.

  

 

 

MOL Group

Annual Financial Report

2023

 

 

 

 

 

 

 

 

 

MOL Hungarian Oil and Gas Plc.

MANAGEMENT DISCUSSION AND ANALYSIS

31 December 2023

Budapest, 21 March 2024

 

 

 

 

 

 

 

MANAGEMENT DISCUSSION AND ANALYSIS OF 2023 BUSINESS OPERATIONS

 

 

 

 

1.        OVERVIEW OF THE MACROECONOMIC AND INDUSTRY ENVIRONMENT

Macroeconomic environment

Global output growth proved unexpectedly resilient last year, despite the fact that the 3.1% annual growth rate remains below the historical (2000-2019) average of 3.8%.[1] At the start of 2023, declining real incomes, rapid and widespread monetary policy tightening and the gradual but steady phase out of fiscal transfers in advanced economies projected a much harder landing for the global economy. In contrast, inflation has declined more quickly than initially anticipated and energy support schemes have helped to cushion household incomes and underpin activity in many economies. Still, outcomes diverged across countries, with stronger than expected growth in the United States and many emerging-market economies, offset by a slowdown in most European countries. China's economy grew 5.2% in 2023, slightly more than the official target, but the recovery was far shakier than expected, with a deepening property crisis, mounting deflationary risks and muted domestic demand.

The rising momentum was not felt everywhere, with notably subdued growth in the Euro area, reflecting the continued adverse effects of the energy price shock, the lagged effect of tight monetary policy, weak consumer sentiment and global trade providing little support on the external side. Global trade growth in 2023 was the slowest outside global recessions in the past 50 years as the ending of the zero Covid-19 policy in China did not generate the hoped-for boost to exports. The high dependence of the German economy on the manufacturing sector and external demand kept its performance below average compared to the other Euro zone countries. Following a robust post-pandemic expansion in 2021 and 2022, GDP increased only by 0.5% in both the Euro area and the EU in 2023[2], with the energy-intensive industry sector suffering most from still elevated energy and feedstock prices and a weaker economy.

The Central and Eastern European (CEE) countries performed below expectations, mainly due to the recession in Germany. Although the share of exports to Germany declined over the last two decades, Germany remains the main trading partner of the region. In addition, in many of these countries, growth was driven by a decline in imports, primarily on account of the strong base effects resulting from the high level of imports seen the previous year, when energy concerns led to stockpiling. The energy situation has improved since last year, with reduced gas dependence and diversified sources.

The Hungarian economy mostly stagnated after the significant fall in H2 2022 and Q1 2023, resulting in a recession of -0.8% year-on-year in 2023. Both lower domestic demand due to high inflation and tighter fiscal and monetary policies and sluggish external demand contributed to the downturn. Overall, the fall in domestic demand has been partly counterbalanced by the positive impact of net exports as imports of goods and services dropped at a steeper pace than exports last year.

Oil and natural gas market developments

Despite a brief surge above 90 USD/bbl in September and mid-October, Dated Brent crude prices have traded in the relatively narrow 70-90 USD/bbl range in 2023, averaging at 82.6 USD/bbl, 18% below the 101.3 USD/bbl average in 2022. The remarkable stability of oil prices came at the time when global markets had to adjust to new trade dynamics, with crude oil from Russia sustaining its destinations outside the EU, several surprise OPEC+ supply cuts during the year and intensifying geopolitical tensions in the Middle East after the outbreak of the Israel-Hamas war and the year-end Houthi attacks on shipping vessels in the Red Sea. The oil market was able to remain cold because fears of a wider geopolitical conflict and physical disruptions to supply were dominated by demand concerns and higher than expected non-OPEC supply growth, led by the U.S. throughout the year. With GDP growth below trend in major economies, global oil demand outlook growth slowed accordingly, with Europe making up more than half the decline. The impact of tighter monetary policies and decreasing real incomes fed through to the real economy while petrochemical activity shifted increasingly to China, undermining growth elsewhere. Europe has been particularly hit amid the continent’s broad manufacturing and industrial recession.

