Neste Corporation, Half-Year Financial Report, 27 July 2023 at 9 a.m. (EET)
Growth projects ramping up
Second quarter in brief:
- Comparable EBITDA totaled EUR 784 million (EUR 1,085 million)
- EBITDA totaled EUR 523 million (EUR 927 million)
- Renewable Products' comparable sales margin* was USD 800/ton (USD 841/ton)
- Oil Products’ total refining margin was USD 16.7/bbl (USD 30.0/bbl)
- Cash flow before financing activities was EUR -24 million (EUR -8 million)
January-June in brief:
- Comparable EBITDA totaled EUR 1,614 million (EUR 1,663 million)
- EBITDA totaled EUR 986 million (EUR 1,843 million)
- Cash flow before financing activities was EUR -126 million (EUR -968 million)
- Cash-out investments were EUR 945 million (EUR 428 million)
- Comparable return on average capital employed (Comparable ROACE) was 27.4% over the last 12 months (2022: 30.1%)
- Leverage ratio was 24.3% at the end of June (31.12.2022: 13.9%)
- Comparable earnings per share: EUR 1.35 (EUR 1.41)
- Earnings per share: EUR 0.64 (EUR 1.61)
* Calculation formula has been adjusted effective 1 January 2023; and the figures for 2022 restated. Q2/22 comparable sales margin with the previous calculation reached USD 865/ton.
President and CEO Matti Lehmus:
“Neste’s second-quarter comparable EBITDA reached EUR 784 million (EUR 1,085 million). The ramp-up of production from our renewable growth projects has started, and our renewable diesel and sustainable aviation fuel (SAF) sales volumes increased by 17% compared to the same period last year, totaling 946,000 tons (808,000 tons). Supported by effective working capital management, our cash flow before financing activities improved clearly for the first half of the year compared to last year despite our substantial continuing growth investments and the business ramp-up in renewables.
Renewable Products posted a comparable EBITDA of EUR 513 million (EUR 538 million) in the second quarter. Renewable diesel demand stayed robust and average feedstock prices remained relatively stable. Our comparable sales margin for renewable products was USD 800/ton (USD 841/ton), supported by our global feedstock optimization but reflecting costs related to the ramp-up of our Singapore refinery and a higher amount of sales from our Martinez joint operation with a lower sales margin. The ramp-up of production at our Singapore refinery expansion progressed during the second quarter but was slowed down by a need for an operational shutdown for equipment repairs at the new production line in June. Singapore ramp-up will continue during the rest of the year, SAF production in Singapore is now scheduled to start during the third quarter.
Oil Products’ comparable EBITDA was EUR 239 million (EUR 529 million). Our Oil Products’ refining margins decreased compared to the previous quarter as expected, and the total refining margin was USD 16.7/bbl (USD 30.0/bbl), as the market situation started to normalize. The total refining margin was supported particularly by gasoline cracks, while diesel cracks stayed at a lower level.
Marketing & Services’ comparable EBITDA was EUR 29 million (EUR 35 million). There were still some inventory losses impacting the result, but Neste’s overall market share continued to strengthen in Finland. Neste has also started rolling out electric charging at its largest stations. The roll-out will be gradual covering both Finland and the Baltics in the next few years.
Neste outlined its updated strategy at the Capital Markets Day held on June 20 in London. Neste will continue to differentiate itself from competitors with its flexible global operating platform and focus on feedstock growth and expansion in most attractive markets. We remain confident that our flexible business model will continue to deliver a source of sustainable competitive advantage both short term and in the future.
In the second half of 2023, we continue to focus on the ramp-up of our new capacities at Singapore and Martinez and the value creation from our global business platform.
The Group's second-quarter 2023 results
Neste's revenue in the second quarter totaled EUR 5,351 million (7,039 million). The revenue decreased mostly due to lower market and sales prices, which had a negative impact of approx. EUR 2.1 billion. Higher sales volumes had a positive impact of approx. EUR 0.3 billion. Additionally, a weaker US dollar had a negative impact of approx. EUR 0.1 billion on the revenue compared to the same period last year.
The Group’s comparable EBITDA was EUR 784 million (1,085 million). Renewable Products' comparable EBITDA was EUR 513 million (538 million), driven by higher sales volume and higher fixed costs compared to the second quarter of 2022. Oil Products' comparable EBITDA was EUR 239 million (529 million), as refining margins have been normalizing from the high levels in the second quarter of 2022. Marketing & Services comparable EBITDA was EUR 29 million (35 million). The Others segment's comparable EBITDA was EUR 0 million (-10 million).
