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

Good morning, ladies and gentlemen, and welcome to MOL's Third Quarter 2022 Results Conference Call. My name is Zoltan Pandi, Head of Investor Relations. And we have a strong lineup of management to discuss the recent developments; Dr. Gyorgy Bacsa, Executive Vice President for Strategic Operations and Corporate Development; Mr. Jozsef Simola, Chief Financial Officer; Mr. Ákos Székely, Senior Vice President of Financial Planning and Reporting; Dr. Berislav Gaso, Executive Vice President, Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; as well as Mr. Péter Ratatics, Executive Vice President of Consumer Services. We continue to use Microsoft Teams as a platform to hold our conference call. The presentation can be downloaded from our website at molgroup.info, and we will be sharing the slides in Teams too. [Operator Instructions] Before we start, I'd like to draw your attention to the cautionary statement on Slide #2. Now let me hand over to Gyorgy Bacsa, who will take us through the highlights of the Q3 2022 period.

Thank you, Zoltan. Thank you, everyone. This call is now about the first 3 quarter financial results. And as you could have read in the press release and the public and the stock exchange enhancement, all financial deliveries are ahead of the target or definitely in line in many of the aspects. Strong financial delivery in Q3. This year, it's -- I would say, again. The CCS EBITDA is above USD 3.6 billion year-to-date. Strong macro, of course, one of the key drivers despite the significant and the increase in government tax in many of the countries. Government tax in different formats, but I will talk about it in the next slide as well. CapEx spending, mostly in line with previous year patterns, now close to $1 billion year-to-date. And we will go also details later in the presentation. Simplified free cash flow. And as you can see, because of the CapEx spending, it's USD 2.6 billion year-to-date. And here, we introduced a new line to show you because there is a strong impact of the working capital build-in cost, which is approximately USD 2 billion, a kind of operating cash flow, which is significantly less than the simplified free cash flow. I also would like to draw your attention that some of the government tax are built in the EBITDA. So incorporated in the EBITDA, this was like the impact of the price regulations and the impact of the reality. However, currently discussed and still uncertain [indiscernible] type of government tax are not in the EBITDA, but under the EBITDA line. So, there was impacts, I will later on discuss as well. So forward-looking, we updated our 2022 guidance. And you could see that now the -- both the EBITDA, the CapEx, the free cash flow and also the net debt-to-EBITDA is more representing the year-to-date results after the third quarter. And there are definitely uncertainties around the free cash flow part of it. And there is, of course, a negative development. This is the TRIR in the HSE aspects as well, which I will also discuss later on. So if we move to the next slide, please. I don't want to go into the detailed sections. You could see and you could hear the downstream consumers services and upstream presentation separately. The 2 points I would like to highlight at this section. So the total government tax was around USD 1.2 billion. 70% of the government tax are the effects of the price regulations, which are affecting more downstream and consumer services businesses. 30% were the special taxes, royalties and other type of government tax. Vast majority of the government tax are still affecting our Hungarian business. The EU solidarity contribution by the individual members, they are still unclear how it will look like, whether they will introduce or they will do not introduce at what tax rate that we do it. The impact of an additional EU solidarity contribution tax will be in the magnitude of hundreds of millions US dollar, not dozens. So not 10, 20, but whether we are talking about mid hundreds of millions of U.S. dollars impact, taking into account the EU, same which is about minimum 33% of the extra profit but could go up to 100% as well. So, this is something which is a high uncertainty of the regulatory impact on our operations. Of course, our net debt-to-EBITDA based on the very strong EBITDA results are significantly lower than the previous results or the previous guidance. So, we also updated it. So the item on the next slide, please. Here, I would like to first talk about the good news. So the MSCI rating, we achieved in the fifth year in a row, the AA rating, which is the top 20%, as you can see in the sustainable rating. We increased our score in the environmental governance section. The state remain unchanged, the score in the social section. However, I also don't want to hide that our TRIR result in Q3, it's worse than a tolerable limit, mainly due to slip and trip events. So, we had to introduce special measures, special trainings and processes to training activities to avoid, to prevent such a high number of accidents. So the tolerable limit what we said is -- we said that we would like to stay under 1.2. We have to update it to 1.3 because this quarter is definitely not within off limit. Now, I would like to give the word to Akos to talk about the financial part.

Akos, we can't hear you?

Maybe we should continue with the downstream part.

I would suggest to skip to downstream and then probably there are some technical issues on Akos.

Yes. I agree. We talk to Akos. He has a technical issue. He has to log in again. So let's continue with the downstream and then we will go back to the financial part.

