Ljubljana, 10 November 2022 – At its 21st meeting, the Supervisory Board of Petrol d.d., Ljubljana, was briefed on the Report on the Operations of the Petrol Group and Petrol d.d., Ljubljana, in the first nine months of 2022. In the period concerned, the Petrol Group continued to operate in a complex economic environment marked by the energy crisis and government regulation of motor fuel and energy commodity prices. In the relevant period, the Petrol Group’s EBITDA amounted to EUR 98.3 million and net profit to EUR 24.0 million. As a result of the government measures imposed on the motor fuel market, the Petrol Group’s adjusted gross profit was by EUR 108.9 million lower in Slovenia and EUR 34.6 million in Croatia. Additional drop in the adjusted gross profit in Slovenia resulted from the electricity and natural gas price regulation.

Despite the demanding situation, the company Petrol d.d., Ljubljana has stayed a reliable employer and a responsible partner to households, the economy, and the state, investing in the development of its operations and employees with a focus on digitalisation and decarbonisation. In the period concerned, the integration of Crodux derivati dva d.o.o. into the Petrol Group was being successfully completed.

At the moment, it is not yet possible to provide an estimate of the Petrol Group’s operations until the end of 2022.

Further exacerbation of business conditions

In 2022, the Petrol Group has operated under very complex conditions marked by the energy crisis and government interventions to mitigate its effects on citizens and businesses. We entered 2022 still faced with the Covid-19 epidemic. Economic growth was stable, although already accompanied by high prices of energy commodities which skyrocketed as the war began in Ukraine. In the first nine months of 2022, the average price of Brent Dated North Sea crude oil in EUR was up by 75 percent year-on-year. The upward electricity and natural gas exchange price trend stopped at the end of August when the prices peaked, after which the trend turned downward when ministers of EU member states announced a proposal for a regulation with which they reached a political agreement on the measures to tackle to energy crisis. Nevertheless, the high uncertainty has remained as regards the changes in prices of all energy commodities in the period ahead.

Due to the high energy prices and the increasing inflation, fuel price regulation was imposed in the markets where we operate and this has strongly affected the Petrol Group’s operations. As a result of the aforementioned measures, Petrol d.d., Ljubljana was forced to sell motor fuels at prices below the cost for 90 percent of the time between 15 March 2022 and 21 June 2022. In June, the Slovenian government passed a Decree to terminate the maximum price limitation and on 21 June 2021 limited the margin for motor fuel retailers and wholesalers, except at motorway service stations. The margin determined for the period between 21 June and 16 August 2022, however, was not high enough to enable covering all costs. In Croatia, which is the Petrol Group’s second most important market and where the retail prices of petroleum products have been regulated since 7 February 2022, we were faced with periods where a negative margin was generated. The imposed measures have fundamentally changed the conditions of the Petrol Group’s operations. Furthermore, the Petrol Group is not vertically integrated in the oil industry, meaning it does not have its own access to crude oil or its own refinery, as a result of which it is fully dependent on motor fuel imports. The Petrol Group has responded to the complex business conditions by further optimising costs, streamlining business operations, and tailoring its range of products and services to the current situation.

Operations in the first nine months of 2022 under the influence of regulation

In the first nine months of 2022, the Petrol Group’s sales revenue stood at EUR 7.0 billion, a year-on-year increase of 128 percent. Compared to the same period last year, revenue growth was affected by the rising cost and selling prices of motor fuels and energy commodities, increased volumes of fuels and fuel products sold, the merger of Crodux derivati dva, d.o.o. into the Petrol Group and fuel price regulation. A major part of revenue (50.2 percent) stems from the Energy and Solutions product group, followed by 44.2 percent from sales of fuels and fuel products, and 5.5 percent from sales of merchandise and services. In the period concerned, adjusted gross profit stood at EUR 405.3 million, a year-on-year decrease of 1 percent. The positive effect from the integration of Crodux derivati dva d.o.o. into the Petrol Group on the growth of the adjusted gross profit was fully annulled by the effect of fuel price regulation in Croatia because the regulated prices did not enable us to cover the operating costs. Due to the government-imposed measures on the motor fuel market, the Petrol Group’s adjusted gross profit, based on its internal estimate, was by EUR 108.9 million lower in Slovenia and EUR 34.6 million in Croatia. Additional loss was incurred in Slovenia in the period between 21 June and 16 August 2022 due to the imposed maximum permitted margin which it did not enable covering all costs. Due to the electricity network charge regulation between 1 February and 30 April 2022 and equalisation of household natural gas customers and floor owners from 1 January 2022 onwards (both in Slovenia), we an additional loss of EUR 2.4 million in adjusted gross profit was recorded.

In the first nine months of 2022, EBITDA stood at EUR 98.3 million, down by 44 percent year-on-year.

In the current difficult time, the Petrol Group is focused on managing costs which have mostly stayed within the planned values despite the increased sales of fuel. Operating costs stood at EUR 350.5 million in the first nine months of 2022, a year-on-year increase of EUR 62.6 million or 22 percent, of which EUR 39.1 million because of the integration of Crodux derivati dva d.o.o. into the Petrol Group and the rest mainly on account of the rising prices of energy commodities and costs directly linked to a higher volume of fuels sold and a higher cost of motor fuels.

