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| Name | Symbol | Market | Type |
|---|---|---|---|
| Petrol 4.24% | LSE:74JJ | London | Bond |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
From Jun 2019 to Jun 2024
TIDM74JJ
RNS Number : 3667D
Petrol AD
25 June 2019
CONSOLIDATED MANAGEMENT REPORT FOR 2018
ACCOMPANIED BY
INDEPENT AUDITOR'S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED DECEMBER 31, 2018
(This document is a translation of the original Bulgarian text,
in case of divergence the Bulgarian original shall prevail)
April 25, 2019
Table of contents
Consolidated management report for 2018................................................................................. 3
Independent auditor's report on the consolidated financial statements..................................... 58
Consolidated financial statements for the year ended December 31, 2018............................... 67
Notes to the consolidated financial statements.......................................................................... 75
CONSOLIDATED MANAGEMENT REPORT
FOR 2018
This management report is prepared in accordance with the requirements of Art. 100n, par.7 of the Public Offering of Securities Act, Art. 45 and Art. 47 of the Accountancy Act, Art. 187E, and Art. 247 of the Commercial Law, Art. 32A, par. 1 and par. 2 and Appendix No.10 to the Ordinance No.2 of September 17, 2003 on the prospectuses in public offering and admission of securities for trading on a regulated market and for disclosure of information
Selected performance indicators
Information pursuant to Art.39, item 2 of the Accountancy Act
Financial indicators 2018 2017 2016 2015 2014 Net revenue BGN mln 526.8 479.1 487.8 662.5 1,021.9 ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 269.3 245 249.4 338.7 522.5 ----------------------------------- ------ ------- ------- -------- -------- Gross margin from sales of goods([1]) BGN mln 49.3 47.7 45.3 63.2 54.3 ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 25.2 24.4 23.2 32.3 27.8 ----------------------------------- ------ ------- ------- -------- -------- % 9.5 10.1 9.4 9.7 5.4 ----------------------------------- ------ ------- ------- -------- -------- EBITDA([2]) BGN mln 5.4 (7.3) (7.5) (126.4) (80.5) ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 2.8 (3.7) (3.8) (64.6) (41.2) ----------------------------------- ------ ------- ------- -------- -------- % 1.0 (1.5) (1.5) (18.8) (7.9) ----------------------------------- ------ ------- ------- -------- -------- EBIT([3]) BGN mln 4.5 (8.8) (9.4) (131.8) (91.9) ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 2.3 (4.5) (4.8) (67.4) (47.0) ----------------------------------- ------ ------- ------- -------- -------- % 0.8 (1.8) (1.9) (19.6) (9.0) ----------------------------------- ------ ------- ------- -------- -------- Net profit (loss) BGN mln 55.9 1.4 (11.3) 102.9 (174.5) ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 28.6 0.7 (5.8) 52.6 (89.2) ----------------------------------- ------ ------- ------- -------- -------- % 10.4 0.3 (2.3) 15.3 (17.0) ----------------------------------- ------ ------- ------- -------- -------- Share price ([4]) BGN 0.985 0.44 0.478 0.63 2.39 ------------------------- --------- ------ ------- ------- -------- -------- EUR 0.50 0.22 0.244 0.32 1.22 ----------------------------------- ------ ------- ------- -------- -------- Assets BGN mln 130.2 100 95.9 109.5 398.2 ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 66.6 51.1 49.0 56.0 203.6 ----------------------------------- ------ ------- ------- -------- -------- Debt([5]) BGN mln 48.2 41.6 41.7 50.4 348.7 ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 24.6 21.3 21.3 25.8 178.3 ----------------------------------- ------ ------- ------- -------- -------- Shareholders' equity BGN mln 19.6 (34.2) (36.3) (24.6) (128.3) ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 10.0 (17.5) (18.6) (12.6) (65.6) ----------------------------------- ------ ------- ------- -------- -------- Capital expenditure BGN mln 1.1 2.8 0.9 7.7 25.7 ------------------------- --------- ------ ------- ------- -------- -------- EUR mln 0.6 1.4 0.5 3.9 13.1 ----------------------------------- ------ ------- ------- -------- -------- Financial ratios 2018 2017 2016 2015 2014 Return on average capital employed (ROACE)([6]) (%) 12.82 (262.6) (76.85) (691.96) (131.59) ----------------------------------------------------- ------ -------- -------- --------- --------- Return on assets (ROA)([7]) (%) 3.90 (8.99) (9.19) (51.91) (19.72) ----------------------------------------------------- ------ -------- -------- --------- --------- Debt/assets (%) 37.05 41.64 43.43 46.06 87.57 ----------------------------------------------------- ------ -------- -------- --------- --------- Equity/Assets (%) 15.03 (34.17) (37.89) (22.47) (32.22) ----------------------------------------------------- ------ -------- -------- --------- --------- Current liquidity (ratio)([8]) 1.41 0.84 0.71 0.82 0.55 ----------------------------------------------------- ------ -------- -------- --------- --------- Goods turnover ratio (days)[9] 17 17 15 21 24 ----------------------------------------------------- ------ -------- -------- --------- --------- Accounts receivable collection period (days)[10] 17 20 21 33 28 ----------------------------------------------------- ------ -------- -------- --------- --------- Accounts payable payment period (days)[11] 35 30 19 37 49 ----------------------------------------------------- ------ -------- -------- --------- --------- Operating ratios 2018 2017 2016 2015 2014 Sales of fuels (mln. liters) 292.2 289.2 324.8 391.9 563.7 -------------------------------------------- ------ ------ ------ ------ ------ Sales of fuels (thousand tons) 1.5 1.6 1.1 1.3 1.8 -------------------------------------------- ------ ------ ------ ------ ------ Number of operated fuel stations 322 328 334 334 337 -------------------------------------------- ------ ------ ------ ------ ------ Number of operated fuel storage facilities 2 2 1 1 2 -------------------------------------------- ------ ------ ------ ------ ------ Share of sales with credit cards 28% 27% 24% 24% 26% -------------------------------------------- ------ ------ ------ ------ ------ Number of employees (end of period) 1,181 1,204 1,349 1,442 1,722 -------------------------------------------- ------ ------ ------ ------ ------
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 2018 besides the Parent company Petrol AD, nine 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, 2018, the retail network comprises 322 fuel stations evenly spread throughout the country providing national coverage. In 2018, the Group continued the process of reconstruction and modernization of the fuel 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 fuel stations and a programme for installation of LPG and CNG stations.
As at the end of 2018, 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 trade sites, LPG is offered in 190 of the fuel stations and five 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 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.
As at December 31, 2018 the wholesale trading and storage of fuels are made through the operated by the Group storage facilities in Varna and Plovdiv and through purchases from other storage facilities operated by third party operators.
As at December 31, 2018 the storage facilities in Varna and Plovdiv operated by Petrol Group are 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 professional behavior, ethics and business integrity towards its partners. 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, 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 doped with the engineered in Germany high quality supplement LIQUI MOLY. At the end of 2016 the offering of Gasoline 100 EXTRA Force also has been launched. The highly octane new product 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 2018 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, 2018 Petrol Group consists the Parent company and 9 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, 2018 the company is operator of SD Varna. The Petrol Group is a sole owner of the capital as at December 31, 2018. In 2018 the company generated total revenue of BGN 7,575 thousand, positive EBITDA of BGN 2,971 thousand and net profit for the year at the amount of BGN 2,696 thousand. As at December 31, 2018 the total assets of the company amounted to BGN 7,331 thousand with total liabilities of BGN 18,065 thousand and negative net assets at the amount of BGN 10,734 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, 2018 the Group owns 98.8% of the company's shares. For 2018 the company reported total revenue of BGN 124 thousand, positive EBITDA of BGN 33 thousand and net loss for the period of BGN 80 thousand. As at December 31, 2018 the total assets of the company amounted to BGN 937 thousand, with total liabilities of BGN 205 thousand and positive net assets of BGN 732 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, 2018 Petrol Group owns 99% of the company's capital. For 2018, the company generated total revenue amounting to BGN 1,496 thousand, positive EBITDA of BGN 19 thousand and net profit for the period of BGN 15 thousand. As at December 31, 2018 the company owned total assets for the amount of BGN 223 thousand, total liabilities of BGN 232 thousand and negative net assets of BGN 9 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, 2018 the Group owns 100% of the company's capital. For 2018 the company was engaged in minimal commercial activity, generating total revenue of BGN 2 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, 2018 the Group owns 100% of company's capital. For 2018 the company generated total revenue of BGN 48 thousand, with negative EBITDA amounted to BGN 77 thousand and net loss for the period of BGN 120 thousand. As at December 31, 2018 the company owned total assets of BGN 1,560 thousand, total liabilities of BGN 252 thousand and positive net assets of BGN 1,308 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, 2018 the Group owns 100% of the capital. In 2018 the company did not carried out business activity and did not generate sales revenue. For 2018 the company reported a negative EBITDA of BGN 9 thousand and net loss for the period of BGN 1,764 thousand. As at December 31, 2018 the company owned total assets of BGN 2,434 thousand and total liabilities of BGN 354 thousand, as a result at the end of 2018 the net assets of the company are positive amounting to BGN 2,080 thousand;
-- Storage Invest EOOD is a solely owned limited liability company established in January 2017 under the Bulgarian legislation and registered in the Commercial Register at the Registry Agency with UIC 204418458. The Company's main activity includes production and trading with goods and services in the field of industry, construction, tourism, investments, mediation and representation in the country and abroad. As at December 31, 2018 the Group owned 100% of the company's shares. The company did not generate revenue in 2018;
-- Storage Oil EAD is a solely owned joint-stock company established according to the Bulgarian legislation and registered in the Commercial Register at the Registry Agency in April 2008 with UIC 110547104. The company's activity includes storage, processing, import, export, marketing, supply and trading with petrol and petroleum products, as well as any other activity, which is not prohibited by law. As at December 31, 2018 the Group owned 100% of the capital. For 2018 the company reported total revenue of BGN 145 thousand, negative EBITDA amounting to BGN 78 thousand and net loss for the period of BGN 96 thousand. As at December 31, 2018 the company owned total assets of BGN 372 thousand, total liabilities of BGN 640 thousand and negative net assets of BGN 268 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, 2018 the Group owns 100% of the capital. The company did not carry out commercial activity in 2018 and not generated revenue;
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 29 and note 30 to the annual consolidated financial report for 2018).
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 2019 so it did 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 short biographical information is presented:
Hot Features
Premium
Supervisory Board
Ivan Voinovski[12] Chairman
"Petrol Correct" EOOD, Member
represented by Nikolay
Gergov
"Petrol Asset Management" Member
EOOD, represented by Armen
Nazaryan
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 2018, 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. In 2018 there were no other changes concerning the members of the 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[13]
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 2018, according to preliminary data of the National Statistical Institute (NSI), Bulgaria reported an annual real increase in the gross domestic product of 3.1%. While in 2017 the goods and services produced in the country assessed on current prices were estimated at BGN 101.04 billion, in 2018 they surged to BGN 107.26 billion, reporting nominal surge of 6.8% on annual basis. In 2018 the gross added value amounted to BGN 93.513 billion, while the nominal indicator increased by 6.7% compared to the previous year.
According to NSI data as at the end of 2018 the number of the employees in the country is 3,148.9 thousand. As at the end of the year, the unemployed are BGN 154.1 thousand, while the unemployment rate decreased by 0.9% compared to the previous year. The costs of the employers for 1 hour of their employees increased by 5.1% compared to the end of 2017. According to NSI data, the average monthly remuneration per person reached 1,205 thousand and rose by 7.3% on annual basis.
The annual inflation measured for 2018 based on the average annual consumer price index was 2.8% compared to minus 2.1% for 2017.
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 2018, 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 2018, 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 2018 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 2018 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 2018, the average gross margin per liter of fuel has increased compared to 2017. The increase is due to the higher retail and wholesale gross margin of sales of fuels in 2018 compared to 2017.
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 2018 the international quotations of Brent crude oil have moved in consolidation without clearly defined direction while only in the last quarter of 2018 the price has followed entirely a downtrend. Following the quotations of the black gold at approx. USD 67 for a barrel at the beginning of 2018, the price closed at above USD 54 for a barrel at the end of the year, decreasing by almost 19% 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 2018 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.
In terms of the Excise Duty and Tax Warehouse Act from January 1, 2018 a series of changes have been imposed among which:
-- Change of the definition for "energy product for heating". With the modification of the definition the possibility for exemption of excise duty for energy products is limited by issuing an excise duty exemption end-user certificate (EDEEUC);
-- Alteration of the rules in which excise duty for losses due to waste arising from storage and transport of excise goods is not accrued until the release for consumption. The release now will be applicable on condition that the losses due to waste are reported in register "Ledger of warehouse log";
-- Change in terms of the transferred goods under exemption of excise duty regime (EEDR) and determination of shortages. Following the change, when receiving excise goods, moving under EEDR and the receiver determines shortages (including EU deliveries of goods), the Bulgarian excise duty is due by the sender even when the latest is from other EU country. Analogically the Bulgarian sender has excise liability to other EU country in case of shortages of delivery;
-- Change in conditions required in transformation of licensed warehouse keeper by the legal form in acquisition, merger or division, provided that the change will reflected the existing license (i.e. no license cessation required);
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, 2018 Financial assets and liabilities Fair value
BGN'000 level
3
Debt At fair Liabilities Total
instruments value at amortised
at amortised through cost
cost profit
or loss
Financial assets
Loans granted, net 22,124 - - 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 - 2,285 - 2,285 2,285
-------------- --------- -------------- --------- -----------
60,437 2,285 - 62,722 24,409
============== ========= ============== ========= ===========
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)
============== ========= ============== ========= ===========
December 31, 2017 Loans Other Total Fair value
BGN'000 and receivables financial level
granted liabilities 3
Financial assets
Loans granted, net 18,894 - 18,894 18,894
Trade and other receivables,
net 30,714 - 30,714 -
Cash and cash equivalents 7,271 - 7,271 -
----------------- ------------- ---------- -----------
56,879 - 56,879 18,894
----------------- ------------- ---------- -----------
Financial liabilities
Trade and other liabilities - (68,919) (68,919) -
Loans and borrowings - (41,622) (41,622) (37,663)
----------------- ------------- ---------- -----------
- (110,541) (110,541) (37,663)
================= ============= ========== ===========
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 interests and penalties due;
-- 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, 2018 December 31, 2017
USD'000 BGN'000 USD'000 BGN'000
Financial assets
Cash and cash equivalents 7 12 7 11
7 12 7 11
========= ========= ========= =========
Financial liabilities
Trade and other payables - - (727) (1,186)
- - (727) (1,186)
========= ========= ========= =========
The sensitivity analysis to currency risk is calculated based on 7% 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, 2018 the rate of the US dollar had decreased/increased by 7% assuming that all other variables remained constant, loss after tax would have decreased/increased by BGN 1 thousand.
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 December
31, 31,
2018 2017
BGN'000 BGN'000
Instruments with fixed interest rate
Financial assets 20,560 18,668
Financial liabilities (36,890) (36,704)
--------- ---------
(16,330) (18,036)
========= =========
Instruments with variable interest rate
Financial liabilities (9,291) (2,359)
--------- ---------
(9,291) (2,359)
========= =========
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 9 basis points. If the interest rates were higher/lower by 9 basis points, and all other variables were constant, the profit after tax would have been lower/higher by BGN 7 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 2018, the Group held comparatively high inventory turnover. For approximately 18 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 December
31, 31,
2018 2017
BGN'000 BGN'000
Loans granted 22,124 18,894
Trade and other receivables 36,333 30,714
Cash and cash equivalents 4,189 7,179
62,646 56,787
========= =========
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 December
31, 31,
2018 2017
BGN'000 BGN'000
Up to 30 days 1,746 743
31 - 120 days 1,709 291
121 - 210 days 590 187
Over 211 days 6,991 3,918
--------- ---------
11,036 5,139
========= =========
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, 2018 Carrying Contractual Up to Between
BGN'000 amount cash flows one year 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
========= ============ ========== =========
December 31, 2017 Carrying Contractual Up to Between
BGN'000 amount cash one year one and
flows five
years
Debentures 38,223 46,713 2,190 44,523
Loans from financial institutions 2,369 2,369 578 1,791
Trade loans from unrelated
parties 1,030 1,030 1,030 -
Trade and other payables 68,919 68,919 68,919 -
110,541 119,031 72,717 46,314
========= ============ ========== =========
The Group does not expect cash flows included in the table to occur significantly earlier or at significantly different amounts.
In 2018 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 2018 the Group did not issue any new security issues.
Significant events occurred in 2018
Information pursuant to item 3 of the Appendix No.10 to the Ordinance No.2 of September 17, 2003
In February 2018 the Group granted a cash loan to unrelated party at the amount of BGN 2,000 thousand at 6.7% interest and refund period until December 31, 2018. With annexes from the end of 2018 the credit limit was increased up to BGN 3,500 thousand and the term of loan was prolonged to December 31, 2019. As at December 2018 the receivables on principal and interest under this loan are at the amount of 2,174 thousand, net of impairment.
In March 2018 the Group has sold 70,915,161 shares, representing 99.999999% of the capital of its subsidiary Elit Petrol AD for a total amount of BGN 25 thousand. The interest in the disposed subsidiary was entirely impaired in previous period. As at the end of the reporting period the selling price was fully paid. As at the transaction date Elit Petrol AD was a sole owner of the capital of Varna Storage EOOD. The consolidated net assets of both companies were negative at the amount of BGN 54,596 thousand. The result of the disposal is a profit of BGN 54,621 thousand.
In March 2018 the Group entered into a contract for purchase of 1,873,700 shares, representing 100% of the capital of Varna Storage EOOD for the total price of BGN 6,500 thousand, determined by a market valuation accepted by both parties. The price was offset with the opposite receivables of the Group from the seller.
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. As at December 31, 2018 the Group reported under this loan BGN 826 thousand principal receivables.
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. As at December 31, 2018 the granted funds under this contract were principal of BGN 264 thousand and interest of BGN 7 thousand.
In March 2018 following a decision of the Lovech Regional Court, which cancelled the refusal of the Commercial Register (CR) to register the decision taken on Extraordinary General Meeting of Shareholders (EGMS) for merging 4 old shares with BGN 1 nominal into 1 new share with BGN 4 nominal, the submitted 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 the register of Central Depository AD. The Central Depository enacted a refusal on the submitted on April 2018 application for registration of the decision of ERSM for the second stage of the procedure, which to reduce the nominal value of the shares from BGN 4 to BGN 1 in order to cover losses. (see also note 32 of the annual consolidated financial statement).
As a continuation of the measures for optimization of Group's business, in April 2018 the subsidiary received a license for management of tax warehouse for storage of excise goods in SD Plovdiv. The SD is rented by a subsidiary pursuant to a contract signed in March 2017 for 10 years period.
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, 2018 and a special pledge on goods in turnover, representing oil products with book value of BGN 2,419 thousand as at December 31, 2018.
On EGMS 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 by CR was enacted on the application for registration of the decision in CR, which was appealed by the Parent company within the statutory 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. (see also note 35 to the annual consolidated financial report for 2018).
In December 2018 the Group entered into an agreement for sale of receivables (standard factoring) with total limit of advance payment of BGN 550 thousand and drawn amount as at December 31, 2018 of BGN 280 thousand, covered with a pledge of receivables on bank accounts.
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 2018.
Events after the reporting date
Information pursuant to Art. 39, item 3 of the Accountancy Act
As disclosed in note 15.2 to the annual consolidated financial report for 2018 in February 2019 after a final decision of the Supreme Administrative Court (SAC), the disputed obligation on an tax assessments was reduced to BGN 13 thousand principal related to additionally accrued VAT and BGN 5 thousand accrued interest. As at the date of the preparation of these financial statements, the obligation is fully paid and the bank guarantee is released and returned by National Revenue Agency (NRA). The obligations were accounted as correcting events as at December 31, 2018 and recognised in the result for 2018.
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. On 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 proceeding was postponed by a request of minority shareholders until the pronouncing of the Lovech Regional Court.
