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Results

28 – Risk management

Capital risk

OMV’s financial steering framework is built upon the principles of operational efficiency, capital efficiency, financing efficiency and sustainable portfolio management. With the focus on strengthening OMV’s balance sheet, delivering a positive free cash flow and growing its profitability, the financial steering framework represents sustainable, risk-monitored and future-oriented value creation for OMV and its stakeholders.

OMV manages its capital structure to safeguard its capital base in order to preserve investor, creditor and market confidence, as well as to provide a sustainable financial foundation for the future operational development of the Group. OMV’s financing strategy focuses on cash flow and financial stability. Principal targets are a positive free cash flow after dividends and a strong investment grade credit rating on the basis of a healthy balance sheet and a long-term , excluding leases, of below 30%.

Capital Management – key performance measures

In EUR mn (unless otherwise stated)

 

 

 

2021

2020

Bonds

8,070

8,869

Other interest-bearing debts1

1,765

2,130

Debt excluding leases

9,835

10,999

Cash and cash equivalents2

5,064

2,869

Net Debt excluding leases

4,771

8,130

Equity

21,996

19,899

Gearing Ratio excluding leases in %

22

41

1

Including other interest-bearing debts that were reclassified to liabilities associated with assets held for sale

2

Including cash and cash equivalents that were reclassified to assets held for sale

Liquidity risk

For the purpose of assessing liquidity risk, yearly budgeted operating and financial cash flows of the Group are monitored and analyzed on a monthly basis. Thus, every month the Group generates a forecasted net change in liquidity which is then compared to the total month end balances of money market deposits and loans as well as maturities of the current portfolio and the available liquidity reserves of the same month. This analysis provides the basis for financing decisions and capital commitments.

To ensure that OMV Group remains solvent at all times and retains the necessary financial flexibility, liquidity reserves in the form of committed credit lines and short term uncommitted money market lines are maintained. As of December 31, 2021, the average weighted maturity of the Group’s debt portfolio (excluding lease liabilities) has been 5.1 years (as of December 31, 2020: 5.3 years).

OMV Group’s operational liquidity management is done centrally via a cash pooling system, which enables optimum use of existing cash and liquidity reserves to the benefit of every individual member of cash pooling system and therefore the Group as a whole.

Details of OMV Group’s financial liabilities are shown in Note 24 – Liabilities.

Market risk

Derivative and non-derivative instruments are used to manage market price risks resulting from changes in commodity prices, foreign exchange rates and interest rates, which could have a negative effect on assets, liabilities or expected future cash flows.

Hedges are generally placed in the legal entities where the underlying exposure exists. When certain conditions are met, the Group may elect to apply  9 hedge accounting principles in order to recognize the offsetting effects on profit or loss of changes in the fair value of the hedging instruments at the same time as the hedged items.

Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives are not designated as hedging instruments (i.e. hedge accounting is not applied), they are valued through profit or loss for accounting purposes.

The tables hereafter show the fair values of derivative financial instruments together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of the transactions outstanding at the year-end and are not indicative of either the market risk or the credit risk.

Nominal and fair value of derivative financial instruments

In EUR mn

 

 

 

 

 

 

 

2021

2020

 

Nominal

Fair value assets

Fair value liabilities

Nominal

Fair value assets

Fair value liabilities

Commodity price risk

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil incl. oil products

536

20

(35)

515

30

(71)

Gas

101

1

(57)

31

3

(7)

Power

252

377

(1)

213

24

(14)

Commodity hedges (designated in hedge relationship)1

889

398

(93)

759

57

(93)

 

 

 

 

 

 

 

Oil incl. oil products

5,233

2

(50)

6,305

445

(386)

Gas

32,640

3,586

(3,418)

20,305

1,932

(1,996)

Power

849

260

(492)

209

5

(6)

Other2

285

364

(0)

334

98

(29)

Commodity hedges
(valued at fair value through profit or loss)

39,008

4,213

(3,960)

27,152

2,480

(2,417)

 

 

 

 

 

 

 

Foreign currency risk

 

 

 

 

 

 

 

 

 

 

 

 

 

USD

183

(6)

168

9

(1)

SEK

161

0

(2)

