Annual / Quarterly Financial Statement • Feb 28, 2019
Annual / Quarterly Financial Statement
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1.1 Group Consolidated Financial Statements
Consolidated Financial Statements in accordance with IFRS as endorsed by the European Union for the year ended 31 December 2018
GENERAL COMMERCIAL REGISTRY: 000296601000 COMPANY REGISTRATION NUMBER: 2443/06/B/86/23
| Company Information4 | |||
|---|---|---|---|
| Consolidated Statement of financial position5 | |||
| Consolidated statement of comprehensive income 6 |
|||
| Consolidated statement of changes in equity7 | |||
| Consolidated statement of cash flows8 | |||
| 1 | Notes to the consolidated financial statements9 General information9 |
||
| 2 | Summary of significant accounting policies9 | ||
| 2.1 | Basis of preparation 9 | ||
| 2.2 | Basis of Consolidation16 | ||
| 2.3 | Business combinations18 | ||
| 2.4 | Segment reporting18 | ||
| 2.5 | Foreign currency translation 19 | ||
| 2.6 | Assets held for sale 20 | ||
| 2.7 | Property, plant and equipment 20 | ||
| 2.8 | Borrowing costs21 | ||
| 2.9 | Intangible assets21 | ||
| 2.10 | Exploration for and Evaluation of Mineral Resources22 | ||
| 2.11 | Impairment of non-financial assets23 | ||
| 2.12 | Financial assets23 | ||
| 2.13 | Derivative financial instruments and hedging activities25 | ||
| 2.14 | Government grants26 | ||
| 2.15 | Inventories26 | ||
| 2.16 | Trade receivables26 | ||
| 2.17 | Cash, cash equivalents and restricted cash 27 | ||
| 2.18 | Share capital 27 | ||
| 2.19 | Borrowings 27 | ||
| 2.20 | Current and deferred income tax 28 | ||
| 2.21 | Employee benefits 28 | ||
| 2.22 | Trade and other payables30 | ||
| 2.23 | Provisions 30 | ||
| 2.24 | Environmental liabilities30 | ||
| 2.25 | Revenue recognition 30 | ||
| 2.26 | Leases32 | ||
| 2.27 | Dividend distribution 32 | ||
| 2.28 | Financial guarantee contracts32 | ||
| 2.29 | Changes in accounting policies32 | ||
| 2.30 | Comparative figures32 | ||
| 3 | Financial risk management 33 | ||
| 3.1 | Financial risk factors33 | ||
| 3.2 | Capital risk management 37 | ||
| 3.3 | Fair value estimation38 | ||
| 4 | Critical accounting estimates and judgements 39 |
| 5 | Segment information42 |
|---|---|
| 6 | Property, plant and equipment45 |
| 7 | Intangible assets 47 |
| 8 | Investments in associates and joint ventures 48 |
| 9 | Loans, Advances & Long Term assets54 |
| 10 | Inventories 54 |
| 11 | Trade and other receivables55 |
| 12 | Cash, cash equivalents and restricted cash 56 |
| 13 | Share capital 57 |
| 14 | Reserves 58 |
| 15 | Trade and other payables59 |
| 16 | Interest bearing loans and borrowings60 |
| 17 | Deferred income tax63 |
| 18 | Retirement benefit obligations64 |
| 19 | Provisions67 |
| 20 | Trade and other payables, non-current 67 |
| 21 | Derivative financial instruments68 |
| 22 | Expenses by nature 69 |
| 23 | Exploration and Development expenses69 |
| 24 | Other operating income / (expenses) and other gains / (losses)70 |
| 25 | Finance (Expenses) / Income - Net70 |
| 26 | Currency exchange gains / (losses) 70 |
| 27 | Income tax expense 71 |
| 28 | Earnings per share 72 |
| 29 | Dividends per share72 |
| 30 | Cash generated from operations73 |
| 31 | Contingencies and litigation 73 |
| 32 | Commitments 76 |
| 33 | Related-party transactions76 |
| 34 | Principal subsidiaries, associates and joint ventures included in the consolidated financial |
| statements 78 | |
| 35 | Events after the end of the reporting period79 |
| Directors | Efstathios Tsotsoros - Chairman of the Board & Chief Executive Officer (From 17/04/2018) |
|---|---|
| Andreas Shiamishis - Deputy Chief Executive Officer | |
| Georgios Alexopoulos - Member | |
| Theodoros-Achilleas Vardas - Member | |
| Georgios Grigoriou - Member | |
| Georgios Papakonstantinou - Member (From 06/06/2018) | |
| Theodoros Pantalakis - Member | |
| Spiridon Pantelias - Member | |
| Κonstantinos Papagiannopoulos - Member | |
| Dimitrios Kontofakas - Member | |
| Vasileios Kounelis - Member | |
| Loudovikos Kotsonopoulos - Member (From 17/04/2018) | |
| Christos Tsitsikas - Member (From 29/11/2018) | |
| Other Board Members | |
| during the year | Grigorios Stergioulis - Chief Executive Officer (Until 17/04/2018) |
| Panagiotis Ofthalmides - Member (Until 06/06/2018) | |
| Ioannis Psichogios - Member (Until 29/11/2018) | |
| Registered Office | |
| 8A Chimarras Str | |
| GR 151 25 - Marousi | |
| General Commercial | |
| Registry | 000296601000 |
These consolidated financial statements constitute an integral part of the Annual Financial Report which can be found at https://www.helpe.gr/en/investor-relations/quarterly-results/annual-and-interim-financial-reports/ and which incorporates the Independent Auditor's Report.
| As at | |||
|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 6 | 3.268.928 | 3.311.893 |
| Intangible assets | 7 | 105.617 | 105.684 |
| Investments in associates and joint ventures | 8 | 390.091 | 701.635 |
| Deferred income tax assets | 17 | 64.109 | 71.355 |
| Investment in equity instruments | 3 | 634 | 1.857 |
| Loans, advances and long term assets | 9 | 73.922 | 89.626 |
| 3.903.301 | 4.282.050 | ||
| Current assets | |||
| Inventories | 10 | 993.031 | 1.056.393 |
| Trade and other receivables | 11 | 821.598 | 791.205 |
| Assets held for sale | 3.133 | - | |
| Derivative financial instruments | 21 | - | 11.514 |
| Cash, cash equivalents and restricted cash | 12 | 1.276.366 | 1.018.913 |
| 3.094.128 | 2.878.025 | ||
| Total assets | 6.997.429 | 7.160.075 | |
| EQUITY | |||
| Share capital and share premium | 13 | 1.020.081 | 1.020.081 |
| Reserves | 14 | 258.527 | 358.056 |
| Retained Earnings | 1.052.164 | 930.522 | |
| Equity attributable to equity holders of the parent | 2.330.772 | 2.308.659 | |
| Non-controlling interests | 63.959 | 62.915 | |
| Total equity | 2.394.731 | 2.371.574 | |
| LIABILITIES | |||
| Non- current liabilities | |||
| Interest bearing loans and borrowings | 16 | 1.627.171 | 920.234 |
| Deferred income tax liabilities | 17 | 185.744 | 131.611 |
| Retirement benefit obligations | 18 | 163.514 | 133.256 |
| Provisions | 19 | 42.038 | 6.371 |
| Trade and other payables | 20 | 28.852 | 28.700 |
| 2.047.319 | 1.220.172 | ||
| Current liabilities | |||
| Trade and other payables | 15 | 1.349.153 | 1.661.457 |
| Derivative financial instruments | 21 | 16.387 | - |
| Income tax payable | 80.171 | 5.883 | |
| Interest bearing loans and borrowings | 16 | 1.108.785 | 1.900.269 |
| Dividends payable | 883 | 720 | |
| 2.555.379 | 3.568.329 | ||
| Total liabilities | 4.602.698 | 4.788.501 | |
| Total equity and liabilities | 6.997.429 | 7.160.075 |
The notes on pages 9 to 79 are an integral part of these consolidated financial statements.
These consolidated financial statements were approved by the board of directors on 28 February 2019.
| E. Tsotsoros | A. Shiamishis | S. Papadimitriou | |
|---|---|---|---|
| Chairman of the Board & Chief Executive Officer |
Deputy Chief Executive Officer | Accounting Director | |
| & Chief Financial Officer |
| Note | For the year ended 31 December 2018 |
31 December 2017 | |
|---|---|---|---|
| Reveue from contracts with customers | 5 | 9.769.155 | 7.994.690 |
| Cost of sales | 22 | (8.769.769) | (6.907.198) |
| Gross profit | 999.386 | 1.087.492 | |
| Selling and distribution expenses | 22 | (324.430) | (276.182) |
| Administrative expenses | 22 | (150.518) | (133.427) |
| Exploration and development expenses | 23 | (1.403) | (212) |
| Other operating (expenses) / income and other gains/( losses) - net | 24 | (8.823) | (15.888) |
| Operating profit | 514.212 | 661.783 | |
| Finance income | 25 | 3.827 | 4.600 |
| Finance expense | 25 | (149.532) | (169.653) |
| Currency exchange (losses) / gains | 26 | 2.194 | (8.173) |
| Share of profit/ (loss) of investments in associates and joint ventures | 8 | (1.771) | 31.228 |
| Profit before income tax | 368.930 | 519.785 | |
| Income tax expense | 27 | (154.218) | (135.862) |
| Profit for the year | 214.712 | 383.923 | |
| Profit attributable to: | |||
| Owners of the parent | 211.614 | 381.372 | |
| Non-controlling interests | 3.098 | 2.551 | |
| 214.712 | 383.923 | ||
| Other comprehensive income/ (loss): Other comprehensive income that will not be reclassified to profit or |
|||
| loss (net of tax): | |||
| Actuarial losses on defined benefit pension plans | (11.012) | (9.589) | |
| Changes in the fair value of equity instruments | 14 | (695) | 6 |
| Reduction in value of land | 14 | - | (1.669) |
| Share of other comprehensive income/ (loss) of associates | 14 | (288) | - |
| (11.995) | (11.252) | ||
| Other comprehensive income that may be reclassified subsequently to | |||
| profit or loss (net of tax): | |||
| Fair value losses on cash flow hedges | 14 | (5.006) | (4.590) |
| Derecognition of gains/losses on hedges through comprehensive income | 14 | (14.920) | 1.979 |
| Currency translation differences and other movements | (745) (20.671) |
752 (1.859) |
|
| Other comprehensive (loss)/income for the year, net of tax | (32.666) | (13.111) | |
| Total comprehensive income for the year | 182.046 | 370.812 | |
| Total comprehensive income/(loss) attributable to: | |||
| Owners of the parent | 178.958 | 368.989 | |
| Non-controlling interests | 3.088 182.046 |
1.823 370.812 |
|
| Basic and diluted earnings per share (expressed in Euro per share) |
28 | 0,69 | 1,25 |
The notes on pages 9 to 79 are an integral part of these consolidated financial statements.
| Attributable to owners of the Parent | |||||||
|---|---|---|---|---|---|---|---|
| Note | Share Capital |
Reserves | Retained Earnings |
Total | Non controlling Interest |
Total Equity |
|
| Balance at 1 January 2017 | 1.020.081 | 469.788 | 549.891 | 2.039.760 | 101.875 | 2.141.635 | |
| Changes of the fair value of equity inestment | 14 | - | 1 | - | 1 | 5 | 6 |
| Currency translation gains/(losses) and other movements | 14 | - | 718 | - | 718 | 34 | 752 |
| Reduction in value of land | 14 | - | (907) | - | (907) | (762) | (1.669) |
| Actuarial losses on defined benefit pension plans | 14 | - | (9.584) | - | (9.584) | (5) | (9.589) |
| Fair value gains on cash flow hedges | 14 | - | (4.590) | - | (4.590) | - | (4.590) |
| Derecognition of gains on hedges through comprehensive income | 14 | - | 1.979 | - | 1.979 | - | 1.979 |
| Other comprehensive income / (loss) | - | (12.383) | - | (12.383) | (728) | (13.111) | |
| Profit /(loss) for the year | - | - | 381.372 | 381.372 | 2.551 | 383.923 | |
| Total comprehensive income/(loss) for the year | - | (12.383) | 381.372 | 368.989 | 1.823 | 370.812 | |
| Share based payments | 13 | - | (653) | (9.061) | (9.714) | - | (9.714) |
| Acquisition of treasury shares | 14 | - | (10.245) | - | (10.245) | - | (10.245) |
| Issue of treasury shares to employees | 14 | - | 9.714 | - | 9.714 | - | 9.714 |
| Participation of minority holding in share capital decrease of subsidiary | - | - | - | - | 76 | 76 | |
| Transfers from Retained Earnings to Reserves | 14 | - | 8.797 | (8.797) | - | - | - |
| Tax on intra-group dividends | - | - | (136) | (136) | - | (136) | |
| Dividends to non-controlling interests | - | - | - | - | (2.561) | (2.561) | |
| Dividends | 14 | - | (106.962) | - | (106.962) | - | (106.962) |
| Acquisition of non- controlling interests | - | - | 17.253 | 17.253 | (38.298) | (21.045) | |
| Balance at 31 December 2017 as originally presented | 1.020.081 | 358.056 | 930.522 | 2.308.659 | 62.915 | 2.371.574 | |
| Change in accounting policy | 2.1.1 | - | 166 | (3.469) | (3.303) | - | (3.303) |
| Restated total equity as at 1 January 2018 | 1.020.081 | 358.222 | 927.053 | 2.305.356 | 62.915 | 2.368.271 | |
| Changes in the fair value of equity instruments | 14 | - | (700) | - | (700) | 5 | (695) |
| Currency translation gains/(losses) and other movements Actuarial losses on defined benefit pension plans |
14 14 |
- - |
(740) (11.002) |
- - |
(740) (11.002) |
(5) (10) |
(745) (11.012) |
| Fair value losses on cash flow hedges | 14 | - | (5.006) | - | (5.006) | - | (5.006) |
| Share of other comprehensive income/ (loss) of associates | 14 | - | (288) | - | (288) | - | (288) |
| Derecognition of gains on hedges through comprehensive income | 14 | - | (14.920) | - | (14.920) | - | (14.920) |
| Other comprehensive loss | 14 | - | (32.656) | - | (32.656) | (10) | (32.666) |
| Profit for the period | - | - | 211.614 | 211.614 | 3.098 | 214.712 | |
| Total comprehensive income/(loss) for the year | - | (32.656) | 211.614 | 178.958 | 3.088 | 182.046 | |
| Share based payments | 13 | - | (93) | (1.121) | (1.214) | - | (1.214) |
| Acquisition of treasury shares | 14 | - | (683) | - | (683) | - | (683) |
| Issue of treasury shares to employees | 14 | - | 1.214 | - | 1.214 | - | 1.214 |
| Participation of minority shareholders in share capital increase of subsidiary | - | - | - | - | 17 | 17 | |
| Transfers from Reserves to Retained Earnings | 14 | - | (17.319) | 17.319 | - | - | - |
| Tax on intra-group dividends | - | - | (123) | (123) | - | (123) | |
| Dividends to non-controlling interests | - | - | - | - | (2.061) | (2.061) | |
| Dividends | - | (76.408) | (76.408) | (152.816) | - | (152.816) | |
| Transfer to Statutory Reserve | - | 26.170 | (26.170) | - | - | - | |
| Transfer of grant received to tax free reserves | 14 | - | 80 | - | 80 | - | 80 |
| Balance at 31 December 2018 | 1.020.081 | 258.527 | 1.052.164 | 2.330.772 | 63.959 | 2.394.731 |
The notes on pages 9 to 79 are an integral part of these consolidated financial statements.
| For the year ended | ||||
|---|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | ||
| Cash flows from operating activities | ||||
| Cash generated from operations | 30 | 507.846 | 453.311 | |
| Income tax paid | (4.918) | (10.375) | ||
| Net cash generated from operating activities | 502.928 | 442.936 | ||
| Cash flows from investing activities | ||||
| Purchase of property, plant and equipment & intangible assets | 6,7 | (156.713) | (208.732) | |
| Proceeds from disposal of property, plant and equipment & intangible assets | 277 | 30 | ||
| Settlement of consideration of acquisition of further equity interest in subsidiary | (1.298) | - | ||
| Purchase of subsidiary, net of cash acquired | 34 | (16.000) | - | |
| Grants received | 299 | 110 | ||
| Interest received | 25 | 3.827 | 4.600 | |
| Dividends received | 8 | 307.735 | 19.346 | |
| Investment in associates - net | 8 | - | (147) | |
| Proceeds from disposal of investments in equity instruments | 265 | 8 | ||
| Net cash generated from/ (used in) investing activities | 138.392 | (184.785) | ||
| Cash flows from financing activities | ||||
| Interest paid | (140.755) | (160.830) | ||
| Dividends paid to shareholders of the Company | (148.767) | (104.115) | ||
| Dividends paid to non-controlling interests | (2.061) | (2.561) | ||
| Movement in restricted cash | 12 | 144.445 | 11.873 | |
| Acquisition of treasury shares | (683) | (10.245) | ||
| Participation of minority shareholders in share capital increase of subsidiary | 17 | 76 | ||
| Proceeds from borrowings | 409.694 | 288.000 | ||
| Repayments of borrowings | (506.358) | (322.622) | ||
| Net cash used in financing activities | (244.468) | (300.424) | ||
| Net increase/ (decrease) in cash and cash equivalents | 396.852 | (42.273) | ||
| Cash and cash equivalents at the beginning of the year | 12 | 873.261 | 924.055 | |
| Exchange gains / (losses) on cash and cash equivalents | 5.046 | (8.521) | ||
| Net increase/(decrease) in cash and cash equivalents | 396.852 | (42.273) | ||
| Cash and cash equivalents at end of the year | 12 | 1.275.159 | 873.261 |
The notes on pages 9 to 79 are an integral part of these consolidated financial statements.
Hellenic Petroleum S.A. ("the Company or "Hellenic Petroleum") is the parent company of Hellenic Petroleum Group (the "Group"). The Group operates in the energy sector predominantly in Greece, South Eastern Europe and the East Mediterranean. The Group's activities include refining and marketing of oil products, production and marketing of petrochemical products and exploration for hydrocarbons. The Group also provides engineering services. Through its investments in DEPA and Elpedison, the Group also operates in the natural gas sector and in the production and trading of electricity power.
The parent Company is incorporated in Greece and the address of its registered office is 8 A Chimarras Str., Marousi. The shares of the Company are listed on the Athens Stock Exchange and the London Stock Exchange through GDRs.
The financial statements and the consolidated financial statements of Hellenic Petroleum S.A. for the year ended 31 December 2018 were authorised for issue by the Board of Directors on 28 February 2019. The shareholders of the Company have the power to amend the financial statements after their issuance.
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.
These consolidated financial statements for the year ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB"), as endorsed by the European Union ("EU"), and present the financial position, results of operations and cash flows of the Group on a going concern basis. Management has concluded that the going concern basis of preparation of the accounts is appropriate.
The consolidated financial statements have been prepared in accordance with the historical cost basis, except for the following:
The preparation of financial statements, in accordance with IFRS, requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4 "Critical accounting estimates and judgements". Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events as assessed to be reasonable under the present circumstances.
The accounting principles and calculations used in the preparation of the consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2017 and have been consistently applied in all periods presented in this report except for the following IFRS's which have been adopted by the Group as of 1 January 2018. The Group applied for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments and disclosed below, as required by IAS8, the nature and effect of these changes. Several other amendments and interpretations apply for the first time in 2018 but do not have a significant impact on the consolidated financial statements of the Group for the year ended 31 December 2018.
IFRS 9 Financial Instruments: The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.
The Group adopted the new standard as of 1 January 2018 without restating comparative information. The cumulative effect of the adjustments arising from the new requirements are therefore recognized in the opening balance of retained earnings on 1 January 2018.
The following table shows the adjustments recognized for each individual line item. Line items that were not affected by the changes have not been included. The adjustments are presented in more detail below.
Impact on the statement of financial position (increase/(decrease)) as at 31 December 2017 as published:
| Balance sheet extract | Adjustments | 31 December 2017 As published |
IFRS 9 | 1 January 2018 after effect of IFRS 9 |
|---|---|---|---|---|
| Non-current assets | ||||
| Investments in associates and joint ventures | (b) | 701.635 | (1.750) | 699.885 |
| Deferred income tax assets | (b) | 71.355 | 531 | 71.886 |
| Available for sale financial assets | (a) | 1.857 | (1.857) | - |
| Investment in equity instruments | (a) | - | 1.857 | 1.857 |
| Current assets | ||||
| Trade and other receivables | (b) | 791.205 | (2.084) | 789.121 |
| Equity | ||||
| Reserves | (a) | 358.056 | 166 | 358.222 |
| Retained earnings | (a), (b) | 930.522 | (3.469) | 927.053 |
Under IFRS 9, financial assets are subsequently measured at fair value through profit or loss (FVPL), amortized cost, or at fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group's business model for managing the assets; and whether the instruments' contractual cash flows represent solely payments of principal and interest on the principal amount outstanding.
The financial assets (equity investments) that were classified by the Group as available-for-sale (AFS) under IAS 39, are now classified as 'Investments in equity instruments' and measured at fair value through other comprehensive income. Any changes in the fair value of such equity instruments are included in "items that will not be reclassified to profit or loss". IFRS 9 permits an entity to make an irrevocable election to designate an investment in equity instruments that is not held for trading as at fair value through other comprehensive income.
As a result of applying the classification, the Group reclassified an amount of € 0,2 million from retained earnings to reserves.
Derivative instruments, to the extent they are not designated as effective hedges, continue to be classified as financial assets at FVPL.
The accounting for the Group's financial liabilities remain largely the same as under IAS 39.
In summary, upon the adoption of IFRS 9, the Group had the following reclassifications:
| Fair value through profit or loss |
Amortised cost | Fair value through OCI |
||
|---|---|---|---|---|
| Loans and receivables | ||||
| Trade receivables | 791.205 | - | 789.121 | - |
| Available for sale financial assets | 1.857 | - | - | 1.857 |
The adoption of IFRS 9 has changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach.
For trade receivables, the Group has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
For other financial assets, the ECL is based on the 12-month ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been as significant increase in credit risk since origination, the allowance will be based on the lifetime ECL.
Financial assets with contractual payments over 90 days past due constitute default events. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
The effect of the above change on the statement of financial position as at 1 January 2018 resulted in a decrease of retained earnings of €3,5 million, a decrease of €2,1 million in trade receivables, an increase of €0,5 million in deferred income tax assets and a decrease of €1,8 million in investment in associates and joint ventures.
Set out below is the reconciliation of the ending impairment allowances in accordance with IAS 39 to the opening loss allowances determined in accordance with IFRS 9:
| Allowance for impairment under IAS 39 as at 31 December 2017 |
Remeasurement | ECL under IFRS 9 as at 1 January 2018 |
|
|---|---|---|---|
| Trade receivables under IAS 39/Financial assets at amortised cost under IFRS 9 |
248.008 | 2.084 | 250.092 |
At the date of the initial application, all of the Group's existing hedging relationships were eligible to be treated as continuing hedging relationships under IFRS 9 and, as such, the adoption of the hedge accounting requirements of the new standard had no significant impact on the Group's financial statements. The Group's risk management policies and hedge documentation are aligned with the requirement of the new standard and hedge accounting continues to apply.
IFRS 15 Revenue from Contracts with Customers: IFRS 15 establishes a five-step model that applies to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not in the Group's ordinary activities (e.g. sales of property, plant and equipment or intangible).
As from 1 January 2018, the Group applies the new standard using the modified retrospective method, therefore the initial application did not result in any restatement of comparative data. The new standard did not have any significant impact on the Group's consolidated financial statements, upon adoption since, no material differences from applying the new accounting policies were identified. Therefore it did not have any impact on retained earnings and no transition adjustments were required as a result of its application. Although the implementation of IFRS 15 does not generally represent a material change from the Group's current practices the Group revised its respective accounting policy as follows:
The Group recognizes revenue when (or as) a contractual promise to a customer (performance obligation) is fulfilled by transferring a promised good or service (which is when the customer obtains control over the promised goods or services). If a contract contains more than one performance obligation, the total transaction price of the contract is allocated among the individual, separate performance obligations based on their relative standalone selling prices. The amount of revenue recognized is the amount allocated to the satisfied performance obligation based on the consideration that the Group expects to receive in accordance with the terms of the contracts with the customers. Variable considerations are included in the amount of revenue recognized only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur in the future.
Options for prospective volume related discounts are assessed by the Group to determine whether they constitute a material right that the customer would not receive without entering into that contract. For all such options that are considered as material rights, the Group assesses the likelihood of its exercise and then the portion of the transaction price allocated to the option is deferred and recognized when it is either exercised or lapsed.
Under the new requirements, the Group concluded that prospective volume discounts constitute a material right which should be deferred and recognized when exercised or lapsed. The Group provides volume discounts to customers based on thresholds specified in contracts. All such discounts are accrued within the financial year and therefore the application of the new standard has a nil effect in the annual Financial Statements.
Revenue from contracts with customers in accordance with the Group's commercial policy is disaggregated by operating segment and distribution channel in Note 5. In addition, the Group concluded that it transfers control over its products at a point in time, upon receipt by the customer, because this is when the customer benefits from the respective products.
The Group has not early adopted any other of the following standard, interpretation or amendment that has been issued but is not yet effective. In addition, the Group assessed all standards, interpretations and amendments issued but not yet effective, and concluded that, except for IFRS 16, which is analyzed below, they will not have any significant impact on the consolidated financial statements.
IFRS 16 Leases: The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor').
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Agreement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal From of a Lease.
The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. More specifically, IFRS 16 introduces a single, on-balance sheet lease accounting model for leases. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
The Group has set up a project team which has reviewed all of the group's leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group's operating leases. The Group has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements. Particularly, it has disclosed known or reasonably estimable information relevant to assessing the possible impact that the application of IFRS 16 will have on its financial statements in the period of initial application that was available when the financial statements were prepared, as seen below.
The actual impacts of adopting the standard on 1 January 2019 may change because:
The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Under this approach the Group will a) recognize a lease liability and will measure that lease liability at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at the date of initial application and b) recognise a right-of-use asset and measure that right-of-use asset by an amount equal to the lease liability.
The cumulative effect of adopting IFRS 16, if such need arises, will be recognized as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. Furthermore, the Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. Finally the Group decided to apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with similar remaining lease term for similar class of underlying assets in a similar economic environment).
The Group will recognize new assets and liabilities for its operating leases of commercial properties such as petrol stations and office buildings as well as motor vehicles and equipment. Subsequent to initial recognition, the Group will a) measure the right-of-use asset by applying the cost model and depreciate it on a straight line basis up to the end of the lease term and b) measure the lease liability by increasing and reducing the carrying amount to reflect interest on the lease liability and lease payments made, respectively.
Previously, the Group recognized operating lease expense on a straight-line basis over the term of the lease, and recognized assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized.
In addition, the Group will no longer recognize provisions for operating leases that it assesses to be onerous. Instead, the Group will include amounts due under the lease in its lease liability.
Based on the information currently available, and subject to the completion of the above mentioned implementation tasks the Group estimates that it will recognize additional lease liabilities in the range of €
160 million to € 180 million as at 1 January 2019 and additional right-of-use assets in the range of € 160 million to € 180 million. The estimated impact on the EBITDA of the Group is an increase in the range of €30 million to €40 million.
The Group does not expect the adoption of IFRS 16 to impact its ability to comply with Group's loan covenants.
Conceptual Framework in IFRS standards: The IASB issued the revised Conceptual Framework for Financial Reporting on 29 March 2018. The Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. IASB also issued a separate accompanying document, Amendments to References to the Conceptual Framework in IFRS Standards, which sets out the amendments to affected standards in order to update references to the revised Conceptual Framework. It's objective is to support transition to the revised Conceptual Framework for companies that develop accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular transaction. For preparers who develop accounting policies based on the Conceptual Framework, it is effective for annual periods beginning on or after 1 January 2020.
IFRS 3 Business Combinations (Amendments): The IASB issued amendments in Definition of a Business (Amendments to IFRS 3) aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period, with earlier application permitted. These Amendments have not yet been endorsed by the EU.
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
At each reporting period, the Group reassesses whether it exercises control over the investees, in case there are facts and circumstances indicating a change in one of the control elements above. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated, unless there is objective evidence that the asset is impaired. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of other comprehensive income, statement of changes in equity and statement of financial position respectively.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control over an entity, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, investments are initially recognised at cost and their carrying amount is increased or decreased to recognise the investor's share of the profit or loss or share of other comprehesive income of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.
The Group's share of its associates' post-acquisition profit or loss is recognised in the statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment in the associate and its carrying value.
Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognised in the Group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates are changed where necessary to ensure consistency with the policies adopted by the Group.
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor.
Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the postacquisition profits or losses and movements in other comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interest in the joint ventures, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures are changed where necessary to ensure consistency with the policies adopted by the Group.
A joint operation arises where the Group has rights to the assets and obligations of the operation. The Group recognizes its share of the assets, obligations, revenue and expenses of the jointly controlled operation, including its share of those held or incurred jointly, in each respective line of its' financial statements.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within 'Share of profit of investments in associates and a joint ventures' in the statement of profit or loss.
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest (previously minority interests) in the acquiree. For each business combination, the Group measures the noncontrolling interest in the acquiree at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed.
The consideration transferred for the acquisition of a subsidiary is the total of the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of acquisition. The discount rate used is the entity's incremental borrowing rate, being the rate at which similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date and is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss, in accordance with the appropriate IFRS. Amounts classified as equity are not remeasured.
Goodwill (as disclosed in Note 2.9) is initially measured as the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest and any previous interest held over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the Group reasseses whether it has correctly indentified all of the assets acquired and liabilities assumed and reviews their measurement, before any remaining difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The executive committee which is comprised of the Chairman of the Board of Directors and Chief Executive Officer, the Deputy Chief Executive Officer and six General Managers of the Group, is the chief operating decision-maker, who makes strategic decisions and is responsible for allocating resources and assessing performance of the operating segments. The Group's key operating segments are disclosed in note 5.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Euro, which is the parent entity's functional currency and the presentation currency of the Group. Given that the Group's primary activities are in oil refining and trading, in line with industry practices, most crude oil and oil product trading transactions are based on the international reference prices of crude oil and oil products in US Dollars. Depending on the country of operation, the Group translates this value to the local currency (Euro in most cases) at the time of any transaction.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the statement of comprehensive income. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges.
For transactions that include the receipt or payment of advance consideration in a foreign currency the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.
Foreign exchange gains and losses are presented in the same line as the transaction they relate to in the statement of comprehensive income, except those that relate to borrowings and cash, which are presented in a separate line ("Currency exchange gains/(losses)").
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recognised in other comprehensive income. When a foreign operation is sold, exchange differences that were recorded in other comprehensive income are recognised in the statement of comprehensive income as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
The Group classifies assets as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets held for sale and their related liabilities are presented separately as current items in the statement of financial position.
Property, plant and equipment is comprised mainly of land, buildings, plant & machinery, motor vehicles and furniture and fixtures. Property, plant and equipment are shown at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to the income statement as incurred. Refinery turnaround costs that take place periodically are capitalised and charged against income on a straight line basis until the next scheduled turnaround to the extent that such costs improve either the useful economic life of the equipment or its production capacity.
Assets under construction are assets (mainly related to the refinery units) that are in the process of construction or development, and are carried at cost. Cost includes cost of construction, professional fees and other direct costs. Assets under construction are not depreciated, as the corresponding assets are not yet available for use.
Land is also not depreciated. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful economic life, as shown on the table below for the main classes of assets:
| – Buildings (including petrol stations) | 13 – 40 years | ||||
|---|---|---|---|---|---|
| – Plant & Machinery | |||||
| Specialised industrial installations and Machinery |
10 – 35 years | ||||
| Pipelines |
30 – 40 years | ||||
| Other equipment |
5 – 10 years | ||||
| – Transportation means | |||||
| LPG and white products carrier tank trucks |
5 – 10 years | ||||
| Other Motor Vehicles |
4 – 10 years | ||||
| Shipping Vessels |
25 – 35 years | ||||
| – Furniture and fixtures |
| | Computer hardware | 3 – 5 years |
|---|---|---|
| | Other furniture and fixtures | 4 – 10 years |
Specialised industrial installations include refinery units, petrochemical plants, tank facilities and petrol stations. Based on technical studies performed during 2013, the expected useful life of the new refinery units (Elefsina refinery) has been estimated to be up to 35 years. The remaining useful economic life of other refining units has been reviewed and adjusted from 1 July 2013 and in general does not exceed 25 years.
The assets' residual values and estimated useful economic lives are reviewed at the end of each reporting period and adjusted prospectively if appropriate.
If the asset's carrying amount is greater than its estimated recoverable amount then it is written down immediately to its recoverable amount (Note 2.11).
The cost and related accumulated depreciation of assets retired or sold are removed from the accounts at the time of sale or retirement and any gain or loss, which is determined by comparing the proceeds with the carrying amount, is included in the consolidated statement of comprehensive income within "Other operating income / (expenses).
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are added to the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use.
Borrowing costs are capitalised to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. All other borrowing costs are expensed as incurred.
Goodwill represents the excess of the consideration transferred over the Company's interest in net fair value of the net identifiable assets and liabilities of the acquiree at the date of acquisition. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. In the event that the fair value of the Company's share of the net identifiable assets of the acquired subsidiary at the date of acquisition is higher than the cost, the excess remaining is recognised immediately in the statement of comprehensive income.
Goodwill is allocated to cash-generating units (CGU) for the purpose of impairment testing. The allocation is made to those CGUs or Groups of CGUs that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment. Goodwill impairment reviews are undertaken annually or more frequently, if events or changes in circumstances indicate a potential impairment. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount (higher of value in use and fair value less costs to sell) of the CGU is less than its carrying amount including goodwill, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Retail Service Stations Usage rights represent upfront lump-sum amounts paid upon the signing of agreements to owners of such retail sites for the use and control of the service stations. Such payments are made to secure branding and future revenues for the Group that were not available in the past and are therefore capitalised in
accordance with IAS 38, Intangible Assets. They are amortised over the life of the acquired right which usually ranges from 5 to 25 years.
Licenses and rights have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is being calculated using the straight-line method to allocate their cost over their estimated useful lives, which usually range from 3 to 25 years.
Licenses and rights also include Upstream Exploration rights which are amortised over the period of the exploration period as per the terms of the relevant licences.
These include primarily the costs of implementing the (ERP) computer software program. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight line method over their estimated useful lives (1 to 5 years).
During the exploration period and before a commercial viable discovery, oil and natural gas exploration and evaluation expenditures are expensed. Geological and geophysical costs as well as costs directly associated with an exploration are expensed as incurred. Exploration property leasehold acquisition costs are capitalized within intangible assets and amortised over the period of the licence or in relation to the progress of the activities if there is a substantial difference.
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of commercially proven development wells is capitalized within tangible and intangible assets according to their nature. When development is completed on a specific field, it is transferred to production assets. No depreciation and/or amortisation is charged during development.
Oil and gas production assets are aggregated exploration and evaluation tangible assets and development expenditures associated with the production of proved reserves.
Oil and gas properties/intangible assets are depreciated/amortized using the unit-of-production method. Unit-ofproduction rates are based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing facilities using current operating methods. Oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the field storage tank.
The exploration property leasehold acquisition costs are tested for impairment whenever facts and circumstances indicate impairment. For the purposes of assessing impairment, the exploration property leasehold acquisition costs subject to testing are grouped with existing cash-generating units (CGUs) of production fields that are located in the same geographical region corresponding to each licence.
Proven oil and gas properties and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
The Group assesses, at each reporting date, whether an indication of impairment exists. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Assets that are subject to amortisation or depreciation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use (discounted cash flows an asset is expected to generate based upon management's expectations of future economic and operating conditions). For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section 2.25 Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in three categories:
• Financial assets at amortised cost (debt instruments)
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
• Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value.
Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
Derivatives are also categorised as 'held for trading' unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the end of the reporting period, otherwise they are classified as non-current. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model
The Group measures financial assets at amortised cost if both of the following conditions are met: a) the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Group elected to classify irrevocably its listed equity investments under this category.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when:
The rights to receive cash flows from the asset have expired Or
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Further disclosures relating to impairment of financial assets are also provided in the following notes:
For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
As part of its risk management policy, the Group utilizes currency and commodity derivatives to mitigate the impact of volatility in commodity prices and foreign exchange rates. Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Changes in fair values of the derivative financial instruments are recognised at each reporting date either in the statement of comprehensive income or in other comprehensive income, depending on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions.
Τhe documentation also includes both at hedge inception and on an ongoing basis how it will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
The instruments used for this risk management include commodity exchange traded contracts (ICE futures), full refinery margin forwards, product price forward contracts or options.
The effective portion of changes in the fair value of these derivatives is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income within "Other operating income / (expenses) and other gains / (losses)". Amounts accumulated in equity are recycled in the statement of comprehensive income in the periods when the hedged item affects profit or loss (i.e. when the forecast transaction being hedged takes place) within cost of sales.
When a hedging instrument expires or is sold, or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the derivative is de-designated and the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income within "Other operating income / (expenses) and other gains / (losses)".
Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for at fair value through profit or loss. Changes in the fair value of the derivative instruments that do not qualify for hedge accounting are recognized immediately in the statement of comprehensive income.
Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants related to Property, Plant and Equipment received by the Group are initially recorded as deferred government grants and included in "Other long term liabilities". Subsequently, they are credited to the statement of comprehensive income over the useful lives of the related assets in direct relationship to the depreciation charged on such assets.
Inventories comprise crude oil and other raw materials, refined and semi-finished products, petrochemicals, merchandise, consumables and other spare parts.
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the monthly weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. It does not include borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale, where applicable. Spare parts consumed within a year are carried as inventory and recognized in profit or loss when consumed.
Trade receivables, which generally have 20-90 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
Trade receivables include bills of exchange and promissory notes from customers.
For trade receivables, which are not in default the Group applies the simplified approach, in accordance with IFRS 9 and calculates ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. On the other hand, trade receivables in default are assessed on a case by case basis. The amount of the provision is recognised in the statement of comprehensive income and is included in "Selling and distribution expenses".
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments such as marketable securities and time deposits with original maturities of three months or less. Restricted cash include bank deposits placed as security for loan agreements.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in equity.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest rate method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
In cases where an existing borrowing of the Group is renegotiated, this might result in modification or an exchange of borrowings with the lenders that could be carried out in a number of ways. Whether a modification or exchange of borrowings represents a settlement of the original debt, or merely a renegotiation of that debt, determines the accounting treatment that should be applied by the borrower. When the terms of the existing borrowings are substantially different from the terms of the modified or exchanged borrowings, such a modification or exchange is treated as an extinguishment of the original borrowing and any difference arising is recognized in profit and loss.
The Group considers the terms to be substantially different if either the discounted present value of the future cash flows under the new terms, including any costs or fees incurred, using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original borrowing or there is a substantial change in the terms from a qualitative perspective. Qualitative factors may include:
The tax expense or credit for the period comprises current and deferred tax. The income tax expense or credit for the period, is the tax estimated on the current period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, as well as additional taxes for prior years. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognized directly in equity. In this case, the tax is also recognized in equity.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group's subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is not recognized if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction does not affect either accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred income tax assets are reviewed at each financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities, where there is an intention to settle the balances on a net basis.
The Group participates in various pension schemes. The payments are determined by the local legislation and the funds' regulations. The Group has both defined benefit and defined contribution plans.
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate State pension fund. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Where applicable, under local labor laws, employees and workers are entitled to termination payments in the event of retirement with the amount of payment varying in relation to the employee's or worker's compensation and length of service. This program is considered as a defined benefit plan.
The liability recognized in the consolidated statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligation.
The current service cost of the defined benefit plan, recognized in the consolidated statement of profit or loss in employee benefit expense (except where included in the cost of an asset) reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Past-service costs are recognized immediately in the consolidated statement of comprehensive income.
The Group's employees are covered by one of several Greek State sponsored pension funds which relates to the private sector and provides pension and pharmaceutical benefits. Each employee is required to contribute a portion of their monthly salary to the funds, with the Group also contributing a portion. Upon retirement, the pension fund is responsible for paying the employees retirement benefits. As such, the Group has no legal or constructive obligation to pay future benefits under this plan.
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
Employees of the Group may receive remuneration in the form of share based payments as part of a share option plan. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, at the date of granting. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest.
At each reporting period end, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.
When the options are exercised, the Company may issue new shares. In that case, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
The Group recognises the expected cost of short-term employee benefits in the form of paid absences in the case of accumulating paid absences, when the employees render service that increases their entitlement to future paid absences.
Trade and other payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Provisions for restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the increases specific to the liability.
The Group has an environmental policy which complies with existing legislation and any obligations resulting from its environmental and operational licences. In order to comply with all rules and regulations, the Group has set up a monitoring mechanism in accordance with the requirements of the relevant authorities. Furthermore, investment plans are adjusted to reflect any known future environmental requirements. The above mentioned expenses are estimated based on the relevant environmental studies.
Liabilities for environmental remediation costs are recognised when environmental assessments or clean-ups are probable and the associated costs can be reasonably estimated. Generally, the timing of these provisions coincides with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The amount recognised is the best estimate of the expenditure required. If the effect of the time value of money is material, the amount recognised is the present value of the estimated future expenditure.
The obligation of the Group to meet its CO2 emission targets is treated as follows: European ETS register allocates emission rights to refineries annually. Allowances received are recognised at cost. A provision is recognized for the net obligation payable for the emission quantities that exceed the pre-allocated allowances, after taking into account any purchases of emission certifications. The provision recognised is measured at the amount that it is expected to cost the entity to settle the obligation net of any certificates purchased. This will be the market price at the balance sheet date of the allowances required to cover any emissions deficit made to date.
Revenue comprises the fair value of the sale of goods and services, net of value-added tax and any excise duties, rebates and discounts. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. Control over goods sold and services rendered is transferred to the customer upon delivery of the respective products or service respectively. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Payment terms vary in line with the type of sales transactions and depend mainly on the products sold or services rendered, the distribution channels as well as each customer's specifics.
The Group assesses whether it acts as a principal or agent in each of its revenue arrangements. The Group has concluded that in all sales transactions it acts as a principal.
When goods are exchanged or swapped for goods which are of a similar nature and value the exchange is not regarded as a transaction which generates revenue. The net result of such transactions is recognized within Cost of sales.
Revenue is recognised as follows:
Revenue is recognized when a contractual promise to a customer (performance obligation) is fulfilled by transferring the promised goods (which is when the customer obtains control over the promised goods). If a contract contains more than one performance obligation, the total transaction price of the contract is allocated among the individual, separate performance obligations based on their relative standalone selling prices. The amount of revenue recognized is the amount allocated to the satisfied performance obligation based on the consideration that the Group expects to receive in accordance with the terms of the contracts with the customers.
For sales of services, revenue is recognised in the accounting period in which the services are rendered, as the customer obtains control over the promised services, by reference to stage of completion of each specific performance obligation and assessed on the basis of the actual service provided as a proportion of the total services to be provided.
If the consideration in a contract includes a variable amount, the Group recognizes this amount as revenue only to the extent that it is highly probable that a significant reversal will not occur in the future.
The Group provides volume discounts to customers based on thresholds specified in the respective contracts. Options for volume related discounts are assessed by the Group to determine whether they constitute a material right that the customer would not receive without entering into that contract. For all such options that are considered as material rights, the Group assesses the likelihood of its exercise and then the portion of the transaction price allocated to the option is deferred and recognized when it is either exercised or lapsed.
Under the new requirements, the Group concluded that volume discounts constitute a material right which should be recognized over time up to the point it is either exercised or lapsed. All such discounts are accrued within the financial year.
Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income.
Dividend income is recognised when the right to receive payment is established.
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement.
Leases of property plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease's inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant periodic rate of interest on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in "Borrowings". The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset's useful life and the lease term.
Leases where the lessor retains substantially a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.
Dividend distribution to the company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are declared and appropriately authorised or approved by the Company's Shareholders' General Meeting. Interim dividends proposed by the Board of Directors are recognized as liabilities upon proposal.
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of the loss allowance determined in accordance with IFRS 9 requirements and the amount initially recognized, less when appropriate, the cumulative amount of income.
The Group adopted the amendments described in paragraph 2.1.1 for the first time for the annual reporting period commencing 1 January 2018.
Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year.
The Group's activities are primarily centred on Downstream Refining (incl. Petrochemicals) & Marketing of petroleum products; with secondary activities relating to exploration of hydrocarbons and power generation and trading. As such, the Group is exposed to a variety of financial and commodity markets risks including foreign exchange and commodity price risk, credit risk, liquidity risk, cash flow risk and interest-rate risk. In line with international best practices and within the context of local markets and legislative framework, the Group's overall risk management policies aim at reducing possible exposure to market volatility and / or mitigating its adverse effects on the financial position of the Group to the extent possible. In general, the key factors that impact the Group's operations are summarised as follows:
Greek Macros: Following a period of economic recession between 2009-2016, during which real GDP fell by 26%, the Greek economy returned to positive growth rates in 2017, with GDP growing by 1,4%, supported mainly by exports of goods and services, as well as investments. The upward trend of the economy continued for a 7th consecutive quarter (for the first time since the period 2005-2006), with real GDP in first nine months of 2018 increasing by 2,1% compared to the respective period of 2017, mainly based on exports of goods and services, as well as private consumption. On the other hand, a decline in investment and an increase in imports, limit upward performance.
Total domestic fuels consumption in 2018 reduced by 3,1% compared to the previous year, mainly due to the reduction in demand for heating gasoil which is mainly attributed to milder weather conditions and higher oil product prices during the first quarter of 2018. Net demand for Motor fuels marginally increased by 0,3%, driven by higher auto diesel consumption, which was, however, almost entirely offset by lower gasoline demand.
Despite the significant progress in economic recovery recorded in 2017 and 2018, as well as the successful conclusion of the 3rd bailout program and the positive measures towards public debt relief decided by the Eurogroup in June 2018, the Greek economy faces a number of significant challenges, such as high public debt, large non-performing loans, high unemployment and failure to extend its investment base, which should be addressed in the medium-term, as they affect the country's future growth prospects. Management continually assesses the situation and its possible future impact to ensure that all necessary actions and measures are taken in order to minimize the impact on the Group's Greek operations.
Great Britain's exit from Eurozone: The Group is sourcing funds from international debt capital markets, through Eurobonds, issued by its London based subsidiary, HELLENIC PETROLEUM FINANCE plc, listed in the Luxembourg stock exchange, for the optimal management of its debt liabilities. It is uncertain, how a potential exit of the UK from the EU, especially if that happens without an agreement (no deal Brexit), will affect existing HPF Eurobonds, as well as the Group' funding from international debt capital markets. The Group is closely following relevant developments and assessing alternatives in order to maintain its ability to source funding through the international debt capital markets.
Currency: The Group's business is naturally hedged against a functional currency risk. All petroleum industry transactions are referenced to international benchmark quotes for crude oil and oil products in USD. All international purchases and sales of crude oil and products are conducted in USD and all sales into local markets are either in USD prices or converted to local currency for accounting and settlement reasons using the USD reference on the date of the transaction.
Prices: Commodity price risk management is supervised by a Risk Management Committee, which includes Finance and Trading departments' Senior Management. Non-commodity price risk management is carried out by the Finance Department under policies approved by the Board of Directors. The Finance Department identifies and evaluates financial risks in close co-operation with the Group's operating units.
Securing continuous crude oil supplies: During the last 18 months crude oil reference prices started recovering, following a 3-year period of contraction (June 2014 – June 2017), averaging \$68/bbl in the fourth quarter and \$72/bbl in the 12 months of 2018. Nonetheless, the cost of crude, for both sweet and especially sour grades, which represent the key source of feedstock for complex refiners like Hellenic Petroleum, remains at reasonable levels, maintaining the competitive position of Med refiners vs. their global peers. Concerning the USA's decision for the re-imposition of the nuclear-related sanctions against Iran, Hellenic Petroleum has successfully managed to replace the Iranian oil supply with other alternatives in the region, without any significant effect in the continuity and cost of its operations (Note 15).
Financing of operations: Given financial market developments since 2011, the key priorities of the Group have been the management of the 'Assets and Liabilities' maturity profile, funding in accordance with its strategic investment plan and liquidity risk for operations. As a result of these key priority initiatives and in line with its medium term financing plan, the Group has maintained a mix of long term, medium term and short term credit facilities by taking into consideration bank and debt capital markets' credit capacity as well as cash flow planning and commercial requirements. Approximately 70% of total debt is financed by medium to long term committed credit lines while the remaining debt is being financed by short term working capital credit facilities.
In May 2016 the Group repaid its \$400 million Eurobond on its maturity date. During the same month, the parent company concluded a €400 million backstop facility, which had two Tranches, a committed Tranche of €240 million and an uncommitted Tranche of €160 million. The facility had a tenor of 18 months with a six-month extension option, which was exercised in July 2017 and to which all participating banks consented. The maturity date of the facility was May 2018 and Hellenic Petroleum S.A. fully repaid the outstanding balance of €240 million upon maturity.
In October 2016 the Group issued a €375 million five-year 4,875% Eurobond guaranteed by the parent company of the Group with the issue price being 99,453 per cent. of the principal amount. The notes mature in October 2021. The proceeds of the issue were used to repay existing financial indebtedness, including the partial prepayment of the €500 million Eurobond, which matured in May 2017 through a tender offer process, which was completed in October 2016 during which notes of a nominal value of €225 million were accepted. In July 2017, Hellenic Petroleum Finance Plc ("HPF") issued €74,53 million guaranteed notes due 14 October 2021, which were consolidated and form a single series with the €375 million 4.875% guaranteed notes.
The Group had a €350 million syndicated bond loan credit facility maturing in July 2018 and a €50 million syndicated credit facility with a €40 million tranche maturing in July 2016 and a €10 million tranche maturing in July 2018. In July 2016, the Group partially repaid € 20 million of the maturing tranche and extended the maturity of the remaining €20 million to July 2018. In June 2018, the Group prepaid both facilities, which had a total outstanding balance of €380 million. The facilities were refinanced with a 5 year syndicated revolving bond loan facility subscribed to by Greek and international banks for an amount of €400 million.
In October 2016 the Group extended the maturity date of its €400 million syndicated credit facility to October 2017 with two six-month extension options. In October 2018, Hellenic Petroleum S.A. fully repaid the facility (the outstanding balance amounted to €284,5 million) upon maturity. The loan was refinanced in November 2018, with the issuance of a new syndicated bond loan of €400 million with a tenor of 2 years and a one- year extension option.
Hellenic Petroleum S.A. concluded a €200 million syndicated committed bond loan facility in January 2015, with a tenor of 3 years. In January 2018 the company extended the facility maturity date to February 2018, when it was fully repaid. The loan was refinanced in February 2018, for an increased amount of €300 million and a tenor of 3 years.
Additional information is disclosed in paragraph (c) Liquidity risk below and Note 16.
Capital management: Another key priority of the Group has been the management of its Assets. Overall the Group has around €3,9 billion of capital employed which is driven from working capital, investment in fixed assets and its investment in the DEPA Group. Current assets are mainly funded with current liabilities (incl. short term bank debt) which are used to finance working capital (inventories and receivables). As a result of the implementation of the Group's investment plan during the period 2007-2012, net debt level has increased to 38% of total capital employed while the remaining 62% is financed through shareholders equity. The Group has started reducing its net debt levels through utilization of the incremental operating cashflows, post completion and operation of the new Elefsina refinery. This is expected to lead to lower Debt to Equity ratio, better matched Asset and Liability maturity profiles as well as lower financing costs.
(i) Foreign exchange risk
As explained in note 2.5 "Foreign currency translation", the parent company's functional currency and presentation currency of the Group is the Euro. However, in line with industry practice in all international crude oil and oil trading transactions, underlying commodity prices are based on international reference prices quoted in US dollars.
Foreign currency exchange risk arises on three types of exposure:
The Group's primary activity as a refiner involves exposure to commodity prices. Changes in current or forward absolute price levels vs acquisition costs affect the value of inventory while exposure to refining margins (combination of crude oil and product prices) affect the future cash flows of the business.
