Omv Ag

Welcome to the OMV Q3 2023 results conference call. If you would like to ask a question after the presentation, you may register your request by pressing the star 1 button on your telephone at any time during the actual presentation or during the question and answer session itself. You should have received a 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. Simultaneously to this conference call, a live audio webcast is available on 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 the future and are 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 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 would now like to hand the conference over to Mr. Florian Greger, Senior VP, Investor Relations and Sustainability. Please go ahead, Mr. Greger.

Yeah, thank you. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the third quarter 2023. With me on the call are our CEO, Alfred Stern, and Reinhard Flohrei, OMV's Chief Financial Officer. Alfred Stern will walk you through the highlights of the quarter and will discuss OMV's financial performance. And after that, 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 third quarter of 2023 was characterized by supply concerns in a tight oil market, strong refining margins and lower gas prices. The chemical market remained challenging due to only a muted economic recovery and high inflation. Brent crude oil prices increased by 11% compared to the previous quarter, but were 14% below the average level of the same quarter in 2022. Prices were supported by an improvement in seasonal demand and the supply reduction of close to 1 million barrels per day imposed by OPEX+. European gas prices dropped by 9% compared to the prior quarter and 83% versus the third quarter of 2022. The main reason for this was the high filling level of storage facilities across Europe, which impacted market sentiment. Supply concerns fueled by the strikes at Australian LNG export terminals provided some support. Refining indicator margins in Europe rebounded and almost doubled compared to the prior quarter. This was primarily attributable to solid demand during the driving and holiday season, a series of refinery outages in the Atlantic basin, as well as reductions in refinery runs caused by the heat. Gasoline, middle distillates, and fuel oil were very strong while NAFTA remained weak. In chemicals, end-market demand remained lackluster. Olefin indicator margins further declined due to subdued demand and economic activity. Polyolefin indicator margins declined as well, albeit to a lesser degree than olefins, impacted by the cost-of-living crisis and significant destocking. Despite supply being more balanced with demand due to reduced operating rates in Europe, the structural oversupply remained. This was more pronounced for polypropylene as a result of weak demand for durables. While low domestic prices discouraged imports into Europe, Chinese prices showed some signs of recovery, supported by higher NAFTA prices, while weak demand and overcapacity At 1.3 billion euros, the clean CCS operating result was 13% higher than in the second quarter, but dropped significantly from the exceptionally high level of the prior year quarter. Cashflow from operating activities amounted to 1.7 billion euros in the quarter, impacted by decreasing commodity prices. Looking at operations, polyolefin sales volumes were 11% higher year-on-year, while fuel sales volumes rose by 16%. 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 Schwechat and Porvo. Oil and gas production was slightly lower year on year, primarily due to lower production in Norway and Romania. We continue to further diversify our gas supply sources. We signed a five-year agreement with Equinor starting October this year to receive an annual volume of 12 terawatt hours. The new agreement builds on the long-standing relationship between the two companies and adds to the volumes under existing contracts. In October, we signed an agreement for the worldwide commercial licensing of our proprietary re-oil technology with Wood, a global leader in consulting and engineering solutions in the energy and materials markets. have established a joint delivery team to support clients through the whole process of adopting and successfully implementing the technology at their sites. In addition, Wood will work with ReOil licensees to provide full asset lifecycle support globally. ReOil is our patented chemical recycling technology that converts end-of-life plastic waste into pyrolysis oil, which can serve as feedstock for new high-performance plastics. At our integrated refinery and chemical site in Schwechat, we are currently in the process of finalizing the construction of a 16,000-stone re-oil plant. This morning, we announced that we have joined forces with InterSero to build an innovative sorting plant with an annual processing capacity of up to 260,000 tons in Walburgen, Germany. InterSero, formerly called Alba Recycling, is one of the largest sorters of light packaging waste in Germany. OMV will invest more than 170 million euros and will hold a share of around 90% in the newly formed joint venture. This sorting plant will be the first of its kind on a large industrial scale and will produce sustainable feedstock for our chemical recycling plants. The new plant will use mixed plastic waste. that has previously not been recyclable, especially from the yellow bag and yellow bin waste collection in Germany. Startup is expected in mid-2026. At the beginning of October, we announced the startup of the third polyethylene plant at our BayStar joint venture in the US. The new polyethylene unit has a capacity of 625,000 tons per year, more than doubling the total capacity. With the completion of this project, BayStar now runs an integrated ethane to polyethylene complex in Texas with a capacity of 1 million tons per year. The complex comprises a world-scale ethane cracker at the Total Energies platform in Port Arthur and three polyethylene production units at Baystar's site in