Figure 1 Selected crude, natural gas and coal prices dtd (USD/MWh, 2021-2023, Bloomberg data)

The fall in European natural gas prices is even more striking, the average price of TTF (Title Transfer Facility), Europe’s largest gas trading hub, dropped from an average of 130.9 EUR/MWh in 2022 to 41.3 EUR/MWh in 2023 (-68%). Despite the continuous downward trend in 2023, European prices remained overly reactive to even small changes in supply availability during the year, suggesting that the market continued to be fragile even amid consistently comfortable storage filling rates, low industrial gas demand and warmer temperatures. In the absence of enough flexible new supply, the lost Russian pipeline volumes triggered a painful demand side adjustment in the short-term. European gas demand dropped by over 100 bcm in just two years, falling to its lowest level since 1995. Following a 13% (or 70 bcm) drop in 2022, gas consumption fell by another 7% (or 35 bcm) in 2023. All sectors contributed to these declines, although the drivers have markedly shifted from one year to the other. In contrast with 2022, the demand reduction in 2023 was largely driven by the power sector, as the rapid expansion of renewables, together with improving nuclear availability reduced the call on gas-fired power plants. In addition, mild winter weather together with gas-saving efforts continued to weigh on gas use in the residential and commercial sectors. Industry, which suffered the steepest decline in 2022, moved towards a gradual recovery in the second half of 2023, as lower price levels incentivised higher operating rates, including the more gas-intensive industrial sectors.

Downstream

Although refinery runs remained stronger than expected in 2023, total year runs for the last year averaged around the same level as in 2022 in Europe while global refinery throughputs finally returned to their pre-pandemic, 2019 levels, led by new Chinese and Middle East capacities. While not returning to the extreme highs of 2022, margins stayed steady, supported by resilient gasoline demand and elevated diesel crack spreads as OPEC+ supply cuts squeezed supplies of medium crude oil grades characterized by relatively higher middle distillate yields. The diesel shortage has been a worldwide phenomenon, with stocks well below the five-year average in most regions including the U.S., ARA ports in Europe, and Singapore. In Europe, the lost access to Russian medium crude and increased processing of lighter U.S. and North Sea grades might have limited crude distillation runs despite the strong margin environment.

European petrochemicals have been hit by the perfect storm of sustained production cost rise, collapsing demand and intensifying import pressure due to global overcapacity. In 2023, China completed more than 20 petrochemical projects, pushing its global share of petrochemical capacity up to 25%. The decrease in competitiveness of European assets has been exaggerated by the U.S. Inflation Reduction Act, which reduced operational expenses for U.S. players and attracted producers to relocate overseas despite the announcement of the Green Deal Industrial Plan to counter U.S. subsidies and prevent an exodus of industrial activity from Europe.

