNG

0

295,000

0.01

0.02

CHAN LAI KUEN SELINA

0

195,500

0.00

0.01

WONG CHUI CHUNG

0

195,500

0.00

0.01

CHOI LAI MING

0

130,000

0.00

0.01

HUI MO CHEE

+120,000

120,000

0.00

0.01

PANG KWOK WAI

0

60,000

0.00

0.00

Statement on the connected relationship or acting

in concert among or between the aforementioned

The Company is not aware of any connection or acting in concert among or

shareholders

between the aforementioned top ten shareholders

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

15

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

In accordance with the ling 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:

Number of shares

Percentage in

Percentage in

with interests held

shares of the

the total share

or regarded as

Company of the

capital of the

Name of Shareholders

Class of share

Capacity

being held (Share)

same class (%) (8)

Company (%) (9)

China Petrochemical

Domestic Share

Benecial owner/Interests

2,967,200,000(L)

100.00(L)

67.01(L)

Corporation (1)

of controlled corporation

Prudential plc (2)

H Share

Interests of controlled corporation

146,385,000

(L)

10.02

(L)

3.31 (L)

BlackRock, Inc. (3)

H Share

Interests of controlled corporation

133,124,187

(L)

9.11

(L)

3.01 (L)

Interests of controlled corporation/

127,519,679

(L)

8.72

(L)

2.88 (L)

JPMorgan Chase & Co. (4)

H Share

Investment manager/Persons

7,877,536 (S)

0.53 (S)

0.18 (S)

having a security interest in shares/

Approved lending agent

81,766,481 (P)

5.59 (P)

1.85 (P)

Pandanus Associate Inc. (5)

H Share

Interests of controlled corporation

116,640,353

(L)

7.98

(L)

2.63 (L)

Pandanus Partners L.P. (5)

H Share

Interests of controlled corporation

116,640,353

(L)

7.98

(L)

2.63 (L)

FIL Limited (5)

H Share

Interests of controlled corporation

116,640,353

(L)

7.98

(L)

2.63 (L)

Brown Brothers Harriman & Co. (6)

H Share

Agent

102,321,779

(L)

7.00

(L)

2.31 (L)

102,321,779 (P)

7.00 (P)

2.31 (P)

Eastspring Investments (7)

H Share

Benecial owner

88,261,500

(L)

6.04

(L)

1.99 (L)

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 27 March 2020 and led by Prudential plc with the Hong Kong Stock Exchange.
  3. The information is based on the Corporate Substantial Shareholders Notice dated 2 July 2020 and led by BlackRock, Inc. with the Hong Kong Stock Exchange.
  4. The information is based on the Corporate Substantial Shareholders Notice dated 30 April 2020 and led by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.
  5. The information is based on the Corporate Substantial Shareholders Notices dated 4 May 2020 and led 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 36.86% interest in FIL Limited.
  6. The information is based on the Corporate Substantial Shareholders Notice dated 7 April 2020 and led by Brown Brothers Harriman & Co. with the Hong Kong Stock Exchange.
  7. The information is based on the Corporate Substantial Shareholders Notice dated 17 June 2020 and led by Eastspring Investments with the Hong Kong Stock Exchange.
  8. It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.
  9. It is calculated on the basis that the Company has issued 4,428,000,000 shares in total.

Shareholders Substantial of Shareholdings and Capital Share in Changes

16

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

BUSINESS REVIEW AND PROSPECTS

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

17

18

Prospects and Review Business

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

In the rst half of 2020, the pandemic COVID-19 spread all over the world. The international oil price plummeted, the nancial market fluctuated, the energy consumption dropped, and the global economy suffered heavy losses. Confronted with this unprecedented difficult situation and the complicated and ever-changing domestic and international environment, the Group braved all the difficulties and actively carried out the « one hundred day campaign to address the tough challenges and to improve performance », focusing on epidemic prevention and control and on business operation, organizing work resumption, strengthening project process control and improving the level of intensive management. The Group worked hard to overcome the adverse effects caused by the epidemic and achieved hard-won business performance. All the projects were implemented smoothly, with safety, quality and progress well controlled. During the Reporting Period, the Group recognized a revenue of RMB23.797 billion, an increase of 4.9% compared with the same period of last year (hereinafter referred to as « period-on-period« ), and the prots attributable to equity holders of the Company were RMB1.260 billion, with a period-on-period increase of 5.1%.

During the Reporting Period, the value of new contracts entered into by the Group was RMB36.638 billion, representing an increase of 10.3% on a period-on-period basis. In the rst half of 2020, the Group seized the opportunity of alleviated epidemic situation in China, closely followed the transition of the domestic petrochemical industry and grasped the market opportunities of steady advancement of the « seven major national petrochemical industry bases » and the « four world-class refining and petrochemical bases of Sinopec Group ». Given full play to its competitive advantages, the Group maintained a stable development of domestic market. During the Reporting Period, the value of new domestic contracts entered into by the Group was RMB30.094 billion, representing a decrease of 3.1% on a period-on-period basis. Meanwhile, thanks to long-term hard work in overseas markets such as in the Middle East, Russia and Central Asia, the Group achieved a breakthrough in overseas market. During the Reporting Period, the value of newly signed overseas contracts amounted to approximately RMB6.544 billion, representing an increase of 200.6% on a period-on-period basis. As at the end of the Reporting Period, the Group’s backlog was RMB107.834 billion, representing an increase of 13.5% compared to that as at 31 December 2019.

The Group devoted itself to epidemic prevention and control and actively fulfilled its social responsibilities, greatly enhanced the brand image of the company. The Group built the first meltblown fabric production line for Sinopec in only 12 days, and built the world’s largest meltblown fabric production base in Sinopec Yanshan Petrochemical Company and Sinopec Yizheng Chemical Fiber Co., LTD. within 76 days, making a great contribution to the epidemic prevention and control. The Group donated approximately 460,000 pieces of epidemic prevention equipment to business partners in Italy, Spain, Kazakhstan, Saudi Arabia, Uzbekistan, Belgium and etc. to help to tide over these difficulties.

1 Business Review

(1) Market Environment

In the rst half of 2020, under the unprecedented impact of the epidemic COVID-19, the global economy was trapped in a serious recession. Facing severe risks and challenges, China made overall plans to promote the prevention and control of the epidemic and economic development, achieved signicant initial results. The main indicators declined first and then rose up, achieving a restorative growth, and the economic operation revived steadily.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

In the rst half of this year, the shrinking global production and operation activities and the oversupply in the crude oil market caused the global crude oil price plunged, within Brent international crude oil futures price once dropped below USD20/barrel. With a steady reduction of crude oil production in the short-or-medium-term, the imbalance between supply and demand has been partially improved, and the price of Brent crude oil futures has gradually recovered to roughly USD40/barrel.

With the demand for the global energy and petrochemical products declined, the Petrochemical Industry is facing severe challenges. Thanks to the strong resilience of domestic economy and the powerful support of national policy, the work resumption in various industries accelerated, and the energy and petrochemical industry chain recovered rapidly under the improved domestic epidemic situation. In the rst half of this year, the construction of a number of large-scale rening and petrochemical projects was steadily pushed forward, the structure adjustment of rening and petrochemical industry was enhanced, the construction of crude oil storage facilities was accelerated, and the natural gas pipeline network and gas storage facilities were continued to lay out, showing a recovery of domestic market. However, at the same time, the epidemic COVID-19 has spread rapidly in overseas areas, causing greater difficulties in overseas market development and project implementation.

(2) Operation Overview

During the Reporting Period, the total revenue of the Group was RMB23.797 billion, representing an increase of 4.9% on a period- on-period basis, mainly due to the fact that large EPC contracting projects such as Fujian Gulei Refining and Petrochemical Integration Project, Zhongke Refining and Petrochemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project have contributed a lot to the revenue. Prot attributable to equity holders of the Company was RMB1.260 billion, representing an increase of 5.1% on a period-on-period basis. As at the end of the Reporting Period, the backlog of the Group amounted to RMB107.834 billion, representing an increase of 13.5% compared to that as at 31 December 2019, and was 2.06 times of the total revenue of RMB52.261 billion in 2019. During the Reporting Period, the value of new contracts amounted to RMB36.638 billion, representing an increase of 10.3% on a period-on-period 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.

19

Prospects and Review Business

20

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Prospects and Review Business

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:

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of total

Revenue

total revenue

Revenue

revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

Engineering, consulting

and licensing

1,230,173

4.6

1,147,922

4.6

7.2

EPC Contracting

15,528,332

58.3

13,852,329

55.6

12.1

Construction

9,612,750

36.1

9,589,987

38.5

0.2

Equipment manufacturing

264,320

1.0

318,010

1.3

(16.9)

Subtotal

26,635,575

100.0

24,908,248

100.0

6.9

Total (after inter-segment

23,797,156

N/A

elimination) (1)

22,682,018

N/A

4.9

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 construction and equipment manufacturing segments.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

21

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Revenue

total revenue

Revenue

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

Oil rening

5,524,808

23.2

7,854,494

34.6

(29.7)

Petrochemicals

14,428,401

60.6

10,913,276

48.1

32.2

New coal chemicals

2,204,020

9.3

2,509,314

11.1

(12.2)

Other industries

1,639,927

6.9

1,404,934

6.2

16.7

Total

23,797,156

100.0

22,682,018

100.0

4.9

The Group derived its revenue mainly from services provided to clients in oil rening, petrochemicals, new coal chemicals and other industries. During the Reporting Period, thanks to the revenue contribution from large EPC contracting projects such as Fujian Gulei Rening and Petrochemical Integration Project, Zhongke Rening and Petrochemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, revenue generated from petrochemicals industry was RMB14.428 billion, representing an increase of 32.2% on a period-on-period basis; thanks to the contribution of crude oil storage facilities projects and natural gas pipeline network and gas storage facilities projects, revenue generated from other industries was RMB1.640 billion, representing an increase of 16.7% on a period-on-period basis; revenue generated from oil rening industry was RMB5.525 billion, representing a decrease of 29.7% on a period-on-period basis, which was affected by the settlement and completion of the projects such as Kuwait Oil Rening Project; revenue generated from new coal chemicals industry was RMB2.204 billion, representing a decrease of 12.2% on a period-on-period basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong’An Joint Coalication Integration Project.

Prospects and Review Business

22

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Prospects and Review Business

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Revenue

total revenue

Revenue

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

PRC

21,040,916

88.4

16,754,294

73.9

25.6

Overseas

2,756,240

11.6

5,927,724

26.1

(53.5)

Total

23,797,156

100.0

22,682,018

100.0

4.9

During the Reporting Period, thanks to the rapid control of the domestic epidemic, the Group’s active work resumption, and the large revenue contribution from large EPC contracting projects such as Fujian Gulei Refining and Petrochemical Integration Project, Zhongke Refining and Petrochemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, revenue of the Group generated in the PRC was RMB21.041 billion, representing an increase of 25.6% on a period-on-period basis, affected by the slowdown of progress in some overseas projects due to the spread of epidemic COVID-19 in the world and the settlement and completion of Kuwait Oil Refining Project, revenue generated from overseas was RMB2.756 billion, representing a decrease of 53.5% on a period-on-period basis.

During the Reporting Period, representative domestic projects that the Group entered into include Zhenhai Rening and Chemical Ethylene Expansion Project, Sinopec Tianjin Liquefied Natural Gas (LNG) Project Expansion Project (Phase II) Receiving Terminal Project, crude oil storage facilities projects in Guangdong, Tianjin and Xinjiang. Representative overseas projects entered into by the Group include Saudi Aramco Crude Oil Transportation Pump Station Upgrade Project, Russian Amur AGCC Polyolen Project, Hengyi Brunei PMB Project Design Contract, etc.

During the Reporting Period, the Group’s capital expenditure was approximately RMB190 million, mainly used for the contract energy management investment, production base construction, information system construction, construction machinery and engineering professional software purchase, etc..

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

23

(3) Business Highlights

Successful implementation of major projects

Prospects and Review Business

Fujian Gulei Rening 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 entered into construction peak period, with an overall progress exceeding 60%.

Zhongke Rening and Petrochemical Integration Project: please refer to the announcements dated 18 January 2018, 19 March 2018 and 17 April 2018 published by the Company for further details. As at the end of the Reporting Period, the project entered the full-scalestart-up phase.

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 entered into construction peak period, with an overall progress of about 60%.

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 was in the nal stage, and the main units were at the mechanical completion stage.

Zhenhai Rening 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, this project was in the stage of detailed design and civil construction, with an overall progress of about 10%.

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, the project entered into construction peak period, with an overall progress exceeding 80%.

Continuous enhancement of project management and control

During the Reporting Period, the Group established a key project work coordination group to maintain close communication with the project owners and tighten the coordination of key projects; the Group intensied early planning, optimized management process, and enhanced in-process quality control; focusing on efficiency 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 project process management and closed-loop management to ensure smooth implementation of all projects; optimising the design workow and professional division interface, the Group strengthened standardized design, modular design, and modular construction to improve design and construction efficiency; the Group carried out project management trainings and contract management trainings, implementing the advanced management concepts and management processes of international projects.

During the Reporting Period, the Group further improved the subcontracting management system, strengthened the cultivation of strategic subcontractors, and dynamically evaluated the operational effectiveness of the QHSSE system of strategic subcontractors, optimized the allocation of subcontracting resources; the Group developed subcontracting resources and information sharing platform, realised integrated management of subcontractor resource pool and subcontractor assessment, reduced subcontracting management costs; the Group guaranteed the supply of materials for various projects, actively explored ways to improve procurement efficiency and cost reduction, improved standard procedures, document templates and management regulations of procurement further improved procurement management for domestic and overseas projects.

24

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Prospects and Review Business

Forge ahead in market development

During the Reporting Period, fully grasped the market opportunities and made full use of its overall advantages in industry chain, service chain and technology chain, the Group vigorously expanded the market. During the Reporting Period, the value of new contracts entered into by the Group was RMB36.638 billion, representing an increase of 10.3% on a period-on-period basis; out of which, the value of newly signed domestic contracts amounted to RMB30.094 billion, representing a decrease of 3.1% on a period-on-period basis, and the value of newly signed overseas contracts amounted to approximately RMB6.544 billion, representing an increase of 200.6% on a period-on-period basis.

During the Reporting Period, the Group continued to develop market in the PRC and strive to explore new business in new elds and new areas. The Group entered into new contracts for a number of large projects in the PRC, such as Zhenhai Rening and Chemical Ethylene Expansion Project with a total contract value of approximately RMB10.565 billion; a series of crude oil storage facilities projects in Guangdong, Tianjin and Xinjiang with a total contract value of approximately RMB3.950 billion; Sinopec Tianjin Liqueed Natural Gas (LNG) Project Expansion Project (Phase II) Receiving Terminal Project with a total contract value of approximately RMB3.183 billion.

During the Reporting Period, the Group continuously strengthened the cooperation with international engineering companies and strengthened overseas outlets, improved the deployment in overseas markets. Thanks to the long-term hard work in key markets, the Group has made a breakthrough in overseas market. The major overseas projects newly signed include: Saudi Aramco Crude Oil Transportation Pump Station Upgrade Project with a total contract value of approximately USD386 million; Russian Amur AGCC Polyolen Project with a total contract value of approximately USD256 million; and Hengyi Brunei PMB Project Design Contract with a total contract value of approximately USD47 million.

In addition to above projects, the Group followed up with several projects in oil rening, petrochemicals, new coal chemicals, environmental protection and energy saving elds, which are expected to enter into new contracts in the future.

Continuous promotion of technological innovation and technological advancement

During the Reporting Period, the Group has signed 158 new contracts for the scientic research programs, covering new energy sources, new materials, and energy saving and emission reduction technologies required for the development of petrochemical market.

During the Reporting Period, the Group’s key R&D programs were steadily advanced. The project « Solid Superacid C5, C6 Isomerization Technology Development and Industrial Test » has gone through the plant start-up stage and is now under adjustment, entering the calibration preparation stage; the project « Research and Demonstration of Packaged Technologies for Safe and Reliable Large-ux Plasma Treatment of VOCs » has been completed and is expected to be delivered in the near future; the project « Integration and Development of High Slag Content and Low Emission Heavy Oil Catalytic Cracking Technology » has gone through the start-up for some units; and other key research projects have been advanced as scheduled and are under overall control.

During the Reporting Period, the Group completed 271 new patent applications, among which, 163 or 60.1% applications were invention patents applications. Besides, the Group completed 192 newly licensed patents, 66 of which were invention patents.

During the Reporting Period, the Group received a total of 20 scientific advancement awards in scientific innovation and engineering construction fields at the provincial and above level, among them, the project « Development and Application of Packaged Technologies for Ultra-low Sulfur Emission and Resource Utilization of Sulde-bearing Waste Gas from Rening and Chemical Industry » won the second prize of National Science and Technology Progress Award in 2019, 14 projects won the annual Sinopec Science and Technology Progress Award, and 3 projects won quality engineering awards at different levels.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

25

Businesses of environmental protection and energy saving constantly expanded

During the Reporting Period, the contracts signed by the Group concerning energy saving and environmental protection include Tianjin Petrochemical’s renovation project of conned decoking for delayed coking unit, Qilu Petrochemical’s renovation project of conned decoking for delayed coking unit, Anqing Petrochemical’s project of waste residue landll site restoration, Qilu Petrochemical’s project of rectisol tail gas treatment, Baling Petrochemical Resin Department’s public works No.1 station recycling water system energy saving transformation project, Jinan rening and chemical coking furnace outer wall energy saving transformation project, Maoming Petrochemical’s energy management project under refinery CFB circulating water system optimization and coal-to-hydrogen circulating water system optimization contract, and so on.

In the eld of energy saving, the Group actively promoted the progress of the existing contract energy management projects and carbon footprint evaluation services, undertook the energy saving research work such as the development of biological aviation kerosene life cycle model, the development of clean production technology and carbon footprint accounting technology in petroleum and petrochemical enterprises, and the application of mechanical vapor recompression (MVR) technology of multi effect evaporation process, and promoted photovoltaic power station construction projects in gas station and oil depot. In the eld of soil restoration, the Group closely tracked the progress of site restoration work in Beihai Renery, Xi’ an Petrochemical, Baling Petrochemical, Anqing Petrochemical and other enterprises and the restoration projects of contaminated sites in Chongqing and Anhui, and organized domestic and foreign partners to jointly participate in tendering for KOC crude oil contaminated soil restoration project in Kuwait.

Deepen reform and explore new momentum

During the Reporting Period, according to the corporate vision of « building a world-leading engineering company » and the development model of « integrated operation and collectivized management », the Group has comprehensively promoted the optimisation and realignment, made greater efforts in the international expansion, differentiated evolution, digital transformation and smart upgrade, and strived to build the brand of « whole life cycle service provider from project tracking to project operation ». The Group promoted 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 improve the reform of information technology branches, and accelerated the construction of operation and management platform, project management platform, digital factory platform and intelligent application platform.