As disclosed in note 32 to the annual consolidated financial report for 2018 the applied decision from November 2018 for registration of decreasing the capital was refused, which was judicially disputed by the Parent company. 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.
In April 2019 the Group has sold 5,940,000 shares, representing 100% of the capital of Storage Oil EAD for the total price of BGN 50 thousand.
In April 2019 the Parent company entered into a contract for sale of 8,210 shares, representing 98.80% of the capital of Petrol Tehnologies OOD for the total price of BGN 900 thousand. Part of the price amounting to BGN 150 thousand was fully paid before the signing of the contract and the rest amounting to BGN 750 thousand the purchaser shall pay directly to the mortgage creditor of the Group until December 31, 2019.
As disclosed in note 15.2 to the annual consolidated financial report for 2018, the Parent company disputed in court within the statutory term the received in January 2017 tax assessment on the income tax revision for 2013 and VAT until October 2014 for the amount of BGN 222 thousand principal and BGN 68 thousand interest. In April 2019 the Administrative court - Sofia city enacted a decision, which entirely repealed the obligation for VAT amounting to BGN 112 thousand principal and BGN 37 thousand interest and reduced considerably the liability for corporate tax from BGN 110 thousand principal and BGN 31 thousand interest to BGN 24 thousand principal and BGN 2 thousand interest.
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 2018, 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 2018 the consolidated revenue of the Group increased to BGN 535.9 mln. (EUR 274 mln.), representing an increse of 12% compared to 480.6 mln. (EUR 245.7 mln.) for 2017. The growth in total revenue in absolute value in 2018 was due entirely to the higher by BGN 47.7 mln. (EUR 24.4 mln.) sales revenue, while the other income increased by BGN 7.6 mln. (EUR 3.9 mln.). The increase in the sales revenue is due mainly to the growth by 12% in retail sales revenue, as the revenue in wholesale segment dropped by 3% on annual basis.
The table below presents the change of revenue during the period 2016 - 2018 on a consolidate base and by separate business segments:
2018 2017 2016 % 2018/2017
Sales revenue BGN mln 526.8 479.1 487.8 10%
---------------------------- --------- ------ ------ ------ ------------
EUR mln 269.3 244.9 249.4
------------------------------------- ------ ------ ------ ------------
Other income BGN mln 9.1 1.5 1.2 507%
---------------------------- --------- ------ ------ ------ ------------
EUR mln 4.7 0.8 0.6
------------------------------------- ------ ------ ------ ------------
Total revenue, including: BGN mln 535.9 480.6 489.0 12%
---------------------------- --------- ------ ------ ------ ------------
EUR mln 274.0 245.7 250.0
------------------------------------- ------ ------ ------ ------------
Retail segment BGN mln 519.5 463.7 429.9 12%
--------------------------- --------- ------ ------ ------ ------------
EUR mln 265.6 237.1 219.8
------------------------------------- ------ ------ ------ ------------
share of total revenue % 97.0% 96.5% 87.9%
Wholesale segment BGN mln 15.7 16.2 58.5 (3%)
--------------------------- --------- ------ ------ ------ ------------
EUR mln 8.0 8.2 29.9
------------------------------------- ------ ------ ------ ------------
share of total revenue % 2.9% 3.4% 12.0%
Other activities segment BGN mln 0.7 0.7 0.6 -
--------- ------ ------ ------ ------------
EUR mln 0.4 0.4 0.3
------------------------------------- ------ ------ ------ ------------
share of total revenue % 0.1% 0.1% 0.1%
--------------------------- --------- ------ ------ ------ ------------
As in all previous years the sales revenue of the Group in 2018 was almost entirely (98.2%) formed by sales of goods. In 2018, these sales amounted to BGN 517.5 mln. (EUR 264.6 mln.) or with 9.8% more than sales for 2017 of BGN 471.2 mln. (EUR 240.9 mln.). The increase by BGN 46.3 mln. (EUR 23.7 mln.) in the revenue from sales of goods in 2018 compared to the previous year is due entirely due to the increase in the revenue from sales of fuels.
In 2018, the revenue from sales of goods comprised mainly (91.6%) retail and wholesale sales of fuels, which amounts, after excluding intra-Group sales, are as follows:
2018 2017 2016 % 2018/2017
Retail sales of fuels mln. BGN 464.9 419.0 387.9 11%
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 237.7 214.2 198.3
------------------------------------- ------ ------ ------ ------------
share of total sales of
fuels % 98% 97.3% 87.6%
Wholesale sales of fuels mln. BGN 9.3 11.8 54.9 (21.2%)
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 4.8 6.0 28.1
------------------------------------- ------ ------ ------ ------------
share of total sales of
fuels % 2% 2.7% 12.4%
Total sales of fuels BGN mln 474.2 430.8 442.8 10.1%
-------------------------- ---------- ------ ------ ------ ------------
EUR mln 242.5 220.2 226.4
------------------------------------- ------ ------ ------ ------------
The increase in the sales revenue of fuels was due entirely to the retail segment sales, which rose by 11%. The wholesale revenue from sales of fuels decreased by 21.2% compared to the revenue in 2017 (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 2017 the revenue from wholesale sales of fuels was 2.7%, in 2018 it dropped to 2% in the Group's total consolidated sales revenue of fuels.
The dynamics of sales revenue (in BGN millions) of the major type of oil products, traded by the Group during the period 2016 - 2018 are presented on the following diagram:
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, 2018 the Group operated 322 working retail stations (2017: 328 retail stations).
The results for the period 2016 - 2018 are as it follows:
2018 2017 2016 % 2018/2017
Retail sales volumes
(mln. liters) 288.0 282.7 285.3 1.9%
------------------------------------ ------ ------ ------ ------------
Incl. corporate clients 74.2 71.2 69.3 4.2%
------------------------------------ ------ ------ ------ ------------
Sales revenue BGN mln 464.9 419.0 387.9 11%
------------------------- --------- ------ ------ ------ ------------
EUR mln 237.7 214.2 198.3
----------------------------------- ------ ------ ------ ------------
In 2018, the Group reported an increase by 1.9% in retail sales volumes compared to 2017. The growth of volumes in combination with the higher average selling retail prices in 2018 compared to the prices in 2017, led to 11% higher total revenue from retail sales of fuels compared to 2017. The increase in average selling prices during the reporting period compared to 2017 was observed in all kind of retail fuels.
In 2018, 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 2016 - 2018:
2018 2017 2016 % 2018/2017
Gasoline A-95H BGN mln 132.3 127 120.8 4.2%
----------------------------- --------- ------ ------ ------ ------------
EUR mln 67.6 64.9 61.7
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 28.5% 30.3% 31.1%
Gasoline 96 Extra Force BGN mln - 0.8 6.4 -
----------------------------- --------- ------ ------ ------ ------------
EUR mln 0.4 3.3
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 0.2% 1.6%
Gasoline A-98 BGN mln - 0.7 3.7 -
----------------------------- --------- ------ ------ ------ ------------
EUR mln 0.4 1.9
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 0.2% 1.0%
Gasoline100 Extra Force BGN mln 4.9 3.7 - 32.4%
--------- ------ ------ ------ ------------
EUR mln 2.5 1.9 -
======================================= ====== ====== ====== ============
share of total retail sales
of fuels % 1.1% 0.9% -
============================= ========= ====== ====== ====== ============
Blue Force LPG BGN mln 48.9 46.7 43.3 4.7%
----------------------------- --------- ------ ------ ------ ------------
EUR mln 25.0 23.9 22.1
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 10.5% 11.1% 11.2%
Green Force diesel BGN mln 18.1 13.2 - 37.1%
--------- ------ ------ ------ ------------
EUR mln 9.3 6.7 -
======================================= ====== ====== ====== ============
share of total retail sales
of fuels % 3.9% 3.1% -
============================= ========= ====== ====== ====== ============
Pro Force Diesel BGN mln 259.2 225.3 212.4 15.0%
----------------------------- --------- ------ ------ ------ ------------
EUR mln 132.5 115.2 108.6
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 55.7% 53.8% 54.8%
Other fuel BGN mln 1.5 1.6 1.3 (6.3%)
----------------------------- --------- ------ ------ ------ ------------
EUR mln 0.8 0.8 0.7
--------------------------------------- ------ ------ ------ ------------
share of total retail sales
of fuels % 0.3% 0.4% 0.3%
----------------------------- --------- ------ ------ ------ ------------
Total retail sales of fuels BGN mln 464.9 419 387.9 11%
----------------------------- --------- ------ ------ ------ ------------
EUR mln 237.7 214.2 198.3
--------------------------------------- ------ ------ ------ ------------
In 2018, the Group reported an increase in the revenue from retail sales of fuels, which is due to the higher by 1.9% sales and to the higher average retail prices in 2018 compared to 2017. The increase in the retail sale volumes of fuels on annual basis is due mainly to the increase in sales of diesel fuel by 5.75 mln. liters.
The highest growth in absolute value of BGN 33.9 mln. (EUR 17.3 mln.) reported the revenue from sales of diesel fuel. Additionally an increase of BGN 5.3 mln. (EUR 2.7 mln.) and BGN 4.9 mln. (EUR 2.5 mln.) reported the sales of gasoline A-95H and Green Force diesel, which sales started in 2016.
The revenue from sales of Gasoline A-100 Extra Force and Blue Force LPG increased by BGN 1.3 mln. (EUR 0.7 mln.) and BGN 2.2 mln. (EUR 1.1 mln.), respectively, which is due to the higher average selling prices in 2018 and to the increase in sales. In 2018 the revenue from sales of Gasoline A-96 and Gasoline A-98 dropped by BGN 0.8 mln. (EUR 0.4 mln.) and BGN 0.7 mln. (EUR 0.4 mln.), respectively compared to 2017, which is due entirely to the lower sales volumes in 2018 compared to 2017.
The dynamics of retail sales revenue (in BGN millions) of the major types of oil products during the period 2016 - 2018 are presented on the following diagram:
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 2016 - 2018 are, as follows:
2018 2017 2016 % 2018/2017
Volume of wholesale sales
(million litres)([14]) 5.7 8.1 40.6 (29.6%)
-------------------------------------- ----- ----- ----- ------------
Volume of wholesale sales
(thousand tonnes)([15]) 0 0 0 -
-------------------------------------- ----- ----- ----- ------------
Sales revenue BGN mln 9.3 11.8 54.9 (21.2%)
--------------------------- --------- ----- ----- ----- ------------
EUR mln 4.8 6 28.1
------------------------------------- ----- ----- ----- ------------
In 2018 the wholesale sales volumes of light fuels decreased by 2.4 mln. liters compared to 2017. The decline is almost entirely due to the decrease in sales of Gasoline A-95H and diesel, which form 87% of total wholesale sales. The highest drop of 2.5 mln. liters on annual basis reported the sales of diesel. The decrease is due entirely to the decline in sales volumes in 2018 compared to the previous year. The sales volumes of Gasoline A-95H shrank by 69% to 0.6 mln. liters, compared to 2017 again due to the decline in sales compared to the previous period. As a result of that in 2018 the total revenue from wholesale sales of fuels decreased to 21.4% to BGN 9.3 mln. (EUR 4.8 mln.), which is due entirely to the decrease in sales volumes in 2018 compared to the previous year. The latter is a direct result of the new legislative requirements for VAT guarantee of the purchases of fuels, introduced in the second half of 2016 and the associated exit of part of the market participants from wholesale trading.
The following table sets out the Group's wholesale sales of fuel by major types of oil products:
2018 2017 2016 % 2018/2017
Gasoline A-95H mln. BGN 0.4 1.3 8.9 (69.2%)
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 0.2 0.6 4.6
------------------------------------- ------ ------ ------ ------------
share of total wholesale
sales of fuels % 4.4% 11% 16.2%
Gasoline -98 mln. BGN 0.06 0.06 0.4 -
---------- ------ ------ ------ ------------
mln. EUR 0.03 0.03 0.2
------------------------------------- ------ ------ ------ ------------
share of total wholesale
sales of fuels % 0.7% 0.5% 0.7%
---------- ------ ------ ------ ------------
Diesel mln. BGN 7.8 10.4 45.6 (25%)
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 4.0 5.3 23.3
------------------------------------- ------ ------ ------ ------------
share of total wholesale
sales of fuels % 84.0% 88.1% 83.1%
Other fuels mln. BGN 1 0.04 0.0 2400%
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 0.6 0.03 0.0
------------------------------------- ------ ------ ------ ------------
share of total wholesale
sales of fuels % 10.9% 0.4% -
-------------------------- ---------- ------ ------ ------ ------------
Total wholesale sales
of fuels mln. BGN 9.3 11.8 54.9 (21.2%)
-------------------------- ---------- ------ ------ ------ ------------
mln. EUR 4.8 6 28.1
------------------------------------- ------ ------ ------ ------------
The dynamics in wholesale sales revenue of the major types of petroleum products during the period 2016 - 2018 are presented on the following diagram:
Gross margin
The Group's total gross margin, calculated as a percentage of the consolidated net revenue from sales of goods decreased from 10.1% in 2017 to 9.5% in 2018. Despite the decline of gross margin as percent of revenue, the indicator rose by BGN 1.6 mln. (EUR 0.8 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 by 2.8% to BGN 42 mln. (EUR 21.5 mln.) in 2018 compared to BGN 40.8 (EUR 20.9 mln.) in 2017. The gross margin from sales of lubricants and other goods rose by 6.3% in 2018 to BGN 7.3 mln. (EUR 3.7 mln.) compared to BGN 6.9 mln. (EUR 3.5 mln.) in 2017.
Operating expenses
Hired services
In 2018, the hired services decreased by BGN 3 mln. (EUR 1.6 mln.) to BGN 35.8 mln. (EUR 18.3 mln.). Compared to the previous period, the decline in 2018 is mainly due to the lower rent expenses of petrol stations, state, municipal and other taxes, which declined respectively by BGN 2.8 mln. (EUR 1.4 mln.) and BGN 1 mln. (EUR 0.5 mln.). The reported decline in rent expenses is due to the achieved substantial improvement in the clauses of operating lease agreements with the major lessors in 2018. Additionally in 2018 the maintenance and repair expenses and security expenses declined by BGN 0.3 mln. (EUR 0.15 mln.) and BGN 0.3 mln. (EUR 0.15 mln.), respectively. The increase in dealers' remunerations and other commissions at the amount of BGN 1.2 mln. (EUR 0.6 mln.) is due mainly to the mandatory increase in minimum wage in 2018 related to the salaries of the petrol station employees, which expenses are part of the dealers' remunerations.
Employee benefits
In 2018, the employee benefits increased, amounting to BGN 19.3 mln. (EUR 9.9 mln.) compared to BGN 18.7 mln. (EUR 9.6 mln.) in 2017. The main reason for the growth by BGN 0.6 mln. (EUR 0.3 mln.) was again the increase of the minimum wage in the beginning of 2018.
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 2018). In 2018, the Group reported a decrease in depreciation expenses of 37% to BGN 0.9 mln. (EUR 0.5 mln.), compared to BGN 1.5 mln. (EUR 0.8 mln.) in 2017.
Materials and consumables
In 2018, the Group did not reported significant change in materials and consumables compared to 2017, amounting to BGN 4.1 mln. (EUR 2.1 mln.).
Impairment losses of assets
The impairment losses for 2018 amounted to BGN 0.8 mln. (EUR 0.4 mln.), compared to BGN 0.4 mln. (EUR 0.2 mln.) for 2017. The recognised impairment loss in 2018 is due entirely to the impaired trade loans amounting to BGN 0.6 mln. (EUR 0.3 mln.). Simultaneously an impairment loss for BGN 0.2 mln. (EUR 0.1 mln.) recognised in previous period was reversed (see also note 12 to the consolidated financial report).
Other operating expenses
In 2018, the Group's other operating expenses amounting to BGN 2.2 mln. (EUR 1.1 mln.) compared to BGN 2.6 mln. (EUR 1.3 mln.) for 2017. The decline by BGN 0.44 mln. (EUR 0.22 mln.) is due to the lower by BGN 0.6 mln. (EUR 0.3 mln.) entertainment expenses and sponsorship. The most significant weight in other operating expenses in 2018 had waste and shortages amounting to BGN 1 mln. (EUR 0.5 mln.), which remained unchanged compared to 2017.
Profit from operations
In 2018, the Group reported a positive result before net financial expenses, taxes and amortization (EBITDA) at the amount of BGN 5.4 mln. (EUR 2.8 mln.) compared to loss of BGN 7.3 mln. (EUR 3.7 mln.) for 2017. The improvement of the indicator is due mainly to the increase in the gross margin from sales of goods by BGN 1.6 mln. (EUR 0.8 mln.), the increase by BGN 7.6 mln. (EUR 3.9 mln.) in profit from disposal of assets and the decrease by BGN 3 mln. (EUR 1.5 mln.) in hired services. (see also Hired services). The Group's operating expenses (excluding the depreciation and impairment losses) declined by BGN 2.7 mln. (EUR 1.4 mln.).
The improvement of EBITDA in 2018 has a positive effect on Group's earnings before interest and taxes (EBIT). For 2018 the Group reported operating profit before financial costs and taxes amounting to BGN 4.5 mln. (EUR 2.8 mln.) compared to operating loss of BGN 8.8 mln. (EUR 4.4 mln.) in 2017. Additional positive effect on this indicator has the decrease of depreciation and amortization in 2018 by 37% compared to the previous year.
Net finance costs
In 2018 the Group reported net finance income of BGN 51.2 mln. (EUR 26.2 mln.) compared to net finance income of BGN 9.5 mln. (EUR 4.9 mln.) for 2017.
In 2018 the Group's finance income amounted to BGN 56.3 mln. (EUR 28.8 mln.) compared to BGN 13 mln. (EUR 6.6 mln.) for 2017. The most significant effect on the total increase 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 30 to the annual consolidated financial report for 2018).
In 2018, the Group's finance costs amounted to BGN 5.1 mln. (EUR 2.6 mln.) compared to BGN 3.5 mln. (EUR 1.8 mln.) for 2017. The increase is due mainly to the reported revaluation of the financial assets at fair value in the reporting period amounting to BGN 1.7 mln. (EUR 0.9 mln.). In 2018 the Group reported decrease by BGN 0.1 mln. (EUR 0.06 mln.) in the reported financial costs for bank taxes and commissions. (see also note 14 to the annual consolidated financial statements for 2018).
Financial position
As at December 31, 2018 the Group's current liability ratio improved to 1.41 compared to 0.84 for 2017. The improvement of the indicator is due to the increased current assets by BGN 10.8 mln. (EUR 5.5 mln.) and decreased current liabilities by BGN 30.9 mln. (EUR 15.5 mln.) for the same period. The latter is a result at most extent to the disposal of a subsidiary and the cessation of consolidating the liabilities of the subsidiary.
As at December 31, 2018 the consolidated indebtedness of the Group including loans and borrowings increased, amounting to BGN 48.2 mln. (EUR 24.2 mln.) compared to BGN 41.6 mln. (EUR 21.3 mln.) for the previous year. The increase is due to the utilized during the year bank overdraft by the Parent company at the amount of BGN 7.5 mln. (EUR 3.8 mln.). In 2018 Debt/Assets ratio decreased to 37% compared to 42% at the end of 2017. As at December, 31 2018 the Debt/Equity ratio was 246%.
In 2018, the Group's inventories turnover period remained the same of 17 days. As at December 31, 2018 the accounts receivable collection period decreased to 17 days compared to 20 days in 2017.
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. Holding of an Extraordinary General Meeting of Shareholders (EGMS) in November 2016, where was voted 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, was the first step in this direction. As a result the number of the issued shares decreased from 109,249,612 shares to 27,312,403 new shares maintaining the value of the registered capital to BGN 109,249,612. The registration of the decision of the EGMS in the Commercial Register of the Parent company's account was suspended by the court at the request of a shareholder.
