Neste Corporation, Financial Statements Release, 8 February 2024 at 9 a.m. (EET)

Strong end for the year, cash flow the highlight in 2023

• Comparable EBITDA totaled EUR 3,458 million (EUR 3,537 million)
• EBITDA totaled EUR 2,548 million (EUR 3,048 million)
• Cash flow before financing activities totaled EUR 751 million (EUR -390 million)
• Comparable return on average capital employed (Comparable ROACE) was 23.9% over the last 12 months (30.1%)
• Leverage ratio was 22.7% at the end of December (31 Dec 2022: 13.9%)
• Comparable earnings per share were EUR 2.88 (EUR 3.04)
• Earnings per share: EUR 1.87 (EUR 2.46)
• Board of Directors will propose a dividend of EUR 1.20 per share (1.52), totaling EUR 922 million (EUR 1,168 million)

• Comparable EBITDA totaled EUR 797 (894) million
• EBITDA totaled EUR 672 (748) million
• Renewable Products' comparable sales margin* was USD 813 (755)/ton
• Oil Products'; total refining margin was USD 18.9 (23.5)/bbl
• Cash flow before financing activities was EUR 475 (596) million
• Comparable earnings per share were EUR 0.66 (EUR 0.84)

* Calculation formula has been adjusted effective 1 January 2023; and the figures for 2022 restated. Q4/22 comparable sales margin with the previous calculation reached USD 783/ton.

President and CEO Matti Lehmus:

"Neste ended the year 2023 with strong results in all business units. The fourth quarter comparable EBITDA reached EUR 797 (894) million. The change in the result versus the corresponding period last year was driven by Oil Products, where the total refining margin decreased year-on-year yet reaching a good level of USD 18.9 (23.5)/bbl supported by successful operational performance. In Renewable Products, we were able to optimize our sales and feedstock sourcing in a more challenging market environment, resulting in a comparable sales margin of USD 813 (755)/ton. The sales volume of renewable diesel and sustainable aviation fuel (SAF) amounted to 843,000 (779,000) tons in line with our target. We also generated a strong cash flow before financing activities of EUR 475 (596) million despite our continuing growth investments.

The year 2023 was impacted by geopolitical tensions and high inflation. The market environment was most favorable in the third quarter, after which the market, particularly in Renewable Products, weakened towards the end of the year. Our full-year comparable EBITDA reached EUR 3,458 (3,537) million. As to the Group's financial targets, we reached a Comparable ROACE of 23.9% over the last 12 months and a leverage ratio of 22.7% at the end of the year, both clearly meeting our financial target levels. Cash flow before financing activities was a clear highlight, reaching EUR 751 million, supported by successful working capital management and significantly exceeding the previous year's level of EUR -390 million. Our solid financial position enables the continued implementation of our growth strategy going forward.

Renewable Products posted a full-year comparable EBITDA of EUR 1,906 (1,762) million and we were able to increase our comparable sales margin to USD 863 (779)/ton. This was enabled by successful global optimization across feedstocks, markets and products. Sales volumes in renewable diesel and SAF were 3.3 (3.0) million tons, impacted by the delayed ramp-up in our Singapore expansion and the Martinez joint operation. In the fourth quarter, our comparable EBITDA reached EUR 433 (415) million and the Singapore new line utilization rate increased according to our expectation to approximately 75%. The share of waste and residue feedstocks remained high throughout the year and averaged 92% (95%) of our total renewable material inputs in 2023.

Oil Products posted a full-year comparable EBITDA of EUR 1,434 (1,654) million. While decreasing from the high level of 2022, the main product margins remained healthy and our operational performance was strong with the utilization rate improving to 88 (85)%. The total refining margin for the full-year was USD 21.1 (23.4)/bbl. In the fourth quarter, the Oil Products' comparable EBITDA reached EUR 330 (450) million supported by good operational performance. In December, we announced a gradual long-term transformation of Neste's crude oil refinery in Porvoo, Finland into a leading renewable and circular solutions refining hub. The planned transformation requires multiple separate investment decisions before targeted completion in the mid 2030s. We expect the long-term capacity potential after the transformation to be approximately 3 million tons of renewable and circular products.

