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

Good morning, ladies and gentlemen, and welcome to MOL's Q3 2024 Results Conference Call. My name is Marton Teremi, Head of Investor Relations. And as usual, we have a strong lineup of management for today's call. Ákos Székely, Senior Vice President of Group Planning and Reporting; Mr. Zsombor Marton, Executive Vice President of Upstream; Mr. Szabolcs Szabo, Senior Vice President of Downstream Value Chain Management; Mr. Peter Ratatics, Executive Vice President of Consumer Services; and Mr. [ Tivadar ], Chief Operating Officer of Circular Economy 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 the industry. After the presentation, we will move to a Q&A session where you will have the change to ask questions by using to raise your hand function. Please keep yourself limited throughout the call to asking the question. Before we start, I would like to draw your attention to the cautionary statement on Slide #2. And now let me hand over to [indiscernible], who will take us though…

So good morning, everyone. Thank you, Marton. I hope that everyone can hear me. And please, if you're not talking, put yourself on mute. Otherwise, you disturb the others. So first of all, let me start with the 3 quarters performance and especially in the light of our annual guidance. As you can see on the figures, we are on track to meet the profit and the EBITDA guidance for the full year. Even though -- and that's what I would like to talk a little bit more in detail, the downside risks are increasing, which are visible, and I think it's well known by everyone. First of all, I would like to talk about the macro, so the cyclical downside risk. The macro demand has been slowing in our core markets. GDP has slowed considerably in many of most important markets. European industrial output has been falling this year in most of our countries and even beyond the European Union. Macro retail consumption is, however, still holding up relatively well and evolved in some of our markets as a positive news. The cyclical backdrop is putting a pressure on our downstream activities, especially, but also on the hydrocarbon prices. This has been evident from past year's petchem results, which hasn't yet recovered fully. And now it's also visible on our refining and marketing, especially on the refining margins and the demand volumes. There are important internal factors that impacted our first 9 months results. The positive side, Upstream continued to successfully maintain production at higher level than planned, which prompted us to increase the annual guidance. So we raised the average daily production, the oil equivalent daily production from 90,000 barrels to 92,000 or 94,000, so in this range. On the other side, in Downstream, the turnaround in the first quarter or in the first half of the year still has an unplanned turnaround, still hasn't been made up yet. So we had to decrease our crude processing guidance from 12 million tons to 11.5 million tons. On all other fronts, CapEx, indebtedness, safety, we are in line with our guidance for 2024. So let's talk about details in the third quarter itself. So focusing on the third quarter results, MOL Group posted a Clean CCS EBITDA of $847 million, a profit before tax of $503 million with operating cash flow also at a comfortable level year-to-date after working capital adjustment around $1.4 billion. The MOL Group profit before tax is down by 24% year-on-year, as you could see. So there is a decrease compared on a year-on-year basis. Upstream EBITDA is flat quarter-on-quarter as the lower hydrocarbon prices were offset by a previously mentioned higher production. And there is also a technical effect that we delivered less cargo -- cargo less from other version. Consumer Services results came at around $249 million, marking a comfortable increase year-over-year if we're offsetting the distorting one-off figures. Circular economy Services, which was our start-up segment, is still very volatile, but posted a positive EBITDA in this quarter. In Downstream, the EBITDA came at around $300 million in the third quarter, reflecting the previously mentioned pressure on refining margin as well as on the volumes. Operational update, just to mention, one is the Druzhba pipeline that you could have read and you asked several times what is the situation in Druzhba. After months of negotiation with all the stakeholders, we found a solution, which is now securing the continuous crude flow through the Druzhba pipeline. In September, we managed to sign an appropriate long-term framework agreement with all the parties, which is also in compliance, not only with EU sanctions, but also domestic Ukrainian regulations as well. That includes manageable by taking over imported crude at the Belarusian-Ukrainian border, but this is a framework that can be appropriate for all import parties for longer run as well. The flows have been continuous ever since. In Upstream, we have started high level dialogue with Turkish Petroleum, TPO and SCA as well, and we signed a memorum of understanding of exploration cooperation in [indiscernible]. And we also signed a memorum understanding with TPO also on international and domestic projects. In line with our Shape Tomorrow strategy, the electrolyzer in Duna Refinery started operating, producing 1.6 kilotons per annum green hydrogen, which is a big step in our green hydrogen program. And in Europe, just to mention to put it as a relative scale, this was the fourth of this size of electrolyzer in a refinery and even the latest opening or inauguration, there are only 5 similar green hydrogen electrolyzer in Europe. So if you go to the Slide 6, some updates on the sustainable performance. Regarding the TRIR, I would say that now we are at our guidance or below our guidance level. The improvement was supported by ongoing safety programs in upstream and downstream especially. We put a lot of efforts on enhancing safety-related apparels and awareness among all the exports employees. And we also introduced new gears, new equipment to help our colleagues for prevention as well. Let me also highlight that MOL has just recently signed a revolving credit facility agreement, the ESG KPIs. This ESG KPI linked revolving credit facility is not increasing because it was fully aligned with our expiring facilities. But this is the first time that we entered in an ESG-linked favor. The ESG KPI targets are all in line with our strategy and all in line with our strategic goals. So practically, we think that, that was a fair and reasonable target setting for such revolving facility as well. I think it's marking the path for the future. But now let me now give the floor to Ákos Székely to discuss the financial results.

