Neste Oyj : Financial Statements Release for 2019

Neste Corporation, Financial Statements Release, 7 February 2020 at 9 a.m. (EET)

Outstanding year 2019 - Dividend proposal EUR 0.92 per share plus an extraordinary dividend of EUR 0.10 per share 

Year 2019 in brief:

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Comparable operating profit totaled EUR 1,962 million (EUR 1,422 million)

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Comparable operating profit contribution totaling EUR 372 million (EUR 140 million) from the retroactive US Blender's Tax Credit (BTC) decision

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Operating profit totaled EUR 2,229 million (EUR 1,022 million)

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Cash flow before financing activities totaled EUR 1,154 million (EUR 870 million)

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Return on average capital employed (ROACE) was 26.6% over the last 12 months (21.1%)

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Leverage ratio was -3.3% at the end of December (31 Dec 2018: -1.5%)

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Comparable earnings per share were EUR 2.04 (EUR 1.50)

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Earnings per share: EUR 2.33 (EUR 1.01)

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Board of Directors will propose a dividend of EUR 0.92 per share (0.76), totaling EUR 706 million (EUR 583 million), plus an extraordinary dividend of EUR 0.10 per share, totaling EUR 77 million

 Fourth quarter in brief:

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Comparable operating profit totaled EUR 781 million (EUR 349 million)

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Operating profit totaled EUR 1,046 million (EUR 183 million)

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Renewable Products' comparable operating profit was EUR 671 million (EUR 281 million)

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Comparable operating profit contribution totaling EUR 372 million (EUR 0 million) from the retroactive US Blender's Tax Credit (BTC) decision

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Renewable Products' comparable sales margin, excluding BTC, was USD 684/ton (USD 715/ton)

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Oil Products' comparable operating profit was EUR 117 million (EUR 60 million)

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Oil Products' total refining margin was USD 11.4/bbl (USD 10.5/bbl)

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Marketing & Services' comparable operating profit was EUR 11 million (EUR 19 million)

President and CEO Peter Vanacker:

"Year 2019 was Neste's best ever. We posted a record-high comparable operating profit of EUR 1,962 million, compared to EUR 1,422 million in 2018. Renewable Products exceeded the previous year's high performance by significantly higher sales volumes, further improved sales margin, and the retroactive US Blender's Tax Credit (BTC) decision for the years 2018 and 2019. Oil Products' financial performance was almost at the previous year's level in a less supportive margin environment. Marketing & Services segment's comparable operating profit was the same as in 2018. We reached a strong ROACE of 26.6% over the last 12 months and a leverage ratio of -3.3% at the end of the year. Our cash flow before financing activities was EUR 1,154 million in 2019. The strong financial position enables implementation of our growth strategy going forward while maintaining a healthy dividend distribution.

Renewable Products posted an outstanding full-year comparable operating profit of EUR 1,599 million (983 million). The renewable diesel market continued favorable, but feedstock markets tightened during the year. Despite higher feedstock costs, we were able to increase our average comparable sales margin by over 7% to USD 644/ton in 2019, which had a positive impact of EUR 93 million on the comparable operating profit. Our sales volumes were 2.85 million tons in 2019, more than 25% higher than in previous year. The increase in sales was enabled by a new annual production record. The capacity was increased from 2.7 to 3 million ton/a during the year as a result of successful implementation of Neste Excellence program in our operations. Higher sales volumes had a positive impact of EUR 335 million on the comparable operating profit year-on-year. Additionally, the retroactive US BTC decided for the years 2018 and 2019 had a positive impact of EUR 372 million on the comparable operating profit in the fourth quarter, compared to the EUR 140 million BTC impact for the year 2017 recorded in the first quarter of 2018. The share of waste and residues averaged at 80% of the total renewable material inputs in 2019.

Oil Products posted a full-year comparable operating profit of EUR 386 million (EUR 397 million). The reference margin, reflecting the general market conditions, and particularly the Urals-Brent price differential were quite volatile during 2019. The reference margin averaged at USD 5.8/bbl, which was approx. USD 0.4/bbl lower than in 2018. Our additional margin averaged at USD 4.7/bbl in 2019, almost at the same level as in the previous year. The additional margin was supported by our good operational performance, but burdened by a lower currency hedging result and higher utility costs compared to 2018. During the year 2019, the segment's fixed costs were EUR 23 million lower than in the previous year due to our Neste Excellence program efforts.

Marketing & Services segment generated a full-year comparable operating profit of EUR 77 million (EUR 77 million). The divestment of the Russian operations was completed at the end of October 2019, and Marketing & Services can now focus on its core markets.

