Provide a description of key impacts, risks, and opportunities.
The Group’s long-term opportunities and risks are as follows:
- p. 44-47, 164-168, 168-169, 175-177, 184-185
- p. 22-25, 105-109
- “Internal Audit and Risk Management”
- For main impacts, risks and opportunities (due to climate change): see indicator 201-2.
The Group’s companies (locally) evaluate opportunities and risks as follows:
- Instability of the economic environment
- Market risk (foreign exchange risk, product price fluctuation risk, cash flow risk and fair value risk due to changes in interest rates, credit risk)
- Differentiation in the energy mix
- Technological developments
- Change in consumer behaviour
- Opportunities created by smaller Marketing Companies being forced to exit the market, due to particular market conditions in recent years having either interrupted or significantly reduced their activity. This will result in the growth of the larger Groups.
- Differentiation of the market due to technological developments and change in consumer behavior, leading to a redistribution of shares
The new VTTV terminal at Vasiliko (on the south coast between Larnaca and Limassol) with a capacity of 550,000m3 of white products is operational. The new Petrolina terminal (local oil company – 80,000m3) is also operational for storage. Works in progress for building of new small storage tanks and truck loading facilities. These are expected to be finished before end of 2019 120,000m3 of Cyprus strategic reserves have been relocated from Larnaca to VTTV.
Furthermore, the four LPG companies have proceeded to the formation of a JV company and are waiting the approval from the Competition Committee. HPC has taken the strategic decision to move away from the LPG JV and proceed to construct its own terminal. In 2018 HPC has started operation of one LPG autogas station.
During 2018, the Company reached to a consensus with the Government that relocation of fuel terminal should take place not later than 31 December 2019 while relocation for LPG terminal should take place by 31 December 2020. Fuel Terminal construction had commenced by Yugen Limited, a newly incorporated company. With regards to LPG terminal the Company is currently assessing all alternative scenarios.
- Further development of COMO Network.
- Introduction of Loyalty programs.
- Strengthening the brand awareness through marketing activities and enhancement of EKO premium products portfolio (EKO Racing 98, EKO Racing 100 & Diesel Avio Double Filtered).
- Optimization of petrol stations network.
- Expansion in case of lifting of trade boundaries as a result of the Cyprus political problem resolution
- The White Flag Petrol Stations in the market and the expansion of competition in building new Petrol Stations is a threat in diluting margins and ATPs.
- In case where trade barriers are lifted as a result of resolution of the political problem, there might be threats to competitiveness.
- The new VTTV terminal at Vassiliko might be one more option for product supply to the local market
- The introductions of Autogas might have unforeseeable effects on the automotive fuels margin
OKTA supplies approximately 74% of the fuel needs of the domestic market. In addition, its significant storage capacity serves as a safety mechanism for the uninterrupted supply of fuel in the markets where it operates. At the same time, it is a major exporter and a significant employer of transportation, logistics and engineering services.
OKTA’s sustainable profitability depends on its ability to remain competitive in a market where barriers to entry are low, while at the same time it manages its facilities and installations as efficiently as possible, in order to safeguard its role as a secure supplier. OKTA has the opportunity to maintain its market share by exploiting its logistics infrastructure and the competitive terms it has with its supplier. Additionally, OKTA seeks to strengthen its profitability by completing a number of transformation projects already launched, affecting its operations and its organizational structure.
OKTA’s transformation to a trading company has emphasized the importance of the commercial targets in its strategy. In that context the objectives set for 2018 were further increase of market share and secureness of the 1st position in the domestic market, coupled with preservation of margins, enhancement of competitiveness, training and development of the personnel, as well as recapturing share of independent PS networks. In addition to this profitability augmentation from the retail network and exploration of possible synergies with other EKO networks were the goals for OKTA’s retail activities.
The short term opportunities for OKTA are:
- Pipeline utilization launch and optimization of the Supply Chain
- Further rationalization of the company’s organization
- Management of Legal cases
- Strategic reserves supply and storage fee introduction
- The announced change of the Methodology for calculating the oil derivatives retail prices
- Leverage OKTA’s Storage and Loading installations
- Creating access to retail market through organic growth (DODO->COMO, retail know how and EKO offerings)
- Focus on efficiency
- Searching for alternative sources of energy
The short term challenges for OKTA are:
- Full or partial loss of the biggest customer
- Waking up of strong competition in the wholesale market
- Re-emergence of cheap product from competitive refinery
- Oversupplied region
- Limited growth of the economy
There have been no significant changes in the legal and economic environment that could affect the viability of the company and its stakeholders. The political environment is stable while macroeconomic indicators were correctly forecasted.
There have been no significant changes to local legislation, international standards or business rules. Several changes of legislation in H-18 and introducing new regulation on the oil market with New Oil Law. New GDPR rules and requirements have been duly implemented. New Law on Measures against Money Loundering has been enforced and the company is working on its implementation.
Risks (short and long-term):
- Delay with network expansion.
- Challenges in labor market in the country.
- Remain at existing market position due to heavy competition and RomPetrol’s takeover appetite.
- Potential entry of new major player
- Profitability loss due to increased regional price competition.
- Profitability loss due to increased product competition (LPG).
- Operational complications that may arise with legislation H-18.
Opportunities (short and long-term):
- New POS implementation
- Capitalizing on RVI external implementation
- Expansion of PS network based on favorable outlook on consumer spending.
- Invest in quality Brand name and new loyalty scheme.
- Capitalizing on AVIO Diesel, EKO Racing and EKO Guarantee.
- Opportunities for collaborations (e.g. supermarkets) related with distribution.
- Contribution of NFR to total gross margin.
- EKO intragroup loyalty card.
- Implementing a self-service mode of operation in existing network
- H-18 and the new Petroleum Act may reduce WF competition.
Short term opportunities:
- Further exploit of lubricant business
- Expand penetration of high margin products (fuel and NFR)
- Reduction of OPEX (via procurement)
- Increase of other income (services, rent, cross business)
- Further exploit of loyalty program development & partnership schemes
Long term opportunities:
- New RVI implementation
- Network expansion
- Increase brand value through dynamic marketing activities
- Exploit opportunities related to new supply routes, depots for w/s business
- further development of loyalty program
Short term risks:
- Supply dependence out of the HELPE refineries (locally)
- Ability to remain competitive in w/s business
- Strong competition actions (discount)
- Increase of Capex due to network aging
Long term risks:
- Macroeconomic deterioration
- Implementing aggressive network expansion plan
- Further market growth of international brands – increased number of competitors’ sites
EKO Serbia still has the potential to grow, increase its market share, increase profit margins in fuel sales, and become no. 3 through the expansion of the distribution network.
- The retail market is largely regulated; almost all petrol stations offer the same prices. A number of independent petrol stations have tried to offer lower prices but the main competitors do not follow their example.
- Our active participation in actions, an area in which our competition is lagging behind.
- Strong competition and aggressive acquisitions
- Easy to strengthen our position in the northern and southern regions where we are by far the strongest competitor
- Expansion of our network in Podgorica, where we have a strong influence
- Promotion of our brand name as the high-end quality brand in the market where the price is unanimous and regulated.
- Possible market price deregulation will allow further capitalization from the launch of differentiated products