BUSINESS REPORT 2020

Business highlights of 2020  

Dear shareholders, business partners and co-workers, 

The year 2020 is behind us. It was a year marked by the Covid-19 pandemic, which had a profound impact on our way of life. Do you remember when you popped to Petrol to buy tickets to a concert of your favourite band or ski passes, when you met your business partners or friends at a “Petrol bar”, or when you not only refuelled your car at Petrol’s point of sale on your way to a trip to the seaside or the mountains, but also had the best coffee-to-go and a delicious sandwich from our ample Petrol Fresh range? What we took for granted until the beginning of March 2020 has suddenly become beyond reach or accessible in quite different ways. 

In the first two months of 2020, the Petrol Group's operations continued without disruption and according to plans. In March 2020, however, we faced the emergence of the worst pandemic in the past 100 years. Fighting an unknown disease has become part of our everyday life.  At Petrol, the spreading of the coronavirus has been closely monitored since it first appeared, and all measures were taken as necessary in terms of the organisation of work to ensure business continuity. Initially, our primary concern was to ensure the health of our customers and employees. We set up a coronavirus coordination team, which is in charge of all necessary measures for protecting staff and of preparing plans, policies, directives and notices that have been introduced and implemented since the outbreak of the Covid-19 pandemic, in line with the spreading of the infection. Petrol's priority was also to ensure operations at all sites with minimum disruption, thus allowing for important supply of energy products across the country. We can say this has been fully achieved. Apart from certain restrictions (reduced working hours at some service stations), there has been no disruption in the energy-product supply. In addition to the pandemic, Croatia, which is Petrol’s second largest sales market, was hit by two earthquakes, the first in Zagreb in March and the second in Petrinja at the end of 2020. Petrol’s service stations are built in accordance with all regulations on earthquake resistant structures and were not damaged; we merely suffered a power outage and information network failure, and stock fell off the shelves. However, some employees sustained greater damage, and we came to their aid in solidarity. 

Although 2019 was a record year, the Petrol Group set even more ambitious goals for 2020. The business in the first two months of 2020 was proof that we are on the right track. The business environment deteriorated considerably, however, as the pandemic began. Already when drawing up plans at the end of 2019, the Petrol Group was aware of the possibility that despite careful preparation, informed business decisions, quick response to changes and an efficient risk management system external factors may arise in the business environment which are beyond its direct control and may pose a risk or a threat when it comes to meeting the targets. Because a natural disaster of such magnitude and the resulting economic crisis could not had been predicted, the Petrol Group did not meet its planned operating targets in 2020.  

To fight the pandemic, countries have introduced various measures, many of which have been restricting movement and thus negatively affecting petroleum product sales, which is our core business. In 2020 the Petrol Group generated EUR 3.1 billion in sales revenue or 30 percent less than in 2019. Gross profit stood at EUR 426.9 million, a decrease of 10 percent relative to 2019. EBITDA totalled EUR 166.6 million and was 15 percent lower than in 2019. Net profit for 2020 stood at EUR 72.3 million, which was 31 percent less than in 2019.   

The Petrol Group was in a very good business and financial condition before the pandemic, and it was confirmed that Petrol is adequately prepared for the crisis, having an extensive sales network, various distribution channels and different energy products. Due to the pandemic-related crisis we decided to review business activities in detail, both in terms of profitability and cost efficiency, which will help us lay even stronger foundations for our business in the future. Despite the difficult business conditions, we continued to pursue our strategic objective of ensuring stable operations, also by maintaining an appropriate debt to EBITDA ratio, which stood at 2.0 in 2020. Our financial stability is also recognised by Standard & Poor's Rating Services, which reaffirmed our "BBB-" long-term credit rating, our "A-3" short-term credit rating and our "stable" credit rating outlook in June 2020. 

A shareholder policy that is based on a long-term maximisation of returns for shareholders is one of the cornerstones of Petrol’s development strategy. The Management Board of Petrol d.d., Ljubljana advocates a stable long-term dividend policy, which fits best the Petrol Group’s long-term development targets. Despite the pandemic, Petrol d.d., Ljubljana paid out the highest dividends to date in 2020, amounting to EUR 22.0 per share (gross). 

An important milestone in 2020 was the deregulation of petroleum product pricing from 1 October onwards in Slovenia, which is still Petrol’s largest sales market. 

Shopping habits are changing and we are responding to these changes. The onset of the pandemic has accelerated trade development trends. All the digital solutions we have developed, from the online shop and contactless payment to the mobile application Na poti (On the Go), are solutions that recorded high growth in 2020. We adapt the product and service range to customer demands and at the same time constantly inform them about the novelties we have introduced. We keep up with the times, offering services such as parcel collection at our points of sale as well as deliveries. 

In the second half of 2020, we began drafting Petrol Group's strategy for the period 2021 – 2025, which was adopted at the end of January 2021 and is more thoroughly described in this report. The environment in which the Petrol Group operates is facing important changes. Energy transition towards a low-carbon company and the development of new technologies are transforming established ways of how energy products are produced, sold and used. Petrol is committed to making a transition to green energy and is making significant investments to achieve it. While co-creating opportunities brought about by the energy transition we will also continue to supply the market with hydrocarbons. The strategy is our response to the challenges faced by the energy and trade sectors. The vision of the Petrol Group is to become an integrated partner in the energy transition offering an excellent user experience. Thanks to the transformation of the operational model and new competences acquired, the Petrol Group will put the customer in the centre, providing it with an excellent user experience across traditional and digital channels. 

Together we are creating a low-carbon future. We see the bigger picture: a safe and healthy home for us and future generations. Our mission is to pave the way to that goal with you. That is why Petrol develops the most advanced fuels with fewer emissions, provides for environmentally friendly mobility, co-creates energy-efficient cities, businesses and homes, and increases the share of renewable energy sources. We build partnerships based on the trust in all who share this planet with us.  

By investing in renewable energy sources, we contribute to the achievement of binding European goals. Renewable energy sources are crucial for the future of all of us, seeing as they enable meeting the key energy needs of mankind. What is more, they will not be depleted in the long run and they have a smaller negative impact on the environment and thus on the future of our planet. In 2020 we invested in the construction of the Ljubač wind farm, which will provide “green sustainable energy” for 20 thousand average households. It is scheduled to start operating in the first half of 2021.   

In line with its commitment to sustainable progress, Petrol is assuming a key role in the breakthrough of mass electromobility in Slovenia and Croatia. In 2020 we continued to develop and expand the electric vehicle charging infrastructure.  

The health crisis that triggered the economic crisis has changed our daily lives immensely. This was also experienced by Petrol’s employees. When the pandemic broke out, the primary concern was to protect the health of customers and employees. Good organisation was crucial in securing uninterrupted operation of all points of sale. Other employees worked from home if possible and they were equipped to do so in a very short time, taking into account all safety protocols. The pandemic was a surprise but at the same time it brough to the fore the good, selfless response of our employees. Everyone contributed to the best of their ability to ensure that the Petrol Group operated as smoothly as possible.  

The year 2020 was also marked by preparations to acquire two companies which fit Petrol's orientation towards comprehensive energy supply. In January 2021, we finalised the acquisition of a 100-percent interest in E 3 d.o.o., an electricity supplier, after suspensive conditions had been fulfilled. To strengthen our core business and presence in the region, we also launched the process of acquiring Crodux Derivati Dva d.o.o. In January 2021, an acquisition agreement was signed and the transaction will be completed following the fulfilment of suspensive conditions, which include obtaining approvals from the relevant competition authorities. This is the largest transaction of Petrol d.d., Ljubljana in the past 10 years and represents the most significant one-time increase in the number of points of sale in the Petrol Group's history. 

The year 2020 was extremely challenging. We are proud to have overcome the crisis and at the same time lay even firmer foundations for our business in the future. We will emerge from the crisis in an even better shape. And we know how to achieve this.

Nada Drobne Popović

President of the Management Board

BUSINESS PERFORMANCE IN 2020

Strategic Orientation

Our mission

Through a broad range of energy products, comprehensive energy solutions and digital approach, we are putting the user at the centre of our attention. We want to become the first choice for shopping on the go. Together with our partners, we create solutions for a simpler transition to cleaner energy sources. We are building a green energy future in a decisive and active manner, increasing the value for our customers, shareholders and society over the long term.

Our promise

Through energy transition, we create a green future and make a significant contribution to protecting our environment.

Our vision

To become an integrated partner in the energy transition, offering an excellent user experience.

Our values

• Respect: We respect fellow human beings and the environment.
• Trust: We build partnerships through fairness.
• Excellence: We want to be the best at all we do.
• Creativity: We use our own ideas to make progress.
• Courage: We work with enthusiasm and heart.

At Petrol, we feel a strong sense of responsibility towards our employees, customers, suppliers, business partners, shareholders and the society as a whole. We meet their expectations with the help of motivated and business-oriented staff, we adhere to the fundamental legal and moral standards in all markets where we operate, and we protect the environment.

Strategy of the Petrol Group for the period 2021 – 2025

On 28 January 2021, the Supervisory Board of Petrol d.d., Ljubljana approved the Strategy of the Petrol Group for the period 2021 – 2025. Ensuring business growth and increasing the profitability of operations while maintaining the commitment to sustainable development are the main principles underpinning the preparation and implementation of the strategic plan.

The Petrol Group's strategy for the period 2021 – 2025 is an overarching development document defining the path to a successful future based on the Group's vision, goals and strategic business plan.

The environment in which the Petrol Group operates is facing important changes. Energy transition towards a low-carbon company and the development of new technologies are transforming established ways of how energy products are produced, sold and used. Petrol is committed to making a transition to green energy and is making significant investments to achieve it. While co-creating opportunities brought about by the energy transition we will also continue to supply the market with hydrocarbons.

The new strategy of the Petrol Group defines clear targets for implementing our vision to become an integrated partner in the energy transition, offering an excellent user experience. This helps us focus on our core business, which it to supply energy products, as it is this area where we still see great potential and opportunities in connection with the energy transformation.

Creating and cultivating relationships with customers is our priority and we will continue to strengthen our sales network in the region as a result. Thanks to new digital channels, a broader range of energy products and personalised offer, we will be even closer to our customers, helping them to make a transition from traditional energy sources to cleaner renewable energy. Our aim is to become a key link in a broader ecosystem by offering energy sources that are adapted to and co-shape the market. For this reason, we will increase operational efficiency to free up additional funds for investments in renewable energy production.

The Petrol Group recognises the importance of sustainable development. The transition to a low-carbon energy company, partnership with employees and the social environment, and the circular economy constitute the Petrol Group's business commitments in this strategic period. As a partner to industry, public sector and households, Petrol is assuming a leading role in achieving the environmental goals.

Through continuous development of fuels, we will actively contribute to reducing emissions. At the same, we will help to reduce the carbon footprint of both the Petrol Group and our customers by pursuing clear sustainable policies.

Thanks to improved internal processes, new competences and empowered employees, we will be even more proactive in addressing the current and future needs of our customers in the energy industry and adapt our operations to the user, who is at the centre of our attention. We want to become the first choice for shopping on the go.

In this strategic period, we will remain present in all markets, focusing on:

• Slovenia, where we will consolidate our position of a leading energy company and partner in the energy transition;
• Croatia, where we will use our sales network to expand our portfolio of customers in the field of energy products and energy transition services and invest in renewable electricity production;
• Serbia, where we will increase our share in the energy product sales market.