143

6

Foreign currency hedges (designated in hedge relationship)1

344

0

(8)

311

14

(1)

 

 

 

 

 

 

 

USD

1,685

3

(5)

793

17

(1)

NOK

1,163

6

(11)

272

4

(0)

NZD

69

1

(0)

RON

5

0

(0)

SEK

44

(0)

Other

169

0

(1)

108

1

(0)

Foreign currency hedges (valued at fair value through profit or loss)

3,017

9

(17)

1,290

22

(1)

 

 

 

 

 

 

 

Interest rate risk

 

 

 

 

 

 

Interest rate hedges

109

(1)

113

0

(4)

1

Including inefficient part of hedges designated in a hedging relationship

2

Includes derivatives for European Emission Allowance

The Group’s hedging portfolio disclosed in the Consolidated Statement of Changes in Equity relates to the following hedging instruments:

Cash flow hedging – Impact of hedge accounting

In EUR mn

 

 

 

 

 

 

 

 

Forecast purchases

Forecast sales

Foreign currency, firm commitments

Foreign currency, other

Interest rate

Total

thereof cost of hedging reserve

 

Commodity price risk

Foreign currency risk

Interest rate risk

 

 

 

 

 

 

 

 

 

 

 

2021

Cash flow hedge reserve as of January 1 (net of tax)

26

31

8

0

65

Gains/(losses) of the period recognized in OCI

531

(115)

(14)

2

403

Amounts reclassified to the income statement

(237)

65

n.a.

(3)

(176)

n.a.

Amounts reclassified to balance sheet

(5)

0

(5)

Tax effects

(72)

11

4

(0)

(57)

Cash flow hedge reserve as of December 31 (net of tax)

243

(9)

(6)

2

230

 

 

 

 

 

 

 

 

Hedge ineffectiveness recognized in profit or loss

1

(10)

(9)

 

 

 

 

 

 

 

 

 

2020

Cash flow hedge reserve as of January 1 (net of tax)

5

39

44

Gains/(losses) of the period recognized in OCI

(7)

364

(62)

10

0

305

16

Amounts reclassified to the income statement

(6)

(353)

n.a.

(0)

0

(359)

n.a.

Amounts reclassified to the income statement because the hedged future cash flows no longer expected to occur

3

(24)

(21)

n.a.

Amounts transferred to cost of non-financial item

40

62

(0)

102

(16)

Tax effects

(8)

5

(2)

(0)

(6)

Cash flow hedge reserve as of December 31 (net of tax)

26

31

8

0

65

thereof discontinued hedges

57

57

n.a.

 

 

 

 

 

 

 

 

Hedge ineffectiveness recognized in profit or loss

(2)

2

0

Reserve for unrealized exchange gains/losses for net investment hedge1

In EUR mn

 

 

 

Foreign currency risk

 

2021

2020

Reserve as of January 1 (net of tax)

7

Valuation of the USD loans

(16)

10

Tax effects

4

(2)

Reserve as of December 31 (net of tax)

(5)

7

1

Included in currency translation differences within other comprehensive income

At 31 December 2021 and 31 December 2020, the Group held the following cash flow and net investment hedging relationships. The table shows the profile of the timing (maturity) of the nominal amount of the hedging instruments.

Impact of hedge accounting on the statement of financial positions

In EUR mn

 

 

 

 

 

 

 

Forecast purchases

Forecast sales

Net investment hedge

Foreign currency, other

Interest hedges

Total

 

Commodity price risk

Foreign currency risk

Interest rate risk

 

 

 

 

 

 

 

 

 

2021

Nominal Value

713

176

191

344

109

1,533

Below one year

608

176

344

12

1,139

More than one year

106

191

97

394

Fair value – assets

398

 

n.a.

0

398

Fair value – liabilities

93

 

n.a.

8

1

102

 

 

 

 

 

 

 

 

2020

Nominal Value

541

218

176

311

113

1,358

Below one year

415

196

311

921

More than one year

126

22

176

113

437

Fair value – assets

56

 

n.a.

14

0

71

Fair value – liabilities

93

 

n.a.

