Neste Corporation, Interim Report, 24 October 2024 at 9 a.m. (EET)

Challenging market conditions impacting margins, initial progress on cost savings

• Comparable EBITDA totaled EUR 293 million (EUR 1,047 million) 
• EBITDA totaled EUR 301 million (EUR 889 million)
• Renewable Products' comparable sales margin was USD 341/ton (USD 912/ton)
• Oil Products' total refining margin was USD 10.6/bbl (USD 26.9/bbl)
• Cash flow before financing activities was EUR -16 million (EUR 403 million)

• Comparable EBITDA totaled EUR 1,084 million (EUR 2,661 million)
• EBITDA totaled EUR 861 million (EUR 1,876 million)
• Cash flow before financing activities was EUR -817 million (EUR 277 million)
• Cash-out investments were EUR 1,245 million (EUR 1,204 million)
• Comparable return on average capital employed (comparable ROACE) was 8.0% over the last 12 months (30.9.2023: 27.2%)
• Leverage ratio 35.2% at the end of September (31.12.2023: 22.7%)
• Comparable earnings per share: EUR 0.30 (EUR 2.22)
• Earnings per share: EUR 0.05 (EUR 1.35)

Figures in parentheses refer to the corresponding period for 2023, unless otherwise stated.

President and CEO Heikki Malinen:

"The outlook for the global economy continues to be uncertain as a result of geopolitical and trade policy tensions. This is also reflected in renewable and oil product markets, which have been marked by volatility, decreasing prices and regulatory uncertainties. While there are major regional differences, the overcapacity in renewable fuel markets is creating pressure on margins. Although we estimate that Neste has been able to demonstrate the best margins in the industry, supported by our distinctive competitive advantages for example in feedstock, pre-treatment and global optimization, we need to accelerate our efforts to improve our competitiveness.

Following the weak market both in Renewable Products and Oil Products and the slower than anticipated sustainable aviation fuel (SAF) sales, our comparable EBITDA in the third quarter was EUR 293 (1,047) million. Renewable Products' comparable sales margin was USD 341 (912) per ton and Oil Products' total refining margin was USD 10.6 (26.9) per barrel. Our comparable ROACE over the last 12 months was 8.0%. Cash flow before financing activities for the first nine months was EUR -817 (277) million. We have a high focus on cash flow and net working capital optimization in the fourth quarter.

There are both opportunities and uncertainties in the renewables markets. Demand for renewable fuels is expected to grow in 2025. This growth is driven by mandated and incentivized demand, for example by ReFuelEU Aviation and RED III in the EU and possible updates in low-carbon credit standard (LCFS) schemes for example in California. However, voluntary SAF demand has so far not been realized as expected. Nevertheless, the long-term fundamentals in decarbonizing hard to abate sectors like aviation remain strong and supportive to SAF demand growth. At the same time, it is essential to ensure fair competition in the industry, and global trade policy topics continue to be highly important for us. The regulatory framework in the US and related uncertainties around clean fuel production credit (CFPC) might require Neste to reoptimize its global production capacity and supply chains to maximize value. We anticipate more information during 2025.

Neste's level of performance in the current market environment is unsatisfactory and we intend to change this trend. Going forward, we will increase our focus on operational execution and capital discipline. While we are convinced of our long-term value creation potential, we next need to assess our short-term priorities. We have just launched a comprehensive and group-wide full potential analysis. The objective is to ensure our strong performance and competitiveness in different market conditions.

I am convinced that we at Neste have the right foundation and the right capabilities to overcome the current challenges. We have the world-leading renewables and circular platform to build upon. When meeting Neste employees, I have been impressed by their resilience, dedication and competence. The outstanding level of innovation, engineering and sustainability are deeply rooted in the company, setting us apart from competition. This gives me great confidence. As Neste's new CEO, I am looking forward to this journey together with our customers, employees, investors, suppliers and other stakeholders."

The Group's third quarter 2024 results

Neste's revenue in the third quarter totaled EUR 5,624 million (5,973 million). Lower price level affected the revenue EUR -0.9 billion year-over-year, driven by decreasing oil price and renewables sales prices. Higher sales volumes on the other hand increased revenue EUR 0.3 billion both in Oil Products and Renewable Products. Net impact from trading activities in Oil Products increased the revenue by approximately EUR 0.3 billion year-over-year.

