MOL Magyar Olaj- és Gázipari Nyilvánosan Muködo Részvénytársaság (MOL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to MOL's Fourth Quarter 2021 Results Conference Call. My name is Zoltan Pandi, the Head of Investor Relations. We have a strong lineup of management to discuss the recent developments: Gyorgy Bacsa, Executive Vice President of Group Strategic Operations and Corporate Development; Mr. Jozsef Simola, Group Chief Financial Officer; Dr. Berislav Gaso, Executive Vice President of Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; as well as Mr. Peter Ratatics, Executive Vice President of Consumer Services. We continue to use Microsoft Teams and the platform to hold our conference call. The presentation can be downloaded from our website at molgroup.info. We will be sharing the slides in Teams too. [Operator Instructions] Before we start, I would like to draw your attention to the cautionary statement on Slide #2. And now let me hand over to Gyorgy Bacsa, who will take us through the highlights of the Q4 2021 period.

Thank you, Zoltan. Welcome, everyone. So let's move to Slide #5. And you can also see on the screen on your Teams, but I will also guide you verbally, how we delivered against the most important KPIs in 2021. First and foremost, the fourth quarter 2021 results showed the strength of our integrated business model. It showed to be resilient in hard times and it showed to be very profitable when the macro environment was supportive. But I also would like to emphasize that the results of 2021 fourth quarter and of course, the outlook for the year, results, the annual results is not only due to the macro conditions. The favorable macro development, the favorable macro environment is definitely -- is a significant factor why we achieved these great results, historical great results. But there was a strong internal performance, reliability, profitability and sustainability terms as well, which also showed in the nonquantifiable KPIs as well, but also that we managed during all pandemic restrictions all market and political turmoil's. So regarding 2021, just the key figures. The Group Clean CCS EBITDA is amounting up to $3.53 billion, which is significantly higher than our historical average, and this is also higher and beating our last guidance, which we announced after the third quarter. The simplified free cash flow is also $2 billion, why we mainly achieved to deliver the organic CapEx program that we planned for last year. Just one figure, just one of the key projects, the polyol project, is now standing at 94% completion. So the strong simplified free cash flow delivery, the CapEx development is on track. The CapEx spending is on track. And oil and gas production, we managed to reach 110,000 barrel a day oil equivalent production. The net debt-to-EBITDA is at a very healthy level. And of course, in the total recordable injury rate, we are still under the tolerable rate. While we have to say that we'd get back to performance after a year or several months of lockdowns. We had to bring back contractors to the site. So it was definitely a difficult year, and we moved back operation to normal, but we also coped with several restrictions. I believe that these financial and nonfinancial KPIs are to certain extent self-explanatory that last year was a great year. So the 2021 results we consider are one of the historical best year for company. So if we move to the next slide, this is the macro slide. You can see that the fourth quarter results were still at a very high level, so $947 million, whereas some of the supportive macro environment started to decline, like the refinery margin and the integrated petchem margin. But you could see that the crude price was still growing in the fourth quarter as well. So all in all, after the very good third quarter results, the fourth quarter was also outstanding. And even with normalizing certain macro environment circumstances, it contributed significantly to this 2021 annual results. So let's move to the sustainability and the ESG performance. The next slide is 7, which is rather kind of summary of all the elements, the annual and the fourth quarter results. If there is questions, we can go back to that one. So just to save time for the question-and-answer part, let's move to the sustainability one, where we -- first of all, we would like to announce some positive news on MOL ESG ratings. CDP acknowledged our scores and upgraded MOLs climate and water reporting program by 2 notches into big category in the fourth quarter, which is, I would say, in line with the Western European integrated overall scores and all the best industry practices. And it's certainly much ahead of the Eastern and the Central Eastern European peers. On the safety side, you can see that TRIR increased, but only compared to 2020. And 2020 was a lockdown year. So I don't think that this is a realistic benchmark. If you compare it to 2019 and before, we managed to increase the safety, safety of work, safety for employees significantly. And you can see that there was 0 owned staff and contracted staff fatalities in 2021. The 1.3 is a tolerable rate we managed to get. And on engagement, employee engagement, after this pandemic year still reached 79%, which is slightly ahead of the previous survey results, but in a difficult environment. So I would say that this sustainability engagement and governance of course, we managed to deliver significant steps ahead. So let's move to the next slide. So as far as the outlook is concerned, 2021 clearly surprised. It clearly surprised us, the analysts, the industry, the market, our customers, since after the 2020 disastrous circumstances, 2021 rebounding was quick, fast and even bigger than anyone expected. And the macro environment, the macro circumstances were even more supportive that we could have built into our model and into our guidances. When we talk about the 2022 guidance, which you can see in the middle column, we took mainstream conservative approach. And I think you can build in any kind of sensitivities into your own model as much you want. Because on the right column, we also highlighted the basic or the fundamental macro drivers. We took the midpoint of these ranges, and we calculated our guidance. So if you want to make a stretch case or an upside case, you can easily model it into that front. So our guidance is based on a Brent range with average annual Brent range between $70 and $75, the group refinery margin between $3 and $4 per barrel, a group petchem margin between EUR 350 and EUR 450 per tonne. And the carbon prices, which is EUR 80 to EUR 100 per tonne, you can see that we see significantly increased in our model the carbon prices, taking more seriously the sustainability and carbon cost effects and the sustainability programs that is affecting our industries. The CapEx is in line with our previous guidance. We believe that we can keep up this $1.7 billion, $1.8 billion organic CapEx. We did not build major M&A and inorganic, which is usual practices. And as I mentioned before, with the strategic projects like Polyol, we are standing just before completion. So group Clean CCS EBITDA guidance for 2020 is around $2.8 billion or above. So I think this is the guidance. The other element of the guidance you can see also listed in the middle column. And I would like to now hand over the word to Mr. Jozsef Simola.

