Stock Exchange Release
Neste Oil Corporation
29 of April 2010 at 9.00 am EET
Neste Oil's Interim Report for January - March 2010
- Comparable operating profit of EUR 88 million (Q1/2009: 56 million), including an insurance compensation
payment of EUR 47 million
First quarter in brief:
- Comparable operating profit of EUR 88 million (Q1/2009: 56 million), including a EUR 47 million in the form of non-recurring insurance compensation received for a fire at the Porvoo refinery in April 2008
- IFRS operating profit of EUR 97 million (Q1/2009: 95 million)
- Total refining margin of USD 7.83/bbl (Q1/2009: 9.44)
- Net cash from operations was strong at EUR 374 million (Q1/2009: 17 million)
- Investments totaled EUR 190 million (Q1/2009: 174 million)
- Major six-week maintenance shutdown began at the Porvoo refinery at the end of March
President & CEO Matti Lievonen:
"The rapid improvement in refining margins seen in February and March, compared to the end of 2009, was a positive surprise to us, and the benefits can be seen in our operating profit and cash flow for the first quarter. Margins have declined somewhat from the highs seen in March, as the industry's peak maintenance period has now passed. Due to high inventory levels, coupled with new refining capacity coming on stream, we expect the recovery of refining margins to be a gradual one. Complex refiners, such as Neste Oil, look set to benefit from wider heavy-light crude price differentials on the back of higher oil prices and increasing supply.
The on-going maintenance turnaround at our Porvoo refinery, the most extensive one in the site's history, has progressed on schedule, and I'm confident that the refinery will be back in production in mid-May as planned. The next important milestone for us will be achieving the mechanical completion of our new renewable diesel plant in Singapore this summer and starting production there in the fourth quarter. Our good progress to date means that we are well set to deliver on our promises throughout 2010."
Matti Lievonen, President & CEO, tel. +358 10 458 11
Ilkka Salonen, CFO, tel. +358 10 458 4490
Investor Relations, tel. +358 10 458 5132
News conference and conference call
A press conference in Finnish on the first quarter results will be held today, 29 April 2010, at 11:30 am 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 29 April 2010 at 3:00 pm Finland / 1:00 pm London / 8:00 am New York. The call-in numbers are as follows: Europe: +44 (0)20 3140 8286, US: +1 718 354 1152, using access code 1670348. The conference call can be followed at company's website. An instant replay of the call will be available for one week at +44 (0)20 7111 1244 for Europe and +1 347 366 9565 for the US, using access code 1670348.
NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY - 31 MARCH 2010
Quarterly figures are unaudited, full year figures audited
Figures in parentheses refer to the corresponding period for 2009, unless otherwise stated.
EUR million (unless otherwise noted)
|Operating profit before depreciation||155||150||74||569|
|Comparable operating profit *||88||56||-29||116|
|Profit before income tax||88||81||4||296|
|Earnings per share, EUR||0.25||0.24||-0.01||0.86|
|Net cash from operating activities||374||17||-225||177|
|Interest-bearing net debt||1,753||1,217||1,918|
|Return on capital employed pre-tax (ROCE), %||9.6||11.7||9.0|
|Return on average capital employed after tax |
|Return on equity (ROE), %||11.4||11.1||10.2|
|Equity per share, EUR||8.91||8.67||8.64|
|Cash flow per share, EUR||1.46||0.07||0.69|
|Equity-to-assets ratio, %||39.8||44.9||39.1|
|Leverage (Net debt to capital), %||43.3||35.3||46.3|
* Comparable operating profit is calculated by excluding inventory gains/losses, capital gains/losses, and unrealized changes in the fair value of oil and freight derivative contracts from the reported operating profit. Inventory gains/losses include changes in the fair value of all trading inventories.
** Rolling 12 months
The Group's first-quarter 2010 results
Neste Oil's first-quarter sales, at EUR 2,725 million (2,053 million), increased by almost 33% year-on-year, due to higher oil prices and higher sales volumes.
The Group's comparable operating profit was EUR 88 million (56 million) in the first quarter, including non-recurring insurance compensation received totaling EUR 47 million, which was booked in the Others segment. Comparable operating profit increased significantly compared to the fourth quarter of 2009, thanks to higher refining margins. The lower profit recorded, when compared to the first quarter of 2009 and excluding the insurance compensation received, was due to a larger-than-expected loss at Renewable Fuels and somewhat weaker results at Oil Products and Oil Retail. Fixed costs were lower year-on-year.
Oil Products' first-quarter comparable operating profit was EUR 58 million (64 million), Renewable Fuels' EUR -18 million (-7 million), Oil Retail's EUR 6 million (12 million), and Others' EUR 44 million (-11 million). Profits from associated companies and joint ventures totaled EUR -8 million (-7 million).
The Group's first-quarter IFRS operating profit was EUR 97 million (95 million), and pre-tax profit EUR 88 million (81 million). Profit for the period was EUR 64 million (61 million) and earnings per share EUR 0.25 (0.24).
