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

Good morning, ladies and gentlemen, and welcome to MOL's Q4 2023 Results Conference Call. My name is Marton Teremi, Head of Investor Relations. And we have a strong lineup of management to discuss recent developments. Dr. Gyorgy Bacsa, Executive Vice President of Group Strategic Operations and Corporate Development; Mr. Jozsef Simola, Group Chief Financial Officer; Mr. Zsombor Marton, Executive Vice President of Upstream; Mr. Gabriel Szabo, Executive Vice President of Downstream; Mr. Peter 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'll be sharing the slides on Teams, too. After the presentation, we will move to a Q&A session. [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 fourth quarter. Sorry colleagues, we cannot hear anything.

There is a technical difficulty. Sorry for the delay. I apology ladies and gentleman, there is technical problem. [Foreign Language] Let me start with the summary for the highlights. Marton, do you hear me now?

Yes, we can hear you now. Please go on.

Okay. Sorry for that. So regarding the 2023 summary, I think there is definitely good news that despite all the challenges we managed to deliver all our guidances, even exceeded certain elements of it, especially the EBITDA target that we revised during the year. It was a very volatile year. The first half of the year was still affected by the energy prices. The second half was normalized, but it also meant that it was calmer and little bit under the expectation around the predications in certain segments. It has feared with the recession. It was also affected by geopolitical tensions and in certain segments, it doesn't change. The regulatory environment was volatile throughout the entire year. CapEx, we delivered under the guidance, mainly because of the slow start of the year. The rest of the elements are all in line to our guidance. And I also would like to draw your attention to strong financial balance sheet that even after a record dividend and record cash tax payment or net debt-to-EBITDA is very strong. If you go to the next slide. Some highlights regarding the fourth quarter results and more looking closely. Fourth quarter, we delivered $992 million clean CCS EBITDA, which basically meant by the first quarter, we surpassed the $2.1 billion of operating cash flow after working capital adjustment. Segment performance. Upstream was definitely one which picked up both in terms of production and profitability in the fourth quarter. Production after spend was successful and definitely also helped us as of September as royalty disappeared from the Hungarian system -- regulatory system. Downstream was -- in the fourth quarter, it was a 3% decrease quarter-on-quarter. There was a normalization in the refining margin, seasonally lower volumes, changes in taxation, including CO2 taxes, which were introduced during the year. But also, we have mentioned that petchem was struggling throughout the entire year. Consumer Services fell by 42% in Q4 to $144 million, mainly because of very strong base and seasonal effects. So some operational highlights, we started our geothermal productions or geothermal projects, mainly in Croatia, but we're also pursuing such opportunities in Hungary as well. In geothermal, we would like to build new Upstream presence and capabilities. And after long preparatory period, we reached first gas in Kazakhstan in December. The production inputs or the production results, you will mainly see second half of this year. Finally, Moody's gave positive outlook for already investment grade credit rating. If you go to the next slide. Regarding the TRIR, despite of many unfortunate accidents and attacks mainly in our [indiscernible] Pakistan production, we stayed below our guidance. The TRIR full year 2023 value around 1.3 which is below our 1.4 guidance. We continuously committed to improve the safety of our people, of our facilities and we're are running safety programs in all segments to enhance HSE awareness and protective actions. We implemented important change in our short-term incentive