MOL Reports 'Strong Operational Results' for 2011

Hungary's major oil firm MOL Group announced Friday what it described as "strong operational results" for 2011 despite a continuing challenging environment. The firm reported an EBITDA profit of $3 billion (HUF 644 billion), representing an improvement of 6 percent year-on-year, while its operating profit of $1.55 billion (HUF 335 billion) matched that reported for 2010.

With a $1.53 billion (HUF 330 billion) contribution, MOL's Upstream operations remained the main driver of the operating profit. This segment's results were boosted by higher realized hydrocarbon prices and elevated hydrocarbon production from international operation. 
Royalty payment in Hungary of $473 million (HUF 102 billion) was 14 percent higher due to increased royalty rate and hydrocarbon prices.
The firm's Downstream result, excluding special items, slipped into the negative territory – $9.3 million (HUF 2 billion) loss – due to a depressed external environment and refinery stoppages in Croatia. While the ‘Clean’ CCS-based operating result of the Refining & Marketing segment was negative $97 million (HUF 21 billion), excluding INA it achieved $232 million (HUF 50 billion) profit emphasizing the strength of our complex assets.
Operating profit of Gas Midstream increased year-on-year. The group paid almost $134 million (HUF 29 billion) as its contribution to Hungary's 'crisis tax'.
The group's net profit reached $705 million (HUF 152 billion) in 2011 after a $482 million (HUF 104 billion) net profit in 2010. While operating profit level was maintained despite external and internal challenges, implementation of net investment hedge accounting led to a significant improvement on the financial line, said MOL.
Operating cash flow before movements in working capital increased by 19 percent and amounted to $2.8 billion (HUF 611 billion). Despite high working capital need, in line with the higher price levels, $1.7 billion (HUF 372 billion) operating cash inflow was reached in 2011. Decreased net debt position and further improvement of gearing ratio (28 percent) at the end of the period was derived from the firm's strong operational results.
"Despite the unexpectedly tough business circumstances in downstream operation, challenging macro and regulatory environment and well-known Syrian developments we were able to grow further on the back of our diversified international upstream portfolio," said MOL CEO Zsolt Hernádi. "In order to ensure future growth in upstream as well, we are aiming to accelerate our investment programs and focus more on Russia, Kazakhstan and Kurdistan Region of Iraq. Moreover, we continue our work program in our core CEE countries, exploiting our decades-long experience. In 2011, we booked more than 100 Mmboe of reserves which provides solid basis for our mid-term production growth targets."
Hernádi continued: "Downstream delivered weak performance. However, we are expecting improvement and are planning some selected investments as we did in the past. Our financial position improved further over 2011 ensuring a solid basis for our organic growth plans, moreover, we are continuously evaluating potential inorganic steps as well. For these plans our diversified credit facilities, the maturity of which were extended, ensures financial flexibility and we do not have any additional external financing need in 2012."
  • Upstream operating profit, excluding special items increased by 16 percent to $1.5 billion (HUF 330 billion) in 2011 compared to the previous year. This profit growth derived from combination of positive effects, such as increased production volumes in foreign markets and 26 percent higher realized hydrocarbon prices in line with increasing international quotations. Positive effects were moderated by the lack of Syrian revenues in Q4 and stronger HUF against USD. Royalties on Hungarian production of MOL amounted to $473 million (HUF 102 billion), which is 14-percent increase compared to the base period. 
  • Downstream realised an operating loss of $9.3 million (HUF 2 billion) in 2011, excluding special items. Profitability was negatively influenced by external factors, like higher oil price, which increased the costs of own consumption, lower average crack spreads, worsening petrochemical environment as well as refinery stoppages. Improving product slate and further internal efficiency improvements just partly mitigated the negative effect of depressed environment. On the other hand, operating profit of the segment, excluding INA contribution and special items is still relatively high and reached $274 million (HUF 59 billion). 
  • Gas Midstream segment’s operating profit, excluding special items accounted for $306 million (HUF 66 billion) in 2011. The most important profit contributor remained the FGSZ (gas transmission business), however the temporary freeze of gas tariffs from 1 July 2010 carried over negative effect for the H1 2011 result of gas transmission business.
  • The net financial expenses were halved compared to 2010 level and amounted to $264 million (HUF 57 billion) in 2011. In 2011 a net foreign exchange gain of $260 million (HUF 56 billion) was recognized (due to the fact that from Q3 2011 foreign exchange losses has been recognized in equity due to the implementation of net investment hedge accounting), compared to the loss of $218 million (HUF 47 billion) in 2010. Fair valuation gain on the conversion option embedded in the capital security issued in the monetization of treasury shares by Magnolia Finance Ltd. was HUF $49 million (10.5 billion). In addition, a loss of $282 million (HUF 60.8 billion) has been incurred on the fair valuation of the call option on MOL shares owned by CEZ. The change in the fair values of both instruments reflects the stressed MOL share prices and weakening HUF against EUR experienced in H2 2011. 
  • CAPEX spending was $1.3 billion (HUF 274 billion) – 18 percent lower than in the previous year – in full year. The investments focused on CEE region, Russia and Kurdistan Region of Iraq in Upstream, on Thermal Power Plant revamp at Bratislava refinery and finalization of Rijeka refinery modernization in Downstream. 
  • Net profit for the period increased to $705 million (HUF 152 billion in 2011), increasing by 46 percent year-on-year, as a combined effect of stable operating performance and improving financial line. 
  • Operating cash inflow decreased by 2 percent compared to FY 2010 and amounted to $1.7 billion (HUF 372 billion). Operating cash flow before movements in working capital increased by 19 percent. 
  • Net debt position decreased to $4.2 billion (HUF 900 billion) during the year, despite a weakening forint, resulting in an improved, 28 percent gearing ratio at the end of December 2011 compared to 31.3 percent at the end of 2010.