Neste Oil’s Interim Report for January-March 2012
– First-quarter comparable operating profit was EUR 76 million (Q1/2011: 43 million), partly due to improved performance at Renewable Fuels
– Strong gasoline market supported refining margins
First quarter in brief:
• Comparable operating profit was EUR 76 million (Q1/2011: EUR 43 million)
• IFRS operating profit was EUR 188 million (Q1/2011: EUR 171 million)
• Total refining margin was USD 9.07/bbl (Q1/2011: USD 8.92/bbl)
• Net cash from operations was EUR -353 million (Q1/2011: EUR 58 million)
• Investments totaled EUR 48 million (Q1/2011: EUR 120 million)
• Leverage ratio was 49.3% (Q1/2011: 42.5%)
President & CEO Matti Lievonen:
“The strong gasoline market supported refining margins during the first quarter. Crude oil price increased, and the price differential between lighter and heavier crude oil was volatile, and widened towards the end of the quarter. As our refineries at Porvoo and Naantali operated smoothly, we were able to record a good result at Oil Products.
We continued making positive progress at Renewable Fuels, which improved its comparable operating profit by EUR 13 million from the previous quarter. Sales volumes rose as projected, and we sold 305.000 tons of NExBTL in the first quarter. Legislative work to open up new markets has proceeded and we shipped our first cargo to the US, marking an important milestone. Our renewable diesel production units have operated well, and I am very pleased that our Singapore refinery has also received US EPA certification as a producer of biofuels that can count against the US biofuel mandates.
Refining margins for advanced refiners are expected to remain relatively strong in the near future. Scheduled decoking maintenance on diesel production line 4 at Porvoo has been completed, and the major maintenance turnaround in Naantali is on-going. NExBTL sales volumes are expected to develop positively, but the renewable diesel margin is currently depressed due to the narrow price spread between vegetable oils, and the low FAME biodiesel margin. Although a proportion of sales margin has been hedged, the second-quarter comparable operating profit at Renewable Fuels is expected to be lower than in the first quarter, if the challenging margin situation continues.
We maintain our previous guidance that Neste Oil’s full-year comparable operating profit is expected to improve significantly compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level and that quarterly sales volumes of renewable diesel are similar to or above those seen during the last quarter of 2011.”
The Group’s first-quarter results in 2012
Neste Oil’s revenue increased to EUR 4,454 million in the first quarter from EUR 3,472 million reported for the same period in 2011. This increase resulted from higher oil prices and the growth of the Renewable Fuels business. The Group’s comparable operating profit came in at EUR 76 million. Comparable operating profit for the corresponding period in 2011 was EUR 43 million. Renewable Fuels recorded a significantly higher comparable operating profit year-on-year, and the Oil Retail and Others segments also improved. Oil Products, however, posted a slightly lower result than in the first quarter 2011.
Oil Products’ first-quarter comparable operating result was EUR 77 million (83 million), Renewable Fuels’ EUR -2 million (-36 million), and Oil Retail’s EUR 15 million (12 million). The comparable operating profit of the Others segment totaled EUR -10 million (-16 million). Associated companies and joint ventures result accounted for EUR -6 million (-10 million) of the comparable operating result booked in the Others segment.
The Group’s IFRS operating profit was EUR 188 million (171 million), which was impacted by inventory gains totaling EUR 64 million (141 million) and a capital gain totaling EUR 45 million (1 million). Pre-tax profit was EUR 166 million (160 million), profit for the period EUR 121 million (118 million), and earnings per share EUR 0.47 (0.46).
Given the capital-intensive nature of its business, Neste Oil uses return on average capital employed after tax (ROACE) as its primary financial target. ROACE figures are based on comparable results. As of the end of March, the rolling twelve-month ROACE was 3.0% (2011 financial year: 2.6%).
The market expects that margins for advanced refiners, such as Neste Oil, will be higher in the second quarter than in 2011 and remain roughly at 2011 levels for the remainder of the year. Diesel is projected to be the strongest part of the barrel going forward, and the second-quarter gasoline margins are expected to stay higher than in 2011. Demand for base oil has remained healthy, and margins are expected to continue recovering. Approximately 30% of Neste Oil’s volume in 2012 is hedged at a USD 4.7 /bbl reference margin level, assuming an Urals-Brent differential of USD -1.0/bbl.
Neste Oil expects to see good productivity and higher production volumes at its Porvoo refinery in 2012. Two scheduled maintenance outages during the second quarter will impact sales volumes and profit. Diesel production line 4 at Porvoo refinery was off-line for four weeks due to planned coke removal, and a six-week major turnaround is currently taking place at the Naantali refinery. In addition, further decoking maintenance of diesel production line 4 is expected before the next winter period.
Oil Products’ full-year comparable operating profit is expected to improve compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level.
The ramp-up of the Renewable Fuels business will continue in 2012. The US market has now been opened and Neste Oil has already made its first sale there. Sales volumes of renewable diesel will grow clearly from first-quarter level during the second quarter. Although renewable diesel volumes are growing and a proportion of sales is hedged, second-quarter operating profit at Renewable Fuels will be lower compared to the first quarter if margins stay depressed.
Oil Retail’s full-year comparable operating profit is expected to be at least equal to that seen in 2011.
In line with previous estimates the Group’s fixed costs are expected to be approx. EUR 640 million, and the Group’s investments are expected to be approx. EUR 350 million in 2012.
Neste Oil maintains its previous guidance and expects its full-year comparable operating profit to improve significantly compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level and that quarterly sales volumes of renewable diesel are similar to or above those seen during the last quarter of 2011.
Matti Lievonen, President & CEO, tel. +358 10 458 11
Ilkka Salonen, CFO, tel. +358 10 458 4490
Investor Relations, tel. +358 10 458 5292
Neste Oil’s interim report is available in its entirety on the company’s website at www.nesteoil.com
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