MOL Group

Annual Financial Report

2022

 

 

 

 

 

 

MOL Hungarian Oil and Gas Plc.

MANAGEMENT DISCUSSION AND ANALYSIS

31 December 2022

Budapest, 23 March 2023

MANAGEMENT DISCUSSION AND ANALYSIS OF 2022 BUSINESS OPERATIONS

 

 

1.        OVERVIEW OF THE MACROECONOMIC AND INDUSTRY ENVIRONMENT

Macroeconomic environment

Global real GDP growth slowed down significantly from 6.0% in 2021 to 3.4%^[1] in 2022, below the historical (2000-2019) average of 3.8%. At the same time headline inflation rates rose to four-decade highs across the developed world and most emerging markets, fuelled by skyrocketing food and energy costs. Tighter monetary conditions to fight rising inflation, post-pandemic and Russia-Ukraine war related supply chain disruptions and the strict ‘zero Covid’ policy of the world’s second largest economy, China, dampened GDP growth last year.

Due to its proximity and energy importer status, the European Union and the Central and Eastern European (CEE) region had the strongest exposure to the war in Ukraine. Despite these headwinds, European economic growth in 2022 was more resilient than expected in the face of the large negative terms-of-trade shock from the energy price crisis. Still, economic activity weakened steadily through 2022. After a strong first half of the year, the Euro Zone real GDP grew by 3.5% in 2022 as a whole.

The CEE region has also coped relatively well with the economic and financial fallout from the Russian invasion of Ukraine mainly due to pent-up household consumption after Covid restrictions were relaxed. Still, the surge in global food and energy prices generated runaway, double-digit inflation rates leading to a freefall in real incomes, weighing on consumer spending, deteriorating business sentiment and forcing central banks to tighten monetary conditions. Natural gas dependence of CEE countries and the high exposure of the region to the German economy, which has been hit especially hard by the recent economic and energy crisis, also put a drag on growth in the second half of 2022. Still, there were substantial disparities across the region: Croatia (6.3%) and Hungary (4.6%) managed to perform above the EU average despite a continuous slowdown over the year, while the Czech (2.5%) and Slovak (1.7%) economic performance significantly fell behind in 2022.^[2]

Figure 1 Selected crude, natural gas and coal prices dtd (USD/MWh, 2020-2022, Bloomberg data)

Oil and natural gas market developments

The Dated Brent price strengthened from the 2021 average of 71 USD/bbl to 101 USD/bbl in 2022. Prices rose significantly in the first half of 2022 but generally declined in the second half of the year, closing at 81 USD/bbl on the final trading day of the year. In the immediate aftermath of Russia’s full-scale invasion of Ukraine, the combination of war-related supply fears with low global crude oil inventories lifted the crude oil price to the highest inflation-adjusted price since 2014, 137.6 USD/bbl on 8 March. The Russian invasion of Ukraine and the response from Europe, the U.S., and their allies ended decades-long cooperation between Russia and its energy trading partners, forcing markets to deal with temporary, and perhaps in some cases permanent dislocation of energy supply. As a result, Russian Urals oil's discount to Dated Brent have widened significantly from the 2011-2021 average of -1.2 USD/bbl to -24.9 USD/bbl in 2022. Russian crude diverted from Europe to India and China, but their cost of financing maritime trade and insurance has increased significantly. The oil market remained tight in 2022 despite increased production and slower-than-expected rebound in demand. OPEC production increased by 4 Mmbpd over the first nine months of the year, however weaker prices and demand concerns triggered a 2 Mmbpd headline quota cut in November. In addition, non-OPEC production increased by over 2 million b/d over 2022, driven by strong growth in the U.S. On the demand side, despite the nearly 0.5 Mmbpd of incremental demand that developed due to enhanced gas-to-oil switching, demand only increased by 2.3 Mmbpd in 2022 and remained below its pre-pandemic baseline. While oil demand in most sectors and of most products exceeded pre-pandemic levels in 2022, the aviation sector continued to lag 2019 by a large margin.[3]

European natural gas markets have seen unprecedented turbulence in 2022. The average price of TTF (Title Transfer Facility), Europe’s largest gas trading hub, increased to 130.9 EUR/MWh, meaning prices almost tripled compared to the 46.5 EUR/MWh in 2021 and were nearly 7 times higher than the 2010-2020 historical average of 19 EUR/MWh. Extreme European prices were the result of disruptions in Russian gas flows to Europe while global gas supply remained limited. Intensified competition between Asia and Europe to attract additional non-Russian supply (mainly LNG) kept prices elevated through 2022 despite a significant voluntary and warm weather driven reduction in European demand and record-high levels of gas in storage. On the upside, the EU managed to weather the energy crisis brought on by the Russian invasion in 2022 and proved more resilient than expected without Russian energy imports.

Downstream

European refinery margins increased considerably in 2022 supported by skyrocketing road fuel crack spreads. Strong, pent-up driving demand, gas-to-oil switching, worldwide low inventory levels and still muted refining capacity strengthened fuel cracks already before the outbreak of the Russia-Ukraine war. The fear of Russian supply loss has only stretched markets further. As a result, margins remained robust despite extreme production cost rises and windfall profit hikes.

In contrast, the highly energy-intensive petrochemical producers faced downward margin pressure in 2022. The emerging cost-of-living crisis and the continuously worsening industrial and construction production disrupted petrochemical demand while record high energy prices and the strong U.S. dollar boosted feedstock and production costs. Moreover, easing global supply chain and logistic bottlenecks pressured prices with product availability despite production cuts and accelerated re-convergence in global prices. Both monomer and polymer markets ended the year oversupplied globally.

