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Lack of ambition, few catalysts, what is the story?

  • 14 Mar 16

Further comments after the annual presentation, and the update of our model. The group reported its Q4 15 earnings. Clean net income came in at €187m, down 66% yoy, leading to a clean EBIT of €1.39bn for the full-year 2015, down 38%. Clean net income was €180m, down 48% yoy and at €1.15bn for the full year, up 1% compared to 2014. Impairments were €1.5bn on lower energy price assumptions in the long term, leading to a net loss of €1.02bn in Q4 15. By division 1) In the upstream division, clean EBIT turned to a negative €62m, driven by lower energy prices, but also lower production, down 3% driven by shut-ins in Libya and Yemen. Production was up in Norway (+32%) as the Gulfacks field came fully back on stream following the completion of the planned turnaround and in New Zealand (+19%). Costs were down 27% yoy (opex) mainly due to lower personnel as well as service costs, driven by strict cost management and favourable FX. 2) In the downstream division, clean EBIT increased by 9% to €247m, driven by a strong downstream oil business which partly offset the negative contribution of the downstream gas business. In downstream oil, EBIT rose 54% to €247m, on a higher refining margin as well as strong results from petrochemicals. The OMV refining indicator increased from $5.19/bbl a year ago to $5.9/bbl thanks to lower costs from own crude consumption. The contribution of Borealis (which is accounted for at equity in the financial results) reported a strong contribution also, at €87m in Q4 15 vs. €54m a year ago. Borealis remains a clear winner in the current situation. OMV holds 36% of the group which generated net profit up 73% in 2015 to €988m boosted by better margins and the start-up of its Borouge 3 plant in Abu Dhabi. The fertiliser company nevertheless said than profitability in 2016 will be lower than in 2015. In downstream gas, weak natural gas prices, lower margins and low volumes led to a loss of €40m. Natural gas volumes decreased by 13% yoy, mostly due to lower sales in Romania. Outlook - Capex at €2.4bn. - Further cuts in costs of €100m for 2017 compared to 2015, after €200m in cost savings announced in 2015. - Upstream: Production at 300kbpd (if Libya and Yemen do not progress, which is the base scenario) with the impact of planned works on onshore facilities in H2 in Romania, while Norwegian production is expected to increase to 60kbpd thanks to the ramp-up at Edvard Grieg. - Downstream: capacity utilisation to remain high. The group has started to initiate the sale of OMV Petrol Ofisis. No improvement in the natural gas environment. Cash flow The divestment process of OMV Petrol Ofisi has been initiated which accounts in our view close to €600m. Gearing improved to 28% at year-end thanks to the hybrid notes issued in December 2015 and lower capex. The Executive Board is to propose a reduced dividend of €1.00 per share for the financial year 2015, down 25% compared to 2014. OMV is to further cut its investments by €400m to €2.4bn in 2016, while continuing to cut its costs by another €100m. Upstream opex has already decreased by 20% in USD/boe terms.