MOL Hungarian Oil and Gas Public Limited Company

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ensured its financial stability and cash-flow position in 2009. The main purpose also for 2010is to maintain financial stability and cash-flow position beside the changing environment andvolatile presumptions. The achievement of this target requires huge effort from the companysince it is difficult to keep up the level of sales volumes in 2010 as a result of the economiccrisis and the possible increase in sales volumes means considerable challenge. Thelaunched cost decreasing actions and efficiency improvement projects contributessignificantly to the achievement of our purpose.In the framework of the related strategy revision, we’ll emphasise the optimization of thebusiness portfolio, considering the INA partnership and its integration to MOL Group.Cash flowOperating cash flow of the company amounted to HUF 113.3 bn versus the 2008 basevalue of HUF 480.8 bn. The considerable drop was driven by the adjusted profit which waslowerthan the base by HUF 88.1 bn. The adjustments related to non-cash items(depreciation, reserve change, impairment change) and non-operating cash flow items (gainfrom sold non-current assets).However, the significant change in current assets (without debtors, cash and cashequivalents) had a key effecton the cash flow decrease. This change was basically causedby the cash flow improving effect of the reversal of treasury shares lent, which wereaccounted for as other receivables in 2008. Further fall in cash flow was caused by thenegative effect (HUF 71.5 bn) of the change in working capital (inventories, debtors,creditors) compared to the base period. The latest was impacted by the higher debtors dueto the greater product sales price, which was compensated by the cash flow improving effectof the lower inventory level.Investments and CAPEXCapital expenditures of MOL Plc (including exploration costs) were HUF 152,6 bn in year2009 versus HUF 353.6 bn in 2008. The lower spending compared to the previous year – ofwhich the determinant factor was the INA acquisition - is detailed segments by segments asfollows:• At Exploration and Production division, CAPEX spending was HUF 104.1 bn that ishigher than previous year by HUF 73.3 bn due to the acquisition in Kurdistan (PearlCo. HUF 72.6 bn).• At Refining and Marketing division’s expenditures (HUF 24.3 bn) were lower than lastyear’s by HUF 11.5 bn because the Refinery key-project (VGO Hydrocrack) waspostponed and other maintenance type works were rescheduled in line with the strictCAPEX program in 2009.• At Retail division CAPEX spending in 2009 (HUF 11.8 bn) was higher than last yearby HUF 1.4 bn due to two opposite effects: Croatian acquisition of TIFON (HUF 8.1bn) which was offset by the reduction in network development and reconstructionworks in 2009.• At Management and Sevices division CAPEX was HUF 4.9 bn which was lower thanin 2008 by HUF 261.1 bn due to last year’s acquisitions (e.g. INA HUF 227.3 bn). Thistrend is reinforced by the strict CAPEX program in 2009.The principles of fair valuation on financial instrumentsThe Company applies the principle of fair valuation on financial instruments for tradingpurposes and derivatives for hedging and trading (non-hedging) purposes in order to8
harmonise its practice with regulations of the European Community. The Act allows theapplication of fair valuation to financial instruments available for sale, but the Company doesnot make use of this opportunity.Financial instruments are categorized based on the intention of the management taking intoconsideration the requirements of the Accounting Act.The Company applies fair valuation only to those financial instruments and financial liabilitiesand/or transactions in case of which the fair value can be reliably determined.The fair value is determined on the basis of the following (the list also represents the order incase there is more than one way to determine the fair value of a given instrument):• stock exchange quote,• over-the-counter market price, which reliably indicates the partner’s evaluation (mark–to-market value) or arm’s length agreements or supported by previous transactionsand offers at the time of evaluation,• value calculated based on the market price of the components of the financialinstrument;• the value calculated by valuation procedures generally used in money marketevaluations (e.g. discounted present value of cash flows), using external premises,based on the market values on the balance sheet cut-off date.If it is not possible to determine the fair value based on the above methods, than fair valueshould be measured using other valuation techniques. In this case the company shoulddemonstrate that the valuation method used for calculating the fair value is suitable for thispurpose.In case of deliverable derivative transactions, the subject of the deal different from financialinstruments (goods, PP&E) the accounting treatment of sale of goods shall be applied. Allsettlement transactions and transactions closing with delivery of financial instruments aremeasured at fair value either they were designated as hedging or individual derivativetransaction.Derivative transaction should be accounted as hedge if the conditions of the transaction meetthe requirements of Accounting Act and also in line with the provisions of IAS 39 (there isdesignated hedging relationship, hedge documentation exists, hedge effectiveness can bedemonstrated). Transactions with characteristics of hedging instruments but without meetingthe requirements of IAS 39 are accounted as standalone derivatives.Hedging instruments are designated at inception and matched with the hedged item andassociated risks.Financial instruments in the Balance SheetFinancial instruments in the balance sheet include investments, other non-current assets,trade receivables, securities, other current assets based on contractual rights, cash and cashequivalents, short-term and long-term debt, other long-term liabilities, trade and otherpayables also based on contractual commitments. Derivatives are presented as positive ornegative valuation difference of derivative transactions.Carrying amounts and fair values of the financial instruments as of 31 December 2009 and2008 are the following:9
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MOL Hungarian Oil and Gas Public Limited Company

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