Macro figures (average)	FY 2023	FY 2022	Ch %
Brent dated (USD/bbl)	82.6	101.3	(18)
Ural Blend (USD/bbl)(15)	64.3	75.1	(14)
Brent Ural spread (USD/bbl)(5)	(19.2)	(24.9)	(23)
TTF gas price (EUR/MWh)	41.3	130.9	(68)
Premium unleaded gasoline 10 ppm (USD/t)(11)	856.4	1,004.6	(15)
Gas oil – ULSD 10 ppm (USD/t)(11)	828.9	1,054.7	(21)
Naphtha (USD/t)(12)	602.9	722.5	(17)
Fuel oil 3.5 (USD/t)(12)	427.4	457.2	(6)
Crack spread – premium unleaded (USD/t)(11)	231.2	238.1	(3)
Crack spread – gas oil (USD/t)(11)	203.7	288.3	(29)
Crack spread – naphtha (USD/t)(12)	(22.3)	(44.0)	(49)
Crack spread – fuel oil 3.5 (USD/t)(12)	(197.7)	(309.3)	(36)
Crack spread – premium unleaded (USD/bbl)(11)	20.2	19.3	5
Crack spread – gas oil (USD/bbl)(11)	28.6	40.3	(29)
Crack spread – naphtha (USD/bbl)(12)	(14.9)	(20.1)	(26)
Crack spread – fuel oil 3.5 (USD/bbl)(12)	(15.1)	(29.1)	(48)
MOL Group refinery margin UPDATED (USD/bbl) (10)	9.0	8.4	n.a.
Complex refinery margin (MOL + Slovnaft) UPDATED (USD/bbl) (10)	9.3	8.9	n.a.
Ethylene (EUR/t)	1,205.8	1,412.7	(15)
Butadiene-naphtha spread (EUR/t)	291.8	567.7	(49)
MOL Group petrochemicals margin (EUR/t)(9)	285.8	480.9	(41)
MOL Group Variable petrochemicals margin (EUR/t)	143.5	242.4	(41)
HUF/USD average	353.3	373.1	(5)
HUF/EUR average	382.0	391.3	(2)
3m USD LIBOR (%)	5.01	1.64	na
3m EURIBOR (%)	3.43	0.35	na
3m BUBOR (%)	14.30	9.97	na
Macro figures (closing)	FY 2023	FY 2022	Ch %
Brent dated closing (USD/bbl)	77.6	81.3	(5)
Urals blend closing (USD/bbl)	63.8	48.5	31
HUF/USD closing	346.4	375.7	(8)
HUF/EUR closing	382.8	400.3	(4)
MOL share price closing (HUF)	2,826	2,602	9

 

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 an operator 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. AI is a new global threat which is widely used by attackers 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. Ukraine War significantly reduce Russian and Ukraine hacker group activities as they focus on war, significant investment on attacking methods by all stakeholders, furthermore these grown capabilities could lead to huge impact on 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 (see TCFD disclosure)
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

 

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.

Risk Review Process in 2023                                                            

Risk owners in the Group identified, analysed and evaluated their major risks during 2023 – 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 and the Audit Committee.

Due to continued geopolitical tension in 2023, the Group still considers related risks, such as  sanctions, regulatory as well as supply-related risks, elevated and implements mitigation measures.

Supply-related risks: The Group has elaborated the crude diversification strategy; alternative crude slate was defined, relevant capex projects defined and started. Supply chain difficulties have been addressed, mitigated by stock, supply chain and supplier management actions.

Regulatory and sanctions risks: MOL Group has been continuously and closely monitoring the sanctions, countersanctions and strengthened the compliance processes. In several countries where the Group operates, various forms of government interventions in energy markets took place (margin caps, new taxes, government takes), which had material financial impact on the Group.

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 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. 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, Ecovadis) which proves the high performance based on industry benchmarks.

Climate-related aspects are 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, Sustainable GHG emission reduction, and other relevant strategic objectives). The GHG emission estimates are essential part of project planning and approval documents. In parallel, a monitoring system has been operated to register and forecast project-related GHG emissions.

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 increasing efficiency 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/Tisza 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, investment plan to recycle the waste water
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.

Extreme windstorm	Heavy windstorm can lead to property damage, electricity supply disruption.	Crisis plan in place, island-mode  power supply to be implemented
Forest fire	Forest fires close to service stations may lead to property damage, injury	Regular mandatory drills, availability of local or own firefighting brigade
Extreme drought	Extreme drought may result in  vegetation fire near to flares	Mandatory fire safety training, extinguishing drills, fire simulation drills

