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2010-10-29 08:00:00 CEST 2010-10-29 08:01:32 CEST REGULATED INFORMATION Neste Oil - Interim report (Q1 and Q3)Neste Oil's interim report for January-September 2010Stock Exchange Release Neste Oil Corporation 29 October 2010 at 9 am (EET) Neste Oil's interim report for January-September 2010 - Refining margins and operating profit improved in the third quarter Third quarter in brief: * Comparable operating profit of EUR 57 million (Q3/2009: 42 million) * IFRS operating profit of EUR 143 million (Q3/2009: 113 million) * Total refining margin of USD 7.48/bbl (Q3/2009: 5.97) * Net cash from operations of EUR 5 million (Q3/2009: 162 million) * Investments totaled EUR 190 million (Q3/2009: 216 million) * Start-up of the renewable diesel plant in Singapore proceeded well, with operations scheduled to begin during the fourth quarter President & CEO Matti Lievonen:"As we anticipated in July, the Oil Products segment reported a good result in the third quarter. This was thanks to our focus on diesel fuel, which saw higher margins, good operational performance at our refineries, and a strong contribution by the base oils business compared to the same period in 2009. I'm also pleased to report improved profitability at Oil Retail, which underlines the success of our efforts to enhance cost efficiency. These programs have been implemented across the Group and we expect their results to be in line with what we indicated last year. Our first world-scale renewable diesel plant in Singapore is due to start up in the near future and will mark an important strategic milestone for Neste Oil. The plant will be ramped-up in steps to the full capacity." 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 5132 News conference and conference call A press conference in Finnish on the third quarter results will be held today, 29 October 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 October 2010 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 3140 8286, US +1 718 354 1152 (confirmation code: 2472238). The conference call can be followed at company's website. An instant replay of the call will be available until 5 November 2010 at +44 (0)20 7111 1244 for Europe and +1 347 366 9565 USA for the US (confirmation code: 2472238#). NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY - 30 SEPTEMBER 2010 Quarterly figures are unaudited, full-year figures are audited Figures in parentheses refer to the corresponding period for 2009, unless otherwise stated. KEY FIGURES EUR million (unless otherwise noted) 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 ------------------------------------------------------------------------------ Revenue 3,065 2,500 2,576 8,366 7,145 9,636 Operating profit before depreciation 207 171 -1 361 495 569 Depreciation, amortization, and impairments 64 58 62 184 169 234 Operating profit 143 113 -63 177 326 335 Comparable operating profit * 57 42 5 150 145 116 Profit before income tax 136 102 -70 154 292 296 Earnings per share, EUR 0.42 0.29 -0.20 0.48 0.87 0.86 Investments 190 216 374 754 600 863 Net cash from operating activities 5 162 243 622 402 177 30 Sep 30 Sep 31 Dec 2010 2009 2009 ------------------------------------------------------------------------------ Total equity 2,333 2,231 2,222 Interest-bearing net debt 2,117 1,414 1,918 Capital employed 4,505 3,714 4,257 Return on capital employed pre-tax (ROCE), % 5.7 12.6 9.0 Return on average capital employed after tax (ROACE)**, % 2.6 5.1 2.5 Return on equity (ROE), % 7.2 13.6 10.2 Equity per share, EUR 9.07 8.68 8.64 Cash flow per share, EUR 2.43 1.57 0.69 Equity-to-assets ratio, % 37.6 41.8 39.1 Leverage (Net debt to capital), % 47.6 38.8 46.3 Gearing, % 90.7 63.4 86.3 * 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 third-quarter result Neste Oil's third-quarter sales in 2010 totaled EUR 3,065 million (2,500 million). Thanks to a higher total refining margin compared to the same period in 2009, the Group's comparable operating profit increased to EUR 57 million (42 million). In addition to Oil Products, Oil Retail recorded a higher comparable operating profit year-on-year, whereas Renewable Fuels and Others posted lower profits. Oil Products' third-quarter comparable operating profit was EUR 45 million (15 million), Renewable Fuels' EUR -12 million (-6 million) and Oil Retail's EUR 23 million (19 million). The comparable operating profit of the Others segment totaled EUR 2 million (16 million) and included EUR 4 million (19 million) from associated companies and joint ventures. This decrease mainly resulted from lower volumes at Nynas AB. The Group's third-quarter IFRS operating profit was EUR 143 million (113 million), which was impacted by inventory gains totaling EUR 86 million (62 million). Pre-tax profit was EUR 136 million (102 million), profit for