|Neste Oil Corporation
Stock Exchange Release
3 February 2012 at 9.00 am (EET)
Neste Oil’s Financial Statements for 2011
- Full-year comparable operating profit totaled EUR 156 million (EUR 240 million in 2010)
- Fourth-quarter comparable operating profit was EUR 14 million (Q4/2010: 90 million), impacted by a lower total refining margin
- Fourth-quarter sales volumes at Renewable Fuels increased by 55% and comparable operating profit improved by EUR 42 million compared to the previous quarter
2011 in brief:
• Comparable operating profit was EUR 156 million (2010: 240 million)
• IFRS operating profit was EUR 273 million (2010: 323 million)
• Total refining margin was USD 8.48/bbl (2010: 8.14)
• Net cash from operations was EUR 197 million (2010: 1,105 million)
• Investments totaled EUR 364 million (2010: 943 million)
• Leverage ratio was 45.7% (2010: 42.6%) at the end of the year
• A new renewable diesel refinery in Rotterdam and a new base oil joint venture plant in Bahrain were completed within original budget and on-schedule
• The Board of Directors will propose a dividend of EUR 0.35 per share (2010: 0.35).
Fourth quarter of 2011 in brief:
• Comparable operating profit came in at EUR 14 million (Q4/2010: 90 million)
• IFRS operating profit was EUR -22 million (Q4/2010: 146 million)
• Total refining margin was USD 6.97/bbl (Q4/2010: 9.67)
• Sales volumes were high, at 4,179 million tons (Q4/2010: 4,232)
• Net cash from operations was EUR 394 million (Q4/2010: 483 million).
President & CEO Matti Lievonen:
“We completed our major investment program in 2011, when both the new renewable diesel refinery in Rotterdam and our joint venture base oil plant in Bahrain came on stream. I am also very proud of the improvement we achieved in our safety performance last year, which was best ever.
Uncertainties related to overall economic developments and a surplus of global refining capacity, combined with a mild early winter, had a negative impact on refining margins towards the end of the year and our fourth-quarter results. However, our Oil Products segment succeeded in recording a better comparable operating profit in 2011 than in 2010.
The Renewable Fuels business was in ramp-up mode last year, but we made encouraging progress in increasing sales volumes and expanding our customer base during the year. During the last quarter of 2011, we increased renewable diesel sales volumes by 55% compared to the third quarter. Although the Renewable Fuels segment remained loss-making in 2011, we are on the right track to making it profitable. In line with our strategy, we also succeeded in extending our renewable feedstock base and all our renewable fuel production facilities are now ISCC-certified.
Despite the current uncertainties in the market conditions, we expect Neste Oil’s full-year comparable operating profit to improve significantly compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level and that quarterly sales volumes of renewable diesel are similar or above those seen during the last quarter of 2011.”
The Group's full-year results for 2011
Neste Oil’s revenue in 2011 totaled EUR 15,420 million (11,892 million). This increase resulted mainly from higher oil prices and higher sales volumes compared to 2010. The Group’s comparable operating profit for the year decreased to EUR 156 million from EUR 240 million reported in 2010. The latter figure included a one-time insurance compensation payment of EUR 48 million. Oil Products recorded a higher comparable operating profit year-on-year, whereas Renewable Fuels posted a significant operating loss. Oil Retail’s result was almost at the same level as in 2010. The Group’s fixed costs came in at EUR 613 million (643 million).
Oil Products’ full-year comparable operating profit was EUR 249 million (208 million), Renewable Fuels’ EUR -163 million (-65 million), and Oil Retail’s EUR 57 million (60 million). The comparable operating profit of the Others segment totaled EUR 9 million (45 million) and included a contribution of EUR 19 million (25 million) by Nynas.
The Group’s full-year IFRS operating profit was EUR 273 million (323 million), which was impacted by inventory gains totaling EUR 97 million (121 million). Pre-tax profit was EUR 206 million (296 million), profit for the period EUR 160 million (231 million), and earnings per share EUR 0.62 (0.89).
Given the capital-intensive nature of its business, Neste Oil uses return on average capital employed after tax (ROACE) as its primary financial target. ROACE figures are based on comparable results. As of the end of 2011, the rolling twelve-month ROACE was 2.6% (2010 financial year: 4.6%)
The Group’s fourth-quarter results in 2011
Neste Oil’s revenue during October-December 2011 totaled EUR 4,169 million (3,526 million). The Group’s comparable operating profit was EUR 14 million (90 million). The decrease year-on-year resulted from weaker refining margins, lower productivity due to operational outages at Neste Oil’s refineries, and lower profitability at Oil Retail.
Oil Products’ fourth-quarter comparable operating profit was EUR 21 million (108 million), Renewable Fuels’ EUR -15 million (-13 million), Oil Retail’s EUR 9 million (18 million), and Others’ EUR 2 million (-16 million) including a EUR -2 million (3 million) contribution from Nynas.