The application of digital engineering has achieved initial success

During the Reporting Period, the Group vigorously promoted digital transformation and smart upgrade. According to the « data

  • platform + application » model, the Group combed the « three-in-one » scenario of business ow, phased management process ow and production tool ow in the whole life cycle from project tracking to project operation, prepared the information and digital development planning framework of the 14th Five-Year Plan, and comprehensively scheme the overall plan of the Group’s digital transformation. During the Reporting Period, the Group focused on the integration of industry and nance, deepened ERP application, promoted comprehensive budget management, and established and optimized an operation management platform; paying special attention to digital delivery the Group developed in-depth application of digital factory production line through an engineering cloud APP; focusing on smart factory services, the Group deepened the application of engineering master data, explored the integrated application of equipment domains, and participated in the construction of petrochemical intelligent cloud.

Prospects and Review Business

26

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Prospects and Review Business

Continued to promote safe production

During the Reporting Period, in accordance with the strategy of « preventing imported cases from abroad and resurgence at home », the Group resolutely takes the blocking action of epidemic prevention and control, decisively implements the core value of QHSSE (quality, health, safety, security and environment) of « safety development, quality first, environmental protection priority and people-oriented », taking the effective operation of QHSSE management system as the main roadmap, taking the construction of long-term mechanism as the guideline, creating a normalization mechanism for epidemic prevention and control, fully implementing the entity responsibility, identifying safety risks and hazards, strengthening risk prevention and control, and consolidating the management of « grass-roots construction, basic work and basic skill building ». By organizing multi-level training, deepening the design of intrinsic safety management, strengthening video remote supervision and inspection, and carrying out quality and safety improvement activities, the Group fully promoted quality and safety standardization construction and intrinsic safety capacity building, and continuously improve QHSSE management level. In addition, the Group actively took precautions against overseas public safety risks arising from the epidemic, and ensured the stability of overseas project teams and project implementation.

As at the end of the Reporting Period, the Group achieved the goal of no reported accidents such as safety, quality, environment, occupational health, or overseas public safety of the projects being implemented. As a result, an aggregate of 131.59 million labour safe hours were realised during the Reporting Period.

2 Business Prospects

Looking forward to the second half of 2020, the global economy is still facing great challenges. The « long tail effect » of the epidemic and the trend of « anti-globalization » have a profound impact on global development. Financial market is subject to accumulated risks, and the uncertainty of international oil prices becomes prominent, resulting the market competition increasingly erce. However, China’s economy still has great potential and momentum, and the fundamentals of long-term improvement have not changed. With continuous improvement of the epidemic situation, the demand recovery is expected to accelerate. The Group will stick to the long-term perspective, strive to nd new chances amidst the crisis, create new leads in the changing situation, take initiatives in grasping the domestic and international market opportunities, and give full play to the advantages of collectivization, integration and scale to continuously enhance the core competitiveness of the enterprises and promote the sustainable development of the Group.

In the future, the development of the energy industry will adjust the pace with improved quality and efficiency, and the patten of rening and petrochemical industry will constantly change. Projects of the « seven major national petrochemical industry bases » and Sinopec Group’s « four world-class refining and petrochemical bases » will continue to move forward. Investments from private sector will remain active, and international energy giants such as Exxon Mobil, BASF and SABIC are poised to enter the Chinese market. Focusing on the development orientation of « Whole Life Cycle Service Provider from Project Tracking to Project Operation », the Group will strengthen its traditional advantageous businesses in oil rening and petrochemical industries and continue to establish overall solutions for industries of natural gas, new coal chemicals, environmental protection and energy saving, and build an innovation system with technological innovation as the core, focusing on key points, optimizing resources, implementing the policies in a classified and targeted manner, and jointly promoting the development of various business segments. Meanwhile, the Group will continue to closely track the market opportunities in countries and regions along the « Belt and Road » and continuously improve the competitiveness of overseas business and increase the anti-risk ability.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

In respect of the market development, for the second half of 2020, the Group will continue to promote the overall exploration of key markets, give full play to advantageous areas such as rening and petrochemical integration and comprehensive utilization of light hydrocarbons, new coal chemicals, natural gas and LNG, promote the development of strategic customers and large projects, strengthen engineering, consulting and licensing business, propel project tracking and full-cycle services, and increase market share; the Group will explore new businesses elds such as new energy, new materials, energy saving and environmental protection, promote the growth of energy saving business and soil restoration business and seize the market opportunities of renewable energy, carbon resources and hydrogen resources to promote the construction of related demonstration units, establishing market competitive advantages; the Group will extend the service chain of digital delivery, modular design and construction, high-end manufacturing, and new inspection and maintenance services; the Group will explore new business models in conjunction with digital transformation and promote the overall development of key areas and key projects; the Group will form a closer cooperative relationship with strategic partners such as global excellent technology licensors suppliers and engineering companies. In overseas market, the Group will strive to overcome the adverse effects of the epidemic COVID-19, continue to take the lead in « Belt and Road » initiative to make greater effort in market development of countries along the « Belt and Road », maintain the existing advantages in traditional markets such as the Middle East, Central Asia and Russia, and deepen the market exploitation and expand business areas; the Group will strive to make breakthroughs in South Asia and Africa.

In respect of project management, for the second half of 2020, the prevention and control of domestic epidemic has become the new normal, the risk of overseas epidemic spread is still relatively high, and the uncertainty in overseas business operation is increasing. The Group will always adhere to prevention and control of epidemic situation on one hand and business operation on the other, further carry out the campaign to address the tough challenges and to improve performance, take effective measures to enhance protability; the Group will strengthen the overall coordination and key monitoring of major domestic projects, prevent epidemic resurgence at home, and stress the early planning and assurance of implementation process of key projects; the Group will strengthen project process control, solve problems existing in the project implementation process in time, reduce project management risks, and ensure the smooth implementation of key projects; the Group will coordinate and optimize the resource allocation of the project under the conditions of ensuring safety, quality and controllable schedule, and take the maximization of the company’s benets as the guideline. As for overseas businesses, the Group will continue to do a good job in epidemic prevention and control based on the concept of « life rst » and an attitude of being highly responsible for all overseas employees, and at the same time, strengthen humanistic care to ensure the life safety and mental health of overseas employees.

In respect of technology research and development, for the second half of 2020, while strengthening and optimizing traditional refining and chemical businesses, the Group will focus on technology development trends in the fields of new energy, new materials, and energy saving and environmental protection, and focus on technologies and applications in the elds of direct production of chemicals from crude oil, cheap hydrogen sources, CO2 utilization and natural gas chemical industry. The Group will strengthen cooperation, give full play to the integration advantages of the Group in technology, improve the quality of engineering services through technological innovation, and enhance the competitiveness of the Group in domestic and overseas markets.

27

Prospects and Review Business

28

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

29

30

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

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 periods:

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Amount

total revenue

Amount

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

Revenue

23,797,156

100.0

22,682,018

100.0

4.9

Cost of sales

(21,605,381)

(90.8)

(20,310,065)

(89.5)

6.4

Gross prot

2,191,775

9.2

2,371,953

10.5

(7.6)

Other income

210,475

0.9

118,758

0.5

77.2

Selling and marketing

expenses

(50,426)

(0.2)

(50,250)

(0.2)

0.4

Administrative expenses

(494,146)

(2.1)

(606,920)

(2.7)

(18.6)

Research and development

costs

(796,316)

(3.3)

(746,721)

(3.3)

6.6

Other operating income

89,177

0.4

11,440

0.1

679.5

Other (losses)/gains – net

(86)

(0.0)

2,883

0.0

Operating prot

1,150,453

4.8

1,101,143

4.9

4.5

Finance income

446,324

1.9

450,638

2.0

(1.0)

Finance expenses

(43,958)

(0.2)

(54,561)

(0.2)

(19.4)

Finance income – net

402,366

1.7

396,077

1.7

1.6

Share of prots/(losses) of

joint arrangements

7

0.0

(111)

(0.0)

Share of prots of associates

9,997

0.0

16,355

0.1

(38.9)

Prot before taxation

1,562,823

6.6

1,513,464

6.7

3.3

Income tax expense

(302,470)

(1.3)

(314,710)

(1.4)

(3.9)

Prot for the period

1,260,353

5.3

1,198,754

5.3

5.1

(Losses)/Gains on revaluation

of retirement benet plans

obligations, net of income tax

effect

(45,491)

(0.2)

122

0.0

Exchange differences arising

on translation of foreign

operations

942

0.0

117,849

0.5

(99.2)

Total comprehensive income

for the period

1,215,804

5.1

1,316,725

5.8

(7.7)

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

31

(1) Revenue

The revenue of the Group increased by 4.9% from RMB22.682 billion for the six months ended 30 June 2019 to RMB23.797 billion for the six months ended 30 June 2020, which was mainly due to the fact that large EPC contracting projects such as Fujian Gulei Refining and Petrochemical Integration Project, Zhongke Refining and Chemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project have contributed a lot to the revenue.

(2) Cost of sales

The cost of sales of the Group increased by 6.4% from RMB20.310 billion for the six months ended 30 June 2019 to RMB21.605 billion for the six months ended 30 June 2020, which was mainly due to (i) the increase in cost of equipment and materials as a result of entering into the peak period of equipment and materials procurement for large EPC contracting projects such as Fujian Gulei Rening and Petrochemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, and (ii) the increase in project execution cost and epidemic prevention cost as a result of the slowdown in progress or delay of some projects in light of the impact of the pandemic COVID-19.

(3) Gross prot

Due to the above reasons, the gross prot of the Group decreased by 7.6% from RMB2.372 billion for the six months ended 30 June 2019 to RMB2.192 billion for the six months ended 30 June 2020, and the gross prot margin decreased from 10.5% to 9.2% on a period-on-period basis.

(4) Other income

The other income of the Group increased by 77.2% from RMB119 million for the six months ended 30 June 2019 to RMB210 million for the six months ended 30 June 2020. The main reason is that an exchange gain of RMB61 million was recorded in the Reporting Period due to exchange rates uctuation, while an exchange loss was recorded during the same period of last year.

(5) Selling and marketing expenses

The selling and marketing expenses of the Group were RMB50 million, which remained broadly stable on a period-on-period basis.

(6) Administrative expenses

The administrative expenses of the Group decreased by 18.6% from RMB607 million for the six months ended 30 June 2019 to RMB494 million for the six months ended 30 June 2020, which was mainly due to the decrease in expenses such as travel and office expenses on a period-on-period basis.

(7) Research and development costs

The research and development costs of the Group increased by 6.6% from RMB747 million for the six months ended 30 June 2019 to RMB796 million for the six months ended 30 June 2020, which was mainly due to the Group’s increased R&D investment in new technologies, new processes and digitization.

Analysis and Discussion’Management

32

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

(8) Other operating income

Other operating income of the Group increased by 679.5% from RMB11 million for the six months ended 30 June 2019 to RMB89 million for the six months ended 30 June 2020, which was mainly due to (i) the return of impairment allowance in the Reporting Period, and (ii) the exchange loss caused by the uctuation of exchange rate in the same period of last year.

(9) Other (losses)/gains – net

The net other (losses)/gains of the Group were a loss of RMB85,800.

(10) Operating prot

Due to the above reasons, the operating prot of the Group increased by 4.5% from RMB1.101 billion for the six months ended 30 June 2019 to RMB1.150 billion for the six months ended 30 June 2020.

(11) Finance income – net

The net nance income of the Group was RMB402 million, which remained broadly stable on a period-on-period basis.

(12) Income tax expense

The Group’s income tax expense was RMB302 million, which remained broadly stable on a period-on-period basis. The effective income tax rate decreased from 20.8% to 19.4% on a period-on-period basis. The change in the effective income tax rate was mainly due to the prot uctuation of several subsidiaries which are subject to different tax rates.

(13) Prot for the period

Due to the above reasons, the prot of the Group increased by 5.1% from RMB1.199 billion for the six months ended 30 June 2019 to RMB1.260 billion for the six months ended 30 June 2020.

(14) Total comprehensive income for the period

As a combined result of the reasons above and the effect of other comprehensive income of the Group, the total comprehensive income of the Group decreased by 7.7% from RMB1.317 billion for the six months ended 30 June 2019 to RMB1.216 billion for the six months ended 30 June 2020.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

33

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:

Analysis and Discussion’Management

Engineering, consulting and licensing

EPC Contracting

Construction

Equipment manufacturing

Unallocated

Subtotal

Total after inter-segment elimination (3)

Segment gross

Segment operating

Segment revenue

Segment gross prot

prot margin

Segment operating prot

prot margin

Six-month periods

Six-month periods

Six-month periods

Six-month periods

Six-month periods

ended 30 June

ended 30 June

ended 30 June

ended 30 June

ended 30 June

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

(RMB’000)

(RMB’000)

(%)

(RMB’000)

(%)

1,230,173

1,147,922

396,096

388,331

32.2

33.8

72,846

84,166

5.9

7.3

15,528,332

13,852,329

1,140,707

1,250,413

7.3

9.0

797,595

700,768

5.1

5.1

9,612,750

9,589,987

641,681

726,608

6.7

7.6

253,027

292,848

2.6

3.1

264,320

318,010

13,291

6,601

5.0

2.1

4,677

(2,675)

1.8

(0.8)

N/A

N/A

N/A

N/A

N/A

N/A

22,308

26,036

N/A

N/A

26,635,575

24,908,248

2,191,775

2,371,953

N/A

N/A

1,150,453

1,101,143

N/A

N/A

23,797,156

22,682,018

2,191,775

2,371,953

9.2(1)

10.5(1)

1,150,453

1,101,143

4.8(2)

4.9(2)

Notes:

  1. Total gross prot margin is calculated based on total gross prot divided by total revenue, and total revenue is the gross earnings generated after inter-segment elimination in all the business segments.
  2. Total operating prot margin of the segment is calculated based on the total operating prot 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-segmentelimination is mainly caused by the inter-segment sales made by the 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 report.

34

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

Engineering, Consulting and Licensing

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Amount

segment revenue

Amount

segment revenue

(RMB’ 000)

(%)

(RMB’ 000)

(%)

Revenue

1,230,173

100.0

1,147,922

100.0

Cost of sales

(834,077)

(67.8)

(759,591)

(66.2)

Gross prot

396,096

32.2

388,331

33.8

Selling and marketing expenses

(5,329)

(0.4)

(5,688)

(0.5)

Administrative expenses

(35,589)

(2.9)

(44,982)

(3.9)

Research and development costs

(304,122)

(24.7)

(294,531)

(25.7)

Other income and expenses

21,790

1.8

41,036

3.6

Operating prot

72,846

5.9

84,166

7.3

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

35

(1) Revenue

The revenue generated from the Group’s engineering, consulting and licensing segment increased by 7.2% from RMB1.148 billion for the six months ended 30 June 2019 to RMB1.230 billion for the six months ended 30 June 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 9.8% from RMB760 million for the six months ended 30 June 2019 to RMB834 million for the six months ended 30 June 2020, which was mainly due to (i) the increase in cost along with the increase in business volume, and (ii) the increase in project execution cost and epidemic prevention cost as a result of the slowdown in progress of some projects in light of the impact of the pandemic COVID-19.

(3) Gross prot

Due to the above reasons, the gross prot of the Group’s engineering, consulting and licensing segment increased by 2.0% from RMB388 million for the six months ended 30 June 2019 to RMB396 million for the six months ended 30 June 2020, and the gross prot margin was 32.2%, which slightly decreased on a period-on-period basis.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group’s engineering, consulting and licensing segment were RMB5 million, which remained broadly stable on a period-on-period basis.

(5) Administrative expenses

The administrative expenses of the Group’s engineering, consulting and licensing segment decreased by 20.9% from RMB45 million for the six months ended 30 June 2019 to RMB36 million for the six months ended 30 June 2020, which was mainly due to the decrease in expenses such as travel and office expenses on a period-on-period basis.

(6) Research and development costs

The research and development costs of the Group’s engineering, consulting and licensing segment increased by 3.3% from RMB295 million for the six months ended 30 June 2019 to RMB304 million for the six months ended 30 June 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 prot of the Group’s engineering, consulting and licensing segment decreased by 13.4% from RMB84 million for the six months ended 30 June 2019 to RMB73 million for the six months ended 30 June 2020.

Analysis and Discussion’Management

36

Analysis and Discussion’Management

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

EPC Contracting

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Amount

segment revenue

Amount

segment revenue

(RMB’ 000)

(%)

(RMB’ 000)

(%)

Revenue

15,528,332

100.0

13,852,329

100.0

Cost of sales

(14,387,625)

(92.7)

(12,601,916)

(91.0)

Gross prot

1,140,707

7.3

1,250,413

9.0

Selling and marketing expenses

(26,351)

(0.2)

(25,218)

(0.2)

Administrative expenses

(256,951)

(1.7)

(307,804)

(2.2)

Research and development costs

(296,708)

(1.9)

(264,183)

(1.9)

Other income and expenses

236,898

1.5

47,560

0.3

Operating prot

797,595

5.1

700,768

5.1

(1) Revenue

The revenue generated from the Group’s EPC contracting segment increased by 12.1% from RMB13.852 billion for the six months ended 30 June 2019 to RMB15.528 billion for the six months ended 30 June 2020, which was mainly due to the fact that large EPC contracting projects such as Fujian Gulei Rening and Petrochemical Integration Project, Zhongke Rening and Chemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project have contributed a lot to the revenue.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

37

(2) Cost of sales

The cost of sales of the Group’s EPC contracting segment increased by 14.2% from RMB12.602 billion for the six months ended 30 June 2019 to RMB14.388 billion for the six months ended 30 June 2020, which was mainly due to (i) the increase in cost of equipment and materials as a result of entering into the peak period of equipment and materials procurement for large EPC contracting projects such as Fujian Gulei Rening and Petrochemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, and (ii) the increase in project execution cost and epidemic prevention cost as a result of the slowdown in progress or delay of some projects in light of the impact of pandemic COVID-19.

(3) Gross prot

Due to the above reasons, the gross prot of the Group’s EPC contracting segment decreased by 8.8% from RMB1.250 billion for the six months ended 30 June 2019 to RMB1.141 billion for the six months ended 30 June 2020, and the gross prot margin decreased from 9.0% to 7.3% on a period-on-period basis.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group’s EPC contracting segment were RMB26 million, which remained broadly stable on a period-on-period basis.

(5) Administrative expenses

The administrative expenses of the Group’s EPC contracting segment decreased by 16.5% from RMB308 million for the six months ended 30 June 2019 to RMB257 million for the six months ended 30 June 2020, which was mainly due to the decrease in expenses such as travel and office expenses on a period-on-period basis.

(6) Research and development costs

The research and development costs of the Group’s EPC contracting segment increased by 12.3% from RMB264 million for the six months ended 30 June 2019 to RMB297 million for the six months ended 30 June 2020, which was mainly due to the increase in R&D investment in new technologies, new processes and digitization by the Group.