The Others segment's full-year comparable operating profit was EUR -98 million (EUR -36 million). The significant loss was mainly due to the poor performance of the minority owned Nynas, which has been impacted by the US sanctions. As our shareholding and loan receivables from Nynas were fully written-off in the third quarter, it will not have an impact on the Others segment's financial performance going forward.

The year 2019 was a year of growth, change and consistent strategy execution. We expanded our global reach with new offices in Düsseldorf, Amsterdam, Shanghai, and Melbourne, and strengthened our presence in Houston and Singapore.

In Singapore, we started the construction of our EUR 1.4 billion expansion project to increase our production of renewable jet fuel and other renewable products. This biggest investment in our history is on track. It will expand our annual renewable capacity by up to 1.3 million tons in Singapore, and extend our total renewable product capacity to 4.5 million tons annually in 2022.

We have entered into new markets with our renewable and circular solutions. In road transportation, Neste MY Renewable Diesel™ is now sold in all the Baltic countries, and the Netherlands and Oregon in the US, in addition to our existing offering in Finland, Sweden and California.

In our Renewable Aviation business, we have moved from feasibility study to execution and ramped up our capacity to produce up to 100,000 tons of renewable jet fuel. With further production expansion on the way, we will have the capacity to produce over 1 million tons of renewable jet fuel globally in 2022. In 2019, we also started continuous supply to Air BP, Lufthansa and KLM to support these industry players in reducing aviation-related emissions. In the Renewable and Polymers business, we have partnered with actors like LyondellBasell and Borealis to do the first-ever commercial-scale production of bio-based plastics from renewable material.

We achieved excellent financial results with the best ever process safety performance in 2019. In 2020, we will continue on our journey to become a global leader in renewable and circular solutions. In all our business units, we look forward to new and continued partnerships, collaboration and initiatives with leading companies and brand owners. We want to execute our growth strategy faster, bolder, and together."

The Group's fourth quarter 2019 results

Neste's revenue in the fourth quarter totaled EUR 4,053 million (3,661 million). Higher sales volumes had a positive impact of approx. EUR 300 million and a stronger USD exchange rate a positive impact of approx. EUR 100 million on the revenue compared to the corresponding period last year. The Group's comparable operating profit was EUR 781 million (349 million). Renewable Products' comparable operating profit EUR 671 million (281 million) was significantly higher than in the fourth quarter of 2018, mainly as a result of the retroactive US BTC decision for the years 2018 and 2019, and higher sales volumes. Oil Products' comparable operating profit EUR 117 million (60 million) was higher than in the corresponding period of 2018, mainly due to higher additional margin and lower maintenance costs. Marketing & Services comparable operating profit was EUR 11 million (19 million), mainly as a result of lower sales volumes and higher fixed costs compared to the fourth quarter of 2018. The Others segment's comparable operating profit EUR -14 million (-12 million) was slightly weaker than in the corresponding period of 2018.

The Group's operating profit was EUR 1,046 million (183 million), which was impacted by inventory valuation gains of EUR 87 million (losses of 232 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 133 million (216 million), mainly related to margin hedging. In addition there were capital gains of EUR 27 million (0 million), mainly related to the divestment of the Russian operations of Marketing & Services. Profit before income taxes was EUR 1,030 million (171 million), and net profit EUR 934 million (129 million). Comparable earnings per share were EUR 0.92 (0.38), and earnings per share EUR 1.22 (0.17).

The Group's full-year 2019 results

Neste's revenue in 2019 totaled EUR 15,840 million (14,918 million). The revenue increase mainly resulted from higher sales volumes and a stronger USD exchange rate, each of which had a positive impact of approx. EUR 500 million on the revenue year-on-year. The Group's comparable operating profit was EUR 1,962 million (1,422 million). Renewable Products' comparable operating profit increased to EUR 1,599 million (983 million) due to significantly higher sales volumes compared to 2018, and the EUR 372 million impact of the retroactive US BTC decision for 2018 and 2019 . Oil Products' comparable operating profit of EUR 386 million (397 million) was slightly lower than in 2018, mainly due to a lower reference margin. Marketing & Services' comparable operating profit of EUR 77 million (77 million) was supported by higher unit margins, but the increase was offset by the impact of higher fixed costs. The Others segment's comparable operating profit of EUR -98 million (-36 million) was significantly lower than in the year 2018, mainly due to the poor performance of Nynas, which was caused by the impacts of the US sanctions.

