Selected performance indicators

 

Information pursuant to Art.39, item 2 of the Accountancy Act

 

Financial indicators		2019	2018	2017	2016	2015
Net revenue	BGN mln	538.5	526.8	479.1	487.8	662.5
	EUR mln	275.3	269.3	245	249.4	338.7
Gross margin from sales of goods	BGN mln	56.9	49.3	47.7	45.3	63.2
	EUR mln	29.1	25.2	24.4	23.2	32.3
	%	10.8	9.5	10.1	9.4	9.7
EBITDA	BGN mln	4.1	5.4	(7.3)	(7.5)	(126.4)
	EUR mln	2.1	2.8	(3.7)	(3.8)	(64.6)
	%	0.7	1.0	(1.5)	(1.5)	(18.8)
EBIT	BGN mln	0.2	4.5	(8.8)	(9.4)	(131.8)
	EUR mln	0.1	2.3	(4.5)	(4.8)	(67.4)
	%	0.0	0.8	(1.8)	(1.9)	(19.6)
Net profit (loss)	BGN mln	(5.0)	55.9	1.4	(11.3)	102.9
	EUR mln	(2.6)	28.6	0.7	(5.8)	52.6
	%	(0.9)	10.4	0.3	(2.3)	15.3
Share price	BGN	0.715	0.985	0.44	0.478	0.63
	EUR	0.37	0.50	0.22	0.244	0.32
Assets	BGN mln	139.6	130.2	100	95.9	109.5
	EUR mln	71.4	66.6	51.1	49.0	56.0
Debt	BGN mln	47.4	48.2	41.6	41.7	50.4
	EUR mln	24.2	24.6	21.3	21.3	25.8
Shareholders' equity	BGN mln	14.6	19.6	(34.2)	(36.3)	(24.6)
	EUR mln	7.5	10.0	(17.5)	(18.6)	(12.6)
Capital expenditure	BGN mln	2.5	1.1	2.8	0.9	7.7
	EUR mln	1.3	0.6	1.4	0.5	3.9

 

 

 

Financial ratios	2019	2018	2017	2016	2015
Return on average capital employed (ROACE) (%)	0.25	12.82	(262.6)	(76.85)	(691.96)
Return on assets (ROA) (%)	0.12	3.90	(8.99)	(9.19)	(51.91)
Debt/assets (%)	33.96	37.05	41.64	43.43	46.06
Equity/Assets (%)	10.44	15.03	(34.17)	(37.89)	(22.47)
Current liquidity (ratio)	1.24	1.41	0.84	0.71	0.82
Goods turnover ratio (days)	17	17	17	15	21
Accounts receivable collection period (days)	18	17	20	21	33
Accounts payable payment period (days)	40	35	30	19	37

 

 

Operating ratios	2019	2018	2017	2016	2015
Sales of fuels (mln. liters)	297.6	292.2	289.2	324.8	391.9
Sales of fuels (thousand tons)	2.2	1.5	1.6	1.1	1.3
Number of fuel stations under "Petrol" brand (end of period)	320	322	328	334	334
Number of operated fuel storage facilities (end of period)	1	2	2	1	1
Share of sales revenue with credit cards	26%	25%	24%	21%	19%
Number of employees (end of period)	1,247	1,181	1,204	1,349	1,442

 

 

 

Group Profile

 

Information pursuant to Art. 48, par. 2, item 1 of the Accountancy Act

 

Petrol today - energy for people

 

Petrol Group (the Group) is one of the largest players in the fuels market in Bulgaria. At the end of 2019 besides the Parent company Petrol AD, twelve other subsidiaries are included in Petrol Group (see Group Structure). The major activities of the Group include storage, wholesale and retail trading with fuels and other petroleum products. At present, under the Petrol brand operates the most well-developed retail distribution network of fuels in the country.

 

As at December 31, 2019, the retail network comprises 320 filling stations evenly spread throughout the country providing national coverage. In 2019, the Group continued the process of reconstruction and modernization of the filling stations included in the retail network for distribution of fuels and other goods. Network modernization includes several areas: a programme for modernization of existing facilities, a programme for installation of Universal type filling stations and a programme for installation of LPG and CNG stations. 

 

As at the end of 2019, all trade sites are equipped with systems for collection of vapour emitted during unloading of fuels complying with all environmental protection requirements, while 135 of the managed sites were reconstructed into a modern European style. All kinds of unleaded gasoline and Euro diesel are sold in all filling stations, LPG is offered in 192 of the fuel stations and four sites offer methane. The sites also offer a full range of Bulgarian and imported motor and transmission lubricants, brake and antifreeze fluids, automobile cosmetics, spare parts and accessories. In addition, the newly built and reconstructed sites have fast-food places and some provide internet access to customers. The stores at the sites offer more than 4,000 items of leading Bulgarian and world producers of food, personal cosmetics, gifts, accessories, newspapers, magazines and others.
 

Additional facilities and services are provided in many sites such as car washes, inspection/service pits, pits for dismounting, mounting and balance of tyres and other auto services. In all sites Visa, MasterCard and Transcard are accepted. Customers can also withdraw and pay in cash.

 

The wholesale trading and storage of fuels during 2019 are made through the operated by the Group storage depots in Varna and Plovdiv and through purchases from other storage facilities operated by third party operators.

 

As at December 31, 2019 the storage depot in Varna operated by Petrol Group is licensed for operation of tax warehouse in compliance with the Excise Duty and Tax Warehouse Act (EDTWA), which provides an opportunity for temporary suspension of excise duty taxation. The Group operates one port terminal for loading and unloading of fuels, located at the Black Sea coast.

 

The activities of the Group concerning wholesale and retail trading of fuels are subject to strict control regarding the implementation of ecological requirements for environmental protection. In that relation the Group continues to invest in the construction and renovation of systems for collection and recovery of vapours (VRU) in the retail trade stations and storage facilities under the requirements of Ordinance No 16 for restriction of the emissions of volatile organic compounds in storing, loading or unloading and transportation of petrol.

 

Quality control

 

The company's technical and ecological standards in trade sites established by Petrol Group are at a higher level than mandatory requirements in European Union. In the petrol stations and storage facilities are stored fuels keeping all technological requirements, in compliance with the assumed quality standards. The Management of the Group relies on the high quality of the sold fuels. The Group's policy excludes any compromises with the technology and the ecological standards. The fuel stations comply with all applicable regulations and with the best European and international practices.

 

The uncompromising quality of the offered fuels is guaranteed by laboratories, where with the help of modern technologies, the strict control and quality analysis of fuel and petroleum products are carried out. Experts on fuels quality are testing the Group's retail stations several times per year. The Group works in closely manner with various state institutions in the field of quality control of liquid fuels.

 

 

Mission

 

The mission of Petrol Group is to accomplish a stable growth on shareholders' return in a long term along with commitment to its clients, employees, partners and generally to the society.

 

The Group's Management relies significantly on the high professional behavior, ethics and business integrity towards its partners in achieving the ambitious corporate goals. The Management of the Group is led by its striving to high quality.
 

Strategy

 

The Group's major strategic objective is to maintain and to develop its leading position in the Bulgarian retail and wholesale fuel distribution market. To achieve this strategic goal, a long-term strategy has been adopted, which includes several key elements:

·    Increasing the efficiency of managed assets;

·    Optimizing and expanding the distribution network;

·    Expanding the portfolio of products and services;

·    Strengthening and expanding the market presence.

Increasing the efficiency of managed assets

 

The Group will continue to invest in the modernization and reconstruction of the existing trade sites included in the retail and wholesale distribution networks. The budgeted investment will be aimed not only at improving of the technical condition and appearance of trade sites, but also at reducing the technological losses from operation of equipment and compliance with environmental requirements.

 

Optimizing and expanding the distribution network

 

The Group intends to continue the expansion of the distribution network for retail sales. This will be achieved by opening new sites on new locations and by consolidation of the Group's smaller independent competitors through franchise/ dealership arrangements. At the same time the process of optimizing the distribution network will continue to be aimed at identifying unprofitable sites, suspending their operations and eventually selling them.

 

The Group plans to continue the development of loyalty programs for retail clients. By increasing the advertising of the newly offered products and services under the Petrol brand, the Group aims to strengthen the image of Petrol AD as an innovative company working with care to the client, society and the environment.

 

Expanding the portfolio of products and services

 

The Management of the Group places a high priority on being at the forefront of customer demand for cleaner and improved performance fuels. In that relation the Group plans to increase rapidly its sales of compressed natural gas (CNG). Since 2009 the Group offers a full range of branded Force Fuels - Blue Force Gas, Gasoline 96 Extra Force and Pro Force Diesel. In 2016 the Group started to offer a new branded diesel fuel, named Green Force Diesel. The new diesel fuel is blended with the engineered in Germany high quality supplement LIQUI MOLY. At the end of 2016 the offering of Gasoline 100 eXXtra Force has also been launched. The highly octane new product successfully replaces the Gasoline 96 Extra Force, as increases the efficiency of the engine performance, improves the automobile dynamics and decreases the fuel consumption.

 

The innovative fuels contain additives, which accelerate power of automobiles, reduce expense by up to 10% by improving system efficiency, decrease carbon deposits in the fuel system and the discharge of harmful emissions (CO2, CO, NOX) by approximately 70%.
 

In addition the Group intends to expand its product range by offering non-petroleum products and services to meet the needs of the modern consumer and to attract new clients, increasing the sales of trade sites, the Group's operating profit and therefore the returns to shareholders. The additional services include rental of a part of the commercial areas (for example car-washes and billboards), insurances etc.

 

Strengthening and expanding the market presence

 

The Parent company Petrol AD plans to further increase the sales of petroleum and non-petroleum goods by investing in modernization of the trade sites, including renovation and expansion of the total commercial area. The Management aims to strengthen the position of Petrol AD as an innovative company caring for the clients, the society and the environment, by advertising the new products and services with the Petrol brand more intensively.

 

Information pursuant to Art.39, item 5 of the Accountancy Act

 

In 2019 the companies of the Group did not carried out research and development activities. 

 

Group Structure

 

Information pursuant to item. 7 of the Appendix No. 10 to the Ordinance No. 2 of September 17, 2003

 

As at December 31, 2019 Petrol Group consists the Parent company and 12 subsidiaries:

 

·   Varna Storage EOOD was registered in Varna in 2011. In August 2012, the company's capital was increased by an in-kind contribution by the Parent company Petrol AD. The company specializes in the processing, storage and trading with petroleum and petroleum products. As at December 31, 2019 the company is operator of SD Varna. The Petrol Group is a sole owner of the capital as at December 31, 2019. In 2019 the company generated total revenue of BGN 7,902 thousand, positive EBITDA of BGN 3,092 thousand and net profit for the year at the amount of BGN 2,441 thousand. As at December 31, 2019 the total assets of the company amounted to BGN 7,346 thousand with total liabilities of BGN 15,639 thousand and negative net assets at the amount of BGN 8,293 thousand.

 

·   Petrol Technologies OOD is a limited liability company incorporated in October 2014 and registered in Registry Agency with UIC 203259540. The company's activities include IT consulting, developing, administration and maintenance of computer networks and servers and any other activity not prohibited by law. As at December 31, 2019 the Group owns 98.8% of the company's shares. For 2019 the company reported total revenue of BGN 179 thousand, positive EBITDA of BGN 131 thousand and net loss for the period of BGN 17 thousand. As at December 31, 2019 the total assets of the company amounted to BGN 1,104 thousand, with total liabilities of BGN 389 thousand and positive net assets of BGN 715 thousand;

 

·   Petrol Finances OOD is a limited liability company established under the name Petrol Technologies EOOD in December 2014 and registered in the Registry Agency with registration number 20141216164853/16.12.2014. In February 2015 Petrol AD bought 99% of the capital of Petrol Technologies EOOD, which was subsequently renamed to Petrol Finances OOD. The Company's scope of business includes financial and accounting services, preparation of financial analyzes, forecasts and recommendations for efficient organization of the financial activity, as well as any other activity not prohibited by law. As of December 31, 2019 Petrol Group owns 99% of the company's capital. For 2019, the company generated total revenue amounting to BGN 1,595 thousand, positive EBITDA of BGN 81 thousand and net profit for the period of BGN 72 thousand. As at December 31, 2019 the company owned total assets for the amount of BGN 270 thousand, total liabilities of BGN 207 thousand and negative net assets of BGN 63 thousand;

 

·   Petrol Finance EOOD is a solely owned limited liability company registered in the Commercial Register at the Registry Agency on November 10, 2015 with registration № 20151110101104 and UIC 203776395. The Company's main business activity includes financial and accounting services, preparation of financial analyzes forecasts and recommendations for efficient organization of the financial activity, as well as any other activity not forbidden by law. As of December 31, 2019 the Group owns 100% of the company's capital. For 2019 the company was engaged in minimal commercial activity, generating total revenue of BGN 3 thousand;

 

·   Lozen Asset AD is a joint-stock company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency in July 2015 with UIC 203624804. The company's main activity includes acquisition, operation, management and disposal of property, consultancy and any other activity not prohibited by law. As at December 31, 2019 the Group owns 100% of company's capital. For 2019 the company generated total revenue of BGN 48 thousand, with negative EBITDA amounted to BGN 80 thousand and net loss for the period of BGN 140 thousand. As at December 31, 2019 the company owned total assets of BGN 2,925 thousand, total liabilities of BGN 1,757 thousand and positive net assets of BGN 1,168 thousand;

 

·   Elit Petrol - Lovech AD is a joint-stock company incorporated and registered in the Registry Agency in January 2015. The main activity of the company includes processing, import, export, business and other petroleum products and any other activity not prohibited by law. As of December 31, 2019 the Group owns 100% of the capital. In 2019 the company did not carried out business activity and did not generate sales revenue. For 2019 the company reported a negative EBITDA of BGN 9 thousand and net loss for the period of BGN 73 thousand. As at December 31, 2019 the company owned total assets of BGN 2,384 thousand and total liabilities of BGN 377 thousand, as a result at the end of 2019 the net assets of the company are positive amounting to BGN 2,007 thousand;

 

·   Petrol Properties EOOD is a solely owned limited liability company incorporated under the Bulgarian legislation and registered in Sofia City Court under company court file number 20902/2007, respectively re-registered in the Commercial Register at the Registry Agency with UIC 175457505. The Company's scope of activity: trading with movable and immovable property, purchase of goods or other property for the purpose of resale in initial or processed form, internal and external trading, commercial representation and agency of local and foreign individuals and legal entities in the country and abroad, consulting services and many other activities not prohibited by law. As at December 31, 2019 the Group owns 100% of the capital. The company did not carry out commercial activity in 2019 and not generated revenue;

 

·   Kremikovtsi Oil EOOD is newly established solely owned company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency with UIC 205714200 in June 2019. The company was established with a contribution in-kind by Petrol AD of the assets to the SD Kremikovtsi, including land, buildings and removable property. The company's core business is processing, import, export and trading with oil and petroleum products. As at December 31, 2019 the Group is a sole owner of the company's capital. The company's total revenue for 2019 is BGN 10 thousand, with negative EBITDA at the amount of BGN 6 thousand and net loss of BGN 6 thousand. As at December 31, 2019 the company owns total assets of BGN 1,745 thousand and positive net assets of BGN 1,734 thousand;

 

·   Shumen Storage EOOD is newly established solely owned company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency with UIC 205714218 in June 2019. The company was established with a contribution in-kind by Petrol AD of the assets to the SD Shumen, including land and buildings. The company's core business is processing, import, export and trading with oil and petroleum products. As at December 31, 2019 the Group is a sole owner of the company's capital. The company's total revenue for 2019 is BGN 19 thousand, with positive EBITDA at the amount of BGN 15 thousand and net profit of BGN 7 thousand. As at December 31, 2019 the company owns total assets of BGN 1,659 thousand and positive net assets of BGN 1,657 thousand;

 

·   Office Estate EOOD is newly established solely owned company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency with UIC 205754383 in July 2019. The company was established with a contribution in-kind by Petrol AD of land and buildings in Sofia city. The company's core business is deals, management and ownership of real estates and any other activity not prohibited by law. As at December 31, 2019 the Group is a sole owner of the company's capital. The company's total revenue for 2019 is BGN 7 thousand and net loss of BGN 4 thousand. As at December 31, 2019 the company owns total assets of BGN 1,545 thousand and positive net assets of BGN 1,537 thousand;

 

·   Svilengrad Oil EOOD is newly established solely owned company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency with UIC 205818576 in September 2019. The company was established with a contribution in-kind by Petrol AD of the assets to the SD Svilengrad, including land, buildings and movable property. The company's core business is processing, import, export and trading with oil and petroleum products and any other activity not prohibited by law. As at December 31, 2019 the Group is a sole owner of the company's capital. The company's total revenue for 2019 is BGN 5 thousand, with positive EBITDA at the amount of BGN 1 thousand and net loss of BGN 9 thousand. As at December 31, 2019 the company owns total assets of BGN 1,833 thousand and positive net assets of BGN 1,833 thousand;

 

·   Varna 2130 EOOD is newly established solely owned company incorporated under the Bulgarian legislation and registered in Commercial Register at the Registry Agency with UIC 205838664 in September 2019. The company was established with a contribution in-kind by Petrol AD of the assets to the filling station in Varna city, including land, buildings and movable property. The company's core business is processing, import, export and trading with oil and petroleum products and any other activity not prohibited by law. As at December 31, 2019 the Group is a sole owner of the company's capital. The company's total revenue for 2019 is BGN 25 thousand, with negative EBITDA at the amount of BGN 18 thousand and net loss of BGN 27 thousand. As at December 31, 2019 the company owns total assets of BGN 1,538 thousand, total liabilities of BGN 65 thousand and positive net assets of BGN 1,473 thousand.