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 March, the rolling twelve-month ROACE was 3.0% (2009 financial year: 2.5%).
|COMPARABLE OPERATING PROFIT||88||56||-29||116|
|- inventory gains/losses||16||76||58||261|
|- changes in the fair value of open oil derivatives||-7||-37||-20||-43|
|- capital gains/losses||0||0||0||1|
Cash flow, investments, and financing
Neste Oil Group's net cash from operating activities between January and March was strong at EUR 374 million (17 million), resulting from lower working capital and the EUR 47 million insurance compensation received. As of the end of March, approximately EUR 210 million was tied up in products stored for sale during the major maintenance shutdown at the Porvoo refinery in April and May.
Investments totaled EUR 190 million in the first quarter, compared to EUR 174 million in the same period in 2009. Oil Products' capital spending was EUR 54 million (43 million), Renewable Fuels' EUR 129 million (123 million), Oil Retail's EUR 2 million (4 million), and Others' EUR 5 million (4 million).
Interest-bearing net debt decreased to EUR 1,753 million compared to EUR 1,918 at the end of 2009. Net financial expenses between January and March were EUR 9 million (14 million). The average interest rate of borrowings at the end of March was 2.4%, and the average maturity 3.8 years.
The equity-to-assets ratio was 39.8% (31 Dec 2009: 39.1%), the leverage ratio 43.3% (31 Dec 2009: 46.3%), and the gearing ratio 76.5% (31 Dec 2009: 86.3%).
The Group's liquidity remained healthy. Cash and cash equivalents and committed, unutilized credit facilities amounted to EUR 1,409 million at the end of March (31 Dec 2009: 1,407 million). Existing loan agreements contain no financial covenants.
In accordance with its hedging policy, Neste Oil has hedged the majority of its net foreign currency exposure for the next 12 months, mainly using forward contracts and currency options. The most important hedged currency is the US dollar.
Neste Oil will continue to implement its clean fuel strategy in 2010. The company's current capital projects consist of new plants designed to increase production of renewable diesel and high-quality base oil.
Construction of the two major 800,000 t/a renewable diesel plants in Singapore and Rotterdam are proceeding according to plan. The plants are 90% and 70% complete respectively. The plant in Singapore is due to achieve mechanical completion in summer 2010 and start production during the fourth quarter. Mechanical completion is expected to be reached in Rotterdam in spring of 2011, with start-up the summer of 2011. The Singapore plant is on-budget at EUR 550 million, while the Rotterdam plant is expected to come in under its EUR 670 million budget.
Neste Oil has a 45% stake in a JV that is building a 400,000 t/a base oil plant in Bahrain. The project is proceeding on-schedule and on-budget, and mechanical completion is estimated to be achieved in the second half of 2011. Neste Oil's share of the investment cost is EUR 130 million.
Crude oil prices fluctuated during the first quarter, mainly driven by investor activity, the strengthening of the US dollar, expectations for a world economy recovery and geopolitical tensions in oil-producing countries. Brent Dated traded in the USD 70-80 /bbl range, ending the quarter at close to USD 80 /bbl. Price differentials between heavier and lighter crude were at their widest since fall 2008, reflecting weakening fuel oil margins, increased supplies of heavier crude, and refinery maintenance work.
Refining margins improved significantly from the lows seen at the end of 2009, supported in particular by higher gasoline prices and lower product supply due to the refinery maintenance season. Increasing gasoline margins reflected good demand for deliveries to the Middle East, West Africa and South America, while exports to the US remained low.
Margins for middle distillates recovered in March following the beginning of the refinery maintenance season. In addition to lower supply, high demand for middle distillates in West Africa and South America contributed to better margins. Inventories were drawn down significantly during the first quarter, but remained high at the end of March.
Fuel oil margins remained stable in January and February, supported by good Asian demand. They weakened in March, however, reflecting higher crude oil prices, increased Russian fuel oil supply, and reduced exports from Europe to Asia.
In the biofuel market, the price differential between various feedstocks continued to be narrower than they have been historically. The premium paid for high-quality renewable diesel compared to conventional biodiesel remained healthy.
Diesel sales for commercial use, such as trucking, increased in the Finnish oil retail market during the first quarter, but volumes and margins declined in the Baltic Rim area.
Freight rates for crude tankers in the North Sea were stronger year-on-year, due to cold winter conditions in Europe.
|1-3/10||1-3/09||10-12/09||2009||Apr 10||Apr 09|
|Reference refining margin, USD/bbl||4.20||5.03||1.73||3.14||4.70||3.94|
|Neste Oil total refining margin, USD/bbl||7.83||9.44||5.85||7.35||n.a.||n.a.|
|Urals-Brent price differential, USD/bbl||-1.35||-1.17||-0.68||-0.81||-2.47||-1.71|
|NWE Gasoline margin, USD/bbl||11.75||6.39||7.73||9.26||11.2||9.26|
|NWE Diesel margin, USD/bbl||11.25||15.38||10.14||11.18||13.6||11.58|
|NWE Heavy fuel oil margin, USD/bbl||-6.91||-8.77||-6.41||-7.44||-12.8||-8.64|
|Brent Dated crude oil, USD/bbl||76.24||44.40||74.56||61.51||84.78||50.34|
|USD/EUR, market rate||1.38||1.30||1.48||1.39||1.34||1.32|
|Crude freights, WS points (TD7)||122||83||97||81||112||71|
Production and sales
Neste Oil's total production in the first quarter was 3.6 million tons (3.5 million), of which 0.1 million tons (0.0 million) was NExBTL renewable diesel.
