Neste Oil Corporation
Stock exchange release
25 October 2011 at 9.00 am (EET)
Neste Oil's Interim Report for January-September 2011
- Third-quarter comparable operating profit totaled EUR 66 million (Q3/2010: 57 million)
- Renewable Fuels' sales volumes more than doubled compared to the second quarter
Third quarter in brief:
Comparable operating profit came in at EUR 66 million (Q3/2010: 57 million)
IFRS operating profit was EUR 15 million (Q3/2010: 143 million), due to inventory losses
Total refining margin was USD 9.17/bbl (Q3/2010: 7.48)
Net cash from operations was EUR -129 million (Q3/2010: 5 million)
Investments totaled EUR 67 million (Q3/2010: 190 million), of which EUR 25 million was spent on Renewable Fuels
Leverage ratio was 49.0% (31 Dec 2010: 42.6%)
Sales volumes in Renewable Fuels more than doubled compared to the second quarter
The new renewable diesel plant in Rotterdam commenced production in September
The new jointly-owned base oil plant in Bahrain was started up after the reporting period
President & CEO Matti Lievonen:
"We posted a good result for both Oil Products and Oil Retail in the third quarter, despite uncertainties related to the development of the global economy, which caused volatility in the oil market. This volatility is expected to continue, as solutions for the challenges facing world economies have yet to be found. Looking at the remainder of this year, the diesel market looks set to be seasonally strong, while the gasoline market is likely to be weaker. Our short-term view of the spread between Brent and Urals crude is somewhat softer than earlier this year.
Renewable diesel volumes will continue to grow and we are targeting to increase them again by over 50% in the fourth quarter, as a result of a wider customer base and better availability of certified feedstocks. Higher volumes will also lead to an improvement in Renewable Fuels' fourth-quarter result, although the segment will remain loss-making during the remainder of 2011.
I am very pleased that we have now completed our major capital projects. Now our capital expenditure will be focused on maintenance and productivity initiatives. Our emphasis going forward will be on ramping up sales volumes from our renewable diesel plants and the new Bahrain base oil plant, and on further enhancing operational efficiency at our Porvoo and Naantali refineries."
The Group's third-quarter 2011 results
Neste Oil's revenue increased to EUR 4,105 million in the third quarter compared to EUR 3,065 million for the same period in 2010, as a result of higher oil prices and higher volumes. The Group's comparable operating profit totaled EUR 66 million compared to EUR 57 million in the third quarter of 2010. The increase was mainly attributable to a higher total refining margin and higher sales volumes. Losses at Renewable Fuels had a negative impact.
Oil Products' third-quarter comparable operating result was EUR 84 million (45 million), Renewable Fuels' EUR -57 million (-12 million), and Oil Retail's EUR 23 million (23 million). The comparable operating profit of the Others segment totaled EUR 15 million (2 million). A profit of EUR 16 million (9 million) was booked in the Others segment on the basis of Neste Oil's share of the profit of its affiliate, Nynas AB.
The Group's IFRS operating profit was EUR 15 million (143 million), which was impacted by inventory losses totaling EUR 48 million (gain of 86 million). The pre-tax profit was EUR -3 million (136 million), profit for the period EUR 0 million (110 million), and earnings per share EUR 0.00 (0.42).
The Group's January-September 2011 results
Neste Oil's revenue totaled EUR 11,251 million in the first nine months compared to EUR 8,366 million for the same period in 2010, as a result of higher oil prices and higher volumes. The Group's nine-month comparable operating profit totaled EUR 142 million compared to EUR 150 million in the same period in 2010. In the first nine months of 2011, the result was negatively impacted by a weak result at Renewable Fuels and a planned five-week maintenance turnaround on the Diesel Production Line 4 at Porvoo in the second quarter, which had an impact of EUR 30 million. The nine-month comparable operating profit in 2010 included a positive impact of EUR 47 million resulting from an insurance compensation payment and a negative impact of EUR 65 million from the major maintenance turnaround at the Porvoo refinery.
Oil Products' nine-month comparable operating result was EUR 228 million (100 million), Renewable Fuels' EUR -148 million (-52 million), and Oil Retail's EUR 48 million (42 million). The comparable operating profit of the Others segment totaled EUR 7 million (61 million). A profit of EUR 21 million (22 million) was booked in the Others segment on the basis of Neste Oil's share of the profit of its affiliate, Nynas AB.
The Group's IFRS operating profit was EUR 295 million (177 million), which was impacted by inventory gains totaling EUR 155 million (60 million). The pre-tax profit was EUR 255 million (154 million), profit for the period EUR 182 million (124 million), and earnings per share EUR 0.71 (0.48).
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 September, the rolling twelve-month ROACE was 3.6% (2010 financial year: 4.6%).
The fundamentals of the oil refining market have remained broadly unchanged since the previous outlook was published in July. There are widespread concerns about global economic developments. If the situation escalates, it is likely to impact economic growth and the demand for petroleum products and refining margins.
The diesel market is expected to be supported by seasonally increasing demand during the rest of the year, whereas the gasoline market is likely to stay weaker. The discount of Urals crude to Brent Dated is expected to average around USD 1.00-1.50 /bbl in the fourth quarter, which is less than earlier in 2011. Neste Oil has hedged 25% of its Oil Products volumes for 2012 to a USD 4.8/bbl reference margin level. The estimated discount of Urals to Brent is USD 1.3/bbl in these transactions.
A four-week maintenance outage took place on Production Line 4 at the Porvoo refinery in October. As mentioned in previous outlook statements, Oil Products' full-year 2011 comparable operating profit is expected to be stronger than in 2010.
Sales volumes at Renewable Fuels are expected to increase by over 50% in the fourth quarter compared to the third quarter. This increase, coupled with lower unit costs thanks to higher capacity utilization, will lead to a better result for Renewable Fuels in the fourth quarter compared to the third quarter. The segment is still expected to remain loss-making for the remainder of 2011, however.
Oil Retail's full-year performance is likely to be broadly similar to that seen in 2010.
The Group's fixed costs are estimated to be approximately EUR 650 million in 2011, compared to EUR 575 million in 2010, largely due to higher maintenance and personnel costs at new plants.
The Group's cash investments are expected to be approximately EUR 300 million (892 million) in 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 interim report for January-September 2011 enclosed to this stock exchange release. Neste Oil's interim report 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 5292
News conference and conference call
A press conference in Finnish on the third-quarter results will be held today, 25 October 2011, at 11:30 am 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 the same day at 3:00 pm Finnish / 1:00 pm London / 8:00 am New York. The call-in numbers are as follows: Europe: +44 (0)20 3106 7162, US +1 646 254 3375 (access code: 9884050). The conference call can be followed at http://www.media-server.com/m/p/kvok26w7. An instant replay of the call will be available until 31 October 2011 at +44 (0)20 7111 1244 for Europe and +1 347 366 9565 for the US (access code: 9884050#).