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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Welcome to the OMV Group's conference call for the second quarter 2008 results. There will be a presentation of the results, followed by a question and answer session. (OPERATOR INSTRUCTIONS).
You should have received a presentation by e-mail. However, if you do not have a copy of the presentation, the PowerPoint slides can be downloaded at www.omv.com. Additionally, simultaneous to this conference call, a live audio webcast is available on OMV's website.
I would now like to hand the conference over to your speaker today, Wolfgang Ruttenstorfer, Chief Executive Officer. Please go ahead, sir.
WOLFGANG RUTTENSTORFER, CEO, OMV: Thank you, good morning, ladies and gentlemen. I'm very happy to in the position to present to you our half year results, together with David Davies and Gerhard Roiss.
Let me start with a short overview regarding the first half year, which turned out to be quite successful, with a clean EBIT increase to almost EUR1.9 million and a net income after minorities of EUR1.185 million, very important for the contribution of Petrom for that result, with a clean EBIT of EUR635 million.
We had also a quite strong cash flow in the first half of EUR1.9 billion, and this allows us also to finance our quite substantial investments, both on the upstream side, not only in the modernization of Petrom, but also in the development of a couple of oil and gas fields that will come on stream in the second half of this year, and we will come back to that in more detail, but it also allowed us to acquire the service business of Petromservice, which is integrated right now, and to continue our optimization of the refineries.
We think that with those investments and with the ongoing investment program of over the next three years, we are quite well positioned to further strengthen our leading position in Central and Eastern Europe.
Slide number three now shows a very important development of our company, that OMV revoked the declaration of intent to combine OMV and MOL. Many of you will remember that at the end of September, 2007, we have announced that under certain conditions, we would be prepared to pay for the MOL shares HUF32,000, and that we, at the end of January this year, notified the European Commission, notified this merger to the European Commission.
The European Commission has indicated to us recently that it would not accept the commitment that we have so far proposed. What we had this commitment, we offered to combine the refineries of Schwechat in Bratislava to a quite a big sample European refinery cost center, and we also announced that we are prepared to divest a stake in this integrated cost center with, of course, equal covenants for all the shareholders. But this concept, which is quite usual in a couple of refineries in Germany, among which is also Bayernoil where we have participated, but also other refineries like in Karlsruhe and Miro, or for instance in the Czech Republic, the Ceska Rafinerska.
The Commission did not accept this proposal, and wanted more far reaching commitment. We have in the end decided, after careful consideration, that this would not make sense, because it would jeopardize the economic and strategic rationale of the transaction, and that would be then against our interests. Therefore, we have not only decided today to revoke our declaration of intent, but also to restore our merger notification in Brussels.
With that, I would like to hand over to David Davies.
DAVID DAVIES, CFO, OMV: Thank you all kindly. Good morning also from my side.
Turning to slide five, just a summary of the quarter just ended. Our clean EBIT for the quarter at EUR1.83 billion was 86% up on the previous quarter last year.
We had very strong E&P results, clearly with the driving factor there being oil prices, and our refining and marketing business had strong marketing volumes, which contributed also to a positive result from the marketing business, and the refining also pulled in a positive result, although very largely driven by exceptional inventory gains in the second quarter given the increasing oil price.
The gas and power results were relatively stable, with higher volumes in the western markets being offset by lower volumes in Romania, principally driven by the planned outage of the fertilizer facility at Doljchim.
Clean net income after minority interests were EUR741 million, or 71% up on the same quarter last year. The (inaudible) strong financial results and the tax rate were broadly similar at 25% to that of the previous period.
Our gearing ratio remains well below our long term target of 24%, despite the higher level of investments, and positive from the second quarter was clearly the announcement of the award of the new exploration licenses in Tunisia and Norway.
Going to the next slide, our results in the quarter were strong. We had an EBIT, as already mentioned, in the quarter of EUR951 million, for the first half EUR1.746 billion. The financial result for the quarter was EUR93 million, lower than the same quarter last year, slight [decline] from EUR96 million in '07 down to EUR93 million. The principal reason for this, of course, is the big two positions that are reflected here, are the contributions from Borealis and Petrol Ofisi, and they were down somewhat on last year. We also had an increase in the interest expense, on this line after the strong investments over the last 12 months, although this was largely compensated by the structural increase dividend we received from MOL of EUR78 million, which is also reflected in this line.
Taxes of EUR262 million represent an effective charge for the quarter of 25% for Q2 '08, 26% year-to-date. This is now going to increase somewhat in the second half following the renegotiation of Libyan contracts, and for the second half year with the assumption that those contracts will be effective from the August 1 will be that our effective tax rate for the year is now going to be around 30%, rather than the 25%, 26% that we have had for the last few years.
Net income after tax, EUR782 million, minorities EUR98 million. This is principally, of course, the 49% stake in Petrom which we do not own; higher than in the same period last year as a consequence of the much better result from Petrom.
EPS after minorities EUR2.29 per share. Clean EPS at the bottom of the slide there was EUR2.48, which compares to EUR1.46 last time, 70% higher.
On the next slide is the operating cash flow. You can see in the bottom looking at quarter two '08, our free cash flow was EUR404 million for the quarter, free cash flow after dividends, EUR143 million. This reflects the EUR547 million dividend payment that the Group made to the OMV shareholders, but also the 49% shareholders in Petrom. So a very substantial dividend outflow in the quarter, but only a marginal increase in net debt given the very strong cash flow from operating activities of just under EUR1.1 billion.
Cash flow used in investment activities is EUR681 million, year-to-date, EUR1.258 billion. It isn't quite the same as capital expenditures because you always get some time movement between booking the CapEx and the cash flow implications, but I'll come on and show you exactly what the CapEx was in the quarter in a moment.
Gearing ratio clearly has been stable the last three quarters and, in fact, the increase going back last year is directly on the -- related to the acquisition of the 20% stake in MOL, but you can see that since the end of last year, our gearing ratio has been around the 24% mark.
Coming to CapEx on the next slide, you can see in total our CapEx was more than that shown on the cash flow statement for the reasons I mentioned earlier. CapEx in total is EUR1.6 billion, consistent with our long term expectation of EUR3 billion per year for the next three years. This year will be higher however because, of course, we have the contract payment relating to the Libyan settlement also to reflect in the second half, and that was not included in our previous guidance. And likewise any acquisitions that may be executed in the second half, there are several of them not included in that amount.
Where we've been predominantly spending has been in E&P where our CapEx was EUR1.1 billion in the first half of the year. Our biggest investment area remains Petrom; almost EUR700 million invested there approximately half of which relates to the acquisition of Petromservices which we've talked about previously. The balance is clearly the continuing modernization and development, in fact, in -- of new activities in new fields in Romania. Second biggest area is in OMV Libya. That's the signature bonus for Nafoora Augila, which was approximately EUR160 million, and the next biggest area is the continuing developments of the Strasshof gas field in Austria, which cost just over EUR100 million.
In refining and marketing, the spend of EUR322 million covers a number of areas. Clearly Petrom remains a very substantial area for continued investment, but we also have something like EUR132 million closed in the first half for the expansion and installation of a thermal gas...
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