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

Good morning, ladies and gentlemen, and welcome to MOL's Q4 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. Dr. György Bacsa, Executive Vice President, Group Strategic Operations and Corporate Development; Mr. József Simola, Chief Financial Officer; Mr. Zsombor Marton, Executive Vice President of Upstream; Mr. Szabolcs Szabo, Senior Vice President of Downstream Value Chain Management; Mr. Péter Ratatics, Executive Vice President of Consumer Services; and Mr. Zsolt Petho, 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 Teams, too. After the presentation, we will move to a Q&A session, where you will have the chance to ask questions by using the raise-your-hand function on Teams. [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 Mr. György Bacsa, who will take us through the highlights of the fourth quarter.

Thank you, and good morning, everyone. Let me start with the highlights of the 2024 in light of our annual guidance. Please go to the slide of the guidance and the end results. Proud to present that we met practically all the aspects of our guidance. Meeting the guidelines depended on 2 factors: the external environment and the internal performance. Let's take it separately. 2022 and 2023 were extraordinary. The global environment was set to normalize in 2024. And that's what happened exactly. Hydrocarbon prices moderated. Tax rates, refinery margins retreated by 20%, 30%. We also expected that the government tax will be lower and will be more moderate level. We also expected that the economic growth will be weak in certain parts of Europe, especially Germany, and that, unfortunately, also affected Central/Eastern Europe. We are going to close to recession since growth has been definitely slowing down in many of the industrial sectors. Regarding our internal performance, we are generally satisfied. We achieved our goals. High and growing production levels in Upstream. We kept the profitability, and we kept the quantity, the production level above 90,000 barrels a day, and we achieved our guidance set between 92,000 and 94,000, almost 94,000. Let me note that the extra barrels were mainly coming from a new exploration and development successes, especially in Hungary. We saw that we managed to secure the supply security as well. In Downstream, we faced several turnarounds, heavy turnarounds, especially in the first half of the year. That's why we couldn't exactly meet our 12 million tonnes of target. So -- and that's why we lowered the guidance of 11.5 million. And at the end, we ended up with 11.3 million tonnes. Consumer Services has been delivering a strong integration push and results as expected. The growth on the nonfuel part was extremely good. With regards to the safety ratio, we were successful. Especially in the first half of the year, we introduced several actions. Unfortunately, the last quarter, the trend became a little bit more negative. So that's why I think we are satisfied with the 2024 results, but definitely, we cannot lean back in terms of HSE targets and/or other safety measures. Regarding the financial performance, our EBITDA is 2% higher, so more or less the same what we put it in the guidance, so about USD 3 billion. The profit before tax reached $1.5 billion. It's $100 million lower than we expected or we thought that it would result. It is mainly due to the FX, so the not-so-favorable FX changes. So that's why in U.S. dollar terms, it's lower than -- but only $100 million. On the CapEx, we delivered the usual performance, especially, so this $1.7 billion, close to $1.7 billion, which was our guidance. So if we move further, so let's focus on the last quarter. And regarding the last quarter results, the specific sections of the financial part and the business part, the business EVPs' presentation will include more details. MOL Group positive a clean CCS EBITDA of $682 million. It is 31% worse than the same level last year. There have been several effects that impacted our results last year positively. So as I mentioned, this year, so 2024 was a year of normalization where we faced certain challenges, positive and negative external impact. But all in all, I would say that the integrated model worked and we delivered the result, which is more in line on a normalized sustainable level of our performance. So if I don't go into the detailed segment by segment now, just mention that this was the main result or the main learning after the last quarter. And of course, in the last quarter, we also faced with several one-offs year-end effects as well that could result in only the Q4 results. Give some more details on the operational updates. So in the last quarter, we acquired our biggest single photovoltaic plant, so now we -- which is adding to our renewable power generation portfolio and our energy mix -- green energy mix significantly. In our E&P portfolio, we continued our Hungarian success and with Vecsés-3, so this is the third successful development in the Vecsés area. We added an additional 1,500 barrels of Hungarian crude oil production. And this is only the crude part. In the shallow gas, we also managed several successes. Plus, we made an acquisition in Southeastern Hungary, which is also adding up to this increased Hungarian production rate of MOL Group. Finally, we made a divestment from the synthetic rubber plant because we sold the stake to our partner ENEOS. This synthetic rubber plant will continue to operate in our Tiszaújváros plant in Hungary. But I think as a logical step, we handed over and we sold for the -- for ENEOS our stake in this JV. Let me also give an update on the ESG and then HSE part. So I'm -- as in the beginning, I mentioned, we considerably improved MOL's safety ratio in 2024. It was measurable, especially with the TRIR, so total recordable injury rate figures. We are under the 1.3 tolerance rate, and we were close or under our strategic 1.1 long-term strategic target. This is active -- due to active measures, which were specialized to our operations, especially in Downstream to address the safety risk and in the industrial services to give a more safer works process. However, we see and we saw a favorable trend in 2024 as I mentioned also in the first part of my presentation. To make it sustainable, we need more efforts since in the last quarter and the first quarter of this year, we saw unfortunately unfavorable trends. So there was an improvement, but there is still a long road to achieve a sustainable strategic target of the total recordable injury rate. And as the last part of my presentation, we would like to give you some guidance for 2025. We foresee several headwinds on the external market. But we are confident with regards to internal performance and are mildly more optimistic regarding 2025 than 2024. So the financial targets, we continue to believe that a sustainable normalized operational clean CCS EBITDA will be north of USD 3 billion. So we will again exceed this $3 billion EBITDA performance. Out of that, we think that $1.6 billion profit before tax is also deliverable. In the Upstream segment, we still believe that between 90,000 to 94,000 barrels a day and, in the crude processing, 12 million tonnes. The CapEx level, we continue to set at this $1.7 billion level. The net debt-to-EBITDA in such cases will stay under the very comfortable 1x multiplier. And the HSE/TRIR, we continue to set the 1.3 target that we can deliver and we can guide you. So thank you for your patience. And now let me give the floor to Mr. József Simola.