In February 2017, continuing the measures for capital adequacy of the Group, the Management Board of the Parent company convened new Extraordinary General Meeting of Shareholders (EGMS) with a decision agenda for reverse split of shares. EGMS was held with 77,951,767 presenting shares, representing 71,36% of the registered capital, where 71,937,309 shares representing 65,85% (over 2/3 of the presenting shares) were voted "For" the reverse split procedure.
In May 2017 was hold next EGMS when decision for reduction of capital from BGN 109,249,612 to BGN 27,312,403 by decrease of nominal value of the issued shares from BGN 4 to BGN 1 was voted. The decision is conditional upon the decision of the EGMS concerning the procedure of reverse split, which should be confirmed by a final entered-into-force court decision.
In October 2017 was hold a new EGMS where a decision repealing the decisions taken on meetings held in February and May 2017 was voted. On the same meeting, a new decision for reverse split procedure by merging 4 old shares with nominal value of BGN 1 into 1 new share with nominal 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. In December 2017, an application for registration in Commercial Register of the change in nominal value and number of shares was applied, which was refused by the CR. The Parent company appealed the refusal.
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 Central Depository 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. (see also note 35 to the annual consolidated financial report for 2018).
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 and borrowings received by the issuer
Type of lender Annual interest Maturity Principal Purpose
rate
31 Dec.18
BGN'000
----------------------- ----------------------- ----------- ---------- ---------------------
Working capital,
financing of
investment projects
and restructuring
Corporate bond of previous
holders 5.5-8% 26.1.2022 36,704 debt
----------------------- ----------------------- ----------- ---------- ---------------------
Financial institution 3mEuribor+5.25% 30.5.2022 1,791 Investment loan
----------------------- ----------------------- ----------- ---------- ---------------------
Financial institution BIR + koef. 15.12.2021 7,500 Investment loan
for mrkt. environment
----------------------- ----------------------- ----------- ---------- ---------------------
Total loans received 45,995
----------------------- ----------------------- ----------- ---------- ---------------------
Loans granted by the issuer
Type of borrower Annual Maturity Outstanding Impairment Net Principal Purpose
interest Principal
rate
till Dec.31,
Dec.31, 2018
2018
BGN'000 BGN'000 BGN'000
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 9.50% 21.1.2017 21,034 21,034 0 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 9.50% 21.1.2017 2,118 2,118 0 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
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% 31.12.2019 4,350 607 3,743 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 6,150 609 5,541 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 3,000 607 2,393 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 5,605 819 4,786 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 500 0 500 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 9.50% 28.10.2015 2,210 2,210 0 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 2,400 311 2,089 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 5.50% 31.12.2019 826 0 826 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 9.00% 31.12.2018 636 243 393 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Trade company 6.70% 31.12.2019 264 0 264 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 6.70% 31.12.2019 5,450 686 4,764 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 9.50% 29.4.2014 104 104 0 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 6.70% 31.12.2019 20 3 17 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 6.70% 31.12.2019 2 0 2 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 6.70% 31.12.2019 469 60 409 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Subsidiary 6.70% 31.12.2019 200 0 200 Working capital
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Total loans
granted 56,894 30,967 25,927
------------------ ---------- ----------- ------------ ----------- -------------- ----------------
Loans received by companies controlled by the issuer
Type of lender/depositor Annual Maturity Principal Purpose
interest
rate
Dec.31,
2018
BGN'000
-------------------------- ---------- ----------- ---------- ----------------
Parent company 9.50% 29.4.2014 104 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Parent company 6.70% 31.12.2019 20 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Parent company 6.70% 31.12.2019 200 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Parent company 6.70% 31.12.2019 2 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Parent company 6.70% 31.12.2019 5,450 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Parent company 6.70% 31.12.2019 469 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Trade company 6.70% 31.12.2019 186 Working capital
-------------------------- ---------- ----------- ---------- ----------------
Total loans received 6,431 -------------------------- ---------- ----------- ---------- ----------------
Loans granted by companies controlled by the issuer
As at December 31, 2018 companies, controlled by the issuer, granted no loans.
Contingent liabilities
As at December 31, 2018 the Group has contingent liabilities, including issued mortgages and pledges of property, plant and equipment, 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 13,490 thousand. The Group is a joint co-debtor under loan agreement of unrelated supplier, including limit for overdraft for BGN 25,000 thousand and stand-by credit for issuance of bank guarantees in favour of Customs Agency amounted to BGN 20,000 thousand. 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 a total amount of BGN 199 thousand as at December 31, 2018 and a special pledge on receivables from counterparties for BGN 4,000 thousand average monthly turnover.
The Group bears a contingent liability, covering the execution of an agreement for storage of third-party fuels up to BGN 30,000 thousand.
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, 2018.
Under a bank agreement for revolving credit line signed in 2016, bank guarantees were issued for a total amount of BGN 9,301 thousand as at December 31, 2018, including BGN 5,900 thousand in favor of third parties - Group's suppliers, BGN 1,244 thousand in favor of National Revenue Agency, for issuance of appealed by the Parent company revision acts and BGN 2,157 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 oil products with book value of BGN 2,419 thousand as at December 31, 2018.
In December 2018 the Group entered into an agreement for sale of receivables with commercial bank under a contract for sale of receivables (standard factoring) with total limit of advance payment up to BGN 550 thousand and with drawn amount as at December 31, 2018 of BGN 280 thousand, secured with pledge of receivables on bank accounts.
A mortgage of property was established as a collateral of an investment loan signed in July 2016, which served for the acquisition of the property, 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 December 31, 2018 amounting to BGN 1,791 thousand.
In September 2018 the Group entered into a short-term debt contract for overdraft on current account intended for working capital. Following the refinancing as a result of the increased credit limit of the revolving credit line, the overdraft is fully repaid with no obligations as at December 31, 2018.
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, 2018 of BGN 245 thousand. 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 litigations 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 the current reporting period 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 claim proceedings are pending.
Disclosure of transactions with related parties
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 29 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 2018.
In 2018, there were no transactions with related parties
Share capital
The registered and fully paid-in share capital of Petrol AD as of December 31, 2018 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 2018 the Parent company did not carry out transactions subject to notification under Art. 187e of Commercial Act.
As at December 31, 2018 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 2018 2017 2016 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 18.31 ----------------------------- ------- ------- ------- Trans Express Oil EOOD 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 ----------------------------- ------- ------- ------- Petrol AD (purchased own shares) - - 2.53 ----------------------------- ------- ------- ------- 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, 2018, 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, 2018 no person holds more than 50% of votes at the General Meeting of Shareholders of Petrol AD.
In 2018, 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 are appealed by other creditor to the bankruptcy proceedings. At present, the determination of existence of receivables for BGN 4,793 thousand from Naftex Petrol EOOD is an object of pending court proceedings under Art. 694 of Commercial Act. See also section Contingent liabilities.
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:
2018 2017 2016
Share capital as at 31
December BGN mln 109.3 109.3 109.3
------------------------------- --------- ------ ------ ------
EUR mln 55.9 55.9 55.9
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Share price as at 31 December BGN 0.985 0.439 0.478
------------------------------- --------- ------ ------ ------
EUR 0.504 0.224 0.244
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Market capitalization as
at 31 December BGN mln 26.8 47.9 52.1
------------------------------- --------- ------ ------ ------
EUR mln 13.7 24.5 26.6
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Highest price throughout
the year BGN 1.80 0.498 0.619
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EUR 0.92 0.255 0.316
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Lowest price throughout
the year BGN 0.57 0.385 0.3
------------------------------- --------- ------ ------ ------
EUR 0.29 0.197 0.15
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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 2018, the number of the personnel was 1,181 employees. Most of the employees work in the Parent company (1,047 employees). Among the other companies in the Group, the one with the largest number of staff by the end of 2018 was Varna Storage EOOD (72 employees) and Petrol Finances OOD (52 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 1,397 thousand (2017: BGN 1,314 thousand). The unsettled liabilities as at December 31, 2018 amounting to BGN 116 thousand.
In 2018, there were no contingent or deferred remunerations.
As at December 31, 2018 the Group has no due amounts for retirement benefits or other compensations for the members of the Boards.
Signed agreements during 2018 under Art.240b of the Commercial Act
In 2018, 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 percent 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:
) 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 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;
Kiril Emilov Shilegov, ID 7708206927
-- Manager of Grand-K EOOD, UIC 203461378;
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 - no such holdings;
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; -- Partner with a 10% share in the capital of Byala Reka OOD, UIC 10650607;
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;
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 is in process of preparation for recertification under ISO 9001:2015, expecting to certificate until the end of 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 2018 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
The Group's management expectations are that in the coming years as a result of the growing consumer confidence toward the established commercial brands, ensuring standard for quality of services, and as a consequence of the changes in the regulations involving ever greater financial resources of companies in the sector, many small independent players would be forced out of fuel business or should merge with one of the major market players in the sector. 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 2019, 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 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 2019 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 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, 2018, there is no shareholder with higher share than 30 per cent of the capital of Petrol AD. In 2018 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, 2018 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 2018.
Georgi Tatarski, Milko Dimitrov, Executive Director Executive Director
April 2019
INDEPENT AUDITOR'S REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS
INDEPENT AUDITOR'S REPORT
To the shareholders of
Petrol AD
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Petrol AD and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2018, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and explanatory notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion the applied consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and its consolidated financial results of its operations and the consolidated cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS), adopted by the European Union (EU).
Basis for Opinion
We conducted our audit in accordance with International Standards of Auditing (ISA). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section in our report. We are independent of the Group in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA code) and the ethics requirements of the Independent Financial Audit Act (IFAA), applicable in terms of our audit on the consolidated financial statements in Bulgaria. We have also fulfilled our other ethics responsibilities in accordance with the requirements of IFAA and the IESBA code. We believe that the audit evidences we have obtained are sufficient and appropriate to provide a basis of our qualified opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2.7 Going concern basis of accounting in the applied consolidated financial statements, which indicates that as at December 31, 2018 the equity of the Group amounting to BGN 19,566 thousand and is under the registered capital of the Parent company by BGN 89,684 thousand, as a result of the accumulated losses in previous reporting periods. In addition, the Group disclosed that it has assessed the uncertainties arising from these circumstances, including possible effects from litigations (disclosed in Note 34 Contingent liabilities), which indicate material uncertainty, which may raise doubts regarding the ability of the Group to continue as a going concern. In the same Note is disclosed that the Group will be able to pay regularly the due debenture and trade liabilities, loans and interest in accordance with the contractual commitments entered into, and actions have been taken to bring the Parent company in accordance with the requirements of the Art.252, par.1, item 5 of the Commercial Act. Additional information in this relation is disclosed in Note 24 Registered capital, Note 32 Capital Management and 35 Events after the reporting date.
Our opinion is not modified in respect of this matter.
Emphasis of Matter
We draw attention to the Note 30.6 Disposal of interest in subsidiaries to the consolidated financial statements, where is disclosed that in December 2015 a contract with notarized signatures was signed, whereby Petrol AD transferred to a company outside the Group 100% of the interest in Naftex Petrol EOOD. The change in the sole owner of the capital of Naftex Petrol EOOD was filed timely for entry in Commercial Register at the Registry Agency, but has not been recorded because of incompleteness in the documents attached to the application. However, since the contract of December 2015 has been signed properly according to the prescribed by the Commercial Code form, it raises legal action between the parties involved, due to which Petrol AD is no longer the sole owner of Naftex Petrol EOOD, and consequently is accepted that the Group has lost control. The assets and the liabilities of the subsidiary have been written off and a gain has been recognized resulting from the loss of control in the consolidated statement of profit or loss and other comprehensive income. As at the transaction date the consolidated net assets of the subsidiary amounted to BGN (314,452) thousand. The result of the sale of the Group was a profit amounted to BGN 314,452 thousand.
In March 2016, the change of the sole owner of Naftex Petrol EOOD has been repeatedly applied for entry in the Commercial Register and a completed set of documents, as instructed by the officials, has been submitted. The registration was suspended by the court because of a shareholder's request of the Parent company, on the grounds that the executives were not authorized to conclude the agreement by the general meeting of the Parent company contrary to the provisions of the POSA. The Management disclosed that before the conclusion of the transaction, it was thoroughly checked for compliance with the law and that it falls below the thresholds for convening of GMS pursuant to Art. 114 of the (Public Offering of Securities Act (POSA) as documents proving this circumstance are duly filed in the Commercial Register with the application for registration of the change of the sole owner of the company. For these reasons, the Management of Petrol AD considers that the claim was unfounded and after a judgment in favor of Petrol AD, the disposal of shares will be recorded in the register.
Our opinion is not modified in respect of this matter
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a basis for a separate opinion on these matters. In addition to those matters, described in the Material Uncertainty to Going Concern section, we have determined the matters, described below to be the key audit matters to be communicated in our report.
1. Assessment and disclosure of the financial assets, disclosed in the consolidated statement of financial position as Trade and other receivables and Receivables on loans granted
We refer to the following Explanatory Notes to the enclosed consolidated financial statements for the year ended on December 31, 2018, regarding the assessment, classification and presentation of the financial assets and first adoption of IFRS 9, 12. Impairment losses, 14. Financial income and costs, 21 Loans granted, 22. Trade and other receivables and 31. Financial Instruments and risk management.
Key audit matter How our audit addressed the
key audit matter
In relation to the Our audit procedures included,
amendments along with others:
effective from * evaluation of the internal control system in regard
January 1, 2018 to the processes related to current financial assets;
of IFRS 9 Financial
Instruments,
the Group has made * evaluation of the adequacy of the applied accounting
initial assessment policy in regard to the trade and other receivables
and classification and loans granted and its consistency with the IFRS 9
of the financial Financial instruments;
assets, including
has estimated
expected credit * verification of the business model of the Group in
losses for financial relation to the classification of the financial
assets, which assets;
already are
estimated
based on the * verification and valuation of the adopted models for
expected credit the expected credit loss regarding the financial
losses, and not on assets, reported at amortized cost;
the suffered
losses. The Group
has classified * verification of the qualification and assessment of
part of its the independency and the objectivity of the hired by
receivables with the Group appraiser;
book value as at
December, 31
2018 of BGN 2,285 * we used our expert in the review of valuation of the
thousand as receivables at fair value in profit or loss, prepared
financial assets at by the independent licensed appraiser hired by the
fair value Group;
in profit and loss.
For an assessment
of the fair value of * valuation of the system for internal control
these receivables regarding the processes related to loans granted;
is used independent
(external)
licensed appraiser. * valuation of the adequacy of the Group's disclosures
According regarding
to the valuation as
at December
31, 2018 a loss of the loans granted and trade
BGN 1,742 and other receivables and their
thousand was impairment.
recognized in the
explanatory note 14
Financial
income and costs.
Considering the
existence of
the significant
level of estimations
by the Management
for the expected
credit losses of the
financial
assets and the
significance
of the Trade and
other receivables
and Loans granted in
the total
amount of the assets
(45% as
at December, 31
2018), we consider
this matter as key
for our audit.
Data for the impact
of the initial
application on
01.01.2018 of
the IFRS 9 Financial
instruments,
recognized in the
beginning
balance of the
equity in relation
to the correction
for the expected
credit losses, are
disclosed
in the explanatory
note 2.8.1
Changes as a result
of IFRS
9. In the remaining
explanatory
notes, which we
refer to, are
disclosed the levels
of impairment,
estimations of the
Management
and other additional
information.
-----------------------------------------------------------------------------------------------
2. Uncertainties related to future outcome of litigations
We refer to the explanatory note 34 Contingent liabilities and 35 Events after the reporting period to the applied consolidated financial report, where the uncertainties related to the future outcome of the litigations are disclosed.
Key audit matter How our audit addressed the
key audit matter
In carrying out Group's operations, Our audit procedures included,
it is possible to arise a potential along with others:
risk of administrative and legal * review of the accrued expenses on legal services;
proceedings due to the inherent
uncertainty of their outcome.
The companies of the Group are * sending letters to lawyers, providing legal services
parties to legal proceedings, to the Group with a request for information regarding
the outcome of which may have the legal proceedings and actual or potential claims
a significant influence on the and disputes;
financial position and outlook
of the Group.
The key matters related to those * evaluation of the received answers and discussion of
proceedings are disclosed in selected matters;
the Note 34 Contingent liabilities
and Note 35 Events after the
reporting date. * usage of our internal specialists and external expert
Whether to be recognised a provision for assistance regarding the critical evaluation of
or disclosed a contingent liability the estimations and assumptions of the Group in
in the consolidated financial regard to the contingent liabilities disclosed in the
statements depends of the level notes to the consolidated financial statements;
of significance of estimations
and assumptions. The estimation
is with an inherent subjectivity, * evaluation whether the disclosures of the Group
the risks are material. regarding the material legal proceedings adequately
On this basis, we consider the explain the potential liabilities and correspond to
matter related to legal proceedings the information gathered by us.
against the companies of the
Group as key audit matter.
-------------------------------------------------------------
Other information different of the consolidated financial statements and auditor's report thereon
The management is responsible for the other information. The other information comprises the information included in the consolidated management report, including a corporate governance statement, prepared by the management pursuant to chapter seven of the Accountancy Act, but does not include the consolidated financial statements
and our audit report thereon, which we received before the date of our audit report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon, except otherwise explicitly stated in our report and to the extent it is stated.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, to consider whether the other information is materially inconsistent with the consolidated financial statements or with our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on our work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact.
We do not have anything to report on this matter.
Responsibilities of the management and the persons, in charge of the overall management for the consolidated financial statements
The management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRS, applied in EU and for such internal control system, as the management determine is necessary to ensure the preparation of the consolidated financial statements, which are free from material misstatements, whether or not due to fraud or error.
In preparing the consolidated financial statements, the Management is responsible for the assessment of the Group's ability to continue as a going concern, disclosing, as applicable, matters, related to going concern and using a going concern basis of accounting, unless the Management either intend to liquidate the Group or to cease operations, or the Management has no other alternative but to do so.
The persons, in charge with the overall management, are responsible for the supervision of the process of Group's financial reporting.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether or not due to fraud or error, and to issue an auditor's report that includes our auditor's opinion. Reasonable assurance is a high level of assurance, but it is not guaranteed that an audit conducted in accordance with ISA will always detect a material misstatement, when it exists. Misstatements can arise from fraud or error and are considered material, whether they can reasonably be expected, individually or in the aggregate, to influence the economic decision of users taken on the basis of these consolidated financial statements.
As a part of the audit in accordance with ISA, we exercise professional judgment and maintain professional skepticism throughout the whole audit. We also:
- identify and assess the risks of material misstatement of the financial statements, whether or not due to fraud or error, develop and perform audit procedures responsive to those risks, and obtain audit evidences, which are sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override or evasion of internal control;
- obtain an understanding of internal control relevant to the audit in order to develop audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
- evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management;
- conclude on the appropriateness of the management's use of the going concern basis of accounting and, based on the audit evidences obtained, whether a material uncertainty exists, related to events or conditions that may arise significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidences obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
- evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
- obtain sufficient appropriate audit evidences regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group's audit. We remain solely responsible for our audit opinion.
We communicate with the persons in charge with the overall management, among the other matters, the planning scope and timing of the audit and the significant audit findings, including any significant deficiencies in the internal control that we identify during the audit conducted by us.
We also provide the persons in charge with the overall management a statement that we have complied with the relevant ethical requirements related to the independence and to communicate with them all relationships and other matters that may reasonably be studied to bear on our independence and where applicable related save measures.
Among the matters communicated with the persons in charge with the overall management, we determine those matters, which were of most significance in the audit of the consolidated financial statements for the current period and which are therefore key audit matters. We describe these matters in our auditor's report, except in cases when law or
regulation precludes public disclosure of information about this matter or when, in extremely rare circumstances, we decide that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
Additional matters prescribed to report according to Accountancy Act and Public Offering of Securities Act
In addition to our responsibilities and reporting according to ISA, described above in Other information different of the consolidated financial statements and auditor's report thereon section regarding the consolidated management report, corporate governance statement and consolidated non-financial declaration, we complied with the procedures, added to the requirements under ISA, according to Instructions regarding new and extended audit reports and auditor's communication of the professional organization of the registered auditors in Bulgaria, The Institute of the certified public accountants (ISPA). These procedures concern the audits for the existence and audits of the format and the content of this other information on purpose to help us form an opinion regarding whether the other information includes disclosures and reports, pursuant to Chapter seven of the Accountancy Act and the Public Offering of Securities Act, (Art. 100n, par.10 of POSA in relation to Art. 100n, par.8, item 3 and 4 of POSA) applicable in Bulgaria.
