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Petrol AD (74JJ)

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Wednesday 14 October, 2020

Petrol AD

1st Quarter Results

RNS Number : 1103C
Petrol AD
14 October 2020
 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

OF PETROL GROUP

AND CONDENSED EXPLANATORY NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2020

 

(This document is a translation of the original Bulgarian document,

 in case of divergence the Bulgarian original shall prevail)

 

 

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME

For the period ended March 31

 

 

 

2020

BGN'000

 

2019

BGN'000

 

 

 

 

 

Revenue

 

108,582

 

114,253

Other income

 

130

 

158

 

 

 

 

 

Cost of goods sold

 

(93,545)

 

(101,772)

Materials and consumables

 

(929)

 

(916)

Hired services

 

(8,912)

 

(8,986)

Employee benefits

 

(4,954)

 

(5,005)

Depreciation and amortisation

 

(1,394)

 

(957)

Impairment losses

 

(2,171)

 

64

Other expenses

 

(97)

 

(146)

 

 

 

 

 

Finance income

 

491

 

485

Finance costs

 

(1,171)

 

(1,081)

 

 

 

 

 

Loss before tax

 

(3,970)

 

(3,903)

 

 

 

 

 

Tax income

 

414

 

1

 

 

 

 

 

Loss for the period

 

(3,556)

 

(3,902)

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

 

Revaluation

 

27,730

 

-

Income tax relating to items not reclassified

 

(2,771)

 

-

 

 

 

 

 

Other comprehensive income for the period

 

24,959

 

-

 

 

 

 

 

Total comprehensive income for the period

 

21,403

 

(3,902)

 

 

 

 

 

Loss attributable to:

 

 

 

 

 

 

 

 

 

Owners of the Parent company

 

(3,556)

 

(3,902)

Non-controlling interest

 

-

 

-

 

 

 

 

 

Loss for the period

 

(3,556)

 

(3,902)

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

Owners of the Parent company

 

21,403

 

(3,902)

Non-controlling interest

 

-

 

-

 

 

 

 

 

Total comprehensive income for the period

 

21,403

 

(3,902)

 

 

 

 

 

Loss per share (BGN)

 

(0.13)

 

(0.14)

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

March 31

2020

BGN'000

 

Dec. 31

2019

BGN'000

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment and intangible assets

 

 

41,129

 

 

14,489

Investment properties

 

1,734

 

1,746

Right-of-use asset

 

13,180

 

10,221

Goodwill

 

19,844

 

19,844

Investments

 

3

 

-

Deferred tax assets

 

1,859

 

4,216

 

 

 

 

 

Total non-current assets

 

77,749

 

50,516

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

33,940

 

35,002

Inventories

 

16,669

 

21,076

Loans granted

 

28,817

 

25,998

Non-current assets held-for-sale

 

42

 

3,472

Cash and cash equivalents

 

2,030

 

3,486

 

 

 

 

 

Total current assets

 

81,498

 

89,034

 

 

 

 

 

Total assets

 

159,247

 

139,550

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

Registered capital

 

109,250

 

109,250

 

Reserves

 

43,807

 

18,864

 

Accumulated loss

 

(119,072)

 

(113,564)

 

 

 

 

 

 

 

Total equity attributable to the owners of the Parent company

 

33,985

 

14,550

 

 

 

 

 

 

 

Non-controlling interests

 

23

 

23

 

 

 

 

 

 

 

Total equity

 

34,008

 

14,573

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

Loans and borrowings

 

44,510

 

44,652

 

Liabilities under lease agreements

 

9,235

 

7,715

 

Employee defined benefit obligations

 

656

 

656

 

 

 

 

 

 

 

Total non-current liabilities

 

54,401

 

53,023

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Trade and other payables

 

65,023

 

66,554

Loans and borrowings

 

1,066

 

2,735

Liabilities under lease agreements

 

4,746

 

2,662

Current income tax liabilities

 

3

 

3

 

 

 

 

 

Total current liabilities

 

70,838

 

71,954

 

 

 

 

 

Total liabilities

 

125,239

 

124,977

 

 

 

 

 

Total equity and liabilities

 

159,247

 

139,550

          

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

Equity attributable to the owners of the Parent company

 

Non-controlling interests

 

Total equity

 

Registered capital

 

General reserves

 

Reval.

reserve

 

Accumulated profit

(loss)

 

Total

 

 

 

 

 

