Summary

Fourth quarter 2011 results

In Q4 2011 EBITDA (HUF 151 bn) increased compared to the previous quarter and was in line with the base quarter, however, operating profit (HUF 62 bn) lagged behind them (both excluding special items). In the Group figures profitable operation of Upstream and Gas Midstream segment was weakened by the loss making Downstream segment.

In Q4 2011 Upstream operating profit, excluding special items increased by 6% to HUF 87 bn, compared to the previous quarter. While Hungarian performance was weighed by regulated gas prices, international operation performed well. Result was supported by higher sales in Croatia towards the Sisak refinery and the stronger USD while it was dampened by the lack of Syrian revenues. Downstream was suffering from steadily high oil price level. Its operating result, excluding special items, showed further deterioration (HUF -41 bn) due to this extraordinary unfavourable environment and weaker retail profitability. Moreover, petrochemical margin dropped to historical low putting further weight on segment result. However, ‘clean’ CCS-based profit of Refining and Marketing excluding INA is still profitable (HUF 4 bn). Gas Midstream contribution was stable as seasonally stronger quarter was offset by deeper losses at INA’s gas trading unit.

Full year 2011 results

In 2011 MOL delivered strong operational result despite the still challenging environment. HUF 644 bn EBITDA represented a 6% y-o-y improvement, while operating profit of HUF 335 bn (both excluding special items) practically matched the result of the previous year.

With HUF 330 bn contribution Upstream remained the main driver of the operating profit. Segment result was boosted by higher realized hydrocarbon prices and elevated hydrocarbon production from international operation. Royalty payment in Hungary (HUF 102 bn) was 14% higher due to increased royalty rate and hydrocarbon prices. Downstream result, excluding special items, slipped into the negative territory (HUF -2 bn) due to depressed external environment and refinery stoppages in Croatia. While the ‘Clean’ CCS-based operating result of the Refining & Marketing segment was HUF -21 bn, excluding INA it achieved HUF 50 bn profit emphasizing the strength of our complex assets. Operating profit of Gas Midstream increased year-on-year. The Group paid almost HUF 29 bn as crisis tax in Hungary.

Net profit of the Group reached HUF 152 bn in 2011 after HUF 104 bn 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.

Operating cash flow before movements in working capital increased by 19% and amounted to HUF 611 bn. Despite high working capital need, in line with the higher price levels, HUF 372 bn operating cash inflow was reached in 2011. Decreased net debt position and further improvement of gearing ratio (28%) at the end of the period was derived from strong operational result.

Mr Zsolt Hernádi, MOL Chairman-CEO commented:

“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. 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.

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% to HUF 330 bn 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% 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 HUF 102 bn, which is 14% increase compared to the base period.

Downstream realised an operating loss of HUF 2 bn 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 HUF 59 bn.

Gas Midstream segment’s operating profit, excluding special items accounted for HUF 66 bn in 2011. The most important profit contributor remained the FGSZ Ltd (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 HUF 57 bn in 2011. In 2011 a net foreign exchange gain of HUF 56 bn 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 HUF 47 bn 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 10.5 bn. In addition, a loss of HUF 60.8 bn 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 HUF 274 bn (18% 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 HUF 152 bn in 2011, increasing by 46% year-on-year, as a combined effect of stable operating performance and improving financial line.

Operating cash inflow decreased by 2% compared to FY 2010 and amounted to HUF 372 bn. Operating cash flow before movements in working capital increased by 19%.
Net debt position decreased to HUF 900 bn during the year, despite weakening forint, resulting in an improved, 28% gearing ratio at the end of December 2011 compared to 31.3% at the end of 2010.