Thank you, Gyorgy, and good morning, ladies and gentlemen. And let's start on Page 11 with the EBITDA composition. And as usual, you will hear the details from the business leaders. So with $3.5 billion Clean CCS EBITDA, highest ever financial performance in MOL's history. So let's look at the details. And the #1 contributor for last year was the Upstream business with above $1.5 billion. And that clearly shows that our integrated business model works, and there is a very important role of our traditional businesses in this model. If you look at the other side, the Consumer Services, you see a decrease of EBITDA compared to Q3 as a result of expected seasonality and also a contribution from the price regulation we experienced in some countries in the last quarter. But by looking at this, we should not forget that on a year-on-year basis, this business contributed to close to 20% EBITDA growth in partially supportive or actually even, I would say, a non-supportive environment. And that, I think, again, the importance of the business model and the importance of the new businesses in this business model. Last but not least, Downstream, again, compared to Q3, the usual seasonality impact and decrease, while above -- close to $1.5 billion EBITDA contribution, the second largest in the group and also a very strong balancing back in the EBITDA compared to last year. If you look at Gas Midstream, I mean, as discussed during the year, lower than last year EBITDA contribution was expected. As a reminder, 1st of January last year, the Serbian and Bosnian gas transport business discontinued and that increased -- that actually impacted the decrease in the EBITDA. In terms of going ahead, probably this $136 million is on the -- probably on the higher end of what we see as an EBITDA contribution for the coming years. Corporate and intersegment, you see a major increase, a higher negative number. But please do not forget, this is almost all of it coming from the higher negative intersegment number, and that's essentially coming up closing Brent about $77 end of last year and $50 a year before. Now let's go to the next slide, Page 12, CapEx. I think we see the usual pattern or patterns, I have to say, after Q4. On one side, a very strong seasonal Q4 performance compared to Q3. And on the other side, I have to say also usual that we are slightly conservative with our CapEx guidance. So we are with $1.54 billion number, slightly below $1.7 billion guidance for the year. Now compared to fourth quarter last year and the last year, we see around a 10% increase in the overall organic spending and an increase in the same business or maintenance type of spending as a result of kind of catching up -- post-COVID catching up with the smaller spending during the last year. Let's go through the next page, simplified free cash flow. We see the patterns from the previous 2 page. On the quarterly basis compared to Q3, a seasonally lower EBITDA and seasonally higher CapEx spending result in a seasonally lower Q4 in the simplified free cash flow. Looking at the year-on-year, which is probably the more interesting, we see a large increase in the simplified free cash flow generation, essentially higher than 100% increase in all of the business lines, significant positive contribution from all of the businesses. And as I mentioned, Upstream with above $1 billion free cash flow contribution was the largest contributor in the last year. Let's go to Page 14, the below EBITDA items for the year, $164 million positive CCS modification, as I said, closing Brent went from $50 to $77, and that was essentially the expected impact in the CC modification. Special items, nonmaterial for the year. We had 2 smaller special items, minus $30 million Croatian offshore and plus $8 million release of provision after a legal case, resulting overall minus $5 million. DD&A and impairment, the Q4 number was $375 million. It's probably kind of a good proxy for a going rate ahead versus the Q4 number $470 million, which includes the kind of year-end housekeeping items, out of which around $100 million was a dry well in Norway. And the remaining is mostly various Upstream impairments in various assets. A relatively small finance expense, $833 million. The major contributor here was the weakening -- the around 10% weakening of the forint compared to the dollar, while to the euro there was actually almost kind of no weakening at around 1%. Income from associates, a very high number of $45 million from the first quarter, again here and housekeeping and mostly coming actually of reversal -- impairment reversals in various assets. Going ahead, I think the usual quarterly going rate is probably more in the $10 million to $15 million range contribution. Income tax expense, a significant increase as expected from last year. Increase in local taxes coming from the higher Hungarian revenue numbers. Small kind of decrease in industry taxes, because we had smaller tax reclaims in Norway, almost tripling the profit tax on the back of the higher -- much higher profitability. And actually, a higher negative number in the deferred taxes is coming from the effect what we discussed also in the last quarter that Robin Hood taxes can be carried forward through changing the regulation and hence, the increase in the deferred tax assets. And noncontrolling interest, the number shows actually a strong profitability of INA and the share of the noncontrolling shareholders from this profitability. Now let's go to Page 15, the operating cash flow. And I think the interesting number here is the working capital, $900 million kind of buildup for the year. That's actually almost around $800 million is coming from inventory impact and the price impact of the inventory. Now going ahead in terms of the expectation, I mean if prices go up or down, that number should follow. And in terms of the volume impact, we actually don't expect a decrease of this buildup until end of Q2 due to heavy maintenance season starting in the spring. And let's go to Page 16, the last finance side. I mean clearly, a very strong year, very strong free cash flow generation shows in the balance sheet, also in the gearing and also in the EBITDA. As usual, please don't forget that in the net debt to EBITDA, we see also the 12-month rolling impact of the EBITDA, i.e., going ahead, you should expect in terms of the reverse effect potential in terms of EBITDA will not keep growing, but potentially slightly decreasing in the coming period. And in terms of -- I mean lower net debt, higher financing headroom. So all in all, kind of very strong balance sheet to look into this year. And with this, I'd like to hand over to Gabriel, for Downstream results.

