The Slovenia Times

Expansion on Track Despite the Crisis



You have posted surprisingly good business results for 2008. What are the reasons behind the performance of your company?

The main reason is Petrol's growth on the emerging markets of south-eastern Europe. We have successfully completed takeovers in Croatia; this has propelled us to the second place in the league of fuel retailers in the country. Further east, Petrol has secured a concession for the distribution of natural gas in Serbia; quite a scoop, as Petrol is the only foreign company that has been allowed to enter the Serbian gas market. We are also increasing our presence in Bosnia-Herzegovina and Kosovo.

So the focus remains on fuel retailing?

One has to keep in mind that while selling oil and its derivatives is the company's main activity, the margins are tightly regulated by the state. In Slovenia, margins are being kept lower than in the majority of the EU member states. So we have to look for profits elsewhere.

Not only do we sell and distribute heating oil, at our petrol service stations we aim to offer our customers the broadest range of goods and services possible. Our "Coffee to go" service, for example, is a case in point; we would only wish that other innovations would catch on in a similar fashion. Sales growth in sectors other than fuel retailing was 40 percent in 2008; we expect that the sales of food products and other merchandise will continue to increase their share in total revenues.

Still, the analysts expect that Petrol's net profit will be much lower than the figures for operating profit suggest. Which investments are to blame?

Basically, there is only one investment whose value will have to be written down quite significantly: Petrol's stake in Istrabenz. Everybody knows what has been happening on the stock markets around the world. However, it has to be emphasized that marking the value of our stake in Istrabenz to market does not necessarily mean that the investment is really in such a bad shape. After all, this is just an accounting exercise and one can hardly blame Petrol for the disappointing performance of the stock market in past months.

The recession is knocking at the door. Does Petrol already feel the economy slowing down?

Of course, falling industrial production also means less demand for energy. For the last two or three months, we have been observing a fall in demand for fuel in the transport sector. Demand from construction and the steel industry is also faltering. In general, every sector that is remotely linked to the automotive industry is bound to suffer. When the car industry is vulnerable, so is the whole economy. Still, we should not be too quick with projections, either pessimistic or optimistic, as things are happening very fast at the moment.

What about Petrol's investment activity? The banks are increasingly stingy with credit; they are sitting on the money rather than lending it. Will you have to reduce your investment plans?

First, it has to be emphasized that the banks' business is taking money in via deposits and lending it out via loans. The difference between interest rates is banks' profit, so if they don't lend out the money, they don't earn it. I think the financial market will calm down, so that credit will start flowing again.

Although Petrol has a substantial cash flow with which to finance investment, there is not enough money to go around for all the investment opportunities that are surfacing at the moment. In crisis, there are always more opportunities than in normal times as many companies are loaded with debt they cannot repay, making them vulnerable takeover targets. Then again, investments will have to yield more, so the opportunities will have to be thoroughly scrutinized.

This year, we plan to invest EUR 70m, which is, admittedly, not as much as in previous years. After all, expansion in the region is still our main goal.

There has been a lot of talk lately about gas pipeline projects such as Gazprom's South Stream.

We have been discussing the South Stream pipeline with Gazprom for over two years. As a regional player, we want to be included in the project. We are already heavily involved in the gas distribution business, not only in Slovenia, but also in the region; for example, in Serbia. As a member of a consortium, we will also be involved in making a study on development of gas infrastructure in Macedonia. Therefore, we are not talking only to Gazprom, but also to other potential gas suppliers, from northern Africa to Kazakhstan.

Climate change has taken centre stage in energy debates. What is Petrol doing on this front?

We have started an interesting experiment, a petrol service station which is entirely self-sufficient as far as its energy needs are concerned. The station in Koper is equipped with photovoltaics, getting its energy from the sun. What is more important is that Petrol aims to become a regional distributor of biofuels, with the port of Koper serving as an entry point. We are already talking to some suppliers such as Brazil's Petrobras which is a major producer of bioethanol.


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