(7) Operating prot

Due to the above reasons, and return of impairment allowance and the contribution of exchange gain, the operating prot of the Group’s EPC contracting segment increased by 13.8% from RMB701 million for the six months ended 30 June 2019 to RMB798 million for the six months ended 30 June 2020.

Analysis and Discussion’Management

38

Analysis and Discussion’Management

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Construction

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Amount

segment revenue

Amount

segment revenue

(RMB’ 000)

(%)

(RMB’ 000)

(%)

Revenue

9,612,750

100.0

9,589,987

100.0

Cost of sales

(8,971,069)

(93.3)

(8,863,379)

(92.4)

Gross prot

641,681

6.7

726,608

7.6

Selling and marketing expenses

(17,199)

(0.2)

(17,773)

(0.2)

Administrative expenses

(195,125)

(2.0)

(246,977)

(2.6)

Research and development costs

(194,641)

(2.0)

(187,622)

(2.0)

Other income and expenses

18,311

0.2

18,612

0.2

Operating prot

253,027

2.6

292,848

3.1

(1) Revenue

The revenue generated from the Group’s construction segment was RMB9.613 billion, which remained broadly stable on a period- on-period basis.

(2) Cost of sales

The cost of sales of the Group’s construction segment increased by 1.2% from RMB8.863 billion for the six months ended 30 June 2019 to RMB8.971 billion for the six months ended 30 June 2020, which was mainly due to (i) the increase in subcontracting and material costs along with the increase in business volume, and (ii) the increase in project execution cost and epidemic prevention cost as a result of the slowdown in progress or delay of some projects in light of the impact of pandemic COVID-19.

(3) Gross prot

Due to the above reasons, the gross prot of the Group’s construction segment decreased by 11.7% from RMB727 million for the six months ended 30 June 2019 to RMB642 million for the six months ended 30 June 2020, and the gross prot margin decreased from 7.6% to 6.7% on a period-on-period basis.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

39

(4) Selling and marketing expenses

The selling and marketing expenses of the Group’s construction segment were RMB17 million, which remained broadly stable on a period-on-period basis.

(5) Administrative expenses

The administrative expenses of the Group’s construction segment decreased by 21.0% from RMB247 million for the six months ended 30 June 2019 to RMB195 million for the six months ended 30 June 2020, which was mainly due to the decrease in expenses such as travel and office expenses on a period-on-period basis.

(6) Research and development costs

The research and development costs of the Group’s construction segment were RMB195 million, which remained broadly stable on a period-on-period basis.

(7) Operating prot

Due to the above reasons, the operating prot of the construction segment of the Group decreased by 13.6% from RMB293 million for the six months ended 30 June 2019 to RMB253 million for the six months ended 30 June 2020.

Equipment Manufacturing

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Amount

segment revenue

Amount

segment revenue

(RMB’ 000)

(%)

(RMB’ 000)

(%)

Revenue

264,320

100.0

318,010

100.0

Cost of sales

(251,029)

(95.0)

(311,409)

(97.9)

Gross prot

13,291

5.0

6,601

2.1

Selling and marketing expenses

(1,547)

(0.6)

(1,571)

(0.5)

Administrative expenses

(6,481)

(2.5)

(7,157)

(2.3)

Research and development costs

(845)

(0.3)

(385)

(0.1)

Other income and expenses

259

0.1

(163)

(0.1)

Operating prot/(losses)

4,677

1.8

(2,675)

(0.8)

Analysis and Discussion’Management

40

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

(1) Revenue

The revenue generated from the Group’s equipment manufacturing segment decreased by 16.9% from RMB318 million for the six months ended 30 June 2019 to RMB264 million for the six months ended 30 June 2020, which was mainly due to the decreased business volume in equipment manufacturing.

(2) Cost of sales

The cost of sales of the Group’s equipment manufacturing segment decreased by 19.4% from RMB311 million for the six months ended 30 June 2019 to RMB251 million for the six months ended 30 June 2020, which was mainly due to the corresponding reduction of costs along with the decrease in business volume.

(3) Gross prot

The gross prot of the Group’s equipment manufacturing segment increased by 101.3% from RMB7 million for the six months ended 30 June 2019 to RMB13 million for the six months ended 30 June 2020, and gross prot margin increased from 2.1% to 5.0% on a period-on-period basis, which was mainly due to the greater revenue contribution 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 RMB2 million, which remained broadly stable on a period-on-period basis.

(5) Administrative expenses

The administrative expenses of the Group’s equipment manufacturing segment were RMB6 million, which remained broadly stable on a period-on-period basis.

(6) Research and development costs

The research and development costs of the Group’s equipment manufacturing segment were RMB845,000.

(7) Operating prot/(losses)

Due to the above reasons, the Group’s equipment manufacturing segment changed from the operating losses of RMB3 million for the six months ended 30 June 2019 to the operating prot of RMB5 million for the six months ended 30 June 2020.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

41

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:

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Revenue

total revenue

Revenue

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

Oil rening

5,524,808

23.2

7,854,494

34.6

(29.7)

Petrochemicals

14,428,401

60.6

10,913,276

48.1

32.2

New coal chemicals

2,204,020

9.3

2,509,314

11.1

(12.2)

Other industries

1,639,927

6.9

1,404,934

6.2

16.7

Total

23,797,156

100.0

22,682,018

100.0

4.9

During the Reporting Period, due to the fact that large EPC contracting projects such as Fujian Gulei Rening and Petrochemical Integration Project, Zhongke Rening and Chemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project have contributed a lot to the revenue, revenue generated from petrochemicals industry was RMB14.428 billion, representing an increase of 32.2% on a period-on-period basis; thanks to the contribution of crude oil storage facilities projects and natural gas pipeline network and gas storage facilities projects, revenue generated from other industries was RMB1.640 billion, representing an increase of 16.7% on a period-on-period basis; revenue generated from oil rening industry was RMB5.525 billion, representing a decrease of 29.7% on a period-on-period basis, which was affected by the settlement and completion of the projects such as Kuwait Oil Rening Project; revenue generated from new coal chemicals industry was RMB2.204 billion, representing a decrease of 12.2% on a period-on-period basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong’An Joint Coalication Integration Project.

Analysis and Discussion’Management

42

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

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

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Revenue

total revenue

Revenue

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

PRC

21,040,916

88.4

16,754,294

73.9

25.6

Overseas

2,756,240

11.6

5,927,724

26.1

(53.5)

Total

23,797,156

100.0

22,682,018

100.0

4.9

During the Reporting Period, thanks to the rapid control of the domestic epidemic, the Group’s active work resumption, and the large revenue contribution from large EPC contracting projects such as Fujian Gulei Refining and Petrochemical Integration Project, Zhongke Rening and Chemical Integration Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project; revenue of the Group generated in the PRC was RMB21.041 billion, representing an increase of 25.6% on a period-on-period basis, affected by the slowdown in progress of some overseas projects due to the spread of epidemic COVID-19 in the world and the settlement and completion of Kuwait Oil Rening Project, revenue generated from overseas was RMB2.756 billion, representing a decrease of 53.5% on a period-on-period basis.

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:

Six-month periods ended 30 June

2020

2019

Percentage of

Percentage of

Revenue

total revenue

Revenue

total revenue

Change

(RMB’ 000)

(%)

(RMB’ 000)

(%)

(%)

Sinopec Group and

its associates

13,723,631

57.7

9,458,533

41.7

45.1

Non-Sinopec Group and

its associates

10,073,525

42.3

13,223,485

58.3

(23.8)

Total

23,797,156

100.0

22,682,018

100.0

4.9

During the Reporting Period, among the projects under construction, the revenue generated from Sinopec Group and its associates increased signicantly on a period-on-period basis and amounted to RMB13.724 billion, representing an increase of 45.1% on a period-on-period basis; affected by the decline in revenue from overseas projects, the revenue generated from non- Sinopec Group and its associates was RMB10.074 billion, representing a decrease of 23.8% on a period-on-period basis.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

43

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 dened by generally accepted accounting principles. Any modication, termination or suspension of these contracts by the Group’s clients may have a substantial and immediate effect on the Group’s backlog. Projects may also remain in the Group’s backlog for an extended period of time beyond what was initially anticipated due to various factors beyond the Group’s control.

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

As at 30 June 2020

As at 31 December 2019

Change

(RMB’ 000)

(RMB’ 000)

(%)

Engineering, consulting

and licensing

9,970,939

8,192,663

21.7

EPC Contracting

80,905,791

72,662,664

11.3

Construction

16,262,262

13,653,862

19.1

Equipment manufacturing

695,435

484,371

43.6

Total

107,834,427

94,993,560

13.5

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 30 June 2020

As at 31 December 2019

Change

(RMB’ 000)

(RMB’ 000)

(%)

Oil rening

31,462,516

28,201,648

11.6

Petrochemicals

28,721,369

28,285,500

1.5

New coal chemicals

11,511,535

13,394,670

(14.1)

Other industries

36,139,007

25,111,742

43.9

Total

107,834,427

94,993,560

13.5

Analysis and Discussion’Management

44

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

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

As at 30 June 2020

As at 31 December 2019

Change

(RMB’ 000)

(RMB’ 000)

(%)

PRC

83,807,756

74,754,485

12.1

Overseas

24,026,671

20,239,075

18.7

Total

107,834,427

94,993,560

13.5

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 30 June 2020

As at 31 December 2019

Change

(RMB’ 000)

(RMB’ 000)

(%)

Sinopec Group and its associates

60,414,836

49,789,049

21.3

Non-Sinopec Group and

its associates

47,419,591

45,204,511

4.9

Total

107,834,427

94,993,560

13.5

As at the end of the Reporting Period, the Group’s backlog was RMB107.834 billion, representing an increase of 13.5% compared to that as at 31 December 2019, and 2.06 times of the total revenue of RMB52.261 billion in 2019.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

45

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

Six-month periods ended 30 June

2020

2019

Change

(RMB’ 000)

(%)

Engineering, consulting

and licensing

2,988,407

1,382,037

116.2

EPC Contracting

23,771,460

24,460,035

(2.8)

Construction

9,509,700

6,390,278

48.8

Equipment manufacturing

368,456

987,437

(62.7)

Total

36,638,023

33,219,787

10.3

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:

Six-month periods ended 30 June

2020

2019

Change

(RMB’ 000)

(%)

Oil rening

8,785,676

9,451,172

(7.0)

Petrochemicals

14,864,270

17,015,718

(12.6)

New coal chemicals

320,885

4,844,253

(93.4)

Other industries

12,667,192

1,908,644

563.7

Total

36,638,023

33,219,787

10.3

Analysis and Discussion’Management

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Analysis and Discussion’Management

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

Six-month periods ended 30 June

2020

2019

Change

(RMB’ 000)

(%)

PRC

30,094,187

31,043,019

(3.1)

Overseas

6,543,836

2,176,768

200.6

Total

36,638,023

33,219,787

10.3

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:

Six-month periods ended 30 June

2020

2019

Change

(RMB’ 000)

(%)

Sinopec Group and its associates

24,349,418

21,264,226

14.5

Non-Sinopec Group and

its associates

12,288,605

11,955,561

2.8

Total

36,638,023

33,219,787

10.3

During the Reporting Period, the value of the Group’s new contracts was RMB36.638 billion, representing an increase of 10.3% compared to RMB33.220 billion for the six months ended 30 June 2019.

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47

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

Units: RMB’ 000

Analysis and Discussion’Management

As at 30 June 2020

Total assets

67,497,829

Current assets

60,366,086

Non-current assets

7,131,743

Total liabilities

39,943,859

Current liabilities

37,166,424

Non-current liabilities

2,777,435

Net assets

27,553,970

Equity attributable to equity

holders of the Company

27,549,243

Share capital

4,428,000

Reserves

23,121,243

Non-controlling interests

4,727

As at 31 December 2019

Changes

67,873,748

(375,919)

60,616,791

(250,705)

7,256,957

(125,214)

40,603,207

(659,348)

37,791,658

(625,234)

2,811,549

(34,114)

27,270,541

283,429

27,265,976

283,267

4,428,000

0

22,837,976

283,267

4,565

162

As at the end of the Reporting Period, the total assets of the Group were RMB67.498 billion, the total liabilities were RMB39.944 billion, and the equity attributable to the equity holders of the Company was RMB27.549 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 RMB67.498 billion, decreased by RMB376 million as compared with that as at the end of 2019. In particular, the current assets were RMB60.366 billion, decreased by RMB251 million as compared with that as at the end of 2019, which was mainly due to an increase of RMB1.681 billion in prepayments and other receivables, an increase of RMB1.435 billion in contract assets, a decrease of RMB1.465 billion in cash and cash equivalents, a decrease of RMB1.380 billion in notes and trade receivables; non-current assets amounted to RMB7.132 billion, a decrease of RMB125 million as compared to that as at the end of 2019, which was mainly due to the depreciation and amortization of non-current assets.

As at the end of the Reporting Period, the total liabilities were RMB39.944 billion, decreased by RMB659 million as compared with that as at the end of 2019. In particular, the current liabilities were RMB37.166 billion, decreased by RMB625 million as compared with that as at the end of 2019, which was mainly due to an increase of RMB907 million in dividend payables, an increase of RMB371 million in notes and trade payables, and a decrease of RMB1.863 billion in contract liabilities; the non-current liabilities were RMB2.777 billion, decreased by RMB34 million as compared with that as at the end of 2019, which was mainly due to a decrease of RMB22 million in retirement and other supplementary benet obligations.

The equity attributable to equity holders of the Company was RMB27.549 billion, increased by RMB283 million as compared with that as at the end of 2019, which was mainly due to the increase in retained earnings.

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Analysis and Discussion’Management

  1. Cash Flows

During the Reporting Period, the net decrease in cash and cash equivalents was RMB1.534 billion and net cash used in operating activities was RMB1.963 billion. The following table sets forth the main items and their changes in the Group’s consolidated cash ow statements for the six months ended 30 June 2020 and 2019, respectively.

Units: RMB’ 000

Six-month periods ended 30 June

Major items of cash ows

2020

2019

Net cash used in operating activities

(1,962,757)

(4,964,239)

Net cash generated from/(used in) investing activities

461,574

(5,283,423)

Net cash used in nancing activities

(32,397)

(52,155)

Net decrease in cash and cash equivalents

(1,533,580)

(10,299,817)

During the Reporting Period, the prot before taxation was RMB1.563 billion, and the prot was RMB1.256 billion after adjusting the items in expenses that did not affect the cash ow in operating activities. Major non-cash expense items included: depreciation and amortisation of RMB306 million, exchange gain of RMB78 million, net interest income and expenditure of RMB402 million, reversal of impairment on trade receivables of RMB117 million. Receivables and payables in connection with operating activities increased the cash outow of RMB3.202 billion, which was mainly shown in: the increase in trade and other receivables balance which caused the cash outow from operating activities of RMB242 million; the increase in contract assets which caused the cash outow from operating activities of RMB1.429 billion; the decrease in inventory balance which caused the cash inow from operating activities of RMB170 million; the increase in trade and other payables balance which caused the cash inflow from operating activities of RMB159 million; the decrease in contract liabilities which caused cash outow from operating activities of RMB1.863 billion.

After adjusting non-cash items, receivables and payables for the prot before taxation, deducting the income tax paid amounting to RMB219 million, and adding inflow of received interest by RMB201 million, the net cash used in operating activities was RMB1.963 billion.

Net cash generated from investing activities was RMB462 million, which was mainly due to the recovery of loans to the ultimate holding company.

Net cash used in nancing activities was RMB32 million, which was mainly due to the 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, control the use of working capital in operating activities, proactively manage the investment risk, expand the scale of investment and increase the return on capital.

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49

  1. Summary of Financial Ratios

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

Six-month periods ended 30 June

Main nancial ratios

2020

2019

Net prot margin (%)

5.3

5.3

Return on assets (%) (1)

1.9

1.7

Return on equity (%) (2)

4.6

4.5

Return on invested capital (%) (3)

4.7

4.5

Main nancial ratios

As at 30 June 2020

As at 31 December 2019

Gearing ratio (%) (4)

0.6

0.7

Net debt to equity ratio (%) (5)

Net cash

Net cash

Current ratio (%) (6)

1.6

1.6

Quick ratio (%) (7)

1.6

1.6

(1)

Return on assets

Prot for the period

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

(2)

Return on equity

Prot for the period

Total equity at the end of the period

(3)

Return on invested capital

Earnings before interest and tax (EBIT) for the period x (1 – effective income tax rate)

Total interest bearing debt at the end of the period – Credit loans + Total equity at the end of the period

(4)

Gearing ratio

Interest bearing debt at the end of the period

Total interest bearing debt at the end of the period + Total equity at the end of the period

(5)

Net debt to equity ratio

Net debt at the end of the period

Total equity at the end of the period

(6)

Current ratio

Current assets

Current liabilities

(7)

Quick ratio

Current assets – Inventories

Current liabilities

Analysis and Discussion’Management

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Analysis and Discussion’Management

Return on assets

During the Reporting Period, the Group’s return on assets increased to 1.9% from 1.7% for the same period in 2019, mainly due to the increase in the prot during the Reporting Period and the decrease in the total assets at the end of the Reporting Period.

Return on equity

The Group’s return on equity increased to 4.6% from 4.5% for the same period in 2019, mainly due to the increase in the prot during the Reporting Period.

Return on invested capital

The Group’s return on invested capital increased to 4.7% from 4.5% for the same period in 2019 for the same reasons as the increase in return on equity.

Gearing ratio

The Group’s gearing ratio decreased to 0.6% from 0.7% at the end of 2019, mainly due to the decrease in interest-bearing borrowings at the end of the Reporting Period.

Net debt to equity ratio

The Group maintained positive net cash as at 30 June 2020 and as at 31 December 2019.

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 1.6, which was basically the same as at the end of 2019.

6 Foreign Exchange Risk

The Group continued to operate some engineering business overseas and formed foreign currency-denominated receivables, payables and cash balances. In addition, the Group raised funds denominated in foreign currencies by issuing H shares. During the Reporting Period, foreign currencies held by the Group were primarily U.S. dollars, Euros and Kuwait dinars. In the future, changes in foreign exchange rates may affect the quotation of the Group’s services and expenditure on the procurement of materials in foreign currency. Fluctuations in foreign exchange rates may inuence the Group’s results of operations and nancial position. During the Reporting Period, the Group did not carry out hedging transactions related to foreign exchange uctuations.

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51

7 Employees and Remuneration Policy

As at the end of the Reporting Period, the Group had a total of 17,035 employees.

The following list is a categorization of employee details in different business sectors as at 30 June 2020.

As at 30 June 2020

Percentage of the

Number of Employees

Total Employees (%)

Engineering and Technical Personnel

11,586

68.0

Management Personnel

2,070

12.2

Production Personnel

3,379

19.8

Total

17,035

100.0

The following list is a categorization of employee details in accordance with education level as at 30 June 2020.