In the case of price risk, the level of exposure is determined by the amount of priced inventory carried at the end of the reporting period. In periods of sharp price decline, as Group policy is to report its inventory at the lower of historical cost and net realisable value, results are affected by the reduction in the carrying value of the inventory. The extent of the exposure relates directly to the level of stocks and rate of price decrease. This exposure is partly hedged with paper derivatives to the extent that the cost of such instruments is considered attractive from a riskreturn point of view and subject to the structure of the market (contango vs. backwardation) as well as credit capacity for long dated transactions.
Refining margin exposure relates to the absolute level of margin generated by the operation of the refineries. This is determined by Platt's prices and varies on a daily basis; as an indication of the impact to the Group financial results, a change in the refinery margins has a proportionate impact on the Group's profitability. Where possible, the Group aims to hedge the part of its production which will be sold in the future and hence will be exposed to forward pricing, thus generating higher price risk upon completion of the sale. This, however, is not possible to do in all market conditions, such as a backwardated market structure, where future prices are below their spot levels, or when there is no credit capacity for derivatives transactions.
(iii) Cash flow and fair value interest rate risk
The Group's operating income and cash flows are not materially affected by changes in market interest rates, given the low level of prevailing reference rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk, while borrowings issued at fixed rates expose the Group to fair value interest rate risk. Approximately 30% of the Group's borrowings are at fixed rates of interest. Depending on the levels of net debt at any given period of time, any change in the base interest rates (EURIBOR or LIBOR), has a proportionate impact on the Groups results. At 31 December 2018, if interest rates on Euro denominated borrowings had been 0,5% higher with all other variables held constant, pre-tax profit for the year would have been Euro €10 million lower.
(i) Risk Management
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale customers, including outstanding receivables and committed transactions. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using major credit cards.
The credit quality of cash, cash equivalents and restricted cash is assessed by reference to external credit ratings obtained from S&P and Fitch in the table below.
Due to market conditions, the approval of credit risk is subject to a more strict process involving all levels of senior management. A Group credit committee monitors material credit exposures on a Group wide basis. See Note 11 for further disclosure on credit risk.
| As at | |||||
|---|---|---|---|---|---|
| Bank Rating (in €million) | 31 December 2018 | 31 December 2017 | |||
| A | - | 1 | |||
| A- | 17 | 15 | |||
| BBB+ | 5 | - | |||
| BBB | 518 | 426 | |||
| BBB- | 1 | 4 | |||
| BB+ | 4 | - | |||
| B | - | - | |||
| CCC+ | 3 | 5 | |||
| CCC | 669 | - | |||
| CCC- | 39 | 531 | |||
| No rating | 20 | 37 | |||
| Total | 1.276 | 1.019 |
Prudent liquidity risk management entails maintaining sufficient cash reserves and financial headroom, through committed credit facilities. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in its funding operations through the use of cash and committed credit facilities.
Where deemed beneficial to the Group, and in order to achieve better commercial terms (e.g. better pricing, higher credit limits, longer payment terms), the Group provides for the issuance of short term letters of credit or guarantee for the payment of liabilities arising from trade creditors. These instruments are issued using the Group's existing credit lines with local and international banks, and are subject to the approved terms and conditions of each bank, regarding the amount, currency, maximum tenor, collateral etc.
The Group's plans with respect to facilities expiring within the next 12 months are presented below.
| 1H19 | 2H19 | 2019 | Schedule for repayment |
Schedule for refinancing |
|
|---|---|---|---|---|---|
| Eurobond €325m | - | 320 | 320 | 320 | - |
| European Investment Bank ("EIB") Term loan | 22 | 22 | 44 | 44 | - |
| Total | 22 | 342 | 364 | 364 | - |
Following the successful completion of the sale of its 35% participation in the share capital of DESFA (Note 8), the Group aims to apply part of the €284 million proceeds towards further deleveraging.
The table below analyses the Group's financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period from balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual cash flows.
| Less than 1 | Between 1 and 2 | Between 2 | Over 5 | |
|---|---|---|---|---|
| year | years | and 5 years | years | |
| 31 December 2018 | ||||
| Borrowings | 1.225.186 | 327.961 | 1.431.439 | - |
| Finance lease liabilities | 906 | 798 | 1.379 | 607 |
| Trade and other payables | 1.307.482 | - | - | - |
| 31 December 2017 | ||||
| Borrowings | 2.011.245 | 404.046 | 605.779 | - |
| Finance lease liabilities | 984 | 906 | 2.451 | 333 |
| Trade and other payables | 1.622.988 | - | - | - |
The amounts included as loans in the table above do not correspond to the balance sheet amounts, as they are contractual (undiscounted) cash flows, which include capital and interest.
Trade and other payables do not correspond to the balance sheet amounts as they include only financial liabilities.
The Group's objective with respect to capital structure, which includes both equity and debt funding, is to safeguard its ability to continue as a going concern, to have in place an optimal capital structure from a cost perspective and at the same time to ensure that the requirements of loan financial covenants are met.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with the industry convention, the Group monitors capital structure and indebtedness levels on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital employed. Net debt is calculated as total borrowings (including "current and non-current borrowings" as shown in the statement of financial position) less "Cash & cash equivalents" and, "Investment in equity instruments". Total capital employed is calculated as "Total Equity" as shown in the statement of financial position plus net debt.
The gearing ratios at 31 December 2018 and 2017 were as follows:
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Total Borrowings (Note 16) | 2.735.957 | 2.820.504 |
| Less: Cash, Cash Equivalents and restricted cash (Note 12) | (1.276.366) | (1.018.913) |
| Less: Investment in equity instruments (Note 3.3) | (634) | (1.857) |
| Net debt | 1.458.957 | 1.799.734 |
| Total Equity | 2.394.731 | 2.371.574 |
| Total Capital Employed | 3.853.688 | 4.171.308 |
| Gearing ratio | 38% | 43% |
The table below analyses financial instruments carried at fair value, categorised within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. The different levels are defined as follows:
The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2018:
| Total | ||||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | balance | |
| Assets | ||||
| Derivatives used for hedging | - | - | - | - |
| Investment in equity instruments | 634 | - | - | 634 |
| Assets held for sale | 3.133 | - | - | 3.133 |
| 3.767 | - | - | 3.767 | |
| Liabilities | ||||
| Derivatives used for hedging | - | 16.387 | - | 16.387 |
| - | 16.387 | - | 16.387 |
The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2017:
| Assets | Level 1 | Level 2 | Level 3 | Total balance |
|---|---|---|---|---|
| Derivatives used for hedging | - | 11.514 | - | 11.514 |
| Investment in equity instruments | 1.857 | - | - | 1.857 |
| Assets held for sale | - | - | - | - |
| 1.857 | 11.514 | - | 13.371 | |
| Liabilities | ||||
| Derivatives used for hedging | - | - | - | - |
| - | - | - | - |
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
There were no changes in valuation techniques during the year. For the years ended 31 December 2018 and 31 December 2017, there were no transfers between levels.
The fair value of Euro denominated Eurobonds as at 31 December 2018 was €797 million (31 December 2017: €796 million), compared to its book value of €765 million (31 December 2017: €762 million). The fair value of the remaining borrowings approximates their carrying value, as the effect of discounting is insignificant. The fair values of borrowings are within level 2 of the fair value hierarchy.
The fair value of the following financial assets and liabilities approximate their carrying amount, due to their short term nature:
Estimates and judgements are continuously evaluated and are based on historical experience as adjusted for current market conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
The Group is subject to periodic audits by local tax authorities in various jurisdictions and the assessment process for determining the Group's current and deferred tax balances is complex and involves high degree of estimation and judgement. There are some transactions and calculations for which the ultimate tax determination is uncertain. Where tax positions are not settled with the tax authorities, the Group management takes into account past experience with similar cases as well as the advice of tax and legal experts in order to analyze the specific facts and circumstances, interprete the relevant tax legislation, assesse other similar positions taken by the tax authorities and to form a view about whether a provision needs to be recorded, or a contingent liability needs to be disclosed. Where the Group is required to make payments in order to appeal against positions of tax authorities and the Group assesses that it is more probable than not to win its appeal, the respective payments are recorded as assets as these advance payments will be used to settle the outcome of the case, or if Group's position is upheld will be returned to the Group. In case the Group determines a provision is needed for the outcome of the uncertain tax position, any amounts already paid are deducted from the said provision (note 11).
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets include certain amounts which relate to carried forward tax losses. In most cases, depending on the jurisdiction in which such tax losses have arisen, such tax losses are available for set off for a limited period of time since they are incurred. The Group makes assumptions on whether these deferred tax assets will be recoverable using the estimated future taxable income based on the approved business plans and budgets for relevant entity.
The Group operates in the oil industry with its principal activities being that of exploration and production of hydrocarbons, refining of crude oil and sale of oil products, and the production and trading of petrochemical products. Environmental damage caused by such substances may require the Group to incur restoration costs to comply with the regulations in the various jurisdictions in which the Group operates, and to settle any legal or constructive obligation. Analysis and estimates are performed by the Group together with its technical and legal advisers, in order to determine the probability, timing and amount involved with probable required outflow of resources. Estimated restoration costs, for which disbursements are determined to be probable, are recognised as a provision in the Group's financial statements. When the final determination of such obligation amounts differs from the recognised provisions, the Group's statement of comprehensive income is impacted.
The recoverable amount of a cash-generating unit (CGU) is determined for impairment tests purposes based on value-in-use calculations which require the use of assumptions. 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. The calculations use cash flow projections based on financial budgets approved by management. These budgets and forecast calculations generally cover a period of five years. Cash flows beyond the period over which projections are available are extrapolated using estimated growth rates. These growth rates are consistent with forecasts included in country or industry reports specific to the country and industry in which each CGU operates. The key assumptions used to determine the recoverable amount for the different CGUs, or assets, including a sensitivity analysis, are disclosed and further explained in Notes: 6. for Property, Plant and Equipment, 7. for Goodwill, 8. for Investments in Associates and Joint Ventures.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives and certain investments in equity instruments) is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
The Group uses a provision matrix to calculate ECLs for trade receivables. The provision matrix is based on the Group's historical credit loss experience calibrated to adjust the historical credit loss experience with forwardlooking information specific to the debtors and the economic environment. At each year end, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical observed credit losses, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future.
The present value of the pension obligations for the Group's defined benefit plans depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost / (income) for pensions include the discount rate and salary rate increases. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency and jurisdiction in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 18.
The Group has a number of legal claims pending against it (Note 31). Management uses its judgement as well as the available information from the Group legal department, in order to assess the likely outcome of these claims and if it is more likely than not that the Group will lose a claim, then a provision is recognized. Provisions for legal claims, if required, are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period (Note 31).
The Group periodically assesses the useful lives of its property, plant and equipment to determine whether the original estimated lives continue to be appropriate. To this respect, the Group may obtain technical studies and use external sources to determine the lives of its assets, which can vary depending on a variety of factors such as technological innovation and maintenance programs.
The Group assesses at each reporting date, whether indicators for impairment exist for its non-financial assets (note 2.11) and its investments in associates and joint ventures. If any indication exists, the Group estimates the asset's or cash generating unit's recoverable amount. Judgment is involved to some extent in determining whether indicators exist and also the determination of the cash generating units at which the respective assets are tested.
All critical operating decisions are made by the Group's Executive Committee, which reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The committee considers the business from a number of measures which may vary depending on the nature and evolution of a business segment by taking into account the risk profile, cash flow, product and market considerations. Information provided to the committee is measured in a manner consistent with that of the financial statements.
The Group's key operating segments are:
The Group is engaged in ongoing projects related to the exploration and production of hydrocarbons in several areas in Greece, including the sea of Thrace in North Aegean, the offshore block of Patraikos Gulf (West), the two onshore areas of "Arta-Preveza" and ''NW Peloponnese'' and the offshore Block 2 west of Corfu Island. Offers have also been submitted for offshore West Crete & Southwest Crete, offshore Western Greece in the Ionian Block, Kyparissiakos gulf (Block 10) and North Corfu (Block 1).
Petrochemical activities mainly focus on the production and marketing of polypropylene, BOPP films and solvents, as well as the trading of imported plastics and chemicals. The polypropylene production plant in Thessaloniki mainly receives propylene produced in the Aspropyrgos refinery. Part of the production of the produced polypropylene is the raw material used in the BOPP film production unit in Komotini.
"Other Segments" include Group entities which provide treasury, consulting and engineering services.
More information about the activities of the Group's key operating segments, as described above, can be found in the Group's Annual Report.
Financial information regarding the Group's operating segments for the year ended 31 December 2018 is presented below:
| For the year ended 31 December 2018 | |||||||
|---|---|---|---|---|---|---|---|
| Refining | Marketing | Exploration & | Production Petro-chemicals | Gas & Power | Other | Total | |
| Gross Sales | 8.681.579 | 3.329.400 | - | 314.716 | 2.793 | 15.039 | 12.343.527 |
| Inter-segmental Sales | (2.555.150) | (7.386) | (0) | (0) | (11) | (11.825) | (2.574.372) |
| Revenue from contracts with customers | 6.126.429 | 3.322.014 | (0) | 314.716 | 2.782 | 3.214 | 9.769.155 |
| EBITDA | 555.703 | 81.081 | (8.155) | 84.949 | 1.982 | (4.164) | 711.395 |
| Depreciation & Amortisation | (144.560) | (45.305) | (1.240) | (4.482) | (817) | (779) | (197.183) |
| Operating profit / (loss) | 411.143 | 35.776 | (9.397) | 80.467 | 1.165 | (4.943) | 514.212 |
| Currency exchange gains/ (losses) | 2.149 | 49 | (4) | - | - | - | 2.194 |
| Share of profit/(loss) of investments in associates & joint ventures | 3.731 | (240) | - | - | (6.684) | 1.422 | (1.771) |
| Finance (expense)/income - net | (92.694) | (17.765) | - | 35 | (173) | (35.108) | (145.705) |
| Profit / (loss) before income tax | 324.329 | 17.821 | (9.401) | 80.502 | (5.692) | (38.629) | 368.930 |
| Income tax expense | (154.218) | ||||||
| Profit for the period | 214.712 |
(Profit) attributable to non-controlling interests (3.098)
Profit for the period attributable to the owners of the parent 211.614
| For the year ended 31 December 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Refining | Marketing | Exploration & | Production Petro-chemicals | Gas & Power | Other | Total | |
| Gross Sales | 7.000.768 | 2.911.614 | - | 266.931 | 1.784 | 11.423 | 10.192.520 |
| Inter-segmental Sales | (2.181.175) | (6.930) | (0) | (0) | (11) | (9.714) | (2.197.830) |
| Revenue from contracts with customers | 4.819.593 | 2.904.684 | (0) | 266.931 | 1.773 | 1.709 | 7.994.690 |
| EBITDA | 670.226 | 95.034 | (4.643) | 95.089 | 1.045 | (5.692) | 851.059 |
| Depreciation & Amortisation | (142.718) | (39.048) | (273) | (4.238) | (469) | (2.530) | (189.276) |
| Operating profit / (loss) | 527.508 | 55.986 | (4.916) | 90.851 | 576 | (8.222) | 661.783 |
| Currency exchange gains/ (losses) | (8.138) | (47) | 12 | - | - | - | (8.173) |
| Share of profit of investments in associates & joint ventures | (10.241) | 1.017 | - | - | 40.455 | (3) | 31.228 |
| Finance (expense)/income - net | (101.801) | (21.498) | - | 13 | 1 | (41.768) | (165.053) |
| Profit / (loss) before income tax | 407.328 | 35.458 | (4.904) | 90.864 | 41.032 | (49.993) | 519.785 |
| Income tax expense | (135.862) |
| Profit for the period attributable to the owners of the parent | 381.372 |
|---|---|
| Loss attributable to non-controlling interests | (2.551) |
| Profit for the period | 383.923 |
Inter-segment sales primarily relate to sales from the refining segment to the other operating segments.
There were no changes in the basis of segmentation or in the basis of measurement of segmental profit or loss, as compared to the consolidated annual financial statements for the year ended 31 December 2017.
An analysis of the Group's revenue from contracts with customers by type of market (domestic, aviation & bunkering, exports and international activities) and business unit is presented below:
| For the year ended 31 December 2018 | ||||||
|---|---|---|---|---|---|---|
| Revenue from contracts with customers | Refining | Marketing | Petro-chemicals | Gas & Power | Other | Total |
| Domestic | 1.161.580 | 1.639.422 | 118.391 | 2.782 | 2.690 | 2.924.865 |
| Aviation & Bunkering | 569.724 | 819.117 | - | - | - | 1.388.841 |
| Exports | 3.949.874 | 27.098 | 196.325 | - | 524 | 4.173.821 |
| International activities | 445.251 | 836.377 | - | - | - | 1.281.628 |
| Total | 6.126.429 | 3.322.014 | 314.716 | 2.782 | 3.214 | 9.769.155 |
| For the year ended 31 December 2017 | ||||||
|---|---|---|---|---|---|---|
| Revenue from contracts with customers | Refining | Marketing | Petro-chemicals | Gas & Power | Other | Total |
| Domestic | 1.151.640 | 1.486.494 | 106.006 | 1.773 | 1.045 | 2.746.958 |
| Aviation & Bunkering | 455.347 | 637.403 | - | - | 0 | 1.092.750 |
| Exports | 2.837.500 | 23.194 | 160.925 | - | 85 | 3.021.704 |
| International activities | 375.106 | 757.593 | - | - | 579 | 1.133.278 |
| Total | 4.819.593 | 2.904.684 | 266.931 | 1.773 | 1.709 | 7.994.690 |
The segment assets and liabilities at 31 December 2018 and 2017 are as follows:
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Total Assets | ||
| Refining | 5.072.907 | 5.100.986 |
| Marketing | 1.174.368 | 1.262.001 |
| Exploration & Production | 16.455 | 5.349 |
| Petro-chemicals | 359.703 | 517.612 |
| Gas & Power | 413.642 | 721.102 |
| Other Segments | 1.861.751 | 1.516.314 |
| Inter-Segment | (1.901.397) | (1.963.289) |
| Total | 6.997.429 | 7.160.075 |
| Total Liabilities | ||
| Refining | 3.090.505 | 3.412.030 |
| Marketing | 593.052 | 618.744 |
| Exploration & Production | 19.530 | 14.091 |
| Petro-chemicals | (310) | 207.250 |
| Gas & Power | 10.788 | 3.483 |
| Other Segments | 1.820.412 | 1.483.475 |
| Inter-Segment | (931.279) | (950.572) |
| Total | 4.602.698 | 4.788.501 |
"Other Segments" include Group entities which provide treasury, consulting and engineering services.
There has been no material change in the definition of segments or the segmental analysis of total assets or total liabilities from the amounts disclosed in the consolidated annual financial statements for the year ended 31 December 2017.
| Assets | ||||||
|---|---|---|---|---|---|---|
| Total | ||||||
| 288.126 | 897.678 | 92.769 | 168.215 | 88.609 | 6.114.105 | |
| 28.089 | 6.641 | 3.990 | 13.844 | 135.285 | 205.495 | |
| 326 | 6.463 | 327 | 450 | (118.280) | - | |
| (2.689) | - | - | - | - | - | (2.689) |
| (8.918) | ||||||
| 882 | 1.406 | (1) | 3 | 51 | 2.710 | |
| 382 | ||||||
| 312.868 | 909.409 | 96.556 | 181.388 | 102.131 | 6.311.085 | |
| 2.823.299 | ||||||
| 180.532 | ||||||
| (6.228) | ||||||
| 1.309 | ||||||
| 280 | ||||||
| - | 467.548 | 61.948 | 150.125 | - | 2.999.192 | |
| 312.868 | 441.861 | 34.608 | 31.263 | 102.131 | 3.311.893 | |
| 6.311.085 | ||||||
| 149.135 | ||||||
| - | ||||||
| (20.527) | ||||||
| (6.689) | ||||||
| 150 | ||||||
| 314.960 | 918.298 | 92.319 | 193.750 | 92.143 | (1.341) 6.431.813 |
|
| 2.999.192 | ||||||
| 187.117 | ||||||
| (3.250) (20.372) |
||||||
| 41 | ||||||
| - | 489.551 | 63.222 | 157.548 | - | 157 3.162.885 |
|
| 3.268.928 | ||||||
| Land (1.689) (177) - - - - - 312.868 1.049 2.151 (71) (1.096) 59 - - - - - - - 314.960 |
Buildings (2.956) 177 439.270 30.167 (2.862) 973 - 909.409 3.129 15.584 (3.069) (2.487) 98 (4.366) 467.548 29.207 (1.888) (3.050) 9 (2.275) 428.747 |
Plant & Machinery 4.578.708 17.646 110.714 (2.337) (529) 369 3.633 - 4.708.733 2.179.967 60.625 140.980 1.822 (1.988) (500) 332 1 280 - 2.319.571 2.389.162 4.708.733 96.556 20.679 2.117 98.513 159 (9.792) (6.560) (1.320) (76) (8) - 3.538 123 4.820.343 2.319.571 61.948 141.306 7.783 (1.092) (74) (9.746) (6.558) 31 - 2.494 123 2.452.564 2.367.779 29.097 |
Transportation Furniture means and fixtures (1.124) - 143.437 7.563 (878) 3 - 181.388 11.100 1.178 (1.025) (116) - 1.225 150.125 8.821 (196) (1.018) 1 (185) 36.202 |
Under Con struction (283) (3.251) - - - - - 102.131 111.061 (117.585) (10) (1.594) 1 (1.861) - - - - - - 92.143 |
"Impairment/write offs" for the year ended 31 December 2018, include write offs of assets both from cost and accumulated depreciation, as well as an impairment charge of €1,3 million related to the write down of land and buildings in Bulgaria to their recoverable amount, based on their fair value, which is included in cost in the line "Impairment/write off". These assets are owned by the Group's subsidiary EKO Bulgaria and are included in the marketing segment. The impairment charge is included in "Other operating expenses/income - net" in the income statement.
(5) Plant and machinery include inter alia the carrying value of the pipeline connecting Thessaloniki and Skopje, which is an asset of the Group's subsidiary Vardax S.A.. The asset was not operational during 2018 and this was considered an indication of possible impairment. Management carried out an impairment test according to the requirements of IAS 36. The analysis was carried out by identifying the recoverable value ("value in use") of the asset through the application of the Discounted Cash Flow Valuation Method. The impairment test was carried out using a WACC of 7,2% as of 31 December 2018. Based on this impairment test, the Group concluded that the carrying amount of the asset is recoverable and consequently no impairment charge was recorded.
It is estimated that at 31 December 2018 if the WACC used in the impairment test was higher by 0,5% with all other variables held constant, the recoverable amount of the asset would have been lower by 9%. In addition, if the future free cash flow growth rate was lower by 0,5% with all other variables held constant, the recoverable amount of the asset would have been lower by 7,6%. In both sensitivity analysis' scenarios, the carrying amount of the asset is recoverable.
| Retail Service | ||||||
|---|---|---|---|---|---|---|
| Stations Usage | Computer | Licences & | ||||
| Goodwill | Rights | software | Rights | Other | Total | |
| Cost | ||||||
| As at 1 January 2017 | 133.914 | 49.915 | 106.036 | 40.683 | 74.426 | 404.974 |
| Additions | - | 1.378 | 1.804 | 55 | - | 3.237 |
| Disposals | - | (52) | (110) | (2.573) | - | (2.735) |
| Currency translation effects | - | - | 32 | - | 177 | 209 |
| Other movements | - | - | 3.765 | (90) | - | 3.675 |
| As at 31 December 2017 | 133.914 | 51.241 | 111.527 | 38.075 | 74.603 | 409.360 |
| Accumulated Amortisation | ||||||
| As at 1 January 2017 | 71.829 | 32.022 | 96.559 | 32.106 | 64.164 | 296.680 |
| Charge for the year | - | 2.849 | 4.919 | 758 | 218 | 8.744 |
| Disposals | - | (37) | (80) | (1.927) | - | (2.044) |
| Currency translation effects | - | - | 9 | 287 | - | 296 |
| Other movements | - | - | - | - | - | - |
| As at 31 December 2017 | 71.829 | 34.834 | 101.407 | 31.224 | 64.382 | 303.676 |
| Net Book Value at 31 December 2017 | 62.085 | 16.407 | 10.120 | 6.851 | 10.221 | 105.684 |
| Cost | ||||||
| As at 1 January 2018 | 133.914 | 51.241 | 111.527 | 38.075 | 74.603 | 409.360 |
| Additions | - | 2.723 | 2.309 | 3.691 | 123 | 8.846 |
| Disposals | - | - | (3) | (241) | - | (244) |
| Impairment | - | (106) | - | (1.654) | - | (1.760) |
| Currency translation effects | - | - | 3 | - | 10 | 13 |
| Other movements | - | - | 1.156 | (1.064) | 70 | 162 |
| As at 31 December 2018 | 133.914 | 53.858 | 114.992 | 38.807 | 74.806 | 416.377 |
| Accumulated Amortisation | ||||||
| As at 1 January 2018 | 71.829 | 34.834 | 101.407 | 31.224 | 64.382 | 303.676 |
| Charge for the year | - | 2.973 | 5.815 | 1.252 | 26 | 10.066 |
| Disposals | - | - | (3) | (241) | - | (244) |
| Impairment | - | (106) | - | (1.359) | - | (1.465) |
| Currency translation effects | - | - | - | - | - | - |
| Other movements | - | - | (39) | (1.187) | (47) | (1.273) |
| As at 31 December 2018 | 71.829 | 37.701 | 107.180 | 29.689 | 64.361 | 310.760 |
| Net Book Value at 31 December 2018 | 62.085 | 16.157 | 7.812 | 9.118 | 10.445 | 105.617 |
(1) The majority of the remaining balance of goodwill as at 31 December 2018 relates to the unamortised goodwill arising on the acquisition of Hellenic Petroleum Cyprus Ltd in 2003 which is treated in line with the accounting policy in Note 2.9. Goodwill was tested for impairment as at 31 December 2018 using the value-in-use model. This calculation used cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond the five-year period were extrapolated using an estimated growth rate of 1% that reflects the forecasts in line with management beliefs, based on GDP growth projections. Management determined annual volume growth rate and gross margins based on past performance and expectations for the market development. The discount rate used was 4,9% which reflects the specific risks relating to operations. The results of the model show that the valuation covers the carrying amount of the goodwill, which amounts to €62 million as of 31 December 2018.
A sensitivity analysis was performed to the key assumptions used in the model (discount rates and perpetuity growth rates), in order to stress test the adequacy of the valuation headroom. It is estimated that at 31 December 2018 if the free cash flow growth rate of Hellenic Petroleum Cyprus Ltd used in the impairment test was lower by 0,5% with all other variables held constant, the Equity Value of the company would have been lower by 9,8%. In addition, if the future WACC was higher by 0,5% with all other variables held constant, the Equity Value of the company would have been lower by 11,4%. The sensitivity analysis resulted in recoverable values well in excess of the carrying value.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Beginning of the Year | 701.635 | 689.607 | |
| Change in accounting policy (IFRS 9) | (1.750) | - | |
| Dividend income | (307.735) | (19.346) | |
| Share of profit/ (loss) of investments in associates & joint ventures | (1.771) | 31.228 | |
| Share of other comprehensive income/ (loss) of investments in associates | (288) | - | |
| Share capital increase / (decrease) | - | 147 | |
| Other movements | - | (1) | |
| End of the year | 390.091 | 701.635 |
The Group is active in power generation, trading and supply in Greece through its 50% shareholding in Elpedison B.V., a joint venture entity with EDISON International. The Group accounts for Elpedison B.V. using the equity method and as such the Group's 50% share of the consolidated results of Elpedison B.V. appear under "Share of profit of investments in associates and joint ventures" and its 50% share of net assets under "Investment in associates and joint ventures".
Given the materiality of this activity for the Group, the table below summarises the key financials of the Elpedison B.V. Group which consolidates its 75,78% holding in Elpedison S.A.
| As at | ||
|---|---|---|
| Elpedison B.V. Group | 31 December 2018 | 31 December 2017 |
| Statement of Financial Position | ||
| Non-Current Assets | 255.354 | 284.100 |
| Cash and Cash Equivalents | 17.044 | 35.615 |
| Other Current Assets | 115.197 | 110.081 |
| Total Assets | 387.595 | 429.796 |
| Equity | 71.642 | 85.255 |
| Long Term Borrowings | 197.950 | - |
| Other Non-Current Liabilities | 28.303 | 30.004 |
| Short Term Borrowings | 8.416 | 224.264 |
| Other Current Liabilities | 81.284 | 90.273 |
| Total Liabilities | 315.953 | 344.541 |
| Total Liabilities and Equity | 387.595 | 429.796 |
| Investment in Elpedison BV as accounted in Helpe Group | 36.021 | 41.198 |
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Statement of Comprehensive Income | |||
| Revenue | 442.855 | 414.299 | |
| EBITDA | 22.552 | 30.578 | |
| Depreciation & Amortisation | (27.968) | (28.068) | |
| EBIT | (5.416) | 2.510 | |
| Interest Income | 389 | 402 | |
| Interest Expense | (12.065) | (14.484) | |
| Loss beforeTax | (17.092) | (11.572) | |
| Income Tax | 3.480 | (707) | |
| Loss after Tax | (13.612) | (12.279) | |
| Share of loss accounted in Helpe Group | (5.177) | (5.917) |
In September 2018, Elpedison agreed with its Bondholders to refinance its loans amounting to €213,9 million for three years, up to September 2021. The loans are fully guaranteed by the ultimate shareholders of Elpedison S.A., according to their shareholdings in the Company, while they provide for quarterly capital repayments of €3 million on average and mandatory capital prepayments from any proceeds from ADMIE's historical deficit. Additionally, the loans provide for a cash sweep mechanism that will mandatorily repay 50% of the company's excess cash flow on a semiannual basis. The loans outstanding as at 31 December 2018 amounted to €207,9 million.
The Group has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to Elpedison B.V. As at 31 December 2018, the Group's share of the above was €83 million (31 December 2017: €88 million).
As at 31 December 2017, Elpedison B.V. Management carried out an impairment test according to the requirements of IAS 36, based on the post-tax cash flows produced by the company. The anticipated future developments in the market and regulatory environment (change in remuneration mechanisms and/or delay of their enforcement, intensification of competition) in which the company operates, were considered as indicators of impairment, as they could impact the future cash flows of its assets.
The valuation analysis considered Elpedison S.A.'s two gas fired power plants and the supply business unit as a single cash generation unit (CGU). The analysis was carried out by identifying the recoverable value ("value in use") of the CGU. The estimation of the value in use was performed through the application of the Discounted Cash Flow Valuation Method. The discount rate applied was 7,5% and was estimated as the post-tax Weighted Average Cost of Capital (WACC) of the company. Based on this impairment test, the Group concluded that the carrying amount of its investment is recoverable and consequently no impairment charge was recorded.
Since uncertainty in the power market and regulatory environment remained during 2018 the impairment test was updated using a WACC of 7% as of 31 December 2018. Based on this impairment test, the Group concluded that the carrying amount of its investment is recoverable and consequently no impairment charge was recorded.
It should be noted that the assumptions and scenarios used could further change in the future, particularly in an environment characterized by high volatility. Relevant changes in assumptions used e.g. in the future Annual Flexibility Remuneration and in discount rates, could have an impact on the value in use of the assets.
It is estimated that at 31 December 2018 if the WACC used in the impairment test was higher by 0,5% with all other variables held constant, the Equity Value of Elpedison BV would have been lower by 9,8%. In addition, if the future Annual Flexibility Remuneration was lower by 10% with all other variables held constant, the Equity Value of Elpedison BV would have been lower by 13%. In both sensitivity analysis' scenarios, the carrying amount of the Group's investment in Elpedison BV is recoverable.
The Group exercises significant influence over a number of entities, which are also accounted for using the equity method.
DEPA Group operates in the wholesale, trading, transmission, distribution and supply of natural gas. It is currently owned 65% by the HRADF (Hellenic Republic Assets Development Fund) and 35% by HELPE S.A.
The Depa Group fully consolidates its 100% shareholding in DEDA SA (Administrator of the Natural Gas Medium & Low Pressure Distribution System for areas other than the areas in which EDA THESS S.A. & EDA Attica S.A. are active), EDA Attica S.A. (gas Distribution Company for the Attica region) and EPA Attica S.A. (gas Supply Company for the Attica region). In addition, DEPA S.A. has a 51% shareholding in EDA THESS S.A. (gas Distribution Company for the Thessaloniki and Thessalia regions), for which it accounts using the equity method of accounting. Finally, DEPA S.A. has a 50% shareholding in IGI Poseidon S.A. (Joint Venture between DEPA S.A. and Edison S.p.A.), which is engaged in the development of gas infrastructure projects in South East Europe.
On 20 July, DEPA S.A. sold its 51% shareholding in EPA Thessaloniki-Thessalia S.A. or "Zeniθ" (gas Supply Company for the Thessaloniki and Thessalia regions) to Eni gas e luce S.p.A. (EGL) for a consideration of €57 million. The results of EPA Thessaloniki-Thessalia S.A. up until the date of sale, were consolidated using the equity method of accounting. Additionally, on 27 November DEPA S.A. acquired the remaining 49% of EPA Attica S.A. & EDA Attica S.A. (now holds the 100% of both) from Attiki Gas, for a consideration of €39 million and €111 million respectively. The results of both companies up until the date of acquisition, were consolidated using the equity method of accounting. Furthermore, as described below, the sale of the 100% shareholding of DESFA (Administrator of the Natural Gas High Pressure Transmission System) was finalized during December 2018. The results of DESFA S.A. up until the date of sale, were fully consolidated.
The table below summarizes the key financials of DEPA Group:
| As at | ||||
|---|---|---|---|---|
| Public Natural Gas Corporation of Greece (DEPA) | 31 December 2018 | 31 December 2017 | ||
| Statement of Financial Position | ||||
| Non-Current Assets | 943.137 | 2.281.868 | ||
| Cash and Cash Equivalents | 302.363 | 532.163 | ||
| Other Current Assets | 393.576 | 412.454 | ||
| Total Assets | 1.639.076 | 3.226.485 | ||
| Equity | 995.720 | 1.880.094 | ||
| Long Term Borrowings | - | 197.021 | ||
| Other Non-Current Liabilities | 379.550 | 877.013 | ||
| Short Term Borrowings | 14.170 | 25.801 | ||
| Other Current Liabilities | 249.636 | 246.556 | ||
| Total Liabilities | 643.356 | 1.346.391 | ||
| Total Liabilities and Equity | 1.639.076 | 3.226.485 | ||
| Investment in DEPA Group as accounted in Helpe Group | 348.498 | 658.773 |
| As at | As at | |||||
|---|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||||
| Continuing | Discontinued | Continuing | Discontinued | |||
| Statement of Comprehensive Income | operations | operations | Total | operations | operations | Total |
| Revenue | 931.317 | 180.872 | 914.084 | 228.410 | ||
| EBITDA | 150.205 | 50.007 | 109.235 | 182.694 | ||
| Depreciation & Amortisation | (77.123) | (40.423) | (80.335) | (43.939) | ||
| Operating Profit | 73.082 | 9.584 | 28.900 | 138.755 | ||
| Interest Income | 36.465 | 2.462 | 16.863 | 2.070 | ||
| Interest Expense | (20.869) | (7.599) | (1.371) | (9.590) | ||
| Profit before Tax | 88.678 | 4.447 | 44.393 | 131.235 | ||
| Income Tax | (7.961) | (89.468) | (5.448) | (40.304) | ||
| Profit after Tax | 80.717 | (85.021) | (4.304) | 38.945 | 90.931 | 129.876 |
| Other comprehensive income (OCI) | (824) | 9 | ||||
| Share of profit accounted in Helpe Group | (1.507) | 46.372 | ||||
| Share of OCI accounted in Helpe Group | (288) | 0 |
In 2018 the Group received cash dividends of €23 million from the DEPA Group (2017: €18,4 million). In addition, the proceeds from DESFA sale of €284 million (see below), were accounted, effectively, as dividend distribution received from DEPA Group for the year ended 31 December 2018, as explained under "Sale of DESFA" below. At the same time the Group recognised a deferred tax liability of €48 million, for the resulting difference between tax and accounting base of its remaining investment in DEPA (Note 17). Therefore, the total dividend received from DEPA Group within 2018 amounts to €307 million.
As at 31 December 2018, the Management of the Hellenic Petroleum Group of companies (Group) assigned to independent third-party experts the preparation of an impairment test on its investment in DEPA Group of companies, according to the requirements of IAS 36. The extended restructuring of the DEPA Group of companies, including the sale of DESFA and Zeniθ and the acquisition of the remaining shareholding in EPA ATTIKIS and EDA ATTIKIS, as described above, were considered as potential indicators of impairment, as they could impact the future cash flows to be generated by DEPA Group of companies' assets.
The valuation analysis was performed with the "Sum of parts" approach, according to which, each company of the DEPA Group was treated as a single cash generation unit (CGU). The value of the DEPA Group was then calculated as the sum of the individual CGUs' values. The analysis was carried out by identifying the recoverable value ("value in use" or VIU) of each CGU or where there were comparable transactions within 2018 by reference to such transactions. The replacement cost method was applied for IGI POSEIDON as the entity is in early development phase.
Specifically, the VIU method was applied for DEPA SA and DEDA SA and was performed through the application of the Discounted Free Cash Flow (DFCF) Valuation Method. The discount rates applied were 9,3% for DEPA SA and 8,2% for DEDA SA and were estimated as the post-tax Weighted Average Cost of Capital (WACC) of each company. For EDA ATTIKIS SA, EPA ATTIKIS and EDA THESS the recoverable amounts were estimated through comparable transactions. Finally, for IGI POSEIDON the replacement cost method was applied as the entity is in early development phase and there are no comparable transactions and future cash flows cannot be reliably estimated at the time of preparation of these financial statements.
Based on the above impairment test, the Group concluded that the carrying amount of its investment in DEPA Group of companies is recoverable and consequently no impairment charge was recorded.
It should be noted that the assumptions and scenarios used could further change in the future, particularly in an environment characterized by high volatility and expected growth. Relevant changes in assumptions used e.g. in the free cash flow growth rate (DEPA, DEDA) or in discount rates (WACC), could have an impact on the VIU of the DEPA Group of companies.
It is estimated that at 31 December 2018 if the free cash flow growth rate of DEPA S.A. used in the impairment test was lower by 0,5% with all other variables held constant, the Equity Value of DEPA Group would have been lower by 2,2%. In addition, if the future WACC of DEPA S.A. was higher by 0,5% with all other variables held constant, the Equity Value of DEPA Group would have been lower by 2,6%. In both sensitivity analysis' scenarios, the carrying amount of the Group's investment in DEPA Group is recoverable.
On 16 February 2012, HELPE and HRADF (jointly the "Sellers") agreed to launch a joint sale process of their shareholding in DEPA Group aiming to dispose 100% of the supply, trading and distribution activities, as well as 66% of their shareholding in the high pressure transmission network (DESFA S.A., a 100% subsidiary of DEPA S.A.).
The sale process resulted in the submission of a binding offer of €400 million by SOCAR (Azerbaijan's Oil and Gas National Company) for the purchase of the 66% of DESFA. The amount corresponding to HELPE's 35% effective shareholding was €212 million.
On 21 December 2013, the Share Purchase Agreement (SPA) for the above sale was signed by HRADF, HELPE and SOCAR, while the completion of the transaction was agreed to be subject to the clearance of EU's responsible competition authorities.
On 30 November 2016, the deadline for the fulfilment of all prerequisites for the finalisation of the transaction expired without the desired outcome.
On 1 March 2017, by decision of the Governmental Economic Policy Council (ΚΥΣΟΙΠ), the Greek State decided, inter alia, to launch a new tender procedure for the disposal of the 66% of the shares of DESFA, i.e. the 31% of the 65% of the shares held by HRADF combined with the 35% of the shares owned by HELPE, as well as the termination of the respective selling process which was launched in 2012. In addition, article 103 of the law 4472/2017 provides that by 31 December 2017, the participation of DEPA in DESFA (66%) will be sold and transferred through an international tender process, which will be carried out by HRADF, while the remaining balance of 34% will be transferred to the Greek State. Furthermore, the above law provides that at the end of the tender process, DESFA should constitute an Unbundled Natural Gas Transmission System Operator, in accordance with the provisions of articles 62 & 63 of Law 4001/2011 as in force, and be certified as such, in accordance with Articles 9 & 10 of the 2009/73/EC (Full Ownership Unbundled System Operator - FOU).
The Board of Directors of HELPE, at its meeting on 12 June 2017, evaluated the strategic choices of HELPE regarding its minority participation in DESFA and considered that the disposal (jointly with HRADF) of the 66% of DESFA's shares is in the interest of the Company. For this purpose, a draft Memorandum of Understanding (MOU) between the Greek State, HRADF and HELPE was drawn up, based on the corresponding text of 2012. At the abovementioned meeting, the Board of Directors also convened the Extraordinary General Assembly of the Company's shareholders in order to obtain a special permit, in accordance with the provisions of article 23a of the Codified Law 2190/1920, for the conclusion of the MOU between the Greek State, HRADF and HELPE. The MOU was signed by the three parties on 26 June 2017 and the special permit of the General Assembly was provided retrospectively on 6 July 2017, pursuant to the provision of article 23a par.4 2190/1920. On 26 June 2017, the Invitation for the Non-Binding Expression of Interest was published. Four parties expressed interest, two of which were notified on 22 September 2017 by the Sellers that they qualified to participate in the next phase of the Tender Process (Binding Offers Phase), and were considered as Shortlisted Parties. The two Shortlisted Parties were on the one hand, a consortium formed by SNAM S.p.A., FLUXYS S.A., Enagas Internacional S.L.U. and N.V. Nederlandse Gasunies and on the other hand Regasificadora del Noroeste S.A.
The Shortlisted Parties submitted their binding offers on 16 February 2018, pursuant to the Sellers' Request on 10 October 2017 for the Submission of Binding Offers.
Best and final offers were submitted by the two Shortlisted Parties on 29 March 2018. The consortium formed by SNAM S.p.A., FLUXYS S.A. and Enagas Internacional S.L.U. confirmed its best and final offer on 19 April 2018, offering an amount of €535 million for the purchase of the 66% of DESFA. The above binding offer has been accepted by virtue of resolution no. 1319 of 19 April 2018 of the Board of Directors and the resolution of 14 May 2018 of the Extraordinary General Meeting of Shareholders of Hellenic Petroleum. By virtue of decision No. 235 of 25/6/2018, the Court of Audit has cleared the transaction and on 13/7/2018, the European Commission has provided its approval under the EU Merger Regulation.
On 20 July 2018 a Share Sale & Purchase Agreement (SPA) has been executed by HRADF and HELPE as Sellers and "SENFLUGA Energy Infrastructure Holdings S.A." (SNAM-Enagas-Fluxys Consortium SPV) as Purchaser. On the same date a Shareholders' Agreement for DESFA has been executed between SENFLUGA S.A. and the Hellenic Republic.
Upon satisfaction of all conditions precedent provided by the SPA, the above transaction close successfully on 20 December 2018. Immediately before the execution of the SPA, DEPA S.A. proceeded to a distribution of its shares
in DESFA (at fair value) to its shareholders, through a reduction of its share capital. Hellenic Petroleum S.A.'s share of investment in DESFA (35%) amounted to €284 million, equal to the sale proceeds per the SPA. On the basis of this amount, HELPE Group recognised an impairment loss of €46 million, through its share of profit/ loss in its investment in DEPA. In addition, the sale proceeds of €284 million, were accounted as dividend distribution received from DEPA Group for the year ended 31 December 2018.
The Group consolidates the DEPA Group using the equity method of accounting and the carrying value of the investment in the consolidated financial statements reflects HELPE's 35% share of the net asset value of the DEPA group which as at 31 December 2018 amounts to €348 million (31 December 2017: €659 million). The cost of investment of the DEPA group in the financial statements of HELPE S.A is €237 million.
In 2011, the Group participated with a 48% holding in the setting-up of a new company, DMEP HoldCo Ltd, through its subsidiary company Hellenic Petroleum International A.G. DMEP HoldCo Ltd is incorporated in the UK and ultimately owns 100% of "OTSM S.A. of Maintenance Compulsory Stocks and Trading of Crude Oil and Petroleum Products" (OTSM). OTSM is established under Greek law and is fully permitted to provide crude oil and petroleum products stock keeping and management services. The Group has delegated part of its compulsory stock keeping obligations to OTSM, reducing its stock holding by approximately 114 kMT (31 December 2017: 246 kMT), at a fee calculated in line with the legal framework.
In 2018, DMEP Holdco reduced its borrowings from €80 million to €50 million, with a corresponding reduction in inventories.
An analysis of the financial position and results of the Group's major associates is set out below:
| % interest | As at | ||||
|---|---|---|---|---|---|
| held | 31 December 2018 | ||||
| Assets | Liabilities | Revenues | Profit after tax | ||
| Spata Aviation Fuel Company S.A. | 33% | 5.987 | 4.683 | 7.718 | 2.526 |
| ELPE THRAKI | 25% | 7 | 16 | - | (13) |
| Athens Airport Fuel Pipeline Company S.A. | 50% | 13.812 | 3.605 | 4.409 | 1.482 |
| DMEP Holdco | 48% | 85.183 | 85.925 | 52.971 | 415 |
| % interest | As at | ||||
| held | 31 December 2017 | ||||
| Assets | Liabilities | Revenues | Profit after tax | ||
| Spata Aviation Fuel Company S.A. | 33% | 4.685 | 2.653 | 6.819 | 1.876 |
| ELPE THRAKI | 25% | 14 | 10 | - | (14) |
| Athens Airport Fuel Pipeline Company S.A. | 50% | 13.197 | 3.794 | 3.769 | 1.256 |
| DMEP Holdco | 48% | 126.059 | 130.987 | 33.444 | (23.039) |
There are neither contingent liabilities nor commitments relating to the group's interest in its associates.
The Group participates in the following joint operations with other third parties relating to exploration and production of hydrocarbons in Greece and abroad:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Loans and advances | 38.668 | 52.144 | |
| Other long term assets | 35.254 | 37.482 | |
| Total | 73.922 | 89.626 |
Loans and advances relate primarily to non-interest bearing payments made to secure the long term retail network and are amortised over the remaining life of the respective contracts of the petrol station locations. In addition, they include other non-interest bearing prepayments of a long term nature.
Other long term assets include merchandise credit extended to third parties as part of the retail network expansion and are non-interest bearing. They also include trade receivables due in more than one year as a result of settlement arrangements.
The balances included in the above categories as of 31 December 2018, relating to merchandise credit and noninterest bearing settlement arrangements, are discounted at a weighted average rate of 6% (2017: 6%) over their respective lives.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Crude oil | 328.482 | 331.353 | |
| Refined products and semi-finished products | 572.461 | 640.142 | |
| Petrochemicals | 24.400 | 21.670 | |
| Consumable materials and other spare parts | 97.518 | 91.277 | |
| - Less: Provision for consumables and spare parts | (29.830) | (28.049) | |
| Total | 993.031 | 1.056.393 |
Under IEA and EU regulations, Greece is obliged to hold crude oil and refined product stocks in order to fulfil the EU requirement for compulsory Stock obligations (90 days stock directive), as legislated by Greek Law 3054/2002. This responsibility is passed on to all companies, including Hellenic Petroleum S.A., which import and sell in the domestic market who have the responsibility to maintain and finance the appropriate stock levels. Such stocks are part of the operating stocks and are valued on the same basis.
The cost of inventories recognised as an expense and included in "Cost of sales" amounted to €7,8 billion (2017: €6,1 billion). The Group has reported a loss of €32,4 million as at 31 December 2018 arising from inventory valuation which is reflected in a write-down of the year end values (2017 – €0,04 million). This was recognised as an expense in the year ended 31 December 2018 and included in 'Cost of Sales' in the statement of comprehensive income. Overall for 2018, management has estimated that the impact on the results of the Group from the fluctuations of crude oil and product prices during the year was positive and equal to approx. €48 million (2017: positive impact of €59 million).
In addition, as at 31 December 2018, an amount of €5,2 million (December 2017: €3,0 million) relating to spare parts for the refinery units, has been transferred from inventories to fixed assets (see Note 6).
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Trade receivables - Less: Provision for impairment of receivables |
756.135 (258.333) |
734.038 (248.008) |
|
| Trade receivables net | 497.802 | 486.030 | |
| Other receivables - Less: Provision for impairment of receivables |
337.650 (42.304) |
327.203 (47.566) |
|
| Other receivables net | 295.346 | 279.637 | |
| Deferred charges and prepayments | 28.450 | 25.538 | |
| Total | 821.598 | 791.205 |
As part of its working capital management the Group utilises factoring facilities to accelerate the collection of cash from its customers in Greece. Non-recourse factoring, is excluded from balances shown above, since all risks and rewards of the relevant invoices have been transferred to the factoring institution.
Other receivables include balances in respect of advances to suppliers, advances to personnel, claimed VAT, withholding taxes and taxes paid, as a result of tax audit assessments during previous years from the tax authorities where the Company has started legal proceedings and disputed the relevant amounts. The timing of the finalization of these disputes cannot be estimated and the Group has classified the amounts as current assets. This balance as at 31 December 2018 also includes an amount of €54m (31 December 2017: €54m) of VAT approved refunds which has been withheld by the customs office due to a dispute relating to stock shortages. The Group has filed a specific legal objection and claim against this action and expects to fully recover this amount following the conclusion of the relevant legal proceedings (Note 31).
The fair values of trade receivables approximate their carrying amount.
The table below analyses total trade receivables:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Not past due | 345.026 | 333.427 | ||
| Past due | 411.109 | 400.611 | ||
| Total trade receivables | 756.135 | 734.038 |
The overdue days of trade receivables that were past due are as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Up to 30 days | 83.859 | 80.951 | |
| 30 - 90 days | 18.526 | 15.006 | |
| Over 90 days | 308.724 | 304.654 | |
| Total | 411.109 | 400.611 |
From 1 January 2018, the Group applies the simplified approach of IFRS 9 and calculates ECLs based on lifetime expected credit losses.
Regarding trade receivables, an impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses (ECLs). The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable. Collaterals include primarily first or second class pre-notices over properties of the debtor, personal and bank guarantees.
Set out below is the information about the credit risk exposure on the Group's trade receivables using a provision matrix:
| < 30 days | 31 - 90 days | > 91 days | Total | |
|---|---|---|---|---|
| Expected credit loss rate | 0,03% | 0,25% | 83,61% | 34,16% |
| Τotal gross carrying amount | 428.885 | 18.526 | 308.724 | 756.135 |
| Expected credit loss | 149 | 47 | 258.136 | 258.332 |
The movement in the provision for impairment of trade receivables is set out below.
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Balance at 1 January | 248.008 | 235.636 |
| Effect of change in accounting policy | 2.084 | - |
| Charged / (credited) to the income statement: | ||
| - Exchange differences | 136 | (101) |
| - Additional provisions | 15.441 | 14.380 |
| - Unused amounts reversed | (2.936) | (1.521) |
| Receivables written off during the year as uncollectible | (4.640) | (386) |
| Transfers and other movements | 240 | - |
| Balance at 31 December | 258.333 | 248.008 |
The movement in the provision for impairment has been included in Selling & Distribution costs in the statement of comprehensive income.
The movement in the provision for impairment of other receivables is set out below.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Balance at 1 January | 47.566 | 41.325 | |
| Charged / (credited) to the income statement: | |||
| - Additional provisions | 4.662 | 8.317 | |
| - Unused amounts reversed | (3.795) | (116) | |
| - Unwinding of discount | (12) | - | |
| Transfer to litigation provision | (6.000) | - | |
| Other movements | (117) | - | |
| Used during year | - | (1.960) | |
| Balance at 31 December | 42.304 | 47.566 |
| As at | |||||
|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||||
| Cash at bank and in hand | 1.275.159 | 873.261 | |||
| Cash and Cash Equivalents | 1.275.159 | 873.261 | |||
| Restricted cash | 1.207 | 145.652 | |||
| Total Cash, Cash Equivalents and Restricted Cash | 1.276.366 | 1.018.913 |
Restricted cash in 2017 mainly relates to a deposit amounting to €144 million, placed as security for a loan agreement of an equal amount with Piraeus Bank in relation to the Company's Facility Agreement B with the European Investment Bank (Note 16). The outstanding balance under the EIB Facility Agreement B as at 31 December 2017 was €100 million, whilst the outstanding balance of the Piraeus loan as at 31 December 2017 was €144 million. In February 2018, the Company amended the EIB Facility Agreement B which no longer has security requirements. As a result, the loan with Piraeus was repaid, the security deposit was released and the bank guarantee agreement has been cancelled.