Okay. Thank you very much. So good morning, ladies and gentlemen. Thank you for the first slide. So in the reported period, Downstream delivered strong CCS EBITDA of USD 741 million, which is 70% higher compared to the same period last year. Similarly to the -- to my last report 3 months ago, the performance was driven by refining, which tripled compared to base and petchem was just around USD 20 million. Both results, R&M segment and petrochemical segments are reflecting the external environment, which I'm going to discuss, describe in 1, 2 minutes. But in terms of the R&M segment, the higher-than-expected performance is driven by sales premium above the quotation. This is the result of the rather tight market in the region during the third quarter, partly due to the planned but also unplanned shutdown of the refineries in our neighborhoods. And by that, I mean, mainly Austria and Czech Republic, but also logistics bottlenecks on the railways and also limited navigation on reverse, not in the region -- not in the region only, but also in the Western Europe. In the reported period, we successfully accomplished the major maintenance in the Danube refinery, reflected in own production sales figures. And also the petchem, we see that in the third quarter already, we were back on stream with our own production capacities. I am glad that during this demanding period of the very fragile supply-demand balance, we were able to maintain the security of supply in our core markets but also in the territory of CEE. As far as the market dynamics is concerned -- maybe still be the previous slide, please. So thank you. So in terms of the market dynamics, we see a small deceleration even today. Fuel demand decreased in Hungary and Slovakia, 3% and 2%, respectively, in Q3 year-on-year. And regarding our major -- 2, our major projects, Polyol and DCU, they are in line with the projection, which I mentioned last time. So now let's get to the macro slide, please. Thank you very much. So in terms of the macro indicators, I would like to raise your attention again that we report the refining margin based on the Brent quotation, separately from the Brent-Ural spread, and also our refining margin takes into account the energy cost as well. And this energy cost and also the weaker motor fuel cracks, mainly gasoline caused the drop of average margin by $9 to $10, which can be seen on the graph. But still the value around $7, $8 is still very attractive. Brent-Ural spread decreased by $10. Nowadays, it's still around $23, $24 per barrel. In terms of the petchem, we see there a drop to EUR 438 per tonne in Q3. This is a 30% drop. It is important to mention that on contrary to the refining margin in integrated petchem margin, we do not calculate with the energy cost. And connecting this fact with the previous charts, we can judge that what is the answer for the financial performance, rather weak financial performance of the petchem segment. And now my last slide. Thank you. So when it comes to the CCS EBITDA evolution, the result clearly is pushed by the R&M segment, as I mentioned, macro factors and especially the Brent-Ural differentials and are obviously having the major role in this great performance. But there are also negative factors, which I believe should be mentioned. So the financial implication of the fuel price cap on wholesale had an estimated negative impact of $250 million in the third quarter, where the price cap effects roughly 50% of our volumes sold in Hungary. In the Q3, we also report on increase of the windfall tax rate from 25% to 30%. And this is applicable as of August on the Brent-Ural spread with a negative financial impact of $90 million in Q3. So altogether, the downstream $340 million in Q3. And on the positive side, which I already mentioned, this is the price environment, which should be explained by the temporary regional supply constraint. Regarding the petrochemicals over polymer and monomer spreads, certainly exerted pressure on the performance, but also higher energy costs and weaker euro to dollar also played the role. The volumetric negative impact is the reflection of the major turnaround in Danube refinery and lower volumes in petchem. So this will be from my side. I don't know whether Akos is already connected or not.

The proposal would be to go through the businesses and then...

Okay. Good. Okay. So then Peter Ratatics, please. Thank you very much for your attention. Thank you.

