LPC 1981. In 1982, the refinery production plant

LPC SA operates simultaneously at industrial
production of basic lubricants, at production and selling of prepackaged
lubricant products as well as at selling paraffin and other products of oil.
LPC’s major aim is to give her clients high quality products in order to
satisfy their needs and at the same time show respect to community and
environment.

Historical
background

The company was founded in 1981.

In 1982, the refinery production plant for
basic lubricants was launched. It was created using the most modern standards
of construction and the technical know-how of the top experts under the
guidance of the Italian company TECHNIPETROL.

IN 1986, LPC launched its blending plant. This gave
the opportunity to the company to produce final lubricants. Moreover, in the
same year the company expanded its operations of selling paraffin.

In 1988, the company, for the first time in
Greek market, developed and started selling self-made lubricants under the
brand name “CYCLON”. LPC organized a pan-Hellenic sales network.

Three years later, in 1991, the company started
to export its products.

In 1993, a new production plant was launched
that gave the capability to produce a different type of lubricants (Bright
Stock). LPC S.A. became the only company in Greece that could produce this
specific fraction of basic mineral oil.

In 1994, the company reconstructed its
production lines something that helped to grow its capacity of production from
25,000 to 40,000 tons per year.

Five years later, in 1999, LPC started to
operate in the fuel market and created a network of service stations named
“CYCLON”.

In 2001, the company changed its brand name in
“CYCLON Hellas S.A.” and started to trade its shares in the Athens Stock
Exchange.

From 2002 until 2013, the company proceeded to
various buyouts and establishments of companies in Bulgaria, Romania, Libya and
Serbia.

Finally, in 2015 “CYCLON Hellas S.A.” was split
in two separate fields (fuels and lubricants). Fuels field was absorbed by
“AVINOIL S.A.” whilst lubricants contributed to the newly established LPC S.A.

LPC S.A. in 2016

In the last three years the exports of the
company as far as the field of lubricants is concerned face an upward trend.
This is something that is expected to continue in the upcoming years certifying
company’s exporting orientation.

Furthermore, fiscal year 2016 is characterized
by a consecutive reduction of the company’s expenses (approximately 0.1%)
compared to the year before which was also decreased by 5% compared to 2014.
The annual turnover amounted to €66,728 and EBITDA equaled €4,922.
The company during 2016 increased its sales in lubricants by 19.5%.

·        
Sales
in lubricants total 65,582 MT

·        
Sales
in natural gas total 297MW

The gross profit ratio reached 16%.

However, due to the economic recession an
extremely unstable setting exists and make the company believe that sales will
be affected unfavorably in the forthcoming period and until the country spring
back to a more stable economy. Considering those facts, the company preserves
its main strategy to rise and expand sales network paying mostly attention to
sales abroad. In addition, they implement techniques in order to secure sales,
credits and liquidity and endorse its clientele and minimize as much as
possible credit risk.

 Organization

·        
Grow
the exports operations in lubricants field.

·        
Intensify
collecting waste oils in internal market.

·        
Develop
new collaborations based on new sources of raw materials (waste oils) and
expansion in Mediterranean and Balkan states.

·        
Reduce
the days of credit to clients in order to reduce the credit risk.

·        
Elaborate
activities for “AVIN” lubricants which are managed by LPC.

·        
Discover
new synergies with the Group’s companies aiming at a further reduction of
costs.

·        
Upgrade
rendering of services for lubricant customers.

·        
Upgrowth
a new delegation of “Valvoline”.

Business activities

LPC owns a contemporary refinery for the
production of mineral oil products in Aspropyrgos, Attica where they
manufacture a wide range of lubricants which can cover the market’s needs.
Meantime, those facilities are the only that produce the heavy mineral oil
called “Bright stock” in Greece.

The refinery’s facilities can be divided into
the following segments:

·        
Production
of basic lubricants

The technologically advanced production process
of the refinery has as a result the production of base mineral oils with a very
high quality that can cover the modern and the most challenging standards in
their class. (??????
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???????????)

·        
Finishing
of lubricant products- Storage/Logistics

The company produces and packages almost 50,000
metric tons ready to use lubricants. In its production facilities about 200
different types of lubricants are being produced so as to cover the needs of
every type of machinery and vehicle for lubrication. This segment manages blending
and packaging.

After packaging final products are being
transported and remain at warehouses until being placed in the market.