the period EUR 110 million (74 million) and earnings per share EUR 0.42 (0.29). The Group's January-September 2010 results Neste Oil's sales during January-September 2010 totaled EUR 8,366 million (7,145 million). The Group's comparable operating profit was EUR 150 million (145 million), including EUR 47 million from an insurance compensation payment received in February and a negative impact of EUR 65 million from the Porvoo refinery maintenance turnaround in April and May. Oil Products' nine-month comparable operating profit was EUR 100 million (116 million), Renewable Fuels' EUR -52 million (-19 million), Oil Retail's EUR 42 million (45 million), and Others' EUR 61 million (3 million). Profits from associated companies and joint ventures totaled EUR 16 million (21 million). The IFRS operating profit during January-September was EUR 177 million (326 million).This was negatively impacted by the transfer of the Neste Oil Pension Fund to insurance companies. Inventory gains amounted to EUR 60 million compared to EUR 203 million in the first nine months of 2009. Pre-tax profit amounted to EUR 154 million (292 million), profit for the period EUR 124 million (224 million), and earnings per share EUR 0.48 (0.87). 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 September, the rolling twelve-month ROACE was 2.6% (2009 financial year: 2.5%) 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 -------------------------------------------------------------------------------- COMPARABLE OPERATING PROFIT 57 42 5 150 145 116 - inventory gains/losses 86 62 -42 60 203 261 - changes in the fair value of open oil derivatives -2 8 27 18 -23 -43 - capital gains/losses 2 1 -53 -51 1 1 OPERATING PROFIT 143 113 -63 177 326 335 Cash flow, investments, and financing Neste Oil Group's net cash from operating activities between January and September was strong at EUR 622 million (402 million), resulting from the release of funds from working capital and a EUR 85 million positive impact related to the transfer of the liabilities of the Neste Oil Pension Fund to insurance companies. Investments totaled EUR 754 million during the first nine months (600 million), of which EUR 110 million was related to the major maintenance turnaround at the Porvoo refinery. Oil Products' capital spending was EUR 235 million (139 million), Renewable Fuels' EUR 435 million (431 million), and Oil Retail's EUR 23 million (19 million). Investments in the Others segment totaled EUR 61 million (11 million), of which EUR 51 million related to a non-cash purchase of the company's head office building, a transaction that formed part of the transfer of the liabilities associated with the Neste Oil Pension Fund. Interest-bearing net debt was EUR 2,117 million as of the end of September compared to EUR 1,918 at the end of 2009. Net financial expenses between January and September were EUR 23 million (34 million). The average interest rate of borrowings at the end of September was 2.8%, and the average maturity 3.6 years. The equity-to-assets ratio was 37.6% (31 Dec 2009: 39.1%), the leverage ratio 47.6% (31 Dec 2009: 46.3%), and the gearing ratio 90.7% (31 Dec 2009: 86.3%). The Group's cash and cash equivalents and committed, unutilized credit facilities amounted to EUR 1,400 million as of the end of the September (31 Dec 2009: 1,407 million). The company issued a EUR 300 million bond, with a maturity of 5 years and a coupon of 4.875% at the end of June. There are no financial covenants in current loan agreements. 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. Strategy implementation Neste Oil continued to implement its clean fuel strategy during the first nine months of 2010. The company's capital projects consist of new plants designed to increase production of renewable diesel and high-quality base oil. Strategic projects Investments in the two major 800,000 t/a renewable diesel plants in Singapore and Rotterdam is proceeding according to plan. Start-up procedures at the Singapore plant have proceeded smoothly and the plant is expected to come on stream in the fourth quarter. The Rotterdam plant is also proceeding well and is expected to start up towards the end of the first half 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 the plant is scheduled to be completed in the second half of 2011. Neste Oil's share of the investment cost is EUR 130 million. Market overview Crude oil prices increased until early August on the back of strong financial markets and supply disruptions, but then retreated as a result of increasing supply, high global oil stocks, and concerns over a slowdown in economic recovery. Brent Dated traded between USD 70/bbl and USD 85/bbl during the quarter. In late August, prices started to increase again, boosted by stronger demand and the weakening US dollar, with Brent Dated ending the quarter at USD 