Good morning, ladies and gentlemen. And let me start with the financial review on Page 9. As usual, you will receive detailed coverage for the 4 major segments from the business leaders. As for the Gas Midstream business, quarterly EBITDA stood at $52 million, exactly the same number as a year ago and a slight decrease from the previous quarter. The slight decrease is due to various changes, one of them being a decrease in certain regulated prices. With this, the yearly EBITDA is $244 million, a slight decrease on a year-on-year basis but still a very strong simplified free cash flow generation in around $200 million from the gas business. As for the outlook, CapEx, we expect to be in the same range as in the previous years. And as for the EBITDA, we expect some decrease for the next year. But having said this, it's clear that the results of this segment are very strongly influenced from the overall situation in Ukraine. As for the C&O line, minus $20 million, including an above $20 million plus contribution from the intersegment. This is due to increase in gas and crude prices and the decrease of intersegment-relevant inventories in Q4. The C&O expense is minus $41 million, which is pretty much at the same number for the C&O as a year ago, which was minus $38 million. Please note, as noted in the footnote that the Q4 number last year still included a significant positive contribution from the Circular Economy segment. Let's go to Page 10. CapEx overview with above $1.3 billion spending, very much in line with our forecast and our usual slight conservative underspending in this segment. That's for the organic CapEx. Inorganic CapEx was, for the whole year, in total, $69 million, and from this, $52 million was for a smaller Upstream acquisition in Upstream in Hungary. So let's go to the below EBITDA items on Page 11. Here, I would like to point out that no special items -- EBITDA-relevant special items for this year. And then let's see on Page 12, some more details. For the last quarter, a CCS loss of $89 million as there was barely a $2 decrease in the closing Brent price. That's not the reason for this. This is the usual Q4 CO2 adjustment impact what we see in the numbers, with a total contribution of above minus $70 million. As discussed last year, in the CCS methodology, we distribute the cost of the CO2 quotas throughout the year. In the IFRS, we usually buy the missing quotas, which are missing above the free quotas in the last quarter, and we booked it in the last quarter. And this above minus $70 million represent this adjustment for closing disposition for the year. DD&A for the year, on a year-on-year basis, it's $1.3 billion, $1.4 billion, pretty much moving in the same range, while a significant decrease for Q4 on a year-on-year basis, and the reason for this is impact of 2 different effects. One is -- one of them is that in last year, in Q4, we booked higher impairments in the year-end housekeeping activity. And that's why we decreased on a quarterly basis, while we have some decrease in the overall asset base. And these 2 counterbalancing effects result in a roughly flat DD&A number for the year. Total financial expenses of $601 million (sic) [ $106 million ] minus number. That's actually -- the major driver is the weakening of the forint compared to the euro and to the dollar in the last quarter. And if you look at the yearly number, we see the same impact. The financial loss for the year is minus $181 million compared to a financial gain of plus $34 million in the previous year. So please keep in mind that the -- that's above $200 million difference, which then shows up in the below EBITDA numbers on a year-on-year comparison and also in the profit before tax. Income from associates, $23 million, very much in the regular range of contribution from the associates and, as usual, Pearl and other companies contributing to this number. Income tax expense for the whole year, in total, $397 million, around $50 million increase on a year-on-year basis. If you look at the details, the local and the industry tax very much remained the same. You see a significant increase in the deferred taxes due to the increase of various provisions. And we see, on the other side, a significant decrease on the corporate income tax around 40% on a year-on-year basis. But keep in mind that the largest driver for this actually a significant decrease in the profit before tax line on the company, coming from operational results but also from the aforementioned negative FX number. Let's go to Page 13. The operating cash flow. Essentially, no -- kind of in the Q4, we covered DD&A, no other major movements here. All in all, in the working capital, a very small $27 million buildup in the last quarter, but overall flattish in the last 3 quarters. And with this, an operating cash flow was a cash flow of $2.2 billion significantly above the organic CapEx of $1.6 billion. So let's go to the last slide of the financial revenue, balance sheet. Maybe to start with the change in the net debt, I think we continue the trend what we saw in the previous quarter. And essentially, we ended up with, year-on-year basis, a slightly higher net debt. But if you actually take out the dividend payment of more than $500 million, we see actually, from the operations, a significant reduction in the net debt, which was counterbalanced by the -- with the payment of the dividend. And in terms of the increase in the net debt to EBITDA, we see a slightly higher increase than in the net debt. That's, of course, due to the decreasing EBITDA, but I think, overall, still in -- very much in our financial comfort zone as in the previous years. And with this, I'd like to hand over to Szabolcs to cover the Downstream results.