Thank you very much, Jozsef. Good morning, ladies and gentlemen. So as Mr. Bacsa and Mr. Simola mentioned, really excellent performance, and I'm proud to share that Downstream contributed significantly, and we delivered close to $1.5 billion last year. So in terms of the last quarter, the Clean CCS EBITDA more than doubled year-on-year in Q4 2021, and reached $352 million. Of course, that we have to admit that the base was rather very depressed in 2022 and contributed to the full year delivery of $1.5 million, which is an absolute all-time high annual Downstream results. Petrochemicals contributed significantly. And even as we learned in the first quarter of 2021, petrochemical or the refining petrochemical integrated operation is a big advantage of our Downstream operation. So Petrochemicals contributed around 55% to these results, monetizing an excellent margin environment. We continue to deliver not only from an operational perspective but made significant progress also in our flagship CapEx project, which is the polyol, where the mechanical completion ratio grew to 94% by the end of last year. Our sales performance was positively influenced by the improving regional motor fuel demand, hence total sales exceeds the Q4 2020 base by roughly 3%. At the same time, the sales increase was mostly covered by the third-party sales rather than from our own production. So what we report is the Q4 -- supportive Q4 external environment conditions, but yet we're operating in a very high energy price environment. And with this comment, I would turn your attention to our next slide, where we are discussing and showing the impact of -- revisiting our refining margin calculation. So I believe you noticed that in response to an uplift in energy and carbon prices, we have updated our refining margin calculation methodology as from January 2022. So we have implanted 2 structural changes. The first one is the purchase CO2 quota, which is a new variable cost item, not taking into the consideration in the past. But we also revisited the variable energy component, which has been updated, and I believe, shows a better correlation to actual spot gas fluctuation. With these changes, the refining margin is expected to be a better proxy for underlying macro changes. Of course, that we have to -- that there should be a disclaimer that the refining margin fluctuations may not entirely be representative to the actual R&M results, since the market margins was intentionally designed to exclude a number of otherwise relevant factors impacting our actual profitability. I strongly believe that these changes in refining margin calculation will help both our and investors work and understanding. Now let's have a couple of words about the macro developments. So on the R&M side, we continue to operate in a fairly favorable product environment. But I believe we should not look at that on a stand-alone basis, precisely due to the related exposure that I have just described. And accordingly, we have seen quite a big energy volatility in early '22. So we see a really, really depressed January from the profitability perspective, followed by a recovery in the first half of February, in line with the significantly widening Brent euro spreads. Regarding the petchem margin, probably you still believe -- remember, the historic highs of roughly EUR 1,000 per tonne in April last year. And -- but in line with our expectation, there is some normalization and integrated margin reached the level of EUR 600 per tonne. Since year-end, the -- sorry, the integrated margin came under further pressure, mostly in line with the rising oil price environment. So let's move to the next slide, please, and we can have a look into the actual results in more details. So I don't want to discuss the Q4 too much. So we can see that the CCS EBITDA reached the level of $350 million, 2 main drivers behind. Refining and petrochemical margins strengthened and also positive volume development was mainly a function of this 5% uplift in process volume. On the full year basis, we got high results. We are all aware of the strongest petchem external environment which I mentioned and the decent refining margins. So the petchem in average, EUR 260, EUR 265 per tonne, higher than the base and the refining margin in average $1.3 per barrel. I would like to stress that our internal performance significantly contribute to favorable market conditions. So the volumetric contribution seems to be very small, but we have to take into consideration the stronger turnaround activities in 2021 compared to 2020. So I'm very grateful to the whole Downstream team for their outstanding performance and their strong commitment. And with this, I would like to ask Peter to continue with Consumer Services. Thank you.