scheme and ESG factors for sustainability in ESG factors are now related in our bonus system for the managers. So practically now we also adjusted our bonus scheme to have a direct impact on TRIR and ESG results. Regarding the sustainability part, we received an update from CDP and MOL managed to retain its over B rating at Climate Change, and we managed to improve in several other segments as well. So if you go to the next slide, Waste Management performance. Throughout the entire year, we talked about Waste Management, but not separately. Here I would like to first say that as of 2024, we will report Circular Economy Services segments separately. Similarly like others, we will particularly EBITDA, CapEx, free cash flow, profit before tax we will all post these figures for the segment. I think this is the first full year and last year because we started in middle of the year and it was really about preparation, preparation for the DRS, deposit refund system managing to take over the activities coordination of the collection and [indiscernible]. The first half, you see the [indiscernible] the preliminary figure that you can see which is $37 million EBITDA, but all the CapEx [indiscernible] CapEx spend is $63 million, the simplified free cash flow is minus $26 million. And of course, we are just at the beginning of our CapEx program. And of course, in the first years of the operation, with the start of our concession programs that we undertook in favor of the meeting obligations, meeting the transformation -- delivering the transformation of the Waste Management system in Hungary. So the DRS and bio-waste collection started in January. There is an interim period of 6 month for which the [indiscernible] producers has to also adjust for the DRS system. So it will be full functioning as of the second half of the year. If you go to the next slide, some of the 2024 guidance, which you may have also chance to question in detail if you have with us in the Q&A part. Definitely, after the overall good and strong performance in 2023 we expect an overall continuation of this normalized trends, which we observed in the second half of the year. So we expect operations and financials to overrun and we continue on the same path. So if you see the 2024 guidance, we issued a $3 billion CCS EBITDA guidance. First time, we also issued profit before tax guidance $1.6 billion. And regarding the metric targets, we also target to keep up the production, so to manage the decline of the Upstream productions or keep the production levels 20,000 barrels a day, crude possessing similarly 12 million tonne, group CapEx 1.7 billion tonnes. And of course, the net debt to EBITDA, we are just planning to keep at the same level what we usually put as a guidance for our group operation. So please also note that the PBT and EBITDA guidance assume that there is no other change in the regulatory and taxation environment. We issued PBT first time as a guidance. First of all, to help you to be able to calculate our liquidity position, cash position, especially if you are taking into consideration our CapEx expenses and also taking into consideration our cash type of tax or similar tax and government takes and other impacts that may affect the operation. And with this liquidity position, you can also calculate our estimates, kind of dividend or profit per share type of metrics as well. We also would like to signal that 2024 is the year that we have the strategy revision. We are in the middle of our strategic planning because we started a more 2030 transformational strategy in 2016. And so many things happened in the first half of this period. But this year, we are officially revising -- revisiting all the strategic targets that we set for us and we will come out with a new revised update -- strategy update in the coming weeks. So practically, I think that we would like to congratulate around for all revised strategy presentation. Here, I would just like to keep you posted that there will be further updates coming out from us. Thank you very much. Here, I would like to pass to Mr. Simola.