Thank you, Gabriel, and good morning to everyone. Yes, the consumer services, still operating in a very difficult environment. In the third quarter this year, the EBITDA decreased by 43% year-on-year. Actually, the end result is $121 million. Majority of this decline compared to the previous year same period came from the fuel price regulatory measures. The impact of the price cap in this period is roughly $85 million. And 80% of this $85 million came from Hungary and the Croatian regulatory impact. The increased retail tax here in Hungary also caused a significant cost burden. Roughly in this quarter, the additional impact was $11 million on top of the significantly increasing OpEx as well. So that's the kind of operational environment when we have to fight. The positive note and the positive side of the business is the non-fuel, where still the margin expansion and also the sales volume increase can somehow -- compensating the loss margin on the fuel side. All in all, just to give you the perspective on the impact, roughly we halved the EBITDA in the first 3 quarters this year compared to the previous year. If we move the slide to the next page where the fuel performance are presented, you can see that we have a significant volume sales increase, roughly 12% compared to the previous quarter and also 11% compared to the previous year same period. That associates with our significant transaction increase as well, which also means that we have significantly higher customer numbers, our customers who are visiting the stations. And I think that's the kind of opportunity at the moment for us that in majority of our core markets in Hungary, Croatia, Slovakia as well, we are gaining at the moment, market shares. And that's where we focus very much that -- through the loyalty program. And also with the shopping and customer experience, we try to somehow loyalize those additional customer base who are now visiting us. And also, just to give you the perspective here in Hungary, 42% is the volume increase compared to the last year same period. So the regulated kind of environment significantly disturbed the market dynamics. And in this momentum, that's a good opportunity for us to keep -- to increase and potentially keep the market share. If we move to the non-fuel part of the business, as I mentioned, this is quite a robust operation, and we were capable to continue the trajectory, the growth trajectory, I would say then, at the moment, this looks to me the most resilient business operation within the consumer services. Over the past couple of years, we faced with different challenges, but in each and every prod, we were able to significantly grow the top line, so both the sales and also the margin. This year, this quarter, I have to emphasize that probably the biggest challenge for us is the devaluation of the local currencies versus the dollar. If we just count everything on local currencies or at constant FX rates, then the increase on the sales side is roughly 10% compared to the last year's same period. But on the margin side, it's 21%. However, if you take into consideration the dollar currency exchange devaluation, then almost the costs are eliminated by this. So, we really hope that in the upcoming period, the Eurozone and also the local currencies can get some strength back. And then in dollar terms, we also -- we will be capable to deliver the good results. And last but not least, I also prepared one slide about the Hungarian regulatory measures, since this is the kind of largest and that hits the most business domain. You can see all in over here that roughly 64% EBITDA decrease is the result of these measures in this year. $66 million on the fuel volume margin decrease altogether. So the volumes are increasing, but the margin at that low, that altogether that caused $66 million. Just a kind of refreshment. And a reminder that the main grade fuel margin set to 0 in the Hungarian operation for the private customers. So everyone is not a domestic one and who are operating private or public company owned cars, those can buy on the market price. But remaining parts, which is roughly 50% of the total assets, those are regulated fuel price with a 0 margin environment. And the other -- so on top of the $66 million margin decrease, $45 million is the retail tax, what we accounted in the first 9 months, so altogether $110 million roughly in the first 9 months, the additional government tax or the result of the measures. So thanks very much. And with that, I will hand over the word to Beri. Thank you.

Thank you, and good morning. Happy to report the Upstream results for the third quarter. EBITDA reached $640 million, which is an 11% increase quarter-on-quarter, or factually a 97% increase, almost doubling if you compare to the quarter -- to the same quarter in the last year. Now a bit on the drivers behind that. Oil price stood on the macro drivers. Oil price stood at $101 per barrel in this period. Gas prices have been EUR 171.3 a megawatt hour or $294.5 per barrel, which led to realized gas price in our side of $184 per barrel. Similar like in the last quarter, again, a short update on the relevant gas spot exposure. So just to recap, Hungary is 2/3 spot driven. The relevant quotation for that is TTF months ahead. 1/3 remains regulated. And in Croatia, until Q3, 60% has been spot driven, with CEGH as the relevant quotation. Please note that after Q3, starting now with the fourth quarter, INA is obliged to sell at slightly above EUR 40 a megawatt hour its gas prices or its gas volumes. And that regulation will remain for now in place until the first quarter 2024. Another thing, I think that's important to look at when you look at the EBITDA result is royalties in Hungary. So in the third quarter, 2 out of 3 months were impacted, negatively impacted, unfortunately, with $110 million that we have to pay here. If we move on to the next page, simplified free cash flow stands now for the first 3 quarters at $1.5 billion. E&P, the largest cash contributor of MOL Group. And in the third quarter, we managed to realize $68 unit free cash flow on every barrel that we lifted. So strong macro, strong internal cost control, $68 on every barrel that we lifted. We move to the next page. That's our usual EBITDA bridge. And let me start at the top of the page, which is the quarter-to-quarter comparisons. You can see a large positive price impact, which is plus $46 million, but that's partly offset by the $130 million extra royalty that we had to pay in Hungary. You can also see positive volumes. They're coming largely from CEE operations, and they're offsetting somewhat the decline that we faced in the international portfolio. Now year-over-year, you can see a large positive price impact, of course, and somewhat negative volumes driven by a lower contribution of ACG. If we move on to production, production in the third quarter stood at 90,500 barrel per day. Year-to-date, that puts us at 92,300, which is above our annual guidance of 90,000. If you look into quarter-by-quarter comparisons, you can see a 1,900 barrel decrease. That's positive news. CEE is even up by 400 barrels, mainly due to higher gas production. 600 less due to Pearl seasonal gas demand, that's on the associates line. And then ACG, roughly 2,300 barrels due to natural decline, but also planned turnarounds in that period. Year-over-year, 3,600 decrease. The ACG difference is roughly 3,000. That's again driven by entitlement share changes due to a changing macro environment, partly also natural decline. The one thing that I'd like to emphasize is the very favorable decline ratio that we managed to achieve year-on-year on the legacy assets in CEE. We only lost 0.7% year-over-year, or 400 barrels basically -- 400 barrels in natural declines. So strong actions to mitigate have been in place. I'm pleased to see and pleased to report the results from them. Now last page. Business as usual, I would say, unit direct production costs are at very competitive $4.9 per barrel oil equivalent. Of course, the stronger dollar helps, but there's massive cost discipline that we put behind these numbers in order to achieve that. UDPC only moderately increased by 3%, if you compare basically the 3 quarters year-over-year despite basically significant cost pressure inflation and all the challenges that we are facing on that side. CapEx, a bit down by 12%. The biggest difference here is basically that there's no Norwegian exploration spending. And with this, I'd like to hand back to Zoli or Akos to see if we're now ready for the financial.