Thank you very much, Gabriel. Before jumping into the Q4 results, I think it will [indiscernible] a bit of an overview on these past 5 years, and where we are at the moment from where we started and what was the guidance over on this 5 year horizon. Actually, you can see on the slide that the EBITDA generation is doubled. And also, the free cash flow generation is 2.3% higher than it was at the start of this 5 years period. Then we set first the 2030 strategy. And we said that we would like to make the transformation of the fuel retail into our consumer goods retailing. And I think on these slides, you can see that what has happened actually with the fuel. Obviously, the market consolidation was strong and the market itself grew very much. But even within the portfolio, the premium margin, the premium fuel sales got higher attention and obviously resulted very nicely, contributed very nicely to the result of the fuel margin growth. But more importantly, the non-fuel part, the non-fuel margin, you can see that practically we doubled the non-fuel margin generation, thanks to the capability building and the much higher retention and focus on the product selection, both on the grocery and the gastro side. And I think that's a very strong basis for the upcoming 5-year period. In the past, actually, we probably build up and finish the consolidation and the strengthening of the base operation and we are ready to expand it further in the network. With that, actually, let's have a bit closer look on the last year's performance and the fourth quarter on the next slide. The 2021 EBITDA actually was a record EBITDA. And we reached and surpassed the $600 million threshold, which was a dream earlier. Actually, that 19% year-on-year EBITDA increase compared to the base or reported currencies -- and yes, in the last quarter, in the fourth quarter, actually, we got a bit of a challenge from the regulators with the introduction of the fuel price cap. But all in all, I'd say that the fundamentals are still very strong around the Consumer Services. The fourth quarter [indiscernible] if we really want to tackle it on a precise way, that's a 6% decrease on a constant FX basis. And also, the currency exchanges and the very volatile local currencies resulted an additional 4% decrease. So on a reported basis, actually it's 10% in the fourth quarter. But all in all, in the entire year, actually, it was very well compensated. The fuel price cap in Hungary at the end of the last year in Croatia resulted quite a significant negative impact. It's still positive from EBITDA side in each of the countries. However, the gross profit was a double-digit dollar -- [ $1 million ]. So that's obviously quite sizable. With all that, even the fourth quarter compared to the base would be an increase and not a decrease. If you turn the page to the next one, which will then show you the more deeper dive and more detailed overview on the pure sales performance. I think in general, this is a fundamental good news here that more or less, the market came back to the pre-COVID consumption numbers. Even the fourth quarter was just 1%, a bit more than 1% behind the 2019 fourth quarter consumption numbers. But all in all, compared to the last year same period it was 9% increase, which is a very, very good news and a strong kind of base for the future. Still in this slide. And obviously, in respect of the entire last year, we can highlight that all of these performances were achieved without a significant inorganic expansion. That's practically a like-for-like organic expansion results achieved. And that will lead to the next slide, where I will show you the non-fuel margin performances, where also you can see that despite all the challenges on the fuel side, the non-fuel performance was just continuing its trend. But we started and very, very good results, what we expected from this. Actually a 12% increase compared to the last year fourth quarter and in the entire year, I think it was -- it was a very strong contributor. With that actually we surpassed the 30% contribution of the total margin generation from the non-fuel side, thanks to the grocery and gastro. And even within the gastro, I can highlight that it's not anymore just the coffee story, but also the hot dog and sandwiches, it's just quickly catching up to be the hero products within our network. All in all, I can also probably highlight 2 things. On the positive side, the digitalization and the loyalty program expansion or introduction. More and more countries joined to the new reward program, the MOL Move. We have 9 in Croatia, Slovenia and in Hungary in operation. And this year, our plan is to introduce -- roll it out to Slovakia and also Czech Republic. The early results are quite promising and very successful. A huge number of new customers are joining and also we are capable of integrating the old customers into this new program, and we are very hoping that a very active participation will result in good contribution to the fuel and also to the non-fuel side. On the negative side, I also have to emphasize the negative contribution of the increase in OpEx or the operating expenditures, like the increasing utility cost and energy price, for example, very severe and very significant in our operation as well. And obviously, the other item is the increase in wage costs throughout the entire network irrespectively of the country. In each and every countries, that's a significant effect that we have to manage and [indiscernible] the numbers. [indiscernible] the 2021 in general was very active and I probably can say very successful as well. We started with the Marche acquisition, which was our capability acquisition. We acquired a very strong [ hot water ] gastro expertise, and that's what we plan to integrate into our normal operation in every countries. And then we continued with the Lukoil, first in Slovakia, then recently in Hungary. We acquired the Lukoil branded operation. And also in Slovenia last year, we acquired 125 service stations. All of these acquisitions is in the closing phase, just as the Lotos, what you I'm quite sure have heard a lot about that. With that actually we opened up a new country in our map with 417 Lotos service stations. With that in one move, actually, we would be -- we would become the #3 market player in an extremely large market compared to the other Central Eastern European market with 38 million potential customers in long run. That's a huge market, huge GDP contributor. Very promising outlook for us to expand our operation there as well. We are waiting the final results of the competition offices and the authorities in different levels, in Bratislava and also on the local from authorities point of view. But I have a high hope that each of the acquisition could start its contribution this year to the Consumer Services EBITDA and free cash flow generation. And with that, I would hand over the word to Beri, who will obviously present -- give you very fascinating Upstream results. Beri, the word is yours.

