Neste Oil Corporation
Stock Exchange Release
1 August 2013 at 9 a.m. (EET)
Neste Oil's Interim Report for January-June 2013
Good performance continued at Renewable Fuels. Stronger full-year guidance for the Group as a whole.
Second quarter in brief:
· Comparable operating profit was EUR 88 million (Q2/2012: EUR 40 million)
· IFRS operating profit was EUR 112 million (Q2/2012: EUR -115 million)
· Total refining margin was USD 8.82/bbl (Q2/2012: USD 8.35/bbl)
· Net cash from operations was EUR 312 million (Q2/2012: EUR 201 million)
January-June in brief:
· Comparable operating profit was EUR 223 million (1-6/2012: EUR 119 million)
· IFRS operating profit was EUR 198 million (1-6/2012: EUR 76 million)
· Investments totaled EUR 100 million (1-6/2012: EUR 160 million)
· Leverage ratio was 41.3% at the end of June (Dec 31, 2012: 43.2%)
President & CEO Matti Lievonen:
"We recorded a solid result during the second quarter. The Group's comparable operating profit was EUR 88 million, largely thanks to good performance at Renewable Fuels. Our leverage ratio also improved as a result of strong cash flow from operations.
The reference refining margin was lower than in the corresponding period last year. In addition to the planned maintenance of production line 4 at the Porvoo refinery, the second-quarter result of our Oil Products segment was impacted by outages in gasoline production and a weak base oils result. The next planned decoking shutdown of production line 4 is scheduled for spring 2014. The segment's second-quarter comparable operating profit was EUR 30 million compared to EUR 49 million last year.
Renewable Fuels continued to make very good progress and recorded a comparable operating profit of EUR 33 million. The market fundamentals remained favorable and we continued to make good progress on our entry into the North American market. Also our efforts to extend feedstock range and flexibility were successful. Overall, we are positive about the Renewable Fuels business going forward.
Oil Retail continued to deliver consistent results and recorded a better comparable operating profit compared to last year.
Despite ongoing economic uncertainties that continue to be reflected in the oil and renewable fuel markets, we strengthen our guidance for 2013. Assuming that current market conditions continue to prevail, Renewable Fuels' full-year 2013 comparable operating profit is expected to be above EUR 120 million, and the Group's full-year comparable operating profit is expected to improve clearly compared to 2012."
The Group's second-quarter 2013 results
Neste Oil's revenue decreased to EUR 3,970 million in the second quarter from EUR 4,297 million during the same period in 2012, mainly as a result of lower oil prices and slightly reduced sales volumes. The Group's comparable operating profit came in at EUR 88 million. Comparable operating profit for the corresponding period in 2012 was EUR 40 million. Renewable Fuels recorded a significantly improved comparable operating result year-on-year, and Oil Retail's performance also improved. Oil Products' result was negatively impacted by lower margins in both fuels and base oils, and maintenance work at the Porvoo refinery. The Others segment posted a slightly lower result than in the second quarter of 2012.
Oil Products' second-quarter comparable operating profit was EUR 30 million (49 million), Renewable Fuels' EUR 33 million (-33 million), and Oil Retail's EUR 22 million (15 million). The comparable operating profit of the Others segment totaled EUR -1 million (3 million); associated companies and joint ventures accounted for EUR 0 million (5 million) of this figure.
The Group's IFRS operating profit was EUR 112 million (-115 million), which was mainly impacted by inventory losses totaling EUR 26 million (164 million) and net capital gains totaling EUR 43 million (0 million). Net capital gains included EUR 48 million related to the disposal of Neste Polska Sp. z o.o. and a EUR 4 million capital loss related to the disposal of the Swedish liquefied petroleum gas (LPG) business. Pre-tax profit was EUR 96 million (-143 million), profit for the period EUR 90 million (-112 million), and earnings per share EUR 0.35 (-0.44).
The Group's January-June 2013 results
Neste Oil's revenue totaled EUR 8,228 million during the first six months of the year compared to EUR 8,751 million for the same period last year, as a result of lower average oil prices and slightly lower volumes. The Group's six-month comparable operating profit totaled EUR 223 million compared to EUR 119 million in the first half of 2012. The Group's result during the first half of 2013 was positively impacted by improved performance at Renewable Fuels and negatively impacted by refinery maintenance during the second quarter.
Oil Products' six-month comparable operating profit was EUR 141 million (126 million), Renewable Fuels' EUR 59 million (-35 million), and Oil Retail's EUR 33 million (30 million). The comparable operating profit of the Others segment totaled EUR -13 million (-4 million); EUR -6 million (-1 million) was booked in respect of associated companies and joint ventures, which mainly reflects the unsatisfactory performance at Nynas.
The Group's IFRS operating profit was EUR 198 million (76 million), which was impacted by inventory losses totaling EUR 61 million (100 million) and net capital gains totaling EUR 43 million (45 million). The pre-tax profit was EUR 161 million (26 million), profit for the period EUR 137 million (11 million), and earnings per share EUR 0.53 (0.04).
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 June, the rolling twelve-month ROACE was 7.1% (2012 financial year: 5.0%).
Uncertainties in the global economy have been reflected in the oil, renewable fuel, and renewable feedstock markets, and this volatility is expected to continue. Global oil demand is generally forecasted to grow moderately in 2013, but new refining capacity is likely to put pressure on simple refineries. Complex refiners such as Neste Oil are expected to remain most competitive. Diesel is projected to be the strongest part of the barrel going forward, and gasoline margins are expected to develop seasonally. The base oil market is likely to remain under pressure, due to ample supply and sluggish demand in Europe. There are no planned major maintenance shutdowns at Neste Oil's refineries during the second half of 2013.
Renewable diesel demand is expected to be stable during the second half of the year. Vegetable oil price differentials are currently wider than the long-term average, and how they develop will continue to depend on crop outlooks, weather phenomena, and variations in demand for different types of feedstock.
In Renewable Fuels, the focus will continue to be on sales, feedstock, and production optimization. Assuming that current market conditions continue to prevail, the segment's full-year 2013 comparable operating profit is expected to be above EUR 120 million.
The Group's full-year comparable operating profit is expected to improve clearly compared to 2012, assuming that Neste Oil's reference refining margin remains at the average level of approx. USD 5/bbl typical of the last few years and that Renewable Fuels' result develops as expected. The Group's investments are expected to be below EUR 300 million in 2013.
Matti Lievonen, President & CEO, tel. +358 10 458 11
Jyrki Mäki-Kala, CFO, tel. +358 10 458 4098
Investor Relations, tel. +358 10 458 5292
News conference and conference call
A press conference in Finnish on the second-quarter results will be held today, 1 August 2013, at 11:30 a.m. EET at the company's headquarters at Keilaranta 21, Espoo. English versions of the presentation materials will be available at www.nesteoil.com. A conference call in English for investors and analysts will be held on 1 August 2013 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 2310 1621, Europe: +44 (0) 20 3427 1905, US: +1 212 444 0896, using access code 9233297. The conference call can be followed at the company's web site. An instant replay of the call will be available until 9 August 2013 at +358 (0) 9 2310 1650 for Finland at +44 (0) 20 3427 0598 for Europe and +1 347 366 9565 for the US, using access code 9233297#.