Good morning, everyone. Regarding the drivers of the individual segments, the heads of each segment here give a detailed description. And now let me just have a few comments on the areas that will not be covered in details. Gas Midstream achieved an EBITDA of USD 57 million in the third quarter, which is down by 22% year-on-year. While the third quarter result fits into the general normalization trend after the extraordinary high demand for capacities in 2023 environment that eventually led to high booking fees and increased cross-border traffic. Also, you can find the Corporate and Other Segment and intersegment elimination aggregated on this chart. And well let me talk about them separately. The Corporate and Other Segment, which mainly includes central costs, but also a few revenue-generated units amounted to USD 34 million negative EBITDA. This is pretty much in line with the long-run seasonal average, however, on the lower end due to the stronger-than-usual performance from smaller and diverse revenue generating units. The second part, the intersegment elimination came in at USD 19 million, mainly due to an intragroup crude inventory transfer that was eliminated. Let's move to the OpEx side, while the total CapEx amounted to USD 413 million in the third quarter, over USD 1 billion year-to-date. While the CapEx was up by 12% quarter-on-quarter and 18% year-on-year. This increase was predominantly driven by the expenses due to the turnaround in downstream, which is going to be reflected several times in the presentation. The CapEx is up by 34% year-on-year. The bulk of the increase was driven by downstream turnaround explaining the rise the sustained type of OpEx. Spending on transformation project was also higher by USD 16 million during the third quarter, and this is an increase compared to the second quarter. We have spent on [indiscernible] that increased compared to the previous period. And also there are other downstream related projects such as that contributed to the higher transformation CapEx. With regards to the inorganic CapEx, the majority of the inorganic expenses during the quarter were due to the 2 acquisition in waste management in circular economic -- well this is obviously time will enable to expand on the waste management value chain and build recycling capacities. Let's see the next chart. The clean CCS EBITDA of USD 2.39 billion in the first 9 months translated to a net income of USD 1.2 billion -- regarding the components of the bridge, let's see the details in the next couple of slides. Starting with the clean CCS modification, the effect was negative $18 million in the third quarter this year as the crude price fell during the period. This is, I would say, as expected. The next is the DD&A, which is at USD 341 million in the third quarter, up by 11% year-on-year. The main reason of the increase is the higher amortizable assets of the group, affecting pretty much all the segments to some extent. Let me give you some details. Well, first, starting with upstream. In Aero AT platform has been online since March. The next is the customer services year-on-year figures are impacted by Polish Slovenian acquisition that also reflected in the year-on-year comparison, absolutely not a surprise. And the third one is the waste management. While the ramping up countrywide obviously increasing the asset base. And also, please remember that we have started the consolidation of Budapest JV as of Q2 this year. Net financial expense moderated to 0 in the third quarter as the strengthened almost 4%, 3.9% against U.S. dollar. Thus the FX offsetting the slight negative interest balance sheet and other negative items, which are usually reported under here. Income from associates came at USD 50 million, mainly or I would say, really predominantly driven by the contribution of operation. And finally, the income tax. The income tax was higher by USD 46 million quarter-on-quarter despite lower profit before tax, resulting in effective tax rate rising to 24%. And let me give you some insights of that. While the change was mainly due to the composition effect as profit before tax were generated in the group companies were there is already a taxable income in Croatia and Azerbaijan, while there were a decrease in companies when profit before tax was already negative. Therefore, these 2 phenomenon altogether resulted in the rising effective tax rate to 24%. Moving to the next page. Let me explain how the cash flow has evolved during the quarter and year-to-date price. Basically, there are 2 different messages. Year-to-date, the net working capital remain burden on cash flow and reflects the natural preparation for intensive maintenance period in the summer industry. Therefore, the inventories year-to-date has remained at a higher level. And also, as I already mentioned, the consolidation of Budapest JV in the waste management happened at the beginning of Q2. Therefore, this is the explanation for the year-to-date price increase. However, looking at separate the third quarter development, there were positive news with a USD 32 million release as also part of the usual seasonality and also the lower crude potation have a positive impact on cash working capital. Overall, operating cash flow reached USD 1.452 billion, just about covering CapEx. And finally, a few thoughts on the evolution of the net debt. The net debt-to-EBITDA ratio decreased to 0.65 at the end of September from pretty much the same figure, 0.64 at the end of the first quarter and gearing also improved to 15%. We were explaining to you in August that this was expected as the somewhat higher net debt in the second quarter was mostly due to a technical effect -- the technical effect due to the time gap in renegotiation footfall arrangements for shares included in the balance sheet as of 30th of June. With the arrangement re-contracted early July, the net debt is particularly back to the underlying level as we could see in Q1. Overall, we expect to remain really comfortable level with onetime net debt-to-EBITDA threshold guidance, which provides sufficient headroom for the group. And now I'm happy to hand over to Sal to discuss how this downstream performance.