·        
Biological
cleaning and treatment unit

Company’s ultimate goal is to minimize the use
of natural resources and to recycle as much as possible processed liquid
wastes. LPC invests to the implementation of new technologies for the process
of liquid wastes and in this context and philosophy the biological cleaning
unit operates very successful at their premises, at Aspropygos’ refinery.

·        
Product
development and quality assurance unit

In alliance with the proficient departments of
the company, new products are being developed which cover the highest standards
in a continuously evolved lubricant market whilst during the phases of
production, packaging and storing are being under review in order to secure the
quality of products. The Safety, Health and Quality department in conjunction
with the Chemical unit which is highly apparatus and certified are responsible
for the quality maintenance of all the produced and traded products of the
company.

 

Products and
Customers

PLC offers to its clientele both final products
and services.

Considering as main goal the quality excellence,
the company provides lubricant products to commercial customers, industries,
shipping and for special uses. Studying carefully the requirements from the
application of lubricants and also the peculiar needs of final users of those
products they put emphasis on the advocacy of solutions based on technological
novelty, maintain stable caliber, cost less for the end-consumer while do not
burden the environment.

LPC supplies the market with the following
types of commodities:

·        
Basic
lubricants, vehicle lubricants, industrial lubricants, marine lubricants,
grease

·        
Special
products

·        
Paraffin

Observing customers’ necessities but also and
the international trends and developments LPC tries to find alternatives so as
to provide them with better services as a return for their affinity to
company’s products. In that way, the company has developed a set of services through
web services that give customer the opportunity to handle and monitor the
condition of the lubricant in use and the lubricated machinery/engine.

 

Competition

Greek lubricant market

The demand on automotive lubricants is affected
both by the evolution and compound of the fleet of in-service vehicles as well
as by technological advances in both engine and lubrication.

The market of vehicle and industrial lubricants
follows a downward trend during the last 8 years. The same applies for the
market of marine lubricants.

The total domestic automotive lubricants’
market has a downward trend in recent years while the consumption was estimated
about 34 million litres in 2014 and for 2015 it was observed a further decline
of about 4%. Based on sectorial studies this trend in consumption is expected
to be followed until 2018 but at a lower rate of decline.

Timeless
shrinkage of domestic lubricant consumption is due to a number of factors. New
technology engines do not require frequent changes in lubricants compared to
older ones. The
advancement of lubricants’ synthesis also contribute to the reduction of
lubricants’ consumption. Moreover, due to the economic recession the use of
vehicles has been decreased whilst the intervals of the lubricant change has
been extended.

The domestic consumption in industrial
lubricants in 2014 was about 15.5 million litres with a further reduction of
about 10% in 2015 while for 2016 it was projected that this percentage would
remain stable. The main reason for this dent was the cut down of the industrial
production due to the recession.

The total market for marine lubricants has been
lessened by 6.3% in 2014 compared to 2013 reaching 27,000 tons where it was
stabilized for the years 2015 and 2016.

 

Transfer pricing
analysis

Overview

On 1st of January 2014 a new tax
bill was approved by the Greek Parliament for the Code of Income Taxation (l.
4172/2013) which brought numerous changes to the tax rules affecting
individuals and companies.

Furthermore, the Greek Ministry of Finance has
issued a ministerial decision that provides guidance on the contents of the
transfer pricing documentation file, the parties subject to the transfer pricing
rules and exemptions thereby, language requirements, transfer pricing
documentation methods and the content of the summary information table
(SIT).the ministerial decision POL 1097 provides guidance and clarifications on
Greek transfer pricing rules and documentation requirements under the new tax
regime.

Deadline for the submission of the Summary
Information Table (SIT)

According to the ministerial decision until
2016 the deadline for the submission of the SIT was the end of the fourth month
following the taxpayer’s fiscal year end. After the amendment to the Code of Tax Procedures (l. 4174/2013) by law 4410/2016
the deadline for the submission of the SIT and the Greek transfer pricing file
deferred to the deadline for submission of the annual income tax return.

The summary of the information has to be filled
and submitted electronically on the web page of the General Secretariat of
Information Systems (GSIS) – www.gsis.gr – of the Greek Ministry of Finance
whilst it should not be considered in any way complete and sufficient transfer
pricing documentation that gives evidence for the compliance of the taxpayer’s
intragroup transactions with the arm’s length principle.

Companies and transactions subject to
documentation requirements

When determining the companies which are liable
for the documentation of the transfer pricing file and the submission of the
summary information table the scope of article 2 of the Income Tax Code