3.        FINANCIAL AND OPERATIONAL OVERVIEW OF 2023

	HUF billion			USD million
Summary of results	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Net sales	8,908.5	9,868.2	(10)	25,217	26,331	(4)
EBITDA	1,149.3	1,734.6	(34)	3,235	4,600	(30)
EBITDA excl. special items(1)	1,123.7	1,734.6	(35)	3,162	4,600	(31)
Clean CCS-based EBITDA (1) (2)	1,098.4	1,774.0	(38)	3,093	4,702	(34)
Profit from operation	677.6	1,259.1	(46)	1,898	3,337	(43)
Profit from operation excl. special items(1)	722.8	1,253.1	(42)	2,026	3,307	(39)
Clean CCS-based operating profit (1) (2)	697.5	1,292.4	(46)	1,957	3,410	(43)
Net financial gain / (expenses)	12.5	(74.3)	n.a.	36	(206)	n.a.
Net profit attributable to equity holders of the parent	530.4	628.3	(16)	1,484	1,662	(11)
Operating cash flow before change in working capital	667.3	1,871.1	(64)	1,842	5,005	(63)
Operating cash flow	754.0	1,388.7	(46)	2,138	3,557	(40)
EARNINGS PER SHARE
Basic EPS, HUF	715.0	851.0	(16)	2.0	2.3	(11)
Basic EPS excl. special items, HUF (1)	786.7	824.0	(5)	2.2	2.2	2
INDEBTEDNESS
Simplified Net debt/EBITDA	0.59	0.30	-	0.59	0.30	-
Net gearing(4)	14%	11%	-	14%	11%	-

 

KEY FINANCIAL DATA BY BUSINESS SEGMENTS
	HUF billion			USD million
Net Sales (HUF mn) (3) (6)	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	723.9	1,231.1	(41)	2,043	3,272	(38)
Downstream	7,210.7	9,066.2	(20)	20,410	24,189	(16)
Gas Midstream	141.5	214.4	(34)	400	577	(31)
Consumer Services (13)	3,634.8	3,255.3	12	10,295	8,657	19
Corporate and other	508.9	306.3	66	1,441	810	78
Total Net Sales	12,219.8	14,073.2	(13)	34,589	37,505	(8)
Intersegment transfers(7)	(3,311.3)	(4,205.1)	(21)	(9,372)	(11,174)	(16)
Total external net sales from cont.op.	8,908.5	9,868.2	(10)	25,217	26,331	(4)
Total external net sales from discont.op.	-	119.0	(100)	-	323	(100)
Total External Net Sales(6)	8,908.5	9,987.1	(11)	25,217	26,654	(5)
EBITDA	FY 2023	FY 2022 restated	Ch %	FY 2023	FY 2022 restated	Ch %
Upstream	365.5	827.5	(56)	1,026	2,212	(54)
Downstream	490.2	804.8	(39)	1,375	2,127	(35)
Gas Midstream	93.8	61.0	54	265	163	63
Consumer Services (13)	244.8	121.2	102	695	320	117
Corporate and other	(60.0)	(66.4)	(10)	(172)	(181)	(5)
Intersegment transfers(7)	15.0	(13.6)	n.a.	46	(41)	n.a.
TOTAL EBITDA from cont.op.	1,149.3	1,734.6	(34)	3,235	4,600	(30)
Total EBITDA from discont.op.	(2.5)	193.6	n.a.	(8)	513	n.a.
Total EBITDA	1,146.8	1,928.3	(41)	3,227	5,113	(37)

