Corporate Governance

MOL Hungarian Oil and Gas Public Limited Company (hereinafter: “MOL” or “Company”) has always been committed to implementing the highest standards of corporate governance structures and practices. This is not only with regard to national expectations but also with reference to the continually evolving and improving standards of good governance on an international level.

MOL Group Organization

Chairman-Chief
Executive Officer
  • Strategic Operations and Development
  • Compliance and Internal Audit
  • Human Resources
  • MOL Campus
Group Chief
Executive Officer
  • Finance
  • Exploration and Production
  • Downstream
  • Investment
  • SD&HSE
  • Center of Business Excellence
Group Chief
Innovation Officer
  • Information Technologies
  • Consumer Services
  • Industrial Services
  • Ventures and Open Innovation Hub
  • Corporate Communications and Marketing

MOL Policy

MOL is geared towards shareholders’ interests, whilst taking into account the interests of a broader group of stakeholders inevitably necessary to enhance the creation of exceptional value for MOL’s shareholders and society.

Among other things, the voluntary approval of the declaration on the Budapest Stock Exchange Corporate Governance Recommendations by the Annual General Meeting in 2006, before the official deadline, served as testament to the Company’s commitment to corporate governance. In addition, MOL made a declaration concerning the application of the corporate governance recommendations of the Warsaw Stock Exchange prior to the admission of its shares to the Warsaw Stock Exchange in December 2004. The Company submits its declaration on this topic to the Budapest Stock Exchange every year, reviews the compliance with the Recommendation of the Warsaw Stock Exchange and in case of any change, publishes it.

MOL’s corporate governance practice meets the requirements of the regulations of the Budapest Stock Exchange and the relevant capital market regulations. MOL also subjects its policies to regular review to ensure that they take account of the continually evolving international best practice in this area. MOL's Corporate Governance Code containing the main corporate governance principles of the Company was adopted in 2006 for the first time and its last update was fulfilled in 2015. This Code summarises the shareholders’ rights, main governing bodies, furthermore remuneration and ethical issues. The Corporate Governance Code has been published on the website of the Company.

Shareholders (general meeting)

The general meeting is the supreme body of the Company consisting of the totality of shareholders.
The general meeting, as the main decision-making body, enables shareholders to make decisions on issues that are of a material nature concerning the operations of the Company, to approve actual corporate governance actions and to exercise effective governance and control rights.

Exercising the shareholders’ rights, general meeting participation

Voting rights on the general meeting can be exercised based on the voting rights attached to shares held by the shareholders. Each “A” Series share entitles its holder to one vote. The actual voting power depends on how many shares are registered by the shareholders participating in the general meeting.

Shareholders can exercise their right at MOL General Meetings either in person or by nominee. In addition, our company gives the opportunity to represent themselves through a Proxy card in accordance with the Articles of Association. An internet subsite containing materials for the general meeting serves to facilitate participation (https://molgroup.info/en/investor-relations/annual-general-meeting) which contains several information, including a location map, the conditions for participation, the general meeting documents, and the power of attorney templates.

Condition of participation and voting at the general meeting for shareholders is that the holder of the share(s) shall be registered in the Share Register. The depositary shall be responsible for registering the shareholders in the Share Register pursuant to the instructions of such shareholders in line with the conditions set by the general meeting invitation. According to Article 8.6 of the Articles of Association: „Each shareholder – at the shareholder’s identification related to the closing of the share registry prior to the next general meeting –, shall declare whether he, or he and any other shareholder belonging to the same shareholder group as specified in Articles 10.1.1 and 10.1.2 holds at least 2% of the Company’s shares, together with the shares regarding which he asks for registration.” If the conditions described in the previous sentence are met, the shareholder requesting registration is obliged to declare the composition of the shareholder group taking into account the provisions of Articles 10.1.1 and 10.1.2.

Furthermore, the shareholder shall, on the request of the Board of Directors, immediately identify the ultimate beneficial owner with respect to the shares owned by such shareholder. In case the shareholder fails to comply with the above request or in case there is reasonable ground to assume that a shareholder made false representation to the Board of Directors, the shareholder’s voting right shall be suspended and shall be prevented from exercising it until full compliance with the said requirements.