80/bbl. The price differential between heavier and lighter crude widened in July, as a result of low volumes of North Sea crude during seasonal maintenance work, but narrowed again and were only marginal in September. Refining margins fell in July, particularly in Northwest Europe where refineries ramped up after maintenance outages and increased supplies were met by limited demand. They rose in August as middle distillates, in particular, improved on tighter supplies, but fell again in late September as product prices failed to keep pace with increasing crude prices. Gasoline margins declined during the quarter, in line with typical seasonal patterns, with the end of the driving season and a switch to winter grades occurring toward the end of the quarter. Inventories in North America were relatively high compared to historical levels, whereas those in Europe were normal. Margins for middle distillates strengthened throughout the quarter. At the beginning of the quarter, the diesel market benefited from increased contango storage. In September, middle distillate prices were lifted by pre-stocking ahead of the winter and maintenance-related supply tightness, and margins strengthened despite higher crude prices. Margins for low-sulfur fuel oils improved in July, supported by increased use at power plants. In August, margins started weakening again as supplies increased. The price differential between different biofeedstocks widened somewhat, and prices increased in the third quarter. Progress in finalizing biofuel legislation has been little slower than anticipated both in Europe and the US. The Finnish oil retail market saw a 6-7% increase in heavy vehicle traffic and a 2-3% increase in light vehicle traffic between July and August. Demand recovery in Estonia and Lithuania benefited from market development there. Volumes also grew in Northwestern Russia. Oil tanker freight rates were stable, but soft throughout the third quarter. Key drivers 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 Oct 10 Oct 09 Reference refining margin, USD/bbl 3.52 2.20 5.23 4.26 3.62 3.14 5.11 2.50 Neste Oil total refining margin, USD/bbl 7.48 5.97 7.35 7.55 7.80 7.35 n.a. n.a. Urals-Brent price differential, USD/bbl -0.92 -0.46 -1.80 -1.36 -0.85 -0.81 -1.27 -0.44 NWE Gasoline margin, USD/bbl 7.60 10.09 11.11 10.15 9.77 9.26 8.8 8.36 NWE Diesel margin, USD/bbl 13.77 9.24 14.79 13.27 11.53 11.18 16.7 11.63 NWE Heavy fuel oil margin, USD/bbl -10.35 -5.95 -10.46 -9.24 -7.78 -7.44 11.9 -6.39 Brent Dated crude oil, USD/bbl 76.86 68.27 78.31 77.14 57.15 61.51 82.73 72.75 USD/EUR, market rate 1.29 1.43 1.27 1.32 1.52 1.39 1.39 1.48 USD/EUR, hedged 1.39 1.40 1.38 1.37 1.43 1.41 n.a. n.a. Crude freights, WS points (TD7) 99 70 119 113 191 81 102 77 -------------------------------------------------------------------------------- Production and sales Neste Oil's total production in the third quarter was 3.8 million tons (3.7 million), of which NExBTL renewable diesel accounted for 0.1 million tons (0.1 million). Neste Oil's production, by plant (1,000 t) 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 Porvoo refinery 2,999 2,939 1,499 7,397 8,516 11,520 Naantali refinery 619 651 632 1,822 1,781 2,438 Beringen polyalfaolefin plant 11 10 8 33 26 35 Edmonton iso-octane plant (Neste Oil's share) 54 70 60 162 197 256 NExBTL plants 99 74 50 218 149 219 The Porvoo refinery operated at an average capacity utilization rate of 90% (84%) in the third quarter, while the utilization rate of the Naantali refinery was 84% (91%), impacted by a small fire in August. The proportion of Russian Export Blend in Neste Oil's total refinery input was 67% (64%) during the third quarter. Refinery production costs totaled USD 3.2/bbl (3.8). Neste Oil's sales from in-house production, by product category (1,000 t) 7-9/10 % 7-9/09 % 4-6/10 % 1-9/10 % 1-9/09 % 2009 % Motor gasoline 1,069 29 1,146 32 747 27 2,896 28 3,380 32 4,218 30 Gasoline components 66 2 62 2 74 3 186 2 219 2 270 2 Diesel fuel 1,393 37 1,292 37 1,043 37 3,944 38 3,779 36 5,228 37 Jet fuel 205 5 136 4 83 3 428 4 422 4 613 4 Base oils 78 2 66 2 76 3 231 2 195 2 257 2 Heating oil 131 4 99 3 134 5 532 5 453 4 631 4 Heavy fuel oil 289 8 308 9 166 6 667 7 1,008 9 1,300 9 LPG 35 1 27 1 51 2 177 2 169 2 220 2 NExBTL renewable diesel 102 3 68 2 72 2 211 2 143 1 209 1 Other products 370 9 318 8 339 12 979 10 850 8 1,232 9 -------------------------------------------------------------------------------- TOTAL 3,739 100 3,522 100 2,785 100 10,251 100 10,619 100 14,178 100 Neste Oil's sales from in-house production, by market area (1,000 t) 7-9/10 % 7-9/09 % 4-6/10 % 1-9/10 % 1-9/09 % 2009 % Finland 1,962 52 1,831 52 1,628 59 5,607 55 5,546 53 7,580 53 Other Nordic countries 735 20 580 16 568 20 1,878 18 1,627 15 2,210 16 Other Europe 625 17 692 20 402 14 1,951 19 1,860 17 2,488 18 