Good morning, everyone. MOL Downstream delivered a clean CCS EBITDA of $267 million in the fourth quarter, which is bringing the full year EBITDA to $1.267 billion, some $60-ish million below last year's full year result. It's important to note that it's been a busy year with intensive turnaround activities executed both in major refining and petchem assets of ours. And of course, we do it always because it's necessary and such programs contribute to our long-term performance. But in the short run, they weigh and put pressure on cash flows and EBITDA and CapEx numbers. At the same time, we also see what has already been highlighted that some headwinds on the macro side are strengthening. So the extraordinary times are seemingly gone. We see a normalization of margins both in refining and petchem, and also the motor fuel market is showing a decrease on year-on-year in the fourth quarter in the region, and especially, this, we see in Croatia and Hungary. If we look at the refining a little bit, the turnarounds ended in September. So in Q4, we could go with full throttle regarding production. And that delivered actually an outstanding CCS EBITDA of $314 million. On the other hand, of course, it's lower than the fourth quarter of 2023 due to the normalization. On the petchem side, that we already mentioned in November, utilization was impacted by turnarounds in Bratislava. And generally, we see that the European petchem markets are still very much in the bottom of the cycle, characterized by an environment of low demand, high feed stock and gas prices and an extremely depressed product price environment. And that, of course, is keeping the EBITDA contribution negative, though significantly less negative than it was in the previous period. On the next slide, we see the overview of the external environment. The refining margins continued downwards. In Q1, it was still extraordinary, and then it started sliding down. And in Q3 and Q4, we were basically around historical levels. This is, of course, expecting the normalization as we said. On the other hand, the January figures suggest that these margins shall remained more or less on that level for this year as well. So this normalized environment, we expect, and this is how we plan. Regarding petchem, the variable margin returned to the sub-200 mark as you can see in Q4 after being above EUR 200 in Q1, Q3. We see, as I said, the petchem environment slightly depressed and no or hardly any signs of improvement that we also see in the January numbers. If you look at the main drivers of the quarter-on-quarter performance, then you can see that the fall on the refinery margins had a big effect of $136 million. While on the other hand, the petchem was even though negative, but Q-on-Q was positive with $11 million. Volumes due to going on full throttle had a positive contribution of $60-plus million. And we see the other category as fairly significant due to mostly higher maintenance costs in Q4 and also some CO2-related expenses. If you look at the full year results, the signs there are -- in most of the extent, are similar. The margin normalization on refining is apparent and visible. On the other hand, the petchem part was markedly positive on a year-on-year basis. And the other category on yearly level is rather impacted by the decrease in the tax rate of the revenue-based extra tax in 2024. And with that, I would hand over to Péter Ratatics to go on with the Consumer Services.

