Neste Oil’s Interim Report for January-September 2013
Strong quarterly result driven by outstanding performance at Renewable Fuels
Third quarter in brief:
• Comparable operating profit was EUR 217 million (Q3/2012: EUR 159 million)
• IFRS operating profit was EUR 249 million (Q3/2012: EUR 196 million)
• Total refining margin was USD 8.61/bbl (Q3/2012: USD 12.23/bbl)
• Net cash from operations was EUR 3 million (Q3/2012: EUR 293 million)
January-September in brief:
• Comparable operating profit was EUR 440 million (1-9/2012: EUR 278 million)
• IFRS operating profit was EUR 447 million (1-9/2012: EUR 272 million)
• Investments totaled EUR 142 million (1-9/2012: EUR 211 million)
• Leverage ratio was 39.8% at the end of September (Dec 31, 2012: 43.2%)
• Comparable earnings per share EUR 1.21 (1-9/2012: EUR 0.57)
President & CEO Matti Lievonen:
“We recorded a strong result during the third quarter. The Group’s comparable operating profit was EUR 217 million, mainly thanks to outstanding performance at Renewable Fuels.
Renewable Fuels recorded an outstanding comparable operating profit of EUR 120 million compared to EUR 33 million in the second quarter driven by significantly higher sales volumes, lower unit production costs, and a strong market in both Europe and North America. Our good operational performance enabled us to benefit from the favorable market situation and increase sales in North America. Although the market is no longer at the peak levels experienced during the third quarter, the market remains healthy. A proposal by the US Environmental Protection Agency (EPA) on renewable fuel mandates in 2014 is expected during the fourth quarter. The final outcome may have an impact on the growth in demand for US biomass-based diesel next year.
Oil Product’s result was impacted by a lower refining margin year-on-year; the market for base oils also remained soft due to oversupply. We are very pleased with our refineries’ operational performance in the third quarter. The segment’s third-quarter comparable operating profit was EUR 67 million compared to EUR 154 million last year.
Oil Retail continued to perform well and delivered a record-high quarterly comparable operating profit of EUR 29 million due to stronger margins in all markets, especially Finland and North-West Russia.
We updated our guidance on 10 September 2013 and this remains essentially unchanged. We expect the Group’s full-year 2013 comparable operating profit to improve significantly compared to 2012 and estimate it to be higher than EUR 530 million. The Renewable Fuels segment’s full-year 2013 comparable operating profit is expected to be above EUR 200 million.”
The Group’s third-quarter 2013 results
Neste Oil’s revenue increased to EUR 4,630 million in the third quarter from EUR 4,505 million during the same period in 2012, mainly as a result of higher sales volumes and growth at Renewable Fuels. The Group’s comparable operating profit came in at EUR 217 million. Comparable operating profit for the corresponding period in 2012 was EUR 159 million. Renewable Fuels recorded an outstanding comparable operating result year-on-year, and Oil Retail also performed well. The company’s oil refineries operated smoothly, although Oil Products’ result was negatively impacted by lower margins in both fuels and base oils. The Others segment posted a slightly lower comparable operating profit than in the third quarter of 2012.
Oil Products’ third-quarter comparable operating profit was EUR 67 million (154 million), Renewable Fuels’ EUR 120 million (-19 million), and Oil Retail’s EUR 29 million (23 million). The comparable operating profit of the Others segment totaled EUR 0 million (3 million); associated companies and joint ventures accounted for EUR 5 million (3 million) of this figure.
The Group’s IFRS operating profit was EUR 249 million (196 million), which was mainly impacted by inventory gains totaling EUR 26 million (87 million). Pre-tax profit was EUR 233 million (172 million), profit for the period EUR 194 million (131 million), and earnings per share EUR 0.76 (0.51).
The Group’s January-September 2013 results
Neste Oil’s revenue totaled EUR 12,858 million during the first nine months of the year compared to EUR 13,256 million for the same period last year, mainly as a result of lower average oil prices. The Group’s nine-month comparable operating profit totaled EUR 440 million compared to EUR 278 million in the first nine months of 2012. The Group’s result during the first nine months of 2013 was positively impacted by greatly improved performance at Renewable Fuels and negatively impacted by refinery maintenance during the second quarter and lower refining margins during the third quarter.
Oil Products’ nine-month comparable operating profit was EUR 208 million (280 million), Renewable Fuels’ EUR 179 million (-54 million), and Oil Retail’s EUR 62 million (53 million). The comparable operating profit of the Others segment totaled EUR -13 million (-1 million); EUR -1 million (2 million) was booked in respect of associated companies and joint ventures.
The Group’s IFRS operating profit was EUR 447 million (272 million) and included inventory losses totaling EUR 35 million (13 million) and net capital gains totaling EUR 42 million (45 million). The pre-tax profit was EUR 394 million (198 million), profit for the period EUR 331 million (142 million), and earnings per share EUR 1.29 (0.55).
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 September, the rolling twelve-month ROACE was 8.7% (2012 financial year: 5.0%).
Uncertainties in the global economy have been reflected in the oil, renewable fuel, and renewable feedstock markets, and this volatility is expected to continue. Global oil demand is generally forecasted to grow moderately in 2013, and new refining capacity is likely to put pressure on simple refineries. Complex refiners such as Neste Oil are expected to remain the most competitive. Diesel is projected to be the strongest part of the barrel going forward, and gasoline margins are expected to develop seasonally. The base oil market is likely to remain under pressure, due to ample supply and sluggish demand in Europe. Neste Oil has no planned major maintenance shutdowns scheduled for its refineries during the fourth quarter of 2013.
Overall renewable diesel market conditions continue to look healthy for the remainder of the year. The outlook for FAME margins in Europe is expected be firm as a result of the switch to winter grades, as well as lower imports, while the price differential between palm oil and rapeseed oil appears likely to remain close to the historical average. Demand for biomass-based diesel in the US is expected to continue at a good level, enabling Neste Oil to further expand its customer base there. RIN values have decreased from the peak levels experienced in the third quarter. A proposal by the US EPA on 2014 renewable fuel mandates is expected during the fourth quarter and may have an impact on the growth of demand for US biomass-based diesel next year.
Neste Oil’s updated guidance as of 10 September 2013 remains essentially unchanged. Renewable Fuels’ full-year 2013 comparable operating profit is expected to be above EUR 200 million. The positive development at Renewable Fuels results from higher sales volumes, particularly in North America, successful margin management, and utilization of a wide range of feedstock. Market conditions were exceptionally strong during the third quarter.
Neste Oil expects the Group’s full-year 2013 comparable operating profit to improve significantly compared to 2012 and estimates it to be higher than EUR 530 million.
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