MOL GROUP Annual Report

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In Slovakia sales volumes recovered in2010Romanian retail volumes decreased by2% on lower number of stationsSignificant increase in Croatia, 7%even without INAHungarian Petroleum Association, the Hungarian retail fuel market decreased by9% in 2010 vs. 2009). Main reasons of the demand decrease were the still depressedeconomic environment, outbound fuel tourism to the neighbouring countries andthe higher retail fuel prices resulted from higher product quotations, VAT and excisetax compared to the previous year. Moreover, the most price sensitive customersturned to white pumpers and also consider E85 as an alternative product offerin depressed economic climate. Our gasoline, diesel and LPG sales decreasedby 16%, 7% and 4%, respectively. The retail market was characterized by strongprice competition both in fuel and non-fuel sector and our retail fuel market sharedecreased slightly (35.8% in 2010 vs. 36.5% in 2009), according to MÁSZ. The ratioof fleet card sales to our total fuel sales increased to 39% in 2010 from 35.5% inbase year. This was a relative improvement due to the drop of cash purchases. Shopsales decreased by 4% in 2010 compared to 2009 due to the fact that economiccrisis is pushing costumers away from convenience retail channel and also from carwash business. Price increase of tobacco products could not balance lower sales oftraditional food products like soft drinks, alcohol products and chocolates.In Slovakia, our total retail fuel sales volume increased by 13% in 2010 year-on-year,in line with the start of economic recovery and partially as a result of reduced excisetax rate of diesel since 1 February. The increase both in gasoline and diesel sales isalso attributable to the effort of the business to strengthen customer loyalty andto gain new customers through the BONUS program. The increase in gasoline saleswas 3% in 2010 and the growth in diesel sales was 21% year-on-year due to transittraffic (5% and 24% growth in the Q4 2010 respectively). The fuel card sales were 9%higher than in 2009 due to diesel sales. Despite of the growth, the proportion of fuelcard sales in total fuel sales fell by 0.9 percentage points to 28% in 2010 year-on-year.In Romania, our fuel sales decreased by 2% which is lower than the trend on themarket in 2010, MOL’s market share increased to over 11%. The decrease in salesvolume mainly caused by the lower number of filling stations and the lower marketdemand. In addition the average throughput per site increased by 3.5% year-onyearas a result of stronger efforts taken to boost network’s efficiency. The fuelcard sales volume was mainly affected by the economic downturn and decreasedby 7% in 2010 vs. 2009. The shop sales revenue went up by approximately 5%(RON terms) in 2010, exceeding the average Romanian retail market performance.In Croatia, retail sales volume increased by 487 kt in 2010 year-on-year includingINA’s full year contribution (478 kt). Croatian retail sales volume, excluding INA,which practically means Tifon’s performance increased by 7% year-on-year andamounted to 150 kt in 2010. Additionally according to the decision of the CroatianCompetition Agency INA Group was obliged to sell 14 filling stations of Crobenz.Significant operating profitimprovement in 20106% higher integrated petrochemicalmargin1% increase in polymer productionOngoing sales and marketing strategyimplementation – focusing and differentiationOlefin sales - improves steam crackerutilizationPetrochemicals segment hit the highest ever net sales figure by achieving 35%improvement in 2010, compared to the preceding year. This improvement wascompensated by the significant increase in raw material cost. In 2010 the operatingprofit excluding special items of Petrochemical segment reached HUF 1.4 bn andimproved significantly by HUF 16.6 bn compared to the operating loss in 2009.The main reasons for the profit improvement were the increasing integratedpetrochemical margin, the higher olefin product prices, the lower electricityprices, the higher production and sales volumes, and efficiency increase effortswhich were reduced by the unfavorable change of the exchange rates.The integrated petrochemical margin was 323 EUR/t in 2010. The naphthaquotation in USD-terms increased the level of of last year by 34%, which wasoffset by the 20-47% increase of polymer quotations in EUR-terms. The US dollarstrengthened by 5% against EUR, and the HUF strengthened by 2% against EUR,which had deteriorating impact on the results.In 2010, the monomer and polymer production volumes increased by 1-1%,compared to the previous year. The periodical maintenance works in the Olefin-2plant (TVK) and polymer plants both