Thank you very much, Szabolcs, and good morning to everyone from my side as well. Consumer Services EBITDA in the fourth quarter of 2024 amounted to $156 million, making an increase of 8% year-on-year. And maybe next time, I should correct the slides and not really focus on the third quarter to fourth quarter, but rather to the fourth quarter to fourth quarter or year-on-year comparison because obviously, we have a significant seasonality always in our numbers, especially during the summer season, where some of our countries are extremely exposed to the tourism and also the summer kind of consumption. But all in all, the fourth quarter compared to the last year same period was a stronger -- strong overdeliveries and performance. Looking at the full year, the dynamics was similar with 7% growth. And also let me note here that despite the continuation of the Fresh Corner rollout concept throughout all the countries where we are present -- and also, we have now increased service station numbers after the acquisitions and also in combination with the remedy stations, but all in all, our service stations are higher. But still, we are able to manage the CapEx spending on a stable level between this $150 million to $180 million. And as a result of this, the Consumer Services simplified free cash flow contribution to the group has increased by 14%, and we finished the year with $569 million free cash flow contribution. As the chart on this -- on the right side suggests, the main driver of the growth in the fourth quarter is the expansion in the nonfuel part of the businesses. The fuel sales also contributed positive results but only added $2 million in this quarter. And actually this quarter, it was very kind of calm in terms of the taxation or other technical factors' contribution, and also the FX movement was [ mild ]. But also I have to emphasize here that the OpEx was quite stable on a year-on-year comparison despite the strong inflation and wage pressure, which is visible in all of our countries. And that's also a result of our strong focus on the efficiency and optimization efforts. Let me note that we achieved this organic growth despite the size of the network decreasing by 4%. Again, as a part of the Lotos acquisition in Poland, the swap leg of this acquisition, the handover of the Hungarian stations to Orlen or some of the -- obviously, some of the parts of the Hungarian service stations just realized in the fourth -- in the first quarter of this year, and also in Slovenia, as a final result of the competition clearance, we handed over a few stations to Shell but also realized this quarter -- this -- I mean the first quarter of last year. So all in all, that gave us this 4% decrease on the service station side. However, I think the loyalty application, the loyalty platform, what we have and also the brand power showed the strength and kept majority of our customers in our operation. On this slide, actually, you can see that the volumes decreased by 1% year-on-year -- year-over-year. Actually, more precisely, it was just 0.56%. So I would say it's practically stable. However, the throughput per site improved by 3%. And that's also very positive results, but the optimization of the tail end of the network was very efficient. And per site, the operation or the profitability is increased. This is in line with the aforementioned 4% decrease in the size of the network. And this suggests that we manage well the decrease of the network, and the strength of the MOL brand, as I have already mentioned, gave us the possibility to keep the attrition on a very low level. And here, just one additional note since the fourth quarter report is practically also the full year report. So in 2024, all in all, we sold more than 8 billion liter fuel volumes over on our network, the first time in our history we surpassed the 8 billion liter. And that's altogether 124 million liter more than it was in 2023, which is 1.6% higher than a year before. And now we can turn the page to the nonfuel part. I've already mentioned that this is a very positive -- or this suggests a very positive picture. The nonfuel turnover and also the margin evolved in the first quarter. There was a visible continuation of the positive dynamics in the nonfuel business. And the nonfuel turnover grew by 4% while margin rose by 11% year-on-year. The nonfuel share of margin also increased year-on-year to 36.1%, which is 2.5 percentage points higher than a year ago. Although the macro and some other factors are starting to make an impact on the fuel sales, especially at the last quarter, we see from various indicators that the customers' consumption and also their kind of purchasing habit focusing more -- or they are spending more with us on the dining and shopping possibilities. So I think the Fresh Corner operation and also the very strong nonfuel focus from the management side started to pay off. So with that, thanks for your attention, and let me pass the floor to Zsombor.