We will work to remain the first choice for energy transition projects in the region by offering integrated services with high added value. We will develop and strengthen our presence in the supply and sale of natural gas and electricity, in the sale of liquefied petroleum gas and in energy efficiency projects. Renewable electricity production, where we will position ourselves to become a major supplier in SE Europe, plays a particular role in the energy transition.

The development of new solutions in the field of electric mobility and mobility services constitutes an important pillar of Petrol's sustainable and innovative business. When it comes to mobility, the Petrol Group focuses on two segments. The first segment is linked to the charging infrastructure, which means setting up, managing and maintaining the infrastructure for the charging of electric vehicles as well as providing the charging service. The second segment is comprised of mobility services, such as operating leases, fleet electrification and fleet management services.

In 2025, EBITDA is planned to total EUR 336 million, with net profit amounting to EUR 180 million. The net debt to EBITDA ratio is planned to be less than 1.  In the period from 2021 to 2025, we plan to invest a total of EUR 698 million, of which more than 35 percent will be dedicated to the energy transition and thus to carbon footprint reduction. As for other investments, the greater part will be allocated to expanding and upgrading our retail network and to digitalising our business.

Financial projections take into account the impact of Covid-19 in the first quarter of 2021 and assume that the vaccination coverage of the population will have been achieved by mid-2021. In accordance with the projections of international financial institutions, economic recovery is expected to be V-shaped.

By achieving the goals, we will strengthen long-term financial stability of the Petrol Group. Through a stable dividend policy, we will ensure a balanced dividend yield for shareholders and the use of free cash flows to finance the Petrol Group’s investment plans. This will allow for long-term growth and development of the Group, maximising its value for the owners. The dividend policy target for the strategic period 2021 – 2025 is 50 percent of the Group's net profit, taking into account the investment cycle, Group indicators and the achieved objectives.

The main targets for 2025 are as follows:

• Sales revenue of EUR 4.7 billion (the 2025 sales revenue figures rely on the assumption that energy product prices will match the levels used in the plans for 2021)
• EBITDA of EUR 336 million
• Net debt/EBITDA < 1
• Net profit of EUR 180 million
• Total investments in fixed assets of EUR 698 million in the period 2021 – 2025, of which 35 percent in energy transformation
• Renewable electricity production output of 160 MW
• Retail network consisting of 627 service stations
• 1,575 charging points for electric vehicles
• Energy savings of 73 GWh for end-customers in the period 2021 – 2025

Petrol as the ambassador of corporate integrity

Petrol will meet its targets while complying with applicable regulations and the Corporate Integrity Guidelines. In the pursuit of our work, we will abide by high standards of business ethics and build corporate culture promoting lawful, transparent and ethical conduct and decision-making by all staff. We will raise and consolidate the awareness of how important compliance is among employees and business partners. We will apply the zero tolerance principle to unlawful and unethical conduct of employees and business partners.

Plans for 2021

In 2020 the world was faced with a pandemic that also had a significant impact on the operations of the Petrol Group. All countries have observed a significant drop in economic activity. Among the measures to curb the pandemic, many measures had to do with the restriction of movement, both during the first and the second wave of the pandemic. In addition to the fall in economic activity, this has had a further negative impact on transport, causing the sales of petroleum products to decrease.  

The Petrol Group responded to the pandemic crisis in a comprehensive manner. Initially, activities were focused on ensuring the health of customers and employees, on the continuity of operations in the changed circumstances and on identifying and managing risks. Further activities, however, have had a long-term focus so that the Petrol Group can operate without interruption in a very different business environment. In 2020 we paid particular attention to optimising costs and streamlining operations, which was also reflected in the plans for 2021. 

The Petrol Group operates in two highly competitive industries – energy and trade. 

Besides trends in the area of energy and commerce, the Group's operations are subject to several other and often interdependent factors, in particular changes in energy product prices and the US dollar exchange rate, which are a reflection of global economic trends. In 2021 the economic situation will be significantly affected by economic recovery following the pandemic, and this will in turn be reflected in petroleum prices. In addition, operations in the Petrol Group's markets are influenced to an important extent by local economic conditions (economic growth, inflation rate, growth in consumption and manufacturing) and measures taken by governments to regulate prices and the energy market. Another factor are measures taken by countries to contain the pandemic, as shown when it had first emerged. 

Energy market participants are presented with vast challenges and change. On the one hand, they have to deal with an extremely difficult systemic transition to renewable supply sources, while on the other, a considerable shift can be observed in the behaviour of end customers, who are becoming increasingly engaged and environmentally conscious. As a main energy company in Slovenia and in SE Europe, the Petrol Group took on an active role in increasing energy independence, energy efficiency and the share of renewables. In 2021 the Petrol Group will continue to work to reduce its carbon footprint. 

The sales of merchandise and services make up an important part of the Group's revenue, which is why the situation in the trade sector has a major impact on operations. The Group participates in the development of the trade sector, which is changing the purchasing habits of consumers and distribution channels through the digitalisation of business. The pandemic has further highlighted the need to reduce and control costs and to optimise supply and sales chains, thereby ensuring point-of-sale profitability. 

Providing a full range of customer-focused products and services together with an excellent shopping experience is at the heart of Petrol's operations. As we try to approach our customers in innovative ways, we also change and enhance our internal operating processes which enable us to develop new solutions and sustainable models. 

The Petrol Group has a three-fold sustainable orientation: 

1. Low-carbon energy company – focusing on a more sustainable energy portfolio and mobility, own production of renewable electricity, energy efficiency and on reducing the carbon footprint. 
2. Partners with employees and the social environment – focusing on boosting corporate integrity, providing for healthy working conditions and employee satisfaction, with the support for the wider community in all markets where the Petrol Group operates (support for humanitarian, cultural, sports and environmental projects) also having a prominent role. 
3. Circular economy – involvement in wastewater treatment, recycling of carwash water and re-use of industrial wastewater. Particular attention is paid to reducing or replacing raw materials used in packaging with recycled and biodegradable materials. 

In the Petrol Group, we realise that despite careful preparation, informed business decisions, quick response to changes and an efficient risk management system external factors may arise in the business environment which are beyond our direct control and may pose a risk or a threat when it comes to meeting our targets. This was evident in 2020 when the Covid-19 pandemic emerged.  

Our goals for 2021 are ambitious. In drawing up the plan for 2021, we have assumed, however, that the pandemic will be effectively contained through vaccination in the first half of 2021. 

We are still drawing attention to the fact that there remains considerable uncertainty as to the achievement of the plan, which is subject to the further course of the pandemic. This is particularly relevant if: 

• insufficient vaccination coverage is achieved before summer 2021 and the pandemic continues,  
• the measures to curb the pandemic are still in place at the end of the second quarter, in particular those taken by countries to restrict movement, 
• economic recovery will be slower, leading to economic growth that is lower than expected. 

In this case, the Petrol Group will review its 2021 business targets in the second half of 2021 and adjust them accordingly. 

The 2021 plans do not take into account any new acquisitions. 

In addition to the pandemic, the following risks also bear on the achievement of the 2021 plans:  

• sales in the EU market, which is extremely volatile, 
• impact of the Real Property Tax Act and its new valuation model, 
• impact of the Energy Savings Requirements Act in Croatia, 
• other regulatory requirements. 

The Petrol Group's main business targets for 2021:  

• Sales revenue of EUR 3.5 billion 
• Adjusted gross profit of EUR 490.0 million 
• EBITDA of EUR 213.5 million 
• Net profit of EUR 104.4 million 
• Net debt to EBITDA ratio of 1.5 

• 3.0 million tons of petroleum products sold 
• 171.7 thousand tons of LPG sold
• 25.6 TWh of natural gas sold
• Revenue from merchandise sales of EUR 446.2 million 

The Group's investment policy for 2021 will be focused on expanding the business in the area of renewable electricity production, on consolidating its position and expanding energy product sales and on expanding its operations in the area of energy and environmental solutions. 

The Petrol Group was in a very good business and financial condition before the pandemic, and will continue to meet the high standards of operation as recognised by the ratings from Standard & Poor's Rating Services also in 2021. Despite the difficult business conditions, the Group will continue to pursue its objective of ensuring stable operations, thus delivering consistent return for shareholders.   

The Petrol Group in its region

Corporate governance statement and Statement of compliance with the Code

Pursuant to Article 70(5) of the Companies Act (ZGD-1), Petrol d.d., Ljubljana hereby issues its Corporate governance statement.

1. Reference to the applicable Corporate Governance Code

In the period from 1 January 2020 to 31 December 2020, the Company was bound by the Slovene Corporate Governance Code for Listed Companies (hereinafter 'the Code') as jointly drawn up and adopted by the Ljubljana Stock Exchange and the Slovene Directors’ Association on 27 October 2016. The Code entered into force on 1 January 2017. It is available both in Slovene and in English from the website of the Ljubljana Stock exchange at https://ljse.si/en. The Company has not adopted a corporate governance code of its own. It is managed in accordance with the Companies Act and within the framework of the above Code. In compliance with the recommendations of the applicable Code, the Supervisory Board and the Management Board drew up and, at the Supervisory Board meeting of 23 November 2010, adopted the Corporate Governance Policy of Petrol d.d., Ljubljana, which was published via the Ljubljana Stock Exchange SEOnet information system on 28 December 2010. The policy was updated at the Supervisory Board meetings of 12 December 2013, 11 December 2014, 15 December 2016, 14 December 2017, 13 December 2018, 12 December 2019 and 28 January 2021, and published via the Ljubljana Stock Exchange SEOnet information system (the version currently in force is available at https://seonet.ljse.si/default_sl.aspx?doc=LATEST_PUBLIC_ANNOUNCEMENTS&doc_id=73773) on 23 December 2013, 13 January 2015, 23 December 2016, 29 December 2017, 31 December 2018, 31 December 2019 and 24 February 2021, respectively. It is also available, in Slovene and in English, from the website of Petrol d.d., Ljubljana (https://www.petrol.eu/).

Statement of compliance with the Code

The company conducts its operations in compliance with the Code, i.e. both with its guiding principles and recommendations. Any deviations or partial deviations from the Code are listed and explained below:

• The Company is yet to perform an external assessment of the adequacy of the corporate governance statement, but the latter is expected to be performed in 2021 (the Code: Corporate Governance Statement and Statement of Compliance with the Code, paragraph 5.7).
• The Company did not carry out an organised collection of proxy notices for the 32nd General Meeting due to the specifics of the matters discussed, pandemic-related issues related to calling the General Meeting and timing constraints, although it otherwise does so as standard practice (the Code: General Meeting, paragraph 8).
• In its Rules of Procedure, the Supervisory Board has not set the scope of topics and timeframes to be respected by the Management Board in its periodic reporting. The topics are already laid down in the Company's annual financial calendar rather than in the Rules of Procedure. In addition to the Financial Calendar, which is published on SEOnet, the Supervisory Board adopts an extended version of the calendar comprising additional topics and timeframes applicable to the Supervisory Board and its committees and, as such, representing a coherent and comprehensive working plan of this body (the Code: Supervisory Board's Tasks, first sentence of paragraph 12.3).