Thank you. Good morning, everyone. Downstream has resulted in some $300 million in Q3 this year, which consists of $321 million of refining and marketing, the minus $21 million for the petchem part of our business unit. The 2 principal reasons were the heavy turnaround program that we have been executing and finalizing in this quarter. There are years with heavier and easier turnaround programs, this was definitely a heavier year planned level, also some unplanned events contributed to that. The other thing that was markedly influencing us was definitely the growth trend. I would reiterate on message that the general economic downturn, especially in terms of GDP resulted in that we have experienced on one of our most important driver, the diesel demand on our regional markets, we have experienced zero or somewhere even below zero quarterly growth data on market size, and that was obviously also weighing on us. And on the other hand the macroeconomic environment for refining have considerably worsened. Due to the heavy turnaround program, the crude intake obviously suffers and this then relates also to the sales part. So we had versus previous year same quarter, lower sales both in petchem and both on refined products. And this is why we also decided to reiterate on the annual forecasted numbers. On the other hand, and that's, I think, very important, and we are very happy about it in the operation that apart from finalizing the last works on the Bratislava petchem unit, all our planned turnarounds are over and the units are up and running. So we are running full steam for the fourth quarter and hope to get the best out of it for the rest of the year. If you go on slide further, there we see the most important economic drivers of our operation. When it comes to refining margins, there we can see that quarter-on-quarter, that's a huge drop that we experienced and that obviously based on our margin generating capability. While on the other hand, on the input side, the fuel has considerably became stronger compared to Brent versus previous year, that was also on us. A bit of better news from petchem, but I would say that's also a bit relative because petchem was very, very low in terms of margin environment in Q3 last year. So compared to that, we have been better and that can be also seen on the results on the previous slide. But all in all, generally, petchem is obviously in a downturn cycle. So, you can see that on the October margin that again we could imagine better. If we look into the details on the next slide, how we arrive from the previous year's quarterly EBITDA and the external environment on the R&M side, that's almost $180 million versus previous quarter. And on the other hand, the turnaround-related volumes part is also some $130 million to some extent, compensated by the other effect and the petchem relative improvement. But all in all, that's how we arrived to this $280 million. What we can say on the other hand that we do not see for Q4 any, how to say, hindering factor on the operational side nor on the crude supply side. So, we hope to go full steam and that's how we can make it in Q4. That would be all on my side and consumer sales, thank you.

