Mol Net Quadruples as Forint Offsets Chemicals Loss

By Balazs Penz

Aug. 12 (Bloomberg) -- Mol Nyrt., Hungary's largest oil refiner, said second-quarter profit more than quadrupled as the stronger forint reduced the company's euro-denominated debt, offsetting a loss in the company's petrochemicals business.

Net income rose to 114.7 billion forint ($717.6 million), or 1,271 forint a share, from 26.9 billion forint, or 292 forint, a year earlier, the Budapest-based company said today in a statement. That beat the 109.1 billion-forint median estimate of eight analysts polled by Bloomberg.

The results were ``a low-quality beat, driven wholly by higher-than-expected foreign currency gains and a lower-than- forecast tax rate,'' Merrill Lynch analyst Hootan Yazhari wrote in a note to clients today. Rising profit on oil was ``wholly offset by a significant loss on their petrochemicals operation and weaker-than-expected contribution from the natural gas division.''

The Hungarian currency was the world's second-best performer against the euro in the second quarter. Its 11 percent gain cut the forint value of Mol's loans denominated in the European Union's common currency, helping the company increase earnings. The rising cost of crude resulted in a loss on chemicals and weaker performance at Mol's gas unit.

Shares Fall

Mol fell 0.3 percent to 17,950 forint in Budapest as of 9:35 a.m. local time, a one-month low. Mol shares have lost 27 percent this year, compared with a 20 percent decline in Hungary's benchmark BUX Index, valuing the company at 1.97 trillion forint as of yesterday's close in Budapest.

Sales increased 52 percent to 921 billion forint. Mol posted operating profit of 89.1 billion forint, down 3 percent, and a 37.5 billion-forint financial gain, compared with a 34.8 billion-forint loss on the same line a year ago.

The overall corporate tax rate was 11 percent, which compares with an estimate of 20 percent by analyst Tamas Pletser at ING Groep NV in Budapest.

Mol's exploration and production division boosted operating profit 30 percent to 30.6 billion forint on rising natural-gas and crude oil prices. The refining and marketing business had operating profit of 69 billion forint, 18 percent more than a year earlier.

Crude Outlook

The company expects the price of crude oil, which reached a record $147.27 a barrel on July 11, to remain ``high'' for the rest of the year, Chief Financial Officer Jozsef Molnar said in a phone interview today. Refining margins, or the profit from turning crude into fuels, will remain strong, including ``exceptionally high'' earnings for diesel, he said.

The petrochemicals unit posted a loss of 13.7 billion forint compared with a 12.2 billion-forint profit a year earlier, as margins in the industry collapsed because the increase in the price of crude oil boosted costs while the forint's gains cut export prices.

``Chemicals brought a definite disappointment,'' Kornel Sarkadi Szabo, an analyst at Cashline Securities in Budapest, wrote in a note to clients. ``Most likely, shipments occurred with the worst possible timing.''

The segment is past the ``bottom of the cycle,'' CFO Molnar said. The average margin was 278 euros ($414) in the second quarter and rose to 400 euros in July and 500 euros in August he said.

The petrochemicals business, along with the wholesale refined fuels, is the most affected by the forint's gains, Molnar said.

Mol's gas-transmission business posted an operating profit of 6.4 billion forint, compared with 6.8 billion forint in the second quarter of 2007.

Competitors' Earnings

Mol's profit compares with a 66 percent gain in net income at rival OMV AG, the Austrian refiner that earlier this month gave up a yearlong hostile bid valued at 2.8 trillion forint for the Hungarian company.

PKN Orlen SA, the Polish refiner that will publish second- quarter figures tomorrow, will probably say profit rose 20 percent, according to the median estimate of seven analysts surveyed by Bloomberg.

The end of the OMV bid now enables Mol to increase its stake in Croatian refiner INA Industrija Nafte d.d., which is ``the most important thing now,'' Molnar said today.

He reiterated that the company is ``studying options'' for OMV's 20.2 percent stake in Mol, declining to say whether the two sides have met to discuss it.

To contact the reporter on this story: Balazs Penz in Budapest at bpenz@bloomberg.net