Yes, absolutely, we are. So, I'll propose to go back to Slide 8 and Akos Szekely present the financials.

Thank you very much. Good morning, everyone. Starting with the financial technical note, UK asset is classified as a discontinued operation until the closing of the deal. Therefore, main P&L lines represented for Q3 and year-to-date Q3 2021. And now let's see the MOL Group's overall results for the continuous operation. Really in a nutshell, since the business leaders have been already presented the segment results, Q3 2022 EBITDA is at USD 1,449 million, up by more than 50% year-on-year and exceeding the previous quarterly all-time high Q2 by 8%. Well, Upstream, as we already discussed, grew further, improving gas price utilization, could offset the negative impact of extra mining royalty. Downstream improved significantly. Clearly, it was a quarter of refinery and marketing. On the other hand, fuel margin regulation in various CEE countries had a visible negative impact to the consumer EBITDA as Peter described. Gas transmission, boosted by a higher-than-usual cross-border capacity bookings and higher domestic transmission volumes, including storage filling. Corporate and other categories, somewhat higher figure is caused by mainly by intersegment. But clearly, this is not a surprise. Higher overall segment profit necessarily leads to a higher profit elimination. Shall we go to the CapEx slide, the next slide? Well, the CapEx is in line with the base, both year-on-year and also year-to-date. Q4 is always seasonally the strongest. Starting with the sustain CapEx. E&P development is mainly characterized by ACG. And these are the most significant items. Downstream driven by maintenance and transformational CapEx usual items. We shall name polyol and delayed coker, [ INA ]. These are the most important projects to mention. And also one note to the year-to-date CapEx delivery. Peter has just described the P&L impact of a strong US dollar. But also it has another impact. And in the CapEx spending, it definitely helps. In the most investment contracts, we have denominated rather in euro, euro-linked kuna or Hungarian forint, not in US dollars. Therefore, even with the seasonally higher Q4 spend, CapEx is expected to remain below USD 1.7 billion for full year of 2022. Shall we go please to the next slide? Significant improvement on simplified free cash flow. MOL Group delivered USD 2,665 million, driven by the solid Upstream as well as Downstream EBITDA and the usual CapEx spending. The next slide is about the net income. No major surprises below EBITDA. INA delivered positive year-to-date contribution. The net income is at USD 1,771 million, which accounts for HUF962 EPS. The details of this slide is we already summarized for you in the next page. Starting with the CCS modification. 0 CCS impact, we could observe in year-to-date Q3 2022 as the impact of oil price uplift even replacement modification offset by -- fully offset by the derivative adjustments. The DD&A, well, no significant one-offs in Q3, just USD 14 million well write-off in Pakistan, and we have already discussed in our reversal ready in the previous quarters, one-off items, which accounted for USD 131 million already in 2022. So the business as usual, DD&A would be higher, obviously, excluding UK. FX losses, well, really notable increase both quarter-on-quarter and also year-on-year, year-to-date, but should not be a surprise to us in light of the continuous and material weakening of Hungarian forint. Income from associates, positive contribution, mostly driven by Pearl in both the quarter and also year-to-date 2022. And also a couple of words about taxes. Deferred tax negative used to be in 2021, mainly due to the tax benefit of losses carryforward ahead of the industry tax in Hungary introduced last year, but positive in current year. Cash taxes, mostly increase in corporate income tax in line with the positive profit evolution in Hungary, also Slovakia, Croatia and Azerbaijan in Q3 and also year-to-date Q3. And industry tax also increased year-to-date from a negative base, higher actual Brent-Ural tax in Hungary and lack of free funds in Norway. Shall we go to the operating cash flow side? Well, the operating cash flow before net working capital increased in line with the higher EBITDA generation year-to-date Q3 2022. The overall year-to-date increase stood at USD 2,030 million. While this has been already mentioned by the business leader, there is a net working capital build in. And for the quarter, it accounts for USD 376 million. This is mainly driven by gas inventory and receivable increase. As a result of that, operating cash flow after net working capital amounted to USD 1,977 million, almost reaching USD 2 billion year-to-date Q3 2022. And this is clearly exceeding the organic CapEx we spent so far with the amount of USD 962 million. And the next slide is about the indebtedness. While net debt decreased moderately in Q3, investment, working capital, we just discussed, but also not to forget that we also paid dividends after 2021, which accounts for circa USD 610 million, including the special dividend. And all these items could have been covered by quarterly cash flow generated by our businesses. And as a result of that, the leverage likely decreased and stood at 0.41x net debt to EBITDA. And with all that, I just would like to hand over to Zoli to facilitate the Q&A session. Thank you very much.

