Omv Ag

Welcome to the OMV Conference Call Results, January to June Q2, 2023. If you'd like to ask a question after the presentation, you may register your question by pressing the star one button on your telephone keypad at any time during the actual presentation or during the question and answer session itself. You should have received the presentation by email. However, if you do not have a copy of the presentation, the slides and the speech can be downloaded at www.omv.com. To maintain this conference, a live audio webcast is available on the OMV's website. At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates, and assumptions currently held by and information currently available to OMV. By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in future and outside the control of OMV. Therefore, recipients are cautioned not to place undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect the actual results, revised assumptions and expectations, and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV. I'd like to turn the call over to Mr. Florian Gregor, Padron Investor Relations. Please go ahead, Mr. Gregor.

Yeah, thank you. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the second quarter 2023. With me on the call are our CEO, Alfred Stern, and Reinhard Florey, OMV's Chief Financial Officer. As always, Alfred will walk you through the highlights of the quarter and discuss OMV's financial performance. Following his presentation, both gentlemen will be available to answer your questions. And with that, I'll hand it over to Alfred.

Thank you, Florian. Ladies and gentlemen, good morning and thank you for joining us. The second quarter of 2023 was characterized by increasing concerns about the global economic situation and tightening monetary policies across major economies. As a consequence, we have seen prices and margins decreasing. Compared to the previous quarter, Brent crude oil prices declined slightly to $78 per barrel on average for the quarter, and European gas prices dropped by 31% on the back of high storage levels and seasonality. Refining margins almost halved. compared with the exceptional level of the first quarter to $7.6 per barrel, driven by a sharp drop in NAFTA prices and lower middle distillate cracks. The flexibility of Chinese refiners to process Russian and Iranian crude at discounted prices has pushed NAFTA prices down compared to the previous quarter. In chemicals, End-market demand remained under pressure with slower-than-expected recovery in China and weak industrial activity in Europe, while supply increased with new capacity additions in Asia. Olefin margins in Europe increased supported by lower NAFTA prices, while polyolefin margins continued to decline. Weaker consumer activity, a squeeze on affordability, and continued destocking, combined with pressure from imports, have kept order levels depressed. The clean CCS operating results declined from the exceptional high level of the prior year quarter to around 1.2 billion euros. Our cash flow from operating activities in the quarter fell to €226 million, impacted by decreasing commodity prices combined with high tax payments in Norway related to 2022 earnings. Looking at operations, polyolefin sales volumes were lower by 7% year-on-year, while fuel sales volumes rose by 5%. The utilization rate of our refineries and European crackers was lower than the typical level of 90% plus due to planned turnarounds in Petrobras and at the chemical-related facilities in Schmechat. Oil and gas production was slightly higher year on year, primarily due to the commissioning of new wells in New Zealand and the force majeure in Libya in the prior year quarter. We continued to execute our strategy and further advanced with the transformation of our company. In June, our longstanding collective efforts at multiple levels came to fruition, and we announced the final investment decision for the natural gas project Neptune Deep, a key milestone in our strategy 2030. The project is expected to provide a reliable and secure source of energy while strengthening our group's position in the Black Sea region and in southeastern Europe. OMV Petrom will be the operator of the project. Together with Romgas, the largest producer and main supplier of natural gas in Romania, we will jointly invest up to €4 billion in the development phase of the project. With around 100 billion cubic meters of recoverable resources, Neptune Deep is one of the largest natural gas projects in the European Union. First production is estimated for 2027, and production at the plateau will be approximately 140,000 PoE per day for around 10 years. In our low-carbon business, we acquired a minority stake in the Canadian company Ever Technologies, the world's leading closed-loop geothermal energy solutions provider. As this technology is truly scalable and applicable in various types of geological structures, it will complement our existing portfolio, enabling us to offer solutions for district heating networks outside of the