Opinion in relation to Art. 37, par. 6 of the Accountancy Act
Based on the conducted procedures, our opinion is that:
a) The information included in the consolidated management report for the financial year, for which the consolidated financial statements were prepared, corresponds to the consolidated financial statements.
b) The consolidated management report is prepared in accordance with the requirements of the Chapter seven of the Accountancy Act and Art. 100(n), par.7 of the Public Offering of Securities Act.
c) In the corporate governance statement of the Group for the financial year, for which the consolidated financial statements were prepared, is presented pursuant to the requirements of Chapter seven of the Accountancy Act and Art. 100(n), par.8 of the Public Offering of Securities Act.
d) The consolidated non-financial declaration for the financial year, for which the consolidated financial statements were prepared, is presented and prepared in accordance with the requirements of the Chapter seven of the Accountancy Act.
Opinion in relation to Art. 100(n), par.10 in relation to Art.100(n), par.8, item 3 and 4 of the Public Offering of Securities Act
Based on the conducted procedures and the obtained knowledge and understanding on the Group's operations and the environment where it operates, on our opinion, the description of the main characteristics of the internal control and risk management systems of the Group in relation to the process of financial reporting, which is part of the consolidated management report (as section in the corporate governance statement) and information under Art. 10, par. 1, letters "c", "d", "f", "h" and "i" of the Directive 2004/25/EC of the European Parliament and to the Counsel of April, 21 2004 regarding the proposals for acquisitions, does not comprise cases of significant misstatement.
Reporting pursuant to Art. 10 of the Regulations (EU) No 537/2014 in relation to the requirements of Art. 59 of the Independent Financial Audit Act
Pursuant to the requirements of the Independent Financial Audit Act in relation to Art.10 of Regulation (EU) No 537/2014, we report additionally the information disclosed below:
- The audit company IsaAudit OOD is nominated for one year period as a mandatory auditor of the consolidated financial statements of Petrol AD for the year ended December 31, 2018, by the General Meeting of Shareholders, convened on June 20, 2018.
- The audit of the consolidated financial statements of the Company for the year ended December 31, 2018 is fourth consecutive complete engagement of mandatory audit of this Group, conducted by us.
- The management of Petrol AD confirmed to us, that there is no selected and active audit committee pursuant to Art. 107 of the Independent Financial Audit Act, therefore we present an additional report, consistent with the requirements of Art. 60 of the Independent Financial Audit Act to the Supervisory Board of Petrol AD, as persons in charge with the overall management. We confirm that the audit opinion expressed by us complies with the additional report presented to the Supervisory Board.
- We confirm that prohibited non-audit services, appointed in the Art. 64 of the Independent Financial Audit Act, were not provided.
- We confirm that during the audit we maintained our independence of the Group.
- For the period, covered by our mandatory audit, except the audit, we did not provide other services to the Group.
Audit company:
IsaAudit OOD
Director:
IZABELA DJALAZOVA
Registered auditor, responsible for the audit:
BOZHIDAR NACHEV
April 25, 2019
Consolidated financial statements
for the year ended December 31, 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended December 31, 2018
Note 2018 2017
BGN'000 BGN'000
Revenue 6 526,777 479,083
Other income 7 9,095 1,509
Cost of goods sold 8 (468,229) (423,450)
Materials and consumables 9 (4,105) (3,988)
Hired services 10 (35,752) (38,704)
Employee benefits 11 (19,324) (18,748)
Depreciation and amortisation 16, 17 (931) (1,486)
Impairment losses 12 (840) (374)
Other expenses 13 (2,204) (2,651)
Finance income 14 56,308 12,992
Finance costs 14 (5,118) (3,494)
Profit before income tax 55,677 689
--------- ---------
Tax income 15 252 688
--------- ---------
Profit for the year 55,929 1,377
--------- ---------
Other comprehensive income
Items that will not be reclassified
to profit or loss:
Remeasurements of defined benefit
liability (asset) 26 (14) (22)
Other comprehensive income for the
year (14) (22)
--------- ---------
Total comprehensive income 55,915 1,355
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended December 31, 2018
Note 2018 2017
BGN'000 BGN'000
Profit (loss) attributable to:
Owners of the Parent company 55,930 1,377
Non-controlling interests (1) -
Profit for the year 55,929 1,377
======== ========
Other comprehensive income attributable
to:
Owners of the Parent company 55,916 1,355
Non-controlling interests (1) -
-------- --------
Total comprehensive income for the
year 55,915 1,355
======== ========
Profit per share (BGN) 24 2.05 0.01
Georgi Tatarski Milko Dimitrov Prepared by Elena
Executive Director Executive Director Pavlova - Teofanova
April 25, 2019
The notes on pages 75 to 134 are integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note 31 December 31 December
2018 2017
BGN'000 BGN'000
Non-current assets
Property, plant and equipment and
intangible assets 16 13,498 14,398
Investment properties 17 1,793 1,812
Goodwill 18 19,827 40
Deferred tax assets 15 4,186 3,692
Other receivables 22 95 95
Total non-current assets 39,399 20,037
----------- -----------
Current assets
Inventories 19 23,977 20,990
Loans granted 21 22,124 18,894
Trade and other receivables 22 36,948 32,733
Non-current assets held-for-sale 20 3,459 42
Cash and cash equivalents 23 4,265 7,271
Total current assets 90,773 79,930
----------- -----------
Total assets 130,172 99,967
=========== ===========
Equity
Registered capital 24 109,250 109,250
General reserves 18,864 18,864
Accumulated loss (108,557) (162,286)
--------- ---------
Total equity attributable to the
owners of the Parent company 19,557 (34,172)
--------- ---------
Non-controlling interests 30.5. 9 10
--------- ---------
Total equity 19,566 (34,162)
---------
Non-current liabilities
Loans and borrowings 25 45,471 38,144
Employee defined benefit obligations 26 533 441
Total non-current liabilities 46,004 38,585
--------- ---------
Current liabilities
Trade and other payables 27 61,844 92,010
Loans and borrowings 25 2,758 3,478
Current income tax liabilities 28 - 56
Total current liabilities 64,602 95,544
--------- -----------
Total liabilities 110,606 134,129
--------- -----------
Total equity and liabilities 130,172 99,967
========= ===========
Georgi Tatarski Milko Dimitrov Prepared by Elena
Executive Director Executive Director Pavlova - Teofanova
April 25, 2019
The notes on pages 75 to 134 are integral part of these consolidated financial statements
COMPREHENSIVE STATEMENT OF CHANGES IN EQUITY
Equity attributable to the owners Non-controlling Total
of the Parent company interests equity
Registered General Accumulated Total
capital reserves profit
(loss)
BGN'000 BGN'000 BGN'000 BGN'000 BGN'000 BGN'000
Balance at January
1, 2017 106,482 18,864 (161,702) (36,356) 10 (36,346)
Comprehensive income
for the year
Profit for the year - - 1,377 1,377 - 1,377
Other comprehensive
income - - (22) (22) - (22)
Total comprehensive
income - - 1,355 1,355 - 1,355
----------- ---------- ------------ --------- ---------------- ---------
Transactions with
shareholders, recognized
directly in equity
Disposal of ordinary
shares 2,768 - (1,939) 829 - 829
Total transactions
with shareholders 2,768 - (1,939) 829 - 829
----------- ---------- ------------ --------- ---------------- ---------
Balance at December
31, 2017 109,250 18,864 (162,286) (34,172) 10 (34,162)
=========== ========== ============ ========= ================ =========
Corrections of initial
applying of IFRS 9,
net of taxes - - (2,187) (2,187) - (2,187)
Balance at January
1, 2018 (restated) 109,250 18,864 (164,473) (36,359) 10 (36,349)
----------- ---------- ------------ --------- ---------------- ---------
Comprehensive income
for the year
Profit for the year - - 55,930 55,930 (1) 55,929
Other comprehensive
income - - (14) (14) - (14)
Total comprehensive
income - - 55,916 55,916 (1) 55,915
----------- ---------- ------------ --------- ---------------- ---------
Balance at December
31, 2018 109,250 18,864 (108,557) 19,557 9 19,566
=========== ========== ============ ========= ================ =========
Georgi Tatarski Milko Dimitrov Prepared by Elena
Executive Director Executive Director Pavlova - Teofanova
April 25, 2019
The notes on pages 75 to 134 are integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 2018
2018 2017
BGN'000 BGN'000
Cash flows from operating activities
Net profit before taxes 55,677 689
Adjustments for:
Depreciation/amortization of property, plant
and equipment and intangible assets 931 1,486
Interest expense and bank commissions, net 1,736 2,686
Shortages and normal loss, net of excess
assets (352) 449
Provisions for unused paid leave and retirement
benefits 539 467
Impairment of assets 840 374
Profit on sale of assets (7,164) (280)
Receivables written-off - 72
Payables written-off (17) (134)
Revaluation of financial assets at fair value
through profit or loss 1,742 -
Gain on sale of subsidiaries (54,621) (11,992)
(689) (6,183)
Change in trade payables 10,757 5,027
Change in inventories (2,660) (1,779)
Change in trade receivables (7,813) 7,819
Cash flows from operating activities (405) 4,884
Interest, bank fees and commissions paid (2,516) (3,182)
Income tax paid (56) (285)
-------- --------
Net cash from operating activities (2,977) 1,417
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 2018 (continued)
2018 2017
BGN'000 BGN'000
Cash flows from investing activities
Payments for purchase of property, plant
and equipment (5,156) (2,057)
Proceeds from disposal of property, plant
and equipment 7,939 1,638
Payments for loans granted, net (5,572) (18,540)
Interest received on loans and deposits 15 81
Payments for acquisition of subsidiary and
other investments, net of cash acquired 16 (349)
Disposal and loss of control of subsidiary,
net of cash disposed of 2,753 18,944
Proceeds from (payments for) other investments (6,677) 50
Net cash flows used in investing activities (6,682) (233)
Cash flows from financing activities
Proceeds from loans and borrowings 7,587 1,017
Repayment of loans and borrowings (820) (481)
Proceeds from sale of own shares 25 83
Proceeds under cession and other agreements - 140
Net cash flows from financing activities 6,792 759
Net increase (decrease) in cash flows during
the year (2,867) 1,943
Cash and cash equivalents at the beginning
of the year 7,085 5,334
Effect of movements in exchange rates 47 (192)
Cash and cash equivalents at the end of
the year (see also note 23) 4,265 7,085
========= =========
Georgi Tatarski Milko Dimitrov Prepared by Elena
Executive Director Executive Director Pavlova - Teofanova
April 25, 2019
The notes on pages 75 to 134 are integral part of these consolidated financial statements
Notes to the consolidated financial statements
for the year ended December 31, 2018
1. Legal status
Petrol AD (the Parent company) was registered in Bulgaria in 1990. The Company is registered with the Commercial Register at the Bulgarian Registry Agency with UCN 831496285. As at the end of the reporting year the registered address of the Parent company is 12 Targovska Street, Lovech Hotel, Lovech. As at December 31, 2018 shareholders of the Parent company are legal entities, the State - through the Ministry of Energy, and individual shareholders (see also note 24).
The main activity of Petrol AD and its subsidiaries (the Group) is wholesale and retail trade with petroleum products and non-petroleum goods. The Parent company is one of the oldest trading companies in the Republic of Bulgaria operating the largest network of petrol stations in the country.
These consolidated financial statements were approved for issue by the Management Board of the Company on April 25, 2019.
2. Basis of preparation of these consolidated financial statements and accounting principles
2.1. General
These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the Commission of European Union (EU).
These consolidated financial statements have been prepared on a historical cost basis, except for the provisions and the defined benefit liability, recognized at the present value of the expected future payments.
2.2. Application of new and revised IFRS 2.2.1. Standards and interpretations effective and applied during the current reporting period
The following amendments of the existing standards, issued by the IASB and endorsed by the EU are effective from January 1, 2018:
-- IFRS 15 Revenue from Contracts with Customers (issued on May 28, 2014), including the amendments in IFRS 15: Effective date of IFRS 15 (issued on September 11, 2015), endorsed by the EU on September 22, 2016, published in Official Newspaper on October 29, 2016.
-- Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on April 12, 2016), endorsed by the EU on October 31, 2017, published in Official newspaper on November 9, 2017.
IFRS 15 Revenue from Contracts with Customers and clarifications to the Standard, is a new standard, which replaces IAS 11, IAS 18 and their interpretations. The Standard shall be applied retrospectively, with some exclusions. In the scope of the standard are the contracts with customers and sales contracts of financial assets, which are not related to the common activity (e.g. PPE). Excluded from the scope of the Standard are the contracts for leases, insurance contracts, financial instruments and definite non-monetary exchange transactions. The Standard provides single model to be applied to all contracts with customers and two approaches for revenue recognition: over time or in a point of time.
The model provides based on the contract analysis of transactions in five steps to determine when and what revenue to be recongnised. The model is applied to all contracts with customers. The Standard includes broad new disclosure requirements. The new disclosures may represent important additional information for the investors and competitors regarding the business practices and outlook of the Group. The effect of applying of IFRS 15 is disclosed in Note 2.8 Changes in Accounting Policy.
-- IFRS 9 Financial instruments (issued on July 24, 2014), endorsed by EU on November 22, 2016, published in Official newspaper on November 29, 2016. The IFRS 9 Financial instruments replaces IAS 39 Financial instruments: recognition and measurement. The new standard imposes significant changes in the classification and valuation of the financial assets and new model of the expected credit loss of impairment of financial assets. The classification and measurement of financial assets of the Group are reviewed on the new criteria basis, which take into account the contracted cash flows for the assets and business model of their management. Only two categories of measurement are determined - at amortized cost and at fair value. Upon the entry into force of IFRS 9 from January 1, 2018 the existing before categories in IAS 39 are eliminated. 1. The investments, held to maturity, 2. Loans and receivables and 3. Financial assets available for sale.
The applying of IFRS 9 has an effect on the financial reports. The classification and measurement of the financial instruments are changed in the conditions of IFRS 9, due to the characteristics of the Group's activity and all kind of financial instruments, which it disposes. Based on Group's business model for management of financial assets and the characteristics of the arising cash flows, the Management accepted to classify the financial assets mainly in the Debt instruments category, measured at amortized cost. The effect of applying of IFRS 9, the approach and reclassifications are disclosed in Note 2.8 Changes in Accounting Policy.
Impairment based on the expected losses shall be recognised regarding the receivables from Group's contractors. The new model of the expected credit loss replaces the model of the recognized loss in IAS 39, which means that there is no need of event related to loss before impairment recognition. Based on the carried out calculations as at January 1, 2018 the impairment of the financial assets, which is recognised in these financial statements of the Group, has an effect on the financial assets value and on the accumulated profits/losses from the beginning of the period. The effect is disclosed in Note 2.8 Changes in Accounting Policy.
-- Amendments in IFRS 4: Applying of IFRS 9 Financial instruments with IFRS 4 Insurance Contracts (issued on September 12, 2016), endorsed by the EU on November 3, 2017, and published in Official newspaper on November 9, 2017.
-- Annual improvements of the cycle of standards of IFRS for the period 2014-2016 (issued on December 8, 2016), endorsed by the EU on February 7, 2018 and published in Official newspaper on February 8, 2018. The following improvements were finalized in December 2016:
- IFRS 1 - removal of the short-term exceptions, affecting the previous versions of IFRS 7, IAS 19 and IFRS 10, which already are not valid.
- IAS 28 - clarifies that the choice of mutual and other funds to measure their investments in associates or joint ventures at fair value through profit or loss should be made separately for each associates and joint venture in initial recognition.
-- Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (issued on June 20, 2016), endorsed by EU on February 26, 2018 and published in Official newspaper on February 27, 2018. The amendments clarify the measurement basis for monetary settled share-based payments and recognition of the modifications, which changed the payment from monetary to share-based.
-- Amendments to IAS 40: Transfer of investment property (issued on December 8, 2016), endorsed by the EU on March 14, 2018 and published in Official newspaper on March 15, 2018. The amendment clarifies that the reclassification into and from investment property category can be made in case of change of purpose supported by evidences. A change in the purpose occurs when the property meets or no longer meets the definition of investment property. A change in the intention only is not sufficient to justify a reclassification. It specifies that the list of evidences for the change in the purpose of the standard is not a comprehensive list of examples, which helps to illustrate this principle. The Board gives two options for that:
- prospective, the possible effect of the reclassification is recognised as correction in the beginning balance of profits from previous years as at the date of the initial recognition, or
- retrospective - acceptable without the use of subsequent information.
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on December 8, 2016), endorsed by EU on March 28, 2018, published in Official newspaper on April 3, 2018. The interpretation clarifies how to determine the date of transaction in order to determine the currency exchange rate to be used in the initial recognition of related asset, expense or income, when the Group pays or receives consideration in advance under contracts denominated in foreign currency. For one-time payment or received amount, as a transaction date is determined the date of the initial recognition of the non-monetary asset or liabilities, arising from the advance payment (prepayment of deferred income/contracted liability). If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. The clarification is optional, retrospectively for each disclosed period and prospectively.
The acceptance of these amendments in existing standards did not lead to changes in the accounting policy of the Group, excluding the applying of IFRS 9 and IFRS 15. The effect of the applying of the IFRS 9 and IFRS 15 is disclosed in Note 2.8. Changes in Accounting Policy.
2.2.2. New standards and interpretations, not yet applied
Standards, clarifications and changes in standards, which are issued by the International Accounting Standard Board (IASB) and are endorsed by European Union, but not yet effective:
-- IFRS 16 Leases (issued on January 13, 2016), endorsed by the EU on October 31, 2017 and published in Official newspaper on November 9, 2017. The standard will replace the existing until this moment standard for reporting of leases - IAS 17 and the current directives for leases - IFRIC 4, SIC-15 and SIC-27. IFRS 16 requires lessees to recognize most of the leases in the statement of financial position and to apply single model of recognition for all leases, with some exclusions. The definition for lease is focused on the definition of control in IFRS 10 and IFRS 15. New reporting and disclosure requirements are introduced. For the lessees, it is provided all lease agreements over 12 months to be recognized as "right to use" asset, which shall be depreciated for the term of contract and respectively to report a liability upon these contracts. Exceptions are provided for short-term leases and leases with inconsiderable value. Further, the classification of cash flows will also be affected, as the payments on operating lease according to IAS 17 are reported as operating cash flows, in contrast to the model, laid down in IFRS 16, the lease payments will be separated to principal payments and interest payments, which will be reported, respectively, as cash flows from financing activities and cash flows from operating activities. The reporting for lessors does not change essentially, but it is possible to have grounds for reclassifications.
The Group has made a detailed estimate of the effect on the financial statements of the initial appliance of IFRS 16. The actual influence of the appliance of IFRS 16 on the financial statements for the period of first appliance depends on the future economic conditions, interest rates as at January 1, 2019 and outstanding leases to this date, including the last valuation, which to determine if options on lease agreements will be exercised and the degree to which the Group will choose to use potentially practical expedients (benefits) and recognition exclusions, allowed by the Standard.
The expected effect on the financial statements is related to irrevocable contracts for operating leases under which the Group is lessee and therefore the recognition of new assets and new liabilities.
The Group plans to apply IFRS 16 for the first time in the financial statements for the year beginning on January, 1 2019. The Group chooses to apply a modified retrospective approach, as the cumulative effect of the appliance is recognised to the date of the initial appliance of IFRS 16 in the beginning balance of the equity and a comparing information is not recalculated.
