Neste Oil’s Interim Report Q2 2012

02.08.2012

Neste Oil Corporation
Stock Exchange Release
2 August 2012 at 9 a.m (EET)

Neste Oil's Interim Report for January-June 2012

- Second-quarter comparable operating profit was EUR 38 million (Q2/2011: EUR 47 million) and was impacted by maintenance at both the Porvoo and Naantali refineries
- Renewable diesel sales volumes reached a record high, but were offset by low margins

Second quarter in brief:


• Comparable operating profit was EUR 38 million (Q2/2011: EUR 47 million)
• IFRS operating profit was EUR -117 million (Q2/2011: EUR 109 million)
• Total refining margin was USD 8.35/bbl (Q2/2011: USD 9.76/bbl)
• Net cash from operations was EUR 201 million (Q2/2011: EUR -126 million)
• Investments totaled EUR 112 million (Q2/2011: EUR 91 million)
• Leverage ratio was 50.3% (Q2/2011: 46.3%)

President & CEO Matti Lievonen:

“Refining margins were very strong during the second quarter supported by all main product groups. Planned and unplanned maintenance on diesel production line 4 at the Porvoo refinery, a major turnaround at Naantali, and lower levels of margin hedging compared to the second quarter market, all had a negative impact on our result, however. As a result, Oil Products’ comparable operating profit came in below that booked in the corresponding period last year.

As projected earlier, sales volumes at Renewable Fuels rose significantly during the second quarter and reached a new record of 464,000 tons of NExBTL renewable diesel sold, with all production units operating as planned. Renewable Fuels’ financial result was heavily impacted by the historically narrow spread between different vegetable oils and the seasonally low biodiesel producers’ margin, however, which resulted in a comparable operating loss of EUR 33 million for the business.

Uncertainties in the global economy have been reflected in the oil market and will continue to pose a risk for our business. The significant drop in crude oil price seen during the second quarter also contributed to our leverage ending marginally above our 25-50% target range. As the majority of our refinery maintenance work this year has now been completed, we expect good productivity and an improved result from Oil Products during the latter part of the year. Renewable Fuels’ result is also expected to improve towards the end of the year. During the second half of 2012, we will focus on improving cash flow, refinery productivity, and profitability at Renewable Fuels.”
 
The Group's second-quarter 2012 results

Neste Oil's revenue increased to EUR 4,297 million in the second quarter from 3,674 million during the same period in 2011. This increase resulted mainly from the growth of the Renewable Fuels business and higher oil prices. The Group’s comparable operating profit came in at EUR 38 million. Comparable operating profit for the corresponding period in 2011 was EUR 47 million. Renewable Fuels recorded a lower comparable operating loss year-on-year, and Oil Retail’s performance also improved. Oil Products' result was negatively impacted by planned and unplanned maintenance work on diesel production line 4 at the Porvoo refinery and a planned six-week maintenance turnaround at the Naantali refinery. Margin hedges limited Oil Products’ potential to capture the full value of the market’s high refining margins. The Others segment posted a lower result than in the second quarter of 2011.

Oil Products’ second-quarter comparable operating profit was EUR 49 million (75 million), Renewable Fuels’ EUR -33 million (-55 million), and Oil Retail’s EUR 15 million (13 million). The comparable operating profit of the Others segment totaled EUR 1 million (8 million); associated companies and joint ventures accounted for EUR 5 million (13 million) of this figure.

The Group’s IFRS operating profit was EUR -117 million (109 million), which was mainly impacted by inventory losses totaling EUR 164 million (gains of 48 million). Pre-tax profit was EUR -144 million (98 million), profit for the period EUR -113 million (64 million), and earnings per share EUR -0.44 (0.25).

The Group's January-June 2012 results

Neste Oil’s revenue totaled EUR 8,751 million in the first six months compared to EUR 7,146 million for the same period in 2011, as a result of higher oil prices and higher volumes. The Group’s six-month comparable operating profit totaled EUR 114 million compared to EUR 90 million in the first half of 2011. The Group’s result during the first half of 2012 was positively impacted by improved performance at Renewable Fuels and Oil Retail, and negatively impacted by planned and unplanned refinery maintenance during the second quarter.

Oil Products’ six-month comparable operating profit was EUR 126 million (158 million), Renewable Fuels’ EUR -35 million (-91 million), and Oil Retail’s EUR 30 million (25 million). The comparable operating profit of the Others segment totaled EUR -9 million (-8 million). A profit of EUR -1 million (3 million) was booked in the Others segment in respect of associated companies and joint ventures.

The Group’s IFRS operating profit was EUR 71 million (280 million), which was impacted by inventory losses totaling EUR 100 million (gains of 189 million). The pre-tax profit was EUR 22 million (258 million), profit for the period EUR 8 million (182 million), and earnings per share EUR 0.03 (0.71).

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 June, the rolling twelve-month ROACE was 3.1% (2011 financial year: 2.6%).

Outlook

The market expects that margins for advanced refiners, such as Neste Oil, will be higher during the second half of 2012 compared to last year. Diesel is projected to be the strongest part of the barrel going forward, and gasoline margins are expected to remain higher than in 2011. Approximately 30% of Neste Oil’s volume in 2012 is hedged at a USD 4.7/bbl reference margin level, assuming an Urals-Brent differential of USD -1.0/bbl.

Oil Products’ full-year comparable operating profit is expected to improve compared to 2011, assuming good productivity during the latter part of the year.
 
Third-quarter comparable operating profit at Renewable Fuels is expected to improve from the second quarter, but remain negative.

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 expected to be approx. EUR 640 million during 2012, and investments are expected to total approx. EUR 350 million. 

Neste Oil expects the Group's full-year comparable operating profit to improve significantly compared to 2011.

Further information:

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 second-quarter results will be held today, 2 August 2012, at 11:30 a.m. EET at the company’s headquarters at 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 2 August 2012 at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. The call-in numbers are as follows: Europe: +44 (0) 20 3450 9987, US: +1 646 254 3365, using access code 9168047. The conference call can be followed at the company's web site. An instant replay of the call will be available until 9 August 2012 at +358 (0) 9 2310 1650 for Finland at +44 (0) 20 3427 0598 for Europe and +1 347 366 9565 for the US, using access code 9168047#.