 

All subsidiaries have a registered address in the Republic of Bulgaria. For additional information concerning the subsidiaries included in the preparation of the consolidated financial report (see also note 30 and note 31 to the annual consolidated financial report for 2019).

 

Information pursuant to Art. 39, item 7 of the Accountancy Act

 

The Group has no registered branches.

 

Information pursuant to item 13 of the Appendix No. 10 to the Ordinance No. 2 of September 17, 2003

 

The Group has not adopted an investment policy for 2020 so it has not carried out an assessment of the opportunities of the applied investment intentions.

 

Management Bodies

Information pursuant to Art. 100l, par. 7 of the Public Offering of Securities Act and Art. 48, par. 1 of the Accountancy Act

 

The Parent company has two-tier board structure, which includes Management Board (MB) and Supervisory Board (SB). The names and the functions of the members of the SB and MB of Petrol AD are presented below. For members of the Management Board а short biographical information is presented:

Supervisory Board
Ivan Voinovski	Chairman
"Petrol Correct" EOOD, represented by Nikolay Gergov	Member
"Petrol Asset Management" EOOD, represented by Armen Nazaryan	Member
Management Board
Grisha Ganchev	Chairman of the Board
Georgi Tatarski	Deputy of the MB and Chief Executive Officer
Milko Dimitrov	Member of the MB and Chief Executive Officer
Lachezar Gramatikov	Member of the MB
Kiril Shilegov	Member of the MB

 

Grisha Danailov Ganchev was born on 10 December 1962 in Lovech. He had obtained his bachelor's degree in "Accounting and Control" from the University for National and World Economy- Sofia, obtained a master's degree in "BM" from American International Academy, St. Louis and a master's degree in "Law" from Blagoevgrad University "Neophyte Rilski". In the period since 1990 to 1999, Mr. Ganchev was Manager of "Litex Commerce" AD. Between 1999 to 2008 Mr. Ganchev was a CEO of "Litex Commerce" AD. In the period since 2008 until May 2014 he was a chairman of the Supervisory Board of "Litex Commerce" AD. Fluent in Russian and English.

 

Georgi Ivanov Tatarski was born on 2 September 1960 in Razlog. He had obtained his bachelor's degree in "Technology of Mechanical Engineering" from Moscow State Technological University and a master's degree in "International Economic Relations" from the Russian Academy of Foreign Trade in Moscow. He has worked successively at management positions in "Mineralimpex" AD, "Interbrands Marketing End Distribution Inc." OOD "Hydro Bulgaria" EOOD, "Shell Gas Bulgaria" AD, "OMV Bulgaria" EOOD, "Opet Aygaz Bulgaria" EAD. Fluent in English and Russian.

 

Milko Konstantinov Dimitrov was born on 6 June 1985 in Lovech. He had obtained his bachelor's degree in "Investments and Management of Financial Risk" and has a master's degree in "Investment Management" from Cass Business School, City University, London, UK. He was Executive Director of "Litex Commerce" AD and CEO of "Litex" AD. Fluent in English.

 

Lachezar Nikolov Gramatikov was born on 2 October 1975. He has a master's degree in "Macroeconomics" from the University of National and World Economy Sofia. His professional experience includes various management positions in "Petrol AD" and "EKO Bulgaria" EAD. From March 2013 to June 2014 he took the position of Manager "Business Development" in "EKO Bulgaria" EAD. As of June 2014 topped the Commerce Department in "Petrol AD", as a director of "Trade and Marketing". Fluent in English.

 

Kiril Emilov Shilegov was born on 20 August 1977 in Sofia. He had obtained his bachelor's degree in "Communication Engineering" from the Technical University of Sofia. He started his work experience in the "British Council - Sofia", where he worked on projects related to the Ministry of Culture of the Republic of Bulgaria, then continued his career in "Bridge Consort" AD and "Elana Investment" AD. From 2007 to 2010 he took the position "Senior Expert European Programmes" in "Elana Investment" AD. Fluent in English.

 

Information pursuant to item 14 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

In 2019, there were no changes in the core management principles of the Group and the Parent company Petrol AD in particular.

 

Information pursuant to item 16 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

On February 23, 2017 the Chairman of the Supervisory Board of the Parent company passed away.  On EGMS held in February 2019 a decision for the replacement of the deceased member of the Supervisory Board Ivan Voynovski with Rumen Konstantinov was taken. The application for registration of these circumstances in the account of the Parent company was refused, which was disputed by the Parent company within the statutory term.

In addition to the refusal, the registration proceedings were suspended by a request of minority shareholders until the pronouncing of the Lovech Regional Court on applications for annulment of the decision. In May 2019 the Lovech Regional Court enacted a decision, which repealed the enacted refusal and turn back the case to the Registry Agency for registration of the applied entry after a resumption of the ceased registration proceedings. At present, the court proceedings for repealing of the decisions of EGMS from February 2019 are pending.

In 2019 there are no changes in terms of the members of MB and SB of the Parent company.
 

Risk Factors influencing the activity of Petrol Group

 

Information pursuant to Art.39, item 1 of the Accountancy Act concerning the risks faced by the Company

 

Market Environment Analysis

The Group's results from operations are affected by a number of factors, including macroeconomic conditions in Bulgaria, competition, variation of gross margins, fluctuations in crude oil and petroleum product prices, product mix, relationships with suppliers, legislative changes, and changes in currency exchange rates, weather conditions and seasonality.

 

Macroeconomic conditions in Bulgaria

The Petrol Group's activity is influenced by the general economic condition of the country and in particular the degree of the successful adoption of the market-oriented economic reforms by the government, changes in the gross domestic product (GDP) and the purchasing power of the Bulgarian customers. In the long term the change in the fuels consumption in the country is commensurate with the GDP.

 

In 2019, according to preliminary data of the National Statistical Institute (NSI), Bulgaria reported an annual real increase in the gross domestic product of 3.4% (2018: 3.1%), as a fifth year in a row of over 3% annual increase. Fundamental effect for the increase has the private consumption, which has increased by 5.8% in 2019, influenced by the low interest levels, increased bank lending, higher persons' income and the increased employment. While in 2018 the goods and services produced in the country assessed on current prices were estimated at BGN 109.695 billion, in 2019 they surged to BGN 118.669 billion, reporting a nominal surge of 8.2% on annual basis. In 2019 the gross added value amounted to BGN 102,269 billion, while the nominal indicator increased by 7.5% compared to the previous year.

 

According to preliminary data of National Statistical Institute as at the end of 2019 the number of the employees in the country is 3,222.7 thousand. For the fourth trimester of 2019 the unemployed are BGN 138.5 thousand, while the unemployment rate decreased by 0.6% compared to the previous year. In 2019 the unemployment rate reached the lowest historical value of 4.2% (2018: 5.2%). For 2019 the labor productivity has increased by 3% (2018: 3.2%). According to NSI data, the average monthly remuneration per person reached BGN 1,349 thousand (2018: BGN 1,205 thousand) and rose by 12% on annual basis.

 

The annual inflation measured for 2019 based on the average annual consumer price index was 3.1% compared to 2.8% for 2018.

 

Following the widespread of Covid 19 coronavirus across the world at the beginning of 2020, the World Health Organization announced the situation, caused by the new corona virus as a world pandemic. As a result of the widespread and fast spread of the virus, several governments in Europe imposed a state of emergency. In March 2020 were reported the first cases of infected people in Bulgaria. On March 13, 2020 with a decision of the Parliament a state of emergency was imposed. On purpose to limit the spread of the corona virus infection an Order of the Health Minister was issued for introduction of anti-epidemic measures, which directly affected the trade activity of the Group. The imposed anti-epidemic measures significantly limit the economic activity in the country and business subjects' relationship.

A possible long-term slowdown of the economic activity in the country would lead to a decrease in Group's revenue, regular payment difficulties and operating losses.

 

Competition

 

In the past few years a trend for customers gradually choosing the well-known trade marks with traditions in retail fuel sales was observed. As a result some small players were forced to drop out of business or to sign franchise/dealership arrangements with the major companies in the sector. As a result of the change in customer preferences and the implementation of additional legislation control by the government, the market share of the small independent players continues to decline. The absence of strategic deals in the retail sector and significant investment programmes by the major players led to minimum change in the retail market shares of the companies. In 2019, seven major companies dominated on the retail market - LUKoil Bulgaria EOOD, Petrol AD, OMV Bulgaria EOOD, Shell Bulgaria EAD, Eko Bulgaria EAD, Rompetrol Bulgaria AD and NIS Petrol EOOD.

 

Concerning the wholesale market the fuel needs in the country are met by the output of the refinery Lukoil Neftochim in Burgas, the refinery "Insa oil" in Ruse and from import. The refinery in Burgas sells its oil products in the country exclusively through Lukoil Bulgaria EOOD. Major importers of fuels are OMV Bulgarian OOD, Insa Oil EOOD, Rompetrol Bulgaria AD and Eko Bulgaria EAD. The import of petroleum products in the country is carried out mainly by the neighboring Bulgaria countries. This is determined by the fact that some of the fuel market participants are economically related to the owners of the capital of the refineries in those countries. In 2019, the wholesale market followed the trend and volatility of crude oil prices on international markets.

 

Gradual introduction of new environmental standards and additional means of control by the government, increased the costs for companies in the sector, but on the other hand minimized the unfair competition, eliminating market participants who are part of the grey economy.

 

Key trade partners

 

Information pursuant to item 2 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

Due to the specific of the primary business of Petrol Group, namely retail and wholesale trading with fuels, the Group's fuels supplies are provided by a small number of suppliers, as a result of which the Group is at risk of discontinuation of relationships with key suppliers, which may lead to a short-term depletion of inventories and trading activity difficulties. For 2019 the major Company's supplier with share over 10% from the total sales and distribution costs is Litex AD.

 

·   The headquarter address of Litex AD is 3 Lachezar Stanchev Str. fl.14, Sofia. The company's business includes purchase, production, processing of goods for sale, commission and any other activity not forbidden by the law.

 

Group's revenue from operations are generated primarily from two segments - retail sales and wholesale sales. In 2019 there is no client the sales revenue to which to exceed 10% of total sales revenue. Petrol Group's wholesale and retail trading with fuels, lubricants and other goods is carried out through its own and rented from third parties petrol stations and storage facilities. A risk from the suspension of the relationships with the lessors and discontinuation of the lease contracts of the petrol stations and/or storage facilities existed, which can have a negative impacts on Petrol Group as decrease in sales, worsening the financial results and loss of market share.

 

Trade margins

 

Approximately 90% of Petrol Group's sales revenue are formed of wholesale and retail sales of fuels and a significant and lasting decrease in gross margin from sales of fuels would negatively reflect on the final financial results of Petrol Group.

 

In 2019, the average gross margin per liter of fuel (methane in kg) has increased compared to 2018. The increase is due to the higher retail gross margin of sales of fuels in 2019 compared to 2018.

 

Price fluctuations in crude oil and petroleum products

 

The Petrol Group is at risk of frequent and sharp changes in prices of fuels and non-petroleum goods. Because of that, the future financial results may diverge significantly from the expectations of Petrol Group's Management.

 

Any future sharp fluctuations in the prices of fuels and non-petroleum goods may lead to a deterioration of the financial position of the Group.

 

Since the international quotations of crude oil serve as a basis for the calculation of purchasing and selling prices, the volatility of the crude oil and petroleum products prices have a significant impact on the sales revenue and cost of goods sold of the oil products. For 2019 the international quotations of Brent crude oil have moved in consolidation without clearly defined direction while only in the first quarter of 2019 the price has followed entirely a uptrend, reaching the highest level for the year of 76 us dollars for a barrel. Following the quotations of the black gold at approx. USD 54 for a barrel at the beginning of 2019, the price closed at above USD 67 for a barrel at the end of the year, increasing by almost 24% on annual basis. 

 

Product mix

 

The fuels market can be conditionally divided to light fuels and dark fuels according to the applied technological schemes of crude oil fractioning in its processing. The dark fuels are mainly used for heat energy production or are used in construction and form a relatively small part of the fuels market (approx. 10-15%). The light fuels are used mainly for ensuring the needs of the different types of transport. The most widely distributed are motor gasoline A-95H and diesel.

 

In 2019 the Bulgarian market of motor fuels has not undergone a significant change. The last-years tendency of shifting from all types of gasoline to LPG and diesel has remained. The increased diesel consumption is explained by the arising of the modern diesel engines and fact that the transportation industry use this type of fuel. Additional factor for the lower gasoline consumption was the usage of LPG systems for gasoline engines driven by the significantly lower price of LPG compared to the prices of motor gasolines. The branded fuels and CNG came widely into the market. Due to their better quality, these fuels can offer acceleration of the automobile power, fuel expense reduction, increased engine life, etc.

 

The main activity of the Petrol Group's companies includes trading with motor gasoline, diesel, LPG and methane (CNG). Possible widespread future penetration of  alternative substitutes of the traditional fossil fuels would have significant impact on the sales and financial results of Petrol Group.

 

Interest risk

 

Risks arising from the increase of the price of Group's financing (see also Financial instruments and risks management);

 

Credit risk

 

Risk arising from the inability of the Group's counterparties to execute their contractual obligations, as a result the Group may bear losses (see also Financial instruments and risks management);

 

Extraordinary expenses

 

There is a risk from arising of unforeseen expenses, which to reflect negatively on the Group's financial position;

 

Political risk

 

Risks for the Group arising from global and regional political and economic crises;

 

Legislation

 

The companies in the Group are accountable to various regulatory bodies in the country. Future changes in regulatory framework, regulating the activity of the companies in the Group, may have negative impact on the financial results of the Group. Fuels trading sector is one of the most strictly regulated and controlled by the national institutions, as the provisions have increased with every passing year. The regulations regarding the excise legislation and environment protections, combined with the requirements of the Stocks of Crude Oil and Petroleum Product Act (SCOPPA), required access to significant financial and management resources.

 

Thus, changes in the current legislation affect the financial performance of the Group. Significant influence in this direction proved the adoption in 2003 of the Stock of Crude Oil and Petroleum Product Act (SCOPPA) requiring all liable parties (importers and manufacturers) and the state to create and store inventories down based on the average daily consumption of oil products in country's territory during the previous year. The adopted changes in 2020 for registration of the parties carried out activities related with oil and petroleum products in connection with The Law of the Administrative Regulation of the Economic Activities related to Oil and Petroleum Products additionally burden financially and operatively the market participants.

 

In terms of the Excise Duty and Tax Warehouse Act from January 1, 2020 a series of changes have been imposed among which:

·    Obligation for implementation in the tax warehouses for processing and storage of energy products with codes under Combined Nomenclature 2710 12 to 2710 20 a system for video monitoring and control. The system has to meet exact requirements and to allow:

·    Real time visual control;

·    Permanent video records on server;

·    Identification of the plate number of the vehicles;

·    Possibility for real time remove access and remove inspection of the stored in the system data by the custom authorities;

·    The following additional requirements for issuance of a excise duty exemption end-user certificate (EDEEUC) were also adopted:

·    The person is obligated to use automatic reporting systems, which allow a real time control of the energy products quantities, which are delivered and used in the certain facility, as well as the commodities, materials, processed or stored goods, signed in the request for excise duty exemption end-user certificate;

 

·    The person must independently and at his own expense to provide internet access of the customs authorities to the automated reporting systems, when energy products with codes under Combined Nomenclature 2710 12 to 2710 20 will be delivered and used in the facility;

 

·    The person uses measuring and control devices, which meet the applicable and normative requirements.