Neste Oil's production, by plant (1,000 t)
|Beringen polyalfaolefin plant||10||8||10||35|
|Edmonton iso-octane plant (Neste Oil's share)||48||67||60||256|
The Porvoo refinery operated at an average capacity utilization rate of 91% (92%) during the quarter, while Naantali reached 85% (82%). The performance of Production Line 4 improved compared to the corresponding period in 2009. Unit shutdowns in preparation for the major six-week maintenance turnaround at Porvoo started there towards the end of March. The re-dredged fairway to the Naantali refinery was opened in March, allowing 100,000-ton crude tankers to discharge full loads there.
The proportion of Russian Export Blend in Neste Oil's total refinery input was 66% (63%) in the first quarter. Refinery production costs totaled USD 4.3/bbl (4.0). The small increase year-on-year is largely explained by the weaker US dollar.
Sales from in-house production increased from both the previous quarter and the same quarter in 2009, thanks to high domestic diesel demand and increased gasoline and diesel exports to Europe. The proportion of diesel in the company's sales mix remained at 40%, while sales of gasoline, which were lower in the previous quarter due to the build-up of contango storage, accounted for 30%.
As of the end of March, Neste Oil's contango storage consisted of 480,000 tons of crude and products. The plan is to sell all of this during the second quarter of 2010.
Neste Oil's sales from in-house production, by product category (1,000 t)
|Heavy fuel oil||212||6||354||10||291||8||1,300||9|
|NExBTL renewable diesel||41||1||31||1||66||2||209||1|
Neste Oil's sales from in-house production, by market area (1,000 t)
|Other Nordic countries||575||15||537||16||581||16||2,210||16|
|USA & Canada||170||5||472||14||229||7||1,686||12|
Neste Oil's businesses are grouped into four reporting segments: Oil Products, Renewable Fuels, Oil Retail, and Others.
|Comparable operating profit, MEUR||58||64||-11||105|
|Operating profit, MEUR||65||106||27||318|
|Total refining margin, USD/bbl||7.83||9.44||5.85||7.35|
Oil Products recorded a slightly lower comparable operating profit, EUR 58 million, compared to the EUR 64 million booked during the same quarter in 2009. This mainly resulted from the lower profitability of the base oil business. Refining performance was strong, despite a lower total refining margin of USD 7.83/bbl during the quarter, partially explained by low base oil margins. Total refining margin was down by 17% year-on-year but up by 34% compared to the fourth quarter of 2009, and was positively impacted by a beneficial Urals-Brent spread and high gasoline margins in March in particular. First-quarter sales volumes were high and supported by increased winter diesel sales on the domestic market.
Along with the refining business, oil tanker chartering also posted a better profit year-on-year. Base oils and gasoline components suffered from low margins, although demand is improving.
Oil Products' comparable return on net assets was 8.2% (10.0%) in the first quarter.
|Comparable operating profit, MEUR||-18||-7||-10||-30|
|Operating profit, MEUR||-16||-10||-11||-25|
Renewable Fuels' comparable operating profit was EUR -18 million in the first quarter, compared to EUR -7 million in the same quarter of 2009. This was the result of lower margins and higher costs related to the expansion of the business and R&D. Some volumes produced during the first quarter were stored for sale in the second quarter during maintenance turnaround at the Porvoo refinery.
Renewable Fuels' comparable return on net assets was -7.1% (-6.6%) in the first quarter.
|Comparable operating profit, MEUR||6||12||5||50|
|Operating profit, MEUR||6||12||6||50|
|Total sales volume*, 1,000 m3||1,034||1,022||1,030||4,002|
|- gasoline station sales, 1,000 m3||295||329||333||1,405|
|- diesel station sales, 1,000 m3||332||321||345||1,331|
|- heating oil, 1,000 m3||221||214||200||714|
|- heavy fuel oil, 1,000 m3||103||89||78||287|
* includes both station and terminal sales
Weak volumes and margins saw Oil Retail's first-quarter 2010 comparable operating profit reduced to EUR 6 from the EUR 12 million posted a year earlier. Pressure on margins was seen virtually across the board and in North-West Russia in particular, where gasoline margins peaked in the first quarter of 2009.
Oil Retail's comparable return on net assets was 7.8% (14.3%) in the first quarter.