According to Article 10.1.1 of the Articles of Association: „No shareholder or shareholder group (as defined in Article 10.1.2 of Articles of Association) may exercise more than 10% of the voting rights with the exception of the organization(s) acting at the Company’s request as depository or custodian for the Company’s shares or securities representing the Company’s shares (the latter shall be exempted only insofar as the ultimate person or persons exercising the shareholder’s rights represented by the shares and securities deposited with them do not fall within the limitations specified here below).”

In accordance with Act V of 2013 on the Civil Code (hereinafter: “Civil Code”) the shareholders have the right to participate, to request information and to make remarks and proposals at the general meeting. Shareholders are entitled to vote, if they hold shares with voting rights. The shareholders having at least one per cent of the voting rights may request the Board of Directors to add an item to the agenda of the general meeting. Where a group of shareholders together controlling at least one per cent of the votes in the Company propose certain additions to the agenda in accordance with the provisions on setting the items of the agenda, or table draft resolutions for items included or to be included on the agenda, the matter proposed shall be construed to have been placed on the agenda if such proposal is delivered to the Board of Directors within eight days following the time of publication of notice for the convocation of the general meeting, and the Board of Directors publishes a notice on the amended agenda, and on the draft resolutions tabled by shareholders upon receipt of the proposal. The conditions to participate in the general meeting are published in the invitation to the general meeting. Invitations to the general meeting are published on the company website according to the Articles of Association. The ordinary general meeting is usually held in April, in line with the current regulations.

The ordinary general meeting, based on the proposal of the Board of Directors approved by the Supervisory Board, shall have the authority to determine profit distribution, i.e. the amount of the profit after taxation to be reinvested into the Company and the amount to be paid out as dividends. Based upon the decision of the general meeting, dividend can be paid in a non-cash form as well.

The starting date for the payment of dividends shall be defined by the Board of Directors in such way as to ensure a period of at least 10 working days between the first publication date of such announcement and the initial date of dividend distribution. Only those shareholders are entitled to receive dividend, who are registered in the share register of the Company on the basis of shareholders identification executed on the date defined by the Board of Directors and published in the announcement on the dividend payment. Such date relevant to the dividend payment determined by the Board of Directors may deviate from the date of the general meeting deciding on the payment of dividend.

Relationship with the shareholders

The Board is aware of its commitment to represent and promote shareholders’ interests, and recognises that it is fully accountable for the performance and activities of the MOL Group. To help ensure that the Company can meet shareholders’ expectations in all areas, the Board continually analyses and evaluates developments, both in the broader external environment as well as at an operational level.

Formal channels of communication with shareholders include regular announcements, the annual report, the half-year report and quarterly earnings reports, furthermore extraordinary announcements. Regular and extraordinary announcements are published on MOL’s website, on the Budapest Stock Exchange (primary exchange), on the Warsaw Stock Exchange and on the Capital Market Information Disclosure System operated by the National Bank of Hungary (Magyar Nemzeti Bank). Moreover we send e-mail announcements to those who subscribed to the distribution list of e-mail announcements of Investor Relations and to the international and domestic media. In addition, presentations on the business, its performance and strategy are given to shareholders at the Annual General Meeting. Regular Roadshow visits are also made to various cities in the UK, the US and Continental Europe where meetings are held with representatives of the investment community, including MOL’s shareholders and holders of MOL’s Depository Receipts (DR). Furthermore, investors are able to raise questions or make proposals at any time during the year, including the Company’s general meeting. Investor feedbacks are regularly reported to the Board of Directors.

MOL has an Investor Relations department which is responsible for the organisation of the above activities as well as for the day-to-day management of MOL’s relationship with its shareholders (contact details are provided in the “Shareholder Information” section at the end of the annual report). Extensive information is also made available on MOL’s website (https://molgroup.info/en/ ), which has a dedicated section for shareholders and the financial community. MOL has always paid special attention to provide a considerably wide range of information to the capital markets, in line with international best practice. Therefore Investor Relations Department of MOL is continuously renewing its website (direct link at: https://molgroup.info/en/investor-relations). The aim of the development is to make the website even more user-friendly, in line with the intention to continuously improve our services. These enable us to meet the expectations of our shareholders, analysts and other capital market participants more effectively.

In 2018 MOL conducted a total of 14 days of roadshow and participated in 12 conferences in the U.S. and Europe, having around 300 meetings with potential and existing shareholders and bondholders. Investor engagement in November-December was dedicated to give an update to the investment community on MOL’s long-term strategy (‘MOL2030’), summarizing the key steps taken and those upcoming in the near future.