1

4

98

Above shown Fair value assets and liabilities are presented in Line item Other financial assets and Other financial liabilities in OMV’s Consolidated statement of financial position.

Commodity price risk

European Emission Allowances

All OMV’s business segments are exposed to fluctuation in the price of carbon under the EU Emission Trading Scheme (ETS). European Emission Allowance purchases are always executed in due time and it is OMV’s highest priority to fulfill all legal obligations under the ETS. OMV monitors price risks from emission allowances and manages it using derivative instruments (spots and forwards) traded billaterally on the secondary market (so-called over-the-counter or OTC transactions).

Exploration & Production

In order to protect the Group’s result and cash flow from the potential negative impact of falling oil and gas prices as well as to ensure sufficient liquidity headroom in order to enable the Group’s growth strategy, OMV uses financial derivatives to secure favorable oil and gas prices from time to time. When doing so, OMV enters into derivative positions selling forward parts of its future production, thereby locking in future oil and gas prices and reducing exposure to market prices in the periods for which the hedges are concluded. OMV Group adopts a flexible approach to monetize hedges prior to their maturity with the aim to generate a positive contribution to the results.

In 2021, oil and gas derivative contracts were concluded, resulting in a total negative Operating result impact of EUR (675) (oil: EUR (82) mn, gas: EUR (594) mn).

In 2020, oil and gas derivative contracts were entered into, resulting in a total negative Operating result impact of EUR (37) mn (oil: EUR (30) mn, gas: EUR (7) mn).

For these derivative instruments no hedge accounting was applied.

Refining & Marketing

Commodity price risk management in Refining and Marketing refers to analysis, assessment, reporting and hedging of market price risk exposure arising from non-trading and trading activities, covering refining (refinery margin, inventories up to a defined threshold) as well as oil and gas marketing activities (marketing margin, inventories up to a defined threshold) and producing power (spark spreads) in addition to proprietary trading positions.

Limited proprietary trading activities are performed for the purpose of creating market access within the oil, power and gas markets. In Gas trading, OTC swaps, options, futures and forwards are used to hedge purchase and sales price risks. The aim is to hedge the price risk on inventory fluctuations and the differences in terms and conditions of purchases and sales.

In Refining and Marketing, derivative instruments are used for both hedging selected product sales and reducing exposure to price risks on inventory fluctuations. Crude oil and product swaps are used to hedge the refining margin (crack spread), which is the difference between crude oil prices and bulk product prices.

Furthermore, exchange-traded oil futures as well as OTC contracts (contracts for difference and swaps) are used to hedge short-term purchase and sales market price risks.

Swaps do not involve an investment at the time the contracts are concluded; settlement normally takes place at the end of the quarter or month. The premiums on options are payable when the contract is concluded; where options are exercised, payment of the difference between strike price and average market price for the period takes place at contract expiration.

Chemicals & Materials

For the chemical production, some of the forecasted cracker feedstock purchases and finished product sales are hedged through refined oil products swaps. Cash flow hedge accounting is applied to those derivatives, except for the derivatives that are used to limit the price risk on the inventory held for immediate consumption. Contracts not designated as cash flow hedges are classified as fair value through profit or loss and stated at fair value.

Borealis hedges its forecasted electricity purchases using electricity swaps.

Cash flow hedges in Refining & Marketing and Chemicals & Materials

In the Refining & Marketing and Chemical & Materials Business, OMV is especially exposed to volatile refining margins and inventory risks. In order to mitigate those risks corresponding hedging activities are taken, which include margin hedges, stock hedges, feedstock and commodity hedges. Additionally, cash flow hedge accounting is applied to forecast electricity purchases and forecast natural gas purchases. Also a part of the hedges done for future sales and purchases of the crackers has been designated as cash flow hedge.

The risk management strategy is to harmonize the pricing of product sales and purchases in order to remain within an approved range of priced stocks at all times, by means of undertaking stock hedges so as to mitigate the price exposure. The range is a defined maximum deviation from the target stock level, as defined in the Annual Plan for hedging activities.

Furthermore, in respect of refinery margin hedges, crude oil and products are hedged separately, with the aim to protect future margins. Endorsed mandates are documented and defined within the Annual plan for hedging activities.