The balance of US Dollars included in Cash at bank as at 31 December 2018 was \$891 million (euro equivalent €779 million). The respective amount for the period ended 31 December 2017 was \$555 million (euro equivalent €463 million).
The weighted average effective interest rate as at the reporting date on cash and cash equivalents was:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Euro | 0,03% | 0,08% | ||
| USD | 0,09% | 0,10% |
| Number of Shares (authorised and issued) |
Share Capital |
Share premium | Total | |
|---|---|---|---|---|
| As at 1 January & 31 December 2017 | 305.635.185 | 666.285 | 353.796 | 1.020.081 |
| As at 31 December 2018 | 305.635.185 | 666.285 | 353.796 | 1.020.081 |
All ordinary shares were authorised, issued and fully paid. The nominal value of each ordinary share is €2,18 (31 December 2017: €2,18).
During the Annual General Meeting (AGM) of Hellenic Petroleum S.A. held on 25 May 2005, a share option scheme was approved, with the intention to link the number of share options granted to management with the results and performance of the Company. Subsequent AGMs have approved and granted the share options. At the 2014 and 2015 AGM's, the shareholders approved several changes to the share option program incorporating recent tax changes, without altering the net effect in terms of benefit to the participants.
There were no share options outstanding at the end of the year.
| Grant Date |
Vesting Period |
Expiry Date |
Exercise Price € per |
No. of share options as at | |
|---|---|---|---|---|---|
| 5 December | share | 31 December 2018 | 31 December 2017 | ||
| 2012 | 2014-18 | 2018 | 4,52 | - | 185.633 |
| Total | - | 185.633 |
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Average Exercise Price in € per share |
Options | Average Exercise Price in € per share |
Options | |
| Balance at beginning of year (1 January) | 4,52 | 185.633 | 4,52 | 1.479.933 |
| Exercised | 4,52 | (172.383) | 4,52 | (1.294.300) |
| Lapsed | 4,52 | (13.250) | - | - |
| Balance at end of year (31 December) | 4,52 | - | 4,52 | 185.633 |
The value of lapsed stock options that were transferred to retained earnings in 2018 is €0 (2017: €0).
During the year ended 31 December 2018, share options were exercised via the acquisition and subsequent issue of treasury shares to employees with a total value of €1,2 million (see note 14).
| Statutory reserve |
Special reserves |
Hedging reserve |
Share-based payment reserve |
Tax free & Incentive Law Reserves |
Οther reserves |
Treasury shares |
Total | ||
|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2017 | 118.668 | 98.420 | 13.268 | 747 | 263.047 (24.362) | - | 469.788 | ||
| Changes of the fair value of equity investments | - | - | - | - | - | 1 | - | 1 | |
| Reduction in value of land | - | - | - | - | - | (907) | - | (907) | |
| Currency translation differences and other movements | - | - | - | - | - | 718 | - | 718 | |
| Derecognition of gains/(losses) on hedges through comprehensive income | - | - | 1.979 | - | - | - | - | 1.979 | |
| Fair value losses on cash flow hedges | - | - | (4.590) | - | - | - | - | (4.590) | |
| Actuarial gains/(losses) on defined benefit pension plans | - | - | - | - | - | (9.584) | - | (9.584) | |
| Share based payments | - | - | - | (653) | - | - | - | (653) | |
| Acquisition of Treasury Shares | - | - | - | - | - | - (10.245) | (10.245) | ||
| Issue of treasury shares to employees | - | - | - | - | - | - | 9.714 | 9.714 | |
| Transfer from retained earnings to reserves | - | - | - | - | 8.797 | - | - | 8.797 | |
| Transfers | - (11.925) | (2.482) | - | 100 14.307 | - | - | |||
| Dividends | - | - | - | - | (106.962) | - | - (106.962) | ||
| Balance at 31 December 2017 as originally presented | 118.668 | 86.495 | 8.175 | 94 | 164.982 (19.827) | (531) | 358.056 | ||
| Change in accounting policy | - | - | - | - | - | 166 | - | 166 | |
| Restated total equity as at 1 January 2018 | 118.668 | 86.495 | 8.175 | 94 | 164.982 (19.661) | (531) | 358.222 | ||
| Changes in the fair value of equity investments | - | - | - | - | - | (700) | - | (700) | |
| Currency translation differences and other movements | - | - | - | - | - | (740) | - | (740) | |
| Derecognition of gains on hedges through comprehensive income | - | - | (14.920) | - | - | - | - (14.920) | ||
| Fair value losses on cash flow hedges | - | - | (5.006) | - | - | - | - | (5.006) | |
| Actuarial valuation losses on defined pension plans | - | - | - | - | - (11.002) | - (11.002) | |||
| Share-based payments | 13 | - | - | - | (93) | - | - | - | (93) |
| Share of other comprehensive income of associates | - | - | - | - | - | (288) | - | (288) | |
| Acquisition of treasury shares Issue of treasury shares to employees |
13 13 |
- | - | - | - | - | - | (683) | (683) |
| Transfers of tax on reserves distributed to retained earnings | - - |
- - |
- - |
- - |
- (17.319) |
- - |
1.214 | 1.214 - (17.319) |
|
| Dividends | - | - | - | - | (76.408) | - | - (76.408) | ||
| Transfer to Statutory Reserve | 26.170 | - | - | - | - | - | - | 26.170 | |
| Transfer of grant received to tax free reserves | - | - | - | - | 80 | - | - | 80 | |
| Balance at 31 December 2018 | 144.838 | 86.495 | (11.751) | 1 | 71.335 (32.391) | - | 258.527 |
Under Greek law, corporations are required to transfer a minimum of 5% of their annual net profit as reflected in their statutory books to a statutory reserve until such reserve equals one third of outstanding share capital. This reserve cannot be distributed during the existence of the corporation, but can be used to offset accumulated losses.
Special reserves primarily relate to reserves arising from tax revaluations which have been included in the holding company accounts in accordance with the relevant legislation in prior years.
These reserves relate to retained earnings that have not been taxed with the prevailing corporate income tax rate as allowed by Greek law under various statutes and include reserves relating to investments under incentive laws. These reserves will become liable to tax at the rate prevailing at the time of distribution to shareholders or conversion to share capital under certain conditions.
The hedging reserve is used to record gains or losses on derivatives that are designated and qualify as cash flow hedges and that are recognised in other comprehensive income, as described in Note 24. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
Other reserves are almost entirely comprised of actuarial losses.
Other reserves include:
Treasury shares are held regarding the Share Option Plan. During the year ended 31 December 2018, 87.793 shares were acquired at a cost of €0,7 million, while 157.953 shares were issued to employees following exercise of share options held. Treasury shares are recognised on a first-in-first out method (Note 13).
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Trade payables | 1.137.603 | 1.474.336 | |
| Accrued Expenses | 138.022 | 100.810 | |
| Other payables | 73.528 | 86.311 | |
| Total | 1.349.153 | 1.661.457 |
Trade payables comprise amounts payable or accrued in respect of supplies of crude oil, products, and services.
Trade payables, as at 31 December 2018 and 31 December 2017, include amounts in respect of crude oil imports from Iran, which were received between December 2011 and March 2012 as part of a long term contract with NIOC. Despite repeated attempts to settle the payment for these cargoes through the international banking system between January and June 2012, it was not possible to do so. This was due to the fact that payments to Iranian banks and state entities were not accepted for processing by the International banking system, as a result of explicit or implicit US and International sanctions. After 30 June 2012, Hellenic Petroleum was prohibited to effect payments to NIOC by virtue of EU sanctions (Council Regulation (EU) No. 267/2012 of 23 March 2012). The Group duly notified its supplier of this restriction on payments and the inability to accept further crude oil cargoes under the contract, as a result of the aforementioned international sanctions.
On 18 October 2015, by Decision (CFSP) 2015/1863, the Council of the European Union (EU) decided to terminate implementation of most of EU restrictions against Iran, taking into account UNSCR 2231 (2015) and Annex B to UNSCR 2231 (2015), simultaneously with the IAEA-verified implementation by Iran of agreed nuclear-related measures. On 16 January 2016 ("Implementation Day"), by Decision (CFSP) 2016/37, the Council decided that Decision (CFSP) 2015/1863 shall apply from that date. On the same date, U.S and other International Restrictive Measures were also partially lifted. In light of the above developments, Hellenic Petroleum and NIOC executed Heads of Terms to a cooperation-agreement on 22 January 2016 for the recommencement of their commercial relationship for the supply of crude and for the settlement of the due trade payables.
On May 8, 2018, the President of the U.S. (the President) announced his decision to cease the United States' participation in the Joint Comprehensive Plan of Action (JCPOA), and to begin re-imposing, following a winddown period, the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief. In conjunction with this announcement, the President issued a National Security Presidential Memorandum (NSPM) directing the Secretary of State and the Secretary of the Treasury to prepare immediately for the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA, to be accomplished as expeditiously as possible and in no case later than 180 days from the date of the NSPM. As a result, no deliveries of Iranian crude oil or payments have taken place post May 8, 2018.
Accrued expenses mainly relate to accrued interest, payroll related accruals and accruals for operating expenses not yet invoiced. Accrued expenses include the estimated cost of the CO2 emission rights required under the corresponding environmental legislation amounting to €54 million as at 31 December 2018 (2017: €19 million).
Other payables include amounts in respect of payroll related liabilities, social security obligations and sundry taxes.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Non-current interest bearing loans and borrowings | |||
| Bank borrowings | 1.178.075 | 155.556 | |
| Eurobonds | 446.715 | 761.607 | |
| Finance leases | 2.381 | 3.071 | |
| Total non-current interest bearing loans and borrowings | 1.627.171 | 920.234 | |
| Current interest bearing loans and borrowings | |||
| Short term bank borrowings | 745.278 | 1.855.170 | |
| Eurobonds | 318.386 | - | |
| Current portion of long-term bank borrowings | 44.444 | 44.444 | |
| Finance leases - current portion | 677 | 655 | |
| Total current interest bearing loans and borrowings | 1.108.785 | 1.900.269 | |
| Total interest bearing loans and borrowings | 2.735.956 | 2.820.503 |
Non-current interest bearing loans and borrowings mature as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Between 1 and 2 years | 267.038 | 360.258 | ||
| Between 2 and 5 years | 1.360.133 | 559.976 | ||
| 1.627.171 | 920.234 |
The weighted average effective interest margins are as follows:
| As at | |||
|---|---|---|---|
| Bank Borrowings | Currency | 31 December 2018 | 31 December 2017 |
| Short-term | |||
| - Floating Euribor + margin | Euro | 5,18% | 4,88% |
| - Floating Libor + margin | US Dollar | 6,88% | 5,88% |
| - Floating Belibor + margin | Serbian Dinar | 4,20% | 5,55% |
| - Floating Reference Rate + margin | Bulgarian Lev | 1,98% | 4,90% |
| - Central Bank Bills + margin | FYROM Dinar | - | 4,73% |
| - Fixed coupon | Euro | 5,25% | - |
| Long-term | |||
| - Floating Euribor + margin | Euro | 2,77% | 0,78% |
| - Floating Libor + margin | US Dollar | 5,42% | - |
| - Fixed coupon | Euro | 4,88% | 5,04% |
The carrying amounts of the Group's borrowings are denominated in the following currencies:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Euro | 2.529.086 | 2.772.059 | ||
| US Dollar | 155.060 | - | ||
| Serbian Dinar | 15.098 | 14.454 | ||
| Bulgarian Lev | 36.712 | 33.990 | ||
| Total interest bearing loans and borrowings | 2.735.956 | 2.820.503 |
The Group has centralised treasury operations which coordinate and control the funding and cash management activities of all group companies. Within this framework, Hellenic Petroleum Finance plc (HPF) was established in November 2005 in the U.K. as a wholly-owned subsidiary of Hellenic Petroleum S.A. to act as the central treasury vehicle of the Hellenic Petroleum Group.
Βorrowings of the Group by maturity as at 31 December 2018 and 31 December 2017 are summarised in the table below (amounts in € million):
| Balance as at | |||||
|---|---|---|---|---|---|
| Company | Maturity | 31 December 2018 | 31 December 2017 | ||
| 1a. Syndicated credit facility €20 million | HPF plc | Jul 2018 | - | 20 | |
| 1b. Syndicated credit facility €10 million | HPF plc | Jul 2018 | - | 10 | |
| 1c. Syndicated bond loan €350 million | HP SA | Jul 2018 | - | 348 | |
| 1d Bond loan €400 million | HP SA | Jun 2023 | 392 | - | |
| 2. Bond loan €400 million | HP SA | Nov 2020 | 223 | 284 | |
| 3. Bond loan €300 million | HP SA | Feb 2021 | 297 | 200 | |
| 4. Bond loan SBF €400 million | HP SA | May 2018 | - | 239 | |
| 5. Bond loan \$ 250 million | HP SA | June 2021 | 155 | - | |
| 6. European Investment Bank ("EIB")Term loan | HP SA | Jun 2022 | 156 | 200 | |
| 7. Eurobond €325 million | HPF plc | Jul 2019 | 318 | 316 | |
| 8. Eurobond €450 million | HPF plc | Oct 2021 | 447 | 446 | |
| 9. Bilateral lines | Various | Various | 745 | 754 | |
| 10. Finance leases | Various | Various | 3 | 4 | |
| Total | 2.736 | 2.821 |
Refer to 'Liquidity Risk Management' (Note 3.1c) for an analysis of the Group's plans regarding the facilities falling due in 2019.
No loans were in default as at 31 December 2018 (none as at 31 December 2017).
In July 2014, the Group concluded two new credit facilities with a syndicate of Greek and international banks as follows:
(1a-1b) HPF concluded a €50 million syndicated credit facility guaranteed by Hellenic Petroleum S.A. The facility had a €40 million tranche which matured in July 2016 and a €10 million tranche maturing in July 2018. In July 2016, upon maturity of the € 40 million tranche, the Group proceeded with a partial repayment of € 20 million and extended the maturity of the remaining € 20 million to July 2018. These loans were repaid during 2018 with the proceeds of the facility as described below (1d).
(1c) Hellenic Petroleum S.A. concluded a €350 million syndicated bond loan credit facility guaranteed by HPF maturing in July 2018. These loans were repaid during 2018 with the proceeds of the facility as described below (1d).
(1d) In June 2018, the Group prepaid both facilities which had a total outstanding balance of €380 million. The facilities were refinanced with a 5 year syndicated revolving bond loan facility issued by Hellenic Petroleum S.A. and subscribed to by Greek and international banks for an amount of €400 million.
In September 2015 Hellenic Petroleum S.A. extended the maturity date of a €400 million syndicated bond loan agreement from December 2015 to June 2016 and subsequently to October 2017 with two six-month extension options. In April 2018, Hellenic Petroleum S.A. extended the facility maturity date to October 2018, when it was fully repaid (the outstanding balance amounted to €284,5 million). The loan was refinanced in November 2018, with the issuance of a new syndicated bond loan of €400 million with a tenor of 2 years and a one- year extention option. The outstanding amount of the loan was €223 million as of 31 December 2018.
In January 2015, Hellenic Petroleum S.A. concluded a €200 million revolving bond loan facility, with a tenor of 3 years. The facility was refinanced in February 2018 for an increased amount of €300 million and a tenor of 3 years.
In May 2016 Hellenic Petroleum S.A. concluded a € 400 million bond loan stand-by facility with a tenor of 18 months and an extension option for a further 6 months. The bond loan facility has two Tranches, a committed Tranche of €240 million and an uncommitted Tranche of €160 million. In May 2017, Hellenic Petroleum S.A. made an additional drawdown of €167 million under the committed Tranche of the facility. In October 2017, Hellenic Petroleum S.A. extended the facility maturity date to May 2018. In May 2018, Hellenic Petroleum S.A. fully repaid the outstanding balance of €240 million upon maturity.
In June 2018, Hellenic Petroleum S.A. concluded a new \$250 million revolving bond loan facility with a tenor of 3 years to finance general working capital needs.
On 26 May 2010, Hellenic Petroleum S.A. signed two loan agreements (Facilities A and B) with the European Investment Bank for a total amount of €400 million (€200 million each). The purpose of the loans was to finance part of the investment program relating to the upgrade of the Elefsina Refinery. Both loans had a maturity of twelve years with amortisation beginning in December 2013 and similar terms and conditions. Facility B is credit enhanced by a commercial bank guarantee (see note 12). This is normal practice for EIB lending particularly during the construction phase of large projects. Total repayments on both loans up to 31 December 2018 amounted to € 244 million (€44 million paid during 2018). See also note 12 - Cash and Cash Equivalents. Up to February 2018, Facility B included financial covenant ratios which were comprised of leverage, interest cover and gearing ratios. In February 2018, Hellenic Petroleum S.A. amended the terms of this facility in order to align the loan covenants' definitions and ratios in line with those used for all its commercial bank loans and Εurobonds.
In July 2014 the Group issued a €325 million five-year Eurobond, with a 5,25% annual coupon, maturing in July 2019. The Notes, which were issued by Hellenic Petroleum Finance Plc and are guaranteed by Hellenic Petroleum S.A., are listed on the Luxembourg Stock Exchange.
In October 2016 HPF issued a €375 million five-year 4,875% Eurobond guaranteed by Hellenic Petroleum S.A. with the issue price being 99,453 per cent. of the principal amount. The notes mature in October 2021. The proceeds of the issue were used to repay existing financial indebtedness, including the partial prepayment of the €500 million Eurobond maturing in May 2017 through a tender offer process which was completed in October 2016 during which notes of nominal value of €225 million were accepted. In July 2017, HPF issued €74,53 million guaranteed notes due 14 October 2021, which were consolidated and form a single series with the €375 million 4,875% guaranteed notes, which mature in October 2021.
The Group companies have credit facilities with various banks to finance general corporate needs which are being renewed in accordance with the Group's finance needs. The facilities mainly comprise of short-term loans of the parent company Hellenic Petroleum S.A..
The Group leases petrol stations (buildings and plant) under finance lease agreements. Finance leases are analysed as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Obligations under finance leases | |||
| Within 1 year | 677 | 667 | |
| Between 1 and 2 years | 639 | 677 | |
| Between 2 and 5 years | 1.175 | 2.061 | |
| After 5 years | 567 | 321 | |
| Total lease payments | 3.058 | 3.726 |
Certain medium term credit agreements that the Group has concluded, include financial covenants, mainly for the maintenance of certain ratios such as: "Consolidated Net Debt/ Consolidated Adjusted EBITDA", "Consolidated Adjusted EBITDA/ Consolidated Net Interest" and "Consolidated Net Debt/ Consolidated Net Worth". Management monitors the performance of the Group to ensure compliance with the above covenants.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
The offset amounts are as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Deferred tax assets: | |||
| Deferred tax assets | 64.109 | 71.355 | |
| 64.109 | 71.355 | ||
| Deferred tax liabilities: | |||
| Deferred tax liabilities | (185.744) | (131.611) | |
| (185.744) | (131.611) | ||
| (121.635) | (60.256) |
The gross movement on the deferred income tax asset / (liability) is as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Beginning of the year | (60.256) | 58.237 | ||
| Income statement charge | (72.957) | (125.096) | ||
| Charged / (released) to equity | 10.911 | 4.777 | ||
| Restatement of equity | 531 | - | ||
| Other movements | 136 | 1.826 | ||
| End of year | (121.635) | (60.256) |
Deferred tax relates to the following types of temporary differences:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Intangible and tangible fixed assets | (213.073) | (228.980) | ||
| Inventory valuation | 11.385 | 12.068 | ||
| Unrealised exchange gains | (3.387) | 4.364 | ||
| Employee benefits provision | 42.359 | 42.592 | ||
| Provision for bad debts | 39.318 | 42.610 | ||
| Derivative financial instruments at fair value | 4.002 | (3.339) | ||
| Ιnterest cost carried forward (thin capitalisation) | 3.997 | 42.860 | ||
| Tax losses carried forward | 5.479 | 6.927 | ||
| Environmental provisions | 18.311 | 5.421 | ||
| Impairment of investments | 7.737 | 9.363 | ||
| Unearned profit in stock | 2.129 | 2.642 | ||
| Other temporary differences relating to provisions and accruals | 8.604 | 3.216 | ||
| Deferred Tax on distribution of DESFA shares by DEPA | (48.496) | - | ||
| End of year | (121.635) | (60.256) |
Deferred tax assets relating to tax loss carry-forwards are recognised if it is probable that they can be offset against future taxable profits. As at 31 December 2018, the Group recognised deferred tax assets on tax loss carry-forwards totalling €5 million (2017: €7 million) since, on the basis of the approved business plan, the Group considers it probable that these can be offset against future taxable profits.
In 2014, thin capitalization rules as per art. 49 of law 4172/2013 were applied for the first time, whereby the net interest expense is deductible up to a certain percentage of tax EBITDA (60% for 2014, 50% for 2015, 40% for 2016 and 30% thereafter). This resulted in a deferred tax asset of €4 million as at 31 December 2018 (31 December 2017: €43 million), which can be offset against future taxable profits without any time constraints.
The table below outlines where the group's retirement benefit amounts and activity are included in the financial statements.
| As at | |||||
|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||||
| Statement of Financial Position obligations for: | |||||
| Pension benefits | 163.514 | 133.256 | |||
| Liability in the Statement of Financial Position | 163.514 | 133.256 | |||
| For the year ended | |||||
| 31 December 2018 | 31 December 2017 | ||||
| Statement of Comprehensive Income charge for: | |||||
| Pension benefits | 22.201 | 10.566 | |||
| Total as per Statement of Comprehensive Income | 22.201 | 10.566 | |||
| Remeasurements for: | |||||
| Pension benefits | 13.750 | 13.299 | |||
| Total as per Statement of Other Comprehensive Income | 13.750 | 13.299 |
The amounts recognised in the Statement of Financial Position are as follows:
| As at | ||||||
|---|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||||
| Present value of funded obligations | 21.663 | 22.226 | ||||
| Fair value of plan assets | (10.108) | (9.530) | ||||
| Deficit of funded plans | 11.555 | 12.696 | ||||
| Present value of unfunded obligations | 151.959 | 120.560 | ||||
| Liability in the Statement of Financial Position | 163.514 | 133.256 |
The Group operates defined benefit pension plans in Greece, Bulgaria, Serbia, FYROM, Montenegro and Cyprus. All of the plans are final salary pension plans. The level of benefits provided depend on members' length of service and remuneration. The majority of the plans are unfunded, however there are certain plans in Greece and Cyprus that have plan assets.
The movement in the defined benefit obligation is as follows:
| Present Value of Obligation |
Fair Value of Plan Assets |
Total | |
|---|---|---|---|
| As at 1 January 2017 | 119.282 | (8.370) | 110.912 |
| Current service cost | 6.296 | - | 6.296 |
| Interest expense/(income) | 3.095 | (147) | 2.948 |
| Past service costs and (gains)/losses on settlements | 1.322 | - | 1.322 |
| Statement of comprehensive income charge | 10.713 | (147) | 10.566 |
| Remeasurements: | |||
| - Return on plan assets, excluding amounts included in Interest | |||
| expense/(income) | - | (161) | (161) |
| - (Gain)/loss from change in demographic assumptions | 264 | - | 264 |
| - (Gain)/loss from change in financial assumptions | 7.920 | - | 7.920 |
| - Experience (gains)/losses | 5.276 | - | 5.276 |
| Statement of other comprehensive income charge | 13.460 | (161) | 13.299 |
| Other movements/ Reclassifications | 2.000 | 2.000 | |
| Benefits paid directly by the group/Contributions paid by the group | (2.224) | (1.297) | (3.521) |
| Benefit payments from the plan | (445) | 445 | - |
| Settlement payments from the plan | - | - | - |
| As at 31 December 2017 | 142.786 | (9.530) | 133.256 |
| Present Value of Obligation |
Fair Value of Plan Assets |
Total | |
|---|---|---|---|
| As at 1 January 2018 | 142.786 | (9.530) | 133.256 |
| Current service cost | 7.243 | ` - |
7.243 |
| Interest expense/(income) | 2.950 | (158) | 2.792 |
| Past service costs and (gains)/losses on settlements | 12.166 | - | 12.166 |
| Statement of comprehensive income charge | 22.359 | (158) | 22.201 |
| Remeasurements: | |||
| - Return on plan assets, excluding amounts included in Interest | |||
| expense/(income) | - | 322 | 322 |
| - (Gain)/loss from change in demographic assumptions | (6) | - | (6) |
| - (Gain)/loss from change in financial assumptions | 10.852 | - | 10.852 |
| - Experience (gains)/losses | 2.582 | - | 2.582 |
| Statement of other comprehensive income charge | 13.428 | 322 | 13.750 |
| Benefits paid directly by the group/Contributions paid by the group | (3.881) | (1.322) | (5.203) |
| Benefit payments from the plan | (1.074) | 595 | (479) |
| Contributions paid by employees | 17 | (17) | - |
| Settlement payments from the plan | (12) | - | (12) |
| As at 31 December 2018 | 173.623 | (10.109) | 163.514 |
The expected maturity analysis of undiscounted pension benefits is as follows:
| Less than a | Between 1-2 | Between 2-5 | |||
|---|---|---|---|---|---|
| Balance at 31 December 2018 | year | years | years | Over 5 years | Total |
| Pension Benefits | 5.037 | 6.299 | 34.076 | 291.709 | 337.121 |
Plan assets are comprised as follows:
| 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Quoted | Unquoted | Total | % | Quoted | Unquoted | Total | % | |
| Equity Instruments | 1.973 | - | 1.973 | 20% | 2.231 | - | 2.231 | 23% |
| Debt Instruments | ||||||||
| - Government bonds | 1.228 | - | 1.228 | 12% | 1.096 | - | 1.096 | 12% |
| - Corporate bonds | 2.961 | - | 2.961 | 29% | 3.202 | - | 3.202 | 34% |
| Investment funds | 2.139 | - | 2.139 | 21% | 1.054 | - | 1.054 | 11% |
| Real Estate/ Property | 1.421 | - | 1.421 | 14% | 1.524 | - | 1.524 | 16% |
| Cash and cash equivalents | 196 | 191 | 387 | 4% | 205 | 218 | 423 | 4% |
| Total | 9.918 | 191 | 10.109 | 100% | 9.312 | 218 | 9.530 | 100% |
The principal actuarial assumptions used were as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Discount Rate | 2,05% | 2,00% | ||
| Future Salary Increases | 1,10% - 1,50% | 0,50% | ||
| Inflation | 1,10% | 0,60% | ||
| Average future working life in years | 16,18 | 16,87 |
The sensitivity of the defined benefit obligation (DBO) to changes in the weighted principal assumptions is:
| Impact on Defined Benefit Obligation | ||||
|---|---|---|---|---|
| Decrease in | ||||
| Change in assumption | Increase in DBO | DBO | ||
| Discount Rate | 0,5% | -5,05% | 5,16% | |
| Future Salary Increases | 0,5% | 4,27% | Not appicable |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
Expected contributions to defined benefit plans for the following year amount to €0,9 million. The weighted average duration of the defined benefit obligation is 16 years.
The movement for provisions for 2018 and 2017 is as follows:
| Provisions for other liabilities and charges |
|
|---|---|
| At 1 January 2017 | 9.306 |
| Charged / (credited) to the income statement: | |
| - Additional provisions | 929 |
| - Unused amounts reversed | (1.212) |
| - Utilized during year | (652) |
| Other movements / Reclassifications | (2.000) |
| At 31 December 2017 | 6.371 |
| Charged / (credited) to the income statement: | |
| - Additional provisions | 30.895 |
| - Unused amounts reversed | (2.511) |
| - Utilized during year | (3.705) |
| Transfer from Note 11 | 6.000 |
| Other movements/ Reclassifications | 4.988 |
| At 31 December 2018 | 42.038 |
An amount of €2 million included within "Other movements/ Reclassifications" for the year ended 31 December 2017, relates to a transfer to Retirement Benefit Obligations.
The majority of the amounts reported in the above category concern provisions for pending legal claims and environmental restoration. During 2018, a provision of €15 million was recorded, for the estimated cost of decommissioning of a caustic soda plant in Thessaloniki industrial complex, which is idle and the subsequent restoration of land. The remaining provision for the year 2018 relates to various litigation provision.
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Government grants | 10.939 | 11.685 |
| Trade and other payables | 17.913 | 17.015 |
| Total | 28.852 | 28.700 |
Advances by the Government to the Group's entities relate to grants for the purchase of property plant and equipment. Amortisation for 2018 amounted to €1,0 million (2017: €0,9 million).
Trade and other payables, non-current are comprised of cash guarantees received from petrol station dealers/ managers of the Group's retail companies in order to ensure that contract terms and conditions are met.
| 31 December 2018 | 31 December 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Commodity Derivative type | Notional Amount | Assets | Liabilities | Notional Amount | Assets | Liabilities | ||
| MT'000 | Bbls'000 | € | € | MT'000 | Bbls'000 | € | € | |
| Commodity Swaps | - | 846 | - | 16.387 | - | 1.848 | 11.514 | - |
| - | 846 | - | 16.387 | - | 1.848 | 11.514 | - | |
| Total | - | 846 | - | 16.387 | 1.848 | 11.514 | - | |
| 31 December 2018 Assets |
Liabilities | 31 December 2017 Assets |
Liabilities | |||||
| Non-current portion Commodity swaps |
- | - | - | - | ||||
| - | - | - | - | |||||
| Current portion Commodity swaps |
- | 16.387 | 11.514 | - | ||||
| - | 16.387 | 11.514 | - | |||||
| Total | - | 16.387 | 11.514 | - |
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the accounting hedging criteria, they are classified as 'held for trading' for accounting purposes.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.
During the year ended 31 December 2018 amounts transferred to the statement of comprehensive income, relating to contracts that were settled during the year, amounted to €14,920 million gain, net of tax (2017: €1,979 million loss, net of tax).
The remaining cash flow hedges are highly effective and the movement in their fair value, amounting to a loss of €5,006 net of tax as at 31 December 2018, (2017: €4,590 loss, net of tax), is included in the hedging reserve (see Note 14).
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the statement of financial position.
| For the year ended | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Raw materials and consumables used | 7.832.405 | 6.064.349 | ||
| Employee costs | 279.943 | 268.617 | ||
| Depreciation | 187.117 | 180.532 | ||
| Amortisation | 10.066 | 8.744 | ||
| Other expenses | 935.186 | 794.565 | ||
| Total cost of sales, distribution cost and administrative | ||||
| expenses | 9.244.717 | 7.316.807 |
Other expenses include fees paid to the Group's statutory auditor which relate to non-audit services (i.e exclude audit and tax certificate) and which amount to €0,04 million for the year ended 31 December 2018.
Employee costs are set out in the table below:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Wages and salaries | 186.943 | 189.140 | |
| Social security costs | 45.412 | 44.212 | |
| Pension costs | 22.201 | 10.625 | |
| Other employment benefits | 25.387 | 24.640 | |
| Total | 279.943 | 268.617 |
Other employment benefits include medical insurance, catering and transportation expenses.
Geological and geophysical costs are expensed as incurred (2018: €1,4 million and 2017: €0,2 million) and relate mainly to exploration operations including environmental and geological studies in the Patraikos Gulf, Arta – Preveza onshore Block, NW Peloponnese onshore Block and Block 2.
Εxploration license costs relating to Patraikos, Arta Preveza, NW Peloponnese and Block 2 have been capitalized within intangible assets (2018: €2,2 million and 2017: €0,07 million) and are amortised over the term of the exploration period for each block.
Other operating income/ (expenses) and other gains / (losses) are analysed as follows:
| Note | For the year ended | ||||
|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||||
| Other operating income | |||||
| Income from Grants | 30 | 965 | 878 | ||
| Services to 3rd Parties - net | 5.067 | 3.873 | |||
| Rental income -net | 7.768 | 8.105 | |||
| Insurance compensation | 1.836 | 926 | |||
| Total other operating income - net | 15.636 | 13.782 | |||
| Other gains/(losses) | |||||
| (Loss)/ profit from the sale of PPE - net | 246 | (252) | |||
| Amortization of long-term contract costs | (454) | (6.272) | |||
| Voluntary retirement scheme cost | (596) | (942) | |||
| Impairment of fixed assets | 6 | (3.734) | (2.689) | ||
| Legal costs relating to Arbitration proceedings ruling | - | (13.679) | |||
| Provision for environmental restoration | 19 | (15.000) | - | ||
| Other operating expenses | (4.921) | (5.836) | |||
| Total other (losses)/ gains | (24.459) | (29.670) | |||
| Total other operating (expenses)/income and other gains/ (losses)-net | (8.823) | (15.888) |
Rental income relates to long term rental of petrol stations, let to dealers. Other operating income / (expenses) include income or expenses which do not relate to the trading activities of the Group.
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Interest income | 3.827 | 4.600 | |
| Interest expense | (125.907) | (136.403) | |
| Other finance costs | (23.625) | (33.250) | |
| Finance costs -net | (145.705) | (165.053) |
Finance costs amounting to €2,5 million (2017: €2,4 million) have been capitalised (Note 6).
Foreign currency exchange gains of €2 million for the year ended 31 December 2018, relate mostly to unrealized gains arising from the valuation of bank accounts denominated in foreign currency (mainly USD). Foreign currency exchange losses of €8 million for the year ended 31 December 2017, relate mostly to unrealized losses arising from the valuation of bank accounts denominated in foreign currency (mainly USD).
The tax (charge) / credit relating to components of comprehensive income, is as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Current tax | (72.025) | (7.245) | |
| Tax on distribution of dividends | (13.490) | - | |
| Prior year tax | 4.254 | (3.520) | |
| Deferred tax (Note 17) | (72.957) | (125.097) | |
| Income Tax (expense) / credit | (154.218) | (135.862) |
The tax (charge) / credit relating to components of other comprehensive income, is as follows:
| For the year ended | ||||||
|---|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||||
| Before tax | Tax (charge)/ credit After tax | Before tax | Tax (charge)/ credit | After tax | ||
| Reduction in value of land | - | - | (1.669) | - | (1.669) | |
| Share of other comprehensive income of associates | (288) | - | (288) | - | - | - |
| Investment in equity instruments | (959) | 264 | (695) | 6 | - | 6 |
| Cash flow hedges | (27.835) | 7.909 | (19.926) | (3.678) | 1.063 | (2.615) |
| Currency translation differences | (745) | - | (745) | 752 | - | 752 |
| Actuarial gains/ (losses) on defined benefit pension plans | (13.750) | 2.738 | (11.012) | (13.299) | 3.714 | (9.585) |
| Other comprehensive income | (43.577) | 10.911 | (32.666) | (17.888) | 4.777 | (13.111) |
The corporate income tax rate of legal entities in Greece is 29% for 2018 (2017: 29%). According to article 23 of the recent Law 4579, released in December 2018, the corporate income tax rate in Greece, currently 29%, is expected to be reduced by 1% each year as follows: 28% in FY 2019, 27% in FY 2020, 26% in FY 2021 and 25% in FY 2022 onwards."
As at 31 December 2018, the effect of the changes in future income tax rates in other comprehensive income of the Group, is a charge of €1,9 million.
In accordance with the applicable tax provisions, tax audits in Group companies are conducted as follows:
Effective for fiscal years ending 31 December 2011 onwards, Greek companies meeting certain criteria can obtain an "Annual Tax Certificate" as provided for by par. 5, article 82 of L.2238/1994 and article 65A of L. 4174/2013, as of 2014, from their statutory auditor in respect of compliance with tax law. The issuance of a Tax Compliance Report under certain conditions, substitutes the full tax audit by the tax authorities, however the tax authorities reserve the right of future tax audit.
All Group companies based in Greece have received unqualified Tax Compliance Reports by their respective statutory auditor for fiscal years up to 2017 (inclusive). The tax audit for the financial year 2018 is in progress, the issuance of Tax Compliance Report is expected to be issued within the fourth quarter of 2019 and management expects it to be unqualified.
Income tax years of the parent company and its most significant subsidiaries audited by the tax authorities are set out below:
| Company name | Financial years ended (up to & including) |
|---|---|
| HELLENIC PETROLEUM SA | 2011 |
| EKO SA | 2010 |
| HELLENIC FUELS & LUBRICANTS SA (former HELLENIC FUELS SA) | 2011 |
As explained also in Note 31, and notwithstanding the possibility of future tax audits, the Group's management believes that no additional material liability will arise as a result of unaudited tax years over and above the tax liabilities and provisions recognised in the consolidated financial statements as of 31 December 2018.
Numerical reconciliation of Group Income tax expense to prima facie tax payable:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Profit before tax | 368.930 | 519.785 | |
| Tax (expense) at Greek corporation tax rate of 29% (2017 - 29%) | (106.990) | (150.738) | |
| Difference in overseas tax rates | 5.688 | 7.371 | |
| Tax exempt results of shipping companies | 555 | 2.625 | |
| Deferred Tax on distribution of DESFA shares by DEPA | (48.494) | - | |
| Tax on expenses not deductible for tax purposes | (9.457) | (12.836) | |
| Adjustments to Deferred tax due to changes in tax rate (excl DESFA) | 17.164 | - | |
| Utilization of previously unrecognized tax losses Tax losses for which no deferred income tax was recognised |
449 (50) |
898 (160) |
|
| Adjustments for deferred tax of prior periods | (536) | 11.553 | |
| Tax on Distribution of Dividend | (13.490) | - | |
| Tax on income from associates not subject to corporate tax | 513 | 6.465 | |
| Other | 430 | (1.040) | |
| Tax (Charge) / Credit | (154.218) | (135.862) | |
| Effective tax rate | 41,8% | 26,1% |
Basic earnings per share are calculated by dividing the net profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the period, excluding the weighted average number of treasury shares (Note 13). Diluted earnings per ordinary share are not materially different from basic earnings per share.
| For the year ended | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Earnings per share attributable to the Company Shareholders | ||||
| (expressed in Euro per share): | 0,69 | 1,25 | ||
| Net income attributable to ordinary shares | ||||
| (Euro in thousands) | 211.614 | 381.372 | ||
| Weighted average number of ordinary shares | 305.628.663 | 305.559.147 |
A proposal to the AGM for a final dividend €0,25 per share (excluding treasury shares – Note 13) for the year ended 2017 was approved by the Board of Directors on 22 February 2018 and the final approval was given by the shareholders at the AGM held on 6 June 2018. This amounts to €76,408 million and is included in the Consolidated Financial Statements for the period ended 31 December 2018.
At its meeting held on 8 November 2018, the Board of Directors decided to distribute an interim dividend of €0,25 per share (excluding treasury shares – Note 13) for the financial year 2018. The dividend amounts to a total of €76,408 million.
The relevant amounts relating to the interim dividend for 2018 and the final dividend for 2017 (total amount of €152,816 million) have been included in the Consolidated Financial Statements for the year ended 31 December 2018.
A proposal to the AGM for a final dividend €0,50 per share (excluding treasury shares – Note 13) for the year ended 2018, was approved by the Board of Directors on 28 February 2019. The above dividend includes a special dividend of €0,25 per share relating to distribution of part of the proceeds from the sale of the Group's share in DESFA (Note 8). The total final dividend amounts to €152,814 million and is not included in the Consolidated Financial Statements for the year ended 31 December 2018, as it has not yet been approved by the shareholders' AGM.
The Board did not approve a change in dividend policy overall and will re-evaluate the payment of an additional dividend or an additional special dividend during 2019.
| For the year ended | |||
|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |
| Profit before tax | 368.930 | 519.785 | |
| Adjustments for: | |||
| Depreciation and amortisation of property, plant & | |||
| equipment and intangible assets | 6,7 | 197.183 | 189.276 |
| Impairment of assets | 6 | 3.734 | 2.689 |
| Amortisation of grants | 20 | (965) | (878) |
| Finance costs - net | 25 | 145.704 | 165.053 |
| Share of operating profit of associates | 8 | 1.771 | (31.228) |
| Provisions for expenses & valuation charges | 89.103 | 55.594 | |
| Foreign exchange (gains) / losses | 26 | (2.194) | 8.173 |
| Amortisation of long-term contracts costs | 24 | 454 | 6.272 |
| Loss / (gain) on sale of property, plant and equipment | (246) | 1.685 | |
| 803.474 | 916.421 | ||
| Changes in working capital | |||
| Decrease / (increase) in inventories | 61.582 | (116.523) | |
| (Increase) / decrease in trade and other receivables | (17.694) | 62.948 | |
| Decrease in trade and other payables | (339.516) | (409.535) | |
| (295.628) | (463.110) | ||
| Net cash generated from operating activities | 507.846 | 453.311 |
The Group has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business, the most significant of which are disclosed below:
(i) Unresolved legal claims
The Group is involved in a number of legal proceedings and has various unresolved claims pending arising in the ordinary course of business. Based on currently available information and the opinion of legal counsel, management believes the final outcome will not have a significant effect on the Group's operating results or financial position, over and above provisions already reflected in the consolidated financial statements.
As at 31 December 2018 there are pending litigation claims that have been filed against the Group by the State, concerning customs violations that have been carried out by petrol stations dealers and whereby the Group is considered to be jointly liable. Furthermore, a number of decisions have been issued by the Supreme Administrative Court in similar cases, which either reject the Group's appeals, or accept the State's appeals and redirect them to the Administrative Appeals Court. The total amounts imposed amount to € 13,9 million of which € 11,7 million has been paid and recognized in Other Receivables in the Financial Statements.
The Group intends to file an appeal regarding these cases, to the European Court of Human Rights and at the same time to submit a question to the European Union Court as it assesses that the above Court decisions contradict the provisions of the European Convention on Human Rights as well as the legal framework of the European Union.
In this context, Group Management assesses that the probability of a favourable outcome from the European Courts is significant, which may as a result change the Supreme Administrative Court's position, which will subsequently result in a favourable outcome for the Group. For the reasons mentioned above, the Group has not raised a provision with regards to these cases.
During the current and preceding year, a number of Municipalities proceeded with the imposition of duties and fines relating to the rights of way occupied by underground pipelines operated by the Group within the boundaries of each respective municipality. As at 31 December 2018, the total amounts imposed amount to € 26,5 million. In order to appeal against these, and in accordance with legislation, the Group has paid an amount of € 6,4 million which is included in Other Receivables in the Financial Statements.
The Group has exercised all available legal recourse relating to these cases and Group Management have assessed that it is most probable that the outcome of all appeals will be favourable. Therefore the Group has not raised a provision with regards to these cases.
The parent Company has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to subsidiaries and associates of the Group, the outstanding amount of which as at 31 December 2018 was the equivalent of €969 million (31 December 2017: €1.016 million). Out of these, €886 million (31 December 2017: €928 million) are included in consolidated borrowings of the Group and are presented as such in the consolidated financial statements.
Τhe Group's international operations face a number of legal issues related to changes in local permits and tax regulations, however it is considered that they do not present any material impact on the consolidated financial statements. Such cases include a dispute in connection with the local tank depots of Jugopetrol AD in Montenegro, as well as the re-opening of the Commission for the Protection of Competition in Cyprus' investigation against the Petroleum companies operating there (wholesale), for the period from 1 October 2004 to 22 December 2006. On 15 November 2017 the Commission for the Protection of Competition in Cyprus imposed a fine amounting to €5 million against Hellenic Petroleum Cyprus Ltd. Pertinent legal actions, have commenced on 30 December 2017 and are in progress. The likelihood for an outflow of resources is assessed as remote. Management believes that no additional material liabilities will arise as a result of these cases over and above those recognised in the consolidated financial statements.
The tax framework and practices in Greece, which determine the tax base for the transactions of the Group's main entities, may result in inherent uncertainties, due to its complexity and it being subject to changes and alternative interpretation by relevant authorities at different points in time and across different entities. As a result, there may be types of expenses or treatments for which a company may be assessed on a different basis than the one adopted during preparation of its tax return and the financial statements. Based on past experience tax audits are carried out by tax authorities on average 5-7 years after the filing of the tax return. In addition, where a tax audit results in a different assessment to the one adopted by the Group entity, and for which the Group after consideration, disagrees with, the process for resolving the issue is usually through a court of law proceeding, which has many stages and can take a considerable number of years to reach its final and irrevocable ruling. For an entity to engage in this process, a minimum down payment of 50% of the total tax and penalties assessed is required.
All of the above result in inherent difficulties in the determination and accounting of tax liabilities. As a result, management aims to determine its policy based on specific legislation available at the time of accounting for a transaction, obtain specialist legal and tax advice on individual cases and utilise prior tax audits experience and
rulings, including relevant court decisions. This process should ensure that the financial statements reflect any material tax and customs liabilities as accurately and completely as possible.
As disclosed in Note 27, tax audits for the Group's most important Greek legal entities have been completed by the Tax Authorities as follows:
For Hellenic Petroleum S.A.: up to and including the financial year ended 31 December 2011. The Tax audit reports for years ended 31 December 2010 and 31 December 2011 were received in December 2017 and they are subject to legal dispute by the Company. In summary, the reports assess additional taxes of € 22,5 million and penalties of €23,5 million, for items relating to stamp duty, various non-deductible expenses and other income tax adjustments. Following a detailed review of the Tax Audit Report, the Company disputes the additional taxes imposed (which are over and above the amounts already included in the Companies' normal tax returns) and has proceeded with all possible legal means and actions to appeal against these additional taxes and penalties.
Even though the Company disputes the additional taxes and penalties imposed, it was obliged to pay 50% of the assessed amounts (taxes and penalties) to the Tax Authorities in order to appeal the results of the tax audits. This was paid within the applicable deadline, while the remaining amounts have been fully offset by the Authorities, with tax and other State receivables of the Company, within 2018. The amounts are included in the Trade and Other Receivables, as the Company assesses that it is probable that it will succeed in its appeals.
As far as penalties are concerned, the report has assessed penalties at 120% of the original tax instead of the applicable 50%; this is also legally challenged by the Company.
At present, an audit for the year ended 31 December 2012 is in progress.
Likewise, the two main retail subsidiaries in Greece, which merged during 2016, have been audited as follows:
(a) Former Hellenic Fuels S.A.: up to and including the financial year ended 31 December 2011, with ongoing audits for subsequent years up to and including 31 December 2013. The most recent Tax audit reports for 2010 and 2011 were delivered in December 2017, and assess additional taxes of € 1,6 million and penalties of € 1,9 million for similar reasons as Hellenic Petroleum. The process followed is identical to the one described above for Hellenic Petroleum and the subsidiary has already proceeded with the relevant legal actions.
(b) EKO S.A.: up to and including 31 December 2010 with ongoing audit for the fiscal year 2012. The most recent Tax audit reports for 2008, 2009 and 2010 were delivered in February 2018 and assess additional stamp duty of € 4,1 million and penalties of € 3,5 million. The process followed is identical to the one described above for Hellenic Petroleum and the subsidiary has already proceeded with the relevant legal actions.
Even though the Companies dispute the additional taxes and penalties imposed, they were obliged to pay 50% of the assessed amounts (taxes and penalties) to the Tax Authorities in order to appeal the results of the tax audits. These were paid within the applicable deadlines, while the remaining amounts have been fully offset by the Authorities, with tax and other State receivables of the Companies, within 2018. The amounts paid and/or offset are included in the Trade and Other Receivables, as the Group assesses that it will succeed in its appeals.
Management believes that no additional material liability will arise either as a result of open tax years or from the outcome of current litigation cases over and above the tax liabilities and provisions already recognized in the consolidated financial statements as at 31 December 2018. The Company has recorded down payments made for taxes and penalties assessed in previous disputes with the tax authorities in other receivables (Νote 11), to the extent that the Company has assessed that the amounts will be ultimately recoverable.
It is noted that for financial years ending 31 December 2011 up to and including 31 December 2017, the Group's Greek legal entities obtained unqualified "Annual Tax Certificates" from their Statutory Auditors, as provided for by par. 5, article 82 of L.2238/1994 and article 65A of L. 4174/2013.
In 2008, Customs authorities assessed additional customs duties and penalties amounting to approximately €40 million for alleged "stock shortages" during the years 2001-2005. Τhe Company has duly filed contestations before the Administrative Court of First Instance, and Management believes that this case will have a positive outcome when the court hearings take place.
Notwithstanding the filing of the above contestations, the Customs office withheld an amount of €54 million (full payment plus surcharges) of established VAT refunds (Note 11), an action against which the Company filed two Contestations before the Administrative Courts of Athens and Piraeus. The Administrative Court of Athens ruled that the withholding effected by the Tax Office was unlawful.
The Company considers that the above amounts will be recovered.
(a) Capital commitments
Significant contractual commitments of the Group amount to €21,7 million as at 31 December 2018 (31 December 2017: €20 million), which mainly relate to improvements in refining assets.
(b) Operating lease commitments
The Group leases offices, petrol stations (buildings and plant), properties, machinery, equipment and vehicles under non-cancellable operating lease agreements.
The future aggregate minimum lease payments under these non-cancellable operating leases are as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| No later than 1 year | 34.020 | 33.482 | |
| Later than 1 year and no later than 5 years | 102.489 | 105.961 | |
| Later than 5 years | 112.833 | 106.285 | |
| Total | 249.342 | 245.728 |
The Group may be requested to provide bank letters of credit to suppliers in order to obtain better commercial and credit terms. To the extent that such items are already recorded as liabilities in the financial statements there is no additional commitment to be disclosed. In cases where the underlying transaction occurs after the year end, the Group is not liable to settle the letter of credit and hence no such liability exists as at the year end.
Included in the statement of comprehensive income are proceeds, costs and expenses, which arise from transactions between the Group and related parties. Such transactions are mainly comprised of sales and purchases of goods and services in the ordinary course of business.
Transactions have been carried out with the following related parties:
HELPE Thraki S.A.
D.M.E.P. HOLDCO
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Sales of goods and services to related parties | ||
| Associates | 597.852 | 780.852 |
| Joint ventures | 754 | 6.532 |
| Total | 598.606 | 787.384 |
| Purchases of goods and services from related parties | ||
| Associates | 764.979 | 842.978 |
| Joint ventures | 18.813 | 13.062 |
| Total | 783.792 | 856.040 |
| Balances due to related parties | ||
| Associates | 11.912 | 3.182 |
| Joint ventures | 1.387 | 1.886 |
| Total | 13.299 | 5.068 |
| Balances due from related parties | ||
| Associates | 36.041 | 37.133 |
| Joint ventures | 150 | 101 |
| Total | 36.191 | 37.234 |
Hellenic Petroleum S.A. has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to Elpedison B.V., the outstanding amount of which as at 31 December 2018 was €83 million (31 December 2017: €88 million).
