Neste's Financial Statements Release for 2020

Neste Corporation, Financial Statements Release, 5 February 2021 at 9 a.m. (EET)

Solid performance in a challenging year, significant progress in strategy implementation

Year 2020 in brief:

• Comparable operating profit totaled EUR 1,416 million (EUR 1,962 million, including EUR 142 million contribution from a retroactive US Blender’s Tax Credit decision for 2018)
• Operating profit totaled EUR 828 million (EUR 2,229 million)
• Cash flow before financing activities totaled EUR 1,019 million (EUR 1,154 million)
• Return on average capital employed (ROACE) was 17.3% over the last 12 months (26.6%)
• Leverage ratio was -4.7% at the end of December (31 Dec 2019: -3.3%)
• Comparable earnings per share were EUR 1.60 (EUR 2.04)
• Earnings per share: EUR 0.93 (EUR 2.33)
• Board of Directors will propose a dividend of EUR 0.80 per share (1.02), totaling EUR 614 million (EUR 783 million)

Fourth quarter in brief:

• Comparable operating profit totaled EUR 380 million (EUR 781 million, including EUR 372 million contribution from a retroactive US Blender’s Tax Credit decision for 2018 and 2019)
• Operating profit totaled EUR -2 million (EUR 1,046 million)
• Renewable Products' comparable operating profit was EUR 338 million (EUR 671 million)
• Renewable Products' comparable sales margin, including BTC, was USD 760/ton (USD 787/ton)
• Oil Products' comparable operating profit was EUR 37 million (EUR 117 million)
• Oil Products' total refining margin was USD 8.3/bbl (USD 11.4/bbl)
• Marketing & Services’ comparable operating profit was EUR 15 million (EUR 11 million)

President and CEO Peter Vanacker:

“Despite the challenges and disruptions caused by the COVID-19 pandemic, 2020 was a success for Neste in many ways. We posted a solid comparable operating profit of EUR 1,416 million, compared to EUR 1,962 million in the previous year. The result of the year 2019 included a contribution of EUR 372 million from the retroactive US Blender’s Tax Credit (BTC) decision for the years 2018 and 2019. The BTC contribution in 2020 was EUR 231 million. In 2020 Renewable Products proved to be very resilient with increased sales volumes and strong sales margins. Oil Products suffered from a historically weak refining market caused by the global COVID-19 related demand destruction and oversupply. This development accelerated the need to improve the long-term competitiveness of our refining business, and restructuring measures, including the closure of the Naantali refinery, were decided upon. Although Marketing & Services’ demand was also impacted by the pandemic, it performed very well. We reached a ROACE of 17.3% over the last 12 months and a leverage ratio of -4.7% at the end of the year. Our cash flow before financing activities was very strong at EUR 1,019 million in 2020. The solid financial position enables implementation of our growth strategy going forward while rewarding our shareholders.

Renewable Products posted a solid full-year comparable operating profit of EUR 1,334 million (EUR 1,599 million). The renewable diesel demand remained good during the pandemic, but feedstock markets tightened during the year. Despite the higher feedstock costs, we were able to maintain our comparable sales margin at a very high level, and it averaged USD 703/ton. The optimization of market mix, feedstock mix and price premium, and successful margin hedging were important contributors to this achievement. Sales volumes were 2.97 million tons in 2020, about 4% higher than in the previous year. The increase in sales was enabled by a new annual production record. The nameplate production capacity was increased from 3.0 to 3.2 million ton/a during the second quarter as a result of successful implementation of the Neste Excellence program in our operations. The share of waste and residues increased further and averaged 83% of the total renewable material inputs in 2020. The fixed costs of the segment were EUR 62 million higher than in the previous year reflecting the strategic projects and strengthening of resources in the growing businesses.

Oil Products posted a full-year comparable operating profit of EUR 50 million (EUR 386 million). The COVID-19 pandemic resulted in significant demand destruction and an oversupply situation in global refining in 2020. The reference margin, which reflects the general market conditions, was impacted by an exceptionally weak product market. The reference margin averaged USD 0.6/bbl, which was approximately USD 5.2/bbl lower than in 2019. The lower reference margin had a negative impact of EUR 490 million on the segment’s comparable operating profit year-on-year. In the challenging market conditions we were able to increase our additional margin, and it averaged USD 6.9/bbl in 2020. Substantial short-term cost reduction measures were successfully implemented.

