Neste's Interim Report for January-March 2019

Neste Corporation, Interim Report, 26 April 2019 at 9 am. (EET)

Renewable Products delivered outstanding results

First quarter in brief:

• Comparable operating profit totaled EUR 378 million (EUR 401 million)
• Operating profit totaled EUR 382 million (EUR 421 million)
• Renewable Products' comparable sales margin was USD 692/ton (USD 525/ton)
• Oil Products' total refining margin was USD 9.46/bbl (USD 10.16/bbl)
• Others segment's comparable operating profit EUR -43 million (-9 million)
• Cash flow before financing activities was EUR 8 million (EUR 234 million)
• Return on average capital employed (ROACE) was 19.8% over the last 12 months (2018: 21.1%)
• Leverage ratio was 1.6% at the end of March (31.12.2018: -1.5%)

President and CEO Peter Vanacker:

“Neste had a great start for the year as Renewable Products delivered an outstanding performance. We posted a comparable operating profit of EUR 378 million in the first quarter, compared to EUR 401 million in the corresponding period last year, which included EUR 140 million impact from the US Blender's Tax Credit 2017. Renewable Products delivered the best ever quarterly comparable operating profit as a result of successful margin optimization. Oil Products' comparable operating profit was lower than in the first quarter of 2018, mainly due to a less supportive market. Marketing & Services' financial performance reflected a normal seasonality. Neste reached a ROACE of 19.8% over the last 12 months and a leverage ratio of 1.6%.

Renewable Products posted a comparable operating profit of EUR 337 million (EUR 296 million). The renewable diesel market continued to be favorable, and our margin optimization yielded good results. A higher comparable sales margin had a positive impact of EUR 81 million on the operating profit compared to the corresponding period last year. Our sales volumes were 692,000 tons, more than 25% higher than in the corresponding period last year. During the first quarter 74% of volumes were sold to the European markets and 26% to North America. During the first quarter our renewable diesel production facilities operated at an average 99% utilization rate, based on the updated nominal capacity of 2.9 Mton/a. Feedstock mix optimization towards lower-quality raw materials continued, and the proportion of waste and residue inputs was 80%.

Oil Products posted a comparable operating profit of EUR 73 million (EUR 99 million) in the first quarter. The reference margin, reflecting the general market conditions, was impacted by a weak gasoline market and a narrow Urals-Brent differential. Neste introduced an updated reference margin calculation formula at its Capital Markets Day event, and the new formula has been applied since the beginning of the year. The lower reference margin had a negative impact of EUR 15 million on the comparable operating profit year-on-year. Oil Products' additional margin continued strong at USD 5.0/bbl, which equals USD 6.0/bbl based on the old margin formula. However, the sales volumes were lower than the exceptionally high level in the first quarter of 2018. Also the profitability of the base oils business was lower than in the corresponding period last year.

Marketing & Services posted a comparable operating profit of EUR 13 million in the first quarter, similar to the corresponding period last year (EUR 13 million).

The Others segment's comparable operating profit was EUR 34 million weaker than in the corresponding period of 2018, mainly due to the poor financial performance of Nynas. Nynas has crude oil supply problems caused by the US sanctions.

We launched an updated strategy at our Capital Markets Day in London in late February. Neste targets to become a global leader in renewable and circular solutions. The renewed long-term strategy is designed to move Neste faster and bolder to realize its sustainability aspirations while growing profitably. The new organizational structure to drive the execution of the global growth strategy will become effective on 1 May, and we are making good progress with setting it up. The first commercial agreements to supply renewable jet fuel and renewable polymers have been signed, and we expect sales volumes in these markets to gradually ramp up."

The Group's first quarter 2019 results

Neste's revenue in the first quarter totaled EUR 3,769 million (3,629 million). The revenue increase mainly resulted from a stronger US dollar exchange rate. The Group’s comparable operating profit was EUR 378 million (401 million). Renewable Products' comparable operating profit was higher than in the first quarter of 2018, mainly as a result of higher sales volume and sales margin. Oil Products' result was lower than in the first quarter of 2018, mainly due to lower margins and sales volumes. Marketing & Services' higher unit margins were offset by lower sales volumes and higher fixed costs. The Others segment's comparable operating profit was significantly weaker than in the corresponding period of 2018, mainly due to the poor performance of Nynas, caused by the impacts of the US sanctions on the company's business.

Renewable Products’ first quarter comparable operating profit was EUR 337 million (296 million), Oil Products’ EUR 73 million (99 million), and Marketing & Services' EUR 13 million (13 million). The comparable operating profit of the Others segment totaled EUR -43 million (-9 million); Nynas' net profit accounted for EUR -31 million (-4 million) of this figure.

The Group’s operating profit was EUR 382 million (421 million), which was impacted by inventory valuation gains of EUR 71 million (32 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -88 million (-12 million), mainly related to margin hedging. Profit before income taxes was EUR 348 million (397 million), and net profit EUR 294 million (347 million). Comparable earnings per share were EUR 0.38 (0.43), and earnings per share EUR 0.38 (0.45).

Outlook

Developments in the global economy have been reflected in the renewable fuel, feedstock and oil markets; and volatility in these markets is anticipated to continue. Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Global oil product demand growth is expected to continue at a lower rate than in 2018, while global refining capacity additions are expected to grow driven by large projects in Asia and the Middle East. 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 second quarter of 2019.

Renewable Products' second-quarter sales volumes are expected to be approximately at the same level as in the first quarter of 2019, with no major changes in the sales allocation. Utilization rates of our renewable production facilities are expected to remain high in the second quarter. The raw material prices are anticipated to increase from the first quarter level. We have scheduled a catalyst change maintenance at the Rotterdam renewable products refinery in the fourth quarter.

Oil Products’ reference margin in the second quarter is expected to be higher than in the first quarter, driven by a seasonally improving gasoline market. Utilization rates of our production facilities are anticipated to remain high in the second quarter, except for normal unit maintenances. We have scheduled a four-week decoking maintenance at the Porvoo refinery Production Line 4 in September-October.

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

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

Conference call

A conference call in English for investors and analysts will be held today, 26 April 2019, 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 4245 0806, rest of Europe: +44 (0) 2071 928000, US: +1 631 5107495, using access code 5263426. The conference call can be followed at the company's website. An instant replay of the call will be available until 3 May 2019 at +44 (0) 333 300 9785 for Europe and +1 917 677 7532 for the US, using access code 5263426.

Neste in brief

Neste (NESTE, Nasdaq Helsinki) creates sustainable solutions for transport, business, and consumer needs. Our wide range of renewable products enable our customers to reduce climate emissions. We are the world's largest producer of renewable diesel refined from waste and residues, introducing renewable solutions also to the aviation and plastics industries. We are also a technologically advanced refiner of high-quality oil products. We want to be a reliable partner with widely valued expertise, research, and sustainable operations. In 2018, Neste's revenue stood at EUR 14.9 billion. In 2019, Neste placed 3rd on the Global 100 list of the most sustainable companies in the world. Read more: neste.com

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