 

From January 1, 2012 the Renewable Energy Sources Act (RESA) has introduced a requirement for consumption release of diesel fuel for transport within the meaning of EDTWA to contain at least 5% by volume biodiesel. From June 1, 2012 the rate was increased to at least 6% vol. Upon the release of fuel for gasoline engines, it had to contain bioethanol or ethers produced from bioethanol least 7% vol. as of March 1, 2015. From September 1, 2018 the gasoline should be with a content of bio-ethanol or ethers, produced from bio-ethanol of minimum 8% vol. and from March 1, 2019 up to 9% vol.

 

Pursuant to Ordinance No.3 of February 19, 2010 on the specific requirements and control by the customs authorities of the means of measurement of excise goods, the licensed warehouse keepers under EDTWA must have installed automated measuring and level systems in their tax warehouses which through an integrated communication system for monitoring and control to transmit data electronically to the automated systems for accountability of individuals and to the information system of the Customs Agency.

 

The other major legal acts regulating the activity of fuel market participants are related to environmental protection. Pursuant to Ordinance No.16 from 12 August 1999 on restriction of the emissions of volatile organic compounds in storing, loading or unloading and transportation of petrol, the tanks storing gasoline should have coating for reflecting at least 70% of solar radiation and installed internal floating roofs or seals on external floating roofs. In the storage depots where gasolines are stored, loaded or unloaded should have a hydrocarbon vapour recovery systems, bottom loading systems on tanktrucks, displays for control of overloading and grounding etc.

 

According to Ordinance on the requirements for the quality of liquid fuels, conditions, terms and ways of their control from January 1, 2009 the fuel for diesel engines and motor gasoline must have a maximum Sulphur content of 10 mg/kg (10 ppm).

 

Weather conditions and seasonality

The Group's results of operations are affected by weather conditions and seasonal variations in demand oil products. The fuel consumption is highest in the second and third quarters, which is due to the annual vacations during the summer months as well as to the agricultural producers, who usually increase their consumption during autumn months.

 

Other risks

 

See section Contingent liabilities

 

Financial instruments and risk management

 

Information pursuant to item 12 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003 and Art.39, item 8 of the Accountancy Act

 

 

Accounting classifications and fair values

 

The table below shows the carrying amounts and fair values of the financial assets and financial liabilities, including their levels in the fair value hierarchy. There is no information included about the fair values of these short-term financial instruments that Management believes that the book value in the statement of financial position is a reasonable approximation of fair value.

 

December 31, 2019 BGN'000		Financial assets and liabilities				Fair value level 3
	Debt instruments at amortised cost		At fair value through profit or loss	Liabilities at amortised cost	Total
Financial assets
Loans granted, net	25,998		-	-	25,998	-
Trade and other receivables, net	31,568		-	-	31,568	-
Cash and cash equivalents	3,486		-	-	3,486	-
Financial assets measured at fair value through profit and loss	-		2,235	-	2,235	2,235
	61,052		2,235	-	63,287	2,235
Financial liabilities
Trade and other liabilities	-		-	(57,463)	(57,463)	-
Loans and borrowings	-		-	(47,387)	(47,387)	(43,971)
	-		-	(104,850)	(104,850)	(43,971)

 

 

 

December 31, 2018 BGN'000		Financial assets and liabilities				Fair value level 3
	Debt instruments at amortised cost		At fair value through profit or loss	Liabilities at amortised cost	Total
Финансови активи
Loans granted, net	22,124		-	-	22,124	-
Trade and other receivables, net	34,048		-	-	34,048	-
Cash and cash equivalents	4,265		-	-	4,265	-
Financial assets measured at fair value through profit and loss	-		2,285	-	2,285	2,285
	60,437		2,285	-	62,722	2,285
Financial liabilities
Trade and other liabilities	-		-	(51,261)	(51,261)	-
Loans and borrowings	-		-	(48,229)	(48,229)	(44,254)
	-		-	(99,490)	(99,490)	(44,254)

 

Fair values estimation

 

Trade and other receivables

 

Determining the fair value of trade and other receivables includes the following:

·    analysis of analytical trail balances and reporting of internal transformations;

·    differentiation between receivables and payables, excluding the presumption of future offsetting of receivables from different customers;

·    valuation of receivables based on their collectability;

·    revaluation of receivables in foreign currencies at the respective rates as at the date of the financial statements.

 

Debenture loan

 

The fair value of the debenture liability is determined based on a quotable price as at the date of the consolidated financial statement, in case the instrument is quoted at an active market. In case it is not actively traded, the fair value is determined based on alternative valuation techniques. The valuation techniques used include analysis of discounted cash flows through expected future cash flows and discount level in relation with the market, the credit rating of the issuer, etc. The fair value is determined only for disclosure purposes.

 

Trade and other payables

 

Determining the fair value of trade and other payables includes the following:

·    complete review of payables as at the date of valuation;

·    identification of overdue payables and determination of due interests and penalties;

·    revaluation of payables in foreign currencies at rates as at the date of the financial statements.

 

Receivables and payables related to trade loans

 

The fair value of the received and granted trade loans is determined for disclosure purposes and is calculated based on the present value of future cash flows of principal and interest discounted at the market rate at the reporting date.

 

Financial risk management

 

Risk management framework

 

The use of financial instruments exposes the Group to market, currency and interest rate risk. This section presents information about the objectives, policies and processes for managing these risks, as well as capital management.

 

Future uncertainty about the ability of customers to repay their obligations, in accordance with the agreed conditions, may lead to an increase of impairment losses on interest loans granted, trade receivables, financial assets available-for-sale and other financial instruments, as well as the values of other accounting estimates in subsequent periods might materially differ from those specified and recorded in these consolidated financial statements. The Group's Management applies the necessary procedures to manage these risks.

 

Market risk

 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Because of the nature of its activity, the Group is exposed to price, currency and interest rate risk.
 

Currency risk

 

The Group performs transactions in a currency other than its functional currency, and thus it is exposed to risk, related to potential foreign exchange rate fluctuations. Such risk arises mainly from the fluctuations of the US dollar, since the Group performs purchases and has received loans denominated in US dollars. Transactions primarily denominated in euro do not expose the Group to currency risk, since the Bulgarian lev is fixed to the euro effective January 1, 1999.

 

Financial assets and liabilities denominated in US dollars are presented in the following table:

 

	December 31, 2019				December 31, 2018
	USD'000		BGN'000		USD'000		BGN'000
Financial assets
Cash and cash equivalents	7		12		7		12
	7		12		7		12

 

The sensitivity analysis to currency risk is calculated based on 5% fluctuation in the exchange rate of the US dollar towards the Bulgarian lev. The Management considers that it is a reasonably possible fluctuation, based of statistical data for the dynamics of fluctuations in the exchange rate in the previous period, based on the daily deviation calculated for 250 days. If on December 31, 2019 the rate of the US dollar had decreased/increased by 5% assuming that all other variables remained constant, loss after tax would have increased/decreased by BGN 1 thousand as a result of exchange rates differences from revaluation of cash in US dollars.

 

Interest rate risk

 

The Group is exposed to interest rate risk as part of borrowings have variable interest rate agreed as basis interest increased by a certain margin. The Group continuously monitors and analyzes its main interest rate exposures by developing various scenarios for optimization as refinancing, renewal of existing loans, alternative financing (contracts for the sale and leaseback of assets) and calculates the impact of changing interest rates within a certain range on the financial result.

 

As at the date of these consolidated financial statements, the structure of the interest-bearing financial instruments is as follows:

 

 

	December 31, 2019 BGN'000		December 31, 2018 BGN'000
Instruments with fixed interest rate
Financial assets	23,010		20,560
Financial liabilities	(36,910)		(36,890)
	(13,900)		(16,330)
Instruments with variable interest rate
Financial liabilities	(8,267)		(9,291)
	(8,267)		(9,291)

 

The sensitivity analysis of the interest rate risk is prepared based on the presumption that interest positions with variable interest rates as of the end of the reporting period have existed in the same amount during the entire year and the reasonably possible increase/decrease of the interest rate is by 16 basis points. If the interest rates were higher/lower by 16 basis points, and all other variables were constant, the loss after tax would have been higher/lower by BGN 12 thousand.

 

Price risk

 

The Group is exposed to a risk of frequent and sharp fluctuations in fuels prices and other tradable goods. In order to decrease sensitivity to fluctuations in the prices of fuels, the Group updates its selling prices on a daily basis in accordance with the geographic region and the selling prices of its main competitors.

 

In 2019, the Group held comparatively high inventory turnover. For approximately 17 days the inventory makes a whole cycle, which reduces the Group's price risk exposure.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument fails to meet its obligation and thus causing loss to the other. Financial assets that potentially expose the Group to credit risk are mainly trade receivables and interest loans granted.

 

Exposure to credit risk

 

The carrying amount of financial assets represents the maximum credit risk the Group is exposed to. The maximum exposure to credit risk as at the reporting date is as follows:

 

	December 31, 2019 BGN'000		December 31, 2018 BGN'000
Loans granted	25,998		22,124
Trade and other receivables	33,803		36,333
Cash and cash equivalents	3,407		4,189
	63,208		62,646

 

 

Trade and other receivables

 

The Group is exposed to credit risk, in case its customers do not pay their obligations in the expected term and amount. The policy of the Group regarding credit risk is to sell goods and services only to customers with an appropriate credit standing and to use adequate collaterals as a means of reducing the risk of financial losses. The creditworthiness of customers is estimated by taking into consideration their financial position, past experience and other factors. Credit limits have been stipulated and their compliance is regularly monitored. In case of exceeding the credit limits, interest on arrears is accrued. Retail sales are settled in cash predominantly or by credit cards.

 

Impairment of trade and other receivables

Time structure of trade and other receivables at the reporting date are not impaired, is as follows:

 

 

	December 31, 2019 BGN'000		December 31, 2018 BGN'000
Up to 30 days	2,864		1,746
31 - 120 days	1,553		1,709
121 - 210 days	480		590
Over 211 days	4,054		6,991
	8,951		11,036

 

Cash and cash equivalents

 

Cash and cash equivalents of the Group are located in banks with high ratings.

 

Liquidity risk

 

Liquidity risk is the risk that the Group may not be able to meet its financial obligations when they fall due. The policy is aimed at ensuring sufficient liquidity with which to serve liabilities when they fall due, including abnormal and emergency situations. The goal of management is to maintain a constant balance between continuity and flexibility of financial resources using various forms of financing. Liquidity risk management includes maintaining sufficient stocks of cash, arranging adequate credit lines, preparation, analysis and updating cash flow forecasts.

 

The following table presents the contractual maturities of financial liabilities based on the earliest date on which the Group may be required to pay them.

 

The table shows the undiscounted cash flows, including principal and interest, excluding the effect of netting arrangements:

 

December 31, 2019 BGN'000	Carrying amount		Contractual cash flows		Up to one year		Between one and five years
Debentures	39,119		44,522		2,372		42,150
Loans from financial institutions	8,267		8,267		524		7,743
Trade loans from unrelated parties	1		1		1		-
Trade and other payables	57,463		57,463		57,463		-
	104,850		110,253		60,360		49,893

 

December 31, 2018 BGN'000	Carrying amount		Contractual cash flows		Up to one year		Between one and five years
Debentures	38,744		46,502		2,040		44,462
Loans from financial institutions	9,291		9,291		524		8,767
Trade loans from unrelated parties	194		194		194		-
Trade and other payables	51,261		51,261		51,261		-
	99,490		107,248		54,019		53,229

 

 

The Group does not expect cash flows included in the table to occur significantly earlier or at significantly different amounts.

 

In 2019 the Petrol Group did not use any financial instruments for hedging-risk purposes.

 

The Group operates with ERP system, which supports the ongoing reporting, analysis, planning, implementation and control of the business processes in Petrol Group. The internal control system of the Group monitors for the effective functioning of the Group's reporting, preventive identification of risks accompanying activities and the timely identification of potential errors and shortcomings. At the same time, the Parent company's SB exercises general and continuous control over the Parent-company's activity, including the accompanying reporting and verifies the annual financial statements and annual reports of Petrol AD (see also Corporate management declaration).

 

Information pursuant to item 10 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

In 2019 the Group did not issue any new security issues.

  

 

Significant events occurred in 2019

 

Information pursuant to item 3 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

In January 2019 the Group granted a cash loan to an unrelated party with a credit limit up to BGN 5,500 thousand, available in tranches until December 31, 2019 and interest rate of 6.7%. As at December 31, 2019 the term of the loan has been extended with another year. The Group has receivables under this loan of BGN 4,621 thousand principal, net of impairment losses under IFRS 9 and BGN 252 thousand interest.

 

The decision for capital decrease was voted again on a new EGMS held in February 2019. On the same EGMS was also taken a decision for replacement of the deceased member of the Supervisory Board Ivan Voynovski with Rumen Konstantinov. The application for registration of these circumstances in the account of the Parent company was refused, which was disputed within the legal term by the Parent company. In addition to the refusal, the registration proceedings was postponed by a request of minority shareholders until the pronouncing of the Lovech Regional Court. In May 2019 the Lovech Regional Court enacted a decision, which repealed the enacted refusal and turn back the case to the Registry Agency for a registration of the application after a resumption of the ceased registration proceedings. At present, the court proceedings for repealing of the decisions of EGMS from February 2019 are pending.

 

In February 2019 the Group entered into an agreement with a commercial bank for factoring with special terms and without regress for transferring of preliminary approved receivables with a maximum period of the deferred payments up to 120 days from the date of invoice issuance with a payment in advance of 90% of the value of the transferred receivables including VAT. The commission for factoring services is 0.35% of the total value of the transferred invoices plus additional annual taxes. The interest for the amounts paid in advance is Base Deposit Index for Legal Entities plus 1.95%, accrued daily and paid on monthly basis at the end of every calendar month. As at December 31, 2019 the Group has receivables under this factoring agreement at the amount of BGN 12 thousand.

 

In February 2019, an additional bank guarantee was issued at the amount of BGN 255 thousand aiming to secure the additionally accumulated liabilities for interests on tax amended assessment issued in March 2016 of the Parent company under a tax assessment for social security contributions for BGN 543 thousand and BGN 248 thousand interest. With a decision from March 2020 the first instance court repealed partially the disputed amended assessment, as a result of that the liabilities of the Parent company decreased by BGN 53 thousand. The Appeal and Tax Insurance Practice (ATIP) disputes the decision of the first instance court. At present, the case is pending.

 

In April 2019 through a cession agreement with an unrelated party the Group sold fully impaired in previous periods receivables under loans granted and due interest at the amount of BGN 32,063 thousand, granted to a Controlling company until November 2013.

 

In April 2019 the Group entered into an agreement for granting a cash loan to an unrelated party with credit limit up to BGN 1,300 thousand at 6.7% annual interest and repaying period until December 31, 2019. As at December 31, 2019 the receivables under this contract are at the amount of BGN 1,292 thousand principal and BGN 63 thousand interest.

 

In April 2019 the Group sold 5,940,000 shares, representing 100% of the capital of Storage Oil EAD for the total amount of BGN 50 thousand. As at transaction date, the consolidated net assets are negative at the amount of BGN 263 thousand and the written off reputation at the amount of BGN 7 thousand. The result of the sale is a profit at the amount of BGN 306 thousand.

In May 2019 the Group granted a cash loan to an unrelated party with credit limit up to BGN 10 thousand, repayment period until December 31, 2019 and interest rate of 6.7%. As at December 31, 2019 the granted funds are at the amount of BGN 6 thousand.

 

In June 2019 two new subsidiaries were established and registered in the Commercial Register - Kremikovtsi Oil EOOD and Shumen Storage EOOD. Lands, buildings, plants and equipment with total carrying amount of BGN 605 thousand and market value of BGN 1,740 thousand determined by

experts appointed by the Registry Agency were transferred by contribution in-kind in the capital of Kremikovtsi Oil EOOD. The capital of the company is distributed in 1,740,397 shares, each with BGN 1 nominal value. Lands and buildings with total carrying amount of BGN 1,416 thousand and market value of BGN 1,650 thousand determined by experts appointed by the Registry Agency were transferred by contribution in-kind in the capital of Shumen Storage EOOD. The capital of Shumen Storage EOOD is distributed in 1,650,000 shares, each with BGN 1 nominal value.