Annual remuneration for MOL Group management

Board of Directors

Annual fixed remuneration of the members of the Board of Directors

As of 1 January 2009, the members of the Board of Directors have been entitled to the following fixed net remuneration after each Annual General Meeting:

  • Members of the Board of Directors         25,000 EUR/year
  • Chairmen of the Committees                   31,250 EUR/year

Members of the Board of Directors who are not Hungarian citizens and do not have a permanent address in Hungary are provided with gross 1,500 EUR for each Board or Committee meeting (maximum 15 times a year) when they travel to Hungary.

Incentive based on share allowance

From January 1, 2012 the incentive based on share allowance serves as a long-term incentive for the members of the Board of Directors.

The aim of the new share based incentive is to ensure the interest in long-term stock price growth and to maintain motivation related to the dividend payment. To ensure these, a 1 year retention obligation (restraint on alienation) has been also determined for 2/3 of the shares (the retention obligation terminates at the date of the expiration of the mandate).

The incentive consists of two parts: share allowance and cash allowance related thereto.

  • Share allowance

Number of shares as of 1 January 2015 (and after adjustment in line with MOL’s 8-for-1 share split as of 26 September, 2017):

  • in case of the members of the Board of Directors: 1,200 pieces of series „A” MOL ordinary  shares with a nominal value of HUF 125 per month  
  • in case of the chairman of the Board of Directors: additional 400 pieces of series „A” MOL ordinary shares with a nominal value of HUF 125  per month.

If the Chairman is not a non-executive director, the deputy chairman (who is non-executive) is entitled to this extra remuneration (400 pieces/month).

The share allowance is provided once a year, within 30 days after the Annual General Meeting closing the given business year.  

  • Cash allowance

The incentive based on share allowance is a net incentive, which means that the Company ensures to pay the taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws. Such cash-based coverage of taxes and contributions does not include any further tax(es) or cost(s) incurred in relation to exercising rights attached to the shares or disposal of the shares (e.g. dividend tax, income tax); these shall be borne by the respective members of the Board of Directors.

In line with this, there is a further cash allowance part of the incentive system, the rate of which is the gross value of taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws, including also the tax difference and contributions incurring in the country of tax-residence in case of non-Hungarian members of the Board of Directors.

Other benefits

The members of the Board of Directors are entitled to receive further non-financial benefits*, including life and accident (79,000 HUF/person/year) and travel (18,000 HUF/person/year) insurance. 

Besides, as a non-financial benefit an annual health screening (84,000 HUF/person/year) and an additional healthcare package (350,000 HUF/person/year) is available for the members of the Board of Directors.

* Rounded to 1000 HUF (In case of EUR, calculated based on January 25, 2018 exchange rate; source: www.mnb.hu)

Executive Board and management

Incentive system for the top management, MOL Group Executive Board

The aim of MOL’s remuneration system is to provide incentives for the top management to carry out the company’s strategy and reward them for the achievement of strategic goals through a combination of short-term and long-term incentives. The Corporate Governance and Remuneration Committee recognizes that remuneration plays an important role in supporting the achievement of these goals. Through the design of its incentive schemes, MOL aims to ensure that executive remuneration is aligned with and supports the company’s strategic objectives within a framework that closely aligns the interests of MOL executives to those of our shareholders.

The Executive Board (EB)'s remuneration mix consists of three key pillars:

  • Annual Base Salary (BS): fixed annual amount paid to the individuals
  • Short-Term Incentive (STI): annual bonus, based on individual and company performance
  • Long-Term Incentive (LTI): promotes performance driven culture and enhances the focus on the top management team to be aligned with the interests of shareholders

The incentive system for the top management included the following elements in 2018:

  1. Short Term Incentive system

The basis of the short term incentive is a target of 85%-100% of the annual base salary. The amount thereof is defined in line with the evaluation of performance of the given manager.

Based on MOL Group’s decision making authorities the C-CEO and G-CEO annual performance is evaluated by the Corporate Governance and Remuneration Committee with final approval of the Board of Directors.

Performance Measures for the STI

The aim of MOL Group STI scheme is to motivate the participants to achieve operative, business and individual performance targets which can be reached within a year, and support MOL Group’s long term strategy.

In 2018, the Executive Board’s STI framework was designed to include key focus areas in a mix of financial and non-financial KPIs in order to achieve the targets of the Group.