Thank you, Péter. Good morning, ladies and gentlemen. So on Upstream, the fourth quarter was very similar to the third quarter in terms of EBITDA generation, arriving to USD 276 million as well as the free cash flow generation. And the reasons are the rock-solid production figures we had throughout the year. And quarter-on-quarter, Brent price decreased, but TTF improved, and also the ACG cargo effect this quarter halved. So overall, a slightly positive impact on Q4. With regards to the full year, just like in '23, again, we brought the EBITDA above $1 billion in '24, almost $1.1 billion, and that's 7% more than in '23. Out of this, we are nearing USD 800 million with simplified free cash flow. That's a visible 35% rise compared to '23. We managed to increase production to 93,800 barrels oil equivalent per day on average to a 3-year record-high production level, meaning we surpassed the 90,000 guidance set at the beginning of last year and almost will reach the top of the updated guidance of the 90,000 to 94,000 barrels per day. We also met the production quotas in Hungary, so we expect to avoid any extra royalty payment in the country. So extraordinary internal performance of teams given the very strong headwinds, mature assets without significant inorganic addition, volatile macro and the diverse operational challenges throughout the portfolio. If we move to the unit free cash flow, it was exactly the same amount quarter-on-quarter, $24. This brought fourth quarter simplified free cash flow to roughly $200 million in total and, altogether, $792 million for the full year. Regarding the unit free cash flow, it came and arrived at $25 well above our strategic guidance of $20. And looking at the annual development, it is visible that the extra mining royalty no longer applied in '24 due to our excellent production performance, enabling the increase in the free cash flow realization. Looking at the changes quarter-on-quarter. Let me briefly discuss the technical factors that impacted our EBITDA results. So once again, the ACG cargo effect is distorting underlying trends as opposed to the third quarter when there was a negative impact on the prices and volumes. Now it's the other way around, and there were 3 deliveries instead of the usual 2. And you might recall that in Q3, there was only one, so this had, in the quarter, a slightly positive impact on both volumes and realized prices. There was another impact resulting from the reclassification of CapEx as OpEx. We found a total of $13 million worth of capital expenses throughout '24 that were reclassified in Q4, and that distorts quarterly comparisons to the negative. Regarding the other category, the main driver was the year-end revision of field abandonment provisions that also weighed on EBITDA. The drivers were quite similar in the year-on-year comparison. So the only item that had a significant effect that I would highlight the extra royalty reversal that was affecting our results in the fourth quarter of '23 positively at that time with the magnitude of $63 million. So we move into the production slide, which is self-explanatory. I believe this production level show the real performance of the division. The last quarter came in rather strong in a historical perspective as well, nearing 95,000 barrels of oil equivalent per day. The average for the full year, again, close to 94,000, which is well above our initial guidance, and I'm proud that we were, throughout the portfolio, be able to achieve that on a mostly mature asset base. And if you know that how big work is that to get value out of mature portfolio, how much hard work, agility, lots of production optimization efforts and sharp focus on exploration and tie-in of the wells as soon as possible. So looking at the fourth quarter development on individual assets, production in Hungary kept on growing further, which is the most energetic growth, and the oil can be processed locally in the Danube refinery with little logistic costs. And again, the Vecsés-3, the third well, is also adding 600 barrels to the production, and we still have further exploration activity in the country. And we also had a milestone with Vecsés at the end of last year and the 3 wells combined now in the last 2 years, producing over already 1 million barrel oil production. On the international arena, lots of actions and also challenges were taking place in Q4. And let me just highlight some of them. In Croatia, the Obradovci-5 exploration well discovery was also confirmed. In Pakistan, the production is constrained from time to time due to logistic bottlenecks. The TSO transmission system operator are sometimes restricting domestic production, and we suffered curtailment. At the same time, the production ramp-up in Kazakhstan continued in Q4 and 2 additional wells put into production now totaling 5 wells producing. In Azerbaijan, the third well in the Azeri Central East new offshore platform also started production in November, with the expected and planned production rates helping to contribute the stabilization of the ACG production levels in the short-term, midterm. And production in Shaikan in the Kurdistan region of Iraq has been impacted by maintenance shutdown in the last quarter. Otherwise, we continued production for domestic sales currently. In the Pearl, yearly production came in higher due to higher customer demands and delivery of the operation. So going forward, we retain our production guidance for '25 and expect the annual production to average between 92,000 and 94,000 oil equivalent per day. So arriving to the last slide regarding the evolution of unit OpEx and CapEx. So let me start with the OpEx and first refer back to my earlier comments on the year-end CapEx-OpEx reclassification. So some expenses were booked as CapEx but have been now reclassified as OpEx in Q4 for the full year. If this impact is distributed along Q1 and Q4, so the pro forma unit OpEx remains still below $7 per barrel for the full year. Ultimately, the dotted pro forma line on the left-side chart reflects the underlying evolution of unit OpEx, which shows that the costs have been relatively stable, with average 3% year-on-year increase. Of course, we can never be pleased with even this rate of increase in general. However, in the current elevated inflation environment, this is a result of extreme cost discipline. CapEx for the full year is 16% below the last year's level due to optimization of investment schedules, scrutiny and decisions in Hungary, Croatia and Azerbaijan. It also reflects our goal to keep CapEx in Shaikan, Kurdistan at the bare minimum level until the export pipeline reopens. Again, a robust production performance with strict cost control resulted in a strong EBITDA and free cash flow contribution to the group results as well as to the energy supply security in the region. And with that, let me pass the floor to Zsolt Petho to present the results of Circular Economy Services.