 

In July the subsidiary Office Estate EOOD is established and registered in the Commercial Register by a contribution in-kind of lands and buildings with total carrying amount of BGN 80 thousand and market value of BGN 1,541 thousand determined by experts appointed by the Registry Agency. The capital of the company is distributed in 1,541,000 shares, each with BGN 1 nominal value.

 

In August 2019 the Group sold to an unrelated party all of its owned 32 200 company shares each with nominal value of BGN 1, which represented 100% of the capital of Storage Invest EOOD for the selling price of BGN 47 thousand, fully paid at the day of signing of contract for sale.

 

In August 2019 the Group granted a cash loan to an unrelated party with credit limit up to BGN 1,000 thousand with interest rate of 6.7%, available in tranches for one year since the date of signing. As at December 31, 2019 the loan limit is increased and the Group has receivables at the amount of BGN 664 thousand principal, net of impairment losses under IFRS 9 and BGN 26 thousand interest.

 

In September 2019 two new subsidiaries were established and registered in the Commercial Register - Svilengrad Oil EOOD and VARNA 2130 EOOD. Land, buildings, plants and equipment with total carrying amount of BGN 3,285 thousand and market value of BGN 1,842 thousand, determined by experts appointed by the Registry Agency were transferred by contribution in-kind in the capital of Svilegrad Oil EOOD. The company's capital is distributed in 1,841,700 shares each with nominal value of BGN 1. Land, buildings, plants and equipment with total carrying amount of BGN 709 thousand and market value of BGN 1,500 thousand, determined by experts appointed by the Registry Agency were transferred by contribution in-kind in the capital of Varna 2130 EOOD. The company's capital is distributed in 1,499,810 shares each with nominal value of BGN 1.

 

In December 2019 the Group bought from third party 8,210 company shares, each with nominal value of BGN 100, representing 98.80% of the capital of Petrol Technologies OOD for the purchase price of BGN 1,850 thousand, which is paid in instalments by the Parent company in January 2020.

 

In December 2019 the Group entered into an agreement with a commercial bank for purchasing of trade receivables (standard factoring) with a total limit of the advanced payment up to BGN 430 thousand and interest rate based on savings in BGN increased by a markup of 3.7767  points, but not less than 4% per annum on the amount of the advanced payment. As at December 31, 2019 the Group received in advance under this contract the amount of BGN 347 thousand. The contract is secured by a pledge of receivables on open bank accounts of the Parent company with a book value as at December 31, 2019 of BGN 47 thousand.

In February 2018 the Group granted a cash loan to unrelated party at the amount of BGN 2,000 thousand, subsequently the amount was increased to BGN 3,500 thousand at 6.7% interest and refund period until December 31, 2018. With annexes from the end of 2019 the credit limit was increased up to BGN 5,000 thousand and the term of loan was prolonged to December 31, 2020. As at December 2019 the receivables under this loan are BGN 4,401 thousand principal and BGN 276 thousand interest net of impairment.

 

In March 2018 the Group entered into an agreement for granting loan to unrelated party at the amount of BGN 1,961 thousand at 5.5% annual interest and refund period until December 31, 2018. At the end of 2018 according to the signed trade agreement between the parties, the loan was partially offset with outstanding opposite trade liabilities under an agreement for supply of goods. With an additional agreement from December 2018 the term of loan agreement was prolonged until December 31, 2019. In 2019, the Group continues to offset against due trade obligations under the contract for the supply of goods. In June 2019, the loan was fully repaid.

 

In March 2018 the Group entered into an agreement for granting loan to unrelated party with credit limit up to BGN 300 thousand at 6.7% annual interest and refund period until December 31, 2018. With an annex from the end of 2018 the term of the loan was prolonged until December 31, 2019. In 2019 the limit under loan agreement is increased. As at December 31, 2019 the granted funds under this contract were principal of BGN 528 thousand and interest of BGN 34 thousand.

 

In May 2018 unrelated party repaid the outstanding amount of BGN 148 thousand under trade loan, granted on April 19, 2017 with a credit limit of BGN 1,180 thousand. The loan was fully repaid.

 

In September 2018 the Group entered into a credit-overdraft agreement on current account in commercial bank, intended for working capital with maximum allowed amount of BGN 2,000 thousand and repayment period until January 31, 2019 and contracted interest rate of Savings-based interest rate (SIR) plus added amount of 6,1872 points, but cumulatively not less than 6.5% annually. The credit is covered with a special pledge of its goods in turnover at the amount of BGN 2,419 thousand, representing oil products and with a pledge of receivables on bank accounts. In December 2018, as a result of a signed annex to an agreement from 2016 for revolving credit line with the same bank, the Group negotiated an increase of the amount of the credit line of BGN 9,500 thousand with an additional amount of BGN 11,500 thousand, by which the total amount of credit line rose to BGN 21,000 thousand. The line is separated in total limit of BGN 13,500 for issuance of bank guarantees and a limit of BGN 7,500 for refinancing of the received credit-overdraft of BGN 2,000 thousand and the rest for working capital. The increased amount of the credit limit on the revolving credit line is covered additionally with establishment of mortgages and pledges of properties, plants and equipment with book value of BGN 3,416 thousand as at December 31, 2019 and a special pledge on goods in turnover, representing oil products. In June 2019, the credit limit for working capital granted under this credit line was partially repaid as its amount decreased from BGN 7,500 thousand to BGN 7,000 thousand.

 

In August 2017, the Group signed two cash loan agreements, according to which the Group has a liability to grant to unrelated parties interest bearing loans up to BGN 4,000 thousand and up to BGN 500 thousand with 6.7% annual interest. Subsequently the terms of contracts are annexed. The initially contracted repayment period is extended to December 31, 2019. In March and April 2019 the principals under these trade loans were repaid.

 

In November 2017 the Group signed two contracts for granting interest bearing loans with unrelated parties amounting up to BGN 5,050 thousand and up to BGN 6,150 thousand with 6.7% annual interest. The repaid period is annexed until December 31, 2020. As at December 31, 2019 the granted funds on these contracts are respectively net of impairment principal of BGN 4,224 thousand, interest of BGN 734 thousand, and net of impairment principal of BGN 4,443 thousand and interest of BGN 818 thousand.

 

In December 2017, the Group signed a contract for granting money, which requires the Group to grant an interest bearing trade loan up to BGN 3,000 thousand to unrelated party at 6.7% annual interest. The repaid period is until December 31, 2019. As at December 31, 2019 the contracted amount was entirely granted.

 

Additional information concerning other Group events during the period, which could be considered as significant is disclosed in the notes to the consolidated annual financial report of the Group for 2019.

 

Events after the reporting date

 

Information pursuant to Art. 39, item 3 of the Accountancy Act

 

As disclosed in these financial statements for 2019 in Note 2.8. Changes in accounting policy the Group has adopted a change in its accounting policy regarding non-current tangible assets - property, plant and equipment from the model applied in its financial statements until 2019 including the cost of acquiring model, with the application of the revaluation model, which the Management considers to reflect more objectively the value of the held non-current tangible assets.

 

In January 2020 the Parent company renegotiated the terms of the credit line granted to it by a commercial bank under a revolving credit line agreement dated September 21, 2016, with a credit limit of BGN 7,000 thousand and achieved a reduction of the annual compound interest rate of based on savings in BGN + 5,2802%, but not less than 5.5%.

 

In February 2020, through an investment intermediary, the Parent company purchased from a third party 7,091,517 ordinary dematerialized registered shares with a nominal value of BGN 1 each, representing 10% of the capital of Elit Petrol AD, for a total purchase price amounted to BGN 3 thousand, which was fully paid by the Parent company in the same month.

 

As disclosed in Note 15.2. Effective tax rate, in February 2020 the Supreme Administrative Court, with a final decision, partially revoked the decision of the Sofia-city Administrative Court from April 2019 on the obligations of the Parent company under the amended assessment as a result of tax audit of corporate income taxation for 2013 and VAT until October 2014, as at the date of preparation of these financial statements the final liability at the amount of BGN 136 thousand principal and BGN 84 thousand interest has been fully paid, and the bank guarantees released and returned by the National Revenue Agency. The liabilities were accounted as correcting events as of December 31, 2019 and are reflected in the result for 2019.

 

In March 2020, with a decision of the first-instance court, the appealed by the Parent company amended assessment from March 2016 on the tax audit for social security contributions for BGN 543 thousand principal and BGN 248 thousand interest was partially revoked, as a result of which the liabilities of the Parent company have been reduced to BGN 53 thousand. The Appeal and Tax Insurance Practice have appealed the decision of the first-instance court. At present, the case is pending.

 

From the beginning of 2020 the Group and the entire world economy are exposed to the negative influence and consequences of the pandemic of the spread of a new coronavirus Covid-19. In the first quarter of 2020, the Group's sales were significantly affected by the restrictive measures for free movement and travel of people imposed by the Government of the Republic of Bulgaria by the adopted at the end of March 2020 Law on Measures and Actions during a State of Emergency. Due to the restrictions the Group's sales revenue for March 2020 decreased by about 28% compared to March 2019, and the sales revenue for April 2020 - decrease by approx. 50% compared to the revenue for April 2019. As a result, the Group has taken a series of actions to reorganise the activities of some of its trade sites, as well as to establish reduced working hours for some of the personnel. As of the end of March 2020, the Employment Agency opens an application procedure under Art. 1 of Decree No 55 from March 30, 2020 determining the terms and conditions for the payment of compensation to employers in order to preserve the employees under the State of Emergency, announced with a decision by the Parliament on March 13, 2020. In April 2020, companies of the Group submitted applications documents under this procedure. However, the Group will continue to carry out its activity under the established regime of operation and in compliance with all precautions to restrict the infection and widespread of Covid-19, in accordance with the instructions adopted by the Council of Ministers and recommendations of the health authorities of the Republic of Bulgaria to ensure the health and working efficiency of its employees. 

 

At the end of 2019, the Parent company received a letter from the Bulgarian National Bank with instructions to notify the Bank, providing a description of the functional characteristics of the respective types of Transcard Fleet cards that the Parent company provides to its customers, including the applicable contracts and the general conditions, as well as information on the number and the value of the payment transactions performed for the previous 12 months. With a Decision of February 07, 2020 of the Management Board of the Bulgarian National Bank, the Parent company is entered in the Register of Service Providers under Art. 2, para. 3 of the Law on Payment Services and Payment Systems (LPSPS) with the activity of providing services performed on the basis of payment instruments, allowing the user to acquire goods or services only in the premises of the issuer or within a limited network of service providers, which have concluded a commercial contract with the issuer (Art. 2, para. 1, item 11, letter "a" of LPSPS).

 

From the beginning of 2019 the Law on the Administrative Regulation of Economic Activities Related to Oil and Petroleum Products become effective. The effect of the law directly affects the main activity of the Parent company. As of the date of issuance of these financial statements, the Parent company has submitted within the statutory deadlines applications for entry in the register to the Ordinance on the terms and conditions for keeping a register of persons carrying out economic activities related to oil and petroleum products. At present, the registration proceedings are pending.

 

In April 2020, the Parent company renegotiated the terms under the investment loan agreement from July 2016, as the agreed interest rate on principal was reduced to 3mEuribor plus 3.5%, but not less than 3.5%.

 

In May 2020, the Parent company received from the the Commission for Protection of Competition (CPC) a decision for initiated proceedings to establish any violations under Art. 15 and Art. 21 of LPC and / or under Art. 101 and Art. 102 of the Treaty on the Functioning of the European Union (TFEU) in determining the prices of mass automotive fuels in the production / import - storage - wholesale - retail trade, both at the individual horizontal levels and vertically, by eleven companies, including the Parent company. In July 2020, the same decision was received by a subsidiary of the Group. At present, the proceedings in the case are pending at the CPC.

 

Unusual events and indicators

 

Information pursuant to item 5 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

See Events after the reporting date and Contingent liabilities.

 

Results from operations

 

Information pursuant to item 11 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

The Petrol Group has not disclosed any financial and operating projections for 2019, thus there is no analysis of the ratios between the reached and disclosed financial results.

 

Operating and financial data pursuant to item 1 and item 2 of Appendix No.10 to the Ordinance No.2 of September 17, 2003 and Art. 39, item 1 and item 2 of the Accountancy Act

 

Revenue

 

In 2019 the consolidated revenue of the Group increased to BGN 540.9 mln. (EUR 276.6 mln.), representing an increase of 1% compared to 535.9 mln. (EUR 274 mln.) for 2018. The growth in total revenue in absolute value in 2019 was due entirely to the higher by BGN 11.7 mln. (EUR 6 mln.) sales revenue of fuels and goods, while the other income decreased by BGN 6.7 mln. (EUR 3.4 mln.). The increase in sales revenue in 2019 is due mainly to the growth by 181% in wholesale sales revenue and the increase by 13% in sales of lubricants and other goods, as the revenue from retail sales of fuels dropped by 3% on annual basis. In addition the revenue from sales of services increased by BGN 1.1 mln. (EUR 0.6 mln.) or 12% on annual basis.

 

The table below presents the change of revenue during the period 2017 - 2019 on a consolidate base and by separate business segments:

 

			2019	2018	2017	∆ в % 2019/2018
Sales revenue		BGN mln	538.5	526.8	479.1	2%
		EUR mln	275.4	269.3	244.9
Other income		BGN mln	2.4	9.1	1.5	(74)%
		EUR mln	1.2	4.7	0.8
Total revenue, including:		BGN mln	540.9	535.9	480.6	1%
		EUR mln	276.6	274.0	245.7
	Retail segment	BGN mln	506.7	463.7	429.9	(2)%
		EUR mln	259.1	237.1	219.8
	share of total revenue	%	93.7%	96.5%	87.9%
	Wholesale segment	BGN mln	33.1	16.2	58.5	111%
		EUR mln	16.9	8.2	29.9
	share of total revenue	%	6.1%	3.4%	12.0%
	Other activities segment	BGN mln	1.1	0.7	0.6	57%
		EUR mln	0.6	0.4	0.3
	share of total revenue	%	0.2%	0.1%	0.1%

 

 

As in all previous years the sales revenue of the Group in 2019 was almost entirely (98.1%) formed by sales of fuels and oher goods. In 2019, these sales amounted to BGN 528.1 mln. (EUR 270.0 mln.) or with 2.1% more than sales for 2018 of BGN 517.5 mln. (EUR 264.6 mln.). The increase by BGN 10.6 mln. (EUR 5.4 mln.) in the revenue from sales of fuels and other goods in 2019 compared to the previous year is due to the increase by BGN 5.7 mln. (EUR 2.9 mln.) in the revenue from sales of other goods and to the increase by BGN 4.9 mln. (EUR 2.5 mln.) in revenue from sales of fuels.

 

In 2019, the revenue from sales of goods comprised mainly (90.7%) retail and wholesale sales of fuels, which amounts, after excluding intra-Group sales, are as follows:

  

 

		2019	2018	2016	∆ в % 2019/2018
Retail sales of fuels	mln. BGN	453.0	464.9	419.0	(3%)
	mln. EUR	231.6	237.7	214.2
share of total sales of fuels	%	94.6%	98%	97.3%
Wholesale sales of fuels	mln. BGN	26.1	9.3	11.8	181%
	mln. EUR	13.3	4.8	6.0
share of total sales of fuels	%	5.4%	2%	2.7%
Total sales of fuels	BGN mln	479.1	474.2	430.8	1%
	EUR mln	244,9	242.5	220.2

 

The increase in the sales revenue of fuels was due entirely to the wholesale sales of fuels, which rose by 181%. The revenue from retail sales of fuels decreased by 3% compared to the revenue in 2018 (see also Retail sales and Wholesale sales).

 

As a result in the current year the relative share of the wholesale sales revenue of fuels decreased in the total consolidated revenue from sales of fuels of the Petrol Group at the expense of retail sales revenue of fuels. While in 2018 the revenue from wholesale sales of fuels was 2%, in 2019 it rose to 5.4% in the Group's total consolidated sales revenue of fuels.

