Neste Corporation, Half-Year Financial Report, 27 July 2021 at 9 a.m. (EET)
Solid performance in Renewable Products – Porvoo refinery major turnaround completed
Second quarter in brief:
- Comparable operating profit totaled EUR 241 million (EUR 255 million)
- Operating profit totaled EUR 463 million (EUR 208 million)
- Renewable Products' comparable sales margin was USD 700/ton (USD 625/ton)
- Oil Products sales volumes were over 60% lower than in the second quarter of 2020 due to Porvoo refinery maintenance
- Cash flow before financing activities was EUR 261 million (EUR -246 million)
January-June in brief:
- Comparable operating profit totaled EUR 542 million (EUR 663 million)
- Operating profit totaled EUR 920 million (EUR 405 million)
- Cash flow before financing activities was EUR -384 million (EUR -366 million)
- Cash-out investments were EUR 657 million (EUR 555 million)
- Return on average capital employed (ROACE) was 15.6% over the last 12 months (2020: 17.3%)
- Leverage ratio was 7.7% at the end of June (31.12.2020: -4.7%)
- Comparable earnings per share: EUR 0.62 (EUR 0.76)
- Earnings per share: EUR 1.05 (EUR 0.47)
President and CEO Peter Vanacker:
“Neste had a solid performance during the second quarter. We posted a comparable operating profit of EUR 241 million, compared to EUR 255 million in the corresponding period last year, despite the intensive scheduled turnaround in Porvoo. Renewable Products continued to be resilient and was able to maintain a healthy sales margin. Oil Products' second quarter was characterized by the scheduled Porvoo refinery major turnaround, which was safely and successfully implemented in very challenging pandemic conditions. Marketing & Services performed very well with gradually recovering sales volumes. A weaker US dollar had a negative impact of EUR 45 million on the Group’s comparable operating profit year-on-year. Our ROACE over the last 12 months was 15.6%, and we had a leverage ratio of 7.7% at the end of June.
Renewable Products posted a comparable operating profit of EUR 287 million (314 million) in the second quarter. The renewable diesel demand was robust, but the feedstock markets remained very tight as expected. We were able to reach a healthy comparable sales margin of USD 700/ton. Our sales volumes were 732,000 tons, impacted by the scheduled Porvoo units’ maintenance and postponement of some end-June deliveries. The Porvoo maintenance had a negative impact of approximately EUR 40 million on the segment’s comparable operating profit. Feedstock mix optimization continued, and the share of waste and residue inputs increased to 93%.
Oil Products posted a comparable operating profit of EUR -58 million (-60 million) in the second quarter. The reference margin, which reflects the general market conditions, continued to be impacted by the weak oil product market as a result of the COVID-19 pandemic. For Oil Products, the quarter was mainly characterized by the Porvoo refinery major turnaround, which was implemented within the estimated twelve-week schedule. Some 6,000 persons took part in the turnaround works and over 1.5 million working hours were completed. Safeguarding the health and safety of our employees, contractors and other partners was the highest priority, and, for example, about 61,000 COVID-19 tests were taken to prevent spreading of infections. The turnaround is a significant investment to ensure the safety, availability and competitiveness of the refinery. The total investment of the major turnaround was approximately EUR 630 million, of which approximately EUR 300 million will materialize in 2021. The Porvoo turnaround had a negative impact of approximately EUR 100 million on the segment’s comparable operating profit in the second quarter, mainly in the form of lost sales volume and margin.
Marketing & Services generated a comparable operating profit of EUR 18 million (19 million) in the second quarter. Recovering sales volumes and lower fixed costs were offset by normalized unit margins.
Uncertainty on the further development of the COVID-19 pandemic, new variants, and their impact on the global economy continues. We are focusing on the implementation of our growth strategy and continue to make progress in many areas. The Singapore renewables capacity expansion project is proceeding according to the schedule. It should expand our annual renewables production capacity by up to 1.3 million tons during the first quarter of 2023. Our Rotterdam Sustainable Aviation Fuel (SAF) optionality project is also moving ahead, and it is planned to extend our SAF capability by 500,000 tons by the end of 2023. We are now in the definition phase in preparation for a possible next renewable products refinery in Rotterdam, and aim at investment decision readiness late this year or early 2022. Several new partnerships and commercial agreements have been recently announced in both Renewable Aviation and Renewable Polymers and Chemicals businesses. The European Commission recently published its Fit for 55 proposal, which is a roadmap reflecting a higher ambition in climate change mitigation in Europe, and we are pleased to see that SAF mandates are an important part of this package. We see a lot of progress and positive developments in the markets, on which we will give an update in our Capital Markets Day in September."
The Group's second-quarter 2021 results
Neste's revenue in the second quarter totaled EUR 3,022 million (2,572 million). The change in revenue resulted from higher sales prices, which had a positive impact of approx. EUR 3.0 billion, and lower sales volumes mainly due to the Porvoo refinery major turnaround, which had a negative impact of approx. EUR 2.5 billion. Additionally, a weaker US dollar had a negative impact of approx. EUR 100 million on the revenue compared to the same period last year.