Neste Oil’s IFRS operating profit for the last quarter was EUR -22 million (146 million). Inventory losses amounted to EUR 58 million, compared to EUR 61 million in gains in the fourth quarter of 2010. The fourth-quarter pre-tax profit amounted to EUR -49 million (142 million), profit for the period EUR -22 million (107 million), and earnings per share EUR -0.09 (0.42).
The market outlook is overshadowed by uncertainties over economic development and the expectation that Europe in particular is entering what could be a short-term recession. The International Energy Agency has reduced its global oil demand growth estimates and is currently forecasting oil demand to increase by 1.2 million bbl/d in 2012. Most of this growth will take place in emerging markets. More new refining capacity is expected to come on stream during the year, leading to a somewhat looser supply and demand balance on the refining market. On the other hand, capacity closures that have been announced in Europe and the US could have a positive impact on the balance. Going forward, tensions surrounding Iran may lead to higher crude prices and a narrowing price differential between Urals and Brent.
Neste Oil expects to see good productivity and higher production volumes at its Porvoo refinery. Diesel production line 4 at the Porvoo refinery will be off-line for five weeks in the second quarter due to planned coke removal. A six-week maintenance turnaround is scheduled to take place at the Naantali refinery in the second quarter of 2012. Refining margins have recovered from the low levels seen in December due to some capacity closures. The market appears to expect that margins for complex refiners, such as Neste Oil, will remain roughly at 2011 levels; they will be sensitive to developments in economic activity, however. Diesel is projected to be the strongest part of the barrel going forward, while gasoline margins are expected to stay at 2011 levels and be subject to seasonal variations. Demand for base oil has remained healthy, but base oil margins are currently depressed. Approximately 30% of Neste Oil’s volume in 2012 is hedged at a USD 4.7 /bbl reference margin level, assuming a Urals-Brent differential of USD -1.0 /bbl. As a result of all these factors, Oil Products’ full-year comparable operating profit is expected to improve compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level.
The ramp-up of the renewable fuels business will continue in 2012. The practical implementation of biofuel legislation in Europe and the US will play an important role in how sales develop. Sales volumes of renewable diesel in the first quarter of 2012 are expected to be similar to those seen during the last quarter of 2011. Neste Oil will aim to achieve a clear increase in sales volumes by the end of second quarter of 2012. Although renewable diesel margins are likely to remain narrow in the first quarter, Neste Oil expects the first-quarter result of Renewable Fuels to develop positively compared to that recorded in the last quarter of 2011.
Diesel demand growth on the Finnish retail market is closely linked to industrial transportation activity and may slow in 2012, and could also be affected by the excise tax increase implemented at the beginning of the year. Gasoline demand is expected to continue declining. Outside Finland, the Polish market is expected to remain challenging and other markets to perform as in 2011. Oil Retail’s full-year comparable operating profit is expected to be at least equal to that seen in 2011.
The Group’s fixed costs are estimated to be approx. EUR 640 million in 2012, compared to EUR 613 million in 2011, due to expansion of the business.
The Group’s investments are expected to be approx. EUR 350 million (364 million).
Despite the current uncertainties in the market conditions, we expect Neste Oil’s full-year comparable operating profit to improve significantly compared to 2011, assuming that Neste Oil’s reference refining margin remains at last year’s level and that quarterly sales volumes of renewable diesel are similar or above those seen during the last quarter of 2011.
Dividend distribution proposal
The parent company's distributable equity as of 31 December 2011 amounted to EUR 1,036 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 Neste Oil Corporation pays a cash dividend of EUR 0.35 per share for 2011, totaling EUR 90 million based on the number of registered shares as of 2 February 2012.
Matti Lievonen, President & CEO, tel. +358 10 458 11
Ilkka Salonen, CFO, tel. +358 10 458 4490
Investor Relations, tel. +358 10 458 5292
News conference and conference call
A press conference in Finnish on the full-year and fourth-quarter results will be held today, 3 February 2012, at 11:30 p.m. EET at the company’s headquarters, Keilaranta 21, Espoo. www.nesteoil.com will feature English versions of the presentation materials. A conference call in English for investors and analysts will be held on 3 February 2012 at 3:00 pm Finnish / 1:00 pm London / 8:00 am New York. The call-in numbers are as follows: Europe: +44 (0) 20 3106 7162, US: +1 646 254 3375 (confirmation code: 4396199). The conference call can be followed at: http://www.media-server.com/m/p/d6zf3nza. An instant replay of the call will be available until 10 February 2012 at +44 (0)20 7111 1244 for Europe and +1 347 366 9565 USA for the US (confirmation code: 4396199#).
Neste Oil's interim report is available in its entirety on the company's web site at www.nesteoil.com.