• Due to a high degree of data confidentiality and to ensure a higher standard of communication with Supervisory Board members, information technology is seldom used to convene meetings and distribute Supervisory Board documents. It will be introduced as soon as all members of the Supervisory Board and its committees are equipped with sufficiently secure connections and protocols to prevent unauthorised access to documents and, where necessary or desirable, to securely provide themselves with printed documents (the Code: Supervisory Board's Tasks, paragraph 12.5).
• When setting up committees, the Supervisory Board did not define their tasks. For the Audit Committee, these have already been defined in laws and recommendations and, specifically, in each annual work programme of the Audit Committee which is approved by the Supervisory Board. The Human Resources and Management Board Evaluation Committee performs all of its tasks as decided by the Supervisory Board on a case-by-case basis (the Code: Supervisory Board Committees, first sentence of paragraph 18.2).
• For the large part of the year (until 13 November 2020), the Company did not have in place particular rules and a corporate communication strategy that would also contain rules on the protection of confidentiality, trade secrets and inside information that would clearly define information flow inside the Company, along with the recording and supervision of access to inside information from origin to public announcement, and contain warnings that the information has not been publicly disclosed yet and therefore constitutes inside information. The Company did have in place the Rules on the Safeguarding of Trade Secrets at the Petrol Group, and everybody that was in any way whatsoever linked to inside information was required to keep this information confidential as they were included on the insider list and could be penalised on various grounds, depending on whether they were external contractors, employees, Management Board members or Supervisory Board members. On 13 November 2020, the Company's management adopted the Petrol Inside Information Management Guidelines, the purpose of which is to assist in identifying information that constitutes inside information and present rules on handling such information, but most importantly to define inside information and other important information which, even though it does not possess all the characteristics of inside information, requires special treatment in order to ensure equal information of the investor public (so-called other sensitive information), to determine a non-exhaustive list of contents constituting typical examples of inside information or typical examples of other sensitive information, to designate inside information and other sensitive information as a trade secret in accordance with the Trade Secrets Act (ZPosS), to lay down guidelines for the handling of inside information, to define the role of the person in charge of the correct implementation of regulations in the field of inside information together with their tasks, to specify restrictions on trading in Petrol's shares and obligations to disclose trading in Petrol's shares, all with the aim of ensuring the effective implementation of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (“Market Abuse Regulation”) and the acts adopted based thereon. (The Code: The Company’s Corporate Communication Strategy (indents 1 and 2 of paragraph 27.2.).
• Before the Petrol Inside Information Management Guidelines referred to in the previous point were adopted on 13 November 2020, the Company had not had an internal act or adopted rules that would restrict trading in the Company's shares in addition to legal provisions and regulations. The Petrol Inside Information Management Guidelines now stipulate – in addition to legal provisions and regulations – a closed trading window, namely a period of 30 days prior to the publication of the quarterly, semi-annual, nine-month and annual reports on the operations of Petrol and the Petrol Group; 30 days before the publication of the Petrol Group’s strategy and 30 days before the publication of the Petrol Group’s business plan and key targets for the next calendar year.

During open trading windows, trading in the Company’s shares is allowed only if the person does not have inside information that has not yet been made public. Each person with access to inside information is obliged to judge for themselves when they are in possession of inside information and when, in view of the availability of inside information, they and their related persons are prohibited from trading in Petrol shares. Persons having access to inside information sign a special statement to keep inside information confidential. In accordance with the requirements of the Securities Market Agency, the Company keeps a list of persons with access to inside information, which is always up-to-date. The Company has laid down and enforced the highest ethical standards and values which are communicated to the persons having access to inside information (The Code: Trading Restrictions with Shares, paragraph 27.3.).

• The Company provides prompt information about its financial and legal situation through public announcements, but it does not report on operational estimates as this is inconsequential as long as its operations are in line with the applicable strategy and annual work programme. In the event of deviations, the Company would immediately make a public announcement to inform interested stakeholders of other business events, impacts and deviations (the Code: Public Announcement of Important Information, indent 3 of paragraph 29.1).
• The Company has not published the applicable wording of the rules of procedure of its bodies on its website. The Management Board and the Supervisory Board discussed the benefits of this recommendation and view the Supervisory Board's Rules of Procedure and the Management Board's Rules of Procedures as texts which are updated on a regular basis and are intended for the sole use of these bodies. Moreover, any external assessment of these documents by third parties would have been inappropriate due to their not being familiar with the needs of these bodies. The General Meeting Rules of Procedure were adopted at the first general meeting of the joint-stock company Petrol d.d., Ljubljana in 1997. They are always available during the general meeting and do not contradict the Companies Act, which lays down, through peremptory provisions, all elements concerning the running of a general meeting, making it sufficient to have the rules of procedure available only during each general meeting (the Code: Public Announcement of Important Information, paragraph 29.9).

2.   Description of main characteristics of the Company’s internal control and risk management systems in connection with the financial reporting process

The Company's management is responsible for the keeping of proper books of account, setting up and ensuring the functioning of internal controls and internal accounting control, selecting and applying accounting policies and safeguarding the Company's assets. The establishment of the internal control system, which is based on the three lines of defence model1, pursues the following three objectives: 

1 The three lines of defence: (1) operational management or risk owners, (2) control functions, including compliance, as risk managers, (3) internal audit tasked with providing independent assurance.

• accuracy, reliability and completeness of financial records, and true and fair financial reporting, 
• compliance with applicable laws and regulations, and 
• effectiveness and efficiency of operations. 

The company's management aims to establish a control system that is both as efficient as possible as regards the prevention of undesired events and acceptable in terms of cost. It is 

aware that every internal control system, regardless of how well it functions, 

has its limitations and cannot fully prevent errors or frauds. Nevertheless, it must be configured so that it flags them as soon as possible and provides management with suitable assurance about the achievement of objectives. 

Petrol therefore keeps and further improves: 

• a transparent organisational structure of the parent company and the Group; 
• clear and uniform accounting policies and their consistent application across the Petrol Group; 
• an efficiently organised accounting function (functional responsibility) within individual companies and the Petrol Group; 
• a uniform accounting and business information system of the parent company and its subsidiaries, thus boosting the efficiency of operational and control procedures; 
• reporting in accordance with International Financial Reporting Standards, including all disclosures and notes that are required; 
• regular internal and external audits of business processes and operations. 

The Risk Management chapter of this business report presents risk management and control mechanisms relating to the assessment of specific types of risk in greater detail. It is our opinion that in 2020 the existing internal control system of Petrol d.d., Ljubljana and of the Petrol Group allowed for efficient and successful achievement of business objectives, operation in compliance with the law, and fair and transparent reporting in all material respects. 

3.  Podatki po 6. odstavku 70. člena ZGD-1

As a company bound by the Takeovers Act, Petrol d.d., Ljubljana hereby provides information on the situation as at the last day of the financial year and all the necessary explanations, in accordance with Article 70(6) of the Companies Act:

3.1 Structure of the Company’s share capital

The Company has issued only ordinary registered no-par value shares, the holders of which have the right to participate in the management of the Company, the right to profit participation (dividends) and the right to a corresponding share in other assets in the event of liquidation or bankruptcy of the Company. All shares belong to a single class and are issued in book-entry form.

Share capital structure of Petrol d.d., Ljubljana as at 31 December 2020

The largest shareholders of Petrol d.d., Ljubljana, as at 31 December 2020

3.2 Restrictions on the transfer of shares

All shares are fully transferable.

3.3 Qualifying holdings under the Takeovers Act

Pursuant to Article 77(1) of the Takeovers Act (acquiring a qualifying holding), the following information

is provided (valid as at 31 December 2020):

• Clearstream Banking SA. – f held 284,652 shares of Petrol d.d., Ljubljana, representing 13.64 percent of the issuer’s share capital,
• Slovene Sovereign Holding held 264,516 shares of Petrol d.d., Ljubljana, representing 12.68 percent of the issuer’s share capital,
• the Republic of Slovenia held 225,699 shares of Petrol d.d., Ljubljana, representing 10.82 percent of the issuer’s share capital,
• Kapitalska družba, d.d. held 172,639 shares of Petrol d.d., Ljubljana, representing 8.27 percent of the issuer’s share capital.

3.4 Holders of securities carrying special control rights

The Company did not issue any securities carrying special control rights.

3.5 Employee share scheme

The Company has no employee share schemes.

3.6 Restrictions on voting rights

There are no restrictions on voting rights.

3.7 Shareholder agreements potentially resulting in restrictions on the transfer of shares or voting rights

The Company is not aware of such agreements.

3.8 The Company’s rules regarding

• Appointment and replacement of members of management or supervisory bodies
  The president and other members of the Management Board are appointed and discharged by the Supervisory Board. Apart from the worker director, the Supervisory Board appoints Management Board members on the proposal of the president of the Management Board. Management Board members are appointed for a five-year term of office and may be re-appointed. On the proposal of the Human Resources and Management Board Evaluation Committee and according to its Rules of Procedure, the Supervisory Board determines general and specific criteria for selecting candidates for the president and members of the Management Board, at the same time laying down a framework for contracts concluded with Management Board members. The Supervisory Board also determines the weight of individual criteria that comprise the competence model of the president and members of the Management Board. The Human Resources and Management Board Evaluation Committee proposes to the Supervisory Board which method or a combination of methods to apply in order to find candidates for the president of the Management Board (personal invitations, job vacancy postings) and determines whether it is necessary to engage an external headhunting expert. The Human Resources and Management Board Evaluation Committee carefully checks the fulfilment of general and specific conditions required for the post of Management Board president or member and other conditions laid down in the Company's Articles of Association. The Committee also verifies the references stated in candidates' CVs, and conducts interviews. It puts together a selection of candidates for the president of the Management Board, conducts selection interviews and ranks them. Short-listed candidate or candidates for the president of the Management Board propose other Management Board members, with the Committee then checking the conditions and references of the proposed candidates. The Committee thereupon proceeds with the evaluation of the entire Management Board and negotiates with candidates the basic elements of their contracts. The candidate or candidates for the president of the Management Board and the proposed Management Board members together present the vision of the Company's development at a Supervisory Board meeting. After carrying out selection interviews, the Supervisory Board selects and appoints the president and members of the Management Board. If the Supervisory Board finds the candidates proposed by the candidate for the president of the Management Board (the proposed Management Board as a whole) unsuitable, the procedure is repeated.

The Supervisory Board may reappoint the Management Board within one year before the term of office has expired, but it is customary for the reappointment to take place not later than three months before the expiry. If the Company’s General Meeting passes a vote of no confidence in the Management Board, the Supervisory Board, convening immediately after the General Meeting, states its opinion concerning the recall of a Management Board member. If the General Meeting does not grant the Management Board and/or Supervisory Board discharge from liability, the Supervisory Board is required to convene as soon as possible to identify the reasons for the discharge of liability not being granted. Without prejudice to the above, the Supervisory Board may recall the Management Board, for reasons stipulated by law, on its own discretion. The Supervisory Board is required to notify immediately the Management Board not fully fulfilling the tasks falling under its mandate of its findings and opinions and to set the shortest deadline possible to eliminate the identified shortcomings. If the Management Board fails to achieve the expected results by the set deadline, the Supervisory Board decides whether to recall individual members of the Management Board. The Supervisory Board may appoint one of its members as a temporary Management Board member to replace a missing or absent member of the Management Board for a period of not more than a year. Reappointment or extension of the term of office is permitted if the entire term of office is not extended by more than one year.

