Neste Corporation, Interim Report, 26 October 2023 at 9 a.m. (EET)

Capitalizing on strong margins in Q3 

• Comparable EBITDA totaled EUR 1,047 (979) million 
• EBITDA totaled EUR 889 (456) million
• Renewable Products' comparable sales margin* was USD 912 (732)/ton
• Oil Products' total refining margin was USD 26.9 (28.0)/bbl
• Cash flow before financing activities was EUR 403 (-18) million

• Comparable EBITDA totaled EUR 2,661 (2,643) million
• EBITDA totaled EUR 1,876 (2,299) million
• Cash flow before financing activities was EUR 277 (-986) million
• Cash-out investments were EUR 1,204 (1,312) million
• Comparable return on average capital employed (Comparable ROACE) was 27.2% over the last 12 months (30.9.2022: 27.6%)
• Leverage ratio was 21.5% at the end of September (31.12.2022: 13.9%)
• Comparable earnings per share: EUR 2.22 (2.21)
• Earnings per share: EUR 1.35 (1.79)

*Calculation formula has been adjusted effective 1 January 2023; and the figures for 2022 restated. Q3/22 comparable sales margin with the previous calculation reached USD 756/ton.

President and CEO Matti Lehmus:

"Neste posted strong results in the third quarter of 2023 and our comparable EBITDA reached EUR 1,047 (979) million. The improvement in the result versus the corresponding period last year was driven by Renewable Products, which increased its result by approximately 40%, despite the delayed ramp-up of the new production line in Singapore. Cash flow before financing activities was markedly higher year-on-year, despite our substantial continuing growth investments, and reached EUR 403 (-18) million.

Renewable Products posted a comparable EBITDA of EUR 545 (389) million in the third quarter. Our comparable sales margin for renewable products was USD 912 (732)/ton, supported by a strong diesel price and successful global optimization across feedstocks, markets and products. This compensated the increase in waste and residue feedstock prices compared to the second quarter. Sales volumes in renewable diesel and sustainable aviation fuel (SAF) were 860,000 (698,000) tons, in line with our expectations. Following the restart of our Singapore refinery expansion in August, the ramp-up was slowed down due to a shutdown for additional equipment inspection and repair works in September. Production at the new line is expected to restart in the first half of November. At the Martinez Renewables fuels facility, construction activities are progressing. Pretreatment capabilities are increasing through the second half of 2023, and the facility is expected to have a nameplate capacity of 730 million gallons per year by the end of 2023.

Oil Products' comparable EBITDA reached EUR 472 (537) million. As stated in our updated outlook on 12 September, the Northwest European diesel and gasoline margins increased to a high level during the quarter. Oil Products' total refining margin improved significantly to USD 26.9 (28.0)/bbl. In addition to strong product margins, the total refining margin was supported particularly by our successful product mix optimization and smooth operations during the quarter.

Marketing & Services' comparable EBITDA was EUR 42 (38) million. Neste's overall market share remained strong in Finland and inventory gains supported the result. 

During the third quarter, we welcomed positive development in regulation as for example the Renewable Energy Directive III (RED III) and ReFuelEU Aviation were adopted by the European Parliament. Also, in the US the California Air Resources Board (CARB) published the Standard Regulatory Impact Assessment (SRIA) of a proposal to possibly tighten future carbon intensity targets.

Going forward, we continue rolling out our global growth strategy, while in parallel focusing on efficiency improvements. Our near-term focus will be on the successful ramp-up of our new production facilities, the global optimization of our term sales for 2024 and in continuing our efficiency and productivity improvements.

The Group's third quarter 2023 results

Neste's revenue in the third quarter totaled EUR 5,973 (6,583) million. Despite higher sales volumes, which had a positive impact of approximately EUR 0.4 billion, revenue decreased due to lower market and sales prices, which had a negative impact of approximately EUR -1.1 billion. Additionally, a weaker US dollar had a negative impact of approximately EUR -0.4 billion, but was offset by an increase in trading activity, positively impacting the revenue by approximately EUR 0.4 billion year-over-year.