Thank you, Mr. [indiscernible]. And let me start on Page 12 -- Page 10, sorry. As usual, with the EBITDA overview and maybe just to start with that, last year was clearly not a smooth sailing for us. I think it's pretty much choppy waters and strong headwinds, but all in all with all the deciding we could deliver strong financial performance within the last quarter with $992 million being somewhat higher than the previous quarter and was on the yearly basis. Clearly, the $3.1 billion is significantly lower than the performance of the previous year. But if you look back at the last couple of years, I think, overall, a good performance. And again, in this environment, I believe that we delivered strong results in all of our major business lines. As usual, you will hear a much more deeper coverage from the major business leaders. On this slide, just briefly on the gas midstream somewhat lower quarter-on-quarter is around $52 million. But still, of course, the yearly number of $265 million is a very strong contribution, where I think the major impact of this is the much higher than usual demand for transmission volumes. As for '24, I think it's -- of course, it's very hard to predict, but generally, we expect normalization i.e., lowering of this EBITDA number for the coming year. If you go to Page 11, the CapEx spending, as expected, and as predicted last quarter, a seasonally stronger spending of $605 million. Organic CapEx which is around 10% higher on a year-on-year basis, but still, as a yearly number, the above $1.4 billion remains below the last year's spending and also it's below the -- around $1.7 billion guidance, again, as indicated earlier. Now as for this year guidance, you should expect a similar situation. The guidance remained $1.7, but I would expect us, as usual, ending up on the conservative side of this range when we look at this number in a year time. Let's go to Page 12, the below EBITDA items where we will go through in detail in the next pages. I'd like to point out to one item here which is the special EBITDA item, a positive one of $73 million, essentially coming from the decrease in decommissioning liabilities at MOL onshore field, and that's very much connected to the positive reservation of the year-end year and [indiscernible] place this year. Now if we go on Page 13, further details, CCS impact of minus $100 million in Q4. Crude -- closing crude prices decrease from $96 to $78 in the last quarter and that's the driver of this negative CCS elimination impact. DD&A of $499 million of the last quarter, containing $175 million impairment for the Polish retail asset. The two major reasons for this impairment will be increasing back on the back of the increasing interest rates and also a contributor to this number was the kind of unexpected [ turbulence ] in market -- retail market environment in Poland last year. Without this number, the total is $324 million, which is somewhat higher than the kind of usual going rate in the last quarter, coming mainly from an accounting impact of the -- accounting closing of the Slovenian and Polish acquisition was finalized in the last quarter. And so the impairment, the depreciation for those assets was booked -- for the whole year, it was booked in the last quarter. Total financial expense is minus $40 million, which means $40 million gain on this line. Essentially, the reason for this is the strengthening of [ HUF ] 2%, the euro 6% to the dollar in the last quarter, resulting in an FX gain and at the end of the quarter resulting in a positive number of a financial gain. The income from the associates of $40 million loss for the quarter and overall [indiscernible] is 0 for the year, 2 major contributors in last quarter. We had a delay in the dividend from which impacted last quarter number and also we had the account for some impairment and also the losses from UGL or Kazakhstan company are included here. Here, I'd like to point that though we announced first gas production at the very end of last year and had practically no positive impact on the last year numbers and has [indiscernible] for last year. Page 14, continuing the below EBITDA items, income tax expense of $136 million for last quarter and $345 million for the year. Now looking on a yearly basis, the reason for the decrease is that clearly, we have a much lower EBITDA and overall profitability level this year, resulting in lower corporate income tax base and lower corporate income tax we have negative number of minus $98 million deferred tax for the year. The main contributor to this was the impact of the [indiscernible] tax break which we moved and also other changes in the organic [indiscernible] calculation and other technical impacts. Intersegment EBITDA of minus $16 million for the last quarter, this is the impact of the inventory elimination in a decreasing price environment. And finally, the C&O EBITDA of minus $19 million. As [ George ] mentioned, that this number contains good contribution from the waste management business and that's why actually major decrease in negative number on a year-on-year basis and also in the increase on a quarterly basis because the waste management EBITDA was lower in the Q4 than in Q3. So let's go to Page 15, the operating cash flow. DD&A earlier, income taxes paid $1.3 billion. Those are as discussed in the last quarter that this number contains several special taxes accrued in '22, but paid in '23. So that's why this is a large number. And maybe just briefly changing working capital positive contribution of close to $300 million for the year and $101 million inventory decrease in the year, essentially realizing the lower -- or realizing or seeing the lower crude prices probably quarter in the inventory release number. And it is the operating cash flow about $2.1 billion, slightly higher than the PBT and conveniently covering the organic CapEx spending for the year. Page 16, quick overview of balance sheet. I think essentially, the major message is that we remained flat in the last quarter and kept and preserved the strong balance sheet and financial -- financing capability for the next year. Technically, we had a small increase in the net debt in dollar, but because of the exchange rates, I mentioned, we have actually a small decrease in the same number, maturing foreign. That's why the small fluctuation around flat in the numbers. But overall, I think we started a very strong balance sheet in the year of '24. And with this, I'd like to hand over to Gabriel Szabo to go over the Downstream results.

