Petrol AD - Consolidated Report Q3'2011

Consolidated financial statements

as of September 30, 2011

and Notes to the consolidated financial statements

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended September 30, 2011

These consolidated financial statements have been approved on behalf of Petrol AD by:

November 29, 2011

(The accompanying notes from page 8 to page 40 are an integral part of these consolidated financial statements)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As of September 30, 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As of September 30, 2011 (continued)

These consolidated financial statements have been approved on behalf of Petrol AD by:

November 29, 2011

(The accompanying notes from page 8 to page 40 are an integral part of these consolidated financial statements)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY

For the period ended September 30, 2011

These consolidated financial statements have been approved on behalf of Petrol AD by:

November 29, 2011

(The accompanying notes from page 8 to page 40 are an integral part of these consolidated financial statements)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended September 30, 2011

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended September 30, 2011 (continued)

These consolidated financial statements have been approved on behalf of Petrol AD by:

November 29, 2011

 (The accompanying notes from page 8 to page 40 are an integral part of these consolidated financial statements)

Notes

to the consolidated financial statements

as of September 30, 2011

1. Legal status

Petrol AD (the Parent Company) is registered in the city of Sofia. The registered office of the Parent Company is 43 Cherni Vruh Blvd, Sofia city. As of September 30, 2011 the majority shareholder of Petrol AD is Petrol Holding AD with 55.48% ownership of the share capital (see also note 23).

As of July 1, 1998 Petrol AD is registered as a public company in the public register of the Financial Supervision Commission.

The main activities of Petrol AD and its subsidiaries (the Group) are retail and wholesale of oil and non-oil products, rendering of transport and maintenance services. The Parent Company is one of the oldest commercial companies in Bulgaria and owns the largest network of fuel stations in the country.

These consolidated financial statements were approved for issue by the Management on November 29, 2011.

2. Basis for preparation of the consolidated financial statements and accounting principles

2.1. General

These financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and the interpretations, issued by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Union (the EU) and applicable in the Republic of Bulgaria.

These financial statements have been prepared on the historical cost basis.

2.2. Applying new and revised IFRS

2.2.1. Standards and Interpretations effective and adopted in the current period

The following amendments to the existing standards issued by the IASB and adopted by the EU are effective for reporting periods beginning on or after 1 January 2011:

·; Amendments to IAS 24 Related Party Disclosures - Simplifying the disclosure requirements for government-related entities and clarifying the definition of a related party, adopted by the EU on 19 July 2010 (effective for annual periods beginning on or after 1 January 2011),

·; Amendments to IAS 32 Financial Instruments:Presentation - Accounting for rights issues, adopted by the EU on 23 December 2009 (effective for annual periods beginning on or after 1 February 2010),

·; Amendments to IFRS 1 First-time Adoption of IFRS - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, adopted by the EU on 30 September 2010 (effective for annual periods beginning on or after 1 July 2010),

·; Amendments to IFRIC 14 IAS 19 - The Limit on a defined benefit Asset, Minimum Funding Requirements and their Interaction - Prepayments of a Minimum Funding Requirement, adopted by the EU on 19 July 2010(effective for annual periods beginning on or after 1 January 2011),

·; Amendments to various standards and interpretations "Improvements to IFRSs (2010)" resulting from the annual improvement project of IFRS published on 6 May 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording, adopted by the EU on 18 February 2011(amendments are to be applied for annual periods beginning on or after 1 July 2010 or 1 January 2011 depending on standard/interpretation),

·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, adopted by the EU on 23 July 2010 (effective for annual periods beginning on or after 1 July 2010).

2.2.1. Standards and Interpretations effective and adopted in the current period (continued)

The adoption of the above amendments has not led to any changes in the Group's accounting policies.

2.2.2. Standards and Interpretations issued by IASB but not yet adopted

At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except from the following standards, amendments to the existing standards and interpretations, which were not endorsed for use as of the date of authorisation of these financial statements:

·; IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2013),

·; Amendments to IFRS 1 First-time Adoption of IFRS - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on or after 1 July 2011),

·; Amendments to IFRS 7 Financial Instruments: Disclosures - Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011),

·; Amendments to IAS 12 Income Taxes - Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012).

·; IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013),

·; IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013),

·; IFRS 12 Disclosure of Interests in Other Entities(effective for annual periods beginning on or after 1 January 2013),

·; IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013),

·; Amendments to IAS 27 Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013),

·; Amendments to IAS 28 Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2013),

·; Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on or after 1 July 2012),

·; IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after 1 January 2013),

The Group anticipates that the adoption of these standards, amendments to the existing standards and interpretations will have no material impact on the financial statements of the Group in the period of initial application.

At the same time, hedge accounting regarding the portfolio of financial assets and liabilities, whose principals have not been adopted by the EU, is still unregulated.

According to the Group's estimates, application of hedge accounting for the portfolio of financial assets or liabilities pursuant to IAS 39: Financial Instruments: Recognition and Measurement, would not significantly impact the financial statements, if applied as at the reporting date.

2.3. Functional and presentation currency of the consolidated financial statements

Functional currency is the currency of the primary economic environment in which an entity operates and in which it primary generates and expends cash. An entity's functional currency reflects the major transactions, events and conditions that are significant to the Group.

The Group keeps its records and prepares its financial statements in the national currency of the Republic of Bulgaria - the Bulgarian Lev, which is adopted by the Group as its functional currency.

These consolidated financial statements are presented in thousand Bulgarian Levs.

2.4. Foreign currency

Transactions in foreign currency are initially recorded at the official rate of exchange of the Bulgarian National Bank (BNB) as of the date of the transaction. The foreign exchange rate differences, arising upon the settlement of these monetary positions or at restatement of these positions at rates, different from those when initially recorded, are reported in profit or loss for the period in which they arise.

The monetary positions denominated in foreign currency as of September 30, 2011, June 30, 2011 and December 31, 2010 are stated in these consolidated financial statements at the closing exchange rate of BNB. The closing exchange rates of BGN against USD for the respective reporting period of the consolidated financial statements are as follows:

2.5. Accounting estimates and reasonable assumptions

The preparation of consolidatedfinancial statements in accordance with IFRS requires management to make certain accounting estimates and reasonable assumptions that affect some of the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on the best estimate of management, taking into account historical experience and analysis of all factors of significance in the circumstances as of the date of the consolidatedfinancial statements. The actual results could differ from those estimates, presented in these consolidated financial statements.

2.6. Subsidiary companies and consolidation

The consolidated financial statements incorporate the financial statements of the Parent company and its subsidiaries. A subsidiary is an entity that is controlled by the Parent company. Control is the power to govern the financial and operating policies of an enterprise, so as to obtain benefits from its activities.

In compliance with SIC 12 Consolidation - Special Purpose Entities, the financial statements of two entities are consolidated in their capacity of special purpose entities as of January 1, 2009 (see also note 31).

For consolidation purposes, the separate financial statements of the Parent Company, its subsidiaries and the controlled special purpose entities have been combined on a line-by-line basis by adding together items of assets, liabilities, equity, income and expenses. All intragroup balances as of September 30, 2011, June 30, 2011 and December 31, 2010 and intragroup transactions as of September 30, 2011, June 30, 2011 and 2010, as well as all intragroup profits and losses, including unrealised profits and losses as of September 30, 2011, June 30, 2011 and 2010 are eliminated in full. The carrying amount of the investments in each subsidiary, hold by the Parent Company or any of the subsidiaries and the Parent Company's portion of equity of each subsidiary are eliminated.

The results of subsidiaries, which have been acquired or disposed by the Group during the reporting period, are included in the consolidated statement of comprehensive income from the date of the acquisition, till the date at which control ceases.

Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly to the Parent Company. Non-controlling interest is represented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. In each business combination the acquirer measure any non-controlling interest in the acquiree either at fair value or by the proportional share of the non-controlling interest in the identifiable net assets of the acquiree.

2.6. Subsidiary companies and consolidation (continued)

Profit or loss or any component of the other comprehensive income is attributed to the owners of the Parent Company and non-controlling interests. The total comprehensive income is attributable to the owners of the Parent Company and non-controlling interests even if this results in the non-controlling interests having a deficit balance.

2.7. Associates

An associate is an enterprise over which the Group has significant influence. Significant influence is the right of participation in, but not control over, the financial and operating policy decisions of the investee.

Investments in associates are presented in the statement of financial position in accordance with IAS 28 Investments in Associates, using the equity method of accounting, according to which the investment is recorded initially at cost and adjusted by post-acquisition changes in the investor's share in the net assets of the associate.