In order to secure the long-term competitiveness of the Oil Products business we initiated co-operation negotiations on a plan to restructure our refinery operations in Finland. The co-operation negotiations were concluded in November, and as a consequence, it was decided to shut down the refinery operations in Naantali by the end of March 2021. The company will focus the Naantali site on terminal and harbor operations, as well as renew its Oil Products operating model. In the second phase of the transformation, the Porvoo refinery will be developed towards co-processing renewable and circular raw materials, and we have started the implementation of measures to bring the greenhouse gas (GHG) emissions in our production to net zero by 2035. The shutdown of the Naantali refining operations and the renewal of the Oil Products operating model will lead to approximately 370 redundancies. We will support our people in adapting to this change in several ways. These restructuring measures are expected to result in annual fixed cost savings of approximately EUR 50 million.

Marketing & Services segment generated a full-year comparable operating profit of EUR 68 million (EUR 77 million). Taking into account the divested Russian operation, which contributed EUR 16 million to the comparable operating profit in 2019, the segment improved its performance by successful margin management and cost control.

The Others segment’s full-year comparable operating profit was EUR -37 million (EUR -98 million). The improvement was mainly a result of the minority shareholding in Nynas having been written-off in the third quarter of 2019. Neste sold its entire shareholding in Nynas AB in September 2020.

Despite the market turbulence, we continue to focus on strategy execution. Our strategy is built on renewable and circular solutions. We refine waste, residues and innovative raw materials into renewable fuels and sustainable feedstock for plastics and other materials. For example, our Neste MY Renewable Diesel™ is already being sold at almost 500 fuel stations in several European countries as well as in the US in California and Oregon.

Due to the COVID-19 related restrictions imposed by the local government on construction sites, the targeted start-up schedule of the Singapore renewables capacity expansion project was earlier updated to the first quarter of 2023 and the capital expenditure estimate to EUR 1.5 billion. This biggest investment in our history is proceeding according to the updated completion schedule. It will expand our annual renewables production capacity by up to 1.3 million tons with full optionality. The feasibility study phase of our next renewables capacity expansion project is progressing.

We have taken steps forward on multiple fronts and markets, and have announced many new agreements and partnerships especially in our growth areas, Renewable Aviation and Renewable Polymers and Chemicals. We also signed almost ten new acquisitions and investments in 2020. Among these were the completed acquisition of Mahoney Environmental, a collector and recycler of used cooking oil in the United States, and the pending acquisition of Bunge's refinery plant in Rotterdam to increase raw material pretreatment capacity for the production of renewable products. We also made an investment into Recycling Technologies, a specialist plastic recycling technology provider, and acquired a minority stake in Alterra Energy, an innovative chemical recycling technology company.

Our sustainable aviation fuel (SAF) is available and in commercial use by over 10 airlines globally. Neste currently has an annual capacity of 100,000 tons of SAF. With the Singapore refinery expansion on the way, and with possible additional investment into the Rotterdam refinery, we will have the capacity to produce some 1.5 million tons of SAF annually by the end of 2023.

In 2020, we launched Neste RE, a 100% renewable and recycled raw material for plastics and chemicals production. Neste RE is a product for tackling climate change through reducing the need to use virgin fossil resources, while it also provides a new solution to the end-of-life related challenges the polymers and chemicals industries are facing today. We aim to become a significant solution provider for chemical recycling and have set a target to process annually over 1 million tons of waste plastic from 2030 onwards. In the fall of 2020, we completed our first industrial-scale processing run with liquefied waste plastic, and processed 400 tons of liquefied plastic waste at our refinery in Finland.

Neste continues to take the risks relating to the COVID-19 pandemic seriously. Our primary objective is to ensure the health and safety of our employees, customers, contractors and other partners as well as to ensure the continuity of our operations and secure supply of products to our customers. Despite the challenges, we reached our best ever occupational safety performance in 2020, and our process safety was slightly ahead of target.

We are well ahead to exceed our Neste Excellence program target to achieve at least EUR 225 million profit improvement by the end of 2022 compared to the year 2018 baseline. Until the end of 2020, we have already achieved EUR 237 million improvement through Neste Excellence.