Thank you very much, Zsombor, and good morning, everyone. As you can see from the volatility in our results over the past year, the Circular Economy Services segment is still in a startup mode with low predictability in its finances. In 2024, we were very much focusing on avoiding reputational loss and providing the same service level as everybody was used to and maintaining the service level for more than 4 million households and tens of thousands of industrial customers. It was especially true for the deposit refund system, which was -- the introduction of this system was a very complex project, and it was not only a brand new methodology for us but also for all the Hungarians who needed to learn how to use this system. So this whole -- the DRS operation and even keeping the service levels, we just realized a lot of uncertainties, which -- that's what we were focusing on handling all those uncertainties. In 2025, and I think that keeping in mind that in long term, waste management is an absolute strategic fit to the operation of the group. The whole team of mine, Circular Economy Services, very eagerly and very diligently, day by day, week by week, we will focus on turning this operation profitable. So thank you very much for your attention, and I pass back the word to Marton.

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

I actually have 3. First, around the guidance for 2025 EBITDA. What level of polyol project is included in the guidance? And the question is -- for the context, given that Downstream macro environment is much weaker this year, in the beginning of this year versus 2024, like how do you see comparable -- reaching comparable EBITDA for the full year? Second question will be on your just recently announced acquisition around gas plant and Upstream assets in Eastern Hungary. If you can provide a bit more color on the -- what level of investments it required and what EBITDA contribution you expect from those? And finally, on the Slovakia windfall tax, it looks like on your financial statements that you booked a much lower windfall tax contribution in Slovakia that initially flagged or expected. Can you provide a bit more color whether it's the final level of the payment? And how did you manage to decrease this volume? So what was the story there?

So let me then try to summarize some of the answers, and I will ask the business EVPs to add up on the -- on their inputs. You asked about the guidance for 2025. The 2025 guidance was still not calculating with the, how to say, a fully scaled-up polyol project impact. We rather calculate the 2026 with the EBITDA -- than the -- or EBITDA contribution of the polyol project [ will be much earlier ] in our EBITDA guidance or EBITDA forecast. So 2025 is not calculating with the still embedded risk of the successful completion of the commissioning of the plant and ramping up the marketing. So it's rather an upside if it happens earlier, or it happens more successful, or the margins recover significantly. So the Downstream macro environment assumption behind is as conservative as it was given for the -- for this year, especially for the second half or the last quarter of this year. Regarding the gas, Upstream, I will hand over to Zsombor Marton to summarize what exists, but you need to know that this acquisition is already a developed inorganic acquisition. So it's not an exploration program. This is not something that we need to still long time derisk and put it into production. And I would also add that we didn't mention in the briefing that we continue to apply for new concessions and picking up more and more concession areas to continue both our crude program, so around the Vecsés area and also shale gas program. And now I would like to ask Zsombor Marton to add up whether additional CapEx needed for the Eastern Hungarian acquisition.

Okay. So the transaction is expected to be closed in the first quarter of '25. We believe this is a strategically fit to our Hungarian portfolio as well as our ambitions that we still see potential in the Hungarian and oil and gas market. So this is an asset portfolio, which has an existing well stock and production of gas combined with good infrastructure, which fits to MOL efficient operations. And thirdly, it has some shallow gas prospects, which we intend to drill in the next 3 years. Expected to CapEx is about $20 million for the next 3 years. And we also believe that we can really leverage the synergies on the cost and OpEx side with that asset.

Okay. And that's -- your last question will be answered by Mr. Simola.

Thank you. So as for the Slovakian taxation that you are right that we gave a more conservative estimate in the previous call for this number compared to the number, which now included in the windfall tax line. And generally, the reason for this that in the tax base calculation is not just the operational kind of results are included but other factors. And based on the current calculations as we stand for the Q4 closing, we see a smaller number as -- than we guided before. Also having said that, I like to repeat my comments from a year before that this is just the Q4 number, and I think all these special taxes and the regulation for special taxes is a new situation for us. So in terms of the final number, we have to see the -- and wait for the year-end closing of MOL Group, which will be also audited unlike the Q4 number and also the statutory closing of SLOVNAFT Plc. Probably a follow-up question would be '25. There is a new regulation for '25. So the one for '24 [ STC ] will not apply. And at this point, we are not really able to give you a guidance for the '25 special tax number.

Thank you, Anna. Mr. Tamas Pletser, please go ahead.