BGN'000

 

BGN'000

 

BGN'000

 

BGN'000

 

BGN'000

 

BGN'000

 

BGN'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

109,250

 

18,864

 

-

 

(108,557)

 

19,557

 

9

 

19,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

 

-

 

-

 

(3,902)

 

(3,902)

 

-

 

(3,902)

Total comprehensive income

-

 

-

 

 

 

(3,902)

 

(3,902)

 

-

 

(3,902)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

109,250

 

18,864

 

-

 

(112,459)

 

15,655

 

9

 

15,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

 

-

 

-

 

(1,079)

 

(1,079)

 

1

 

(1,078)

Other comprehensive income

-

 

-

 

-

 

(26)

 

(26)

 

-

 

(26)

Total comprehensive income

-

 

-

 

-

 

(1,105)

 

(1,105)

 

1

 

(1,104)

Acquisition of a subsidiary with a non-controlling interest

-

 

-

 

 

 

-

 

-

 

-

 

22

 

22

 

Balance at December 31, 2019

 

109,250

 

 

18,864

 

 

-

 

(113,564)

 

14,550

 

23

 

14,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

 

-

 

-

 

(3,556)

 

(3,556)

 

-

 

(3,556)

Other comprehensive income

-

 

-

 

24,959

 

(1,968)

 

22,991

 

-

 

22,991

Total comprehensive income

-

 

-

 

24,959

 

(5,524)

 

19,435

 

-

 

19,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfer of revaluation reserve of sold assets to retained earnings

-

 

-

 

 

 

(16)

 

16

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

109,250

 

18,864

 

24,943

 

(119,072)

 

33,985

 

23

 

34,008

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended March 31

 

 

2020

BGN'000

 

2019

BGN'000

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Receipts from customers

160,037

 

154,485

Payments to suppliers

(136,621)

 

(127,068)

VAT and excise paid to the budget, net

(13,923)

 

(16,800)

Payments related to personnel

(5,147)

 

(4,993)

Other cash flows from operating activities, net

(326)

 

45

Net cash flows from operating activities

4,020

 

5,669

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Payments for purchase of property, plant and equipment

(46)

 

(226)

Proceeds from sale of property, plant and equipment

33

 

51

Payments for loans granted

(3,798)

 

(2,988)

Proceeds from loans granted

1,208

 

5,905

Interest received on loans and deposits

36

 

-

Proceeds (payments) from other investments

158

 

(5,605)

 

 

 

 

Net cash flows used in investing activities

(2,409)

 

(2,863)

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from loans and borrowings

-

 

19

Repayment of loans and borrowings

(87)

 

(87)

Lease payments

(427)

 

(439)

Interest paid under loans

(2,487)

 

(2,309)

Proceeds (payments) under cession and other agreements

(69)

 

415

 

 

 

 

Net cash flows from financing activities

(3,070)

 

(2,401)

 

 

 

 

Net increase (decrease) in cash flows during the period

(1,459)

 

405

 

 

 

 

Cash at the beginning of the period

3,486

 

4,265

 

 

 

 

Effect of movements in exchange rates

3

 

3

 

 

 

 

Cash as per statement of financial position

2,030

 

4,673

 

 

 

I.   General Information

 

Petrol AD (the Parent company) was registered in Bulgaria in 1990 and entered in the Commercial Register to the Registry Agency with UIC 831496285. The headquarter address of the Parent company is 12 Tyrgovska Str., Hotel Lovetch in Lovetch city. As at the end of the reporting period shareholders are legal entities, the country - through the Ministry of Energy and individuals.

 

The main activity of Petrol AD and its subsidiaries (the Group) is related with trading of petrol products and non-petrol goods and services.

 

These explanatory notes are prepared according to the requirements of Art. 100o1, par.5 of the Public Offering of Securities Act (POSA) in relation to Art. 33, par.1, item.2 of 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 by the public companies and other issuers of securities, and represent information about important events occurred during the first quarter of 2020. The explanatory notes reflect their influence on the results in the statements for the first quarter of 2020 and describe of the main risks and uncertainties, which stay ahead of the Petrol Group in the rest of the financial year and comprise information for transactions with related parties and/or interested parties, as well as information for emerging significant receivables and/or payables during the same period.

 

 

II.  Information on important events, occurred in the first quarter of 2020

 

General

 

These interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the Commission of the European Union (EU).