Thank you, Peter, and good morning, ladies and gentlemen. I'm very pleased to report another record quarter that the Upstream division delivered. EBITDA in the fourth quarter stands at $513 million. That's 29% up quarter-on-quarter. For the full year, we managed to deliver $1.554 billion in EBITDA, which is an uplift of 125% compared year-over-year. Now that's thanks due to 2 factors. One is, of course, strong internal performance and the second is also a very favorable and strong external macro environment. Oil prices stood at almost $80 per barrel. As you can see on Page 28, gas prices for the fourth quarter were EUR 97.5 a megawatt hour, the equivalent of $190 per barrel oil equivalent. And interestingly, by the way, if you look into gas price realization, it's basically in line with what we guided last quarter, roughly 60% of our CEE production is, as you know, spot gas driven, and that represents roughly 50% of the total gas production. Now strong macro and strong internal performance led to also a record high simplified free cash flow for the fourth quarter, $399 million and for the full year of $1.153 billion, which clearly makes the Upstream division the largest cash flow contributor of the group. If you move on to Page 29, you can see basically our standard slide on unit cash flows. In the fourth quarter, $41 in unit cash flow at a Brent price of $81. For the full year, $30 delivered in a $71 oil price environment. And if you look at the past quarters from 2020 onwards, again, a strong improvement in unit profitability. If we move on to Page 30. It's the traditional EBITDA bridges that we show in every call. I'd probably start with -- I mean the first thing that strikes out here is clearly the strong macro, which you can see represented in the prices in FX bucket. You will also see on the full year EBITDA bridge, quite a decent contribution coming from volumes and positive volumes. The reason behind that is basically ACG's full year contribution. But last year, we only consolidated as of mid-April. Higher volumes led to somewhat higher costs. That is also what you can see. And in the bucket other, basically, the $31 million. And the largest driver behind this is the collection of [ MBOEPD ] receivables in Kurdistan. We imparted them year ago, we collected them this year, that's why you can see basically a strong positive effect. If you move on to Page 31, production. I think for the quarter, 105,900 barrels per day and full year 110,300, pretty much in line or slightly above what we guided for 2021. In terms of quarter-over-quarter changes, you can see a delta of 1,500 barrels. And that largely comes from 3 factors. One is ACG with roughly minus 900 barrels to a series of planned and unplanned shutdowns. You see the U.K. at minus 900. That's simply natural decline behind the assets. And you see a stronger Hungarian number, plus 600 barrels as a result of production optimization and earlier than planned completion of turnarounds. Our full year guidance for 2022 will stand at 105,000 barrel per day. And Page 32, unit OpEx, I would say, basically on the cost side, business as usual, as I've mentioned many times. There's a temporary slight increase in the Q4 unit direct production cost, which went up to $6.4 per barrel. That's, I mean, on diminishing U.K. production, maintenance and somewhat seasonally higher spend always in the fourth quarter. Outlook for 2022 in terms of [ unit DCU ] is 6.5 barrels and CapEx stood at $401 million, which is up by $73 million compared to the year. Before, the largest contributor of that delta, roughly 60% comes from increased spend on ACG. And on the last page, which is Page 33, a broader summary of where we will stand in terms of 2P reserves at the end of 2021, 9 years of implied reserve lifetime, 24% RRR, and we moved basically from 364 million down to 335 million 2P reserves year-end 2021. No major classic exploration upside, as you know, but we continue to unlock and develop reserves from the existing portfolio and still see opportunities in that. Now thank you very much. And with this, now I hand back to Zoltan to start the Q&A.

[Operator Instructions] And I assume we have a question coming in from Tamas Pletser.

Yes. I got 2 questions. First of all, can you quantify what was the impact of the Hungarian government action in the fourth quarter on your EBITDA in the retail? And what is your expectation for the first quarter based on the current fundamentals? That would be my first question. And my second question would be regarding to your dividend? I know usually you decide on the dividend in March on your Board meetings. But what is taking you back actually paying a significantly higher dividend this year than last year? I mean potentially, you can pay several hundred forints per share as you want. I mean you have a very strong balance sheet. I don't see any major CapEx inside. So what is taking you back or what can we expect from you?