As at 30 June 2020

Percentage of the

Number of Employees

Total Employees (%)

Master Degree

2,512

14.7

Bachelor Degree

7,701

45.2

Tertiary Qualication

2,929

17.2

Others

3,893

22.9

Total

17,035

100.0

During the Reporting Period, the Group maintained good labour relations. The remuneration of our employees mainly consists of salary, discretionary bonuses and contributions to the compulsory social security funds. In accordance with the laws of the PRC, the Group participates in different retirement pension related programmes for our employees, including the programmes organized 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 six months ended 30 June 2020 and the six months ended 30 June 2019, the employment costs of the Group were approximately RMB2.113 billion and RMB2.342 billion, respectively.

The Group provides on-the-job training and development opportunities to promote the career development for the employees. During the Reporting Period, the Group focused on the production and operation objectives, and, under the current requirements for prevention and control of epidemic COVID-19, carried out various online training activities as scheduled, covering topics of technological innovation and management improvement.

Analysis and Discussion’Management

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

53

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Events cantSigni

1 Corporate Governance

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

2 H Share Appreciation Rights Scheme

For the details of H Shares appreciation rights scheme of the Company, please refer to the announcement 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 announcement entitled « Grant of H Share Appreciation Rights » dated 20 December 2017, the announcement entitled « Unfulllment of the Conditions to the First Effective Phase of the Initial Grant Under the H Share Appreciation Rights Scheme » dated 30 July 2019, and the contents in relation to the unfulllment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme in the announcement dated 23 March 2020.

On 20 December 2017, the Company granted 13,143,000 units of H share appreciation rights (the « H Share Appreciation Rights ») (representing 0.30% of the total issued shares of the Company and 0.90% of the total issued H shares of the Company as at 20 December 2017) to 89 incentive recipients, accounting for approximately 0.5% of the total number of contracted employees of the Company as at 20 December 2017 (the « Initial Grant »), including the Directors (other than the independent non-executive Directors), the Company’s senior management members (including presidents, vice presidents and chief nancial officer) and the core management, technical and highly skilled personnel of the Company’s subsidiaries. The exercise price of each H Share Appreciation Right granted under the Initial Grant is HKD6.35 per share.

As reviewed and approved at the 2017 annual general meeting convened on 8 May 2018, the nal cash dividend of RMB0.144 per share (inclusive of applicable tax) was paid by the Company. As reviewed and approved in the thirteenth meeting of the Second Session of the Board convened on 21 August 2018, the Company distributed 2018 interim cash dividend of RMB0.100 per share (inclusive of applicable tax). As reviewed and approved at the 2018 annual general meeting convened on 8 May 2019, the nal cash dividend of RMB0.124 per share (inclusive of applicable tax) was paid by the Company. As reviewed and approved in the fth meeting of the Third Session of the Board convened on 16 August 2019, the Company distributed 2019 interim cash dividend of RMB0.108 per share (inclusive of applicable tax). As reviewed and approved at the 2019 annual general meeting convened on 8 May 2020, the nal cash dividend of RMB0.212 per share (inclusive of applicable tax) was paid by the Company. As at the date of this interim report, the distribution of the nal dividends of 2017, the interim dividends of 2018, the nal dividends of 2018, the interim dividends of 2019 and the nal dividends of 2019 has been completed. According to Article 28 of « The H Share Appreciation Rights Scheme and the Initial Grant » (the « H Share Appreciation Rights Scheme ») in Appendix I to the circular of the second extraordinary general meeting for the year 2017 published on 3 November 2017, the Company may adjust the exercise price of the H Share Appreciation Rights in the event of distribution of dividends, and the exercise price after adjustment will be equal to the exercise price before adjustment minus the amount of dividends distributed per share. Thus, the exercise price of each H Share Appreciation Right under the Initial Grant will be adjusted to HKD5.572 per share.

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55

Events cantSigni

Unfulllment of the Conditions to the First Effective Phase of the Initial Grant under the H Share Appreciation Rights Scheme

For details of the unfulllment of the conditions to the rst effective phase of the Initial Grant under the H Share Appreciation Rights Scheme, please refer to the announcement of the Company dated 30 July 2019 and the 2019 interim report of the Company.

Unfulllment of the Conditions to the Second Effective Phase of the Initial Grant under the H Share Appreciation Rights Scheme

For details of the unfulllment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme, please refer to the announcement of the Company dated 23 March 2020 and the 2019 annual report of the Company.

The nullication of H Share Appreciation Rights in the rst and second effective phases will not affect the remaining number of H Share Appreciation Rights of 4,468,620 units to be effective upon the third effective phase under the Initial Grant.

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 nancial 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 nancial year immediately before the effective date as compared with that of the nancial 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 nancial year immediately before the effective date shall not be less than RMB2.373 billion

The Company will use the nancials prepared in accordance with the China Accounting Standards for Business Enterprises and the net prot after deduction of non-recurring prot 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.

During the Reporting Period, save for the above adjustment to the exercise price and the unfulllment of the conditions to the rst and second 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 adjustment to the exercise price of the H Share Appreciation Rights. For details of the Company’s H Share Appreciation Rights Scheme, please refer to Note 36 of the consolidated nancial statements in this report.

3 The Dividend Distribution Plan for the Six-month Period ended 30 June 2020

The twelfth meeting of the third session of the Board approved the dividend distribution plan for the six months ended 30 June 2020. An interim cash dividend of RMB0.113 per share (inclusive of applicable taxes) 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 30 June 2020. Since shareholders of the Company have authorised the Board to decide the interim prot distribution plan of 2020 by an ordinary resolution in the 2019 annual general meeting held on 8 May 2020, it is unnecessary to submit the above dividend distribution plan to the general meeting of shareholders for review and approval.

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Events cantSigni

The interim dividend will be paid on or before Friday, 30 October 2020 to all shareholders whose names appear on the register of members of the Company at the close of business on Monday, 21 September 2020. In order to qualify for the interim dividend, the H shareholders must lodge all share certicates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. (address: Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong) before 4:30 p.m. on Tuesday, 15 September 2020 for registration. For the purpose of ascertaining the shareholders who are qualied for the interim dividend, the register of members for H shares will be closed from Wednesday, 16 September 2020 to Monday, 21 September 2020 (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 ve business days prior to the date of declaration of the dividend by the Board (i.e. Friday, 21 August 2020). The mean of the exchange rates of Renminbi to Hong Kong dollars as announced by the People’s Bank of China during the ve business days prior to the date of declaration of the interim dividend by the Board (i.e. Friday, 21 August 2020) is RMB0.89424 to HKD1.00. Accordingly, the interim dividend will be HKD0.1264 per H share (inclusive of applicable taxes).

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 Monday, 21 September 2020.

If the individual holders of H Shares are Hong Kong or Macau residents or residents of the countries which have an agreed tax rate of 10% for the cash dividends given to them under the relevant tax agreements 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 have an agreed tax rate of less than 10% under the relevant tax agreements 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 after obtaining the approval of the competent tax authority. Should the individual holders of H Shares be residents of the countries which have an agreed tax rate of over 10% but less than 20% under the relevant tax agreements 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 an agreed tax rate of 20% under the relevant tax agreements with the PRC, or which have not entered into any tax agreement with the PRC, or in any other circumstances, the Company shall withhold and pay the individual income tax at a rate of 20%.

For investors (including enterprises and individuals) investing in the H Shares of the Company listed on the Hong Kong Stock

Exchange through the Shanghai Stock Exchange or Shenzhen Stock Exchange (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.

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57

Events cantSigni

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) ( 關於滬港通股票市場交易互聯互通機制試點關稅收政策的通知》(財稅[2014]81))

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), 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.

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Events cantSigni

The Group’s Connected Transactions

During the Reporting Period, the aggregate value of the connected transactions entered into by the Group was RMB16.261 billion. In particular, the expenses amounted to RMB2.137 billion and the revenue amounted to RMB14.124 billion (including RMB13.783 billion from the sale of products and services and RMB341 million from interest income), thus satisfying the exemption requirements specied 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 RMB2.116 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 RMB13.691 billion, which was within the annual cap.

During the Reporting Period, the service fees in relation to the settlement and other nancial services between the Group and Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited were RMB1 million, which was within the annual cap. The maximum daily balance of deposits and interest income was RMB7.280 billion, which was within the annual cap. The maximum daily balance of entrustment loans was RMB19 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 RMB86 million, which was within the annual cap.

During the Reporting Period, the counter-guarantees provided by Sinopec Group to the Group amounted to USD52 million, which was within the annual cap.

During the Reporting Period, the general services provided by Sinopec Group to the Group amounted to RMB19 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease contracts provided by the Group to Sinopec Group amounted to RMB6 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease contracts provided by Sinopec Group to the Group amounted to RMB1 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 specied in these documents.

For more information on major related parties (including the connected transactions above) during the Reporting Period, please refer to Note 40 of the consolidated nancial statements prepared in accordance with the IFRS in this interim report.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

59

Events cantSigni

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 conrmed as follows:

  1. The transactions were entered into in the ordinary and usual course of business of the Group;
  2. One of the following items was met:
    1. The transactions were entered into on normal commercial terms;
    2. 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
    3. If there were no appropriate assessments to determine whether the transactions met the conditions under (i) and
      1. above, the transactions were entered into on terms that were fair and reasonable to the shareholders of the Company; and
  3. The transactions were conducted in accordance with the relevant agreements and the terms are fair and reasonable and in the interests of the shareholders of the Company as a whole.

5 Material Litigation or Arbitration Events

The Company is currently 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, and the Company has submitted an application for formal withdrawal to the court.

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

6 Other Material Contracts

Save as disclosed in this interim report, the Group had no other contracts of signicance 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 nancial report, which was prepared in accordance with IFRS in this interim report.

60

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Events cantSigni

9 Use of IPO Proceeds

During the Reporting Period, the Group used a total of RMB185 million net proceeds from the global offering, which was mainly used for newly added long-term equity investment amounted to RMB120 million, the purchase of large lifting and transport equipment and specialized construction equipment amounted to RMB36 million, the construction of engineering and technological research and development center, modular construction base and machinery manufacturing project amounted to RMB20 million, and the construction of information system amounted to RMB9 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 RMB4.552 million, and the remaining balance of the net proceeds from the global offering was approximately RMB6.606 billion (approximately RMB580 million of the remaining net proceeds for establishing an engineering and technological research and development center, modular construction base and machinery manufacturing projects; approximately RMB300 million of the remaining net proceeds for improving and developing overseas marketing networks; approximately RMB468 million of the remaining net proceeds for information technology development projects; approximately RMB364 million of the remaining net proceeds for purchasing large lifting and transport equipment and specialized construction equipment; approximately RMB1.035 billion of the remaining net proceeds for newly added long-term equity investment; and approximately RMB3.859 billion of the remaining net proceeds for mergers and acquisitions of engineering companies, purchase of patents and other 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 « 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 and Major Investments

During the Reporting Period, the Group had not conducted any material assets transactions and major investments other than those conducted 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 had no material acquisitions or disposal.

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61

Events cantSigni

14 Financial Derivatives for Hedging Purposes

On 20 March 2020, the tenth meeting of the Third Session of the Board considered and approved the resolution in relation to the 2020 annual business plan for nancial derivatives. For details, please refer to the announcement of the Company dated 23 March 2020. During the Reporting Period, the Group did not use any nancial derivative for hedging purposes.

15 Pledged Assets

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

16 Debt

The Group has no bank loans or other borrowings as at the end of the Reporting Period.

17 Contingent Liabilities

For details of the contingent liabilities of the Group, please refer to Note 39 to the nancial statements contained in this report.

18 Review of Interim Report

The audit committee of the Company has reviewed this interim report. The audit committee did not have any disagreement concerning the nancial statements in this interim 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 qualications (including being a member of the Hong Kong Institute of Certied Public Accountants) and more than 24 years of experience in auditing, internal control and consultancy.

19 Signicant Events Affecting the Group after the Reporting Period

From 30 June 2020 and up to the date of this interim report, there is no significant event that affected the Group after the Reporting Period.

20 Other Important Matters

During the Reporting Period, none of the Company, the Board and the Directors was subject to any administrative means or sanctions by Hong Kong Securities and Futures Commission or publicly condemned by the Hong Kong Stock Exchange.

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DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF SENIOR MANAGEMENT

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64

Management Senior of Members Other and Supervisors Directors,

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

As at 30 June 2020, members of the Company’s Board of Directors and the Supervisory Committee and other members of the senior management are as follows:

1 Directors

Prole of the Directors of the Third Session of the Board

Name

Gender

Age (1)

Position in the Company

Term of Office as Director

YU Renming

Male

56

Chairman of the Board and Executive Director

February 2020 – October 2021

XIANG Wenwu

Male

54

Executive Director and President

October 2018 – October 2021

WU Wenxin

Male

56

Non-executive Director

October 2018 – October 2021

SUN Lili

Female

58

Executive Director

October 2018 – October 2021

ZHOU Yingguan

Male

51

Executive Director

October 2018 – October 2021

HUI Chiu Chung, Stephen

Male

73

Independent non-executive Director

October 2018 – October 2021

JIN Yong

Male

84

Independent non-executive Director

October 2018 – October 2021

YE Zheng

Male

55

Independent non-executive 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 Directors resigned during the Reporting Period

Name

Gender

Age (1)

Position in the Company

Term of office

YU Baocai

Male

55

Chairman of the Board and Non-executive Director

October 2018 – February 2020

LU Dong

Male

57

Vice Chairman of the Board and Executive Director

October 2018 – February 2020

Note:

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

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

65

2 Supervisors

Prole of the Supervisors of the Third Session of the Supervisory Committee

Name

Gender

Age (1)

Position in the Company

Term of Office as Supervisor

ZHU Fei

Male

55

Chairman of the Supervisory Committee

October 2018 – October 2021

and Chairman of the Trade Union

WANG Guoliang

Male

60

Supervisor

October 2018 – October 2021

YE Wenbang

Male

57

Supervisor

October 2018 – October 2021

WU Jibo

Male

52

Supervisor

October 2018 – October 2021

XU Yijun

Male

56

Employee Representative Supervisor

October 2018 – October 2021

JIANG Dejun

Male

55

Employee Representative Supervisor

October 2018 – October 2021

WU Zhongxian

Male

57

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.

3 Other Members of the Senior Management

Prole of other members of the Senior Management

Name

Gender

Age (1)

Position in the Company

Date of Taking Office

XIANG Wenwu

Male

54

President

January 2017

QI Guosheng

Male

59

Vice President

November 2014

ZHU Fei

Male

55

Chairman of the Trade Union

November 2019

WANG Guohua

Male

51

Vice President

April 2019

JIA Yiqun

Male

52

Chief Financial Officer

August 2012

Company Secretary

July 2019

WANG Yi

Male

49

Vice President

July 2019

ZHENG Lijun

Male

52

Vice President

November 2019

Note:

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

4 Equity Interest of Directors, Supervisors and Members of the Senior Management of the Company

During the Reporting Period, to the best knowledge of the Directors, none of the Directors, Supervisors and members of the Senior Management of the Company and their respective associates had any interest or short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which are required to be notied 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 into the register referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the « Model Code ») under Appendix 10 to the Hong Kong Listing Rules, to be notied to the Company and the Hong Kong Stock Exchange. After specic inquiries by the Company, all Directors and Supervisors conrmed that they complied with the standards of the Model Code during the Reporting Period.

Management Senior of Members Other and Supervisors Directors,

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68

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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 71 to 139, which comprise the consolidated statement of nancial position as at 30 June 2020, and the consolidated statement of prot or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six-month period then ended, and notes to the consolidated nancial statements, including a summary of signicant accounting policies.

In our opinion, the consolidated nancial statements give a true and fair view of the consolidated nancial position of the Group as at 30 June 2020, and its consolidated nancial performance and its consolidated cash ows for the six-month period 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 Certied Public Accountants’ « Code of Ethics for Professional Accountants » (the « Code »), and we have fullled 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 signicance in our audit of the consolidated nancial statements of the current period. These matters were addressed in the context of our audit of the consolidated nancial 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

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

The Group recognised revenue of RMB23,797,156,000 for the six-month period ended 30 June 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 mainly 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 identied the revenue recognition related to construction contracts as a key audit matter.

Our response:

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 period;
  • 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.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

69

KEY AUDIT MATTERS (CONTINUED)

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

(Refer to notes 3.8(c),20 and 22(a) to the consolidated nancial 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’ nancial position and an assessment of both the current and forecast general economic conditions, all of which involve a signicant degree of management judgment.

We have identied 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 response:

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 nancial 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 signicant trade receivables over 180 days after the reporting period, including customers’ payment history and current ability to pay, and take into account information specic 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 interim report of the Company, but does not include the consolidated nancial statements and our auditor’s report thereon.

Our opinion on the consolidated nancial 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 nancial 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 nancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated nancial 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 nancial 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.

70

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM 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 inuence the economic decisions of users taken on the basis of these consolidated nancial 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 nancial 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 signicant 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 nancial 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 nancial 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 nancial information of the entities or business activities within the Group to express an opinion on the consolidated nancial 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 signicant audit ndings, including any signicant deciencies 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 signicance in the audit of the consolidated nancial 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 benets of such communication.