Thank you very much, Szabo, and good morning to all. Consumer Services EBITDA in the third quarter of 2024 amounted to $249 million, practically flat year-on-year. However, we think that the underlying business performance was significantly better than that performance shows at First Brink, practically from 2 reasons. The first that there has been still ongoing follow-up actions of the earlier acquisitions, remedy in Slovenia and also the execution of the swap lag part in Hungary and also in Slovakia. Second, there were one-off items that relate to the gain of these asset disposals in the third quarter of last year and that increased the last year base performance. The right chart suggests that the effect of this one-off amounted up to $24 million. If we exclude this, then the underlying EBITDA performance is practically 10% higher than in the last year same period. I think this growth was supported mainly by the fuel and also the nonfuel streams practically on the same value, while we were quite positively or relatively good managed the OpEx performance in a very much increasing inflationary and wage pressure environment. If we turn the page to the next one, where I can have a bit deeper dive into the fuel performance. You can see that the fuel volumes though decreased by 3% the throughput per site improving by over 1%. And this is, of course, because of the aforementioned 5% decrease in the size of the network. However, that also indicates that the quality of the network after this acquisition improved. And also on those networks, what we have per unit, the performance is even stronger with this average throughput per site. We have also been able to achieve some margin increase as there is now visible normalization in several markets like in Poland, where last year, actually, we suffered quite heavily because of the logistical and election campaigns. And also those kind of upselling initiatives, what we what we indicated that more and more customers, we wanted to channelize towards to the premium part of the premium products of our fuels actually resulting quite well margin improvement. If you turn the page to the nonfuel part of the business, then you can see that the nonfuel margin increased by 9% year-over-year, even though that the turnover grew only by 1%, meaning that the margin content of the sales increased sharply year-over-year. We still see the most of this 9% margin increase is due to the customer shifting towards to high-margin products which is obviously a very welcomed development in our operation, and that also shows somehow the strength of the Grow initiatives, what we introduced. And with the driving season at its peak in this third quarter as very usual in the seasonality business. The nonfuel margin share is somehow weaker in the third quarter than in the other quarters. However, year-on-year compared to the last year same period, you can see that the dynamics still confirms the positive underlying trend with 0.6 percentage points, the margin generation balance between the fuel margin and the nonfuel margin is still increasing. And last but not least, I prepared one more slide in order to have a bit of an overview of how the consumer services network developed over the past few years as a result of several initiatives. Practically, we had 3 acquisitions over the past years. We started with a smaller one in Slovakia with 16 Luo stations. And then we concluded the large acquisition and the new market entry into Poland by taking over 400 stations from LOTOS. And as I mentioned, in line with this agreement, we gradually handed over a bit more than 100 service stations in 2 countries in Slovakia and also in Hungary to ORLEN. But the net effect of this acquisition, actually 312 stations with that, we increased our network. And the third was in Slovenia, as you know, where we bought 120 stations from ONB. But actually, as a result of a very, very lengthy competition clearance process. Finally, we handed over or we sold 39 service stations to Shell as part of this remedy agreement. Although the integration of these new markets to our existing network is not without challenge, but I'm quite confident that these acquisitions contribute and will contribute in the future as well very well to the Consumer Services operation. Our network grew all in all, 23% over this 3, 4 years period with 442 service stations. And obviously, this larger network and the 10 countries operation shall give us more opportunities. Obviously, the country coverage, the Central Eastern European country coverage and the cross-country operation can be very beneficial and can be very attractive to the fleet operation. So the fleet card presence and fleet card sales opportunities will grow further. And also, we can be even more economical with the economies of scale logic that all the head office cost and digital innovation, digital investments can be spread among these units and these countries and are operation can be more and more efficient on that one. And obviously, we try to manage the organic opportunities as well. All in all, the net effect of the tail management and the new greenfield projects resulted in an additional 33 service station to the operation. So all in all, at the moment, we are operating 2,335 service stations. In all of our markets, we are among the top 3 network operator. And that's how we see or we will continue the future optimizations as well. So thanks very much for your attention. And now let me hand over the word to Zsombor and let's see the upstream results.

