Neste's Interim Report for January–March 2023

Source: 4/28/2023, Location: Europe

Strong start to 2023
First quarter in brief:
Comparable EBITDA totaled EUR 830 million (EUR 578 million)
EBITDA totaled EUR 463 million (EUR 916 million)
Renewable Products' comparable sales margin* was USD 945/ton (USD 783/ton)
Oil Products' total refining margin was USD 21.8/bbl (USD 10.3/bbl)
Cash flow before financing activities was EUR -102 million (EUR -960 million)
Comparable return on average capital employed (Comparable ROACE) was 31.8% over the last 12 months (Q1/2022: 19.1%)
Leverage ratio was 18.7% at the end of March (31.12.2022: 13.9%)
* Calculation formula has been adjusted effective 1 January 2023; and the figures for 2022 restated. Q1/22 comparable sales margin with the previous calculation reached USD 806/ton.

President and CEO Matti Lehmus:
“We had a strong start to 2023, which will be a year of growth for Neste’s renewables businesses. Our comparable EBITDA in the first quarter was EUR 830 million, up by about 44 per cent compared to EUR 578 million in the corresponding period last year. In Renewable Products our comparable sales margin per ton was at a very high level, in Oil Products a solid total refining margin continued to support our performance while in Marketing & Services our profitability followed the normal seasonality. Our cash flow before financing activities was slightly negative due to our growth investments and decreasing commodity prices.

Renewable Products posted a strong comparable EBITDA of EUR 415 million (EUR 419 million) in the first quarter. The renewable diesel demand was robust and feedstock prices continued at a favorable level, as seen already in late 2022. In this market situation we reached a record-high comparable sales margin of USD 945/ton. This achievement was supported by the flexibility of our global optimization model and taking full advantage of the feedstock market opportunities. Our sales volume for renewable diesel and sustainable aviation fuel (SAF) of 660,000 tons was clearly lower than in the corresponding period last year, impacted by the fire in the Rotterdam refinery in late 2022. During the first quarter our renewables production facilities operated at an average 93% utilization rate and the share of waste and residue inputs was 96%.

Oil Products’ comparable EBITDA totaled EUR 393 million (EUR 137 million) in the first quarter. Our total refining margin was USD 21.8/ton, supported by the still elevated product margins. Our production volume was somewhat lower compared to the previous year, but the sales volume increased clearly as the comparison period was impacted by the start of the war in Ukraine.

Marketing & Services generated a comparable EBITDA of EUR 23 million (EUR 32 million) in the first quarter, as our unit margins were impacted by inventory losses of main products.

We continue to implement our growth strategy in renewable and circular solutions. Our 50/50 joint operation with Marathon in Martinez, California started up its first phase in February and our Singapore expansion started up production after mid-April. Together, the growth projects are targeting to increase our total nameplate capacity of renewable products to 5.5 million tons by the end of 2023. Also, we are increasing our SAF capabilities both in Singapore and Rotterdam, targeting the optionality to produce annually up to 1.5 Mt of SAF in 2024. Our Rotterdam expansion project is proceeding well, increasing our nameplate capacity in renewable products to 6.8 Mt by the end of 2026, with SAF optionality totaling 2.2 Mt.

In the beginning of the year we completed the acquisition of a used cooking oil (UCO) collection and aggregation business from Crimson Renewable Energy in the United States. The acquisition further strengthens our feedstock platform in waste and residues. In March we issued two green bonds, EUR 500 million each totaling EUR 1,000 million. The proceeds from the issues will be used for our investments as set out in our Green Finance Framework. The investments also support our ambitious sustainability targets.

Looking forward to the second quarter, we have a high ambition to significantly increase our sales volume in Renewable Products. We remain highly committed to our vision of becoming a global leader in renewable and circular solutions. We look forward to sharing more about our strategy at our Capital Markets Day on 20 June in London.”

The Group's first quarter 2023 results
Neste's revenue in the first quarter totaled EUR 5,298 million (5,523 million). The slight decrease in revenue was driven by lower market and sales prices, which had a negative impact of approx. EUR 0.4 billion. Sales volumes had a positive impact of approx. EUR 0.1 billion in total as Oil Products’ volume increase offsets the decrease in Renewable Products’ volumes year-over-year. Stronger US dollar had a positive impact of approx. EUR 0.2 billion on the revenue compared to the corresponding period last year. Also other drivers decreased revenue by approx. EUR 0.1 billion including the divestment of the Base Oils business.

The Group’s comparable EBITDA was EUR 830 million (578 million). Renewable Products' comparable EBITDA was EUR 415 million (419 million), mostly driven by a higher sales margin, lower sales volume and increased fixed costs compared to the first quarter of 2022. Oil Products' comparable EBITDA totaled EUR 393 million (137 million), following the improved refining market. Marketing & Services comparable EBITDA was EUR 23 million (32 million), mainly as a result of inventory losses and increased fixed costs compared to the first quarter of 2022. The Others segment's comparable EBITDA was EUR 2 million (-1 million).

The Group’s EBITDA was EUR 463 million (916 million), which was impacted by inventory valuation losses of EUR -274 million (115 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -98 million (219 million). Profit before income taxes was EUR 276 million (736 million), and net profit EUR 238 million (640 million). Comparable earnings per share were EUR 0.72 (0.45), and earnings per share EUR 0.31 (0.83).

Visibility in the global economy continues to be low due to high inflation, reduced economic growth expectations and continued geopolitical uncertainty. We expect volatility in oil products and renewable feedstock markets to remain high, making the forecasting of margins challenging in both Renewable Products and Oil Products.

Renewable Products’ second-quarter renewable diesel and SAF sales volume is expected to be 30–50% higher than in the first quarter of 2023. The sales volume increase is subject to the ramp-up pace of the capacity expansion in Singapore and Neste’s joint operation in Martinez, California.

The waste and residue markets are anticipated to remain volatile. Based on the current outlook, Neste’s second-quarter comparable sales margin is expected to be in the range of USD 800–900/ton. The segment’s second-quarter fixed costs are expected to be approximately EUR 20 million higher than in the first quarter, driven by the build-up of capabilities related to the start-up of our growth projects.

The second-quarter utilization rates of renewable production facilities are forecasted to remain high, assuming a successful ramp-up of our new facilities both in Martinez, California and in Singapore.

Neste has scheduled a five-week maintenance shutdown at the Singapore original refinery in the third quarter, and a four-week maintenance shutdown at the Rotterdam refinery in the fourth quarter of 2023. The Singapore turnaround is currently estimated to have a negative impact of approximately EUR 85 million, and the Rotterdam turnaround to have a negative impact of approximately EUR 65 million on the segment’s comparable EBITDA.

The market in Oil Products is expected to remain volatile. Based on the current forward market, the second-quarter total refining margin is expected to be clearly lower than in the first quarter. The utilization rate in Porvoo is expected to be slightly affected by some unit turnarounds. The second-quarter sales volumes are expected to remain high, supported by the summer driving season.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the second quarter. The slowing economy is expected to have some negative impact on the overall demand.

Based on the current estimates and a hedging rate of approx. 85%, Neste's effective EUR/US dollar rate is expected to be within the range of 1.05–1.07 in the second quarter of 2023.

Neste estimates the Group’s full-year 2023 cash-out capital expenditure excluding M&A to be approx. EUR 1.7–1.8 billion.

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