OTHER MATTER

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

BDO Limited

Certied Public Accountants

Ng Wai Man

Practising Certicate number P05309

Hong Kong, 21 August 2020

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

71

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Six months ended 30 June

Notes

2020

2019

RMB’ 000

RMB’ 000

Revenue

6

23,797,156

22,682,018

Cost of sales

(21,605,381)

(20,310,065)

Gross prot

2,191,775

2,371,953

Other income

8

210,475

118,758

Selling and marketing expenses

(50,426)

(50,250)

Administrative expenses

(494,146)

(606,920)

Research and development costs

(796,316)

(746,721)

Other operating income

89,177

11,440

Other (losses)/gains – net

9

(86)

2,883

Operating prot

1,150,453

1,101,143

Finance income

10

446,324

450,638

Finance expenses

10

(43,958)

(54,561)

Finance income – net

402,366

396,077

Share of prot/(loss) of a joint arrangement

19(a)

7

(111)

Share of prot of associates

19(b)

9,997

16,355

Prot before taxation

11

1,562,823

1,513,464

Income tax expense

12

(302,470)

(314,710)

Prot for the period

1,260,353

1,198,754

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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

Notes

Other comprehensive (expense)/income for the period, net of tax

Item that may be reclassied subsequently to prot or loss:

Exchange differences arising on translation of foreign operations

Item that will not be reclassied subsequently to prot or loss:

(Losses)/gains on revaluation of retirement benet plans obligations, net of income tax effect

Other comprehensive (expense)/income for the period, net of tax

Total comprehensive income for the period

Prot attributable to:

Equity holders of the Company

Non-controlling interests

Prot for the period

Total comprehensive income attributable to:

Equity holders of the Company

Non-controlling interests

Total comprehensive income for the period

Earnings per share for prot attributable to equity holders of the Company during the period (expressed in RMB per share)

Six months ended 30 June

20202019

RMB’ 000RMB’ 000

942

117,849

(45,491)

122

(44,549)

117,971

1,215,804

1,316,725

1,260,191

1,198,685

162

69

1,260,353

1,198,754

1,215,642

1,316,656

162

69

1,215,804

1,316,725

RMB

RMB

0.28

0.27

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

73

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

As at

As at

Notes

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

ASSETS

Non-current assets

Property, plant and equipment

16

3,531,301

3,597,352

Right-of-use assets

17

2,496,540

2,523,770

Intangible assets

18

207,831

233,315

Investment in a joint arrangement

19(a)

2,523

2,516

Investment in associates

19(b)

178,310

161,952

Deferred income tax assets

35

715,238

738,052

Total non-current assets

7,131,743

7,256,957

Current assets

Inventories

23

1,023,167

1,193,480

Notes and trade receivables

20

7,232,808

8,613,198

Prepayments and other receivables

21

8,345,514

6,664,671

Contract assets

22(a)

9,521,450

8,085,951

Loans due from the ultimate holding company

24

18,500,000

19,000,000

Restricted cash

25

34,677

38,087

Time deposits

26

7,238,206

7,086,066

Cash and cash equivalents

27

8,470,264

9,935,338

Total current assets

60,366,086

60,616,791

Total assets

67,497,829

67,873,748

74

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

As at

As at

Notes

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

EQUITY

Share capital

28

4,428,000

4,428,000

Reserves

23,121,243

22,837,976

Equity attributable to equity holders of the Company

27,549,243

27,265,976

Non-controlling interests

4,727

4,565

Total equity

27,553,970

27,270,541

LIABILITIES

Non-current liabilities

Lease liabilities

30

120,825

125,678

Retirement and other supplemental

2,467,308

benet obligations

31

2,488,926

Provision for litigation claims

32

189,302

196,945

Total non-current liabilities

2,777,435

2,811,549

Current liabilities

Notes and trade payables

33

22,485,472

22,114,039

Other payables

34

1,876,046

2,008,917

Dividend payables

907,027

Contract liabilities

22(b)

11,451,773

13,314,941

Lease liabilities

30

52,432

55,275

Current income tax liabilities

393,674

298,486

Total current liabilities

37,166,424

37,791,658

Total liabilities

39,943,859

40,603,207

Total equity and liabilities

67,497,829

67,873,748

Net current assets

23,199,662

22,825,133

Total assets less current liabilities

30,331,405

30,082,090

On behalf of the directors

YU Renming

XIANG Wenwu

JIA Yiqun

Chairman of the Board

Director, President

Chief Financial Officer

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

75

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity shareholders of the Company

Statutory

Exchange

Non-

Share

Capital

surplus

Specic

translation

Retained

controlling

capital

reserve

reserve

reserve

reserve

earnings

Total

interests

Total equity

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

(Note28)

(Note29(ii))

(Note29(i))

(Note29(iii))

(Note29(iv))

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 period

1,260,191

1,260,191

162

1,260,353

Other comprehensive income:

Dened benets obligation revaluation of

(54,931)

(54,931)

(54,931)

actuarial gain and loss – gross

Dened benets obligation revaluation of

9,440

9,440

9,440

actuarial gain and loss – tax

Exchange differences arising on translation

942

942

942

of foreign operations

Total comprehensive income

942

1,214,700

1,215,642

162

1,215,804

Transactions with owners:

Final dividends for 2019

(938,736)

(938,736)

(938,736)

Appropriation of specic reserve

53,958

(53,958)

Utilisation of specic reserve

(48,722)

48,722

Others

6,361

6,361

6,361

Total transactions with owners

6,361

5,236

(943,972)

(932,375)

(932,375)

At 30 June 2020

4,428,000

10,098,730

1,357,583

197,125

956

11,466,849

27,549,243

4,727

27,553,970

76

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

Attributable to equity shareholders of the Company

Statutory

Exchange

Non-

Share

Capital

surplus

Specic

translation

Retained

controlling

capital

reserve

reserve

reserve

reserve

earnings

Total

interests

Total equity

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

(Note28)

(Note29(ii))

(Note29(i))

(Note29(iii))

(Note29(iv))

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 period

1,198,685

1,198,685

69

1,198,754

Other comprehensive income:

Dened benets obligation revaluation

of actuarial gain and loss – gross

148

148

148

Dened benets obligation revaluation

of actuarial gain and loss – tax

(26)

(26)

(26)

Exchange differences arising on translation

of foreign operations

117,849

117,849

117,849

Total comprehensive income

117,849

1,198,807

1,316,656

69

1,316,725

Transactions with owners:

Final dividends for 2018

(549,072)

(549,072)

(549,072)

Appropriation of specic reserve

46,909

(46,909)

Utilisation of specic reserve

(45,413)

45,413

Proceed from nancial assets at fair value

through other comprehensive income

(329)

(329)

(329)

Total transactions with owners

1,496

(550,897)

(549,401)

(549,401)

At 30 June 2019

4,428,000

10,092,369

999,155

183,836

22,015

11,020,526

26,745,901

4,572

26,750,473

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

77

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

Six months ended 30 June

Notes

2020

2019

RMB’ 000

RMB’ 000

Cash ows from operating activities

Cash used in operations

38

(1,945,546)

(4,745,619)

Income tax paid

(218,704)

(318,142)

Interest received

201,493

99,522

Net cash used in operating activities

(1,962,757)

(4,964,239)

Cash ows from investing activities

Purchase of property, plant and equipment

(187,951)

(80,465)

Purchase of intangible assets

(3,925)

(1,360)

Interest income on the loans to the

304,654

ultimate holding company

299,635

Proceeds from disposal of property,

936

plant and equipment

431

Proceeds from disposal of nancial assets at fair

value through other comprehensive income

351

Dividends received from an associate

3,200

Net increase in time deposits

(152,140)

(4,505,215)

Loans to the ultimate holding company

(5,500,000)

(8,000,000)

Loans repaid by the ultimate holding company

6,000,000

7,000,000

Net cash generated from/(used in) investing activities

461,574

(5,283,423)

Cash ows from nancing activities

Interest paid

(500)

(8,798)

Payments of lease liabilities

(31,897)

(43,357)

Net cash used in nancing activities

(32,397)

(52,155)

Net decrease in cash and cash equivalents

(1,533,580)

(10,299,817)

Cash and cash equivalents at beginning of period

9,935,338

16,997,663

Exchange gains/(losses) on cash

68,506

and cash equivalents

(56,400)

Cash and cash equivalents at end of period

27

8,470,264

6,641,446

78

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 rening, 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, the 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 rening, 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 nancial statements are presented in Renminbi (« RMB »), unless otherwise stated.

The consolidated nancial statements have been approved for issue by the Board of Directors on 21 August 2020.

2. Basis of Preparation

The consolidated nancial statements have been prepared in accordance with International Financial Reporting Standards (« IFRS ») issued by the International Accounting Standards Board (the « IASB »). The consolidated nancial 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 nancial statements have been prepared under the historical cost basis except for certain nancial 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 signicant to the consolidated nancial statements are disclosed in Note 5.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

79

3. Summary of Signicant Accounting Policies

3.1 New and amended IFRS

The IASB has issued a number of new and amended IFRS. The Group has applied for the rst time of the following new and amended IFRS issued by IASB, which are relevant to the Group’s operations and effective for the Group’s consolidated nancial statements for the accounting period beginning on or after 1 January 2020:

Amendments to IFRS 3

Denition of a Business

Amendments to IAS 1 and IAS 8

Denition of Material

Amendments to IFRS 9, IAS 39 and IFRS 17

Interest Rate Benchmark Reform

Other than as noted below, the adoption of the new and amended IFRSs had no material impact on how the results and nancial position for the current and prior periods have been prepared and presented.

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 signicantly 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 denition 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 simplied 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 denition and explanation of « material », aligning the denition across all IFRS Standards and the Conceptual Framework, and incorporating supporting requirements in IAS 1 into the denition.

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

The amendments modify some specic 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 new and amended accounting standards issued but not yet effective for the accounting period ended 30 June 2020 which are relevant to the Group but the Group has not early adopted are set out below:

Amendment to IFRS 16

COVID-19 Related Rent Concessions1

IFRS 17

Insurance Contracts2

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture3

  1. Accounting periods beginning on or after 1 June 2020
  2. Accounting periods beginning on or after 1 January 2021
  3. Effective date not yet been determined

The directors of the Company anticipate that the application of other new and amended IFRSs will have no material impact on the results and the nancial 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 nancial statements incorporate the acquired entity’s results as if both entities (acquirer and acquiree) had always been combined. Consequently, the nancial statements reect 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.

80

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

3. Summary of Signicant Accounting Policies (Continued)

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. Identiable 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 nancial position of the Company, investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reect 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 identiable 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 prot 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 nancial 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 signicant inuence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in prot 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 nancial 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 reclassied to prot 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.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

81

3. Summary of Signicant Accounting Policies (Continued)

3.2 Consolidation (Continued)

Associates

Associates are all entities over which the Group has signicant inuence 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 identied 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 post acquisition movements in other comprehensive income is recognised in 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 signicant inuence over an associate. If the retained interest in that former associate is a nancial asset, the retained interest is measured at fair value, which is regarded as its fair value on initial recognition as a nancial 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 prot 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 reclassied to prot or loss on the disposal of the related assets or liabilities, the entity reclassies the gain or loss from equity to prot or loss (as a reclassication 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 decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identied as the executive directors and certain senior management (including chief nancial 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 nancial 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 nancial 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 prot 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 prot or loss and other comprehensive income within « other income and « other operating income/(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).

82

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

3. Summary of Signicant Accounting Policies (Continued)

3.4 Foreign currency translation (Continued)

Group companies

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

  1. assets and liabilities for each statement of nancial position presented are translated at the closing rate at the date of that statement of nancial position;
  2. 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
  3. 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

Plant and 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 prot 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 benets associated with the item will ow 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 prot or loss and other comprehensive income during the nancial period in which they are incurred.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

83

3. Summary of Signicant Accounting Policies (Continued)

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 specic 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 prot 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 identiable cash ows (cash-generating units). Corporate assets are allocated to individual cash-generating units, when a reasonable and consistent basis of allocation can be identied, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identied. Non-nancial 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 nancial asset or nancial liability (unless it is a trade receivable without a signicant nancing component) is initially measured at fair value plus, for an item not at fair value through prot or loss (« FVTPL »), transaction costs that are directly attributable to its acquisition or issue. Transaction costs of nancial assets carried at FVTPL are expensed in the consolidated statement of prot or loss and other comprehensive income. A trade receivable without a signicant nancing 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 reclassied subsequent to their initial recognition, except if and in the period the Group changes its business model for managing nancial assets.

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

  1. the asset is held within a business model whose objective is to hold assets to collect contractual cash ows; and
  2. the contractual terms of the nancial asset give rise on specied dates to cash ows 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.

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SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

3. Summary of Signicant Accounting Policies (Continued)

3.8 Financial instruments (Continued)

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

All nancial assets not classied as measured at amortised cost or FVTOCI as described above are measured at FVTPL. On initial recognition, the Group may irrevocably designate a nancial asset that otherwise meets the requirements to be measured at amortised cost or at FVTOCI as at FVTPL if doing so eliminates or signicantly 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 nancial asset is held at a portfolio level because this best reects the way the business is managed and information is provided to management.

Transfers of nancial 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.

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

For the purposes of this assessment, « principal » is dened as the fair value of the nancial asset on initial recognition. « Interest » is dened 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 prot margin.

In assessing whether the contractual cash ows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the nancial 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:

  1. contingent events that would change the amount or timing of cash ows;
  2. terms that may adjust the contractual coupon rate, including variable rate features;
  3. prepayment and extension features; and
  4. terms that limit the Group’s claim to cash ows from specied 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 nancial asset acquired at a signicant 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 insignicant 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 prot or loss. Any gain or loss on derecognition is recognised in the prot 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 (non-recycling).

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 prot or loss.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

85

3. Summary of Signicant Accounting Policies (Continued)

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 ows in a transaction in which substantially all of the risks and rewards of ownership of the nancial 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 nancial asset.

The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of nancial 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 nancial 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 simplied 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 nancial instrument.

12-month ECL are the portion of ECL that results from default events on a nancial 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 nancial 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 identied impairment loss was immaterial.

For trade receivables and contract assets with no signicant nancing component, the Group applies the simplied 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.8 Financial instruments (Continued)

  1. Impairment of nancial assets (Continued) Measurement of ECL (Continued)

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 signicant increase in credit risk since initial recognition. If a signicant 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 signicantly since initial recognition, the Group compares the risk of a default occurring on the nancial instrument as at the reporting date with the risk of a default occurring on the nancial 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 signicantly:

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

Credit-impaired nancial assets

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

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

  1. signicant nancial difficulty of the borrower or issuer;
  2. a breach of contract such as a default or past due event;
  3. the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
  4. it is becoming probable that the borrower will enter bankruptcy or other nancial reorganisation; or
  5. the disappearance of an active market for a security because of nancial difficulties.

The Group recognises an impairment loss in prot or loss for all nancial 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.8 Financial instruments (Continued)

  1. Impairment of nancial assets (Continued) Write-off

The gross carrying amount of a nancial 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 ows to repay the amounts subject to the write-off. However, nancial 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 prot or loss.

(d) Classication and measurement of nancial liabilities

The Group’s nancial liabilities include notes and trade payables, other payables, dividend payables and lease liabilities. Financial liabilities (other than lease liabilities) are classied as measured at amortised cost or FVTPL. A nancial liability is classied as at FVTPL if it is classied 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 prot or loss. Other nancial 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 prot or loss. Any gain or loss on derecognition is also recognised in the prot or loss. Accounting policies of lease liabilities are set out in note 3.27.

(e) Derecognition of nancial liabilities

The Group derecognises a nancial 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 nancial liability based on the modied terms is recognised at fair value. The difference between the carrying amount of the nancial liability extinguished and the new nancial liability with modied terms is recognised in the prot or loss.

(f) Offsetting

Financial assets and nancial liabilities are offset and the net amount presented in the consolidated statement of nancial 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 prot 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 nished 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.12 Share capital

Ordinary shares are classied 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-settledshare-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 prot or loss such that the cumulative expense reects the revised estimation. After the vesting date, changes in fair value of the liability is recognised in prot 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 prot or loss and other comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classied 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 benets 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 dened benet plans as the Group is obligated to provide post-employment benets to these employees. The liability recognised in the consolidated statement of nancial position in respect of these dened benet plans is the present value of the dened benet obligation at the end of the reporting period, together with adjustments for unrecognised actuarial gains or losses and past service costs. The dened benet obligation is calculated annually by independent qualied 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 dened contribution plans in accordance with the local conditions and practices in the municipalities and provinces in which they operate. Dened contribution plans are pension and/or other social benet plans under which the Group pay xed 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 benets relating to employee service in the current and prior periods. The contributions are recognised as labour costs when they are due.

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3. Summary of Signicant Accounting Policies (Continued)

3.16 Employee benets (Continued)

Other post-employment obligations

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

Termination and early retirement benets

Termination and early retirement benets 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 benets. The Group recognises termination and early retirement benets 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 benets as a result of an offer made to encourage voluntary redundancy. The specic terms vary among the terminated and early retired employees depending on various factors including position, length of service and district of the employee concerned. Benets 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 prot 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 benets.

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 specic 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 prot 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 nancial 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 prot 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.18 Taxation (Continued)

Current and deferred income tax (Continued)

Changes in deferred tax assets or liabilities are recognised in prot 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 prot 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 outow 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 nancial statements unless the probability of outow of resources embodying economic benets is remote. When a change in the probability of an outow occurs so that the outow is probable, it will then be recognised as a provision.

A contingent asset is not recognised in the consolidated nancial statements unless virtually certain but disclosed when an inow of economic benets 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 outow 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 reect the current best estimate.

Where there are a number of similar obligations, the likelihood that an outow 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 outow 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 reects current market assessments of the time value of money and the risks specic 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 prot 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 prot or loss and other comprehensive income.

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3. Summary of Signicant Accounting Policies (Continued)

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 satised.

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 nancing component which provides a signicant nancing benet 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 reected in a separate nancing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a nancing component which provides a signicant nancing benet 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 modication has been approved by the parties to the contracts and it is highly probable that a signicant 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.23 Revenue recognition (Continued)

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 unfullled 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 insignicant amount of returns are expected based on previous experience.

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 ow 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 fullled:

  1. it is technically feasible to complete the intangible asset so that it will be available for use or sale;
  2. management intends to complete the intangible asset and use or sell it;
  3. the Group’s an ability to use or sell the intangible asset is demonstrated;
  4. it can be demonstrated how the intangible asset will generate probable future economic benets;
  5. adequate technical, nancial and other resources to complete the development and to use or sell the intangible asset are available; and
  6. 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 nancial 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 nancial 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 prot or loss on initial recognition of any deferred income.

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3. Summary of Signicant Accounting Policies (Continued)

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 dened as ‘a contract, or part of a contract, that conveys the right to use an identied asset (the underlying asset) for a period of time in exchange for consideration’. To apply this denition, the Group assesses whether the contract meets three key evaluations which are whether:

  • the contracts contain an identied asset, which is either explicitly identied in the contract or implicitly specied by being identied at the time the asset is made available to the Group;
  • the Group has the right to obtain substantially all of the economic benets from use of the identied asset throughout the period of use, considering its rights within the dened scope of the contract; and
  • the Group has the right to direct the use of the identied 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 nancial 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 xed payments (including in-substance xed 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 reect any reassessment or lease modication, or if there are changes in in-substance xed 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 modied lease by discounting the revised lease payments using a revised discount rate at the effective date of modication.

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

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 prot 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.

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3. Summary of Signicant Accounting Policies (Continued)

3.27 Leases (Continued)

(b) The Group as a lessor

As a lessor, the Group classies its leases as either operating or nance 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 classied 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 nancial statements, a party is considered to be related to the Group if:

  1. the party is a person or a close member of that person’s family and if that person:
    1. has control or joint control over the Group;
    2. has signicant inuence over the Group, or
    3. is a member of the key management personnel of the Group or of a parent of the Group.
  2. the party is an entity and if any of the following conditions applies:
    1. the entity and the Group are members of the same group;
    2. 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);
    3. the entity and the Group are joint ventures of the same third party;
    4. one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
    5. the entity is a post-employment benet plan for the benet of employees of either the Group or an entity related to the Group;
    6. the entity is controlled or jointly controlled by a person identied in (a);
    7. a person identied in (a) (i) has signicant inuence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
    8. 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 inuence, or be inuenced by, that person in their dealings with the entity.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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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 specic areas. In considering the importance of risks, the Group identies 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 nancial 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 nancial markets and seeks to minimise potential adverse effects on nancial performance of the Group.