Financial KPIs:

In 2018, the key focus of the Executive Board was to deliver the EBITDA and CAPEX targets to achieve the 2030 strategic targets of MOL Group. These performance indicators are represented in the C-CEO and G-CEO annual performance targets:

 
Business line KPI
C-CEO and Group CEO Clean CCS EBITDA
CAPEX utilisation 

Furthermore, Executive Board members with divisional responsibilities are assessed on a number of operative and financial measures reflecting annual priorities and the strategic direction of each business division within the framework of the Group’s long-term strategy.

Business line KPI
Group Downstream Clean CCS EBITDA
CAPEX utilisation
Downstream 2022  EBITDA impact 
Group Exploration and Production Clean CCS EBITDA
CAPEX utilisation
Production volume
Direct Unit Production Cost 
General operating costs
Group Innovative Businesses and Services Clean CCS EBITDA
CAPEX utilisation
Growth of Retail Non-Fuel margin
Operating costs

Non-financial KPIs:

Executive Board members are also accountable for non-financial targets alongside financial ones. Safety is a number one Group priority, which is why the Corporate Governance and Remuneration Committee consistently defines divisional SD&HSE-related performance indicators.

In 2018, MOL Group set the fulfillment of TRIR indicators of each business units, as this uniformly shows the commitment of the Group for conducting safe, sustainable and compliant operations at all times.

In line with MOL Group 2030 strategy, a culture development journey started in 2017. This was set as a performance target across the whole management of MOL Group cascaded from the L1 such that they act as a role model in living the corporate values, and accelerate the culture change.

Short-term incentive results

The choice of the aforementioned performance measures reflects a desire from the Corporate Governance and Remuneration Committee to assess the participants based on a broad range of corporate and divisional measures that mirrors the corporate strategy and its related KPIs.

The results of the STI are not driven by a purely formulaic approach, as no specific weight has been assigned to each performance measure in order not to create an overemphasis on one at the expense of others. The Corporate Governance and Remuneration Committee rigorously assesses performance at the end of the period and judges whether the results against the performance measures are a reflection of the underlying performance of MOL Group

2.Short term share program

Changes in 2018 regarding the Short Term Incentive system of the MOL Group Executive Board

The Board of Directors of MOL Plc. decided on 6 December 2017 that instead of their short-term incentive the top management can select a share ownership scheme in each year from 1st January 2018 which will be operated via a legal entity independent from MOL Plc., called MOL Plc. Employee Share Ownership Program Organization which in compliance with the provisions of the so-called Employee Share Ownership Program (Munkavállalói Résztulajdonosi Program, ’MRP’) legislation.

Program characteristics:

  • Joining the program is voluntary.
  • The basis of the entitlement is a certain number of shares equal to the short-term incentive entitlement of each manager converted to shares with the December average MOL Plc. share price before the target year (2017 December average share price).
  • Period: the scheme starts on 1 January 2018 and lasts till 30 April 2019.
  • Final payout is based on the overall performance evaluation, Corporate, Divisional and Individual payout rates.
  • The payment is made in MOL  shares. First payment in 2019 May.
  • In case the payment might happen after the dividend ex-coupon date of the given year, dividend equivalent will be paid in the form of MOL shares together with the remuneration.

3. Long Term Incentive

The purpose of the long-term incentive system is to drive and reward the delivery of sustainable value and to provide full alignment between MOL Group executive team and MOL shareholders.

The long-term incentive was reviewed in the last quarter of 2016 and the MOL Plc. Board of Directors decided to transform the current long term incentive programs to real share-based programs according to the provisions of MRP act on 13 October 2016. With this change, the programs can even better serve the further improvement of financial performance and efficiency in accordance with the corporate principles and the long term strategic objectives of MOL Group.