 

These interim consolidated financial statements have been prepared under the historical cost convention, except for provisions, assets and liabilities under IFRS 16 reported at the present value of expected future payments. When compiling it, the same accounting policy and calculation methods applied in the last annual financial statement have been followed, with the exception of the accounting policy for non-current tangible and intangible assets. The policy applied in the consolidated financial statements until 2019 inclusive is the cost model, according to which the assets are reported at acquisition cost less the accrued depreciation and any impairment losses, is replaced from the beginning of 2020 by the revaluation model, which the Management considers that it reflects more objectively the non-current tangible assets held.

 

Property, plant, equipment and intangible assets

 

From January 1, 2020 the Group has changed its approach to the subsequent valuation of property, plant and equipment under the revaluation model under IAS 16 and intangible assets under IAS 38. The revaluation model provides, after initial recognition for an asset, any property, plant and equipment whose fair value may to be measured reliably, to be carried at revalued amount, which is the fair value of the asset at the date of revaluation less any subsequent accumulated depreciation as well as subsequent accumulated impairment losses. Revaluations should be carried out at sufficiently regular intervals to ensure that the carrying amount does not differ materially from the fair value that would be determined using the fair value at the statement of financial position date.

 

Property, plant and equipment are presented in the financial statements at revalued amount, less accumulated depreciation and impairment losses.

The revalued (to fair) value of property, plant and equipment and intangible assets was initially determined through a market valuation by an independent appraiser and applied in the accounting policy as of January 1, 2020.

 

As at March 31, 2020 the Group has property, plant, equipment and intangible assets with total carrying amount of BGN 41,129 thousand.

 

As at March 31, 2020 property, plant and equipment with carrying amount of BGN 21,680 thousand are mortgaged or pledged as collaterals under bank loans, granted to the Group and to unrelated parties, under credit limit agreements for issuance of bank guarantees.

 

In 2018 the Group has acquired trade sites - petrol stations and storage facilities on purpose to sell them. Classified in previous reporting periods as held for sale non-current assets amounting to BGN 3,430 thousand as of January 1, 2020 do not meet the criteria for recognition as such and are reclassified as property, plant and equipment.

 

Investment property

 

The investment properties of the Group, consisted of a land and a building, are part of aggregated assets for BGN 1,500 thousand, which serve as a collateral for a credit limit under contract for revolving credit line signed in 2016.

 

Leases

 

The consolidated statement of financial position as at March 31, 2020 presents the following items and amounts related to lease agreements:

 

Consolidated statement of financial position

March

 31, 2020

 

 

Right-of-use assets, incl.:

13,180

 

 

Properties (lands and buildings)

4,485

Transport vehicles

340

Machinery, plants and equipment

8,355

 

 

Liabilities under leases, incl.:

(13,981)

Current liabilities

Non-current liabilities

(4,746)

(9,235)

 

 

 

The Group has chosen to use the exclusions, provided 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.

 

Loans Granted

 

In January 2019, the Group granted a cash loan to an unrelated party with a credit limit of up to BGN 5,500 thousand with an interest rate of 6.7% and additionally annexed until December 31, 2020.As of March 31, 2020 the receivables under the contract amount to BGN 5,181 thousand principal, net of impairment under IFRS 9, and BGN 347 thousand interest.

In April 2019 the Group entered into an agreement for granting a cash loan to an unrelated party with credit limit up to BGN 1,300 thousand at 6.7% annual interest. As March 31, 2020 the receivables under this contract are at the amount of BGN 1,293 thousand principal and BGN 85 thousand interest.

 

In May 2019 the Group granted a cash loan to an unrelated party with credit limit up to BGN 10 thousand and interest rate of 6.7%. As at March 31, 2020 the granted funds are at the amount of BGN 6 thousand.

 

In August 2019 the Group granted a cash loan to an unrelated party with credit limit up to BGN 1,000 thousand with interest rate of 6.7%, available in tranches for one year since the date of signing. In 2019, the loan limit has been increased.As of March 31, 2020, the loan principal has been repaid.

 

In February 2018 the Group granted a cash loan to unrelated party at the amount of BGN 2,000 thousand, subsequently the amount was increased to BGN 3,500 thousand at 6.7% interest and refund period until December 31, 2018. With annexes from the end of 2019 the credit limit was increased up to BGN 5,000 thousand and the term of loan was prolonged to December 31, 2020. As March 31, 2020 the receivables under this loan are BGN 4,431 thousand principal and BGN 351 thousand interest net of impairment.

