Neste Oil Corporation
23 October 2014 at 9 a.m. (EET)
Neste Oil's Interim Report for January-September 2014
Strong market development in the third quarter. Full-year guidance revised.
Third quarter in brief:
Comparable operating profit totaled EUR 190 million (Q3/2013: EUR 217 million)
Total refining margin was USD 10.94/bbl (Q3/2013: USD 8.61/bbl)
Renewable Products' reference margin was USD 247/ton (Q3/2013: USD 453/ton)
Renewable Products' additional margin was USD 174/ton (Q3/2013: USD 135/ton)
Net cash from operations totaled EUR -144 million (Q3/2013: EUR 3 million)
President & CEO Matti Lievonen:
"While the general outlook for European refining remains challenging, the short-term market situation has clearly improved. Neste Oil has continued to implement internal improvement actions, and most of the targeted result improvements for this year have already materialized. This internal improvement, together with the stronger oil product market, largely compensated for the impact of the unscheduled production outage at the Porvoo refinery. The Group recorded a comparable operating profit of EUR 190 million during the third quarter, compared to EUR 217 million during the corresponding period last year.
Oil Products' reference refining margin increased during the third quarter as a result of a stronger-than-expected gasoline season and the wide price differential between Brent and Russian crude oil. Our reference margin averaged USD 5.8/bbl compared to USD 4.5/bbl in the third quarter of 2013. Oil Products' result was negatively impacted by an extensive production outage at the Porvoo refinery due to a damaged hydrogen unit. Less than half of the expected impact on our result materialized during the third quarter. Our additional margin averaged USD 5.2/bbl. Combined with the stronger reference margin, this enabled Oil Products to record a comparable operating profit of EUR 110 million, compared to EUR 67 million in the third quarter of 2013.
Renewable Products' market situation has improved, but margins remained significantly below the levels seen during the third quarter last year. Sales volumes totaled 516,000 tons, of which 27% were allocated to North America during the third quarter, compared to 52% in the corresponding period in 2013. Decisions on the US biofuel mandate and Blender's Tax Credit for 2014 are still pending. The profitability of the business was positively impacted by the general decline in feedstock prices, and waste and residues accounted for 59% of our total renewable inputs. Renewable diesel production achieved an average capacity utilization of 99%, although the Singapore NEXBTL refinery was shut down for a major turnaround at the end of August. Renewable Products recorded a comparable operating profit of EUR 52 million compared to EUR 120 million in the third quarter of 2013.
Oil Retail continued to perform seasonably well, achieving good margins in most markets. The segment generated a solid comparable operating profit of EUR 26 million, somewhat below the record-high EUR 29 million booked in the third quarter of 2013.
Based on the third quarter performance we have revised our guidance and now expect the Group's full-year comparable operating profit to be above EUR 400 million assuming that Neste Oil's reference refining margin will average at least USD 3.5/bbl during the months of November and December 2014. Previously the full-year comparable operating profit was expected to come in at under EUR 400 million. . Neste Oil will continue to implement a series of performance improvement initiatives related to both variable and fixed costs aimed at improving the Group's comparable operating profit by at least EUR 50 million in 2014, which will contribute to reaching the result level contained in the company's guidance.
After the reporting period on 7 October, we announced that we are planning to make major investments in Finland, integrate the operations of our Finnish refineries, and reduce personnel - reflecting our belief that we need to look at a broad range of solutions for improving our competitiveness and securing the foundation of our future operations and growth."
The Group's third-quarter 2014 results
Neste Oil's revenue in the third quarter totaled EUR 3,982 million (4,630 million). This decrease mainly resulted from lower sales volumes and lower overall market prices in Oil Products and Renewable Products. The Group's comparable operating profit came in at EUR 190 million. Comparable operating profit for the corresponding period in 2013 was EUR 217 million. Oil Products' result was positively impacted by both reference and additional refining margins, which were higher than in the third quarter of 2013; and was negatively impacted by an unscheduled production outage at the Porvoo refinery due to a damaged hydrogen unit. Renewable Products' comparable operating profit was significantly lower than that recorded in the third quarter of 2013, which was supported by very favorable market conditions at the time. Oil Retail's solid performance continued, as it recorded only a slightly lower comparable operating profit than in the corresponding period in 2013, which was record-high. The result of the Others segment improved compared to the third quarter of 2013.