In case of refinery margin hedges only the product crack spread is designated as the hedged item, buying Brent Crude Oil on a fixed basis and selling the product on a fixed basis. The crack spread for different products is a separately identifiable component and can therefore represent the specific risk component designated as hedged item. There are limits set for the volume of planned hedged sales to avoid over hedging.

In 2020 the risk management objective for the refinery margin hedges changed and therefore most of the hedging relationships were discontinued.The accumulated gains and losses remained in the cash flow hedging reserve upon realization of the hedged item. In addition hedge accounting related to forecast sales of specific products has been terminated because cash flows have no longer been expected to occur due to the impacts of the COVID-19 pandemic. The accumulated gains and losses were immediately reclassified to profit or loss.

Stock hedges are used to mitigate price exposure whenever actual priced stock levels deviate from target levels. Forecast sales and purchase transactions for crude oil and oil products are designated as the hedged item. Historically, Brent crude oil has formed the largest risk component of the stock price, however in some cases also oil products are used for stock hedges. In such cases, Platts/Argus product price is used as the risk component. Other components like product crack spreads and other local market cost components are not hedged.

The hedging relationships are established with a hedge ratio of 1:1 as the underlying risk of the commodity derivatives are identical to the hedged risk components. Hedge ineffectiveness can arise from timing differential between derivative and hedged item delivery and pricing differentials (derivatives are valued on the future monthly average price (or other periods) and sales/purchases on the pricing at the date of transaction/delivery).

For ‘Forecast purchases’ the hedge ineffectiveness is included in line item ‘Purchases (net of inventory variation)’ in OMV’s Consolidated income statement. The hedge ineffectiveness and recycling of ‘Forecast sales’ for hedges where a risk component of the non-financial item is designated as the hedged item in the hedging relationship is shown in line item in OMV’s Consolidated income statement.

Foreign exchange risk management

OMV operates in many countries and currencies, therefore industry-specific activities and the corresponding foreign exchange rate risks need to be analyzed precisely. The USD represents OMV’s biggest risk exposure, in the form of movement of the USD against the EUR and also against other main OMV Group currencies (RON, RUB, NOK, NZD and SEK). Movements of these currencies against the EUR are also important sources of risk. Other currencies have only a limited impact on cash flow and Operating result. The transaction risk on foreign currency cash flows is monitored on an ongoing basis. The Group’s long and short net position is reviewed at least on a semiannual basis and the sensitivity is calculated. This analysis provides the basis for management of transaction risks on currencies. Since OMV produces commodities that are mainly traded in USD, OMV Group has an economic USD long position.

options, forwards and swaps are mainly used to hedge foreign exchange rate risks on outstanding receivables and payables. The market value of these instruments will move in the opposite direction to the value of the underlying receivable or liability if the relevant foreign exchange rate changes. When certain conditions are met, the Group may elect to apply IFRS 9 hedge accounting principles in order to recognize the offsetting effects on profit or loss of changes in the fair value of the hedging instruments at the same time as and the hedged items. Certain hedges which refer to a forecasted currency position are therefore classified as cash flow hedges and stated at fair value through other comprehensive income.

Translation risk is also monitored on an ongoing basis at Group level, and the risk position is evaluated. Translation risk arises on the consolidation of subsidiaries with functional currencies different from EUR. The largest exposures result from changes in RON, USD, RUB, NOK, and SEK denominated assets against the EUR.

A foreign currency exposure arises from the Group’s long-term net investment in its subsidiaries, associated companies and joint ventures in foreign currencies. Foreign exchange translation differences relating to these net investments are recognized in other comprehensive income. Borealis has hedged part of its investment in an associated company which has USD as its functional currency, by designating certain external loans in USD as hedges of the Group’s investments in its foreign operations. The hedged risk in the net investment hedge is the risk of a weakening USD against the EUR that will result in a reduction in the carrying amount of the Group’s net investment in the associated company in USD. The EUR/USD impact on the measurement of the loan is recognized in other comprehensive income.

To assess hedge effectiveness, the Group determines the economic relationship between the hedging instrument and the hedged item by comparing changes in the carrying amount of the debt that is attributable to a change in the spot rate with changes in the investment in the foreign operation due to movements in the spot rate (the dollar-offset method). The Group’s policy is to hedge the net investment only to the extent of the debt principal.