The Group will recognize the liability on the lease contract to the date of the initial appliance of the IFRS 16 for the irrevocable lease contracts, classified before as an operating lease according to IAS 17 at present value of the outstanding lease payments, discounted with the differential interest rate to the date of the first appliance. The "right to use" asset will be recognised right before the date of the initial appliance as an amount in the statement of financial position equal to the liability under the lease contract, corrected with the sum of all paid in advance or accrued lease payments related to this lease contract.
The Group will choose to use the exclusions, proposed by the Standard for lease contracts, which ended within 12 months and lease contracts for which the base asset is with low value. The analysis of the terms of the main rent contracts for petrol stations shows that they should be treated as short-term within the scope of the exclusion, because they do not have a guaranteed period, the rent price is determined for six months periods, and both parties have the right to cease the contract for any petrol site with one to three months advance notice without any onerous sanctions, that would justify the Group's assessment of the probability of exercising the termination option by landlords as unlikely.
In summary on the basis of preliminary approximate estimates, carried out as at December 31, 2018 it is expected the influence of the adoption of the IFRS 16 on the statement of financial position (increase/decrease) as at January 1, 2019 to be as follows:
Statement of financial position Expected effect
BGN'000
Assets
Property, plant and equipment ("right
to use" assets) 13,725
Liabilities
Lease liabilities (13,725)
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Net effect on equity -
================
-- Amendments to IFRS 9: Prepayment features with negative compensation (issued on October 12, 2017), approved by EU on March 22, 2018, published in Official newspaper on March 26, 2018.
The following new or revised standards, new clarification and amendments to the existing standards, which are issued by the International Accounting Standards Board (IASB) at the reporting date, but have not yet been approved for appliance by the EU and respectively have not been taken into account in preparation of these financial statements.
-- IFRS 17 Insurance contracts (issued on May 18, 2017)
-- IFRIC 23 Uncertainty over income tax treatments (issued on June 7, 2017), published on January 1, 2019.
-- Amendments to IAS 28: Long-term investments in associates and joint ventures (issued on October 12, 2017), effective on January 1, 2019.
-- Annual improvements to IFRS 2015-2017 standards (issued on December 12, 2017), effective on January 1, 2019.
-- Amendments to IAS 19: Plan amendment, curtailment or settlement (issued on February 7, 2018), effective on January 1, 2019.
Amendments to references to the conceptual framework in IFRS standards (issued on March 29, 2018), effective from January 1, 2020.
2.3. Functional and presentation currency of the consolidated financial statements
Functional currency is the currency of the primary economic environment, in which a company operates and primarily generates and disburses cash. It reflects the main transactions, events and conditions considered significant for the Group. These consolidated financial statements are presented in Bulgarian levs, which is the functional currency of Petrol Group. All financial information presented in BGN has been rounded to the nearest thousand, except when otherwise indicated.
2.4. Foreign currency
Transactions in foreign currency are initially recorded at amounts denominated in BGN at the official exchange rate of the Bulgarian National Bank (BNB) as of the date of the transaction. Foreign exchange rate differences arising from settlement of foreign exchange positions or from reporting these positions at rates different from those of the initial recording, are reported in profit and loss for the respective period. Since January 1, 1999 the Bulgarian Lev has been fixed against the Euro at rate 1.95583 BGN for 1 Euro.
The monetary positions denominated in foreign currency as at December 31, 2018 and 2017 are stated in these consolidated financial statements at the closing exchange rate of the Bulgarian National Bank. The closing exchange rates of the BGN against USD as at the end of current and prior reporting periods are as follows:
December 31, 2018: 1 USD = 1.70815 BGN December 31, 2017: 1 USD = 1.63081 BGN 2.5. Accounting assumptions and approximate estimates
The application of IFRS requires the Management to make certain reasonable assumptions and accounting estimates in the preparation of these consolidated financial statements, in order to determine the value of some assets, liabilities, revenue and expenses. These estimates and assumptions are based on the best estimate of the Management, taking into account historical experience and analysis of all factors, which have impact given the circumstances as at the date of preparation of the consolidated financial statements. The actual results could differ from the estimates presented in these consolidated financial statements.
Information about assumptions and estimation uncertainties, that have a significant risk of resulting in material adjustments in the next financial year, are included in the following notes:
-- Note 15 - recoverability of deferred tax assets; -- Note 18 - estimation of the recoverable amount of the reported goodwill arising from business combinations; 2.6. Basis of consolidation 2.6.1. Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred with the acquisition is generally measured at fair value, as the acquired identifiable net assets. The arising goodwill is tested annually for impairment (see also note 3.4). Any gain from bargain purchase is recognised immediately in profit or loss. Transaction costs are expensed as incurred, except those related to the issuance of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of the pre-existing relationships. Generally, such amounts are recognised in profit or loss.
Any due contingent consideration is measured at fair value as at the acquisition date. If the contingent consideration is classified as equity it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit and loss.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards) and relate to past services, then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree's awards and the extent to which the replacement awards relate to pre-combination service.
2.6.2. Non-controlling interest
Non-controlling interest is the equity in a subsidiary not attributed directly or indirectly to the Parent company. Non-controlling interest is presented within equity in the consolidated statement of financial position, separately from the equity attributable to the owners of the Parent company.
Non-controlling interest is measured at its proportional share of its identifiable net assets as at the acquisition date.
Any changes in the Group's interest in a subsidiary that do not result in loss of control are accounted for in equity.
2.6.3. Subsidiaries
Subsidiaries are companies controlled by the Group. Control is the power to govern the financial and operating policy of a subsidiary in order to benefit from it. The financial statements of the subsidiaries are included in the consolidated financial statements from the date of control establishment until the date of control suspension.
2.6.4. Loss of control
When the Group losses control of a subsidiary, it derecognizes the assets and liabilities of the subsidiaries, non-controlling interest and other components of equity related to the subsidiary. Any resulting from the loss of control gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Subsequently it is recognized as an equity-accounted investee or an available-for-sale financial asset depending on the level of influence retained.
2.6.5. Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions are eliminated. Unrealised gains arising from transactions with associates and joint ventures are eliminated against the investment up to the interest of the Group in the company. Unrealised losses are eliminated in the same way as unrealized gains, but only if there is no evidence for impairment.
2.6.6. Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
2.7 Going concern basis of accounting
As at December 31, 2018 the Group's equity is negative at the amount of BGN 19.566 thousand and is lower by BGN 89,684 thousand than the registered capital of the Parent company, due to accumulated losses in previous periods, and the current liabilities exceed current assets by BGN 15,614 thousand. According to Management's valuation of the resulting uncertainties, including the potential effects of court proceedings (see also note 34), which indicate significant uncertainty, which could raise doubts about the Group's ability to continue as a going concern, the current consolidated financial statements are prepared on a presumption of going concern basis. Measures have been taken to bring the capital of the Parent company in compliance with the requirements of Art.252, par.1, item 5 of the Commercial Act (see notes 24, 32 and 35). The Management has made an assessment taking into account all available information on the foreseeable future, which is at least, but not limited to, twelve months from the end of the reporting period. This implies that the Group will be able to pay its regularly due contractual and trade obligations, loans and interests in accordance with the contractual commitments.
2.8 Changes in Accounting Policy
The adopted accounting policy is consistent with the applied in the previous year, with the exception of the new IFRS 9 and IFRS 15 standards, which are applied for the first time from January 1, 2018.
2.8.1. Changes resulting from IFRS 9
IFRS 9 Financial instruments replaces IAS 39 Financial instruments: Recognition and Measurement
for the annual periods, beginning on or after January 1, 2018, bringing together the all three aspects of the reporting of the financial instruments: classification and measurement, impairment and accounting of hedging.
The Group applies IFRS 9 for future periods with first date of appliance January 1, 2018. The Group did not recalculate comparing information, which continues to account under IAS 39. The differences arising from the adoption of IFRS 9 are directly recognised in retained earnings.
Classification and measurement
IFRS 9 brings in a new approach for classification of the financial assets, which is based on the characteristics of the contractual cash flows of the financial assets and the business model of their management. The influence of IFRS 9 on the classification and measurement of the financial assets is disclosed below:
Regarding of the financial liabilities the adoption of IFRS 9 does not have a significant effect on the accounting policy of the Group.
According to IFRS 9 following their initial recognition, the debt instruments are accounted at fair value in profit or loss or amortized value or at fair value in other comprehensive income. Classification is based on two criteria: the asset management business model of the Group and whether the contractual cash flows of the instrument are "only payments on principal and interest" on the outstanding principal.
The Group's business model valuation is carried on to the date of first appliance, i.e. January 1, 2018. The assessment whether the contractual cash flows on debt instruments consist only principal and interest is done based on the facts and evidences to the first recognition of the assets.
The requirements for the classification and assessment of IFRS 9 does not have a significant impact on the Group. The changes in classification of the Group's financial assets are disclosed as follows:
Trade and other receivables and receivables on loans granted, classified as loans granted and receivables as at December 31, 2017, are held to receive contractual cash flows and lead to cash flows of principal and interest only. Since January 1, 2018 they are classified and measured as Debt instruments at amortized cost.
The Group have not determined financial liabilities as measured at fair value in profit or loss. There is no change in the classification and measurement of the Group's financial liabilities.
The next table discloses the classification of each type of financial assets of the Group under IAS 39 and their subsequent classification and measurement under IFRS 9 on January 1, 2018.
Categories under IAS 39 Categories under IFRS 9
Loans and borrowings Financial assets, debt instruments, measured at amortized cost, including:
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Cash
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Trade and other receivables, constituting financial assets
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Receivables on loans and borrowings
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Receivables on cessions
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Receivables acquired through cessions
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Impairment
The adoption of IFRS 9 changed in essence the Group's accounting regarding the impairment losses of financial assets by replacing the approach of the accrued losses under IAS 39 with the more forward-looking model of the expected credit losses (the expected credit losses). IFRS 9 requires the Group to recognize provision on the expected credit losses for all debt instruments, which are not accounted at fair value in profit or loss, and for assets under contracts.
Following the adoption of IFRS 9 the Group has accounted an additional impairment on trade receivables and loans granted at the amount of BGN 67 thousand and BGN 2,362 thousand, respectively, which leads to decrease in retained earnings of BGN 2,187 thousand (net of taxes) as at January 1, 2018.
Other corrections
In addition to the afore-mentioned corrections, other positions, as deferred taxes have been also corrected in the retained earnings, as required following the adoption of IFRS 9 as at January 1, 2018.
The next tables summarize the effect of the adoption of IFRS 9 as at January 1, 2018, net of taxes:
Financial Note Original New classification Original Correction New
assets classification under carrying carrying
under IAS IFRS 9 amount amount
39 under under
IAS 39 IFRS 9
Debt instruments
Borrowings measured at
Loans granted 21 and receivables amortised cost 18,894 (2,362) 16,532
Debt instruments
Trade and Borrowings measured at
other receivables 22 and receivables amortised cost 30,714 (67) 30,647
Debt instruments
Borrowings measured at
Cash 23 and receivables amortised cost 7,271 - 7,271
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56,879 (2,429) 54,450
========== =========== ==========
January 1,
2018
BGN'000
Assets
Deferred tax assets 242
Loans granted (2,362)
Trade and other receivables (67)
----------
Total assets (2,187)
----------
Correction in equity:
Retained earnings (2,187)
Total correction in equity: (2,187)
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2.8.2 Changes resulting from IFRS 15
As a result of the change in the accounting policy and the adoption of IFRS 15 no changes arose in the items of the statement of financial position as at January 1, 2018 and additional expenses or revenue were not account in relation to the requirements of IFRS 15 as at January 1, 2018. The Group has estimated the effects of the appliance of the new standard on the annual consolidated financial statements and has not identified areas, which to be affected and to have an impact on the revenue and/or receivables and the items in equity, as far as it is not expected a significant change in business model, nor a change in the time horizon of control transfer of the Group's services to clients or in accounting the sales of fuels and other products.
3. Definition and valuation of items of the consolidated statement of financial position and the consolidated statement profit or loss and other comprehensive income
3.1. Property, plant and equipment and intangible assets
Property, plant and equipment, and intangible assets are measured initially at acquisition cost. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
After initial recognition property, plant and equipment, and intangible assets are measured at cost less accumulated depreciation and any accumulated impairment losses. (see also note 3.5.2.).
Subsequent costs, including replacement of a component of an asset, are capitalised in the cost of the asset, only when it is probable that future economic benefits associated with the expenditure will flow to the Group. The carrying amount of the replaced items is derecognized in accordance with the requirements of IAS 16 Property, Plant and Equipment. All other subsequent costs are recognized as incurred.
Gains or losses on disposal of property, plant and equipment (calculated as a difference between the proceeds from disposal and the carrying amount of the asset) are recognised net in the other income/ expenses in profit or loss for the period.
When the use of a property, plant and equipment changes from owner-occupied to investment property, the property is reclassified as investment property.
Depreciation and amortisation are recognised over the estimated useful lives applying the straight-line method. Depreciation and amortisation are recognised in profit or loss of the current period. Land, assets under construction and fully depreciated assets are not depreciated/amortised.
The estimated useful lives are as follows:
Administrative and commercial buildings 25 years Machinery, plant and equipment 2 - 25 years Vehicles 4 - 10 years Office equipment 7 years Intangible assets 2 - 7 years
Depreciation/amortisation commences from the beginning of the month following the month when the asset is available for use, and ceases at the earlier of the date when the asset is classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations and the date of its derecognition.
As of the end of the reporting period, the Group's Management reviews the useful life and the depreciation method of property, plant and equipment and intangible assets. If any difference between expectations and previous accounting estimates exists, the relevant adjustments are made.
3.2. Investment property
Investment property is property held by the Group to accumulate rent income or to increase the equity value, or both (including property under construction for future use as investment property). Investment properties are carried at cost less depreciation and any impairment losses.
Any gain or loss on disposal of investment property (calculated as a difference between the proceeds from disposal and the carrying amount of the asset) is recognized in profit or loss for the period.
Depreciation of investment properties are recognized in profit or loss, over their estimated useful lives, applying the straight-line method.
The estimated useful lives for the current and comparative periods are as follows:
Administrative and trade buildings 25 years Intangible assets 2-10 years
As at the end of each reporting period, the Management of the Group reviews useful lives and the depreciation/amortization method of investment property. In case the Management identifies differences between expectations and previous accounting estimates, the relevant adjustments are made.
3.3. Inventory
Inventories are stated at the lower of cost and net realizable value. The cost of inventories comprises purchase price, transportation costs, custom duties, excise duties and other similar costs. The net realizable value represents the estimated selling price less estimated selling expenses.
Upon its consumption, the cost of inventories is measured using weighted average cost method.
3.3. Financial instruments 3.3.1. Non-derivative financial assets and financial liabilities - recognition, assessment and derecognition
The Group recognizes a financial asset or a financial liability in the statement of financial position, only when the Group is a party under contractual terms of these financial instruments. Initially all financial assets and financial liabilities are recognised at fair value. The fair value of particular asset/liability in its initial recognition is the contract price. The contract price for financial assets/liabilities, excluding these, which are classified at fair value through profit or loss, includes the deal expenses, which directly reference to the acquisition/issuance of the financial instrument. The transaction expenses, incurred during the acquisition of financial asset and the issuance of a financial liability, classified at fair value through profit or loss, are accounted immediately as expense.
The Group recognizes a financial asset, using the settlement date of the transaction, thus an asset is recognised on the day it is received by the Group and is written-off on the day it is given by the Group.
Financial asset is written-off by the Group, when the contractual rights on the cash flows from this asset mature or when the Group transferred this rights through transaction, in which all significant risks and benefits, arising from the ownership of the asset are transferred to the buyer. Each investment in already transferred financial asset, which the Group retains, is recognized separately as particular asset or liability.
In cases when the Group retains all or a greater part of the risks and rewards, related to the assets, the latter are not written-off from the statement of financial position (example for such transactions are repos with buy-back options).
In transactions, where the Group neither retains nor transfers the risks and rewards, related to financial assets, the latter is written-off from the statement of financial position when and only when the Group has lost control on it. The rights and liabilities, which the Group retains in these cases, are reported separately as asset and liability. In transactions, where the Group retains control on the asset, its reporting in the statement of financial position continues, but to the amount determined by the level of investment retention in the asset and risk bearing by the Group of change in asset value.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
3.3.2. Subsequent measurement of financial assets
Subsequent assessment of the financial assets depends on their classification in their initial recognition as assets. The Group classifies the financial assets in category as measured at amortised cost.
The classification is determined based on the business model of management of the particular class financial assets and the contractual characteristics of the cash flows. Investments in debt instruments, which the Group holds as a business model to collect the contractual cash flows, are classified as financial assets carried at amortised cost.
Financial assets carried at amortised cost
Debt instruments, which the Group holds as a business model to collect contractual cash flows and in which the contractual cash flows raise payments only of principal and interest, are carried at amortised cost. Following the initial recognition, the assets are carried at amortised cost. The accounting at amortised cost requires the appliance of the effective interest rate method. The amortised cost of a financial asset is the value of the financial asset based on its initial accounting, decreased by the repayments on principal plus or minus accumulated depreciation with the usage of the method of the effective interest rate for each difference between the initial value and the value at maturity and decreased with the impairment. The following financial assets of the Group belong to this category, depending of the chosen financial model and the characteristics of the cash flows from them: trade receivables, loans and borrowings, receivables on loans granted, receivables on cessions and other receivables.
Financial assets, carried at fair value through profit or loss
This category of financial assets is separated in two sub-categories: financial assets held for sale and financial assets, which are not classified in other categories. Particular financial asset is classified in this category, if it is acquired to be sold in short time or its contractual characteristics do not meet the condition to raised payments only for principal and interest.
3.3.3. Subsequent assessment of financial liabilities
The subsequent assessment of the financial liabilities depends on their classification in their initial recognition. The Group classifies the financial liabilities in the following category:
Liabilities, carried at amortised cost
These liabilities are carried at amortised cost through the effective interest rate method. The elements, classified as trade and other liabilities usually are not assessed again, because the liabilities are with high level of safety and the settlement is short-term. Usually this category comprises the following financial liabilities: trade liabilities, loans and borrowings, liabilities on received deposits, other liabilities.
3.5. Impairment 3.5.1. Non-derivative financial assets
The impairment model "expected credit losses" is applied for financial assets, assessed at amortised cost or at fair value through other comprehensive income, excluding the investments in capital instruments and contract assets. According to IFRS 9, the losses are measured through one of the following bases: 1. Expected credit losses for the next twelve months after the date of financial report or 2. Expected credit losses for the whole term of the financial assets. The first base is applied when the credit risk does not increase significantly from the date of the initial recognition until the date of financial statements (and the credit risk is low to the date of financial statements). In the opposite case, the second base is applied. The Group applies the second base for the trade receivables and contract assets (whether or not are with or without a significant financial component). The increase of the credit risk is monitored and determined based on the information for risk factors as default, significant deterioration of the financial statement of the debtor and other.
For financial assets, carried at amortised cost, if in the next period the amount of impairment loss decreases and the drop may be objectively connected with an event, which arises after the impairment is recognised, the impairment losses recognised before are reimbursed (directly, or through correction of corrective account for trade receivables) in profit or loss. However, the reimbursement may not result to carrying amount of the financial asset, which surpasses the amortised cost, which would have been on the date of the reimbursement, if not impairment have been recognized.
3.4.2. Non-financial assets
The carrying amounts of the Group's non-financial assets (other than inventories and deferred tax assets) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Intangible assets that have indefinite useful lives, or that are not yet available for use, are tested annually for impairment. An impairment loss is recognised if the book value of an asset or its related cash-generating unit (CGU) exceeds its recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
An impairment loss is reversed only to the extent that the asset's book value does not exceed the book value that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
3.5. Registered capital and redemption of own shares
The registered capital is the capital of the Parent company, presented at historical cost as of the date of its registration.
When at the end of the reporting period the Group - through Parent company or its subsidiaries - has reacquired shares of the Parent company, their par value is presented as a decrease in share capital, and the difference below or above the par value - in retained earnings, according to IAS 32 Financial Instruments: Disclosure and Presentation.