 

Macro figures (average)	FY 2022	FY 2021	Ch %
Brent dated (USD/bbl)	101.3	70.7	43
Ural Blend (USD/bbl)(11)	75.1	68.8	9
Urals-Brent spread (USD/bbl) (5)	(24.9)	(1.8)	1300
TTF gas price (EUR/MWh)	130.9	46.5	182
Premium unleaded gasoline 10 ppm (USD/t)(12)	1,005	678	48
Gas oil – ULSD 10 ppm (USD/t)(12)	1,055	584	81
Naphtha (USD/t)(13)	722	615	17
Fuel oil 3.5 (USD/t)(13)	457	381	20
Crack spread – premium unleaded (USD/t)(12)	238	142	68
Crack spread – gas oil (USD/t)(12)	288	48	504
Crack spread – naphtha (USD/t)(13)	(44)	79	(156)
Crack spread – fuel oil 3.5 (USD/t)(13)	(309)	(155)	99
Crack spread – premium unleaded (USD/bbl)(12)	19.3	10.5	84
Crack spread – gas oil (USD/bbl)(12)	40.3	7.5	436
Crack spread – naphtha (USD/bbl)(13)	(201)	(1.8)	1020
Crack spread – fuel oil 3.5 (USD/bbl)(13)	(29.1)	(10.7)	173
Brent-based MOL Group refinery margin (USD/bbl)*	9.0	1.3	588
Brent-based Complex refinery margin (MOL + Slovnaft) (USD/bbl)*	10.0	1.9	436
Ethylene (EUR/t)	1,413	1,098	29
Butadiene-naphtha spread (EUR/t)	568	487	17
MOL Group integrated petrochemical margin(9)	481	720	(33)
NEW MOL Group variable petrochemicals margin (EUR/t)* (10)	242	603	(60)
HUF/USD average	373.1	303.3	23
HUF/EUR average	391.3	358.5	9
HUF/HRK average	51.9	47.6	9
HRK/USD average	7.2	6.4	13
3m USD LIBOR (%)	2.4	0.2	1391
3m EURIBOR (%)	0.3	(0.5)	(163)
3m BUBOR (%)	10.0	1.5	582
Macro figures (closing)	FY 2022	FY 2021	Ch %
Brent dated closing (USD/bbl)	81.3	77.0	6
HUF/USD closing	375.7	325.7	15
HUF/EUR closing	400.3	369.0	8
HUF/HRK closing	53.1	49.1	8
HRK/USD closing	7.1	6.6	7
MOL share price closing (HUF)	2,602	2,520	3

 

*Updated methodology includes purchased energy (enhanced fit to natural gas) and CO₂

Notes and special items are listed in Appendix I and II.

Historical macro figures are available in the annual Data Library on the company’s website.

2.        INTEGRATED CORPORATE RISK MANAGEMENT

As operators in a high-risk industry MOL Group is committed to manage and maintain its risks within acceptable limits.

The aim of MOL Group Risk Management is to keep the risks of the business within acceptable levels and safeguard the resilience of its operations as well as the sustainable management of the company. For this purpose, as an integral part of our corporate governance structure, MOL Group has developed a comprehensive Enterprise Risk Management (ERM) system which focuses on the organisation’s value creation process, meaning factors critical to the success and threats related to the achievement of objectives but also occurrence of risk events causing potential impact to people, assets, environment or reputation. Within the ERM framework all significant risks throughout the whole Group are identified, assessed, evaluated, treated and monitored, covering all business and functional units, geographies as well as projects, taking into consideration multiple time horizons.

Regular risk reporting to top management bodies, including the Board of Directors with its committees provides oversight on overall the risk profile and the largest risks as well as assurance that updated responses, controls, and appropriate mitigation actions are set and followed.

The Group faces financial, operational and strategic risks, including but not limited to the below.

Risks/processes	Risk description	Risk mitigation methods
Market and financial risks
Commodity price risk	The Group is exposed to commodity price risk on both the purchasing side and the sales side. The main commodity risks stem from its long positions in crude oil, refinery margin and petrochemical margin.	·   Integrated business model ·   Continuous monitoring ·   When necessary, commodity hedging instruments to mitigate other than ‘business as usual’ risks or general market price volatility
Foreign exchange (FX) risk	The Group has FX exposure due to mismatch of currency composition of cash inflows and outflows, investments, debts.	·   Monitoring FX risk and balancing the FX exposures of the operating & investment cash flow with the financing cash flow exposures when necessary and optimal
Interest rate (IR) risk	MOL Group has a mixture of floating and fixed interest rate debts. Floating rate debt are subject to interest rate changes.	·   Continuous monitoring ·   Adequate mix of funding portfolio ·   When necessary, interest rate swap hedging instruments to mitigate risks
Credit risk	MOL Group provides products and services with deferred payment terms to eligible customers which exposes it to credit risk.	·   Diversified customer portfolio ·   Customer evaluation model, continuous monitoring ·   Group-wide credit insurance program
Financing/Refinancing risk	MOL Group has significant debt outstanding. Inability to refinance those or inability to draw down funds could cause liquidity problems.	·   Diversified funding sources/instruments ·   Diversified, balanced, and decently long maturity profile ·   Investment grade rating (BBB-) supports smooth capital markets access
Operational Risks
Physical asset and process safety and equipment breakdown risk	Process Safety Event (Major Industrial accident) due to loss of mechanical integrity, technical, technological or operational issues, process maintenance difficulties, lack of competent human resources.	·     Comprehensive HSE activities, a group-wide Process Safety Management system including asset related operational risk management process ·     Preventive & Predictive maintenance (Uptime program) with thorough equipment criticality assessment behind ·     Group-wide insurance management program
Crude oil and gas supply risk	Crude supply disruption (insufficient quantity or quality) can disrupt refineries and petchem sites continuous operation.	·     Crude oil-supply diversification strategy implemented; ·     Emergency reserves available