The Supervisory Board of the Company comprises nine members, of which six are elected by the Company’s General Meeting with a majority vote of shareholders present and three by the Company Workers’ Council. They are elected for a term of four years and may be re-elected when their term of office expires. A resolution on an early recall of the Supervisory Board members representing shareholders shall be adopted with a three-quarters majority of votes present at the General Meeting, while the conditions for the recall of the Supervisory Board members representing employees shall be determined by the Workers’ Council in a general act.

• The Diversity Policy

At its 21st meeting of 13 December 2018, the Supervisory Board adopted the Diversity Policy with regard to Representation in the Company's Management and Supervisory Bodies. On 31 December 2018, it was published in Slovene and in English on the Company's website (the full text of the Diversity Policy, including its goals and method of implementation, is available at https://www.petrol.eu/binaries/content/assets/skupina-petrol-slo/2018/porocila/2018/politika-raznolikosti-druzbe-petrol-d.d.-ljubljana---december-2018.pdf in Slovene and at https://www.petrol.eu/binaries/content/assets/skupina-petrol-eng/2018/reports/2018/diversity-policy-of-petrol-d.d.-ljubljana---december-2018.pdf. The composition of the Management Board and the Supervisory Board was unchanged from 2017 to October 2019. On 25 October 2019, Supervisory Board president Nada Drobne Popović became President of the Management Board ad interim, after the terms of office of three members of the Management Board ended early through mutual agreement. As of this day, the gender diversity in both bodies has changed significantly. As of 1 January 2020, the Company’s Management Board has been headed by three women and the Supervisory Board by men. Throughout the year, both the composition of the Management Board and the Supervisory Board were marked by considerable dynamics. During the year, the Management Board consisted of three women, then two women and two men, later three men and two women, and at the end of the year, when the Management Board was complete, it was composed of one woman out of five members. However, only men (7 or 8 men) sat on the Supervisory Board in various compositions. At the end of the year, the Supervisory Board carried out the personnel process to select candidates for members of the Supervisory Board, but did not propose to the General Meeting to nominate any women, which is not in line with the Diversity Policy of the Management Board and the Supervisory Board of Petrol d.d., Ljubljana, which stipulates gender diversity as one of the six important aspects of diversity. In addition, at the end of 2020, no female workers’ representatives were appointed by the Workers’ Council to the Supervisory Board for the terms of office beginning in 2021. The Workers’ Council also proposed to the Supervisory Board the appointment of a male worker director, whose term of office started on 11 December 2020. In the energy sector, women’s representation in management positions is found to be low. At the General Meeting indicated above, it was voted – based on a counter proposal – that after 11 April 2021, the Supervisory Board membership will consist of eight men and one woman. In 2019 the Supervisory Board joined the initiative to achieve voluntary 40/30 gender diversity by 2026 as proposed by the Slovene Directors’ Association. Among other partners, the initiative was also supported by the Slovene Sovereign Holding and the Ljubljana Stock Exchange. The initiative contains the following commitment to achieve the voluntary gender diversity target by the end of 2026: 40 percent of members of supervisory boards and, jointly, 33 percent of members of supervisory and management boards of listed companies and publicly owned companies shall be of the less represented gender. Even though the counter proposal at the General Meeting was submitted by SDH d.d. (the Slovene Sovereign Holding), the basic commitments given in said initiative were not fulfilled and only one woman was nominated for appointment. Given that the members of the Supervisory Board have been appointed for a four-year term and the members of the Management Board for a five-year term in 2020, no major changes in gender diversity are expected in the coming years.

• Amendments to the Articles of Association

The General Meeting decides on amendments to the Articles of Association with a majority of three-quarters of share capital represented in the voting.

3.9 The powers of Management Board members, particularly in connection with own shares

The Management Board has not been authorised by the General Meeting to acquire own shares.

3.10. Important agreements that enter into force, are amended or expire due to changes in the control over the Company resulting from a takeover bid

The Company is not aware of such agreements.

3.11 Agreements between the Company and the members of its management and supervisory bodies or employees which foresee compensation should such persons resign, be discharged without cause or have their employment relationship terminated due to a bid as defined in the Takeovers Act

In the event of resignation, Management Board members are not entitled to compensation, but they are entitled to it in the event that the Company recalls them or terminates their employment contract without cause.

3.12 Petrol d.d., Ljubljana has no subsidiaries falling within the scope of indent 4 of Article 70(3) of the Companies Act (ZGD-1).

3.13 The Petrol Group's activities include an activity listed in Article 70 ter of the Companies Act, specifically commercial exploitation of mineral resources (geothermal source), but the payments to the Republic of Slovenia did not exceed the amount laid down in Paragraph 2 of Article 70 b in 2020.

4. Information on the workings of the General Meeting

As provided by the applicable legislation, specifically the Companies Act, the General Meeting is a body through which shareholders exercise their rights in respect of matters concerning the Company. The convening of General Meetings is governed by the Articles of Association, in conformity with applicable legislation. The General Meeting is convened at the request of the Management Board, at the request of the Supervisory Board, or at the request of the Company’s shareholders who collectively represent at least five percent of the Company’s share capital. The party requesting the convening of a General Meeting must submit to the Management Board an agenda for the General Meeting together with an explanation and justification of the purpose and reasons for convening the General Meeting. The Management Board calls a General Meeting of the Company's shareholders one month before the meeting takes place by publishing a notice via the Ljubljana Stock Exchange SEOnet information system, the AJPES website and the Company's website. In the notice of the General Meeting, the Management Board specifies the time and place of the meeting, the bodies conducting the meeting, the agenda and proposed resolutions. At the General Meeting held on 23 July 2020 (https://seonet.ljse.si/default_en.aspx?doc_id=70765&language=en), the Company’s shareholders were presented with the annual report and the Supervisory Board’s report on the verification of the annual report for the financial year 2019, as well as with the remuneration of the members of management and supervisory bodies. They discussed and adopted a resolution on the allocation of accumulated profit and the granting of discharge from liability to the Management Board and the Supervisory Board for the year 2019. At the General Meeting of 28 December 2020 (https://seonet.ljse.si/?doc_id=72458), the Company's shareholders:

• took note of the Shareholder Report on the Special Audit of the Company's Transactions prepared by the special auditor;
• adopted changes and amendments to the Articles of Association of Petrol d.d., Ljubljana;
• appointed new members of the Company's Supervisory Board: Aleksander Zupančič, Borut Vrviščar, Branko Bračko, Alenka Urnaut Ropoša and Mario Selecky, whose terms of office begin on 11 April 2021, and Mladen Kaliterna, whose term of office begins on 16 July 2021.

5. Information on the composition and workings of management and supervisory bodies

The company Petrol d.d., Ljubljana is managed using a two-tier system. The Company is led by the Management Board, which is supervised by the Supervisory Board. The management of the company Petrol d.d., Ljubljana is conducted in conformity with the law, Articles of Association as the Company’s fundamental legal act, internal regulations, and established and generally accepted good business practices.

Workings of the Management Board

The Management Board of Petrol d.d., Ljubljana manages the Company independently and on its own responsibility, and represents and acts on behalf of the Company. According to the Company's Articles of Association, the Management Board is comprised of a president and other members and shall not have less than three and more than six members. The exact number of Management Board members, their sphere of duties and their powers are determined by a resolution adopted by the Supervisory Board at the proposal of the Management Board president. One of Management Board members is always a worker director, who only participates in decisions relating to human resources and social policy matters. In 2020 the Management Board was composed of three members until 10 March 2020 and of four members from 11 March to 26 August. In the period from 27 August to the end of the financial year, the Management Board had five members. The Management Board discussed matters falling within its competence at 107 meetings in 2020. All decisions but one were adopted unanimously. In addition to holding formal meetings, the Management Board exercised the powers and responsibilities pertaining to its daily activities and to the General Meeting, as stipulated by the Companies Act. The activities concerning the Supervisory Board were carried out in accordance with the provisions of the Supervisory Board Rules of Procedure. The Management Board regularly reported to the Supervisory Board on the Company’s operations and consulted it in connection with the Company’s strategy, business development and risk management. Some of the Management Board’s activities were also focused on collaboration with the Workers' Council and the representative trade union. Management Board members are appointed for a five-year term of office and may be re-appointed. The Company is represented jointly by the president and a member of the Management Board. In the event that a power of procuration is granted by the Company, the holder can represent the Company only together with the president of the Management Board. The Company's Management Board is required to seek the consent of the Supervisory Board for the conclusion of the following transactions:

• transactions on the basis of which the Company acquires or disposes of its own shares;
• transactions exceeding EUR 1,000,000.00 on the basis of which the Company acquires or disposes of interests in or shares of companies, whereby, in order to avoid doubt, transactions related to the acquisition of interests or shares also include transactions related to the Company's participation in the capital increase of another company;
• transactions on the basis of which the Company establishes or terminates any company and/or business unit;
• transactions on the basis of which the Company borrows or approves a loan exceeding EUR 2,000,000.00, except for such transactions concluded between the Company and its subsidiaries and borrowing operations of the Company in amounts as included in the Company's borrowing plan, which is approved by the Supervisory Board of the Company. For the avoidance of doubt, a series of several consecutive loans taken out by the Company from the same lender or granted by the Company to the same borrower shall be considered as a single loan, whereby related companies in the sense of the provision of Article 527 of the Companies Act shall also be considered the same lender or borrower;

• individual purchases or sales of non-current intangible, tangible fixed assets and investment property of the Company, for the amount exceeding EUR 5,000,000.00. For the avoidance of doubt, a set of several interconnected transactions shall also be considered as a single transaction, in particular insofar as they represent a single investment or are part of a single investment programme;
• transactions on the basis of which the Company (a) establishes a mortgage, building right or any other encumbrance on immovable property owned by the Company, with the exception of transactions establishing (quasi or true) real easements (i) to the benefit of public and private operators for the purpose of servicing the Company’s immovable property or (ii) to the benefit of the state or a municipality or of a public service operator; or (b) establishes a lien or otherwise encumbers other fixed assets or intangible assets of the Company;
• granting a power of procuration;
• other transactions, if so decided by the Supervisory Board of the Company by a decision.

The above applies, mutatis mutandis, also to transactions entered into by subsidiaries in the course of their operations and in respect of which the consent of the Company's Management Board must be obtained prior to the conclusion. For most of the above transactions, the Management Board must seek prior consent from the Supervisory Board before granting any consent requested by the management of any of its subsidiaries.

In 2020 there were changes in the composition of the Management Board of Petrol d.d., Ljubljana. Until 10 February, Management Board president Nada Drobne Popović led the Management Board as President of the Management Board ad interim together with Management Board member Danijela Ribarič Selaković and Management Board member and Worker Director Ika Krevzel Panić. On 11 February, Ms Drobne Popović was appointed as Management Board president for a five-year term of office. She led the Management Board consisting of the above members until 10 March 2020, when the term of office of Danijela Ribarič Selaković came to an end. On 11 March 2020, two new Management Board members, Jože Bajuk and Matija Bitenc, began their five-year terms of office, with Jože Smolič beginning his term of office on 28 August 2020. On 10 December 2020, the five-year term of office of Management Board member and Worker Director Ika Krevzel Panić ended. On 11 December 2020, Zoran Gračner, otherwise Head of Heat Systems, began his five-year term of office as new Management Board member and Worker Director.

Members of the Management Board of Petrol d.d., Ljubljana in 2020:

Nada Drobne Popović, President of the Management Board

In the period from 25 October 2019 to 10 February 2020, she managed Petrol d.d., Ljubljana as President of the Management Board ad interim (after being appointed from among Supervisory Board members). On 11 February 2020, she was appointed by the Supervisory Board as Management Board president for a five-year term of office. Born in 1975, she holds a Master of Science degree from the School of Government and European Studies, Brdo pri Kranju.