normal hydrothermal areas. Our initial focus in deploying this technology will be Austria, Romania, and Germany. In chemicals, we signed an agreement to acquire Rialti, one of the European market leaders specialized in the production of sustainable polypropylene compounds with a focus on mechanically recycled feedstock from waste. With over 30 years of experience, Realty is making compounds with applications in different industries, including automotive, appliances, and construction. The addition of Realty to our portfolio will increase our annual sustainable polyolefin production capacity by around 50,000 tons to around 200,000 tons, strengthening our ability to support our customers in meeting their sustainability ambitions. Moreover, we have been actively driving forward the diversification of our gas supply sources and supply routes. We worked on the diversification of our gas transport routes, which for historical reasons have been primarily focused on the supply route from the east via the Baumgarten hub. OMV was awarded capacity of around 40 terawatt hours per annum until 2026 and around 20 terawatt hours per annum for additional two years for transportation routes via Germany and Italy. And we signed a long-term agreement to purchase 1 million tons per year of LNG from BP starting from 2026 for 10 years. In addition, we announced this morning a new gas discovery in Austria with a preliminary evaluation of potential recoverable resources of around 28 million barrels of oil equivalent. We also made significant progress in our active portfolio management and closed the divestment of our Slovenian business to the Moor Group in June 2020. and the divestment of the nitro business to Agrofiat in July. Both divestments together generated a cash inflow of more than 1 billion euros, with the lion's share only booked in the third quarter. The sale process of our E&P assets in Malaysia and New Zealand is progressing as planned. The marketing phase started in the second quarter, and we are seeing active interest from many potential buyers for both assets. Two weeks ago, we announced that we will pursue negotiations with Adnok on a potential combination of Borealis and Borouge. The transaction would create a global polyolefin company with a material presence in key markets and potential for growth. We are aiming for equal terms under a jointly controlled listed platform. Please understand that we cannot give any further details at this point in time. Let's now turn to our financial performance in the second quarter of 2023. Our clean CCS operating result came in at around 1.2 billion euros, substantially lower quarter-on-quarter and year-on-year, driven by significant price drops across all commodities from the exceptionally high levels seen in the prior year quarter. The Clean CCS tax rate increased from 36% to 46% due to a higher contribution from countries with high tax regimes in the total group profits compared with the same quarter of the previous year. As a result, the Clean CCS net income attributable to stockholders declined to 472 million euros. Clean CCS earnings per share amounted to €1.44. Let's now discuss the performance of our business segments. Compared to the second quarter of 2022, the clean operating result of chemicals and materials dropped sharply to €7 million. The nitro business turned negative to minus 35 million euros, and the performance of the polyolefin business declined as well, impacted by the slowdown of the chemical sector. The result was burdened by substantial negative inventory valuation effects, weaker margins and volumes, and a materially lower result from Borealis JVs. The contribution from the nitro business fell by around 150 million euros from the exceptional high level of the prior year quarter as a result of lower margins and negative inventory effects following the gas price development. The ethylene indicator margin declined by 14%, and the propylene indicator margin went down by 32%. The polyolefin indicator margins decreased by around 30% from the extraordinary levels of the second quarter of 2022. As a consequence, in our European olefins and polyolefins business, we recorded a negative market impact of around 200 million euros compared to the second quarter of 2022. and negative inventory valuation effects of around 200 million euros. The operational performance of our olefins business improved, supported by a higher utilization rate of the Stenungsund Cracker, which was in turnaround in the prior year quarter, and a higher light feedstock advantage. The polyolefin business of Porealis, excluding JVs, suffering from sluggish demand. Polyethylene sales volumes decreased by 9%, while polypropylene sales volumes declined by 4%, reflecting depressed demand in consumer products and a decline in energy infrastructure and healthcare applications. Mobility volumes increased, returning to pre-COVID levels due to the need to catch up on long-placed vehicle orders and better supply of semiconductors. Our specialty business continued