Annual Report 2014



In 2014, MOL Group delivered a clean CCS EBITDA of HUF 511bn (or USD 2.2bn) which is a mere 1% decrease in HUF terms compared to 2013.

In Upstream, the 24% or HUF 86bn decrease, excluding special items, was mainly attributable to a lower oil price, the natural decline of matured assets and adverse regulatory changes. The combined effect of a regulated gas price reduction and doubled royalties in Croatia reached HUF 20bn in 2014. Moreover, the impact of asset divestures in Russia (ZMB in Q3 2013 and 49% of BaiTex LLC in Q1 2014) has only been partially mitigated by new asset purchases in the North Sea and intensified field development activities in our international operations. However, the Upstream division met its strategic targets, delivered the production level forecasted, and lower lifting costs in 2014 on a like-for-like portfolio basis.

The Downstream division’s clean CCS results were 32% ahead of similar figures in 2013. MOL Group’s refinery margin, as well as the integrated petrochemical margin, widened, which, together with better retail performance, supported the results. The implementation of efficiency improvement measures also played a key role in the outstanding results. In 2014, MOL Group successfully completed its three-year New Downstream Program, which delivered a USD 500mn improvement, hence elevating the results. However, a few planned and unplanned shutdowns and the non-recurring costs of the Mantua Refinery conversion hindered the full capture of more favourable market conditions.

Gas Midstream’s contribution was more than 37% lower than a year ago. This significant drop was a result of an enforced gas inventory sale due to regulatory changes in Croatia, and a lack of revenue from storage following the sale of MM BF in Q4 2013.

In 2014, MOL Group generated HUF 422bn operating cash flow, before working capital changes, which was 16% behind the 2013 value. The decrease reflects the fact that reported EBITDA shrank (by HUF 113bn) well ahead of clean CCS figures on a similar basis (down by HUF 5bn).

  • Upstream: The Upstream division’s EBITDA, excluding special items, reached HUF 270bn - lower than 2013’s performance by 24%. This was negatively affected by: (1) lower average realised hydrocarbon prices due to unfavourable changes in oil and gas prices; (2) the reduction of the regulated gas price and doubled royalties in Croatia; (3) lower production from matured CEE assets and due to Russian divestures (ZMB in Q3 2013 and 49% of BaiTex LLC in Q1 2014); (4) higher exploration costs in relation to accelerated international work programmes; and (5) an increase in Q1 2013 Upstream performance by HUF 8bn non-recurring revenue due to a modification to the transfer parity of Croatian crude oil.
  • Downstream: In Downstream, clean-CCS-based EBITDA came in 32% stronger and amounted to HUF 206bn. The improvement was supported by: (1) a 23% uplift of the integrated petrochemical margin; (2) a significantly improved retail contribution supported by a sales increase in core countries and higher captured margins; (3) the widening Group refinery margin by over 1 USD/bbl, (4) positive sales margins development; and (5) the implementation of New Downstream Efficiency measures.
  • Gas Midstream: In 2014, EBITDA, excluding special items, amounted to HUF 37bn, 37% lower compared to the base period. This significant drop is a result of an enforced gas inventory sale due to regulatory changes in Croatia and lack of storage revenues following the sale of the Hungarian storage unit (MM BF) in Q4 2013 (HUF 21bn contribution in the base period). The Hungarian gas transmission business delivered solid results in light of a further cut in regulated returns in November 2013.
  • Corporate and other divisions delivered an EBITDA improvement of HUF 21bn in 2014 and amounted to HUF (22bn). Beyond costcutting measures in the corporate centre, this was mostly attributable to higher contributions from oil service companies due to a better utilisation rate of rigs.
  • Net financial expenses rose to HUF 104bn in 2014 compared to HUF 58bn in the base period, mainly as a result of the weakening HUF, which was mostly represented in net foreign exchange losses on borrowings and payables.
  • CAPEX spending reached HUF 534bn in 2014, of which HUF 135bn targeted inorganic investments mainly through the completion of North Sea acquisitions and a retail network acquisition composed of 44 stations in the Czech Republic. Organic CAPEX amounted to HUF 399bn. Consistent with our strategy, organic CAPE X spending was skewed to Upstream with HUF 205bn spent. Downstream CAPEX grew nearly 100% year-on-year and organic expenditure amounted to HUF 173bn, 44% of which relates to the construction of the Butadiene plant, the LDPE4 unit and the reconstruction of the Friendship I crude oil pipeline, while the remaining 56% is made up by maintenance, sustain, legal and efficiency spending.
  • Operating cash flow before working capital changes dropped by 16% to HUF 422bn mostly due to lower Upstream cash generation. Operating cash flow amounted to HUF 435bn (lower by 29% compared to the base period), which also reflected higher cash outflows in the working capital lines.
  • The decreasing trend of indebtedness ratios stopped, however still remained on favourable levels. The slight increase is partially due to cash outflow regarding the current year’s upstream and retail asset acquisitions, and partially due to FX changes. The Net gearing ratio increased to 19.6% at the end of the period, increasing by close to 4 percentage points against the base period, while net debt to EBITDA reached 1.31 by the end of the year.

* In 2014, the intersegment line contains HUF 4,848mn (USD 21mn) non-recurring inventory loss related to methodology changes, which impacted the Group CCS line. Notes and special items listed in Appendix I and II.