During the year ended 31 December 2018, transactions and balances with the above government related entities are as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Short-term employee benefits | 4.522 | 4.131 | |
| Post-employment benefits | 67 | 92 | |
| Termination benefits | 1.661 | - | |
| Total | 6.250 | 4.223 |
Share options held by key management to purchase ordinary shares have the following expiry dates and exercise prices:
| Grant Date |
Expiry Date |
Exercise Price |
No. of share options as at | |||
|---|---|---|---|---|---|---|
| € per share | 31 December 2018 | 31 December 2017 | ||||
| 2012 | 2018 | 4,52 | - | 166.948 | ||
| Total | - | 166.948 |
| EFFECTIVE | ||||
|---|---|---|---|---|
| COUNTRY OF | PARTICIPATION | METHOD OF | ||
| COMPANY NAME | ACTIVITY | REGISTRATION | PERCENTAGE | CONSOLIDATION |
| HELLENIC FUELS AND LUBRICANTS INDUSTRIAL AND COMMERCIAL S.A | Marketing | GREECE | 100,00% | FULL |
| ΕΚΟΤΑ KO S.A. | Marketing | GREECE | 49,00% | FULL |
| ΕΚΟ KALYPSO M.E.P.E. | Marketing | GREECE | 100,00% | FULL |
| EKO ATHINA MARITIME COMPANY | Vessel owning / Marketing | GREECE | 100,00% | FULL |
| EKO ARTEMIS MARITIME COMPANY | Vessel owning / Marketing | GREECE | 100,00% | FULL |
| EKO DIMITRA MARITIME COMPANY | Vessel owning / Marketing | GREECE | 100,00% | FULL |
| EKO IRA MARITIME COMPANY | Vessel owning / Marketing | GREECE | 100,00% | FULL |
| EKO AFRODITI MARITIME COMPANY | Vessel owning / Marketing | GREECE | 100,00% | FULL |
| EKO BULGARIA EAD | Marketing | BULGARIA | 100,00% | FULL |
| EKO SERBIA AD | Marketing | SERBIA | 100,00% | FULL |
| HELLENIC PETROLEUM INTERNATIONAL S.A. | Holding | AUSTRIA | 100,00% | FULL |
| HELLENIC PETROLEUM CYPRUS LTD | Marketing | U.K | 100,00% | FULL |
| R.A.M. OIL Cyprus LTD | Marketing | CYPRUS | 100,00% | FULL |
| YUGEN LTD | Marketing | CYPRUS | 100,00% | FULL |
| HELLENIC PETROLEUM BULGARIA (HOLDINGS) LTD | Holding | CYPRUS | 100,00% | FULL |
| HELLENIC PETROLEUM SERBIA (HOLDINGS) LTD | Holding | CYPRUS | 100,00% | FULL |
| JUGOPETROL AD | Marketing | ΜONTENEGRO | 54,35% | FULL |
| GLOBAL ALBANIA S.A | Marketing | ΑLBANIA | 99,96% | FULL |
| ELPET BALKANIKI S.A. | Holding | GREECE | 100,00% | FULL |
| VARDAX S.A | Pipeline | GREECE | 80,00% | FULL |
| OKTA CRUDE OIL REFINERY A.D | Refining | FYROM | 81,51% | FULL |
| ASPROFOS S.A | Engineering | GREECE | 100,00% | FULL |
| DIAXON S.A. | Petrochemicals | GREECE | 100,00% | FULL |
| POSEIDON MARITIME COMPANY | Vessel owning / Petrochemicals | GREECE | 100,00% | FULL |
| APOLLON MARITIME COMPANY | Vessel owning / Refining | GREECE | 100,00% | FULL |
| HELLENIC PETROLEUM FINANCE PLC | Treasury services | U.K | 100,00% | FULL |
| HELLENIC PETROLEUM CONSULTING | Consulting services | GREECE | 100,00% | FULL |
| HELLENIC PETROLEUM R.E.S S.A. | Energy | GREECE | 100,00% | FULL |
| HELPE-LARCO ENERGIAKI SERVION S.A. | Energy | GREECE | 51,00% | FULL |
| HELPE-LARCO ENERGIAKI KOKKINOU S.A. | Energy | GREECE | 51,00% | FULL |
| ENERGIAKI PYLOY METHONIS S.A. | Energy | GREECE | 100,00% | FULL |
| ATEN ENERGY S.A. | Energy | GREECE | 100,00% | FULL |
| HELPE E&P HOLDINGS S.A | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE ARTA PREVEZA SA | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE NW PELOPONISSOS SA | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE WEST KERKYRA SA | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE SEA OF THRACE SA | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE PATRAIKOS S.A. | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| HELPE UPSTREAM S.A | E&P of hydrocarbons | GREECE | 100,00% | FULL |
| SUPERLUBE LTD | Lubricants | CYPRUS | 100,00% | FULL |
| ELPEDISON B.V. | Power Generation | NETHERLANDS | 50,00% | EQUITY |
| SAFCO S.A. | Airplane Fuelling | GREECE | 33,33% | EQUITY |
| DEPA S.A. | Natural Gas | GREECE | 35,00% | EQUITY |
| Ε.Α.Κ.Α.Α S.A. | Pipeline | GREECE | 50,00% | EQUITY |
| HELPE THRAKI S.A | Pipeline | GREECE | 25,00% | EQUITY |
| DMEP HOLDCO LTD | Trade of crude/products | U.K | 48,00% | EQUITY |
On 24 November 2017, HELPE S.A. acquired the remaining 37% non controlling interests of ELPET BALKANIKI S.A., which is now a wholly owned subsidiary (100%). The total aggregate consideration for the ordinary share capital acquired is comprised of an upfront amount of €16 million which was paid during 2018 and of a deferred consideration of €5 million payable within a period of up to five years from the date of acquisition of the shares.
There were no material events after the end of the reporting period and up to the date of publication of the financial statements.
Financial Statements in accordance with IFRS as endorsed by the European Union for the year ended 31 December 2018
GENERAL COMMERCIAL REGISTRY: 000269901000 COMPANY REGISTRATION NUMBER: 2443/06/B/86/23 REGISTERED OFFICE: 8A CHIMARRAS STR, 15125 MAROUSSI, GREECE
| Company Information 4 | |||
|---|---|---|---|
| Statement of Financial Position 5 | |||
| Statement of Comprehensive Income 6 | |||
| Statement of Changes in Equity 7 | |||
| Statement of Cash flows 8 | |||
| Notes to the financial statements 9 | |||
| 1 | General information 9 | ||
| 2 | Summary of significant accounting policies 9 | ||
| 2.1 | Basis of preparation 9 | ||
| 2.2 | Investments in subsidiaries, associates and joint ventures 16 | ||
| 2.3 | Segment reporting 16 | ||
| 2.4 | Foreign currency translation 16 | ||
| 2.5 | Assets held for sale 17 | ||
| 2.6 | Property, plant and equipment 17 | ||
| 2.7 | Borrowing costs 18 | ||
| 2.8 | Intangible assets 18 | ||
| 2.9 | Exploration for and Evaluation of Mineral Resources 19 | ||
| 2.10 | Impairment of non-financial assets 19 | ||
| 2.11 | Financial assets 20 | ||
| 2.12 | Derivative financial instruments and hedging activities 22 | ||
| 2.13 | Government grants 23 | ||
| 2.14 | Inventories 23 | ||
| 2.15 | Trade receivables 23 | ||
| 2.16 | Cash, cash equivalents and restricted cash 23 | ||
| 2.17 | Share capital 23 | ||
| 2.18 | Borrowings 24 | ||
| 2.19 2.20 |
Current and deferred income tax 24 Employee benefits 25 |
||
| 2.21 | Trade and other payables 26 | ||
| 2.22 | Provisions 26 | ||
| 2.23 | Environmental liabilities 27 | ||
| 2.24 | Revenue recognition 27 | ||
| 2.25 | Leases 28 | ||
| 2.26 | Dividend distribution 29 | ||
| 2.27 | Financial guarantee contracts 29 | ||
| 2.28 | Changes in accounting policies 29 | ||
| 2.29 | Comparative figures 29 | ||
| 3 | Financial risk management 29 | ||
| 3.1 | Financial risk factors 29 | ||
| 3.2 | Capital risk management 33 | ||
| 3.3 Fair value estimation 34 |
|
|---|---|
| 4 | Critical accounting estimates and judgements 35 |
| 5 | Segment information 37 |
| 6 | Property, plant and equipment 40 |
| 7 | Intangible assets 41 |
| 8 | Investment in subsidiaries, associates and joint ventures 42 |
| 9 | Loans, Advances & Long Term assets 45 |
| 10 | Inventories 46 |
| 11 | Trade and other receivables 46 |
| 12 | Cash, cash equivalents and restricted cash 48 |
| 13 | Share capital 49 |
| 14 | Reserves 50 |
| 15 | Trade and other payables 51 |
| 16 | Interest bearing loans and borrowings 52 |
| 17 | Deferred income tax 54 |
| 18 | Retirement benefit obligations 56 |
| 19 | Provisions for other liabilities and charges 59 |
| 20 | Trade and other payables, non-current 59 |
| 21 | Derivative financial instruments 60 |
| 22 | Expenses by nature 61 |
| 23 | Exploration and development expenses 61 |
| 24 | Other operating income / (expenses) and other gains / (losses) 62 |
| 25 | Finance (Expenses)/ Income-Net 62 |
| 26 | Currency exchange gains / (losses) 62 |
| 27 | Income tax expense 63 |
| 28 | Earnings per share 64 |
| 29 | Dividends per share 64 |
| 30 | Cash generated from operations 65 |
| 31 | Contingencies and litigation 65 |
| 32 | Commitments 67 |
| 33 | Related party transactions 67 |
| 34 | Events after the end of the reporting period 69 |
| 35 | ΤΕΛΟΣ 69 |
| Directors | Efstathios Tsotsoros – Chairman of the Board & Chief Executive Officer (from 17/04/2018) Andreas Shiamishis – Deputy Chief Executive Officer |
||||||
|---|---|---|---|---|---|---|---|
| Georgios Alexopoulos – Member Theodoros–Achilleas Vardas – Member |
|||||||
| Georgios Grigoriou – Member | |||||||
| Georgios Papakonstantinou – Member (from 06/06/2018) Theodoros Pantalakis – Member Constantinos Papagiannopoulos – Member Dimitrios Kontofakas – Member Vasileios Kounelis – Member Loudovikos Kotsonopoulos – Member (from 17/04/2018) |
|||||||
| Christos Tsitsikas – Member (from 29/11/2018) | |||||||
| Other Board Members | Grigorios Stergioulis – Chief Executive Officer (until 17/04/2018) | ||||||
| during the year | Panagiotis Ofthalmides – Member (until 06/06/2018) | ||||||
| Ioannis Psichogios – Member (until 29/11/2018) | |||||||
| Auditors: | ERNST & YOUNG (HELLAS) Certified Auditors – Accountants S.A. 8B Chimarras Str 151 25 Maroussi Greece |
These financial statements constitute an integral part of the Group Annual Financial Report which can be found at https://www.helpe.gr/ and which incorporate the Independent Auditor's Report.
| As at | |||
|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 6 | 2.684.237 | 2.719.172 |
| Intangible assets | 7 | 4.799 | 7.042 |
| Investments in subsidiaries, associates and joint ventures | 8 | 1.032.372 | 671.622 |
| Investment in equity instruments | 3 | 318 | 1.252 |
| Loans, advances and long-term assets | 9 | 8.887 | 19.686 |
| 3.730.613 | 3.418.774 | ||
| Current assets | |||
| Inventories | 10 | 893.859 | 963.746 |
| Trade and other receivables | 11 | 680.347 | 989.901 |
| Derivative financial instruments | 21 | - | 11.514 |
| Cash, cash equivalents and restricted cash | 12 | 1.071.585 | 813.251 |
| 2.645.791 | 2.778.412 | ||
| Total assets | 6.376.404 | 6.197.186 | |
| EQUITY | |||
| Share capital and share premium | 13 | 1.020.081 | 1.020.081 |
| Reserves | 14 | 262.263 | 360.694 |
| Retained Earnings | 864.333 | 428.448 | |
| Total equity | 2.146.677 | 1.809.223 | |
| LIABILITIES | |||
| Non-current liabilities | |||
| Interest bearing loans and borrowings | 16 | 1.657.598 | 909.579 |
| Deferred income tax liabilities | 17 | 151.873 | 89.959 |
| Retirement benefit obligations | 18 | 132.539 | 104.331 |
| Provisions | 19 | 37.858 | 6.058 |
| Trade and other payables | 20 | 14.810 | 15.569 |
| 1.994.678 | 1.125.496 | ||
| Current liabilities | |||
| Trade and other payables | 15 | 1.226.107 | 1.554.027 |
| Derivative financial instruments | 21 | 16.387 | - |
| Income tax payable | 76.322 | 2.769 | |
| Interest bearing loans and borrowings | 16 | 915.350 | 1.704.951 |
| Dividends payable | 883 | 720 | |
| 2.235.049 | 3.262.467 | ||
| Total liabilities | 4.229.727 | 4.387.963 | |
| Total equity and liabilities | 6.376.404 | 6.197.186 |
The Notes on pages 9 to 69 are an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 28 February 2019.
| E. Tsotsoros | A. Shiamishis | S. Papadimitriou |
|---|---|---|
| Chairman of the Board |
Deputy Chief Executive Officer & Chief Financial Officer |
Accounting Director |
| For the year ended | ||||
|---|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | ||
| Revenue from contracts with customers | 5 | 8.967.702 | 7.233.600 | |
| Cost of sales | (8.287.696) | (6.475.455) | ||
| Gross profit | 680.006 | 758.145 | ||
| Selling and distribution expenses | 22 | (99.248) | (59.045) | |
| Administrative expenses | 22 | (95.795) | (81.825) | |
| Exploration and development expenses | 23 | (875) | (119) | |
| Other operating (expenses) / income and other gains / (losses) - net | 24 | (8.356) | (19.735) | |
| Operating profit | 475.732 | 597.421 | ||
| Finance income | 25 | 9.442 | 12.834 | |
| Finance expense | 25 | (136.636) | (153.105) | |
| Finance (expenses)/income - net | 25 | (127.194) | (140.271) | |
| Dividend income | 29 | 318.795 | 33.724 | |
| Currency exchange gains/(losses) | 26 | 2.244 | (8.483) | |
| Profit before income tax | 669.577 | 482.391 | ||
| Income tax expense | 27 | (146.187) | (136.400) | |
| Profit for the year | 523.390 | 345.991 | ||
| Other comprehensive income/(loss): Other comprehensive income/(loss), that will not be reclassified to profit or loss (net of tax): |
||||
| Actuarial losses on defined benefit pension plans Changes in the fair value of equity instruments |
14 14 |
(10.878) (675) |
(7.100) - |
|
| Other comprehensive income/(loss), that may be reclassified subsequently to profit or loss (net of tax): |
(11.553) | (7.100) | ||
| Fair value gains / (losses) on cash flow hedges | 14 | (5.006) | (4.590) | |
| Derecognition of gains/(losses) on hedges through comprehensive income |
14 | (14.920) | 1.979 | |
| Other Comprehensive (loss)/income for the year, net of tax | (31.479) | (9.711) | ||
| Total comprehensive income for the year | 491.911 | 336.280 | ||
| Basic and diluted earnings per share (expressed in Euro per share) |
28 | 1,71 | 1,13 |
The Notes on pages 9 to 69 are an integral part of these financial statements.
| Note | Share Capital |
Reserves | Retained Earnings |
Total Equity |
|
|---|---|---|---|---|---|
| Balance at 1 January 2017 | 1.020.081 | 469.754 | 100.315 | 1.590.150 | |
| Actuarial losses on defined benefit pension plans | 14 | - | (7.100) | - | (7.100) |
| Fair value gains / (losses) on cash flow hedges Derecognition of gains/(losses) on hedges through comprehensive |
14 | - | (4.590) | - | (4.590) |
| income | 14 | - | 1.979 | - | 1.979 |
| Other comprehensive income Profit for the year |
- - |
(9.711) - |
- 345.991 |
(9.711) 345.991 |
|
| Total comprehensive income for the year | - | (9.711) | 345.991 | 336.280 | |
| Share based payments | 13 | - | (653) | (9.061) | (9.714) |
| Acquisition of Treasury Shares | 13 | - | (10.245) | - | (10.245) |
| Issue of Treasury shares to employees | 13 | - | 9.714 | - | 9.714 |
| Transfers to / from reserves | 14 | - | 8.797 | (8.797) | - |
| Dividends | 29 | - | (106.962) | - | (106.962) |
| Balance at 31 December 2017 | 1.020.081 | 360.694 | 428.448 | 1.809.223 | |
| Balance at 1 January 2018 (as originally presented) | 2 | 1.020.081 - |
360.694 166 |
428.448 (1.124) |
1.809.223 |
| Effect of changes in accounting policy | (958) | ||||
| Balance at 1 January 2018 | 1.020.081 | 360.860 | 427.324 | 1.808.265 | |
| Actuarial losses on defined benefit pension plans Changes in the fair value of equity instruments |
14 14 |
- | (10.878) (675) |
- | (10.878) (675) |
| Fair value gains / (losses) on cash flow hedges Derecognition of gains/(losses) on hedges through comprehensive |
14 | - | (5.006) | - | (5.006) |
| income | 14 | - | (14.920) | - | (14.920) |
| Other comprehensive income / (loss) | - | (31.479) | - | (31.479) | |
| Profit for the year | - | - | 523.390 | 523.390 | |
| Total comprehensive income for the year | - | (31.479) | 523.390 | 491.911 | |
| Share based payments | 14 | - | (93) | (1.121) | (1.214) |
| Acquisition of Treasury Shares | 14 | - | (683) | - | (683) |
| Issue of Treasury shares to employees | 14 | - | 1.214 | - | 1.214 |
| Transfers to statutory reserves | 14 | - | 26.170 | (26.170) | - |
| Dividends | 29 | - | (76.408) | (76.408) | (152.816) |
| Transfers from reserves to retained earnings | 14 | - | (17.318) | 17.318 | - |
| Balance at 31 December 2018 | 1.020.081 | 262.263 | 864.333 | 2.146.677 |
The Notes on pages 9 to 69 are an integral part of these financial statements.
| For the year ended | |||
|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |
| Cash flows from operating activities | |||
| Cash generated from operations | 30 | 412.752 | 307.783 |
| Income tax received / (paid) | 2.224 | (20) | |
| Net cash generated from operating activities | 414.976 | 307.763 | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment & intangible assets | 6,7 | (101.318) | (149.930) |
| Dividends received | 318.795 | 33.724 | |
| Interest received | 25 | 9.442 | 12.834 |
| Participation in share capital increase of subsidiaries | (21.054) | 1.584 | |
| Settlement of consideration of acquisition of further equity interest in subsidiary | 8 | (39.000) | - |
| Sale of investment in subsidiaries to related parties | 7.000 | - | |
| Net cash generated from / (used in) investing activities | 173.865 | (101.788) | |
| Cash flows from financing activities | |||
| Interest paid | (131.965) | (162.494) | |
| Dividends paid | (148.767) | (104.116) | |
| Loans to affiliated companies | (3.600) | - | |
| Movement in restricted cash | 12 | 144.445 | 11.873 |
| Acquisition of treasury stock | 13 | (683) | (10.245) |
| Repayments of borrowings | (491.303) | (279.775) | |
| Proceeds from borrowings | 440.748 | 283.606 | |
| Net cash used in financing activities | (191.125) | (261.151) | |
| Net increase / (decrease) in cash and cash equivalents | 397.716 | (55.176) | |
| Cash and cash equivalents at the beginning of the year | 12 | 667.599 | 731.258 |
| Exchange gains / (losses) on cash and cash equivalents | 5.063 | (8.483) | |
| Net increase / (decrease) in cash and cash equivalents | 397.716 | (55.176) | |
| Cash and cash equivalents at the end of the year | 12 | 1.070.378 | 667.599 |
The Notes on pages 9 to 69 are an integral part of these financial statements.
Hellenic Petroleum S.A. (the "Company") operates mainly in the energy sector with its principal activities being those of refining of crude oil and sale of oil products and the production and marketing of petrochemical products. The Company is also engaged in exploration and production of hydrocarbons.
The Company is incorporated in Greece and the address of its registered office is 8A Chimarras Str. Maroussi, Greece. The shares of the Company are listed on the Athens Stock Exchange and the London Stock Exchange through GDRs.
The financial statements of Hellenic Petroleum S.A. for year ended 31 December 2018 were authorised for issue by the Board of Directors on 28 February 2019. The shareholders of the Company have the power to amend the financial statements after their issuance.
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.
The financial statements of Hellenic Petroleum S.A. for the year ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB"), as endorsed by the European Union ("EU") and present the financial position, results of operations and cash flows on a going concern basis. Management has concluded that the going concern basis of preparation of the accounts is appropriate.
The financial statements have been prepared in accordance with the historical cost basis, except for the following:
The preparation of financial statements, in accordance with IFRS, requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4 "Critical accounting estimates and judgements". Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events as assessed to be reasonable under the present circumstances.
The accounting principles and calculations used in the preparation of the financial statements are consistent with those applied in the preparation of the financial statements for the year ended 31 December 2017 and have been consistently applied in all periods presented in this report, except for the following IFRS's, which have been adopted by the Company as of 1 January 2018.
The Company applied for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments and disclosed below, as required by IAS 8, the nature and effect of these changes. Several other amendments and interpretations apply for the first time in 2018, but do not have a significant impact on the financial statements of the Company for the year ended 31 December 2018.
IFRS 9 "Financial Instruments. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.
The Company adopted the new standard as of 1 January 2018 without restating comparative information. The cumulative effect of the adjustments arising from the new requirements are, therefore recognised in the opening balance of retained earnings on 1 January 2018.
The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. The adjustments are presented in more detail below.
Impact on the statement of financial position (increase / (decrease)) as at 31 December 2017, as published:
| Statement of financial position extract | Adjust ments |
31 December 2017 As published |
IFRS 9 | 1 January 2018 after effect of IFRS9 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Available for sale financial assets | (a) | 1.252 | (1.252) | - |
| Investment in equity instruments | (a) | - | 1.252 | 1.252 |
| Current assets | ||||
| Trade and other receivables | (b) | 989.901 | (1.277) | 988.624 |
| EQUITY | ||||
| Reserves | (a) | 360.694 | 166 | 360.860 |
| Retained Earnings | (a),(b) | 428.448 | (1.124) | 427.324 |
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Deferred income tax liabilities | (b) | 89.959 | (319) | 89.640 |
Under IFRS 9, financial assets are subsequently measured at fair value through profit or loss (FVPL), amortized cost, or at fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Company's business model for managing the assets; and whether the instruments' contractual cash flows represent solely payments of principal and interest on the principal amount outstanding.
The financial assets (equity investments) that were classified as available-for-sale (AFS) under IAS 39, are now classified as 'Investments in equity instruments' and measured at fair value through other comprehensive income. Any changes in the fair value of such equity instruments are included in "items that will not be reclassified to profit or loss". IFRS 9 permits an entity to make an irrevocable election to designate an investment in equity instruments that is not held for trading as at fair value through other comprehensive income.
As a result of applying the classification, the Company reclassified an amount of € 0,2 million from retained earnings to reserves.
Derivative instruments, to the extent they are not designated as effective hedges, continue to be classified as financial assets at FVPL.
The accounting for the Group's financial liabilities remain largely the same as under IAS 39.
In summary, upon the adoption of IFRS 9, the Group had the following reclassifications:
| As at 31 December 2017 (IAS 39) | IFRS 9 measurement category | |||||
|---|---|---|---|---|---|---|
| 1 January 2018 after effect of IFRS 9 |
Fair value through profit or loss |
Amortised cost | Fair value through OCI |
|||
| Loans and receivables | ||||||
| Trade receivables | 988.624 | - | 988.624 | - | ||
| Investment in equity instruments | 1.252 | - | - | 1.252 |
The adoption of IFRS 9 has changed the Company's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss ("ECL") approach.
For trade receivables, the Company has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses. The Company has established a provision matrix that is based on the Company's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
For other financial assets (including intra-group loans to subsidiaries), the ECL is based on the 12-month ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been as significant increase in credit risk since origination, the allowance will be based on the lifetime ECL.
Financial assets with contractual payments over 90 days past due constitute default events. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company.
The effect of the above change on the statement of financial position as at 1 January 2018 resulted in a decrease of equity of €1,0 million, a decrease of € 1,3 million in trade receivables and the increase of € 0,3 million in deferred income tax assets.
Set out below is the reconciliation of the ending impairment allowances in accordance with IAS 39 to the opening loss allowances determined in accordance with IFRS 9.
| Allowance for impairment under IAS 39 as at 31 December 2017 |
Remeasurement | ECL under IFRS 9 as at 1 January 2018 |
|
|---|---|---|---|
| Trade receivables under IAS 39 / Financial assets at amortised cost under IFRS 9 |
117.305 | 1.277 | 118.582 |
At the date of the initial application, all of the Company's existing hedging relationships were eligible to be treated as continuing hedging relationships under IFRS 9 and, as such, the adoption of the hedge accounting requirements of the new standard had no significant impact on the Company's financial statements. The Company's risk management policies and hedge documentation are aligned with the requirement of the new standard and hedge accounting continues to apply.
IFRS 15 "Revenue from Contracts with Customers". IFRS 15 establishes a five-step model that applies to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard's requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not in the Company's ordinary activities (e.g. sales of property, plant and equipment or intangible).
As from 1 January 2018, the Company applies the new standard using the modified retrospective method, therefore the initial application did not result in any restatement of comparative data. The new standard did not have any significant impact on the Company's financial statements, upon adoption since no material differences from applying the new accounting policies were identified. Therefore it did not have any impact on retained earnings and no transition adjustments were required as a result of its application. Although the implementation of IFRS 15 does not generally represent a material change from the Company's current practices the Company revised its respective accounting policy as follows.
The Company recognizes revenue when (or as) a contractual promise to a customer (performance obligation) is fulfilled by transferring a promised good or service (which is when the customer obtains control over the promised goods or services). If a contract contains more than one performance obligation, the total transaction price of the contract is allocated among the individual, separate performance obligations based on their relative standalone selling prices. The amount of revenue recognized is the amount allocated to the satisfied performance obligation based on the consideration that the Company expects to receive in accordance with the terms of the contracts with the customers. Variable considerations are included in the amount of revenue recognized only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur in the future.
Options for prospective volume related discounts are assessed by the Company to determine whether they constitute a material right that the customer would not receive without entering into that contract. For all such options that are considered as material rights, the Company assesses the likelihood of its exercise and then the portion of the transaction price allocated to the option is deferred and recognized when it is either exercised or lapsed.
Under the new requirements, the Company concluded that prospective volume discounts constitute a material right which should be deferred and recognised when exercised or lapsed. The Company provides volume discounts to customers based on thresholds specified in contracts. All such discounts are accrued within the financial year and therefore the application of the new standard has a nil effect in the annual Financial Statements.
Revenue from contracts with customers in accordance with the Group's commercial policy is disaggregated by operating segment and distribution channel in Note 5. In addition, the Company concluded that it transfers control over its products at a point in time, upon receipt by the customer, because this is when the customer benefits from the respective products.
"IAS 40 (Amendments) Transfers to Investment Property". The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use.
"IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration". The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a nonmonetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the nonmonetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration.
The Company has not early adopted any other of the following standard, interpretation or amendment that has been issued but is not yet effective. In addition, the Company assessed all standards, interpretations and amendments issued but not yet effective, and concluded that, except for IFRS 16, which is analyzed below, they will not have any significant impact on the financial statements.
IFRS 16 "Leases". The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor').
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Agreement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal From of a Lease.
The new standard requires lessees to recognise most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged.
More specifically, IFRS 16 introduces a single, on-balance sheet lease accounting model for leases. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
The Company has set up a project team which has reviewed all of the Company's leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Company's operating leases. The Company has assessed the estimated impact that initial application of IFRS 16 will have on its financial statements. Particularly, it has disclosed known or reasonably estimable information relevant to assessing the possible impact that the application of IFRS 16 will have on its financial statements in the period of initial application that was available when the financial statements were prepared, as seen below.
The actual impact of adopting the standard on 1 January 2019 may change because:
The Company is in the process of finalising the testing and assessment of controls over its new IT systems; and
The new accounting policies and estimates are subject to change until the Company presents its first financial statements that include the date of initial application
The Company plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Under this approach the Company will a) recognize a lease liability and will measure that lease liability at the present value of the remaining lease payments, discounted using the Company's incremental borrowing rate at the date of initial application and b) recognise a right-of-use asset and measure that rightof-use asset by an amount equal to the lease liability.
The cumulative effect of adopting IFRS 16, if such need arises, will be recognized as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.
The Company plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. Furthermore, the Company will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. Finally the Company decided to apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with similar remaining lease term for similar class of underlying assets in a similar economic environment).
The Company will recognize new assets and liabilities for its operating leases of commercial properties such as office buildings, as well as motor vehicles and equipment. Subsequent to initial recognition, the Company will a) measure the right-of-use asset by applying the cost model and depreciate on a straight-line basis up the end of the lease term and b) measure the lease liability by increasing and reducing the carrying amount to reflect interest on the lease liability and lease payments made, respectively.
Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease, and recognized assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized.
In addition, the Company will no longer recognize provisions for operating leases that it assesses to be onerous. Instead, the Company will include amounts due under the lease in its lease liability.
Based on the information currently available and subject to the completion of the above mentioned implementation tasks, the Company estimates that it will recognize additional lease liabilities of approximately €25 million as at 1 January 2019 and additional right-of-use assets of approximately €25 million. The estimated impact on the EBITDA of the Company is an increase of approximately €7 million.
The Company does not expect the adoption of IFRS 16 to impact its ability to comply with loan covenants.
IFRS 10 (Amendment) "Consolidated Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture". The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015, the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU.
definition have been improved. The Amendments also ensure that the definition of material is consistent across all IFRS Standards. These Amendments have not yet been endorsed by the EU.
Investments are presented at the cost of the interest acquired in the subsidiaries, associates, and joint ventures less any provisions for impairment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The executive committee which is comprised of the Chairman of the Board of Directors and Chief Executive Officer, the Deputy Chief Executive Officer and the General Managers of the Company, is the chief operating decision-maker, who makes strategic decisions and is responsible for allocating resources and assessing performance of the operating segments. The Company's key operating segments are disclosed in Note 5.
Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Euro, which is the Company's functional and presentation currency. Given that the Company's primary activities are in oil refining and trading, in line with industry practices, most crude oil and oil product trading transactions are based on the international reference prices of crude oil and oil products in US Dollars. The Company translates this value to Euro at the time of any transaction.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the statement of comprehensive income. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges.
For transactions that include the receipt or payment of advance consideration in a foreign currency the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the nonmonetary prepayment asset or deferred income liability.
Foreign exchange gains and losses are presented in the same line as the transaction they relate to, in the statement of comprehensive income, except those that relate to borrowings and cash, which are presented in a separate line ("Currency exchange gains/ (losses)").
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
The Company classifies assets as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets held for sale and their related liabilities are presented separately as current items in the statement of financial position.
Property, plant and equipment is comprised mainly of land, buildings, plant and machinery, motor vehicles and furniture and fixtures. Property, plant and equipment are shown at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to the income statement as incurred. Refinery turnaround costs that take place periodically are capitalised and charged against income on a straight line basis until the next scheduled turnaround, to the extent that such costs improve either the useful economic life of the equipment or its production capacity.
Assets under construction are assets (mainly related to the refinery units) that are in the process of construction or development, and are carried at cost. Cost includes cost of construction, professional fees and other direct costs. Assets under construction are not depreciated, as the corresponding assets are not yet available for use.
Land is also not depreciated. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful economic life, as shown on the table below for the main classes of assets:
– Buildings 13 – 40 years
– Plant & Machinery
| Specialised industrial installations and Machinery |
10 – 35 years |
|---|---|
| Pipelines |
30 – 40 years |
| Other equipment |
5 – 10 years |
| – Vehicles and means of transportation | 5 – 25 years |
| – Furniture and fixtures | |
| Computer hardware |
3 – 5 years |
| Other furniture and fixtures |
4 – 10 years |
Specialised industrial installations include refinery units, petrochemical plants and tank facilities. Based on technical studies performed during 2013, the expected useful life of the new refinery units (Elefsina refinery) has been estimated to be up to 35 years. The remaining useful economic life of other refining units has been reviewed and adjusted from 1 July 2013 and in general does not exceed 25 years.
The assets' residual values and estimated useful economic lives are reviewed at the end of each reporting period and adjusted prospectively if appropriate.
If the asset's carrying amount is greater than its estimated recoverable amount then it is written down immediately to its recoverable amount (Note 2.10).
The cost and related accumulated depreciation of assets retired or sold are removed from the accounts at the time of sale or retirement and any gain or loss, which is determined by comparing the proceeds with the carrying amount, is included in the statement of comprehensive income, within "other operating income/(expenses)".
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are added to the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use.
Borrowing costs are capitalised to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. All other borrowing costs are expensed as incurred.
Licences and rights have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is being calculated using the straight-line method to allocate their cost over their estimated useful lives, which usually range from 3 to 25 years.
Licences and rights also include Upstream Exploration rights which are amortised over the period of the exploration as per the terms of the relevant licenses.
These include primarily the costs of implementing the (ERP) computer software program. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight line method over their estimated useful lives (2 to 5 years).
During the exploration period and before a commercial viable discovery, oil and natural gas exploration and evaluation expenditures are expensed. Geological and geophysical costs as well as costs directly associated with an exploration are expensed as incurred. Exploration property leasehold acquisition costs are capitalised within intangible assets and amortised over the period of the licence or in relation to the progress of the activities if there is a substantial difference.
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of commercially proven development wells is capitalised within tangible and intangible assets according to their nature. When development is completed on a specific field, it is transferred to production assets. No depreciation and / or amortisation is charged during development.
Oil and gas production assets are aggregated exploration and evaluation tangible assets, and development expenditures associated with the production of proved reserves.
Oil and gas properties/intangible assets are depreciated/amortised using the unit-of-production method. Unit-ofproduction rates are based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing facilities using current operating methods. Oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the field storage tank.
The exploration property leasehold acquisition costs are tested for impairment whenever facts and circumstances indicate impairment. For the purposes of assessing impairment, the exploration property leasehold acquisition costs subject to testing are grouped with existing cash-generating units (CGUs) of production fields that are located in the same geographical region corresponding to each licence.
Proven oil and gas properties and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
The Company assesses, at each reporting date, whether an indication of impairment exists. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. Assets that have an indefinite useful life are not subject to amortisation and, are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Assets that are subject to amortisation or depreciation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use (discounted cash flows an asset is expected to generate based upon management's expectations of future economic and operating conditions). For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), or fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section 2.24.
In order for a financial asset to be classified and measured at amortised cost or at fair value through OCI, it needs to give rise to cash flows that are solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Company's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within (a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in the following categories:
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value.
Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also categorised as 'held for trading' unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the end of the reporting period, otherwise they are classified as non-current.
Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company measures financial assets at amortised cost if both of the following conditions are met: a) the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-byinstrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company elected to classify irrevocably its listed equity investments under this category.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Company's statement of financial position) when:
The rights to receive cash flows from the asset have expired; Or
The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Further disclosures relating to impairment of financial assets are also provided in the following notes:
• Disclosures for significant assumptions Note 4
• Trade receivables Note 11
For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
As part of its risk management policy, the Company utilises currency and commodity derivatives to mitigate the impact of volatility in commodity prices and foreign exchange rates. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Changes in fair values of the derivative financial instruments are recognised at each reporting date either in the statement of comprehensive income or in other comprehensive income, depending on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either:
The Company documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions.
Τhe documentation also includes both at hedge inception and on an ongoing basis how it will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
The instruments used for this risk management include commodity exchange traded contracts (ICE futures), full refinery margin forwards, product price forward contracts or options.
The effective portion of changes in the fair value of these derivatives is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income within "Other operating income/ (expenses) and other gains/ (losses)". Amounts accumulated in equity are recycled in the statement of comprehensive income in the periods when the hedged item affects profit or loss (i.e. when the forecast transaction being hedged takes place) within cost of sales.
When a hedging instrument expires or is sold, or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the derivative is de-designated and the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income within "Other operating income/(expenses) and other gains/(losses)".
Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for at fair value through profit or loss. Changes in the fair value of the derivative instruments that do not qualify for hedge accounting are recognised immediately in the statement of comprehensive income.
Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants related to Property, Plant and Equipment received by the Company are initially recorded as deferred government grants and included in "Trade and payables, non-current". Subsequently, they are credited to the statement of comprehensive income over the useful lives of the related assets in direct relationship to the depreciation charged on such assets.
Inventories comprise crude oil and other raw materials, refined and semi-finished products, petrochemicals, merchandise, consumables and other spare parts.
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the monthly weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads. It does not include borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale, where applicable. Spare parts consumed within a year are carried as inventory and recognised in profit or loss when consumed.
Trade receivables, which generally have 20-90 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
Trade receivables include bills of exchange and promissory notes from customers.
For trade receivables, which are not in default the Company applies the simplified approach, in accordance with IFRS 9 and calculates ECLs based on lifetime expected credit losses. The Company has established a provision matrix that is based on the Company's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. On the other hand, trade receivables in default are assessed on a case-by-case basis. The amount of the provision is recognised in the statement of comprehensive income and is included in "Selling and distribution expenses".
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments such as marketable securities and time deposits with original maturities of three months or less. Restricted cash include bank deposits placed as security for loan agreements.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Company's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in equity.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest rate method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
In cases where an existing borrowing of the Company is renegotiated, this might result in modification or an exchange of borrowings with the lenders that could be carried out in a number of ways. Whether a modification or exchange of borrowings represents a settlement of the original debt, or merely a renegotiation of that debt, determines the accounting treatment that should be applied by the borrower. When the terms of the existing borrowings are substantially different from the terms of the modified or exchanged borrowings, such a modification or exchange is treated as an extinguishment of the original borrowing and any difference arising is recognised in profit and loss.
The Company considers the terms to be substantially different if either the discounted present value of the future cash flows under the new terms, including any costs or fees incurred, using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original borrowing or there is a substantial change in the terms from a qualitative perspective. Qualitative factors may include:
The tax expense or credit for the period comprises current and deferred tax.
The income tax expense or credit for the period is the tax estimated on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, as well as additional taxes for prior years. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period that generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is not recognised if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction does not affect either accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred income tax assets are reviewed at each financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities, where there is an intention to settle the balances on a net basis.
The Company has both defined benefit and defined contribution plans.
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate State pension fund. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Under Greek labour laws, employees and workers are entitled to termination payments in the event of retirement with the amount of payment varying in relation to the employees' or workers' compensation and length of service. This program is considered as a defined benefit plan.
The liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period, less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligation.
The current service cost of the defined benefit plan, recognised in the statement of profit or loss in employee benefit expense (except where included in the cost of an asset), reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in the statement of comprehensive income.
The Company's employees are covered by one of several Greek State sponsored pension funds which relates to the private sector and provides pension and pharmaceutical benefits. Each employee is required to contribute a portion of their monthly salary to the funds, with the Company also contributing a portion. Upon retirement, the pension fund is responsible for paying the employees retirement benefits. As such, the Group has no legal or constructive obligation to pay future benefits under this plan.
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The company recognises termination benefits at the earlier of the following dates: (a) when the company can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
Employees may receive remuneration in the form of share-based payments as part of a share option plan. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, at the date of granting. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each reporting period end, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.
When the options are exercised, the Company may issue new shares. In that case, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
The Company recognises the expected cost of short-term employee benefits in the form of paid absences in the case of accumulating paid absences, when the employees render service that increases their entitlement to future paid absences.
Trade and other payables are recognised initially at fair value and are subsequently measured at amortised cost, using the effective interest method. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Provisions for restructuring costs and legal claims are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the increases specific to the liability.
The Company has an environmental policy which complies with existing legislation and any obligations resulting from its environmental and operational licences. In order to comply with all rules and regulations, the Company has set up a monitoring mechanism in accordance with the requirements of the relevant authorities. Furthermore, investment plans are adjusted to reflect any known future environmental requirements. The above mentioned expenses are estimated based on the relevant environmental studies.
Liabilities for environmental remediation costs are recognised when environmental assessments or clean-ups are probable and the associated costs can be reasonably estimated. Generally, the timing of these provisions coincides with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The amount recognised is the best estimate of the expenditure required. If the effect of the time value of money is material, the amount recognised is the present value of the estimated future expenditure.
The obligation of the Company to meet its CO2 emission targets is treated as follows: European ETS register allocates emission rights to refineries annually. Allowances received are recognised at cost. A provision is recognised for the net obligation payabke for the emission quantities that exceed the pre-allocated allowances, after taking into account any purchases of emission certifications. The provision recognised is measured at the amount that it is expected to cost the entity to settle the obligation, net of any certificates purchased. This will be the market price at the balance sheet date of the allowances required to cover any emissions deficit made to date.
Revenue comprises the fair value of the sale of goods and services, net of value-added tax and any excise duties, rebates and discounts. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Control over goods sold and services rendered is transferred to the customer upon delivery of the respective products or service respectively. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Payment terms vary in line with the type of sales transaction and depend mainly on the products sold or services rendered, the distribution channels, as well as each customer's specifics.
The Company assesses whether it acts as a principal or agent in each of its revenue arrangements. The Company has concluded that in all sales transactions it acts as a principal.
When goods are exchanged or swapped for goods which are of a similar nature and value the exchange is not regarded as a transaction which generates revenue. The net result of such transactions is recognized within Cost of sales.
Revenue is recognised as follows:
Revenue is recognised when a contractual promise to a customer (performance obligation) is fulfilled by transferring the promised goods (which is when the customer obtains control over the promised goods). If a contract contains more than one performance obligation, the total transaction price of the contract is allocated among the individual, separate performance obligations based on their relative standalone selling prices. The
amount of revenue recognized is the amount allocated to the satisfied performance obligation based on the consideration that the Company expects to receive in accordance with the terms of the contracts with the customers.
For sales of services, revenue is recognised in the accounting period in which the services are rendered, as the customer obtains control over the promised services, by reference to stage of completion of each specific performance obligation and assessed on the basis of the actual service provided as a proportion of the total services to be provided.
If the consideration in a contract includes a variable amount, the Company recognizes this amount as revenue only to the extent that it is highly probable that a significant reversal will not occur in the future.
The Company provides volume discounts to customers based on thresholds specified in the respective contracts. Options for volume related discounts are assessed by the Company to determine whether they constitute a material right that the customer would not receive without entering into that contract. For all such options that are considered as material rights, the Company assesses the likelihood of its exercise and then the portion of the transaction price allocated to the option is deferred and recognized when it is either exercised or lapsed.
Under the new requirements, the Company concluded that volume discounts constitute a material right which should be recognized over time up to the point it is either exercised or lapsed. All such discounts are accrued within the financial year.
Interest income is recognised using the effective interest method. When a receivable is impaired, the company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income.
Dividend income is recognised when the right to receive payment is established.
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement
Leases of property, plant and equipment, where the Company has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the lease's inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant periodic rate of interest on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in "Borrowings". The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset's useful life and the lease term.
The Company does not presently have any leases that are classified as finance leases.
Leases where the lessor retains substantially a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.
Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which the dividends are declared and appropriately authorised, or approved by the Company's Shareholders' General Meeting. Interim dividends proposed by the Board of Directors are recognized as liabilities upon proposal.
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of the loss allowance determined in accordance with IFRS 9 requirements and the amount recognised less, when appropriate, the cumulative amount of income.
The Company adopted the amendments described in paragraph 2.1.1 for the first time for the annual reporting period commencing 1 January 2018.
Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year.
The Company's activities are primarily centred on Downstream Refining (incl. Petrochemicals) & Marketing of petroleum products; with secondary activities relating to exploration of hydrocarbons. As such, the Company is exposed to a variety of financial and commodity markets risks including foreign exchange and commodity price risk, credit risk, liquidity risk, cash flow risk and interest-rate risk. In line with international best practices and within the context of local markets and legislative framework, the Company's overall risk management policies aim at reducing possible exposure to market volatility and / or mitigating its adverse effects on the financial position of the Company to the extent possible. In general, the key factors that impact the Company's operations are summarised as follows:
Greek Macros: Following a period of economic recession between 2009-2016, during which real GDP fell by 26%, the Greek economy returned to positive growth rates in 2017, with GDP growing by 1,4%, supported mainly by exports of goods and services, as well as investments. The upward trend of the economy continued for a 7th consecutive quarter (for the first time since the period 2005-2006), with real GDP in the first nine months of 2018 increasing by 2,1% compared to the respective period of 2017, mainly based on exports of goods and services, as well as private consumption. On the other hand, a decline in investment and an increase in imports, limit upward performance.
Total domestic fuels consumption in 2018 reduced by 3,1%, compared to the previous year, mainly due to the reduction in demand for heating gasoil, which is mainly attributed to milder weather conditions and higher oil product prices, during the first quarter of 2018. Net demand for motor fuels marginally increased by 0,3%, driven by higher auto diesel consumption, which was, however, almost entirely offset by lower gasoline demand.
Despite the significant progress in economic recovery recorded in 2017 and 2018, as well as the successful conclusion of the 3rd bailout program and the positive measures towards public debt relief decided by the Eurogroup in June 2018, the Greek economy faces a number of significant challenges, such as high public debt, large non-performing loans, high unemployment and failure to extend its investment base, which should be addressed in the medium-term, as they affect the country's future growth prospects. Management continually assesses the situation and its possible future impact to ensure that all necessary actions and measures are taken in order to minimize the impact on the Company's operations.
Great Britain's exit from Eurozone: The Company is sourcing funds from international debt capital markets, through Eurobonds, issued by its London based subsidiary, Hellenic Petroleum Finance Plc, listed in the Luxembourg stock exchange, for the optimal management of its debt liabilities. It is uncertain, how a potential exit of the UK from the EU, especially if that happens without an agreement (no deal Brexit), will affect existing HPF Eurobonds, as well as the Company's funding from international debt capital markets. The Company is closely following relevant developments and assessing alternatives in order to maintain its ability to source funding through the international debt capital markets.
Currency: The Company's business is naturally hedged against functional currency risk. All petroleum industry transactions are referenced to international benchmark quotes for crude oil and oil products in USD. All international purchases and sales of crude oil and products are conducted in USD and all sales into local markets are either in USD prices or converted to local currency for accounting and settlement reasons using the USD reference on the date of the transaction.
Prices: Commodity price risk management is supervised by a Risk Management Committee which includes Finance and Trading departments' Senior Management. Non-commodity price risk management is carried out by the Finance Department under policies approved by the Board of Directors. The Finance Department identifies and evaluates financial risks in close co-operation with the Company's operating units.
Securing continuous crude oil supplies: During the last 18 months crude oil reference prices started recovering, following a 3-year period of contraction (June 2014 – June 2017), averaging \$68/bbl in the fourth quarter and \$72/bbl in the 12 months of 2018. Nonetheless, the cost of crude, for both sweet and especially sour grades, which represent the key source of feedstock for complex refiners like Hellenic Petroleum, remains at reasonable levels, maintaining the competitive position of Med refiners vs. their global peers. Concerning the USA's decision for the re-imposition of the nuclear-related sanctions against Iran, Hellenic Petroleum has successfully managed to replace the Iranian oil supply with other alternatives in the region, without any significant effect in the continuity and cost of its operations (Note. 15).
Financing of operations: Given financial market developments since 2011, the key priorities of the Company have been the management of the 'Assets and Liabilities' maturity profile, funding in accordance with its strategic investment plan and liquidity risk for operations. As a result of these key priority initiatives and in line with its medium term financing plan, Hellenic Petroleum has maintained a mix of long term, medium term and short term credit facilities by taking into consideration bank and debt capital markets' credit capacity as well as cash flow planning and commercial requirements. Approximately 66% of total debt is financed by medium to long-term committed credit lines while the remaining debt is being financed by short term working capital credit facilities. Further details are provided in paragraph c) Liquidity risk below and Note 16.
Capital management: Another key priority of the Company has been the management of its Assets. Overall the Company has around €3,6 billion of capital employed which is driven from working capital, investment in fixed assets and its investment in the DEPA Group. Current assets are mainly funded with current liabilities (incl. short-term bank debt) which are used to finance working capital (inventories and receivables). As a result of the implementation of the Company's investment plan, during the period 2007-2012, net debt level has increased to 41% of capital employed while the remaining is financed through shareholders equity. The Company has started reducing its net debt levels through utilisation of the incremental operating cash flows, post completion and operation of the new Elefsina refinery. This is expected to lead to lower Debt to Equity ratio, better matched Asset and Liability maturity profiles as well as lower financing costs.
(a) Market risk
As explained in note 2.4, the functional currency and presentation currency of the Company is the Euro. However, in line with industry practice in all international crude oil and oil trading transactions, underlying commodity prices are based on international reference prices quoted in US dollars.
Foreign currency exchange risk arises on three types of exposure:
The Company's primary activity as a refiner involves exposure to commodity prices. Changes in current or forward absolute price levels vs acquisition costs affect the value of inventory while exposure to refining margins (combination of crude oil and product prices) affect the future cash flows of the business.
In the case of price risk, the level of exposure is determined by the amount of priced inventory carried at the end of the reporting period. In periods of sharp price decline, as Company policy is to report its inventory at the lower of historical cost and net realisable value, results are affected by the reduction in the carrying value of the inventory. The extent of the exposure relates directly to the level of stocks and rate of price decrease. This exposure is partly hedged with paper derivatives to the extent that the cost of such instruments is considered attractive, from a risk-return point of view and subject to the structure of the market (contango vs. backwardation) as well as credit capacity for long dated transactions.
Refining margin exposure relates to the absolute level of margin generated by the operation of the refineries. This is determined by Platt's prices and varies on a daily basis; as an indication of the impact to the Company financial results, a change in the refinery margins has a proportionate impact on the Company's profitability. Where possible, the Company aims to hedge the part of its production which will be sold in the future and hence will be exposed to forward pricing, thus generating higher price risk upon completion of the sale. This, however, is not possible to do in all market conditions, such as a backwardated market structure, where future prices are below their spot levels, or when there is no credit capacity for derivatives transactions.
The Company's operating income and cash flows are not materially affected by changes in market interest rates, given the low level of prevailing reference rates. Borrowings issued at variable rates expose the Company to cash flow interest rate risk, while borrowings issued at fixed rates expose the Company to fair value interest rate risk. The Company's borrowings are at variable rates of interest. Depending on the levels of net debt at any given period of time, any change in the base interest rates (EURIBOR or LIBOR), has a proportionate impact on the Company results. At 31 December 2018, if interest rates on Euro denominated borrowings had been 0,5% higher with all other variables held constant, pre-tax profit for the year would have been €12 million lower.
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale customers, including outstanding receivables and committed transactions. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.
The credit quality of cash, cash equivalents and restricted cash is assessed by reference to external credit ratings obtained from Standard & Poors and Fitch in the table below:
| Bank rating (in €million) | 31 December 2018 | 31 December 2017 |
|---|---|---|
| BBB | 462 | 380 |
| BBB- | 1 | 1 |
| CCC | 579 | - |
| CCC- | 30 | 432 |
| Total | 1.072 | 813 |
Due to market conditions, the approval of credit risk is subject to a more strict process involving all levels of senior management. A Group credit committee monitors material credit exposures on a Group wide basis. See Note 11 for further disclosure on credit risk.
Prudent liquidity risk management entails maintaining sufficient cash reserves and financial headroom, through committed credit facilities. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility in its funding operations through the use of cash and committed credit facilities.
Where deemed beneficial to the Company, and in order to achieve better commercial terms (e.g. better pricing, higher credit limits, longer payment terms), the Company provides for the issuance of short term letters of credit or guarantee for the payment of liabilities arising from trade creditors. These instruments are issued using the Company's existing credit lines with local and international banks, and are subject to the approved terms and conditions of each bank, regarding the amount, currency, maximum tenor, collateral etc.
The Company's plans with respect to facilities expiring within the next 12 months are presented below
| 1H19 | 2H19 | 2019 | Schedule for repayment |
Schedule for refinancing |
|
|---|---|---|---|---|---|
| (€ million) | |||||
| European Investment Bank ("EIB") Term loan | 22 | 22 | 44 | 44 | - |
| HPF Loan €317,6m | - | 280 | 280 | 280 | - |
| 22 | 302 | 324 | 324 | - |
Following the successful completion of the sale of DESFA (Note 8), the Company aims to apply part of the €284 million proceeds towards further deleveraging.
The table below analyses the Company's financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual cash flows.
| Less than 1 | Between 1 | Between 2 | |||
|---|---|---|---|---|---|
| year | and 2 years | and 5 years Over 5 years | |||
| 31 December 2018 | |||||
| Borrowings | 1.025.165 | 330.522 | 1.434.674 | 3.680 | |
| Derivative financial instruments | 16.387 | - | - | - | |
| Trade and other payables | 1.209.786 | - | - | - | |
| 31 December 2017 | |||||
| Borrowings | 1.559.476 | 372.000 | 614.717 | - | |
| Derivative financial instruments | - | - | - | - | |
| Trade and other payables | 1.528.630 | - | - | - |
The amounts included as loans in the table above do not correspond to the balance sheet amounts as they are contractual (undiscounted) cash flows which include capital and interest.
