06 February 2019

Neste's Financial Statements Release for 2018

Published in Releases and news

Neste Corporation Financial Statements Release 6 February 2019 at 9 am. (EET)

Very strong year 2018 ‒ Dividend proposed to be increased by 34% to EUR 2.28 per share

Year 2018 in brief:

  • Comparable operating profit totaled EUR 1,422 million (EUR 1,101 million)

  • Operating profit totaled EUR 1,025 million (EUR 1,171 million)

  • Cash flow before financing activities totaled EUR 870 million (EUR 628 million)

  • Return on average capital employed (ROACE) was 21.1% over the last 12 months (17.5%)

  • Leverage ratio was -1.5% at the end of December (31.12.2017: 8.7%)

  • Comparable earnings per share were EUR 4.50 (EUR 3.33)

  • Earnings per share: EUR 3.04 (EUR 3.56)

  • Board of Directors will propose a dividend of EUR 2.28 per share (1.70), totaling EUR 583 million (EUR 435 million)


Fourth quarter in brief:

  • Comparable operating profit totaled EUR 349 million (EUR 311 million)

  • Operating profit totaled EUR 183 million (EUR 296 million)

  • Renewable Products' comparable operating profit was EUR 281 million (EUR 209 million)

  • Renewable Products' comparable sales margin was USD 715/ton (USD 464/ton)

  • Oil Products' comparable operating profit was EUR 60 million (EUR 89 million)

  • Oil Products' total refining margin was USD 10.5/bbl (USD 10.7/bbl)

  • Marketing & Services' comparable operating profit was EUR 19 million (EUR 11 million)

President and CEO Peter Vanacker:

“Neste had a very strong year in 2018. We posted a record-high comparable operating profit of EUR 1,422 million, compared to EUR 1,101 million in 2017. Renewable Products exceeded the previous year's high performance as a result of a favorable market and successful sales margin optimization. We also took an important step in implementation of the renewables growth strategy, when the final investment decision on the Singapore production capacity expansion was taken in December. Oil Products' performance was impacted by a less supportive margin environment and a weaker US dollar compared to 2017. Marketing & Services improved its financial performance from the previous year. We reached a strong ROACE of 21.1% over the last 12 months and a leverage ratio of -1.5% at the end of the year. Our cash flow before financing activities was EUR 870 million in 2018. The strong financial position enables implementation of our growth strategy going forward while maintaining a healthy dividend distribution.

Renewable Products posted an outstanding full-year comparable operating profit of EUR 983 million (561 million). Our comparable sales margin was significantly higher than in 2017, and had a positive impact of EUR 512 million on the comparable operating profit. Additionally, the retroactive US Blender's Tax Credit decided for the full year 2017 had a positive impact of EUR 140 million on the comparable operating profit in the first quarter. Sales volumes were 2.26 million tons in 2018, approx. 12% lower than in previous year, as a result of the scheduled maintenance activities at the Rotterdam and Singapore refineries. During 2018 approximately 72% of sales volume went to Europe and 28% to North America. Implementation of the renewables growth strategy continued successfully during 2018. As an example, the share of 100% renewable diesel delivered to end-users increased from 25% to 30% of total volumes in full-year 2018. Feedstock mix optimization continued, and the average proportion of waste and residue inputs increased to 83%. In 2018, Neste also acquired the share majority of IH Demeter B.V., a Dutch trader of animal fats and proteins.

Oil Products posted a full-year comparable operating profit of EUR 397 million, which was lower than the EUR 495 million in 2017. During 2018, the reference margin was less favorable, approx. USD 0.7/bbl lower than in 2017, which had a negative impact of EUR 61 million on the comparable operating profit. Supported by good operational performance and the strategic refinery investments being in full operation, our additional margin averaged at USD 6.2/bbl. Higher additional margin had a positive impact of 81 million compared to the previous year. A weaker USD exchange rate had a negative impact of EUR 41 million on the comparable operating profit compared to 2017. During the year 2018, the segment's fixed costs were EUR 53 million higher than in the previous year, mainly due to increased costs related to the scheduled maintenance activities and planning of the 2020 major turnaround in Porvoo. In July we announced that we are exploring ways to introduce liquefied waste plastic as a future raw material for fossil refining. That is one concrete action in our efforts towards low carbon refining.

