News Media Centre
Mixed but good half year at MOL
Strong operating cash flow despite growing gas business losses
MOL closed a mixed but good half year and, despite growing gas business losses, realised a strong operating cash flow. The Group net sales increased in the first half-year in 2003 by 20% and reached 692,8 HUF bn. EBITDA rate, reflecting the cash-generating capacity of the company, came very close to last year`s figure, moreover, in USD terms it increased by 18%. However, mainly due to high import gas prices the results of the gas business significantly decreased, and produced major (partly not-realised) losses due to hectic FX changes (unfavourable for MOL). Thus the net profit of the company dropped to 12,3 HUF bn.
Business performance presented several positive results in first half in 2003. In April the joint production by MOL-Yukos of the ZMB oil field started, and MOL`s share was 256 kt crude oil in the first half of the year. Full consolidation of Slovnaft was completed and contributed to MOL`s profit. Stabil retail fuel market is accompanied with a strong wholesale market share, now reaching 82%. Shop sales increased by 26% in Hungary and by 12% in Slovakia. Significant increase in issued loyalty cards is an excellent benchmark for measuring customers satisfaction. We released nearly 64 MUSD capital employed while implementing the divestment strategy, furthermore roll-out of excellent efficiency improvement and cost saving programs, laid down in MOL strategy have been continued. The petrochemical business also produced growing operating profit despite weak demand in the market. Though MOL is implementing major capital investment projects the gearing reduced to 29%.
However, still effective and unfavourable gas price regulation, rising gas import prices, and unpredictable and unfavourable FX changes, as well as increasing maintenance costs were due to the scheduled large refinery shutdowns are all unfavourable and less controllable factors for the company. Therefore the gas business closed this period with 12.4 HUF bn loss and 13.2 HUF bn (partly not-realised) net FOREX loss also emerged due to FX changes on MOL`s foreign currency debt. MOL`s net profit fell to 12.3 HUF bn.
MOL is confident that as a consequence of various actions taken pursuant to the new Gas Supply law, 2003 will be the last year when inevitable losses in the gas business could destroy results produced in other businesses. MOL wants to continue its way towards growth also in the second half of the year. In addition to implementing the regional acquisition strategy, it intends to further improve its results through ongoing efficiency improvement actions and exploiting synergies arising from the strategic partnership.
Hernádi Zsolt, MOL Executive Chairman and CEO commented:
"The second quarter of 2003 was a challenging quarter for MOL, as currency movements strongly influenced our financial results and the gas business produced a significant loss. Nevertheless, progress was achieved in many areas, from our upstream venture in Siberia to our integration project with Slovnaft in Central Europe. Notably, in Q2 2003, the Hungarian Parliament passed a Gas Law, which establishes the basis for a normalised gas regulatory environment to begin operation in line with EU norms from the beginning of 2004. The implementation of this new regulatory environment requires a number of issues to be finalised satisfactorily in governmental and ministerial decrees in the second half of this year. This means that while we expect the gas business to close the year with a loss of between HUF 15-20bn (based on current assumptions and not including the expected capital gain from the divestiture of certain retail gas companies), the business should be operating on a transparent and profitable basis next year, if the new system is implemented according to stated plans.
In Q2, the Government announced its intention to reduce the Hungarian State`s ownership in MOL and expressed its support for MOL`s Board to make a strategic decision on the future of gas business based on economic considerations. These decisions are of great significance and support MOL`s strategy of becoming a truly competitive regional force in the oil sector.
Furthermore, our continued efforts in Croatia in the quarter helped us to successfully conclude our bid in the INA privatisation tender. It is our fundamental belief that this transaction will create value for MOL`s shareholders through the establishment of a regional player with a strong market presence through the high growth Baltic-Adriatic corridor."
"In our non-regulated businesses, market factors and certain one-off items, for example the major maintenance shut-down of certain refinery plants, induced mixed results. Relative forint strength in much of the first half of the year detracted from the performance of both our upstream and downstream oil businesses, while a weakening of the forint against the Euro and USD towards the end of the period resulted in a significant loss being booked on foreign currency based debt.
In our upstream segment the ZMB project operated on schedule and contributed 256kt of crude oil production in the first half, already representing nearly 50% of domestic crude production. In spite of the negative effects on our downstream business caused by the weak dollar and the inventory holding effect, operating profit on a current cost of supply basis, which better reflects the performance of the segment, rose by 34% in the first half. A 26% growth in Hungarian new car sales in the first half of the year and an ongoing reduction in the unfavourable excise duty differential with neighbouring countries, bodes well for demand in the second half of the year. The petrochemical business produced strong results in part due to the currency environment and in part because Group level optimisation enabled the supply of a highly favourable feedstock mix. However, the petrochemical industry outlook is much less favourable for the second half of the year.