Thank you, Mr. Simola. Thank you very much. So good morning, ladies and gentlemen. Let me present, as mentioned, the results of the fourth quarter of MOL Downstream results. So in the reported period, we delivered fair results. As you can see on the chart of $456 million, which is better by 19% than last year. But as I mentioned several times before, during my comments to our Downstream performance, it is rather difficult to make an apple-to-apple comparison because of the complex set of governmental takes and I will mention those during my presentation later. Generally, the performance of the Downstream was driven by a strong refining marketing segment, while the petchem remains still negative due to -- there is a pet improve, but still weak petrochemical margins. Sales covered by our own production, as you can see on the chart, was higher compared to base as we had a turnaround period back in 2022 in our refineries Bratislava. And also as you can see, the fuel sales is matching the feasibility of the market as well. In the segment of polymer, there was no significant improvement in the demand last year. In terms of our major projects, so the Polyol project in Tiszaujvaros is mechanically already. Currently, there is handover ongoing and also challenging cold and hot commissioning works there. The DCU project in Rijeka, so formally, we did not get any information from the contractor about any delay, but on the other side, my colleagues recognized weaker mobilization of workforce than expected. Now let's get to the next slide, please. Thank you very much. So in terms of the macro. There is a change, first time. There is another Brent-Ural differential curve there, which I will explain in a few seconds. But back to the refining margins, they got below $10 per the peak of roughly $13 in the third quarter, but there is also some improvements recorded recently. The Brent-Ural spreads narrowed in the last quarter of 2023. And as I mentioned, there is the new benchmark price for euros which is DAP India has roughly 80% of Europe's export have been related to Asian markets. Oil markets reacted. And in January last year, new index was introduced by major reporting agencies, Platts and Argus, mainly before mentioned DAP West Coast, India, Europe. I believe -- we believe that this benchmark gives more clarity to the financial predictions of the performance, so it should be a help for you. And for this reason, we decided to present it. In terms of the petchem margin, there is a slight improvement there at the end -- at the very end of the last year and even in this period, but still this is weak to fully cover our production cost. Now let's get to my last slide to the waterfall chart, please. So here, you can see the description of the impact of several factors to our performance on the quarterly co-comparison. We clearly see the impact of the weaker macro environment, which I mentioned before, which was partly compensated by better volumes, so better refinery to relations and fuel sales. There is also a column of Other, which covers the extra taxes. So there you can see that there is a $26 million booked as on a CO2 quota in the last quarter last year. Having a look on the year-on-year comparison, we see the impact of similar factors worsen macro environment, both in refining and petchem. And in the category of Other, there is an impact of governmental tax and also the impact of high inflationary environments to our performance. In terms of taxes, there is mentioned on the slide that there is $95 million as a CO2 tax. There is $193 million as a revenue tax. Besides of that, there is also a Brent-Ural tax the amount of $70 million. There is also the impact of the high inflation, which I mentioned and mainly to our personnel cost and logistic cost. So all in all, my evaluation of the last year is that we delivered a good performance. And thanks to my colleagues and downstream management and also on [indiscernible], we were able to seize the market opportunity last year. And with this, let me hand over to Mr. -- sorry to Consumer Services to Mr. Ratatics. Thank you.