Three questions on my side. First of all, you recently announced that you are preparing to increase the product sales towards the Serbian market. Can you tell us a little bit more about this decision and what volume can it mean that you can provide additionally to that southern market to Hungary? Also, my second question would regards the Serbian initiative. Recently, there were some talks between -- on a political level, between Serbia and Hungary to speed up the building of this crude oil pipeline, which would connect your system and a niche system. Can you tell us a little bit more about this? And finally, on Slovakia and this recent derogation that you can sell the refined products of Slovnaft, which is processed from Russian crude to the Hungarian market, what kind of upside can we see here? And what could be the impact on your performance and on your volumes?

Let me ask Mr. Szabolcs Szabo to answer your questions. Sorry for the delay. We have been muted for a little while. I'll ask Mr. Szabolcs Szabo to repeat his answer.

So regarding Serbia, I mean, everybody's main assumption is that the situation will be sorted out before the deadline expires. However, the deadline is pretty close, and so far, no solution can be seen. It can happen in the very last moment. We -- I think the plan B for the market and for all the market players is that it will be sorted out, but of course, everybody is preparing for a plan B. We as well. We do see opportunities to regroup from our sales portfolio, some volumes towards Serbia and harvest the opportunities there, which might arise and increase local purchase in other areas of our sales portfolio. But -- and I think also other market players are considering that. On the other hand, Serbia market is primarily supplied by its own refining assets. So if that should not become -- that should become kind of impossible due to the sanction, then -- or the regulation, then this will be a hard situation for the Serbian market. And MOL alone is, of course, not in the position to cover for it nor any other market players and import payers on the Serbian market. So we are kind of preparing for it. We are not sure, of course, whether it will happen, but we do see some opportunistic -- opportunities there. Regarding the pipeline question, it has been around -- a topic. We, of course, do have expertise in building and operating such pipelines. And if this project is materialized and there is a proper return on it, then MOL can be the one to build and operate it, but it's subject to the proper return expectations and guarantees set. And the third one was regarding -- yes, the derogation. We have been -- when we were making our business plan and when we were preparing for the current year, of course, we always take into consideration the current legislative environment and embargo environment, which was that we were preparing not to supply Czechia if the derogation shouldn't have been prolonged. We do believe it's an additional step towards the regional supply security that it has been prolonged. But should it not be prolonged, we are ready to act and act accordingly. And of course, all our decisions are subject to proper economic returns as always.

May I ask a follow-up here? So the derogation to Hungary and to Czech Republic, do I know correctly that it expires by the middle of this year? Or does it -- it doesn't have an expiry date? And also the second issue on the Serbian pipeline, do I understand correctly the situation that potentially you can build the Hungarian section of this pipeline, not the whole one?

Question. When you say end of the derogation, you mean the crude part or the Russian-based products import to Czechia?

Yes. I thought of the second issue. So when will be the deadline for you to export products, process from Russian crude in the Slovnaft refinery?

That expires 5th of June. So that's the last day, or from that day on, we cannot export Russian-based or Russian crude-originated product to any other EU country.

And it's both Hungary and Czech Republic?

Czech Republic, for sure. I mean that's our main area of export from Slovakia.

Thank you very much. Mr. Giuseppe Villari, please go ahead with your question.

Just one quick question from our side. The potential peace deal between Ukraine and Russia has been a key discussion topic in the market for a while. And we were wondering, what do you think would be the impact to MOL both operationally and financially from a potential peace deal? And what do you think would be the impact to the broader refining industry in Europe but also the other segments in which the company operates?

Thank you for the question. I would like to ask Mr. György Bacsa to answer.

Thank you for the question. I think for us and the operation and for all the European industry, a peace and, as a follow-up, easement on the sanctions and on this practically frozen trade war between Europe and Russia would be positive development. Of course, I do not want to go into political analysis that what peace could be achieved [ and what ] different range of agreements can be achieved. We hope that if a peace will be agreed or will be signed, then it won't be just a ceasefire, but it will also enable that the European economy can go back to -- on its growth path and could also extend its trade relations, both in terms of natural resources, energy supply, but also on exporting and trading. I think that would help. The other question is, of course, the time horizon. When it happens, I think for us as a European refiner and industrial player, always the sooner is the better. I think we saw what the sanctions and what the war can create as an extra cost, extra burden and extra, particularly, pressure on the economy.

Thank you. Mr. Oleg Galbur, please go ahead with your question.