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

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Financial assets

Financial assets at amortised cost

Notes, trade and other receivables

8,345,867

9,675,307

Restricted cash

34,677

38,087

Time deposits

7,238,206

7,086,066

Cash and cash equivalents

8,470,264

9,935,338

Loans due from the ultimate holding company

18,500,000

19,000,000

Total nancial assets

42,589,014

45,734,798

Financial liabilities

Financial liabilities measured at amortised cost

Notes, trade and other payables

24,156,283

23,655,333

Dividend payables

907,027

Lease liabilities

173,257

180,953

Total nancial liabilities

25,236,567

23,836,286

96

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

4. Financial and Capital Risks Management (Continued)

4.1 Financial risk management (Continued)

  1. 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, i.e. a currency other than the functional currency of the operations to which the transactions relate. The currency that gives rise to this risk is primarily in USD as at 30 June 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.

At 30 June 2020

USD

Others

RMB’ 000

RMB’ 000

Restricted cash, time deposits and cash and cash equivalents

3,288,808

1,520,878

Notes, trade and other receivables

78,714

702,814

Notes, trade and other payables

(417,813)

(1,837,269)

Lease liabilities

(815)

(24,349)

Net exposure in RMB

2,948,894

362,074

At 31 December 2019

USD

Others

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 30 June 2020 and 31 December 2019 would have changed the equity and net prot by the amounts shown below:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Decrease in equity and net prot

– USD

(110,584)

(148,400)

A 5% weakening of RMB as at 30 June 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.

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4. Financial and Capital Risks Management (Continued)

4.1 Financial risk management (Continued)

  1. Market risk (Continued) Interest rate risk

The Group’s ordinary income and operating cash ows 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 xed interest rate.

Price risk

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

(b) Credit risk

Credit risk refers to the risk that the counterparty to a nancial instrument would fail to discharge its obligation under the terms of the nancial instrument and cause a nancial 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 signicant 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 signicant 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 nancial difficulty and

Amount is written off

the Group has no realistic prospect of recovery

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 prole for sales in the past 5 years as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reect 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.

98

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

4. Financial and Capital Risks Management (Continued)

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 signicant 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 nancial institutions that have sound credit ratings assigned by international credit-rating agencies and the Group considers the credit risk to be insignicant.

Loans due from the ultimate holding company

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

(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 exibility in funding by keeping committed credit lines available.

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

The table below analyses the Group’s non-derivative nancial 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 ows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not signicant.

Weighted

average

Total

effective

Within

undiscounted

Carrying

interest rate

1 year

1-2 years

2-5 years

Over 5 years

cash ows

amount

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

At 30 June 2020

Notes, trade and other payables

N/A

24,156,283

24,156,283

24,156,283

Dividend payable

N/A

907,027

907,027

907,027

Lease liabilities

4.83%

56,083

48,398

60,439

39,327

204,247

173,257

Total other liabilities

25,119,393

48,398

60,439

39,327

25,267,557

25,236,567

Weighted

average

Total

effective

Within

undiscounted

Carrying

interest rate

1 year

1-2 years

2-5 years

Over 5 years

cash ows

amount

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’ 000

At 31 December 2019

Notes, trade and other payables

N/A

23,655,333

23,655,333

23,655,333

Lease liabilities

4.81%

63,275

105,705

38,432

207,412

180,953

Total other liabilities

23,718,608

105,705

38,432

23,862,745

23,836,286

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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4. Financial and Capital Risks Management (Continued)

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 benets 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, dividend payables and lease liabilities, as shown in the consolidated statement of nancial position) less restricted cash, time deposits and cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated statement of nancial position, plus net debts less non-controlling interests.

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Total other liabilities

25,236,567

23,836,286

Less: Restricted cash, time deposits and cash and cash equivalents

(15,743,147)

(17,059,491)

Net debt

9,493,420

6,776,795

Total equity (excluding non-controlling interests)

27,549,243

27,265,976

Total capital

37,042,663

34,042,771

Gearing ratio

26%

20%

4.3 Fair value measurement of nancial instruments

Fair value measurements

Apart from the below mentioned, the carrying amounts of the Group’s nancial assets and nancial liabilities as re-elected in the consolidated statement of nancial 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).

100

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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 denition, seldom equal to the related actual results. The estimates and assumptions that have a signicant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next nancial 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 construction service. In addition, when determining the transaction price, the Group consider factors such as whether there is any nancing component. The Group considers whether the payment schedule is commensurate with the Group’s performance and whether the delayed payment is for nance purpose. The Group does not consider the arrangement with customers have signicant nancing component. The Group has, therefore, recognised revenue on progress conrmation over the period during which the services are rendered and transferred to customers. As at

30 June 2020 the contract assets (Note 22(a)) and contract liabilities (Note 22(b)) are RMB9,521,450,000 (31 December 2019: RMB8,085,951,000) and RMB11,451,773,000 (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 16). This estimate is based on projected wear and tear incurred during the useful life of property, plant and equipment. This could change signicantly 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 30 June 2020, the net carrying amount of property, plant and equipment is RMB3,531,301,000 (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 20) and contract assets (Note 22(a)). This estimate is based on the credit history of the customers, 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 signicant impact which might not be easily ascertained. As at 30 June 2020, the provision for impairment on trade receivables and contract assets are RMB1,231,399,000 (31 December 2019: RMB1,346,804,000) and RMB186,671,000 (31 December 2019: RMB193,086,000) respectively.

(d) Deferred taxes

The estimates of deferred income tax assets (Note 35) require estimates over future taxable prot and corresponding applicable income tax rates of respective years. The change in future income tax rates and timing would affect income tax expense or benet, as well as deferred income tax balance. The realisation of deferred income tax assets also depends on the realisation of sufficient protability (taxable prot) of the Group. Deviation of future protability 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 prot 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 30 June 2020, deferred tax assets recognised in the consolidated statement of nancial position is RMB715,238,000 (31 December 2019: RMB738,052,000).

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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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 outows 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 30 June 2020, the net liabilities of retirement benet plan obligations (Note 31(b)) is RMB2,467,308,000 (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, signicant judgment is required. As at 30 June 2020, provision for litigation claims (Note 32) is RMB189,302,000 (31 December 2019: RMB196,945,000).

6. Revenue

The Group’s revenue is set out below:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Engineering, consulting and licensing

1,210,131

951,852

EPC Contracting

15,528,332

13,852,329

Construction

6,901,301

7,734,067

Equipment manufacturing

157,392

143,770

23,797,156

22,682,018

Remaining performance obligations

As at 30 June 2020, amount of remaining performance obligations is RMB107,834,427,000 (2019: RMB105,473,232,000), which

is expected to be completed in the coming 60 months (2019: 60 months).

102

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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:

  1. Engineering, consulting and licensing – providing design, consulting, research and development, feasibility studies, compliance certication services to oil rening and chemical etc industries;
  2. EPC Contracting – providing integrated engineering, procurement, construction, maintenance and project management services to oil rening and chemical etc industries;
  3. 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
  4. Equipment manufacturing – providing design, development, manufacture and sales of equipment and spare parts for facilities including oil rening 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 specic 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 16), right-of-use assets (Note 17), intangible assets (Note 18) and other non-current assets.

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103

7. Segment Information (Continued)

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

(i) As at and for the six months ended 30 June 2020:

The segment results for the period ended 30 June 2020 are as follows:

Engineering,

Consulting and

EPC

Equipment

licensing

Contracting

Construction

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

1,210,131

15,528,332

6,901,301

157,392

23,797,156

Inter-segment revenue

20,042

2,711,449

106,928

(2,838,419)

Segment revenue

1,230,173

15,528,332

9,612,750

264,320

(2,838,419)

23,797,156

Segment results

72,846

797,595

253,027

4,677

22,308

1,150,453

Finance income

446,324

Finance expenses

(43,958)

Share of prot of a

joint arrangement

7

7

Share of prot of associates

8,605

1,392

9,997

Prot before taxation

1,562,823

Income tax expense

(302,470)

Prot for the period

1,260,353

Other segment items

Depreciation

42,164

75,872

149,127

9,294

276,457

Amortisation

8,027

19,837

1,545

29,409

Capital expenditures

– Property, plant and equipment

31,917

4,262

114,156

150,335

– Right-of-use assets

3,436

26,921

5,553

35,910

– Intangible assets

3,147

778

3,925

Provision/(Reversal of provision)

for ECL on trade and

other receivables and

contract assets, net

3,598

(135,563)

14,773

57

(117,135)

The segment assets and liabilities as at 30 June 2020 are as follows:

Engineering,

Consulting and

EPC

Equipment

licensing

Contracting

Construction

manufacturing

Elimination

Total

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

RMB’000

Assets

Segment assets

4,123,553

26,067,728

15,013,544

1,022,532

(4,094,647)

42,132,710

Investment in a joint arrangement

2,523

2,523

Investment in associates

154,496

23,814

178,310

Other unallocated assets

25,184,286

Total assets

67,497,829

Liabilities

Segment liabilities

2,938,673

27,089,087

13,303,408

707,338

(4,094,647)

39,943,859

Total liabilities

39,943,859

104

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

7. Segment Information (Continued)

(ii) As at and for the six months ended 30 June 2019:

The segment results for the period ended 30 June 2019 are as follows:

Engineering,

Consulting and

EPC

Equipment

licensing

Contracting

Construction

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

951,852

13,852,329

7,734,067

143,770

22,682,018

Inter-segment revenue

196,070

1,855,920

174,240

(2,226,230)

Segment revenue

1,147,922

13,852,329

9,589,987

318,010

(2,226,230)

22,682,018

Segment results

84,166

700,768

292,848

(2,675)

26,036

1,101,143

Finance income

450,638

Finance expenses

(54,561)

Share of loss of a

joint arrangement

(111)

(111)

Share of prot of associates

5,248

9,992

1,115

16,355

Prot before taxation

1,513,464

Income tax expense

(314,710)

Prot for the period

1,198,754

Other segment items

Depreciation

28,807

70,055

184,534

12,596

295,992

Amortisation

695

34,817

1,276

36,788

Capital expenditures

– Property, plant and equipment

13,094

16,603

56,563

1,041

87,301

– Right-of-use assets

598

12,668

36,216

6,782

56,264

– Intangible assets

926

434

1,360

Provision/(Reversal of provision)

for ECL on trade and

other receivables and

contract assets, net

(15,384)

(73,972)

(8,682)

308

(97,730)

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

Engineering,

Consulting and

EPC

Equipment

licensing

Contracting

Construction

manufacturing

Elimination

Total

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

Assets

Segment assets

4,334,365

26,984,887

15,466,872

877,664

(5,291,173)

42,372,615

Investment in a joint arrangement

2,516

2,516

Investment in associates

139,531

22,421

161,952

Other unallocated assets

25,336,665

Total assets

67,873,748

Liabilities

Segment liabilities

1,910,225

28,558,826

14,861,104

564,225

(5,291,173)

40,603,207

Total liabilities

40,603,207

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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7. Segment Information (Continued)

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 specic 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

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

The PRC

21,040,916

16,754,294

Malaysia

2,296

222,749

Kuwait

919,438

2,938,500

Saudi Arabia

1,539,108

1,383,330

Other countries

295,398

1,383,145

23,797,156

22,682,018

Information about major customers

The customers accounted for more than 10% of the total revenue of the Group and revenue from them for the six months ended

30 June 2020 and 2019, the details are as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Fellow subsidiary and its subsidiaries

– Customer group A

3,530,215

3,257,948

– Customer group B

2,786,181

2,967,725

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

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

The PRC

6,100,083

6,230,199

Other countries

316,422

288,706

6,416,505

6,518,905

106

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

7. Segment Information (Continued)

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

EPC

Equipment

licensing

Contracting

Construction

manufacturing

Total

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

Timing of revenue recognition

For the six months ended 30 June 2020

– At a point in time

157,392

157,392

– Over time

1,210,131

15,528,332

6,901,301

23,639,764

Total revenue

1,210,131

15,528,332

6,901,301

157,392

23,797,156

For the six months ended 30 June 2019

– At a point in time

143,770

143,770

– Over time

951,852

13,852,329

7,734,067

22,538,248

Total revenue

951,852

13,852,329

7,734,067

143,770

22,682,018

For the six months ended 30 June 2020

– Oil rening

466,668

3,279,544

1,773,122

5,474

5,524,808

– Petrochemicals

523,915

9,681,126

4,072,070

151,290

14,428,401

– New coal chemicals

26,983

1,904,991

271,418

628

2,204,020

– Other industries

192,565

662,671

784,691

1,639,927

Total revenue

1,210,131

15,528,332

6,901,301

157,392

23,797,156

For the six months ended 30 June 2019

– Oil rening

176,945

5,167,156

2,416,816

93,577

7,854,494

– Petrochemicals

625,110

6,335,604

3,902,369

50,193

10,913,276

– New coal chemicals

49,365

2,083,169

376,780

2,509,314

– Other industries

100,432

266,400

1,038,102

1,404,934

Total revenue

951,852

13,852,329

7,734,067

143,770

22,682,018

8. Other Income

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Operating lease rental income on property, plant and equipment

29,454

26,015

Income from write back long outstanding payables

11,708

5,551

Government grants (note)

99,329

68,291

Net foreign exchange gain

61,089

Others

8,895

18,901

210,475

118,758

Note:

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

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

107

9. Other (Losses)/Gains – Net

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

(Losses)/gains on disposal/write-off of property, plant and equipment

(86)

2,883

10. Finance Income and Finance Expenses

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Finance income

Interest income from the ultimate holding company

304,654

299,635

Interest income from the fellow subsidiaries

35,700

63,367

Bank interest income

105,970

87,636

446,324

450,638

Finance expenses

Interest expenses to a fellow subsidiary on balances wholly repayable

within 5 years

(8,798)

Interest expenses on retirement and other

supplementary benet obligation

(38,337)

(40,879)

Finance charges on lease liabilities

(4,070)

(4,884)

Other interest expenses

(1,551)

(43,958)

(54,561)

402,366

396,077

108

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

11. Prot Before Taxation

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

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Staff costs, including directors and supervisors emoluments (Note 15)

2,113,418

2,341,870

Retirement benet plan contribution (including in the above mentioned

staff costs)

298,194

341,312

Cost of goods sold

10,019,893

6,905,598

Subcontracting costs

7,346,945

9,725,363

Depreciation and amortisation

– Property, plant and equipment

215,074

238,287

– Right of use assets

61,383

57,705

– Intangible assets

29,409

36,788

Operating lease rentals

– Short term leases expenses

148,527

149,767

Reversal of provision for ECL on trade and other receivables and

contract assets, net

(117,135)

(97,730)

Rental income from property, plant and equipment

after relevant expenses

(17,916)

(9,817)

Research and development costs

796,316

746,721

Losses/(gains) on disposal/write-off of property, plant and equipment

86

(2,883)

Exchange (gains)/losses, net

(61,089)

62,002

Reversal of cash-settledshare-based payment

(4,921)

(5,244)

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

109

12. Income Tax Expense

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Current tax

PRC enterprise income tax

209,851

113,270

Overseas enterprise income tax

41,335

89,925

Under provision for income tax in prior years

19,030

52,486

270,216

255,681

Deferred tax

Origination and reversal of temporary differences (note 35)

32,254

59,029

Income tax expense

302,470

314,710

According to the Corporate Income Tax Law of the PRC, the applicable income tax of the six months ended 30 June 2020 and 2019 is 25%.

According to the normal statutory PRC corporate income tax and relevant rules, for the six months ended 30 June 2020 and 2019, certain subsidiaries of the Company have been qualied 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 prot or loss and other comprehensive income and the amounts which would result from applying the enacted tax rate to prot before income tax can be reconciled as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Prot before tax

1,562,823

1,513,464

Taxation calculated at the statutory tax rate

390,706

378,366

Income tax effects of:

Preferential income tax treatments of certain companies

(122,918)

(129,440)

Difference in overseas prots tax rates

(7,832)

(3,688)

Non-deductible expenses

12,887

17,014

Income not subject to tax

(1,490)

(2,437)

Unrecognised tax losses

12,046

13,369

Utilisation of previously unrecognised tax losses

(5,122)

(9,650)

Under provision for income tax in prior years

19,030

52,486

Others

5,163

(1,310)

Income tax expense

302,470

314,710

Effective income tax rate

19.4%

20.8%

110

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

13. Earnings Per Share

(a) Basic

The basic earnings per share for each of the six months ended 30 June 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.

Six months ended 30 June

2020

2019

Prot attributable to equity holders of the Company (RMB’ 000)

1,260,191

1,198,685

Weighted average number of ordinary shares in issue

4,428,000,000

4,428,000,000

Basic earnings per share (RMB)

0.28

0.27

(b) Diluted

As the Company had no dilutive shares for the each of the six months ended 30 June 2020 and 2019, dilutive earnings per share for the six months ended 30 June 2020 and 2019 are the same as basic earnings per share.

14. Dividends

Dividends represented dividends declared by the Company during each of six months ended 30 June 2020 and 2019.

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Proposed Interim dividends of RMB0.113 per ordinary share

500,364

(2019: RMB0.108)(1)

478,224

  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 six months ended 30 June 2020 of RMB0.113 (2019: RMB0.108) per share totaling RMB500,364,000 (2019: RMB478,224,000).

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

111

15. Employment Benets

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Salaries, wages and bonuses

1,289,118

1,469,909

Retirement benets(1)

258,882

300,509

Early retirement and supplemental pension benet (Note 31(b))

– interest cost

38,337

40,879

Immediate recognition of actuarial losses/(gains)

975

(76)

Housing fund(2)

177,155

157,904

Welfare, medical and other expenses

353,872

377,989

Reversal of cash-settledshared-based payment (Note 36)

(4,921)

(5,244)

2,113,418

2,341,870

Notes:

(1) Retirement benets

The Group is required to make specic contributions to the state-managed retirement plan at a rate of 14% to 19% (2019: 19% to 21%) of the specied salaries of the PRC employees for the six months ended 30 June 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 specied 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 specied withdrawal circumstances. The Group has no further obligations for housing benets beyond the contributions made above.

