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Acquisition-driven strategy: at what price?

We come back to the annual results and the capital markets day that happened last week. Q4 17 results - Adjusted profit was €367m vs €356m expected by the consensus. - Capital expenditure to be c.€1.9bn in 2018, dividend of €1.5/share, up 25%. - OMV expects lower refining margins than last year and total production of 420kbpd. It expects higher sales volumes in natural gas in 2018 compared with 2017. Strict cost management led to savings of €330m in 2017, €80m more than its target. Upstream The clean operating results increased significantly from €91m in Q4 16 to €344m in Q4 17. This was largely attributed to higher oil prices and to the production ramp-ups in Libya and Russia. Production rose by 20% to 377kbpd, 36kbpd coming from Russia and 29kbpd from Libya. This is the highest production in OMV’s history. The main highlight during the quarter was certainly the acquisition of the 25% stake in the Russian gas field Yuzhno Russkoye. The stake should add 100kbpd to OMV and increase recoverable reserves of 580mboe. Downstream Clean operating results came in at €356m, stable vs. Q4 16, despite the missing contribution from Petrol Ofisi thanks to higher downstream gas. Downstream oil came in at €311m with an increased retail contribution and lower fixed costs which contributed €32m. The refining margin indicator came to $5.7/bbl. The utilisation rate of the refineries was 92%. Cash flow Cash flow from operating activities grew to €742m vs. €611m. This was supported by an improved market environment and net working capital effects. Free cash flow after dividends stood at €1532m compared to €39m a year ago due to the acquisition of an interest in the Yuzhno Russkoye field that led to a net cash outflow of €1.6bn. Capital markets day: 2025 strategy The key elements of the capital markets day were: - the group aims to achieve a clean operating result in excess of €5bn by the year 2025, up 70% vs. 2017. Growth should come equally from Upstream and Downstream and should be achieved both organically and through acquisitions; - for the period 2018 to 2025, OMV plans to make annual investments averaging €2-2.5bn per year in addition to an acquisition budget of €10bn. Investments should be around €10bn to focus more on gas and value-added refined products and to expand its business outside Europe. Half of the acquisition budget will be put side to expand its refining business outside Europe; - OMV will continue to maintain a long-term gearing ratio of below or equal to 30% and aims to increase dividends annually based on free cash flow. Also the goal of the new efficiency programme is to reduce costs by 2020 by a further €100m compared to 2017. 1) Upstream: enhancing portfolio value, doubling reserves, improving performance OMV intends to achieve further increases in the value and size of its portfolio by 2025. Production should grow to 600kbpd by 2025 compared to the current production of 350kbpd. In addition to replacing the quantities produced, the goal here is to achieve a three-year replacement rate of over 100% and aim to double its secure reserves by 2025 to over 2bnboe, whereby natural gas should account for more than half of this total. 2) Downstream: strengthening its competitive position in Europe, internationalising the refining business OMV’s Downstream will strengthen further its competitive position, in line with the waning demand for fuel and growing demand for petrochemicals in Europe. By 2025, a cumulative €1bn will be invested in the Schwechat, Burghausen and Petrobrazi refineries, facilitating the production of more and higher quality petrochemical products and aviation fuels. On natural gas, OMV aims to establish itself as a strong market player from North West to South East Europe: gas sales should grow to more than 20bnm3 by 2025.

  • 20 Mar 18
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