Dear Shareholders, dear Stakeholders!
We closed a successful 2010 in a challenging macro and regulatory environment. The global economy went through a transition period from a strong bounce-back phase seen in the first half of 2010 to a less rapid but apparently more sustainable growth path in the second half of the year. This upturn however is still fragile, driven, as it is, by the continuing strong performance of leading emerging economies while the recovery of advanced economies, especially those in the Eurozone, remained slower. The macro oil environment changed favourably; oil prices increased gradually and refinery margins showed slow improvement, although the latter still remained below the 5-year average.
In a year in which gradual recovery started, we were able to successfully exploit the upturn by continuing to execute our strategy. Key projects were carried out in each Business Unit turning MOL Group into a more international, more diversified and more Upstream-driven company. The share of international operations’ profit contribution increased significantly in 2010 and we expect this trend to continue further into the coming years. Following the most significant strategic step in Company history, management focused on the financial stabilisation and development of INA. Overdue liabilities were fully repaid and with the combined effect of previous investments and already-achieved efficiency improvements, INA became a strong growth pillar of the Group. We remained committed to maintaining our well-regarded efficiency thus we set further efficiency improvement targets to enhance our profitability. In a tough regulatory environment that saw additional tax payments imposed on Hungarian operations, we remained disciplined and financed our capital expenditure requirements through operating cash flow. MOL Group repeatedly increased its EBITDA while decreasing its gearing ratio compared to the prior year, even further underlining its strong cash-flow and solid financial positions. We are naturally highly committed to maintaining this strong financial position and we still intend our investments to be financed through operating cash flow.
We believe that MOL Group is well-positioned to deliver outstanding shareholder returns in the next few years. The Group has a strong and distinct competitive edge over its peers and has maintained its solid financial position, a strong basis for further growth. Our key tasks remain: to develop INA operations; to further increase its profitability and efficiency to meet MOL Group standards; to enhance its market position in the South-East European region. Our strategic Group objective for the coming years remains the same: to maximise the value of our extended portfolio by further integrating operations and to exploit the organic growth potential of the enlarged Group. In addition, a number of other projects should ensure long-term growth.
In 2010, MOL Group took significant steps towards achieving an optimised, efficiently-operated Upstream portfolio and further solidifying its potential for future growth. Key projects in Syria, Pakistan and the Adriatic offshore area turned from field development to production, thus increasing our daily output to 144 thousand boepd on the top of the record-high results for 2009 and creating the basis for medium-term sustainability. In the near future we are targeting to transform our exploration success into production and regarding field development projects, MOL plans to maximise the value of its existing portfolio, focusing on quick positive impacts on production.
In our international exploration activities, remarkable successes in the Kurdistan Region of Iraq and in Pakistan proved our capabilities and should support the sustainability of increased production levels in the long term. In the future, MOL Group aims to strengthen its international presence further, by forming new alliances, by deepening already existing partnerships and by active portfolio development. We strengthened our position in Central & Eastern Europe by entering a new country, Romania, where MOL has commenced exploration activities using its more than 70 years’ experience in the region.
Finally, we continue to extend MOL’s outstanding efficiency performance to the whole Upstream portfolio. Several implemented efficiency improvement projects contributed to our strong 2010 results and we see further potential in the coming years to reduce unit operating costs by exploiting synergies throughout the entire Upstream business.
In Downstream, 2010 was the first full year of operations in 12 countries, with five refineries and two additional petrochemicals sites. Through our excellent performance in Supply Chain Management, we identified and exploited major synergies that will be pursued further in the coming years to operate our assets with increased flexibility and at the highest levels of efficiency. MOL Group significantly improved its asset structure and added a world-class hydrocracking unit to it when completing the first phase of the Croatian refinery modernisation programme which matches production structure with market demand.
The focus of capital expenditures in the coming years will be the elevation of the Rijeka refinery to the level of leading European sites, just as the MOL Group achieved in its refineries in Hungary and Slovakia by increasing their complexity to convert fuel oil output to more valuable types of motor fuel. We are committed to maintaining petrochemicals integration to provide flexibility and a solid captive market for our refining activities in the long term. In Retail, the focus will be on the rationalisation and efficiency improvement of the whole network coupled with a modernisation project to improve brand perception.
We will continue to place strong emphasis on increasing our overall efficiency as well as on further improving logistics and marketing operations. In the area of efficiency improvement, we will focus on energy consumption and maintenance and expand the employee bottom-up idea generation programme to utilise the ideas and creativity of our colleagues.
In previous years, MOL Group played a key role in the development of the Hungarian natural gas transmission system. As a result of such investment, the increase in domestic import transmission pipeline capacity, the implementation of the Hungarian-Romanian and Hungarian-Croatian gas interconnections, the building-up of strategic storage capacity; the security of gas supplies significantly strengthened not only in Hungary but across the region as well.
2010 was also a milestone year with regard to our Sustainable Development performance. In September, MOL Group became the only Central and Eastern European corporation to be listed in the Dow Jones Sustainability World Index. According to this most prestigious sustainability assessment, MOL was positioned among the top 6% of all oil and gas producers. This recognition is the result of our long-term focus on those environmental and social issues that are critical to our sector such as climate change, environmental protection, 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 Sustainable Development targets.
On behalf of MOL Group Management, we would like to thank all our employees for their dedication, hard work and commitment and our shareholders for their solid support. We are sure that our efforts in 2010, undertaken in a challenging environment, have further strengthened the basis for the organic development of MOL Group over the coming years.