Thank you, Gabriel, and good morning to everyone. First of all, let's talk about the first quarter and just a few sentences about the full year. In the fourth quarter, the EBITDA grew by 61% compared to the last year same period and actually, we reached $144 million. To compare the fourth quarter with the third quarter, that's naturally meaningful because of the significant seasonality impact during the summer period in the third quarter. So that's why actually it's hard to compete with the same period last year. And compared to that, obviously details -- to the least of the regulation on the Hungarian market. This year, the sale volume increased by 10%. However, the impact was severe. On the Hungarian market, we suffered a 20% decrease due to the abolishment of the retail price. However, on the neighboring market we gained impact, especially on the Croatian market, on the Slovakian market and also on the Czech market. The fuel margin considerably higher all in all -- because of the higher or more healthier fuel margin on the Hungarian market. Also, the non-fuel margin continued to expand, 32% increase year-on-year in the fourth quarter. While the volumes also were supported by the inorganic service stations in Poland and also in Slovenia. Regarding the acquisition. Also, let me highlight and confirm what Mr. Simola said about the impairment size of the Polish operation. Altogether, we booked around $175 million impairment amount as a special item. The main driver for this impairment was actually twofold. One is the increased discount rates, while the other one was the first year result, last year in the 2023 year results, actually, that was significantly lower than what we originally planned or expected. That was mainly due to the turbulent market operation on the Polish market that's not really affected excluding just us, but entirely royalty market operators suffered significantly lower unit margins and business performance. So all in all, these 2 kind of large affect divesting to accounted to $175 million, but I have a positive outlook for the entire operation. Last year, we finished 200 service station construction or change [indiscernible] and we will continue it in the first 2 quarters this year, much more we will finish it by the end of the year, the entire Polish operation. And with that, actually I really hope that this year and also next year, we will have a much more stable operation and profitable operation on the Polish market as well. During CapEx increase, but actually due to the already very high base, actually, the full year impact was -- sorry, the fourth quarter impact was $2.3 million compared to the base period while we're still trying to mitigate the OpEx increase in every item and the direct salary impact on the service stations mainly due to the minimum wage increase, but also the high energy prices and the inflation with the OpEx initiated our further actions to mitigate it. Now if you turn the page to the fourth quarter on this next slide to fuel sales from the fourth quarter point of view, you can see that the volumes increased. Also, there is a large contribution from inorganic altogether 260 million liters. But if we exclude the cash cap impact in the fourth quarter on the Hungarian one, also, we exclude the inorganic effect. Regionally, we can say that we -- 2% to 3% market growth and operational growth were accounted. And with that, I think we not just maintain, but also slightly improved our market share position. All in all, the network size at the end of this period was 2,421 sites. That was our practically 28 service station lower than in the third quarter because we started to handle in Slovenia the remedy package to Shell. And also in Poland, we did not continue the OMV operation with some franchise partners. All in all, actually it's 7 franchise partners were discontinued. Now the next slide, actually on the non-fuel. The non-fuel operation is probably the most resistant one against the governmental actions, measures and the regulations. The non-fuel margin increased by 32% in the constant of the local currencies, but this year and in 2023, all in all, we can say that the local currencies were stronger than the dollar. That's why we have a positive currency FX -- effects over the whole year. In the reporting currency terms, the non-fuel margin increased by 41%. With all the inorganic impact, the long-term margin increase was 14% year-on-year, so compared to the fourth quarter, the non-fuel margin share after the stabilization of the margin generation on the fuel side, we can say that the non-fuel represents 34% of the total margin, which is, I think, a very solid result and actually our original target was year 2025 to reach to 35%. So I think we are on the way to reach that. The number of the total non-fuel transaction increased by 27% year-on-year, mainly inorganic effects and 3% below the inorganic. So actually, the sales increase or the turnover increase was due to mainly the increased basket size. And also as part of our strategy within the non-fuel operation, we are heavily focusing on the cost-flow items that gives us some more healthier unit margin and margin improvement. That's what you can see actually if you compare the turnover increase versus the margin increase. The last slide, we prepared kind of holistic overview bit deeper into the non-fuel operation. While this year, the market has been hit by several -- a lot of events during the last few years, so the non-fuel market was not really hit by those. That's why we are able to draw some conclusion on the trends and the direction of the trajectories. We have put a little emphasis on product developments in the past years. Regarding the sharp increase in volumes in some of our offers, the underlying growth is organic, but also in the inorganic growth, the demand for our offers was very strong, and that gives us also a confirmation that the direction can be very beneficial for us. We can have the best products and also combined with our very good loyalty program, a remote based digital loyalty program and is both in the combination can booster the results. All in all, you can see that 3.4 million active loyalty customers use that application in the original network size with all the inorganics. And with inorganic, we'll increase significantly during this year as well. So altogether we see that our Fresh Corner concept and Product Positioning strategy supported by this digital loyalty program has been paying off more respect. And last but not least, the kind of the evaluation of the last year [indiscernible] do often times this roughly or very close to $700 million EBITDA number, is an absolute record in the Consumer Services and actually during our strategic revision, we just got the confirmation that this is a good direction on what we do to kind of push further and just kind of increase the pace to what's in the realization of all the potential of what the market brings us. And with that, let's listen to Mr. Zsombor, who will present the Upstream results. Thank you.