The main characteristics of the two incentive schemes are as follows:

a, Absolute Share Value Based Remuneration (former Stock Option)

The basis of the remuneration is a share entitlement, which can be realized as a difference between a past strike price  and a selected spot price.  The incentive scheme has the following characteristics:

  • It starts annually and covers a 4-year period. The incentive period can be split into a 1-year performance period, a 1-year vesting period and a 2-year exercising period. The share entitlement lapses if not exercised by 31 December of the last year of the exercising period.
  • The value of the incentive is the difference between the strike price and a selected spot price for each unit of the entitlement.
  • The strike price is defined before the performance period begins. The strike price is the average price of MOL Plc. shares weighted with the volume in HUF on the Budapest Stock Exchange in the last quarter of the year before the performance year.
  • The spot price is the average price of MOL shares in HUF on the Budapest Stock Exchange on the day of redemption. The trading day is freely selected by the eligible manager however it is limited by applicable insider trading prohibitions.
  • The share entitlement is defined based on the position grade, but the final share entitlement is based on the individual performance evaluation during the performance period. During the individual performance evaluation, an individual short-term bonus payout percentage (between 0% and 150%) is set which acts as a multiplier of the share entitlement.
  • The payment of the entitlement is in shares or their cash equivalent. The value of the remuneration will be converted to shares based on the 30 days average MOL share price preceding the redemption date. In the case of cash-settlement the remuneration will be paid in Hungarian forints and will be transferred to that bank account number of the participant, to which the regular salary is paid by the employer of the Participant.
  • Dividend equivalent: the final remuneration will be corrected with the value of the dividend per share paid for MOL Plc. shares in the vesting period after the performance period, in alignment with the share entitlement. The aim of the correction is to correct the long term incentive with the change of the share price caused by the dividend payment. The dividend equivalent is paid at redemption.

The final share entitlement is influenced also by the individual bonus payout percentage for the performance period:

Individual Bonus Payout %   % of Stock Options
0% > x0%
Between 1% and 149% > Based on individual bonus payout percentage
150% > x150%

Overview:

Stock Option Strike Price Exercise Period
2013 2,247 HUF 1 Jan 2015-31 Dec 2017
2014 1,824 HUF 1 Jan 2016-31 Dec 2018
2015 1,472 HUF 1 Jan 2017-31 Dec 2019
2016 1,669 HUF 1 Jan 2018-31 Dec 2020
Absolute Share Value Based Remuneration Strike Price Redemption Period
2017 2,352 HUF 1 Jan 2019-31 Dec 2020 
2018 3,107 HUF 1 Jan 2020-31 Dec 2021

 

b, Relative Market Index Based Remuneration (former Performance Share Plan)

The program is a 3-year share-based incentive using the MOL Plc. comparative share price methodology with the following characteristics:

  • A new program starts in each year on a rolling scheme with a 3-year vesting period. Payments are due after the 3rd year.
  • The target is the development of MOL’s share price compared to relevant and acknowledged CEE regional and industry specific indexes: the CETOP Index and the Dow Jones Emerging Market Titans Oil & Gas 30 Index. 
  • MOL’s share price performance is compared to the two above mentioned benchmark indices. Basis of the evaluation is the average difference in MOL’s year-on-year (12 months) share price performance in comparison to the benchmark indices. Comparisons are made on a USD basis. There are defined payout ratios which are based on the measured difference in MOL’s share price performance compared to the two indices, noticed in each year. Final payout ratio will be determined by the average of the three noticed payout ratios over the vesting period.
  • The expected payout amount is additionally linked to individual short-term performance, as the potential payout is based on three years’ individual factors in the annual performance evaluation for each participant. This ensures that constant individual over-performance on a long-term basis is rewarded and the consequences of long term underperformance are managed.
  • The basis of the remuneration is a share entitlement and will be paid in MOL Plc shares or in a form of cash settlement.

The following chart provides an overview about the former Performance Share Plan results for the 3-year programs completed after Long Term Incentive system revision in 2013:

PSP Plan Payout Ratio
2013-2015 98.28%
2014-2016 180.99%
2015-2017 213.22%
2016-2018 154.62%

Performance measures of the long-term incentive plans

The choice of the long-term incentive plans is linked to the share price and dividend payment reflecting the Board’s strategic priority on reaching continuous and sustainable value creation. Through its long term incentives schemes, MOL prioritizes to provide its shareholders with a return on their investment through both the appreciation of the share price as well as through the payment of dividends.

The choice of CETOP and Dow Jones Emerging Market Titans Oil & Gas 30 Index reflects the fact that MOL competes for investor flows on a regional basis (Central and Eastern Europe) as well as with the global emerging market Oil & Gas sector. By applying these two indices, MOL’s incentive system provides competitive remuneration to executives and future investors on regional and global oil and gas markets taken in broader meaning as well.

The Absolute Share Value Based Remuneration will be paid from 2019, the Relative Market Index Based Remuneration will be paid first in 2020 by the MRP organization.