Uncertainty on the further development of the COVID-19 pandemic and its impact on the global economy continues. However, in 2021 we will continue on our journey to become a global leader in renewable and circular solutions.” 

The Group's fourth quarter 2020 results

Neste's revenue in the fourth quarter totaled EUR 3,028 million (4,053 million). The revenue decline resulted from the lower crude oil price, which had a negative impact of approx. EUR 700 million, and lower sales volumes of oil products, which had a negative impact of approx. EUR 100 million on the revenue. Additionally, the weaker US dollar had a negative impact of approx. EUR 200 million on the revenue compared to the corresponding period last year. The Group’s comparable operating profit was EUR 380 million (781 million). Renewable Products' comparable operating profit was EUR 338 million (671 million), showing continued resilience in the turbulent market. The segment’s fourth quarter 2019 figures included a contribution of EUR 372 million from the retroactive US BTC decision for the years 2018 and 2019. Oil Products' comparable operating profit was EUR 37 million (117 million) due to the continued weak refining market. Marketing & Services comparable operating profit was EUR 15 million (11 million). The Others segment's comparable operating profit was EUR -7 million (-14 million).

The Group’s operating profit was EUR -2 million (1,046 million), which was impacted by inventory valuation losses of EUR 21 million (gains of 87 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -48 million (133 million), mainly related to margin and inventory hedging. Other adjustments totaling EUR -312 million were booked in the fourth quarter relating to the confirmed Naantali refinery closure. They included an asset write-down, and cost provisions for site demolition, clean-up and personnel arrangements. Profit before income taxes was EUR -21 million (1,030 million), and net profit EUR 6 million (934 million). Comparable earnings per share were EUR 0.44 (0.92), and earnings per share EUR 0.01 (1.22).

The Group's full-year 2020 results

Neste's revenue in 2020 totaled EUR 11,751 million (15,840 million). The revenue decline resulted from the lower crude oil price, which had a negative impact of approx. EUR 3.0 billion, and lower sales volumes of conventional oil products, which had a negative impact of approx. EUR 900 million on the revenue. Additionally, the weaker US dollar had a negative impact of approx. EUR 200 million on the revenue year-on-year. The Group’s comparable operating profit was EUR 1,416 million (1,962 million). Renewable Products' comparable operating profit was EUR 1,334 million (1,599 million) supported by high sales volumes and margins. The segment’s 2019 figures included the positive impact of EUR 372 million of the retroactive US BTC for 2018 and 2019, while the BTC contribution in 2020 was EUR 231 million. Oil Products' comparable operating profit was EUR 50 million (386 million), due to the exceptionally weak refining market. Marketing & Services’ comparable operating profit was EUR 68 million (77 million), and considering the divestment of the Russian business in late 2019, the segment actually improved its performance. The Others segment's comparable operating profit of EUR -37 million (-98 million) was significantly better than in the year 2019, mainly as a result of the minority shareholding in Nynas having been written-off in 2019.

The Group’s operating profit was EUR 828 million (2,229 million), which was impacted by inventory valuation losses of EUR 119 million (gains of 180 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -112 million (69 million), mainly related to margin hedging. The divestment of Nynas resulted in a capital loss of EUR 42 million in the third quarter. Other adjustments totaling EUR -312 million were booked in the fourth quarter relating to the Naantali refinery closure. They included an asset write-down, and cost provisions for site demolition, clean-up and personnel arrangements. Profit before income taxes was EUR 786 million (2,067 million), and net profit EUR 714 million (1,789 million). Comparable earnings per share were EUR 1.60 (2.04), and earnings per share EUR 0.93 (2.33).

Outlook

Visibility in the global economic development still remains low due to the COVID-19 pandemic. As a consequence, we expect volatility in the oil products and renewable feedstock markets to remain high. Based on our current estimates and a hedging rate of 80%, Neste's effective EUR/US dollar rate is expected to be within a range 1.15-1.18 in the first quarter of 2021.

