2008-10-24 08:00:00 CEST
2008-10-24 08:04:54 CEST
REGULATED INFORMATION
Neste Oil - Interim report (Q1 and Q3)
Neste Oil's Interim Report for January-September 2008
- Comparable operating profit increased and was EUR 199 million in
the third quarter
The third quarter in brief:
- Strong comparable operating profit of EUR 199 million (Q3/07: 159
million)
- Operating profit of EUR 44 million (Q3/07: 180 million), depressed
by an inventory loss of EUR 180 million
due to rapidly falling oil prices
- Cash flow from operations of EUR -175 million (Q3/07: -32 million)
due to temporarily high receivables at
the end of the quarter
- Solid financial position; no major refinancing needs over the short
or medium term, nor credit losses with
counterparty banks
- Total refining margin reached a new record of USD 13.54 /bbl
(Q3/07: 10.20)
- Maintenance work on the Porvoo diesel production line 4 was carried
out as planned and the line has been
operating normally since early October
Jarmo Honkamaa, Deputy CEO:"We are satisfied with our strong results in what was a really
exceptional environment in the third quarter. The oil market
witnessed even higher-than-normal volatility, and crude oil prices
dropped rapidly and significantly after rising for eight months. This
was reflected in our IFRS operating profit for the quarter, which
includes a large inventory loss.""Our comparable operating profit, which best reflects the company's
operational results, was among the highest in our history. This was
largely thanks to our high total refining margin, supported by a
strong diesel market, and another good quarterly result by
Shipping.""Demand for middle distillates and diesel continues to be the main
driver of refining margins. I am pleased to say that all our diesel
production units are operating normally again after maintenance
carried out at the Porvoo diesel line in August and September."
Further information:
Jarmo Honkamaa, Deputy CEO, tel. +358 10 458 4758
Risto Takkala, Interim CFO, tel. +358 10 458 4071
Investor Relations, tel. +358 10 458 5132
News conference and conference call
A press conference in Finnish on the third-quarter results for 2008
will be held today, 24 October 2008, at 11:30 am EET in the Mirror
Room at Hotel Kämp, Pohjoisesplanadi 29, Helsinki. www.nesteoil.com
will feature English versions of the presentation materials.
An international conference call for investors and analysts will be
held on the same day 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 3023
4426, US: +1 866 966 5335. Use the password: Neste Oil. A webcast of
the call can be found at
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=189806&eventID=1995604.
An instant replay will be available for one week at +44 (0)20 8196
1998 for Europe and +1 866 583 1035 for the US, using access code
725434.
NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY - 30 SEPTEMBER
2008
Unaudited
Figures in parentheses refer to the third quarter of 2007, unless
otherwise stated.
KEY FIGURES
EUR million (unless otherwise noted)
Last 12
7-9/08 7-9/07 1-9/08 1-9/07 2007 months
Sales 4,521 2,978 12,238 8,642 12,103 15,699
Operating profit before
depreciation 100 235 706 797 996 905
Depreciation,
amortization and
impairments 56 55 168 139 195 224
Operating profit 44 180 538 658 801 681
Comparable operating
profit * 199 159 499 542 626 583
Profit before income
tax 36 168 511 633 763 641
Earnings per share, EUR 0.13 0.52 1.51 1.86 2.25 1.91
Investments 131 59 323 236 334 421
Net cash from operating
activities -175 -32 26 321 541 246
30 Sept 30 Sept 31 Dec Last 12
2008 2007 2007 months
Total equity 2,503 2,331 2,427 -
Interest-bearing net
debt 1,295 879 755 -
Capital employed 3,905 3,265 3,234 3,905
Return on capital
employed pre-tax
(ROCE), % 20.7 28.5 26.2 19.5
Return on average
capital employed after
tax (ROACE),% - - 15.5 13.1
Return on equity (ROE),
% 21.1 28.7 25.6 20.4
Equity per share, EUR 9.75 9.10 9.47 -
Cash flow per share,
EUR 0.10 1.25 2.11 0.96
Equity-to-assets ratio,
% 45.1 49.4 49.9 -
Leverage ratio, % 34.1 27.4 23.7 -
Gearing, % 51.7 37.7 31.1 -
* 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.