	HUF billion			USD million
Depreciation	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	126.8	213.6	(41)	358	558	(36)
Downstream	161.1	168.7	(5)	457	454	1
Gas Midstream	17.4	16.7	4	49	45	9
Consumer Services	122.8	44.7	175	349	119	193
Corporate and other	44.5	33.3	34	126	90	40
Intersegment transfers(7)	(1.0)	(1.5)	(36)	(2)	(3)	(33)
Total depreciation from cont.op.	471.7	475.5	(1)	1,337	1,263	6
Total depreciation from discont.op.	-	(17.3)	(100)	-	(50)	(100)
Total Depreciation	471.7	458.2	3	1,337	1,213	10
Operating Profit	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	238.7	613.9	(61)	667	1,654	(60)
Downstream	329.1	636.1	(48)	919	1,673	(45)
Gas Midstream	76.4	44.3	72	216	118	83
Consumer Services (13)	122.0	76.6	59	346	201	72
Corporate and other	(104.5)	(99.7)	5	(298)	(271)	10
Intersegment transfers(7)	15.9	(12.1)	n.a.	48	(38)	n.a.
Total operating profit cont.op.	677.6	1,259.1	(46)	1,898	3,337	(43)
Total operating profit discont.op.	(2.5)	210.9	n.a.	(8)	563	n.a.
Total Operating Profit	675.1	1,470.0	(54)	1,890	3,900	(52)
EBITDA Excluding Special Items(1)	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	339.9	827.5	(59)	953	2,212	(57)
Downstream	490.2	804.8	(39)	1,375	2,127	(35)
Downstream - clean CCS-based(2)	472.4	848.4	(44)	1,328	2,240	(41)
Gas Midstream	93.8	61.0	54	265	163	63
Consumer Services (13)	244.8	121.2	102	695	320	117
Corporate and other	(60.0)	(66.4)	(10)	(172)	(181)	(5)
Corporate and other – clean CCS-based(2)	(67.4)	(70.6)	(5)	(193)	(193)	0
Intersegment transfers(7)	15.0	(13.6)	n.a.	46	(41)	n.a.
Total - clean CCS-based(2)	1,098.4	1,774.0	(38)	3,093	4,702	(34)
Total EBITDA  excluding special items cont.op.	1,123.7	1,734.6	(35)	3,162	4,600	(31)
TOTAL EBITDA  excluding special items discont.op.	(2.5)	193.6	n.a.	(8)	513	n.a.
Total EBITDA Excluding Special Items	1,121.2	1,928.3	(42)	3,154	5,113	(38)

	HUF billion			USD million
Operating Profit Excluding Special Items	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	216.8	598.6	(64)	605	1,600	(62)
Downstream	329.1	645.3	(49)	919	1,697	(46)
Gas Midstream	76.4	44.3	72	216	118	83
Consumer Services	183.3	76.6	139	521	201	159
Corporate and other	(98.6)	(99.7)	(1)	(282)	(271)	4
Intersegment transfers(7)	15.9	(12.1)	n.a.	47	(38)	n.a.
Total operating profit excluding special items cont.op.	722.8	1,253.1	(42)	2,026	3,307	(39)
Total operating profit excluding special items discont.op.	(2.5)	210.9	n.a.	(8)	563	n.a.
Total Operating Profit Excluding Special Items	720.3	1,464.0	(51)	2,018	3,870	(48)
Capital Expenditures	FY 2023	FY 2022	Ch %	FY 2023	FY 2022	Ch %
Upstream	129.6	141.0	(8)	367	375	(2)
Downstream	223.0	268.8	(17)	634	720	(12)
Gas Midstream	12.4	11.6	7	35	30	18
Consumer Services	181.3	250.5	(28)	525	654	(20)
Corporate and other	75.4	89.0	(15)	215	237	(9)
Intersegment transfers(7)	(3.0)	(1.7)	76	(9)	(5)	89
Total	618.7	759.2	(19)	1,767	2,012	(12)

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

3.1 KEY ACHIEVEMENTS AND SUMMARY OF 2023 RESULTS

In 2023, MOL reached Clean CCS EBITDA of HUF 1,098.4bn (USD 3,093mn), 38% lower in HUF terms than in the previous year and significantly exceeding the original capital market guidance of around USD 2.5bn. Operating cash flow was burdened by income tax payments amounting to HUF 455.5bn (USD 1,306mn), partly offset by working capital release of HUF 86.7bn (USD 296mn); accordingly operating cash flow generation after working capital arrived at HUF 754.0bn (USD 2,138mn) in 2023. Government interventions such as fuel price regulations and windfall taxation across the CEE burdened results by ca. USD 1bn on EBITDA level in 2023.

