Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OMV AG (OMVJF, Financial) reported a 4% increase in clean CCS operating results to EUR1.23 billion compared to the prior year quarter.
- Cash flow from operating activities increased by almost EUR1 billion compared to the second quarter of 2023.
- Polyolefin sales volumes rose by 13% year over year, driven by improved demand, market share gains, and higher volumes at Borouge and Baystar.
- OMV AG (OMVJF) completed the construction of its flagship ReOil recycling plant, with a capacity of 16,000 tons per year.
- The company announced a collaboration with Clariant to explore the supply of sustainable ethylene and develop new strategies to meet sustainability targets in the ethylene supply chain.
Negative Points
- The European refining indicator margin declined to $7 per barrel, approximately 35% lower than the previous quarter.
- Oil and gas production was 4% lower year over year, mainly due to reduced volumes in New Zealand, Norway, and Romania.
- The performance of the energy segment declined by around EUR80 million due to a lower result in gas marketing and power.
- The clean CCS tax rate remained high at 46%, impacting overall profitability.
- The contribution from ADNOC Refining and Trading decreased significantly by EUR72 million, impacted by weaker refining margins.
Q & A Highlights
Highlights from OMV AG (OMVJF) Q2 2024 Earnings Call
Q: Can you walk us through the outlook for gas trading in the second half of this year, considering the legislative changes in Romania and transport provisions?
A: (Alfred Stern, CEO) The legislative change in Romania has impacted our ability to recover CO2 costs, affecting our gas marketing and power results. We expect similar levels in Q3 and Q4 as in Q2. Transport provisions are marked-to-market and should recover, contributing positively to our results. (Reinhard Florey, CFO) The temporary regulation in Romania will last until the end of 2024, and we expect the levels to normalize thereafter.
Q: Regarding M&A, are you looking at opportunities in chemicals in Asia and North America?
A: (Alfred Stern, CEO) We are exploring geographic expansion in chemicals, including a feasibility study for a polyolefin complex in China. We are also open to M&A to accelerate our transformation and meet profitability criteria. Recent acquisitions in Romania and other renewable energy projects are part of this strategy.
Q: Could you provide more details on the recent upgrade of polyolefin margins and the outlook for Baystar?
A: (Alfred Stern, CEO) The upgrade is due to improved demand, market share gains, and limited supply chain capabilities. We expect polyethylene margins to be above EUR400 per ton and polypropylene around EUR400 per ton. Baystar's cracker is running at high utilization, and the new polyethylene plant is ramping up, with meaningful contributions expected in 2025. (Reinhard Florey, CFO) Dividends from Baystar are expected later, as initial profits will be used to deleverage the company.
Q: What is your perspective on refining margins and the outlook for the fuels and feedstock business?
A: (Alfred Stern, CEO) Refining margins have been volatile, with significant fluctuations in Q2. We maintain our full-year guidance of around $8 per barrel. The retail and commercial business, which includes non-fuel sales and EV charging, continues to perform strongly and is expected to contribute significantly in the second half of the year.
Q: Can you elaborate on your strategy for feedstock sourcing for renewable diesel and SAF?
A: (Alfred Stern, CEO) We have secured over 80% of the feedstock for our Petrobrazi plant through long-term contracts, JVs, and acquisitions. We have also established a trading desk in Asia to ensure competitive sourcing globally. This strategy is crucial as we anticipate a tight market for feedstocks post-2027.
Q: How do you see the impact of the temporary legislation in Romania on your gas marketing and power business?
A: (Reinhard Florey, CFO) The temporary legislation will last until the end of 2024, impacting our ability to recover CO2 costs. This has reduced our Gas East business contribution to a double-digit million figure. We expect the situation to normalize after the legislation expires.
Q: What are your expectations for working capital movements in the second half of 2024?
A: (Reinhard Florey, CFO) We expect a neutral to slightly positive net working capital effect in the second half. Q3 will see increased working capital due to gas storage, while Q4 will benefit from gas extraction. Inventory levels are expected to decrease, contributing positively.
Q: Can you provide more details on the materiality of your recycling and circular economy initiatives in chemicals?
A: (Alfred Stern, CEO) We aim to have 1.4 million tons of circular chemicals by 2030, including mechanical recycling, chemical recycling with our ReOil technology, and bio-based chemicals. We expect double-digit IRRs from these investments, aligning with our overall profitability targets.
Q: How do you plan to manage the potential impact of lower refining margins on your overall business performance?
A: (Alfred Stern, CEO) We have diversified our fuels and feedstock business, with strong contributions from retail and commercial segments. The co-processing unit in Schwechat is now fully operational, and we expect high utilization rates across our network. We maintain our full-year guidance of around $8 per barrel for refining margins.
Q: What is your outlook for shareholder distributions given the strong cash flow performance in H1 2024?
A: (Reinhard Florey, CFO) We prioritize shareholder returns and aim to deliver attractive distributions. While we do not provide specific guidance, our strong cash flow performance and positive outlook for H2 support our commitment to rewarding shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