3.6. Deferred income and deferred expenses
Deferred income and deferred expenses in the statement of financial position of the Group comprises revenue and expenses, which are prepaid in the current period, but relate to future periods, such as guarantees, insurance, subscriptions, rent, etc.
3.7. Employment benefits
Defined benefit plans
In accordance with the Labour Code, the Group has an obligation to pay retirement benefits to its employees upon retirement, based on the length of service, age and labour category. Since these benefits qualify for defined benefits plan in accordance with IAS 19 Employee benefits, in accordance with the requirements of this standard the Group recognises the present amount of the benefits as a liability.
The Group's obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods and discounting that amount.
A qualified actuary using the projected unit credit method performs the calculation annually. The Group determines the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability.
The projected unit credit method presents a liability that may arise in future, based on a number of assumptions. From this point of view, the method is sensitive to assumptions of values of main parameters, on which the obligation and the due amount are dependent. The main assumptions, on which the amount of the obligation is dependent, are based on demographic, financial and other assumptions.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses and are recognised in other comprehensive income. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.
Short-term employee benefits
Short-term employee benefit obligations are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
3.8. Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
-- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future;
-- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
In accordance with the tax legislation enforceable for the years ended 2018 and 2017 the tax rate applied in calculation of the tax payables of the Group is 10%. For the calculation of the deferred tax assets and liabilities as at December 31, 2018 and 2017 a tax rate of 10% has been used.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether the additional taxes and interest may be due. The Group believes that the accruals for tax payables are sufficient for all open tax periods for a number of factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made.
3.9. Revenue and expenses recognition
3.9.1. Revenue from contracts with clients
A contract is an agreement between two or more parties, which generates rights and obligations for the parties. A client is a party, which has entered into an agreement with the Group to receive goods or services, which are subject of the normal operations of the Group, in exchange for a consideration.
The Group recognizes revenue to report the transfer of the goods or services promised to clients to the amount reflected the consideration, which the Group has a right as an exchange for the transferred goods and services.
The transfer of goods or services is based on the conception for the transfer of control upon them, the ability to manage the usage of assets and to receive in essence all other rewards from it. The control includes and the ability for prevention other companies to manage the usage of asset and to receive the rewards from it.
The revenue from contracts with clients is recognised over time, reflecting the contractual work done by the Group or in exact moment, when the control on goods or services is transferred to the client.
The revenue form contract with clients is recognised based on the policies and models in IFRS 15.
3.9.2. Finance income and finance costs
Finance income comprises interest income, gain on transactions with own bonds, foreign exchange rate gains, gains from revaluation of financial assets accrued at fair value through profit or loss and other. Finance costs comprise interest expenses, foreign exchange rate losses, loss from revaluation of financial assets accrued at fair value through profit or loss, bank fees, commissions and other financial expenses.
Borrowing costs, which may be directly attributable to the acquisition, construction or production of a qualifying asset prior to its being ready for its intended use or sale, and necessarily takes extended period of time, are capitalized in part of the cost of the asset. All other finance income and costs are recognized in profit or loss for all instruments, measured at amortized cost using the effective interest rate method.
Gains and losses from exchange rate differences are reported on a net basis.
3.10. Leases
3.10.1. Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. At inception or upon reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements based on their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group's incremental borrowing rate.
3.10.2. Leased assets
Assets held by the Group under leases, which transfer to the Group substantially all of the risks and rewards of ownership, are classified as finance leases. On initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases are classified as operating leases and are not recognised in the Group's consolidated statement of financial position.
3.10.3. Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
3.10.4. Operating lease
Costs incurred for assets leased under operating lease contracts are recognized in profit or loss on a straight-line basis for the term of the contract. Lease incentives received is recognised as a reduction of the lease expenses on a straight-line basis for the term of the lease contract.
Revenue realized from assets under operating lease contracts is recognized in profit or loss on a straight-line basis for the term of the contract. Initial costs, directly related to the conclusion of the lease agreement, are capitalized in the cost of the asset and are recognized as expenses on a straight-line basis for the term of the lease contract.
3.11. Segments reporting
The information about operating segments in these consolidated financial statements is presented in accordance with the operating reports submitted to Group's Management. Based on these reports decisions are taken in respect of the resources to be allocated to the segment and the results of its activity are evaluated.
4. Determination of fair values
A number of the Group's accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values and reports directly to the Management.
Significant unobservable inputs and valuation adjustments are reviewed regularly. If third party information, such as broker quotes or pricing services is used to measure fair values, then the valuation team assesses the evidence obtained from third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Management of the Group.
When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorised into different level in a fair value hierarchy based on the inputs in the valuation techniques as follows.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following note 17 - Investment property;
5. Segments reporting
The Group has identified the following operating segments, based on the reports presented to the Group's Management, which are used in the process of strategic decision-making:
-- Wholesale of fuels - wholesale of petroleum products in Bulgaria;
-- Retail of fuels - retail of petroleum and other products through a network of petrol stations;
-- Other activities - financial and accounting services, consultancy, rental income, maintenance and repairs and other activities.
The segment information, presented to the Group's Management for the years ended as of December 31, 2018 and 2017 is as follows:
2018 Wholesale Retail All other Total for
of fuels of fuels segments the Group
BGN'000 BGN'000 BGN'000 BGN'000
Total segment revenue 15,699 519,465 2,239 537,403
Intra-group revenue 9 23 1,499 1,531
Revenue from external
customers 15,690 519,442 740 535,872
Adjusted EBITDA 3,269 2,446 543 6,258
Depreciation/amortization 5 778 148 931
Impairment 67 774 (1) 840
2017 Wholesale Retail All other Total for
of fuels of fuels segments the Group
BGN'000 BGN'000 BGN'000 BGN'000
Total segment revenue 16,201 465,180 2,332 483,713
Intra-group revenue 1 1,475 1,645 3,121
Revenue from external
customers 16,200 463,705 687 480,592
Adjusted EBITDA 1,222 (8,662) 491 (6,949)
Depreciation/amortization - 1,362 124 1,486
Impairment 90 276 8 374
The policies for recognition of revenue from intra-group sales and sales to external clients for the purposes of the reporting by segments do not differ from these applied by the Group for revenue recognition in the consolidated statement of profit and loss and other comprehensive income.
The Management of the Group evaluates the results of the performance of the segments based on the adjusted EBITDA[17]. In the calculation of the adjusted EBITDA the effect of the impairment of assets is not taken into account. The reconciliation of the adjusted EBITDA and the profit (loss) before tax is presented in the table below:
2018 2017
BGN'000 BGN'000
Adjusted EBITDA - reporting segments 5,715 (7,440)
Adjusted EBITDA - all other segments 543 491
Depreciation/amortization (931) (1,486)
Impairment (840) (374)
Finance income, net 51,190 9,498
Loss before tax 55,677 689
========= =========
6. Revenue from sales
2018 2017
BGN'000 BGN'000
Sales of goods 517,531 471,186
Sales of services 9,246 7,897
--------- ---------
526,777 479,083
========= =========
Revenue from sales of goods comprises, as follows:
2018 2017
BGN'000 BGN'000
Fuels 474,194 430,849
Lubricants and other goods 43,337 40,337
--------- ---------
517,531 471,186
========= =========
7. Other income
2018 2017
BGN'000 BGN'000
Gain on sale of property, plant and equipment,
including: 7,164 280
Income from sales 9,241 1,528
Carrying amount (2,077) (1,248)
Surpluses of assets 1,327 486
Penalties and indemnities 55 76
Insurance claims 47 67
Payables written-off 17 134
Other 485 466
--------- ---------
9,095 1,509
========= =========
8. Cost of goods sold
2018 2017
BGN'000 BGN'000
Fuels 432,223 390,011
Lubricants and other goods 36,006 33,439
--------- ---------
468,229 423,450
========= =========
9. Materials and consumables
2018 2017
BGN'000 BGN'000
Electricity and heating 2,134 2,043
Fuels and lubricants 467 381
Office consumables 434 418
Spare parts 350 454
Advertising materials 253 224
Working clothes 218 218
Water supply 133 137
Other 116 113
4,105 3,988
========= =========
10. Hired services
2018 2017
BGN'000 BGN'000
Rents 13,825 16,623
Commissions and fees 11,616 10,458
Maintenance and repairs 3,169 3,442
Consulting and training 2,106 1,907
Communications 827 830
Cash collection expense 774 774
Insurances 665 659
State, municipal fees and other costs 601 1,637
Security 544 827
Advertising 530 512
Software licenses 252 243
Transport 147 128
Other 696 664
--------- ---------
35,752 38,704
========= =========
Rental costs include BGN 11,225 thousand (2017: 13,914 thousand) for rent of petrol stations under operating lease agreements.
In 2018 the Group reports that the accrued considerations for independent financial audit services for the companies included in the consolidation for 2018 are at the amount of BGN 64 thousand (2017: BGN 66 thousand).
11. Personnel expenses
2018 2017
BGN'000 BGN'000
Wages and salaries 16,528 16,041
Social security contributions and benefits 2,796 2,707
--------- ---------
19,324 18,748
========= =========
12. Impairment losses
2018 2017
BGN'000 BGN'000
Recognised impairment loss on financial
assets, including: 877 586
Impairment loss on trade and other receivables 260 586
Impairment loss on loans granted 617 -
Reversed impairment loss on financial assets,
including: (37) (212)
Reversed impairment loss on trade and other
receivables (37) (212)
840 374
As at the end of the reporting period, the Management of the Group made a detailed analysis of the collectability of trade and other receivables, and receivables on interest-bearing loans granted. As a result of the analysis, it has identified that, there were indications for an impairment allowance on trade and other receivables at the amount of BGN 260 thousand and loans granted BGN 617 thousand (2017: trade and other receivables BGN 586 thousand) to be accrued.
The amount of the accrued impairment on trade receivables for 2018 and loans granted is due also to the appliance of the effected from January 1, 2018 new IFRS 9 - Financial Instruments. The effects from the appliance of the new standard are disclosed in note 2.8 Change in accounting policy in these financial statements.
13. Other expenses
2018 2017
BGN'000 BGN'000
Scrap and shortages 975 907
Entertainment expenses and sponsorship 408 985
Local taxes and taxes on expenses 380 448
Penalties and indemnities 305 90
Business trips 34 49
Written-off receivables - 72
Other 102 100
2,204 2,651
14. Finance income and costs
2018 2017
BGN'000 BGN'000
Finance income
Interest income, including 1,640 416
Interest income on loans granted 1,488 264
Interest income on trade receivables 151 147
Other interest income 1 5
Gain on sale of subsidiaries, incl.: 54,621 11,992
Revenue from sales 25 21,806
Carrying amount of the Group's interest
in the net assets of the subsidiaries 54,596 (9,814)
Net foreign exchange income 47 192
Revenue from compensations - 392
56,308 12,992
Financial costs
Interest costs, including: (2,860) (2,852)
Interest expenses on debenture loans (2,560) (2,536)
Interest expenses to the state budget (109) (158)
Interest expenses on bank loans (143) (130)
Interest expenses on trade loans (27) (15)
Interest expenses on trade and other payables (21) (13)
Revaluation of financial assets measured
at fair value through profit or loss (1,742) -
Bank fees, commissions and other financial
expenses (516) (642)
(5,118) (3,494)
Finance income (costs), net 51,190 9,498
The gain from disposal of subsidiaries at the amount of BGN 54,621 thousand is made in March 2018, when the Group has sold 100% of Elit Petrol's capital for BGN 25 thousand. As at the transaction date Elit petrol AD is sole owner of the capital of Varna Storage EOOD. The consolidated net assets of both companies are negative amounting to BGN 54,596 thousand.
15. Taxation 15.1. Tax expenses
Tax expense recognised in profit or loss includes the amount of current and deferred income tax expenses in accordance with IAS 12 Income taxes.
2018 2017
BGN'000 BGN'000
Current tax expense - 44
Change in deferred tax, including: (252) (732)
Temporary differences recognised during
the year (46) 163
Temporary differences arisen during the
year (208) (152)
Adjustments in temporary differences 2 (743)
Tax income (252) (688)
======== ========
15.2. Effective tax rate
The reconciliation between the accounting profit (loss) and tax expense, as well as calculation of the effective tax rate as of December 31, 2018 and 2017 is presented in the table below:
2018 2017
BGN'000 BGN'000
Profit (loss) before tax for the year 55,677 689
Applicable tax rate 10% 10%
Tax expense (benefit) at the applicable
tax rate 5,568 69
Tax effect of permanent differences 101 42
Tax adjustments for prior periods 2 743
Tax effect from consolidation adjustments (5,923) (1,542)
--------
Tax income (252) (688)
Effective tax rate - -
The respective tax periods of the Group may be subject to inspection by the tax authorities until the expiration of 5 years from the end of the year in which a declaration was submitted, or should have been submitted. Consequently additional taxes or penalties may be imposed in accordance with the interpretation of the tax legislation. The Group's management is not aware of any circumstances, which may give rise to a contingent additional liability in this respect.
In January 2017, the Parent company received a tax audit assessment on corporate tax revision for 2013 and VAT until October 2014 amounting to BGN 222 thousand principal and BGN 68 thousand interest. A bank guarantee of BGN 350 thousand was issued in order to ceased the execution of the appealed audit act in January 2017 (see also note 35).
In March 2017, the Parent company received a tax audit act due to the audit of corporate income tax for 2014 and VAT until June 2015 for BGN 663 thousand principal and BGN 138 thousand interest. The tax assessment is in process of being appealed. In order to suspend the enforcement of the appealed audit assessment, ordered by the Parent company, a bank guarantee in favor of National Revenue Agency for BGN 940 thousand was issued. The bank guarantee is partly covered by BGN 300 thousand cash.
In August 2017 the Director of "Appealing and tax-security practice" department issued a decision which change the appealed revision act of the Parent company on corporate income tax for 2014 and VAT until June 2015 and reduce the additional tax liabilities from BGN 663 thousand to BGN 65 thousand principal and from BGN 138 thousand to BGN 15 thousand interest. The issued bank guarantee to suspend the enforcement of the appealed audit assessment in favor of the National Revenue Agency of BGN 940 thousand, partly secured by BGN 300 thousand blocked cash, was replaced with new bank guarantee of BGN 94 thousand and the blocked cash was released. The rest of the decreased tax liabilities was appealed in court in higher judicial body. As a result in February 2019 following the final decision of Supreme Administrative Court (SAC) the court proceeding was partly won and the liabilities according to tax assessment reduced to BGN 13 thousand principal, related to additional VAT and BGN 5 thousand accrued interest. As at the date of preparation of these consolidated financial statements the liability is fully paid and the bank guarantee released and given back by National Revenue Agency (NRA). The liabilities are accounted as correcting events as at December 31, 2018 and are recognised in the result for 2018.
In November 2017 the issued tax assessment from March 2016 on the security contributions tax audit for BGN 543 thousand principal and BGN 248 thousand interest, appealed entirely by the Parent company as unjustified and secured by a bank guarantee of BGN 800 thousand, was entirely repealed due to decision of Administrative Court - Sofia city. The tax administration appealed the decision and SAC repealed the decision of AC - Sofia city and returned the court proceeding to the initial judicial body for new examination.
15.3. Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities were recognized in respect of the following positions:
Recognised Asset (liability) Recognised Recognised Asset
in profit as at December in equity in profit (liability)
Asset (liability) and loss 31, 2017 and loss as at
as at January December
1, 2017 31, 2018
BGN'000 BGN'000 BGN'000 BGN'000 BGN'000 BGN'000
Property, plant
and equipment (303) 19 (284) - 86 (198)
Impairment of
assets 3,236 583 3,819 242 131 4,192
Tax loss carry-forwards 2 22 24 - 15 39
Provisions for
unused paid leave
and other provisions 74 15 89 - 16 105
Excess of interest
payments in accordance
with CITA 1 1 - 2 3
Other temporary
differences, including
unpaid benefits
to individuals 26 17 43 - 2 45
3,035 657 3,692 242 252 4,186
The Company has the right to carry forward deferred tax assets on tax losses until 2023.
15.4. Unrecognized deferred tax assets
As of December 31, 2018 the Group's Management reviews the recoverability of deductible temporary differences and tax loss carry forward, forming tax assets. Because of this review, the Group's Management estimates that there might be no sufficient taxable profits in the near future against which the assets will be utilized. Consequently, the Group does not recognize tax assets on the following deductible temporary differences and tax loss carry forward and impairment of assets, incurred during the current and previous reporting periods.
16. Property, plant, equipment and intangible assets
Land Buildings Plant Vehicles Other Assets Intangible Total
and under assets
equipment constr.
BGN'000 BGN'000 BGN'000 BGN'000 BGN'000 BGN'000 BGN'000
BGN'000
Cost
Balance at
January 1,
2017 9,315 10,454 22,071 690 3,468 65 3,503 49,566
Additions 2,066 - 258 - 238 162 32 2,756
Transfers - - 18 - 22 (40) - -
Disposals (172) - (318) (118) (171) (48) (52) (879)
Disposals
on sale of
subsidiaries (3,573) (3,790) (10,872) - (1,803) (46) - (20,084)
Balance at
December
31, 2017 7,636 6,664 11,157 572 1,754 93 3,483 31,359
Additions 26 - 363 - 71 451 163 1,074
Transfers - 32 121 - 182 (335) - -
Disposals (704) (665) (893) - (202) (24) (86) (2,574)
Balance at
December
31, 2018 6,958 6,031 10,748 572 1,805 185 3,560 29,859
Accumulated
depreciation
Balance at
January 1,
2017 - 5,655 13,855 660 3,161 - 4,040 27,371
Accumulated - 335 874 3 200 - 27 1,439
Disposals
for the year - - (298) (100) (162) - (52) (612)
Disposals
on sale of
subsidiaries - (1,646) (5,892) - (1,464) - - (9,002)
Balance at
December
31, 2017 - 4,076 7,946 560 970 - 3,409 16,961
Accumulated - 201 491 - 141 - 55 888 Disposals for the year - (506) (781) - (169) - (32) (1,488) Balance at December 31, 2018 - 3,771 7,656 560 942 - 3,432 16,361 Carrying amount at January 1, 2017 9,315 5,067 8,809 33 1,072 65 69 24,430 Carrying amount at 31 December 31, 2017 7,636 2,588 3,211 12 784 93 74 14,398 Carrying amount at December 31, 2018 6,958 2,260 3,092 12 863 185 128 13,498
In 2017 due to disposal of subsidiaries, property, plant and equipment with carrying amount of BGN 11,082 thousand are written off from the consolidated report of the Group.
As at December 31, 2018 property, plant and equipment with carrying amount of BGN 13,490 thousand (2017: BGN 8,322 thousand) were mortgaged and pledged as collaterals for bank loans granted to the Parent company and unrelated parties under bank guarantee agreement and bank loans.
The under construction assets include mainly accrued expenses related to the reconstruction of trade sites.
Management's impairment tests on property, plant and equipment, confirm that there is no evidence or circumstances indicating a sustained decline in the carrying amounts of assets, which recoverable amount significantly differs from their carrying amount.
17. Investment property
December December
31, 31,
2018 2017
BGN'000 BGN'000
Cost
Balance at the beginning of the year 1,859 1,835
Acquisitions 24 24
Acquisitions through business combinations - -
Balance at the end of the year 1,883 1,859
Accumulated depreciation
Balance at the beginning of the year 47 -
Depreciation for the year 43 47
Balance at the end of the year 90 47
Carrying amount at the beginning of the
year 1,812 1,835
Carrying amount at the end of the year 1,793 1,812
Investment property representing land and building were acquired through business combination in December 2016. The carrying amount of the investment property as at December 31, 2018 and 2017 is a maximum approximation of their fair value. The Group determines the fair value of the investment property for reporting purposes, using a valuation report of independent appraiser, which is calculated by method of net assets value and discounted free cash flows.