112

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

16. Property, Plant and Equipment

Plant and

machinery,

Buildings and

transportation

equipment and

Construction

other facilities

other equipment

-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

Six months ended 30 June 2019

Opening net book amount

2,010,029

1,184,911

301,534

3,496,474

Transfers

34,101

(34,101)

Additions

33,906

53,395

87,301

Depreciation

(59,672)

(178,615)

(238,287)

Disposals/write-off

(3,522)

(3,522)

Closing net book amount

1,950,357

1,070,781

320,828

3,341,966

At 30 June 2019

Cost

3,441,090

4,429,991

320,828

8,191,909

Accumulated depreciation and impairment

(1,490,733)

(3,359,210)

(4,849,943)

Net book amount

1,950,357

1,070,781

320,828

3,341,966

At 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

Six months ended 30 June 2020

Opening net book amount

1,899,923

1,178,440

518,989

3,597,352

Transfers

16,560

73,736

(90,296)

Additions

3,892

146,443

150,335

Depreciation

(59,136)

(155,938)

(215,074)

Disposals/write-off

(30)

(1,282)

(1,312)

Closing net book amount

1,857,317

1,098,848

575,136

3,531,301

At 30 June 2020

Cost

3,465,623

4,655,198

575,136

8,695,957

Accumulated depreciation and impairment

(1,608,306)

(3,556,350)

(5,164,656)

Net book amount

1,857,317

1,098,848

575,136

3,531,301

Depreciation expense recognised is analysed as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Cost of sales

205,273

227,725

Selling and marking expenses

116

918

Administrative expenses

9,685

9,644

215,074

238,287

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

113

17. Right-of-Use Assets

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

Plant and

machinery,

Buildings and

transportation

equipment and

other facilities

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)

2,442,793

2,442,793

Additions

53,887

2,377

56,264

Depreciation

(25,810)

(2,186)

(29,709)

(57,705)

Balance at 30 June 2019

207,807

7,898

2,413,084

2,628,789

Balance at 1 January 2020

172,763

7,198

2,343,809

2,523,770

Additions

35,888

22

35,910

Depreciation

(28,552)

(3,629)

(29,202)

(61,383)

Modication

(1,757)

(1,757)

Balance at 30 June 2020

178,342

3,591

2,314,607

2,496,540

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

Depreciation recognised is analysed as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Cost of sales

35,409

34,015

Selling and marking expenses

145

Administrative expenses

25,974

23,545

61,383

57,705

114

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

18. 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

Six months ended 30 June 2019

Opening net book amount

101,220

62,861

164,081

Additions

1,360

1,360

Amortisation

(26,490)

(10,298)

(36,788)

Closing net book amount

74,730

53,923

128,653

At 30 June 2019

Cost

479,882

370,732

850,614

Accumulated amortisation

(405,152)

(316,809)

(721,961)

Net book amount

74,730

53,923

128,653

At 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

Six months ended 30 June 2020

Opening net book amount

48,240

185,075

233,315

Additions

3,925

3,925

Amortisation

(12,060)

(17,349)

(29,409)

Closing net book amount

36,180

171,651

207,831

At 30 June 2020

Cost

479,882

517,281

997,163

Accumulated amortisation

(443,702)

(345,630)

(789,332)

Net book amount

36,180

171,651

207,831

Amortisation recognised is analysed as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Cost of sales

20,774

26,413

Selling and marketing expenses

2

Administrative expenses

8,635

10,373

29,409

36,788

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

115

19. Investment in a Joint Arrangement and Associates

(a) Investment in a joint arrangement

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Joint venture

Beginning of the period

2,516

1,866

Share of total comprehensive income/(expense)

7

(111)

End of the period

2,523

1,755

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

Establishment/Place

Registered and

Indirect effective

Principal activities and

Name

of incorporation

fully paid capital

interest held

place of operations

RMB’ 000

Hainan Great Wall Machinery Engineering

The PRC

3,000

50%

Technical development, sales

Co., Ltd. (海南長城機械工程有限公司)

(2019: 3,000)

of equipment/The PRC

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

Current assets

Non-current assets

Total assets

Current liabilities

Total liabilities

Equity

Share of equity by the Group (50%) (2019: 50%)

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

19,003

19,409

1,280

1,352

20,283

20,761

(15,238)

(15,728)

(15,238)

(15,728)

5,045

5,033

2,523

2,516

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Revenue

Prot/(loss) and total comprehensive income/(expense) for the period

13

(221)

Share of total comprehensive income/(expense) (50%) (2019:50%)

7

(111)

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.

116

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

19. Investment in a Joint Arrangement and Associates (Continued)

(b) Investment in associates

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Beginning of the period

161,952

147,454

Share of total comprehensive income

9,997

16,355

Dividend distribution

(3,200)

Others

6,361

End of the period

178,310

160,609

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

Establishment/Place

Registered and

Indirect effective

Principal activities and

Name

of incorporation

fully paid capital

interest held

place of operations

RMB’ 000

China Petrochemical Technology Co., Ltd.

The PRC

50,000

35.00%

Technical development,

(中國石油化工科技開發有限公司)(1)

(2019: 50,000)

Technical service/ The PRC

Huizhou Tianxin Petrochemical

The PRC

15,000

40.00%

Construction contracting/

Engineering Co., Ltd.

(2019: 15,000)

The PRC

(惠州天鑫石化工程有限公司)(2)

Shanghai KSD Bulk Solids Engineering

The PRC

5,500

36.36%

Powder engineering services/

Co., Ltd. (上海金申德粉體工程有限公司)(3)

(2019: 5,500)

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:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Current assets

1,027,124

897,634

Non-current assets

15,629

39,694

Total assets

1,042,753

937,328

Current liabilities

(670,184)

(600,419)

Non-current liabilities

(32)

(21)

Total liabilities

(670,216)

(600,440)

Equity attributable to equity holders

341,100

305,451

Non-controlling interests

31,437

31,437

372,537

336,888

Share of equity by the Group (35%) (2019: 35%)

119,385

106,908

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Revenue

169,209

230,120

Prot and total comprehensive income for the

period attributable to equity holders

17,477

33,087

Share of total comprehensive income (35%) (2019: 35%)

6,117

11,580

For the six months ended 30 June 2020, China Petrochemical Technology Co., Ltd. did not declare dividends (2019: Nil).

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

117

19. Investment in a Joint Arrangement and Associates (Continued)

(b) Investment in associates (Continued)

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

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Current assets

101,537

97,678

Non-current assets

54,120

55,226

Total assets

155,657

152,904

Current liabilities

(76,279)

(78,165)

Total liabilities

(76,279)

(78,165)

Equity

79,378

74,739

Share of equity by the Group (40%) (2019: 40%)

31,751

29,895

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Revenue

75,219

67,971

Prot and total comprehensive income for the period

4,639

3,717

Share of total comprehensive income (40%) (2019: 40%)

1,855

1,487

For the six months ended 30 June 2020, Huizhou Tianxin Petrochemical Engineering Co., Ltd did not declare dividends (2019: RMB3,200,000).

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

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Current assets

135,402

136,485

Non-current assets

1,585

1,552

Total assets

136,987

138,037

Current liabilities

(62,248)

(68,866)

Non-current liabilities

(4)

(4)

Total liabilities

(62,252)

(68,870)

Equity

74,735

69,167

Share of equity by the Group (36.36%) (2019: 36.36%)

27,174

25,149

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Revenue

29,572

42,309

Prot and total comprehensive income for the period

5,568

9,043

Share of total comprehensive income (36.36%) (2019: 36.36%)

2,025

3,288

For the six months ended 30 June 2020, Shanghai KSD Bulk Solids Engineering Co., Ltd. did not declare dividends (2019: Nil).

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.

118

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

20. Notes and Trade Receivables

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Trade receivables

Fellow subsidiaries

1,722,673

2,527,233

Joint ventures of fellow subsidiaries

1,013,066

721,605

Associates of fellow subsidiaries

146,813

134,362

Joint venture

1,309

1,309

Associates

14,282

27,978

Third parties

4,718,175

5,287,290

7,616,318

8,699,777

Less: ECL allowance for impairment

(1,231,399)

(1,346,804)

Trade receivables – net

6,384,919

7,352,973

Notes receivables

847,889

1,260,225

Notes and trade receivables – net

7,232,808

8,613,198

The carrying amounts of the Group’s notes and trade receivables as at 30 June 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 six months from the date of issue.

The Group usually provide 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.

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

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Within 1 year

5,718,172

7,219,493

Between 1 and 2 years

1,198,271

1,113,044

Between 2 and 3 years

200,035

157,823

Between 3 and 4 years

54,878

51,333

Between 4 and 5 years

21,673

20,946

Over 5 years

39,779

50,559

7,232,808

8,613,198

The movements of ECL allowance on trade receivables are as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

At the beginning of the period

1,346,804

1,313,283

ECL allowance

174,384

151,703

Receivables written off as uncollectible

(75)

(1,257)

Reversal

(289,714)

(203,640)

At the end of the period

1,231,399

1,260,089

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

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20. Notes and Trade Receivables (Continued)

The carrying amounts of the Group’s notes and trade receivables are denominated in the following currencies:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

RMB

6,535,363

7,429,090

USD

72,617

508,013

SAR

240,194

267,525

Others

384,634

408,570

7,232,808

8,613,198

21. Prepayments and Other Receivables

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Prepayments

Prepayments for fellow subsidiaries

1,756,677

1,178,566

Prepayments for joint ventures of fellow subsidiaries

385

543

Prepayments for construction

1,771,220

832,966

Prepayments for materials and equipment

2,772,312

2,680,834

Prepayments for labour costs

22,273

487,548

Prepayments for rent

3,151

1,946

Others

94,780

73,503

6,420,798

5,255,906

Other receivables

Amounts due from fellow subsidiaries(1)

49,939

54,160

Amounts due from joint ventures of fellow subsidiaries(1)

174,155

189,451

Amounts due from associates of fellow subsidiaries(1)

198,237

250,152

Dividends receivable

24,200

24,200

Interests receivable

228,913

169,091

Petty cash funds

14,880

10,362

Other guarantee deposits and deposits

120,326

120,184

Payment in advance

238,439

199,993

Maintenance funds

55,291

55,203

Value-added tax credit

634,266

253,011

Prepaid value-added tax

73,622

18,013

Prepaid income tax

89,562

59,424

Value-added tax to be certied

14,207

16,208

Land disposal

36,515

36,515

Others

105,895

81,908

2,058,447

1,537,875

Less: ECL allowance for impairment

(133,731)

(129,110)

Prepayments and other receivables – net

8,345,514

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 30 June 2020 and 31 December 2019 approximate their fair values.

120

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

21. Prepayments and Other Receivables (Continued)

The movements of ECL allowance on other receivables are as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

At the beginning of the period

129,110

117,979

ECL allowance

12,907

10,961

Reversal

(8,286)

(7,930)

At the end of the period

133,731

121,010

22. Contract Assets and Contract Liabilities

(a) Contract assets

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Contract assets arising from construction contracts

9,521,450

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 specied 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 nal 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 RMB611,236,000 (2019: RMB585,816,000), all of which relates to retentions.

The movements of ECL allowance on contract assets are as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

At the beginning of the period

193,086

164,750

ECL allowance

12,764

16,529

Reversal

(19,179)

(64,763)

At the end of the period

186,671

116,516

(b) Contract liabilities

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Contract liabilities arising from construction contracts

11,451,773

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 RMB8,526,469,000 (2019: RMB7,892,011,000) was recognised as revenue during the period.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

121

22. Contract Assets and Contract Liabilities (Continued)

(b) Contract liabilities (Continued)

Unsatised 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 30 June 2020, part of the construction projects of the Group was still in the process, and the total transaction price apportioned to the unsatised performance obligation was RMB107,834,427,000 (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.

23. Inventories

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Raw materials

756,791

923,519

Turnover materials

213,832

231,855

Goods in transit

52,544

38,106

1,023,167

1,193,480

As at 30 June 2020 and 31 December 2019, no provision for impairment on inventories of the Group has been made.

For the six months ended 30 June 2020 and 30 June 2019, the cost of inventories recognised as expense and included in cost of sales amounted to RMB10,019,893,000 and RMB6,905,598,000 respectively.

24. 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:

As at

As at

30 June 2020

31 December 2019

Loans due from the ultimate holding company

3.60%

3.60%

25. Restricted Cash

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Restricted cash

– RMB

28,474

38,087

– USD

6,197

– Others

6

34,677

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 30 June 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.

122

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Time deposits with initial term over three months:

Time deposits in banks

Time deposits in fellow subsidiaries

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

5,668,552

5,576,785

1,569,654

1,509,281

7,238,206

7,086,066

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Denominated in:

– RMB

6,047,593

5,670,352

– USD

1,083,164

1,398,728

– MYR

107,449

16,986

7,238,206

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 ve years (2019: half year to three

years), are approximately 0.45% to 4.13% as at 30 June 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.

27. Cash and Cash Equivalents

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Cash at bank and in hand

– less than three months time deposits

952,601

1,495,716

– cash deposits

2,231,058

2,133,032

3,183,659

3,628,748

Deposits in fellow subsidiaries

– less than three months time deposits

228,900

952,549

– cash deposits

5,057,705

5,354,041

5,286,605

6,306,590

8,470,264

9,935,338

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

123

27. Cash and Cash Equivalents (Continued)

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Denominated in:

– RMB

4,857,394

5,541,829

– USD

2,199,447

2,455,127

– SAR

262,507

442,209

– EUR

472,150

573,511

– KZT

1,498

2,100

– KWD

535,710

705,060

– THB

13,719

50,860

– MYR

102,932

115,390

– Others

24,907

49,252

8,470,264

9,935,338

The fellow subsidiaries are Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited.

As at 30 June 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.

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 0.66% to 2.70% as at 30 June 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.

28. Share Capital

As at 30 June 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:
    1. 2,907,856,000 shares are held by Sinopec Group; and
    2. 59,344,000 shares are held by SAMC (a fellow subsidiary).

29. Reserves

(i) 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 prot 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.

124

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

29. Reserves (Continued)

(ii) 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 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, the share premium account and also the fair value change arising from the nancial assets designated as a fair value through other comprehensive income of associate.

(iii) 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.

(iv) 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.

30. Lease Liabilities

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Total minimum lease payments:

Due within one year

56,083

63,275

Due in the second to fth years

108,837

105,705

Due after the fth year

39,327

38,432

204,247

207,412

Future nance charges on leases liabilities

(30,990)

(26,459)

Present value of leases liabilities

173,257

180,953

Present value of minimum lease payments:

Due within one year

52,432

55,275

Due in the second to fth years

89,201

92,823

Due after the fth year

31,624

32,855

173,257

180,953

Less:

Portion due within one year included under current liabilities

(52,432)

(55,275)

Portion due after one year included under non-current liabilities

120,825

125,678

During the six months ended 30 June 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 depends on the usage during the contract period. On lease commencement, the Group recognised right-of-use assets included in property, plant equipment and lease liabilities amounting to RMB35,910,000 (2019: RMB29,480,000).

During the six months ended 30 June 2020, the total cash outows for the leases are RMB31,897,000 (six months ended 30 June 2019: RMB43,357,000).

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

125

31. Retirement and Other Supplemental Benet Obligations

(a) State-managed retirement plan

For the six months ended 30 June 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 specied contributions (Note 15(1)).

The total costs charged to the consolidated statement of comprehensive income during the six months ended 30 June 2020 and

30 June 2019 are as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Contributions to state-managed retirement plan

258,882

300,509

(b) Group employee retirement benet plans

The Group has implemented a retirement benet 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 post-employment benets 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 benets. The employees’ lifetime is guaranteed by the plans.

The exposure to actuarial risks of the Group’s retirement benet plans include: discount rate risk, benet growth rate risk.

The Group is not obligated to provide post-employment benets to incumbent employees.

The most recent actuarial valuation as at 30 June 2020 was performed by an independent qualied actuarial rm: 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 benet plan obligation are prepared by qualied actuary using the projected unit credit actuarial cost method.

(i) Discount rates adopted (per annum):

As at

As at

30 June 2020

31 December 2019

Retirement with honors benet plan

2.50%

3.00%

Retirement benet plan

3.00%

3.25%

Early retirement benet plan

2.50%

2.75%

(ii) Benet growth rates (per annum):

As at

As at

30 June 2020

31 December 2019

Retirement with honors benet plan

2.50%

2.50%

Retirement benet plan

2.70%

2.70%

Early retirement benet plan

1.80%

1.80%

(iii) Duration:

As at

As at

30 June 2020

31 December 2019

Retirement with honors benet plan

8.0 years

8.0 years

Retirement benet plan

15.0 years

15.0 years

Early retirement benet plan

4.0 years

4.0 years

126

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

31. Retirement and Other Supplemental Benet 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 signicant actuarial assumptions:

As at 30 June 2020

As at 31 December 2019

Increase/(decrease) in retirement

Increase/(decrease) in retirement

benet plan obligation

benet plan obligation

Increase in

Decrease in

Increase in

Decrease in

assumption

assumption

assumption

assumption

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

Discount rates

(55,505)

57,855

(55,590)

57,939

Benet growth rates

58,031

(55,933)

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.

  1. Mortality: Average life expectancy of residents in the PRC.
  2. Benet costs paid to the retirees are assumed to continue until the death of the retirees.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

127

31. Retirement and Other Supplemental Benet Obligations (Continued)

(b) Group employee retirement benet plans (Continued)

The total costs of retirement benet plans in the consolidated statement of comprehensive income are as follows:

Retirement with

Retirement

Early retirement

honors benet plan

benet plan

benet plan

Total

RMB’ 000

RMB’ 000

RMB’ 000

RMB’ 000

For the six months ended 30 June 2019

Net interest expenses

1,019

37,564

2,296

40,879

Immediate recognition of actuarial gains

(76)

(76)

Benet cost recognised in prot or loss

1,019

37,564

2,220

40,803

Revaluation of net benet obligation liabilities

Actuarial revaluation of economic assumptions

change

Actuarial revaluation of other assumptions change

(30)

(118)

(148)

Benet cost recognised in other

comprehensive income

(30)

(118)

(148)

Total benet cost recognised in the

consolidated statement of comprehensive income

989

37,446

2,220

40,655

For the six months ended 30 June 2020

Net interest expenses

1,014

35,206

2,117

38,337

Immediate recognition of actuarial losses

975

975

Benet cost recognised in prot or loss

1,014

35,206

3,092

39,312

Revaluation of net benet obligation liabilities

Actuarial revaluation of economic assumptions

change

1,586

53,538

55,124

Actuarial revaluation of other assumptions change

(32)

(161)

(193)

Benet cost recognised in other

comprehensive income

1,554

53,377

54,931

Total benet cost recognised in the

consolidated statement of comprehensive income

2,568

88,583

3,092

94,243

The Group’s benet plans do not include incumbent employees. No current service cost of each benet plan incurred during each nancial period. Meanwhile, the Group’s benet plans do not provide reserve of plan assets, therefore, there is no reserve of earnings from plan assets during each nancial year.

Service cost and net interest expenses are recognised in employment benets, part of the administrative expenses and nance expenses of the consolidated statement of comprehensive income. Revaluation of net liabilities of benet obligation is recognised as other comprehensive income in the consolidated statement of prot or loss and other comprehensive income.