2.8. Goodwill

Goodwill, arisen in business combination, is recognised as an asset at the date when control over the company, subject to business combination, is acquired. Goodwill represents the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of the acquirer's previously held equity interest in the acquiree over the net acquisition date amounts of the identifiable assets acquired and the liabilities assumed. When the acquisition cost is lower than the fair value of the net assets acquired by the Group, the acquirer should reassess the identification and measurement of the acquiree's identifiable assets, liabilities and the cost of the business combination and any excess remaining after that reassessment should be recognised immediately in profit or loss.

Subsequent to its initial recognition goodwill is not amortised, in compliance with IFRS 3 Business combinations, applicable for reporting periods after March 31, 2004. At the end of each reporting period a test for impairment is performed (see also note 4).

3. Definition and valuation of the statement of financial position and the statement of comprehensive income items

3.1. Property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets are initially carried at acquisition cost, including the purchase price, import duties and non-refundable taxes, as well as any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. After initial recognition, property, plant and equipment and intangible assets are stated at cost less accumulated depreciation/amortisation and impairment loss, if any (see also note 3.3).

When property, plant and equipment include significant items having various useful lives, such items are reported as separate assets.

Subsequent costs, including costs for replacement of components of property, plant and equipment are capitalised in the amount of the asset, if they satisfy the recognition principle. The carrying amount of the replaced item is derecognised in accordance with the requirements of IAS 16 Property, Plant and Equipment. All other subsequent costs are recognised as expenses for the period as incurred.

3.1. Property, plant and equipment and intangible assets (continued)

Depreciation and amortisation are charged over the estimated useful lives, using the straight-line method.

As of the end of each reporting period, the Group's management reviews useful lives and amortisation/depreciation methods of the property, plant and equipment and intangible assets. If differences between expectations and previous estimates are identified, changes are made in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 

The assets' estimated useful lives are as follows:

Depreciation of an asset begins in the month following the month in which it is available for use and ceases at the earlier of the date that the asset is classified as held for sale, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and the date of its derecognition.

Land, assets under construction and fully depreciated assets are not depreciated.

3.2. Investment properties

Investment property is a property held by the Group to accumulate rent income or to increase the equity value, or both (including property under construction for future use as investment property).

Investment property is measured at its cost less any accumulated depreciation and accumulated impairment losses, if any (see also 3.3).

Depreciation on investment property is charged in profit or loss by using the straight-line method, based on its estimated useful live.

The investment property's estimated useful lives are as follows:

As of the end of each reporting period, the Group's management reviews useful lives and depreciation methods of the investment property. If differences between expectations and previous estimates are identified, changes are made in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 

3.3. Impairment of property, plant and equipment, intangible assets and goodwill

As of the end of each reporting period, the Group's management estimates if there are indications for impairment of property, plant and equipment, intangible assets and goodwill. If such indication exists, the recoverable amount of the asset is estimated. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit, to which the asset belongs.

The recoverable amount is the higher of the asset's fair value less costs to sell the asset and its value in use. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. Impairment loss is recognised immediately as expense in profit or loss unless the asset is revalued when the impairment loss is reported as decrease in the revaluation reserve.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately as income in profit or loss.

Impairment loss is recognised for a cash-generating unit to which goodwill was allocated only if the recoverable amount is lower than its carrying amount. The impairment loss reduces the carrying amount of the assets in the cash-generating unit, first the carrying amount of goodwill is reduced and then, the carrying amount of other assets in the unit, pro rata on the basis of the carrying amount of each asset to the total amount of the unit. The impairment loss of goodwill could not be reversed.

3.4. Inventories

Inventories are stated at lower of cost and net realisable value. Cost comprises purchase price, transportation, customs duties and other similar costs. Net realisable value represents the estimated selling price less all estimated costs to be incurred in selling.

Upon consumption, the cost of inventories is calculated using the following methods:

3.5. Financial instruments

A financial instrument is a contract that gives rights to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

Financial assets and liabilities are recognised in the statement of financial position only when the Group becomes a party to the contractual provisions of the instrument. Financial assets are removed from the statement of financial position after the contractual rights for receiving cash flows have expired or the asset is transferred and the transfer meets the derecognition requirements under IAS 39 Financial Instruments: Recognition and Measurement. Financial liability is removed from the statement of financial position when, and only when, it is extinguished - that is when the obligation specified in the contract is discharged, cancelled, or expires.