 

Key Financial Highlights

•         Upstream segment’s EBITDA, excluding special items, reached HUF 339.9bn (USD 953mn) in 2023, representing a 59% decrease compared to 2022 on the back of normalising oil and gas prices.

•          In 2023, Downstream generated HUF 472.4bn (USD 1,328mn) Clean CCS EBITDA, which is 44% below the previous year’s performance. The lower result was attributable to the narrowing of the Brent-Ural spread, the significant decrease in petrochemical margins, and the higher incidence of extra government takes in Hungary such as the Brent-Ural tax and the revenue-based extra tax.

•         Consumer Services EBITDA increased by 102% in 2023, reaching HUF 244.8bn (USD 695mn) as the fuel station networks in Poland and Slovenia were integrated in 2023, non-fuel margins continued increasing organically, and 2022 fuel price regulations were discontinued in 2023 in various CEE countries.

•         Gas Midstream reached HUF 93.8bn (USD 265mn) EBITDA in 2023, representing an increase of 54% compared to 2022, driven by rising cross-border capacity demand and changes of regulated tariffs evolved favourable as well mostly in line with rising costs.

•         Total CAPEX spending reached HUF 618.7bn (USD 1,767mn), indicating a decrease of 19% year-on-year, reflecting mainly less acquisitions completed in 2023 than in 2022. Looking at organic CAPEX, the 2023 figure came in 7% lower than in 2022, mainly due to the Company’s cautious approach in an uncertain environment.

•         Operating Cash Flow before Working Capital decreased by 64% year-on-year to HUF 667.3bn (USD 1,842mn), whilst a considerable working capital release drove operating cash flow generation to HUF 754.0bn (USD 2,138mn) in 2023.

•         Indebtedness on a Net Debt/EBITDA basis rose to 0.59x from 0.30x, since operational cash flow generation could not fully cover organic and inorganic CAPEX spending, as well as the income taxes paid and also the record high dividend distributed in 2023.

Key Operational Highlights

•         Annual oil and gas production reached 90.4 mboepd in 2023, meeting the annual guidance of ~90 mboepd. First gas was announced in December 2023 in Kazakhstan, expected to be adding to the Group’s production significantly in 2024.

•         The Consumer Services network grew to 2,421 stations mainly through the completion of the acquisition in Slovenia. The expansion of its non-fuel concept also continued, with a total 1,253 Fresh corners in place by year-end 2023.

•         MOL steps up in the circular economy concept:

o    MOL acquired the largest biogas plant in Hungary in May

o    MOL’s waste management concession commenced in July

o    Geothermal licenses won in Hungary and Croatia

•         ESG achievements:

o    MSCI confirmed MOL’s AA rating for the sixth 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

Amidst evolving regulatory landscapes and shifting consumer and industrial preferences, MOL Group formulated its 15-year strategy in 2016, centred on a gradual transition towards meeting the demands of a low-carbon economy. While reaffirming the fundamental principles of its strategic evolution set out in 2016, MOL Group introduced a more ambitious array of transformational initiatives in its revised "2030+ Shape Tomorrow" strategy in 2021.

After the end to COVID, and a year of upheaval in the oil and gas industry in 2022, 2023 showed normalization both globally and in the Central Eastern European region. At the same time, increased geopolitical tension and the regulatory push to accelerate the green transition have been shaping the year’s performance and the outlook. To adapt to the developments of the external environment, MOL decided it would be the right time to review its strategy, which was published in March 2024.

Shape Tomorrow strategy

In its updated Shape Tomorrow strategy, MOL’s climate neutrality commitment remains unabated. Learning from the challenges posed by the COVID-19 pandemic and geopolitical crises, MOL specified a more precise transition path until 2030, ambitioning eventually net climate neutrality by 2050. The transition path builds on the above-average growth trajectory expected in CEE economies and MOL’s ambition to retain or increase its presence in this area in its traditional wholesale and retail markets.  This resilient growth model is foreseen to be maintained over the strategic horizon to 2030 and is the main engine to fund the transition.

