Neste Oil Corporation
Stock Exchange Release
4 February 2011 at 1 pm
Neste Oil's Financial Statements for 2010
- The Group's full-year comparable operating profit improved to EUR 240 million compared to EUR 116 million in 2009, despite a major turnaround at the Porvoo refinery
- The fourth-quarter comparable operating profit was EUR 90 million (Q4/2009: -29 million)
2010 in brief:
Comparable operating profit was EUR 240 million (2009: 116 million)
IFRS operating profit was EUR 323 million (2009: 335 million)
Total refining margin was USD 8.14/bbl (2009: 7.35)
Net cash from operations was EUR 1,105 million (2009: 177 million)
Investments totaled EUR 943 million (2009: 863 million), of which EUR 556 million was spent on the renewable diesel projects in Singapore and Rotterdam
Leverage ratio was 42.6% (2009: 46.3%) at the end of the year
The largest maintenance turnaround in the history of the Porvoo refinery took place in the spring and had a negative impact of EUR 65 million on the comparable operating profit
The new renewable diesel plant in Singapore was completed and started up on budget and on schedule in November
The Board of Directors will propose a dividend of EUR 0.35 per share (2009: 0.25).
Fourth quarter of 2010 in brief:
Comparable operating profit came in at EUR 90 million (Q4/2009: -29 million)
IFRS operating profit was EUR 146 million (Q4/2009: 9 million)
Total refining margin was USD 9.67/bbl (Q4/2009: 5.85)
Sales volumes reached a record high of 4.232 million tons (Q4/2009: 3.559)
Net cash from operations was EUR 483 million (Q4/2009: -225 million)
Refinancing of the company's EUR 1.5 billion credit facility was completed successfully.
President & CEO Matti Lievonen:
"2010 was a clearly better year for us than 2009, thanks to the second-strongest growth in oil demand in 30 years, which drove refining margins higher year-on-year. This was reflected in our comparable operating profit, which more than doubled from the low we reported a year ago. Achievements reached in 2010 were enhancing efficiency and cost control across the entire organization, carrying out the largest maintenance turnaround in our history at the Porvoo refinery, as well as the start-up of the new Singapore renewable diesel plant in November. The next important milestone will be the completion and start-up of our fourth renewable diesel plant in Rotterdam in mid-2011.
The last quarter of 2010 was positive, as we continued to improve our refining margins and operational performance. Our refineries' ability to capitalize on market opportunities was particularly highlighted during the quarter and we sold record volumes of refined products, with winter-grade diesel fuel accounting for a large share of this. All this makes me confident that we are well-placed to benefit from the stronger refining market conditions predicted for 2011."
The Group's full-year results for 2010
Neste Oil's revenue in 2010 totaled EUR 11,892 million (9,636 million). This increase resulted from higher oil prices compared to 2009. The Group's comparable operating profit for the year increased to EUR 240 million from EUR 116 million reported in 2009, and was driven by higher refining margin and an insurance compensation payment of EUR 48 million received in the first quarter. The maintenance turnaround at the Porvoo refinery in April and May had a negative impact of EUR 65 million. Oil Products and Oil Retail recorded a higher comparable operating profit year-on-year, whereas Renewable Fuels posted lower result. The Group's fixed costs declined to EUR 575 million (604 million), excluding EUR 68 million related to the transfer of the Neste Oil Pension Fund to outside management.
Oil Products' full-year comparable operating profit was EUR 208 million (105 million), Renewable Fuels' EUR -65 million (-29 million) and Oil Retail's EUR 60 million (50 million). The comparable operating profit of the Others segment totaled EUR 45 million (-8 million), including an insurance compensation payment received totaling EUR 48 million. Profit from associated companies and joint ventures accounted for EUR 15 million (20 million) of the comparable operating profit booked in the Others segment.
The Group's full-year IFRS operating profit was EUR 323 million (335 million), which was impacted by inventory gains totaling EUR 121 million (261 million). Pre-tax profit was EUR 296 million (296 million), profit for the period EUR 231 million (225 million), and earnings per share EUR 0.89 (0.86).
Given the capital-intensive nature of its business, Neste Oil uses return on average capital employed after tax (ROACE) as its primary financial target. ROACE figures are based on comparable results. As of the end of 2010, the rolling twelve-month ROACE was 4.6% (2009 financial year: 2.5%)
The Group's fourth quarter results in 2010
Neste Oil's revenue during October-December 2010 totaled EUR 3,526 million (2,491 million). The Group's comparable operating profit was EUR 90 million (-29 million). The significant increase year-on-year resulted from stronger refining margins and improved profitability at Oil Retail. The comparable operating profit for the fourth quarter of 2009 included a negative impact of EUR 30 million from non-recurring items.