Fields of responsibility:

From 25 October 2019 to 10 March 2020:

• People, organisation and systems
• Finance, information and risks
• Informatics

• Management of energy products and energy
• Energy industry and the environment
• Innovative business models
• Internal audit

From 11 March to 27 August 2020:

• People, organisation and systems
• Procurement and logistics
• Sales
• Point-of-sale management and development
• Investments and technology
• Corporate control and investigations
• Internal audit

From 28 August to 17 December 2020:

• Human resources, processes and general administration
• Procurement and logistics
• Investments and maintenance
• Legal affairs and support to corporate bodies
• Technical development, quality and safety
• Corporate communication
• Corporate operations control and investigations
• Internal audit

From 18 December 2020 onwards:

• Human resources, processes and general administration
• Petroleum products and logistics
• Procurement
• Legal affairs and support to corporate bodies
• Technical development, quality and safety
• Corporate communication
• Corporate operations control and investigations
• Internal audit

Matija Bitenc, Member of the Management Board

On 11 March 2020, he was appointed as Management Board member for a five-year term of office. Born in 1980, he holds a master's degree in economics.

Fields of responsibility:

From 11 March to 27 August 2020:

• Finance, information and risks
• Informatics

From 28 August 2020 onwards:

• Finance and accounting
• Back office
• Informatics
• Controlling
• Risk management
• Business intelligence

Jože Bajuk, Member of the Management Board

On 11 March 2020, he was appointed as Management Board member for a five-year term of office. Born in 1974, he holds a master's degree in sociology and a bachelor's degree in law.

Fields of responsibility:

From 11 March to 27 August 2020:

• Management of energy products and energy
• Energy and environmental systems
• Innovative business models

From 28 August to 17 December 2020:

• Management of energy products and energy
• Energy and environmental systems

From 18 December 2020 onwards:

• Management of energy products and energy
• Energy and environmental systems
• Investments and maintenance

Jože Smolič

He was appointed as Management Board member for a five-year term of office starting on 28 August 2020. Born in 1967, he holds a master’s degree in entrepreneurial management.

Fields of responsibility:

From 28 August 2020 onwards:

• Sales to end customers
• Sales to business customers and the public sector
• Marketing
• Development of physical points of sale

Zoran Gračner, Member of the Management Board and Worker Director

On 11 December 2020, he was appointed by the Supervisory Board as Management Board member and Worker Director for a five-year term of office. Born in 1970, he holds a master's degree in business administration and a bachelor's degree in mechanical engineering. He participates in decisions relating to human resources and social policy matters, and may represent the Company together with another member or president of the Management Board. The worker director does not have a specific field of responsibility.

Ika Krevzel Panić, Member of the Management Board and Worker Director

She was appointed by the Supervisory Board as a worker director for a five-year term of office beginning on 11 December 2015. Born in 1974, she holds a bachelor degree in law. She participates in decisions relating to human resources and social policy matters, and may represent the Company together with another member or president of the Management Board. The worker director does not have a specific field of responsibility.

Together with the above Management Board members, she managed the Company as Management Board member until 10 December 2020, when her term of office came to an end.

Danijela Ribarič Selaković, Member of the Management Board

On 25 October 2019, she was appointed as Member of the Management Board for a five-year term of office, which ended on 10 March 2020, when she resigned.

Born in 1972, she holds a master's degree in economics.

Fields of responsibility:

• Procurement and logistics
• Sales
• Point-of-sale management and development
• Investments and technology
• Corporate control and investigations

Responsibilities and composition of the Supervisory Board

In the two-tier management system, the Supervisory Board of Petrol d.d., Ljubljana fulfils its legally mandated responsibilities, i.e. to supervise the conduct of the Company's operations (including the selection and appointment of the Management Board) and carry out tasks related to the General Meeting’s powers.

Under the Company's Articles of Association, the Supervisory Board of the company Petrol d.d., Ljubljana comprises nine members. They are elected for a term of four years and may be re-elected when their term of office expires. The Supervisory Board elects its president and deputy president from among its members. The president and deputy president of the Supervisory Board are always shareholder representatives. The president of the Supervisory Board represents the Company in relation to the Management Board, and the Supervisory Board in relation to the Management Board and third parties, unless

specifically determined otherwise. The president of the Supervisory Board also represents the Company in relation to the appointed external auditor.

The following committees were operational in 2020: the Audit Committee and the Human Resources and Management Board Evaluation Committee.

Members of the Supervisory Board of Petrol d.d., Ljubljana were as follows in 2020:

Sašo Berger, shareholder representative

President of the Supervisory Board

President of the Management Board of S&T Slovenija d.d. He was appointed for a four-year term of office beginning on 11 April 2017 at the 27th General Meeting of 10 April 2017. He served as Deputy President of the Supervisory Board from the inaugural meeting of 22 April 2017 until 10 February 2020. On 11 February 2020, he became President of the Supervisory Board.

Igo Gruden, shareholder representative

Member of the Supervisory Board

Member of the Management Board of Hranilnica LON d.d., Kranj. He was appointed for a four-year term of office beginning on 7 April 2013 at the 23rd General Meeting of 4 April 2013, and reappointed at the 27th General Meeting of 10 April 2017, with his four-year term of office beginning on 11 April 2017. On 11 February 2020, he became Deputy President of the Supervisory Board.

Mladen Kaliterna, shareholder representative

Member of the Supervisory Board

Executive director of Perspektiva FT d.o.o. Ljubljana. He was appointed for a four-year term of office beginning on 16 July 2013 at the 23rd General Meeting of 4 April 2013, and reappointed at the 27th General Meeting of 10 April 2017, with his four-year term of office beginning on 16 July 2017.

Metod Podkrižnik, shareholder representative

Member of the Supervisory Board

Member of the Management Board of Luka Koper d.d. He was appointed for a four-year term of office beginning on 11 April 2017 at the 27th General Meeting of 10 April 2017.

Sergej Goriup, shareholder representative

Member of the Supervisory Board

Independent solicitor. He was appointed for a four-year term of office

beginning on 11 April 2017 at the 27th General Meeting of 10 April 2017.

Janez Pušnik, shareholder representative

Member of the Supervisory Board

He was appointed at the 31st General Meeting of 24 July 2020 for the period from 24 July 2020 to 21 April 2021.

Alen Mihelčič, employee representative

Member of the Supervisory Board

Petrol d.d., Ljubljana, Head of Petroleum Product Management and Sales. He was appointed for a four-year term of office beginning on 22 February 2017 at the 3rd Workers’ Council meeting of 27 January 2017.

Robert Ravnikar, employee representative

Member of the Supervisory Board

Petrol d.d., Ljubljana, Head of Ljubljana – Kranj Retail regional unit. He was appointed for a four-year term of office beginning on 22 February 2017 at the 3rd Workers’ Council meeting of 27 January 2017.

Marko Šavli, employee representative

Member of the Supervisory Board

Petrol d.d., Ljubljana, Compliance Manager and Specialist. When Supervisory Board member Zoran Gračner resigned, Mr Šavli was appointed as substitute member of the Supervisory Board (employee representative) at the 44th Workers’ Council meeting of 4 December 2020, in accordance with provision 10.13 of the Company’s Articles of Association. His term of office began on 11 December 2020.

Zoran Gračner, employee representative

Member of the Supervisory Board

Petrol d.d., Ljubljana, organisational unit Energy and Environmental Solutions in the Public and Commercial Sector. He was appointed for a four-year term of office beginning on 22 February 2013 at the 3rd Workers’ Council meeting of 4 February 2013, and reappointed for another four-year term of office beginning on 22 February 2017 at the 3rd Workers' Council meeting of 27 January 2017. As proposed by the Workers' Council on 22 October 2020, Mr Gračner was appointed by the Supervisory Board as Management Board member and Worker Director for a five-year term of office beginning on 11 December 2020. He resigned as Supervisory Board member as a result. 

The Supervisory Board had two standing committees in 2020: the statutory Audit Committee and the Human Resources and Management Board Evaluation Committee.

The Audit Committee was composed of the following members in 2020:

From 1 January to 23 July 2020:

• Mladen Kaliterna, committee president
• Metod Podkrižnik, committee member
• Igo Gruden, committee member
• Zoran Gračner, committee member
• Janez Pušnik, external member

From 24 July to 23 August 2020:

• Mladen Kaliterna, committee president
• Metod Podkrižnik, committee member
• Igo Gruden, committee member
• Zoran Gračner, committee member

From 24 August to 10 December 2020:

• Mladen Kaliterna, committee president
• Metod Podkrižnik, committee member
• Igo Gruden, committee member
• Zoran Gračner, committee member
• Janez Pušnik, committee member
• Christoph Geymayer, external committee member

From 11 December to 17 December 2020:

• Mladen Kaliterna, committee president
• Metod Podkrižnik, committee member
• Igo Gruden, committee member
• Janez Pušnik, committee member
• Christoph Geymayer, external committee member

From 18 December 2020 onwards:

• Mladen Kaliterna, committee president
• Metod Podkrižnik, committee member
• Marko Šavli, committee member
• Igo Gruden, committee member
• Janez Pušnik, committee member
• Christoph Geymayer, external committee member

The Human Resources and Management Board Evaluation Committee was composed of the following members in 2020:

• Sergij Goriup, committee president
• Sašo Berger, committee member
• Igo Gruden, committee member
• Alen Mihelčič, committee member
• Robert Ravnikar, committee member
• Žiga Škerjanc, external committee member (at the 21st and 22nd Committee meeting)2

Remuneration policy for members of management and supervisory bodies

In accordance with Article 294(5) of the Companies Act (ZGD-1), the Company shall disclose the remuneration policy for members of management and supervisory bodies. This report discloses nominal amounts received in the financial year 2020 by each Management Board member and each Supervisory Board member. The information on fixed and variable remuneration of Management Board members and the ratios are also disclosed. The remuneration policy for Management Board members is set by the Supervisory Board. The remuneration policy for the Management Board member who is also the worker director and the legal representative authorised to represent the Company only together with another member of the Management Board (or, following modifications to the Articles of Association, only with the president of the Management Board) and, in accordance with a Supervisory Board's resolution, does not have a specific field of responsibility is set in the Workers’ Participation in Management Agreement concluded by the Management Board and the Workers’ Council on 7 October 1997. The variable part of the remuneration of the Management Board member who is also the worker director is adjusted to the applicable multiple of the monthly salary which is determined by the Supervisory Board for the other members of the Management Board, meaning that the worker director is paid the same multiple of the average monthly gross salary of Company employees.

As stated above, the remuneration policy for the remaining members of the Management Board is defined by the Supervisory Board:

• the members of the Management Board receive the fixed part of the remuneration based on an agreement concluded with the Supervisory Board;
• the basis for the payment of the variable part is set out in the Rules on Performance-related Remuneration of the Management Board, which were conceived so that the input elements for calculating the variable part of the remuneration, both in quantitative and qualitative part, depend on the fulfilment of the commitments (results) made by the Management Board upon the adoption of the Petrol Group's Business Plan and Key Targets for each year.