As at the end of each reporting period, no assets reserve is under the Group’s benet plans. The net liabilities of retirement benet plan obligations are recognised in the consolidated statement of nancial position as follows:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Net liabilities of retirement benet plan obligation

2,467,308

2,488,926

128

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

31. Retirement and Other Supplemental Benet Obligations (Continued)

(b) Group employee retirement benet plans (Continued)

The movement of retirement benet plan obligation as follows:

Retirement with

Retirement

Early retirement

honors benet plan

benet plan

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

Net interest expenses

1,019

37,564

2,296

40,879

Immediate recognition of actuarial gains

(76)

(76)

Revaluation loss/(gain):

Actuarial revaluation of economic assumptions

change

Actuarial revaluation of other assumptions

change

(30)

(118)

(148)

Direct benet paid by the Group

(7,029)

(84,792)

(26,648)

(118,469)

At 30 June 2019

66,952

2,341,823

150,226

2,559,001

At 1 January 2020

72,587

2,240,564

175,775

2,488,926

Net interest expenses

1,014

35,206

2,117

38,337

Immediate recognition of actuarial losses

975

975

Revaluation loss/(gain):

Actuarial revaluation of economic assumptions

change

1,586

53,538

55,124

Actuarial revaluation of other assumptions

change

(32)

(161)

(193)

Direct benet paid by the Group

(7,150)

(83,904)

(24,807)

(115,861)

At 30 June 2020

68,005

2,245,243

154,060

2,467,308

The Group has no reserve of plan assets, no capital injection of plan assets is established and no future contribution is arranged.

32. Provision for Litigation Claims

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Beginning of the period

196,945

253,936

Reversal

(70,718)

Exchange difference

(6,024)

14,673

Payment

(1,619)

(946)

End of the period

189,302

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.

As at 30 June 2020 and 31 December 2019, no additional provision for litigation claims is provided.

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129

33. Notes and Trade Payables

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Trade payables

Fellow subsidiaries

922,454

219,344

Associates of fellow subsidiaries

2,256

Joint ventures of fellow subsidiaries

1,322

1,196

Associates

6,376

40

Third parties

20,482,256

20,174,375

21,412,408

20,397,211

Notes payables

1,073,064

1,716,828

Notes and trade payables

22,485,472

22,114,039

The carrying amounts of the Group’s notes and trade payables as at 30 June 2020 and 31 December 2019 approximate their fair values.

Ageing analysis of notes and trade payables based on invoice date is as follows:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Within 1 year

19,175,667

18,773,812

Between 1 and 2 years

1,730,363

1,844,766

Between 2 and 3 years

759,814

572,916

Over 3 years

819,628

922,545

22,485,472

22,114,039

The carrying amounts of notes and trade payables are denominated in the following currencies:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

RMB

20,839,277

20,226,099

USD

82,417

173,299

EUR

4,251

5,066

KZT

6,812

11,168

SAR

851,946

976,439

Others

700,769

721,968

22,485,472

22,114,039

130

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

34. Other Payables

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Salaries payables

113,015

214,210

Other taxation payables

193,994

457,206

Output value-added tax to be recognised

11,241

10,417

Payable of separation and transfer of « Water/electricity/gas

supply and property management »

161,085

127,495

Deposits and guarantee deposits payables

77,959

82,550

Advanced payables

813,305

499,986

Rent, property management and maintenance payables

73,080

120,332

Contracts payables

145,006

195,373

Amounts due to ultimate holding company(1)

233

Amounts due to fellow subsidiaries(1)

73,233

86,788

Amounts due to a joint venture(1)

71

71

Amounts due to joint ventures of fellow subsidiaries(1)

4,961

5,627

Amounts due to associates of fellow subsidiaries(1)

888

888

Others

207,975

207,974

Total other payables

1,876,046

2,008,917

(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 30 June 2020 and 31 December 2019 approximate their fair values.

35. Deferred Income Tax Assets

Deferred income tax assets recognised:

The analysis of deferred income tax assets is as follows:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Deferred income tax assets

715,238

738,052

The gross movement on the deferred income tax account is as follows:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

At the beginning of the period

738,052

781,439

Credited to equity for dened benet obligations revaluation

of actuarial gain or loss

9,440

(26)

Tax credited to prot for the period (Note 12)

(32,254)

(59,029)

At the end of the period

715,238

722,384

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

131

35. Deferred Income Tax Assets (Continued)

The movement in deferred income tax assets during the periods ended 30 June 2020 and 2019, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax assets

Provision for

Retirement and

Provision for

other supplemental

impairment

Tax losses

benet obligation

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:

Prot for the period

(3,065)

(39,491)

(17,906)

1,665

(58,797)

Equity

(26)

(26)

At 30 June 2019

9,062

419,371

252,905

41,278

722,616

At 1 January 2020

422,530

282,255

33,267

738,052

Credited/(Charged) to:

Prot for the period

(11,733)

(17,275)

(3,246)

(32,254)

Equity

9,440

9,440

At 30 June 2020

420,237

264,980

30,021

715,238

Deferred income tax liabilities

Due to the application

of IFRS 16 generate deferred tax

liabilities

RMB’ 000

At 1 January 2019

(Credited)/Charged to:

Prot for the period

(232)

Equity

At 30 June 2019

(232)

At 1 January 2020

(Credited)/Charged to:

Prot for the period

Equity

At 30 June 2020

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 benets through the future taxable prots 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 follow:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Tax losses for which no deferred income tax asset was recognised

1,283,561

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 ve years.

132

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

36. Cash-SettledShare-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 nancial 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 nancial year immediately before the effective date as compared with that

of the nancial 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 nancial 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 nancial year immediately before the effective date as compared with that

of the nancial 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 nancial year immediately before the effective date shall not be less than RMB2.233 billion.

Third Effective Phase

the ROE of the nancial 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 nancial year immediately before the effective date as compared with that

of the nancial 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 nancial 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 satised, 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 satised 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.

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

133

36. Cash-SettledShare-Based Payment (Continued)

As at 30 June 2020, the details of the H share appreciation rights were as follows:

Number of underlying H share appreciation rights

Outstanding

Outstanding At

Exercise

At 1 January

Lapse during

30 June

Date of grant

price

Effective period

Exercisable period

2020

the period

2020

HKD

Directors

20 December 2017

6.35

20 December 2017 to

20

December 2021 to

19 December 2027

20

December 2024

27,200

27,200

Employees

20 December 2017

6.35

20 December 2017 to

20

December 2021 to

19 December 2027

20

December 2024

4,441,420

4,441,420

4,468,620

4,468,620

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 fullled. Therefore, those H share appreciation rights have be lapsed.

The total fair value of share options as at 30 June 2020 has been valued using Black-Scholes valuation model.

The signicant inputs into the model were as follows:

As at

As at

30 June 2020

31 December 2019

Exercise price (i)

HKD5.57

HKD5.80

Expected volatility

43.91%

33.93%

Expected life (years)

3.5 years

4.5 years

Risk-free interest rate

0.550%

1.740%

Expected dividend yield

0%

0%

  1. If the Company distributes dividend, the exercise price of the H share appreciation rights will be adjusted accordingly. The adjusted exercise price equals to the exercise price before adjustment minus dividend per share. Therefore, the exercise price of each H share appreciation right granted by the Company is adjusted to HK$5.57 per share.

At 30 June 2020, the Group has recorded liabilities of RMB1,424,000 (2019: RMB6,344,000), which RMB4,921,000 (2019: RMB5,244,000) was reversed from the accrued charges during the period.

37. Commitments

(a) Capital commitments

Capital commitments for the purchase of property, plant and equipment outstanding as at 30 June 2020 and 31 December 2019 not provided for in the consolidated nancial statements are as follows:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Contracted but not provided for

– Property, plant and equipment

14,988

3,628

134

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

37. Commitments (Continued)

(b) Operating leasing commitments

At the reporting date, the lease commitments for short-term leases are as follows:

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Less than 1 year

65,694

62,236

As at 30 June 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 qualied to be accounted for under short-term lease exemption under IFRS 16.

38. Cash Generated from Operations

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Prot before taxation

1,562,823

1,513,464

Adjustments for:

Reversal of provision for ECL on trade and other receivables and

contract assets, net

(117,135)

(97,730)

Reversal of cash-settledshare-based payment

(4,921)

(5,244)

Depreciation of property, plant and equipment

215,074

238,287

Depreciation of right-of-use assets

61,383

57,705

Amortisation of intangible assets

29,409

36,788

Net losses/(gains) on disposal/write-off of property, plant

and equipment

86

(2,883)

Interest income

(446,324)

(450,638)

Interest expense

43,958

54,561

Net foreign exchange (gains)/losses

(78,139)

186,109

Share of (prot)/loss of a joint arrangement

(7)

111

Share of prot of associates

(9,997)

(16,355)

Cash ows from operating activities before changes in working capital

1,256,210

1,514,175

Changes in working capital:

– Inventories

170,313

(231,202)

– Contract assets

(1,429,084)

(861,872)

– Contract liabilities

(1,863,168)

(555,405)

– Notes, trade and other receivables

(242,129)

(3,336,091)

– Notes, trade and other payables

158,902

(1,268,822)

– Restricted cash

3,410

(6,402)

Cash used in operations

(1,945,546)

(4,745,619)

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

135

39. 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 outow 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 32).

40. Signicant Related Party Transactions and Balances

Related parties are those parties that have the ability to control the other party or exercise signicant inuence in making nancial and operation decisions. Parties are also considered to be related if they are subject to common control. The Group is subject to the control of the PRC government which also controls a signicant portion of the productive assets and entities in the PRC (collectively known as the « state-owned enterprises »).

In accordance with IAS 24 « Related party disclosures », other state-owned enterprises and their subsidiaries, directly or indirectly controlled by the PRC government are regarded as related parties of the Group (« other state-owned enterprises »). For the purpose of related party disclosures, the Group has in place procedures to identify the immediate ownership structure of its customers and suppliers to determine whether they are state-owned enterprises. Many state-owned enterprises have multi-layered corporate structure and the ownership structures change over time as a result of transfers and privatisation programs. Nevertheless, management believes that meaningful information relating to related party transaction has been adequately disclosed.

In addition to the related party information shown elsewhere in this report, the following is a summary of signicant related party transactions entered into in the ordinary course of business between the Group and its related parties, including other state-owned enterprises, during the six months ended 30 June 2020 and 2019 and balances as at 30 June 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.

136

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

40. Signicant Related Party Transactions and Balances (Continued)

  1. 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:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Construction and services provided to

– Joint ventures of fellow subsidiaries

5,877,301

1,931,730

– Associates of fellow subsidiaries

57,279

283,469

– Fellow subsidiaries

7,648,556

7,212,021

– Associates

108,272

4,324

13,691,408

9,431,544

Construction and services received from

– Ultimate holding company

9,777

– Joint ventures of fellow subsidiaries

121

2,069

– Associates of fellow subsidiaries

2,144

– Fellow subsidiaries

2,115,712

1,946,839

– Associates

156

2,115,833

1,960,985

Technology research and development provided to

– Ultimate holding company

3,774

4,887

– Fellow subsidiaries

82,549

65,523

86,323

70,410

Comprehensive services received from

– Fellow subsidiaries

18,652

20,574

Interest income on loans

– Ultimate holding company

304,654

299,635

Interest expense on borrowings

– Fellow subsidiaries

8,798

Expenses in relation to settlement and other nancial services

– Fellow subsidiaries

1,423

1,308

Deposit interest income from fellow subsidiaries

35,700

63,367

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

137

40. Signicant Related Party Transactions and Balances (Continued)

  1. 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)

As at

As at

30 June 2020

31 December 2019

RMB’ 000

RMB’ 000

Deposits and time deposits placed in fellow subsidiaries

6,856,259

7,815,871

As at

As at

30 June 2020

31 December 2019

USD’ 000

USD’ 000

Guarantee received

– Ultimate holding company

52,000

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 signicant related party transactions with Sinopec Group and fellow subsidiaries also constitute continuing connected transactions as dened 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 state-owned 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 nancial 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 24, 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:

Six months ended 30 June

2020

2019

RMB’ 000

RMB’ 000

Fee

300

533

Basic salaries, other allowances and benets-in-kind

2,937

2,818

Discretionary bonus (i)

6,969

10,005

Contributions to pension plans

532

637

Cash-settledshare-based payment

10,738

13,993

  1. The Group determines and pays discretionary bonus based on the actual nancial results and performance of employee.

138

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

41. Reconciliations of Liabilities Arising from Financing Activities

The changes in the Group’s liabilities arising from nancing activities can be classied 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-ow:

– Capital element of lease rentals paid

(38,473)

– Interest element of lease rentals paid

(4,884)

Non-cash:

– Entered into new lease

56,264

– Interest expenses

4,884

– Modication

– Exchange difference

644

4,489

At 30 June 2019

384,983

207,673

At 1 January 2020

180,953

Cash-ow:

– Capital element of lease rentals paid

(36,404)

– Interest element of lease rentals paid

(3,244)

Non-cash:

– Entered into new lease

29,351

– Interest expenses

4,070

– Modication

(1,757)

– Exchange difference

288

At 30 June 2020

173,257

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

139

42. Particulars of Principal Subsidiaries

As at 30 June 2020, the Company has direct and indirect interests in the following principal subsidiaries:

Establishment/Place of

Registered and

Effective interest held

Principal activities and

Name

incorporation and

fully paid

type of legal entity

capital

Direct held

Indirect held

place of operation

RMB’000

SEI (中國石化工程建設有限公司)

The PRC/Limited

500,000

100%

Engineering contracting,

liability company

engineering and

consulting/The PRC

LPEC (中石化洛陽工程有限公司)

The PRC/Limited

500,000

100%

Engineering contracting,

liability company

engineering and

consulting/The PRC

SSEC (中石化上海工程有限公司)

The PRC/Limited

200,000

100%

Engineering contracting,

liability company

engineering and

consulting/The PRC

SNEC (中石化寧波工程有限公司)

The PRC/Limited

300,000

100%

Engineering contracting,

liability company

design, equipment

manufacturing/The PRC

SNEI (中石化南京工程有限公司)

The PRC/Limited

556,005

100%

Engineering contracting,

liability company

design/The PRC

FCC (中石化第四建設有限公司)

The PRC/Limited

350,000

100%

Engineering contracting/

liability company

The PRC

SFCC (中石化第五建設有限公司)

The PRC/Limited

350,000

100%

Engineering contracting/

liability company

The PRC

TCC (中石化第十建設有限公司)

The PRC/Limited

350,000

100%

Engineering contracting/

liability company

The PRC

Sinopec Guangzhou Engineering Co.,

The PRC/Limited

50,000

100%

Engineering contracting/

Ltd. (中石化廣州工程有限公司)

liability company

The PRC

Ningbo Institute (中石化寧波

The PRC/Limited

10,000

100%

Technical services/The

技術研究院有限公司)

liability company

PRC

Sinopec Heavy Lifting and

The PRC/Limited

500,000

100%

Engineering contracting

Transportation Co., Ltd. (中石化

liability company

technical service,

重型起重運輸工程有限責任公司)

equipment selling and

leasing/The PRC

Sinopec Engineering Group Saudi

Saudi Arabia/Limited

3,356

100%

Engineering contracting/

Arabia Co., Ltd. (中石化煉化工程

liability company

(SAR18,000,000)

Saudi Arabia

(集團)股份有限公司沙特公司)

Sinopec Engineering Group

United States/Limited

3,075

100%

Engineering contracting,

America, L.L.C (中石化煉化工程

liability company

(USD500,000)

engineering and

(集團)股份有限公司美國公司)

consulting/United States

Sinopec Energy-Saving

The PRC/Limited

500,000

100%

Technical service,

Technology Service Co., Ltd

liability company

contractual energy

(中石化節能技術服務有限公司)

management and

engineering research/

The PRC

SINOPEC Engineering Group

Malaysia/Limited

5,157

100%

Engineering contracting/

Malaysia SDN BHD (中石化煉化工程

liability company

(MYR360,700)

Malaysia

(集團)股份有限公司馬來西亞公司)

Sinopec Shanghai Pharmaceutical

The PRC/Limited

8,046

100%

Medicine, pesticide,

Industry Designing Institute

liability company

chemical research/

Co., Ltd. (中石化上海醫藥工業

The PRC

設計研究院有限公司)

Shanghai Petrochemical Machine

The PRC/Limited

133,640

100%

Petrochemical equipment

Manufacturing Co., Ltd.

liability company

manufacturing/The PRC

(上海石化機械製造有限公司)

Ningbo Tianyi Equipment

The PRC/Limited

60,000

100%

Petrochemical equipment

Technology Co., Ltd.

liability company

design, manufacturing

(寧波天翼裝備技術有限公司)

and installation/

The PRC

Ningbo Tianyi Petrochemical

The PRC/Limited

60,000

97%

Petrochemical equipment

Heavy Equipment Manufacturing

liability company

manufacturing and

Co., Ltd. (寧波天翼石化重型設備

installation/The PRC

製造有限公司)

SINOPEC Engineering Group

Thailand/Limited

6,228

100%

Engineering contracting/

(Thailand) Co., Ltd. (中石化煉化工程

liability company

(THB3,300,000)

Thailand

(集團)股份有限公司泰國公司)

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.

140

SINOPEC ENGINEERING (GROUP) CO., LTD. 2020 INTERIM REPORT

Documents for Inspection

The following documents will be available for inspection during normal business hours after 24 August 2020 (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 of the Company:

  1. The original interim report signed by the Chairman of the Board and the President;
  2. The original audited nancial report and consolidated nancial report for the six months ended 30 June 2020 prepared in accordance with IFRS and signed by the Chairman of the Board, the President, the Chief Financial Officer and the Head of the Finance Department; and
  3. The original auditor’s report in respect of the above nancial report signed by BDO Limited.

By Order of the Board

Mr. YU Renming

Chairman of the Board

Beijing, the PRC

21 August 2020

This interim 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.

Printed on environmentally friendly paper

Address: Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, PRC

Postcode: 100029

Web: www.segroup.cn

Email: seg.ir@sinopec.com

Disclaimer

Sinopec Engineering Group Co. Ltd. published this content on 23 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 August 2020 11:08:04 UTC

All news about SINOPEC ENGINEERING (GROUP) CO., LTD.

Sales 2020 54 988 M
7 949 M
7 949 M
Net income 2020 2 313 M
334 M
334 M
Net cash 2020 12 349 M
1 785 M
1 785 M
P/E ratio 20205,97x
Yield 20209,49%
Capitalization 13 795 M
1 994 M
1 994 M
EV / Sales 20200,03x
EV / Sales 2021-0,01x
Nbr of Employees17 450
Free-Float32,7%

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Technical analysis trends SINOPEC ENGINEERING (GROUP) CO., LTD.

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Income Statement Evolution

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Mean consensusBUY
Number of Analysts8
Average target price
4,28 CNY
Last Close Price
3,12 CNY
Spread / Highest target 93,8%
Spread / Average Target 37,4%
Spread / Lowest Target 20,3%