USA & Canada 366 10 357 10 178 6 714 7 1,457 14 1,686 12 Other countries 52 1 62 2 9 1 101 1 130 1 214 1 -------------------------------------------------------------------------------- TOTAL 3,739 100 3,522 100 2,785 100 10,251 100 10,619 100 14,178 100 SEGMENT REVIEWS Neste Oil's businesses are grouped into four reporting segments: Oil Products, Renewable Fuels, Oil Retail, and Others. Oil Products 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 Revenue, MEUR 2,491 1,971 2,064 6,827 5,644 7,631 Comparable operating profit, MEUR 45 15 -3 100 116 105 IFRS operating profit, MEUR 116 80 -18 163 291 318 Total refining margin, USD/bbl 7.48 5.97 7.35 7.55 8.65 7.35 Oil Products' comparable operating profit for the third quarter was EUR 45 million compared to EUR 15 million during the same quarter in 2009. The increase was the result of higher refining margins and better performance in the base oils business. The total refining margin of USD 7.48/bbl in the third quarter was clearly better than the USD 5.97/bbl recorded during the same quarter in 2009. Total refining margin was supported by higher year-on-year diesel margins in particular. The base oils business benefited from improved demand and margins, whereas gasoline components performance was stable. The profitability of the oil tanker chartering business improved slightly, despite soft freight rates. Oil Products' comparable return on net assets was 4.9% (6.0%) in the third quarter. Renewable Fuels 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 Revenue, MEUR 120 59 60 216 121 182 Comparable operating profit, MEUR -12 -6 -23 -52 -19 -29 IFRS operating profit, MEUR 2 -1 -19 -32 -13 -24 ------------------------------------------------------------------------- Renewable Fuels' comparable operating profit was EUR -12 million in the third quarter, compared to EUR -6 million in the same quarter of 2009. This decrease resulted from costs related to increased activity at the Singapore plant before its start-up in the fourth quarter, and a higher than planned level of activities at the site in Rotterdam. Costs were lower compared to the previous quarter due to some costs being delayed to the following quarter. Renewable diesel margins were somewhat weaker in the third quarter year-on-year due to a narrow price differential between different biofeedstocks. The price premium commanded by high-quality renewable diesel remained healthy. Renewable Fuels' comparable return on net assets was -5.9% (-4.7%) in the third quarter. Oil Retail 7-9/10 7-9/09 4-6/10 1-9/10 1-9/09 2009 Revenue, MEUR 917 789 884 2,650 2,207 2,998 Comparable operating profit, MEUR 23 19 13 42 45 50 IFRS operating profit, MEUR 24 19 14 44 44 50 Total sales volume*, 1,000 m3 1,023 986 973 3,029 2,973 4,002 - gasoline station sales, 1,000 m3 362 374 341 998 1,073 1,405 - diesel station sales, 1,000 m3 365 340 347 1,044 986 1,331 - heating oil, 1,000 m3 156 156 143 520 514 714 - heavy fuel oil, 1,000 m3 69 57 70 242 208 287 * includes both station and terminal sales Oil Retail posted a third-quarter comparable operating profit of EUR 23 million compared to EUR 19 million in the same period in 2009. Performance benefited from increased demand for diesel in Finland and Russia, as well as stronger economic development in the Baltic countries. Oil Retail's comparable return on net assets was 18.1% (18.8%) in the third quarter. Shares, share trading, and ownership Neste Oil's shares are traded on NASDAQ OMX Helsinki Ltd. The share price closed the third quarter at EUR 11.46. At its highest during the quarter, the share price reached EUR 12.60, while at its lowest the price stood at EUR 10.62. Market capitalization was EUR 2.9 billion as of 30 September 2010. An average of 856,000 shares were traded daily, representing 0.3% of the company's shares. Neste Oil's share capital registered with the Company Register as of 30 September 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 September, the Finnish State owned 50.1% (50.1%) of outstanding shares, foreign institutions 16.8% (17.0%), Finnish institutions 19.6% (18.5%), and Finnish households 13.4% (14.4%). Personnel Neste Oil employed an average of 5,078 (5,336) employees during January and September, of which 1,452 (1,311) are based outside Finland. As of the end of September, the company had 4,921 employees (5,205), of which 1,437 (1,371) 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 4.3 (2.8) at the end of September. The target for 2010 is below 3. Lost workday injury frequency (LWIF) stood at 2.9 (2.0). The target is below 1. Safety performance at the renewable diesel sites in Singapore and Rotterdam has continued to be good. TRIF performance in Singapore was 0.95 and the LWIF figure was 0.22 at the end of September, as measured from the start of the project. Over 11 million hours have been worked there without