Thank you, Tamas. I will start with the retail tax effect. So as I mentioned in my introduction, this is a double-digit million dollar effect, both, I mean, in a combined effect, both the Hungarian and the Croatian price regulation in the fourth quarter. Going forward in this quarter and what will happen after this period, I can't quantify, since we cannot judge the Hungarian foreign currency exchange, what would be the crack spreads and also what will the ultimate crude price environment in coming period. And all of these effects in a combination building for us the fuel margin, the retail fuel margin environment. What you know that in the current momentum, if you like, we are very close to the breakeven in Hungary. So we hope that the external environment being favorable to us [indiscernible] and we'll not break it even harder. But the more important -- most important one for us is that the operation fundamentally should be strong. We should minimize our cost environment and be even more competitive than our competitions. Probably this entire situation, hurting them much more than us. And we should be ready for any opportunities what this period will bring to us.

Sorry. What does it mean breakeven? I mean does it mean that you'll now generate basically 0 EBITDA at this moment in retail and in Consumer Services, I mean?

Well, in general retail, I wouldn't say so, but the fuel sales, that's very close to the breakeven, yes. From breakeven margin point.

Regarding the second part of your question, yes, the official answer is that late March is the time when we and the Board will come on with the dividend proposal. But of course, after presenting this fourth quarter result and even outlook for the 2021 annual results and seeing this strong financial performance, the Board will seriously consider all past practices and industrial practices that we see compared to a peer in the region and in the sector as well. So I mean, of course, you cannot expect me to give you a guideline or a hard statement that also will come back. But if you look at all practices like last 5-year practices, it was -- it can show you pattern. The only exception was 2020 when the COVID situation washed away, and particularly we had to give top priority to financial safeguarding and the financial strength safeguarding. Last year, we ran back to the base dividend practice that we continued in the pre-2020 years. And of course, all highest interest is that you as investors and analysts, you could definitely see a kind of pattern and reliability or foreseeability in our dividend policy or in dividend proposal from the Board side. So I mean, little bit of patience. Of course, this is a historic high results. You can see how we usually act in other things. And you can also see that how the macro or the surrounding situations are developing. So that is -- these are the only 2 factors of the 2 primary factors that we always take into consideration when we decide on the level and on the formal dividend proposals.

We have the next question from Ekaterina Smyk.

Congratulations with strong results. I have a couple of questions. And the first one is on your gas pricing. What gas prices do you assume in your outlook for this year? You used to provide guidance for gas prices too. This time, it's not been listed on the slide. And then also in terms of gas pricing, Q4 gas prices increased quite significantly quarter-over-quarter. So I just want to understand whether in terms of adjustment of any sort of fixed or regulated pricing, or if there are elect contracts, if there is any room for higher prices in Q1, assuming that spot prices stay where they are, so if there is any sort of contract adjustment upcoming this quarter or next quarter? So that's the first question. And then the second question on -- just a follow-up on retail fuel price cap. What is the time line for these caps at the moment? Because I remember initially, they were introduced for 3 months or around that. I mean these 3 months have expired. Is there any indication of when these caps can be removed? Or for the time being, they just stay?

Thank you, Ekaterina. I will do some of the macro assumptions and just to highlight it. And then I will pass again the second part of the question to retail to Peter. Regarding the macro assumption that is in the supporting slides, you can see that we assume a yearly average range between EUR 50 and EUR 70 per megawatt for the TTF, so quotation. The spot one is slightly above the upper end of the range. And -- but you can see that the same is valid for the crude assumption where we assume $70 to $75 per barrel. That's why I said that in your model, you can model any kind of upside scenarios, if you want. But in all cases, this is a yearly average. We expect normalization after the gas year, and we expect the next gas year will be recontracted at a lower level. We also expect normalization both in crude and gas prices. The dynamic is different because crude is heavily -- how to say -- is more rapidly changing the crude pricing, and it can be repriced very quickly based on inventory levels and production ramp-up. But gas is usually being repriced after winter season, during summer season, new contracting and so on. And so there is a little bit lagging behind in the gas pricing. But in general, our assumptions and our view is that a normalization in the crude and gas prices will come. But if you would like to ask whether it clearly has a negative or positive effect on our model? I would say that that's the beauty and that's the strength of the integrated model. Because even if the prices are going up, then you can see that I should revise upstream contribution as well, because then our product yield or the products net income will be significantly higher. Why certain part is being offset by the higher energy prices and hitting the Downstream or the retail or the others energy utility bears on that hand? So I would say that I would be cautious of simply saying that if we are not in the midpoint of the, but at the high end or at the low end of the range, there will be significantly big difference in consolidated group level. Of course, if we, during the year see that this repricing for this normalization is not coming or even there is a stronger movement, materially different movements in the price, then of course, we will revise our model. But any kind of sensitivities, you can model in, and you can see how it effects Upstream performance and contributions mainly. But you always have to take into consideration that especially higher gas prices and higher energy prices would have an offsetting effect on our other business segments. So I'll pass now, if you don't have other questions for me. Let's move into retail.