Good morning, ladies and gentlemen. So regarding the Upstream performance combination of 3, positive trends dominated our Q4 performance. Firstly, a strong and healthy production levels for the Upstream, especially with the meeting the production level commitment in Hungary, and this triggered pre-2022 royalty regimes. In Hungary, including royalty rates and the royalties of penalty and these two previously mentioned effects coupled with the slightly better hydrocarbon prices vis-a-vis with our quarter-on-quarter EBITDA performance up by 92%, standing at $375 million. So it had also, of course, a positive impact on our annual performance as well, landing the division at $953 million for 2023. So on the royalty, firstly, a more rational taxation regime in Hungary, which actually had a positive effect on our results for reversal of -- 2 items as well. The actual royalty levy recorded for September could be reversed because of the contract with the authority came into effect starting from 1st of September, and it had also a positive result on our fourth quarter results. Secondly, the extra royalty-related penalties previously approved for 2022 and '23 could also be reversed in light of the contract with the authorities because of the fact that the production level was delivered. However, let me also note that even without the taxation impact, the EBITDA growth was 10% higher quarter-on-quarter. Price is mostly due to the production levels rising by 5% compared to the third quarter. But also mean to say that the total hydrocarbon prices also showed slight improved and that are our results. Let me also firstly add then clarify that the decommissioning liability revision, which was positively impacting our results. We handled it as a special item, the USD 73 million. So what I'm now analyzing on this slide and the following slides is this lower adjusted amount. If we move to the next slide. Let's look at the unit profit and the free cash flow. In terms of the free cash flow valuation ability of the division, you can see normalization. However, this normalization is very different. If you look at our quarterly numbers or you look at our annual performance, so the quarterly analysis, you can see captured 2023 will be of free cash flow for each barrel oil equivalent reproduced in the first quarter. This is a significant rise, both in absolute and also proportional terms compared to the first 3 quarters. This normalization is driven by the pre-2022 taxation largely and this is what we can see in the quarterly numbers. Comparing, however, the full year with the previous years, also, we see normalization, but in a very different kind of normalization. This is more global terms and reflects the supplying effects of energy crisis, experienced in 2022, coupled with lower hydrocarbon prices and return of the pre 2021 profitability margins. If you move to the next page, the quarter-on-quarter bridge highlights positive price effects externally, although most of this is due to the accounting effects of royalty regime. You can see that the third quarter EBITDA was carried by extra royalty, which was about $80 million while in the fourth quarter. That was also positive effect of $63 million due to reverse of the previously mentioned items of the 2022-2023 penalties on the September accrue. So apart from the investing tax effects, including pricing [indiscernible] and higher healthy production both into the EBITDA quarter-on-quarter. And if we compare that to the base drop in prices and effect reflects the normalization of the hydrocarbon prices in 2023 and this is partly offsetted by the extra royalty levy impacting fourth quarter '23 and more than the fourth quarter of '22. You can also see that the volumes are slightly lower in the last quarter of '23 versus the last quarter of '22, and that's mainly due to the export line closure between Kurdistan and Turkey and then the lower production of our Kurdish operations. And now let's proceed to the detailed volume analysis. So what we expected and committed in November that the production will be back and you can see an increase notably in the fourth quarter to 91,500 barrel a day production, and that's significantly adding from Hungary, Croatia and also Kurdistan coming back to domestic production. That we note also that these turnaround effects in the third quarter in Croatia was completed as planned, and we kept our production level as well. Volumes in Hungary rose well above the average levels in Q4. And let me note that we have been able to deliver the production level we committed to the operative for the year of 2023. The Kurdistan situation between the government of Iraq, Turkey and Kurdistan region of Iraq, these are resulting in the shutdown of the export pipeline of Turkey has not been resolved yet. However, we see revamp on production and domestic sales and that has been dynamic by us to our production compared to Q3. ACG impact increased in line with the PSA mechanism also grew 14,100 barrels production per day. So short-term and how we think about the year 2024 going to evolve is that we will continue to be successful in slowing down and arresting natural decline in the region. On the international portfolio, we foresee Kazakhstan field development to bring gas to production barrels already in the second half of this year after the first gas and the fuel gas start end of last year. Regarding the ACG in Azerbaijan the 7th platform of the offshore field was put into operations in Q4 last year, and we expect also strong production in 2024 from these operations as well. Let me go through the unit OpEx final, I think we will give update on the development of the OpEx and CapEx. So as I indicated in the November call, the Q3 uptick in OpEx was only temporary because of the turnaround, and there was decrease quarter-on-quarter. However, I need to say that the inflationary environment and the asset mix we have and expected energy mix in our portfolio, we don't expect the OpEx continue decreasing. However, we put, at the same time, a very strong pressure on decreasing cost putting synergies and debottlenecking projects into our operations, especially in the CE region. With regards to the CapEx, there is 2% year-on-year decrease registered in '23, but we also see this CapEx slightly going up in '24 because we will have heavy investment program in the CE region to arrest natural decline and also continue the field development in Kazakhstan, which I mentioned in the previous slide. And lastly, that we highlighted that we had 2 geothermal exploration licenses granted in Hungary after we got 2 in Croatia. We are very excited to have these geothermal projects kicking off and we consider these [indiscernible] during expansion of upstream building on our current and existing knowledge and expertise. Thank you very much for your attention.