to provide resilient earnings contributions, as you can see in the appendix of the presentation. We were able to maintain margins, but sales volumes declined due to subdued demand. The performance of the JVs dropped to 29 million euros due to a lower contribution from Boruche and a negative contribution from Baystar. The Boruche result declined, driven by oversupply and subdued demand in Asia, as well as a lower share of OMV in the JV following the listing of the company in June 2022. Sales volumes decreased due to slow demand, partially offset by the new BP5 plant, which was ramping up in the prior year quarter. At Baystar, the ethane cracker recorded a low utilization rate due to operational challenges. The results continued to be burdened by depreciation and interest expenses amid a weak market environment. The clean CCS operating result in fuels and feedstock decreased to 283 million euros, primarily due to a substantially lower contribution from refining, partially offset by a significantly higher retail and commercial result. The refining margins pulled back from the extraordinarily strong level of the prior year quarter when refining earnings had surged in the wake of the Russia-Ukraine war. Cracks for jet fuel, diesel, and gasoline dropped significantly, while NAFTA remained very weak. OMV's refining indicator margin in Europe fell from $20.5 to $7.6 per barrel, but remained above historical levels. The refinery utilization rate increased from 58% to 73% despite the Petrobras turnaround as the prior year quarter was affected by the Schwechat refinery turnaround and incident. As a result, in total, the performance was impacted negatively year on year by around 300 million euros. Total sales volume rose by 5% compared to the second quarter of 2022. Despite the divestment of the German retail network last year, we have seen a very good development in the retail business, driven by higher fuel unit margins and a better non-fuel business, partially offset by the missing contribution from Germany. The commercial business improved as well, driven by stronger margins and increased sales volumes following stronger demand and an upswing in the aviation sector. Following the global trend, the refining margins in the Middle East fell as well from the record levels of last year. However, the contribution from ad hoc refining and trading remained strong and was only slightly lower compared to the second quarter of 2022, supported by a partial reduction of the decommissioning provisions. The clean operating result of energy halved to 895 million euros compared with the second quarter of 2022, primarily due to lower commodity prices, partially offset by better performance of gas marketing and power. While in the prior year quarter, the print price averaged $114 per barrel and the European Gas Hub price 102 euros per megawatt hour, in the second quarter of 2023, the print price came down to $78 per barrel and the Gas Hub price to around 38 euros per megawatt hour. OMVs realized oil price decreased in line with Brent, while the realized gas price declined less than the hub prices by 50%. Around 30% of our gas portfolio, namely the volumes in Norway and Austria, is exposed directly to the European hub prices. The other countries follow more local pricing. As a result, we recorded a negative market effect of €866 million versus the prior year quarter. Compared with the second quarter of 2022, production volumes increased slightly to 353,000 POE per day, primarily due to new wealth in New Zealand running production in Libya without interruption, partially offset by natural decline and planned maintenance in Norway and Romania. Production cost rose by 20% to $9.9 per barrel as a consequence of general price inflation and a positive one-off effect related to a tax audit in Romania in the prior year quarter. Sales volumes increased in line with production. The gas marketing in power result rose by 83 million euros, driven by a better performance of GasWest. The prior year quarter result was negatively impacted by hedging losses due to the volatility of the natural gas supply from Russia. In addition, the LNG business is now included in our clean operating result and contributed positively. In Romania, the gas and power business contribution declined in the context of significantly lower market prices, extended regulatory and fiscal interventions, and the planned turnaround of the Pras power plant for the entire quarter. The result was supported by the reversal of a provision related to taxation in Romania. Turning to cash flow, in the second quarter we had very high cash outflows due on the one hand to the annual payment of dividends and on the other hand to unusually high tax payments. We paid record regular and special dividends to OMV shareholders related to the full fiscal year 2022, amounting to €1.65 billion. In addition, we paid our remaining 2022 tax liabilities in Norway of around €1.2 billion. as well as taxes related to the solidarity contribution for 2022 in Romania and