In Marketing & Services our sales volumes were maintained at the previous year's level. The markets continued to be competitive, but we were able to increase unit margins compared to 2017. Marketing & Services segment generated a full-year comparable operating profit of EUR 77 million (EUR 68 million).

Developments in the global economy have been reflected in the renewable fuel, feedstock and oil markets; and volatility in these markets is anticipated to continue. Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Global oil product demand growth is expected to continue at a lower rate than in 2018, while global refining capacity additions are expected to grow driven by large projects in Asia and the Middle East. Based on our current estimates and a hedging ratio of 80%, Neste's effective EUR/US dollar rate is expected to be within a range 1.17-1.19 in the first quarter of 2019.

Renewable Products' first-quarter sales volumes are expected to be higher than in the fourth quarter of 2018, with no major changes in the sales allocation. Utilization rates of our renewable production facilities are expected to be high in the first quarter. The scheduled Singapore refinery turnaround, which was completed during the fourth quarter, is estimated to have a negative EBIT impact of EUR 15 million in the first quarter of 2019.

Oil Products’ reference margin is expected to be low in the first quarter, driven by a weak gasoline market, but to strengthen towards the end of the quarter. Utilization rates of our production facilities are anticipated to be high in the first quarter.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the first quarter."

The Group's fourth quarter 2018 results

Neste's revenue in the fourth quarter totaled EUR 3,661 million (3,636 million). Higher sales prices had a positive impact of approx. EUR 200 million on the revenue. However, the revenue was decreased due to lower sales volumes having a negative impact of approx. EUR 200 million. The Group’s comparable operating profit was EUR 349 million (311 million). Renewable Products' comparable operating profit was higher than in the fourth quarter of 2017, mainly as a result of higher sales margin. Oil Products' result was lower than in the corresponding period of 2017, mainly due to lower reference margin and higher costs caused by maintenance. Marketing & Services had higher unit margins and lower fixed costs, which lead to a higher comparable operating profit compared to the fourth quarter of 2017. The Others segment's comparable operating profit was weaker than in the corresponding period of 2017, mainly due to increased common corporate costs.

Renewable Products’ fourth quarter comparable operating profit was EUR 281 million (209 million), Oil Products’ EUR 60 million (89 million), and Marketing & Services' EUR 19 million (11 million). The comparable operating profit of the Others segment totaled EUR -12 million (0 million); Nynas accounted for EUR 1 million (3 million) of this figure.

The Group’s operating profit was EUR 183 million (296 million), which was impacted by inventory valuation losses of EUR 231 million (1 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 216 million (-13 million), mainly related to margin hedging. Neste Oil Bahrain W.L.L. has obtained a disadvantageous tax judgement in December 2018, and has appealed against it. As a part of an impairment process, Neste has written down all of Neste Oil Bahrain W.L.L.'s assets of EUR 112 million. Neste is currently engaged in arbitration with Neste Oil Bahrain W.L.L.'s base oil joint operation partners concerning a contractual dispute. Profit before income taxes was EUR 171 million (287 million), and net profit EUR 130 million (244 million). Comparable earnings per share were EUR 1.14 (1.00), and earnings per share EUR 0.51 (0.96).

The Group's full-year 2018 results

Neste's revenue in 2018 totaled EUR 14,918 million (13,217 million). The revenue increase resulted from higher sales prices, which had a positive impact of approx. EUR 2,100 million, and lower sales volumes, which had approx. EUR 100 million negative impact on the revenue. A weaker USD exchange rate had a negative impact of approx. EUR 300 million on the revenue. The Group’s comparable operating profit was EUR 1,422 million (1,101 million). Renewable Products' sales margin was significantly higher compared to 2017, and the retroactive US Blender's Tax Credit decision for 2017 supported the first quarter result. Oil Products' result was lower than in 2017, mainly due to a weaker USD exchange rate and lower reference margin.  Marketing & Services was able to increase its unit margins and other income, which lead to a higher comparable operating profit than in the previous year. The Others segment's comparable operating profit was lower than in the year 2017, mainly due to Nynas' weaker result.

Renewable Products’ full-year comparable operating profit was EUR 983 million (561 million), Oil Products’ EUR 397 million (495 million), and Marketing & Services' EUR 77 million (68 million). The comparable operating profit of the Others segment totaled EUR -36 million (-24 million); Nynas accounted for EUR -12 million (-2 million) of this figure.