Other fringe benefits

MOL Group is offering standard benefits in-line with market practice for EB members. These include:

  • Dedicated status car for both business and private purposes;
  • life and accident insurance;
  • travel insurance;
  • liability insurance;
  • annual health screening and special healthcare services.

Supervisory Board

Remuneration of the members of the Supervisory Board

Members of the Supervisory Board receive gross 4,000 EUR/month, while the Chairman receives gross 6,000 EUR/month. In addition to this monthly fee, the Chairman of the Supervisory Board is entitled to receive gross 1,500 EUR for participation in each Board of Directors or Board Committee meeting, up to fifteen (15) times per annum. The Chairman of the Audit Committee is entitled to receive gross 1,500 EUR for participation in each Board Committee meeting, up to fifteen (15) times per annum.

Besides the monthly remuneration both the Chairman of the Supervisory Board and the members are entitled to receive further 1,500 EUR for each extraordinary meeting that is held in addition to the scheduled annual meetings. This remuneration is provided maximum two times a year.

Other benefits

The members of the Supervisory Board are entitled to receive further non-financial benefits, including life & accident (79,000 HUF/person/year) and travel (18,000 HUF/person/year) insurance. Besides, as a non-financial benefit an annual health screening (84,000 HUF/person/year) and an additional healthcare package (350,000 HUF/person/year) is available for the members of the Supervisory Board.

* Rounded to 1000 HUF (In case of EUR, calculated based on January 25, 2018 exchange rate; source: www.mnb.hu)

Integrated corporate risk management function

As operators in a high-risk industry we stay committed to professionally manage and maintain our risks within acceptable limits as per best industry practice.

The aim of MOL Group Risk Management is to keep the uncertainties of the business environment within acceptable levels and support stable and sustainable operations and the future growth and the resilience of the company.

MOL Group has developed a comprehensive Enterprise Risk Management (ERM) system as an integral part of its corporate governance structure which, considers the organisation’s exposure to uncertainty in regard to value creation, meaning factors critical to the success and threats related to the achievement of objectives, also occurrence of incidents causing potential threat to people, assets, environment or reputation.

Within the ERM framework we identify, assess, evaluate, treat and monitor all significant risks throughout the whole Group, covering all group-level business and functional units, MOL Group companies as well as projects.

The risk management methodology applied by MOL is based on international standards and best practices.

In order to ensure effective risk management risks are managed (assess, evaluate, treat) by risk owners, who are managers responsible for supervising the existing control framework and implementation of defined risk mitigation actions in responsible organisations. Moreover, the group level business and functional units, specialised risk management functions, the Group Risk Management department, and the Management Committee, the Chief Executives Committee and the Board of directors, as well as its committees provide oversight and assurance on the comprehensive and group level application of the risk management framework as well as evaluation of it.

We consider risks on all time horizon.

During 2017 and 2018 we identified major long-term risks that may impact the MOL Group 2030 strategic objectives and detailed analysis and the related mitigation plans have been prepared.  These risks include: E&P reserves sustainability, physical asset risk, market volatility, Execution of Strategic projects, Consumer Services Transformation, (Geo)Political and Regulatory Risk, Human Capital Deficit.

At the same time, mid-term risks related to our business plans are assessed and managed over the full lifetime of assets, performed at business segment level and coordinated by the group-level risk management team.

As in previous years, the short-term risk profile of the company is regularly reviewed with main focus on the 1-year budget of MOL Group.

Regular reporting to top management provides oversight on top risks and assurance that updated responses, controls, and appropriate mitigation actions are set and followed, effectiveness of risk management is considered by the Executive Board as well as the Board of Directors and its respective Committees

The main risk drivers of the Group

Risks are categorised to ensure effective risk reporting and consistent responses for similar or related risks.

1. Market and financial risks include, but are not limited to:

  • Commodity price risk: MOL is exposed to commodity price risk on both the purchasing side and the sales side. The main commodity risks reflect the integrated business model with downstream processing more crude than our own production and selling refined products. We monitor this risk in order to support our strong financial position and capacity to fund operations and investments. When necessary, we consider commodity hedging to eliminate risks other than ‘business as usual’ risks or general market price volatility.
  • Foreign exchange (FX) risk: MOL’s current FX risk management policy is to monitor the FX risk, and to balance the FX exposures of the operating cash flow with the financing cash flow exposures when necessary and optimal
  • Interest rate (IR) risk: According to risk management policy of MOL Group IR risk is continuously monitored and managed by the adequate mix of funding portfolio.
  • Credit risk: MOL Group provides products and services to a diversified customer portfolio - both from business segment and geographical point of view – with a large number of customers representing an acceptable credit risk profile. MOL Group’s risk management tracks these risks on a continuous basis, and provides support to the sales processes in accordance with MOL Group’s sales strategy and ability to bear risk.

