Downstream

Extraordinarily unfavourable developments in the external environment, almost disappearing heavy light differentials, and refinery stoppages in Croatia, put an unusual heavy pressure on downstream profitability, further worsened by seasonal trends in Q4 2011. Moreover, the petrochemical division turned into negative as margins dropped to historical low levels in H2. Excluding INA’s contribution, MOL is still well above the break-even in clean figures.

Fourth quarter 2011 results

Worsening external conditions compared to Q3 2011:

  • further shrinking Brent-Ural spread, which occasionally turned to premium in Q4, and slightly lower average crack spread kept refining margin under pressure
  • further eroding petrochemical margin to new historical low levels.

Operating performance development

Downstream operating loss excluding special items was significantly higher compared to both Q3 2011 and Q4 2010 results. In comparison with the previous quarter, result was weighed by higher operating costs. Seasonal factors already had a boosting effect on that which was further increased by upward trending energy costs and maintenance activities at the refineries (HUF 13bn together). Furthermore, contribution of Retail business was lower by HUF 6bn as a result of weakening purchase power of households and seasonal reasons.

Refining and Marketing segment’s ‘clean’ CCS-based operating result eroded further. Compared to Q3 2011:

  • main negative effects of: (1) worsening external conditions, including result erosion from tightening light heavy crude differentials; (2) increasing energy and maintenance costs (HUF 13bn); (3) weaker HUF on operating costs (4) higher depreciation costs (HUF 5bn) as a result of assets put in use upon completion of the refinery development projects at INA;
  • slightly moderated by (5) positive effects of efficiency improvement programs and (6) efforts to maintain sales margins despite high price environment.
  • However, excluding INA contribution ‘Clean’ CCS-based operating profit of the Group is still in the positive territory (HUF 4 bn). At INA besides aforementioned factors planned turnaround of the Rijeka refinery and costs related to Sisak restart put weigh on the ‘clean’ CCS-based result (HUF –33 bn).

Reported operating profit was weighed by the following one-off items:

  • HUF 35bn impairment on IES goodwill reflecting deteriorating downstream outlook pursuing the Group’s conservative accounting policy;
  • HUF 6bn provisions made for competition council fine at MOL Romania, already appealed by the company as well as filing a motion to suspend the execution;
  • HUF 7bn crisis tax imposed on the energy sector.

Petrochemical divison’s operating result, excluding special items, showed a loss of HUF 8.9bn in Q4 after integrated petrochemical margin, which was already at historical low in Q3, dropped further in this quarter.

Market trends and sales analysis

The consumption of motor fuels in the CEE region decreased due to worsening economic outlook, resulted in a decline already in diesel demand as well.

MOL Group’s total refined product and petrochemical sales decreased by 1% as market demand remained depressed especially in the SEE countries. However, decline in motor fuels sales were more moderated than that of the whole market.

Total retail sales volume (incl. LPG and lubricant volume) decreased by 2% to 861 kt in Q4 2011 compared to Q4 2010.

  • In Hungary, retail fuel sales decreased due to excise tax increase from 1st  November 2011
  • In Slovakia, due to intensive investment program market share was maintained.
  • In Croatia, sales was lower due to worsening market environment and as a consequence of the reduced number of filling stations due to lease contract expires. 
  • In Romania, sales volumes increased on the back of improving market share.

Full year 2011 results

Operating performance development

Downstream operating profit, excluding special items showed a loss of HUF 2bn versus previous year’s profit of HUF 59bn. Both external conditions and refinery stoppages had a serious negative effect on our reported results compared to FY 2010:

  • negative effects of: (1) higher volume of own consumption and loss due to refinery stoppages (~HUF 10 bn); (2) increased price of purchased energy as well as higher price of crude utilized for own consumption; (3) lower average crack spread; (4) lower integrated petrochemical margin; (5) strengthening HUF against USD;
  • positive effects of: (6) still higher light heavy crude differentials; (7) improving product slate increasing diesel production while decreasing fuel oil output (8) efficiency improvement programs.
  • In this negative environment the Group focused on internal improvements, such as (1) increasing market share on our CEE markets, (2) implementation of efficiency improvement programs with special focus on energy costs and (3) decrease of fuel oil production with further optimization.

Refining and Marketing segment’s ‘clean’ CCS-based operating performance turned to negative.

  • Weak performance mainly came from INA downstream (HUF –72 bn contribution) as a result of
    • higher volume of own consumption and loss due to operational challenges at the new plants in Rijeka and fire incident in Sisak refinery;
    • 11% lower INA sales partly as a result of declining onshore sales due to the deteriorating economic environment. On the other hand, Mediterranean sea export was lowered intentionally reflecting the unfavorable profit contribution.
  • Despite seriously deteriorating external environment  ‘clean’ CCS-based operating profit of MOL refineries, excluding INA’s contribution, remained profitable (HUF 50 bn). 

Total refinery throughput remained flat in 2011.  Utilization of our most complex assets increased further but the utilization of Croatian refineries remained under pressure.

Petrochemical division’s operating result, excluding special items, turned into negative during H2 as integrated margins dropped to historical low levels. Moreover, profitability was also weighed by increasing energy costs.

Market trends and sales analysis

Market consumption of motor fuels in the CEE region was flat in FY 2011.

  • Diesel demand increased due to strengthening export activity of regional economies especially in the first half of the year as well as higher agricultural consumption due to favourable weather conditions.
  • Gasoline consumption dropped by more than 5% (mainly private sector) due to weaker purchasing power and 34% higher gasoline quotations

MOL’s total refined product and petrochemical sales grow above market average in FY 2011. The Group’s total sales in motor fuels increased by 4% y-o-y while the core market booked shrinking. Accordingly, our market share increased to 21% from 20% in the CEE region in-line with our strategic goals. 

Total retail sales volume decreased by 1% in 2011 compared to 2010. Dropping gasoline and increasing diesel consumption and sales were experienced on regional retail market.

  • In Hungary, gasoline sales dropped due to extremely high fuel prices, diesel and LPG volume increase in line with export driven economic growth. Our retail fuel sales volume remained mostly flat (-1%) but our market shares increased to 36.4%.
  • In Slovakia, CAPEX more than doubled, market share maintained within SAPPO (Slovakian Oil Association) above 36%.
  • In Croatia, sales volume decreased with 22 less petrol stations in Croatia partly as a result of Crobenz sales and worsening market environment.
  • In Romania, market share increased above 12%, shop sales revenue went up by 8% as a result of an intensive promotional activity.