Trade and other payables do not correspond to the balance sheet amounts as they include only financial liabilities.
The Company's objective with respect to capital structure, which includes both equity and debt funding, is to safeguard its ability to continue as a going concern, to have in place an optimal capital structure from a cost perspective and at the same time to ensure that the requirements of loan financial covenants are met.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with the industry convention, the Company monitors capital structure and indebtedness levels on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital employed. Net debt is calculated as total borrowings (including "current and non-current borrowings" as shown in the statement of financial position) less "Cash & cash equivalents" and "Investments in equity instruments". Total capital employed is calculated as "Total Equity" as shown in the statement of financial position plus net debt.
The gearing ratios at 31 December 2018 and 2017 were as follows:
| As at | |||||
|---|---|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |||
| Total Borrowings | 16 | 2.572.948 | 2.614.530 | ||
| Less: Cash, Cash Equivalents and restricted cash | 12 | (1.071.585) | (813.251) | ||
| Less: Investment in equity instruments | (318) | (1.252) | |||
| Net debt | 1.501.045 | 1.800.027 | |||
| Total Equity | 2.146.677 | 1.809.223 | |||
| Total Capital Employed | 3.647.722 | 3.609.250 | |||
| Gearing ratio | 41% | 50% |
The table below analyses financial instruments carried at fair value, categorised within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. The different levels are defined as follows:
The following table presents the Company's assets and liabilities that are measured at fair value at 31 December 2018:
| Assets | Level 1 | Level 2 | Level 3 | Total balance |
|---|---|---|---|---|
| Derivatives held for trading | - | - | - | - |
| Investment in equity instruments | 318 | - | - | 318 |
| 318 | - | - | 318 | |
| Liabilities | ||||
| Derivatives held for trading | - | 66 | - | 66 |
| Derivatives used for hedging | - | 16.321 | - | 16.321 |
| - | 16.387 | - | 16.387 |
The following table presents the Company's assets and liabilities that are measured at fair value at 31 December 2017:
| Level 1 | Level 2 | Level 3 | Total balance |
|
|---|---|---|---|---|
| Assets | ||||
| Derivatives used for hedging | - | 11.514 | - | 11.514 |
| Investment in equity instruments | 1.252 | - | - | 1.252 |
| 1.252 | 11.514 | - | 12.766 | |
| Liabilities | ||||
| Derivatives used for hedging | - | - | - | - |
| - | - | - | - |
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
There were no changes in valuation techniques during the year. For the years ended 31 December 2018 and 31 December 2017, there were no transfers between levels.
The fair value of the following financial assets and liabilities approximate their carrying amount, due to their short-term nature:
Estimates and judgements are continuously evaluated and are based on historical experience as adjusted for current market conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
The Company is subject to periodic audits by tax authorities and the assessment process for determining the company's current and deferred tax balances is complex and involves high degree of estimation and judgement. There are some transactions and calculations for which the ultimate tax determination is uncertain. Where tax positions are not settled with the tax authorities, Management takes into account past experience with similar cases, as well as the advice of tax and legal experts in order to analyze the specific facts and circumstances, interpret the relevant tax legislation, assess other similar positions taken by the tax authorities and to form a view about whether a provision needs to be recorded, or a contingent liability needs to be disclosed. Where the Company is required to make payments in order to appeal against positions of tax authorities and the Company assesses that it is more probable than not to win its appeal, the respective payments are recorded as assets, as these advance payments will be used to settle the outcome of the case, or if the Company's position is upheld will be returned to the Company. In case the Company determines a provision is needed for the outcome of the uncertain tax position, any amounts already paid are deducted from the said provision (Note 11).
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets include certain amounts which relate to carried forward tax losses. In most cases, such tax losses are available for set off for a limited period of time since they are incurred. The Company makes assumptions on whether these deferred tax assets will be recoverable using the estimated future taxable income based on the approved business plans and budgets.
The Company operates in the oil industry with its principal activities being that of exploration and production of hydrocarbons, refining of crude oil and sale of oil products, and the production and trading of petrochemical products. Environmental damage caused by such substances may require the Company to incur restoration costs to comply with the regulations in the various jurisdictions in which the Company operates, and to settle any legal or constructive obligation. Analysis and estimates are performed by the Company together with its technical and legal advisers, in order to determine the probability, timing and amount involved with probable required outflow of resources. Estimated restoration costs, for which disbursements are determined to be probable, are recognised as a provision in the Company's financial statements. When the final determination of such obligation amounts differs from the recognised provisions, the Company's statement of comprehensive income is impacted.
The recoverable amount of a cash- generating unit (CGU) is determined for impairment tests purposes based on value-in-use calculations which require the use of assumptions. 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. The calculations use cash flow projections based on financial budgets approved by management. These budgets and forecast calculations generally cover a period of five years. Cash flows beyond the period over which projections are available are extrapolated using estimated growth rates. These growth rates are consistent with forecasts included in country or industry reports specific to the country and industry in which each CGU operates. The key assumptions used to determine the recoverable amount for the different CGUs, or assets, including a sensitivity analysis, are disclosed and further explained in Note 6, for Property, Plant and Equipment, and Note 8 for Investments in Subsidiaries, Associates and Joint Ventures.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives and certain investments in equity instruments) is determined by using valuation techniques. The Company uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
The Company uses a provision matrix to calculate ECLs for trade receivables. The provision matrix is based on the Company's historical credit loss experience, calibrated to adjust the historical credit loss experience with forward-looking information specific to the debtors and the economic environment. At each year end, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical observed credit losses, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Company's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future.
The present value of the pension obligations for the Company's defined benefit plans depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ (income) for pensions include the discount rate and salary rate increases. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency and jurisdiction in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 18.
The Company has a number of legal claims pending against it. Management uses its judgement, as well as the available information from the Legal department to assess the likely outcome of these claims and if it is more likely than not that the Company will lose a claim, then a provision is recognised. Provisions for legal claims, if required, are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period (Note 31).
The Company periodically assesses the useful lives of its property, plant and equipment to determine whether the original estimated lives continue to be appropriate. To this respect, the Company may obtain technical studies and use external sources to determine the lives of its assets, which can vary depending on a variety of factors such as technological innovation and maintenance programs
The Company assesses at each reporting date, whether indicators for impairment exist, for its non-financial assets (Note 2.10) and its investments in subsidiaries, associates and joint ventures. If any indication exists, the Company estimates the asset's, or cash generating unit's recoverable amount. Judgment is involved to some extent in determining whether indicators exist and also the determination of the cash generating units at which the respective assets are tested.
All critical operating decisions are made by the Executive Committee, which reviews the Company's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The committee considers the business from a number of measures which may
vary depending on the nature and evolution of a business segment by taking into account the risk profile, cash flow, product and market considerations. Information provided to the committee is measured in a manner consistent with that of the financial statements.
The Company's key operating segments are:
Activities revolve around the operation of the Company's three refineries located in Aspropyrgos, Elefsina and Thessaloniki, which account for approximately 65% of the country's total refining capacity. The three refineries combine a storage capacity of 6,65 million m³ of crude oil and petroleum products.
Petrochemical activities mainly focus on the production and marketing of polypropylene, BOPP films and solvents, as well as the trading of imported plastics and chemicals. The polypropylene production plant in Thessaloniki mainly receives propylene produced in the Aspropyrgos refinery. Part of the production of the produced polypropylene is the raw material used in the BOPP film production unit in Komotini.
More information about the activities of the Company's segments can be found in the Company's Annual Report.
Financial information regarding the Company's operating segments for the year ended 31 December 2018 is presented below:
| Exploration | ||||||
|---|---|---|---|---|---|---|
| Petro | & | |||||
| Year ended 31 December 2018 | Note | Refining | chemicals | Production | Other | Total |
| Revenue from contracts with customers | 8.652.986 | 314.716 | - | - | 8.967.702 | |
| EBITDA | 549.868 | 76.160 | (5.067) | (4.476) | 616.485 | |
| Depreciation and amortisation | 6,7 | (136.071) | (3.686) | (979) | (17) | (140.753) |
| Operating profit / (loss) | 413.797 | 72.474 | (6.046) | (4.493) | 475.732 | |
| Finance (expenses)/income - net | 25 | (92.870) | (1.817) | - | (32.507) | (127.194) |
| Dividend income | - | - | - | 318.795 | 318.795 | |
| Currency exchange gains/(losses) | 26 | 2.244 | - | - | - | 2.244 |
| Profit / (Loss) before income tax | 323.171 | 70.657 | (6.046) | 281.795 | 669.577 | |
| Income tax expense | 27 | (146.187) | ||||
| Profit for the year | 523.390 |
EBITDA is calculated as Operating profit/(loss) per the statement of comprehensive income plus depreciation and amortisation
Financial information regarding the Company's operating segments for the year ended 31 December 2017 is presented below:
| Exploration | ||||||
|---|---|---|---|---|---|---|
| Year ended 31 December 2017 | Refining | Petro chemicals |
& Production |
Other | Total | |
| Revenue from contracts with customers | 6.966.669 | 266.931 | - | - | 7.233.600 | |
| EBITDA | 660.070 | 85.452 | (3.981) | (4.119) | 737.422 | |
| Depreciation and amortisation | (136.282) | (3.457) | (204) | (58) | (140.001) | |
| Operating profit / (loss) | 523.788 | 81.995 | (4.185) | (4.177) | 597.421 | |
| Finance (expenses)/income - net | 25 | (100.491) | (1.840) | - | (37.940) | (140.271) |
| Dividend income | - | - | - | 33.724 | 33.724 | |
| Currency exchange gains/(losses) | 26 | (8.483) | - | - | - | (8.483) |
| Profit / (Loss) before income tax | 414.814 | 80.155 | (4.185) | (8.393) | 482.391 | |
| Income tax expense | 27 | (136.400) | ||||
| Profit for the year | 345.991 |
EBITDA is calculated as Operating profit/(loss) per the statement of comprehensive income plus depreciation and amortisation
"E&P" includes costs within blocks where the Company holds rights for the exploration and production of hydrocarbons.
"Other" includes mainly income from dividends and part of corporate costs, not directly related to the Company's principal operating segments.
There were no changes in the basis of segmentation or in the basis of measurement of segmental profit or loss, as compared to the annual financial statements for the year ended 31 December 2017.
An analysis of the Company's revenue from contracts with customers by type of market (domestic, aviation & bunkering and exports) for 2018 and 2017, is presented below:
| Exploration | ||||||
|---|---|---|---|---|---|---|
| Petro | & | |||||
| Year ended 31 December 2018 | Note | Refining | chemicals | Production | Other | Total |
| Domestic | 2.601.183 | 112.277 | - | - | 2.713.460 | |
| Aviation & Bunkering | 1.249.509 | - | - | - | 1.249.509 | |
| Exports | 4.802.294 | 202.439 | - | - | 5.004.733 | |
| Revenue from contracts with customers | 8.652.986 | 314.716 | - | - | 8.967.702 | |
| Exploration | ||||||
| Petro | & | |||||
| Year ended 31 December 2017 | Refining | chemicals | Production | Other | Total | |
| Domestic | 2.445.379 | 99.970 | - | - | 2.545.349 | |
| Aviation & Bunkering | 966.203 | - | - | - | 966.203 | |
| Exports | 3.555.087 | 166.961 | - | - | 3.722.048 |
The segment assets and liabilities at 31 December 2018 and 2017 are as follows:
| Exploration | |||||
|---|---|---|---|---|---|
| Petro | & | ||||
| Year ended 31 December 2018 | Refining | chemicals | Production | Other | Total |
| Total Assets | 4.979.937 | 361.507 | 2.546 | 1.032.414 | 6.376.404 |
| Total Liabilities | 3.071.172 | 37.343 | 17.590 | 1.103.622 | 4.229.727 |
| Exploration | |||||
| Petro | & | ||||
| Year ended 31 December 2017 | Refining | chemicals | Production | Other | Total |
| Total Assets | 5.000.604 | 521.652 | 3.266 | 671.664 | 6.197.186 |
| Total Liabilities | 3.384.430 | 247.654 | 14.017 | 741.862 | 4.387.963 |
There has been no material change in the definition of segments or the segmental analysis of total assets or total liabilities from the amounts disclosed in the annual financial statements for the year ended 31 December 2018.
| Plant & | Motor | Furniture | Assets Under Cons |
||||
|---|---|---|---|---|---|---|---|
| Land | Buildings | Machinery | vehicles | and fixtures | truction | Total | |
| Cost | |||||||
| As at 1 January 2017 | 115.396 | 530.850 | 3.790.315 | 15.054 | 85.947 | 80.659 | 4.618.221 |
| Additions | 27.454 | 33 | 1.776 | 330 | 3.326 | 115.708 | 148.627 |
| Capitalised projects | - | 3.676 | 105.576 | 114 | 298 | (109.664) | - |
| Disposals | - | - | - | (45) | (97) | (280) | (422) |
| Transfers and other movements | - | - | 2.968 | - | - | (3.136) | (168) |
| As at 31 December 2017 | 142.850 | 534.559 | 3.900.635 | 15.453 | 89.474 | 83.287 | 4.766.258 |
| Accumulated Depreciation | |||||||
| As at 1 January 2017 | - | 200.440 | 1.624.451 | 10.470 | 76.179 | - | 1.911.540 |
| Charge for the year | - | 16.047 | 116.983 | 389 | 2.269 | - | 135.688 |
| Disposals | - | - | - | (45) | (97) | - | (142) |
| As at 31 December 2017 | - | 216.487 | 1.741.434 | 10.814 | 78.351 | - | 2.047.086 |
| Net Book Value at 31 December 2017 | 142.850 | 318.072 | 2.159.201 | 4.639 | 11.123 | 83.287 | 2.719.172 |
| Cost | |||||||
| As at 1 January 2018 | 142.850 | 534.559 | 3.900.635 | 15.453 | 89.474 | 83.287 | 4.766.258 |
| Additions | - | 74 | 2.409 | 18 | 1.242 | 93.705 | 97.448 |
| Capitalised projects | - | 7.295 | 84.449 | 112 | 631 | (92.487) | - |
| Disposals | - | - | (65) | - | (51) | - | (116) |
| Impairment / Write-off | - | - | - | - | - | (850) | (850) |
| Transfers and other movements | - | - | 5.243 | - | - | (1.367) | 3.876 |
| As at 31 December 2018 | 142.850 | 541.928 | 3.992.671 | 15.583 | 91.296 | 82.288 | 4.866.616 |
| Accumulated Depreciation | |||||||
| As at 1 January 2018 | - | 216.487 | 1.741.434 | 10.814 | 78.351 | - | 2.047.086 |
| Charge for the year | - | 15.682 | 116.963 | 412 | 2.352 | - | 135.409 |
| Disposals | - | - | (65) | - | (51) | - | (116) |
| As at 31 December 2018 | - | 232.169 | 1.858.332 | 11.226 | 80.652 | - | 2.182.379 |
| Net Book Value at 31 December 2018 | 142.850 | 309.759 | 2.134.339 | 4.357 | 10.644 | 82.288 | 2.684.237 |
(1) The Company has not pledged any property, plant and equipment as security for borrowings.
| Computer software |
Licences & Rights |
Total | |
|---|---|---|---|
| Cost | |||
| As at 1 January 2017 | 90.340 | 24.299 | 114.639 |
| Additions | 1.303 | - | 1.303 |
| Transfers & other movements | 3.562 | - | 3.562 |
| As at 31 December 2017 | 95.205 | 24.299 | 119.504 |
| Accumulated Amortisation | |||
| As at 1 January 2017 | 83.862 | 24.287 | 108.149 |
| Charge for the year | 4.313 | - | 4.313 |
| As at 31 December 2017 | 88.175 | 24.287 | 112.462 |
| Net Book Value 31 December 2017 | 7.030 | 12 | 7.042 |
| Cost | |||
| As at 1 January 2018 | 95.205 | 24.299 | 119.504 |
| Additions | 1.330 | 2.540 | 3.870 |
| Disposals | - | (2.540) | (2.540) |
| Transfers & other movements As at 31 December 2018 |
1.367 97.902 |
- 24.299 |
1.367 122.201 |
| Accumulated Amortisation | |||
| As at 1 January 2018 | 88.175 | 24.287 | 112.462 |
| Charge for the year | 4.932 | 412 | 5.344 |
| Disposals | - | (404) | (404) |
| Transfers & other movements | - | - | - |
| As at 31 December 2018 | 93.107 | 24.295 | 117.402 |
| Net Book Value 31 December 2018 | 4.795 | 4 | 4.799 |
(1) 'Licenses and rights' include net exploration license costs, relating to the new exploration & production of hydrocarbons' concessions in Western Greece. During September 2018 they were transferred to other group entities.
(2) 'Transfers and other movements' in computer software mainly relate to completed IT software projects capitalised during the year and thus transferred from assets under construction. These projects are monitored within assets-under-construction as implementation of the relevant software takes place over a period of time. They are transferred to Intangible Assets when the implementation of the software has been completed and tested as being ready for use (Note 6).
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Beginning of the year | 671.622 | 655.265 | |
| Increase / (Decrease) in share capital of subsidiaries | 21.050 | (1.688) | |
| Acquisition of remaining share in subsidiary | 350.000 | 21.045 | |
| Sale of investments in subsidiaries to related parties | (7.000) | - | |
| Impairment of investments | (3.300) | (3.000) | |
| End of the year | 1.032.372 | 671.622 |
A list of the Company's direct investments is as follows:
| Country of | |||
|---|---|---|---|
| Name | Participating interest | Incorporation | Classification |
| ASPROFOS S.A. | 100,0% | Greece | Subsidiary |
| DIAXON S.A. | 100,0% | Greece | Subsidiary |
| HELLENIC FUELS AND LUBRICANTS S.A. (EKO) | 100,0% | Greece | Subsidiary |
| ELPET BALKANIKI S.A. | 100,0% | Greece | Subsidiary |
| HELLENIC PETROLEUM INTERNATIONAL AG | 100,0% | Austria | Subsidiary |
| HELPE APOLLON MARITIME Co | 100,0% | Greece | Subsidiary |
| HELPE POSEIDON MARITIME Co | 100,0% | Greece | Subsidiary |
| HELLENIC PETROLEUM FINANCE PLC | 100,0% | United Kingdom | Subsidiary |
| HELPE RENEWABLE ENERGY SOURCES S.A. | 100,0% | Greece | Subsidiary |
| HELPE E&P HOLDING S.A. | 100,0% | Greece | Subsidiary |
| GLOBAL ALBANIA S.A. | 99,9% | Albania | Subsidiary |
| PUBLIC GAS CORPORATION OF GREECE S.A. (DEPA) | 35,0% | Greece | Associatte |
| ATHENS AIRPORT FUEL PIPELINE COMPANY S.A. | 50,0% | Greece | Associatte |
| HELPE THRAKI S.A. | 25,0% | Greece | Associatte |
| ELPEDISON B.V. | 5,0% | Netherlands | Joint Venture |
On 29 November 2018, HPI transferred its shareholding in HFL (64,41%) to Hellenic Petroleum S.A., who now holds the 100% shareholding of HFL, for a consideration of €350 million, utilizing an advance of €324 million, made in previous years (Note 11).
d) On 24 May 2018, the Company established Hellenic Petroleum E&P Holding S.A. (100% subsidiary). The share capital injected to the new company amounts to €20 million. On 14 November 2018, the Company transferred the 100% of its shareholding in HELPE Upstream S.A. to HELPE E&P Holding S.A for a consideration of €0,9 million, realizing an intercompany profit of €0,1 million. On 27 November 2018, the Company transferred the 100% of its shareholding in HELPE Patraikos SA to HELPE E&P Holding S.A for a consideration of €6,2 million. No profit or loss arose from the transaction.
The Company owns a 5% shareholding in Elpedison B.V., a joint venture entity of the Group, with HPI (45%) and EDISON International.
As at 31 December 2017 Elpedison B.V. management carried out an impairment test according to the requirements of IAS 36, based on the post-tax cash flows produced by the joint venture entity. The anticipated future developments in the market and regulatory environment (change in remuneration mechanisms and/or delay of their enforcement, intensification of competition) in which the company operates, were considered as indicators of impairment, as they could impact the future cash flows of its assets. The valuation analysis considered Elpedison S.A.'s two gas fired power plants and the supply business unit as a single cash generation unit (CGU). The analysis was carried out by identifying the recoverable value ("value in use") of the CGU. The estimation of the value in use was performed through the application of the Discounted Cash Flow Valuation Method. The discount rate applied was 7,5% and was estimated as the post-tax Weighted Average Cost of Capital (WACC) of the company. Based on this impairment test, the Company concluded that the carrying amount of its investment is recoverable and consequently no further impairment charge was recorded.
Since uncertainty in the power market and regulatory environment remained during 2018 the impairment test was updated using a WACC of 7% as of 31 December 2018. Based on this impairment test, the Company recognised an additional impairment provision of €2,3 million (total provisions of €18 million were raised in previous years) in the carrying value of Elpedison S.A. in the statement of financial position as at 31 December 2018 and a respective impairment loss in the statement of comprehensive income, which was included in other income and expenses (Note 24).
It should be noted that the assumptions and scenarios used could further change in the future, particularly in an environment characterized by high volatility. Relevant changes in the assumptions used e.g. in the future Annual Flexibility remuneration and in discount rates, could have an impact on the value in use of the assets.
As at 31 December 2017 Management carried out an impairment test according to the requirements of IAS 36, based on the post-tax cash flows produced by Asprofos S.A.. The company's continuing losses and the anticipated future developments in the engineering market in which the company operates, were considered as indicators of impairment.
The valuation analysis considered Asprofos S.A. as a single cash generation unit (CGU). The analysis was carried out by identifying the recoverable value ("value in use") of the CGU. The estimation of the value in use was performed through the application of the Discounted Cash Flow Valuation Method, using a WACC of 7%, as of 31 December 2017.
Based on this impairment test, the Company recognised an additional impairment provision of €3,0 million in the carrying value of Asprofos S.A. in the statement of financial position as at 31 December 2017 and a respective impairment loss in the statement of comprehensive income, which was included in other income and expenses (Note 24).
As at 31 December 2018 the impairment test was updated using a WACC of 6%. Based on this impairment test, the Company recognised an additional impairment provision of €1,0 million (total provisions of €10 million were raised in previous years) in the carrying value of Asprofos S.A. in the statement of financial position as at 31 December 2018 and a respective impairment loss in the statement of comprehensive income, which was included in other income and expenses (Note 24).
DEPA Group operates in the wholesale, trading, transmission, distribution and supply of natural gas. It is currently owned 65% by the HRADF ("Hellenic Republic Assets Development Fund") and 35% by Hellenic Petroleum SA.
On 16 February 2012, Hellenic Petroleum S.A. and HRADF (jointly the "Sellers") agreed to launch a joint sale process of their shareholding in DEPA Group aiming to dispose 100% of the supply, trading and distribution activities, as well as 66% of their shareholding in the high pressure transmission network (DESFA S.A., a 100% subsidiary of DEPA S.A.).
The sale process resulted in the submission of a binding offer of €400 million by SOCAR (Azerbaijan's Oil and Gas National Company) for the purchase of the 66% of DESFA. The amount corresponding to the Company's 35% effective shareholding was €212 million.
On 21 December 2013, the Share Purchase Agreement (SPA) for the above sale was signed by HRADF, Hellenic Petroleum S.A. and SOCAR, while the completion of the transaction was agreed to be subject to the clearance of EU's responsible competition authorities.
On 30 November 2016, the deadline for the fulfilment of all prerequisites for the finalisation of the transaction expired without the desired outcome.
On 1 March 2017, by decision of the Governmental Economic Policy Council (ΚΥΣΟΙΠ) the Greek State decided, inter alia, to launch a new tender procedure for the disposal of the 66% of the shares of DESFA, i.e. the 31% of the 65% of the shares held by HRADF combined with the 35% of the shares owned by HELPE, as well as the termination of the respective selling process which was launched in 2012. In addition, article 103 of the most recent law 4472/2017 provides that by 31 December 2017, the participation of DEPA in DESFA (66%) will be sold and transferred through an international tender process, which will be carried out by HRADF, while the remaining balance of 34% will be transferred to the Greek State. Furthermore, the above law provides that at the end of the tender process, DESFA should constitute an Unbundled Natural Gas Transmission System Operator, in accordance with the provisions of articles 62 & 63 of Law 4001/2011 as in force, and be certified as such, in accordance with Articles 9 & 10 of the 2009/73/EC (Full Ownership Unbundled System Operator - FOU).
The Board of Directors of HELPE, at its meeting on 12 June 2017, evaluated the strategic choices of HELPE regarding its minority participation in DESFA and considered that the disposal (jointly with HRADF) of the 66% of DESFA's shares is in the interest of the Company. For this purpose, a draft Memorandum of Understanding (MOU) between the Greek State, HRADF and HELPE was drawn up, based on the corresponding text of 2012. At the abovementioned meeting, the Board of Directors also convened the Extraordinary General Assembly of the Company's shareholders in order to obtain a special permit, in accordance with the provisions of article 23a of the Codified Law 2190/1920, for the conclusion of the MOU between the Greek State, HRADF and HELPE. The MOU was signed by the three parties on 26 June 2017 and the special permit of the General Assembly was provided retrospectively on 6 July 2017, pursuant to the provision of article 23a par.4 of L.2190/1920. On 26 June 2017 the Invitation for the Non-Binding Expression of Interest was published. Four parties expressed interest, two of which were notified on 22 September 2017 by the Sellers that they qualified to participate in the next phase of the Tender Process (Binding Offers Phase), and were considered as Shortlisted Parties. The two Shortlisted Parties were on the one hand, a consortium formed by SNAM S.p.A., FLUXYS S.A., Enagas Internacional S.L.U. and N.V. Nederlandse Gasunies and on the other hand Regasificadora del Noroeste S.A..
The Shortlisted Parties submitted their binding offers on 16 February 2018, pursuant to the Sellers' Request on 10 October 2017 for the Submission of Binding Offers.
Best and final offers were submitted by the two Shortlisted Parties on 29 March 2018. The consortium formed by SNAM S.p.A., FLUXYS S.A. and Enagas Internacional S.L.U. confirmed its best and final offer on 19 April 2018, offering an amount of €535 million for the purchase of the 66% of DESFA. The above binding offer has been accepted by virtue of resolution no. 1319 of 19 April 2018 of the Board of Directors and the resolution of 14 May 2018 of the Extraordinary General Meeting of Shareholders of Hellenic Petroleum. By virtue of decision No. 235 of 25/6/2018, the Court of Audit has cleared the transaction and on 13/7/2018, the European Commission has provided its approval under the EU Merger Regulation.
On 20 July 2018 a Share Sale & Purchase Agreement (SPA) has been executed by HRADF and HELPE as Sellers and "SENFLUGA Energy Infrastructure Holdings S.A." (SNAM-Enagas-Fluxys Consortium SPV) as Purchaser. On the same date a Shareholders' Agreement for DESFA has been executed between SENFLUGA S.A. and the Hellenic Republic.
Upon satisfaction of all conditions precedent provided by the SPA, the above transaction close successfully on 20 December 2018. Immediately before the execution of the SPA, DEPA S.A. proceeded to a distribution of its shares in DESFA (at fair value) to its shareholders, through a reduction of its share capital. Hellenic Petroleum S.A.'s share of investment in DESFA (35%) amounted to €284 million, equal to the sale proceeds per the SPA. The sale proceeds of €284 million, were accounted, effectively, as dividend distribution received from DEPA for the year ended 31 December 2018. At the same time the Company recognised a deferred tax liability of €48 million for the resulting difference between tax and accounting base of its remaining investment in DEPA (Note 17). During 2018 the Company also received cash dividends of €23 million from DEPA (2017: €18,4 million). As a result, the total dividend received from DEPA Group within 2018 amounts to €307 million.
The cost of investment of the DEPA group in the Company's financial statements is €237 million. DEPA Group, as it currently stands, continues to be accounted for and included in the financial statements as an associate.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Loans and advances | 6.518 | 17.340 | |
| Other long term assets | 2.369 | 2.346 | |
| Total | 8.887 | 19.686 |
Loans and advances as at 31 December 2018 include a three-year bond loan of €3,6 million to ATEN Energy, a subsidiary of the HELPE Group, maturing in 2023.
They also include trade receivables due in more than one year as a result of settlement arrangements. These are discounted at a rate of 7,25% (2017: 7,25%) over their respective lives.
The decrease relates to amounts falling due in 2019 that were reclassified to current "Trade and other receivables".
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Crude oil | 328.010 | 330.840 | |
| Refined products and semi-finished products | 486.792 | 559.312 | |
| Petrochemicals | 24.400 | 21.670 | |
| Consumable materials and spare parts | 83.903 | 79.454 | |
| - Less: Provision for Consumables and spare parts | (29.246) | (27.530) | |
| Total | 893.859 | 963.746 |
Under IEA and EU regulations Greece is obliged to hold crude oil and refined product stocks in order to fulfil the EU requirement for compulsory Stock obligations (90 days stock directive), as legislated by Greek Law 3054/2002. This responsibility is passed on to all companies, including Hellenic Petroleum S.A., which import and sell in the domestic market and who have the responsibility to maintain and finance the appropriate stock levels. Such stocks are part of the operating stocks and are valued on the same basis.
The cost of inventories recognised as an expense and included in "Cost of sales" amounted to €7,8 billion (2017: €6,0 billion). The Company has reported a loss of €32,4 million as at 31 December 2018 arising from inventory valuation which is reflected in a write-down of the year-end values (2017: €0,04 million). This was recognised as an expense in the year ended 31 December 2018 and included in 'Cost of Sales' in the statement of comprehensive income. Overall for 2018, management has estimated that the impact on the results of the Company from the fluctuations of crude oil and product prices during the year was positive and equal to approx. €48 million (2017: positive impact of €58 million).
In addition, as at 31 December 2018, an amount of €5,2 million (2017: €3,0 million) relating to spare parts for the refinery units, has been transferred from inventories to Plant and Machinery (see Note 6).
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Trade receivables | 449.595 | 450.922 | |
| - Less: Provision for impairment of receivables | (117.170) | (117.305) | |
| Trade receivables net | 332.425 | 333.617 | |
| Other receivables | 349.561 | 670.606 | |
| - Less: Provision for impairment of receivables | (14.272) | (20.060) | |
| Other receivables net | 335.289 | 650.546 | |
| Prepaid expenses and accrued income | 12.633 | 5.738 | |
| Total | 680.347 | 989.901 |
As part of its working capital management, the Company utilises factoring facilities to accelerate the collection of cash from its customers in Greece. Non-recourse factoring, is excluded from balances shown above, since all risks and rewards of the relevant invoices have been transferred to the factoring institution.
Other receivables as at 31 December 2017 included advances of €327 million extended to Hellenic Petroleum International A.G. (a Group company) for the transfer of its 64,41% shareholding of the share capital of Hellenic Fuels S.A. On 29 November 2018, Hellenic Petroleum International S.A. transferred its entire shareholding in Hellenic Fuels and Lubricants Industrial & Commercial SA (64,41%) to Hellenic Petroleum S.A, which now holds the 100% shareholding of the subsidiary, for a consideration of €350 million (Note 8).
'Other receivables' generally include balances in respect of, advances to suppliers, advances to personnel, claimed VAT, withholding taxes and taxes paid as a result of tax audit assessments during previous years from the tax authorities, where the Company has started legal proceedings and disputed the relevant amounts. The timing of the finalization of these disputes cannot be estimated and the Company has classified these amounts as current assets.
More specifically, other receivables as at 31 December 2018 also include the following:
The fair values of trade receivables approximate their carrying amount, due to their short-term maturities.
The table below analyses total trade receivables:
| As at | |
|---|---|
| 31 December 2018 31 December 2017 |
|
| Not past due | 244.027 259.024 |
| Past due | 205.568 191.898 |
| Total trade receivables | 449.595 450.922 |
Past due trade receivables are analysed as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Up to 30 days | 62.404 | 53.235 | |
| 30 - 90 days | 10.750 | 6.808 | |
| Over 90 days | 132.414 | 131.855 | |
| Total past due trade receivables | 205.568 | 191.898 |
From 1 January 2018, the Company applies the simplified approach for impairment of trade receivables based on IFRS 9 and calculates ECLs based on lifetime expected credit losses.
Regarding trade receivables, an impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses (ECLs). The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable. Collaterals include primarily first or second class pre-notices over properties of the debtor, personal and bank guarantees.
Provision for ECL as at 31 December 2018 was €98.
The movement in the provision for impairment of trade receivables is set out below:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Balance at 1 January 2018 (as originally presented) | 117.305 | 118.186 | |
| Effect of change in accounting policy (Note 2) | 1.277 | - | |
| Balance at 1 January 2018 | 118.582 | 118.186 | |
| Charged / (credited) to the income statement: | |||
| - Additional provisions | 430 | - | |
| - Unused amounts reversed | (1.842) | (881) | |
| Balance at 31 December | 117.170 | 117.305 |
The movement in the provision for impairment of other receivables is set out below:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Balance at 1 January | 20.060 | 17.481 | |
| Charged / (credited) to the income statement: | |||
| - Additional provisions | 212 | 4.539 | |
| Transfer to provision for litigation | (6.000) | - | |
| Utilised during the year | - | (1.960) | |
| Balance at 31 December | 14.272 | 20.060 |
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Cash at Bank and in Hand | 1.070.378 | 667.599 | |
| Cash and cash equivalents | 1.070.378 | 667.599 | |
| Restricted Cash | 1.207 | 145.652 | |
| Total cash, cash equivalents and restricted cash | 1.071.585 | 813.251 |
Restricted cash in 2017 mainly related to a deposit amounting to €144 million, placed as security for a loan agreement of an equal amount with Piraeus Bank, in relation to the Company's Facility Agreement B with the European Investment Bank (Note 16).
The outstanding balance under the EIB Facility Agreement B as at 31 December 2017 was €100 million, whilst the outstanding balance of the Piraeus loan as at 31 December 2017 was €144 million. In February 2018, the Company amended the EIB Facility Agreement B, which no longer has security requirements. As a result, the loan with Piraeus was repaid, the security deposit was released and the bank guarantee agreement has been cancelled.
The balance of US Dollars included in Cash at bank as at 31 December 2018 was US\$889 million (Euro equivalent €777 million). The respective amount for the year ended 31 December 2017 was US\$ 549 million (Euro equivalent €458 million).
The weighted average effective interest rate as at the reporting date on cash and cash equivalents was:
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Euro | 0,02% | 0,06% |
| USD | 0,10% | 0,10% |
| Number of Shares |
||||
|---|---|---|---|---|
| (authorised and issued) |
Share Capital |
Share premium |
Total | |
| As at 1 January & 31 December 2017 | 305.635.185 | 666.285 | 353.796 | 1.020.081 |
| As at 31 December 2018 | 305.635.185 | 666.285 | 353.796 | 1.020.081 |
All ordinary shares were authorised, issued and fully paid. The nominal value of each ordinary share is €2.18 (31 December 2017: €2.18).
During the Annual General Meeting (AGM) of Hellenic Petroleum S.A. held on 25 May 2005, a share option scheme was approved, with the intention to link the number of share options granted to management with the results and performance of the Company. Subsequent AGMs have approved and granted the share options. At the 2014 and 2015 AGM's, the shareholders approved several changes to the share option program incorporating recent tax changes, without altering the net effect in terms of benefit to the participants.
There were no share options outstanding at the end of the year.
| Grant Date |
Vesting Date |
Expiry Date |
Exercise Price |
No. of share options as at | |
|---|---|---|---|---|---|
| € per share | 31 December 2018 | 31 December 2017 | |||
| 2012 | 2014-18 | 2018 | 4,52 | - | 185.633 |
| Total | 0 | 185.633 |
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
| As at | |||||
|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||||
| Average Exercise Price in € per share |
Options | Average Exercise Price in € per share |
Options | ||
| Balance at beginning of year (1 January) | 4,52 | 185.633 | 4,52 | 1.479.933 | |
| Exercised | 4,52 | (172.383) | 4,52 | (1.294.300) | |
| Lapsed | 4,52 | (13.250) | - | - | |
| Balance at end of year (31 December) | - | - | 4,52 | 185.633 |
The value of lapsed share options that were transferred to retained earnings in 2018 was €0,007 million (2017: nil). During the year ended 31 December 2018 share options were exercised via the acquisition and subsequent issue of treasury shares to employees, of a total value of €1,2 million (Note 14).
| Statutory reserve |
Special reserves |
Tax-free & Incentive law reserves |
Hedging reserve |
Actuarial gains/ (losses) |
Equity instrum. FVOCI gains/ (losses) |
Share based payment reserve |
Treasury shares |
Total | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2017 | 118.668 | 86.495 | 263.146 | 10.786 | (10.087) | - | 746 | - | 469.754 | |
| Cash flow hedges: - Fair value gains/(losses) on cash flow hedges - Derecognition of (gains)/losses on hedges through |
- | - | - | (4.590) | - | - | - - |
- | (4.590) | |
| comprehensive income | - | - | - | 1.979 | - | - | - | - | 1.979 | |
| Actuarial losses on defined benefit pension plans | - | - | - | - | (7.100) | - | - | - | (7.100) | |
| Share-based payments | - | - | - | - | - | - | (653) | - | (653) | |
| Acquisition of Treasury Shares | - | - | - | - | - | - | - | (10.245) | (10.245) | |
| Issue of Treasury shares to employees | - | - | - | - | - | - | - | 9.714 | 9.714 | |
| Dividends | - | - | (106.962) | - | - | - | - | - | (106.962) | |
| Transfers to/ from retained earnings | - | - | 8.797 | - | - | - | - | - | 8.797 | |
| Balance at 31 December 2017 | 118.668 | 86.495 | 164.981 | 8.175 | (17.187) | - | 93 | (531) | 360.694 | |
| Balance at 1 January 2018 (as originally presented) |
118.668 | 86.495 | 164.981 | 8.175 | (17.187) | - | 93 | (531) | 360.694 | |
| Effect of changes in accounting policy | - | - | - | - | - | 166 | - | - | 166 | |
| Balance at 1 January 2018 | 118.668 | 86.495 | 164.981 | 8.175 | (17.187) | 166 | 93 | (531) | 360.860 | |
| Cash flow hedges: - Fair value gains/(losses) on cash flow hedges - Derecognition of (gains)/losses on hedges through |
- | - | - | (5.006) | - | - | - | - | (5.006) | |
| comprehensive income | - | - | - | (14.920) | - | - | - | - | (14.920) | |
| Actuarial losses on defined benefit pension plans | - | - | - | - | (10.878) | - | - | - | (10.878) | |
| Changes in the fair value of equity instruments | - | - | - | - | - | (675) | - | - | (675) | |
| Share-based payments | 13 | - | - | - | - | - | - | (93) | - | (93) |
| Acquisition of Treasury Shares | 13 | - | - | - | - | - | - | - | (683) | (683) |
| Issue of Treasury shares to employees | 13 | - | - | - | - | - | - | - | 1.214 | 1.214 |
| Dividends | 29 | - | - | (76.408) | - | - | - | - | - | (76.408) |
| Transfers of tax on distributed reserves to retained | ||||||||||
| earnings | - | - | (17.318) | - | - | - | - | - | (17.318) | |
| Transfer to statutory reserve | 26.170 | - | - | - | - | - | - | - | 26.170 | |
| Balance at 31 December 2018 | 144.838 | 86.495 | 71.255 | (11.751) | (28.065) | (509) | - | - | 262.263 |
Under Greek law, corporations are required to transfer a minimum of 5% of their annual net profit as reflected in their statutory books to a statutory reserve until such reserve equals one third of outstanding share capital. This reserve cannot be distributed during the existence of the entity, but can be used to offset accumulated losses.
Special reserves primarily relate to reserves arising from tax revaluations in accordance with the relevant legislation in prior years.
These reserves relate to Retained earnings, which have not been taxed with the prevailing corporate income tax rate as allowed by Greek law under various statutes and Reserves relating to investments under incentive laws. Certain of these reserves will become liable to tax at the rate prevailing at the time of distribution to shareholders or conversion to share capital.
The hedging reserve is used to record gains or losses on derivatives that are designated and qualify as cash flow hedges and that are recognised in other comprehensive income, as described in Note 21. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
These include:
Treasury shares are held regarding the Share Option Plan (Note 13). During the year, 87.793 shares were acquired at a cost of €0,7 million, while 157.951 shares were issued to employees, following exercise of share options held. Treasury shares are recognised on a first-in-first out method.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Trade payables | 1.075.569 | 1.417.731 | |
| Accrued Expenses | 114.656 | 84.535 | |
| Other payables | 35.882 | 51.761 | |
| Total | 1.226.107 | 1.554.027 |
Trade payables comprise amounts payable or accrued in respect of supplies of crude oil, products and services.
Trade payables, as at 31 December 2018 and 31 December 2017, include amounts in respect of crude oil imports from Iran, which were received between December 2011 and March 2012 as part of a long-term contract with NIOC. Despite repeated attempts to settle the payment for these cargoes through the international banking system between January and June 2012, it was not possible to do so. This was due to the fact that payments to Iranian banks and state entities were not accepted for processing by the International banking system as a result of explicit or implicit US and International sanctions. After 30 June 2012, Hellenic Petroleum was prohibited to effect payments to NIOC by virtue of EU sanctions (Council Regulation (EU) No. 267/2012 of 23 March 2012). The Company duly notified its supplier of this restriction on payments and the inability to accept further crude oil cargoes under the contract, as a result of the aforementioned international sanctions.
On 18 October 2015, by Decision (CFSP) 2015/1863, the Council of the European Union (EU) decided to terminate implementation of most of EU restrictions against Iran, taking into account UNSCR 2231 (2015) and Annex B to UNSCR 2231 (2015), simultaneously with the IAEA-verified implementation by Iran of agreed nuclear-related measures. On 16 January 2016 ("Implementation Day"), by Decision (CFSP) 2016/37, the Council decided that Decision (CFSP) 2015/1863 shall apply from that date. On the same date, U.S and other International Restrictive Measures were also partially lifted. In light of the above developments, Hellenic Petroleum and NIOC executed Heads of Terms to a cooperation agreement on 22 January 2016 for the recommencement of their commercial relationship for the supply of crude and for the settlement of the due trade payables.
On May 8, 2018, the President of the U.S. (the President) announced his decision to cease the United States' participation in the Joint Comprehensive Plan of Action (JCPOA), and to begin re-imposing, following a winddown period, the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief. In conjunction with this announcement, the President issued a National Security Presidential Memorandum (NSPM) directing the Secretary of State and the Secretary of the Treasury to prepare immediately for the reimposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA, to be accomplished as expeditiously as possible and in no case later than 180 days from the date of the NSPM. As a result, no deliveries of Iranian crude oil or payments have taken place post 8 May 2018.
Accrued expenses mainly relate to accrued interest, payroll-related accruals and accruals for operating expenses not yet invoiced. Accrued expenses include the estimated cost of the CO2 emission rights required under the corresponding environmental legislation, amounting to €54 million as at 31 December 2018 (2017: €19 million).
Other payables include amounts in respect of payroll-related liabilities, social security obligations and sundry taxes. As at 31 December 2017 the balance also includes €16 million payable for the acquisition of noncontrolling interest in ELPET (Note 8).
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Non-current interest bearing loans and borrowings | |||
| Bank borrowings | 144.112 | 188.556 | |
| Bond loan | 1.513.486 | 721.023 | |
| Total non-current interest bearing loans and borrowings | 1.657.598 | 909.579 | |
| Current interest bearing loans and borrowings | |||
| Short term bank borrowings | 870.906 | 1.660.507 | |
| Current portion of long-term bank borrowings | 44.444 | 44.444 | |
| Total current interest bearing loans and borrowings | 915.350 | 1.704.951 | |
| Total interest bearing loans and borrowings | 2.572.948 | 2.614.530 |
Non-current interest bearing loans and borrowings mature as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Between 1 and 2 years | 267.038 | 318.944 | |
| Between 2 and 5 years | 1.357.560 | 557.635 | |
| Over 5 years | 33.000 | 33.000 | |
| Total non-current interest bearing loans and borrowings | 1.657.598 | 909.579 |
The weighted average effective interest margins are as follows:
| As at | ||||||
|---|---|---|---|---|---|---|
| Bank Borrowings | Currency | 31 December 2018 | 31 December 2017 | |||
| Short-term | ||||||
| - Floating Euribor + margin | Euro | 5,17% | 4,84% | |||
| - Floating Libor + margin | USD | - | - | |||
| Long-term | ||||||
| - Floating Euribor + margin | Euro | 3,46% | 4,92% | |||
| - Floating Libor + margin | USD | 5,42% | - |
The carrying amounts of borrowings are denominated in Euro and US Dollars:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Euro | 2.417.888 | 2.614.530 | |
| US dollar | 155.060 | - | |
| Total interest bearing loans and borrowings | 2.572.948 | 2.614.530 |
Hellenic Petroleum and its subsidiaries (the "Group") has centralised treasury operations which coordinate and control the funding and cash management activities of all group companies. Within this framework, Hellenic Petroleum Finance plc ("HPF") was established in November 2005 in the U.K. as a wholly-owned subsidiary of Hellenic Petroleum S.A. to act as the central treasury vehicle of the Hellenic Petroleum Group.
As at 31 December 2018 31 December 2017 Maturity (€ million) (€ million) Syndicated Bond loan €400 million Jun 2023 392 348 Bond loan €400 million Nov 2020 223 284 Bond loan €200 million Feb 2021 297 200 Bond loan SBF €400 million May 2018 - 239 Bond loan \$250 million Jun 2021 155 - European Investment Bank ("EIB") Term loan Jun 2022 156 200 HPF Loan €317,6m Jul 2019 280 274 HPF Loan €367m Oct 2021 447 447 Bilateral lines Various 623 623 Total 2.573 2.615
Borrowings by maturity as at 31 December 2018 and 31 December 2017 are summarised in the table below (amounts in € million):
Refer to 'Liquidity Risk Management' (Note 3.1) for an analysis of the Company's plans regarding the facilities falling due in 2019.
No loans were in default as at 31 December 2018 (none as at 31 December 2017).
Significant movement in borrowings for the year ended 31 December 2018 are as follows:
In July 2014, the Company concluded a €350 million syndicated bond loan credit facility guaranteed by HPF, maturing in July 2018. In June 2018, the Company prepaid the facility and refinanced it with a 5 year syndicated revolving bond loan facility, which was subscribed to by Greek and international banks, for an amount of €400 million.
In September 2015, Hellenic Petroleum S.A. extended the maturity date of a €400 million syndicated bond loan agreement from December 2015 to June 2016 and subsequently to October 2017 with two six-month extension options. In April 2018, the Company extended the facility maturity date to October 2018, when it was fully repaid (the outstanding balance of €284 million). The loan was refinanced in November 2018, with the issuance of a new syndicated bond loan of €400 million with a tenor of 2 years and a one-year extension option.
In January 2015, Hellenic Petroleum S.A. concluded a €200 million revolving bond loan facility, with a tenor of 3 years. The facility was refinanced in February 2018, for an increased amount of €300 million and a tenor of 3 years.
In May 2016, Hellenic Petroleum S.A. concluded a € 400 million bond-loan stand-by facility with a tenor of 18 months and an extension option for a further six months. The bond loan facility has two Tranches, a committed Tranche of €240 million and an uncommitted Tranche of €160 million. In October 2017, Hellenic Petroleum S.A. extended the facility maturity date to May 2018. In May 2018, the Company repaid the outstanding balance of €240 million upon maturity.
In June 2018, Hellenic Petroleum S.A. concluded a new \$250 million revolving bond loan facility, with a tenor of 3 years and the proceeds were used for general corporate purposes.
On 26 May 2010, Hellenic Petroleum S.A. signed two loan agreements (Facilities A and B) with the European Investment Bank for a total amount of €400 million (€200 million each). The purpose of the loans was to finance part of the investment programme relating to the upgrade of the Elefsina Refinery. Both loans had a maturity of twelve years with amortisation beginning in December 2013 and similar terms and conditions. Facility B was credit enhanced by a commercial bank guarantee (see Note 12). This is normal practice for EIB lending particularly during the construction phase of large projects. Total repayments on both loans up to 31 December 2018 amounted to €244 million (€44 million were paid during the year). Up to February 2018, Facility B included financial covenant ratios, which were comprised of leverage, interest cover and gearing ratios. In February 2018, Hellenic Petroleum S.A. amended the terms of this facility in order to align the loan covenants' definitions and ratios with those used for all its commercial bank loans and Εurobonds.
In July 2014, HPF issued a €325 million five-year Eurobond, with a 5,25% annual coupon, maturing in July 2019. The notes are guaranteed by Hellenic Petroleum S.A., and are listed on the Luxembourg Stock Exchange. Subsequently the Company concluded a €317,6 million loan agreement with HPF and the proceeds were used for general corporate purposes.
In October 2016 HPF issued a €375 million five-year 4.875% Eurobond guaranteed by Hellenic Petroleum S.A., with the issue price being 99.453 per cent of the principal amount. The notes mature in October 2021. The proceeds of the new issue were used to repay existing financial indebtedness, including the partial prepayment of the €500 million Eurobond maturing in May 2017, through a tender offer process which was completed in October 2016, during which notes of nominal value of €225 million were accepted. Subsequently the Company concluded a €367 million loan agreement with HPF and the proceeds were used to prepay existing indebtedness, including part of the €488 million maturing in May 2017 and for general corporate purposes.
In July 2017, HPF issued €74,5 million guaranteed notes, due 14 October 2021, which were consolidated to form a single series with HPF's €375 million 4.875% guaranteed notes, which mature in October 2021. Subsequently the Company increased its existing loan agreement with HPF.
The Company has credit facilities with various banks in place, for general corporate purposes. These mainly relate to short-term loans which have been put in place and renewed as necessary over the past few years.
Certain medium term credit agreements that the Company has concluded, include financial covenants, mainly for the maintenance of certain ratios at Group level, such as: "Consolidated Net Debt/ Consolidated Adjusted EBITDA", "Consolidated Adjusted EBIT/ Consolidated Net Interest" and "Consolidated Net Debt/ Consolidated Net Worth". Management monitors the performance of the Group to ensure compliance with the above covenants.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
The gross movement on the deferred income tax liability is as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Beginning of the year | (89.959) | 38.839 | ||
| Income statement charge | (72.739) | (132.766) | ||
| Charged / (released) to equity | 10.506 | 3.968 | ||
| Restatement of equity (Note 2) | 319 | - | ||
| End of year | (151.873) | (89.959) |
Deferred tax relates to the following types of temporary differences:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Intangible and tangible fixed assets | (197.770) | (205.222) | |
| Inventory valuation | 11.182 | 11.902 | |
| Environmental provision | 18.311 | 5.420 | |
| Unrealised exchange gains | (3.383) | 4.352 | |
| Employee benefits provision | 35.705 | 35.915 | |
| Provision for bad debts | 10.116 | 11.646 | |
| Derivative financial instruments at fair value | 4.002 | (3.339) | |
| Provision for write-down in investments of associates | 10.989 | 11.791 | |
| Deferred tax on distribution of DESFA shares by DEPA | (48.496) | - | |
| Net interest cost carried forward (thin capitalisation) | - | 37.307 | |
| Other temporary differences relating to provisions and accruals | 7.471 | 269 | |
| Net deferred income tax asset/(liability) | (151.873) | (89.959) |
In 2014, thin capitalisation rules as per art. 49 of law 4172/2013 were applied for the first time, whereby the net interest expense is deductible up to a certain percentage of tax EBITDA (60% for 2014, 50% for 2015 and 40% for 2016 and 30% thereafter). This resulted in a deferred tax asset of €37 million as at 31 December 2017, which has been fully offset against taxable profits as at 31 December 2018.