Shares, share trading, and ownership
Neste Oil's shares are traded on NASDAQ OMX Helsinki Ltd. The share price closed the first quarter at EUR 12.91. At its highest during the quarter, the share price reached EUR 13.29, while at its lowest the price stood at EUR 10.45, with the weighted average for the quarter coming in at EUR 10.85. Market capitalization was EUR 3.3 billion as of 31 March 2010. An average total of 1.1 million shares were traded daily. This represents 0.4% of the company's shares.
Neste Oil's share capital registered with the Company Register as of 31 March 2010 totaled EUR 40 million, and the total number of shares outstanding is 256,403,686. The company does not hold any of its own shares, and the Board of Directors has no authorization to buy back company shares or to issue convertible bonds, share options, or new shares.
As of the end of March, the Finnish State owned 50.1% (50.1%) of outstanding shares, foreign institutions 15.9% (17.4%), Finnish institutions 20.2% (20.4%), and Finnish households 13.8% (12.0%).
Neste Oil employed an average of 5,056 (5,252) employees in the first quarter, of which 1,445 (1,273) are based outside Finland. As of the end of March, the company had 5,058 employees (5,264), of which 1,473 (1,293) are located outside Finland.
Health, safety, and the environment
The main indicator for safety performance used by Neste Oil - total recordable injury frequency (TRIF, number of cases per million hours worked) for all work done for the company, combining the company's own personnel and contractors - stood at 3.1 (3.1) at the end of March 2010. The target for 2010 is below 3.
Lost workday injury frequency (LWIF) stood at 2.2. The target is below 1.
The Sustainability Yearbook 2010 was published in January, ranking the best performers in Dow Jones sustainability Index. Altogether 66 oil and gas companies were assessed and Neste Oil ranks in Silver class. Two companies ranked in gold, five in silver, and one in bronze class.
Neste Oil has been selected for the Global 100, a list of the world's 100 most sustainable companies for the fourth consecutive year. The Global 100 is based on an analysis of 3,000 publicly traded companies. The Global 100 includes companies from 24 countries encompassing all sectors of the economy.
Annual General Meeting
Neste Oil's Annual General Meeting (AGM) was held after the reporting period on 15 April in Helsinki. The AGM adopted the company's financial statements and consolidated financial statements for 2009 and discharged the Supervisory Board, the Board of Directors, and management from liability for 2009. The AGM also approved the Board of Directors' proposal regarding the distribution of the company's profit for 2009, sanctioning payment of a dividend of EUR 0.25 per share. The dividend was paid on 27 April.
In accordance with the proposal made by the AGM Nomination Committee, the AGM confirmed the membership of the Board of Directors at eight members, and the following were re-elected to serve until the end of the next AGM: Mr Timo Peltola, Mr Mikael von Frenckell, Mr Michiel Boersma, Ms Ainomaija Haarla, Ms Nina Linander, Mr Hannu Ryöppönen and Mr Markku Tapio. Ms Maija-Liisa Friman was elected as a new member. Mr Timo Peltola will continue as Chairman and Mr Mikael von Frenckell as Vice Chairman. The AGM decided to keep the remuneration to the Board members unchanged.
The AGM confirmed that the Supervisory Board shall comprise seven members and the following members were elected: Ms Heidi Hautala (Chairman), Mr Kimmo Tiilikainen (Vice Chairman), Mr Esko Ahonen, Mr Timo Heinonen, Mr Markus Mustajärvi and Ms Anne-Mari Virolainen. Ms Miapetra Kumpula-Natri was elected for the first time. Members are all Finnish Members of Parliament, with the exception of Ms Heidi Hautala, who is a Member of the European Parliament. No changes were made to the remuneration paid to the Supervisory Board. A proposal to dissolve the Supervisory Board was not accepted.
In accordance with a proposal by the Board of Directors, Ernst & Young Oy, Authorized Public Accountants, were appointed as the company's Auditor, with Authorized Public Accountant Anna-Maija Simola as Responsible Auditor, until the end of the next AGM. Payment for their services shall be made in accordance with their invoice.
In accordance with a proposal by the Board of Directors, Subsection 1 of Section 11 of the Articles of Association has been amended and now requires that the invitation to an AGM should be made at least three weeks prior to a meeting and at least nine days prior to the record date set for the meeting as defined in Subsection 2 of Section 2 of Chapter 4 of the Companies Act.
Following a proposal by the Prime Minister's Office, representing the Finnish State, the AGM decided to establish a Nominations Committee to prepare proposals covering the members of the Board of Directors and their remuneration for consideration by the next AGM. The Nomination Committee comprises representatives of the Company's three largest shareholders and shall also include, as an expert member, the Chairman of the Board. The right to appoint the shareholder representatives on this Committee will lie with the three shareholders holding the largest number of votes associated with all the company's shares on 1 November preceding the AGM. The Chairman of the Board of Directors will be responsible for convening the Committee, and the Committee's members will appoint a Chairman from among themselves. The Nominations Committee will present their proposal to the Board of Directors by 1 February prior to the AGM at the latest.