Perhaps the most closely watched transition indicator for the sector is the path of emission reduction. By 2023, MOL has been able to reduce its Scope 1 & 2 CO2 emissions by 10% since 2019 on a like-for-like basis, in line with the transition path set out in its earlier strategy setting out a like-for-like emission reduction of 30% between 2019 and 2030. Emissions reduction targets have also evolved, with a more ambitious aim to achieve 25% less emissions in 2030 compared to the base year of 2019 for Scope 1 & 2 emissions on absolute terms. The 25% emission reduction target, set out in line with EU reporting regulations on an absolute basis, is a more ambitious transition goal as it translates to a 33% reduction target  on a like-for-like basis, above the 30% set out in the 2021 strategy. The updated strategy also indicates expectations with regards to Scope 3 emissions for the first time, which is foreseen to indicate 5-10% decrease between 2019-2030 on absolute terms, depending primarily on the development of the regional fossil fuel demand.

MOL also set out a new path with regards to investments needed to achieve its green transition ambitions: between 2025-2030, ca. 30-40% of MOL’s CAPEX budget will be allocated to low-carbon initiatives. However, MOL remains conservative with regards to its CAPEX budget and expects that organic investments will amount to USD 1.9 bn on average in 2025-2030 in real terms, a notch higher than the USD 1.8 bn average in 2018-2023.

The revised Shape Tomorrow strategy enables MOL to maintain a conservative approach to indebtedness while offering competitive returns to shareholders. The commitment to prudent financial management is to be upheld, providing ample financial headroom for the Company to execute its strategic goals.

Segments contribution to the strategy

Recognizing the shift away from traditional fossil fuels, the Downstream segment has been deeply involved in transition since 2016. Downstream’s focus areas are expanding with circularity and sustainable solutions, including petchemization, biofuel, green hydrogen and biogas. Additionally, the commitment was reiterated to diversifying the crude mix to enhance energy security.

Downstream will be the segment most affected by the Group’s higher reliance on renewable energy sources, with the Group’s consumption aimed at ca. 2,500 GWh by 2030. MOL will be selective with regards to how much of this consumption will be generated in-house or bought from the market, depending on long-run return profiles and synergies to be exploited.

MOL’s entry into the waste management business in 2023 aims at no less than transforming waste collection and utilization in Hungary, and aligns with EU guidelines and supports the circular economy concept. In 2023, MOL already took a large step towards attaining these goals by preparing to introduce the Deposit Refund System, which commences in two waves in 2024. By 2030, MOL’s waste management arm aims to provide 1.5 million tons of waste-based feedstock to the Hungarian industry, including MOL’s downstream business.

The Consumer Services segment continues its transformation into a digitally driven consumer retailer and integrated mobility provider. The aim is to introduce multi-purpose service stations, shift towards customer-driven operations, and become a leading mobility provider in the region. With the EBITDA target of 700 mn USD for 2025 practically achieved already in 2023, the new ambition for the segment is reaching USD 1 billion EBITDA by 2030.

The Upstream segment remains a key cash generator for the Group. Average daily production is expected north of 90 thousand barrels of oil equivalent, with unit direct production costs between 6-8 USD/boe by 2025-2030. The focus in the CEE region will be on production and infrastructure optimization and enhanced hydrocarbon recovery in order to keep production levels high and mitigate the supply security concerns in the region. Moreover, deploying low-carbon technologies such as geothermal, lithium extraction, methane emission reduction, and carbon capture, utilisation and storage will be also high on the agenda in the region over the strategic horizon. With regards to Upstream’s international portfolio, assets will continue to be managed actively, with return metrics and time-to-market expectations driving changes in the portfolio composition.