 

In February 2020, the Group granted a cash loan to an unrelated party with a credit limit of up to BGN 1,000 thousand for a period up to December 18, 2020 and with an interest rate of 5.7%. The Group makes counter-offsets against trade receivables under a contract for the supply of goods. As of March 31, 2020 the Group has receivables in the amount of BGN 824 thousand principal and BGN 5 thousand interest.

 

In March 2018 the Group entered into an agreement for granting a cash loan to unrelated party with a credit limit up to BGN 300 thousand at 6.7% annual interest and repayment period until December 31, 2018. With an annex the term of the loan was prolonged until December 31, 2020. In 2019 the loan limit was increased, and as at March 31, 2020 the granted funds under this contract were BGN 576 thousand principal and BGN 43 thousand interest.

 

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 at 6.7% annual interest and term until December 31, 2020. The deadline is annexed to December 31, 2020.As at March 31, 2020 the granted amounts under these contracts are BGN 3,729 thousand principal net of impairments principal and BGN 808 thousand interest and BGN 4,443 thousand net of impairments principal and BGN 902 thousand interest.

 

In December 2017, the Group signed a contract for granting cash loan, which requires the Group to grant interest bearing loan up to BGN 3,000 thousand to unrelated party at 6.7% annual interest and term until December 31, 2020. As at March 31, 2020 the contracted amount was entirely granted.

 

 

Cash and cash equivalents

 

As at March 31, 2020 the Group reported cash amounted to BGN 2,030 thousand.

 

In the notes under Art. 33a2 of Ordinance No2 from the Public Offering of Securities Act (POSA), as cash equivalents of BGN 1,213 thousand, is presented the cash collected from the trade sites as at the end of the reporting period and actually registered in the Group's bank accounts at the beginning of the next reporting period.

 

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 the end of the reporting period shareholders in the Parent company are as follows:

 

Shareholder

March 31,

2020

 

 

Alfa Capital AD

28.85%

Yulinor EOOD

23.11%

Perfeto consulting EOOD

16.43%

Correct Pharm EOOD

10.98%

Trans Express Oil EOOD

9.86%

Corporate Commercial Bank AD

5.51%

VIP Properties EOOD

2.26%

The Ministry of Economy of the Republic of Bulgaria

0.65%

Other minority shareholders

2.35%

 

 

 

100.00%

 

The Management of the Parent company has undertaken series of measures related to optimization of its capital adequacy. At several General Meetings of Shareholders (GMS) held in the period of 2016 - 2017 a decision for reverse-split procedure for merging 4 old shares with a nominal value of BGN 1 into 1 share with a nominal value of BGN 4 and consequent decrease of 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. In March 2018, following a decision of the Lovech Regional Court, which repealed the refusal of the Commercial Register to register the decision voted on EGMS for merging 4 old shares with a nominal value of BGN 1 into 1 new share with a nominal value of BGN 4, the applied change was registered in CR resulting in registered capital of the Parent company of BGN 109 249 612, distributed in 27 312 403 shares with a nominal value of BGN 4 each. The change in the capital structure of the Parent company was registered also in Central Depositary AD. The submitted on April 2018 application for registration of the voted on EGMS decision for the second stage of the procedure of the Parent company's capital to be decreased by decreasing the nominal value of the shares from BGN 4 to BGN 1 in order to cover losses, was refused by the Commercial Register.

 

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 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. In March 2019 the Lovech Regional Court enacted a decision, which rules the CR to register the decrease of the capital after a resumption of the registration proceedings following the pronouncing on the legal proceedings initiated be the minority shareholders request.

 

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 - Lovech rules on. In May 2019 the Lovech Regional Court enacted a decision, which repealed the enacted refusal and turn back the case to the Registry Agency for a registration of the application after a resumption of the ceased registration proceedings. At present, the court proceedings for repealing of the decisions of EGMS from February 2019 are pending.

 

Current income tax liabilities and tax audits

 

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. In order to secure the additionally calculated interest liabilities on this tax assessment, an additional bank guarantee for BGN 255 thousand was issued in February 2019. By a decision of March 2020, the court of first instance partially annulled the appealed revision act, as a result of which the liabilities of the Parent Company were reduced to BGN 53 thousand. The decision of the court of first instance was appealed by ODOP and the case is currently pending.