The table below outlines where the Company's retirement benefit amounts and activity are included in the financial statements.
| 31 December 2018 | 31 December 2017 | |
|---|---|---|
| Statement of Financial Position obligations for: | ||
| Pension benefits | 132.539 | 104.331 |
| Liability in the Statement of Financial Position | 132.539 | 104.331 |
| For the year ended | ||
| 31 December 2018 | 31 December 2017 | |
| Statement of Comprehensive Income charge for: | ||
| Pension benefits | 19.184 | 7.349 |
| Total as per Statement of Comprehensive Income | 19.184 | 7.349 |
| For the year ended | ||
| 31 December 2018 | 31 December 2017 | |
| Remeasurements for: | ||
| Pension benefits | 13.210 | 10.002 |
| Total as per Statement of Other Comprehensive Income | 13.210 | 10.002 |
The amounts recognised in the statement of financial position are as follows:
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Present value of funded obligations | 7.760 | 6.863 | ||
| Fair value of plan assets | (2.262) | (1.842) | ||
| Deficit of funded plans | 5.498 | 5.021 | ||
| Present value of unfunded obligations | 127.041 | 99.310 | ||
| Liability in the Statement of Financial Position | 132.539 | 104.331 |
The plans are final salary pension plans. The level of benefits provided depend on members' length of service and remuneration.
The movement in the defined benefit obligation is as follows:
| Present Value of Obligation |
Fair Value of Plan Assets |
Total | |
|---|---|---|---|
| As at 1 January 2017 | 89.817 | (1.296) | 88.521 |
| Current service cost | 4.806 | - | 4.806 |
| Interest expense/(income) | 2.363 | (32) | 2.331 |
| Past service costs and (gains)/losses on settlements | 212 | - | 212 |
| Statement of comprehensive income charge | 7.381 | (32) | 7.349 |
| Remeasurements: | |||
| - Return on plan assets, excluding amounts included in Interest | |||
| expense/(income) | - | 2 | 2 |
| - (Gain)/loss from change in financial assumptions | 5.868 | - | 5.868 |
| - Experience (gains)/losses | 4.132 | - | 4.132 |
| Statement of other comprehensive income charge | 10.000 | 2 | 10.002 |
| Benefits paid directly by the Company/Contributions paid by the | |||
| Company | (935) | (606) | (1.541) |
| Benefit payments from the plan | (89) | 89 | - |
| As at 31 December 2017 | 106.174 | (1.843) | 104.331 |
| Current service cost | 5.515 | - | 5.515 |
| Interest expense/(income) | 2.234 | (46) | 2.188 |
| Past service costs and (gains)/losses on settlements | 11.481 | - | 11.481 |
| Statement of comprehensive income charge | 19.230 | (46) | 19.184 |
| Remeasurements: | |||
| - Return on plan assets, excluding amounts included in Interest | |||
| expense/(income) | - | 10 | 10 |
| - (Gain)/loss from change in financial assumptions | 11.169 | - | 11.169 |
| - Experience (gains)/losses | 2.031 | - | 2.031 |
| Statement of other comprehensive income charge | 13.200 | 10 | 13.210 |
| Benefits paid directly by the Company/Contributions paid by the | |||
| Company | (3.560) | (626) | (4.186) |
| Benefit payments from the plan | (243) | 243 | - |
| As at 31 December 2018 | 134.801 | (2.262) | 132.539 |
The expected maturity analysis of undiscounted pension benefits is as follows:
| Balance at 31 December 2018 | Less than a year |
Between 1-2 years |
Between 2-5 years |
Over 5 years |
Total |
|---|---|---|---|---|---|
| Pension Benefits | 4.283 | 5.042 | 27.092 | 242.935 | 279.352 |
Plan assets are comprised as follows:
| Quoted | 31 December 2018 Unquoted |
Total | % | Quoted | 31 December 2017 Unquoted |
Total | % | |
|---|---|---|---|---|---|---|---|---|
| Equity Instruments | 72 | - | 72 | 3% | 74 | - | 74 | 4% |
| Debt Instruments: | ||||||||
| - Government bonds | 1.053 | - | 1.053 | 47% | 882 | - | 882 | 48% |
| - Corporate bonds | 802 | - | 802 | 35% | 558 | - | 558 | 30% |
| Investment funds | 140 | - | 140 | 6% | 123 | - | 123 | 7% |
| Cash and cash equivalents | 195 | - | 195 | 9% | 206 | - | 206 | 0 |
| Total | 2.262 | - | 2.262 | 1.843 | - | 1.843 |
The principal actuarial assumptions used were as follows:
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Discount Rate | 2,05% | 2,00% | |
| Future Salary Increases | 1,10% - 1,60% | 0,50% | |
| Inflation | 1,10% | 0,60% |
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
| Impact on Defined Benefit Obligation | ||||
|---|---|---|---|---|
| Change in | Increase | Decrease | ||
| assumption | in DBO | in DBO | ||
| Discount Rate | 0,50% | -5,00% | 5,00% | |
| Future Salary Increases | 0,50% | 4,04% | - |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the statement of financial position.
Expected contributions to defined benefit plans for the following year amount to €0,6 million. The weighted average duration of the defined benefit obligation is 17 years.
The movement for provisions for 2018 and 2017 is as follows:
| Litigation povisions |
Provisions for environmental costs |
Provisions for other liabilities and charges |
||
|---|---|---|---|---|
| At 1 January 2017 | 6.829 | - | 6.829 | |
| Charged / (credited) to the income statement: | ||||
| - Additional provisions | 2.269 | - | 2.269 | |
| Utilised during year | (3.040) | - | (3.040) | |
| At 31 December 2017 | 6.058 | - | 6.058 | |
| Charged / (credited) to the income statement: | ||||
| - Additional provisions | 10.565 | 15.000 | 25.565 | |
| - Unused amounts reversed | (2.509) | - | (2.509) | |
| Other movements / Reclassifications | 10.988 | - | 10.988 | |
| Utilised during year | (2.244) | - | (2.244) | |
| At 31 December 2018 | 22.858 | 15.000 | 37.858 |
The amounts reported concern provisions for pending legal claims and environmental restoration. During 2018, a provision of €15 million was recorded for the decommissioning of a caustic soda and chlorium plant in Thessaloniki, which is not in operation and the subsequent restoration of land.
| As at | ||||
|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||
| Government grants | 8.171 | 8.764 | ||
| Trade and other payables | 6.639 | 6.805 | ||
| Total | 14.810 | 15.569 |
Advances by the Government relate to grants for the purchase of property, plant and equipment. Amortisation for 2018 amounted to €0,7 million (2017: €0,7 million).
Trade and other payables, non-current generally include sundry operating items and risks arising from the Company's ordinary activities. The amount mainly includes the non-current portion of the liability for the acquisition of non-controlling interest in ELPET, of €5 million (Note 8).
| Derivatives held for Trading | ||||||||
|---|---|---|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||||||
| Commodity Derivative type | Notional Amount | Assets | Liabilities | Notional Amount | Assets | Liabilities | ||
| MT'000 | Bbls'000 | € | € | MT'000 | Bbls'000 | € | € | |
| Commodity Swaps | - | 2.000 | - | 66 | - | - | - | - |
| - | 2.000 | - | 66 | - | - | - | - | |
| Derivatives designated as Cash Flow Hedges | ||||||||
| 31 December 2018 | 31 December 2017 | |||||||
| Commodity Derivative type | Notional Amount | Assets | Liabilities | Notional Amount | Assets | Liabilities | ||
| MT'000 | Bbls'000 | € | € | MT'000 | Bbls'000 | € | € | |
| Commodity Swaps | - | 846 | - | 16.321 | - | 1.848 | 11.514 | - |
| - | 846 | - | 16.321 | - | 1.848 | 11.514 | - | |
| Total | - | 16.387 | 11.514 | - | ||||
| Non-current portion | ||||||||
| Commodity swaps | - | - | - | - | ||||
| Current portion | - | - | - | - | ||||
| Commodity swaps | - | 16.387 | 11.514 | - | ||||
| - | 16.387 | 11.514 | - | |||||
| Total | - | 16.387 | 11.514 | - |
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the accounting hedging criteria, they are classified as 'held for trading' for accounting purposes.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.
During the year ended 31 December 2018 amounts transferred to the statement of comprehensive income, relating to contracts that were settled during the year, amounted to €14.920 gain, net of tax (2017: €1.979 loss, net of tax).
The remaining cash flow hedges are highly effective and the movement in their fair value, amounting to a loss of €5.006 net of tax as at 31 December 2018 (2017: €4.590 loss, net of tax), is included in the hedging reserve (see Note 14).
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the statement of financial position.
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Raw materials and consumables used | 7.782.850 | 6.020.873 |
| Employee costs | 211.592 | 202.704 |
| Depreciation | 135.409 | 135.688 |
| Amortization | 5.344 | 4.313 |
| Other expenses | 347.544 | 252.747 |
| Total cost of sales, distribution cost and administrative | ||
| expenses | 8.482.739 | 6.616.325 |
Other expenses include fees paid to the Company's statutory auditor, which relate to non-audit services (i.e. excluding audit and tax certificate) and which amount to €0,04 million for the year ended 31 December 2018.
Employee costs are set out in the table below:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Wages and salaries | 138.498 | 141.683 | |
| Social security costs | 34.205 | 33.913 | |
| Pension costs | 19.553 | 8.876 | |
| Other employment benefits | 19.336 | 18.232 | |
| Total | 211.592 | 202.704 |
Other employment benefits include medical insurance, catering and transportation expenses.
Geological and geophysical costs are expensed as incurred and relate to the Company's exploration activities.
Other operating income/(expenses) and other gains / (losses) are analysed as follows:
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Income from grants (Note 30) | 675 | 725 |
| Services to third parties | 4.240 | 4.172 |
| Rental income | 1.429 | 1.362 |
| Income from sale of exploration and production rights | 1.161 | - |
| Accrued income from insurance compensation | 1.830 | 2.022 |
| Total other operating income | 9.335 | 8.281 |
| Amortization of long-term contracts costs | (951) | (10.523) |
| Provision for environmental restoration (Note 19) | (15.000) | - |
| Legal costs relating to arbitration proceedings ruling | - | (13.679) |
| Other income / (expenses) | 1.437 | (814) |
| Other gains / (losses) - net | (5.179) | (16.736) |
| Impairment of investments | (3.300) | (3.000) |
| Gains / (losses) on sale of investments | 123 | - |
| Total other operating (expenses)/income and other | ||
| gains/(losses) - net | (8.356) | (19.735) |
Other operating income / (expenses) – net, include income or expenses which do not relate to the trading activities of the Company (e.g. rental income and sales of personnel services to subsidiaries).
Impairment of investments includes the impairment in Elpedison and Asprofos, while as at 31 December 2017 the amounts related to Asprofos (Note 8).
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Interest income | 9.442 | 12.834 |
| Interest expense | (114.400) | (124.025) |
| Other finance costs | (22.236) | (29.080) |
| Finance costs - net | (127.194) | (140.271) |
Finance costs amounting to €2,5 million (2017: €2,4 million) have been capitalised (Note 6).
Foreign currency exchange gains of €2 million (2017: €8 million losses) relate to unrealized gains (2017: losses) arising from the valuation of bank accounts denominated in foreign currency (mainly US\$).
The tax (charge) / credit relating to components of comprehensive income, is as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Current tax | (64.656) | (5) | |
| Prior year tax | 4.698 | (3.629) | |
| Tax on Reserves | (13.490) | - | |
| Deferred tax (Note 17) | (72.739) | (132.766) | |
| Total | (146.187) | (136.400) |
The tax (charge) / credit relating to components of other comprehensive income, is as follows:
| For the year ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| 31 December 2018 | 31 December 2017 | |||||||
| Tax | (charge)/ | Tax (charge)/ |
||||||
| Before tax | credit | After tax | Before tax | credit | After tax | |||
| Investment in equity instruments | (938) | 263 | (675) | - | - | - | ||
| Cash flow hedges Actuarial gains/ (losses) on defined benefit pension |
(27.835) | 7.909 | (19.926) | (3.678) | 1.067 | (2.611) | ||
| plans | (13.212) | 2.334 | (10.878) | (10.001) | 2.901 | (7.100) | ||
| Other comprehensive income | (41.985) | 10.506 | (31.479) | (13.679) | 3.968 | (9.711) |
The corporate income tax rate is 29% for 2018 and 2017. According to art. 23 of L.4579, released in December 2018, the corporate income tax rate, currently 29%, is expected to be reduced by 1% each year as follows: 28% in FY 2019, 27% in FY 2020, 26% in FY 2021 and 25% in FY 2022 onwards.
As at 31 December 2018, the effect of the changes in future income tax rates in other comprehensive income is a charge of €1,7 million.
In accordance with the applicable tax provisions, tax audits are conducted as follows:
Effective for fiscal years ending 31 December 2011 onwards, Greek companies meeting certain criteria can obtain an "Annual Tax Certificate" as provided for by par.5, article 82 of L.2238/1994 and article 65a of L.4174/2013 from their statutory auditor in respect of compliance with tax law. The issuance of a Tax Compliance Report, under certain conditions, substitutes the full tax audit by the tax authorities; however, the tax authorities reserve the right of future tax audit. The Company has received unqualified Tax Compliance Reports, for fiscal years up to 2017 (inclusive). The tax audit for the financial year 2018 is in progress, the issuance of Tax Compliance Report is expected to be issued within the fourth quarter of 2019 and management expect it to be unqualified.
The Company has undergone full tax audits for the financial years ended 31 December 2011.
As explained also in Note 31 and notwithstanding the possibility of future tax audits, Management believes that no additional material liability will arise as a result of unaudited tax years over and above the tax liabilities and provisions recognised in the financial statements as of 31 December 2018.
Numerical reconciliation of income tax expense to prima facie tax payable:
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Profit / (loss) before Tax | 669.577 | 482.391 |
| Tax calculated at tax rates applicable to profits | (194.177) | (139.893) |
| Tax on income not subject to tax | 36.196 | 9.780 |
| Tax on expenses not deductible for tax purposes | (6.622) | (7.874) |
| Adjustments to deferred tax due to changes in tax rate | 28.196 | - |
| Adjustments for tax of prior periods | 5.156 | 1.607 |
| Tax on Reserves | (13.490) | - |
| Other movements | (1.446) | (20) |
| Tax (Charge) / Credit | (146.187) | (136.400) |
| Effective tax rate | 41,7% | 30,4% |
Basic earnings per share are calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding the weighted average number of treasury shares (Note 14). Diluted earnings per ordinary share are not materially different from basic earnings per share.
| As at | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Earnings per share attributable to the Company Shareholders | ||
| (expressed in Euro per share): | 1,71 | 1,13 |
| Net income attributable to ordinary shares | ||
| (Euro in thousands) | 523.390 | 345.991 |
| Weighted average number of ordinary shares | 305.628.663 | 305.559.147 |
A proposal to the AGM for a final dividend of €0,25 /share (excluding treasury shares – Note 13) for the year ended 31 December 2017 was approved by the Board of Directors on 22 February 2018 and the final approval was given by the shareholders at the AGM held on 6 June 2018. This amounts to €76.408 and is included in the financial statements for the year ended 31 December 2018.
At its meeting held on 8 November 2018, the Board of Directors decided to distribute an interim dividend of €0,25 per share (excluding treasury shares – Note 13) for the financial year 2018. The dividend amounts to a total of €76.408.
The relevant amounts relating to the interim dividend for 2018 and the final dividend for 2017 (total amount of €152.816) have been included in the financial statements for the year ended 31 December 2018.
A proposal to the AGM for a final dividend of €0,50 /share for the year ended 31 December 2018 was approved by the Board of Directors on 28 February 2019. The above dividend includes a special dividend of €0,25 per share relating to distribution of part of the proceeds from the sale of the Group's share in DESFA (Note 8). The total final dividend amounts to €152.817 and is not included in the financial statements for the year ended 31 December 2018, as it has not yet been approved by the shareholders' AGM.
The Board did not approve a change in dividend policy overall and will re-evaluate the payment of an additional dividend, or an additional special dividend during 2019.
| For the year ended | |||
|---|---|---|---|
| Note | 31 December 2018 | 31 December 2017 | |
| Profit before tax | 669.577 | 482.391 | |
| Adjustments for: | |||
| Depreciation and amortisation of property, plant & | |||
| equipment and intangible assets | 6,7 | 140.753 | 140.001 |
| Amortisation of grants | 24 | (675) | (725) |
| Financial expenses / (income) - net | 25 | 127.194 | 140.271 |
| Provisions for expenses and valuation changes | 67.506 | 36.736 | |
| Amortisation of long-term contracts costs | 24 | 951 | 6.523 |
| (Gains) / Losses on disposal of non-current assets | (1.161) | 280 | |
| Foreign exchange losses / (gains) | 26 | (2.244) | 8.483 |
| Dividend income | (318.795) | (33.724) | |
| 683.106 | 780.236 | ||
| Changes in working capital | |||
| Decrease / (increase) in inventories | 68.171 | (117.608) | |
| Decrease in trade and other receivables | 8.983 | 57.287 | |
| Decrease in payables | (347.508) | (412.132) | |
| (270.354) | (472.453) | ||
| Net cash generated from operating activities | 412.752 | 307.783 |
The Company has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business, the most significant of which are disclosed below:
The Company is involved in a number of legal proceedings and has various unresolved claims pending arising in the ordinary course of business. Based on currently available information and the opinion of legal counsel, management believes the final outcome will not have a significant effect on the Company's operating results or financial position, over and above provisions already reflected in the financial statements (Note 19).
During the current and preceding year, a number of Municipalities proceeded with the imposition of duties and fines relating to the rights of way occupied by underground pipelines operated by the Company within the boundaries of each respective municipality. As at 31 December 2018, the total amounts imposed amount to €26,5 million. In order to appeal against these, and in accordance with legislation, the Company has paid an amount of €6,4 million which is included in other receivables in the financial statements.
The Company has exercised all available legal recourse relating to these cases and Management have assessed that it is most probable that the outcome of all appeals will be favourable. Therefore the Company has not raised a provision with regard to these cases.
The Company has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to subsidiaries and associates of the Group, the outstanding amount of which as at 31 December 2018 was the equivalent of €969 (31 December 2017: €1.016).
The tax framework and practices in Greece, which determine the tax base for the Company's transactions, may result in inherent uncertainties, due to its complexity and it being subject to changes and alternative interpretation by relevant authorities at different points in time and across different entities. As a result, there may be types of expenses or treatments for which a company may be assessed on a different basis than the one adopted during the preparation of its tax return and of the financial statements. Based on past experience, tax audits are carried out by tax authorities on average 5-7 years after the filing of the tax return. In addition, where a tax audit results in a different assessment to the one adopted by the Company, and for which the Company after consideration, disagrees with, the process for resolving the issue is usually through a court of law proceeding, which has many stages and can take a considerable number of years to reach its final and irrevocable ruling. For an entity to engage in this process, a minimum down payment of 50% of the total tax and penalties assessed is required.
All of the above result in inherent difficulties in the determination and accounting of tax liabilities. As a result, management aims to determine its policy based on specific legislation available at the time of accounting for a transaction, obtain specialist legal and tax advice on individual cases and utilise prior tax audits experience and rulings, including relevant court decisions. This process should ensure that the financial statements reflect any material tax and customs liabilities as accurately and completely as possible.
As disclosed in Note 27, tax audits have been completed up to and including the financial year ended 31 December 2011. The Tax audit reports for years ended 31 December 2010 and 2011 were received in December 2017 and they are subject to legal dispute by the Company. In summary, the reports assess additional taxes of €22,5 million and penalties of €23,5 million for items relating to stamp duty, various non-deductible expenses and other income tax adjustments. Following a detailed review of the Tax Audit Report, the Company disputes the additional taxes imposed (which are over and above the amounts already included in the Company's normal tax returns) and has proceeded with all possible legal means and actions to appeal against these additional taxes and penalties. Even though the Company disputes the additional taxes and penalties imposed, it was obliged to pay 50% of the assessed amounts to the Tax Authorities, in order to appeal the results of the tax audits. This was paid within the applicable deadline, while the remaining amounts have been fully offset by the Authorities, with tax and other State receivables of the Company, within 2018. The amounts paid are included in 'Trade and Other Receivables', as the Company assesses that it is probable that it will succeed in its appeals.
As far as penalties are concerned, the report has assessed penalties at 120% of the original tax instead of the applicable 50%; this is also legally challenged by the Company.
At present, an audit for the year ended 31 December 2012 is in progress.
Management believes that no additional material liability will arise either as a result of open tax years or from the outcome of current litigation cases over and above the tax liabilities and provisions already recognised in the financial statements as at 31 December 2018. The Company has recorded any down payments made for taxes and penalties assessed in previous disputes with the tax authorities in other receivables (Note 11), to the extent, that the Company has assessed that the amounts will be ultimately recoverable.
It is noted that for financial years ending 31 December 2011 up to and including 31 December 2017, the Company obtained unqualified "Annual Tax Certificates" from their Statutory Auditors, as provided for by par. 5, article 82 of L.2238/1994 and article 65A of L. 4174/2013.
In 2008, Customs authorities assessed additional customs duties and penalties amounting to approximately €40 million for alleged "stock shortages" during the years 2001-2005. The Company has duly filed contestations before the Administrative Court of First Instance and Management believes that this case will have a positive outcome when the court hearings take place.
Notwithstanding the filing of the above contestations, the Customs office withheld an amount of €54 million (full payment plus surcharges) of established VAT refunds (Note 11), an action against which the Company filed two Contestations before the Administrative Courts of Athens and Piraeus. The Administrative Court of Athens ruled that the withholding effected by the Tax Office was unlawful.
The Company considers that the above amounts will be recovered.
(a) Capital commitments
Significant contractual commitments amount to €22 million as at 31 December 2018 (31 December 2017: €21 million), which mainly relate to improvements in refining assets.
(b) Operating lease commitments
The Company leases offices under non-cancellable operating lease agreements.
The future aggregate minimum lease payments under these non-cancellable operating leases are as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| No later than 1 year | 4.625 | 4.871 | |
| Later than 1 year and no later than 5 years | 5.506 | 10.124 | |
| Later than 5 years | - | - | |
| Total | 10.131 | 14.995 |
(c) Letters of Credit
The Company is requested to provide bank letters of credit to suppliers in order to obtain better commercial and credit terms. To the extent that such items are already recorded as liabilities in the financial statements, there is no additional commitment to be disclosed. In cases where the underlying transaction occurs after the year end, the Company is not liable to settle the letter of credit and hence no such liability exists as at the year end.
Included in the statement of comprehensive income are proceeds, costs and expenses, which arise from transactions between the Company and related parties. Such transactions are mainly comprised of sales and purchases of goods and services in the ordinary course of business.
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Sales of goods and services to related parties | ||
| Group entities | 2.971.811 | 2.522.184 |
| Associates | 597.133 | 780.031 |
| Joint ventures | 621 | 434 |
| Total | 3.569.565 | 3.302.649 |
| Purchases of goods and services from related parties | ||
| Group entities | 58.972 | 56.408 |
| Associates | 764.274 | 841.513 |
| Joint ventures | 15.973 | 10.954 |
| Total | 839.219 | 908.875 |
Other operating income/(expenses) & other gains/(losses)-net for 2018 include income from subsidiaries, amounting to €4,1 million (2017: €4,0 million).
The statement of financial position includes balances, which derive from sales / purchases of goods and services in the ordinary course of business.
| As at | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Balances due to related parties | |||
| Group entities | 27.107 | 37.726 | |
| Associates | 11.797 | 3.094 | |
| Joint ventures | 1.316 | 1.677 | |
| Total | 40.220 | 42.497 | |
| Balances due from related parties | |||
| Group entities | 100.380 | 458.313 | |
| Associates | 32.381 | 34.144 | |
| Joint ventures | 141 | 30 | |
| Total | 132.902 | 492.487 |
Transactions have been carried out with the following related parties:
The Company has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to Elpedison B.V., The outstanding amount of which as at 31 December 2018 was €83 million (31 December 2017: €88 million)
During the year ended 31 December 2018, transactions and balances with the above government related entities are as follows:
| For the year ended | |||
|---|---|---|---|
| 31 December 2018 | 31 December 2017 | ||
| Short-term employee benefits | 4.246 | 4.055 | |
| Post-employment benefits | 1.264 | 1.170 | |
| Termination benefits | 1.661 | - | |
| Total | 7.171 | 5.225 |
(i) The Company has extended loans to its subsidiaries (see Notes 9 and 11). The outstanding balance of these loans as at 31 December 2018 was €141 million (31 December 2017: €138 million). Interest income for the year was €7 million (2017: €10 million). All loans are at variable interest rates. The average interest rate on inter-company loans due was 5,20% (2017: 6,33%).
The Company has also received loans from its subsidiaries. The outstanding balance of these loans as at 31 December 2018 was €760 million (31 December 2017: €754 million). Interest expense for the year was €42 million (2017: €48 million). All loans are at variable interest rates. The average interest rate on inter-company loans was 5,40% (2017: 6,10%).
There were no material events after the end of the reporting period and up to the date of publication of the financial statements
| Introduction 1 | |
|---|---|
| A. The Company and the Group 1 | |
| A.1 HELLENIC PETROLEUM SA (Parent Company) 2 | |
| A.2 Main Group Activities 2 | |
| B. Major Events of Financial Year 2018 7 | |
| B.1 Business Environment 7 | |
| a) Global Economy 7 | |
| b) Financial indicators 7 | |
| c) Petroleum Industry 8 | |
| d) Greek Economy 11 | |
| B.2 Business Developments 12 | |
| C. Review per Segment – Performance and Financial Position 14 | |
| D. Corporate Governance Statement 18 | |
| D.1 Corporate Governance Code 18 | |
| D.2 Deviations from the Corporate Governance Code 19 | |
| D.3 Corporate Governance Practices Exceeding Legal Requirements 20 | |
| D.4 Main Features of the System of Internal Controls and Risk Management in relation to the Financial Reporting Process 21 |
|
| D.5 Information Required by Article 10, Paragraph 1 of the EU Directive 2004/25/ΕC on Public Takeover Bids 24 |
|
| D.6 General Meeting of Shareholders and Shareholders' Rights 25 | |
| D.7 Composition & Operation of the Board of Directors, Supervisory Bodies and Committees of the Company 26 |
|
| E. Strategic Goals and Prospects 34 | |
| F. Main Risks and Uncertainties for the Next Financial year 35 | |
| F.1 Financial Risk Management 35 | |
| F.2 Management of Capital Risk 37 | |
| G. Selected Alternative Performance Measures 38 | |
| H. Non-Financial Information 40 | |
| H.1 Health, Safety and Environment 40 | |
| H.2 Labour and Social Issues 42 | |
| H.3 Ethics and Transparency - Code of Conduct 43 | |
| I. Related Party Transactions 44 | |
| J. Information about Financial Instruments 46 |
| I.1. Significant Events after the end of the Reporting Period 46 | |
|---|---|
| I.2. Explanatory Report of the BoD required by par.7 art. 4 of Law 3556/2007 (As per par.8 art.4 of Law 3556/2007) 47 |
|
| Appendix 51 | |
| Group Structure 51 | |
| BoD Members CVs 55 |
Dear Shareholders,
This Board of Directors' report covers the twelve-month period ending 31.12.2018. The report has been prepared in accordance with the relevant provisions of Codified Law 2190/1920, Law 3556/2007 (as it was valid until 31st December 2018), article 4, and decision 7/448/11.10.2007 of the Hellenic Capital Markets Commission. The Consolidated and Company Financial Statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union.
This report includes a summary of the financial position and results of the Group (HELLENIC PETROLEUM) and the parent company HELLENIC PETROLEUM SA, description of significant events that took place during the current financial year, a description of anticipated significant risks and uncertainties for the following financial year, a disclosure of material transactions that took place between the Company and the Group and their related parties, presentation of qualitative information and estimates relating to the development of operations of the Company and the Group for the following financial year, as well as presentation of the most significant non-financial information that have an impact on the Company.
The Group is comprised of 47 companies, including the Parent Company, which is listed on the Athens and London Stock Exchanges. The list of subsidiaries, the nature of their business, the percentage of ownership and consolidation method for each one of them, are included in an Appendix to this report. The present legal form of the Group is the result of the initial merger that took place in 1998 when the parent company was initially listed, as well as subsequent corporate transactions (acquisitions and mergers).
The Group has a business structure in place for the management and monitoring of its activities. Specifically, all Group activities are categorized in the following key segments (Strategic Business Units) as below:
The Group is also involved in other activities, which, despite their strategic importance (e.g. Engineering Services), do not yet form a significant part of the Group's financial position.
The Parent Company is listed on the Athens Exchange, while its shares are also traded in the form of GDRs (Global Depository Receipts) on the London Stock Exchange and its bonds on the Luxemburg Stock Exchange. Its shareholder structure on 31.12.2018 was:
The main activities of the Group cover a wide spectrum of the energy sector, making HELLENIC PETROLEUM one of the most important energy groups in South-Eastern Europe.
Key points per activity are summarised below:
The Refining, Supply and Trading segment is the Group's core business and main source of revenues and profitability.
Activities in Greece revolve around the operation of the Group's three refineries located in Aspropyrgos, Elefsina and Thessaloniki, which account for approximately 65% of the country's total refining capacity. The three refineries combine a storage capacity of 6.65 million m³ of crude oil and petroleum products.
Each refinery has distinct technical characteristics, as outlined in the table below, which determine their financial performance and profitability.
| Refinery | Daily Refining Capacity (Kbpd) |
Annual Refining Capacity (mil. MT) |
Configuration Type | Nelson Complexity Index |
|---|---|---|---|---|
| Aspropyrgos | 148 | 7.5 | Cracking (FCC) | 9.7 |
| Elefsina | 106 | 5.3 | Hydrocracking | 12 |
| Thessaloniki | 90 | 4.5 | Hydroskimming | 5.8 |
In 2018, production recorded further increase to 15.5 million tons due to higher production at both the Elefsina and Aspropyrgos refineries. Increased production led to a 4% increase in total sales, to 16.5 million tons, with exports of 9.4 million tons, the highest on record, accounting for 57% of total sales, confirming the Group's position as one of the most export-oriented in the region.
Crude oil optimization supply and refining performance led to a strong realized margin, significantly exceeding benchmark.
Refineries' operation, in line with plan, led the middle distillates yield (diesel, jet) to 51% with gasoline yield to 22%. Overall, the production of high value-added products amounted to 84%; among the highest in the European refining industry, while fuel oil was limited to 12% highlighting the competitiveness of our manufacturing base after considerable investments implemented during the five-year period 2007- 2012, especially in view of the new marine fuels specifications (IMO / MARPOL).
Refining, Supply and Trading, profitability was maintained at high levels due to increased refinery sales and improved performance, despite weaker benchmark refining margins in the Mediterranean vs. 2017 and stronger euro in 2018. The considerable decline in crude oil price at the end of the year, due to overcapacity concerns, offset to a large extend the price increase seen earlier in 2018 and affected inventory valuation which, was among the key drivers of Reported Results vs Adjusted.
Crude oil supplies are controlled centrally and carried through term contracts and spot purchases.
Crude oil supply increased at 2018, mainly due to higher production in the US and other non-OPEC countries, partly offset by US sanctions in Iran, which had a negative impact in the Mediterranean. Nevertheless, significant opportunities were available in the pricing structure of various crude types in the region, which HELLENIC PETROLEUM took advantage of, mainly due to financial liquidity. As a result, it adjusted its crude mix, reflecting the attractiveness of certain crude types vs others, as well as the US sanctions imposed on Iran, resulting in an increase of crude supply from Iraq (30%), Kazakhstan (19%) and Russia (10%), a reduction from Iran to 11%, while supply from Saudi Arabia reached 6%. Regarding N. Africa crude supplies, Libyan supply came in at 7% and Egyptian at 5%.
The ability to access and the flexibility of the Group's refineries to process a wide range of crude oil types constitute one of its main competitive advantages, proved to be particularly important, both as a profitability contributor, as well as the ability of the company to respond to sharp supply shortages of specific types of crude oil, thus ensuring the uninterrupted supply of the markets where the Group operates.
HELLENIC PETROLEUM S.A. is engaged in ex-refinery sales of petroleum products to marketing companies in Greece, including its subsidiary, EKO ABEE, as well as to other specialty customers, such as the country's armed forces, while over 50% to 60% of the production is exported. All of the Group's refinery products comply with the European standards (Euro VI).
Group's international refining activities refer to the OKTA facility which is located in Skopje and is connected to Thessaloniki refinery through a pipeline for the transportation of high value-added products (e.g. diesel). OKTA's location is one of its significant competitive advantages for the domestic distribution of products through marketing companies as well as for exports to neighbouring Balkan markets.
Marketing business is split into Domestic activities, through Greek subsidiary EKO ABEE and International activities.
In Greece, the Group, through its subsidiary EKO ABEE, possesses the most comprehensive fuel supply network in the country via the EKO and BP brands, which includes a total of 1,738 service stations, 231 of which are company-operated.
EKO ABEE offers the most wide-ranging fuels supply network in the country comprising 15 fuel storage and distribution facilities, 23 aircraft refuelling stations in the major Greek airports, 2 LPG bottling plants and 1 lubricants production and packing site.
EKO and BP's market share, according to company's estimates, improved in 2018 in most products. In motor fuels, market share, also considering industrial customers, exceeded 32%, while EKO's leading position in aviation and marine fuels was sustained, with a significant increase in aviation sales, mainly due to increased tourist traffic.
The Group has agreed with BP plc to extend the exclusive use of the BP trademarks for ground fuels in Greece until the end of 2020, with the option of a further renewal until the end of 2025.
The Group is also active through subsidiary companies in Cyprus, Bulgaria, Serbia, Montenegro and FYROM, with a total network of 306 petrol stations – including the 26 OKTA branded petrol stations in FYROM-. In Cyprus and Montenegro, the local subsidiaries (from the acquisition of pre-existing companies) hold leading positions in their markets. In Bulgaria and Serbia, where activities began greenfield, the Group's subsidiaries are currently among the top five companies in their sector.
Petrochemicals activities mainly focus on the production and marketing of polypropylene, BOPP film and solvents, as well as the trading of imported plastics and chemicals.
Based on its financial contribution, the propylene-polypropylene-BOPP value chain represents the main activity for petrochemicals. The polypropylene production plant in Thessaloniki sources propylene mainly from the Aspropyrgos refinery. Part of the polypropylene output is used as raw material in the BOPP film production unit in Komotini.
65% of sales volumes are directed to the markets of Turkey, Italy, the Balkans and the Iberian Peninsula for use as raw materials in local manufacturing.
The Group is also engaged in the exploration and production of hydrocarbons. The main activities in Greece are listed below:
HELLENIC PETROLEUM has a 25% working interest in a Joint Venture with Calfrac Well Services Ltd (75%) in the Sea of Thrace concession, N. Aegean, covering a total area of 1,600 sq. km. Geological studies are currently in progress.
The Group has a 50% working interest, as Operator, through HELPE PATRAIKOS in a Joint Venture with EDISON International SpA (50%) in the offshore block of Patraikos Gulf (West), of an area covering of 1,419 sq. km. In the 1st Exploration Phase, the completed exploration activities exceeded the minimum work obligations.
The Group has been awarded exploration and production rights for two onshore areas "Arta-Preveza" and "NW Peloponnese". Moreover, the Group participates in an international JV of Total 50%, (Operator) and Edison (25%) with 25% in the offshore Block 2, west of Corfu Island. In the offshore Block 10 (Kyparissiakos Gulf), HELPE has already initialed the relevant Lease Agreement with the Greek State and the ratification is expected by the Greek Parliament. HELLENIC PETREOLUM has submitted an offer for the offshore Block 1, north of Corfu Island and the announcement of HELLENIC PETROLEUM as Selected Applicant is expected.
The JV of Total (40%, Operator), ExxonMobil (40%) and HELPE (20%) is expecting the ratification from the Greek Parliament of the Lease Agreements with the Greek State for the offshore blocks of Crete, "West Crete" and "Southwest Crete". Equally, the JV of Repsol (50%, Operator) – HELPE (50%) is expecting the ratification of the Agreement by the Greek Parliament for hydrocarbons exploration and exploitation rights in the offshore block of Western Greece, "Ionian".
The Group is active in the production, trading and supply of power in Greece through its participation (50%) in the JV Elpedison B.V. (the remaining 50% is held by EDISON International). Elpedison B.V. Group owns a 75.78% of the share capital of Elpedison S.A. (Elpedison S.A. resulted from the absorption of Elpedison Energy S.A. by Elpedison Power S.A.). ELLAKTOR (22.74%) and HALCOR (1.48%) are also shareholders.
ELPEDISON S.A. is currently the second largest independent power producer in Greece with a total installed capacity of 810 MW (comprising a 390 MW plant in Thessaloniki, since 2005, and a 420 MW plant in Thisvi, since 2010).
In the supply sector, ELPEDISON SA is one of the largest alternative electricity suppliers with sales of 1,710 GWh in 2018 and a market share of approximately 3.5% in high, medium and low voltage customers.
During 2018, ELPEDISON SA entered the Natural Gas supply market, expanding its customer base, mainly in the regions of Attica, Thessaloniki and Thessaly.
The Group is active in the natural gas sector through its 35% participation in DEPA S.A., with the remaining 65% owned by the HRDAF. DEPA Group is active in the supply of natural gas in Greece (through import pipelines and the Revithoussa LNG gasification terminal) as well as in the trading of Natural Gas to large consumers such as power generators and industries. DESFA, a 100% owned subsidiary of DEPA until December 2018, manages and develops the National Natural Gas Transmission System. DEPA is active in the supply of natural gas through EPA Attiki, which supplies gas to small and mid-size customers, as well as in the low pressure distribution through the Gas Distribution Companies (EDA) following the unbundling of transportation and supply activities. DEPA also participates in international gas transportation projects.
In the context of DEPA's transformation process and restructuring of its position in the retail market, in 2018, DEPA proceeded to related transactions in EPA ATTIKI and EPA THESSALONIKI-THESSALIA (ZENITH) as well as EDA ATTIKIS. DEPA proceeded to the sale of a 51% stake in ZENITH to Eni Gas e Luce for €57 m. and the acquisition of a 49% stake in Attiki Gas BV (Shell) of EPA and EDA Attiki to €39 m. and €111 m. respectively. The transactions were completed during 2H18. At the same time, the sale of 66% of DESFA to the consortium of the European companies Snam SpA, Enagas and Fluxys, for the amount of €535 m. (HELPE share on the proceeds: €283.7 m.), was also completed.
In 2018, the growth rate of the global economy remained at a high level (2.9% estimate) slightly lower versus last year (3% in 2017) driven by commercial and industrial activity. Unemployment rates continued to decline and for many countries came at the lowest levels since the start of the global economic crisis. GDP growth in advanced economies declined marginally by 0.1% to 2.2% and in emerging economies from 4.3% in 2017 to 4.2% in 2018. The factors that influenced the growth rate were trade tensions, rising borrowing costs for both developed and emerging economies, as well as global geopolitical developments.
In Euro area, GDP growth slowed at an estimated 1.9%, below expectations, and down 0.5% compared to 2017, as exports slowed due to strong euro and declining demand. In Italy, concerns about the stability of the financial system and political developments increased the country's borrowing costs.
In the US, growth is estimated to have reached 2.9% in 2018, higher than both forecast and 2017, driven mainly by fiscal policy and domestic demand, with the unemployment rate at the lowest of the last 50 years. The US Federal Reserve continued to normalize monetary policy in 2018, further increasing interest rates.
With regard to emerging economies, growth in China, which remains strong, is estimated to have reached 6.5% in 2018 (down 0.4% compared to 2017), as industrial output and exports were affected by trade tensions, mainly with the US and a slowdown in certain economies. In Turkey, economic activity in 2018 declined sharply (3.5% compared to 7.4% in 2017), reflecting the sovereign debt crisis, increased political uncertainty and reduced confidence that led to a significant currency depreciation.
In 2018, EUR/USD exchange rate averaged 1.18 versus 1.13 in 2017, mainly driven the ongoing monetary policy decoupling between US and Eurozone, as well as political developments in Europe (Italy, Brexit).
1 Source: World Bank, World Economic Outlook Update, January 2019
World oil demand growth is estimated to have increased by 1.5 mbd, taking global demand to 98.79 mbd. In 2019, it is expected to increase by 1.29 mbd, exceeding 100 mbd. Demand in both European and Asian OECD countries was affected by high oil prices and a slowdown in economic activity. On the contrary, demand in North America was strong, supported by the expansion of industrial activity (increased petrochemical capacity) and economic growth.
Global oil production in 2018 increased mainly due to non-OPEC production growth of 2.5 mbd, with the US, Canada, Russia and Kazakhstan being the key contributing countries. This partly offset the reduced OPEC production (-1.1 mbd) compared to 2017.
Following an OPEC decision in January 2019, its members will proceed to a total reduction of 1.2 mbd aiming to stabilize prices. The increase in supply is expected to come from countries outside OPEC for 2019 as well.
Brent crude oil averaged \$72/bbl in 2018, up 29% vs 2017, with significant fluctuations throughout the year, peaking above \$80/bbl in the beginning of 4Q18, before dropping significantly below \$50/bbl at the end of the year. US production growth, geopolitical developments (tensions in Middle East, resumption of US sanctions against Iran), production control by OPEC, as well as the macroeconomic environment were the main pricing drivers in 2018.
In terms of crude oil differentials, the Brent-WTI averaged \$6.8/bbl in FY18, significantly higher than 2017 due to the continued increase in US production. Brent vs Urals in 2018 increased by \$0.2/bbl, to \$1.2/bbl with significant volatility due to fluctuation in the supply of HS crude oil in the region.
2 Source: OPEC, "Monthly Oil Market Report", December 2018
3 IEA, Oil Market Report: December 2018
Brent - WTI spread (\$/bbl)
Benchmark margins4 for Mediterranean refineries were weaker in 2018 due to supply/demand balances of individual products and Urals crudes, which drive benchmark margins as analysed below. Med benchmark Cracking margin averaged \$4.5/bbl in 2018, \$0.8/bbl lower y-o-y and Med Benchmark Hydroskimming margin \$3.4/bbl, marginally reduced by \$0.1/bbl compared to 2017.
Most product cracks were lower vs 2017, with the exception of diesel, which recorded a significant increase (+23%) due to increased demand and, at the same time, reduced availability of heavy crude, especially in the Mediterranean. Light-ends cracks were weaker throughout the year, with a drop to multiyears' lows over the last months of the year, due to oversupply and declining demand, driving gasoline to an average \$2.8/bbl – at 4Q18 - (FY18 \$8.1/ bbl).
4 Source: Reuters, January 2019
Following the recovery of the Greek economy in 2017, growth accelerated in 2018 (estimating an increase of more than 2%), with nominal GDP gaining 2.7% in the first nine months, mainly due to an increase in exports and private consumption. Economic activity, completion of the EU program review and strengthening of bank liquidity, have improved confidence and have allowed the lifting of most capital controls. In addition, employment growth and declining of unemployment rate have further improved economic outlook.
Greek bonds yields remained high, with increased volatility, due to political and macroeconomic developments in regional economies (mainly Italy and Turkey), but also due to uncertainty for high taxation, wages' growth as well as delays in implementing reforms and privatizations that may negatively affect the prospects of the Greek economy.
Domestic fuel demand in 2018 amounted to 6.7 million tons, according to initial data, a 3% decrease compared to 2017, mainly due to a 17% decrease in heating oil consumption. Auto-fuels demand remained stable, with diesel up by 3%, offsetting a corresponding 2% loss in gasoline.
Tables below present the main financial and operational Group indicators for 2018:
| Operational Data | 2018 | 2017 |
|---|---|---|
| Refinery sales (in million metric tons) |
16.49 | 15.90 |
| Marketing sales (in million metric tons) |
4.96 | 5.17 |
| Refinery production (in million metric tons) |
15.48 | 15.04 |
| Group employees | 3,481 | 3,409 |
| Financial Data (in million €) | 2018 | 2017 |
|---|---|---|
| Net sales | 9,769 | 7,995 |
| Reported EBITDA5 | 711 | 851 |
| Inventory effect – Loss (gain)5 | -48 | -59 |
| One offs5 | 67 | 41 |
| Adjusted EBITDA5 | 730 | 834 |
| Reported net income (attributable to the owners of the Parent Company) |
215 | 384 |
| Adjusted net income5 | 296 | 372 |
The Group's operating profitability declined in 2018, with Adjusted EBITDA at €730 million (2017: €824 million), due to the deterioration of the international refining environment, with weaker benchmark refining margins stronger euro vs the dollar, partly offset by crude supply optimization, strong operating performance across all activities and higher production and sales.
Production at the Group's refineries rose by 3% at 15.5 million tons, leading to an increase in sales which came to 16.5 million tons (+4%). Exports at historical high to 9.4 million tons, were up 12% vs 2017.
In terms of Adjusted Net Income, (as it is defined in chapter G), the decrease in financial expenses moderated the negative environment impact in relation to EBITDA profits. The Reported Net Income was affected by non-recurring items such as provisions, impairments of assets and the accounting treatment of the DESFA sale as per IFRS and amounted to €215 million.
5 The selected alternative performance measure indicators are listed in Chapter G
| Balance Sheet / Cash Flow (in million €) | 2018 | 2017 |
|---|---|---|
| Total Assets | 6,997 | 7,160 |
| Total Equity | 2,395 | 2,372 |
| 5 Capital Employed |
3,854 | 4,173 |
| Net Debt5 | 1,459 | 1,800 |
| Net Cash Flows (operating & investing cash flows) |
642 | 258 |
| Capital Investments | 158 | 209 |
| % of debt on capital employed - Debt Gearing | 38% | 43% |
In 2018, the ASE General Index declined by -23.6% compared to 2017, influenced by developments in the banking sector, with the respective index recording significant losses, domestic political developments and unstable international environment, both in Europe (political crisis in Italy, Brexit), and globally (trade tensions between the US and China). HELLENIC PETROLEUM'S share price lost 3%, exceeding the performance of the ASE General Index. The share price closed at €7.38, with an annual average transaction volume of 94 thousand and an average share price of €7.57 over the course of the year.
On November 8, 2018, the Board of Directors decided to distribute an interim dividend of €0.25/share and proposed - to the General Meeting - the distribution of a final dividend of €0.50/share, of which €0.25/share relates to an extraordinary distribution from the sale of DESFA participation, resulting in the total proposed dividend for 2018 amounting to €0.75/share.
The key business developments were as follows:
The key developments and financial indicators for each of the Group main activities are:
Financial results and operational indicators:
| Financial Results (€ million) | 2018 | 2017 |
|---|---|---|
| Sales | 8,682 | 7,001 |
| Adjusted EBITDA5 | 548 | 639 |
| Operational Indicators | ||
| Sales Volume (000s of MT) | 16,490 | 15,896 |
| FCC benchmark refining margin | \$4.9/bbl. | \$5.9/bbl. |
| Safety Index – AIF | 2.6 | 5.9 |
| Financial Results (€ million) | 2018 | 2017 |
|---|---|---|
| Sales | 3,329 | 2,912 |
| Adjusted EBITDA5 | 93 | 107 |
| Operational Indicators | ||
| Sales Volume (k mT) – Total | 4,955 | 5,165 |
| Sales Volume (k mT) – Greece | 3,902 | 4,058 |
| Fuel stations – Greece | 1,739 | 1,760 |
| Fuel stations – International | 280 | 277 |
EKO Serbia's profitability decreased compared to last year due to the weaker retail margins and increased operating costs, despite higher wholesale volumes and NFR contribution.
Financial Data and basic operational indicators:
| Financial Results (€ million) | 2018 | 2017 |
|---|---|---|
| Sales | 315 | 267 |
| Adjusted EBITDA5 | 100 | 95 |
| Operational Indicators | ||
| Sales Volume (kMT) - Total | 279 | 243 |
| Polypropylene margin (€/ton) | 481 | 477 |
In Patraikos Gulf (West) block area, in the 1st three-year Exploration Phase the HELPE PATRAIKOS (50%) as operator with Edison (50%) carried out exploration activities, which exceeded the minimum work obligations. A 325km 2D seismic acquisition and an 1,822 sq. km. 3D seismic acquisition and processing were completed as well as the reprocessing of 2,000 km legacy data. In parallel, numerous geological, geophysical and environmental studies have been carried out for the better understanding of the geology of the area and the evaluation of oil-promising prospects and the processing and interpretation of the acquired seismic data have been completed with the main oil-promising geological targets been mapped. During the 2nd two-year Exploration Phase, which commenced on 03 April 2018, the Lessee is committed to drill one exploration well.
On 16 March 2018, the Lease Agreements for the onshore blocks "Arta-Preveza" and "NW Peloponnese" were ratified by the Greek Parliament, initiating the 1st three-year Exploration Phase for both concessions. Environmental and geological studies have commenced for the «Arta-Preveza» block, while the 2D seismic plan is expected to start in 2019.
On 15 March 2018, the Greek Parliament ratified the Lease Agreement, for the offshore Block 2, West of Corfu Island, in which HELLENIC (25%) is in Joint Venture with Total (50%, Operator) and Edison (25%). As per the provisions of the Lease Agreement for the First Exploration Phase, geological and environmental studies are ongoing. On 27 September 2018, HELLENIC PETROLEUM finalised the Lease Agreement with the Greek State for the offshore Block 10, in Kyparissiakos Gulf. The ratification by the Greek Parliament is expected so that the exploration activities of the First Exploration Phase will commence.
On 27 September 2018, the JV of Total (40%, Operator), ExxonMobil (40%) and HELPE (20%) finalised the relevant Lease Agreements with the Greek State for the offshore blocks of Crete, "West Crete" and "Southwest Crete". Finally, on 21st November 2018, the JV of Repsol (50%, Operator) – HELPE (50%) has finalised the Lease Agreement with the Greek State for hydrocarbons exploration and exploitation rights in the offshore block of Western Greece, "Ionian".
The Group's activities in electricity and natural gas concern its holdings in ELPEDISON BV (50% HELLENIC PETROLEUM S.A., 50% EDISON) and DEPA S.A. (35% HELLENIC PETROLEUM S.A., 65% HRADF) respectively. The participation of the aforementioned companies in the Group's results, according to their interim financial statements and excluding the impact of DESFA and Zenith transactions on DEPA Group results, amounted to €30 million in 2018.
ELPEDISON S.A.'s results declined compared to 2017, with EBITDA amounting to €22 million, as profit margins were low, both in production and supply of electricity.
In electricity generation, the higher cost of Natural Gas, as well as a significant increase in carbon (CO2) prices had a negative impact. The delay in the implementation of a new "Transitional Flexibility Compensation Mechanism", following the previous Mechanism, whose operation was completed in April 2017 also had a significant negative impact. The new mechanism became effective during 4Q18.
In electricity supply, margins were negatively affected by the intense competition in the retail market, as well as by the 'supplier's charge' covering the deficit of the Special Renewable Energy Account. Also, NOME auctions have not contributed as expected towards the improvement of access to lower-cost electricity for private suppliers.
Domestic Natural Gas consumption in 2018 was marginally lower by 2% vs 2017 (domestic consumption 2018 to 4.6 bcm), mainly due to reduced demand from electricity producers.
In this environment, the intensity of competition has negatively affected the results of DEPA Group with DEPA's contribution to the results of HELLENIC PETROLEUM Group for 2018 amounting to €35 million (excluding the impact of DESFA and Zenith transactions).
Corporate Governance refers to a set of principles on the basis of which the proper organization, operation, management and control of a company is evaluated with the aim of maximizing value and safeguarding the legitimate interests of all stakeholders.