in TVK and SPC in 2010 required lesstime than in 2009, therefore the available capacity was higher in 2010. Recordproduction was achieved by HDPE-2 unit in TVK with 223 kt. In 2010, within thetotal polymer production the proportion of LDPE was 19%, HDPE was 37% and PPwas 44%, showing the increased proportion of HDPE.Sales and marketing strategy can be characterized by two major goals – focusingand differentiation. Exploiting the favorable geographic location, the strategysets key development areas in the field of logistics, product development andtight customer relations, and lays higher emphasis on markets in Central Europe.In 2010 sales performance has been improved by achieving higher price levelswhile polymer inventories were kept at a low level. By improving the customerportfolio, the ratio of sales to spot destinations reduced from 8% in the previousyear to 6% in 2010.The Petrochemical segment of MOL is an active player in the regional olefinbusiness. Increasing by-products sales improves the capacity utilization of theolefin plants. During the first year of the crude C4 sales contract with our Polishpartner, Synthos - we gained positive experiences in the cooperation. Borsodchem,our strategic partner in the polymer business in Hungary has stabilized its positionsand takes over the regular supplies of ethylene, in accordance with our longterm supply contract. Pyrolysis oil sales to the carbon black unit in Tiszaújvárosimproved significantly in 2010, due to the upturn in the tyre industry.Management Discussionand AnalysisRegional coverage with more than1,600 petrol stations in 11 countriesConsiderable recovery in plasticsdemand and increasing product price,offset by higher feedstock costsThe Group operated 1,623 filling stations as of 31 December 2010, including 364in Hungary, 467 in Croatia, 208 in Slovakia, 205 in Italy, 126 in Romania, 109 inBosnia and Herzegovina, 66 in Austria, 33 in Serbia, 26 in the Czech Republic, 18 inSlovenia and 1 in Montenegro.Petrochemicals OverviewThe global economic recovery brought steady demand in the LDPE and PPmarkets. Quoted prices increased by 43-45%. However HDPE was not able tokeep up with this trend. The favorable tendencies in the Petrochemical segment’smarkets were moderated by raw material cost that increased by 43% in 2010.Although the annual average integrated petrochemical margin has improved by6%, this level is still behind the year 2008 figure by 21%. We kept strict measureson managing costs and working capital in 2010.Focus on cost management andenergy efficiency improvementContinue with SPC developmentproject to strengthen the positionof the Petrochemical DivisionCommitment to improve energy efficiency is deeply rooted in strategicthinking at the petrochemical segment. In response to the thriving importanceof environmental protection and increasing energy prices, action plans weredeveloped in connection with technologies and a new operational model wasimplemented for energy management. This will further improve the costefficiency of the overall energy process to the benefit of the environment. Weare consequently implementing our energy strategy formulated in 2008. In the2008-2010 period we spared 48 kt of CO2 via sustainable improvement actionsand individual energy projects.In the future petrochemical industry remains increasingly competitive, settingfurther challenges in the business. To keep and further strengthen competitiveadvantages, the Petrochemical segment is committed to continue its strategicdevelopment programs and seeking for new business opportunities. ContinuingSPC development project will provide a firm basis for the future position of70 MOL Group ANnual Report 2010 71
Petrochemical Division. In line with its strategic aims MOL management isanalyzing future options in connection with SPC modernization.Gas and Power Segment OverviewThe Gas and Power segment’s operating profit, excluding special items, increasedby 9% to HUF 68.1 bn in 2010. FGSZ Ltd. was the most important profit contributor,however the temporary freeze of gas tariffs by 1 July affected negatively the H22010 result of gas transmission business.The transit transported volumes showa significant increaseDespite of the decline in capacity booking and in transported volumes the slightincome growth is due to the tariffs used in the first half of the year. Due to thedecision of the Price Authority the transmission tariffs were frozen in the secondhalf of the year causing a significant loss in revenues for FGSZ.Revenue from transit natural gas transmission was HUF 17.5 bn (9%) in 2010,unchanged vs. 2009. In 2010 the transported natural gas volumes were 24%higher than in the previous year.In 2010 starting of the Romanian transmission caused a HUF 0.8 bn