Sales volumes of renewable diesel in the first quarter are expected to be on the same level as in the previous quarter. Waste and residue markets are anticipated to remain tight as their demand continues to be robust. Following the sales contract renegotiation, the share of term sales is expected to be approx. 75% of sales volumes in 2021. Our first-quarter sales margin is expected to be lower than the very high level in the fourth quarter of 2020, but to stay healthy. We forecast that the sales margin will not be supported by similar margin hedging gains as in 2020. The hedging rate is expected to be lower than normal in the first quarter. Utilization rates of our renewables production facilities are forecasted to remain high. We have currently scheduled an approximately twelve-week major turnaround at the Porvoo refinery in the second quarter of 2021. The Porvoo turnaround is currently estimated to have a negative impact of approximately EUR 30 million on the Renewable Products segment’s comparable operating profit, mainly in the second quarter. We have also scheduled a seven-week turnaround at the Singapore refinery in the third quarter, and a four-week catalyst change at the Rotterdam refinery in the fourth quarter of 2021. The Singapore turnaround is currently estimated to have a negative impact of approximately EUR 80 million, and the Rotterdam catalyst change a negative impact of approximately EUR 50 million on the segment’s comparable operating profit.

Oil Products’ first-quarter market demand will continue to be depressed and volatile due to several lockdowns as a result of the COVID-19 pandemic. The reference margin is also expected to remain very low and volatile. The refining operations at the Naantali refinery are planned to be closed by the end of March. We have currently scheduled an approx. twelve-week major turnaround at the Porvoo refinery in the second quarter. The Porvoo turnaround is currently estimated to have a negative impact of approx. EUR 110 million on the Oil Products segment’s comparable operating profit, mainly in the second quarter.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the first quarter. The COVID-19 pandemic is anticipated to have some negative impact on the demand and sales volumes.

Neste estimates the Group’s full-year 2021 cash-out capital expenditure to be approximately EUR 1.2 billion, excluding M&A.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 50% of its comparable net profit in the form of a dividend. The parent company's distributable equity as of 31 December 2020 amounted to EUR 2,657 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 will propose to the Annual General Meeting that a dividend of EUR 0.80 per share (1.02), totaling EUR 614 million (783 million), shall be paid on the basis of the approved balance sheet for 2020. The dividend shall be paid in two installments.

The first installment of dividend, EUR 0.40 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 first dividend installment, which shall be 1 April 2021. The Board proposes to the AGM that the first dividend installment would be paid on 12 April 2021. The second installment of dividend, EUR 0.40 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 dividend installment, which shall be 5 October 2021. The Board proposes to the AGM that the second dividend installment would be paid on 12 October 2021. 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 dividend represents a yield of 1.4% (at year-end 2020 share price of EUR 59.16) and 50% of the comparable net profit in 2020.

Conference call

A conference call in English for investors and analysts will be held today, 5 February 2021, at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. The call-in numbers are as follows: Finland: +358 (0)9 2311 3291, rest of Europe: +44 (0) 20 7192 8338, US: +1 646 741 3167, using access code 6398619. The conference call can be followed at the company's website. An instant replay of the call will be available until 12 February 2021 at +44 (0) 3333 009785 for Europe and +1 866 331 1332 for the US, using access code 6398619.

Further information:

Peter Vanacker, President and CEO, tel. +358 10 458 11
Jyrki Mäki-Kala, CFO, tel. +358 10 458 4098
Investor Relations, tel. +358 10 458 5292

Neste in brief

Neste (NESTE, Nasdaq Helsinki) creates solutions for combating climate change and accelerating a shift to a circular economy. We refine waste, residues and innovative raw materials into renewable fuels and sustainable feedstock for plastics and other materials. We are the world’s leading producer of renewable diesel and sustainable aviation fuel, developing chemical recycling to combat the plastic waste challenge. We aim at helping customers to reduce greenhouse gas emissions with our renewable and circular solutions by at least 20 million tons annually by 2030. As a technologically advanced refiner of high-quality oil products with a commitment to reach carbon-neutral production by 2035, we are also introducing renewable and recycled raw materials such as waste plastic as refinery raw materials. We have consistently been included in the Dow Jones Sustainability Indices and the Global 100 list of the world’s most sustainable companies. In 2019, Neste's revenue stood at EUR 15.8 billion, with 82% of the company’s comparable operating profit coming from renewable products. Read more: neste.com