Thank you very much, gentlemen. So we welcome the formal part of our presentation. I would like to now open the floor for the Q&A session. So if you have a question, please raise your hand. Please go ahead.

I have several questions, if I may. First will be on windfall tax in Slovakia. It looks like you didn't book the windfall tax in the fourth quarter. Is there anything planned for next year? I think there was discussions there will be the windfall tax for 2023 as well? The second question would be on the outlook for waste management. Thank you for the update on the strategy plan. If you can give guidance when it will be, it will be amazing but also if you can give some highlights of what EBITDA should we expect from waste management in 2024? That would be very helpful. And finally, 1 question on the Upstream side. With this production growth in Kazakhstan and ACG, what would you expect in terms of contribution 2024 from this project?

Thank you. If I may start answering the questions, regarding the first one, the Slovakian solidarity contribution, still there is an ongoing audit process, and that one is a formula-based solidarity tax so until that professional process or project is not resolved I think we are not ready to give any status update or any statements regarding that one. So please understand that this is a technical part of the year-end audit processes. The other one for the waste management. I think as I mentioned, as of this year, we will come out with reporting the EBITDA figures and the CapEx and also the cash flow. Firstly, we will start performance reporting. As I mentioned, this is a starting business. So we are in the first phase. First, we have to consolidate the data regarding the entire management, we would like to report the structured data more and more precisely and it's taking also into account all, as I mentioned, still little bit moving targets when and how the certain elements will be and financial. So guidance, we will come out on the later. So first, we start reporting the performance. We don't plan to issue guidance for the waste management after we set the reporting practice and the reporting figures for the future. Of course, as a normal practice, guidance can be issued as well but for the time being, there is no plan to issue guidance for waste management. And for the rest of the questions, I would ask my colleagues to answer.

The Upstream part of the ACG and the addition of plans, we'll help stabilize the production of the field to arrest natural decline. So these are the things that we planned into our guidance, also the Kazakhstan increment you can see in our production plan, the first one is now producing a bit about growth for 5,000 barrels, and we've been planning to add 4 more barrels into production this year. So the production level will be about 5,000 to 6,000 net for the half of the year.

Just a follow-up, if you can comment when the strategy update is planned? Is it like next month or later in the year, any time line?

Yes, if I may say, because we still ahead of copper, zinc alignment, but it's matter of weeks, so clearly it's not several months. So it's in few weeks time, we finalizing this internal process.