Critical material, equipment or service supply risk	Disruption in critical (raw) materials and/or equipment and/or services may cause delays in operation and/or increase costs	·     Stock management ·     Supplier management ·     Sourcing and supply chain diversification
Exploration & Production reserve replacement	Higher than expected decline and failure to replace reserves.	·     Production optimization programs and organic reserve replacement activities are both focus areas of Exploration & Production operations
Cyber risk	Global trends showing steadily growing frequency and intensity of Cyber-attacks / incidents as well as more specified Cyber Crime Groups targeting Industrial Control System’s weaknesses, which may have increasing economic impact and relevance on MOL Group. UA-RU-conflict: significant investment on attacking methods by all stakeholders, which can be potential threat in the future.	·     Continuous improvement of cyber security capabilities ·     Continuous supervision of cyber security risks (Group and opco level) ensuring the protection of the confidentiality, integrity and availability of data ·     Cyber security is built into all the MOL Group products and services ·     Continuous education of employees and partners.
Fraud Risk	Fraudulent activities (external & internal fraud) may cause significant financial and reputational losses	·     Control functions on local and group level ·     Anti-Fraud Awareness (Newsletter, Mandatory trainings) ·     Anti-Fraud & Investigation procedures, dedicated Team
Pandemic Risk	Pandemics may significantly adversely affect the Group’s business environment, including price and demand on the Group’s products and services, availability of contractors, subcontractors as well as raw materials, creditworthiness of credit customers, availability of the Group’s key personnel.	·   Crisis Management plans in place ·   Our Group Pandemic Preparedness Framework methodology instruction was issued in January 2023, summarizing not only the WHO general approach but entire MOL Group internal experiences of last 2-3 years, ensuring a life-proof and working framework to manage any possible further endemic/ pandemic situations. ·   Continued and sustainable practices defined, adjusted to country local measures and company internal circumstances
Strategic risks
Regulatory and sanctions risk	MOL has significant exposure to a wide range of laws, regulations and policies on the global, the European and the individual country level, that may change significantly over time and may even require the Group to adjust its core business operation.	·   Continuous monitoring of new regulations and sanctions ·   Strengthened compliance process ·   Participation in legislative processes, consultations ·   Adopting MOL strategy in response to changes
Country risk	The international presence of MOL Group contributes to diversification but also exposure to country specific risk at the same time. Government actions may be affected by the elevated risk of economic and, in some regions, (geo)political crisis, increasing their impact on MOL’s operations.	·   Continuous monitoring of the (geo)political risk, compliance with local regulations and international sanctions. ·   Investment opportunities are valuated with quantifying of country risk in discount rate
Reputation risk	MOL, as a major market player and employer in the region with a sizeable operational footprint, operates under special attention from a considerable number of external stakeholders.	·   Stakeholder governance processes introduced to monitor and adjust to any reputational risks
Climate change risk	Transition and physical risks associated with climate change have the potential to negatively impact MOL’s current and future revenue streams, expenditures, assets and financing.	·   MOL Group’s transformational strategy ·   Several operational steps taken to mitigate physical risks emanating from climate change
Capex Project Execution Risk	Projects are delayed or less profitable than expected or unsuccessful for numerous reasons, including cost overruns, higher raw material or energy prices, longer lead time in equipment deliveries, limited availability of contractors and execution difficulties.	·     Disciplined stage gate process across Capex project pipeline ·     Dedicated team to identify risks at earlier stages, plan for mitigation or avoidance by linking potential risks with schedule and budget to build realistic estimates and following it up through the project lifecycle ·     Supplier selection criteria, audits
Human Capital Risk	The Group's ability to implement its 2030+ Strategy is dependent on the capabilities and performance of its people, management, experts and technical personnel. Unavailability of skilled workforce may lead to disruptions in the operation.	·        HR framework to attract, develop, reward and retain employees ·        Capability development for all employee levels to ensure future-proof skillset ·        Intergenerational collaboration to enhance internal knowledge transfer

		·        Focus on digital transformation, and employee experience ·        Developing innovative and collaborative culture ·        Working environment and conditions framework in order to attract and retain diverse talents
Inflation Risk	Increase in material and service prices impacting opex and capex	·     Stock management, contracting strategy

ESG risks are covered and considered as part of the following topics (including but not limited to): Climate Change, Human Capital, Physical asset and process safety and equipment breakdown risk, Cyber Risk, Fraud Risk, Pandemic Risk, Regulatory and sanctions risk.

The Russian – Ukraine conflict has contributed to the increase of several risks of the Group:

·       Supply-related risks: in order to mitigate the oil-supply risk, the Group has elaborated the crude diversification strategy; alternative crude slate was defined, relevant capex projects defined and started. Supply chain difficulties may also have an impact on several materials, inputs to the Groups processes, which is mitigated by stock, supply chain and supplier management actions.

·       Regulatory and sanctions risks: MOL Group has been continuously and closely monitoring the sanctions imposed against Russia as well as countersanctions.  and strengthened the compliance processes. With the energy crisis in several countries where the Group operates price caps and extra (solidarity) taxes were introduced which had material financial impact on the Group.

·       Inflation risks, rising energy and raw material prices: the Group faced elevated risk, which have been mitigated with active market intelligence, conscious stock management and contracting strategy.