Pasadena. The new PE unit, referred to as Bay3, features the latest third-generation proprietary BoarStar technology, which has been licensed for the first time in North America. The BORSTAR technology delivers advanced value-added polymers with enhanced sustainability by enabling, lightweighting, and the incorporation of larger amounts of post-consumer recycled materials in end products, serving the energy, infrastructure, and consumer products industries. Expanding and steepening our footprint in North America enables us to better serve customers by offering improved access to BoarStar-based products produced locally. The new integrated complex is very competitive as it is positioned in the top quartile on the U.S. cost curve and has well-established logistics infrastructure around Houston. As usual in the process of starting up such a large industrial complex, the focus in the beginning is to ramp up the utilization rate. We will then optimize the product portfolio by gradually increasing direct domestic sales and the share of specialties. Let's now turn to the financial performance in the third quarter of 2023. Our clean CCS operating results improved by 13% to 1.3 billion euros compared to the second quarter of this year. However, compared to the very strong prior year quarter, the results decreased, primarily due to the substantially lower price environment. The performance of energy dropped sharply by around 2.1 billion euros. Chemicals and materials declined by around 200 million euros. while fuels and feedstock increased. The CleanCCS tax rate decreased from 54% to 47% due to a significantly lower contribution from countries with high tax regimes to the total group profits compared with the same quarter of the previous year. The CleanCCS net income attributable to stockholders declined to 431 million euros. Clean CCS earnings per share amounted to 1 euro and 32 cents. Let me now come to the performance of our business segments. Compared to the third quarter of 2022, the clean operating result of chemicals and materials cropped sharply to minus 11 million euros. This was driven by substantially lower margins, the missing contribution from the recently divested nitro business and the materially lower performance of the Porealis JVs. The nitro business had an exceptionally strong contribution of 113 million euros in the prior year quarter due to temporary special market conditions in 2022. In the second quarter of this year, the nitro business was loss making. the ethylene indicator margin declined by 26%, and the propylene indicator margin went down by 43%. In turn, the polyethylene indicator margin remained almost stable, while the polypropylene indicator margin declined by 7%. As a consequence, we recorded a negative market effect of around 150 million euros in our European olefins and polyolefins businesses compared to the third quarter of 2022. Primarily due to higher NAFTA prices, inventory valuation effects were less negative by 125 million euros compared with the prior year quarter and thus largely offset the negative market effects. However, they still negatively impacted earnings in the third quarter of this year. The operational performance of our chemical business declined overall, showing a mixed picture. The contribution of the olefins business increased, while the performance of polyolefins weakened. The olefin contribution was driven by higher sales volumes as a result of a higher cracker utilization rate and a material larger light feedstock advantage at our Nordic crackers. While in the third quarter of this year, we had planned turnarounds at Schwechat and Porwo, the prior year quarter was significantly impacted by the incident at the Schwechat refinery and the maintenance turnaround at Burghausen. In polyolefins, the sales volumes in Europe rose compared to the prior year quarter when they were impacted by the reduced feedstock availability in Schwechat. However, the increase was seen mostly in consumer products where margins are currently weak. In the specialty business, we were able to increase margins, but sales volumes declined. The positive impact of higher sales volumes was more than offset by lower realized margins and higher costs in light of the Schwechert's turnaround and inflationary environment. The performance of the JVs dropped to 44 million euros due to a lower contribution from Boruch and a negative contribution from Paystar. The barouche result declined, driven by significantly weaker margins compared to the third quarter of 2022. However, sales volumes increased by 18% compared with the relatively weak prior year quarter when China was still in lockdown. At Baystar, the utilization rate of the ethane cracker improved, but operational challenges could not be fully resolved. The result continued to be burdened by depreciation and interest expenses amid the weak market environment. The clean CCS operating result in fuels and feedstock increased by 79 to 418 million euros. Thanks to a significant recovery in the operational activity of our refineries, as the prior year quarter was impacted by the reduced utilization rate at the Schwechat Refinery following a technical incident. At $14 per barrel, the refining indicator margin was very strong and reached almost the same level of the excellent prior year quarter. Total sales volume increased by 16%. driven by commercial customers, partially offset by lower retail volumes following the divestment of the Slovenian business in June 2023. The excellent development of our commercial business was driven by higher volumes and margins due to the removal of price caps and better term prices. The retail contribution reduced significantly. primarily due to lower fuel unit margins, which were impacted by the substantial increase in oil prices. In addition, the divestment of the Slovenian network and higher costs due to inflation impacted the result. The contribution from APNOC refining and trading decreased to 73 million euros, driven by lower refining and trading