Potential short-term and long-term risks
The oil market has been and is expected to continue to be very volatile. Oil refiners are exposed to a variety of political and economic trends and events, as well as natural phenomena that affect the short- and long-term supply of and demand for the products that they produce and sell.
The largest uncertainty over the short term continues to be the pace of the anticipated recovery of the world economy, which is likely to have a material impact on the demand for petroleum products generally and diesel fuel in particular.
Sudden and unplanned outages at Neste Oil's production units or facilities continue to represent a short-term operational risk.
Rapid and large changes in feedstock and product prices may lead to significant inventory gains or losses, or change in working capital. These may have a material impact on the company's IFRS operating profit and net cash from operations.
Over the longer term, access to funding and rising capital costs, as well as challenges in procuring and developing new competitive and reasonably priced raw materials, may impact the company's growth plans.
The implementation of biofuel legislation in the EU and other key market areas may influence the speed at which the demand for these fuels develops. Risks include also any problems or delays in completing the NExBTL renewable diesel investments or failure to capture the anticipated benefits from these investments. In the longer term, failure to protect Neste Oil's proprietary technology or introduction and implementation of competing renewable fuel technologies or hybrid and electric engines may have a negative impact on the company's results.
The key market drivers for Neste Oil's financial performance are international refining margins, the price differential between Russian Export Blend (REB) and Brent crude, and the USD/EUR exchange rate.
For more detailed information on Neste Oil's risks and risk management, please refer to the company's Annual Report and Financial Statements for 2009.
As the company stated in the outlook published in the Financial Statements for 2009 in early February, it expects the market environment to remain challenging throughout 2010. It is anticipated, however, that market conditions will continue to improve slowly but steadily. Economic growth is seen as likely to be the strongest outside Europe, and is anticipated to translate into a 2.0% increase in oil demand compared to 2009, according to International Energy Agency.
Despite the expectation of an all-time high in global oil demand in 2010, the outlook for refining margins remains subdued compared to levels seen in previous years. This is because of the high middle distillate inventories held in OECD countries and the new refining capacity set to come on stream in 2010. Refinery utilization rates are expected to be lower than normal, which indicates potential for increased supply if margins strengthen.
A positive development in early 2010 has been the widening spread between Urals and Brent crude prices compared to the end of 2009. Due to increased supply by producers of heavier crude, Neste Oil expects that the discount of Urals crude to Brent will average between USD 1.5-2.0/bbl in 2010.
Diesel and middle distillate margins have strengthened in 2010 so far, and this is expected to continue. As stated in February, these margins are not expected to increase significantly before high inventories have been drawn down and demand has recovered, however. Gasoline margins were surprisingly strong in the first quarter, but the outlook for the second half of the year is softer.
The negative impact of the major planned turnaround at the Porvoo refinery on the second-quarter comparable operating profit is estimated to be around EUR 50 million. This results from loss of production volumes, which is only partially compensated for by sales of stored products, totaling close to 500,000 tons (around 3.5 million barrels). Work on the turnaround has proceeded according to schedule and budget, and the refinery is expected to be back in normal production by the middle of May. The ramp-up of the refinery after the shutdown will be reflected in increased working capital in the second quarter.
The Renewable Fuels business is anticipated to report negative results until sales volumes increase significantly, which is expected during the last few months of 2010 when the new plant in Singapore is scheduled to come on stream. The price differential between palm oil and rapeseed oil is anticipated to widen moderately during 2010.
In the Oil Retail business, the Finnish market appears likely to see improving demand for diesel and declining demand for gasoline. Diesel sales will be supported by commercial vehicle demand in particular. Due to the slow pace economic recovery, consumer fuel demand is set to stay below 2009 levels in Baltic Rim countries.
A non-recurring charge of around EUR 60-70 million will be booked in the second quarter against the IFRS operating profit related to the transfer of the pension liabilities of the Neste Oil Pension Fund to insurance companies. The transfer will have a positive impact of approximately EUR 80 million on operational cash flow during the second quarter. Around EUR 50 million of this is planned to be used to acquire the company's current head office building.
The Group's fixed costs are estimated to be similar to those in 2009.
The Group's cash investments are expected to be around EUR 920 million (870 million) in 2010, of which strategic investments will account for EUR 580 million (670 million), maintenance investments EUR 310 million (160 million), and productivity investments EUR 30 million (40 million). Investment will be at their highest during the second quarter due to the forthcoming completion of the Singapore renewable diesel plant and the Porvoo turnaround.
Reporting date for the second-quarter 2010 results
Neste Oil will publish its second-quarter results for 2010 on 29 July 2010 at approximately 9:00 a.m. EET.