Risk Review Process in 2022

Risk owners in the Group identified, analysed and evaluated their major risks in 2022 – both on medium-term and long-term time horizon - and defined and/or updated the relevant mitigation plans where it has been necessary. Risk reports have been discussed by the Finance and Risk Management Committee of the Board of Directors.

Main risk management tools

As described above, as a general risk management framework, we operate an Enterprise Risk Management system.

Hedging Policy: 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 and when necessary - with hedging measures.

Insurance Policy: transferring the financial consequences of our operational risks is done by insurance management, which represents an important risk mitigation tool 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.

Crisis and Business Continuity Management: 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.

TCFD disclosure on Risk Management 

Climate change related risks are covered within the ERM framework, both in the long-term and mid-term risk review process.

Top-down approach is taken to identify and assess risks affecting the long-term strategy of the Group. Climate change risk, including transition and physical risks are assessed, together with mitigation plans within the strategic risk review process. Sponsorship, oversight of management of such risks sits with executive leadership, while operative leaders directly reporting to executive leadership are nominated as risk owners, who are responsible for assessment, mitigation of these risks. Strategic risk reports are discussed by the Finance and Risk Management Committee of the Board of Directors.

Within the bottom-up mid-term risk process several climate change related individual risks (regulatory changes, demand for fossil fuels, legal risks, risks on physical assets) are and may be identified and reviewed regularly. Various organizational levels and geographies are involved in the process, with the aim of covering all material risks, including climate related ones. Operative managers are nominated as risk owners, being responsible for assessing and mitigating the relevant risks. Aggregated, consolidated risk report is discussed by the Finance and Risk Management Committee of the Board of Directors.

Risk owners, with the involvement of subject matter experts, assess risks taking into consideration the probability of occurrence and the potential impact on the Group’s objectives. Depending on the level of risk acceptable for the Group, risk owners define appropriate mitigation plans.

MOL Group’s ESG risk management activity is evaluated by several ESG ratings (including MSCI, CDP, Sustainalytics) which show the high performance based on industry benchmarks.

Climate -related aspects are also part of corporate processes: MOL Group measures the carbon footprint of its products, as well as ESG indicators are part of the management remuneration scheme (e.g. TRIR, CO2, and other relevant strategic objectives) and also includes CO₂ emission estimates in project planning and approval documents. In parallel, a monitoring system has been operated to register and forecast project-related CO₂ emissions. For more on our governance around climate see Chapter 7.

Identified climate change related risks

•      Identified transition risks include a) policy and legal risks (actions that attempt to constrain activities that contribute to climate change and/or actions that encourage adaption/limitation of climate change, including stricter emission rules and carbon pricing), b) technological risks (innovation that supports transition to a low carbon world, including increasingly efficient and lower consumption in transportation), c) market risks (shift in supply/demand for certain products and services due to changes in customer preferences: decline in demand for the fossil fuel, and technology), and d) reputational risks (stakeholder pressure). MOL Group’s long-term strategy seeks not only to mitigate risks associated with the transition to a low carbon economy, but to capitalize on opportunities created by it.

•      Identified physical risks include a combination of both acute risks (extreme rainfall and flooding), as well as chronic risks (extreme heat, fluctuating water levels and drought). If any of these events were to occur, they could have an adverse effect on the Group’s assets, operations and staff. MOL Group has incurred and is likely to continue incurring additional costs to protect its assets, operations and staff from physical risks. To the extent such severe weather events or other climate conditions increase in either frequency, severity or both, MOL Group may be required to adjust its operations and incur costs that could adversely affect its financial position.

MOL Group operates Risk Engineering program, where the potential impacts of water related events analysed in main Downstream sites. Below is presented a high- level overview of water related risks.

 

Physical risk	Risk description		Risk mitigation
Flood Risk & Sea Level Rise	Major Downstream sites are located near to rivers, sea. Flood risk level is considered as low, as the sites’ parameters/design provides enough mitigation capacities (which is supported by risk engineering reports): insurance cover is in place.
	Danube Refinery	The refinery site borders the River Danube, and the site is far above the sea level.	The site process is far above the river level, and the site is located outside of a river flood hazard area.
	MOL Petrochemicals Tiszaújváros	The site is located about 1 km west of the Tisza River, and the site is far above sea level.	Control measures in place that would allow for the sacrificial flooding of nearby agricultural land to manage this risk.
	Bratislava Refinery	The site’s western perimeter is approximately 0.8 km from the River Danube, and the site is far above the sea level.	No event so far (in 2022 flood, site was 1 m above highest water level). Gates in industrial water inflow/outflow canal, emergency & Crisis management plans, possibility of employing mobile flood defences.
	Rijeka Refinery	The site is located on the Adriatic Sea, with the minimum elevation being 4 m above mean sea level.	There are no rivers or creeks in the area.
Fluctuating water level, drought risk	In case of drought event low level of Duna/Tisza rivers may hinder barge transport. Very low level of Danube may lead to lack of industrial water supply from the river.		Railroad transportation can be applied as an alternative transport. Monitoring, review of the system’s capability.

Extreme rainfall	Water collecting pits may overflow in extreme rainfalls which may lead to contamination of receiving water body.	Site reviews and mitigation actions (e.g. channel connection supervision, regular cleaning of collecting chambers) are in progress.
Earthquake	Certain assets of the Group are located on earthquake area.	Crisis plans and insurance cover are in place.