increase inrevenues compared to the base period.Main 2010 goals were met: infrastructuredevelopment projects on the wayFGSZ Natural Gas Transmission Ltd.The Hungarian section of the 109 km long Szeged-Arad gas pipeline wascompleted, which ensures the transmission between Hungary and Romania fromH2, 2010. Initial annual capacity of the pipeline is 1.75 bcm, which can be extendedin the future up to 4.4 bcm.Decrease in costsOperating costs were HUF 0.7 bn (1%) lower in 2010 year-on-year. The savingsoccurred in the field of services used, which was reduced by the increase in energycosts due to growth in gas price.MMBF Gas Storage Ltd.Independent Transmission systemOperatorNETS project continuedFGSZ Ltd. and Plinacro, the operator of the Croatian Transmission Systemwas completed the interconnection between the Hungarian and Croatiantransmission systems with 6.5 bcm annual capacity by the end of Q4, 2010.The two Transmission System Operators (TSOs) concluded the interconnectionagreement, which controls the operational conditions of the border points ofDrávaszerdahely and Donji Miholjac.Due to change in European Union gas market regulation, in 2010 the completeunbundling of natural gas transmission activities was implemented from thevertically integrated parent company in Hungary as well. The company submit theapplication for Independent Transmission system Operator licence in the first halfof 2011 to the Hungarian Energy Office and to the EU.FGSZ stresses the vital importance of regional joint initiatives, such as the NewEuropean Transmission System, thereafter NETS project. The main goal of theproject is to achieve greater interconnectivity between the various national gasTransmission System operators (TSOs) spreading around Central and South-EastEurope for improved security of supply. Additionally, NETS is a tool facilitatingthe realization of North-South Gas Corridor, which is fully supported by VisegradGroup+ countries and acknowledged by the European Union.Strategic and commercial gas storageMOL Group is an active participant in the gas storing business again, as the gasstorage facility of MMBF Ltd (72.5% subsidiary of MOL) has finished the firstyear of its successful operation in 2010. MMBF Ltd. was set up to develop anunderground gas storage with a strategic mobile capacity of 1.2 bcm and 0.7 bcmcommercial capacity through an active reservoir, Szőreg-1.The development was implemented according to schedule, by MOL Plc. TotalCAPEX spent, without the acquisition of mining rights (HUF 67.0 bn), was HUF83.1 bn by the year end, of which HUF 2.2 bn was spent in 2010 for the last phase ofconstruction works. The strategic storage facility, in line with legal requirements,has a daily withdrawal peak capacity of 20 mcm over a period of 45 days forstrategic (security) activities. Commercial storage with 700 mcm mobile capacityis available from April 2010 and has an additional 5 mcm/day peak capacity.In addition to storage activity, MMBF Ltd. has sold the oil, condensate and gasproduction of Szőreg-1 field with profit. Operating profit of MMBF Ltd. wasHUF 16.7 bn in 2010 (excluding special items), of which HUF 8.7 bn was theprofit-contribution of gas-sales. Through the strategic and commercial storagefacilities MMBF Ltd. is expected to provide stable EUR-based return and cash flowcontribution.Management Discussionand AnalysisOutlook for 2011Outstanding operating profitcontributionDomestic transmission revenue +1%Within the frame of the regional coorporation FGSZ started negotiation withthe Slovakian Eustream and Slovenian Geoplin Plinovodi to develop newinterconnections towards Slovakia and Slovenia in order to improve the securityof supply and transmission possibilities in the region.The main task for 2011 is to continue the development of the interconnectorpipelines with the neigbouring countries, continue the NETS initiative, and focuson the cost efficient operation to provide stable cash flows.Operating profit for FGSZ was HUF 43.8 bn in 2010, HUF 3.6 bn (9%) higher yearon-year.Increase in operating profit is due to the increased income on transittransmission and lower level of expenditures.Revenue from domestic transmission grew by HUF 0.5 bn (1%) to HUF 66.7 bn in2010 year-on-year.JV with CEZ – entry into the electricitymarketPowerMOL, together with its strategic partner – CEZ, the Czech Energy Company - isconsidering to carry out three major investments. The ongoing project is therevamp of the existing thermal power plant (TPP) in the Bratislava refinery. Theamount of energy produced will be able to create sufficient steam and electricitysources for the Bratislava refinery. Beside this the partners are examining theopportunities of building two combined cycle gas turbine (CCGT) technologiespower plant in the Danube and Bratislava refineries. Each CCGT has a plannedcapacity of 830 MW which would result in a 58% net electrical efficiency.The revamp of the TPP in Bratislava is in process, the complete Flue GasDesulfurization unit work will be completed by the end of 2011. The capacityincrease of the power plant will satisfy the full electricity and steam need of therefinery. The preparatory works for the developments of the two CCGT powerplants are proceeding according to the agreed schedule. The Hungarian project72 MOL Group ANnual Report 2010 73