 

Loans and borrowings

 

As at March 31, 2020 the Group has total liabilities under received bank, debenture and trade loans of BGN 45,576 thousand, including BGN 1,066 thousand current liabilities.

 

Bank loans

 

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 March 31, 2020 the liabilities under the bank loan amounting to BGN 572 thousand current liabilities and BGN 611 thousand non-current liabilities.

 

In September 2018 the Parent company 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 2,418 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 and special pledge on goods in turnover, representing oil products. In June 2019 the loan was partially repaid and the limit for working capital decreased from BGN 7,500 thousand to BGN 7,000 thousand as at March 31, 2020. In January 2020 the Parent company renegotiated the terms of the used credit line granted to it by a commercial bank under a revolving credit line agreement dated September 21, 2016, with a credit limit of BGN 7,000 thousand and achieved a reduction of the annual compound interest of SLP + 5,2802%, but not less than 5.5%.

 

Debenture loans

 

In October 2006, the Parent company issued 2,000 registered transferable bonds with fixed annual interest rate of 8.375% and emission value of 99.507% of the nominal, which is determined at EUR 50,000 per bond. The principal is due in one payment at the maturity date and the interest is paid once per year. 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 23 December 2016, a procedure for 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, financing of investment projects and restructuring of the previous debt of the Group. The debenture loan liabilities are presented in the statement of financial position at amortized cost.

 

As at the date of preparation of these financial statements the nominal value of the debenture loan is EUR 18,659 thousand and the Group has finalized a procedure for rescheduling the maturity of the principal until 2027 and reducing the annual interest rate to 4.24%.

 

Factoring

 

In February 2019 the Group entered into an agreement with a commercial bank for factoring with special terms and without regress for transferring of preliminary approved receivables with a maximum period of the deferred payments up to 120 days from the date of invoice issuance with a payment in advance of 90% of the value of the transferred receivables including VAT. The commission for factoring services is 0.35% of the total value of the transferred invoices plus additional annual taxes. The interest for the amounts paid in advance is Base Deposit Index for Legal Entities + 1.95%, accrued daily and paid on monthly basis at the end of every calendar month. As of March 31, 2020, the Group has no exposure under this factoring agreement.

 

In December 2019 the Group entered into an agreement with a commercial bank for purchasing of trade receivables (standard factoring) with a total limit of the advanced payments up to BGN 430 thousand and interest rate based on savings in BGN increased by a markup of 3.7767  points, but not less than 4% per annum on the amount of the advanced payment. As of March 31, 2020 the Group received in advance under this contract the amount of BGN 174 thousand. As of March 31, 2020, the Group has no outstanding estimates under this factoring agreement.

 

Operating lease agreements

 

The Group is lessee under operating lease agreements. The recognised expenses for rent of fuel stations, rented under operating lease for the period ended March 31, 2020 are at the amount of BGN 3,920 thousand.

 

Subsidiaries

 

The Parent company (the Controlling company) is Petrol AD. The subsidiaries included in the consolidation, over which the Group has control as at March 31, 2020 and December 31, 2019 are as follows:

 

Subsidiary

Main activity

Ownership interest

 

 

 

Varna Storage EOOD

Trade with petrol and petroleum products

100%

Petrol Finance EOOD

Financial and accounting services

100%

Elit Petrol -Lovech AD

Trade with petrol and petroleum products

100%

Lozen Asset AD

Acquisition, management and exploitation of property

100%

Petrol Properties EOOD

Trading movable and immovable property

100%

Kremikovtsi Oil EOOD

Processing, import, export and trading with petroleum products

100%

Shumen Storage EOOD

Processing, import, export and trading with petroleum products

100%

Office Estate EOOD

Ownership and management of real estates

100%

Svilengrad Oil EOOD

Processing, import, export and trading with petroleum products

100%

Varna 2130 EOOD

Trade with petrol and petroleum products

100%

Petrol Finances OOD

Financial and accounting services

99%

Petrol Technologies OOD

IT services and consultancy

98,80%

 

 

Contingent liabilities, including information for newly arising significant liabilities for the reporting period

 

As at March 31, 2020 the Group has contingent liabilities, including issued mortgages and pledges of property, plant and equipment and non-current assets held for sale, which serve as a collateral for bank loans granted to the Group and unrelated parties and credit limits for issuance of bank guarantees with total carrying amount of BGN 21,680 thousand. The Group is a joint co-debtor under loan agreement of unrelated supplier, including limit for overdraft and limit for stand-by credit for issuance of bank guarantees in favour of Customs Agency. The total amount of the utilized funds and issued bank guarantees of all borrower's exposures to the Bank shall not exceed BGN 45,000 thousand. In relation to this credit agreement, the Group has established a special pledge on its cash in the bank account opened in the bank-creditor with total amount of BGN 3 thousand as at March 31, 2020 and a special pledge on receivables from contractors for BGN 4,000 thousand average monthly turnover.