Oil Products' fourth-quarter comparable operating profit was EUR 108 million (-11 million), Renewable Fuels' EUR -13 million (-10 million), Oil Retail's EUR 18 million (5 million), and Others' EUR -16 million (-11 million). Profits from associated companies and joint ventures totaled EUR -1 million (-1 million).
Neste Oil's IFRS operating profit during October-December was EUR 146 million (9 million). Inventory gains amounted to EUR 61 million, compared to EUR 58 million in the fourth quarter of 2009. An additional negative item of EUR 10 million was booked as part of the transfer of the Neste Oil Pension Fund to outside management. The original transaction took place in April and EUR 58 million was booked to the second-quarter IFRS operating profit. The fourth-quarter pre-tax profit amounted to EUR 142 million (4 million), profit for the period EUR 107 million (1 million), and earnings per share EUR 0.42 (-0.01).
The market environment appears to be strengthening in 2011 compared to 2010, thanks to increasing demand for oil and petroleum products in emerging markets in particular. In addition, less new capacity is expected to come on stream during the year, leading to a somewhat tighter supply and demand balance on the refining market.
The market appears to expect that margins for complex refiners, such as Neste Oil, will increase in 2011, supported by stronger oil demand and a lower level of inventories compared to 2010. Diesel is projected to be the strongest part of the barrel going forward, while gasoline margins are expected to stay roughly at 2010 levels. Weaker heavy fuel oil margins will also benefit complex refiners.
Neste Oil expects to have a good operational year at its Porvoo and Naantali refineries, with higher production volumes.
The ramp-up of the renewable fuels business will continue in 2011. Sales volumes of renewable diesel are expected to increase as volumes from the recently commissioned Singapore plant increase, and the Rotterdam plant is due to come on stream in the second half of the year. The progress of biofuel legislation in Europe and the US will play an important role in sales development. When combining this with continued weak renewable diesel margins, the comparable operating profit of the Renewable Fuels segment is expected to remain negative in 2011. Renewable Fuels' comparable operating loss is expected to be higher in the first quarter of 2011 than in the fourth quarter of 2010.
Increased demand for diesel looks set to continue on the Finnish retail market, whereas gasoline demand will probably continue to decline. The same trend in the case of diesel is likely to be seen in the Baltic countries, where the outlook for gasoline is slightly positive. Demand is anticipated to increase for both products in Northwest Russia.
The Group's fixed costs are estimated to be roughly EUR 650 million in 2011 compared to EUR 575 million in 2010, which is largely due to higher maintenance and personnel costs at the new plants.
The Group's investments are expected to be around EUR 300 million (892 million), of which maintenance investments will account for 176 million (245 million), strategic investments 113 million (633 million), and productivity investments 11 million (14 million).
Dividend distribution proposal
The parent company's distributable equity as of 31 December 2010 amounted to EUR 987 million, and there have been no material changes in the company's financial position since the end of the financial year. The Board of Directors will propose to the Annual General Meeting that Neste Oil Corporation pay a cash dividend of EUR 0.35 per share for 2010, totaling EUR 90 million based on the number of registered shares as of 3 February 2011.
New disclosure procedure
Neste Oil follows the new disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its financial statement bulletin enclosed to this stock exchange release. Neste Oil's Financial Statements bulletin is available in its entirety on the company's web site at www.nesteoil.com Neste Oil will follow this procedure in disclosing Interim Reports and Financial Statements in future.
Matti Lievonen, President & CEO, tel. +358 10 458 11
Ilkka Salonen, CFO, tel. +358 10 458 4490
Investor Relations, tel. +358 10 458 5132
News conference and conference call
A press conference in Finnish on the full-year and fourth-quarter results will be held today, 4 February 2011, at 2:00 p.m. EET at the company's headquarters, Keilaranta 21, Espoo. www.nesteoil.com will feature English versions of the presentation materials. A conference call in English for investors and analysts will be held on 4 February 2011 at 4:00 pm Finnish / 2:00 pm London / 9:00 am New York. The call-in numbers are as follows: Europe: +44 (0)20 3140 8286, US +1 718 354 1152 (confirmation code: 4292240). The conference call can be followed at Neste Oil's website. An instant replay of the call will be available until 11 February 2011 at +44 (0)20 7111 1244 for Europe and +1 347 366 9565 USA for the US (confirmation code: 4292240#).