Neste Corporation, Interim Report, 29 April 2022 at 9 a.m. (EET)
Strong financial performance amid markets impacted by the Ukraine war
First quarter in brief:
· Comparable EBITDA totaled EUR 578 million (EUR 429 million)
· EBITDA totaled EUR 916 million (EUR 585 million)
· Renewable Products' comparable sales margin was USD 806/ton (USD 699/ton)
· Oil Products' total refining margin was USD 10.3/bbl (USD 6.7/bbl)
· Cash flow before financing activities was EUR -960 million (EUR -645
million)
· Return on average capital employed (ROACE)* was 19.1% over the last 12
months (2021: 18.3%)
· Leverage ratio was 12.0% at the end of March (31.12.2021: 0.6%)
* Calculation formula has been adjusted; and the figure for 2021 restated.
President and CEO Peter Vanacker:
“We at Neste are appalled by and concerned about the war in Ukraine and we
strongly condemn the invasion by Russia. We have already mostly replaced Russian
crude oil with other crudes, and the remaining supply contracts for Russian
crude oil will end in July. We have not bought Russian crude oil on the spot
market since the start of the war, nor are we making any new supply agreements
for Russian crude oil or fossil feedstocks. Our employees have done an excellent
job in replacing Russian crude oil with other grades in a safe way.
Despite the market turmoil, Neste’s financial performance was strong in the
first quarter. We posted a comparable EBITDA of EUR 578 million, compared to EUR
429 million in the corresponding period last year. Renewable Products’ sales
margin was exceptionally strong and the sales volumes were high. Oil Products
improved its performance year-on-year as a result of a stronger refining market.
Marketing & Services also performed well supported by significant inventory
gains driven by the oil price surge. Our cash flow before financing activities
was negatively impacted by a major inventory build-up to secure business
continuity and by the market price increases for feedstock, energy and finished
products.
Renewable Products posted a strong comparable EBITDA of EUR 419 million (EUR 344
million) in the first quarter. The renewable diesel demand was robust, but the
feedstock markets remained very tight. The Ukraine war has strongly impacted the
vegetable oil and oil product markets, whereas the impact on waste and residue
markets is taking place with some time delay. In this market situation we
reached a record-high comparable sales margin of USD 806/ton. This outstanding
achievement was supported by our strong sales performance, margin hedging and
the flexibility provided by our global optimization model. Our sales volumes
were 747,000 tons, slightly higher than in the corresponding period last year.
During the first quarter our renewables production facilities operated at an
average 104% utilization rate, and reached a new quarterly production record of
858,000 tons. This production record will help us to manage through the
scheduled maintenance shut-down period later this year. Feedstock mix
optimization continued, and the share of waste and residue inputs increased to
95%.
Oil Products posted a comparable EBITDA of EUR 137 million (EUR 52 million) in
the first quarter. We have replaced most Russian crude oil and feedstock with
other crude oils, and have tested ways to replace natural gas at our Porvoo
refinery. Due to the changes in our crude oil supply and the prevailing market
volatility, we have discontinued splitting our total refining margin into
reference margin and additional margin. Our total refining margin was supported
by exceptionally high oil product margins, but burdened by high utility costs
driven by very expensive natural gas and electricity. The sales volumes were at
par with the corresponding period last year.
Marketing & Services generated a comparable EBITDA of EUR 32 million (EUR 23
million) in the first quarter. Our unit margins were supported by significant
inventory gains driven by the surge in oil prices.
We continue to implement our growth strategy, and an important step forward was
the announcement to establish a 50/50 production joint venture with US-based
Marathon Petroleum. The joint venture will produce renewable diesel following a
conversion project of Marathon's refinery in Martinez, California. The closing
of the joint venture is subject to customary closing conditions and regulatory
approvals, including obtaining the necessary permits, which depend upon
certification of a final Environmental Impact Report. Neste’s total investment
will amount to approximately EUR 0.9 billion and the project is expected to
increase our renewable products capacity by slightly over 1 million tons per
annum. Production of renewable diesel is expected to come online in the second
half of 2022, and the facility is planned to reach its full annual nameplate
capacity of 2.1 million tons by the end of 2023. We are committed to helping our
customers decrease their greenhouse gas emissions by at least 20 million tons of
CO2eq annually by 2030. This joint venture will help us exceed our commitment as
it will bring a substantial amount of renewable diesel to our customers in the
US. Our ongoing Singapore expansion project and this joint venture will increase
our total production capacity of renewable products to 5.5 million tons by the
end of 2023 and we will be the only global provider of renewable products with a
production footprint in North America, Asia and Europe. The project for a
possible next worldscale renewables refinery in Rotterdam is in the engineering
phase, and we are approaching technical readiness for a final investment
decision during the next months. However, the timeline for the decision-making
will take into account the current geopolitical situation.