 

 

Retail sales

 

The Group's retail sales are made through a network of retail stations owned and/or operated by Petrol AD. These retail stations are evenly spread throughout the country giving the Group comprehensive geographic coverage. As of December 31, 2019 the Group operated 320 working retail stations (2018: 322 retail stations).

  

The results for the period 2017 - 2019 are as it follows:

 

		2019	2018	2017	∆ в % 2019/2018
Retail sales volumes (mln. liters)		280.9	288.0	282.7	(2.5%)
Incl. corporate clients		81.7	74.2	71.2	10.1%
Sales revenue	BGN mln	453.0	464.9	419.0	(3%)
	EUR mln	231.6	237.7	214.2

 

In 2019, the Group reported an increase by 2.5% in retail sales volumes compared to 2018. The decrease in volumes in combination with the lower average selling retail prices in 2019 compared to the prices in 2018, led to 3% lower total revenue from retail sales of fuels compared to 2018. With regard to the main fuels, a decrease in the average retail selling prices during the reporting period compared to 2018 was observed for Gasoline A-95 and Blue Force LPG, while the average selling price of diesel fuel increased.

 

In 2019, the Group continued the process of reorganization of retail network, started in 2015, including suspension of operation and sale of unprofitable trade sites, termination of franchise and dealership contracts with incorrect partners and concluding agreements with new counterparties on the same franchise and dealership programmes, etc.

 

The following table sets out the Group's retail sales of fuel by major types of oil products for 2017 - 2019:

 

		2019	2018	2017	∆ в % 2019/2018
Gasoline A-95H	BGN mln	121.2	132.3	127	(8.4%)
	EUR mln	62.0	67.6	64.9
share of total retail sales of fuels	%	26.8%	28.5%	30.3%
Gasoline 96 Extra Force	BGN mln	-	-	0.8	-
	EUR mln			0.4
share of total retail sales of fuels	%			0.2%
Gasoline A-98	BGN mln	-	-	0.7	-
	EUR mln			0.4
share of total retail sales of fuels	%			0.2%
Gasoline100 Extra Force	BGN mln	5.2	4.9	3.7	6.1%
	EUR mln	2.7	2.5	1.9
share of total retail sales of fuels	%	1.2%	1.1%	0.9%
Blue Force LPG	BGN mln	43.7	48.9	46.7	(10.6%)
	EUR mln	22.3	25.0	23.9
share of total retail sales of fuels	%	9.6%	10.5%	11.1%
Green Force diesel	BGN mln	22.3	18.1	13.2	23.2%
	EUR mln	11.4	9.3	6.7
share of total retail sales of fuels	%	4.9%	3.9%	3.1%
Pro Force Diesel	BGN mln	258.2	259.2	225.3	(0.4%)
	EUR mln	132.0	132.5	115.2
share of total retail sales of fuels	%	57.0%	55.7%	53.8%
Other fuel	BGN mln	2.4	1.5	1.6	60.0%
	EUR mln	1.2	0.8	0.8
share of total retail sales of fuels	%	0.5%	0.3%	0.4%
Total retail sales of fuels	BGN mln	453.0	464.9	419	(3%)
	EUR mln	231.6	237.7	214.2

 

The highest drop in absolute value of BGN 11.1 mln. (EUR 5.7 mln.) reported the revenue from sales of Gasoline A-95H. Additionally a decrease by BGN 5.2 mln. (EUR 2.7 mln.) and by BGN 1 mln. (EUR 0.5 mln.) reported the sales of Blue Force LPG and diesel fuel.

 

The revenue from sales of Gasoline A-100 eXXtra Force, Green Force Diesel and methane increased by BGN 0.3 mln. (EUR 0.16 mln.), BGN 4.2 mln. (EUR 2.1 mln.) and BGN 0.9 mln. (EUR 0.4 mln.), respectively, which is due to the higher average selling prices in 2019 and to the increase in sales.

  

 

Wholesale sales

 

The Group's wholesale sales are made through the operated by the Group SD Varna and by purchases from other storage depots of third party entities.

 

The reported results from wholesale sales of fuels in 2017 - 2019 are, as follows:

 

		2019	2018	2017	∆ в % 2019/2018
Volume of wholesale sales (million litres)		18.9	5.6	8.1	237.5%
Volume of wholesale sales (thousand tonnes)		0	0.1	0	(100%)
Sales revenue	BGN mln	26.1	9.3	11.8	181%
	EUR mln	13.3	4.8	6

 

In 2019 the wholesale sales volumes of light fuels increased by 13.3 mln. liters compared to 2018, as the sales volumes of heavy fuels dropped by 0.1 thousand tonnes. The growth is entirely due to the increase in sales of Gasoline A-95H, diesel fuel and LPG, which form 96% of total wholesale sales.

 

The highest growth of BGN 10 mln. (EUR 5.1 mln.) on annual basis reported the sales of diesel fuel. The increase is due entirely to the increase in sales volumes in 2019 compared to the previous year as the average selling price decreased in 2019 compared to 2018.

 

The sales revenue of Gasoline A-95H rose by BGN 5 mln. (EUR 2.6 mln.), compared to 2018 again due to the increase in sales compared to the previous period. As a result of that in 2019 the total revenue from wholesale sales of fuels increased by 181% to BGN 26.1 mln. (EUR 13.3) mln.

 

The following table sets out the Group's wholesale sales of fuel by major types of oil products:

 

		2019	2018	2017	∆ в % 2019/2018
Gasoline A-95H	mln. BGN	5.5	0.4	1.3	1,275%
	mln. EUR	2.8	0.2	0.6
share of total wholesale sales of fuels	%	21.1%	4.4%	11%
Gasoline А-98	mln. BGN	0.00	0.06	0.06	(100%)
	mln. EUR	0.00	0.03	0.03
share of total wholesale sales of fuels	%	0.0%	0.7%	0.5%
Diesel	mln. BGN	17.9	7.8	10.4	129.5%
	mln. EUR	9.1	4.0	5.3
share of total wholesale sales of fuels	%	68.6%	84.0%	88.1%
Other fuels	mln. BGN	2.7	1	0.04	170%
	mln. EUR	1.4	0.6	0.03
share of total wholesale sales of fuels	%	10.3%	10.9%	0.4%
Total wholesale sales of fuels	mln. BGN	26.1	9.3	11.8	181%
	mln. EUR	13.3	4.8	6

   

 

Gross margin

 

The Group's total gross margin, calculated as a percentage of the consolidated net revenue from sales of goods increased from 9.5% in 2018 to 10.8% in 2019. Despite the increase of gross margin as percentage of revenue, the indicator rose by BGN 7.6 mln. (EUR 3.8 mln.) in absolute value due to the increase of the consolidated gross margin from sales of fuels and other goods. The total gross margin from sales of fuels rose to BGN 49 mln. (EUR 25.1 mln.) in 2019 compared to BGN 42 (EUR 21.5 mln.) in 2018. The gross margin from sales of lubricants and other goods rose in 2019 to BGN 7.9 mln. (EUR 4 mln.) compared to BGN 7.3 mln. (EUR 3.7 mln.) in 2018.

 

 

Operating expenses

 

Hired services

 

In 2019, the hired services increased by BGN 2.9 mln. (EUR 1.5 mln.) to BGN 38.7 mln. (EUR 19.8 mln.). Compared to the previous period, the increase in 2019 is mainly due to the higher operating lease expenses, maintenance and repairs, commission costs and state, municipal and other taxes, which increased respectively by BGN 2 mln. (EUR 1 mln.), BGN 0.7 mln. (EUR 0.4 mln.), BGN 0.3 mln. (EUR 0.15 mln.) and BGN 0.2 mln. (EUR 0.1 mln.). In 2019 significant decrease by BGN 0.2 mln. (EUR 0.1 mln.) and BGN 0.1 mln. (EUR 0.05 mln.) reported the consultancy and education expenses and advertising costs.

 

Employee benefits

 

In 2019, the employee benefits increased, amounting to BGN 21.8 mln. (EUR 11.1 mln.) compared to BGN 19.3 mln. (EUR 9.9 mln.) in 2018. The main reason for the growth by BGN 2.5 mln. (EUR 1.3 mln.) was the increase of the minimum wage in the beginning of 2019.

 

Depreciation and amortization

 

Depreciation and amortization charges on fixed tangible and intangible assets are accrued based on the useful life of the assets by applying the straight-line method (see also note 3.1 to the consolidated financial report for 2019). In 2019, the Group reports an increase in depreciation expenses to BGN 3.9 million (EUR 2 million) compared to BGN 0.9 million (EUR 0.5 million) in 2018. The increase is due to the right-of-use assets included in the consolidated statement of financial position under lease agreements at the amount of BGN 10.2 mln. (EUR 5.2 mln.) and the accrued depreciation expense at the amount of BGN 3 mln. (EUR 1.5 mln.) on the right-of-use assets.

 

Materials and consumables

 

In 2019, the Group the expenses for materials and consumables reported a minimum drop compared to 2018, amounting to BGN 4.0 mlnl. (EUR 2.05 mln.) compared to BGN 4.1 mln. (EUR 2.1 mln.) in 2018.

 

Impairment losses of assets

 

For 2019 the Group reports a net reversed impairment loss of BGN 1 mln. (EUR 0.5 mln.), compared to a net impairment loss for 2018 of BGN 0.8 mln. (EUR 0.4 mln.). The net reversed impairment loss is a result of the collected trade receivables from unrelated parties during the period and impaired in previous periods at the amount of BGN 0.4 mln. (EUR 0.2 mln.) and the collected trade loans granted at the amount of BGN 1.4 mln. (EUR 0.7 mln.). The recognized impairment loss in 2018 is due to impaired trade receivables on loans granted at the amount of BGN 0.6 mln. (EUR 0.3 mln.), as well as impaired trade and other receivables at the amount of BGN 0.26 mln. (0.13 mln). (see also Note 12 to the consolidated financial statements).

 

Other operating expenses

 

In 2019, the Group's other operating expenses amounting to BGN 2.1 mln. (EUR 1.0 mln.) compared to BGN 2.2 mln. (EUR 1.1 mln.) for 2018. The decline by BGN 0.1 mln. (EUR 0.05mln.) is due to a greater extent to the lower by BGN 0.4 mln. (EUR 0.2 mln.) scrap and shortages. The most significant weight in other operating expenses in 2019 had the local taxes and taxes on expenses amounting to BGN 0.7 mln. (EUR 0.4 mln.), which increased by BGN 0.3 mln. (EUR 0.15 mln.) in 2018.

 

Profit from operations

 

In 2019, the Group reported a positive result before net financial expenses, taxes and amortization (EBITDA) at the amount of BGN 4.1 mln. (EUR 2.1 mln.) compared to a profit of BGN 5.4 mln. (EUR 2.8 mln.) for 2018. Main reasons for the decrease of the indicator are the decrease in other income by BGN 6.7 mln. (EUR 3.4 mln.), the increase by BGN 2.9 mln. (EUR 1.5 mln) in hired services and the increase by BGN 2.5 mln. (EUR 1.3 mln.) in personnel expenses, which are partially compensated by the increase in gross margin by BGN 7.6 mln. (EUR 3.9 mln.) and the reported net reversed impairment loss in 2019 amounting to BGN 1 mln. (EUR 0.5 mln.).

 

The drop of EBITDA in 2019 has a negative effect on Group's earnings before interest and taxes (EBIT). For 2019 the Group reported operating profit before financial costs and taxes amounting to BGN 0.2 mln. (EUR 0.1 mln.) compared to operating profit of BGN 4.5 mln. (EUR 2.8 mln.) in 2018. Additional negative effect on this indicator has the increase of depreciation and amortization in 2019 by BGn 3 mln. (EUR 1.5 mln.) compared to the previous year, due to the recognised in the financial statement of financial position right-of-use assets in accordance with IFRS 16.

 

Net finance costs

 

In 2019 the Group reported net finance costs of BGN 5.2 mln. (EUR 2.6 mln.) compared to net finance income of BGN 51.2 mln. (EUR 26.2 mln.) for 2018.

 

In 2019 the Group's finance income amounted to BGN 2.3 mln. (EUR 1.15 mln.) compared to BGN 56.3 mln. (EUR 28.8 mln.) for 2018. The most significant effect on the total decrease in the finance income has the gain on sale of subsidiaries amounted to BGN 54.6 mln. (EUR 27.9 mln.) in 2018. (see also Note 14 to the annual consolidated financial report for 2019).

 

In 2019, the Group's finance costs amounted to BGN 7.5 mln. (EUR 3.8 mln.) compared to BGN 5.1 mln. (EUR 2.6 mln.) for 2018. The increase is due mainly to the reported loss on cession agreements amounting to BGN 3.1 mln. (EUR 1.6 mln.), due to sales to third parties of uncollectible receivables. In 2019 the Group reported a decrease by BGN 1.7 mln. (EUR 0.9 mln.) in the reported loss of revaluation of financial assets.

 

Financial position

 

As at December 31, 2019 the Group's current liability ratio declined to 1.24 compared to 1.41 for 2018. The decrease of the indicator is due to the increased current liabilities by BGN 7.4 mln. (EUR 3.8 mln.) and to the decreased current assets by BGN 1.7 mln. (EUR 0.9 mln.) for the same period. The increase in current liabilities is due greatly to the higher trade payables to suppliers by BGN 11.8 mln. (EUR 6 mln.). In addition during the current period short-term liabilities under leasing contracts under IFRS 16 of BGN 2.7 mln. (EUR 1.4 mln.) were reported.

 

As at December 31, 2019 the consolidated indebtedness of the Group including loans and borrowings decreased, amounting to BGN 47.4 mln. (EUR 24.2 mln.) compared to BGN 48.2 mln. (EUR 24.6 mln.) for the previous year. The decline is due to the repaid during the year debt. In 2019 Debt/Assets ratio decreased to 34% compared to 37% at the end of 2018. As at December, 31 2019 the Debt/Equity ratio was 325%.

 

In 2019, the Group's inventories turnover period remained the same of 17 days. As at December 31, 2018 the accounts receivable collection period increased to 18 days compared to 17 days in 2018.

 

Capital management

 

In order to ensure the going concern functioning of the Group, the Management has undertaken series of purely procedural and business oriented measures (see also section Outlook), aimed to bring the capital of the Parent company in consistence with the requirements of Art. 252, par. 1, item 5 of the Commercial Act (CA) and overall improvement of the financial position of the Group.

 

Some of the measures include the decrease of the registered capital bellow the net assets of the Parent company. The first step in this direction was the holding of several Extraordinary General Meeting of Shareholders (EGMS) in 2016 and 2017, where a proposal for reverse split (merging) of 4 old shares with nominal value of BGN 1 into 1 new share with nominal value of BGN 4 and consequently decreasing of the Parent company's capital in order to cover losses by decreasing the nominal value of the shares from BGN 4 to BGN 1, was voted. In March 2018 following a ruled decision by the Lovech Regional Court, which canceled the refusal of the Commercial Register for registration of the voted on EGMS decision for merging 4 old shares with BGN 1 nominal in 1 new share with nominal of BGN 4, the applied change was registered in CR. As a result of that the registered capital of the Parent company is BGN 109,249,612 distributed in 27,312,403 shares with nominal of BGN 4 each. The change in structure of the capital was registered also in Central Depository AD. The Commercial Register enacted a refusal on the submitted on April 2018 application for registration of the decision of ERSM for the second stage of the procedure reducing the nominal value of the shares from BGN 4 to BGN 1 in order to cover losses.

 

On EGSM of Petrol AD held on November 8, 2018 the decision to decrease the capital of the Parent company in order to cover losses by decreasing the nominal value of the shares from BGN 4 to BGN 1 was voted again. A refusal was given on the application for registration of the decision in CR, which was appealed by the Parent company within the legal term. The minority shareholders disputed the decision of the EGMS and additionally to the refusal the application proceeding was postponed until the pronouncing of the Lovech Regional Court on the court proceedings, initiated on minority shareholders request. In March 2019 Lovech Regional Court enacted a decision, which indicates CR to register the decrease of the capital after a resumption of the registration proceedings after the pronouncing on the legal proceedings initiated by the minority shareholders.

 

The decision for decreasing the capital was voted again on a new EGMS held in February 2019. On the same EGMS was also taken a decision for replacement of the deceased member of the Supervisory Board Ivan Voynovski with Rumen Konstantinov. The application for registration of these circumstances in the account of the Parent company was refused, which was disputed within the statutory period by the Parent company.