3.        FINANCIAL AND OPERATIONAL OVERVIEW OF 2022

	HUF billion			USD million
Summary of results	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Net sales	9,868.2	5,766.8	71	26,331	18,978	39
EBITDA	1,734.6	1,046.0	66	4,601	3,444	34
EBITDA excl. special items(1)	1,734.6	1,047.6	66	4,601	3,449	33
Clean CCS-based EBITDA (1) (2)	1,773.9	997.6	78	4,702	3,285	43
Profit from operation	1,259.1	567.2	122	3,337	1,871	78
Profit from operation excl. special items(1)	1,253.1	585.9	114	3,308	1,929	71
Clean CCS-based operating profit (1) (2)	1,321.0	542.1	144	3,483	1,781	96
Net financial gain / (expenses)	(74.3)	(34.1)	118	(206)	(106)	94
Net profit attributable to equity holders of the parent	628.3	484.5	30	1,662	1,610	3
Operating cash flow before ch. in working capital	1,871.1	1,196.3	56	5,005	3,938	27
Operating cash flow	1,388.7	918.1	51	3,557	3,037	17
EARNINGS PER SHARE
Basic EPS, HUF	851.0	673.4	26	2.3	2.2	5
Basic EPS excl. special items, HUF (1)	882.6	676.9	30	2.4	2.2	9
INDEBTEDNESS
Simplified Net debt/EBITDA	0.30	0.65	-	0.30	0.65	-
Net gearing(4)	11%	18%	-	11%	18%	-

 

KEY FINANCIAL DATA BY BUSINESS SEGMENTS
	HUF billion			USD million
Net Sales (HUF mn) (3) (6)	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	1,231.1	574.7	114	3,272	1,884	74
Downstream	9,066.2	5,165.7	76	24,189	17,000	42
Gas Midstream	214.4	108.1	98	577	353	63
Consumer Services	3,255.3	1,944.1	67	8,657	6,409	35
Corporate and other	306.3	241.9	27	810	794	2
Total Net Sales	14,073.2	8,034.6	75	37,505	26,440	42
Intersegment transfers(7)	(4,205.1)	(2,267.8)	85	(11,174)	(7,462)	50
Total external net sales from cont.op.	9,868.2	5,766.8	71	26,331	18,978	39
Total external net sales from discont.op.	119.0	102.0	17	323	337	(4)
Total External Net Sales(6)	9,987.1	5,868.7	70	26,654	19,315	38

EBITDA	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	827.5	395.6	109	2,212	1,297	71
Downstream	804.8	500.7	61	2,127	1,653	29
Gas Midstream	61.0	41.2	48	163	136	20
Consumer Services	121.2	182.5	(34)	320	605	(47)
Corporate and other	(66.4)	(41.0)	62	(181)	(135)	34
Intersegment transfers(7)	(13.6)	(33.0)	(59)	(40)	-(112)	(65)
TOTAL EBITDA from cont.op.	1,734.6	1,046.0	66	4,601	3,444	34
Total EBITDA from discont.op.	193.6	74.3	161	512	246	108
Total EBITDA	1,928.3	1,120.3	72	5,113	3,690	39

	HUF billion			USD million
Depreciation	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	213.6	238.7	(11)	558	783	(29)
Downstream	168.7	151.8	11	454	500	(9)
Gas Midstream	16.7	16.6	1	45	55	(17)
Consumer Services	44.7	39.1	14	119	129	(7)
Corporate and other	33.3	33.6	(1)	90	110	(18)
Intersegment transfers(7)	(1.5)	(1.0)	51	(3)	(4)	(30)
Total depreciation from cont.op.	475.5	478.9	(1)	1,263	1,573	(20)
Total depreciation from discont.op.	(17.3)	34.9	n.a.	(50)	115	n.a.
Total Depreciation	458.2	513.7	(11)	1,213	1,688	(28)
Operating Profit	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	613.9	156.9	291	1,654	514	222
Downstream	636.1	348.9	82	1,673	1,153	45
Gas Midstream	44.3	24.5	81	118	81	46
Consumer Services	76.6	143.4	(47)	201	477	(58)
Corporate and other	(99.7)	(74.6)	34	(271)	(245)	11
Intersegment transfers(7)	(12.1)	(32.0)	(62)	(37)	(109)	(66)
Total operating profit cont.op.	1,259.1	567.2	122	3,338	1,871	78
Total operating profit discont.op.	210.9	39.4	435	562	131	329
Total Operating Profit	1,470.0	606.6	142	3,900	2,002	95
EBITDA Excluding Special Items(1)	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	827.5	399.9	107	2,212	1,310	69
Downstream	804.8	500.7	61	2,127	1,653	29
Downstream - clean CCS-based(2)	848.4	450.7	88	2,240	1,489	50
Gas Midstream	61.0	41.2	48	163	136	20
Consumer Services	121.2	182.5	(34)	320	605	(47)
Corporate and other	(66.4)	(43.7)	52	(181)	(144)	26
Corporate and other – clean CCS-based(2)	(70.7)	(43.7)	62	(193)	(144)	34
Intersegment transfers(7)	(13.6)	(33.0)	(59)	(40)	(111)	(64)
Total - clean CCS-based(2) (10)	1,773.9	997.6	78	4,702	3,285	43
Total EBITDA  excluding special items cont.op.	1,734.6	1,047.6	66	4,601	3,449	33
TOTAL EBITDA  excluding special items discont.op.	193.6	74.3	161	512	246	108
Total EBITDA Excluding Special Items	1,928.3	1,121.9	72	5,113	3,695	38

 

