The Petrol Group s operations in the first half of 2022 marked by fuel price regulation
Ljubljana, 25 August 2022 – At its 16th meeting, the Supervisory Board of Petrol d.d., Ljubljana, discussed the Report on Operations of the Petrol Group and Petrol d.d., Ljubljana, in the First Six Months of 2022. In this period, the Petrol Group’s EBITDA amounted to EUR 48.6 million and net profit to EUR -1.3 million. As a result of the Government’s freezing of retail prices of petroleum products in the period from 15 March to 30 April 2022 and the reintroduced measure on 11 May 2022 for a period of 90 days, which the current Government terminated early on 21 June 2022, EBITDA loss in Slovenia amounted to EUR 108.9 million. The early termination of the Decree has stopped further loss from being incurred by the Company. EBITDA loss in Croatia where petroleum product price regulation measures have been in place since 7 February 2022 stands at EUR 14.5 million. Regardless of the volatile situation and the government regulation, the Petrol Group has continued it projects of energy transition, business digitalisation and integration of Crodux derivati dva, d.o.o. and E 3, d.o.o. into the Petrol Group, all the while paying special attention to the reliability of supply, cost management and business transparency. The Petrol Group has stayed a reliable partner to households, the economy, and the state.
Extremely complex business environment
In the first half of 2022, the Petrol Group was exposed to dynamic developments in the business environment at both the global level and in the markets where it operates. The beginning of the year was still marked by the Covid-19 pandemic. The energy crisis that had started in 2021 continued and further intensified under the influence of the war in Ukraine. This was followed by measures taken by individual governments to mitigate the effects of the crisis for people and companies alike. In the first half of 2022, the economy grew steadily, but it was accompanied by rising prices of fuels and energy commodities. The average price of crude oil stood at USD 107.9 per barrel in the first half of 2022, up by 66 percent year-on-year, and the average price in EUR was up by 84 percent year-on-year.
The Petrol Group’s operations in the first half of 2022 were most strongly affected by government measures in the field of motor fuel price regulation in Slovenia and Croatia. In Slovenia, the Company was forced to sell motor fuels at selling prices which were lower than the cost for 90 percent of the time in the period from 15 March 2022 until 30 June 2022. In Croatia, prices have been regulated since 7 February 2022. The imposed regulatory measures have fundamentally changed the Petrol Group’s business conditions. In all markets where it operates, the Petrol Group has consistently complied with the instructions given by competent institutions regarding the setting of motor fuel and energy commodity prices. The Petrol Group has responded to the difficult business conditions by further optimising costs and streamlining its business operations and by tailoring its products and services to the current situation.
Business results in the first half of 2022
The Petrol Group is not vertically integrated in the oil industry, meaning it does not have its own access to crude oil and its own refinery, as a result of which it is fully dependent on motor fuel imports. Furthermore, the half-yearly business results of the Company and the Petrol Group are a reflection of the effects of government interventions on the key business conditions and as such they are not directly comparable to the business results from previous periods.
In the first six months of 2022, the Petrol Group’s sales revenue stood at EUR 4.2 billion, a year-on-year increase of 126 percent and 39 percent above the plan for the period. In addition to the increased volumes of fuels and fuel products sold, the year-on-year growth of revenue was affected primarily by the rising selling prices of fuels, electricity and natural gas.
Adjusted gross profit stood at EUR 245.4 million in the period concerned, which is 5 percent less year-on-year and 19 percent below the plan for the period. The positive contribution to the growth of adjusted gross profit owing to the integration of Crodux derivati dva d.o.o. into the Petrol Group was annulled by the effect of fuel price regulation in Slovenia and Croatia, since the regulated selling prices were below the cost of fuel throughout most of the period concerned. EBITDA stood at EUR 48.6 million in the first six months of 2022, down by 52 percent year-on-year and 64 percent below the plan. The positive effect of the integration of Crodux derivati dva d.o.o. into the Petrol Group on EBITDA and a good result in electricity trading, however, was annulled by the loss resulting from the regulated fuel prices in Slovenia and Croatia.
In the current highly demanding period, the Petrol Group focuses greatly on managing costs, which have mostly stayed within the planned values the high sales and inflation. Operating costs stood at EUR 229.4 million in the first six months of 2022, a year-on-year increase of EUR 41.3 million or 22 percent, of which EUR 26.0 million on account of the integration of Crodux derivati dva d.o.o. into the Petrol Group and the rest on account of the rising selling prices of energy commodities and costs which are directly linked to higher volumes of fuels sold.
Net profit of the Petrol Group for the first six months of 2022 stood at EUR -1.3 million as a result of the significant decrease in EBITDA resulting from fuel and fuel product price regulation because the Company was forced to sell fuel at prices below the cost.
