Jugopetrol Podgorica : Management report Q3 2022

Q3 2022 results J

JUGOPETROL AD

Podgorica, October 2022

Jugopetrol AD continues with its strategic vision of being the leading petroleum company in Montenegro despite facing challenges driven by current global geopolitical developments.

Sales results

Our total fuel sales for the nine months of 2022 recorded an increase of 16% compared to the same period last year, mainly due to less restrictive measures against the pandemic.

Overperformances were recorded in both Domestic and International markets, with the greatest positive variances in PPS, Retail and Aviation segments.

Domestic market:

YTD Retailvolumes were 19% higher than last year. The increase was a result of a higher market consumption driven by the removal of measures against the pandemic. The most significant increase was recorded at the PSs close to the borders, where tourists arriving or leaving the country were refuelling. Additionally, at the end of April we opened a new petrol station Tuzi and after the reconstruction of petrol station in Kotor was completed for the first time since 2017 we had the entire network operational.

Private petrol stations (PPS) volumes went up by 51% vs. LY. As in our Retail, the increase was influenced by lifting the measures against the Covid-19 and was further improved by volumes sold to new customers.

Commercial & Industry(C&I) sales were 5% lower compared to the same period last year, due to lower consumption related to highway construction works and completion of activities of exploration of oil and gas in the coast, and also delays in construction works on major projects had the most significant impact on their negative variances vs. LY. However, significant part of lost volumes was offset by sales to new customers.

International market:

YTD Aviationsegment, which was hit the most by the pandemic, is recovering in 2022 and we sold 46% more than in the same period LY.

YTD Sales to yachts and other vesselsdecreased by 57% vs. LY, mainly as a result of geopolitical developments in Europe and changes in implementation of customs laws, according to which, starting from June 2022, vessels used for private purposes are no longer entitled to tax free fuel.

Volumes in Exportsegment recorded first deliveries since 2015 and by the end of Q3 refer to sale to regional and international markets.

Q3 2022 results

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Sales per channel of trade:

Product analysis:

Sales of almost all products improved comparing to the same period last year. The only decrease was recorded with heating diesel and was due to the completion of the exploration activities in the coast. We sold 16% more diesel and 24% more gasoline. As expected, Q3 and YTD aviation segment performed by far better than LY (+22% and +46% respectively), due to the pandemic impact on Q3 2021 and the reorganization of the national carrier.

Strong performance of premium product Diesel Avio Double Filtered, introduced at EKO petrol stations in March 2021 (following the decision of the Government to liberalize sales prices of premium products), continues.

Diesel products hold 73% of our total sales (EKO diesel 67% and DADF 6%) which is by 1% lower than in 2021. On the other hand, share of gasolines increased from 11% LY to 12% YTD.

Q3 2022 results

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Sales per product:

Financial results
Profitability	Q3 2022	Q3 2021	Q3 2020	Q3 2019
Net Profit Margin %	4,2%	4,4%	3,5%	2,4%
EBITDA Margin %	6,0%	7,1%	7,4%	4,3%
Gross Profit Margin %	10,6%	15,9%	20,4%	12,4%

Gross Profit Margin reduced from 15,9% to 10,6% compared to the same period last year due to significant increase in international oil prices.

Despite the revenue increase, our Net Profit Margin went down from 4,4% in 2021 to 4,2% in 2022. Company's expenses YTD were higher 14% than LY driven by higher selling variable and maintenance costs. From the same reason, EBITDA margin was lower compared to the same period last year.

The cost of depreciation was 5% higher compared to the same period last year, mainly due to investments in retail network.

The Company has a solid organizational structure basis to address any challenge, a solid balance sheet structure and high liquidity. Based on our analysis no material uncertainty exists to the Company's ability to continue as a going concern. Policy makers´ actions and implementations at European and local level that will mitigate the impact of unprecedented crisis, during and after it, is extremely important.

Q3 2022 results

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Liquidity	Q3 2022	Q3 2021	Q3 2020	Q3 2019
Current ratio	4,71	2,94	3,47	3,07
Quick ratio	2,55	2,01	2,86	2,23
Cash ratio	0,87	1,17	2,01	1,23

Liquidity has continuously been at a high level. High values of liquidity ratios mean that the Company was always able to meet its short-term liabilities.

Lower cash ratio is due to trade payables and prepaid VAT. This is a result of our effort to keep stocks volumes on the level to meet market demands during the tourist season.

In 2014, the Tax Authorities initiated an audit for the period between 2011 up to 2014 (inclusive) for all subjects of taxes. The first four decisions of the inspectors have been annulled by the Ministry of Finance Appeal Committee.

The Company has filed an appeal against the fifth Decision of the Revenue and Customs Administration, however, for the first time since the process began, the Ministry of Finance rejected the appeal and on May 19th 2022 issued a Decision, confirming an outstanding obligation for excise duties and VAT, amounting at approx. €1,5m (including interest).

The Company firmly believes that the claims of the Authorities are unfounded and on June 27th 2022 has submitted a lawsuit to the Administrative Court against the above Decision of the Ministry of Finance.

Based on internal reviews and on the assessment of external lawyers/experts no provision for Q3 2022 has been recognized in the company's books.

Operational update

Jugopetrol started the project of reconstruction or adaptation of most of its petrol stations in 2017, aiming to upgrade the network by the end of 2022. Reconstruction or adaptation works of a total of 30 petrol stations were completed in first half 2022, as well as start of operations of newly built rented petrol station in Tuzi.

At Bar terminal, apart from regular activities on receipt, storage and distribution of increased quantities of fuel due to summer season, extensive preparation works for construction of the new truck bottom loading island are in progress, which will upgrade Bar terminal in accordance with latest technical, safety and environmental standards. Ongoing upgrade of FF system continued which improved reliability of the system. Procurement of two automated motor valves is underway, and the upgrade of the stock monitoring system in the storage tank has been completed within the budget for this year. Technical inspection of the pipeline has been completed. The planned works on the anti-corrosion protection of the R21 tank and the fuel pipeline have been implemented according to this year's plan. An audit was carried out by representatives of the Hansa Consult Project in order to harmonize operational work with JET fuel with JIG standards.

Q3 2022 results

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