	HUF billion			USD million
Operating Profit Excluding Special Items	FY 2022	FY 2021 restated	Ch %	FY 2022	FY 2021 restated	Ch %
Upstream	598.6	178.3	236	1,600	580	176
Downstream	645.3	348.9	85	1,697	1,153	47
Gas Midstream	44.3	24.5	81	118	81	46
Consumer Services	76.6	143.4	(47)	201	477	(58)
Corporate and other	(99.7)	(77.3)	29	(271)	(254)	7
Intersegment transfers(7)	(12.1)	(32.0)	(62)	(37)	(108)	(66)
Total operating profit excluding special items cont.op.	1,253.1	585.9	114	3,308	1,929	71
Total operating profit excluding special items discont.op.	210.9	45.7	362	562	150	274
Total Operating Profit Excluding Special Items	1,464.0	631.5	132	3,870	2,079	86
Capital Expenditures	FY 2022	FY 2021	Ch %	FY 2022	FY 2021	Ch %
Upstream	141.0	126.7	11	375	415	(10)
Downstream	268.8	206.3	30	720	675	7
Gas Midstream	11.6	22.4	(48)	30	74	(59)
Consumer Services	250.5	49.9	402	654	162	303
Corporate and other	89.0	78.8	13	237	256	(7)
Intersegment transfers(7)	(1.7)	(1.1)	54	(5)	(4)	25
Total	759.2	483.1	57	2,012	1,579	27
Notes and special items are listed in Appendix I and II.

 

3.1                 KEY ACHIEVEMENTS AND SUMMARY OF 2022 RESULTS

In 2022 MOL Group delivered a record Clean CCS EBITDA of HUF 1,773.9bn (USD 4,702mn), 78% higher in HUF terms than in the previous year and significantly exceeded the original capital market guidance of around USD 2.8bn. At the same time a HUF 482.4bn (USD 1,448mn) working capital build weighed on CF generation; accordingly operating CF generation after working capital stood at HUF 1,388.7bn (USD 3,557mn) in 2022. Furthermore, government interventions such as the fuel price regulation and windfall taxation across the CEE burdened results by USD 1.6bn on EBITDA level in 2022.

Key Financial Highlights

•         Upstream segment’s EBITDA, excluding special items, reached HUF 827.5bn (USD 2,212mn) in 2022, representing a 107% increase compared to 2021 on the back of rising oil and gas prices.

•         In 2022 Downstream generated HUF 848.4bn (USD 2,240mn) Clean CCS EBITDA, which is 88% higher than the previous year’s performance. The increasing result was attributable to exceptional motor fuel crack spreads, an unprecedented widening of the Brent-Ural spread driving a significant rise of EBITDA, while petrochemical margins decreased significantly.

•         Consumer Services EBITDA decreased by 34% in 2022, reaching HUF 121.2bn (USD 320mn) as fuel price regulation in various CEE dented profitability, at the same time fuel sales volumes and non-fuel margin improved.

•         Gas Midstream reached HUF 61.0bn (USD 163mn) EBITDA in 2022, representing an increase of 48% compared to 2021, driven by rising cross-border capacities and changes of regulated tariffs evolved favourable as well mostly in line with rising costs.

•         Total CAPEX spending reached HUF 759.2bn (USD 2,012mn) in increasingly by 57% year-on-year on, largely due to the acquisition of the Lotos network in Poland. Organic capex spending reached similar levels in USD terms in 2022 as in 2021. The implementation of the transformational projects (Polyol and Rijeka Refinery upgrade) continued, while sustain capex was mainly influenced by the refinery turnarounds, ACG development and the implementation of smaller Downstream projects.

•         Operating Cash Flow before Working Capital increased by 56% year-on-year to HUF 1,871.1bn (USD 5,005mn), whilst a significant working capital build drove operating cash flow generation to HUF 1,388.7bn (USD 3,557mn) in 2022.

•         Indebtedness on a Net Debt/EBITDA basis declined to 0.30x from 0.65x, since strong operational cash flow generation covered organic and inorganic CAPEX spending and also the record high dividend distributed in 2022.

Key Operational Highlights

•         Annual oil and gas production reached 92 mboepd in 2022 above the annual guidance, while organic reserve replacement reached 185% bringing 2P reserve life to 10.5 years.

•         MOL made significant progress in the development of the polyol complex and the Rijeka refinery upgrade project. Additionally, preparations have been made to further improve technical capabilities for crude supply diversification of the landlocked refineries.

•         The Consumer Services network grew substantially to 2,391 stations mainly through the completion of the acquisition in Poland, in parallel the segment continued the expansion of its non-fuel concept by completing a total 1,179 Fresh corner revamps by 2022 year-end.

•         ESG achievements:

o    MSCI confirmed MOL’s AA rating for the fifth year in a row.  

o    MOL maintained its B rating of the CDP climate management survey.

•         Key group financial and operational figures and historical financial statements are available in the annual Data Library on the company’s website.

3.2                 CORPORATE STRATEGY

Regional supply security

Following that the economic impacts of the coronavirus dissipated by late 2021, 2022 brought completely unexpected and severe challenges again. The breakout of the war in Ukraine created a new reality for all in Central Eastern Europe overnight. The emerging European energy supply security crisis had profound implications to our operations, financials and the supply security theme became central to our strategic actions throughout the year. In this rapidly changing environment despite all regulatory headwinds MOL Group remained a trusted partner and catered for the demand of our customers. We have made significant efforts to diversify our portfolio further in these extraordinary circumstances. During 2022 we have created a clear roadmap to enhance our technical capabilities to be able to maximize alternative crude supply of our landlocked refineries. We have also recognized that the new set of circumstances not only created uncertainties for us, but for others across Europe as well. This creates a unique opportunity to strengthen regional cooperation, therefore we have not only started working on diversification within MOL Group but also work closely with our partners to strengthen regional security of supply.