The remuneration policy for Supervisory Board members is determined by the General Meeting of the Company: At the 29th General Meeting, which was held in 2019, a resolution was adopted that laid down the remuneration of Supervisory Board members. The full text of the resolution is set out in the announcement of the General Meeting resolutions, which is available at: https://www.petrol.eu/binaries/content/assets/skupina-petrol-slo/2018/objave/2019/04/resolutions-29th-general-meeting-petrol.pdf.

2 The external committee member was only present at the 21^st and 22^nd Committee meeting as he was appointed by the Supervisory Board only to take part in proposing candidates for Supervisory Board positions.

Analysis of business performance and impact of the pandemic on the Petrol Group's operations in 2020

In 2020 the world faced a pandemic which, combined with strict health and protection measures, also had an impact on the operations of the Petrol Group. In January and February 2020, the Petrol Group operated without any disruption and according to plan in all of its markets. In March 2020, however, the business environment deteriorated considerably with the onset of the pandemic. Petrol has been closely monitoring the situation since the outbreak of the epidemic.

When developing measures and putting them into practice, the Petrol Group complied fully with instructions issued by authorities in all of its markets. Its primary concern were measures aimed at protecting the health of Petrol's customers and employees. The public was informed of all measures as they were taken (see https://www.petrol.eu/investors/publications?year=2020). Apart from certain restrictions (reduced working hours at some service stations), there was no disruption in the energy-product supply. The Petrol Group adapted its measures to reflect the latest situation in all of its markets.

The Petrol Group operates in two highly competitive industries – energy and trade. Besides trends in the area of energy and commerce, the Group's operations are subject to several other and often interdependent factors, in particular changes in energy product prices and the US dollar exchange rate, which are a reflection of global economic trends. In addition, operations in the Petrol Group's markets are influenced to an important extent by local economic conditions (economic growth, inflation rate, growth in consumption and manufacturing) and measures taken by governments to regulate prices and the energy market. The pandemic had an impact on all of the above factors, which were reflected in lower economic growth, consumption and production. The sectors most affected by the pandemic include aviation, public and individual transport, tourism and personal services. Due to a decline in demand, oil prices also decreased significantly. Oil prices per barrel ranged from USD 13.2 to USD 70.0 in 2020, with the average price of oil amounting to USD 41.8 per barrel in 2020, down 35 percent year-on-year.

Soon after the outbreak of the pandemic, the International Monetary Fund, the European Commission and other organisations assessed the economic impact of the pandemic. The Petrol Group covered the matter extensively in its Report on the operations of the Petrol Group and the company Petrol d.d., Ljubljana in the first three months of 2020 (https://www.petrol.eu/binaries/content/assets/skupina-petrol-eng/publications/2020/05/report-on-the-operations-of-the-petrol-group-and-the-company-petrol-d.d.%2C-ljubljana-in-the-first-three-months-of-2020..pdf), its Report on the operations of the Petrol Group and Petrol d.d., Ljubljana in the first six months of 2020

(https://www.petrol.eu/binaries/content/assets/skupina-petrol-eng/2020/pages/investors/publications/08/report-on-the-operations-of-the-petrol-group-and-petrol-d.d.-ljubljana-in-the-first-six-months-of-2020.pdf) and in its Report on the operations of the Petrol Group and Petrol d.d., Ljubljana in the first nine months of 2020

(https://www.petrol.eu/binaries/content/assets/skupina-petrol-eng/2020/pages/investors/publications/11/report-on-the-operations-of-the-petrol-group-and-petrol-d-d-ljubljana-in-the-first-nine-months-of-2020.pdf).

Overall, all assessments suggested that a significant decline in economic activity across countries was to be expected in 2020. To mitigate the negative effects of the epidemic, comprehensive packages of measures were adopted at the national level and by the ECB and the European Commission aimed at alleviating the loss of revenue of the economy and the general population, providing liquidity and supporting economic recovery.

In its Winter Forecast of Economic Trends (of 23 December 2020), the Institute of Macroeconomic Analysis and Development (IMAD) projected a 6.6-percent decline in GDP for Slovenia in 2020. After a deep fall in the second quarter of 2020, the economy recovered well in the third quarter as the measures taken to contain the pandemic were relaxed. In the last quarter of 2020, Slovenia saw another decline in economic activity, although a less pronounced one than in spring. This was also helped by businesses and consumers adapting to the new circumstances. Transport, together with accompanying sales of motor fuels, was among the sectors most affected by the pandemic. https://www.umar.gov.si/fileadmin/user_upload/napovedi/vmesna/zimska_2020/ANG-ZimskaNGG_2020.pdf

The Petrol Group responded to the crisis caused by the epidemic in a comprehensive manner. Initially, activities were focused on ensuring the continuity of operations in the changed circumstances and on identifying and managing risks. Further activities, however, had a long-term focus so that the Petrol Group could operate without interruption in a very different business environment.

The Petrol Group experienced a decline in the sale of both petroleum products and merchandise in all of its markets. Lower sales of petroleum products were mainly the result of measures taken by countries to contain the pandemic and restrict movement both between countries and local communities. In Slovenia, the epidemic was declared on 12 March 2020 and border crossings with the neighbouring countries were closed on 18 March 2020. Entering from Italy has been severely restricted already since 10 March 2020. On 15 March 2020, a ban and restrictions on public transport and an air traffic ban entered into force. From 30 March to 30 April 2020, restrictions on movement between municipalities (with some exceptions) were in force. At its meeting of 14 May 2020, the Government of the Republic of Slovenia adopted the Ordinance on the revocation of epidemic of contagious disease SARS-CoV-2 (Covid-19) which started to apply on 31 May 2020. In Croatia, the Group's second largest market, the epidemic was declared on 11 March 2020. On 19 March 2020, the borders were closed and restrictions on movement between the counties were introduced. Within the counties, movement was regulated as decided by each county. The restrictions on movement were lifted on 11 May 2020.

Already in August, as the epidemiological situation began to worsen again, some countries re-introduced measures to curb the pandemic (mandatory quarantine on arrival from countries with a poor epidemiological situation). In September, but even more so in October, Slovenia and most other European countries faced a second wave of the epidemic. Due to a sharp increase in the number of infections in Slovenia, the Government of the Republic of Slovenia re-introduced measures to contain the epidemic, many of which have to do with movement restrictions, which will again have a negative impact on the Petrol Group's sales. Since 16 October 2020, movement in Slovenia has been restricted to statistical regions. Since 24 October 2020, however, crossing municipal borders has been forbidden again (with certain exceptions). In addition, a ban on the movement of people between 9 pm and 6 am has been put in place (with certain exceptions). In the run-up to the New Year, movement restrictions were partly relaxed in regions with a better epidemiological situation, whereas during the Christmas and New Year holidays, movement was allowed throughout the country. In early 2021, a ban on movement between municipalities was reinstated (with exceptions provided for in the current Ordinance on the temporary partial restriction of movement of people and on the prohibition of gathering of people to prevent the spread of Covid-19). The ban on the movement of people between 9 pm and 6 am is still in place.

Due to the pandemic, even more attention was paid in 2020 to measures aimed at lessening the impact of economic conditions on our operations, such as:

• receivables and credit exposure to customers were subjected to tighter control;
• the amount of current operating assets was optimised, while the stocks of petroleum products were kept at levels that were still sufficient for the performance of business activities;
• credit lines were maintained with a number of banks in Slovenia and abroad, enabling Petrol to keep ensuring uninterrupted liquidity to the Petrol Group.

Sales revenue

In 2020 the Petrol Group generated EUR 3.1 billion in sales revenue or 30 percent less than in 2019. This was mostly due to lower oil prices and lower sales of petroleum products caused by the pandemic.

Sales revenue of the Petrol Group broken down by activity

Adjusted gross profit

Adjusted gross profit from sales stood at EUR 426.9 million, a decrease of 10 percent on the previous year. This was mainly the result of a drop in petroleum product sales caused by the pandemic.

Costs

The Petrol Group's operating costs totalled EUR 366.1 million in 2020, which was EUR 19.8 million or 6 percent more than in 2019.

The costs of materials totalled EUR 27.9 million in 2020, which was EUR 1.1 million or 4 percent less than in 2019. The costs of energy decreased by EUR 1.4 million or 7 percent, which was mainly due to lower output by companies in the segment of energy and environmental solutions. This, in turn, was the result of lower sales during the lockdown (hotels, schools). Conversely, the costs of consumables increased by EUR 0.4 million or 6 percent, mainly on account of protective equipment costs due to the coronavirus.

The costs of services totalled EUR 133.3 million and were down EUR 9.3 million or 7 percent from 2019.

• The most significant part of the costs of services were the fees charged by service station managers, which equalled EUR 34.6 million and were down EUR 0.5 million or 1 percent compared to the previous year. This was mainly due to lower student work costs resulting from the streamlining of operations during the epidemic.
• The costs of transport services stood at EUR 29.1 million, which was EUR 2.4 million or 8 percent less than in the previous year. This was due to a lower volume of fuel sold in Slovenia. The structure of the sales in EU markets shows that much more fuel was sold from Rače than from Sermin in 2020 as compared to the previous year. This caused the costs of transport to increase but they were adequately offset with revenue. The largest drop in sales was recorded in the segment of fuel, where the costs of transport per unit are the lowest.
• The costs of fixed-asset maintenance services totalled EUR 20.7 million, an increase of EUR 1.1 million or 5 percent from the previous year. This was mainly the result of the costs of protective screens installed at service stations due to the coronavirus and the costs of municipal utility services, maintenance of natural gas distribution networks, the absorption of Crodux plin and the integration of Atet into the Petrol Group.
• The costs of professional services stood at EUR 10.0 million in 2020 and were up EUR 0.7 million or 8 percent from 2019. This was the result of higher costs of certain projects (ERP) and M&A projects, accompanied by a decrease in student work costs.
• The costs of payment transactions and bank services amounted to EUR 9.6 million, which was EUR 1.2 million or 11 percent less than in the previous year. This was mainly due to lower sales and lower petroleum product prices.
• Lease payments totalled EUR 5.3 million and were down EUR 1.1 million or 16 percent from 2019, mainly on account of lower costs of computer leasing.
• Amounting to EUR 4.9 million, the costs of fairs, advertising and entertainment decreased by EUR 3.9 million or 45 percent compared to the previous year, due to a decrease in advertising activities.
• Outsourcing costs stood at EUR 4.2 million and were down EUR 1.1 million or 21 percent relative to 2019, chiefly due to lower sales during the lockdown (hotels, schools).
• The costs of insurance premiums totalled EUR 4.1 million and were up EUR 0.1 million or 2 percent from 2019.
• Other costs of services totalled EUR 3.4 million and were down EUR 1,0 million or 22 percent from 2019.

Labour costs totalled EUR 102.9 million and were down 1 percent or EUR 0.8 million. In line with the measures taken by countries to contain the Covid-19 epidemic, the Petrol Group made use of measures relating to the reimbursement of labour costs of EUR 4.8 million, recording their effects as a decrease in labour costs.

The depreciation and amortisation charge stood at EUR 75.0 million, an increase of 9 percent or EUR 6.1 million relative to 2019. This was mainly the result of the absorption of Petrol Crodux Plin d.o.o.by the Petrol Group and the integration of Atet d.o.o. into the Petrol Group (in the second half of 2019) as well as of investments in retail network of the Petrol Group and the expansion of energy operations.