Effective 1 January 2022, comparable EBITDA has replaced comparable operating
profit as Neste’s main profitability indicator, since we consider comparable
EBITDA to better reflect our underlying business performance during a heavy
investment period.
As I will shortly be leaving Neste, I feel grateful for having had the
opportunity to lead such an amazing company for close to four years. I wish the
best of success to Matti Lehmus as the new President and CEO, his leadership
team and the whole Neste organization. The company is in great hands with this
outstanding team and our strategy remains valid with full Board support. Neste's
transformation story continues.“
The Group's first quarter 2022 results
Neste's revenue in the first quarter totaled EUR 5,523 million (3,132 million).
The revenue growth resulted from higher market and sales prices, which had a
positive impact of approx. EUR 2.0 billion, and a stronger US dollar, which had
a positive impact of approx. EUR 200 million on the revenue compared to the
corresponding period last year.
The Group’s comparable EBITDA was EUR 578 million (429 million). Renewable
Products' comparable EBITDA was EUR 419 million (344 million), mainly as a
result of higher sales margin and stronger US dollar than in the first quarter
of 2021. Oil Products' comparable EBITDA totaled EUR 137 million (52 million),
following the improved refining market. Marketing & Services comparable EBITDA
was EUR 32 million (23 million), mainly as a result of higher unit margins
compared to the first quarter of 2021. The Others segment's comparable EBITDA
was EUR 1 million (10 million).
The Group’s EBITDA was EUR 916 million (585 million), which was impacted by
inventory valuation gains of EUR 115 million (175 million), and changes in the
fair value of open commodity and currency derivatives totaling EUR 219 million (
-20 million), mainly related to utility price hedging. Profit before income
taxes was EUR 736 million (415 million), and net profit EUR 640 million (374
million). Comparable earnings per share were EUR 0.45 (0.31), and earnings per
share EUR 0.83 (0.49).
Outlook
Visibility in the global economy is very low due to the war in Ukraine and the
continuing COVID-19 pandemic. We expect volatility in the oil products and
renewable feedstock markets to remain very high.
Renewable Products’ second-quarter sales volumes are expected to be slightly
higher than in the previous quarter. Waste and residue markets are anticipated
to remain tight as their demand continues to be robust. Following the oil
product and renewable feedstock market price increases in the latter part of the
first quarter, our second-quarter sales margin is expected to be within the
range USD 675-750/ton.
Utilization rates of our renewables production facilities are forecasted to
remain high. As announced in February, we have scheduled a six-week turnaround
at the Singapore refinery in the third quarter, and a seven-week turnaround at
the Rotterdam refinery in the fourth quarter of 2022. The Singapore turnaround
is currently estimated to have a negative impact of approximately EUR 90
million, and the Rotterdam turnaround a negative impact of approximately EUR 100
million on the segment’s comparable EBITDA.
Oil Products’ market is very volatile and impacted by the war in Ukraine and
possible further trade sanctions. Our second-quarter total refining margin is
currently expected to be at a roughly similar level as in the first quarter of
2022. The high natural gas market price will impact Neste’s production costs
with one month delay. Replacing natural gas with other alternatives has been
tested. If the replacement proves successful in normal operations, it will
enable a significant reduction of natural gas usage at the refinery. The second
-quarter sales volumes are forecasted to increase slightly from the level seen
in the previous quarter. The sale of our base oils business was completed in
early April, and thus it will not contribute to the Oil Products segment’s
financials as of the second quarter 2022. The impact of the related long-term
offtake for Neste’s base oils production at the Porvoo refinery will be included
in the total refining margin going forward.
In Marketing & Services the sales volumes and unit margins are expected to
follow the previous years' seasonality pattern in the second quarter. The COVID
-19 pandemic is anticipated to have some negative impact on the demand and sales
volumes.
Based on our current estimates and a hedging rate of approximately 80%, Neste's
effective EUR/US dollar rate is expected to be within a range of 1.14–1.16 in
the second quarter of 2022.
Neste estimates the Group’s full-year 2022 cash-out capital expenditure to be
approximately EUR 1.9 billion, including approximately EUR 0.8 billion for the
announced joint venture with Marathon, which is still subject to closing. Other
possible M&A is excluded from the figure.
Conference call
A conference call in English for investors and analysts will be held today, 29
April 2022, 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 7073525. The conference call
can be followed at the company's website (https://edge.media
-server.com/mmc/p/izqf5v3j). An instant replay of the call will be available
until 6 May 2022 at +44 (0) 333 300 9785 for Europe and +1 866 331 1332 for the
US, using access code 7073525.
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 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 have committed to reaching carbon-neutral
production by 2035, and we will reduce the carbon emission intensity of sold
products by 50% by 2040. We also have 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 2021, Neste's revenue stood at EUR 15.1 billion. Read more:
neste.com (https://www.neste.com/)