Neste Oil's Interim Report for January-September 2012
Neste Oil Corporation
Stock Exchange Release
25 October 2012 at 9.00 a.m (EET)
Neste Oil's Interim Report for January-September 2012
- Third-quarter comparable operating profit was EUR 156 million (Q3/2011: EUR 68 million), driven by strong refining margins and improved performance at Renewable Fuels
- Quarterly result was the strongest since Q3 2008
Third quarter in brief:
· Comparable operating profit was EUR 156 million (Q3/2011: EUR 68 million)
· IFRS operating profit was EUR 193 million (Q3/2011: EUR 15 million)
· Total refining margin was USD 12.23/bbl (Q3/2011: USD 9.33/bbl)
· Net cash from operations was EUR 293 million (Q3/2011: EUR -129 million)
· Investments totaled EUR 51 million (Q3/2011: EUR 67 million)
· Leverage ratio was 46.6% (Q3/2011: 49.0%)
President & CEO Matti Lievonen:
"Oil Products had a solid third quarter, thanks to high refining margins, which continued to be very strong and were particularly high in September. This was mainly driven by high diesel and gasoline margins resulting from low inventories and refinery outages in Europe and North America. Our refineries also operated smoothly. Overall, we are pleased with Oil Products' third-quarter comparable operating profit of EUR 154 million.
Renewable Fuels' performance improved by EUR 38 million from the corresponding period last year, but the business still recorded a loss due to low margins, particularly during the first part of the quarter. This resulted in a comparable operating loss of EUR 19 million for the business. The price spread between different vegetable oils and biodiesel producers' margins improved towards the end of the quarter.
Cash flow was strong in the third quarter and improved our leverage. Uncertainties in the global economy have been reflected in the oil market and will continue to pose a risk for our business. However, we expect the Group's full-year comparable operating profit to improve significantly compared to 2011. During the remainder of 2012, we will continue to focus on cash flow, refinery productivity, and profitability at Renewable Fuels."
The Group's third-quarter 2012 results
Neste Oil's revenue increased to EUR 4,505 million in the third quarter from EUR 4,105 million during the same period in 2011. This increase resulted mainly from the growth of the Renewable Fuels business and higher product prices. The Group's comparable operating profit came in at EUR 156 million. Comparable operating profit for the corresponding period in 2011 was EUR 68 million. Oil Products' result was positively impacted by strong refining margins. Renewable Fuels recorded a lower comparable operating loss year-on-year, and Oil Retail's performance was similar to that seen in the corresponding period last year. The Others segment posted a lower result than in the third quarter of 2011.
Oil Products' third-quarter comparable operating profit was EUR 154 million (86 million), Renewable Fuels' EUR -19 million (-57 million), and Oil Retail's EUR 23 million (23 million). The comparable operating profit of the Others segment totaled EUR 0 million (15 million); associated companies and joint ventures accounted for EUR 3 million (16 million) of this figure, which mainly reflects unsatisfactory performance at Nynas.
The Group's IFRS operating profit was EUR 193 million (15 million), which was impacted by inventory gains totaling EUR 87 million (losses of 48 million) and changes in the fair value of open oil derivatives totaling EUR -50 million (-5 million). Pre-tax profit was EUR 170 million (-3 million), profit for the period EUR 130 million (0 million), and earnings per share EUR 0.51 (0.00).
The Group's January-September 2012 results
Neste Oil's revenue totaled EUR 13,256 million during the first nine months of the year, compared to EUR 11,251 million for the same period in 2011, as a result of higher sales prices and higher volumes. The Group's nine-month comparable operating profit totaled EUR 270 million, compared to EUR 158 million in the first nine months of 2011. The Group's result during the first nine months of 2012 was positively impacted mainly by improved performance at Renewable Fuels and Oil Products, and negatively impacted by planned and unplanned refinery maintenance during the second quarter.
Oil Products' nine-month comparable operating profit was EUR 280 million (244 million), Renewable Fuels' EUR -54 million (-148 million), and Oil Retail's EUR 53 million (48 million). The comparable operating profit of the Others segment totaled EUR -9 million (7 million). A profit of EUR 2 million (19 million) was booked in the Others segment in respect of associated companies and joint ventures.
The Group's IFRS operating profit was EUR 264 million (295 million) and was impacted by inventory losses totaling EUR 13 million (gains of 141 million). The pre-tax profit was EUR 192 million (255 million), profit for the period EUR 138 million (182 million), and earnings per share EUR 0.53 (0.71).
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 4.4% (2011 financial year: 2.6%).
The market expects that margins for advanced refiners, such as Neste Oil, will be higher during the fourth quarter of 2012 compared to last year. Diesel is projected to be the strongest part of the barrel going forward, and gasoline margins are expected to remain higher than in 2011. Approximately 30% of Oil Products' volume in 2012 is hedged at a USD 4.7/bbl reference margin level, assuming an Urals-Brent differential of USD -1.0/bbl.
Oil Products' full-year comparable operating profit is expected to improve significantly compared to 2011, assuming good productivity during the remaining part of the year.
Renewable Fuels' comparable operating profit during the fourth quarter is expected to improve compared to the third quarter. We expect the fourth quarter result to be close to breakeven. Approx. 60% of the fourth quarter margins were hedged during the summer, which limits our short-term capability to capture the full value of palm oil price decline. The result is sensitive to market development, which has been very volatile in 2012.
Oil Retail's full-year comparable operating profit is expected to improve from that seen in 2011.
The Group's fixed costs are expected to be approx. EUR 650 million during 2012. Investments have been reduced and are expected to total approx. EUR 300 million in 2012.
Our full-year guidance is unchanged: Neste Oil expects the Group's full-year comparable operating profit to improve significantly compared to 2011.
Matti Lievonen, President & CEO, tel. +358 10 458 11
Matti Piri, Acting CFO, tel. +358 10 458 4960
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 2012, at 11:30 a.m. EET at the company's headquarters at 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 25 October 2012 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 1543, Europe: +44 (0) 20 7136 6283, US: +1 646 254 3388, using access code 4981490. The conference call can be followed at the company's web site. An instant replay of the call will be available until 1 November 2012 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 4981490#.