Thank you, Peter. Good morning, everyone. The exploration and production EBITDA performance in the third quarter of 2024 showed a 2% decrease compared to the previous quarter and came in at $279 million. And firstly, let me start with the fact that these lower results are primarily due to a technical cargo timing effect mentioned already. Post revenue realization in Azerbaijan actually depends on cargoes delivered. And usually, there are 2 cargoes delivered each quarter. And in the third quarter of 2024, however, there was only one cargo, the second one was delivered after the 30th of September. So this is a one-off technical timing effect, which means that the upstream segment EBITDA fell short by over $20 million, $30 million in the quarter. So I strongly believe that in the normal situation, the 2 ACG deliveries per quarter will resume again in the future and such events remain rare. With regards to the pricing environment, oil prices and gas prices went sideways during the third quarter. Overall, both realized hydrocarbon prices were lower in the second quarter by 2%. And again, the missing ACG cargo had a negative effect here. So overall, the price environment has a slight positive effect on our results. If we move to the next slide, the development of the unit profit and the free cash flow realization, there was a slight decrease quarter-on-quarter, mainly due to this aforementioned effect of lower realized prices. But even with this one-off included, we are still comfortably over the strategic target of having at least $20 per barrel unit free cash flow, which now stands at USD 25 per barrel 2024 year-to-date. Now looking at the EBITDA, there is a very stable delivery. You can see on the waterfall changes quarter-on-quarter, the price level overall had a positive effect on the results. Regarding the volumes, once again, the ACG cargo effect is distorting the underlying trends as it shows that the volume contributed negatively to the results. But in fact, I will present on the next slide, there is a remarkable increase in production in both year-on-year and quarter-on-quarter comparison. Regarding the other category here, just let me give a comment. The main driver is the impairment process for Shaikan receivables, which we finalized in the second quarter of 2024, and we have lower impairment of that going forward. The drivers are quite similar in the year-on-year comparison actually. The only item that had a significant effect, I would highlight, is the extra royalty that was still affecting our results in the third quarter of last year to a magnitude of $80 million. So again, standard royalty rates are applicable in case we deliver our production targets in Hungary, where we are still confident to do so. And with that, I will move finally to the production trends, which will explain a lot of our messages here. So let's look at the production levels. As I suggested to you during the previous call in August, the development over the summer months were rather favorable and that has held up ever since. And we were able to increase production by more than 4,000 barrels of oil equivalent per day compared to the previous quarter already. That is a 4% growth in just 3 months. So looking at the individual assets more closely to have a bit better understanding. So much of the growth can be dedicated to the extra wells coming online in Kazakhstan as we are keeping the schedule for the year. In Hungary, we are continuously increasing production level by over 10% year-over-year. I know I have mentioned this before here in the calls, but I still cannot stress enough how mature and well developed the Hungarian basin is and what a unique professional performance is to reach such production growth in this area. Not only is this an asset for CEE in the current times with high importance of supply security, but this is also providing the best synergic value for MOL Group as the oil is directly feeding our refineries. So again, let me also note that we have just announced this week the starting of production of the third well in the Watches area, adding an extra 600 barrels per day to the production and having the Watches field now delivering 4,000 barrels per day for the Hungarian performance. On other international fronts, we also achieved production increases with our partners, even though the marketing in Shaikan in the Kurdistan region of Iraq is constrained still by the shutdown of the export pipeline. It is still not in operation. And therefore, we will we do domestic sales and also the operator in Pakistan, the pipeline operator also means to us a bottleneck time to time for deliveries, but still very strong results. And going forward, with an October production estimate about 96,000 barrels of oil equivalent per day, we are optimistic that we can comfortably raise our annual production guidance to around 92,000, 94,000 barrels of oil equivalent. And now let us look at the evolution of OpEx and CapEx. So the CapEx continues to be well below our last year's level, mainly due to optimization of investment schedules in Hungary, Croatia and Azerbaijan. You can see that we are investing into projects, which makes sense in paying back and bringing extra barrels or debottlenecking technology and meaning that it is going to affect our unit cost in a positive manner. Year-over-year CapEx figures are also much affected by keeping expenses at the lowest level possible in Shaikan since the mid-2023. So unit OpEx is seasonally higher due to maintenance activities, but still well within our comfort zone. And finally, let me also note that we have won another 2 licenses in the Hungarian Geothermal Arena. As a reminder, the expansion into the geothermal space is a long-term goal for Mol for our low-carbon business. It's in our strategy. And to date, we have 2 licenses in Croatia and 4 licensees in Hungary, and we expect to start the drilling already in 2025 in Croatia. So again, production confidently above 90 combined with cost discipline, we delivered strong performance in Q3. And also lastly, we are very pleased that we have elevated our partnerships to a more strategic level in Azerbaijan and also in Turkey and we are looking forward to flourish this in the future with the exact projects. And with that closing words, let me hand over the word to Tivadar to discuss Circular Economy Services financials.