The Group's third-quarter results
High oil prices boosted Neste Oil's sales to EUR 4,521 million in the
third quarter, representing a 52% increase compared to the third
quarter of 2007.
The comparable operating profit stood at EUR 199 million (159
million), driven by high total refining margin and strong
profitability in Shipping. Exceptional items burdened the comparable
operating profit by EUR 19 million. The USD/EUR exchange rate also
impacted negatively.
During the third quarter, the comparable operating profit of Oil
Refining was EUR 149 million (125 million), Renewable Fuels EUR -3
million (-6 million), Specialty Products EUR 29 million (34 million),
Oil Retail EUR 7 million (21 million), and Shipping EUR 23 million
(-1 million).
The Group's third-quarter operating profit was EUR 44 million (180
million), which includes an inventory loss of EUR 180 million due to
a rapid fall in oil price.
The Group's profit before taxes was EUR 36 million (168 million), and
net profit for the period was EUR 34 million (132 million), resulting
in earnings per share of EUR 0.13 (0.52).
The Group's January-September results
Sales of the Neste Oil Group totaled EUR 12,238 million between
January and September, compared to EUR 8,642 million in the same
period in 2007.
The Group's comparable operating profit for the period was EUR 499
million (542 million). This figure was supported by a high total
refining margin, but its impact was muted by lower profitability at
Specialty Products, the weak US dollar, and increased fixed costs.
The Group's nine-month operating profit totaled EUR 538 million (658
million). Inventory gains decreased to EUR 14 million during the
period (120 million).
Oil Refining's nine-month comparable operating profit was EUR 379
million (399 million), Renewable Fuels' EUR 12 million (-16 million),
Specialty Products' EUR 56 million (107 million), Oil Retail's EUR 27
million (49 million), and Shipping's EUR 52 million (32 million).
The Group's profit before taxes was EUR 511 million (633 million),
and net profit for the period was EUR 390 million (477 million).
Earnings per share were EUR 1.51 (1.86).
Given the capital-intensive nature of its business, Neste Oil uses
return on average capital employed after tax (ROACE) as its primary
financial target. As of the end of September, the rolling
twelve-month ROACE was 13.1% (financial period 2007: 15.5%). The
target is at least 15% over the cycle.
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
COMPARABLE OPERATING PROFIT 199 159 499 542 626 583
- changes in the fair value of
open
oil derivative positions 22 -15 14 -9 -5 18
- inventory gains/losses -180 36 14 120 174 68
- gains from sales of fixed
assets 3 0 11 5 6 12
OPERATING PROFIT 44 180 538 658 801 681
Capital expenditure and financing
Investments during the first nine months totaled EUR 323 million (236
million), of which Oil Refining accounted for EUR 98 million,
Renewable Fuels EUR 141 million, Specialty Products EUR 19 million,
Oil Retail EUR 41 million, and Shipping EUR 1 million. Capital
investments in the Other segment totaled EUR 23 million. The largest
single item in this figure was the acquisition of Rintekno.
Depreciation in January-September period was EUR 168 million (139
million).
Interest-bearing net debt totaled EUR 1,295 million at the end of
September (31 Dec 2007: 755 million). This increase was mainly caused
by a high level of working capital due to temporarily high
receivables at the end of September. High working capital also
resulted in lower net cash from operating activities between January
and September of EUR 26 million (321 million).
Net financial expenses between January and September were EUR 27
million (25 million). The average interest rate of borrowings at the
end of September was 4.9%, and average maturity 4.3 years. Liquidity
is healthy, with cash and cash equivalents and committed, unutilized
credit facilities amounting to EUR 1,217 million at the end of
September (31 Dec 2007: 1,492 million). The company sees no major
refinancing needs until 2012. Short-term financing needs are met by
revolving credit and overdraft facilities. There are no financial
covenants in existing loan agreements.
The equity-to-assets ratio was 45.1% (31 Dec 2007: 49.9%), the
gearing ratio 51.7% (31 Dec 2007: 31.1%), and the leverage ratio
34.1% (31 Dec 2007: 23.7%).