Marketing & Services generated a full-year comparable EBITDA of EUR 118 million (EUR 126 million). In a somewhat more challenging market, we were again able to deliver strong unit margins and gain market share in our main products.

We initiated a savings program in the second half of 2023, which supported the decrease of the fixed costs growth rate during the second half of the year. In November, we announced a plan to simplify our organizational structure and operational model to secure the execution of our growth strategy and to strengthen our long-term competitiveness. The planned program is estimated to result in total annual cost savings of approximately EUR 50 million, the majority to be realized in 2024. Compared to the baseline year 2022, we are also on track with our Neste Excellence program to reach over EUR 350 million of value creation by the end of 2026.

Looking forward into 2024, I remain confident in Neste's ability to continue the successful execution of our renewable growth strategy and optimize our performance in a more challenging market environment.

The Group's fourth quarter 2023 results

Neste's revenue in the fourth quarter totaled EUR 6,303 (6,562) million. Higher sales volumes had a positive impact of approximately EUR 0.3 billion, but revenue decreased due to lower market and sales prices, which had a negative impact of approximately EUR -0.7 billion. Additionally, a weaker US dollar had a negative impact of approximately EUR -0.2 billion, but was offset by an increase in trading volumes, mainly in Oil Products, positively impacting the revenue by approximately EUR 0.4 billion year-over-year.

The Group's comparable EBITDA was EUR 797 (894) million. Renewable Products' comparable EBITDA was EUR 433 (415) million, mainly due to a higher sales margin, while fixed costs and foreign exchange rates had a negative impact on the result. Oil Products' comparable EBITDA was EUR 330 (450) million, mainly as a result of a lower refining market and foreign exchange rates year-on-year, whereas sales volumes and fixed costs had a positive impact on the segment's result. Marketing & Services' comparable EBITDA was EUR 25 (21) million. The Others segment's comparable EBITDA was EUR 3 (4) million.

The Group's EBITDA was EUR 672 (748) million, which was impacted by inventory valuation losses totaling EUR -255 (-200) million and changes in the fair value of open commodity and currency derivatives totaling EUR 128 (48) million, mainly related to margin and utility price hedging. Profit before income taxes was EUR 407 (563) million, and net profit EUR 400 (514) million. Comparable earnings per share were EUR 0.66 (0.84), and earnings per share EUR 0.52 (0.67).

The Group's full-year 2023 results

Neste's full-year 2023 revenue totaled EUR 22,926 (25,707) million. Higher sales volumes had a positive impact of approximately EUR 1.1 billion, but revenue decreased due to lower market and sales prices, which had a negative impact of approximately -4.3 billion. A weaker US dollar had a negative impact of approximately EUR -0.5 billion on the revenue and the increasing trading volumes mainly in Oil Products impacted positively on the revenue by approximately EUR 0.9 billion.

The Group's comparable EBITDA was EUR 3,458 (3,537) million. Renewable Products' comparable EBITDA was EUR 1,906 (1,762) million, mainly due to the higher sales margin and higher sales volume while the increased fixed costs and a weaker US dollar year-over-year had a negative impact on the result. Oil Products' full-year comparable EBITDA was EUR 1,434 (1,654) million, mainly as a result of lower refining market, higher sales volumes, increased fixed costs and a weaker US dollar than in 2022. Marketing & Services' comparable EBITDA was EUR 118 (126) million. The Others segment's comparable EBITDA was EUR -2 (-4) million.

The Group's EBITDA was EUR 2,548 (3,048) million, which was impacted by inventory valuation losses of EUR -827 (-352) million and changes in the fair value of open commodity and currency derivatives totaling EUR -98 (-131) million, mainly related to margin and utility price hedging. Profit before income taxes was EUR 1,596 (2,279) million, and net profit EUR 1,436 (1,891) million. Comparable earnings per share were EUR 2.88 (3.04), and earnings per share EUR 1.87 (2.46).