 

In addition to the refusal, the registration proceedings were suspended by a request of minority shareholders until the pronouncing of the Lovech Regional Court on applications for annulment of the decision. In May 2019 the Lovech Regional Court enacted a decision, which repealed the enacted refusal and turn back the case to the Registry Agency for registration of the applied entry after a resumption of the ceased registration proceedings. At present, the court proceedings for repealing of the decisions of EGMS from February 2019 are pending.

 

The next capital adequacy measure that the Group has taken, as disclosed in Note 2.8. Changes in the accounting policy to the consolidated financial statements for 2019 is a change in the accounting policy regarding non-current tangible assets - property, plant and equipment from the applied model in its financial statements until 2019, including a cost model, with application from the beginning of 2020 of the other applicable model - the revaluation model, which the Management considers to reflect more objectively the held non-current tangible assets.

According to preliminary estimates, the expected effect as at December 31, 2019 is an increase in the value of non-current tangible assets by not less than BGN 22,000 thousand and net assets by not less than BGN 19,800 thousand, which will be reflected in the consolidated financial statements for 2020.

 

To carry out its business activity the Group needs free capital to provide the necessary working capital, to pay its obligations on timely manner and to follow its investment intentions. Major sources of liquidity are cash and its equivalents, long-term and short-term loans, the decrease of receivables collection period and extension of the liabilities paying period.

 

The major indicators which give a better information on the financial position of the Group, are disclosed in section Selected performance indicators and Financial position.

 

Disclosure of additional information in compliance with regulatory requirements

 

Information pursuant to the requirements of item 6, 8 and 9 of the Appendix No. 10 to the Ordinance No. 2 of September 17, 2003

 

Loans granted by the issuer

 

Type of borrower	Annual interest rate	Maturity	Outstanding Principal	Impairment	Net Principal	Purpose
				till Dec.31, 2019	Dec.31, 2019
			BGN'000	BGN'000	BGN'000
Trade company	9.50%	21.1.2017	44	44	0	Working capital
Trade company	8.75%	17.7.2015	1,500	1,500	0	Working capital
Trade company	8.50%	26.8.2015	12	12	0	Working capital
Trade company	6.70%	31.12.2020	4,935	612	4,323	Working capital
Trade company	6.70%	31.12.2020	3,000	372	2,628	Working capital
Trade company	6.70%	31.12.2020	4,790	566	4,224	Working capital
Trade company	9.50%	31.12.2020	2,210	2,210	0	Working capital
Trade company	6.70%	31.12.2020	4,402	1	4,401	Working capital
Trade company	6.70%	31.12.2019	528	0	528	Working capital
Trade company	6.70%	31.12.2020	5,177	556	4,621	Working capital
Trade company	6.70%	01.08.2020	673	9	664	Working capital
Subsidiary	6.70%	31.12.2020	9,785	337	9,448	Working capital
Subsidiary	9.50%	29.4.2014	104	104	0	Working capital
Subsidiary	6.70%	31.12.2020	210	24	186	Working capital
Subsidiary	6.70%	31.12.2020	2	-	2	Working capital
Subsidiary	6.70%	31.12.2020	1,591	171	1,420	Working capital
Total loans granted			38,963	6,518	32,445

   

Loans and borrowings received by the issuer

 

Type of lender	Annual interest rate	Maturity	Principal	Purpose
			31 Dec.19
			BGN'000
Corporate bond holders	5.5-8%	26.1.2022	36,909	Working capital, financing of investment projects and restructuring of previous debt
Financial institution	3mEuribor+5.25%	30.5.2022	1,267	Investment loan
Financial institution	BIR + koef. for mrkt. environment	15.12.2021	7,000	Investment loan
Total loans received			45,176

 

 Loans received by companies controlled by the issuer

 

Type of lender	Annual interest rate	Maturity	Principal	Purpose
			Dec.31, 2019
			BGN'000
Parent company	9.50%	29.4.2014	104	Working capital
Parent company	6.70%	31.12.2020	210	Working capital
Parent company	6.70%	31.12.2020	2	Working capital
Parent company	6.70%	31.12.2020	1,591	Working capital
Parent company	6.70%	31.12.2020	9,785	Working capital
Total loans received			11,692

  

Loans granted by companies controlled by the issuer

 

Category	Annual interest	Maturity	Principal	Purpose
Lender/depositor			Dec.31, 2019
			BGN'000
Trade company	7.00%	7.8.2020	153	Working capital
Trade company	6.70%	31.12.2020	1,292	Working capital
Trade company	6.70%	31.12.2020	6	Working capital
Trade company	5.00%	31.12.2020	88	Working capital
Total loans granted			1,539

 

 

Contingent liabilities

 

As at December 31, 2019 the Group has contingent liabilities, including issued mortgages and pledges of property, plant and equipment and non-current assets held for sale, which serve as a collateral for bank loans granted to the Group and unrelated parties and credit limits for issuance of bank guarantees with total carrying amount of BGN 12,912 thousand.

 

The Group is a joint co-debtor under loan agreement of unrelated supplier, including limit for overdraft and limit for stand-by credit for issuance of bank guarantees in favour of Customs Agency. The total amount of the utilized funds and issued bank guarantees of all borrower's exposures to the Bank shall not exceed BGN 45,000 thousand. In relation to this credit agreement, the Group has established a special pledge on its cash in the bank account opened in the bank-creditor with total amount of BGN 5 thousand as at December 31, 2019 and a special pledge on receivables from contractors for BGN 4,000 thousand average monthly turnover.

 

The Group bears a joint obligation according to a contract for debt from January 2017 on an obligation of a subsidiary until February 2018 for BGN 2,346 thousand as at December 31, 2019.

 

Under a bank agreement for revolving credit line signed in 2016, bank guarantees were issued for a total amount of BGN 9,232 thousand as at December 31, 2019, including BGN 6,000 thousand in favor of third parties - Group's suppliers, BGN 1,465 thousand in favor of National Revenue Agency, for issuance of appealed by the Parent company amended assessment and BGN 1,767 thousand to secure own liabilities related to contracts under the Public Procurement Act. The bank agreement is secured by mortgages of property, pledge of plants and equipment, pledge of all receivables on bank accounts of the Parent company and a subsidiary. In July 2017 the credit limit under the revolving credit line was increased from BGN 8,500 thousand to BGN 9,500 thousand. Assets amounted to BGN 1,500 thousand, owned by a subsidiary, additionally secured the credit limit. With annex from December 2018 the limit is increased to BGN 21,000 thousand and is additionally secured with mortgages and pledge of property, plants and equipment, and special pledge of goods in turnover, namely petroleum products. In June 2019, the credit limit for working capital granted under this credit line was partially repaid as its amount decreased from BGN 7,500 thousand to BGN 7,000 thousand.

 

As a collateral of an investment loan signed in July 2016, a mortgage of property, acquired through the investment loan and a pledge of receivables, arising from opened bank accounts of the Parent company to the amount of the outstanding balance of the loan, which as at the December 31, 2019 amounting to BGN 1,267 thousand.

 

There is a pending litigation in relation to a signed in 2015 guarantee contract of the liabilities of a subsidiary until February 2018, arising of a cession contract with outstanding book value as at December 31, 2019 of BGN 245 thousand. In April a final decision on the pending case was ruled. The court held that the Parent company is responsible as a guarantor for the obligations of the subsidiary under the cession contract. The cash granted as a collateral under Art. 180 and Art. 181 of Law on Obligations and Contracts (LOC) amounting to BGN 245 thousand is disclosed as other receivables on guarantees. A request to release the cash was deposited, but the court dismissed the appeal.

 

In the previous reporting periods companies from the Group have entered into the debt under two loan agreements of a subsidiary with a bank-creditor (until December 2015) for USD 15,000 thousand and USD 20,000 thousand, respectively. In 2015 the bank -creditor acquired court orders for immediate execution and receiving orders against the subsidiaries - joint debtors. In relation to the complains filed by the subsidiaries, the competent court has revoked the immediate enforcement orders and has invalidated the receiving orders. In October and December 2015 the creditor has filed claims under Art. 422 of Civil Procedure Code (CPC) against the subsidiaries for the existence of the receivables under each loan agreement. The court proceedings of the creditor are still pending.

 

In December 2016 the first instance court decreed a decision (the Decision) which admit for established that the bank has a receivable amounted to USD 15,527 thousand from the subsidiaries - joint debtors, arising from a signed loan agreement for USD 15,000 thousand. With the same decision the court has ordered the joint-debtors to pay BGN 411 thousand to the bank - creditor for legal advisory fees and court dispute expenses and BGN 538 thousand state fee in favor of the judiciary state for the ordered proceedings and BGN 538 thousand state fee for claim proceedings. In January 2017, the co-debtors have filed in time appeals against the court decision, because of that the decision did not come into force. As at the date of the preparation of these explanatory notes, the dispute is pending in the appeal court. The Group's Management considers that there are grounded chances the Decision to be entirely repealed.

 

As at the date of the preparation of these explanatory notes, the filed proceedings against the subsidiaries - joint debtors for estimation of the bank receivables due to the loan agreement for USD 20,000 thousand is pending before the first-instance court. The Management expects favorable decision by the competent court. In 2018 the Parent company sold its interest in one of co-debtor subsidiaries and the potential risk for the Group is reduced to the court proceedings against the second subsidiary.

 

A creditor of a subsidiary (until December 2015) unreasonably claimed in court the responsibility of the Parent company under a contract of guarantee for liabilities arising from a contract for a framework credit limit as a result of that the bank accounts of the Parent company amounting to USD 29,983 thousand were garnished. This claim was disputed in court by Petrol AD because the liability as guarantor has not occurred and / or extinguished pursuant to Art. 147, par. 2 of the LOC. At the time of conclusion of the guarantee deadline of the arrangements between the lender and subsidiary contractual framework for credit limit was July 1, 2014. The term of the framework credit limit was extended without the consent of the customer, therefore the responsibility of the latter has fallen by six months after initially agreed period, during which the creditor has brought an action against the principal debtor. The term of Art. 147, par. 1 of the LOC is final and upon its expiration the company's guarantee has been terminated, so the objection of the Parent company was granted by the court and imposed liens on bank accounts lifted.

 

After the writ of execution, pursuant to order proceedings, was canceled on which were imposed liens on bank accounts of the Parent company, the creditor has initiated legal claim proceedings under Art. 422 of the CPC to establish the same claims against the subsidiary (until December 2015) and the guarantor Petrol AD. In these proceedings the objections are repeated, that liability as guarantor has not occurred and / or extinguished pursuant to Art. 147, par. 2 of the LOC, and therefore the Management expects that the claim of the creditor against the Parent company will be dismissed permanently by a court decision on those cases. At present, the case is suspended due to the existence of a preliminary rulling, which is important for the correct resolution of the case.

 

In December 2019, the Parent company entered into an Agreement with a commercial bank for the purchase of trade receivables (standard factoring) with a total advance limit of up to BGN 430 thousand and an interest rate based on savings for BGN, increased by a mark-up of 3.7767 points, but not less than 4% per annum on the amount of the granted advance. The contract is secured by a pledge of receivables on opened bank accounts of the Parent Company with a book value as at December 31, 2019 at the amount of BGN 47 thousand.

 

Information pursuant to item 4 of Appendix No. 10 to the Ordinance No. 2 of September 17, 2003

 

Related parties that the Parent company controls and over which it exercises significant influence are disclosed in Note 30 to the annual consolidated financial report.

 

The Parent company (Controlling company) is Petrol AD.

 

All transactions between the Parent company and the subsidiaries are eliminated for the purposes of these consolidated financial statements. Detailed information on these transactions is disclosed in the annual separate financial statements of the Parent company for 2019.

 

In 2019, there were no transactions with related parties.

  

Share capital

The registered and fully paid-in share capital of Petrol AD as of December 31, 2019 amounts to BGN 109.25 million (EUR 55.86 million) and is distributed into 27,312,403 personal dematerialized ordinary registered shares, with a par value of BGN 4 each. Each share provides a voting right in the General Meeting of Shareholders (GMS), right to dividend and right to liquidation share. The shares, issued by the Parent company are transferable with no limitations or conditions, by its owner's free will, in accordance with the Bulgarian legislation, and according to the rules of Central Depository AD concerning the acquiring and ordering with registered shares, as well as in compliance with the regulations of the market they are traded on. Detailed information about the rules and procedures for trading Petrol's shares is available in the published prospectuses of the Parent company.

 

Information pursuant to Art.187e of the Commercial Act and Art. 39, item 6 of the Accountancy Act

 

In 2019 the Parent company did not carry out transactions subject to notification under Art. 187e of Commercial Act.

 

As at December 31, 2019 the Parent company did not hold common uncertificated own shares.

 

The following table sets out information about the changes in the structure of share capital:

 

In percentage	2019	2018	2017
Alpha Capital AD	28.85%	28.85%	28.85%
Yulinor EOOD	23.11	23.11	23.11
Perfeto Consulting EOOD	16.43	16.43	16.43
Correct Pharm EOOD	10.98	10.98	10.98
Trans Express Oil EOOD	9.86	9.86	9.86
Corporate Commercial Bank AD	5.51	5.51	5.51
VIP Properties EOOD	2.26	2.26	2.26
Ministry of Economics	0.65	0.65	0.65
Other minority shareholders	2.35	2.35	2.35
Total	100%	100%	100%

 

As at the date of these financial statements more than 5% of the capital of Petrol AD is owned by Alpha Capital AD (28.85%), Yulinor EOOD (23.11%), Perfeto Consulting EOOD (16.43%), Correct Pharm EOOD (10.98%), Trans Express Oil EOOD (9.86%) and Corporate Commercial Bank (5.51%).

 

Shares owned by other minor shareholders are held by investors, which have acquired them through trading at the regulated stock market and none of them owns more than 5% of Parent company's shares. The Parent company does not have shareholders with special controlling rights.

 

As at December 31, 2019, according to a list of shareholders, received from Central Depository AD, the members of SB and MB, procurators and senior management of Petrol AD did not own shares of the Parent company.

 

Persons or entities directly or indirectly controlling Petrol AD

 

By the meaning of paragraph 1, point 14 of the Public Offering of Securities Act (POSA), one person or entity exercises directly or indirectly control over the company, when that person or entity holds over 50% of the votes of the GMS or may appoint directly or indirectly more than half of the members of the company's bodies, or may otherwise exercise a decisive influence on decision-making in relation to the business of the legal entity.

 

As of December 31, 2019 no person holds more than 50% of votes at the General Meeting of Shareholders of Petrol AD.

 

In 2019, the Parent company Petrol AD has not issued any new issue of shares.

 

Information on pending legal, administrative or arbitration proceedings amounting to at least 10% of equity of the Company pursuant to item 20 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

CCB AD - in bankruptcy has claimed in court a responsibility of the Parent company under a contract of guarantee for obligations arising from a contract for a framework credit limit of a subsidiary /till December 2015/ Naftex Petrol EOOD amounting to USD 29,983 thousand. This claim was disputed in court by Petrol AD because the obligation as guarantor has not occurred and / or has been extinguished on the basis of Art. 147, paragraph 2 of the Law on Obligations and Contracts. At the time of signing the guarantee contract, the deadline of the arrangements between the lender and the subsidiary under the contractual framework for credit limit, was July 1, 2014.

 

The term of the framework credit limit was extended without the consent of the guarantee, therefore the responsibility of the latter has fallen by six months after the initially agreed period, during which the creditor has not brought an action against the principal debtor. The term of Art. 147, paragraph 1 of the CPA is final and upon its expiration the Petrol AD's guarantee has been terminated, so the Management expects the claim of the creditor against Petrol AD to be finally rejected by the court. At present, the court proceedings are suspended until concluding of other court proceedings to declare as invalid the set-offs, carried out by the main debtor Naftex Petrol EOOD. The set-offs repaid part of the liabilities on the received credit limit. The Management expects positive outcome for Petrol AD following the resumption of the suspended court proceedings.

 

The Parent company claimed receivables of BGN 8,367 thousand to Naftex Petrol EOOD - in bankruptcy. The claimed receivables are included in the prepared by the syndic list of the approved receivables under Art. 686 of Commercial Act, but the same were appealed by other creditor to the bankruptcy proceedings. At present, the pending court proceedings to establish the existence of these receivables under Art. 694 of the CA has ended with a decision, as the court has accepted the receivables of the company up to the amount of BGN 4,794 thousand.