The Group’s operating profit was EUR 1,025 million (1,171 million), which was impacted by inventory valuation losses of EUR 269 million (gains of 31 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 117 million (24 million), mainly related to margin hedging. In addition there were asset writedowns totaling EUR 198 million regarding our minority shareholding in Nynas AB during the third quarter and in Neste Oil Bahrain W.L.L. during the fourth quarter. Neste is currently engaged in arbitration with the Bahrain base oil joint operation partners concerning a contractual dispute. Profit before income taxes was EUR 951 million (1,094 million), and net profit EUR 779 million (914 million). Comparable earnings per share were EUR 4.50 (3.33), and earnings per share EUR 3.04 (3.56).

Outlook

Developments in the global economy have been reflected in the renewable fuel, feedstock and oil markets; and volatility in these markets is anticipated to continue. Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Global oil product demand growth is expected to continue at a lower rate than in 2018, while global refining capacity additions are expected to grow driven by large projects in Asia and the Middle East. Based on our current estimates and a hedging rate of 80%, Neste's effective EUR/US dollar rate is expected to be within a range 1.17-1.19 in the first quarter of 2019.

Renewable Products' first-quarter sales volumes are expected to be higher than in the fourth quarter of 2018, with no major changes in the sales allocation. Utilization rates of our renewable production facilities are expected to be high in the first quarter. The scheduled Singapore refinery turnaround, which was completed during the fourth quarter, is estimated to have a negative EBIT impact of EUR 15 million in the first quarter 2019.

Oil Products’ reference margin is expected to be low in the first quarter, driven by a weak gasoline market, but to strengthen towards the end of the quarter. Utilization rates of our production facilities are anticipated to be high in the first quarter.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the first quarter.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 50 percent of its comparable net profit in the form of a dividend. The parent company's distributable equity as of 31 December 2018 amounted to EUR 2,181 million, and there have been no material changes in the company’s financial position since the end of the financial year. The Board of Directors will propose to the Annual General Meeting that Neste Corporation pays a cash dividend of EUR 2.28 per share (1.70) for 2018, totaling EUR 583 million (435 million) based on the number of outstanding shares. The Board of Directors will also propose that the annual dividend shall be paid in two installments. The first installment of dividend, EUR 1.14 per share, would be paid to shareholders registered in the shareholders’ register of the Company maintained by Euroclear Finland Ltd on the record date for the first dividend installment, which shall be Thursday, 4 April 2019. The Board proposes to the AGM that the first dividend installment would be paid on Thursday, 11 April 2019.

The second installment of the dividend shall be paid in October 2019. The Board of Directors will propose to the Annual General Meeting a share issue without payment (share split). If the Board’s proposal is approved, the second installment will be divided between one old and two new shares so that EUR 0.38 will be paid for each share. If the AGM does not approve the share issue without payment proposed by the Board, the second installment will be paid in the same manner as the first, i.e. EUR 1.14 per share. The second installment of dividend would be paid to shareholders registered in the shareholders’ register of the Company maintained by Euroclear Finland Ltd on the record date for the second dividend installment, which shall be Friday, 4 October 2019. The Board proposes to the AGM that the second dividend installment would be paid on Friday, 11 October 2019. The Board of Directors is authorized to set a new dividend record date and payment date for the second installment of the dividend, in case the rules and regulations on the Finnish book-entry system would be changed, or otherwise so require.

The proposed dividend represents a yield of 3.4% (at year-end 2018 share price of EUR 67.36) and 51% of the comparable net profit in 2018, and an increase of 34% compared to the dividend distributed in the previous year.

Conference call

A conference call in English for investors and analysts will be held today, 6 February 2019, 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 4245 0806, rest of Europe: +44 (0)844 571 8892, US: +1 631 510 7495, using access code 8992107. The conference call can be followed at the company's website. An instant replay of the call will be available until 13 February 2019 at +44 (0) 3333 009785 for Europe and +1 917 677 7532 for the US, using access code 8992107.

Further information:

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 sustainable solutions for transport, business, and consumer needs. Our wide range of renewable products enable our customers to reduce climate emissions. We are the world's largest producer of renewable diesel refined from waste and residues, introducing renewable solutions also to the aviation and plastics industries. We are also a technologically advanced refiner of high-quality oil products. We want to be a reliable partner with widely valued expertise, research, and sustainable operations. In 2018, Neste's revenue stood at EUR 14.9 billion. In 2019, Neste placed 3rd on the Global 100 list of the most sustainable companies in the world. Read more: neste.com