Other costs stood at EUR 26.9 million, which was EUR 25.0 million more than in 2019, owing to an increase in impairment of assets and write-downs of EUR 16.2 million as well as to a lower reversal of other provisions and other liabilities of EUR 10.7 million as compared to 2019.

In 2020 we paid particular attention to optimising costs and streamlining operations, which will be reflected in future operations of the Petrol Group.

Other operating revenue stood at EUR 105.8 million, which was EUR 19.6 million more than in 2019. Gain on derivatives totalled EUR 100.1 million or 20.1 million more than in 2019. Other operating expenses stood at EUR 75.0 million, which was EUR 9.7 million less than in 2019. Loss on derivatives stood at EUR 74.5 million, which was EUR 9.9 million less than in 2019.

Operating profit totalled EUR 91.6 million in 2020, which was 28 percent less than in 2019. EBITDA totalled EUR 166.6 million or 15 percent less than in 2019.

EBITDA of the Petrol Group broken down by activity

In 2020 the share of profit from equity accounted investees increased by EUR 1.0 million relative to the previous year.

Net finance expenses of the Petrol Group stood at EUR 9.7 million, which was EUR 6.2 million more than the year before. In 2020 net loss on derivatives was up EUR 6.4 million relative to 2019, with net gains on foreign exchange differences increasing by EUR 4.9 million year-on-year. In 2020 the Petrol Group's allowances for operating and financial receivables were up by EUR 1.4 million compared to 2019. Allowances for receivables reversed and bad debt recovered were EUR 1.8 million lower in 2020 compared to 2019. Net interest expense was EUR 1.5 million lower in 2020 compared to 2019. The Petrol Group's impairment of investments and of goodwill stood at EUR 3.6 million in 2020, while no such impairment was recorded in 2019.

Pre-tax profit totalled EUR 85.5 million and was 33 percent lower than in 2019. Net profit for the year 2020 stood at EUR 72.3 million, a decrease of 31 percent from 2019.

Impact of government grants on labour costs, EBITDA and pre-tax profit

Financial position of the Petrol Group

Statement of financial position of the Petrol Group

The most important items of non-current assets consisted of property, plant and equipment, intangible fixed assets and investment property, which totalled EUR 922.4 million and were on a par with the 2019 end-of-year figure. Right-of-use assets totalled EUR 62.4 million at the end of 2020, which was 13 percent less than at the end of 2019. Non-current investments in jointly controlled entities and associates stood at EUR 56.5 million, which was EUR 1.2 million more than in 2019.

The management of current assets, which accounted for 40 percent of the Petrol Group’s total assets, is given particular attention. The amount of current operating assets affects the amount of borrowing from suppliers and banking institutions. With short-term crediting ensured both at home and abroad, we are, however, able to respond quickly to changes in the amount of these assets. Compared to the end of 2019, the balance of operating receivables as at the last day of 2020 decreased by 23 percent.

The value of inventories decreased by 3 percent year-on-year. Oil prices were lower at the end of 2020 than at the end of 2019, while the quantity of goods inventories was slightly higher. 

In the area of credit risk management, we closely follow all procedures of credit insurance companies. The Petrol Group has secured around 80 percent of all receivables which individually exceed a nominal value of EUR 100,000. We monitor customer payments on a daily basis and, where appropriate, adopt measures to reduce credit risk. Despite the negative impact on the economy, payment discipline has not significantly deteriorated so far.

As at the last day of the period, the Petrol Group had EUR 86.2 million in working capital or EUR 2.6 million more than at the end of 2019 when it had stood at EUR 83.6 million.

Cash from operating activities totalled EUR 186.9 million in 2020, which was EUR 49.5 million less than in 2019. Own funds generated by the Petrol Group were used for investment activities, payment of dividends and repayment of loans. Other necessary funds were obtained from banks. The net financial liabilities to equity ratio (net D/E ratio) was 0.40 as at the last day of 2020, while at the end of 2019 it had stood at 0.44. The net debt to EBITDA ratio stood at 2.0 at the end of 2020 compared to 1.8 at the end of 2019. The financial leverage ratio stood at 28 percent at the end of 2020, down from 31 percent at the end of 2019.

Ensuring sufficient liquidity was of high priority as soon as the pandemic broke out. Liquidity management consisted of drawing on existing credit lines to create a substantial liquidity cushion that helped us cope with tight market conditions in April and May 2020. We have entered into additional agreements with some lenders to build up back-up credit lines. When determining the needs for additional potential debt, we took into account the appropriate net debt to EBITDA ratio.

Equity, net debt and financial leverage ratio

The Petrol Group’s net investments totalled EUR 85.4 million in 2020. As a result of the pandemic, they were temporarily limited to the most urgent ones that were necessary to ensure smooth and secure operations. The Petrol Group decided on the remaining investments in line with the development of business conditions.

The Petrol Group was in a very good business and financial condition before the pandemic. Despite the difficult business conditions, it will continue to pursue its strategic objective of ensuring stable operations also by maintaining an appropriate debt to EBITDA ratio.

A shareholder policy that is based on the long-term maximisation of returns for shareholders is still one of the cornerstones of Petrol’s development strategy. The Management Board of Petrol d.d., Ljubljana advocates a stable long-term dividend policy, which fits best the Petrol Group’s long-term development targets. Despite the pandemic, Petrol d.d., Ljubljana paid out the highest dividends to date in 2020, amounting to EUR 22.0 per share (gross).

On 24 June 2020, Standard & Poor's Ratings Services reaffirmed Petrol d.d., Ljubljana's "BBB-" long-term credit rating, its "A-3" short-term credit rating and its "stable" credit rating outlook.

Alternative performance measures

To present its business performance, the Petrol Group also uses alternative performance measures (APMs) as defined by ESMA. In 2020 a new alternative performance measure was added: ROCE. ROCE is used in assessing the Company's profitability and its capital efficiency as it shows how well the Company is generating profits from its long-term sources of finance.

The APMs we have chosen provide additional information about the Petrol Group's performance.  

Alternative performance measures

Events after the end of the accounting period

On 5 January 2021, Petrol d.d., Ljubljana completed a transaction with the selling company Elektro Primorska d.d. to acquire a 100-percent interest in the company E 3, d.o.o., following the fulfilment of suspensive conditions.   

On 12 January 2021, Petrol d.d., Ljubljana signed a contract with the seller, Mr Ivan Čermak, to acquire a 100-percent interest in the company Crodux Derivati Dva d.o.o. The transaction will be completed following the fulfilment of suspensive conditions, which include obtaining approvals from the relevant competition authorities. 

Petrol's Shares

The year 2020 was less successful for investors at the Ljubljana Stock Exchange than the previous one. Due to the impact of Covid-19, share prices at LJSE were on average lower at the end of 2020 than at the end of 2019. This was also reflected in the SBI TOP index, which lost 2.8 percent relative to the end of 2019, reaching 900.37 points at the end of the year.

Petrol's shares are traded on the prime market of the Ljubljana Stock Exchange (LJSE), and have been listed there since 5 May 1997. In 2020 the volume of trading in Petrol’s shares at the stock exchange amounted to EUR 51.4 million, an increase of 95 percent from 2019. Petrol's shares were again one of the most traded among those listed on the Ljubljana Stock Exchange.

In contrast to the previous year, 2020 was marked by the emergence of Covid-19 and the resulting decrease in the prices of most shares traded on the Ljubljana Stock Exchange. Petrol's share price exhibited a negative trend in 2020, being 13.3 percent lower at the end of 2020 as compared to the end of 2019, while the SBI TOP index lost 2.8 percent during this period. The shares accounted for 22.92 percent of the index as of 21 December 2020.

Base index changes for Petrol's closing share price against the SBI TOP index in 2020 compared to the end of 2019

At the end of December 2020, the share price stood at EUR 325.00 and was down 13.3 percent year-on-year. The average price of Petrol’s shares, which stood at EUR 326.66 in 2020, was down 5.6 percent year-on-year. The closing share price ranged between EUR 266.00 and EUR 394.00 in 2020.

Petrol’s share prices in 2020 and 2019 in EUR

Closing price and the volume of trading in Petrol's shares in 2020

Trading volume and market capitalisation

The volume of trading in Petrol's shares at the Ljubljana Stock Exchange amounted to EUR 51.4 million in 2020, including batch trading (totalling EUR 7 million), and was up 95 percent from 2019. The increase in the trading volume is the result of a rise in the number of Petrol's shares traded in 2020 (156,608 shares) relative to the previous year (75,691 shares). The trading in Petrol’s shares accounted for 12.8 percent of the Ljubljana Stock Exchange total trading volume, which stood at EUR 400.9 million, and 12.9 percent of the stock market's share trading volume.

The shares of Petrol d.d., Ljubljana were ranked second on the Ljubljana Stock Exchange by trading volume. On average, the monthly volume of transactions involving Petrol’s shares totalled EUR 4.3 million.

The market capitalisation of Petrol d.d., Ljubljana as at the last trading day of 2020 totalled EUR 678 million, which accounted for 9.8 percent of the stock market’s total capitalisation. Petrol d.d., Ljubljana was ranked fourth in terms of market capitalisation as at the last trading day of 2020.

Key financial indicators for Petrol’s shares

The Petrol Group's earnings per share (EPS) for the year stood at EUR 35.19 and its cash earnings per share (CEPS) at EUR 71.67. The return per share calculated by comparing the closing share price as at the end of 2020 and the closing share price as at the end of 2019 was negative and stood at -13.3 percent. Combined with the dividend yield of 5.9 percent, the total return per share stood at -7.4 percent in 2020.

The ratio between the shares’ market price and book value as at the end of 2020 – the latter amounting to EUR 396.24 in the case of the Petrol Group – was 0.82 (P/BV), which was lower than at the end of 2019. The ratio between the shares’ market price as at the end of 2020 and the Petrol Group's earnings per share stood at 9.24 (P/E).

Share capital structure

The structure of Petrol d.d., Ljubljana share capital changed slightly in 2020 compared to the end of the previous year. As a result of the depositary in Slovenia being changed by Češkoslovenska Obchodni Bank, A.S. – fid., Clearstream Banking SA – fid is now the largest single shareholder, with 284,652 shares. It is followed by Slovene Sovereign Holding with 264,516 shares, the Republic of Slovenia with 225,699 shares and Kapitalska družba d.d. with 172,639 shares. Other large single shareholders include OTP banka d.d. – client account, Vizija Holding d.o.o., Vizija holding ena d.o.o., Perspektiva FT d.o.o., Citibank N.A. – escrow account, and NKBM d.d.

The chart presenting the ownership structure is shown in the corporate governance statement of Petrol d.d., Ljubljana.

At year-end, 568,548 shares or 27.3 percent of all shares were held by foreign legal or natural persons. Compared to the end of 2019, the number of foreign shareholders increased by 0.3 percentage points, while the total number of shareholders decreased from 22,632 as at the end of 2019 to 22,220.

Shares owned by members of the Supervisory Board and the Management Board as at 31 December 2020

Other explanations by Petrol d.d., Ljubljana

The prospectus of the company Petrol d.d., Ljubljana, which has been prepared for the purpose of listing its shares on the stock exchange, is published on the Company’s website. All changes to the prospectus are published in the Company’s strategy document, annual reports of Petrol d.d., Ljubljana and its public announcements available from the Company's website http://www.petrol.eu/ and the website of the Ljubljana Stock Exchange http://seonet.ljse.si/.

Contingent increase in share capital

The General Meeting of Petrol d.d., Ljubljana did not adopt any resolutions in 2020 regarding the contingent increase in share capital.