 

Stock market information

 

In 1998 the issue of shares of Petrol AD in the amount of registered capital of the Company is registered for trading on the Bulgarian Stock Exchange since January 15, 2007 the shares are traded on the "B" segment of the Official market of the Bulgarian stock exchange - Sofia.
 

The following table sets out summarized market information about the trading of Parent company's shares on the Bulgarian Stock Exchange - Sofia:

 

		2019	2018	2017
Share capital as at 31 December	BGN mln	109.3	109.3	109.3
	EUR mln	55.9	55.9	55.9
Share price as at 31 December	BGN	0.715	0.985	0.439
	EUR	0.37	0.504	0.224
Market capitalization as at 31 December	BGN mln	19.5	26.8	47.9
	EUR mln	10.0	13.7	24.5
Highest price throughout the year	BGN	1.10	1.80	0.498
	EUR	0.56	0.92	0.255
Lowest price throughout the year	BGN	0.56	0.57	0.385
	EUR	0.28	0.29	0.197

   

Non-financial declaration

 

Human resource management

 

Information pursuant to Art.48, par.1 and par.2 of the Accountancy Act

 

The Management believes that the employees of the Group play a key role in the development of the business and the achievement of common corporate goals and pays special attention to the elaboration and development of a general strategy and policies regarding human resource management. The policies in this field are oriented towards achieving of responsibility and commitment of the personnel during its performance of assigned tasks and goals. Simultaneously the senior executive staff makes efforts to support the mid-level management and the employees in order to fulfil the Group's Management priorities.

 

The goals of the human resources development strategy and policies are:

 

·    Keeping the employees with a high potential and assisting their professional growth by planning their careers and introducing bonus package systems;

·    Selection of new employees with significant potential and result-oriented personality;

·    Broadening the scope of the traineeship programmes;

·    Improvement of communications between the separate organizational bodies;

·    Development and introducing of new systems for career management of the key employees;

·    Development of a programme for introducing training for newly employed personnel.

 

The Group applies adequate criteria for selection of personnel and has a professional and motivated team, which is capable of pursuing the defined strategic and operational goals. An organization network has been created for fair evaluation of the personnel's individual and collective contribution, as well as for evaluation of its content grade. The Group invests in its employees by offering them adequate programmes for training and development of the necessary professional and management skills. The Group's policy is oriented towards providing of safe and healthy working conditions, adequate remuneration and motivation system, and opportunities for professional growth.

 

In 2019, the number of the personnel was 1,247 employees. Most of the employees work in the Parent company (1,113 employees). Among the other companies in the Group, the one with the largest number of staff by the end of 2019 was Varna Storage EOOD (70 employees) and Petrol Finances OOD (50 employees).

  

Information in compliance with the requirements of Art. 247, par.2 of the Commercial Act and item.18 and item.19 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

Management Board:

 

Individuals

•           Grisha Danailov Ganchev - Chairman

•           Georgi Ivanov Tatarski - Vice Chairman and Executive Director

•           Milko Konstantinov Dimitrov  - Member and Executive Director

•           Lachezar Nikolov Gramatikov - Member

•           Kiril Emilov Shilegov - Member

 

No legal entities are members of the Management Board

 

Supervisory Board:

 

Individuals - members of the Supervisory Board:

·   Ivan Alipiev Voinovski - Chairman of the Supervisory Board[16]

 

Legal entities - members of the Supervisory Board:

·   Petrol Correct EOOD UIC 203177666, represented on the Supervisory Board by Nikolay Borislavov Gergov - Member of the SB;

·   Petrol Asset Management EOOD, UIC 203176781, represented on the Supervisory Board by Armen Lyudvigovich Nazaryan - Member of the SB.

 

Procurators - the Parent company has no procurators.

 

Expiration date of current contracts with the members of the Management and Supervisory Board as well as the period during which they have held office:

 

Members of the Management Board:

 

·   Grisha Danailov Ganchev - Chairman - held the position since 05.06.2014 until present. Mandate for five years;

·   Georgi Ivanov Tatarski - Vice Chairman and Executive Director - held the position since 05.06.2014 until present. Mandate for five years;

·   Milko Konstantinov Dimitrov - Member - held the position since 05.06.2014 until present. Mandate for five years;

·   Lachezar Nikolov Gramatikov - Member - held the position since 27.10.2014 until present. Mandate for five years;

·   Kiril Emilov Shilegov - Member - held the position since 27.10.2014 until present. Mandate for five years.

 

Members of the Supervisory Board:

 

·   Ivan Alipiev Voynovski - Chairman - held the position since 14.10.2014 until 23.02.2017;

·   Petrol Correct EOOD, UIC 203177666, represented in SB by Nikolay Borislavov Gergov - Member - held the position since 14.10.2014 until the present. Mandate for five years;

·   Petrol Asset Management EOOD, UIC 203176781, represented in the SB by Armen Lyudvigovich Nazaryan - Member - held the position since 18.01.2017. Mandate for five years.

 

Information pursuant to item 17 of the Appendix No.10 to the Ordinance No.2 for the total remunerations received by the members of the boards during the year

 

The total amount of accrued remunerations of key management of the Parent company, included in personnel costs, amounted to BGN 1,402 thousand (2018: BGN 1,397 thousand). The unsettled liabilities as at December 31, 2019 amounting to BGN 120 thousand (2018: BGN 116 thousand).

 

In 2019, there were no contingent or deferred remunerations.

 

As at December 31, 2019 the Group has no due amounts for retirement benefits or other compensations for the members of the Boards.
 

Signed agreements during 2019 under Art.240b of the Commercial Act

 

In 2019, members of the Board of Directors or their related parties did not enter into agreements under Art.240b of the CA that go beyond the ordinary business of the Group or significantly deviate from market conditions.

 

Information pursuant to item 19 of the Appendix No.10 to the Ordinance No.2 for arrangements with employees for participation in the capital of Petrol AD, including through issuance of shares, options and other securities of Petrol AD

 

There are no arrangements with employees for participation in the capital of Petrol AD, including through issuance of shares, options and other securities of Petrol AD.

 

Information pursuant to item 18 of the Appendix No.10 to the Ordinance No.2 for the acquired and transferred shares and bonds by the members of the boards of the company

 

During the year, shares and bonds have been not acquired and/or transferred by the members of the boards of Petrol AD.

 

Members' rights to acquire shares and bonds of the company

 

The Statute of the Parent company does not provide specific rights of the members of the MB and SB to acquire shares and bonds of Petrol AD.

 

Granted to members options on shares by Petrol AD - type and size of the securities, on which options are set, exercise price on options, purchase price if any and term of the options

 

Petrol AD did not granted options on its shares in favor of the members of SB and MB.

 

Participation of the members of MB and SB in companies as general partners, possession of more than 25 per cent of the capital of another company, as well as their participation in the Management of other companies or cooperatives as procurators, managers or board members:

 

А) Participation in management:

 

Grisha Danailov Ganchev, ID 6212103024

·   Chairman, Managing of Association of horse breeders in Bulgaria, UIC 175861533;

·   Chairman, Managing of the National Association for Horses, UIC 130290222;

·   Chairman, Managing of the Bulgarian National Association for horse racing, UIC 115853902;

·   Member of the collective Management body of the Bulgarian Wrestling Federation, UIC 121505512;

·   Member of the Board of Directors of PFC CSKA - 1948 AD, UIC 200269839;

·   Member of the collective Management body of the Foundation Beautiful Lovech, UIC 110562063;

 

Milko Konstantinov Dimitrov, ID 8506063020

·   Manager of MKD Property EOOD, UIC 202188364;

·   Member of the collective Management body of the Bulgarian National Association for horse racing UIC 115853902;

 

Georgi Ivanov Tatarski, ID 6009020101 - Is not involved in management or supervisory body of another company;

 

Lachezar Nikolov Gramatikov, ID 7510020140

·   Manager of 4 G Consult EOOD, UIC 204808732;

·   Manager of 3M Properties EOOD, UIC 205603399;

 

Kiril Emilov Shilegov, ID 7708206927

·   Manager of Grand-K EOOD, UIC 203461378;

·   Manager of Shumen Storage EOOD, UIC 205714218;

·   Manager of Office Estate EOOD, UIC 205754383;

·   Manager of VARNA 2130 EOOD, UIC 205838664;

·   Manager of Svilengrad Oil EOOD, UIC 205818576;

·   Manager of Kremikovsi Oil EOOD, UIC 20571420;

 

Petrol Correct EOOD, UIC 203177666 - Is not involved in management or supervisory body of another company;

 

Nikolay Borislavov Gergov, ID 7803171884

·   Manager of Petrol Correct EOOD, UIC 203177666;

·   Member of the Board of the Bulgarian Wrestling Federation, UIC 121505512;

 

Petrol Asset Management EOOD, UIC 203176781 - Is not involved in management or supervisory body of another company;

 

Armen Lyudvigovich Nazaaryan, ID 7403096301

·        Manager of Petrol Asset Management EOOD, UIC 203176781

 

B) Holdings:

 

Grisha Danailov Ganchev, ID 6212103024

·   Partner with a 38.1% of the capital of PFC CSKA-1948 AD, UIC 200269839

 

Milko Konstantinov Dimitrov, ID 8506063020

·   Sole owner of the capital of MKD Property EOOD, UIC 202188364;

 

Georgi Ivanov Tatarski, ID 6009020101

·   Partner with a 50% share in the capital of MB Properties OOD, UIC 200977005;

 

Kiril Emilov Shilegov, ID 7708206927

·   Sole owner of the capital of Grand-K EOOD, UIC 203461378;

 

Lachezar Nikolov Gramatikov, ID 7510020140

·   Sole owner of the capital of 4 G Consult EOOD, UIC 204808732;

·   Sole owner of the capital of 3M Properties EOOD, UIC 205603399;

 

Petrol Correct EOOD, UIC 203177666 - no such holdings;

 

Nikolay Borislavov Gergov, ID 7803171884:

·   Sole owner of the capital of Petrol Correct EOOD, UIC 203177666;

 

Petrol Asset Management EOOD, UIC 203176781 - no such holdings;

 

Armen Lyudvigovich Nazaryan, ID 7403096301

·   Sole owner of the capital of Petrol Asset Management, UIC 203176781;

 

Relations between Management Board and union employee organizations - - there is no collective agreement.
 

Information about the Director of Investor relations, including telephone and correspondence address pursuant to item 21 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003

 

Director for connection with investors is Antoaneta Gyurova, tel . 02 9690453, mailing address - Sofia, bul. "Cherni vrah" № 43.

 

Environmental commitments

 

Following its privatisation in 1999, Petrol AD started the implementation of an investment programme aimed to bring the Group's facilities in line with the requirements of the best environmental practices in the European Union. The Group's operations include a number of activities which are governed by the environmental or health and safety laws in Bulgaria, which also cover historic environmental liabilities associated with past environmental damage, storage and handling of petroleum products, soil and groundwater contamination, waste management, water supply, waste water management, atmospheric emissions, use and disposal of hazardous materials and land use and planning requirements, including community issues, associated with the development of new green field retail stations.

 

The principal legislation acts in Bulgaria, which set out the framework for environmental protection and sustainable development, are the Environment Protection Act, the Water Act, the Waste Management Act, the Air Purity Act, the Soil Protection Act, the Underground Resources Act, RESA and various regulations on their implementation. As part of Bulgaria's preparation for accession to the European Union, each of these acts has been brought into line with the European Union standards, with the new standards being phased in over time.

Any failure by the Petrol AD or its subsidiaries to comply with such acts may be a ground for civil and/or administrative liability.

With regard to the Group's retail stations, the Bulgarian law requires that a number of air, water, land and noise emissions are monitored and recorded and processes established for minimizing such emissions and rendering them harmless. The following are monitored pursuant to these obligations:

 

•    Air emissions are monitored for dust, hydrogen sulphide, sulphurous dioxide, nitrogen dioxide, lead aerosols, ammonia, carbolic acid and hydrocarbon;

•    Water emissions are monitored for temperature, pH, dissolved oxygen, conductance, turbidity, phosphates, copper, zinc, lead and oil products;

•    Surrounding soil is monitored for pH, nitrate nitrogen, copper, chlorides, phosphates, zinc, lead and oil products; and

•    Noise levels are monitored.

 

The Group is in compliance in all material respects with environmental requirements currently applicable to its operations. The Management of the Group believes, with the planned additional investment, the companies will be able to maintain compliance with known forthcoming requirements. The Group's intention is to continue to ensure environmental compliance and pollution prevention in advance of regulatory requirements.

 

Vapour recovery systems

 

One of the major areas in which the Group has invested, and will continue to invest, is the meeting of the Bulgarian and European Union requirements for the control of volatile organic compounds (known as VOCs). VOCs are compounds containing carbon that evaporate into the air, such as vapour arising from certain petroleum products. European Union Directive 94/63/EC Directive on VOCs emissions resulting from storage and distribution of petrol set limits on the permitted levels of such emissions.

 

The Directive has been implemented in Bulgarian legislation in the form of Ordinance No16 dated August 12, 1999, which limits the emissions of VOCs connected with the storage, loading or unloading and transportation of gasolines.

 

The legal acts set up very strict requirements to fuel stations, fuel storage terminals, and fuel tank trucks. Pursuant to these standards, the tanks of fuel stations are made with double walls willed with inert liquid. The Group installed level measuring systems reacting to the slightest changes in the level of fuel, as well as systems for sending vapours back into the fuel tank truck during unloading of the fuel. Thus all dangers of fuel leaks and pollution with carbon oxides are minimized. In order for the Group to be in line with the environmental criteria, the loading and storage terminals are currently being reconstructed. Floating roofs limiting the vapours to a minimum are installed, new mounting platforms for down filling of fuel trucks and vapour recovery system are built.

 

With a view to promote the consumption of biofuels and other renewable fuels in transport sector and in compliance with the adopted amendments to the Renewable Energy Source Act (RESA), since the June 1, 2012 the Group offers fuel for diesel engines with a minimum biodiesel content of 6% vol. and from September 2013 fuels for motor engines with minimum 4% vol. of bioethanol additive. According to the RESA the additive share was gradually increased to 7% vol. as at March 1, 2015. It is provided for additional increase to 9% vol. of the content of bioethanol or ethers manufactured from bioethanol from the beginning of March 2019.

 

ISO Certification

 

In December 2004, the Management Board of the Group decided to obtain ISO certifications for quality management standards under ISO 9001:2000 and environmental management system under ISO 14001:1996. This intention confirms the commitment of the Management to implement the best European practices in process management. This process includes the preparation, documentation and implementation of written rules and procedures and an audit of the procedures by an independent third party.

 

On October 11, 2007 Petrol AD successfully received certificate under ISO 9001:2000. In September 2010 Petrol AD and its subsidiaries successfully passed certification under ISO 9001:2008. At present the Parent company has a certificate for ISO 9001:2015 received on September 5, 2018.

 

Social policy and supported causes by Petrol Group

 

The functioning social policy (SP) of Petrol Group has been developed in two major directions. The first direction focuses on the intra-group social relationships with the employees with the primary goal of increasing employee and company benefits of interacting with each other. The second direction of social policy is focused on the external environment and in particular on social interaction possibilities of the Group with external social subjects.

 

The social policy is fundamental in the business development strategy of the Petrol Group, because the Management of the Parent company believes that the care for the employees is a care for the company. The social policy of Petrol AD constitutes a set of measures and objectives, which regulate the social relationships between the Company and the employees by joining their efforts in the united social goals.

 

The Management has adopted a practice to develop a SP together with its employees, thus ensuring feedback and guaranteeing the effectiveness of the adopted measures and social policies. The scope of Petrol Group's SP includes the remunerations policy, selection of employees and opportunities for personnel development, providing of adequate information and technology working conditions, participation in trainings and seminars, selection of holidays and opportunities for flexible working conditions appropriate for the needs and specifics of the particular employee.

 

The Social policy of the Group is built in compliance with the long-term relationships between the companies in the Group and the employees, outlining the perspectives of every particular employee in the overall development vision of the Group. (see also Human resources).

 

At the same time, the Management of the Group supports various forums and events with social significance for the society. During the reporting period, the Parent company has donated several institutions, initiatives and causes, including Association Christian Union, Association Give a smile, Bulgarian Christmas and others. The Parent company systematically provides financial support to people in need mainly related with treatment in the country and abroad and purchase of medicines. In 2019 the Group participated in several events and social projects, including events organized by the Bulgarian Federation of Artistic Gymnastics.