On initial recognition financial assets (liabilities) are measured at fair value. Transaction costs, which are directly attributable to the acquisition or issue of the financial assets (liabilities), are included in their value, except when the financial assets (liabilities) are measured at fair value through profit or loss.

3.5. Financial instruments (continued)

For the purposes of subsequent measurement, in accordance with the requirements of IAS 39 Financial Instruments: Recognition and Measurement, the Group classifies the financial assets and liabilities as: financial assets (liabilities) at fair value through profit or loss; loans and receivables; financial liabilities at amortised cost. Classification in the respective category depends on the terms of the respective contract. The Group does not apply this classification of the assets and liabilities for the purposes of presentation in the statement of financial position

3.5.1. Financial assets (liabilities), measured at fair value through profit or loss

After their initial recognition these financial assets measured at fair value though profit or loss are measured at fair value as of the end of the reporting period and all differences from this value are recognised in profit or loss for the period in which they arise.

3.5.2. Loans granted and receivables

Loans granted and receivables are non-derivative financial assets with fixed or determinable terms for settlement, which are not quoted on an active market. The assets from this category are presented in the statement of financial position of the Group as receivables on interest-bearing loans, trade and other receivables and cash.

Receivables on interest-bearing loans, trade and other receivables

After its initial recognition, trade receivables and receivables on interest bearing loans are measured at amortised cost by using the effective interest rate method, less impairment loss, if any. Current receivables are not subject to amortisation. Impairment loss is accrued if any objective evidence exists, such as significant financial difficulties of the borrower, probability the borrower to be entered into liquidation and other (see also note 3.5.3).

Cash

For the purposes of the statement of cash flows preparation, cash comprise cash in hand, cash at banks and cash in transfer, with the exception of restricted cash, which the Group temporarily has no right to use.

3.5.3. Impairment of financial assets 

As of the end of the reporting period, the management reviews whether there is any indication for impairment of all financial assets, except for financial assets measured at fair value through profit or loss. Financial assets are impaired only when there is any objective evidence that as a result of one or more events occurred after their initial recognition, the expected cash flows have declined.

If any such evidence exists regarding assets measured at cost, the impairment loss is determined as the difference between the carrying amount and the present value of expected future cash flows discounted by the present market interest rate for similar assets.

Impairment loss on loans granted and receivables carried at amortised cost is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows, discounted by the financial asset's original effective interest rate. Impairment loss is immediately recognised in profit or loss. It is recovered if a subsequent increase of the recoverable amount could be objectively tied to the occurrence of an event after the date on which the impairment loss was recognised.

3.5.4. Financial liabilities at amortised cost

After their initial recognition, the Group measures all financial liabilities at amortised cost except for financial liabilities measured at fair value through profit and loss; financial liabilities originating when the transfer of an asset does not meet the derecognition conditions; agreements for financial guarantees, engagements for granting loans at an interest rate that is lower than the market interest rate. These liabilities are presented in the Company's statement of financial position as trade and other liabilities and Borrowings.

Trade and other payables

Trade and other payables incur as a result from purchased goods or services. Current liabilities are not amortised.

Borrowings

Interest bearing loans are initially recognised at fair value, determined from the cash proceeds less transaction costs. After initial recognition, interest bearing loans are measured at amortised cost, as any difference between the initial value and the value at maturity is recognised in profit or loss over the loan period, using the effective interest rate method. If no transaction costs have been incurred in negotiating an interest bearing loan, the loan is not subject to amortisation. The same applies to bank overdrafts, where the borrower is entitled to utilise or repay the borrowed funds many times within the pre-determined overdraft limit.

Finance costs, including direct costs for obtaining the loan, are accounted for on an accrual basis using the effective interest rate method, except for transaction costs on bank overdrafts, which are recognised in profit or loss on a straight line basis over the overdraft period.

The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or proceeds through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument, except for anticipated future impairment losses. The calculation includes all fees, transaction costs, premiums or discounts paid or received between parties to the contract that are an integral part of the effective interest rate.

Interest bearing loans are classified as current when they are expected to be settled within twelve month period after the reporting period.

3.5.5. Share capital and redemption of own shares

The share capital of the Parent Company is presented at historical cost as of the date of its registration.