18. Goodwill
December December
31, 31,
2018 2017
BGN'000 BGN'000
Cost 19,827 2,005
Impairment loss - (1,965)
19,827 40
========= =========
In March 2018 the Group entered into a contract for purchase of 1,873,700 shares, representing 100% of the capital of Varna Storage EOOD. The recognised goodwill arising from the acquisition is at the amount of BGN 19,787 thousand.
The goodwill, arising from the acquisition of Elit Petrol AD at the amount of BGN 1,965 thousand is impaired in previous periods and written-off in 2018 when the company was sold.
A goodwill was recognised in previous periods for Petrol Technologies OOD acquisition - BGN 3 thousand, Storage Invest EOOD and Storage Oil EAD - BGN 8 thousand and Lozen Asset AD - BGN 29 thousand.
19. Inventory
December December
31, 31,
2018 2017
BGN'000 BGN'000
Goods, including: 23,374 20,361
Fuels 15,324 12,581
Lubricants and other goods 8,050 7,780
Materials 603 629
---------
23,977 20,990
In 2018 the Group pledged goods in turnover, representing oil products with carrying amount of BGN 2,419 thousand as at December 31, 2018.
20. Non-current assets held for sale
December December
31, 31,
2018 2017
BGN'000 BGN'000
Non-current assets held for sale incl.: 3,459 42
Land 2,379 34
Buildings 695 8
381 -
4 -
3,459 42
During the reporting period, the Group has acquired trade sites - petrol stations and storage facilities on purpose to sell them. In the period, ending on December 31, 2018 such assets with carrying amount of BGN 1,078 thousand have been purchased and sold.
21. Loans granted
December December
31, 31,
2018 2017
BGN'000 BGN'000
Loans granted to unrelated parties, including 22,124 18,894
Initial value 66,500 60,048
Allowance for impairment (44,376) (41,154)
22,124 18,894
In February 2018, the Group granted a cash loan to unrelated party at the amount of BGN 2,000 thousand at 6.7% interest and refund period until December 31, 2018. With annexes from the end of 2018 the credit limit was increased up to BGN 3,500 thousand and the term of loan was prolonged to December 31, 2019. As at December 2018, the receivables on principal and interest under this loan are at the amount of 2,174 thousand, 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. As at December 31, 2018 the Group reported under this loan BGN 826 thousand principal receivables.
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. As at December 31, 2018 the granted funds under this contract were principal of BGN 264 thousand and interest of BGN 7 thousand.
In May 2018 unrelated party repaid the outstanding amount of BGN 148 thousand under trade loan, granted on April 19, 2017 with credit limit of BGN 1,180 thousand. The loan was fully repaid.
In August 2017, the Group signed two granting money 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. As at December 31, 2018 the carrying amounts of the receivables are BGN 4,119 thousand and BGN 500 thousand, respectively.
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 and term until December 31, 2019. As at December 2018 the contracted amount was entirely granted.
In December 2017, the Group signed a contract for granting money, which requires the Group to grant interest bearing trade loan up to BGN 3,000 thousand to unrelated party with 6.7% annual interest and term until December 31, 2019. As at December 31, 2018 the contracted amount was entirely granted.
In 2017 the Group sold to third parties its investment in two subsidiaries - BPI AD and Petrol Gas EOOD, resulting to the recognition, of loans granted to unrelated parties with total carrying amount, net of impairment of BGN 155 thousand as at December 31, 2017.
As at December 31, 2018 and 2017 the receivables on trade loans granted and due interest of BGN 32,063 thousand from a Controlling company until November 2013 are fully impaired due to insolvency proceedings and difficult collection.
The Management has performed an analysis of loans granted in order to determine their fair values and their respective level in the fair value hierarchy. The Management of the Group considers that the carrying amounts of the granted loans in the consolidated statement of financial position are reasonable approximations of their fair value as at December 31, 2018 and 2017 within Level 3 category.
22. Trade and other receivables
December December
31, 31,
2018 2017
BGN'000 BGN'000
Non-current receivables
Guarantees granted 95 95
95 95
Current receivables
Receivables from clients, including 25,527 24,198
Initial value 26,664 25,540
Allowance for impairment (1,137) (1,342)
Receivables under cession agreements, assumption
of debt and regress 6,725 4,550
Initial value 8,129 68,183
Allowance for impairment (1,404) (63,633)
Financial assets, measured at fair value 2,285 -
through profit or loss
Guarantees for participation in tender procedures 921 886
Deferred expenses 411 1,528
Tax refundable, incl.: 93 50
VAT 93 45
Other taxes - 5
Advances granted, including 92 329
Initial value 168 405
Allowance for impairment (76) (76)
Litigations and writs - 189
Initial value 10 210
Allowance for impairment (10) (21)
Other 894 1,003
Initial value 951 1,068
Allowance for impairment (57) (65)
--------- ---------
36,948 32,733
--------- ---------
37,043 32,828
========= =========
In accordance with the established policy, the Group provides its clients a credit period, after which an interest for delay is charged on the unpaid balance. An interest for delay is provided for in every particular contract. As at the end of every reporting period the Group carries out a detailed review and analysis of the significant due trade receivables and the assessed as uncollectible are impaired. All other unsecured trade receivables, usually due with more than 365 days, are impaired because the historical experience show that such receivables are non-recoverable.
The adoption of IFRS 9 changed in essence the accounting of impairment losses of the financial assets by the Group, replacing the approach of the accrued losses according to IAS 39 with the more oriented to future model of expected credit losses (expected credit losses). IFRS 9 requires the Group to recognize a provision for the expected credit losses for all debt instruments, which are not measured at fair value in profit or loss and for contract assets.
Following the adoption of IFRS 9 the Group has recognised an additional impairment of the trade receivables amounting to BGN 67 thousand, which lead to decrease in retained earnings.
The Management performed an analysis of the trade receivables in order to determine their fair values and their level in the fair value hierarchy. The Management considers that the carrying values of the trade and other receivables in the consolidated statement of financial position are reasonable approximations of their fair value as at December 31, 2018 and 2017 within Level 3 category.
The Group considers that unimpaired overdue receivables are collectible based on historical information about payments, guarantees received and a detailed analysis of the credit risk and collaterals of its customers.
The Group's exposure to credit and currency risk and impairment losses, related to trade and other receivables, is disclosed in note 31.
23. Cash and cash equivalents
December December
31, 31,
2018 2017
BGN'000 BGN'000
Cash in transit 2,713 3,946
Cash at banks 1,476 3,047
Cash on hand 76 92
Cash and cash equivalents in Statement of
Cash Flows 4,265 7,085
Blocked cash - 186
--------- ---------
Cash and cash equivalents in the Statement
of Financial Position 4,265 7,271
========= =========
Cash in transit comprises cash collected from fuel stations as at the end of the reporting period, but actually received in the bank accounts of the Group in the beginning of the next reporting period. The amounts presented as blocked cash as at December 31, 2017 in Cash and Cash Equivalents amounting to BGN 186 thousand held at a bank account that was blocked as a bank guarantee under a bank loan agreement to serve as a security for a public tender participation of the Group under Public Procurement Act, are released in 2018.
24. Registered capital
The Group's registered capital is presented at its nominal value. The registered capital of the Group represents the registered capital of the Parent company Petrol AD.
As at December 31, 2018 and 2017 the shareholders in the Parent company are as follows:
Shareholder December December
31, 31,
2018 2017
Alfa Capital AD 28.85% 28.85%
Yulinor EOOD 23.11% 23.11%
Perfeto consulting EOOD 16.43% 16.43%
Correct Pharm EOOD 10.98% 10.98%
Trans Express Oil EOOD 9.86% 9.86%
Corporate Commercial Bank AD 5.51% 5.51%
VIP Properties EOOD 2.26% 2.26%
The Ministry of Economy of the Republic
of Bulgaria 0.65% 0.65%
Other minority shareholders 2.35% 2.35%
100.00% 100.00%
The Management of the Parent company has undertaken series of measures in order to optimize the capital adequacy of the company. As a result of the several General Meetings of Shareholders held during the period 2016 - 2017 was voted a decision for reverse split procedure for merging 4 old shares with nominal of BGN 1 into 1 new share with nominal of BGN 4 and subsequent decrease of capital of the Parent company in order to cover losses by decreasing the nominal value of the shares from BGN 4 to BGN 1. In March 2018 following a decision of the Lovech Regional Court, which cancelled the refusal of the Commercial Register (CR) to register the decision taken on EGMS for merging of 4 old shares with BGN 1 nominal in 1 new share with BGN 4 nominal. The submitted change was registered in Commercial Register and the registered capital of the Parent company of BGN 109,249,612 was distributed in 27,312,403 shares with nominal of BGN 4 each. The change in capital structure was registered also in the register of Central Depository AD. The Central Depository 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 EGMS 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 of the application for registration of the decision in CR was enacted, 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. (see also note 35).
Profit (loss) per share
The profit (loss) per share is calculated by dividing the net loss for the period by the weighted average number of ordinary shares held during the reporting period.
December December
31, 31,
2018 2017
Weighted average number of shares 27,312 107,680
Profit (loss) (BGN'000) 55,929 1,377
Profit (loss) per share (BGN) 2.05 0.01
The weighted average number of shares in circulation in 2018 and 2017 is as follows:
December December
31, 31,
2018 2017
Number of shares at the beginning of the
year 109,250 106,482
Effect from redeemed (sold) own shares - 1,198
Effect from merging the nominal value of
shares (81,938) -
Weighted average number of shares 27,312 107,680
25. Loans and borrowings
December December
31, 31,
2018 2017
BGN'000 BGN'000
Non-current liabilities
Debenture loans 36,704 36,353
Loans from financial institutions 8,767 1,791
45,471 38,144
Current liabilities
Debenture loans 2,040 1,870
Loans from financial institutions 524 578
Trade loans from unrelated parties 194 1,030
2,758 3,478
48,229 41,622
Additional information about the interest, currency and liquidity risk, to which the Group is exposed as a result of the loans received, is disclosed in note 31.
25.1. Debenture loans
In October 2006, the Parent company issued 2,000 registered transferable bonds with fixed annual interest rate of 8.375% and issue value 99.507% of the face value, which is determined at EUR 50,000 per bond. The principal is due in one payment at the maturity date. The bond term is 5 years and the maturity date is in October 2011. At the general meetings of the bondholders conducted in October and December 2011, it was decided to extend the term of the issue until January 26, 2017. On December 23, 2016, a procedure of extension of the bond issue to 2022 and reduction of the interest rate in the range from 5.5% to 8% was successfully completed.
After the prolongation of the debenture loan, the annual effective interest rate is 6.78%. The purpose of the bond issue is to provide funds for working capital, investment projects financing and restructuring of the previous debt of the Group.
The debenture loan liabilities are presented in the statement of financial position at amortised cost.
As at the date of these financial statements the nominal value of the debenture loan is EUR 18,659 thousand and the fair value is BGN 34,769 thousand (2017: BGN 34,264 thousand), estimated at interest rate 15.20% (2017: 13.43%).
25.2. Loans from financial institutions
In July 2016, the Parent company entered into an investment loan agreement, prepaying the liabilities on finance lease contract from November 2015. Collateral of the loan is mortgage of property, acquired through finance lease and pledge of receivables. The term of the contract is May 2022 and the contracted interest rate is 3mEuribor+5.25%. As at December 31, 2018 the liabilities under the bank loan amounting to BGN 524 thousand current liabilities and BGN 1,267 thousand non-current liabilities.
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 as Savings-based interest rate (SIR) plus added amount of 6,1872 points, but cumulatively not less than 6.5% annually. The credit is secured with a special pledge of its goods in turnover at the amount of BGN 2,419 thousand, representing oil products and with 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 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, 2018 and special pledge on goods in turnover, representing oil products with book value of BGN 2,419 thousand as at December 31, 2018.
25.3. Trade loans from unrelated parties
The Group sold to third parties its interest in Gryphon Power AD in 2017, resulting to a recognition, in the current consolidated financial report, of liabilities on loans received from unrelated parties with total carrying amount as at December 31, 2018 and 2017 of BGN 194 thousand and BGN 365 thousand, respectively.
26. Obligation for defined benefit retirement compensations
As at December 31, 2018, the Group accrued obligation for defined benefit retirement compensations amounting to BGN 553 thousand. The amount of the liability is determined based on an actuarial valuation, based on assumptions for mortality, disability, employment turnover, salary increases, etc.
The present value of the liability is calculated using a discount factor of 1.25% (2017: 2.0%) and increase of the expected salary by 4% (2017: between 2% and 4%).
The demographic assumptions are related to the likelihood individuals to leave the plan before retirement due to various reasons: withdrawal, staff reduction, illness, death, disability, etc. They are based on a statistical information about the population and are attached to the staff structure by gender and age at the time of the assessment.
The amount of the obligation for defined benefit retirement compensations is determined as follows:
December December
31, 31,
2018 2017
BGN'000 BGN'000
Present value of defined benefit obligations
at January 1 441 340
Benefits paid by the plan (46) (16)
Past service cost 26 -
Current service cost 93 88
Interest cost 5 7
Expenses recognized in profit or loss 124 95
Remeasurements of defined benefit retirement
compensations recognised in other comprehensive
income 14 22
Present value of defined benefit obligations
at December 31 533 441
27. Trade and other payables
December December
31, 31,
2018 2017
BGN'000 BGN'000
Payables to suppliers 44,680 40,817
Tax payables, including 6,858 6,005
Excise duty and other taxes 5,922 5,922
VAT 83 1,684
Obligations under cession agreements and
regress 5,606 39,942
Payables to personnel and social security
funds 2,360 2,140
Advances received and deferred income 1,339 2,108
Payables to related parties 12 -
Other 989 998
61,844 92,010
As at December 31, 2017 the obligations under cession agreements and regress comprise Group's liabilities to unrelated parties under contracts for acquisition of receivables, on which corrections related to subsequent events and litigations were possible. During the current reporting period the Parent company has sold its investment in a subsidiary - debtor and the possible risk to the Group has been eliminated.
The Group accrues unused paid leave provision of employees in compliance with IAS 19 Employee Benefits. The movement of these provisions for the period is as follows:
December December
31, 31,
2018 2017
BGN'000 BGN'000
Balance at the beginning of the year 429 359
Accrued during the year 415 372
Utilised during the year (344) (302)
Balance at the end of the year, including: 500 429
Paid leaves 422 362
Social security on paid leaves 78 67
The balance at the end of the year is presented in the consolidated statement of financial position together with current payable to personnel.
The Management performed an analysis of trade payables in order to determine their fair values and their level in the fair value hierarchy. The Management of the Group considers that the carrying amounts of the current payables in the consolidated statement of financial position are reasonable approximations of their fair value as at December 31, 2018 and 2017 within Level 3 category.
The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in note 31.
28. Current income tax
December December
31, 31,
2018 2017
BGN'000 BGN'000
Income tax payable at the beginning of the
year 56 368
Corporate income tax accrued - 44
Corporate income tax paid (56) (285)
Disposals on business combinations - (70)
Other variations incl. corporate income
tax offset - (1)
Refundable corporate income tax at the end
of the year - 56
29. Subsidiaries
The subsidiaries, included in the consolidation, over which the Group has control as of December 31, 2018 and 2017 are as follows:
Subsidiary Main activity Investment Investment
at December at December
31, 2018 31, 2017
Petrol Properties Trading movable and immovable
EOOD property 100% 100%
Trade with oil and oil
Varna Storage EOOD products 100% 100%
Petrol Finance Financial and accounting
EOOD services 100% 100%
Elit Petrol -Lovech Trade with oil and oil
AD products 100% 100%
Acquisition, management
Lozen Asset AD and exploitation of property 100% 100%
Production and trading
with goods and services,
Storage Invest investments and intermediary
EOOD activities 100% 100%
Processing and trading
Storage Oil EAD with oil and oil products 100% 100%
Petrol Finances Financial and accounting
OOD services 99% 99%
Petrol Technologies
OOD IT services and consultancy 98,80% 98,80%
Management, leasing and
Elit Petrol AD sale of real estate - 100%
30. Acquisition and sale of subsidiaries and non-controlling interest
30.1. Acquisition of subsidiaries
Acquired subsidiaries during the year ended December 31, 2018 (excluding established via in-kind contributions and additional cash contributions)
Subsidiary Main activity Investment Increase Transferred
as at December during consideration
31, 2018 the period BGN'000
Trading with petrol
Varna Storage and petroleum
EOOD products 100% 100% 6,500
6,500
Acquired subsidiaries during the year ended December 31, 2017 (excluding established via in-kind contributions and additional cash contributions)
Subsidiary Main activity Investment Increase Transferred
as at December during consideration
31, 2017 the period BGN'000
Production and
trading with goods
and services,
Storage Invest investments and
EOOD intermediary activities 100% 100% 33
Processing and
trading with petrol
Storage Oil and petroleum
EAD products 100% 100% -
33
30.2. Acquired assets and recognised liabilities as at date of acquisition
Acquired in the year ended December 31, 2018
Varna Storage
EOOD
Non-current assets 15
Current assets
Trade and other receivables 6,786
Loans granted 24
Cash and cash equivalents 16
Total current assets 6,826
Total assets 6,841
Non-current liabilities
Defined benefits obligations 44
Total non-current liabilities 44
Current liabilities
Trade and other liabilities 19,407
Loans 677
Total current liabilities 20,084
Total liabilities 20,128
Net assets (13,287)
As at the acquisition date the assets and liabilities are stated at fair value evaluated by licensed appraiser. According to the valuation report a difference between the carrying value and fair value is identified only in property, plant and equipment.
30.2. Acquired assets and recognised liabilities as at date of acquisition
Acquired in the year ended December 31, 2017
Storage
Invest EOOD
Storage
Oil EAD
BGN'000
Current assets
Inventory 1
Cash 34
Total current assets 35
Total assets 35
Total liabilities
Trade and other liabilities 10
Total liabilities 10
Net assets 25
30.3. Goodwill arising in acquisition
For acquisitions during the year ended December 31, 2018 a goodwill is recognised as follows:
Varna
Storage
EOOD
BGN'000
Transferred consideration 6,500
Fair value of the net assets as at the date
of acquisition by the Group 13,287
Goodwill 19,787
========
For acquired subsidiaries during the year ended December 31, 2017 a goodwill is recognised as follows:
Storage
Invest
EOOD
Storage
Oil EAD
BGN'000
Transferred consideration 33
(-) Fair value of the net the assets as at
the date of acquisition by the Group (25)
Goodwill 8
========
30.4. Net cash flows from acquisition of subsidiary
The consideration of BGN 6500 thousand for the acquisition of Varna Storage EOOD in 2018 was settled against opposite receivables of the Group from the seller company and cash of BGN 16 thousand was acquired.
In 2017 for the acquisition of Storage Invest EOOD and Storage Oil EAD are paid BGN 33 thousand and are acquired BGN 34 thousand cash. Net cash acquired of BGN 1 thousand is recognised in the consolidated statement of cash flows.
30.5. Acquisition of non-controlling interest
The following table summarizes changes in the non-controlling interest in 2018 and 2017:
Financial Non-controlling Non-controlling
result interest interest
for the
year
BGN'000 % BGN'000
Non-controlling interest as of January
1, 2017 10
Share of Non-controlling interest
in
total comprehensive income
Petrol Finances OOD (25) 1% -
Petrol Technologies OOD (19) 1,2% -
Petrol Finance EOOD - 1% -
Non-controlling interest as at December
31, 2017 10
The share of non-controlling interest
in total comprehensive income
Petrol Finances OOD 15 1% -
Petrol Technologies OOD (80) 1,2% (1)
Petrol Finance EOOD - 1% -
Non-controlling interest as at 31
December, 31 2018 9
30.6. Disposal of interest in a subsidiary
Disposal of interest in subsidiaries in 2018:
In March 2018 the Group sold 100% of the capital of Elit Petrol AD for BGN 25 thousand. As at the transaction date Elit Petrol AD was a sole owner of the capital of Varna Storage EOOD. The consolidated net assets of both companies are negative at the amount of BGN 54,596 thousand. The result from the sale is a profit of BGN 54,621 thousand.