In accordance with its hedging policy, Neste Oil has hedged the
majority of its net foreign currency exposure for the next 12 months,
mainly through the use of forward contracts and currency options. The
most important hedged currency is the US dollar.
Market overview
After rising for eight months, crude oil prices fell significantly
during the third quarter. Brent Dated reached a new record of USD
144/bbl at the beginning of July, but fell back to USD 90/bbl and
averaged USD 115/bbl (75) during the quarter. Due to the worsening
outlook of the world economy and a fall in demand forecasts, market
sentiment shifted and money was pulled out of commodities.
Simultaneously, the US dollar strengthened. Stronger fuel oil margins
and supply problems with Middle Eastern grades boosted Russian crude,
and the price differential between Urals and Brent Dated narrowed,
averaging USD -2.61/bbl (-2.53).
Refining margins improved in the third quarter, mainly because of
disruptions in oil production and at refineries in the US Gulf,
caused by hurricanes Gustav and Ike. Declining crude oil price also
supported product demand. The international reference refining margin
in North-West Europe, IEA Brent Cracking, averaged USD 5.24 /bbl
(4.39).
Margins for middle distillates remained high, although somewhat below
the peaks seen in the second quarter. Diesel supplies increased, and
additional demand resulting from power generation problems in Asia
diminished. Distillate margins improved during September, both
because of the hurricanes in the US and the European maintenance
season.
US gasoline demand continued to fall due to the economic downturn and
high prices. Margins peaked in September as hurricanes caused
shutdowns at US Gulf refineries. In September and October, gasoline
margins remained at a relatively good level compared to the second
quarter.
Fuel oil margins were surprisingly strong. Marine fuel oil was in
good demand in the East and South-East Asia and was shipped there
from Europe. In addition, fuel oil for power production use was in
demand in the Persian Gulf.
Reduced vegetable oil prices have resulted in lower prices for
biofuels. Margins for high-quality renewable fuels have remained
healthy.
Demand has been declining in Neste Oil's retail markets in 2008, on
the back of high prices and economic uncertainty, and this has been
particularly evident in respect of gasoline.
Crude freight rates continued to be unseasonably high, with both
North Sea and Baltic rates some 85% higher compared to the same
period in 2007.
Key drivers
7-9/08 7-9/07 1-9/08 1-9/07 Oct 08 Oct 07 2007
IEA Brent cracking
margin, USD/bbl 5.24 4.39 4.79 5.33 6.63 2.90 5.09
Total refining
margin, USD/bbl 13.54 10.20 12.65 10.63 n.a n.a 10.46
Urals - Brent price
differential, USD/bbl -2.61 -2.53 -3.32 -3.18 -1.61 -2.76 -3.10
Brent dated crude
oil, USD/bbl 114.78 74.87 111.02 67.13 76.39 82.49 72.52
Crude freights,
Aframax WS points 198 107 191 131 139 127 136
USD/EUR exchange rate 1.51 1.39 1.52 1.35 1.36 1.42 1.38
Sales and production
Sales from in-house production (in 1,000 tons and % of total)
7-9/08 % 7-9/07 % 1-9/08 % 1-9/07 % 2007 %
Motor gasoline 1,089 29 1,125 31 3,205 29 3,342 31 4,384 31
Gasoline
components 67 2 69 2 220 2 288 3 357 2
Diesel fuel 1,385 36 1,421 39 3,991 37 3,839 36 5,137 36
Jet fuel 198 5 189 5 504 5 532 5 729 5
Base oils 70 2 74 2 220 2 227 2 304 2
Heating oil 203 5 164 5 518 5 539 5 764 5
Heavy fuel oil 245 6 180 5 761 7 775 7 1,097 8
LPG 85 2 84 2 270 2 256 2 317 2
NExBTL
renewable
diesel 23 1 5 0 76 1 5 0 28 0
Other products 449 12 324 9 1,111 10 945 9 1,215 8
TOTAL 3,814 100 3,634 100 10,875 100 10,748 100 14,332 100
Sales from in-house production by market area (in 1,000 tons and % of
total)
7-9/08 % 7-9/07 % 1-9/08 % 1-9/07 % 2007 %
Finland 2,082 55 1,987 55 5,653 52 5,981 56 8,053 56
Other Nordic
countries 521 14 635 17 1,449 13 1,575 15 2,059 14
Other Europe 800 21 633 18 2,293 21 1,756 16 2,399 17
USA & Canada 394 10 362 10 1,389 13 1,366 13 1,703 12
Other
countries 16 0 17 0 91 1 70 0 118 1
TOTAL 3,814 100 3,634 100 10,875 100 10,748 100 14,332 100
Neste Oil refined 3.8 million tons (4.0 million) of crude oil and
feedstocks at its refineries in the third quarter, of which 3.1
million tons (3.3 million) at Porvoo and 0.7 million tons (0.7
million) at Naantali. The Porvoo refinery operated at a crude
distillation capacity utilization rate of 88% (99%) during the
quarter, while Naantali reached 99% (100%) capacity utilization.