3.2.1 Use of scenarios

The Shape Tomorrow strategy update, published in March 2024, is based on a detailed analysis of the external environment, exploring the main trends and directions of general macroeconomic conditions, the oil and gas industry, and ancillary markets that have – or potentially have – a large impact on MOL’s operation. Based on the analyses of these markets, MOL prepares numeric forecasts of the key macroeconomic and industry-specific parameters. The forecasts are prepared for three scenarios: Slow Transition, Steady Transition & Net Zero Emission. The green energy transition is happening in all three scenarios, the biggest difference between them is the pace of the transition. The Shape Tomorrow Strategy is predominantly based on the Steady Transition scenario. If one of the other two scenarios would materialise, it would mostly affect the timing of the investments envisaged in the Shape Tomorrow Strategy and not the strategic directions themselves.

MOL operates 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.

3.3     UPSTREAM

Segment IFRS results (HUF bn)	FY 2023	FY 2022 restated	Ch %
EBITDA	365.5	827.5	(56)
EBITDA excl. spec. items(1)	339.9	827.5	(59)
Operating profit/(loss)	238.7	613.9	(61)
Operating profit/(loss) excl. spec. items(1)	216.8	598.6	(64)
CAPEX and investments	129.6	141.0	(8)
o/w exploration CAPEX	11.5	18.0	(36)
Hydrocarbon Production (mboepd)	FY 2023	FY 2022 restated	Ch %
Crude oil production	38.1	40.0	(5)
Hungary	10.0	8.9	12
Croatia	9.7	10.1	(4)
Kurdistan Region of Iraq	2.2	4.5	(52)
Pakistan	0.5	0.5	8
Azerbaijan	13.9	13.9	0
Other International	1.9	2.2	(11)
Natural gas production	37.7	37.9	0
Hungary	21.3	20.4	4
Croatia	11.9	12.9	(7)
o/w. Croatia offshore	3.4	3.4	(2)
Pakistan	4.5	4.6	(3)
Condensate	4.5	4.8	(6)
Hungary	2.7	2.8	(2)
Croatia	0.8	0.9	(11)
Pakistan	1.0	1.1	(11)
Average hydrocarbon production of fully consolidated companies	80.4	82.7	(3)
Russia (Baitex)	3.8	4.0	(5)
Kurdistan Region of Iraq (Pearl Petroleum)*	6.2	5.3	18
Average hydrocarbon production of joint ventures and associated companies	10.0	9.3	8
Group level average hydrocarbon production	90.4	92.0	(2)
Main external macro factors	FY 2023	FY 2022	Ch %
Brent dated (USD/bbl)	82.6	101.3	(18)
HUF/USD average	353.3	373.1	(5)
TTF month ahead gas price (EUR/MWh)	41.3	130.9	(68)
Average realized hydrocarbon price	FY 2023	FY 2022	Ch %
Crude oil and condensate price (USD/bbl)	76.8	94.2	(19)
Average realized gas price (USD/boe)	61.2	130.8	(53)
Total hydrocarbon price (USD/boe)	70.1	109.6	(36)
Production cost	FY 2023	FY 2022	Ch %
Average unit OPEX of fully consolidated companies (USD/boe)	6.6	5.5	20
Average unit OPEX of joint ventures and associated companies (USD/boe)	2.3	2.2	6
Group level average unit OPEX (USD/boe)	6.0	5.1	18

 

 

Capital  Expenditures
FY 2023	Hungary	Croatia	Kurdistan Region of Iraq	Pakistan	Azerbaijan	Other	Total - FY 2023	Total - FY 2022
HUF bn
Exploration	8.4	4.1	0.0	-1.3	0.2	0.1	11.5	18.0
Development	20.1	15.9	4.2	0.4	49.0	5.1	94.8	107.7
Other	6.1	12.9	2.2	0.3	1.3	0.0	22.9	15.3
Acquisition	0.0	0.0	0.0	0.0	0.0	0.4	0.4	0.0
Total - FY 2023	34.5	32.9	6.4	-0.5	50.6	5.7	129.6
Total - FY 2022	24.6	35.4	10.0	6.4	57.9	6.7		141.0

 

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

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.