Yes. I hope you can hear me well. I have 3 questions. I'll start with the Upstream segment. Could you please tell us what should we expect in terms of the oil and gas royalty regime in Hungary? So you were able to maintain or to avoid overtaxation in 2024. And based on your current plans and maybe agreements with the government, what should you expect this year and maybe also a comment about next year? Second of all, Mr. Ratatics, you were saying that in retail, you were able to maintain the same level of OpEx. And this is happening while other competitors are confronted with high cost inflation, which is negatively affecting their business. Could you please tell us more and maybe a bit more details what are the measures that help you actually avoid higher cost inflation than 3% that you mentioned? And lastly, now that you have a clear picture of the last year's result and also you have already a feeling of the development into this year, could you maybe make a comment about potential dividend distribution, what could be expected to be distributed from last year? Any flavor here would be very helpful.

Thank you very much. I would like to ask Mr. Marton to answer the first question.

So regarding the Hungarian new royalty regime. So again, this 2024 year, we were successfully meeting the production quotas and avoided the penalty. And the new regime coming online from this year, it has a progressive element, which means that the royalty rates are higher if the hydrocarbon prices increase and lower when it decreases. So it is a compensation element both for oil and also for gas. We think this is a more predictable solution, and this should really manage the extreme conditions when it comes like in '22 or '23 and when the mining royalties will increase progressively automatically resulting in a higher contribution to the national budget. We think it's predictable and fair system. And this, we expect from this year onwards.

Could you please quantify it maybe or at least give us some ideas what could be the impact in the current price environment or based on your expectations?

So we expect that it's going to be broadly neutral compared to last year, but more predictable.

Thank you very much. I'd like to ask Mr. Péter Ratatics to answer the second question.

Yes. Sorry, can you repeat then the question?

Well, the question was that clearly, MOL stands apart from its competition when it comes to evolution of cost inflation in retail. You mentioned that it was only 3% year-over-year, while other competitors are confronted with significantly higher. And I was wondering if you could share more details about what measures or what other developments helped you maintain this low level of inflation?

Yes. I mean -- yes, thanks for the question. And sorry that you had to repeat it. So first of all, our OpEx on a total level is roughly around $900 million. That's the yearly OpEx. Out of this, practically 55% is a so-called personnel type of expenses. So altogether, we have like 22,000 service station workers, and that's the vast majority of the human cost. And actually, we started to optimize the opening hours. So we analyzed, hour by hour, the cost versus margin. And in many of those stations where in the night, in the late hours or in the early mornings, the margin generation was not covering the OpEx, then we shifted and changed the workforce and the opening hours, and we decreased the number of FTEs. And also, we still see quite a potential to continue this journey. So even for this year, we plan to decrease it further, like 10% to 15% the total FTE numbers all across the 10 countries in the group. So that's -- actually, that's the majority of the cost optimization effect. While on the other hand, also on the back of the significant energy price increases, what happened since the war started, we revised all the kind of service station energy consumption. We tried to procure it, I mean, even the electricity on a different way. And as much as we were able, we tried to decrease the energy -- the large consumers, large energy consumers at the service station operation, fridges, lamps. So these kind of things, we started to revise and also to change it. Also, we hand out an operational manual to the service station workers that how can they, I mean, optimize or manage better the temperature control within the service station environment in order to save some energy. So I mean, all in all, I -- the personnel type expense is the big hit. However, we have a lot of additional what we turn on and what we manage. So altogether, like 30 different small project items, we executed, and that's what resulted in this effect. I hope it's helped.

Thank you. And on the last question, I would like to ask Mr. Simola to comment on dividend.

Thank you very much. And I think usual question, usual answer. I start with the easy part, the backward-looking part. I think clearly, as we discussed on the net debt and financial results, balance sheet side, I think we had a solid year, and we have the financial basis for paying a dividend. I think we complicated as always the forward-looking part in terms of any potential acquisitions and, of course, any potential major negative events in the future. That will be up to the Board of Directors to review, and we will communicate the proposals for the annual meeting, as usual, in the second half of March, including the proposal, if any, for the dividend payment.

Thank you. And last, Mr. Mihály Gajda, please proceed with your question.

Could you provide some information what kind of Brent crude oil spread you're using for developing 2025 guidance?

Thank you for the question. If you look at actually one of our charts that we see that where the Brent crude oil spread is actually depicted, you can see that it has been on a fairly stable level in the last 3 to 4 quarters. Seemingly under the given circumstances, that's the, let's say, new normal of Brent crude oil spread, and we're not counting with any earthquake change in relation to that. That's more or less it.

Okay. Thank you very much. If there are no further questions, then I would like to -- thanks for your participation. In case of further questions, of course, we are available at the Investor Relations department. Please reach out if you would like to follow up. Thank you very much, and have a good day. Goodbye.