Thanks, indeed, Akos. Now we open up for the Q&A. [Operator Instructions] I believe we have a question from Tamas Pletser.

Yes. I have 3 questions. First of all, in the last quarter, you talked a lot about the decoupling from the Russian crude oil and especially for Slovnaft case. So, my question is how do you prepare to supply non-Russian crude for Slovnaft, especially after 5th of February when the certain Russian oil embargo steps will come? That would be my first question. My second question is, do you plan to pay a special dividend similar to when we -- after this very strong result? Can you talk anything about this topic? And finally, Mr. Gaso mentioned the change in regulation for the gas prices in Croatia. Could you just repeat that one because I didn't catch it fully?

Gabriel speaking. So, I would start with your Downstream question concerning the different crude basket than before. So you are right, and I mentioned it during our last call that the sixth embargo package significantly differs from our current routine. The export ban on the Russian origin based products from 5th of February in several custom tariffs categories will trigger a different basket to be processed as it is today. So currently, in November, we would like to run at full capacity, best in Slovnaft. So to try to run the Slovnaft refinery on alternative crude, yes. And currently, we are bumping up this alternative crude from Omišalj to Slovnaft. So, this is the case. So in nutshell, we are doing several tests. And I'm confident that we will comply with the sixth embargo package or sanction package from February on, and we will deliver other products to our main export markets as today.

Gabriel, do you have any target rate for non-Russian feed for the Bratislava refinery?

Yes, it's different from February 5th. It will be around 30%. And then at the end of the next year when there won't be an exception from Czech market, as probably you are aware, the Czech market is an exception until the end of next year, then it will be increased around to 60%. Sorry?

No, that's feasible. That's -- you are sure that you can reach these targets that's in the pipeline.

Well, I said that we are testing. So let's see the results of the test. I am confident that we are ready for the new situation, but we have to test.

I will answer the second question. Jozsef Simola speaking, probably in a bit broader sense, Tamas. And regarding dividend, anyway, it would be a Q&A topic. So the background is unchanged for the Board of Directors that they -- for a decision, they will wait the backward looking and the forward-looking outlook. And I think the contrast was never such strong as today in these 2 aspects. Backward looking in terms of results and balance sheet, clearly, very strong results and very strong balance sheet. Forward-looking, I think we all see that we are still getting into the store and not getting out. With this -- and that's also, I think the -- we will not change the usual timing. So the Board of Directors will start looking into this matter in February. And essentially, they'll prepare a proposal for the Annual Meeting, which will be published in March. But in terms of -- if there will be a special dividend, the timing will be the same as for the normal dividend and everything will go essentially base dividend and special dividend in the same timing unusual. No, I think in terms of what's the likelihood for this, I think at this point of time, let's see where we are in February and especially after February 5th, as you mentioned, and let's see what's the outlook for the next year at that point of time.

Tamas, on your question regarding Croatian gas, I think for the first 9 months, what I said initially is for the first 9 months this year, we've had roughly 60% spot-driven exposure of the portfolio. The reason for that is that we have a mix between spot, but also flexible and longer-term contracts with various pricing methods. So for the first 9 months, 60% spot-driven. The relevant competition to look at is basically [ Baumgarten ]. Okay. As of October 1, there is a new regulation in place, whereby the government basically issued the pre-ordering INA that all produced gas quantities with some small exceptions, they need to be sold perhaps in the future. In the future, meaning this regulation is in place until the first quarter 2024. The price at which we need to sell that is EUR 41 a megawatt hour. So the combined basically realized price will be slightly above that, given a few exceptions that are in there but are not really material. Is it clear now?

Yes, it's much more clear. I suppose this is much lower than the current price. So did you calculate the difference already for one quarter or next?

Yes. But you can look up the -- I mean you have the relevant [ Baumgarten ] quotations. You can look that up, please.

Yes. I can look up, surely.

We have the next question coming from Tomasz Krukowski, Santander.

Yes. Tomasz Krukowski, Santander. Just 2 questions on the issues which were already touched. The first one is the Russian crude. Could you share some data, what was the share of the Russian crude in your throughput in the third quarter? And what do you expect it to be in the fourth? And whether do you have any targets, not for Slovnaft specific but for the entire group as a share of Russian crude in 2023 and 2024? So this is first one. And the second is also on both capital allocation and I would like to touch on CapEx. Whether you should expect any new big project announcements shortly, something which could impact dramatically your spending in 2023 or 2024.

Thank you, Tomasz, for your question. I'm not sure that I understand the first part of your first question, please. Would you be so nice to repeat it?

So what was the share of Urals in your throughput in the quarter just ended and what do you expect it to be in the fourth quarter and also next year in 2024?