When at the end of the reporting period the Group - through Parent company or subsidiary - has reacquired shares of the Parent company, their par value is presented as decrease of share capital, and the difference below or above the par value - in retained earnings, according to IAS 32 Financial Instruments: Disclosure and Presentation.

3.6. Deferred income and deferred expenses

The Group has recognised in the statement of financial position as deferred income and deferred expenses, income and expenses that are paid in the current, but refer to future reporting periods - guarantees, insurances, subscriptions, rents and other.

3.7. Retirement benefits obligations

The Government of the Republic of Bulgaria is liable to provide pensions according to defined retirement benefits schemes. Costs related to payment of contributions under these schemes are recognised by the Group in profit or loss in the period they occur.

In accordance with the Labour Code, the Group has an obligation to pay retirement benefits to its employees, based on length of service, age and labour category. In accordance with the requirements of IAS 19 Employee benefits and its provisions, the Group recognises the present amount of the benefits as a liability. All actuarial gains and losses and past service cost is recognised immediately in profit or loss.

3.8. Income tax

Income tax expense comprises current income tax and deferred tax.

The current income tax is based on taxable profit for the year by totalling of the current tax of each company within the Group specified in the individual tax returns of the Parent Company and its subsidiaries by applying the effective tax rate according to the tax legislation as of the date of the financial statements. Deferred tax is the income tax expected to be payable (recoverable) on taxable (deductible) temporary differences. Temporary differences are the differences between the carrying amount of an asset and a liability in the statement of financial position, and the corresponding tax basis. Deferred tax is calculated using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences, whereas deferred tax assets are recognised for deductible temporary differences, only to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on the information that the Group is provided for as of the date of the issuance of the financial statements. Deferred tax is recognised as an expense or income in profit or loss, except when they relate to items that are recognised in the same or other period outside profit or loss, either in other comprehensive income or directly in equity.

In this case the deferred tax is also recognised outside profit or loss either directly in other comprehensive income or directly in equity.

Although the taxation in Bulgaria is not performed on a consolidation basis, the Group has adopted a policy to recognise deferred tax assets (liabilities) on all temporary differences arising from the elimination of intra-group unrealised profits from sales of property, plant and equipment treated as temporary differences. The reversal of these temporary differences reflects in subsequent adjustments of depreciation costs in the acquirer or when the Group derecognises these assets and relevant margins are realised.

The current amount of deferred tax assets is reviewed at the end of each reporting period. The Group reduces their amount to the extent that it is no probable that sufficient profit will be available against which the deferred tax asset to be utilised.

Deferred tax assets and liabilities are reported on a net basis when they are subject to a unified tax regime.

In accordance with the tax legislation enforceable for the years ended 2011 and 2010, the tax rates applied for the calculation of current tax liabilities of the Group is 10%, respectively. For the calculation of the deferred tax assets and liabilities as of September 30, 2011, June 30, 2011 and December 31, 2010 the Group has used a tax rate of 10%.

3.9. Revenue and expenses recognition

3.9.1. Revenue from sales of goods, services and other income

Revenues and expenses are accounted for on an accrual basis, regardless of the date of cash receipts and payments. They are reported in compliance with the matching concept.

Revenue is recognised at the fair value of the consideration received or receivable, less any discounts allowed and includes the gross economic benefits received by or due to the Group. The amounts gathered on behalf of third parties such as sales taxes, like value added tax, are excluded from the income. Revenue generated from sale of fuel is reported on its gross amount with the excise due, which is considered an integral part of the price of the goods.

Revenue from sales of goods is recognised when:

·; The significant risks and rewards of ownership of the goods are transferred to the buyer;

·; The Group retains neither continuing managerial involvement nor effective control over the goods sold;

·; It is probable that the economic benefits associated with the transaction will flow to the Group;

·; The amount of revenue and costs incurred in respect of the transaction can be measured reliably.

When the outcome of a transaction involving rendering of services can be estimated reliably, revenue is recognised by reference to the stage of completion of the transaction at the end of the reporting period. When the outcome of a transaction cannot be estimated reliably revenue is recognised only to the extent that the expenses recognised are recoverable.

Gain or loss from sales of property, plant and equipment, intangible assets and materials is reported as other income or other expense.

When economic benefits are expected to arise during few reporting periods and their relation with the revenue can be determined generally or indirectly, expenses are recognised in profit or loss on the basis of procedures for systematic and rational distribution.