 

The Group bears a joint obligation according to a contract for debt from January 2017 on an obligation of a subsidiary until February 2018 for BGN 2,346 thousand as at March 31, 2020.

 

Under a bank agreement for revolving credit line signed in 2016, bank guarantees were issued for a total amount of BGN 9,232 thousand as at March 31, 2020, including BGN 6,000 thousand in favor of third parties - Group's suppliers, BGN 1,465 thousand in favor of National Revenue Agency, for issuance of appealed by the Parent company amended assessment and BGN 1,767 thousand to secure own liabilities related to contracts under the Public Procurement Act. The bank agreement is secured by mortgages of property, pledge of plants and equipment, pledge of all receivables on bank accounts of the Parent company and a subsidiary. In July 2017 the credit limit under the revolving credit line was increased from BGN 8,500 thousand to BGN 9,500 thousand. Assets amounted to BGN 1,500 thousand, owned by a subsidiary, additionally secured the credit limit. With annex from December 2018 the limit is increased to BGN 21,000 thousand and is additionally secured with mortgages and pledge of property, plants and equipment, and special pledge of goods in turnover, namely petroleum products. In June 2019, the credit limit for working capital granted under this credit line was partially repaid as its amount decreased from BGN 7,500 thousand to BGN 7,000 thousand.

 

As a collateral of an investment loan signed in July 2016, a mortgage of property, acquired through the investment loan and a pledge of receivables, arising from opened bank accounts of the Parent company to the amount of the outstanding balance of the loan, which as at the March 31, 2020 amounting to BGN 1,184 thousand.

 

There is a pending litigation in relation to a signed in 2015 guarantee contract of the liabilities of a subsidiary until February 2018, arising of a cession contract with outstanding book value as at March 31, 2020 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 2020 the Court of Appeal has entirely annulled the decision of the first instance court and admitted the receivable of the Parent company under the guarantee contract jointly with the other related party. The Decision of the Court of Appeal is appealed by the Parent company before the Supreme Court of Cassation. As at march 31, 2020 the case is pending before a court of cassation.

 

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

 

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

 

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

 

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

 

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

 

In December 2019, the Parent company entered into an Agreement with a commercial bank for the purchase of trade receivables (standard factoring) with a total advance limit of up to BGN 430 thousand and an interest rate based on savings for BGN, increased by a mark-up of 3.7767 points, but not less than 4% per annum on the amount of the granted advance. The contract is secured by a pledge of receivables on opened bank accounts of the Parent Company with a book value as at March 31, 2020 at the amount of BGN 174 thousand.

 

 

Other significant events occurred during the reporting quarter

 

The Group's Management has taken a series of measures to optimize the capital adequacy of the Group. As a result of several general meetings of shareholders hold in 2016 and 2017, a decision for reverse split procedure was voted for merging 4 old shares with nominal value of BGN 1 into 1 new share with nominal value of BGN 4 and subsequent decrease of the Parent company's capital 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 repealed the refusal of the Commercial Register to register the decision voted on EGMS for merging 4 old shares with nominal value of BGN 1 into 1 new share with nominal value of BGN 4. The applied change was registered in Commercial Register (CR) resulting in registered capital of the Parent company of BGN 109 249 612, distributed in 27 312 403 shares with nominal of BGN 4 each. The change in the capital structure of the Parent company was registered also in Central Depositary AD. In the beginning of April 2018 the application was submitted for registration of the voted on EGMS decision for the second stage of the procedure for decreasing the Parent company's capital by decreasing the nominal value of the shares from BGN 4 to BGN 1 in order to cover losses. As at the date of preparation of the actual explanatory notes, the applications is rejected by the CR.

 

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 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. In March 2019 the Lovech Regional Court enacted a decision, which rules the CR to register the decrease of the capital after a resumption of the registration proceedings following the pronouncing on the legal proceedings initiated be the minority shareholders request.