Well -- so in the current environment, when I mentioned that the Brent-Ural spread is around $20, $23, $24. So economically speaking, that the optimization suggesting -- suggest to increase the Russian intake, what is actually done. But beside of that, as I mentioned, we are running several tests and I mentioned that in November, we will run a full capacity test in Slovnaft. It means that we have to -- we were forced to buy also an alternative crude. So this is the case. And I believe that November is already the fourth quarter. So, I believe I partly answered your question with this.

And in terms of the -- very clear. I think that you answered. Sorry?

Yes. So in terms of the next year, I mentioned to Tomasz, that what is the -- I mean, list of [indiscernible] as well. So, I mentioned that what is the ratio of the alternative crude to be processed in Slovakia and Slovnaft. In Hungary, we will run the pattern we run in the past. So, I do not assume there will be a critical or significant changes in Hungary. In terms of the major CapEx announcement, yes, so we are in line with the -- with our strategy, 2030 Strategy. Within this, we planned major CapEx investments, but I believe that we are still in the preparation phase. So, I do not accept a major CapEx announcement in the coming period.

All right.

This is for Downstream. Yes. So the CapEx, I, probably the colleagues, they have different projects in the pipeline, I mean, the different business lines.

All right. The next question comes from Oleg Galbur, Raiffeisen.

Yes. I have one follow-up question, plus another one. Starting with a follow-up on Tamas Pletser's question regarding the gas price regulation in Hungary. So just to make sure I got it right, as of October, almost entire gas production, domestic gas production is kept at EUR 41 per megawatt hour with an obligation to be sold domestically. And if that's correct, then my question is, how will this regulation impact your contractual obligations outside Croatia, since I believe that part of those obligations were covered by gas exports from Croatia? So if you are not able to export or to meet those contractual obligation with the Croatian produced gas, how are you going to deal with this situation and what might be the financial implications? If you can say a few words about that. And the second one is on your guidance, the updated guidance. I'm not sure I fully understand and maybe you can help here to have a better understanding regarding your operating cash flow after working capital guidance of USD 1.7 billion, which compares to almost USD 2 billion for the first 3 quarters of this year. So this decline for the full year. What is the reason behind? And also on the CapEx guidance, you still expect to invest USD 1.7 billion for the full year, while investing less than USD 1 billion. So is this number achievable for the full-year CapEx guidance or not?

Oleg, this is Beri. 2 things. First of all, I think you mistakenly said in the beginning, gas price regulation in Hungary. I assume you referred to Croatia because...

Absolutely. Croatia, yes.

Not about Hungary? Yes?

Yes. That's right.

Just to clarify that. Second is we do not have any export obligations. Did we have that in the past? We sell the gas domestically. Croatia is a net importer of gas. Its indigenous production is significantly smaller than the demand in the country. Any contracts on a longer-term basis that have been signed and are validated in place have been exempted from this regulation, but that's only a smaller part, which is why I also said it will be slightly above EUR 41, the realized price. Not all quantities go at EUR 41. There is a slight exemption, very, very small. Basically, if you calculate something like 10% of the total sales gas, that's a good proxy.

Okay. Okay.

And the delta, you can look that up yourself.

And with regard to the operating cash flow guidance, well, as you can see that we have calculated with roughly $0.5 billion increase in EBITDA, reaching the full-year guidance. How about the CapEx? As I just shortly described that usually the quarter 4 is the strongest among the quarters, and this is just business as usual because usually, we're finishing off our major project in the last quarter. Therefore, we have calculated with a higher figure, roughly USD 700 million CapEx, up to USD 700 million in the last quarter. And also, there is an assumption behind that in terms of the working capital, we do not expect a different figure than the year-to-date Q3. Therefore, as a kind of just a result of both higher CapEx spending in the quarter than the EBITDA, therefore, the operating cash flow is going to be slightly behind the third quarter result.

I believe the next question comes from Piotr Dzieciolowski, Citi.

It's Piotr from Citi. I have a couple of questions. So the first one I want to ask about this Polish stations you took over from Lotos. What is the contribution you expect? And when are you going to start rebranding how much that could cost? And how are you going to logistically supply these stations? So that's the first question. And the second, how would you assess the risk you get next year? I think extra measures from EU taxation, I think you referred to it as a main risk in your materials, but I just wonder how that could work together with the other measures you already have in place. So whether this is a windfall taxes, this Ural-Brent taxes and so on? And thirdly, I wanted to ask a question like on this Croatian price cap on gas. Can you have -- can you appeal somehow this measure? Or this is you just -- you have a long history of going into court with Croatian government and that all of a sudden is a different measure and then you're not taking any action. So I just wanted to understand your stance on this.