 

Outlook

 

Information pursuant to Art. 39 item 4 of the Accountancy Act and Art. 247, par. 3 of the Commercial Act

 

At the end of 2019, a new coronavirus was identified in China. Due to the fast widespread of the virus across the world at the beginning of 2020, the World Health Organization declared a global pandemic. On March 13, 2020 the Parliament declared a state of emergency on request of the Government of Republic of Bulgaria and on March 24, 2020 the Law on Measures and Actions during a State of Emergency became effective. In order to restrict the widespread of coronavirus infection, an Order of the Health Minister was issued for the introduction of anti-epidemic measures, which directly affect the business activity of the Group. Part of the measures include extension and interruption of the administrative deadlines, extension of the of administrative acts, suspension of the procedural court terms and the statute of limitations, changes in the labor legislation, referring to new working hours, suspension of work and / or reduction of working hours and use of leave, etc. The pandemic causes a significant reduction in economic activity in the country and raises significant uncertainty about future processes in macroeconomics in 2020 and beyond.

 

Due to the arising at the beginning of 2020 pandemic situation, the Group's management expectations are that in the coming years the competition mainly in the retail market to increase, as  many small independent players would be forced out of fuel business. At the same time, the expectations in terms of the levels of trade margins, in particular on the retail market, are the margins to stabilize around the average European levels.

 

The plans for the future development of the company are closely related with the stated expectations for changes in the market environment, in particular, sector of trading with fuels. The Management continues to follow the program outlined and started in the beginning of 2014 for restructuring the activities of Petrol Group, aiming to concentrate the efforts to optimize and develop the core business - wholesale and retail trading with fuels.

 

Following the strategy for expansion of its retail market share, the Group plans to attract new fuel stations under the Petrol brand within the franchising program. Additionally in 2020, the Group's Management will look for opportunities, through external funding to build several new petrol stations at excellent locations. With regard to the implementation of corporate quality management and environmental standards, in the following year, the Group will continue the installation of energy-saving systems on the existing sites. Additionally, the Group plans to continue the implementation of the investment programs for reconstruction and modernization of the operated retail network.

 

In the coming years the results of the Group will also depend on the possibilities to carry out the investments and the successful delivering of new projects. The investments of the Group will be focused predominantly on the development of new sites on attractive locations and increasing the sales and market share of Petrol AD, mainly through transformation of the trade sites managed by the Parent - company into modern places for complex customer service.

 

In terms of wholesale trading, in 2020 the management will continue the active action for expansion of market share that has been taken since mid-2016, by securing the long-term use of storage facilities - licensed fuel storage facilities strategically located in the country through a subsidiary and through direct licensing of the Parent company. The Management is in the process of analyzing and exploring the possibilities of increasing wholesale trading, including by import of petroleum products.

 

With the aim to improve the financial position, the Management continues to analyze actively all expenses and to look for hidden reserves for optimization. In order to increase the efficiency of the main operating activity it is necessary to restructure the storage facilities and to reduce the losses from the storage services.
 

Corporate Governance Statement

 

Information pursuant to Art. 100n par.8 in conjunction with par.7 item 1 of the Public Offering of Securities Act

 

The actions of the Management of Petrol Group and the Parent company in particular, are focused on strengthening the principles and traditions of good corporate governance, increasing the trust of interest entities, namely shareholders, investors and counterparties, as well as timely disclosure of accurate information in accordance with the legal requirements.

 

In its activity, the Management of Petrol Group follows and fulfils the adopted Program for application of the international standards for good corporate governance (the Program). The Management believes that the compliance with the highest standards for corporate governance is essential for maintaining the reputation of the Parent company (the Company) and the results of its operations.

 

The board of directors of Petrol AD is guided by the principles set forth in the Program for Good Corporate Governance of Petrol AD, which has been prepared in accordance with the effective Bulgarian commercial legislation, the Code of Corporate Governance adopted by the Board of Directors of Bulgarian Stock Exchange - Sofia, the Statute of Petrol AD and the Rules for procedure of the management bodies of the Company.

 

The Program for Good Corporate Governance has been adopted by the Management Board (MB) and its implementation is monitored by the Supervisory Board (SB) of Petrol AD. The Program sets out the main principles and policies of the Group that the management bodies should comply with in order to achieve the goals set in the Program, namely:

·    Protection of shareholders' rights and guaranteeing equality amongst them (including minor and foreign shareholders);

·    Timely and accurate disclosure of information about all issues relevant to the Group in compliance with the POSA, Law on Measures against Market Abuse with Financial Instruments and the other acts;

·    Providing strategic management of the Group, efficient control over the work of the MB and the accountancy of the MB and the SB to the GMS;

·    Creating interactive connection between the Management of the Group and its shareholders and potential investors.

 

The main principles of the Good Corporate Governance Program of the Parent company Petrol AD are disclosed in the announced Good Corporate Governance Program of Petrol AD to the annual financial report.

 

During the reporting period there were no changes in the basic management principles of the economic group.

 

Shareholders' rights

 

The Program sets clearly the rights of the shareholders of Petrol AD and the main goal of the managers' team is to ensure their observation. The shareholders have the right to:

·   Participate and vote in the GMS;

·   Be equally treated in the GMS;

·   Request convocation of regular or extraordinary GMS;

·   Access the materials in writing, relevant to the agenda of the GMS;

 

·   Access to the records of the previous sessions of the GMS;

·   Make proposals for election of members of the SB and to vote for their electing;

·   Take part in the distribution of the Company's profit commensurably to their participation of the share capital;

·   Receive regularly and timely information about corporate events related to the activities and condition of Petrol AD;

·   Participate in the increase of the capital of Petrol AD and in tender offers.

·   Receive timely information in respect of notifications about tender offers.

 

Management System

 

Information pursuant to Art. 10, par. 1, character "h" from the Directive 2004/25/EC of the European Parliament and of the Council from April 21, 2004 on takeover bids

 

Petrol AD has two-tier board structure, which includes Management Board (MB) and Supervisory Board (SB).

 

Management Board

 

The Company is managed and represented by MB with up to five members, elected by SB for five years mandate.

 

The MB has the authority to:

·   to prepare the annual report and financial statements of the Company and submit them for approval by the GMS;

·   to adopt projects and programs for the activity of the Company;

·   to make proposals for increase or decrease of the Company's capital to the GMS;

·   to elect and dismiss the executive directors;

·   to elect and dismiss the chairman and the deputy chairman of the MB;

·   to appoint on a labour agreement the Investor Relationship Manager and to assist him in exercising his functions, and to control their implementation;

·   to approve the organizational and management structure of the Company and other internal regulations;

·   to open and close down branches and to make decisions to acquire or terminate participations in the capital of other domestic or foreign companies;

·   to make decisions for concluding deals under art. 114, paragraph 1 of the POSA, in cases when it is authorized for that by the GMS,

·   Appointing the Investor Relations Officer and assisting him / her in exercising his / her duties and controlling their performance;

·   Determining the way of exercising the voting rights on the shares or shares held by Petrol AD in the capital of its subsidiaries as a sole owner of the capital or as a shareholder and / or a partner in any general meeting of the shareholders or of the partners of a subsidiary;

·   Discussing and resolving all issues other than those within the competence of the General Assembly and the Supervisory Board.

 

The MB shall take decisions by a simple majority of its members if more than half of its members attend in person or are represented by another member of the board, provided that one attendant may represent only one absent, except for the decisions for which the law and / or the Statute of the Parent company require a qualified majority or unanimity of all members.
 

MB reports its activity at least once a month to the Supervisory Board of the Company. MB adopts its Rule of Procedure, in which its powers, duties and functions are clearly and precisely defined.

 

Supervisory Board

 

SB administrates and controls the MB for the compliance of its activity with the legislation, the Statute and the decisions of the GMS. The Supervisory Board is collective body, elected by and directly reporting to the GMS.

 

SB consists of three members with 5 years mandate. At least 1/3 of the members of SB has to be independent bodies within the meaning of Art. 116a, par.2 of the Public Offering of Securities Act. 

 

The SB controls generally and continuously the activities of the Parent company, revises the annual financial statements and reports of the Parent company, submits written annual reports for the final results of the audits and analyses of the business to the GMS, elects and dismisses the members of the MB, approves the empowerment of ECOs to represent the Parent company authorized by MB, defines the number of the ECOs, approves the financial plans and investment programs of the Parent company, etc. The SB reports for its activity to the GMS. The SB takes its decisions in accordance with the authorities given to it by the GMS, the Statute and the current legislation.

 

Members of the MB and SB can be re-elected without any limitations. GMS determines the remuneration of the members of the SB and the MB, taking into consideration the responsibility, the engagement and the involvement of each board member with the Management of the Parent company.

 

Disclosure of information

 

Being a public company Petrol AD discloses to the Financial Supervision Commission and the Bulgarian Stock Exchange - Sofia periodical reports and notifications of insider information under the Law on Measures against Market Abuse with Financial Instruments. At the same time, the Company reveals regular information to the public in a way that ensures it to reach the widest possible number of people simultaneously and in a way that does not discriminate them. For that purpose the Company uses the services of the Service Finance Markets EOOD, which ensures effective spreading of regular information to the public in all EU member states. The Company prepares separate and consolidated quarterly financial statements, annual report and separate and consolidated annual financial statements; the MB presents the latter for verification and review to the SB and to the elected by the GMS certified auditor. The elected by the GMS auditor should be independent of the MB and in particular of the executive director of the Parent company and it should act independently of the shareholders who have elected it.

 

The management bodies of the Parent company and the Investor Relations Director should provide easy and timely access of the shareholders and investors to the information, to which they are legally entitled being shareholders and/or investors in order to take informed and adequate investment decisions.

 

The information reported by the Parent company to the Finance Supervising Commission and to the public should be included on the web site of the Parent company for consideration by the shareholders and those who are interested to invest in the shares of the Parent company.
 

Control over the fulfillment of the Program

 

The control over the Program is exercised by the MB of the Parent company. The effectiveness and efficiency of the Program is assessed annually by the MB. The results of this assessment and further measures proposed should be mentioned in the annual financial report provided to the Financial Supervision Commission and to the Bulgarian Stock Exchange - Sofia and the public.

 

With a view to improving and extending the Program, the MB follows the trends in the theory, practice and legislation in the field of corporate governance, which guarantees timely informing the Parent company of the matters in the field and updating of the Program.

 

Internal control and Risk Management systems

 

Information pursuant to item 15 of the Appendix No.10 to the Ordinance No.2 from 17.09.2003 and Art. 100n, par. 8, item 3 from the Public Offering of Securities Act

 

The Group's internal control (IC) and risk management (RM) systems are integrated in a comprehensive integrated process implemented by the employees and the Management of Petrol Group. The foundation of the IC and RM systems is the policies and procedures developed and adopted by the Management of the Parent company, which define the legality, expediency and last but not least the economic efficiency of the Group's processes. The IC and RM systems cover the authorities and responsibilities of the separate units in the company, as well as the principles of their interaction. The approved business and control procedures between the separate departments in the company and the adopted cross-check policy are a guarantee for the reliability and completeness of the financial and operational information generated in the Group. In addition the engagement and the close cooperation of the Management with the employees of the Group's companies contributes for the effective management and preventive measures regarding the resources and intellectual property of Petrol AD.

 

The internal control and risk management systems of the Group are characterized by the following main features:

·    Modern technological and information provision;

·    Qualified and informed employees;

·    Well organized intra-company processes;

·    Commitment and support from the Management.

 

The integration of the SAP/Retail in Petrol AD in 2003 and the gradual introduction in other companies of the Group significantly improves the speed of the information transfer by integrating several systems in one integrated platform, which provides control and monitoring of the processes from their set-up to the end of their execution. As a result, mistakes from business process fragmentation and cumbersome interaction between different information platforms and systems are minimized. SAP platform provides a smooth and timely flow of the information and business processes on a group level as well as their reporting in the Group's financial statements.

 

The highly qualified and knowledgeable staff is essential for the successful integration of IC and RM systems. In this regard, the subsidiary Petrol Finance OOD, specialized in providing financial services, was established. In order to provide a quality financial service, employees in the subsidiary twice a year take part in tax-accounting seminars. Thus, the Management of the Parent company Petrol AD ensures competent, professional expertise while minimizing the possibility of omissions and errors in the financial reporting process.
 

The policies and rules for information and documents flow transferring, approved by the Management of the Parent company, channel the daily work of the employees in different departments and the correspondence between them, facilitating the analyses and evaluations of the business processes and information flows in the Group. The IC and RM process goes through the following stages:

·    Risk identification - it is implemented via control and monitoring system of intra-company environment for potential risks and errors;

·    Analysis and valuation of the risks - creation of risk matrixes including future outcome scenarios with assessments of the effects of the scenarios as well as preparation of reports with proposals of opportunities for overcoming them;

·    Undertaking measures to avoid and prevent of the potential risks - practical implementation of the prepared action proposals on the basis of risk analysis and valuation;

The Management of the Group is directly involved in the process of control and management of the risks related to the financial reporting and business processes of the Group. Day-to-day collaboration, holding of business and working meetings with management staff improve the climate and working environment and increase the efficiency and cost effectiveness of the working process.

 

Information pursuant to Art. 10, par. 1, character "c" from the Directive 2004/25/EC of the European Parliament and of the Council from April 21, 2004 on takeover bids

 

Petrol AD is a public company registered on Bulgarian Stock Exchange. Based on the information received from Central Depository AD for the Parent company's shareholders structure as at  December 31, 2019, there is no shareholder with higher share than 30 per cent of the capital of Petrol AD. In 2019 there were no transactions with shares of the Parent company resulted in crossing the borders under Art.89 from the Directive 2001/34/EC of the European Parliament and of the Council from May 28, 2001.

 

Information pursuant to Art. 10, par. 1, character "d" from the Directive 2004/25/EC of the European Parliament and of the Council from April 21, 2004 on takeover bids

 

Petrol AD has no shareholders with special control rights.

 

Information pursuant to Art. 10, par. 1, character "f" from the Directive 2004/25/EC of the European Parliament and of the Council from April 21, 2004 on takeover bids

 

As at December 31, 2019 Petrol AD did not hold common uncertificated own shares. Petrol AD has no shareholders with voting rights limitations.

 

Information pursuant to Art. 10, par. 1, character "j" from the Directive 2004/25/EC of the European Parliament and of the Council from April 21, 2004 on takeover bids

 

According to the Statute of the Company within 5 /five/ years from the registration date of the amendment of the Statute in the Commercial Register, namely October 14, 2014, the Management Board in accordance with the Statute of the Company and current legislation may take decisions to raise the capital of Petrol AD to a nominal value of BGN 300 000 000 /three hundred millions/ by issuing of new ordinary or preferred shares, eligible by law.

 

In the decision to increase the capital, the Management Board shall determine the amount and purpose of any increase, the number and type of new shares, their rights, the terms and conditions for the transfer of rights within the meaning of § 1, item 3 of the Additional Provisions of the POSA issued against the existing shares, the terms and conditions for the subscription of the new shares, the amount of the issue value and the terms and conditions for its payment, the investment intermediary entrusted with the servicing of the capital increase and other necessary conditions.

 

The redemption of own shares of the Parent company may be carried out under the terms and conditions provided in POSA.

 

 

Responsibility of the Management

 

According to the Bulgarian Law, the Management must prepare annual report on the activity, as well as financial statements for each financial year, which present in true and fair view the Group's consolidated financial position as of the end of the year, its financial performance and cash flows, in compliance with the applicable accounting framework. For reporting purpose under Bulgarian accounting legislation the Company applies the International Financial Reporting Standards (IFRS), as approved by the European Union.

 

This responsibility includes: design, implementation and maintenance of internal control system, related to the preparation and truthful presentation of the financial statements, which do not contain material errors, deviations and discrepancies, whether due to fraud or error; selection and application of relevant accounting policies; and preparation of accounting estimates, which are reasonable in the particular circumstances.

 

The Management confirms that it has acted according to its responsibilities and that the consolidated financial statements have been prepared in full compliance with the International Financial Reporting Standards (IFRS), as approved by the European Union. The Management also confirms that in the preparation of the report on the activity it has presented in true and fair view the development and performance of the Group for the past period, as well as its position and faced risks. The Managements has approved for issue the report on the activity and the financial statements for 2019.

 

 

 

 

Georgi Tatarski,                                  Milko Dimitrov,

Executive Director                              Executive Director

                       

 

 

July 2020