| Letter from the Chairman-CEO and the Group CEO |
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Dear Shareholders, dear Stakeholders!
2009 was a roller-coaster year full of challenges. At the beginning of the year, the risk of imminent financial and economic collapse seemed very real. However, driven by the improving economic climate and receding fears of a double-dip recession, economic activity, trade and investment began to surge again. The macro oil environment showed a mixed picture; oil prices nearly doubled, although refining margins remained very depressed throughout 2009, thus oil and petrochemical sectors faced an extremely challenging external environment.
Our management team devoted itself to developing fast and full responses to these crises. We remained disciplined by sticking to our 2009 reduced capital expenditure plan, financing it through operating cash flow. Our management team implemented a range of cost-reduction measures to bolster our recognized leadership in efficiency and these included setting limits to management remuneration and bonuses. As a result of these measures and our balanced, integrated business model, we succeeded in maintaining a strong financial position. Even with the full consolidation of INA, our gearing ratio decreased further at the end of 2009 compared to the prior year. Moreover, we were able to increase our EBITDA and our operating cash flow versus the preceding year, underlining MOL’s strong cash-producing ability even in a very difficult environment. We are naturally highly committed to maintaining this strong financial position in the coming years, and our investments are still expected to be financed through operating cash flow.
We believe that MOL is well positioned to deliver outstanding shareholder returns in the next few years. We have strong and distinctive competitive advantages over our peers, we have maintained our solid financial position, which provides a strong basis for further growth during the upturn period and we gained management control and commenced the full consolidation of INA in mid-2009. Our key tasks now include significantly developing INA operations, increasing its profitability and efficiency to meet MOL Group standards and enhancing its market position in Croatia, South-East Europe and in the Adriatic region by leveraging our joint know-how and expertise. Our strategic objective for the coming years is to maximize the value of our extended portfolio by harmonizing operations and exploiting existing synergies. A number of additional projects should ensure long-term MOL Group growth.
2009 was a key milestone in MOL’s Upstream history, dramatically redrawing MOL’s Upstream map. Following several relatively small acquisitions in recent years, MOL has added noticeable momentum to its further growth. The Group significantly increased its proven and probable hydrocarbon reserves and also increased its daily average hydrocarbon production by two-thirds by the end of 2009 through the consolidation of INA. As a result, the current Upstream portfolio has become more extended, diversified and balanced. MOL has dedicated a significant investment plan to building a platform for future growth. The focus will be on completing high-return early cash-generating appraisal and development projects in Syria, CEE, Pakistan, Russia and the Kurdistan Region of Iraq to increase production levels that will contribute significantly to Group-level EBITDA. At the same time, we are carrying out extensive and intensifying exploration activities to further increase our reserve base and create a foundation for further production growth beyond 2013. Finally, we intend to extend MOL’s outstanding efficiency performance to the whole Upstream portfolio. We have identified several projects to be implemented during the coming years which should contribute to decreasing Unit operating costs in order to exploit synergies and to extend efficiency to the whole Upstream business.
Together with INA’s Downstream capacity, MOL’s refining capacity has now increased by 40% to 23.5 million tonnes per annum. Our aim is to become the premium refinery group in Europe by 2012 through the operation of efficient, state-of-the-art refineries. Another target is to build on past successful integration strategies, as achieved with Slovnaft, TVK and IES, through significant performance improvements that elevate newly-consolidated asset efficiency to MOL’s well-known standards. We will therefore continue to support ongoing upgrade projects that will eliminate low-margin products and increase the number of more valuable motor fuels at both INA refineries. We will optimize and harmonize investment decisions at MOL Group level as they apply to the extended refinery pool. We aim to improve joint supply-chain optimization among the five refineries and two petrochemical units. We will maintain focus on our activities’ unit costs, increased asset utilization and the maximization of assets in our distribution and commercial channels. We will also exploit cross-border synergies such as feedstock and product transfer optimization, harmonized business activities and procurement and Group-level risk management in order to enhance Group-level efficiency. Our expanded Retail network and our petrochemical units provide solid captive markets for our refining activities.
MOL plays a key role in the development of the Hungarian natural gas transmission system, creating a regional hub. As a result of the implementation of Hungarian-Romanian and Hungarian-Croatian gas interconnections, the security of regional gas supplies will significantly improve.
In addition, MOL is an active participant in the gas storage business through the building up of strategic capacity. The 1.2 bcm strategic mobile gas stock had been injected by the end of 2009. Through this investment, from 2010 onwards, MOL will not just generate stable, euro-denominated cash-flow on a long-term basis, but will also strengthen security of supply in Hungary and across the region.
Our efforts towards Sustainable Development were also viewed positively by the capital markets, as MOL – exclusively in the Central-Eastern-Europe region – has become eligible for inclusion in the Sustainability Yearbook 2010 (bronze class), published by Dow Jones Sustainability Index’s analyst, SAM. The acknowledgement that MOL is among the top 15% of Sustainability performers in the oil and gas industry is the direct result of our long-term focus on those environmental and social areas that are critical to our sector such as climate change, transparency, occupational health and safety, attracting and retaining top talent and customer relationship management. In addition, our managers' incentive bonus scheme is partly based on performance indicators related to their individual Sustainable Development targets.
On behalf of MOL Group Management, we should like to thank all our employees for their dedication, hard work and commitment and our shareholders for their support. We are sure that our efforts in 2009, undertaken in a challenging environment, have further strengthened the basis for the organic growth of MOL Group over the coming years.