Page 1 and 2: MOL GROuP ANNuAL REPORT 2010MOL GRO
Page 4 and 5: Key financial and operating dataKey
Page 6 and 7: Overview of the environmentWorld ec
Page 8 and 9: Exploration and ProductionHIGHLIGHT
Page 10 and 11: OTHER RESuLTSSustainable developmen
Page 12 and 13: upstreaPortfolio EleentsRuSSIASPE 2
Page 14 and 15: ize MOL and INA sales channels in C
Page 16 and 17: PetrochemicalsPetrochemicalsPetroch
Page 18 and 19: Downstream portfolioelementsDomesti
Page 20 and 21: The most important events of 2010Th
Page 22 and 23: Gas and PowerGas and PowerThe Gas a
Page 24 and 25: Financial and Operational Performan
Page 26 and 27: 1.) We have audited the accompanyin
Page 28 and 29: Moderating growth in world economy,
Page 30 and 31: Higher personal expenses due to ful
Page 32 and 33: Unit OPEX slightly increasedStronge
Page 34 and 35: …and in SPE P1 reserves2010 was t
Page 38 and 39: has been granted an IPPC and a Buil
Page 40 and 41: Refining & MarketingCAPEX down by 5
Page 42 and 43: INDEPENDENT AuDITOR’S REPORTMOL H
Page 44 and 45: Consolidated balance sheet31 Decemb
Page 46 and 47: Consolidated cash flow statement31
Page 48 and 49: Joint venturesA joint venture is a
Page 50 and 51: vi) HedgingFor the purpose of hedge
Page 52 and 53: off. Upon determination of economic
Page 54 and 55: At each balance sheet date, the Com
Page 56 and 57: IAS 1 Presentation of Financial Sta
Page 58 and 59: Exploration costsTransfers from exp
Page 60 and 61: 6 Subsidiaries and jointly controll
Page 62 and 63: The purchase price allocation for t
Page 64 and 65: 10 Investments in associated compan
Page 66 and 67: 15 Other current assets16 Cash and
Page 68 and 69: Changes in the number of ordinary,
Page 70 and 71: The following table summarises the
Page 72 and 73: 28 Financial (income) / expense30 I
Page 75 and 76: The Group may use cross currency sw
Page 77 and 78: Capital managementThe primary objec
Page 79 and 80: Operating leasesOperating lease lia
Page 81 and 82: 37 Notes to the consolidated statem
Page 83 and 84: Historical SummaryHistorical Summar
Page 85 and 86: Gross reserves (according to SPE ru
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Petrochmical production (kt) 2005 2
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InterviewwithGyörgy MosonyiThe str
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Objective Result Fulfillment of the
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effluents. We found that the persis
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The main programme elements are Ext
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Employee engagementWe conduct a Gro
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Ethical notifications received and
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4 Sustainability data (Performance
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5 Notes on Non-Financial Reporting5
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6 Assurance statements6.1 Independe
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CorporateCorporate GovernanceCorpor
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The Board of Directors prepares a f
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The chairman of the Supervisory Boa
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The main role of Financial Risk Man
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7.10.11.8.9.7. Mr. József Molnár
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6. Mr. József Simola (44)Corporate
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7.Mr. József Kohán (59)Member of
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Ownership Structure31.12.2009 31.12
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GlossaryAverage production costTota
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Putting into productionAccomplishme
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Content tableTopic of interestCover
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Statementresponsibilityofundersigne
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MOL GROUP Annual Report

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