26 April 2018 in Releases and news

Neste's Interim Report for January-March 2018

Neste Corporation, Interim Report, 26 April 2018 at 9 am (EET)

Excellent start for the year with all-time high quarterly profit

First quarter in brief:

  • Comparable operating profit totaled EUR 401 million (EUR 204 million)
  • Operating profit totaled EUR 421 million (EUR 271 million)
  • Renewable Products' comparable sales margin, excluding BTC 2017, was USD 525/ton (USD 286/ton)
  • Operating profit contribution of EUR 140 million from the US Blender's Tax Credit for 2017
  • Oil Products' total refining margin was USD 10.16/bbl (USD 11.00/bbl)
  • Cash flow before financing activities was EUR 234 million (EUR -25 million)
  • Return on average capital employed (ROACE) was 20.5% over the last 12 months (2017: 17.5%)
  • Leverage ratio was 3.9% at the end of March (31.12.2017: 8.7%)

President and CEO Matti Lievonen:

“Neste had an excellent start for the year. We posted a comparable operating profit of EUR 401 million, an all-time high quarterly figure. With support from a retroactive application of the US Blender's Tax Credit (BTC) for the full year 2017, the comparable operating profit was almost double compared to the EUR 204 million in the first quarter of 2017. Also without the BTC effect, Renewable Products was able to exceed the previous year's performance as a result of successful sales allocation and feedstock optimization. Oil Products' additional margin and operational performance were strong, but its result was impacted by a seasonally weak refining margin environment. Neste generated a solid cash flow of EUR 234 million, and reached a ROACE of 20.5% and 3.9% leverage ratio.

Renewable Products posted an excellent comparable operating profit of EUR 296 million (EUR 80 million). The result was also supported by the retroactive US Blender's Tax Credit (BTC) decision for the full year 2017, which had a positive impact of EUR 140 million on the comparable operating profit of this quarter. Sales volumes were 550,000 tons, slightly above the corresponding period last year. Renewable diesel demand continued strong, but our production facilities experienced some operational disturbances and reached 89% utilization rate. During the first quarter 76% of sales were allocated to the European markets and 24% to North America. The share of 100% renewable diesel delivered to end-users was 29% of total volumes. Feedstock mix optimization towards lower-quality raw materials continued successfully, and the proportion of waste and residue inputs was 81%. First delivery of renewable propane was made from the Rotterdam refinery, which is the world's first large-scale renewable propane production facility.

Oil Products posted a comparable operating profit of EUR 99 million (EUR 126 million) in the first quarter. As expected, the overall refining market started seasonally weak, and improved towards the end of the quarter. The reference margin averaged USD 4.1/bbl, which was approx. USD 0.8/bbl lower than in the corresponding period last year. Oil Products' additional margin was strong at USD 6.1/bbl, supported by good operational performance with 96% utilization rate, and contribution of the new strategic investments, such as the Porvoo Solvent Deasphalting (SDA) unit.

In Marketing & Services we were able to increase our sales volumes from the first quarter 2017 level. The markets continued to be competitive and unit margins remained similar to the corresponding period last year. The segment generated a comparable operating profit of EUR 13 million (11 million).

Renewable Products' additional margin is expected to be at a strong level in 2018. Sales volumes of the 100% renewable diesel delivered to end-users continue to grow from the levels in 2017 towards our 50% target in 2020. The vegetable oil market is expected to remain volatile, and Neste continues to expand the use of lower-quality waste and residue feedstock. Utilization rates of our renewable diesel facilities are expected to be high, except for the planned maintenance shutdowns.

Oil Products' reference margin has recovered from the low levels in the early 2018, and robust diesel and gasoline demand is expected to continue supporting the reference margin. Global oil product supply and demand are anticipated to be balanced in 2018. We expect high reliability to continue in our refinery operations, noting that several scheduled unit maintenance turnarounds will be implemented during the spring and autumn.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern. Several actions have been initiated to improve financial performance.

As a conclusion, we expect 2018 to be a strong year for Neste."