The Group’s comparable operating profit was EUR 241 million (255 million). Renewable Products' comparable operating profit was EUR 287 million (314 million), mainly due to the weaker US dollar and lower sales volumes compared to the second quarter of 2020. Oil Products' comparable operating profit was EUR -58 million (-60 million), mainly due to the Porvoo refinery turnaround. Marketing & Services comparable operating profit was EUR 18 million (19 million). The Others segment's comparable operating profit was EUR -7 million (-16 million).
The Group’s operating profit was EUR 463 million (208 million), which was impacted by inventory valuation gains of EUR 207 million (127 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 14 million (-172 million). Profit before income taxes was EUR 465 million (197 million), and net profit EUR 431 million (161 million). Comparable earnings per share were EUR 0.31 (0.26), and earnings per share EUR 0.56 (0.21).
The Group's January–June 2021 results
Neste's revenue in the first six months totaled EUR 6,155 million (5,842 million). The change in revenue resulted from higher sales prices, which had a positive impact of approx. EUR 3.5 billion, and lower sales volumes, which had a negative impact of approx. EUR 2.9 billion. A weaker US dollar had a negative impact of approx. EUR 300 million on the revenue.
The Group’s comparable operating profit was EUR 542 million (663 million). Renewable Products' six-month comparable operating profit was EUR 580 million (644 million), mainly due to the weaker US dollar than in the corresponding period of 2020. Oil Products' comparable operating profit was EUR -66 million (14 million), mainly due the weak refining market and the scheduled Porvoo refinery maintenance. Marketing & Services comparable operating profit was EUR 35 million (27 million), as a result of lower fixed costs and higher unit margins compared to the first half of 2020. The Others segment's comparable operating profit was EUR -8 million (-25 million).
The Group’s operating profit was EUR 920 million (405 million), which was impacted by inventory valuation gains of EUR 382 million (losses of 166 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -6 million (-91 million). Profit before income taxes was EUR 880 million (400 million), and net profit EUR 806 million (362 million). Comparable earnings per share were EUR 0.62 (0.76), and earnings per share EUR 1.05 (0.47).
Visibility in the global economic development still remains low due to the COVID-19 pandemic. As a consequence, we expect volatility in the oil products and renewable feedstock markets to remain high. Based on our current estimates and a currency hedging rate of approximately 80%, Neste's effective EUR/US dollar rate is expected to be within a range of 1.17-1.20 in the third quarter of 2021.
Sales volumes of renewable diesel in the third quarter are expected to be lower than in the previous quarter due to the large scheduled maintenance at the Singapore refinery that includes some tie-in work with the new facility under construction. Waste and residue markets are anticipated to remain tight as their demand continues to be robust. Our third-quarter sales margin is expected to remain healthy, but to be lower than in the second quarter. Utilization rates of our renewables production facilities are forecast to remain high, except for the scheduled seven-week maintenance turnaround at the Singapore refinery, which started in July. We also plan for a four-week catalyst change at the Rotterdam refinery in the fourth quarter of 2021. The Singapore turnaround is currently estimated to have a negative impact of approximately EUR 90 million, and the Rotterdam catalyst change a negative impact of approximately EUR 50 million on the segment’s comparable operating profit.
Oil Products’ third-quarter market demand will continue to be depressed as a result of the COVID-19 pandemic. As the market is seen to be generally over-supplied, the reference margin is expected to remain low and volatile. Approximately EUR 20 million of the negative result impact of the Porvoo refinery major turnaround is expected to materialize in the third quarter.
In Marketing & Services, the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the third quarter. The COVID-19 pandemic is anticipated to have some negative impact on the demand and sales volumes.
Neste estimates the Group’s full-year 2021 cash-out capital expenditure to be approximately EUR 1.2 billion, excluding M&A.
A conference call in English for investors and analysts will be held today, 27 July 2021, 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 2311 3291, rest of Europe: +44 (0) 2071 928338, US: +1 646 7413167, using access code 2157346. The conference call can be followed at the company's website. An instant replay of the call will be available until 3 August 2021 at +44 (0) 333 300 9785 for Europe and +1 866 331 1332 for the US, using access code 2157346.
Peter Vanacker, President and CEO, tel. +358 10 458 11
Jyrki Mäki-Kala, CFO, tel. +358 10 458 4098
Investor Relations, tel. +358 10 458 5292
Neste in brief
Neste (NESTE, Nasdaq Helsinki) creates solutions for combating climate change and accelerating a shift to a circular economy. We refine waste, residues and innovative raw materials into renewable fuels and sustainable feedstock for plastics and other materials. We are the world’s leading producer of renewable diesel and sustainable aviation fuel, developing chemical recycling to combat the plastic waste challenge. We aim at helping customers to reduce greenhouse gas emissions with our renewable and circular solutions by at least 20 million tons annually by 2030. As a technologically advanced refiner of high-quality oil products with a commitment to reach carbon-neutral production by 2035, we are also introducing renewable and recycled raw materials such as waste plastic as refinery raw materials. We have consistently been included in the Dow Jones Sustainability Indices and the Global 100 list of the world’s most sustainable companies. In 2020, Neste's revenue stood at EUR 11.8 billion, with 94% of the company’s comparable operating profit coming from renewable products. Read more: neste.com