I got 2 questions. First of all, can you give us an update on the discussions with [indiscernible] how do these negotiations look like? When do you expect any results with them? And my second question would be regarding your Rijeka Polyol projects. You've said some things already during the call. But what kind of profit contribution can be expect from these projects when we expect them to finish and when we expect them to generate some earnings to you? And finally, just kind of an interest, the current regulation in Hungary, this would have done differential. Actually it refers to the European prices. Am I correct that this assumption? Or was there any other reason you mentioned let's say, the Indian Ural difference to the brand?

So thank you very much, Gabriel speaking. Thanks for the questions. So the first part regarding the [indiscernible] as you can learn from the media, we are in challenging negotiation with our partner. So you may know that this pipeline is very important, mainly for our Slovnaft refinery in Bratislava. As to comply with the sanctions, we have to process also alternative crude beside of the Russian crude. And yes, we are rather concerned about the standpoint of Janaf, as we do not clearly see the basis of their price offer and we believe that in partnership, rather the cost structure should be transparent. So currently, we do not have a contract with Janaf. We are still in negotiation. It doesn't mean that the alternative crude is being supplied to our refinery cities, but the commercial basis of this is still pending. In terms of the projects. So I believe that this year this will be just the start-up of the unit. So I would not count with an extra EBITDA delivery. So this we will start up the plant. There will be learning as this is a new technology to the MOL Group. So it would be rather the kind of piloting and testing period this year. And your last question I'll ask Tamas, once again, please.

Yes, this was -- you mentioned this discount in the...

So this was like the help for you, so you can imagine in this volatile environment, it is rather complicated to negotiate the crude purchase for a long-term period. And as I mentioned, the Brent-Ural differential to Rotterdam Mediterranean is not really so we do not view that this is really reflecting the -- there are just a few close positions, we believe, and it's not really reflecting the real price of the euro. So it's rather the help for you.

So it might be Hungarian law. Is it -- does it say that the Ural should be the Mediterranean growth price? Or is it not, let's say, determined this Ural -- so how does it look like? Can you just tell us about that?

Yes. So in terms of the law, I'm not -- I have to admit, I'm not pulling picture on the Hungarian law. So we will -- you will get contacted by my colleagues to explain what is the particular legal statement there. Or if my colleagues from finance are able to provide it, they can share that with you right now, but I'm not in this position. So I do not know the law in detail, sorry.

Tamas, this is Ervin Berki, the Head of tax, the actual law compares the quoted brand price, the actual cost of the Ural -- so the Ural is not based on the quoted price in the acquisition.

Okay. So that's basically the cost you pay for the Ural.

Exactly, the actual cost.

My question is about this positive royalty FX within Upstream division. Could you explain how the mechanism works. If I understood correctly, you agreed with the regulator for some volume to explore and if you fulfill if you pay lower royalties and if you fail to delivery higher, is it correct way of thinking? And eventually, it's something changing in the royalty strategy in the fiscal year 2024? So the question is, is it first time or it a rather one-off effect in [indiscernible]?

Okay. So on the regulation itself, this regulatory pressure on the higher royalty tax is valid by the end of this year. And by committing to previous year's production level, we are able to enjoy the pre-2022 royalty rate. However, we need to meet production levels. And if you meet -- if we don't meet production level, we need to pay penalty. So what you see as $140 million was it due to effect on Q4 that $80 million is for the pre-2022 royalty rate and $60 million is for the active penalty for the years of -- for the previous years.

Should quantify, say, what level you have to achieve?

We need to achieve 2021 production level for the Hungarian production in '23 and 2022 production level in the '24, both oil and gas. And we are in talks with the government and with [indiscernible] how to sort of what is going to be in the year 2025. But currently, there is no info applied for the year of 2025 because of the current regulation expires.

Thank you very much. I would like to end the Q4 presentation. Thank you very much for your participation. And of course, you can reach out to IR any time to take some clarification. Thank you very much.