Net profit of the Petrol Group stood at EUR 24.0 million in the first nine months of 2022 because of the lower EBITDA resulting from the regulated fuel and fuel product prices.

Despite the intensified business situation, the Petrol Group continues to fulfil its financial covenants to banks and the criteria arising from the investment credit rating assigned by Standard & Poor's Rating Services.

Development projects and significant events

Despite the difficult business conditions, the Petrol Group continues to drive its development-oriented projects which will help to boost its competitiveness and success in the long run.

The Petrol Group remains focused on the energy transition and on meeting the sustainability commitments. In the first nine months of 202, the Petrol Group invested 58.2 percent of the total of EUR 36.3 million in the energy transition. The majority of investments in the energy transition are earmarked for renewable electricity generation. In the field of wind power generation, Petrol already operates two wind power plants in Croatia, Glunča WPP and Ljubač WPP. Three solar power plants – Suknovci, Pliskovo and Vrbnik – are currently being built in Croatia and are expected to be launched at the start of 2023. This year, phase 1 of Petrol Green, a project in which solar power plants will be installed on rooftops of points of sale and Group-owned buildings, was started. The goal is to gradually equip the entire network of Petrol’s buildings in Slovenia with solar power plants. At the start of 2022, we successfully completed the SAP ERP system implementation in all key Petrol Group companies. Furthermore, the supply chain digitalisation project for the supply to service station, delivery of heating oil and gas, and sales of cylinders was started and is scheduled to be completed in the spring of 2024.

In the first nine months of the year, the integration of Crodux derivati dva d.o.o. and E3, d.o.o. into the Petrol Group was being successfully implemented. At the start of October, E3, d.o.o. fully transferred to Petrol’s information system. Synergies of two strong trademarks, sales network, customer bases and good practices in the field of electricity sales and trading are being created in a unified environment. The legal merger of Crodux derivati dva, d.o.o. with Petrol d.o.o. was planned to be completed at the end of 2022, but it was successfully completed already on 2 November 2022, two months ahead of the schedule. Petrol is now the second major petroleum product retailer and wholesaler in Croatia and one of the largest Croatian companies, consolidating its position as an integrated provider of energy solutions. This way, the Petrol Group is consolidating its strategic position on SEE markets.

In order to attract new investors, including minor ones, and increase the liquidity of the PETG share, the PETG share split was executed pursuant to a resolution adopted at the 34th General Meeting of Shareholders of Petrol, d.d. Ljubljana. The PETG share split into 20 units was completed on 1 November 2022.

Pursuing the development strategy and achieving the Petrol Group’s Business Plan for 2022

The Petrol Group continues to pursue its strategy for 2021–2025. Being one of the largest and most ambitious energy groups in the region, it is building its future by offering integrated and sustainability-oriented range of energy commodities and solutions. By offering green electricity and making investments in renewable energy sources, it supports companies, local communities, and households in their energy transition, improves energy independence and long-term stability in the region, and at the same time helps to protect the environment.

The Management Board of the Company presented the Report on the Effect of Fuel and Energy Commodity Price Regulation on the Petrol Group’s Business Plan for 2022, including the possible scenarios, to the Supervisory Board. In the report, the Management Board presented the estimated effect of the already imposed motor fuel price regulation measures and scenarios of the announced energy commodity price regulation measures until the end of the year.

The achievement of the Petrol Group’s Business Plan for 2022 is also significantly affected by the operations of Geoplin d.o.o., Ljubljana, where Petrol d.d., Ljubljana holds a 74.34 percent ownership share. At the time of the preparation of this report, it was not yet possible to determine the effect of natural gas reductions from the Russian Federation and increased purchases of natural gas from alternative sources on Geoplin d.o.o. Ljubljana’s potential need for liquid assets and capital until the end of 2022.

Given the high uncertainty regarding the compensation for the economic loss and lost profit of the Petrol Group resulting from motor fuel and other energy commodity (electricity and natural gas) price limitation in 2022 in Slovenia and Croatia, and because of the unknowns surrounding the operations of Geoplin d.o.o., Ljubljana, the estimate of the Petrol Group’s operations until the end of 2022 cannot be provided at this moment and the revised Petrol Group’s Business Plan for 2022 cannot be prepared yet.

The Supervisory Board of Petrol d.d. Ljubljana believes that in the current  difficult situation marked by the energy crisis and energy transition, the Management Board of Petrol d.d. Ljubljana, in cooperation with all key stakeholders of the Company, is managing the Company successfully and professionally; moreover, it is successfully managing business and liquidity risks, implementing the key development projects of the Company, and mitigating the effects of negative energy market trends to the greatest extent possible by offering a comprehensive range of energy commodities and services and effectively adjusting to the difficult business situation. By leading an efficient procurement process, it is ensuring a stable and secure supply of fuels and energy commodities and providing comprehensive support to its customers.

To avoid further loss and related costs from being suffered by the Company, the Supervisory Board calls upon the Government of the Republic of Slovenia to process the Company’s claim at the earliest convenience and compensate the loss incurred as a result of the petroleum product price regulation in the period between 15 March to 30 April and between 11 May and 20 June 2022, thereby preventing any further negative effects on the Company’s operations.