There is an economic relationship between the hedged item and the hedging instrument as the net investment creates a translation risk that will match the foreign exchange risk on the USD borrowing. The Group has established a hedge ratio of 1:1 as the underlying risk of the hedging instrument is identical to the hedged risk component. Hedge ineffectiveness will arise when the amount of the investment in the foreign associated company becomes lower than the amount of the borrowing.

Interest rate management

To facilitate management of interest rate risk, OMV’s liabilities are analyzed in terms of fixed and floating rate borrowings, currencies and maturities. Appropriate ratios for the various categories are established, and where necessary, derivative instruments are used to hedge fluctuations outside predetermined ranges.

Interest rate swaps can be used to convert fixed rate debt into floating rate debt, and vice versa. In the year 2021 the impact of interest rate swaps has not been material (2020: no material impact).

The hedge ineffectiveness and recycling of Interest rate swaps are both shown in line item ‘interest expenses’ in OMV’s Consolidated income statement.

Interest rate benchmark reform (IBOR Reform)

The Group is continuously evaluating contractual terms in respect of the London Inter-Bank Offered Rate (LIBOR) transition exposures. Where necessary, agreements will be amended to provide for alternative benchmark rates, which shall be in accordance with Loan Market Association (LMA) standard at the time, to apply in relation to the affected currencies.

As per end of December 2021, for the undrawn multicurrency EUR 1 bn Revolving Credit Facility (RCF) a drawdown waiver is in place for currencies where IBOR rates were discontinued as a Screen Rate from December 31, 2021 (CHF,GBP,JPY). The RCF drawdown waiver shall cease to have effect if the Facility is amended to provide for alternative benchmark rates, which shall be in accordance with LMA standard at a time.

In addition, a JPY loan tranche of EUR 38 mn has been successfully transitioned to Tokyo Overnight Average Rate (TONAR).

The Group considers that it is, in principle, exposed to uncertainties resulting from the interest rate benchmark reform in respect of its hedges of (3 month) USD LIBOR interest risks related to the existence of two outstanding USD interest rate swaps, with a nominal amount of EUR 97 mn in total and a cross currency interest rate swap of EUR 38 mn. Their hedging period spans beyond 2021 when uncertainties about the existence of the USD LIBOR rates arise. OMV Group expects that the hedging instrument and the hedged risk of the hedged item will not change as a result of the reform. However, any hedge ineffectiveness would be accounted for in the income statement.

For further information in respect of IBOR reform see see Note 2 – Accounting policies, judgements and estimates.

Impact of Interest Rate Benchmark Reform

In EUR mn

 

 

 

Benchmark

Carrying Value (notional amount for derivatives)

Non-derivative assets

 

 

Loan receivable

USD LIBOR

987

Non-derivative liabilities

 

 

Loan liabilities

USD LIBOR

189

Loan liabilities

JPY LIBOR

38

Derivatives

 

 

Interest rate swap (designated in a hedge relationship)

USD LIBOR

44

Interest rate swap (designated in a hedge relationship)

USD LIBOR

53

Cross currency interest rate swap (valued at fair value through profit or loss)

JPY LIBOR to USD LIBOR

38

Impact of Interest Rate Benchmark Reform

In EUR mn

 

 

Undrawn commitments

 

 

Financing commitments provided

USD LIBOR

251

Committed borrowing facilities – available RCF

Multicurrency

1,000

Sensitivity analysis

For open hedging contracts sensitivity analysis is performed to determine the effect of market price fluctuations (+/–10%) on market value. The sensitivity of OMV Group’s overall earnings differs from the sensitivity shown below, since the contracts concluded are used to hedge operational exposures.

The effect of market price fluctuations on profit or loss or other comprehensive income depends on the type of derivative used and on whether hedge accounting is applied. Market price sensitivity for derivatives to which cash flow hedge accounting is applied is shown in the sensitivity table for other comprehensive income. Sensitivity to market price fluctuations for all other open derivatives is shown in the sensitivity tables for profit before tax.