Sorry. Before we go to retail, in terms of gas pricing, the second part of the question I asked was about your contracts. Are you anticipating -- so I know that there are some annual contracts that are adjusted annually, and then there are contracts that are adjusted with the lag. With this respect, are there any upcoming adjustments that sort of would reflect the higher pricing on part of your portfolio? And we are not speaking about spot gas forecast here.

Ekaterina, I'd say simply no major adjustments to be expected, except that, of course, the 60% spot gas price exposure in CEE, that will remain valid also for the first quarter.

Yes, I would like to confirm what Beri said. So we did not change the contracting strategy. So no adjustment done.

As far as the retail price cap concern, the government just postponed it in the coming months till mid of May, 15th of May. The election will be on 7th of April. So I truly believe and I really hope that this is the last kind of prolongation. And even I hope that after the election, they will be more open to have a meaningful conversation about the price regulation and even potentially lifting the current price environment or adjusting to the price environment.

And the next question would come from Oleg Galbur.

Yes. Let me start with a follow-up on retail price cap, since it just has been discussed. So we understand that your guidance for 2022 EBITDA guidance does not include any negative impact from this price regulation? And if yes, if you could also share how much would you -- how big impact would you expect? Or have you taken into account when guiding EBITDA? And then staying in the Downstream segment. I was wondering if you could help us understand the very strong performance of the refining business in the fourth quarter because we're looking at the evolution of refining margins, even the updated ones. Also the sales volume, we see lower numbers on a quarter-on-quarter comparison. And still, in terms of the Clean CCS EBITDA, we see a comparable contribution. So I was wondering if you have benefited from some one-off developments in the fourth quarter, which helped you realize this strong performance. Then on the Polyol project. If you could update us when do you expect to launch the operation of the poly oil plant? And more importantly, what level of annual EBITDA contribution would you expect based on the current outlook for the sector? And speaking about petchem margin, petchem margin guidance for this year, if you could elaborate a little bit and help us understand why are you guiding for already fully normalized level for this year, while still in January, we have seen a significantly higher level than your guidance. I was wondering if you are already feeling some pressure on margins from the clients or any other developments that would support your outlook margin outlook for this year?

Let me start with the retail piece, since that was the first question. Well, the Hungarian operation representing roughly 20%, 25% of the Consumer Services EBITDA. In order to make any kind of forecast or adjustment of the outlook, probably it's too early, and there is too kind of volatile environment around us, which will give me any kind of credibility to predict, but what will be the final impact of this on through the entire year. We have a strong and improved business plan. That business plan contains growth assumptions in all of our markets, both from consumption and also from unit margin management capability and more importantly, the long-term margin and sales are quite strong in our business plan, and that's what we believe in, that we would be capable to deliver. I think even with this kind of negative political decisions around us, which obviously affects us, I don't really believe that this year would be -- or at the end of this year, we will have worst result than it was the 2021. The question is that how much we would be capable to overcome this year on the last year's business results? I'm still optimistic. I still have a lot of foreseeable and executed growth opportunity in our operations [indiscernible] not kind of fundamentally driven decisions or external environment modification. It's more kind of political decisions, which will probably last till the election time in Hungary. So we don't have serious kind of adjustment in our Consumer Services EBITDA guidance.

And just one clarification. During the presentation, if I got it right, did you say that if there would have been no price regulation, the segment EBITDA would have been at the level or even above the 3Q results. Is that correct?

In respect of the fourth quarter, that was the case that if you exclude the price regulation effect, then the 2021 fourth quarter result would be on a par level or a bit higher than the previous year's fourth quarter results.

Yes, if I may. Thank you, Oleg, for the question, if I may answer the second part of it. So I see the 3 drivers behind. So firstly, I would mention and the most important is the really great internal performance. And by this, I mean the internal performance of our sales department, where I can believe we can really see the positive effect of our land lock markets. So the very same pattern was reported. I mentioned it in Q3, Q4 last year -- sorry, in 2022, when we see really depressed refining margin environment and still our performance was better than our base. The second, I would mention the year-end impairment were of compulsory stocks. And the third one, this is the midstream performance correlated with the increased gas prices and the question which Ekaterina tackled before. Have I answered your question?

Well, I was hoping to get more details, but yes, we can stop here and I can get later on to your colleagues from the IR department.

And Oleg, I believe you also had a question regarding the petchem margin and the developments. Just one comment there. As of 30 February, we have been fluctuating the EUR 450 to EUR 500 per ton range. General -- relatively high oil price environment is not always the best news for naphtha-based petchem. So again, a fairly conservative set of numbers there on the petchem side, but also we have seen normalization recently.

Please don't forget about my polyol question as well.