The proportion of Russian Export Blend in Neste Oil's total refinery
input was 52% (62%) during the third quarter.
The company has decided to reorganize its sales and trading
activities as of 1 January 2009. The office in London will be closed
and operations moved to Geneva, Switzerland.
SEGMENT RESULTS
Neste Oil's businesses are grouped into six segments: Oil Refining,
Renewable Fuels, Specialty Products, Oil Retail, Shipping, and Other.
Oil Refining
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
Sales, MEUR 3,763 2,310 9,933 6,608 9,348 12,673
Operating profit, MEUR -2 148 415 501 640 554
Comparable operating profit,
MEUR 149 125 379 399 484 464
Capital expenditure, MEUR 30 31 98 147 193 144
Total refining margin
USD/bbl 13.54 10.20 12.65 10.63 10.46 11.91
Oil Refining posted a comparable operating profit of EUR 149 million
(125 million) and an operating profit of EUR -2 million (148
million).
The increase in comparable operating profit resulted from a high
total refining margin of USD 13.54/bbl (10.20). The benchmark IEA
Brent cracking margin was USD 5.24/bbl (4.39). The weak US dollar
compared to the same period in 2007 continued to have a negative
impact.
The stronger total refining margin was due to strong diesel margins
and profitable gasoline exports to the North American market. As a
result of the maintenance shutdown of the new diesel line, however,
Neste Oil's ability to use heavier Russian crude was limited. Higher
energy costs also had a negative effect on the total refining margin.
Oil Refining's rolling 12-month comparable return on net assets at
the end of September was 19.3%.
Renewable Fuels
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
Sales, MEUR 27 7 96 13 40 123
Operating profit, MEUR -2 -7 11 -14 -12 13
Comparable operating profit,
MEUR -3 -6 12 -16 -13 15
Capital expenditure, MEUR 64 13 141 47 69 163
Renewable Fuels posted a comparable operating profit of EUR -3
million (-6 million) and an operating profit of EUR -2 million (-7
million) in the third quarter.
Although operations at the first NExBTL renewable diesel production
plant at Porvoo were profitable, sales volumes were lower compared to
the second quarter. The NExBTL margins have remained healthy. Project
and development costs had a negative impact on the segment's results.
Renewable Fuels' rolling 12-month comparable return on net assets at
the end of September was 8.3%.
Specialty Products
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
Sales, MEUR 149 164 479 511 649 617
Operating profit, MEUR 23 34 56 112 122 66
Comparable operating profit,
MEUR 29 34 56 107 109 58
Capital expenditure, MEUR 16 1 19 3 5 21
Specialty Products posted a comparable operating profit of EUR 29
million (34 million) and an operating profit of EUR 23 million (34
million) in the third quarter.
Base oil margins recovered compared to previous quarters as a result
of declining feedstock prices. Gasoline components suffered from a
weak gasoline market. Nynas showed good profitability, supported by
normal seasonality.
Specialty Products' rolling 12-month comparable return on net assets
at the end of September was 15.8%.