Sensitivity analysis for open commodity derivatives affecting profit before tax

In EUR mn

 

 

 

 

 

2021

2020

 

Market price +10%

Market price (10)%

Market price +10%

Market price (10)%

Oil incl. oil products

(25)

25

(14)

14

Gas

(2)

2

(7)

5

Power

(43)

43

(20)

20

Other1

65

(65)

23

(23)

Total

(4)

5

(18)

17

1

Includes derivatives for European Emission Allowance

Sensitivity analysis for open commodity derivatives affecting other comprehensive income

In EUR mn

 

 

 

 

 

2021

2020

 

Market price +10%

Market price (10)%

Market price +10%

Market price (10)%

Oil incl. oil products

3

(3)

(32)

32

Gas

3

(3)

(2)

2

Power

57

(57)

24

(24)

Commodity hedges (designated in a hedge relationship)

64

(64)

(10)

10

For financial instruments, sensitivity analysis is performed for changes in foreign exchange rates. On Group level, the EUR-RON sensitivity not only includes the net RON exposure versus the EUR but also the net RON exposure versus the USD, since the USD-RON exposure can be split into a EUR-RON and EUR-USD exposure. The same is true for the EUR-NOK, EUR-SEK and EUR-NZD exposure.

Sensitivity analysis for financial instruments affecting profit before tax1

In EUR mn

 

 

 

 

 

2021

2020

 

10% appreciation of the EUR

10% depreciation of the EUR

10% appreciation of the EUR

10% depreciation of the EUR

EUR-RON

(2)

2

(11)

11

EUR-USD

(114)

114

(27)

27

EUR-NZD

(4)

4

(4)

4

EUR-NOK

23

(23)

(8)

8

EUR-SEK

(6)

6

(0)

0

1

Refers only to financial instruments and is not the same as the Group’s overall foreign exchange rate sensitivity in terms of operating result

Sensitivity analysis for financial instruments affecting other comprehensive income1

In EUR mn

 

 

 

 

 

2021

2020

 

10% appreciation of the EUR

10% depreciation of the EUR

10% appreciation of the EUR

10% depreciation of the EUR

EUR-USD

39

(39)

33

(33)

EUR-SEK

(16)

16

(15)

15

1

Including sensitivity of the net investment hedge

OMV Group holds financial assets whose market value would be affected by changes in interest rates. The effect of an interest rate increase of 0.5 percentage points on the financial assets measured at as of December 31, 2021, would have been a EUR (4) mn reduction in the market value of these financial assets (2020: EUR (9) mn). A 0.5 percentage points fall in the interest rate as of December 31, 2021 would have led to an increase in market value of EUR 4 mn (2020: EUR 9 mn).

OMV regularly analyzes the impact of interest rate changes on interest income and expense from floating rate deposits and borrowings. Currently the effects of changes in interest rates are not considered to be a material risk.

Credit risk management

The main counterparty credit risks are assessed and monitored at Group level and Segment level using predetermined criteria and limits for all counterparties, banks and security providers. On the basis of a risk assessment, counterparties, banks and security providers are assigned a credit limit, an internal risk class and a specific limit validity. The risk assessments are reviewed at least annually or on an ad-hoc basis. The credit risk processes are governed by guidelines at OMV Group level stipulating the group-wide minimum requirements. The main counterparties with contracts involving derivative financial instruments have investment grade credit ratings. OMV uses commercial trade insurance for parts of its receivables in some business areas to mitigate risk. Based on the high economic uncertainty resulting from the COVID-19 pandemic, special attention is paid to early warning signals like changes in payment behavior.

Credit risk is the risk that OMV Group’s counterparties will not meet their obligation under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk arising from credit exposures with customer accounts receivables (see Note 18 – Financial assets), from its operating activities as well as from its financial activities such as financial investments, including deposits with banks and financial institutions (see Note 26 – Statement of cash flows), foreign exchange transactions and other financial instruments (see Note 18 – Financial assets).

gearing ratio
Net debt divided by equity, expressed as a percentage
IFRSs
International Financial Reporting Standards
mn
Million
sales revenues
Sales excluding petroleum excise tax
FX
Foreign exchange
FVTPL
Fair value through the statement of profit or loss