margins. The clean operating result of energy dropped considerably to €942 million from the extraordinarily strong prior year level, primarily due to declining oil and substantially lower gas prices. Diminished sales volumes and a reduced contribution from gas marketing and power also weighed on the result. The Brent price came down by 14% compared to the prior year quarter, while European gas hub prices declined sharply by 83%. OMV's realized oil price decreased slightly more strongly than Brent by around 18%, and the realized gas price declined less than the hub prices by 69%. As a result, we recorded a negative market effect of almost 1.5 billion euros versus the prior year quarter. Compared with the third quarter of 2022, production volumes decreased by 18 to 364,000 euro per day, mainly due to unplanned shutdowns in Norway, natural decline in Romania and Norway, and maintenance work in Malaysia. Production costs increased to $9 per barrel due to lower production volumes and the adverse development of currency exchange rates. Sales volumes decreased by 46,000 barrels per day following the production decline and the lifting schedule in Libya and Norway. The gas marketing and power result amounted to 20 million euros, a decline of 79 million euros. The contribution of gas marketing west improved despite the booking of a provision for impending losses connected to newly secured pipeline capacity to Austria for the next five years of around 80 million euros. The prior year quarter was burdened by curtailments of the natural gas supply from Russia. In Romania, the contribution of the gas and power business declined in the context of significantly lower gas and power market prices and additional regulatory interventions introduced after September 2022. Turning to cash flow, our third quarter operating cash flow, excluding net working capital effects, amounted to around 1.9 billion euros, a decrease of 35% compared with the previous year's quarter, primarily driven by lower commodity prices. This includes dividends from Boruche of around 220 million euros. Net working capital effects, generated a cash outflow of 163 million euros in the quarter, mainly due to increased prices and volumes in fuels and feedstock and partially offset by lower prices in chemicals and materials. As a result, cash flow from operating activities for the third quarter came in at 1.7 billion euros. The organic cash flow from investing activities was around 800 million euros. This included the PDH plant in Belgium, the re-oiled demo plant, the coprocessing unit in Schwechat, and the turnaround in Schwechat and Pueblo. As a result, the organic free cash flow before dividends for the third quarter came in at 880 million euros. The inorganic cash flow from investing activities generated an inflow of around 570 million euros, supported by the cash inflow of 661 million euros related to the divestment of the nitro business. Looking at the nine-month picture, cash flow from operating activities, excluding net working capital effects, amounted to 3.5 billion euros. supported by a sizable cash inflow for the net working capital effects. Cash flow from operating activities in the nine months amounted to 4.6 billion euros, down by 27% compared to the first nine months of 2022. After payment of record dividends of 1.9 billion euros, the organic free cash flow amounted to 200 million euros. Moving on to the balance sheet, we reduced our net debt to 1.7 billion euros, and our leverage ratio at the end of September decreased to 6%. This reduction was supported by the cash inflow of 661 million euros coming from the divestment of the nitro business, which we closed in July. At the end of September 2023, OMV had a cash position of 7.8 billion euros and unchanged 5.2 billion euros in undrawn committed credit facilities. Let me conclude with an updated outlook for this year. As usual, we will present our outlook for next year with our fourth quarter earnings in February. We now expect the Brent oil price in 2023 to average above $80 per barrel on the back of a strong third quarter, continued voluntary OPEC Plus cuts, and heightened geopolitical uncertainty. The average realized gas price forecast remains unchanged at around 30 euros per megawatt hour. In chemicals and materials, we now estimate that the ethylene indicator margin will be slightly below the previous guidance at around 510 euros per ton, while the propylene indicator margin remains unchanged. In polyolefins, we forecast a slightly better polyethylene indicator margin at around 320 euros per ton and an unchanged polypropylene indicator margin. The steam cracker utilization rate is expected to drop slightly to around 80%. As demand remains subdued, we now forecast polyolefin sales volumes of around 3.6 million tons for this year. In fuels and feedstock, we have seen the refining indicator margin averaging at around $12 per barrel in the first nine months. In October, it started to retreat from recent highs. as the driving season came to an end. We are now expecting the refining indicator margin for the full year to be in the range of $10 to $12 per barrel. The utilization rate of our refineries is now anticipated to be around 85% driven by longer than planned turnarounds that are now completed. 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 fourth quarter is expected to be slightly lower than in the third quarter, impacted by planned maintenance activities in Romania. The clean tax rate for the full year is expected to be in the mid-40s. Before we come to your questions, I would like to address the topic of royalties in Romania. Last Friday, an emergency ordinance introducing higher royalty rates for oil and gas was adopted by the government in Romania. According to our preliminary estimates based On our current understanding, these new rates apply prospectively to the future concession agreements. Thus, we expect no impact on short-term. Thank you for your attention, and now Reinhard and I would be happy to take your questions.