The Group's operating profit was EUR 2,229 million (1,022 million), which was impacted by inventory valuation gains of EUR 180 million (losses of 273 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 69 million (117 million), mainly related to margin hedging. In addition there were capital gains of EUR 37 million (2 million), mainly related to the divestments of the Regional Business Unit of Neste Engineering Solutions and the Russian operations of Marketing & Services. As a result of normal impairment testing, we booked an asset write-off of EUR 34 million regarding our shareholding in Nynas in the third quarter. A revision of EUR 30 million was made to the asset writedown regarding Neste Oil Bahrain W.L.L. in the fourth quarter. Profit before income taxes was EUR 2,067 million (947 million), and net profit EUR 1,789 million (775 million). Comparable earnings per share were EUR 2.04 (1.50), and earnings per share EUR 2.33 (1.01).

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 be lower than the refining capacity additions in 2020. Based on our current estimates and a hedging ratio of 80%, Neste's effective EUR/US dollar rate is expected to be within a range 1.12-1.14 in the first quarter of 2020.

Demand for renewable diesel is expected to remain strong in the first quarter due to the continuously growing biofuel mandates in 2020. Waste and residue feedstock markets are expected to continue tight. Utilization rates of our renewables production facilities are expected to remain high. We have scheduled the next four-week catalyst change at the Singapore refinery in the second quarter of 2020 and at the Rotterdam refinery in the fourth quarter of 2020. A catalyst change maintenance is currently estimated to have a negative impact of approx. EUR 50 million on the segment's comparable operating profit. Neste will implement a scheduled approx. eleven-week major turnaround at the Porvoo refinery in the second quarter of 2020. The Porvoo turnaround is currently estimated to have a negative impact of approx. EUR 40 million on the Renewable Products segment's comparable operating profit, mainly in the second quarter. The US Blender's Tax Credit approved in December 2019 is now in place for the year 2020. The expansion of the renewables businesses will increase the segment's fixed costs.

Oil Products' first-quarter reference margin is expected to be low due to the warm weather, coronavirus outbreak, and the IMO2020 bunker fuel regulation not yet supporting the middle distillates margin. Utilization rates of our production facilities are anticipated to remain high in the first quarter. We will implement a scheduled approx. eleven-week major turnaround at the Porvoo refinery in the second quarter of 2020. The Porvoo turnaround is currently estimated to have a negative impact of approx. EUR 180 million on the 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 divestment of the Russian operations completed in the fourth quarter of 2019 is estimated to reduce the segment's full-year comparable operating profit by EUR 16 million compared to 2019.

As described above, the announced eleven-week turnaround at the Porvoo refinery is estimated to have a negative impact on comparable operating profit totaling EUR 220 million. We estimate the Group's full-year 2020 capital expenditures to reach approx. EUR 1.2 billion, of which the Porvoo turnaround will be approx. EUR 450 million, Singapore capacity expansion approx. EUR 600 million, and the balance being normal strategic, productivity and maintenance investments. 

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 2019 amounted to EUR 3,180 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 Corporation pays a cash dividend of EUR 0.92 per share (0.76) for 2019, totaling EUR 706 million (583 million) based on the number of outstanding shares, plus an extraordinary dividend of EUR 0.10 per share, totaling EUR 77 million. The Board of Directors will also propose that the annual dividend shall be paid in two installments.

The first installment of dividend, EUR 0.46 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 Thursday, 9 April 2020. The Board proposes to the AGM that the first dividend installment would be paid on Monday, 20 April 2020. The second installment of dividend, EUR 0.46 per share, and the extraordinary dividend of EUR 0.10 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, and the extraordinary dividend, which shall be Tuesday, 13 October 2020. The Board proposes to the AGM that the second dividend installment, and the extraordinary dividend would be paid on Tuesday, 20 October 2020. The Board of Directors is authorized to set a new dividend record date and payment date for the second installment of the dividend, and the extraordinary dividend, in case the rules and regulations on the Finnish book-entry system would be changed, or otherwise so require.

The proposed annual dividend and the extraordinary dividend together represent a yield of 3.3% (at year-end 2019 share price of EUR 31.02) and 50% of the comparable net profit in 2019, and an increase of 34% compared to the total dividend distributed in the previous year.

Conference call

A conference call in English for investors and analysts will be held today, 7 February 2020, at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. The call-in numbers are as follows: Finland: [phone], rest of Europe: [phone], US: [phone], using access code 8897665. The conference call can be followed at the company's website (https://edge.media-server.com/mmc/p/sjrdzbd5). An instant replay of the call will be available until 14 February 2020 at [phone] for Europe and [phone] for the US, using access code 8897665.

Further information:
Peter Vanacker, President and CEO, tel. [phone]
Jyrki Mäki-Kala, CFO, tel. [phone]
Investor Relations, tel. [phone]

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 2019, Neste's revenue stood at EUR 15.8 billion. In 2020, Neste placed 3rd on the Global 100 list of the most sustainable companies in the world. Read more: neste.com (https://www.neste.com/en)

 

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