This is Peter Ratatics speaking. I will maybe take the first question and also probably the last one from yours. The first about the Poland. So from 1st of December, we plan to take over the Lotos operation or the significant part of the Lotos retail operation, not the entire one, because out of the more than 500 service station, we will take over 417. The rest will remain within the merged Orlen-Lotos organization. So we will be responsible for 417 from 1st of December. That's also a kind of answer to one of the previous question, what you raised about the additional CapEx spending or the larger tickets this year or the next year. Since 1st of December, we have to pay the purchase price for this, and that will be roughly $450 million what we are supposed to pay out. Right after that, we now have a very kind of detailed integration plan that will start. I can give you in advance that the intention is to speed up the change of the [indiscernible]. The first 2 years, a significant part of the new retail network should wear more clothes, so the more brands, the visuals, also the fresh formalization of those stations will start immediately. What would be the rough yearly CapEx, what we allocate to this? As compared to the total group CapEx spending, this is not a sizable one, roughly on a yearly basis, in the first 2 years, $15 million to $20 million, what we plan to spend on the change of the AVIs, that were planned in the DCF model when we accounted the purchase price. What you see, and I can just confirm that all the commercial upside, what we originally estimated and also in the meantime since we started to work more closer and more deeper with the Polish organization and also to understand the market opportunities, I'm even more confident than I was when we signed the acquisition agreement that we would be capable to gain back not just the invested money but also more than that. So we see the Polish market as a good opportunity for us.

As far as your third question, since I'm the President of the Management Board from 28th of September, but practically from 1st of October, what I could say to you that this is the responsibility of the Management Board to notify and also to request the Croatian government to stop this kind of regulation because this is very harmful for the company. We have already did that towards the representative minister and also we will follow up with additional kind of legal actions. And yes, our intention is to claim all the damages what this kind of regulation costs to us. I hope I answered all of the sub-questions to Poland. If not, then please raise it.

And then would you be interested to buy other retail stations in Poland?

Yes. Well, this kind of 417 stations, this is a huge task, but I can say to you that the ultimate intention from our end is to be the #2 on the market, a strong #2. For that, actually, we need additional stations. And yes, we would actively looking for other opportunities and we're not on every coast. So we are not in a hurry. We are not in a rush. But if a good opportunity would come, then obviously, we will duly investigate the financial possibilities. And if we find a common ground, a good seller, then we will make the offer.

Okay. Regarding the EU solidarity tax, as I discussed the impact of the -- of any kind of solidarity tax which could be introduced in several members states where we are operating is a couple of hundreds of millions of U.S. dollars. However, the exact forecast we can't really provide because there are no legislation from which we can calculate. I just would like to give you a clear clarification that, in Hungary, we are expecting that, currently, the system or the scheme of government tax is equivalent to solidarity tax. So in line with the government communication, the estimate that Hungary VL applied is offsetting provision that if a country has a specific regime for extra taxation extra government tax for the sector, then they don't introduce solidarity tax. The 2 countries in question are Slovakia and Croatia, where we calculated that based on the European solidarity tax formula, solidarity tax could be introduced, whether they introduce solidarity tax or equivalent measures or similar measures as Hungary did. So a kind of national solution instead of the EU model of a solidarity tax, that's a question mark. And that's how we calculated this magnitude. So that's hopefully make it clear. In other countries like Czech Republic where we don't really have optimal refining and marketing, the exposure is not significant to this one as we calculate right now.

And then moving on to Ildar Khaziev from HSBC.

I have a question to Mr. Simola about the outlook. I think you made an interesting comment when you said that there will be a strong contrast between backward and forward-looking sort of views like when the Board will be discussing dividends. Maybe you could sort of elaborate on this on the outlook because I'm sure the company is already in the planning stage for next year. And maybe you could mention what kind of things you are most concerned about for the next year, how would you rank the risk and sort of what kind of base case macro scenario you assume and maybe anything you can say on CapEx for 2023 that also would be very helpful. That's question number one. And secondly, I think on Croatia and possible litigation and measures against the price cap, maybe if you could elaborate, how is it different from the price cap at few retail stations in Hungary? I mean is it because in Croatia, you have contracts which are being violated, and when it comes to fuel retail, there is no such implication here?

Thank you for the question, Ildar, and without trying to pretend that I have a crystal ball or we have a crystal ball, there are I think 2 major uncertainties what's going to happen with the war itself, because clearly that's in our neighborhood, but in terms of any military activities or anything like this, our country or our region has not been affected. There has been an economic impact, but that economic impact for the energy companies and for ourselves, for the time being, clearly, was positive as in a near sense as visible in the financial results. I think in the economic side, the big question is that there is a decision about the embargo and there is clearly talk about the embargo, but actually it's not happening yet. So in this sense, what's going to be the setup after 5th of December, 5th of February, where the -- I mean, export opportunities for refineries will be limited to the Czech Republic and end of next year, where there will be no export opportunity assuming Russian crude processing, I think that's a very, very big question mark for next year. Now in terms of CapEx outlook and scenarios, we're clearly looking at a range of scenarios essentially what could be feasible. What we see that in most of these scenarios, the baseline on stay-in-business CapEx should not be impacted or affected. So we pretty much kind of plan with the CapEx performance as in the previous years. And as for the bigger project, clearly, any final investment decision will be made evaluating the outlook at that point of time. So I think that's the summary. But I mean, turning into your question on the practical side, if I would have to give a guidance for next year or actually if we will have to do it now or we do it in February, I think the uncertainty will not be in the, let's say, pre-war $100 million range, but could be easily in the $1 billion range looking forward.