In Greece, the Corporate Governance framework has been developed mainly through the adaptation of mandatory rules, such as Law 3016/2002. This law imposes the participation of non-executive and independent non-executive members on the Boards of Directors of Greek listed companies, the establishment and operation of internal audit units and the adoption of Internal Procedures Manual. Moreover, a significant number of other legislative acts incorporated EU corporate law derivatives in the Greek legal framework, thus creating a new set of rules regarding corporate governance. Those include Law 3693/2008, requiring the creation of audit committees and incorporating significant disclosure obligations, concerning the ownership as well as the governance of a company, Law 3884/2010, dealing with the rights of shareholders and additional corporate disclosure obligations in the context of preparation of the General Meeting of shareholders and Law 3873/2010, incorporating in the Greek legal framework the Directive 2006/46/EC of the European Union, concerning the annual and consolidated accounts of companies of a certain legal form; also L.4403/2016 that incorporated in the Greek legal framework Direvative 2014/95/EC of the EU, concerning the disclosure of nonfinancial information. Finally, in Greece, as well as in most countries, the Company Law (codified law 2190/1920, which is modified by numerous guidelines derived from many of the aforementioned EU Directives) includes the basic legal framework of company governance. The above Law was replaced by Law 4548/2018 to the provisions of which the Company must adapt its Articles of Association in 2019.
This Corporate Governance Statements is part of the Annual BoD report, according to the provision of art.43bb of L.2190/1920, as currently in force.
The Company has voluntarily decided to adopt the Corporate Governance Code for listed companies of the Hellenic Corporate Governance Council (HCGC) (or "Code"). The Code is accessible at the Hellenic Corporate Governance Council (HCGC), at the following address:
Apart from HCGC's website, the Code is also available to all the employees through the intranet as well as in hard copy through Group Finance and Human Resources.
During 2018, the Company complied with the provisions of the above Codewith the deviations mentioned below in paragraph D.2. and intends to adopt appropriate policies and proposals to minimize existing deviations from the provisions of the Code.
The Company, in addition to the provisions of the Code, complied in 2018 with all the relevant provisions of the Greek Legislation (Law 2190/1920 as currently in force and Law 3016/2002).
The Company, on occasion, deviates or does not apply in its entirety certain provisions of the Code (noted in italics).
o The activities of the Remuneration & Succession Planning Committee are not governed by a specific charter, but rather by the operational rules of collective bodies (invitation of Chairman, Daily Agenda, Minutes, etc.). C.I (1.6, 1.7, 1.8, 1.9)
o The Company publishes the total compensation of the members of the BoD for their participation in this and the BoD Committees, as well as the total compensation - other than the above indemnities - paid to the Executive BoD Members C.I (1.11). The Company will establish a remuneration policy, to be approved by the Annual General Shareholders' Meeting of 2019, in accordance with the provisions of Law 4548/2018.
The Company, within the framework of implementing a satisfactory and well-structured system of corporate governance, has applied specific practices of good corporate governance, some of which exceed relevant current legal requirements.
Specifically, the Company has adopted the following additional corporate governance practices, all of which are related to the size, composition, responsibilities and overall operation of the BoD:
IV. Oil Supply and Sales Committee
V. Group Credit Committee
Since 2011, the company has adopted a Code of Conduct in accordance with the 1175/24.11.2011 BoD decision and created a Regulatory Compliance Unit which has the responsibility of implementing the Code.
Within 2019, the Company intends to adopt a conflict of interests' prevention policy that will be part of the Code of Conduct. An evaluation and review process of the Code of Conduct is also in progress.
The System of Internal Controls and Risk Management of the Company in relation to the financial reporting process include controls and audit mechanisms at different levels within the Organization, that are described below:
The range, the size and the complexity of the activities of the Group requires a comprehensive system of methodical approach and risk management, which is applied by all Group's companies.
The prevention and management of the risks is a core part of the Group's strategy.
The identification and assessment of risks takes place mainly during the strategic planning and the annual preparation of the business plan. The benefits and opportunities are examined both in the context of the company's activities, but also in relation to the several and different stakeholders who may be affected.
The issues examined vary subject to market and industry conditions and include indicatively, political developments in the markets where the Group operates or procures significant quantities of crude oil, changes in technology, changes in the regulation, macro-economic indicators and the competitive environment.
Group performance is monitored through a detailed budget by operating sector and market. The budget shall be adjusted systematically to take into account the development of the Group's financials that depend greatly on external factors, such as the international refining environment, crude oil prices and the euro / dollar exchange rate. Management monitors the development of the Group's financial results through regularly issued reports, budget comparisons with the actual results, as well as through Management Team meetings.
The Internal Control System consists of the policies, procedures and tasks which have been designed and implemented by the Management Team for the effective management of risks, achievement of business objectives, reliability of financial and administrative information and compliance with the laws and regulations.
The Group'sIndependent Internal Audit Department, by means of periodic assessments, ensures that the identification procedures and risk management applied by the Management are sufficient, that the Internal Control System operates effectively and that information provided to the BoD relative to the Internal Control System, is reliable and of good quality.
The Internal Audit Department shall draw up short-term (annual) and long-term (three-year) rolling Audit Plan based on ad-hoc risk assessment, as well as on other issues identified by the Audit Committee and the Management Team. The Audit Committee is the supervisory body of the Internal Audit Department. The overall Audit Plan is approved by the Audit Committee.
The Internal Audit Department submits quarterly reports to the Audit Committee, so that the monitoring of the adequacy of the Internal Control System is consistent.
The reports of the Management Team and the Internal Audit Department provide the assessment of significant risks and the effectiveness of the Internal Control System relative to their management. Through these reports the identified weaknesses together with their possible impact, as well as with the actions of the Management team to resolve them are being communicated. The results of the controls and the monitoring of the implementation of the agreed improvement actions considered the Risk Management System of the company.
To ensure the independence of the audit of the Group's annual financial statements, the BoD has a specific policy to form recommendations to the General Meeting of shareholders for the election of the External Auditor. This policy, among others, calls for the selection of the same auditing company for the whole Group, as well as the audit of the consolidated financial statements and tax compliance certificates. The selection of the independent External Auditor is made among leading internationally acclaimed firms.
The role and responsibilities of the BoD are described in the Internal Procedures Manual of the Company, which is approved by the BoD.
In the context of risk management, the areas that are considered to be of high risk for financial fraud are monitored through appropriate internal controls and enhanced security measures. Examples include the existence of detailed organizational charts, process manuals on several areas (procurement, oil products supply, credit, treasury management), as well as detailed procedures and approval authority levels. In addition to the internal controls applied by each department, all Company activities are subject to audits from the Internal Audit Department, the results of which are presented to the BoD.
The Company has drafted an Internal Procedures Manual, which is approved by the BOD of the company. The Internal Procedures Manual includes definitions of the roles and responsibilities of each position emphasising the segregation of duties within the Company.
The company in the context of the fundamental obligation of good corporate governance, it has drafted and adopted since 2011 the Code of Conduct, approved by the BoD of the company. The Code of Conduct summarizes the principles according to which any person, employee or third party involved in the operation of the Group, as well as collective body, should act within the framework of their duties. For this reason, the Code constitutes a practical guide of the day-to-day tasks of all employees of the Group, but also of third parties who cooperate with it.
The Group's IT Department is responsible for developing the IT strategy and for staff training to cover any arising needs. It is also responsible for the support of IT systems and applications through the drafting and updating of operation manuals, in cooperation with external consultant where this is necessary.
The Company has developed a sufficient framework to monitor and control its IT systems, which is defined by a set of internal controls, policies and procedures. Among these are documented job descriptions, roles and responsibilities of the Group IT Department as well as the development of an IT Strategic Plan. In addition, a specific procedure has been designed to ensure safe operation in the Group's systems through the existence of alternative systems in case of disaster (Disaster Recovery Sites). Also, the Business Continuity Plan is under development. Finally, access rights have been set in several information systems for all employees, according to their position and role, while an entry log for all the Group's IT systems is also kept.
As part of the process for the preparation of financial statements, specific controls are in place, utilising tools and methodologies in line with the best international practices. Some of the main areas of such controls, relevant to the preparation of the financial statements, are the following:
Existence of a chart of authorities, which depicts assigned authorities to various Company executives, in order to complete certain transactions or actions (e.g. payments, receipts, contracts, etc.).
The required information is included in part J of this Report.
The General Assembly of Shareholders overall operation, as well as, it's role and responsibilities, the convocation by the Board of Directors, the participation requirements, the ordinary and extraordinary quorum - majority of the participants, the Presiding Board and the items of the Agenda, are described in the Company's Articles of Association, as it has been updated on the basis of the provisions of Codified Law 2190/1920, as amended, is in force (with the incorporation of Law 3884/2010 on minority rights).
All Shareholders are entitled to participate in the General Assembly, provided that they hold Company's shares on the record date, that is, on the start of the fifth (5th) day prior to the date of the General meeting.
Proof of shareholders' capacity is provided through direct electronic link between the Company and the records of depository (Hellenic Exchanges SA.).
The participation in the General Assembly does not require share blocking or compliance with any other similar procedure, restricting the sale and transfer of shares during the period between the record date and the date of respective General meeting.
The shareholders have the right to participate in the General Assembly, either in person or through one or more appointed proxy holders.
Each shareholder may appoint up to three (3) proxy holders. However, if a shareholder has shares of the Company held in more than one securities account, the above limitation shall not prevent the shareholder from appointing a separate proxy holder for each of the securities account, where shares are held.
A proxy holder, acting on behalf of several shareholders, may cast votes differently in respect of shares held by each shareholder represented.
Legal entities may participate in the General Meeting by appointing up to three (3) individuals as proxy holders.
The proxy holders are appointed or revoked, with a written notification to the Company, at least three (3) days prior the date set for the General Assembly.
The proxy form is available to the shareholders in electronic form on the Company's website and allows them to authorize their representatives, either to vote in favor, against or to abstain from voting, separately on each item on the agenda.
The Company ensures that, all valid proxy appointments, received for the participation in the General Shareholders Assembly, are properly recorded and calculated.
The proxy holders are obliged to disclose to the Company, before the commencement of the General Assembly, any event, which might be useful to the shareholders in assessing the risk of the proxy holder pursuing any interest other than the interest of the represented shareholder.
The Investor Relations Department has the responsibility to monitor Company's relationship with its shareholders and financial community and to ensure that investors and financial analysts, both in Greece
and abroad, are informed in a timely, accurate and equal manner, aiming at building a long-term relationship with the investment community and preserving the Group's credibility.
The Company, having shares listed in the stock exchange, is obliged to publish announcements in compliance with Regulation (EU) 596/2014 of the European Parliament and Council on Market Abuse (MAR), Greek Laws 4443/2016 and 3556/2007 and the decisions of the Hellenic Capital Market Commission. The publication of the above information is made in a way, which ensures that investment community will have a fast and equal access to it.
All relevant publications/announcements are available, on both the Athens Stock Exchange and the Company's web sites and are notified to the Hellenic Capital Market Commission.
The Company is managed by a BoD, comprising of 13 members, with a term of five years, which expires on 17.04.2023 and is extended until the end of the period provided for convening the next Ordinary General Assembly.
Members of the current BoD:
Mr. Grigorios Stergioulis was CEO and Executive Member of the BoD until 17.4.2018,
Mr. Ioannis Psychogios, Executive Board Member until 29.11.2018 and,
Mr. Panagiotis Ofthalmidis, Member of the BoD as Employees' representative (until 6.6.2018)
Messrs Efstathios Tsotsoros, Andreas Shiamishis and Giorgios Alexopoulos are executive members of the board.
The size and composition of the BoD is described in detail in section D.2 of this report. The BoD convened twenty-nine (29) times in 2018 and all members were present either in person or by proxy.
The BoD is the supreme executive body of the Company and principally formulates its strategy and supervises and controls the management of its assets. The composition and characteristics of the members of the BoD are determined by Law and the Company's Articles of Association. First and foremost, among the duties of BoD is to constantly pursue the increase of the Company's long-term economic value and to protect its interests.
To achieve corporate goals and uninterrupted operation of the Company, the BoD may grant some of its authorities, except the ones that demand collective action, as well as the administration or management of the affairs or representation of the Company to the Executive Committee, to the Chairman of the BoD, the CEO, the Deputy CEO or to one or more BoD members (executive and non-executive), to Company managers or to employees. BoD members and any third party that has been granted authorities from the BoD is not permitted to pursue personal interests that conflict the interests of the Company. BoD members and any third party that has been granted authorities from the BoD must disclose in a timely manner to the rest of the BoD any personal interests that might arise as a result of transactions with the Company that fall under their duties.
The BoD determines the responsibilities and status of its members as executive or non-executive. At any time, the number of non-executive members of the BoD cannot be less than one-third of the total number of its members.
The company by adopting the basic principle of corporate governance, which is the clear identification and the delegation of administrative responsibilities and duties among the executive members of the BoD, in order to avoid duplication of duties, proceeded in the allocation of administrative responsibilities and duties between the Chairman & CEO and the Deputy Chief Executive Officer.
The Chairman & Chief Executive Officer, is the senior executive of the Company, the legal representative and apart from the responsibility to preside over and administer the meetings of the BoD, sign the respective decisions, perform all acts that fall under his responsibilities according to the Company's Articles of Association and the law, has the responsibility:
The Deputy CEO and the General Manager of Group's Internal Audit reports to the Chairman & CEO.
The Deputy Chief Executive Officer replaces the Chairman & Chief Executive Officer in case of absence or impediment and has the responsibility of:
A short version of the BoD members' CVs is included in the Appendix.
The Audit Committee is appointed by the General Meeting of Shareholders and is comprised of three (3) non-executive members at majority independent BoD members. The members of the current Audit Committee were elected by the AGM of 6th June 2018 and are: Spyridon Pantelias, independent nonexecutive BoD member, Chairman, Theodoros Pantalakis, independent non-executive BoD member, member of the committee and Vassilios Kounelis, independent non-executive BoD member, member of the committee.
The Audit Committee, as it is defined by article 44 of Law 4449/2017, has the following responsibilities:
a) The contribution of the statutory audit to the quality and integrity of the Company's financial reporting, i.e. the accuracy, completeness and correctness of the financial information, including disclosures, that are approved by the Board of Directors and published.
b) Its role in the above-mentioned procedure, i.e. the recording of the actions carried out by the Audit Committee in the process of conducting the statutory audit.
3.The Audit Committee examines and evaluates the adequacy and effectiveness of all Company policies, process and controls, in relation to the internal audit system, as well as the company's risk assessment and financial reporting management. With regards to the internal audit function the committee monitors its operation and evaluates its work, adequacy and effectiveness, without however hindering its independence. It also reviews any disclosures regarding the internal audit and the Company's main risks and uncertainties with respect to financial reporting. In this context, the Audit Committee informs the Board of Directors of its findings and makes suggestions for improvement, if deemed appropriate.
It reviews and monitors the independence of the statutory auditors or audit firms in accordance with Law 4449/2017 (Articles 21, 22, 23, 26 and 27) and Article 6 of Regulation (EU) no. 537/2014 of the European Parliament and of the Council of 16 April 2014 and in particular, the appropriateness of providing non-audit services to the audited entity in accordance with Article 5 of the Regulation.
It is responsible for selecting auditors or audit firms and for proposing statutory auditors or audit firms to be appointed by decision of the General Meeting.
In 2018, the Internal Rules of Procedure of the Audit Committee were updated and the Pre-Approval Policy regarding the provision of permitted non-audit services by the independent auditor of the HELPE
Group was adopted, in compliance with the provisions of the applicable regulatory framework (L. 4449/2017 and Regulation (EU) 537/2014).
In the exercise of its powers, the Audit Committee held eleven (11) meetings throughout the year:
It recommended, jointly with the Finance and Financial Planning Committee of the BoD, the approval of the Annual Financial Report for the Fiscal Year 2017, the half year report and the interim communications regarding the financial performance of the Company.
It monitored the effectiveness of the Company's internal control and it approved the planning of internal controls for the year 2018.
Throughout the year, the Committee received all the internal audit reports and held regular meetings with the General Manager of Internal Audit, so that, in addition to the internal audit reports, operational and organizational matters could be discussed. Furthermore, throughout the year, the Committee received quarterly progress reports on the most significant findings, which were notified to the BoD, including the most significant findings and the ways of countering them.
The Audit Committee held three separate meetings with the external certified auditors of the Company, on 21 February, 30 August and 14 December. Following the evaluation of the experience and the expertise of the auditing team of Ernst & Young (E&Y), the Audit Committee concluded that the audit procedure followed by the auditors was effective and found that the auditors were objective and impartial.
Given that, following the relevant procurement procedure, E&Y has undertaken the statutory audit of the financial statements of the Company for the year 2017 and given the fact that the first audit proved to be satisfactory, the Audit Committee suggested the reappointment of E&Y as audit company for the fiscal year 2018 (2nd consecutive year).
Following the unanimous decision of the Board of Directors on the Audit Committee's recommendation, on the 6th of June 2018, the Annual General Meeting of Shareholders approved the reappointment of E&Y for the statutory audit for the fiscal year 2018.
The Company's Remuneration and Succession Planning Committee consists of three (3) non-executive BoD members and its Chairman is an independent non-executive BoD member (Theodoros Pantalakis, Chairman, Theodoros Vardas, Member, Loudovikos Kotsonopoulos, Member). It held five (5) meetings in 2018, attended by all of its members.
The Remuneration and Succession Planning Committee has the following responsibilities:
It proposes the principles, as well as the Company's remuneration and benefits policy for Managers; any relevant decisions made by the Chairman & CEO are based on these principles and policy.
The Board of Directors, in the above framework of strengthening corporate governance structures, is also assisted by other Committees, which are appointed by its decision. Specifically, these current committees are:
The Oil Products Procurement Committee, which consists of five (5) members of the Board of Directors, of which two (2) are executive members (Georgios Grigoriou, Chairman, Andreas Shiamishis, member, Georgios Alexopoulos, member, Theodoros Vardas, member, Dimitrios Kontofakas, member). The Oil Products Procurement Committee:
The Petroleum Procurement Committee held fifteen (15) meetings in 2018, which all members attended.
The Finance and Financial Planning Committee, consists of three (3) executive members and two (2) nonexecutive members of the Board of Directors (Theodoros Pantalakis, Chairman, Andreas Shiamishis, member, Efstathios Tsotsoros, member, Georgios Alexopoulos, member and Christos Tsitsikas, member). The Finance and Financial Planning Committee held four (4) meetings in 2018, attended by all of its members. The Finance and Financial Planning Commission examines, in cooperation with the Group Financial Services, issues relating in particular to:
operating in a complementary way with regards to the latter with the Audit Committee and examining in detail other matters that are considered as important to the Company which affect its financial performance and its progress. The Finance and Financial Planning Committee, due to its subject, usually convenes jointly with the Audit Committee.
The Labour Issues Committee, consists of two (2) non-executive members of the Board of Directors (Vassilios Kounelis Chairman and, Loudovikos Kotsonopoulos member) and the President of the most representative union of employees, or his deputy. The Labour Issues Committee held three (3) meetings in 2018. It was established in accordance with the Company's Internal Labor Regulation and can decide as an appeal Body on any appeal against disciplinary sanctions imposed by the Company's competent disciplinary Body.
The Company has an Executive Committee, whose composition, responsibilities and function have been determined by a number of Board decisions, the most recent of which are decisions: 1309/10α /20.12.2017 and 1337/2/29.11.2018.
The responsibilities of the Group's Executive Committee include:
The Group Executive Committee is both advisory and executive in nature, to the extent that it is given specific executive powers by the Board of Directors. It processes and shapes strategic issues in all the Group's business sectors, as well as the Group's domestic and foreign subsidiaries.
Specifically, it examines and approves, in principle, each business unit's business plan, which is further processed by the relevant Management Committee, monitors its implementation and any deviations, the progress of operations, as well as the overall financial and operational results for the Group's activities. In addition, it sets priorities related to operational actions and processes, and formulates management policies according to proposals made by HELLENIC PETROLEUM's Management. It also approves and coordinates the action plans concerning the Group's individual business units. The Executive Committee takes initiatives to process issues, policies and/or procedures or, where appropriate, formulates proposals and suggestions to the Board of Directors of HELLENIC PETROLEUM S.A., initiated by its Chairman or vice-Chairman.
Indicatively (and not limited to), the main responsibilities of the Group's Executive Committee include:
• Developing the Group's development strategy, i.e. the parent company of HELPE S.A. and the domestic and foreign subsidiary companies, including participations in the production and trading of electricity, as well as natural gas trading, which is then submitted for approval by the Board of Directors of HELLENIC PETROLEUM S.A.
• Annual and Five-Year Group Business Plans: processing, drafting, monitoring, review and submission to the Board of Directors for their approval.
• Monthly monitoring of the Group's operations and financial results, budget execution, financial management.
• Quarterly monitoring of the operations and financial results of subsidiaries in Greece and abroad.
• Human resource policy development, the implementation of which, following its approval from the Board of Directors of HELLENIC PETROLEUM S.A., falls under the responsibility of the Human Resources Committee.
• Updates on the most important legal issues and formulating suggestions for Management to handle them effectively.
Mr. Ioannis Apsouris, General Manager of Legal Services of the Group is the Secretary of the Group's Executive Committee.
Group and/or Company management executives can be appointed to become members of the Executive Committee, on a case-by-case basis and subject to discussion, at the written request of the Chairman.
The Group's strategy revolving around sustainable growth is based on the following pillars:
With respect to the above-mentioned priorities, each Group activity sets its main targets for 2019.
In 2018, Refinery, Supply & Trading sustained its contribution to the Group's operating profitability to high levels, despite the deterioration in international refining environment, due to strong operational performance of all the refineries and production increase.
For 2019, the strategy of the Group for Competitiveness, Export Orientation and Excellence is aimed at further strengthening the competitiveness of the refining sector, in particular through:
The Domestic Marketing business plan for the next five years includes a framework of actions aimed at improving competitiveness, adapting to modern customer requirements and challenges to the economic environment. At the same time, energy efficiency and digital transformation are the key objectives for all activities.
Sustaining the growth momentum in Southeast European markets is a strategic priority. Priorities include the maintenance of its leading position in both Cyprus and Montenegro, the improvement of OKTA profitability, as well as the continuous expansion in the markets of Bulgaria and Serbia through targeted network growth and supply chain optimization.
The major financial risks for the next financial year are discussed below in relation to particular matters. The main sources of potential risks are the developments in the global economy and its impact in the developments in the European refining industry, including the price fluctuations in crude oil and final products as well as the exchange rate of Euro / dollar. It is not possible to predict all different scenarios and the ways of responding in each, however, the Group is closely monitoring developments, adapting its operation and planning accordingly.
The activities of the group are concentrated in oil refining with petrochemicals, marketing of petroleum products, exploration and production of hydrocarbons, as well as electricity production and trading. Therefore, the group is exposed to various financial risks such as fluctuations in the oil prices in international markets, exchange rate volatility, cash flow risks and risks of fair value fluctuations due to interest rates variations. In line with international best practices and in the context of the local market and legal framework, the overall risk management plan focuses on reducing the Group's potential exposure to market volatility and mitigating any negative impact on the Group's financial position, to the extent possible.
Product price risk management is conducted by the Commercial Risk Management Service, which is comprised of senior executives of the trading and financial departments, while financial risks are managed by the financial services of the Group, within the authorisations framework approved by the BoD.
The most important risks and uncertainties are discussed below.
Refining industry, is a US dollar dominated business, with local currency conversions, while operating costs are primarily expressed in local currency (euro). As a result, the Group's operations are mainly exposed to the risk of fluctuating the dollar exchange rate against the euro. The strengthening of the US Dollar against the Euro has a positive effect on the Group's financial results while in the opposite event, both the financial results and balance sheet figures (inventory, investments, receivables, liabilities in US dollar) would be valued at lower levels.
The core activity of the Group, refining, supply & trading, creates two types of exposure: to changes in absolute prices of crude oil and oil products, which affect the inventory value; and changes in refining margins, which affect cash flows.
As far as the risk of absolute product price fluctuations is concerned, the level of the exposure refers to the decrease in product prices and is determined by the closing inventory valuation, as the Group's policy is to present the closing stock at the lower between acquisition cost and net realizable value.
Crude oil and products' price fluctuations affect the levels also of working capital as higher prices increase the financing needs.
Exposure to risk associated with changes in refining margins depends on the fluctuation of each refinery's margin. Refining margins are calculated using Platts prices of crude oil and oil products, which are determined on a daily basis and are affected by the development of supply and demand of crude oil and oil products both regional (Mediterranean market) and globally. The fluctuations of refining margins impact the Group's profit margins accordingly.
The Group aims to hedge part of its exposure associated with price changes of crude oil, products and refinery margins, depending on the prevailing market conditions.
The cash flow risk from changes in interest rates relates to the level of Group's borrowing with floating interest rates. Furthermore, due to the long-term investments in the sectors where the Group operates, significant increases in interest rates are likely to cause changes in fair values of such investments through the increase of the discount rate.
The credit risk management is co-ordinated centrally at Group level. Credit risk derives from cash and cash equivalents, bank deposits, derivative financial instruments, as well as exposure to credit risk of wholesale customers, including outstanding trade receivables from clients in Greece and internationally. Credit checks are performed for all customers by the Credit Control Department, in collaboration where necessary with external credit rating agencies.
For the effective management of the credit risk and the transaction behaviour of customers both in Greece and abroad, an integrated software has been developed for monitoring the exposure to credit risk while a central unit for managing trade receivables of settlement is also effectively in operation. Finally, the role of the Group's Credit Committee is of significant importance as it ensures the effective management of the credit risk of trade receivables of the Group's companies.
Liquidity risk is managed by ensuring that efficient cash resources and adequate credit limits with banks are maintained. Due to the dynamic nature of its activities, the Group seeks to maintain flexibility in funding through credit lines and other credit facilities.
The Group's objective in managing capital is to ensure the smooth operation of its activities and to maintain an optimum capital allocation, in order to reduce the cost of capital and increase its overall value.
In order for the Group to maintain or adjust its capital structure, it can alter the dividend paid to shareholders, return capital to shareholders, issue new shares or dispose of assets to reduce its debt.
In addition, the Group manages its debt obligations in order to differentiate the sources of financing (loans, credit lines, bonds, other), achieving the best possible allocation, taking into account a number of factors, including costs and maturity.
The Group is sourcing funds from international debt capital markets, through Eurobonds, issued by its London based subsidiary, HELLENIC PETROLEUM FINANCE plc, listed in the Luxembourg stock exchange, for the optimal management of its debt liabilities. It is uncertain, how a potential exit of the UK from the EU, especially if that happens without an agreement (no deal Brexit), will affect existing HPF Eurobonds, as well as the Group's funding from international debt capital markets. The Group is closely following relevant developments and assessing alternatives in order to maintain its ability to source funding through the international debt capital markets.
In line with industry practice, the Group monitors its capital structure through the gearing ratio, which is calculated by dividing the net debt by total capital employed.
The long-term objective is to maintain the gearing ratio between 35% and 40%, as significant fluctuations of crude oil prices may affect total debt respectively. The relatively high gearing ratio in recent years (~45%) is primarily due to increased borrowing for the financing of the refineries' upgrading projects, the Group during the last years has fallen gradually deleveraging with gearing reaching financial strategy target levels, reducing its balance sheet risk.
This Report includes certain financial measures of historical financial performance, financial position, or cash flows, which are not defined or specified under IFRS ("Alternative Performance Measures"). The Group considers that these measures are relevant and reliable in assessing the Group's financial performance and position, however such measures are not a substitute for financial measures under IFRS and should be read in conjunction with Group published financial statements.
IFRS Reported EBITDA is defined as earnings/(loss) before interest, taxes, depreciation and amortisation, as presented in the company's reported financial statements under IFRS which is calculated by adding back depreciation and amortization to operating profit.
Adjusted EBITDA is defined as IFRS Reported EBITDA adjusted for: a) Inventory Effect (defined as the effect of the price fluctuation of crude oil and oil product inventories on gross margin) in the Refining, Supply & Trading segment and b) non-recurring items, which may include but are not limited to cost of early retirement schemes, write-downs of non-core assets and other one-off and non-operating expenses, in line with the refining industry practice. Adjusted EBITDA is intended to provide a proxy of the operating cash flow projection (before any Capex) in an environment with stable oil and products prices.
ΙFRS Reported EBITDA and Adjusted EBITDA are indicators of the Group's underlying cash flow generation capability. The Group's management uses the above alternative performance measures as a significant indicator in determining the Group's earnings performance and operational cash flow generation both for planning purposes as well as past performance appraisal.
Adjusted Net Income is defined as the IFRS Reported Net Income as derived from the Group's reported financial statements under IFRS, adjusted for post-tax inventory effect (calculated as Inventory Effect times (1- statutory tax rate in Greece) and other post-tax non-recurring items at the consolidated Group financial statements.
Adjusted Net Income is presented in this report because it is considered by the Group and the Group's industry as one of the key measure of its financial performance.
Net Debt is calculated as total borrowings (including "current and non-current borrowings" as shown in the statement of financial position of the Group financial statements and excluding debt from associates) less "Cash & cash equivalents and restricted cash" and "Investment in Equity Instruments", as reflected in the Group's financial statements.
Capital Employed is calculated as "Total Equity" as shown in the statement of financial position of the relevant financial statements plus Net Debt.
The tables below illustrate how the selected alternative performance measures presented in this financial report are reconciled to their most directly reconcilable line item in the financial statements for the corresponding period.
| Calculation of EBITDA, Adjusted EBITDA, Adjusted Profit after tax | ||
|---|---|---|
| million € | 2018 | 2017 |
| Operating Profit | 514,1 | 661,8 |
| Depreciation & Amortization | 197,2 | 189,3 |
| Reported EBITDA | 711,4 | 851,1 |
| Inventory effect | -47,9 | -58,5 |
| Other One-off expenses* | 66,5 | 41,1 |
| Adjusted EBITDA | 730,0 | 833,6 |
| Profit After Tax | 214,8 | 383,8 |
| Taxed Inventory effect | -34,0 | -41,5 |
| Taxed other one-off expenses** | 47,2 | 29,2 |
| No recurring items below EBITDA*** | 67,7 | 0,0 |
| Adjusted Profit After Tax | 295,7 | 371,4 |
| Calculation of Net Debt, Capital Employed and Gearing ratio | ||
|---|---|---|
| million € | 2018 | 2017 |
| Borrowings LT | 1.627,2 | 920,2 |
| Borrowings ST | 1.108,8 | 1.900,3 |
| Cash & Cash equivalents and Restricted Cash | 1.276,4 | 1.018,9 |
| Investment in equity instruments | 0,6 | 1,9 |
| Net Debt | 1.459,0 | 1.799,7 |
| Equity | 2.394,7 | 2.371,6 |
| Capital Employed | 3.854,3 | 4.173,2 |
| Gearing ratio (Net Debt / Capital Employed) | 38% | 43% |
*Mainly included: a) for 2018, €30m. for CO2 emissions allowance estimates relating to price movement on exiting deficit at the beginning of the year, €19m. for valuation adjustments on balance sheet items, €15m. for impairment of non-operating assets, €8m. for extraordinary expenses and €5m. for other non-recurring items b) for 2017 include €14m. for extraordinary expenses related to legal cases, €18m. for valuation adjustments on balance sheet items and €9m. for other non-recurring items.
** includes all one-offs post effect of applicable tax rate
*** Accounting Impact of DESFA's sale (impairment of €45.8m and deferred tax of €48.5m), partially offset by the extraordinary profits from the sale of EPA Thessaloniki (DEPA Group) of €9.5m and the reduction of the deferred tax of €17.1m.
HELLENIC PETROLEUM Group has adopted its Sustainable Development Strategy in all of its activities and is committed to its respective Policies The main points of this strategic decision are summarized in safe, accident-free and economically viable operations, with respect for both the environment and society. The Group promotes the awareness of stakeholders through the publication of the Annual Sustainable Development & Corporate Social Responsibility Report, which is created to present and inform its social partners about the Group's business performance from three different angles: economic, environmental and social.
The HELLENIC PETROLEUM Group has incorporated Sustainable Development into its strategic planning and, by adopting its respective Policy, it is committed to promoting Health, Safety and Sustainable Development, in order to ensure safe, accident-free and economically viable operations, while respecting the environment and the community as a whole, in line with the 17 UN Sustainable Development Goals (SDGs).
For HELLENIC PETROLEUM Group, Health and Safety, in all its activities, is its most important priority. For this reason, all necessary safety measures are taken concerning staff, colleagues and visitors in all workplaces, in line with the Good Health Goal (SDG 3).
The Group continuously invests in health and safety to ensure that it complies with the strictest criteria at both national and European level. In 2018, approximately €14 million was invested in safety improvements in all of the Group's facilities in Greece and abroad.
All Group facilities set targets in regards to overseeing and improving their performance in Health and Safety, with a regular periodic review of the targets.
In 2018, the Group's holistic safety program continued, which led to establishing and improving of important safety procedures for the three refineries and the individual plants.
In 2018, the number of incidents was reduced as compared to 2017, while the target set for the reporting and investigation of the near-incidents, a precautionary safety indicator, was achieved at all Group premises.
Overall, in 2018, out of a total of 8,917,070 man-hours, there were 17 work-related accidents in connection with staff and contractors employed either in the refineries and chemicals plants of HELPE SA or by EKO ABEE.
Key charts tracking safety key performance indicators (KPI) are displayed below.
HELLENIC PETROLEUM Group faces significant challenges related to energy and climate change. In particular, through the implementation of its sustainable development strategy, it seeks to achieve both short and long-term energy efficiency and emission reduction targets, in line with the UN's Sustainable Development Goals in regards to affordable and clean energy (SDG 7) and climate (SDG 12). Indicatively, the target is to reduce the Group's carbon footprint by 250,000 tons of CO2 by 2025 through investing in Renewable Energy Sources and reducing the CO2/tn crude oil feedstock by 5% by 2020 in the Group's refineries.
Due to the nature of its activities, the Group faces a number of risks in its daily operations in relation to the use of hazardous and flammable substances as well as technical failures in production and logistics facilities. Failure to manage those risks could have a significant impact on the Group's operations and financial position, including administrative sanctions and/or inability to carry out the activities.
In addition, the Group regularly evaluates its compliance with the relevant environmental management procedures at each facility, either through internal inspections performed by trained and experienced personnel or through inspections conducted by independent accredited external certification bodies. At the same time, it monitors the development of environmental indicators (KPIs) which are included in the Group's periodic reports and performance evaluation criteria for executives.
HELLENIC PETROLEUM Group aims to reduce both gaseous emissions and waste generated through specific actions such as maximizing the use of gaseous fuels, using higher environmental fuels and
6 Lost workday injury frequency: Number of accidents of absence (LWIs)/ 1 million man-hours
7 Lost workday injury severity: Lost man-hours due to LWI/ number of accidents of absence (LWIs)
8 All injury frequency: Sum of deadly accidents+LWI+limiting capacity+healthcare/ 1 million man-hours
9 Process Safety Event Rate: Number of process safety incidents / 1 million man-hours
applying advanced technologies to the production process. In 2018, actions to improve the environmental footprint continued, as part of the review of the environmental conditions for the operation of refineries, including projects such as the use of Low NOx burners, volatile organic compounds recovery units at the port facilities of Aspropyrgos and Eleusina, as well as the additional sulphur recovery unit from exhaust gas emitted from the refinery located in Thessaloniki.
With regard to liquid and solid waste management, in accordance with the principles of circular economy and the Responsible Consumption and Production Goal (SDG 12), the primary objective is to reduce their production at source, maximize recycling and re-use in the production process of as many waste streams as possible, and subsequently manage them in the best possible way for the benefit of both the environment and human health. The goal is to significantly reduce waste which is destined for final disposal - landfill and to stabilise the rate of such waste at 15% by 2030.
The Group's three refineries in Greece participate in the European Greenhouse Gas Emissions Trading Scheme (EU-ETS). For the period 2013-2020 (3rd phase of the allowance trading system), despite the implementation of energy saving projects, compliance cost has significantly increased, due to the reduced number of allowances allocated each year as well as the significant increase in the price of allowances in 2018. In addition, in accordance with the decisions of the European Union on the establishment and operation of a Market Stability Reserve and the revision of the EU -ETS for the period 2021-2030, the price of allowances is expected to increase (€/tn), which will also directly affect future compliance costs, both directly and indirectly through the consumption of electricity that is also burdened by a corresponding cost.
The Group actively participates in the Sustainable Development Dialogue through participating in the Hellenic Federation of Enterprises Council on Sustainable Development on the SUSTAINABLE GREECE 2020 platform, etc., contributing with actions and investments to the 17 objectives and sub-objectives set by the UN for 2030 to which Greece has also committed itself.
The industry in which the Group operates, requires specialized skills, training and experience. As a result, the ability to attract and retain the right human resources is an important factor in the Group's normal operation.
Any inability to find and employ competent personnel, especially highly skilled and in middle and senior management, can adversely affect the Group's operations and financial position.
The provision of a safe working environment, which in addition motivates employees and treats them with respect, giving equal opportunities to all, is a Group priority.
Relations with the employees are based on the equal treatment principle. Both the integration and the progress of each employee within the Group are judged on the basis of an employee's qualifications, performance and ambitions, without any distinction.
The internal operation of the Group's business units is based on specific principles and rules, so that there is consistency and continuity, key building blocks that guarantee successful and developmental progress. In this context, the Code of Conduct summarizes the principles governing the internal operation of the Group's Companies and determines how it operates, while the Internal Labour Regulation defines the rules governing the relationships between the Company and its staff.
As mentioned, the safety of the Group's facilities is one of the most important priorities. In occupational risk management, an emphasis is placed on prevention in order to anticipate and control all possible health and safety risks in accordance with the criteria of Greek law (Law 3850/2010), European and international codes and best practices.
In addition, safeguarding the health of our employees and ensuring for a safe working environment are core values which are crystallized through the Health Surveillance Process. Periodic medical examinations of workers take place taking into account work descriptions, age group and gender.
Employee training is another important area in a way that each employee understands the Group's strategic goals. Employee training also enables employees to define their role more effectively and develops their skills.
The Group monitors all relevant labor law (national, European, ILO), including reports on child labor, respect for human rights and working conditions, and is in full compliance with all collective and relevant international conventions.
The Group is committed to implementing the 17 Sustainable Development Goals and conforms to the international standards on Sustainability Reporting, the CoP requirements of the UN Global Compact, the GRI Standards of Global Reporting Initiative, including the Oil and Gas Sector supplement. The credibility of the information provided is ensured by an independent body. In parallel, the Group conducts a materiality assessment in order to evaluate the most essential aspects of sustainable development associated with its activities. Both internal and external stakeholders participate in this assessment.
More specifically, our cooperation with social partners representing the broader society as well as local communities, is constant, multidimensional and material. Initiatives undertaken by the Group are closely linked to the needs of each area and relate to the society, the environment and local economy. Such initiatives are shaped through the open dialogue with stakeholders, through studies and the identification of material aspects, opinion polls, public debates and consultations. Subsequently, the Group evaluates the results of such practices and redefines actions in order to fully take into account and to meet the needs of all stakeholders.
The Group's contribution and responsible attitude towards the community as a whole, in collaboration with bodies, institutions, voluntary organizations and NGOs, are directed to 5 priority axes: Vulnerable Social Groups & Health, Youth and Education, Sustainable Cities and Environment, Culture, Sports.
The Code of Conduct summarizes the principles governing the internal operation of the Group in Greece and abroad, which specify the way it operates to achieve its business goals. This serves the best interests of the stakeholders, minimizing additional risks regarding compliance and reputation of the Group. The
Code summarizes the principles, according to which each individual employee who participates in the production process of the companies of the Group and all collective bodies must act within the scope of their duties, constituting a guide for everyone, and third parties cooperating with ELPE.
The procedure of accepting and reaffirming the commitment by employees is made periodically by the General Directorate of Human Resources and Administrative Services of the Group and the Code is translated into all the languages of the countries where the Group operates, as well as in English.
Since the implementing of the Code of Conduct in 2011, systematic education and training of executives and employees of companies of the Group has taken place, in the content of the Code and its applications.
Included in the statement of comprehensive income are proceeds, costs and expenses, which arise from transactions between the Group and related parties. Such transactions are mainly comprised of sales and purchases of goods and services in the ordinary course of business and are conducted under normal trading and commercial terms on an arm's length basis:
Transactions have been carried out with the following related parties:
| Sales of goods and services to related parties | ||
|---|---|---|
| Associates | 597.852 | 780.852 |
| Joint ventures | 754 | 6.532 |
| Total | 598.606 | 787.384 |
| Purchases of goods and services from related parties | ||
| Associates | 764.979 | 842.978 |
| Joint ventures | 18.813 | 13.062 |
| Total | 783.792 | 856.040 |
| Balances due to related parties Associates Joint ventures |
11.912 1.387 |
3.182 1.886 |
| Total | 13.300 | 5.068 |
| Balances due from related parties | ||
| Associates | 36.041 | 37.133 |
| Joint ventures | 150 | 101 |
| Total | 36.191 | 37.234 |
HELLENIC PETROLEUM S.A. has provided letters of comfort and guarantees in favour of banks as security for loans granted by them to Elpedison B.V., the outstanding amount of which as at 31 December 2018 was €83 million (31 December 2017: €88 million).
During the year ended 31 December 2018, transactions and balances with the above government related entities are as follows:
c) Key management includes directors (Executive and Non-Executive Members of the board of Hellenic Petroleum S.A.) and General Managers. The compensation paid or payable to the aforementioned key management is as follows:
| For the year ended | ||
|---|---|---|
| 31 December 2018 | 31 December 2017 | |
| Short-term employee benefits | 4.522 | 4.131 |
| Post-employment benefits | 67 | 92 |
| Termination benefits | 1.661 | - |
| Total | 6.250 | 4.223 |
Share options held by key management to purchase ordinary shares have the following expiry dates and exercise prices:
| Grant Date |
Expiry Date |
Exercise Price |
No. of share options as at | |
|---|---|---|---|---|
| € per share | 31 December 2018 | 31 December 2017 | ||
| 2012 | 2018 | 4,52 | - | 166.948 |
| Total | - | 166.948 |
The nature of the Group's activities exposes the Group to significant risks, which stem mainly from the volatile and unpredictable international refining environment, as well as from the growing volatility of international financial markets.
In the context of risk management, as described in detail in the published financial statements, the Group enters into hedging transactions using financial derivatives wherever possible, aiming to protect its interests. These transactions are split into two main categories:
The first category involves short-term risk management and hedging transactions that affect short term profitability mainly for the next 6 to 12 months. The results of these transactions are evaluated on a quarterly basis and included in quarterly income or expenses.
The second category involves longer-term transactions that provide cover for strategic issues, such as investments, and which are disclosed in the Group's financial statements in line with the provisions of IAS 32 and IFRS 9 on Hedge Accounting.
No significant events occurred after the end of the year and until the date of submission of this report.
The BoD submits to the Annual General Meeting of Shareholders, an Explanatory Report on the information required by par.7 art. 4 of Law 3556/2007, pursuant to the provisions of par.8 art.4 of Law 3556/2007 as follows:
Following the amendment of the Company's Articles of Association in 2013, which took place in line with the provisions of the Legislative Act dated 07/09/2012, ratified by Ν. 4092/08.11.2012 (Government Gazette Α' 220), the mandatory, minimum percentage participation of the Greek State in the capital (35%) was abolished, therefore there are no restrictions on the transfer of its shares.
Shareholders (individuals or legal entities) holding more than 2%, either directly or indirectly, of the total number of the Company's shares as of 31.12.2018 are listed in the table below:
| SHAREHOLDING (31.12.2018) | |||||
|---|---|---|---|---|---|
| Shareholder | Number of Shares |
Capital Held share (%) |
Voting Rights | ||
| Paneuropean Oil & Industrial Holdings SA | 138,971,359 | 45.47 | 138,971,359 | ||
| Greek State (HRADF) | 108,430,304 | 35.48 | 108,430,304 | ||
| Private & Institutional investors | 58,233,522 | 19.05 | 58,233,522 | ||
| TOTAL SHARES | 305,635,185 | 100 | 305,635,185 |
There are no Company securities (including shares) granting their owners special control rights.
According to article 21 of the Company's Articles of Association, only minority shareholders (i.e. excluding the HRADF, Paneuropean Oil and Industrial Holdings SA, as well as its associated enterprises) are entitled to vote at the Special General Meeting to elect the two BoD members that represent minority shareholders.
There is an agreement, as of 30/05/2003, between Paneuropean Oil and Industrial Holdings SA and the Greek State (HRADF) for restrictions in the transfer of shares. The Company is not a party to this shareholder agreement.
According to article 20, paragraph 2 (a) of the Articles of Association, the Greek State appoints 7 out of the total 13 BoD members, as long as it maintains, directly or indirectly through HRADF, 35% in the share capital. Following the amendment of the Company's Articles of Association in 2013, the clause on the minimum participation of the Greek State in the share capital of the Company (35%) was removed and the company's Articles of Association can be amended by resolution of the General Assembly, as a whole, without exceptions.
According to article 20, paragraph 2 (b) of the company's Articles of Association, Paneuropean Oil and Industrial Holdings SA and its associated enterprises appoint two members of the BoD, on the condition that they hold at least 16.654% of the total voting shares in the Company.
According to article 20, paragraph 2 (c) of the company's Articles of Association, it is obligatory that two members of the BoD are representatives of the Company's employees, elected by direct and universal voting and through the simple proportional representation system by the employees.
According to article 20, paragraph 2 (d) of the company's Articles of Association, two members of the BoD representing minority shareholders are appointed by a Special General Meeting of shareholders, excluding POIH and HRADF, according to article 21 of the company's Articles of Association.
The General Meeting of shareholders may concede (article 6, paragraph 2 of the company's Articles of Association) to the BoD its power to increase the Company's Share Capital, pursuant to article 13, paragraph 1 (b) of Codified Law 2190/1920. However, such a decision has not been taken by the General Meeting.
The Annual General Meeting of shareholders has approved a stock option plan for the years 2005 to 2007 (as years of reference). The plan was amended by subsequent decisions of General Meetings with the latest taking place in 2014 and 2015. More specifically:
The Annual General Meeting of shareholders in 2015 (25.06.2015), which amended the decision of the previous Annual General Meeting of 30.6.2014, decided to grant to the BoD the authority to decide upon the timing to exercise the options according to their own judgement by one of the following two ways:
This General Meeting of Shareholders has decided that the maximum number of shares that can be acquired by the Company are 3,600,000 shares, at the maximum purchase price of EUR15/per share and minimum price the nominal value of the share. It also approved the granting of loans or guarantees to members of the Company's Board of Directors who are beneficiaries in order to exercise their stock options. The Extraordinary General Meeting of 6.7.2017 extended, the duration of the approval for the acquisition by the Company of its shares, pursuant to the provisions of article 16 of Law 2190/1920, issued by the Ordinary General Meeting of 2015, up to 5.12.2018, which is the expiration date of the current program.
Considering the above, the Company has purchased 1,372,449 common shares. Until today, 1,372,449 shares were distributed to 78 beneficiaries of the Program, versus the exercise of 1,466,683 stock options, representing ~0.45% of the paid-in Company's capital.
As of today, the Company owns 0 ordinary shares, representing 0% of the paid-in capital, which constitute the total number of treasury shares that it holds.
The General Meeting of shareholders has not decided to grant the BoD or any BoD members the authority to purchase Company's own shares up to 10% of the paid-in capital (unless they are to be distributed to the Company's or Group's employees), under the conditions and requirements that such decision defines, in accordance with the special terms and proceedings of article 16 of Codified Law 2190/1920.
No agreements exist that are put in force, amended or terminated in the event of change of control following a public offer.
No agreements of the Company with members of the BoD or its employees that provide compensation in the event of resignation or dismissal without valid reason or end of term or employment, as a result of a public offer exist.
Athens, 28 February 2019
By authority of the Board of Directors
Efstathios Tsotsoros Andreas Shiamishis Georgios Alexopoulos
Chairman & CEO Deputy Chief Executive Officer &Chief Financial Officer
General Manager of Group Strategic Planning & New Business Activities and Executive Member of the BoD
| Company | Relation | % | Activities |
|---|---|---|---|
| HELLENIC PETROLEUM SA | Parent Company | ||
| Hellenic Fuels and Lubricants Industrial and Commercial SA |
Sole shareholder: HELLENIC PETROLEUM SA |
100 | Oil products trade |
| DIAXON SA | Sole shareholder: HELLENIC PETROLEUM SA |
100 | BOPP film production / trade |
| ASPROFOS SA | Sole shareholder: HELLENIC PETROLEUM SA |
100 | Energy sector engineering services |
| HELLENIC PETROLEUM INTERNATIONAL AG |
Sole shareholder: HELLENIC PETROLEUM SA |
100 | Holding company for the |
| Group's investments abroad |
|||
| POSEIDON MARITIME | Sole shareholder: HELLENIC PETROLEUM SA |
100 | Vessel-owning company |
| APOLLON MARITIME | Sole shareholder: HELLENIC PETROLEUM SA |
100 | Vessel-owning company |
| ELPET BALKANIKI S.A. | Shareholder: HELLENIC PETROLEUM SA |
100 | Crude oil pipeline construction and operation |
| HELLENIC PETROLEUM - RENEWABLE ENERGY SOURCES SA |
Sole shareholder: HELLENIC PETROLEUM SA |
100 | Production, distribution, trading of renewable |
| energy sources | |||
| HELPE – LARCO ENERGIAKI KOKKINOU | Shareholder: HELLENIC PETROLEUM RES SA |
51 | Production, distribution, |
| trading of renewable | |||
| energy sources | |||
| HELPE – LARCO ENERGIAKI SERVION | Shareholder: HELLENIC PETROLEUM RES SA |
51 | Production, distribution, |
| trading of renewable | |||
| energy sources | |||
| ENERGIAKI PYLOU METHONIS | Shareholder: HELLENIC PETROLEUM RES SA |
100 | Production, distribution, |
| trading of renewable | |||
| energy sources | |||
| ATEN ENERGY S.A. | Shareholder: HELLENIC PETROLEUM RES SA |
100 | Production, distribution, |
| trading of renewable | |||
| energy sources | |||
| HELLENIC PETROLEUM FINANCE plc | Sole shareholder: HELLENIC PETROLEUM SA |
100 | Financing and other financial services |
| EKOTA ΚO SA | Shareholder: EKO SA | 49 | Construction, operation of fuel storage facilities |
|---|---|---|---|
| EKO KALYPSO MEPE | Sole shareholder: EKO SA | 100 | Retail trade of liquid fuels & LPG in Greece |
| EKO DIMITRA MARITIME COMPANY |
Sole shareholder: EKO SA | 100 | Tanker operation |
| EKO ARTEMIS MARITIME COMPANY |
Sole shareholder: EKO SA | 100 | Tanker operation |
| EKO ATHINA MARITIME COMPANY |
Sole shareholder: EKO SA | 100 | Tanker operation |
| EKO IRA MARITIME COMPANY |
Sole shareholder: EKO SA | 100 | Tanker operation |
| EKO AFRODITI MARITIME COMPANY |
Sole shareholder: EKO SA | 100 | Tanker operation |
| HELLENIC PETROLEUM CYPRUS LTD | Sole shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
100 | Oil products trade, distribution and storage in Cyprus |
| SUPERLUBE LTD | Shareholder: HELLENIC PETROLEUM Cyprus |
100 | Production and marketing of lubricants |
| RAMOIL SA | Sole shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
100 | Oil products trade, distribution and storage in Cyprus |
| YUGEN LTD | Sole shareholder: RAMOIL SA |
100 | Oil products trade, distribution and storage in Cyprus |
| GLOBAL ALBANIA SA | Sole shareholder: HELLENIC PETROLEUM SA |
99,96 | Oil products imports & trade in Albania |
| JUGOPETROL AD | Shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
54.35 | Oil products trade, distribution and storage in Montenegro |
| HELLENIC PETROLEUM BULGARIA (Holdings) LTD |
Sole shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
100 | Oil products trade and distribution in Bulgaria |
| HELLENIC PETROLEUM SERBIA (Holdings) LTD |
Sole shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
100 | Oil products trade and distribution in Serbia |
| HELLENIC PETROLEUM CONSULTING | Sole shareholder: HELLENIC PETROLEUM INTERNATIONAL AG |
100 | Provision of consulting services to the Group's |
| companies abroad | |||
| ΕΚΟ BULGARIA EAD | Sole shareholder: HELLENIC PETROLEUM BULGARIA (Holdings) LTD |
100 | Oil products trade in Bulgaria |
| ΕΚΟ-SERBIA AD | Sole shareholder: HELLENIC PETROLEUM SERBIA (Holdings) LTD |
100 | Oil products trade in Serbia |
| ΟΚΤΑ CRUDE OIL REFINERY AD | Shareholder: EL.PE.T BALKAN SA |
81.51 | Crude oil refining, oil products |
| import and trade in Skopje |
| VARDAX SA | Shareholder: | 80 | Crude oil pipeline |
|---|---|---|---|
| EL.PE.T BALKAN SA | operation | ||
| Thessaloniki - Skopje | |||
| (OKTA) | |||
| HELPE E&P HOLDINGS S.A | Sole shareholder: | 100 | Holding Company for |
| HELLENIC PETROLEUM SA | investments in | ||
| Exploration & Production | |||
| of Hydrocarbons | |||
| HELPE PATRAIKOS SA | Sole shareholder: | 100 | Exploration and |
| HELLENIC PETROLEUM SA | Production of | ||
| Hydrocarbons | |||
| HELPE UPSTREAM SA | Sole shareholder: | 100 | Exploration and |
| HELLENIC PETROLEUM SA | Production of | ||
| Hydrocarbons | |||
| HELPE ARTA PREVEZA SA | Sole shareholder: | 100 | Exploration and |
| HELPE E&P HOLDINGS S.A | Production of | ||
| Hydrocarbons | |||
| HELPE NW PELOPONISSOS SA | Sole shareholder: | 100 | Exploration and |
| HELPE E&P HOLDINGS S.A | Production of | ||
| Hydrocarbons | |||
| HELPE WEST KERKYRA SA | Sole shareholder: | 100 | Exploration and |
| HELPE E&P HOLDINGS S.A | Production of | ||
| Hydrocarbons | |||
| HELPE SEA OF THRACE SA | Sole shareholder: | 100 | Exploration and |
| HELPE E&P HOLDINGS S.A | Production of | ||
| Hydrocarbons |
| Associates | Relation | % | Activities |
|---|---|---|---|
| DEPA SA | Shareholder: HELLENIC PETROLEUM SA |
35 | Natural gas Import & Distribution in Greece |
| ATHENS AIRPORT FUEL PIPELINE COMPANY SA |
Shareholder: HELLENIC PETROLEUM SA |
50 | Aspropyrgos – Spata airport pipeline |
| HELPE THRACE SA | Shareholder: HELLENIC PETROLEUM SA |
25 | Burgas - Alexandroupoli pipeline |
| DMEP HOLD CO | Shareholder: HPI SA | 48 | Provision of management and storage services of petroleum products |
| SAFCO SA | Shareholder: EKO SA | 33.3 | Aircraft refuelling |
| Ventures | Relation | % | Activities |
|---|---|---|---|
| Elpedison BV | Shareholder: | Power Generation, | |
| HELLENIC PETROLEUM SA | 5 | Electricity trading and | |
| Shareholder: HPI SA | 45 | Supply | |
| STPC (HELPE SA, Calfrac Well Services Ltd) |
Shareholder: HELLENIC PETROLEUM SA |
25 | Concession rights for the exploration and exploitation of hydrocarbons in Thracian sea |
| HELPE SA, Edison International SpA |
Shareholder: HELLENIC PETROLEUM SA, as Operator |
50 | Lease agreement with the Hellenic Republic for the sea region of Patraikos Gulf for the exploration and exploitation of hydrocarbons |
He is an Electrical-Mechanical Engineer from NTUA, graduate Economist of the Department of Economics at the University of Athens, and an Emeritus Professor of Panteion University on Economic Development and Social Transformation. He served as a member of the Council and the Senate of the University and he was Director of the Postgraduate program, as well as of the Economic and Social Research Centre, the Department of Sociology.