 

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 - Lovech rules on. In May 2019 the Lovech Regional Court enacted a decision, which repealed the enacted refusal and turn back the case to the Registry Agency for registration of the applied entry after a resumption of the ceased registration proceedings. At present, the court proceedings for repealing of the decisions of EGMS from February 2019 are pending.

 

The next measure for capital adequacy is a change in the accounting policy regarding non-current tangible assets - property, plant and equipment, equipment and intangible assets from the ones applied in its financial statements until 2019, including the acquisition price model, with application from the beginning of 2020 of the other applicable model - the revaluation model, which the Management considers to reflect more objectively the held non-current tangible and intangible assets.

 

 

III.   Disclosure of transactions with related parties

 

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 316 thousand, and the unsettled liabilities as at March 31, 2020 are at the amount of BGN 78 thousand.

 

In the first quarter of 2020 transactions with related parties have been not carried out.

 

IV. Risks and uncertainties ahead of the Group for the rest of the financial year

 

Macroeconomic environment

 

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.

 

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

 

The Group's Management monitors the emergence of risks and negative consequences in the outcome of the pandemic with Covid-19, currently assessing the possible effects on the assets, liabilities and activities of the Group, striving to comply with contractual commitments, despite the uncertainties and force majeure circumstances. In view of the introduced anti-epidemic measures and restrictions in the pandemic, which cause a significant reduction in economic activity and creates significant uncertainty about future business processes, there is a real risk of a decline in sales of the Group. However, Management believes that it will be able to successfully bring the Group out of the state of emergency in which it is placed

 

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.

 

The plans for the future development of the company are closely related and depend to a greater extent to the stated expectations for changes in the market environment. 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. With the aim to improve the financial position, the Management continues to analyze actively all expenses and to look for hidden reserves for optimization.

 

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 andrecorded in these consolidated financial statements. The Group's Management applies the necessary procedures to manage these risks.

 

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.

 

Legislature

 

The Parent company is supervised by a number of regulatory bodies in the country and a potential change in the regulatory framework, regulating the Parent company's activity may have a negative impact on the Group's financial results. In July 2018 the Government of the Republic of Bulgaria adopted a new Law for Administrative Regulation of the Economic Activities, Related to Petrol and Petroleum Products, which aims to provide security and predictability in trading with petrol and petroleum products and increase the energy security of the country. Due to its core business, this law will affect the Group. As at the date of issuance of these financial statements, the Parent company is entered in the register to the Ordinance on the terms and conditions for keeping a register of entities carrying out economic activities related to oil and petroleum products for the wholesale trading activity and has issued a bank guarantee in favor of the Ministry of Economy at the amount of BGN 500 thousand. As at the date of issuance of these financial statements, the registration procedure of the Parent company for retail trading with oil and petroleum products is at the stage of processing by the Ministry of Economy of the submitted by the Parent company documentation. The Group expects to receive the registration act in a short time.

 

Suppliers

 

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;

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.

 

Competition

 

In the last few years, there has been a tendency for consumers to increasingly turn to established and well-known brands with a tradition in fuel retail. As a result, some small retailers were forced to close down or enter into franchise or dealership agreements with one of the major market participants. Due to the general decline in economic activity, consumer attitudes and the introduction of additional regulatory control by the government, the share of small independent players continues to decline.

 

The lack of strategic deals and significant investments by large participants in the retail fuel market has led to a minimal change in the market shares of companies in the sector;

 

Price risk

 

The 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 the Group's Management. Any future sharp fluctuations in the price of fuels and non-petroleum goods may lead to a deterioration of the financial position of the Group;

 

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 optimizing the return. Because of the nature of its activity, the Group is exposed to price and currency risk.

 

The Group is exposed to the risk of change in currency rate, movement in the interest rates and the prices of the capital instruments, which may impact the Group's financial instruments or the value of its investments.

 

Interest rate risk

 

Risks arising from the increase in the price of the Group's financing;

 

Credit risk

 

The risk of inability of the Group's trade partners to fulfill their contractual obligations, which may lead to losses for the Group;

 

Exceptional costs

 

There is a risk of incurring unforeseeable costs, which to affect negatively the financial position of the Group;

 

Political risk

 

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

 

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.

 

 

 

Georgi Tatarski

Executive Director

Milko Dimitrov

Executive Director

Prepared by Elena Pavlova - Teofanova

 

September 30, 2020

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