Thank you very much, Zsombor, and very good morning, everyone, in this beautiful sunny Budapest day. Let's go circular. Regarding third quarter 2024, it's still evident that the financial results for the circular economy segment remain volatile. However, the good news is that the EBITDA in this quarter came at a $16 million positive after 2 quarters of negative performance that was mainly due to the lack of significant one-offs in this quarter 3. However, I would like to repeat that the considerable volatility expected in the key financial figures for the group as the circular economy segment remains in a start-up mode for the time being. New infrastructure is being built and new systems are being rolled out. The short-term financial effect of these projects and investments cannot be estimated reliably for the time being. What seems to be relatively certain, however, is that the circular economy segment remains a cash flow negative for MOL Group for some time. Investments are naturally front-loaded, and that is the reason. Let me highlight that we closed 2 acquisitions in the third quarter with the aim to extend our reach in the waste management value chain. We are to build food grade PET recycling capacity through these acquisitions and market these products. Other than that, we have continued the rollout and gain experience in the operation of several new waste management systems and streams that are novelty in Hungary. I would like to mention the bio kitchen waste collection system and also the development of the textile waste collection infrastructure. The deposit refund system is gaining popularity and gaining momentum. Right now, as we speak, approximately 6 million bottles are returned every day by people from Hungary. What it means is that on average, almost 2 bottles per day are returned by every household. This is a huge success. We consider it for the time being, it is above 70% return rate in October -- sorry, in September. We expect a similar pickup in the popularity of other systems that I mentioned, and there are also news to come. We want to reach the scale that is value added for all stakeholders involved. On this happy note, I would like to pass back the word to Marton.

Thank you very much. That completes the formal part of our presentation. So we'd like to now open the floor for the Q&A session. [Operator Instructions] Anna please go ahead.

I have several questions, if I may. First will be on polyol contribution for the next year. What would be your estimate for EBITDA contribution in 2025? How is the ramp-up phases given the challenging petchem environment? That would be the first question. And 2 questions on the financial side. First, regarding the effective tax rate and what should we expect like in fourth quarter and 2025? Should we expect it to come back to like more normalized levels? And similar question regarding working capital. Would you expect further releases by year-end?

Thank you very much for the question related to polyol. It's a fairly big investment on our side, not only in financial terms, but making it work properly is also a huge effort that our colleagues are undertaking in these months. We expect the first -- we expect the ramp-up period to go along next year. So we expect, I would say, regular normal onstream production by end of next year and the first material results, I would say, around Q2 -- Q3, sorry, Q3 next year. It's really a different day of operation of that unit, how our existing petchem units do. So we are heavily in the process of learning to do it properly what we're working on and we are confident that the ramp-up shall end in the second half of next year.

Let me answer the tax-related question. Well we hope that it will decrease, but unfortunately, this is not the case in reality. And this is mainly driven by the new legislation in Slovakia. We have already discussed several times regarding the '23 results that -- so is not subject to the solid tax for 2023. Therefore, for '23, it's not booked and not paid the Slovakia tax. However, while in Slovakia, during the autumn, there has been a new tax package adopted, and there are 2 elements of that. The first is the solidarity contribution for this given year, so for 2024, while the law has changed, and now we expect that [indiscernible] will pay solidarity contribution. You might ask a question that how much is the amount? Well, this is -- I think it's too early to tell because the year-end is going to come, and there are also several factors that will affect that. On the other hand, we expect that it will be less than half than what we paid in 2022. So this is for 2024 and for 2025, also this taxation package in Slovakia had another element, and this is the special levy. While the special levy is for regulated areas, it is said that for companies that manufacture petrol products, not fall into this category. And the special levy is based for profit before tax, and there is mostly element of 2.5%. So roughly, we calculate 30% per annum. But also there are some other details which yet to come. So the final figures to be calculated when these are will be known. But certainly, the tax -- effective tax rate in Slovakia is stay on elevated level.