Reserves for own shares

Petrol d.d., Ljubljana did not repurchase its own shares in 2020. As at the last day of 2020, the number of own shares stood at 30,723, representing 1.5 percent of the share capital. This includes 24,703 own shares that were acquired by Petrol d.d., Ljubljana in the period from 1997 to 1999. Their total cost equalled EUR 2.6 million as at 31 December 2020 and was EUR 7.4 million lower than their market value on that date. The remaining 6,020 shares are the shares that are considered as own shares which were held by the subsidiary Geoplin d.o.o. Ljubljana at the time it was incorporated in the Petrol Group.

Own shares of Petrol d.d., Ljubljana, in total 36,142 (without the shares of Geoplin d.o.o. Ljubljana), were purchased between 1997 and 1999. The Company may acquire these own shares only for the purposes laid down in Article 247 of the Companies Act (ZGD-1) and as remuneration to the Management Board and the Supervisory Board. Own shares are used in accordance with the Company’s Articles of Association.

In accordance with a resolution of the 27th General Meeting held on 10 April 2017, the Company's Management Board is authorised to acquire own shares within 36 months of the adoption of the resolution. Under this authorisation, a maximum of 208,630 own shares may be acquired, but the total percentage of the shares acquired based on this authorisation may not exceed, together with other own shares already held by the Company (24,703 own shares plus 6,020 own shares of Geoplin d.o.o. Ljubljana, in total 30,723 own shares), 10 percent of the Company’s share capital (208,630 shares). In 2018, 2019 and 2020, Petrol d.d., Ljubljana did not adopt a programme to prepare a policy for creating own shares. The General Meeting resolution expired on 10 April 2020.

A dividend policy maximising long-term returns

A shareholder policy that is based on a long-term maximisation of returns for shareholders is one of the cornerstones of Petrol’s development strategy. Petrol’s management advocates a stable long-term dividend payout. This fits best with the Company’s development needs as it delivers more predictable returns and long-term stability of Petrol’s share price.

In accordance with a resolution of the 31st General Meeting of 23 July 2020, Petrol paid out in 2020 a gross dividend for 2019 of EUR 22 per share.

Overview of dividend payments 2014 – 2019

Accumulated profit

The accumulated profit of Petrol d.d., Ljubljana, as determined in accordance with the Companies Act, stood at EUR 45.36 million in 2020.

Regular participation in investors’ conferences and access to information

Petrol d.d., Ljubljana has set up a programme of regular cooperation with domestic and foreign investors, which consists of public announcements, individual meetings and presentations, and public presentations.

The Company also regularly attends investors’ conferences organised each year by stock exchanges, brokerage companies and banks. There were several individual meetings with investors and analysts in 2020. In March, June and September, we took part in a webcast of the Ljubljana Stock Exchange, while also participating in the Investors' Day organised by Ljubljana and Zagreb stock exchanges at the beginning of December however quite a few events were cancelled due to the coronavirus (Covid-19) pandemic.

All information relevant to shareholders, including the financial calendar, is published on the Company’s website. The contact person responsible for investor relations is Ms Barbara Jama Živalič, who can be reached at investor.relations@petrol.si.

Risk management

The Petrol Group operates in two intensive and challenging business activities: trading and energy. Both areas are facing significant changes, which require a fresh view of the key business model concepts. In the energy field, increasing importance is given to energy efficiency, new uses of existing energy products and to the development of new ones. There is increasing awareness of sustainable development, accompanied by tightening regulations. In trading, we are noticing a shift in the behaviour of end customers who are becoming more engaged and digitally aware. The Petrol Group is aware of these changes and has responded to them in its 2021 – 2025 strategy. We are addressing the trends in the energy industry with a comprehensive range of energy solutions. Thanks to new digital channels, a broader range of energy products and personalised offer, we will be even closer to our customers, helping them to make a transition from traditional energy sources to cleaner renewable energy. The described changes in the business environment and related trends increase risks while providing new opportunities. In its 2021 – 2025 strategy, the Petrol Group has adjusted its business objectives according to its risk management policies and its risk appetite.

In 2020 the pandemic was an additional and significant risk management factor with a sweeping impact on the Petrol Group's operations. The Petrol Group responded to the pandemic crisis in a comprehensive manner. Initially, activities were focused on ensuring the health of customers and employees, on the continuity of operations in the changed circumstances and on identifying and managing risks. Further activities, however, have had a long-term focus so that the Petrol Group can operate without interruption in a very different business environment. A report on the impact of the Covid-19 pandemic on the Petrol Group's operations and risk management is also available in chapter Analysis of business performance and impact of the pandemic on the Petrol Group's operations in 2020. 

In addition to the strategic risks described above and the risks arising from the business environment, financial (credit, liquidity, market, etc.) risks remained the Petrol Group's most relevant and probable risks according to the latest risk assessment from 2019. That is why several activities were carried out in this area in 2020. This resulted in updated risk assessment and monitoring methodologies being implemented, committees being established and improvements being made to the processes used to continuously control and monitor risk management at a global level and contribute to reducing the Petrol Group's exposure to individual financial risks. 

In connection with credit risks, we paid attention to our customers' solvency and, by extension, the balance and quality of operating receivables. We have also continued to build on the solid foundations laid in recent years in terms of the collaterals we hold. As at 31 December 2020, 80 percent of Petrol's trade receivables individually exceeding EUR 100,000 were secured through insurance policies, bank guarantees and other appropriate insurance instruments. In 2019 credit risk management was upgraded as we switched to a new information system that monitors our partners’ credit risk and supports the process of setting credit limits. The system was deployed within the parent company in 2019 and at a subsidiary in 2020. Most other Group companies of major significance will transition to the new system in 2021, as scheduled. 

The Credit Committee continued to actively pursue its mandate. In 2020 we further updated the system of limits in the B2B segment of credit risks, partially as a result of changes to the credit insurance system itself and partially due to the pandemic. Realising that our partners, just like us, will also face the financial consequences of the pandemic, we paid even more attention to receivables management. 

Liquidity of Petrol Group companies was ensured through the central management and reconciliation of current cash flows and by managing the Petrol Group's debt. During the spring wave of the pandemic, we gave particular attention to maintaining the liquidity of the Petrol Group. In ensuring the structural liquidity of the Petrol Group we follow the guidelines set out in connection with the rating assigned to us by Standard & Poor's Ratings Service. In 2020 our investment grade BBB- long-term credit rating, A-3 short-term credit rating and our stable credit rating outlook were reaffirmed by the agency. This continues to provide us with better access to financial sources and, at the same time, a stable financial position. In 2020 the Petrol Group's Management of Assets and Liabilities Board continued to monitor liquidity, foreign exchange and interest rate risks.  

The Petrol Group plays an increasingly important role in electricity sales, distribution and trading. As in the previous year, it was therefore necessary in 2020 to devote a lot of attention to credit, price and volumetric risks in this area and to upgrade the system of limits and its monitoring and reporting processes. We also strengthened our IT support systems for market risk monitoring. 

The above activities help us to develop a risk-awareness culture to ensure better control over the risks and high-quality information for decision-making at all operational levels. Risk management concerns each Petrol Group employee who is, as a result of their decisions and actions, exposed to risks on a daily basis while carrying out their work assignments and responsibilities. The very fact that at the Petrol Group risk management is integrated into all aspects of business enables us to generate added value for shareholders and maintain the investment-grade credit rating. 

Strategic outline for risk management at the Petrol Group

Strategic orientation: To ensure stable business growth while taking on moderate levels of risk. To adjust the required rate of return to expected risks.  

We are willing to take on risks arising from the Petrol Group's development strategy, which provides for stable business growth also in the future. We tread carefully, however, when taking on risks arising from: 

• expansion to new activities and markets in line with the strategic outline; 
• operations related to existing activities. 

We are not willing to take on the following risks: 

• environmental risks; 
• risks affecting the safety and health of our staff; 
• reputational risks; 
• risks of fraud and corruption; 
• risk of losing the investment-grade credit rating (arising from the Petrol Group's operations). 

In accordance with this overarching principle, the following strategic risk management orientations of the Petrol Group were defined:  

1. The Petrol Group shall monitor changes in the industry and markets, and proactively adapt its operations and targets in order to achieve its strategic objectives. 
2. New investments of the Petrol Group shall be aligned with its strategic and financial plans, and the required rates of return shall reflect the risks assumed. 
3. The Petrol Group’s human resources policy shall be aligned with its strategic orientations. The human resources department shall be actively involved in staff development and training while also monitoring the organisational climate.  
4. The Petrol Group shall promote compliance with the law and internal rules and, through its values and Code of Conduct, seek to build a corporate culture that promotes lawful, transparent and ethical conduct and decision-making.  
5. The Petrol Group shall be mindful of the operational risks it is facing and shall seek to establish an appropriate process, systemic and IT environment which allows for its strategic development and reduces operational risk to an acceptable level.  
6. The Petrol Group shall secure its energy product sales margins either through natural adjustments or derivative trading in order to hedge risk and ensure the stability of cash flows.
7. The Petrol Group shall make sure that its partner portfolio is of high quality and appropriately dispersed. The Petrol Group shall strive to have its at-risk receivables sufficiently secured, either by obtaining credit insurance instruments or taking out insurance. 
8. The Petrol Group shall provide for long-term financial stability through sustainable financial leverage. 
9. The Petrol Group shall manage its short-term liquidity by matching inflows and outflows and by maintaining adequate credit lines. 
10. The Petrol Group shall make every effort to hedge its interest rate risk. 

Petrol's risk model with most relevant and probable risk 

Petrol’s risk model consists of an integrated set of 20 risk categories divided into two major groups: environment risks and performance risks. 

Risk categories within the Petrol Group 

According to the latest risk assessment, which was performed in 2019, the most relevant and probable risks still comprise the following financial risks: price and volumetric risk, foreign exchange risk, credit risk and liquidity risk. To control and manage these risks, the most rigorous control system possible is required. The Company uses such a system, which is described in more detail in sections dealing with individual financial risks. In addition to the main financial risks, the most relevant and probable risks include legislation and regulation risks, interest rate risks, information risks, economic environment risks, business decision-making risks and political risks. 

The chart below shows the distribution of individual risks according to the latest assessment. 

Distribution of the Petrol Group's risks according to the latest assessment

Based on the assessment obtained for individual risk categories in terms of relevance and probability, risks are classified into four quadrants giving a broad indication of what kind of control system should be in place in order to control and manage them. 

The Petrol Group's risk management matrix with control methods

In 2020 individual risk categories were managed as follows: 

I. ENVIRONMENT RISKS

The Petrol Group protects itself against external environment risks by systematically monitoring developments in the business environment and responding to them in a timely manner. The most relevant and frequent risks included in the group of external environment risks consist of legislation and regulation risks. Although relevant, disaster risks, which also belong to this group, occur infrequently. Economic environment risks, financial environment risks and political risks were assessed as medium-relevance and lower-frequency risks and were classified into the second quadrant together with other environment risks. 

Legislation and regulation risks are managed by proactively engaging with institutions that are able to amend relevant laws and by analysing the impact of relevant legislative proposals and changes on the Petrol Group's operations. 

We try to identify the financial environment risks also through financial planning and simulations as well as through co-operation with the financial environment (banks, financial institutions, investors). What is more, these risks are taken into account when preparing the strategic business plan.