New business lines to generate highest EBITDA growth

By Mario Tanev

Slovenia-based oil and gas distributor Petrol d.d. posted a turnover of 4.4 billion euro in 2018, ranking second in SEE TOP 100.

Igor Stebernak, Member of the Management Board, responsible for Business Support, Petrol d.d.

Considering its solid liquidity, will the Petrol Group be looking to expand its operations in the future through acquisitions, or it will mostly seek organic growth?

The Petrol strategy is built on development and expansion. In the strategic period 2018–2022 we plan to invest over 520 million euro, 50% in sales of petroleum and merchandise, 16% in sales of energy and environmental systems, 19% in electricity generation from renewable sources and 15% in mobility. Whether this growth is achieved through acquisitions or organic growth depends on various factors, including market conditions, specifics of the business line, the region and so on. We take all these factors into consideration and choose the option that promises the best results in terms of achieving our strategic goals. Petrol’s strong financial position is a good base for either organic growth or acquisitions.

In which of Petrol Group’s countries of operations do you face the biggest challenges related to fuel pricing policy?

Oil product prices are still partially state regulated in Slovenia, our biggest market. Gasoline and diesel fuel prices at filling stations on highways are freely set based on market conditions, whereas the prices are still regulated at other filling stations. Prices for 98-octane and higher petrol and extra light heating oil have been freely set based on market conditions since April 2016. Refined petroleum product prices in Croatia, Serbia, Bosnia and Herzegovina and Kosovo are freely set according to market conditions, and in Montenegro according to the Regulation on the Method of Setting Maximum Retail Prices of Petroleum Products.

Which of the company’s market segments seem poised for the highest growth in the long term?

In line with Petrol Group’s strategy, we will have higher growth of earnings before interest, tax, depreciation and amortisation (EBITDA) in our new business lines: comprehensive energy supply, generation of electricity from renewable sources, ESCO projects and mobility. Sales of merchandise goods and services will also grow, and will
maintain thier share in the total EBITDA. The lowest growth we forecast for our oldest core business line – sales of refined petroleum product.

In 2018, Petrol Group achieved 171.5 million euro of EBITDA. It achieved 60% of its EBITDA by selling refined petroleum products, 22% by selling merchandise and related services, 12% by selling energy and environmental solutions, 4% by selling other energy products (LPG, natural gas and electricity) and 2% by generating electricity from renewable sources.

Petrol is planning EBITDA of 233 million euro in 2022, 41% of which from selling refined petroleum products, 20% from selling merchandise and related services, 13% from selling other energy products (LPG, natural gas and electricity), 12% from selling energy and environmental solutions, 8% from generating electricity from renewable sources and 6% from mobility solutions.

After launching several renewable energy projects in the past two years, does Petrol plan further investments in renewables?

We have recognised generating electricity from renewable sources as an important part of our strategy. Demand for electricity is growing, which is why we decided we want to have sustainable generation of this important energy product in our portfolio and we want to use renewable sources: water, wind and solar power. Our final goal is to provide our customers with a sustainable portfolio for electricity at the lowest price possible. The Glunca wind power plant, Jelec small hydroelectric power plant and several solar power plants are certainly a step in the right direction. Growth in generating electricity from renewable sources is one of our most important strategic goals, and we will keep investing in this area in the future.

Looking forward, what are the major risks to the company’s operations and how does the group intend to tackle them?

The Petrol Group operates in two important and also challenging sectors: energy and trade. Both sectors are facing significant changes that demand adopting a new view on the core concepts of our business models. Globally and locally, we are facing social and technological changes that can be captured concisely by the notion of “digital globalisation”.

The energy sector is moving towards energy efficiency, novel use of existing energy products and development of new ons. In addition, a considerable shift can be observed in the behaviour of end customers, who are becoming increasingly engaged. The changes described increase business risks while at the same time providing new opportunities. We address these shifts in business sectors in our strategy. Our business model across all lines of operation is built on innovativeness and cost effectiveness, and our customers are offered simple, comprehensive, modern and reliable solutions.

In addition to the business risk described above, financial risks (price, credit and FX risks) are considered major risks, and the Petrol system addresses them accordingly with appropriate processes and strict mitigation rules. Overall, Petrol’s risk management is integrated into all aspects of our business, making it possible to create additional value for shareholders and maintain our investment-grade credit rating.

Sales of refined petroleum products to generate lowest EBITDA growth

Growth in generating electricity from renewable sources top strategic goal