Oil Products' third-quarter comparable operating profit was EUR 110 million (67 million), Renewable Products' EUR 52 million (120 million), and Oil Retail's EUR 26 million (29 million). The comparable operating profit of the Others segment totaled EUR 4 million (0 million).
The Group's IFRS operating profit was EUR 53 million (249 million) and reflected inventory losses mainly related to the decline in oil prices totaling EUR 169 million (gains of 26 million), changes in the fair value of open oil derivatives totaling EUR 38 million (7 million), and non-recurring items totaling EUR -5 million (-1 million) related to Nynas' restructuring charges in the third quarter 2014. Pre-tax profit was EUR 25 million (233 million), profit for the period EUR 13 million (194 million), and earnings per share EUR 0.05 (0.76).
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. Global oil demand is anticipated to continue increasing, but growth estimates have generally been reduced to below 1 million bbl/d for 2014. This demand growth is expected to be exceeded by new refining capacity in Asia and the Middle East. This is expected to lead to continued high middle distillate imports into Europe from the Middle East and the US. Gasoline margins have been reasonably strong, but are expected to follow normal seasonality, which usually leads to lower margins in the winter period.
Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks, but no fundamental changes in the drivers influencing long-term average feedstock price differentials are expected. Feedstock prices have been on a downward trend, but this may have bottomed out for the moment. Vegetable oil price differentials have remained narrower than the historical average.
Uncertainties regarding political decision-making in the US are likely to be reflected in the renewable fuel market. Examples of pending decisions include volume targets for biomass-based diesel and the possible reintroduction of the Blender's Tax Credit (BTC), which both impact the US market. Decisions on these important regulatory issues are expected to be taken during the fourth quarter of 2014. Reintroduction of the BTC would have a positive impact on Neste Oil's result, but is not included in the company's current result guidance.
A major turnaround is currently under way at Neste Oil's NEXBTL refinery in Singapore, which is expected to be completed by the end of October. Repair work on the damaged hydrogen unit at the Porvoo refinery is expected to be completed by the end of October and will be followed by the start-up of the affected refinery units.
Based on the third quarter performance, Neste Oil has revised its guidance and now expects the Group's full-year comparable operating profit to be above EUR 400 million assuming that Neste Oil's reference refining margin will average at least USD 3.5/bbl during the months of November and December 2014. Previously the full-year comparable operating profit was expected to come in at under EUR 400 million. Neste Oil will continue to implement a series of performance improvement initiatives related to both variable and fixed costs aimed at improving the Group's comparable operating profit by at least EUR 50 million in 2014, which will contribute to reaching the result level contained in the company's guidance.
After the reporting period on 7 October, Neste Oil announced that it is planning to make major investments in Finland, integrate the operations of its Finnish refineries, and reduce personnel. The company intends looking at a broad range of solutions for improving its competitiveness and securing the foundation of its future operations and growth.
In 2015, the Group's investments are expected to total approx. EUR 450 million, including some EUR 100 million for a major turnaround at the Porvoo refinery, which is scheduled to start in April 2015 and is expected to last for approx. 8 weeks.
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 third-quarter results will be held today, 23 October 2014, 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 23 October 2014 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 1620, Europe: +44 (0)20 3427 1903, US: +1 646 254 3361, using access code 7563910. The conference call can be followed at the company's web site. An instant replay of the call will be available until 30 October 2014 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 7563910#.
Neste Oil in brief
Neste Oil Corporation is a refining and marketing company concentrating on low-emission, high-quality traffic fuels. The company produces a comprehensive range of major petroleum products and is the world's leading supplier of renewable diesel. Neste Oil had net sales of EUR 17.5 billion in 2013 and employs around 5,000 people, and is listed on NASDAQ OMX Helsinki.
Neste Oil is included in the Dow Jones Sustainability World Index, and has featured in The Global 100 list of the world's most sustainable corporations for many years. CDP Forest has ranked Neste Oil as one of the best performers in the oil & gas sector. Further information: www.nesteoil.com