Disposal of interest in subsidiaries in 2017
In November 2017, the Group sold 100% of its interest in Gryphon Power AD to third party for BGN 21,800 thousand consideration. As at the transaction date, the consolidated net assets of the sold company were at the amount of BGN 10,891 thousand. Pursuant to the sale, the Group reported BGN 10,909 thousand profit.
In December 2017, the Group sold 100% of the capital in BPI AD for BGN 4 thousand. As at the transaction date the consolidated net assets are negative at the amount of BGN 1,087 thousand and the result of the sale is a profit of BGN 1,091 thousand.
In December 2017, the Group sold to third party 100% of the capital of Petrol Gas EOOD for BGN 2 thousand. As at the transaction date the consolidated net assets are at the amount of BGN 10 thousand. The result from the sale is a loss of BGN 8 thousand.
Disposal of interest in subsidiaries during previous years
In December 2015 a contract with notarized signatures, whereby Petrol AD transferred to a company outside the Group 100% of Naftex Petrol EOOD's equity shares against BGN 1. Changing the sole owner of Naftex Petrol EOOD is filed timely for entry in the Commercial register at the Registry Agency, but has not been recorded because of incompleteness in the documents attached to the application. However, since the contract, as at December 2015, has been concluded properly according to the prescribed by the Commercial Code form, it raises legal action between the parties involved, due to which Petrol AD is no longer the sole shareholder of Naftex Petrol EOOD. Consequently, it is accepted that the Group has lost control and assets and liabilities of the subsidiary were written off and the gain was recognized resulting from the loss of control in the consolidated statement of profit or loss and other comprehensive income. As at the transaction date the consolidated net assets of the subsidiary amounted to BGN (314,452) thousand. The result of the sale of the Group was a profit amounted to BGN 314,452 thousand.
In March 2016, the change of the sole owner of Naftex Petrol EOOD has been repeatedly applied for registration with the Commercial Register when a completed set of documents as instructed by the officials has been submitted. The registration was suspended by the court because of a request by a shareholder of the Parent company, on the grounds that the sale contract was challenged in court because executives were not authorized to conclude the agreement by the general meeting of the company contrary to the provisions of POSA. Before the conclusion of the transaction, it was thoroughly checked for compliance with the law and that fall below the thresholds for convening the General Meeting pursuant to Art. 114 of the POSA as documents proving this circumstance are duly implemented in the Commercial Register with the application for registration of the change of the sole owner of the company. For these reasons, the Management of Petrol AD considers that the claim was unfounded and after a judgment in favor of Petrol AD, a sale of shares will be recorded in the register.
31. Financial instruments and risk management 31.1. Accounting classifications and fair values
The table shows the transmission and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Not included information about the fair values of these short-term financial instruments that management believes that the carrying value in the consolidated statement of financial position is a reasonable approximation of fair value.
December 31, 2018 Financial assets and liabilities Fair value
BGN'000 level
3
Debt At fair Liabilities Total
instruments value at amortised
at amortised through cost
cost profit
or loss
Financial assets
Loans granted, net 22,124 - - 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 - 2,285 - 2,285 2,285
-------------- --------- -------------- --------- -----------
60,437 2,285 - 62,722 24,409
============== ========= ============== ========= ===========
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)
============== ========= ============== ========= ===========
December 31, 2017 Loans Other Total Fair value
BGN'000 and receivables financial level
granted liabilities 3
Financial assets
Loans granted, net 18,894 - 18,894 18,894
Trade and other receivables,
net 30,714 - 30,714 -
Cash and cash equivalents 7,271 - 7,271 -
----------------- ------------- ---------- -----------
56,879 - 56,879 18,894
----------------- ------------- ---------- -----------
Financial liabilities
Trade and other liabilities - (68,919) (68,919) -
Loans and borrowings - (41,622) (41,622) (37,663)
----------------- ------------- ---------- -----------
- (110,541) (110,541) (37,663)
================= ============= ========== ===========
31.2. Measurement of fair values
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 interests and penalties due;
-- revaluation of payables in foreign currencies at rates as at the date of the financial statements.
Receivables and payables in relation with trade loans
Fair values of received and granted trade loans are determined for the purposes of disclosure and are calculated on the basis of the present value of future cash flows of principals and interest discounted at a market interest rate as at the date of the financial statements.
31.3. Financial risk management 31.3.1. Risk management framework
The use of financial instruments exposes the Group to market, credit and liquidity risk. In the present note information about the purposes, policies and procedures in risk management and equity management is presented.
As a result of the global financial and economic crisis, the Bulgarian economy has been experiencing a continuing decline in its development which affects a wide range of industries. This leads to a noticeable deterioration in cash flows and reduction in income and eventually - to a significant deterioration of the economic environment in which the Group operates. In addition, there is a significant increase in price risk, market risk, credit risk, liquidity risk, interest rate risk, operating risk and other types of financial risks, which the Group is exposed to.
As a result, there has been an increase in uncertainty about the customers' ability to repay their obligations in accordance with the agreed terms. Therefore, the amount of impairment losses on loans granted, sales receivables and on the values of other accounting estimates, might differ substantially in future reporting periods from the reported ones in these consolidated financial statements. The Management of the Group applies the necessary procedures to manage these risks.
31.3.2. 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, 2018 December 31, 2017
USD'000 BGN'000 USD'000 BGN'000
Financial assets
Cash and cash equivalents 7 12 7 11
7 12 7 11
========= ========= ========= =========
Financial liabilities
Trade and other payables - - (727) (1,186)
- - (727) (1,186)
========= ========= ========= =========
The sensitivity analysis to currency risk is calculated based on 7% 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 as at December 31, 2018 the rate of the US dollar had decreased/increased by 7% assuming that all other variables remained constant, loss after tax would have increased/decreased by BGN 1 thousand.
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 December
31, 31,
2018 2017
BGN'000 BGN'000
Instruments with fixed interest rate
Financial assets 20,560 18,668
Financial liabilities (36,890) (36,704)
--------- ---------
(16,330) (18,036)
========= =========
Instruments with variable interest rate
Financial liabilities (9,291) (2,359)
--------- ---------
(9,291) (2,359)
========= =========
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 nine basis points. If the interest rates were higher/lower by nine basis points, and all other variables were constant, the loss after tax would have been lower/higher by BGN 7 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 2018, the Group held comparatively high inventory turnover. For approximately 18 days the inventory makes a whole cycle, which reduces the Group's price risk exposure.
31.3.3. 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 available-interest loans.
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 December
31, 31,
2018 2017
BGN'000 BGN'000
Loans granted 22,124 18,894
Trade and other receivables 36,333 30,714
Cash and cash equivalents 4,189 7,179
62,646 56,787
========= =========
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 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:
31 December December
31, 31,
2018 2017
BGN'000 BGN'000
Up to 30 days 1,746 743
31 - 120 days 1,709 291
121 - 210 days 590 187
Over 211 days 6,991 3,918
------------ ---------
11,036 5,139
============ =========
Cash and cash equivalents
Cash and cash equivalents of the Group are located in banks with high ratings.
31.3.4. 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 through the use of 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, 2018 Carrying Contractual Up to Between
BGN'000 amount cash flows one year 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 loan from unrelated
parties 194 194 194 -
Trade and other payables 51,261 51,261 51,261 -
99,490 107,248 54,019 53,229
========= ============ ==========
December 31, 2017 Carrying Contractual Up to Between
BGN'000 amount cash flows one year one and
five
years
Debentures 38,223 46,713 2,190 44,523
Loans from financial
institutions 2,369 2,369 578 1,791
Trade loan from unrelated
parties 1,030 1,030 1,030 -
Trade and other payables 68,919 68,919 68,919 -
110,541 119,031 72,717 46,314
========= ============ ==========
The Group does not expect cash flows included in the table to occur significantly earlier or at significantly different amounts.
32. 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, 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 reduction of the registered capital bellow the net assets of the Parent company. Holding of an Extraordinary General Meeting of Shareholders (EGMS) in November 2016, where a proposal for reverse split (merging) of 4 old shares with nominal value of BGN 1 to 1 share with nominal value of BGN 4 was voted, is the first step in this direction. As a result the number of the issued shares will decrease from 109,249,612 shares to 27,312,403 new shares maintaining the value of the registered capital to BGN 109,249,612. The registration of the decision of the EGMS in the Commercial Register of the Parent company's account was suspended by the court upon request of a shareholder.
In February 2017, continuing the measures for capital adequacy of the Group, the Management Board of the Parent company convened new Extraordinary General Meeting of Shareholders (EGMS) with a decision agenda for reverse split of shares. EGMS was held with 77,951,767 presenting shares, representing 71,36% of the registered capital, where 71,937,309 shares representing 65,85% (over 2/3 of the presenting shares) were voted "For" the reverse split procedure.
In May 2017 was hold next EGMS when decision for reduction of capital from BGN 109,249,612 to BGN 27,312,403 by decrease of nominal value of the issued shares from BGN 4 to BGN 1 was voted. The decision is conditional upon the decision of the EGMS concerning the procedure of reverse split, which should be confirmed by final entered into force court decision.
In October 2017 was hold a new EGMS where a decision repealing the decisions taken on meetings hold in February and May 2017 was voted. On the same meeting, a new decision for reverse split procedure by merging 4 old shares with nominal of BGN 1 in 1 new share with nominal 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. In December 2017, an application for registration in Commercial Register of the change in nominal value and number of shares was applied, which was refused by the CR. The Parent company appealed the refusal. In March 2018, following the decision of Lovech Regional Court, which cancelled the refusal of the Commercial Register for registration of the decision taken on EGMS for merging 4 old shares with nominal of BGN 1 into 1 new share with nominal of BGN 4, the applied change was registered in Commercial Register. As a result of that the registered capital of the Parent company amounting to BGN 109,249,612, distributed in 27,312,403 shares with nominal of BGN 4 each. The change in the structure of capital was registered in the register of Central Depository AD. The Commercial Register enacted a refusal on the applied in April 2018 application for registration of the decision of EGMS for the second stage of the procedure, which to decrease the capital of the Parent company by reducing the nominal value 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. (see also note 35).
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 ratios, which give an information about the financial position of the Group are disclosed in Selected performance indicators from the Annual Management Report of Petrol Group for 2018.
During the current period the Group's current liability ratio improved to 1.41 compared to 0.84 for 2017. The improvement of the indicator is due to the increased current assets by BGN 10,843 thousand and decreased current liabilities by BGN 30,942 thousand for the same period. The latter is a result at most extent to the disposal of a subsidiary in 2018 and the cessation of consolidating the liabilities of the subsidiary.
The material turnover ratio as at December 31, 2018 remained the same and the necessary time for the materials to make a full cycle is 18 days. During the current period the turnover of trade receivables is 17 days reducing compared to 2017 (20 days).
As at December 31, 2018 the consolidated indebtedness of the Group including loans and borrowings increased, amounting to BGN 48,229 thousand compared to BGN 41,622 for the previous year. The increase is due to the utilized during the year bank overdraft by the Parent company at the amount of BGN 7,500 thousand. In 2018 Debt/Assets ratio decreased to 37% compared to 42% at the end of 2017. As at December, 31 2018 the Debt/Equity ratio was 246%.
The Group's management expectations are that in the coming years as a result of a growing competition mainly in retail market, part of the small independent players would be forced out gradually 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 Group 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. In order to improve the financial position, the Management continues to analyze actively all expenses in demanding of hidden reserves for optimization.
In 2019, 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 next year, the Group will continue the installation of energy-saving systems on the existing sites. At the same time, the Group plans to continue the implementation of 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 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.
Following the strategy of expanding the market share in retail market, the Group plans to attract new sites under Petrol brand through the franchise program.
In the next year the Management of the Group will direct its effort towards conducting an active marketing campaign. In terms of the clients, the direction of development is the attraction of new groups of clients, which were not seriously covered by the current marketing plans and development of a group of loyal corporate clients, which to increase their share in the total volume of sales in trade sites. The Group's strategy for 2019 is focused on the final customer. It is provided marketing activities - games, promotions and other, supported by enough media appearances to increase the sales of fuels. The Management will continue to develop its card system and plans to create a loyalty clients system.
The Group's Management activities are directed to validation of the principles and traditions of good corporate governance, increasing the trust of the interested parties, namely shareholders, investors and counterparties, and to disclosure of timely and precise information in accordance with the legal requirements.
Comparison of the changes in the financial liabilities with cash flows from financial operations and other non-monetary changes
2018 Financial liabilities Total
BGN'000
Debenture Loans Trade Other
loans from financial loans financial
institutions liabilities
Carrying amount at
January 1, 2018 38,223 2,369 1,030 - 41,622
Changes in result
of cash flows
Payments on loans
and borrowings - (568) (252) - (820)
Payments for interest
and commissions (2,007) (153) (32) - (2,192)
Proceeds from loans
received - 7,500 87 - 7,587
Other proceeds - - - 25 25
Total changes in result
of cash flows (2,007) 6,779 (197) 25 4,600
Other non-monetary
changes
Capitalized interest
expenses on loans (32) - - - (32)
Accrued interest expense
on loans, borrowings
and other 2,560 143 27 - 2,730
Other changes related
with liabilities - - (666) (25) (691)
Total other non-monetary
changes 2,528 143 (639) (25) 2,007
Carrying amount as
at December 31, 2018 38,744 9,291 194 - 48,229
========= =============== ====== ============ =========
2017 Financial liabilities Total
BGN'000
Debenture Loans Trade Other
loans from financial loans financial
institutions liabilities
Carrying amount on
January 1, 2017 38,815 2,839 665 - 42,319
Changes resulted from
cash flows
Repayment of loans
and borrowings - (481) 1,017 - 536
Interest and commissions
paid (3,056) (120) (6) - (3,182)
Other proceeds - - - 140 140
Total changes resulted
from cash flows (3,056) (601) 1,011 140 (2,506)
Other non-monetary
changes
Capitalized interest
expenses on loans (72) - - - (72)
Accrued interest expense
on loans, borrowings
and other 2,536 130 15 - 2,681
Other changes related
with liabilities - 1 (661) (140) (800)
Total other non-monetary
changes 2,464 131 (646) (140) 1,809
Carrying amount as
at December 31, 2017 38,223 2,369 1,030 - 41,622
========= =============== =============== ============ =========
33. Disclosure of transactions with related parties
Related parties that the Parent company controls and over which it exercises significant influence are disclosed in note 29.
The parent company (Controlling company) is Petrol AD.
In 2018 transactions with related parties have been not carried out.
The total amount of the accrued remunerations of the members of Management and Supervisory Board of the Parent company, included in the personnel expenses, amounted to BGN 1,397 thousand (2017: 1,314 thousand) and unsettled liabilities of BGN 116 thousand.
34. Contingent liabilities
As at December 31, 2018 the Group has contingent liabilities, including issued mortgages and pledges of property, plant and equipment, 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 13,490 thousand. The Group is a joint co-debtor under loan agreement of unrelated supplier, including limit for overdraft for BGN 25,000 thousand and stand-by credit for issuance of bank guarantees in favour of Customs Agency amounted to BGN 20,000 thousand. 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 199 thousand as at December 31, 2018 and a special pledge on receivables from contractors for BGN 4,000 thousand average monthly turnover.
The Group bears a contingent liability, covering the execution of an agreement for storage of third-party fuels up to BGN 30,000 thousand.
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, 2018.
Under a bank agreement for revolving credit line signed in 2016, bank guarantees were issued for a total amount of BGN 9,301 thousand as at December 31, 2018, including BGN 5,900 thousand in favor of third parties - Group's suppliers, BGN 1,244 thousand in favor of National Revenue Agency, for issuance of appealed by the Parent company revision acts and BGN 2,157 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 oil products with book value of BGN 2,419 thousand as at December 31, 2018.
In December 2018 the Group entered into an agreement for sale of receivables with commercial bank under a contract for sale of receivables (standard factoring) with total limit of advance payment up to BGN 550 thousand and with drawn amount as at December 31, 2018 of BGN 280 thousand, secured with pledge of receivables on bank accounts.
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, 2018 amounting to BGN 1,791 thousand.
In September 2018 the Group entered into a short-term debt contract for overdraft on current account intended for working capital. Following the refinancing as a result of the increased credit limit of the revolving credit line, the overdraft is fully repaid with no obligations as at December 31, 2018.
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, 2018 of BGN 245 thousand. 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 the current reporting period 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 claim proceedings are pending.
35. Events after the reporting date
As disclosed in note 15.2 above in February 2019, following the final decision of SAC the appealed liability on tax assessment was reduced to BGN 13 thousand principal related to additionally calculated VAT and BGN 5 thousand accrued interest. As at the date of preparation of these consolidated financial statements the liability was fully paid and the bank guarantee released and given back by NRA. The liabilities are accounted as correcting events as at December 31, 2018 and are recognised in the result for 2018.
In February 2019 was held a new EGMS, where the decision for reduction of capital was voted again and a decision for substitution of the deceased member of Supervisory Board Ivan Voynovski with Rumen Konstantinov was taken. A refusal on the application for registration of these circumstances in the file of the Parent company was enacted, which was appealed by the Parent company within the statutory term. In addition to the refusal, the registration proceeding was ceased on request of minority shareholders until the RC - Lovetch rules on.
As disclosed in note 32, a refusal was enacted on the applied for registration decision from November 2018 for decreasing the capital. The refusal was appealed in court by the Parent company. In March 2019 the RC - Lovetch enacted a decision, which rules the CR to register the decrease of capital after the resumption of the register proceedings after the adjudicate on the proceedings, created on demand of minority shareholders.
In April 2019 the Group sold 5,940,000 shares, representing 100% of the capital of Storage Oil EAD for a total price of BGN 50 thousand.
In April 2019 the Parent company signed a sales contract of 8,210 company shares, representing 98.80% of the capital of Petrol Technologies OOD for the total amount of BGN 900 thousand. Part of the price, amounting to BGN 150 thousand was fully paid before the signing of the sales contract and the rest of BGN 750 thousand the buyer should pay directly to the mortgage-creditor of the Group until December 31, 2019.
As disclosed in note 15.2 the Parent company appealed in statutory term the received in January 2017 tax assessment on the income tax audit for 2013 and VAT audit until October 2014 for the price of BGN 222 thousand principal and BGN 68 thousand interest. In April 2019 the Administrative Court - Sofia city enacted a decision, which repealed entirely the VAT payables of BGN 112 thousand principal and BGN 37 thousand interest and significantly reduced the liability for corporate tax from BGN 110 thousand principal and BGN 31 thousand interest to BGN 24 thousand principal and BGN 2 thousand interest.
[1] Gross margin is estimated as difference between revenue from sales of goods and cost of goods sold, the percentage of gross margin is calculated as gross margin is divided to the revenue.
[2] EBITDA (earnings before interest, tax, depreciation and amortization).
[3] EBIT (earnings before interest and tax).
[4] Closing share price as of the end of respective year on Bulgarian Stock Exchange - Sofia.
[5] Includes interest-bearing loans and financial lease liabilities.
[6] ROACE (return on average capital employed) - is estimated as ratio between the EBIT and the average invested capital. The latter presents the difference between assets and current liabilities to non-related parties (that are not part of Petrol Group).
[7] ROA (return on assets) - presents the ratio between the EBIT and the average assets.
[8] Current liquidity - the ratio between current assets and current liabilities
[9] Inventories turnover - presents the ratio between average stocks and the cost of goods sold, multiplied by 365 days.
[10] Accounts receivable collection period - presents the ratio between trade receivable from non-related parties and revenue from non-related parties, multiplied by 365 days.
[11] Accounts payable payment period- presents the ratio between trade payables to suppliers and the cost of goods sold, multiplied by 365 days.
[12] On 23.02.2017 Ivan Alipiev Voinovski passed away
[13] Source: NSI, BNB
[14] Wholesale volumes for all types of gasoline, diesel and gas oil are measured in litres
[15] Wholesale volumes for jet, LPG, heating oil and other heavy fuels are measured in tonnes
[16] On February 23, 2017 Ivan Voinovski passed away
[17] EBITDA (earnings before interest, tax, depreciation and amortization)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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