Energy transition and digitalisation
Many development-oriented projects were conducted at the Petrol Group in the first half of 2022, all of which will help to further boost the Petrol Group’s competitiveness and success in the long run.
Regardless of the acute challenges in the business environment, the Petrol Group continues to focus on the energy transition and fulfilment of sustainability commitments. In the first half of 2022, the Petrol Group invested 66 percent of a total of EUR 23.2 million of investments in the energy transition. The majority of investments in the energy transition are intended for renewable electricity generation. In the field of electricity generation from wind energy, Petrol already operates two wind power plants in Croatia - Glunča WPP and Ljubač WPP; the latter received the final operating permit in April. Furthermore, contracts for the construction of the Suknovci, Pliskovo and Vrbnik solar power plants were signed in Croatia; these solar power plants are expected to start operating in 2023. Petrol Green, a project in which solar power plants will be installed on rooftops of points of sale and own buildings has been launched. In the first phase, 46 points of sale will be equipped with solar power plants, whereas the goal is to equip the entire network of Petrol’s buildings in the subsequent phases.
SAP ERP system migration was successfully completed in all key Petrol Group companies at the start of the year.
The Petrol Group also launched the supply chain digitalisation project for the supply to service stations, delivery of heating oil and gas and sales of cylinders. The project will be completed in the spring of 2024.
In the first half of the year, integration of E 3, d.o.o. and Crodux derivati dva d.o.o. to the Petrol Group was successfully implemented. By the summer, 68 out of a total of 93 Crodux service stations were successfully included in Petrol’s sales network. The final merger with Petrol d.o.o, Zagreb was planned by the end of 2022, but it will already be completed two months before the deadline.
Effect of energy crisis on the Petrol Group’s Business Plan for 2022
Because of the magnitude and length of the energy crisis and the already imposed and announced energy commodity price regulation measures, it will not be possible to achieve the objectives set in the Petrol Group’s Business Plan for 2022 without proper compensation.
The Management Board of the Company has been implementing activities in order to receive compensation relating to the petroleum product retail price regulation in effect in the abovementioned period. EBITDA loss for the Slovenia and Croatian markets together stands at EUR 123.4 million in the first half of 2022 (Slovenia: EUR 108.9 million, Croatia: EUR 14.5 million). By including the payment of the aforementioned compensation for the economic loss and lost profit, the Petrol Group would achieve the performance indicators from the plan for 2022.
The Supervisory Board is aware of the severity of the current situation. It believes that, in the difficult situation surrounding the energy crisis and the government regulation, the Management Board of the Company has managed the operations of the Company and the key risks responsibly and professionally in the first half of 2022. By providing a comprehensive range of energy products and services and efficiently adjusting to the demanding business conditions, the Petrol Group has mitigated the consequences of negative trends in the business environment to the maximum possible extent. The Management Board has regularly monitored the developments on energy markets and the preparation of government measures to mitigate the effects of the energy crisis. In doing this, it has and will continue to endeavour to engage in a constructive dialogue with decision makers with the purpose to find suitable solutions for the energy crisis mitigation measures and for the compensation for the economic loss and lost profit of the Petrol Group resulting from limited motor fuel prices.
The Management Board of the Company presented the Report on the Effect of Fuel and Energy Product Price Regulation on the Petrol Group’s Business Plan for 2022, including the possible scenarios, to the Supervisory Board. In the Report, it presented the estimation of the effect of the fuel price regulation measures already in force in the first half of 2022 and the scenarios of the energy product price regulation measures forecast for the second half of 2022. Owing to the high uncertainty regarding the payment of compensation due to the motor fuel and other energy commodity price limitations (electricity and natural gas) in Slovenia and Croatia in 2022, the effect of the measures on the realisation of the Petrol Group’s Business Plan for 2022 cannot be estimated as of yet and, as a result, the Petrol Group’s Revised Business Plan for 2022 cannot be prepared.
Petrol d.d., Ljubljana is a joint-stock company. The Management Board of Petrol d.d., Ljubljana, is tasked with managing the Company by duly pursuing the interests of the Company, all the while keeping in mind its responsibility towards all stakeholders – employees, customers, business partners, broader society and shareholders. The Petrol Group is keeping a close eye on the developments in the business environment and will continue to take the necessary action to protect the interests of the Company. It will continue to make every effort to ensure an uninterrupted supply of fuels and energy commodities to all Petrol Group consumers in all markets where it operates.
In the light of the foregoing, the Supervisory Board will keep a close watch on the implementation of the relevant activities and convene an extraordinary Supervisory Board meeting by 6 September 2022.