You want to do the one on the price cap and difference to retail?

Yes. Okay. Then I thought that some questions still waiting to be answered. Ildar, would you be so kind to raise the question again?

Yes, I just wanted to understand better like how is the situation in Croatia different from Hungary, when in Hungary you also have had price caps at fuel retail right? In Croatia, it's a price cap for gas. Is that the difference because of the valuation in terms of the contracts which you have in Croatia? Is that the key reason why you can sort of potentially take legal action and you can't do that in Hungary, for instance?

Yes. Thanks for that. Well, to be honest, this is legally a bit kind of complicated and probably I'm not the best person to answer to this but some fundamental different I can highlight that here in Hungary, the fuel price regulation that practically affects equally the market players, so not just one, but all of them. In Croatia, the INA is the only gas producer, where through the upstream activity, producing gas. And we are the only subject of this regulation. And that makes a significant difference, not to mention that in Croatia, no other kind of crisis situation or any other basis for the legislatives were rendered. So actually, it's quite hard to define that why only one player would be the subject of that and why some others like, in this case, the hub who is the -- who can get the cheaper or regulated gas price and then can achieve benefits on that. So that's a complete and fundamental difference between the 2. But I'll leave that rather to the legal guys to answer to you if that will be needed. I think you can contact the IR team and they can give you more kind of precise legal answer on the differences.

All right. We also have a question from Yuriy Kukhtanych from Millennium.

Yes. Can you hear me? Sorry, because I had some issues with the handset.

Yes, we can. Go ahead.

That's great. A couple of points on petrochemicals, please. Could you please talk a little bit in more detail about demand trends in the region? How do you see demand evolving in different product categories? And then if you could just navigate us, how are you coping currently with quite a big divergence between the contract and the spot prices in the ethylene value chain would be very helpful? And lastly, on your contracts and negotiations, if you could just remind us whether you have already renegotiated your contracts for the next year. And if you could flag any significant differences in these contracts relative to this year, that would be very helpful.

Thank you, Yuriy, for your question. Gabriel speaking. So definitely, we see the deceleration of the economy in terms of the petrochemical sales as well. So we see that the processing companies, production units, processing the other polymers, mainly because of the high energy prices, they cut back from the offtake, we believe they will -- or which were contracted before. This is also valid for the new contracts to be signed. So we see the hesitation on the customer base. So we are not there where we were last year in terms of the term contracts for the next year. So this is the case. I mentioned during my presentation that the integrated margin is -- was around [ 430 ], still valid today. And what we see that this high energy price is forcing the suppliers of polymers to go for a stop-and-go mode with their steam crackers in Europe. So comparing the gas prices in the third quarter, what we saw that the gas price in Europe was EUR 125, in U.S. it was just $25. So we see a strong proof from the overseas for the polymers delivered to Europe. So this is the case.

Okay. And sorry, on contracts versus spot, if you could just comment, are you able to place your volumes or you see like -- again, you mentioned that there is a hesitation from the customers. But is that a problem for you at all at the moment? Or you are willingly moving the contract and the spot price? And can you surrender your contract sales and sell it on a lower spot or you would prefer to hold the volumes and not to sell at all, if I may?

Yes, there are still 2 months to go. There are still 2 months to go. I mean compared to the last year, we are not there. But after the K Fair in Dusseldorf, which is the major exhibition for the petchem in Europe, I see that we successfully signed several contracts, but still there are 2 months to go. So I do not have the relation of the spot and term contracts. What I see that this is rather the hesitation on the offtake. So everybody is worried about the recession, which seems...

Understood. And very short question. It's completely disconnected to chemicals. I just wanted to ask you, and it's quite detailed, on the -- on this diesel pipeline that runs through Ukraine, as far as I understand, it's dry now. I just wanted to ask you whether there is any optionality for you at all to use the pipeline either to sell or resell the product into Ukraine or perhaps use it for other purposes for other products? I don't know, might be there is some plan. Is there any optionality whatsoever for MOL to use that pipeline?

Yes, good point. Yes, we were asked by our Ukrainian partner to check the possibility for the reverse flow. So there was plenty of effort we put to this. So currently, that pipe is operational also in reverse flow, [indiscernible] Ukraine.

Thanks very much for participating. That really completes the presentation as well as the Q&A. In case of follow-ups, IR remains at your disposal. Thanks. Bye-bye.