Austria, amounting to €380 million. Combined with a declining macro environment, our second quarter operating cash flow, excluding net working capital effects, turned negative, to minus 375 million euros. This includes dividends received from ad hoc refining and trading in the amount of 274 million euros. Networking capital effects generated a positive cash inflow of 600 million euros in the quarter triggered by a lower price environment. As a result, cash flow from operating activities for the second quarter was 226 million euros. Looking at the half-year picture, cash flow from operating activities, excluding networking capital effects, amounted to 1.6 billion euros. While in the first half of 2022, the networking capital effects generated a cash outflow of around 2.6 billion euros, in the first half of this year, these effects were partially reversed. generating a positive cash inflow of around 1.3 billion euros. As a result, cash flow from operating activities for the first half of 2023 was 2.9 billion euros, 7% lower than in the first half of 2022. The organic cash flow from investing activities generated an outflow of around 1.7 billion euros in the first half year. This included the re-oiled demo plant, the PDH plant in Belgium, maintenance of refineries, and EMP projects in Romania and Norway. As a result, the organic free cash flow before dividends for the first half year amounted to 1.2 billion euros. After the payment of the annual dividends to shareholders, minorities and bondholders, the organic free cash flow turned negative to minus 649 million euros in the first six months of 2023. The inorganic cash flow from investing activities generated an outflow of around 100 million euros. The cash inflow of 272 million euros related to the divestment of the business in Slovenia was more than offset by investments in debt instruments, additional loans granted to Porouge and Baystar, and the acquisition of a stake in Ever. Moving on to the balance sheet. Our leverage ratio at the end of June temporarily increased to 11% following a heavy cash outflow quarter when we had to pay the record annual dividends and the outstanding taxes in Norway. However, if we consider the cash inflow of around 850 million euros coming from the divestment of the NYPRO business, which we closed in July, our leverage ratio would be around 8%, well below our threshold of 30%. At the end of June 2023, OMV had a cash position of 6.5 billion euros and unchanged 5.2 billion euros in undrawn committed credit facilities. Let me conclude with an updated outlook for this year. Based on the developments we have seen so far, our estimate for the Brent oil price for the full year is now between $75 to $80 per barrel. Looking at the situation in gas, the storages are filling up fast in Europe, having already passed the 80% threshold, which is earlier than expected. Therefore, we now estimate the THE price for the full year to be around 40 euros per megawatt hour. As a consequence, we are adjusting our average realized gas price forecast for the full year to around 30 euros per megawatt hour. In chemicals and materials, supported by reduced NAFTA prices, we continue to expect the ethylene indicator margin to be around 530 euros per ton. However, the propylene indicator margin is now expected to be lower at around 400 euros per ton due to high supply availability. In polyolefins, the demand remains weak as the ongoing cost of living crisis is impacting consumer spending and industrial activity. We now forecast the polyethylene indicator margin for the full year to be around 300 euros per ton and the polypropylene indicator margin around 350 euros per ton. The guidance for polyolefin sales volumes is unchanged at around 3.8 million tons. The utilization rate of our European steam crackers is estimated to be around 85%. We have a planned six-week turnaround at the Porvo Cracker starting mid-August. At Baystar, the new Boar Star polyethylene plant with a capacity of 625,000 tons per year is mechanically completed and is expected to start up in the next weeks. In fuels and feedstock, we are now expecting the refining indicator margin for the full year to be in the range of $8 to $10 per barrel. The utilization rate of the refineries is expected to be around 90%. The guidance for fuel sales volumes and margins is unchanged. In energy, the guidance for the average production of around 360,000 barrels per day for the full year is unchanged. Total production in the third quarter is expected to be only slightly higher than in the second quarter, as there will again be planned maintenance works in various countries, such as Romania, New Zealand, and Norway. With regards to cash inflows, we expect to receive dividends from Boruch of $468 million for the fiscal year 2023 in two tranches, half to be paid in the third quarter of 2023 and the remainder in 2024. The clean tax rate for the full year is expected to be in the mid-40s. Thank you for your attention. Reinhard and I will now be happy to take your questions.