The Group’s EBITDA was EUR 523 million (927 million), which was impacted by inventory valuation losses of EUR 305 million (gains 153 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 38 (-296 million), mainly related to margin hedging. Profit before income taxes was EUR 295 million (750 million), and net profit EUR 259 million (599 million). Comparable earnings per share were EUR 0.63 (0.96), and earnings per share EUR 0.34 (0.78).
The Group's January–June 2023 results
Neste's revenue in the first six months totaled EUR 10,649 million (12,562 million). The revenue decrease resulted from lower market and sales prices, which had a negative impact of approx. EUR 2.5 billion, and higher sales volumes, which had a positive impact of approx. EUR 0.4 billion. A stronger US dollar had a positive impact of approx. EUR 0.1 billion on the revenue.
The Group’s comparable EBITDA was EUR 1,614 million (1,663 million). Renewable Products' six-month comparable EBITDA was EUR 928 million (957 million), with a higher sales margin offsetting the increased fixed costs. Oil Products' comparable EBITDA was EUR 632 million (667 million). Marketing & Services comparable EBITDA was EUR 52 million (67 million). The Others segment's comparable EBITDA was EUR 1 million (-11 million).
The Group’s EBITDA was EUR 986 million (1,843 million), which was impacted by inventory valuation losses of EUR 579 million (gains 268 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -60 million (-77 million), mainly related to utility price and margin hedging. Profit before income taxes was EUR 571 million (1,485 million), and net profit was EUR 497 million (1,238 million). Comparable earnings per share were EUR 1.35 (1.41), and earnings per share were EUR 0.64 (1.61).
Visibility in the global economy continues to be low due to high inflation, reduced economic growth expectations and continued geopolitical uncertainty. We expect volatility in oil products and renewable feedstock markets to continue.
Renewable Products’ third-quarter renewable diesel and SAF sales volume is expected to be somewhat lower than in the second quarter of 2023. The sales volume is affected by the continued repair works in the new production line in July, after which the ramp-up of the capacity expansion continues. The sales volume impact from the repair works of the new production line in the second and third quarter is estimated to be approximately 230,000 tons for the second half of 2023 versus plan. Neste expects the ramp-up of the production of the Singapore expansion to be completed by the end of the year and Renewable Products’ renewable diesel and SAF sales volumes to grow after the third quarter. The sales volume for the second half of 2023 is also affected by a planned 5-week maintenance shutdown in the Singapore existing production line which is currently estimated to have a negative impact of approximately EUR 85 million on the segment’s comparable EBITDA.
Based on the current outlook, Neste’s third-quarter comparable sales margin is expected to remain very strong and to be in the range of USD 800–900/ton.
The segment’s third-quarter fixed costs are expected to be approximately EUR 15 million higher than in the second quarter, driven by the start-up of production from our growth projects.
Neste has also scheduled a 4-week maintenance shutdown at the Rotterdam refinery in the fourth quarter of 2023 with an estimated negative impact of approximately EUR 65 million on the segment’s comparable EBITDA.
The market in Oil Products is expected to remain volatile. Based on the current forward market, the third-quarter total refining margin is expected to be slightly higher than in the second quarter. The third-quarter sales volumes are expected to remain high, supported by the summer driving season.
In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the third quarter. The slowing economy is expected to have some negative impact on the overall demand.
Based on the current estimates and an FX hedging rate of approx. 88%, Neste's effective EUR/US dollar rate is expected to be within the range of 1.06–1.07 in the third quarter of 2023.
Neste estimates the Group’s full-year 2023 cash-out capital expenditure excluding M&A to be approx. EUR 1.6–1.7 billion.
A conference call in English for investors and analysts will be held on 27 July 2023, at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. In order to receive the participant dial in numbers and a unique personal PIN, participants are requested to register using this link: https://register.vevent.com/register/BI33cb6ab84165484f973c73d22c40487e. The conference call can also be followed as a webcast.
Matti Lehmus, President and CEO, tel. +358 10 458 11
Martti Ala-Härkönen, CFO, tel. +358 40 737 6633
Investor Relations, tel. +358 50 458 8436
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 sustainable aviation fuel and renewable diesel and developing chemical recycling to combat the plastic waste challenge. We aim at helping customers to reduce their greenhouse gas emissions with our renewable and circular solutions by at least 20 million tons annually by 2030. Our ambition is to make the Porvoo oil refinery in Finland the most sustainable refinery in Europe by 2030. We are introducing renewable and recycled raw materials such as liquefied waste plastic as refinery raw materials. We are committed to reaching carbon-neutral production by 2035, and we will reduce the carbon emission intensity of sold products by 50% by 2040. We have also set high standards for biodiversity, human rights and supply chain. We have consistently been included in the Dow Jones Sustainability Indices and the Global 100 list of the world’s most sustainable companies. In 2022, Neste's revenue stood at EUR 25.7 billion. Read more: neste.com