The Supervisory Board discusses the business results in the first three months of 2024
Ljubljana, 16 May 2024 – At its 52nd the Supervisory Board of Petrol d.d., Ljubljana discussed the Report on the Operations of the Petrol Group and Petrol d.d., Ljubljana in the First Three Months of 2024. In the first quarter of 2024, the Petrol Group’s operations were marked significantly by the energy price regulation which has been limiting the company’s development potential.
Upon announcing the business results for the first three months of the year, Sašo Berger, President of the Management Board of Petrol d.d., Ljubljana, stressed that the regulatory framework is unsustainable and that the interventions of the Government of the Republic of Slovenia in the field of the company’s margin policy unsupported by appropriate bases for decisions are ungrounded: "In Slovenia, the current price regulation has set margins on certain petroleum products to an unacceptably low level, by far the lowest in the EU. The currently regulated margin does not enable covering the costs of ordinary fuel and petroleum product operations and, as a result, makes it difficult to adapt to the requirements of the European Green Deal. By disregarding the market situation and the current and future costs of the energy transition, the continuation of the current price regulation makes it extremely difficult for us to meet the strategic targets and make investments in the energy transition development projects. This also puts at risk the fulfilment of the National Energy and Climate Plan. The margin policy needs to be adjusted immediately to be comparable to the European one and to enable the Petrol Group to continue its investment activities since the Petrol Group, one of the most important energy groups in the region, is strategically committed to the green transition."
Dynamic and uncertain international business environment
In the first quarter of 2024, the Petrol Group operated in a difficult situation marked by the price regulation in Slovenia and this is reflected in the achieved business results.
According to the economic forecasts for 2024, GDP in Slovenia’s main trading partners will strengthen, although not as much as projected in the autumn. Economic growth in the euro area slowed down markedly in 2023 due to the high inflation, tighter financing conditions and a decline in external demand. Despite the gradual improvement of indicators in recent months, no pronounced recovery is yet on the horizon. The business environment forecasts are exposed to high uncertainty, arising mainly from the unpredictable situation in the Middle East and the disruption of trade routes in the Red Sea.
Business results under the influence of the regulation
In the first three months of 2024, the Petrol Group generated sales revenue of EUR 1.5 billion, a year-on-year decrease of 19 percent, owing especially to the lower selling prices of energy on spot and futures markets.
The Petrol Group sold 855.7 thousand tons of fuels and petroleum products in the first three months of 2024, a year-on-year decrease of three percent. Sales of merchandise and services amounted to EUR 138.0 million in the first three months of 2024, a year-on-year increase of 17 percent; the majority of the achieved growth can be attributed to good performance on foreign markets. In the period concerned, we sold 5.7 TWh of natural gas, 3.1 TWh of electricity and 62.1 thousand MWh of heat.
The gross profit with derivative financial instruments of the Petrol Group amounted to EUR 149.1 million in the period concerned, which is less than in the same period last year; the amount was influenced the most by the regulation of the prices of certain petroleum products and other energy commodities.
Operating costs in the first three months of 2024, amounting to EUR 129.2 million, were EUR 1.4 million, or one percent, lower compared to the same period last year, mostly because of the lower cost of materials and energy commodities and other costs, while labour costs increased by 15 percent because of the inflationary pressures and the indexation of the lowest wages.
EBITDA in the first three months of 2024 totalled EUR 49.2 million, down by EUR 9.9 million year-on-year. The good results in the field of merchandise and energy solution sales together with significantly lower operating costs did not fully make up for the losses resulting from the energy price regulation. In addition to cost measures, investments were also reduced, especially those related to the energy transition.
Net profit of the Petrol Group in the first three months of 2024 was EUR 15.0 million compared to EUR 24.8 million in the same period last year.
Investment activities
In the first quarter of 2024, the regulation of the prices of oil and other energy commodities had a marked influence on the Petrol Group’s investment activities. In the period concerned, we earmarked EUR 16.2 million for investments, accounting for merely 45 percent of the planned CapEx for the first three months of 2024, of which 21 percent for the energy transition and digitalisation projects and the rest for the urgent projects related to the ongoing maintenance of the retail network, logistics and other urgent infrastructure needs.
The Petrol Group has continued digitalising its supply chain (Oil&Gas E2E project) with a focus on logistics optimisation and the improvement of supply tracking. In line with our sustainability commitments and endeavours to reduce the environmental impact, we have been expanding the network of e-charging points and developing the e-mobility services.
Appeal to change the regulation
The Petrol Group plans its sales revenue to amount to EUR 5.8 billion, gross profit to EUR 705.6 million, EBITDA to EUR 304.6 million and net profit to EUR 156.5 million in 2024. Incautious interventions by regulators in the price policy may cause a deviation of the year-end business results from the set goals that could otherwise still be achieved by the end of the year in a normal business environment.
As set out in our business plan, our aim was to earmark EUR 130.0 million for investments, of which 44 percent for energy transition projects. However, the margins, which are too low, make it impossible to cover all costs and have an impact on the Petrol Group’s investment capacity, also in the case of the projects that are vital in order to make a transition to green fuels. The fuel and energy price regulatory framework should take into account the additional costs arising from the energy transition, such as costs for biofuel blending, payments for CO2 taxes and ensuring savings for end users, and the like, which is also the government’s indirect commitment.
The current Decree on Setting Prices for Certain Petroleum Products in Slovenia, which is in effect until 20 June 2024, sets the maximum permitted margin per litre of diesel at EUR 0.0783 and of unleaded petrol at EUR 0.0794. In the final fuel price structure, sellers’ margin accounts for merely 5 percent, while taxes and duties account for more than 50 percent of the final price and have increased significantly in the recent period. This means that for consumers the effect of the sellers’ margin on the final price is minimal. With such sellers’ margin, Slovenia occupies the inglorious last place among all EU countries. The Government of the Republic of Slovenia prepared a new draft decree, which is currently in public consultation and which does not anticipate any change of the maximum permitted margin, but at the same time, by making additional changes in the sense of periodicity of the retail price calculation, it anticipates additional operating costs and, by posing logistical risks, it puts the regular supply of oil and petroleum products at risk. Sašo Berger, President of the Management Board of Petrol d.d., Ljubljana, highlighted: “At the Petrol Group, we believe that the current margin policy is a measure that has no scientific basis and is unnecessary and harmful for the company; it does not allow for profitable operations in the field of fuel supply and inhibits competition and possibilities for making investments, and makes borrowing more expensive. The measure inhibits the Petrol Group’s organic growth and competitive development in the broader region. To this end, such policy cannot be in the interest of the company or in the interest of the Republic of Slovenia – its largest individual owner. In the context of public consultation, Petrol will, as it has done on several occasions thus far, again present to all key stakeholders its perspective regarding the unsuitability of the current price regulation and propose solutions to adjust it. We urge the Government of the Republic of Slovenia to reconsider the scientific rationale behind this measure and call it to apply a pricing mechanism which will include a comprehensive consideration of impacts along the supply chain.”
Supervisory Board’s opinion
The Supervisory Board of Petrol d.d., Ljubljana expresses its support to the company management in its endeavours to adjust the regulatory framework so that it would enable more sustainable and competitive operations. By taking into account the current and expected additional measures at EU level which will put new burdens on energy companies in the context of the green transition, we highlight the importance of taking a strategic approach to investments in renewables and digitalisation, which are key for the future development of the company and the Petrol Group. The Supervisory Board expects that these activities will help the Petrol Group to achieve its long-term goals and consolidate its role as the leading player on the energy market in the region.