The Group's comparable EBITDA was EUR 1,047 (979) million. Renewable Products' comparable EBITDA was EUR 545 (389) million, mainly due to a higher sales margin and higher sales volume compared to the third quarter last year. Oil Products' comparable EBITDA was EUR 472 (537) million, mainly as a result of a slightly lower refining market year-on-year. Marketing & Services' comparable EBITDA was EUR 42 (38) million. The Others segment's comparable EBITDA was EUR -6 (3) million.

The Group's EBITDA was EUR 889 (456) million, which was impacted by changes in the fair value of open commodity and currency derivatives totaling EUR -166 (-101) million, mainly related to margin and utility price hedging. Profit before income taxes was EUR 618 (231) million, and net profit EUR 539 (139) million. Comparable earnings per share were EUR 0.88 (0.79), and earnings per share EUR 0.70 (0.18).

The Group's January-September 2023 results

Neste's revenue in the first nine months totaled EUR 16,622 (19,145) million. Despite higher sales volumes, which had a positive impact of approximately EUR 0.9 billion, revenue decreased due to lower market and sales prices, which had a negative impact of approximately -3.6 billion. A weaker US dollar had a negative impact of approximately EUR -0.3 billion on the revenue and the increasing trading activities impacted positively on the revenue by approximately EUR 0.5 billion.

The Group's comparable EBITDA was EUR 2,661 (2,643) million. Renewable Products' nine-month comparable EBITDA was EUR 1,473 (1,347) million, mainly due to the higher sales margin, higher sales volumes, increased fixed costs and a weaker US dollar than in the corresponding period of 2022. Oil Products' nine-month comparable EBITDA was EUR 1,104 (1,204) million, mainly as a result of the slightly lower refining market, higher sales volumes, increased fixed costs and a weaker US dollar than in the corresponding period of 2022. Marketing & Services' comparable EBITDA was EUR 94 (105) million, mainly as a result of higher fixed costs compared to the first nine months of 2022. The Others segment's comparable EBITDA was EUR -5 (-8) million.

The Group's EBITDA was EUR 1,876 (2,299) million, which was impacted by inventory valuation losses of EUR -572 (-152) million and changes in the fair value of open commodity and currency derivatives totaling EUR -226 (-179) million, mainly related to margin and utility price hedging. Profit before income taxes was EUR 1,189 (1,716) million, and net profit EUR 1,036 (1,377) million. Comparable earnings per share were EUR 2.22 (2.21), and earnings per share EUR 1.35 (1.79).

Outlook

The outlook in the global economy continues to be uncertain due to high inflation, reduced economic growth expectations and continued geopolitical uncertainty. We expect volatility in oil products and renewable products to remain high.

Renewable Products' fourth-quarter renewable diesel and SAF sales volume is expected to be somewhat lower than in the third quarter of 2023. The sales volume is impacted by the planned maintenance shutdowns in Martinez and in Rotterdam in the fourth quarter. The Singapore new line is targeted to reach approximately 75% capacity utilization by the end of 2023 and to contribute to SAF sales volumes in 2024.

Based on the current outlook, Neste's fourth-quarter comparable sales margin is expected to remain very strong and to be in the range of USD 800-900/ton. The Rotterdam refinery's scheduled 4-week maintenance shutdown is estimated to have an adverse impact of approximately EUR 65 million on the segment's comparable EBITDA.

In Oil Products, the fourth-quarter total refining margin is expected to be lower than in the third quarter. The fourth-quarter sales volumes are expected to be approximately at the same level than in the corresponding period previous year.

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

Based on the current estimates and an FX hedging rate of approx. 85%, Neste's effective EUR/US dollar rate is expected to be within the range of 1.06-1.08 in the fourth quarter of 2023.

Neste estimates the Group's full-year 2023 cash-out capital expenditure excluding M&A to be approx. EUR 1.5-1.6 billion.

Conference call

A conference call in English for investors and analysts will be held today, 26 October 2023, 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 the following link: 

https://register.vevent.com/register/BI3766eb809ea6428ea1758680a315db8a. The conference call can also be followed as a webcast using the following link: https://edge.media-server.com/mmc/p/6uweykdz. 

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