And just a comment on working capital, if possible?

Working capital, how we discuss that, but there is a natural increase due to the level of the inventory, which was a preparation for the very intensive turnaround period during the summer in our large landlocked refineries. And as this is already behind us, we don't really expect having keeping that high level of inventory. This is one element. And also there is another element that obviously in line with the changes in the quotation. What we could see is gradually going down the level of the working capital. So as I explained that year-to-date wise, there was a development, there was an increase of working capital. However, in the last quarter, we could see also a decrease due to the physically lower level of the inventories and also supported by the lower quotation, therefore, resulting in the positive cash positive development in the working capital.

Can you hear me? I have a couple of questions, please. So first one, I wanted to ask about the guidance for '24 on the financial side, so EBITDA and profit before tax. You haven't raised them today. And I just wanted to ask you for a comment why is it the case given you set a very low bar and it looks like on the run rate of the business that you would need to see really like a 0 contribution from the downstream like what makes you be so conservative on this side? And second question I have on the gas midstream business. What do you see in terms of the gas flow coming into the country into the next year, so starting from January. Do you expect the flows the way they are now to continue? Or should there be a change? And what's the financial impact of it on more. And yes, let's stick with these 2 questions and let others ask the questions as well.

Thank you, Pi. Let me try to answer definitely your first question. The second one, I will just make a comment. So the first one is, although the first 3 quarter results seem to overperform if you like to linearly extrapolate it for the full year. However, I don't think that not changing the guidance is pure pessimism or pure over conservatism. I'd rather say it's cautious conservative approach in all aspects because if you look at the downstream margins, if you look at the demand pressure, if you look at the petchem demand volumes, if you look at the margins that increased but flattish compared to the historic lowest margin. I don't think that there is a reason to be optimistic. And then I would like to also draw your attention to the GDP data of our core countries and Germany and some of the key EU performance indicators or the PMI index everything. So I would rather say that for the fourth quarter, we have more reasons to be conservative or reasonably conservative than to be overly optimistic. As you can see, yes, if year-to-date, we would like to make a pro rata distribution of our guidance, we are a little bit overperformed that 3 quarters of it. However, all assumptions are not overly pessimistic in our guidance, not even our margins, refinery, petchem margins or even the Brent. So it's rather realistic. I think the key question will be for internal performance, but rather the demand, whether there is a demand at an acceptable margin level for all of our products. Regarding the gas, I would say that we are not a gas importer. So you usually ask about gas import, but I would say that what you're usually pointing at is the Ukrainian transit. However, Hungary is supplied from the south. So directly, it's not a pressure to more group. And just I think you should post this to MBM Group, who is the importer of the gas. But as a TSO as the transmission system operator, the flow that we are operating in our network is from the southern border to the northern border of the Ukrainian border. So it's a different direction. I think the other countries affected and their importers and distribution companies are the most, how to say, well positioned players who can answer your question.

[indiscernible].

I have a couple. First one is about the long-term agreement about the Russian oil. And we were wondering what are the costs associated with this agreement, the additional cost? And then secondly, if you could give us an outlook for refining margins in the medium term.

Regarding the supply part, I think that there are 2 important things to highlight. One is that the fact that we changed the contractual structure doesn't necessarily mean any price level increase. That's one thing. And the other is that I think it is very important that in terms of sales or purchase, price is always defined by 3 things: quality, time and place. And here, of course, quality doesn't change. Time is not relevant since you're talking about continuous. But the fact that we take over at a different place compared to earlier means that the content of the product contractual-wise is different. So that's why we keep saying that this change in the contractual structure, which now seems to be secured, doesn't cause any material cost increase on our side because the risk management instruments that we need to handle the other party doesn't need to handle. So that's why we could come to an agreement with really marginal cost increase. As per refining margins I don't think we would comment on that.

Thank you very much.