So in terms of the polyols, I reported that we reached last year, 94% of mechanical completion. So as you are aware, we expect to have the total mechanical completion in the second half of this year. And then the smoother startup this year with the -- I mean ramp-up, proper ramp-up schedule and forecast for the beginning of next year.

Any comments on the expected contribution to EBITDA?

Yes. So I believe that this year, we cannot expect. So I think that this is going to be the most complex and even the finest exercise of Downstream, meaning of the past years. So we really have to fine-tune the several production units. We have to pass the qualification of the polyol material in terms of the quality to our sales channels. So really a complex exercise. And I believe it will be a steady ramp up next year only.

I assume the next question would come from Piotr Dzieciolowski.

So I just wanted to ask, I mean, firstly I wanted to say congratulations on a good set of results. And then my 2 questions would be, first one, how much conservatism did you embed in your 2022 guidance. If you were to do a mark-to-market on the current forward curve and post first quarter, where would your full year EBITDA and so versus $2.8 billion because that seems to be very, very low. And then the second question is, when you think about the investment projects, you're about to finish this delayed coker in polyol. When can we expect another kind of a big transformation of CapEx from your side? Or over the next 2 years, we should expect more or less a stable CapEx of $1.5 billion and then quite sizable cash flow generation from your side?

Yes. If I may start with your second part of your question in terms of the big CapEx investments. So I believe you are fully aware of our strategy -- revised strategy announcement from early last year. So we expect to come with the next transformation project this year. So we assume to be ready with all the evaluation and to pass the next period of decision this year.

Can you provide any details of what that will be and how big that will be?

So I would not go to the deeper analysis. So I would just mention the very same as we mentioned previously, that we are really closely watching the valid technologies. And based on this, I believe we will do a very solid decision on this. So we are closely negotiating the terms with the potential suppliers of the technology. So I will not run to this detail today.

Okay. I understand. And on your 2022 numbers, how much we should add into it, if things develop as they are now visible on screens?

So regarding the 2022 guidance, I think, first, I would like to emphasize the statement that this is a conservative guidance. I don't want to qualify it whether it's negatively or positively conservative. Conservative in a manner that it does not foresee and does not include any internal negative driver in our operations. So practically, what we see that this CapEx delivery program, this transformation programs, this polyol ramp-up and this integration of the newly acquired retail will not hinder our operation as a growing concern. So we will continue to perform. We will continue to -- oil all production, we will continue to render the same reliability, the same variability. So we will have -- we are not foreseeing and we are not projecting negative internal driver. We're projecting that the integrated business model will have a balanced effect, offsetting certain positive and negative impacts and the general strong financial performance. The $2.8 billion guidance seems to be conservative only in light of the history highest performance of last year. So in general, what we always communicated that in our strategy or aim is to reach the $3 billion EBITDA performance in the midterm horizon. We exceeded that, and we are on the way. If we would, we'd like to put us back on the strategic track on a sustainable manner. We are on the way to get that. And this $2.8 billion is very much saying that if I am conservative on the macro setup, on the macro positive circumstances and trying to take a moderate approach, then still we are very close to deliver this $3 billion based on our internal assets, people and sales and other performance. So I would say that if you would like to believe in a more positive macro setup, we provided our macro assumptions, please model in, please do your sensitivity. If you would like to consult a bit how moderately you can take into consideration, you can contact our IR department; and 2, to the extent it's possible, we try to help your modes. However, please consider that most of the macro sets in our model are above 5-year, 10-year averages. Of course, not a linear extrapolation of the current record high spot prices. So that's how we admitted and we transplant on that that we are expecting a normalization not using historic averages. This set is still above the historic averages in most of the terms. We are negative, very conservative on the CO2 prices, which increased significantly. Recently, we expect normalization accrued at best prices that has -- that's why we have a more balanced range in our assumptions. If you think that that you believe in your more aggressive scenario, use the sensitivities and that -- this is a guidance from the year-end, where, I want to say, commodity prices are record high in the spot market, but we still believe that there will be a balancing period, a normalization period. So that's why we cannot give out a guidance which will take these high prices extrapolation as the base case.

Okay. Can I ask one more follow-up question?

Of course. Go ahead.

So I just wanted to ask on the gas pricing in Croatia, because I understand that's where there's a market pricing with a long-term formula. And that's like over 10% of your overall hydrocarbon portfolio. So I just wanted to understand how much year-on-year will these prices increase into '22 versus '21?

Thanks. I do not have the precise figure. So I don't know it by heart, but I would suggest that I will provide it to our IR and we can discuss it to certain detail. But as it was mentioned, we did not significantly or did not change the contracting pattern. So well, it heavily depends also on the spot prices, as we heard today several times that the part of the sales portfolio is priced on spot.

Okay. Actually, I don't see further questions coming in. So with that, I'd like to thank for your participation. If there are further questions, please do not hesitate to reach out to Investor Relations. Thanks again, all the best. Bye-bye.

Thank you. Bye-bye.

Thank you. Bye.