Espoo, 28 April 2010
Neste Oil Corporation
Board of Directors
The preceding information contains, or may be deemed to contain, "forward-looking statements". These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, potential growth, planned operational changes, expected capital expenditures, future cash sources and requirements, liquidity and cost savings that involve known and unknown risks, uncertainties, and other factors that may cause Neste Oil Corporation's or its businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, such forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," or "continue," or the negative of those terms or other comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Future results may vary from the results expressed in, or implied by, the forward-looking statements, possibly to a material degree. All forward-looking statements made in this report are based on information presently available to management and Neste Oil Corporation assumes no obligation to update any forward-looking statements. Nothing in this report constitutes investment advice and this report shall not constitute an offer to sell or the solicitation of an offer to buy any securities or otherwise to engage in any investment activity.
|NESTE OIL GROUP|
|1 JANUARY- 31 MARCH 2010|
|CONSOLIDATED INCOME STATEMENT|
|Revenue||3||2 725||2 053||9 636||10 308|
|Share of profit (loss) of associates and joint|
|Materials and services||-2 385||-1 628||-8 167||-8 924|
|Employee benefit costs||-81||-79||-301||-303|
|Depreciation, amortization and impairments||3||-58||-55||-234||-237|
|Financial income and expenses|
|Exchange rate and fair value gains and|
|Total financial income and expenses||-9||-14||-39||-34|
|Profit before income taxes||88||81||296||303|
|Income tax expense||-24||-20||-71||-75|
|Profit for the period||64||61||225||228|
|Profit attributable to:|
|Owners of the parent||64||60||221||225|
|Earnings per share from profit|
|attributable to the owners|
|of the parent basic and|
|diluted (in euro per share)||0,25||0,24||0,86||0,88|
|STATEMENT OF COMPREHENSIVE INCOME|
|Profit for the period||64||61||225||228|
|Other comprehensive income for the period,|
|net of tax:|
|Translation differences and other changes||26||-5||9||40|
|Cash flow hedges|
|recorded in equity||-13||-25||3||15|
|transferred to income statement||-4||20||15||-9|
|Net investment hedges||-1||0||0||-1|
|Hedging reserves in associates and joint ventures||-||-||-2||-2|
|Other comprehensive income for the period, net of tax||8||-10||25||43|
|Total comprehensive income for the period||72||51||250||271|
|Total comprehensive income attributable to:|
|Owners of the parent||72||50||246||268|
|CONSOLIDATED BALANCE SHEET|
|31 March||31 March||31 Dec|
|Property, plant and equipment||4||3 363||2 779||3 235|
|Investments in associates and joint|
|Deferred tax assets||9||12||11|
|Derivative financial instruments||5||17||10||3|
|Available-for-sale financial assets||4||2||1|
|Total non-current assets||3 786||3 112||3 628|
|Inventories||1 110||905||1 148|
|Trade and other receivables||789||799||757|
|Derivative financial instruments||5||33||118||50|
|Cash and cash equivalents||56||46||117|
|Total current assets||1 988||1 868||2 072|
|Total assets||5 774||4 980||5 700|
|Capital and reserves attributable to the owners|
|of the parent|
|Other equity||2||2 239||2 180||2 170|
|Total||2 279||2 220||2 210|
|Total equity||2 291||2 229||2 222|
|Interest-bearing liabilities||1 502||974||1 590|
|Deferred tax liabilities||321||290||328|
|Derivative financial instruments||5||23||27||15|
|Other non-current liabilities||1||3||0|
|Total non-current liabilities||1 877||1 330||1 965|
|Current tax liabilities||22||5||5|
|Derivative financial instruments||5||119||159||83|
|Trade and other payables||1 158||968||980|
|Total current liabilities||1 606||1 421||1 513|
|Total liabilities||3 483||2 751||3 478|
|Total equity and liabilities||5 774||4 980||5 700|
|CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY|
|Attributable to equity holders of the Company|
|Total equity at 1 January 2009||40||10||-7||-54||2 182||8||2 179|
|Transfer from retained earnings||1||-1||0|
|Change in minority||0||0|
|Total comprehensive income for the period||-5||-5||60||1||51|
|Total equity at 31 March|
|2009||40||11||-13||-59||2 241||9||2 229|
|Total equity at 1 January 2010||40||11||9||-45||2 195||12||2 222|
|Transfer from retained earnings||2||-5||3||0|
|Change in minority||0||0|
|Total comprehensive income for the period||-17||25||64||0||72|
|Total equity at 31 March|
|2010||40||13||-13||-20||2 259||12||2 291|
|CONDENSED CONSOLIDATED CASH FLOW STATEMENT|
|Cash flow from operating activities|
|Profit before taxes||88||81||296|
|Change in working capital||187||-224||-450|
|Cash generated from operations||361||-35||114|
|Finance cost, net||14||14||20|
|Income taxes paid||-1||38||43|
|Net cash generated from operating activities||374||17||177|
|Acquisition of associates and joint ventures||-14||-||-47|
|Acquisition of other shares||-3||-||-|
|Proceeds from sales of fixed assets||1||3||7|
|Change in other investments||-8||-56||-29|