The Group's first quarter 2018 results

Neste's revenue in the first quarter totaled EUR 3,629 million (3,071 million). The increase resulted from higher sales prices, which had a positive impact of approx. EUR 400 million, and higher sales volumes, which also had approx. EUR 400 million positive impact on the revenue. A weaker USD exchange rate had a negative impact of approx. EUR 200 million on the revenue. The Group’s comparable operating profit was EUR 401 million (204 million). Renewable Products' additional margin was significantly higher than in the first quarter of 2017, and the retroactive Blender's Tax Credit decision for the full year 2017 was accounted for in this quarter and hence supported the result. Oil Products' result was lower than in the first quarter of 2017, mainly due to lower reference margin and a weaker USD exchange rate. Marketing & Services was able to slightly increase its sales volumes while maintaining unit margins, which lead to a higher comparable operating profit compared to the first quarter of 2017. The Others segment's comparable operating profit improved from the corresponding period of 2017.

Renewable Products’ first quarter comparable operating profit was EUR 296 million (80 million), Oil Products’ EUR 99 million (126 million), and Marketing & Services' EUR 13 million (11 million). The comparable operating profit of the Others segment totaled EUR -9 million (-17 million); Nynas accounted for EUR -4 million (-7 million) of this figure.

The Group’s operating profit was EUR 421 million (271 million), which was impacted by inventory gains of EUR 32 million (42 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -12 million (24 million), mainly related to hedging of inventories. Profit before income taxes was EUR 397 million (236 million), and net profit EUR 347 million (201 million). Comparable earnings per share were EUR 1.29 (0.56), and earnings per share EUR 1.36 (0.78).


Outlook

Developments in the global economy have been reflected in the oil, renewable fuel, and renewable feedstock markets; and volatility in these markets is expected to continue. According to current market estimates, the US dollar is expected to stay weak in 2018.

Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Market volatility in feedstock prices is expected to continue, which will have an impact on the Renewable Products segment's profitability.

Renewable Products' additional margin is expected to be at a strong level in 2018. Sales volumes of the 100% renewable diesel delivered to end-users continue to grow from the levels in 2017 towards our 50% target in 2020. The vegetable oil market is expected to remain volatile, and Neste continues to expand the use of lower-quality waste and residue feedstock. Utilization rates of our renewable diesel facilities are expected to be high, except for a planned four-week maintenance shutdown at the Rotterdam refinery in the second quarter and a nine-week major turnaround at the Singapore refinery in the fourth quarter. The Rotterdam maintenance is currently estimated to have a negative impact of approx. EUR 50 million, and the Singapore turnaround an impact of approx. EUR 80 million on the comparable operating profit.

Global oil product demand is expected to remain strong in 2018, driven by a solid macroeconomic growth, and to be reflected in both distillates and gasoline demand. Recent oil demand growth estimates for 2018 have been around 1.7 million bbl/d with distillates leading demand growth. OPEC's decision to continue its production cuts into 2018 is expected to support crude oil price and market structure also in the first half of 2018, but global crude oil inventories could still start increasing again in 2018.

Oil Products' reference margin has recovered from the low levels in the early 2018, and robust diesel and gasoline demand is expected to continue supporting the reference margin. Global oil product supply and demand are anticipated to be balanced in 2018. We expect high reliability to continue in our refinery operations, noting that several scheduled unit maintenance turnarounds will be implemented during the spring and autumn. The scheduled unit maintenances are currently estimated to have a negative impact of approx. EUR 30 million on the comparable operating profit in the second quarter, and approx. EUR 50 million during the second half of 2018.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern. Several actions have been initiated to improve financial performance.

As a conclusion, we expect 2018 to be a strong year for Neste.

Further information:

Matti Lievonen, President and CEO, tel. +358 10 458 11
Jyrki Mäki-Kala, CFO, tel. +358 10 458 4098
Investor Relations, tel. +358 10 458 5292


Conference call

A conference call in English for investors and analysts will be held today, 26 April 2018, at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. The call-in numbers are as follows: Finland: +358 (0)9 7479 0404 rest of Europe: +44 (0)330 336 9411, US: +1 323 794 2093, using access code 1620551. The conference call can be followed at the company's website. An instant replay of the call will be available until 3 May 2018 at +358 (0)9 8171 0562 for Finland, +44 (0)20 7660 0134 for Europe and +1 719 457 0820 for the US, using access code 1620551.