The Group's comparable EBITDA was EUR 293 million (1,047 million). Renewable Products' comparable EBITDA was EUR 106 million (545 million), as the sales margin decreased significantly compared to the third quarter of 2023, whereas higher sales volumes had a positive impact year-over-year. Oil Products' comparable EBITDA was EUR 141 (472) million. Similarly in Oil Products, the total refining margin decreased significantly compared to the third quarter of 2023, whereas higher sales volumes increased comparable EBITDA year-over-year. Marketing & Services comparable EBITDA was EUR 32 million (42 million), impacted by inventory losses compared to inventory profits in the corresponding period in 2023. The Others segment's comparable EBITDA was EUR 9 million (-6 million). The Group's fixed costs were EUR 16 million lower year-over-year.

The Group's EBITDA was EUR 301 million (889 million), which was impacted by inventory valuation losses of EUR -176 million (inventory gains EUR 7 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 141 million (-166 million). Profit before income taxes was EUR 26 million (618 million), and net profit EUR 23 million (539 million). Comparable earnings per share were EUR 0.02 (0.88), and earnings per share EUR 0.03 (0.70).

In the third quarter, the release of an environmental provision totaling EUR 46 million has been eliminated from comparable EBITDA. The provision is related to Naantali refinery's shutdown in 2021, the remaining provision amounts to EUR 43 million.

The Group's January-September 2024 results

Neste's revenue in the first nine months totaled EUR 15,067 million (16,622 million). Lower price level affected the revenue EUR -0.7 billion year-over-year, driven by decreasing oil price and renewables sales prices. Lower sales volumes decreased revenue EUR -1.4 billion where Porvoo major turnaround in the second quarter is the main driver for the decrease and Renewable Products sales volumes on the other hand have increased revenue year-over-year. Net impact from trading activities in Oil Products increased the revenue by approximately EUR 0.5 billion year-over-year.

The Group's comparable EBITDA was EUR 1,084 million (2,661 million). Renewable Products' nine-month comparable EBITDA was EUR 500 million (1,473 million), mostly impacted by the weak market environment as the sales margin decreased by EUR 1,007 million. Oil Products' comparable EBITDA was EUR 480 million (1,104 million), impacted mostly by the Porvoo major turnaround and a lower total refining margin. Marketing & Services comparable EBITDA was EUR 78 million (94 million), driven by lower unit margins and inventory losses during 2024 compared to the inventory profits in the corresponding period in 2023. The Others segment's comparable EBITDA was EUR 16 million (-5 million).

The Group's EBITDA was EUR 861 million (1,876 million), which was impacted by inventory valuation losses of EUR -422 million (inventory losses -572 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 167 million (-226 million). Profit before income taxes was EUR 47 million (1,189 million), and net profit was EUR 40 million (1,036 million). Comparable earnings per share were EUR 0.30 (2.22), and earnings per share were EUR 0.05 (1.35).

One-off costs related to restructuring in the first quarter totaling EUR 13 million and release of an environmental provision totaling EUR 46 million in the third quarter affected the first nine months results. These one-off impacts have been eliminated from comparable EBITDA. The provision is related to Naantali refinery's shutdown in 2021, the remaining provision amounts to EUR 43 million. 

Outlook

Market outlook for 2024

The uncertainty in the global economic outlook and geopolitical situation continues to create market volatility. In Renewable Products, bioticket and renewable credit prices and renewable diesel price premiums are expected to remain at a low level compared to 2023 and feedstock prices are expected to remain volatile. In Oil Products, the refining market continues to be impacted by geopolitical tensions.

Guidance for 2024

Renewable Products' total sales volume is expected to increase from 2023 and to reach approximately 3.9 Mt (+/- 5%) in 2024, out of which SAF sales volume is expected to be 0.35-0.55 Mt. Renewable Products' full-year 2024 average comparable sales margin is expected to be in the range of USD 360-480/ton.

Oil Products' total sales volume in 2024 is expected to be lower than in 2023, impacted by the 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

Renewable Products' full-year sales volume is impacted by the planned maintenance shutdowns and the ramp-up timeline of Martinez Renewables joint operation (Martinez). Singapore's new line is scheduled to have an 8-week maintenance shutdown in the fourth quarter, after which full capacity is expected to be reached. The Martinez facility is targeted to be able to run at 100% by the end of the year. Neste optimizes its production capacity utilization in Renewable Products according to the market situation. SAF sales are expected to increase towards the end of the year.

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 lower (previously slightly higher) than in 2023.

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.

Conference call

A webcast and conference call in English for investors and analysts will be held on 24 October 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://palvelu.flik.fi/teleconference/?id=50051377. The conference call can also be followed as a webcast (https://neste.videosync.fi/q3-2024).

Further information:

Heikki Malinen, President and CEO, tel. +358 10 458 11
Martti Ala-Härkönen, CFO, tel. +358 40 737 6633
Anssi Tammilehto, Vice President, Investor Relations, tel. +358 50 458 843