|Cash flow before financing activities||177||-210||-708|
|Net change in loans and other financing|
|Dividends paid to the owners of|
|Net increase (+)/decrease (-) in cash||-63||-9||62|
|and cash equivalents|
|KEY FINANCIAL INDICATORS|
|31 March||31 March||31 Dec||Last 12|
|Capital employed, MEUR||4 100||3 491||4 257||4 100|
|Interest-bearing net debt, MEUR||1 753||1 217||1 918||-|
|Capital expenditure and investment in shares, MEUR||190||174||863||879|
|Return on average capital employed, after tax, ROACE %||-||-||2,5||3,0|
|Return on capital employed, pre-tax, ROCE %||9,6||11,7||9,0||9,0|
|Return on equity, %||11,4||11,1||10,2||10,1|
|Equity per share, EUR||8,91||8,67||8,64||-|
|Cash flow per share, EUR||1,46||0,07||0,69||2,09|
|Equity-to-assets ratio, %||39,8||44,9||39,1||-|
|Leverage ratio, %||43,3||35,3||46,3||-|
|Average number of shares||255 913 686||255 903 686||255 903 960||255 906 426|
|Number of shares at the end of the period||255 913 686||255 903 686||255 913 686||255 913 686|
|Average number of personnel||5 056||5 252||5 286||-|
|NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS|
|1. BASIS OF PREPARATION AND ACCOUNTING POLICIES|
|The interim report has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by EU. The accounting policies adopted are consistent with those of the Group's annual financial statements for the year ended 31 December 2009.|
|The following interpretations are mandatory for the financial year ending 31 December 2010, but not relevant for the Group:|
|- Annual improvements 2009|
|- Amendments to IFRS 2 Share-Based Payment: Group Cash-settled Share-based Payment Transactions|
|2. TREASURY SHARES|
|In 2007 Neste Oil entered into an agreement with a third party service provider concerning the administration of the share-based management share performance arrangement for key management personnel. As part of the agreement, the service provider purchased a total of 500,000 Neste Oil shares in February 2007 in order to hedge part of Neste Oil's cash flow risk in relation to the possible future payment of the rewards, which will take place partly in Neste Oil shares and partly in cash during 2013. Despite the legal form of the hedging arrangement, it has been accounted for as if the share purchases had been conducted directly by Neste Oil, as required by IFRS 2, Share based payments and SIC-12, Consolidation - Special purpose entities.|
|The consolidated balance sheet and the consolidated changes in total equity reflect the substance of the arrangement with a deduction amounting to EUR 12 million in equity. This amount represents the consideration paid for the shares by the third party service provider. As at 31 March there where 490.000 shares accounted for as treasury shares.|
|3. SEGMENT INFORMATION|
|Neste Oil's operations are grouped into four segments: Oil Products, Renewable Fuels, Oil Retail and Others. Group administration,|
|shared service functions as well as Research and Technology, Neste Jacobs and Nynas AB are included in the Others segment.|
|Oil Products||2 272||1 582||7 631||8 321|
|Oil Retail||849||691||2 998||3 156|
|Eliminations||-481||-286||-1 339||-1 534|
|Total||2 725||2 053||9 636||10 308|
|OPERATING PROFIT||Last 12|
|COMPARABLE OPERATING PROFIT||Last 12|
|DEPRECIATION, AMORTIZATION AND IMPAIRMENTS||Last 12|
|CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES||Last 12|
|TOTAL ASSETS||31 March||31 March||31 Dec|
|Oil Products||3 730||3 565||3 750|
|Renewable Fuels||1 212||549||1 080|
|Total||5 774||4 980||5 700|
|NET ASSETS||31 March||31 March||31 Dec|
|Oil Products||2 748||2 660||2 943|
|Renewable Fuels||1 081||462||940|
|Total||4 376||3 653||4 423|
|RETURN ON NET ASSETS, %||31 March||31 March||31 Dec||Last 12|
|COMPARABLE RETURN ON NET ASSETS, %||31 March||31 March||31 Dec||Last 12|
|QUARTERLY SEGMENT INFORMATION|
|Oil Products||2 272||1 987||1 971||2 091||1 582|
|Total||2 725||2 491||2 500||2 592||2 053|
|QUARTERLY OPERATING PROFIT|
|QUARTERLY COMPARABLE OPERATING PROFIT|
|QUARTERLY DEPRECIATION, AMORTIZATION AND IMPAIRMENTS|
|QUARTERLY CAPITAL EXPENDITURE|
|AND INVESTMENTS IN SHARES|
|4. CHANGES IN INTANGIBLE ASSETS AND PROPERTY,|
|PLANT AND EQUIPMENT AND CAPITAL COMMITMENTS|
|CHANGES IN INTANGIBLE ASSETS AND PROPERTY,|
|PLANT AND EQUIPMENT||31 March||31 March||31 Dec|
|Opening balance||3 283||2 726||2 726|
|Depreciation, amortization and impairments||-58||-55||-234|
|Closing balance||3 410||2 830||3 283|
|CAPITAL COMMITMENTS||31 March||31 March||31 Dec|
|Commitments to purchase property, plant and equipment||439||570||431|
|Capital commitments include EUR 111 million future commitments related to energy and utility supply agreements, which will be accounted for as finance leases.|
|5. DERIVATIVE FINANCIAL INSTRUMENTS||31 March||31 March||31 Dec|
|Interest rate and currency|
|derivative contracts and|
|share forward contracts||Nominal||Net||Nominal||Net||Nominal||Net|
|MEUR||value||fair value||value||fair value||value||fair value|
|Interest rate swaps||725||-6||477||-18||723||-13|
|Forward foreign exchange contracts||2 005||-49||1 379||0||1 759||-7|
|Share forward contracts||0||0||9||-5||9||-4|