any injuries resulting in lost working days. The TRIF for the Rotterdam project was 2.8 and the LWIF 2.5, and some 1.5 million hours have been worked there without any lost working day injuries. The safety indicator figures for these projects are not included in Neste Oil's overall safety numbers. Neste Oil is prioritizing the broader utilization of proactive safety tools to maintain and further improve safety performance and culture. A total of 16,300 (+ 5,000 during the Porvoo turnaround) safety observation tours have been conducted this year. Safety performance improved in the third quarter, resulting in a TRIF of 2.8 and a LWIF of 2.5. Implementation of best safety procedures across the company will continue to be a priority during the remainder of 2010. Neste Oil's voluntary scheme for Renewable Energy Directive (RED) compliance has been filed with the European Commission for registration. The scheme is intended to ensure the eligibility of Neste Oil's biofuels on the European market. In September, Neste Oil was once again accepted for inclusion in the Dow Jones Sustainability World Index, for the fourth year in succession. DJSI World is the world's most important sustainability index and features 318 companies. Companies are required to demonstrate continuous improvement every year with regard to sustainability for inclusion. In addition, Neste Oil has been awarded 'Best in Class' recognition for its social accountability by the Norwegian banking group, Storebrand, featured in the Ethibel Pioneer Investment Register, and included four times in Innovest's Global 100 list of the world's most sustainable corporations. Forest Footprint Disclosure (FFD) has ranked Neste Oil as the best performer in the oil & gas sector. Events after the reporting period Neste Oil and Stora Enso announced on 11 October that their joint venture, NSE Biofuels Oy, is to commence environmental impact assessments for a commercial- scale biorefinery at Porvoo or Imatra in Finland. The two locations are seen as potential alternative sites for a unit capable of producing approximately 200,000 t/a of premium-quality renewable diesel from wood biomass. 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 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 also include any problems or delays in completing the company's NExBTL renewable diesel investments or failure to capture the anticipated benefits from these investments. Over the longer term, failure to protect Neste Oil's proprietary technology or the 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. Outlook There have been no major changes in the oil market since the previous outlook was published in July. The International Energy Agency has increased its global oil demand estimates for 2010 and 2011, but this is not expected to result in a sudden or significant strengthening of refining margins due to high inventories. Neste Oil anticipates that it will benefit from a somewhat stronger diesel market during the remainder of 2010, thanks to high shutdown activity and other temporary outages in the early part of the quarter, and increasing demand for the fuel. The outlook for gasoline margins is softer, mainly due to seasonality. In terms of crude price differentials, the Urals discount to Brent is expected to average around USD 1.0 /bbl during the rest of the year. Neste Oil's reference refining margin in this environment is expected to somewhat increase in the fourth quarter compared to the third. Neste Oil's new renewable diesel plant in Singapore is anticipated to come on- stream during the fourth quarter. The ramp-up of the plant will be carried out in steps to full capacity and there will be a time lag before output reaches the sales channel due to logistics reasons. Together with full costs and depreciation, this will mean that the Renewable Fuels segment will book a loss in the fourth quarter. The Renewable Energy Directive (RED) shall be incorporated into the national legislation of member states by 5 December. Implementation of the directive is now under way in member states. Oil Retail is likely to face tougher price competition in Finland and other markets in the fourth quarter. The Group's fixed costs in 2010 are estimated to be similar to those in 2009. The Group's cash investments in 2010 are expected to be around EUR 920 million (870 million), 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). Espoo, 28 October 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 JANUARY- SEPTEMBER 2010 Unaudited CONSOLIDATED INCOME STATEMENT MEUR Note Last 12 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Revenue 3 3 065 2 500 8 366 7 145 9 636 10 857 Other income 7 9 71 23 29 77 Share of profit (loss) of associates and joint ventures 3 4 19 16 21 20 15 Materials and services -2 677 -2 164 -7 411 -5 987 -8 167 -9 591 Employee benefit costs -69 -59 -295 -221 -301 -375 Depreciation, amortization and impairments 3 -64 -58 -184 -169 -234 -249 Other expenses -123 -134 -386 -486 -648 -548 Operating profit 143 113 177 326 335 186 Financial income and expenses Financial income 4 2 8 6 10 12 Financial expenses -11 -11 -33 -36 -44 -41 Exchange rate and fair value gains and losses 0 -2 2 -4 -5 1 Total financial income and expenses -7 -11 -23 -34 -39 -28 Profit before income taxes 136 102 154 292 296 158 Income tax expense -26 -28 -30 -68 -71 -33 Profit for the period 110 74 124 224 225 125 Profit attributable to: Owners of the parent 109 74 122 222 221 121 Non-controlling interests 1 0 2 2 4 4 110 74 124 224 225 125 Earnings per share from profit attributable to the owners of the parent basic and diluted (in euro per share) 0,42 0,29 0,48 0,87 0,86 0,47 STATEMENT OF COMPREHENSIVE INCOME 7-9 7-9 1-9 1-9 1-12 Last 12 MEUR 2010 2009 2010 2009 2009 months Profit for the period 110 74 124 224 225 125 Other comprehensive income for the period, net of tax: Translation differences -12 9 32 6 9 35 Cash flow hedges recorded in equity 50 9 6 5 3 4 transferred to income statement 12 -4 20 26 15 9 Net investment hedges -1 0 -3 0 0 -3 Hedging reserves in associates and joint ventures 0 0 1 -2 -2 1 Other comprehensive income for the period, net of tax 49 14 56 35 25 46 Total comprehensive income for the period 159 88 180 259 250 171 Total comprehensive income attributable to: Owners of the parent 158 85 178 254 246 170 Non-controlling interests 1 0 2 2 4 4 159 85 180 256 250 174 CONSOLIDATED BALANCE SHEET 30 Sep 30 Sep 31 Dec MEUR Note 2010 2009 2009 ASSETS Non-current assets Intangible assets 5 46 49 48 Property, plant and equipment 5 3 764 3 069 3 235 Investments in associates and joint ventures 296 202 216 Non-current receivables 7 3 3 Pension assets 0 111 111 Deferred tax assets 18 12 11 Derivative financial instruments 6 32 10 3 Available-for-sale financial assets 3 2 1 Total non-current assets 4 166 3 458 3 628 Current assets Inventories 1 125 932 1 148 Trade and other receivables 796 769 757 Derivative financial instruments 6 82 115 50 Cash and cash equivalents 55 69 117 Total current assets 2 058 1 885 2 072 Total assets 6 224 5 343 5 700 EQUITY Capital and reserves attributable to the owners of the parent Share capital 40 40 40 Other equity 2 2 281 2 181 2 170 Total 2 321 2 221 2 210 Non-controlling interests 12 10 12 Total equity 2 333 2 231 2 222 LIABILITIES Non-current liabilities Interest-bearing liabilities 1 869 1 213 1 590 Deferred tax liabilities 346 325 328 Provisions 17 26 22 Pension liabilities 37 10 10 Derivative financial instruments 6 19 27 15 Other non-current liabilities 1 0 0 Total non-current liabilities 2 289 1 601 1 965 Current liabilities Interest-bearing liabilities 303 270 445 Current tax liabilities 19 14 5 Derivative financial instruments 6 38 84 83 Trade and other payables 1 242 1 143 980 Total current liabilities 1 602 1 511 1 513 Total liabilities 3 891 3 112 3 478 Total equity and liabilities 6 224 5 343 5 700 CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY Attributable to equity holders of the Company Share Reserve Fair Translation Re- Non- Total ca- fund value diffe- tained cont- equity pital and rences ear- rolling other nings inte- MEUR reserves rests Total equity at 1 January 2009 40 10 -7 -54 2 182 8 2 179 Dividend paid -205 -205 Share-based compensation -2 -2 Transfer from retained earnings 1 -1 0 Changes in non- controlling interests 0 0 Total comprehensive income for the period 29 6 222 2 259 Total equity at 30 September 2009 40 11 20 -48 2 198 10 2 231 Share Reserve Fair Translation Re- Non- Total ca- fund value diffe- tained cont- equity pital and rences ear- rolling other nings inte- MEUR reserves rests Total equity at 1 January 2010 40 11 9 -45 2 195 12 2 222 Dividend paid -64 -2 -66 Share-based compensation -3 -3 Transfer from retained earnings 1 -5 4 0 Changes in non- controlling interests 0 0 Total comprehensive income for the period 1 27 28 122 2 180 Total equity at 30 September 2010 40 13 31 -17 2 254 12 2 333 CONDENSED CONSOLIDATED CASH FLOW STATEMENT 7-9 7-9 1-9 1-9 1-12 MEUR 2010 2009 2010 2009 2009 Cash flow from operating activities Profit before taxes 136 102 154 292 296 Adjustments, total 73 26 306 187 268 Change in working capital -104 27 233 -105 -450 Cash generated from operations 105 155 693 374 114 Finance cost, net -95 0 -62 -9 20 Income taxes paid -5 7 -9 37 43 Net cash generated from operating activities 5 162 622 402 177 Capital expenditure -177 -184 -699 -568 -816 Acquisition of shares in subsidiaries 0 - -8 - - Acquisition of associates and joint ventures -13 -32 -44 -32 -47 Acquisition of other shares 0 - -3 - 0 Proceeds from sales of shares in subsidiaries - 0 6 0 - Proceeds from sales of fixed assets 2 1 3 6 7 Change in other investments -5 48 17 -13 -29 Cash flow