It is evident to us that the long-term solution to this energy crisis will be the successful implementation of the energy transition, however this requires a steady and continuous implementation process supported by supply security, affordability and an ability to maintain support from a wide group of stakeholders. We remain committed to the transition and are willing to avoid that our fossil fuel dependency is simply substituted by switching between suppliers, yet there is no real alternative for substituting fossil fuel in the energy mix on the short run. Fossil energy sources will still continue to play a significant role, yet with a decreasing share in the upcoming decades.

Transition

The profound shift in supply security matters does not mean however that the long-term directions set out in MOL Group’s 2030 strategy should change, to the contrary, those are more relevant than previously. The launch of the 2030 strategy sought not only to mitigate the low-carbon economy transition risks, but to capitalize on the opportunities created by it. With the strategy, MOL Group sought to gradually diversify the Group’s revenue streams away from traditional hydrocarbons by seeking opportunities for developing new low-emission products and services in new markets. The initial strategic shift rested on two pillars: 1) transform the Group’s refining operations by gradually shifting refining activities away from the production of fuels towards the production of feedstock for the Group’s petrochemical division, whilst simultaneously expanding the chemical value chain towards semi-commodity and specialty chemicals (“from fuel to chemicals”). Initial steps towards the Group’s petrochemical product diversification included expansion towards new products like synthetic rubber, polyol and propylene glycol. 2) The second pillar was to transform a traditional fuel retailer into a convenience retailer and alternative low-carbon mobility player (“from fuel retail to consumer goods”). Initial steps included the launch of the Fresh Corner concept store across the Group’s service station network, as well as the launch of mobility services.

Further to the targets announced in the original 2030 strategy in 2021 an updated strategy was communicated, labelled as 2030+ “Shape Tomorrow”. The strategy update covered commitments in order to decarbonize operations, partly to mitigate the risk of rising carbon costs, MOL Group targets a 20% reduction in Scope 1 and 2 emissions in Downstream by 2030 (2019 as base), as a step on the road towards net-zero economy. Furthermore, MOL also announced ambitious targets to increase the share of EU taxonomy aligned investments to 50% by 2030, this way ensuring that the business mix gradually evolves towards sustainable businesses.

MOL’s Downstream business reached significant interim targets since the announcement of the 2030 strategy update. In an effort to move along the value chain in petrochemicals the polyol plant, which represents the single biggest organic investment of corporate history is nearing mechanical completion. Furthermore, the Rijeka refinery upgrade that also includes the construction of a delayed coker is well underway. In 2022 MOL continued to consider the feasibility of the first cycle fuel to chemicals project. The Downstream business has been continuously working towards building its future product portfolio. These efforts are not only connected to capitalizing on opportunities created by a carbon constrained economy, but also build on the EU’s Fit for 55 targets with an intention to decrease Europe’s energy dependency.  MOL took further steps to strengthen the recycling portfolio through the acquisition of the biggest market player in Hungary with a 25 kt mechanic recycling capacity. In addition, we continue to explore opportunities in green hydrogen, biofuel production, mechanical recycling and compounding.

The Consumer Services division saw significant growth between 2016 and 2021, since it was established as a standalone segment. In 2022 however government interventions in the form of price regulatory measures played a major negative role. Despite this significant negative development there was significant focus on the continuous roll-out of the Fresh Corner concept resulting in material increase in non-fuel sales and margins. The extraordinary conditions created by regulatory measures also brought substantial rise in volumes sold at our service stations. The business will be focused at the retention of these customers in 2023, which will be supported by the gradual regional roll out of the recently introduced MOL Move loyalty app that was already downloaded by 700,000 customers following its launch in Hungary, Croatia and Slovenia. Moving forward there will also be enhanced focus on the integration of more than 400 stations acquired in Poland, where MOL is well established to achieve a #2 position in the local market. Through the implementation of the above measures the Consumer Services segment targets to achieve an EBITDA of USD 460mn in 2023. In preparation for the beyond the fuel age, the mobility division within Consumer Services, as part of the 2030 strategy, launched a number of clean, alternative mobility related products and services, with the aim of facilitating the gradual shift towards multimodal, clean and sustainable transportation. In the new strategy, MOL Group will continue to expand the EV charging points across its network and third-party locations, targeting to install 500 EV charging points by 2025 to become a leading mobility service provider in the CEE region.

The Upstream business continues to play a major role in terms of generating substantial free-cash allowing MOL Group to fund investments related to the transition. The Upstream strategy does not include any volumetric growth targets neither on reserves nor on production. The focus will be placed on generating value from current assets both in CEE and in the Group’s international Exploration & Production portfolio combined with opportunistic steps, such as the divestment of the UK portfolio. MOL Group has a proven track record of managing the production decline in its mature CEE assets (Hungary and Croatia), whilst it plans to buck the trend of declining production by implementing development work throughout the E&P portfolio.

As a major initial step towards expanding into new, low-carbon and sustainable businesses MOL was awarded a concession for municipal waste management services in Hungary. Waste management activities are expected to significantly contribute to MOL’s capital allocation target aiming to achieve at least 50% EU Taxonomy Aligned CAPEX ratio by 2030. By entering waste management MOL seeks to boost the efficiency of the current waste management system and works towards significantly reducing landfill waste by increasing recycling and installing waste-to-heat generation capacities.

More information on the new strategy can be obtained from the Group’s investor presentation.