I have 3 questions actually. First of all, can you give us a little update about these projects which are running in your company, especially the Roce refinery upgrade and the petrochemical project? So when do you expect these projects to be starting? And what could be the impact on the future earnings of the group? So that will be my first question. My second question would be regarding the situation with the Czech supply. As far as I know, this derogation will expire in December for the Russian crude refining and exporting to the Czech Republic. So what is your expectations with this legislation? Will there be a further extension of this exemption? Or do you prepare that you cannot refine Russian crude and sell products to the Czech Republic from that? And finally, just a follow-up, what Giuseppe was asking about this supply agreement. Do I understand correctly? And do I know correctly that this new scheme, what you do with the Ukrainian transit, this refers only to those volumes which are coming from one group or LUCOI Group. So it doesn't cover all the supply of Russian crude to your refineries.

Thank you for the questions. Let us first start with the Czech supply part. We are preparing for both scenarios. The possible prolongation of the Czech derogation for importing Russian crude-based products is on the table in the EU. We do have an opinion on that, that was earlier articulated by George and also in numerous other channels by our company. But of course, in a responsible manner, we are preparing for both scenarios. We do think that for the regional supply security, the prolongation would be definitely a better way to go. But of course, we know that it can turn out both ways, and we are prepared for both scenarios. Regarding the project, ECU project is experiencing delay compared to our earlier expectations. However, this has been communicated to the stock market, and we are now confident that with this one, with this modified deadline, we can come to where we would like to be and finally have this investment running and enjoy the benefits when it comes to downstream profitability. As for the other projects in downstream related to petrochemicals, we are progressing with them, and we think that most likely not the next, but the year after next year, first tangible results shall be seen. And regarding supply agreements, would not like to comment on supplier-specific information in line with our earlier policy on that. But for us, the supply security is the most important. And we do it in a way that we secure the crude supply, of course, complying in the meanwhile with the regulated embargo and other sanctions by the EU.

May I have just a follow-up on the Czech situation. So what additional volume do you need to take from the sea if this prolongation would not happen? Because currently, as far as I know, you buy around 2.2 million tonnes from the sea. So what could be the additional volume over here if there is no prolongation?

Well, by rule of thumb, I would say what we import to check here, if you consider a 40-ish percent ratio of crude, which is, I think, more or less an industry standard for Central Eastern European refineries, then you arrive to the number.

Tomasz Krukowski, please go ahead with your question.

I have a few rather follow-ups on some of your earlier comments. The first one regarding the new taxes in Slovakia this and next year. First of all, could you please remind us how much was the windfall tax paid in 2023 since you mentioned that the current one is expected to be less than 50% of that level? And also on the special levy as of next year, it will be very helpful if you could also quantify at least approximately the impact. And second follow-up is on your comments regarding the royalty regime in Hungary. If I got it right, your expectations are that the level of royalties in Hungary will not change as of next year. I wanted just to clarify, is there already an agreement with the government or authorities regarding the royalty regime or these are just your expectations? And just for our understanding, will the royalty regime be agreed on an annual basis for each year? Or this is more of a longer-term agreement?

Thank you very much for this question. Yes, well, the situation is quite complex. Therefore, I think it's really good to reinforce the message and also putting the right figures. So in 2022, we paid more than EUR 400 million consolidated contribution in Slovakia. For 2023, was not subject to the legislation. So the figure is 0 booked and paid. And for 2024, according to the new legislation, which was discussed during September and came to the force during October, we would expect paying less than the amount we paid in 2022, but less than half than we paid in 2022. But the exact figure, I cannot disclose. just simply because the calculation is not over and obviously, the year is not over, but our estimation is that we will pay less than half of it. And for 2025, 2 things, no solid contribution according to the legislation to be paid. So it's going to be 0. However, there is a special levy, which I said that this is accounts for roughly 30% of the profit before tax. But this is the only thing we know at the moment because also there are other elements in this calculation. There are other details which are not known. And obviously, I'm just simply unable to tell you how much the profit before tax will be in 2025. because this is ahead of us, and I don't know the actual figure. And with regards to the upstream, I would like to ask Jo to answer.

Okay. So regarding the extra royalty in Hungary, so we don't have visibility of the intentions of the government. We have been in discussions with them, relevant authorities as well on the future of the royalty regime. But what we know for a fact that the current extra royalty regime for 2024 will expire at the end of the year. And the reason why we are not paying the extra royalty is because we keep our production levels on the committed level. What happens in 2025, we don't want to speculate.

If there are no other questions, I would like to thank you for your participation. In case of further questions, please do reach out to Investor Relations at MOL. Thank you, and have a good day.