|Oil and freight derivative contracts||Volume||Net fair value||Volume||Net fair value||Volume||Net fair value|
|million bbl||Meur||million bbl||Meur||million bbl||Meur|
|The fair values of derivative financial instruments subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivative financial instruments are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models. The amounts also include unsettled closed positions. Derivative financial instruments are mainly used to manage the Group's currency, interest rate and price risk.|
|6. RELATED PARTY TRANSACTIONS|
|Details of transactions between the Group and associates/joint ventures are disclosed below.|
|Transactions carried out with associates and joint ventures||/2010||/2009||/2009|
|Sales of goods and services||6||4||70|
|Purchases of goods and services||10||8||48|
|Financial income and expenses||0||0||0|
|7. CONTINGENT LIABILITIES|
|31 March||31 March||31 Dec|
|On own behalf for commitments|
|Real estate mortgages||26||26||26|
|Other contingent liabilities||45||41||48|
|On behalf of associates and joint ventures|
|Other contingent liabilities||2||1||2|
|On behalf of others|
|31 March||31 March||31 Dec|
|Operating lease liabilities|
|Due within one year||79||112||82|
|Due between one and five years||157||199||166|
|Due later than five years||120||156||120|
|The Group's operating lease commitments primarily relate to time charter vessels, land and office space. In 2008 the lease commitments included operating leases contained in hydrogen supply agreements. Based on updated information the hydrogen supply agreements have been reassessed in 2009 and will be accounted for as take-or-pay contracts. The previous years figures concerning operating lease liabilities have been restated accordingly.|
|Other contingent liabilities|
|Neste Oil Corporation has a collective contingent liability with Fortum Heat and Gas Oy of the demerged Fortum Oil and Gas Oy's liabilities based on the Finnish Companies Act's Chapter 17 Paragraph 16.6.|
CALCULATION OF KEY FIGURES
CALCULATION OF KEY FINANCIAL INDICATORS
Operating profit = Operating profit includes the revenue from the sale of goods and services, other income such as gain from sale of shares or non-financial assets, share of profits (loss) of associates and joint ventures, less losses from sale of shares or non-financial assets, as well as expenses related to production, marketing and selling activities, administration, depreciation, amortization, and impairment charges. Realized and unrealized gains or losses on oil and freight derivative contracts together with realized gains and losses from foreign currency and oil derivative contracts hedging cash flows of commercial sales and purchases that have been recycled in the income statement, are also included in operating profit.
Comparable operating profit = Operating profit -/+ inventory gains/losses -/+ gains/losses from sale of shares and non-financial assets - unrealized change in fair value of oil and freight derivative contracts. Inventory gains/losses include the change in fair value of all trading inventories.
Return on equity, (ROE) % = 100 x (Profit before taxes - taxes) / Total equity average
Return on capital employed, pre-tax (ROCE) % = 100 x (Profit before taxes + interest and other financial expenses) / Capital employed average
Return on average capital employed, after-tax (ROACE) % = 100 x (Profit for the period (adjusted for inventory gains/losses, gains/losses from sale of shares and non-financial assets and unrealized gains/losses on oil and freight derivative contracts, net of tax) + minority interest + interest expenses and other financial expenses related to interest-bearing liabilities (net of tax)) / Capital employed average
Capital employed = Total assets - interest-free liabilities - deferred tax liabilities -provisions
Interest-bearing net debt = Interest- bearing liabilities - cash and cash equivalents
Leverage ratio, % = 100 x Interest- bearing net debt / (Interest- bearing net debt + Total equity)
Gearing, % = 100 x (Interest bearing net debt / Total equity)
Equity-to assets ratio, % = 100 x Total equity / (Total assets - advances received)
Return on net assets, % = 100 x Segment operating profit / Average segment net assets
Comparable return on net assets, % = 100 x Segment comparable operating profit / Average segment net assets
Segment net assets = Property, plant and equipment, intangible assets, investment in associates and joint ventures including shareholder loans, pension assets, inventories and interest-free receivables and liabilities allocated to the business segment, provisions and pension liabilities
CALCULATION OF SHARE-RELATED INDICATORS
Earnings per share (EPS) = Profit for the period attributable to the equity holders of the company / Adjusted average number of shares during the period
Equity per share = Shareholder's equity attributable to the equity holders of the company/ Adjusted average number of shares at the end of the period
Cash flow per share = Net cash generated from operating activities / Adjusted average number of shares during the period