before financing activities -188 -5 -106 -205 -708 Net change in loans and other financing activities 187 -33 109 424 975 Dividends paid to the owners of the parent - 0 -64 -205 -205 Dividends paid to non- controlling interests - - -2 - - Net increase (+)/decrease (-) in cash and cash equivalents -1 -38 -63 14 62 KEY FINANCIAL INDICATORS 30 Sep 30 Sep 31 Dec Last 12 2010 2009 2009 months Capital employed, MEUR 4 505 3 714 4 257 4 505 Interest- bearing net debt, MEUR 2 117 1 414 1 918 - Capital expenditure and investment in shares, MEUR 754 600 863 1 017 Return on average capital employed, after tax, ROACE % - - 2,5 2,6 Return on capital employed, pre- tax, ROCE % 5,7 12,6 9,0 4,8 Return on equity, % 7,2 13,6 10,2 5,4 Equity per share, EUR 9,07 8,68 8,64 - Cash flow per share, EUR 2,43 1,57 0,69 1,55 Equity-to- assets ratio, % 37,6 41,8 39,1 - Leverage ratio, % 47,6 38,8 46,3 - Gearing, % 90,7 63,4 86,3 - Average number of shares 255 913 686 255 903 686 255 903 960 255 911 439 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 5 078 5 336 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, with the exception of the following changes due to the adoption of the new and revised IFRS standards and IFRIC interpretations. - IFRS 3 (revised), Business combinations. Neste Oil applies the revised standard to business combinations taking place on or after 1 January 2010. - IAS 27 (revised), Consolidated and Separate Financial Statements - IAS 39 (amendment) Financial Instruments: Recognition and Measurement - Eligible hedged items - IFRS 2 (amendment) Share- based Payment - Group cash- settled transactions - IFRIC 17 Distributions of Non-cash Assets to Owners - Annual improvements 2009. The above mentioned amendments do not have a material impact on the reported income statement, balance sheet or notes. 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 30 September 2010 there were 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, Nynas AB and also as of Q2/2010 NSE Biofuels Oy are included in the Others segment. The comparative figures have been adjusted accordingly. REVENUE Last 12 MEUR 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Oil Products 2 491 1 971 6 827 5 644 7 631 8 814 Renewable Fuels 120 59 216 121 182 277 Oil Retail 917 789 2 650 2 207 2 998 3 441 Others 38 37 132 120 164 176 Eliminations -501 -356 -1 459 -947 -1 339 -1 851 Total 3 065 2 500 8 366 7 145 9 636 10 857 OPERATING PROFIT Last 12 MEUR 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Oil Products 116 80 163 291 318 190 Renewable Fuels 2 -1 -32 -13 -24 -43 Oil Retail 24 19 44 44 50 50 Others 2 17 3 4 -7 -8 Eliminations -1 -2 -1 0 -2 -3 Total 143 113 177 326 335 186 COMPARABLE OPERATING PROFIT Last 12 MEUR 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Oil Products 45 15 100 116 105 89 Renewable Fuels -12 -6 -52 -19 -29 -62 Oil Retail 23 19 42 45 50 47 Others 2 16 61 3 -8 50 Eliminations -1 -2 -1 0 -2 -3 Total 57 42 150 145 116 121 DEPRECIATION, AMORTIZATION AND IMPAIRMENTS Last 12 MEUR 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Oil Products 48 43 137 130 178 185 Renewable Fuels 5 4 15 8 14 21 Oil Retail 8 8 24 23 31 32 Others 3 3 8 8 11 11 Total 64 58 184 169 234 249 CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES Last 12 MEUR 7-9/2010 7-9/2009 1-9/2010 1-9/2009 1-12/2009 months Oil Products 23 45 235 139 198 294 Renewable Fuels 157 158 435 431 619 623 Oil Retail 8 9 23 19 29 33 Others 2 4 61 11 17 67 Total 190 216 754 600 863 1 017 TOTAL ASSETS 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Oil Products 3 699 3 597 3 750 Renewable Fuels 1 575 869 1 065 Oil Retail 572 544 545 Others 380 301 296 Unallocated assets 220 207 234 Eliminations -222 -175 -190 Total 6 224 5 343 5 700 NET ASSETS 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Oil Products 2 610 2 573 2 943 Renewable Fuels 1 468 752 925 Oil Retail 316 308 305 Others 299 249 249 Eliminations -2 4 1 Total 4 691 3 886 4 423 RETURN ON NET ASSETS, % 30 Sep 30 Sep 31 Dec Last 12 2010 2009 2009 months Oil Products 8,0 15,1 12,0 7,0 Renewable Fuels -3,6 -3,2 -3,9 -3,9 Oil Retail 19,0 18,4 15,8 16,2 COMPARABLE RETURN ON NET ASSETS, % 30 Sep 30 Sep 31 Dec Last 12 2010 2009 2009 months Oil Products 4,9 6,0 4,0 3,3 Renewable Fuels -5,9 -4,7 -4,7 -5,7 Oil Retail 18,1 18,8 15,8 15,2 QUARTERLY SEGMENT INFORMATION QUARTERLY REVENUE MEUR 7-9/2010 4-6/2010 1-3/2010 10-12/2009 7-9/2009 4-6/2009 1-3/2009 Oil Products 2 491 2 064 2 272 1 987 1 971 2 091 1 582 Renewable Fuels 120 60 36 61 59 38 24 Oil Retail 917 884 849 791 789 727 691 Others 38 45 49 44 37 41 42 Eliminations -501 -477 -481 -392 -356 -305 -286 Total 3 065 2 576 2 725 2 491 2 500 2 592 2 053 QUARTERLY OPERATING PROFIT MEUR 7-9/2010 4-6/2010 1-3/2010 10-12/2009 7-9/2009 4-6/2009 1-3/2009 Oil Products 116 -18 65 27 80 105 106 Renewable Fuels 2 -19 -15 -11 -1 -2 -10 Oil Retail 24 14 6 6 19 13 12 Others 2 -42 43 -11 17 -2 -11 Eliminations -1 2 -2 -2 -2 4 -2 Total 143 -63 97 9 113 118 95 QUARTERLY COMPARABLE OPERATING PROFIT MEUR 7-9/2010 4-6/2010 1-3/2010 10-12/2009 7-9/2009 4-6/2009 1-3/2009 Oil Products 45 -3 58 -11 15 37 64 Renewable Fuels -12 -23 -17 -10 -6 -6 -7 Oil Retail 23 13 6 5 19 14 12 Others 2 16 43 -11 16 -2 -11 Eliminations -1 2 -2 -2 -2 4 -2 Total 57 5 88 -29 42 47 56 QUARTERLY DEPRECIATION, AMORTIZATION AND IMPAIRMENTS MEUR 7-9/2010 4-6/2010 1-3/2010 10-12/2009 7-9/2009 4-6/2009 1-3/2009 Oil Products 48 47 42 48 43 43 44 Renewable Fuels 5 5 5 6 4 2 2 Oil Retail 8 8 8 8 8 8 7 Others 3 2 3 3 3 3 2 Total 64 62 58 65 58 56 55 QUARTERLY CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES MEUR 7-9/2010 4-6/2010 1-3/2010 10-12/2009 7-9/2009 4-6/2009 1-3/2009 Oil Products 23 158 54 59 45 51 43 Renewable Fuels 157 149 129 188 158 150 123 Oil Retail 8 13 2 10 9 6 4 Others 2 54 5 6 4 3 4 Total 190 374 190 263 216 210 174 4. ACQUISITIONS UAB Neste Lietuva, subsidiary of Neste Oil Group, acquired 100% of the shares and voting rights of UAB Alexela Oil, currently named UAB Automatines Degalines, which operates 22 unmanned fuel stations in Lithuania. The acquisition was closed on 28 May 2010. Neste Oil strengthens its position on the retail market in Lithuania, as the acquisition complements the company's existing network of 37 stations in the country. The profit of UAB Alexela Oil included in the Neste Oil's consolidated income statement 1 January - 30 September 2010 is immaterial. Also, the management estimates that UAB Alexela Oil's effect on Neste Oil's consolidated revenue or profit for the period would have been immaterial as at 30 September 2010 had the acquisition taken place on 1 January 2010. Assets and liabilities of UAB Alexela Oil Acquired Acquired MEUR fair value book value Intangible and tangible assets 7 5 Current assets 3 3 Cash and cash equivalents 0 0 Total assets 10 8 Trade and other payables 2 1 Total liabilities 2 1 Acquired net assets 8 7 Purchase consideration 8 Goodwill 0 Purchase consideration settled in cash 8 Cash and cash equivalents in UAB Alexela Oil 0 Cash outflow on acquisition 8 5. CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT AND CAPITAL COMMITMENTS CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Opening balance 3 283 2 726 2 726 Depreciation, amortization and impairments -184 -169 -234 Capital expenditure 699 568 820 Disposals -1 -5 -21 Increases through business combinations 6 -2 0 Translation differences 7 0 -8 Closing balance 3 810 3 118 3 283 CAPITAL COMMITMENTS 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Commitments to purchase property, plant and equipment 184 591 431 Total 184 591 431 Capital commitments include EUR 78 million future commitments related to energy and utility supply agreements, which will be accounted for as finance leases. 6. DERIVATIVE FINANCIAL INSTRUMENTS 30 Sep 2010 30 Sep 2009 31 Dec 2009 Interest rate and currency derivative contracts and share forward contracts Nominal Net Nominal Net Nominal Net fair fair fair MEUR value value value value value value Interest rate swaps 723 8 723 -17 723 -13 Forward foreign exchange contracts 1 612 50 1 345 44 1 759 -7 Currency options Purchased 63 -1 59 2 115 -1 Written 55 1 51 2 114 2 Share forward contracts 0 0 9 -4 9 -4 Commodity derivative contracts Volume Net Volume Net Volume Net million fair million fair million fair bbl value bbl value bbl value Meur Meur Meur Sales contracts 15 -6 27 -5 18 -32 Purchase contracts 8 3 21 -8 7 10 Purchased options 2 -11 2 -8 1 -8 Written options 2 11 2 8 1 8 Commodity derivative contracts include oil, freight and palmoil derivative contracts. 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. 7. RELATED PARTY TRANSACTIONS Details of transactions between the Group and associates/joint ventures are disclosed below. 1-9 1-9 1-12 Transactions carried out with associates and joint ventures 2010 2009 2009 Sales of goods and services 75 53 70 Purchases of goods and services 43 37 48 Receivables 31 13 23 Financial income and expenses 0 0 0 Liabilities 1 9 2 8. CONTINGENT LIABILITIES 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Contingent liabilities On own behalf for commitments Real estate mortgages 26 26 26 Pledged assets 2 3 2 Other contingent liabilities 40 47 48 Total 68 76 76 On behalf of associates and joint ventures Guarantees 4 4 4 Other contingent liabilities 1 2 2 Total 5 6 6 On behalf of others Guarantees 14 18 18 Total 14 18 18 Total 87 100 100 30 Sep 30 Sep 31 Dec MEUR 2010 2009 2009 Operating lease liabilities Due within one year 60 88 82 Due between one and five years 141 172 166 Due later than five years 110 124 120 Total 311 384 368 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 [HUG#1456955] |
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