He has particularly important and extensive experience in senior management positions in both public and private sectors as well as in local government. He has served as Director of PPC, Board Member and CEO of the Business Reconstruction Organization, Vice President and General Manager of the Athens Regulatory Plan & Environmental Protection Organization, as a Board Member and CEO of various companies in the private sector and Founder, Chairman and CEO of the Alpha Broadcasting Group. He has also advised the Minister of Energy, the Mayor of Athens, the President of the Greek Technical Chamber and has occupied the post of Chairman of the Technical Chamber of Greece and Chairman of the Program Agreements and Development Contracts Committee.
He has participated in research projects and in the preparation of technical and economic studies, major investment projects, as well as national and regional development programs. His scientific research has been published by the Educational Institutions of the National Bank of Greece, by Commerce and Piraeus Banks, as well as the National Research Foundation and Papazisis Publications.
Holds an Economics degree specialising in Econometrics from the University of Essex, UK, and is a Fellow (F.C.A.) member of the Institute of Chartered Accountants in England and Wales.
He began his career in 1989 working for KPMG Certified Auditors and Advisers in London where he specialised in the banking sector and in organization and strategy for large multinational groups. From 1993 to 1999, he worked as a manager of the DIAGEO Food and Beverages Group in European markets, with positions of responsibility in finance and strategy. In Greece, he held the position of Chief Financial Officer at METAXA until 1998, and later went on to become Regional Finance and Business Development Director with responsibility for the Middle East and North Africa for Pillsbury Group (part of DIAGEO).
From 2000 to 2002, he worked as Chief Financial Officer and Chief Restructuring Officer in a LEVENTIS Group listed company before joining PETROLA HELLAS in 2003 where he worked as Chief Financial and IT Officer.
Following PETROLA's merger with HELLENIC PETROLEUM in 2004, he was appointed Group Chief Financial Officer and a Member of the Group's Executive Committee, and from 2014 to 2015, he became Deputy Chief Executive Officer of the Group, a post he took over once again in June 2017. He is an active participant on various ICAEW committees in Greece and abroad, is a member of the Economic Chamber
of Greece, the Corporate Governance Committee of the Hellenic American Chamber of Commerce and various Hellenic Federation of Enterprises committees.
As General Manager of Strategic Planning and Joint Ventures Participation for HELLENIC PETROLEUM Group, he is responsible for strategic planning, new business development, Renewable Energy Sources, the Group's representation in international organizations as well as the management of strategic projects and joint ventures (DEPA/DESFA and Elpedison). He has been a member of the Board of Directors of the European Petroleum Refiners Association as a regular or alternate member since 2012, and has worked for HELLENIC PETROLEUM Group since 2007.
He held the position of Director of Strategic Planning and Development in an international group of companies (SETE S.A.) based in Geneva, Switzerland, from 1998 to 2006, where he was responsible for overseeing the Group's energy portfolio.
Previously, he worked for a number of technical and executive positions at companies including Stone & Webster, Molten Metal Technology, Merck, Dow Corning and Dow Chemical in the United States between 1993 and 1997.
He holds an MBA degree (1998) from the Harvard Business School and an M.Sc. (1993) and B.Sc. (1992) in Chemical Engineering from the Massachusetts Institute of Technology (MIT).
Mr. Theodoros-Achilleas Vardas has been a Member of the Board of Directors of HELLENIC PETROLEUM since 2003. He also serves as Vice Chairman of the BoD of EKO SA, the Group's marketing company.
He was born in Athens in 1950. He holds a Degree in Chemical Engineering from the Swiss Federal Institute of Technology in Zurich and a PhD from the Systems Engineering Department of the same institute.
He began his professional career in 1979 at the Latsis Group, where he worked in key positions and in 1981 as General Manager of Petroleum Products Trading. At the same time, from 1988 to 2003, he was the Deputy CEO and Member of the BoD of Petrola Hellas SA.
Since October 2003, following the merger of Petrola Hellas SA and HELLENIC PETROLEUM SA until the end of 2016, he served as a Management Consultant of HELLENIC PETROLEUM SA.
He also served as Member of the BoDs of Papastratos SA (1999-2003), DEPA SA (2004-2016), ELPEDISON BV (2008-2016).
He is married and father of two children.
He is a Chemical Engineer, graduated from National Technical University, with post graduate studies (Master of Science) in Chemical Engineering-Physical and Chemical Processes, from Columbia University, U.S.A.
He joined HELLENIC PETROLEUM Group in 1984 (former DEP-EKY and DEP) in various job positions, in E&P and Supply & Trading Divisions, where he became Director of Logistics Coordination in 2010. He was retired in 2011.
He holds a degree in Economics from University of Athens. For several years up to 1993, he was CEO in export trade companies, while from 1993 until 1998 he assumed managerial positions in media Groups such as CFO and CEO in subsidiaries of the Bobolas Group and Androulidakis Group.
From 1998 up to now he has been serving as CFO to a Group of companies of wind and photovoltaics parks and is responsible for the financial management and planning. He is also a major shareholder and manager of a construction company for private projects while he also participates in a BoD of an environmental company specialising in solid waste management studies.
From 2015 and onwards, he is also a Special Advisor in matters of investments and international economic relations to the vice-president of the Greek government.
He holds a Law Degree from the National Kapodistrian University of Athens, and a Masters in Criminology from Panteion University. He is an attorney at law at the Athens Supreme Court, with extensive experience in litigation in most branches of law and a regular member of the Professional Sports Committee, article 77 of Law 2725. He has served as a Legal Advisor to Media Desk Hellas, and is a member of the Athens Bar Association's Committee on Constitutional Rights and the Environment, as well as a Member of the Steering Committee of the 12 (largest) scientific bodies for the environment, as a representative of the ABA.
He is a founding member of the environmental organization GI (Earth) and a legal representative of the environmental organization 'Aie Menallon'. He has worked in an academic capacity on social exclusion issues for the Municipality of Chalandri and is also a municipal councilor for the Municipality of Chalandri. His books, articles and interviews have been published by Okeanida, Criminology, Nea Estia, Anagnosti magazine, TVXS, by most Greek printed and broadcast media, as well as Ukrainian television.
He holds a degree in Political Science and History from the University of Warwick and from Panteion University, from which he obtained his PhD in welfare state theory, on a scholarship funded by the Hellenic National Scholarships Foundation. He has taught State Theory and Social Policy at Panteion University and at the Universities of Crete and Peloponnese, and he has also worked as a researcher at the Institute of Small Enterprises of the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE). Since 2015, he has served as advisor to the Minister of Finance, in the areas of reforms in product markets
and the preparation of national development strategies, as well as advisor to the Minister of Environment and Energy, in the areas of natural gas and petroleum products market and international relations in the energy sector.
He holds a degree in Economics from the Athens University of Economics and Business and from the University College London (UCL). He completed his PhD at the Athens University of Economics and Business, on a scholarship funded by the Hellenic National Scholarships Foundation. The subject of his PhD thesis was the impact of the economic and monetary union on debt dynamics, international trade and specialization of production. He has taught Macroeconomics, International Economics and International Trade at the Athens University of Economics and Business and has also worked as research advisor in research programmes focusing on policy-making in areas such as modern technologies and energy, as well as the assessment of the financial impact of such policies. From 2015 onwards, he has been employed by the Ministry of Finance and has worked on issues such as the planning and implementation of economic and financial policies and the management of holdings of the Greek State in public limited liability companies.
Graduated of the Technical School of Electronics in 1984. Since then, he has worked for Petrola Hellas plc and after the merger with HELLENIC PETROLEUM, and particularly in the division of Electrical and Instrumentation of Elefsina Refinery. From 2004, he has been a member of the Board of Directors of the Panhellenic Workers Association ELPE. In February 2013, he was elected as the representative of the workers in the BoD.
Mechanical Engineer, graduate of the Technical University of Cluj-Napoca of Romania, holder of a Master's Degree in Machinery Construction Technology.
Since 1985, he has been employed by HELPE (EKO until 1997), at the industrial plants of Thessaloniki, as Maintenance Projects, New Projects and Major Projects Engineer, and he has participated in several general maintenance works at the refinery of Thessaloniki as well as in the planning and implementation of upgrade projects and new units at the industrial plants of Thessaloniki. (Networks, Docking, Fire Safety Systems, Oily Sludge Treatment Unit, Tank Truck Loading Station, Isomerization Unit etc.).
He has been active in the HELPE Employees Trade Union, and has been a member of the Union's BoD, assuming various responsibilities from 1997 to this day. He is also an elected member of the GSEE management (Greek General Federation of Labour), as well as of the Labour Center of Thessaloniki.
Holds a degree in Business Administration from the Piraeus University.
From 1980 to 1991 he worked at the National Bank of Investments & Industrial Development (ETEBA). Additionally, from 1983 to 1985 he was associate of the Deputy Minister of National Economy, Kostis Vaitsou and from 1985 to 1988 was the Office Director of the Deputy Minister of National Economy,
Theodoros Karantzas. From 1991 to 1996 he was Assistant General Manager in the Interamerican group. From March 1996 to April 2004 he held the position of Deputy Governor of the National Bank of Greece, while at the same time he served as Chairman, Vice-Chairman or member of the BoD in several of the bank's subsidiaries. He was also Vice-Chairman of the Athens Stock Exchange, President of the Central Depository, and President of the Executive Committee of the Hellenic Bank Association et.al. In May 2004 he was appointed Vice-Chairman of the BoD of Piraeus Bank and from January 2009 to December 2009 he was the Vice-Chairman and Deputy-CEO of the Piraeus Bank Group.
He was also Chairman of the BoD of Piraeus AEEAP (now Trastor AEEAP) and the Chairman of Europaiki Pisti AEGA insurance company. He served as Chairman of the BoD of ATE Bank between 2009 and 2012.
From August 2012 to September 2016 he served as Chairman and CEO of Apollonios Kyklos SA, Vice Chairman of Enosis SA and Ltd, Associate of DEMKO SA, Member of the BoD of ELLAKTOR Group, HELLENIC PETROLEUM, Retail World and MAD DOG SA.
Currently he is the CEO of Attica Bank, Vice Chairman of Enosis SA and Ltd, Member of BoD of ELLAKTOR Group (Attiki Odos, Anemos SA, REDS) and HELLENIC PETROLEUM.
Holds a PhD and Master's Degree in Economics from the University of Washington, St. Louis, as well as a Degree in Economics from the University of Athens.
He is a banker with significant experience in the financial services sector. He holds the position of supervisor Micro and Marco-Prudential Supervision and Director of Financial Stability at the Bank of Greece where he works since the beginning of 2012. He has served as Executive Vice Chairman of the BoD of Hellenic Post Bank (2009-2011), General Manager of the Bank of Cyprus group – Head of investment banking, asset management and brokerage. From 2005 to 2007 he held the position of Deputy General Manager at Emporiki Bank, from 2002 to 2004 General Manager of EFG Telesis Finance and in 2000 to 2002 Deputy General Manager at Geniki Bank. He has also worked in the National Bank of Greece, the Hellenic Bank Association and the Reuters News Agency.
Pursuant to provisions of article 4, par. 2(c) of Law 3556/2007, we state that, to our best knowledge:
Athens, 28 February 2019
By authority of the Board of Directors
Efstathios Tsotsoros Andreas Shiamishis Georgios Alexopoulos
Chairman &CEO Deputy Chief Executive Officer and CFO
General Manager of Group Strategic Planning & New Business Activities and Executive Member of the BoD
ERNST & YOUNG (HELLAS) Certified Auditors – Accountants S.A. 8B Chimarras str., Maroussi 151 25 Athens, Greece
Tel: +30 210 2886 000 Fax:+30 210 2886 905 ey.com
We have audited the consolidated financial statements of Hellenic Petroleum S.A, which comprise the consolidated statement of financial position as at 31 December 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly in all material respects the financial position of Hellenic Petroleum S.A. and its subsidiaries ("the Group") as at 31 December 2018 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, as endorsed by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs), as incorporated in Greek Law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We remained independent of the Group throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), as incorporated in Greek Law, together with the ethical requirements that are relevant to the audit of the consolidated financial statements in Greece, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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 and the related risks of material misstatement, were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
At 31 December 2018, the Group has recognized property, plant and equipment of €3,3 billion and investments in associates and joint ventures of €390 million.
Under IFRS, an entity is required to assess whether impairment indicators exist. The assessment of whether there is an indication that an asset may be impaired requires significant judgment.
In the context of assessing the existence of indications that may lead to an impairment of investments in associates and joint ventures, the Group takes into account, among other things, significant transactions such as the liquidation of assets, sales of subsidiaries and other changes affecting the business model of those entities.
A number of external factors including, but not limited to, the level of refining margins in the Mediterranean and the euro to dollar exchange rate, affect the operations and financial position of the Group and could have a significant impact on the recoverable amounts of the Group's noncurrent assets, including property, plant and equipment of the refining and retail segments, as well as investments in associates and joint ventures.
Given the nature of these non-current assets, forecasting future cash flows for purposes of determining the recoverable amount, is inadvertently dependent on, among others, the Group's assumptions on oil, gas and electricity price outlook for the next 4-5 years. Other key inputs used in assessing the recoverable amounts are the discount rates, future expected production volumes and capital and operating expenditures.
Given the materiality of balances of non-current assets (property, plant and equipment, investments in associates and joint ventures) in the consolidated statement of financial position, the level of subjectivity in respect of assumptions underlying the impairment analysis, and significant judgments and estimates made by management, we consider non-current assets' assessment for impairment a key audit matter.
The Group's disclosures regarding its accounting policy, judgments and estimates used in its assessment for impairment of its non-current assets are in notes 2.11, 4, 6 and 8 of the consolidated financial statements.
Included in the gross balance of trade receivables in note 11 of the consolidated financial statements as at 31 December 2018 is an amount of €349 million relating to the Group's marketing operations in Greece, against which provision for impairment amounting to €138 million is recorded.
Adopting the new standard (IFRS 9) as of 1 January 2018, management assesses the recoverability of their trade receivables, and estimates a loss allowance for expected credit losses.
Management evaluates the required allowance for impairment of trade receivables, taking into account, among others, its experience with collection trends in the oil market industry, the current economic conditions and also the securities and collaterals obtained from specific customers.
The assessment for the impairment of trade receivables requires significant management judgment in assessing the trade debtors' ability to pay, the expected time of collection, the valuation of collaterals held, and the estimation for the future market conditions. Thus, we have considered the recoverability of trade receivables a key audit matter.
The Group's disclosures regarding trade receivables, the related risks such as credit risk and the aging of trade receivables are included in notes 3.1.(b) and 11 of the consolidated financial statements, while note 4 discloses the Group's significant accounting judgments and estimates.
As disclosed in note 31 of the consolidated financial statements as of 31 December 2018, the Group has certain open disputes mainly relating to tax audits by the Greek tax authorities. In addition, the tax authorities reserve the right for future tax audits. The accounting for these uncertain tax positions require significant judgment by management mainly in assessing whether to treat these uncertain tax positions as a contingent liability or as a provision.
Given the complex and changing tax environment, and the time taken for the judicial process to result in a final position in case of a dispute, high level of management judgment is involved in assessing uncertain tax positions, thus we considered the uncertain tax positions as a key audit matter.
The Group's disclosures about Uncertain Tax Positions are included in notes 27 and 31 of the consolidated financial statements, while notes 2.20 and note 4 refer to the Group's accounting policies and significant judgments and estimates.
Management is responsible for the other information. The other information, included in the Annual Report, comprises of the Board of Directors Report (for which reference is also made in section Report on Other Legal and Regulatory Requirements), the Statements of the Members of the Board of Directors, and other complementary information, but does not include the Consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as endorsed by the European Union, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Group's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs, as incorporated in Greek Law, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, as incorporated in Greek Law, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
Taking into consideration that management is responsible for the preparation of the Board of Directors' Report and Corporate Governance Statement that is included therein, according to the provisions of paragraph 5 article 2 of Law 4336/2015 (part B), we report that:
Our opinion on the consolidated financial statements is consistent with our Additional Report to the Audit Committee of the Group, required by Article 11 of the EU Regulation.
We have not provided any prohibited non-audit services per Article 5 of the EU Regulation 537/2014.
Non-audit services provided by us to the Group during the year ended December 31, 2018, are disclosed in note 22 of the consolidated financial statements.
We were first appointed as auditors of the Group by the General Assembly on June 23, 2017. Our appointment has been renewed annually by virtue of decisions of the annual general meetings of the shareholders for a continuous period of 2 years.
Athens, 28 February 2019
Christiana Panayidou SOEL R.N. 62141
ERNST & YOUNG (HELLAS) Certified Auditors – Accountants S.A. 8B Chimarras 151 25 Maroussi, Greece Company SOEL R.N. 107
ERNST & YOUNG (HELLAS) Certified Auditors – Accountants S.A. 8B Chimarras str., Maroussi 151 25 Athens, Greece
Tel: +30 210 2886 000 Fax:+30 210 2886 905 ey.com
We have audited the separate financial statements of Hellenic Petroleum S.A (the "Company"), which comprise the separate statement of financial position as at 31 December 2018, and the separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying separate financial statements present fairly in all material respects the financial position of the Company as at 31 December 2018 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as endorsed by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) as incorporated in Greek Law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Separate Financial Statements section of our report. We remained independent of the Company throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), as incorporated in Greek Law, together with the ethical requirements that are relevant to the audit of the separate financial statements in Greece, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. These matters and the related risks of material misstatement, were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the Separate Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the separate financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
At 31 December 2018, the Company has recognized property, plant and equipment of €2,7 billion and investments in subsidiaries, associates and joint ventures of €1 billion.
Under IFRS, an entity is required to assess whether impairment indicators exist. The assessment of whether there is an indication that an asset may be impaired requires significant judgment.
In the context of assessing the existence of indications that may lead to an impairment of investments in subsidiaries, associates and joint ventures, the Company takes into account, among other things, significant transactions such as the liquidation of assets, sales of subsidiaries and other changes affecting the business model of those entities.
A number of external factors including, but not limited to, the level of refining margins in the Mediterranean and the euro to dollar exchange rate, affect the operations and financial position of the Company and could have a significant impact on the recoverable amounts of the Compay's non-current assets, including property, plant and equipment of the refining and retail segments, as well as investments in subsidiaries, associates and joint ventures.
Given the nature of these non-current assets, forecasting future cash flows for purposes of determining the recoverable amount, is inadvertently dependent on, among others, the Company's assumptions on oil, gas and electricity price outlook for the next 4-5 years. Other key inputs used in assessing the recoverable amounts are the discount rates, future expected production volumes and capital and operating expenditures.
Given the materiality of balances of non-current assets (property, plant and equipment, investments in subsidiaries, associates and joint ventures) in the separate statement of financial position, the level of subjectivity in respect of assumptions underlying the impairment analysis, and significant judgments and estimates made by management, we consider noncurrent assets' assessment for impairment a key audit matter.
The Company's disclosures regarding its accounting policy, judgments and estimates used in its assessment for impairment of its non-current assets are in notes 2.10, 4, 6 and 8 of the financial statements.
As disclosed in note 31 of the separate financial statements as of 31 December 2018, the Company has certain open disputes mainly relating to tax audits by the Greek tax authorities. In addition, the tax authorities reserve the right for future tax audits. The accounting for these uncertain tax positions require significant judgment by management mainly in assessing whether to treat these uncertain tax positions as a contingent liability or as a provision.
Given the complex and changing tax environment, and the time taken for the judicial process to result in a final position in case of a dispute, high level of management judgment is involved in assessing uncertain tax positions, thus we considered the uncertain tax positions as a key audit matter.
The Company's disclosures about Uncertain Tax Positions are included in notes 27 and 31 of the separate financial statements, while notes 2.19 and 4 refer to the Company's accounting policies and significant judgments and estimates.
Management is responsible for the other information. The other information, included in the Annual Report, comprises of the Board of Directors' Report (for which reference is also made in section Report on Other Legal and Regulatory Requirements), the Statements of the Members of the Board of Directors, and other complementary information, but does not include the separate financial statements and our auditor's report thereon.
Our opinion on the separate financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with International Financial Reporting Standards as endorsed by the European Union, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Company's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as incorporated in Greek Law, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.
As part of an audit in accordance with ISAs as incorporated in Greek Law, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters.
Taking into consideration that management is responsible for the preparation of the Board of Directors' Report and Corporate Governance Statement that is included therein pursuant to the provisions of paragraph 5 article 2 of Law 4336/2015 (part B), we report that:
Our opinion on the separate financial statements is consistent with our Additional Report to the Audit Committee of the Company, required by Article 11 of the EU Regulation 537/2014.
We have not provided any prohibited non-audit services per Article 5 of the EU Regulation 537/2014.
Non-audit services provided by us to the Company during the year ended December 31, 2018, are disclosed in note 22 of the separate financial statements.
We were first appointed as auditors of the Company by the General Assembly on June 23, 2017. Our appointment has been renewed annually by virtue of decisions of the annual general meetings of the shareholders for a continuous period of 2 years.
Athens, 28 February 2019
Christiana Panayidou SOEL R.N. 62141
ERNST & YOUNG (HELLAS) Certified Auditors – Accountants S.A. 8B Chimarras 151 25 Maroussi, Greece Company SOEL R.N. 107
Pursuant to decision 7/448/11.01.2007 article 1 of the Capital Market Commission's Board of Directors and the provision of article 10 of L. 3401/2005, the Company informs investors of the following announcements issued to the Athens Stock Exchange and Capital Market Commission supervisory authorities, in accordance with applicable law during the financial year 2018.
The full text of these announcements can be found on the Company's website at the following electronic address: www.helpe.gr.
| 22.02.18 | HELPE S.A. & GROUP 2017 Annual Financial Statements |
|---|---|
| 31.05.18 | HELPE S.A. & GROUP 1Q 2018 Interim Financial Statements |
| 30.08.18 | st Half /2Q 2018 Interim Financial Statements HELPE S.A. & GROUP 1 |
| 08.11.18 | HELPE S.A. & GROUP 9th Month/3Q 2018 Interim Financial Statements |
03.01.18 – 07.12.18 Announcement of Regulated Information, pursuant to Law 3556/2007 https://www.helpe.gr/en/investor-relations/corporate-governance/regulatedinformation/tradeacknowledgements/
| 02.03.18 – 04.12.18 | Announcements re Purchase of own shares |
|---|---|
| 02.03.18 – 04.12.18 | Transfer of treasury shares in the context of stock option program |
https://www.helpe.gr/en/investor-relations/corporate-governance/regulated-information/treasurystock-program/
| COMPANY | ||
|---|---|---|
| Head office Address: Website : |
A 8 , CHIMARRAS STR. - 15125 MAROUSI http://www.helpe.gr |
Board of Directors : |
| Approval date of the annual financial statements by the Board of Directors: | 28 FEBRUARY 2019 | |
| The Certified Auditor: Auditing Company: Type of Auditor's Report: |
Christiana Panayidou, SOEL reg.no.62141 ERNST & YOUNG (HELLAS), SOEL reg.no.107 UNQUALIFIED |
| (Amounts in thousands €) | GROUP | COMPANY | (Amounts in thousands €) | GROUP | COMPANY | ||||
|---|---|---|---|---|---|---|---|---|---|
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | 1/1/2018- | 1/1/2017- | 1/1/2018- | 1/1/2017- | ||
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | ||||||
| ASSETS | |||||||||
| Property, plant and equipment | 3.268.928 | 3.311.893 | 2.684.237 | 2.719.172 | Cash flows from operating activities | ||||
| Intangible assets | 105.617 | 105.684 | 4.799 | 7.042 | (Loss) / Profit before Tax | 368.930 | 519.785 | 669.577 | 482.391 |
| Other non-current assets | 528.122 | 862.616 | 1.041.259 | 691.308 | |||||
| Inventories | 993.031 | 1.056.393 | 893.859 | 963.746 | Adjustments for: | ||||
| Trade and other receivables | 821.598 | 791.205 | 680.347 | 989.901 | Depreciation and amortisation of tangible and intangible assets | 197.183 | 189.276 | 140.753 | 140.001 |
| Assets held for sale | 3.133 | - | - | - | Impairment of fixed and intangible assets | 3.734 | 2.689 | - | - |
| Derivative financial instruments | - | 11.514 | - | 11.514 | Amortisation of grants | (965) | (878) | (675) | (725) |
| Cash, cash equivalents and restricted cash | 1.276.366 | 1.018.913 | 1.071.585 | 813.251 | Finance Expense | 149.532 | 169.653 | 136.636 | 153.105 |
| Investment in equity instruments | 634 | 1.857 | 318 | 1.252 | Finance Income | (3.827) | (4.600) | (9.442) | (12.834) |
| TOTAL ASSETS | 6.997.429 | 7.160.075 | 6.376.404 | 6.197.186 | Share of operating profit of associates | 1.771 | (31.228) | - | - |
| Provisions for expenses and valuation charges | 89.103 | 55.594 | 67.506 | 36.736 | |||||
| Foreign exchange (gains) / losses | (2.194) | 8.173 | (2.244) | 8.483 | |||||
| EQUITY AND LIABILITIES | Amortisation of long-term contracts costs | 454 | 6.272 | 951 | 6.523 | ||||
| Share capital | 666.285 | 666.285 | 666.285 | 666.285 | (Gain)/Loss from disposal of Non Current Assets | (246) | 1.685 | (1.161) | 280 |
| Share premium | 353.796 | 353.796 | 353.796 | 353.796 | 803.475 | 916.421 | 683.106 | 780.236 | |
| Retained earnings and other reserves | 1.310.691 | 1.288.578 | 1.126.596 | 789.142 | |||||
| Equity attributable to equity holders of the parent | 2.330.772 | 2.308.659 | 2.146.677 | 1.809.223 | |||||
| Non-controlling interests | 63.959 | 62.915 | - | - | |||||
| TOTAL EQUITY | 2.394.731 | 2.371.574 | 2.146.677 | 1.809.223 | |||||
| Changes in working capital | |||||||||
| Interest bearing loans and borrowings | 1.627.171 | 920.234 | 1.657.598 | 909.579 | (Increase) / decrease in inventories | 61.582 | (116.523) | 68.171 | (117.608) |
| Provisions and other long term liabilities | 420.148 | 299.938 | 337.080 | 215.917 | (Increase) / decrease in trade and other receivables | (17.694) | 62.948 | 8.983 | 57.287 |
| Short-term Interest bearing loans and borrowings | 1.108.785 | 1.900.269 | 915.350 | 1.704.951 | Increase / (decrease) in payables | (339.516) | (409.535) | (347.508) | (412.132) |
| Other short-term liabilities | 1.446.594 | 1.668.060 | 1.319.699 | 1.557.516 | Less: | ||||
| Total liabilities | 4.602.698 | 4.788.501 | 4.229.727 | 4.387.963 | Income tax paid | (4.918) | (10.375) | 2.224 | (20) |
| Net cash generated from / (used in) operating activities | 502.929 | 442.936 | 414.976 | 307.763 | |||||
| TOTAL EQUITY AND LIABILITIES | 6.997.429 | 7.160.075 | 6.376.404 | 6.197.186 | |||||
| STATEMENT OF FINANCIAL POSITION | STATEMENT OF CASH FLOW | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands €) | GROUP | COMPANY | (Amounts in thousands €) | GROUP | COMPANY | ||||
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | 1/1/2018- | 1/1/2017- | 1/1/2018- | 1/1/2017- | ||
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | ||||||
| ASSETS | |||||||||
| Property, plant and equipment | 3.268.928 | 3.311.893 | 2.684.237 | 2.719.172 | Cash flows from operating activities | ||||
| Intangible assets | 105.617 | 105.684 | 4.799 | 7.042 | (Loss) / Profit before Tax | 368.930 | 519.785 | 669.577 | 482.391 |
| Other non-current assets | 528.122 | 862.616 | 1.041.259 | 691.308 | |||||
| Inventories | 993.031 | 1.056.393 | 893.859 | 963.746 | Adjustments for: | ||||
| Trade and other receivables | 821.598 | 791.205 | 680.347 | 989.901 | Depreciation and amortisation of tangible and intangible assets | 197.183 | 189.276 | 140.753 | 140.001 |
| Assets held for sale | 3.133 | - | - | - | Impairment of fixed and intangible assets | 3.734 | 2.689 | - | - |
| Derivative financial instruments | - | 11.514 | - | 11.514 | Amortisation of grants | (965) | (878) | (675) | (725) |
| Cash, cash equivalents and restricted cash | 1.276.366 | 1.018.913 | 1.071.585 | 813.251 | Finance Expense | 149.532 | 169.653 | 136.636 | 153.105 |
| Investment in equity instruments | 634 | 1.857 | 318 | 1.252 | Finance Income | (3.827) | (4.600) | (9.442) | (12.834) |
| TOTAL ASSETS | 6.997.429 | 7.160.075 | 6.376.404 | 6.197.186 | Share of operating profit of associates | 1.771 | (31.228) | - | - |
| Provisions for expenses and valuation charges | 89.103 | 55.594 | 67.506 | 36.736 | |||||
| Foreign exchange (gains) / losses | (2.194) | 8.173 | (2.244) | 8.483 | |||||
| EQUITY AND LIABILITIES | Amortisation of long-term contracts costs | 454 | 6.272 | 951 | 6.523 | ||||
| Share capital | 666.285 | 666.285 | 666.285 | 666.285 | (Gain)/Loss from disposal of Non Current Assets | (246) | 1.685 | (1.161) | 280 |
| Share premium | 353.796 | 353.796 | 353.796 | 353.796 | 803.475 | 916.421 | 683.106 | 780.236 | |
| Retained earnings and other reserves | 1.310.691 | 1.288.578 | 1.126.596 | 789.142 | |||||
| Equity attributable to equity holders of the parent | 2.330.772 | 2.308.659 | 2.146.677 | 1.809.223 | |||||
| Non-controlling interests | 63.959 | 62.915 | - | - | |||||
| TOTAL EQUITY | 2.394.731 | 2.371.574 | 2.146.677 | 1.809.223 | |||||
| Changes in working capital | |||||||||
| Interest bearing loans and borrowings | 1.627.171 | 920.234 | 1.657.598 | 909.579 | (Increase) / decrease in inventories | 61.582 | (116.523) | 68.171 | (117.608) |
| Provisions and other long term liabilities | 420.148 | 299.938 | 337.080 | 215.917 | (Increase) / decrease in trade and other receivables | (17.694) | 62.948 | 8.983 | 57.287 |
| Short-term Interest bearing loans and borrowings | 1.108.785 | 1.900.269 | 915.350 | 1.704.951 | Increase / (decrease) in payables | (339.516) | (409.535) | (347.508) | (412.132) |
| Other short-term liabilities | 1.446.594 | 1.668.060 | 1.319.699 | 1.557.516 | Less: | ||||
| Total liabilities | 4.602.698 | 4.788.501 | 4.229.727 | 4.387.963 | Income tax paid | (4.918) | (10.375) | 2.224 | (20) |
| Net cash generated from / (used in) operating activities | 502.929 | 442.936 | 414.976 | 307.763 | |||||
| TOTAL EQUITY AND LIABILITIES | 6.997.429 | 7.160.075 | 6.376.404 | 6.197.186 | |||||
| STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD | Cash flows from investing activities | ||||||||
| Purchase of property,plant and equipment & intangible assets | (156.713) | (208.732) | (101.318) | (149.930) | |||||
| (Amounts in thousands €) | GROUP | COMPANY | |||||||
| 1/1/2018- | 1/1/2017- | 1/1/2018- | 1/1/2017- | Cash from sale of property, plant and equipment & tangible assets | 277 | 30 | - | - | |
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | Grants received | 299 | 110 | - | - | |
| Interest received | 3.827 | 4.600 | 9.442 | 12.834 | |||||
| Revenue from contracts with customers | 9.769.155 | 7.994.690 | 8.967.702 | 7.233.600 | Dividends received | 307.735 | 19.346 | 318.795 | 33.724 |
| Gross profit | 999.386 | 1.087.492 | 680.006 | 758.145 | Investment in associates - net | - | (147) | (21.054) | 1.584 |
| Operating profit | 514.212 | 661.783 | 475.732 | 597.421 | Proceeds from disposal of investments in equity instruments | 265 | 8 | - | - |
| 368.930 | 519.785 | 669.577 | 482.391 | Settlement of consideration of acquisition of further equity interest in subsidiary | (1.298) | - | 7.000 | - | |
| Profit before Income Tax | |||||||||
| Purchase of subsidiary, net of cash acquired | (16.000) | - | (39.000) | - | |||||
| Less : Taxes | (154.218) | (135.862) | (146.187) | (136.400) | Net cash used in investing activities | 138.392 | (184.785) | 173.865 | (101.788) |
| Profit for the year | 214.712 | 383.923 | 523.390 | 345.991 | |||||
| Profit attributable to: | |||||||||
| Owners of the parent | 211.614 | 381.372 | |||||||
| Non-controlling interests | 3.098 | 2.551 | Cash flows from financing activities | ||||||
| 214.712 | 383.923 | Interest paid | (140.755) | (160.830) | (131.965) | (162.494) | |||
| Dividends paid to shareholders of the Company | (148.767) | (104.115) | (148.767) | (104.116) | |||||
| Other comprehensive income / (loss) for the year, net of tax | (32.666) | (13.111) | (31.479) | (9.711) | Dividends paid to non-controlling interests | (2.061) | (2.561) | - | - |
| Total comprehensive income for the year | 182.046 | 370.812 | 491.911 | 336.280 | Loans to affiliated companies | - | - | (3.600) | - |
| Movements in restricted cash | 144.445 | 11.873 | 144.445 | 11.873 | |||||
| Total comprehensive income/(loss) attributable to: | Acquisition of treasury shares | (683) | (10.245) | (683) | (10.245) | ||||
| Owners of the parent | 178.958 | 368.989 | Participation of minority shareholders in share capital increase of subsidiary | 17 | 76 | - | - | ||
| Non-controlling interests | 3.088 | 1.823 | Proceeds from borrowings | 409.694 | 288.000 | 440.748 | 283.606 | ||
| 182.046 | 370.812 | Repayments of borrowings | (506.358) | (322.622) | (491.303) | (279.775) | |||
| Net cash generated from / (used in ) financing activities | (244.468) | (300.424) | (191.125) | (261.151) | |||||
| Basic and diluted earnings per share (in Euro per share) | 0,69 | 1,25 | 1,71 | 1,13 | |||||
| Earnings Before Interest, Taxes, Depreciation and | |||||||||
| Amortisation (EBITDA) | 711.395 | 851.059 | 616.485 | 737.422 | Net (decrease) / increase in cash & cash equivalents | 396.853 | (42.273) | 397.716 | (55.176) |
| STATEMENT OF CHANGES IN EQUITY | |||||||||
| (Amounts in thousands €) | GROUP | COMPANY | |||||||
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | ||||||
| Total equity at beginning of the year 1/1/2018 (published) & 1/1/2017 | 2.371.574 | 2.141.635 | 1.809.223 | 1.590.150 | Cash and cash equivalents at the beginning of the year | 873.261 | 924.055 | 667.599 | 731.258 |
| Change in accounting policy | (3.303) | - | (958) | - | |||||
| Total equity at beginning of the year 1/1/2018 (restated) & 1/1/2017 | 2.368.271 | 2.141.635 | 1.808.265 | 1.590.150 | |||||
| Total comprehensive (loss) / income for the year | 182.046 | 370.812 | 491.911 | 336.280 | Exchange gains / (losses) on cash and cash equivalents | 5.046 | (8.521) | 5.063 | (8.483) |
| Dividends to shareholders of the parent | (152.816) | (106.962) | (152.816) | (106.962) | |||||
| Dividends to non-controlling interests | (2.061) | (2.561) | - | - | |||||
| Participation of minority shareholders in share capital increase of subsidiary | 17 | 76 | - | - | |||||
| Share based payments | (1.214) | (9.714) | (1.214) | (9.714) | Net (decrease) / increase in cash and cash equivalents | 396.853 | (42.273) | 397.716 | (55.176) |
| Transfer of grant received to tax free reserves | 80 | - | - | - | |||||
| Acquisition of treasury shares | (683) | (10.245) | (683) | (10.245) | |||||
| Issue of treasury shares to employees | 1.214 | 9.714 | 1.214 | 9.714 | |||||
| Tax on intra-group dividends | (123) | (136) | - | - | |||||
| (Amounts in thousands €) | GROUP | COMPANY | Purchase of property,plant and equipment & intangible assets | (156.713) | (208.732) | (101.318) | (149.930) | ||
|---|---|---|---|---|---|---|---|---|---|
| 1/1/2018- | 1/1/2017- | 1/1/2018- | 1/1/2017- | Cash from sale of property, plant and equipment & tangible assets | 277 | 30 | - | - | |
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | Grants received | 299 | 110 | - | - | |
| Interest received | 3.827 | 4.600 | 9.442 | 12.834 | |||||
| Revenue from contracts with customers | 9.769.155 | 7.994.690 | 8.967.702 | 7.233.600 | Dividends received | 307.735 | 19.346 | 318.795 | 33.724 |
| Gross profit | 999.386 | 1.087.492 | 680.006 | 758.145 | Investment in associates - net | - | (147) | (21.054) | 1.584 |
| Operating profit | 514.212 | 661.783 | 475.732 | 597.421 | Proceeds from disposal of investments in equity instruments | 265 | 8 | - | - |
| Profit before Income Tax | 368.930 | 519.785 | 669.577 | 482.391 | Settlement of consideration of acquisition of further equity interest in subsidiary | (1.298) | - | 7.000 | - |
| Purchase of subsidiary, net of cash acquired | (16.000) | - | (39.000) | - | |||||
| Less : Taxes | (154.218) | (135.862) | (146.187) | (136.400) | Net cash used in investing activities | 138.392 | (184.785) | 173.865 | (101.788) |
| Profit for the year | 214.712 | 383.923 | 523.390 | 345.991 | |||||
| Profit attributable to: | |||||||||
| Owners of the parent | 211.614 | 381.372 | |||||||
| Non-controlling interests | 3.098 | 2.551 | Cash flows from financing activities | ||||||
| 214.712 | 383.923 | Interest paid | (140.755) | (160.830) | (131.965) | (162.494) | |||
| Dividends paid to shareholders of the Company | (148.767) | (104.115) | (148.767) | (104.116) | |||||
| Other comprehensive income / (loss) for the year, net of tax | (32.666) | (13.111) | (31.479) | (9.711) | Dividends paid to non-controlling interests | (2.061) | (2.561) | - | - |
| Total comprehensive income for the year | 182.046 | 370.812 | 491.911 | 336.280 | Loans to affiliated companies | - | - | (3.600) | - |
| Movements in restricted cash | 144.445 | 11.873 | 144.445 | 11.873 | |||||
| Total comprehensive income/(loss) attributable to: | Acquisition of treasury shares | (683) | (10.245) | (683) | (10.245) | ||||
| Owners of the parent | 178.958 | 368.989 | Participation of minority shareholders in share capital increase of subsidiary | 17 | 76 | - | - | ||
| Non-controlling interests | 3.088 | 1.823 | Proceeds from borrowings | 409.694 | 288.000 | 440.748 | 283.606 | ||
| 182.046 | 370.812 | Repayments of borrowings | (506.358) | (322.622) | (491.303) | (279.775) | |||
| Net cash generated from / (used in ) financing activities | (244.468) | (300.424) | (191.125) | (261.151) | |||||
| Basic and diluted earnings per share (in Euro per share) | 0,69 | 1,25 | 1,71 | 1,13 | |||||
| Earnings Before Interest, Taxes, Depreciation and | |||||||||
| Amortisation (EBITDA) | 711.395 | 851.059 | 616.485 | 737.422 | Net (decrease) / increase in cash & cash equivalents | 396.853 | (42.273) | 397.716 | (55.176) |
ADDITIONAL INFORMATION
| STATEMENT OF CHANGES IN EQUITY | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands €) | GROUP | COMPANY | |||||||
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | ||||||
| Total equity at beginning of the year 1/1/2018 (published) & 1/1/2017 | 2.371.574 | 2.141.635 | 1.809.223 | 1.590.150 | Cash and cash equivalents at the beginning of the year | 873.261 | 924.055 | 667.599 | 731.258 |
| Change in accounting policy | (3.303) | - | (958) | - | |||||
| Total equity at beginning of the year 1/1/2018 (restated) & 1/1/2017 | 2.368.271 | 2.141.635 | 1.808.265 | 1.590.150 | |||||
| Total comprehensive (loss) / income for the year | 182.046 | 370.812 | 491.911 | 336.280 | Exchange gains / (losses) on cash and cash equivalents | 5.046 | (8.521) | 5.063 | (8.483) |
| Dividends to shareholders of the parent | (152.816) | (106.962) | (152.816) | (106.962) | |||||
| Dividends to non-controlling interests | (2.061) | (2.561) | - | - | |||||
| Participation of minority shareholders in share capital increase of subsidiary | 17 | 76 | - | - | |||||
| Share based payments | (1.214) | (9.714) | (1.214) | (9.714) | Net (decrease) / increase in cash and cash equivalents | 396.853 | (42.273) | 397.716 | (55.176) |
| Transfer of grant received to tax free reserves | 80 | - | - | - | |||||
| Acquisition of treasury shares | (683) | (10.245) | (683) | (10.245) | |||||
| Issue of treasury shares to employees | 1.214 | 9.714 | 1.214 | 9.714 | |||||
| Tax on intra-group dividends | (123) | (136) | - | - | |||||
| Acquisition of non-controlling interests | - | (21.045) | - | - | |||||
| Total equity at the end of the year | 2.394.731 | 2.371.574 | 2.146.677 | 1.809.223 | Cash and cash equivalents at end of the year | 1.275.160 | 873.261 | 1.070.378 | 667.599 |
| 31/12/2018 | 31/12/2017 | 31/12/2018 | 31/12/2017 | |
|---|---|---|---|---|
| Changes of the fair value of equity investment | (695) | 6 | (675) | - |
| Currency translation differences and other movements | (745) | 752 | - | - |
| Reduction in value of land | - | (1.669) | - | - |
| Actuarial losses on defined benefit pension plans | (11.012) | (9.589) | (10.878) | (7.100) |
| Fair value gains on cash flow hedges | (5.006) | (4.590) | (5.006) | (4.590) |
| Derecognition of gains on hedges through comprehensive income | (14.920) | 1.979 | (14.920) | 1.979 |
| Share of other comprehensive income of associates | (288) | - | - | - |
| Net income/(expense) recognised directly in equity | (32.666) | (13.111) | (31.479) | (9.711) |
| GROUP | COMPANY | |
|---|---|---|
| Sales of goods and services | 948.160 | 3.699.439 |
| Purchases of goods and services | 834.546 | 889.806 |
| Receivables | 77.456 | 140.253 |
| Payables | 23.840 | 50.702 |
| Board members and senior management remuneration & other benefits | 6.250 | 7.171 |
| Amounts due to/(from) Board members and senior management | - | - |
General Commercial Registry 000296601000 (A.R.M.A.E. 2443/06/B/86/23)
FINANCIAL DATA AND INFORMATION FOR THE ΥΕΑR FROM 1 JANUARY 2018 TO 31 DECEMBER 2018 (Published in compliance to L.2190/20, art. 135 for companies that prepare annual financial statements in accordance with IFRS)
The following financial data and information are only for general information purposes with regard to the financial position and results of HELLENIC
| out by Certified Auditors, all Group companies based in Greece have received unqualified Tax Compliance Reports by their respective statutory auditor, for |
|---|
| fiscal years up to 2017 (inclusive). With regards to tax audits carried out by the Tax Authorities, tax audits have been completed as follows: a) for Hellenic |
| Petroleum S.A for years up to and including 2011, b) for former Hellenic Fuels SA for years up to and including 2011, c) for EKO S.A for years up to and |
| including 2010. Notwithstanding the possibility of future tax audits, the Group's management believes that no additional material liability will arise as a result |
| of unaudited tax years over and above the tax liabilities and provisions recognised in the consolidated financial statements for the year ended 31 December |
| 2018 (Note 27 of the annual consolidated financial statements). 4. The consolidated financial statements of Hellenic Petroleum S.A. for the year ended 31 |
| December 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards |
| Board ("IASB"), as adopted by the European Union ("EU"), as outlined in Note 2.1 of the annual consolidated financial statements. Where necessary, |
| comparative figures have been reclassified to conform to changes in the presentation of the current financial year. 5. As mentioned in Note 31 of the annual |
| consolidated financial statements, the Group's entities are involved in a number of legal proceedings and have various unresolv ed claims pending arising in |
| the ordinary course of business. Based on currently available information, Management believes that no additional material liability will arise over and above |
| the tax liabilities and provisions already recognised in the consolidated financial statements as at 31 December 2018. 6. During the twelve month period |
| ended 31 December 2018, developments regarding the sale of DESFA were as follows: Best and final offers were submitted by the two Shortlisted Parties on |
| 29 March 2018. The consortium formed by SNAM S.p.A., FLUXYS S.A. and Enagas Internacional S.L.U. confirmed its best and final offer on 19 April 2018, |
| offering an amount of €535 million for the purchase of the 66% of DESFA. The above binding offer has been accepted by virtue of resolution no. 1319 of 19 |
| April 2018 of the Board of Directors and the resolution of 14 May 2018 of the Extraordinary General Meeting of Shareholders of Hellenic Petroleum. By virtue |
| of decision No. 235 of 25/6/2018, the Court of Audit has cleared the transaction and on 13/7/2018, the European Commission has provided its approval under |
| the EU Merger Regulation. On 20 July 2018 a Share Sale & Purchase Agreement (SPA) has been executed by HRADF and HELPE as Sellers and "SENFLUGA |
Energy Infrastructure Holdings S.A." (SNAM-Enagas-Fluxys Consortium SPV) as Purchaser. On the same date a Shareholders' Agreemen t for DESFA has been executed between SENFLUGA S.A. and the Hellenic Republic. Upon satisfaction of all conditions precedent provided by the SPA, the above transaction close
successfully on 20 December 2018. Immediately before the execution of the SPA, DEPA S.A. proceeded to a distribution of its shares in DESFA (at fair value) to its shareholders, through a reduction of its share capital. Hellenic Petroleum S.A.'s share of investment in DESFA (35%) amounted to €284 million, equal to the sale proceeds per the SPA. On the basis of this amount, HELPE Group recognised an impairment loss of €46 million, through its share of profit/ loss in its investment in DEPA. In addition, the sale proceeds of €284 million, were accounted as dividend distribution received from DEPA Group for the year ended 31 December 2018. The Group consolidates the DEPA Group using the equity method of accounting and the carrying value of the investment in the consolidated financial statements reflects HELPE's 35% share of the net asset value of the DEPA group which as at 31 December 2018 amounts to €348 million (31 December 2017: €659 million). The cost of investment of the DEPA group in the financial statements of HELPE S.A is € 237 million. (See Note 8 of the annual consolidated financial statements). 7. Number of employees at 31/12/2018 in Greece: Company: 2,053, Group: 2,846 (31/12/2017: Company: 2.056, Group:
GRIGORIOS STERGIOULIS - Chief Executive Officer (until 17/04/2018) GEORGIOS GRIGORIOU VASILEIOS KOUNELIS ANDREAS SIAMISHIS - Deputy Chief Executive Officer THEODOROS PANTALAKIS CHRISTOS TSITSIKAS (from 29/11/2018) GEORGIOS ALEXOPOULOS SPIRIDON PANTELIAS PANAGIOTIS OFTHALMIDES (until 06/06/2018)
IOANNIS PSICHOGIOS (until 29/11/2018) CONSTANTINOS PAPAGIANNOPOULOS
CHAIRMAN OF THE BOARD DEPUTY CHIEF EXECUTIVE OFFICER ACCOUNTING DIRECTOR & & CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
EFSTATHIOS N. TSOTSOROS ANDREAS N. SHIAMISHIS STEFANOS I. PAPADIMITRIOU
ID. Number ΑΕ 075524 ID. Number ΑΑ 010147 ID. Number ΑΚ 553436
The annual financial statements of the HELLENIC PETROLEUM Group and the parent company on a consolidated and non-consolidated basis, the Independent Auditors' Report and the Annual Report of the Board of Directors are available on the internet at www.helpe.gr.
The financial statements of the consolidated companies under EKO S.A. are available online at www.eko.gr.
On HELLENIC PETROLEUM's website https://www.helpe.gr/investor-relations/quarterly-results/financialstatements/financial-statements-of-subsidiary-companies/, there is a list of subsidiaries that are fully consolidated in the Group's financial statements; these companies also have their own website through which their financial statements can be accessed. The financial statements of the other subsidiaries can be viewed at the above address.
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