 

2. Operational risks include, but are not limited to:

  • Physical asset safety and equipment breakdown risk: High asset concentration in Downstream is a significant risk driver. The potential negative effects are mitigated by comprehensive HSE activities and a group-wide insurance management program.
  • Crude oil supply risk: Crude supply disruption is a major risk factor for the Downstream business, as it can hamper continuous operations. In order to mitigate this risk, supplies of crude oil via pipelines are currently diversified with regular crude cargo deliveries from the Adriatic Sea.
  • Cyber risk: Cyber risk needs attention and effective management to ensure the company is able to monitor, detect and respond to cyber threats. MOL has adapted and changed the way it deals with cyber defence and cyber threats (people, process and technology): a clear vision and strategy has been set up to manage cyber incidents with end-to-end ownership and accountability.

 

3. Strategic risks include, but are not limited to:

  • Regulatory risk: MOL has significant exposure to a wide range of laws, regulations, environmental and government policies that may change significantly over time. Government actions may be affected by the elevated risk of economic and, in some regions, political crisis, increasing their impact on MOL’s operations.
  • Country risk: The international exposure of MOL Group contributes to diversification but also exposure to country specific risk at the same time. Therefore we monitor the political risk and compliance with local regulations and international sanctions to keep country risk in our investment portfolio within acceptable limits.
  • Reputation risk: MOL, as a major market player in the region, operates under special attention from a considerable number of stakeholders, and we are constantly seeking to meet our responsibilities towards them.
  • Climate change risk: The effects of climate change have the potential to adversely impact MOL’s current operations. As a response, MOL Group launched its 2030 Strategy as a response to the potentially decreasing demand for fossil fuels on the long term, primarily driven by a combination of new stricter regulations, electrification and digitalization of transportation, energy and fuel efficiency gains, as well as changes in consumer behaviour and advances in technology. MOL Group’s transformational strategy meant to respond to these challenges by opening towards new innovative business lines and with increased investment in petrochemical value chain. Several measures have already been taken at group and divisional level in the past, and actions are ongoing. For more details, go to the Notes on Sustainability Performance.

Main risk management tools

Risk Management tools applied by the Group is based on international standards and industry best practice. Enterprise Risk Management is a framework covering all business units and functional units, which ensures dentification and analysis of risks that threaten the achievement of company objectives and the Group’s financial performance as well as keeping those risks within acceptable level by taking mitigation actions as needed.

To ensure the profitability and the financial stability of the group, financial risk management is in place to handle short-term, market related risks. Commodity price, FX and interest rate risks are measured regularly by using a complex model based on advanced statistical methods, and are managed – if necessary - with hedging measures.

Transferring of the financial consequences of our operational risks is done by insurance management, which represents an important risk mitigation tool used to cover the most relevant exposures and liabilities arising out of our operations. Insurance is managed through a joint program for the whole group to exploit considerable synergy effects.

Following best industry practice and focusing on low probability high potential risks that could disrupt our operations, value chain and cash generation, MOL Group has implemented and is currently working to integrate a crisis management and business continuity program in order to reduce recovery times within tolerable limits for processes critical to our business.

Principles of prohibition of insider trading

MOL Group is committed to the fair trade of securities admitted to public trading.

MOL Group employees are expected:

  • not to acquire or dispose of MOL or other company’s shares or other financial instruments for their own account or for the account of a third party, directly or indirectly, do not withdraw or modify orders related to the above financial instruments, do not give order or instruction for this, do not induce another person to do so and do not suggest or accept decisions connected to the above financial instruments, if they are in possession of insider information,
  • not to disclose insider information to persons not belonging to MOL Group except they are empowered in writing to do is,
  • to be careful when disclosing insider information even within the employees of MOL Group, to hand over information only in the possession of a permission and to the extent necessary to carry out work,
  • to protect insider information from accidental disclosures to the public.