3.2.1            Use of scenarios

In 2021 for the preparation of the long-term strategy, MOL Group applied scenario analysis as a means of assessing the potential implications of transition related risks and opportunities which in principle are still applicable today, while the details of the forecasts are updated based on the developments of the macroeconomic and industry environment. A number of scenarios were constructed, all of which were based on the assumption that the energy transition will occur, especially in the European Union where the Green Deal has accelerated the EU’s energy and climate policy. The difference between the scenarios is the speed of the transition. Each scenario outlines a number of legal, economic and technological constraints that would potentially affect the speed of the transition towards a low-carbon, net zero economy. From the several scenarios created, three scenarios were chosen by Executive Management (and approved by the Board of Directors) for the creation of the strategy. These three scenarios were: “slow transition”, “steady transition” and “net zero emission”. These scenarios helped senior management to frame and assess a wide range of plausible business, strategic and financial impacts associated with the transition to a low-carbon world, including capital allocation, costs, revenues and earnings. The three scenarios are largely based on quantitative modelling, including but not limited to technological and legal developments, macro assumptions and future demand projections for a number of petroleum products that today form part of the core product portfolio of MOL Group. MOL Group considers the ‘Steady transition’ scenario as the most probable, with both of the two other scenarios having more than a marginal probability of realization. Nevertheless, MOL Group ran a number of simulations to assess the viability and resilience of the strategy against an extreme net zero scenario in order to identify potential vulnerabilities. MOL Group did not use existing external scenarios and models provided by third-party vendors or agencies, as the scenario analysis was built in-house. 

MOL Group created a “Premises Committee” made up from representatives of the main business divisions and functional areas. The committee is tasked with monitoring the main indicators and assumptions used in the different scenarios and carrying out updates following changes to the external environment. This system can provide early notice that the external environment is moving to a different stage along the chosen scenario path, or potentially moving towards a different scenario altogether, providing senior management the opportunity to reassess and adjust its plans accordingly. Changes to the premises – partially or fully- automatically triggers a notification to the Executive Management and the Board of Directors, and as a result it may cause a modification of the strategy. Any changes to the strategy would need approval from the Board of Directors. Next scenario analysis in line with updating the long-term premises can be expected in 2023.

3.3                 UPSTREAM

Segment IFRS results (HUF bn)	FY 2022	FY 2021 restated	Ch %
EBITDA	827.5	395.6	109
EBITDA excl. spec. items	827.5	399.9	107
Operating profit/(loss)	613.9	156.9	291
Operating profit/(loss) excl. spec. items	598.6	178.3	236
CAPEX and investments	141.0	126.7	11
o/w exploration CAPEX	18.0	20.7	(13)
Hydrocarbon Production (mboepd)	FY 2022	FY 2021 restated	Ch %
Crude oil production	40.1	44.0	(9)
Hungary	8.9	9.3	(4)
Croatia	10.1	10.4	(3)
Kurdistan Region of Iraq	4.5	4.4	1
Pakistan	0.5	0.6	(19)
Azerbaijan	13.9	17.0	(19)
Other International	2.2	2.3	(4)
Natural gas production	37.9	39.0	(3)
Hungary	20.4	20.4	0
Croatia	12.9	13.5	(5)
o/w. Croatia offshore	3.4	3.2	6
Pakistan	4.6	5.1	(10)
Condensate	4.8	4.9	(1)
Hungary	2.8	2.7	2
Croatia	0.9	1.0	(7)
Pakistan	1.1	1.2	(5)
Average hydrocarbon production of fully consolidated companies	82.7	87.9	(6)
Russia (Baitex)	4.0	4.0	0
Kurdistan Region of Iraq (Pearl Petroleum)*	5.3	5.1	3
Average hydrocarbon production of joint ventures and associated companies	9.3	9.1	2
Group level average hydrocarbon production	92.0	97.0	(5)
Main external macro factors	FY 2022	FY 2021 restated	Ch %
Brent dated (USD/bbl)	101.2	70.7	43
HUF/USD average	373.1	303.3	23
TTF month ahead gas price (EUR/MWh)	130.9	46.5	182
Average realized hydrocarbon price	FY 2022	FY 2021 restated	Ch %
Crude oil and condensate price (USD/bbl)	94.2	66.5	42
Average realized gas price (USD/boe)	130.8	51.7	153
Total hydrocarbon price (USD/boe)	109.6	60.5	81
Production cost	FY 2022	FY 2021 restated	Ch %
Average unit OPEX of fully consolidated companies (USD/boe)	5.5	5.3	4
Average unit OPEX of joint ventures and associated companies (USD/boe)	2.2	1.9	14
Group level average unit OPEX (USD/boe)	5.1	4.9	4

Notes and special items are listed in Appendix I and II.

 

Capital Expenditures
FY 2022	Hungary	Croatia	Azerbaijan	Kurdistan Region of Iraq	Pakistan	Norway	Egypt	Angola	Total - FY 2022	Total - FY 2021 restated
HUF bn
Exploration	4.9	6.6	0.0	0.0	5.5	0.2	0.9	0.0	18.0	20.7
Development	13.7	22.9	56.8	7.8	0.7	0.2	4.6	0.8	107.7	82.3
Other	6.0	5.9	1.1	2.2	0.2	0.0	0.0	0.0	15.3	12.9
Acquisition	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	10.7
Total - FY 2022	24.6	35.4	57.9	10.0	6.4	0.4	5.5	0.8	141.0
Total - FY 2021 restated	30.4	20.0	48.2	3.1	3.5	12.4	7.8	1.2		126.7

Tables regarding Hydrocarbon production (mboepd); Production cost (USD/boe); Average realised hydrocarbon price; Gross reserves (according to SPE rules): 1P – Proved reserve; 2P – Proved and Probable reserve; Costs incurred (HUF mn); Earnings (HUF mn); Exploration and development wells are available in the annual Data Library on the company’s website. * New methodology from 2020.