Profit or loss arising from the exchange of assets is stated at the amount equal to the difference between the fair value of the asset received and the carrying amount of the asset exchanged.

3.9.2. Finance income and finance costs

Borrowing costs that may be directly attributed to the acquisition, construction or production of a qualifying asset should be capitalised as part of the asset's cost. All other finance income and finance costs are accrued through profit or loss for all instruments measured at amortised cost by using the effective interest rate method.

3.10. Lease

3.10.1 Finance lease

Finance lease is a lease agreement which substantially transfers all risks and rewards incidental to the ownership of an asset.

Assets acquired under finance lease are recognised at the lower of their fair value as of the date of acquisition or the present value of the minimum lease payments. The initial direct expenses incurred by the lessee are included in the cost of the asset. The corresponding liability to the lessor is included in the Group's statements of financial position as obligations under finance leases.

Lease payments are divided in interest payments and payments on principal so that a constant interest rate of the residual lease liability is obtained.

Finance lease causes depreciation expense for depreciable assets as well as finance expense for each reporting period. The depreciation policy for depreciable leased assets is consistent with the same for owned depreciable assets.

For the purpose of presenting the financial instruments in categories, defined in accordance with IAS 39 Financial Instruments: Recognition and measurement, liabilities under finance lease are classified as financial liabilities at amortised cost.

3.10.2. Operating lease

Costs incurred for assets leased under the operating lease contracts are recognised through profit or loss over the terms of the contracts under the straight-line method.

Revenue realised from assets under operating lease contracts is recognised through profit or loss on a straight-line basis over the term of the lease contract. Initial costs directly related to the signing of the lease contract are capitalised in the cost of the asset and recognised as expenses on a straight-line basis over the term of the lease contract.

3.10.3. Leaseback agreements

A leaseback transaction is related to the sale of an asset and the hiring back the same asset. The accounting treatment of the leaseback depends on the type of the respective lease contract and the nature of the transaction.

If the leaseback is a finance lease, the transaction is a mean of granting financing to the lessee by the lessor and the asset serves as collateral. If according to the provisions of the finance lease contract there are no changes in the right of use of the asset by the seller/lessee before and after the transaction, then the transaction is not within the scope of IAS 17 Leases and is, in fact, financing. In this case, the proceeds received from the transaction are presented as Borrowings in the statement of financial position, while the direct costs incurred by the lessee during the transaction are deferred for the period of the lease contract.

3.11. Segment reporting

Operating segments data in these consolidated financial statements is presented likewise the operating reports submitted to Group's management. Based on these reports decisions are taken in respect of the resources to be allocated to the segment and the results of its activity are evaluated.

4. Critical accounting estimates and key sources of estimation uncertainty

In the application of the adopted accounting policy, management makes certain estimates which have significant effect on these consolidated financial statements. Such estimates, by definition, may differ from actual results. Due to their nature, they are subject to constant review and update, and comprise the historical experience and other factors, including expectation of future events, which the management believes are reasonable under the present circumstances.

A critical accounting estimate, which includes significant risk of considerable adjustments to the carrying amount of assets and liabilities in subsequent reporting periods, is the test for impairment of goodwill, arising from business combination. As of the end of the previous reporting period review of the carrying amount of the goodwill was performed. As a result goodwill arising from the acquisition of Naftex Security EAD was impaired (see also note 18).

5. Segments reporting

The Group has identified the following operating segments based on the reports presented to the Group's management which are used in the process of strategic decision making:

·; Wholesale of fuels - wholesale of oil products in Bulgaria in own storage facilities of the Group; fuel bunkering abroad;

·; Retail of fuels - retail of oil and other products in network of own petrol stations; servicing of petrol stations and the belonging commercial objects;

·; Other activities - transportation of fuel with own and hired vehicles; rental income and other activities.

5. Segments reporting (continued)

The policies for recognition of intra-group sales and sales to external clients for the purposes of the reporting by segments are not differing from these applied by the Group for revenue recognition in the consolidated statement of comprehensive income.

The Management of the Group evaluates the results and assesses the performance of the segments on the basis of the adjusted EBITDA. In the calculation of the adjusted EBITDA is not taken into account the effect of impairment of assets.

The reconciliation of the adjusted EBITDA and the loss before tax is presented below:

6. Revenue

7. Other income

8. Materials and consumables

9. Hired services