Outlook

Short term market outlook 

The uncertainty in the global economic outlook and geopolitical situation continues. We expect market volatility in Renewable Products and Oil Products to remain high. In Renewable Products, bioticket and renewable credit prices have decreased to a lower level in early 2024 compared to 2023. In Oil Products, the refining market has stayed relatively stable during the beginning of 2024.

Guidance

Renewable Products' total sales volume is expected to increase from 2023 and to reach approximately 4.4  Mt (+/- 10%) in 2024, out of which SAF sales volume is expected to be 0.5-1.0 Mt. Renewable Products' full-year 2024 average comparable sales margin is expected to be in the range of USD 600-800/ton.

Oil Products' total sales volume in 2024 is expected to be lower than in 2023, impacted by the planned Porvoo major turnaround in the second quarter. Oil Products' full-year 2024 total refining margin is expected to be lower than in 2023.

Additional information

In Renewable Products, Singapore is scheduled to have a 6-week and Rotterdam a 4-week maintenance shutdown in the third quarter. Singapore's new line is also scheduled to have an 8-week maintenance shutdown in the fourth quarter. Renewable Products' full-year sales volume is impacted by the planned maintenance shutdowns and the ramp-up timeline of Martinez and the Singapore new line to reach full capacity. In Singapore, stable SAF production was reached in the fourth quarter and SAF sales are expected to increase from the second quarter onwards. Martinez Renewables facility is currently operating at slightly below 50% of nameplate capacity, following the fire at the end of 2023. Work is ongoing to proceed with repairs to ensure safe and reliable operations.

In Oil Products, the Porvoo major turnaround is scheduled for the second quarter with an estimated capex of EUR 390 million and a comparable EBITDA impact of approximately EUR 190 million for Oil Products and EUR 40 million for Renewable Products. The two-day strike at the beginning of February had an impact on customer deliveries from Porvoo refinery and affected production over a 5-7 days period.

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

The Group's total fixed costs in 2024 are expected to be somewhat higher than in 2023 due to the Porvoo major turnaround and the build-up of resources for the growth projects under construction. The fixed costs growth trend is expected to level out compared to 2023 due to cost saving and efficiency measures.

The Group's full-year 2024 cash-out capital expenditure excluding M&A is estimated to be approximately EUR 1.4-1.6 billion. The share of maintenance and strategic capex is expected to represent approximately 40% and 60%, respectively, as the Porvoo major turnaround increases maintenance capex.

Dividend distribution proposal

Neste's policy is to pay a competitive and over time growing dividend. The parent company's distributable equity as of 31 December 2023 amounted to EUR 3,835 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 proposes to the AGM that a dividend of EUR 1.20 per share shall be paid on the basis of the approved balance sheet for 2023. The dividend shall be paid in two installments. 

The first installment of the dividend, EUR 0.60 per share will be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the 

dividend payment, which shall be 2 April 2024. The Board proposes to the AGM that the first installment of the dividend would be paid on 9 April 2024.

The second installment of the dividend, EUR 0.60 per share, will be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the second installment of the dividend, which shall be 2 October 2024. The Board proposes to the AGM that the second installment of the dividend would be paid on 9 October 2024. 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 total dividend EUR 1.20 per share represents a yield of 3.7% (at year-end 2023 share price of EUR 32.21) and 41.6% of the comparable earnings per share in 2023. The total dividend payout in 2024 amounts to approximately EUR 922 million.

Conference call

A conference call in English for investors and analysts will be held today, 8 February 2024, 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/BI5e4cd2a5ba7d4bb99c633edbc0c149d9. The conference call can also be followed as a webcast (https://edge.media-server.com/mmc/p/pf3wjvg9).

Further information:

Matti Lehmus, President and CEO, tel. +358 10 458 11
Martti Ala-Härkönen, CFO, tel. +358 40 737 6633
Anssi Tammilehto, VP, Investor Relations, tel. +358 50 458 8436