Oil Retail
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
Sales, MEUR 1,132 853 3,158 2,470 3,435 4,123
Operating profit, MEUR 9 22 31 51 60 40
Comparable operating profit,
MEUR 7 21 27 49 59 37
Capital expenditure, MEUR 18 9 41 27 51 65
Total sales volume*, 1,000 m3 1,104 1,087 3,211 3,329 4,519 4,402
- gasoline station sales,
1,000 m3 388 392 1,103 1,087 1,457 1,473
- diesel station sales, 1,000
m3 359 338 1,051 981 1,334 1,399
- heating oil, 1,000 m3 180 172 539 546 763 756
- heavy fuel oil, 1,000 m3 76 103 251 367 473 357
*includes both station and terminal sales
Oil Retail recorded a comparable operating profit of EUR 7 million
(21 million) and an operating profit of EUR 9 million (22 million) in
the third quarter. The segment's profitability was negatively
impacted by an additional EUR 11 million write-down on business
partner-related receivables. A write-down of EUR 4 million on the
same case was reported in the second quarter. Revamping of the
Finnish station network has increased fixed costs.
Neste Oil has been able to retain its market share of the Finnish
gasoline market, despite a decline in gasoline demand throughout
2008. Lower demand has also put pressure on gasoline retail margins.
Diesel volumes have continued to increase. The ongoing project aimed
at strengthening Oil Retail's profitability and position in Finland
has proceeded according to plan.
The downturn of the Baltic economies has been reflected in lower
volumes, but retail margins have not been affected significantly.
Volumes and margins in North-West Russia were softer compared to the
same quarter in 2007.
At the end of the quarter, Neste Oil had 891 (896) outlets in Finland
and 279 (257) around the Baltic Rim.
Oil Retail's rolling 12-month comparable return on net assets at the
end of September was 10.0%.
Shipping
7-9/08 7-9/07 1-9/08 1-9/07 2007 LTM
Sales, MEUR 114 82 337 307 394 424
Operating profit, MEUR 22 -4 52 35 30 47
Comparable operating profit,
MEUR 23 -1 52 32 28 48
Capital expenditure, MEUR 0 1 1 2 2 1
Fleet utilization rate, % 96 95 96 95 94 96
Shipping recorded a comparable operating profit of EUR 23 million (-1
million) and an operating profit of EUR 22 million (-4 million).
This stronger profitability was driven by unseasonably high freight
rates compared to the same quarter in 2007 and an excellent fleet
utilization rate.
Shipping's rolling 12-month comparable return on net assets at the
end of September was 16.4%.
Shares, share trading, and ownership
A total of 85,821,084 Neste Oil shares were traded in the third
quarter, totaling EUR 1.3 billion. The share price reached EUR 17.89
at its highest and EUR 14.25 at its lowest, and closed the quarter at
EUR 14.57, giving the company a market capitalization of EUR 3.7
billion as of 30 September 2008. An average of 1.3 million shares
were traded daily, equivalent to 0.5% of the shares outstanding.
Neste Oil's share capital registered with the Company Register as of
30 September 2008 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.
At the end of September, the Finnish state owned 50.1% of outstanding
shares, foreign institutions 23.0%, Finnish institutions 18.2%, and
Finnish households 8.6%.
Legal proceedings
Neste Oil has clarified its claims against YIT Industrial and Network
Services to total some EUR 107 million in a contract dispute that
was put before the Court of Arbitration in April this year. Neste
Oil's claims against YIT consist of damages based on contract delays,
now specified at approximately EUR 38.5 million, and damages valued
at some EUR 68.5 million resulting from subsequent lost production.
The dispute between Neste Oil and YIT relates to disagreements
related to the final financial settlement of mechanical installation
work on diesel production line 4, which was completed and came on
stream at Neste Oil's Porvoo oil refinery in the summer of 2007. YIT
has lodged counter-claims against Neste Oil totaling some EUR 25
million, primarily based on work carried out under the contract and
the additional costs incurred due to the prolongation of the project.
Both parties contest each other's claims.
Changes in Group management
President & CEO Risto Rinne retired as of 1 October 2008 after more
than 30 years of service in the company. Mr. Matti Lievonen has been
appointed the new President & CEO and will join the company on 1
December. Deputy CEO Jarmo Honkamaa will handle the duties of
President & CEO until Matti Lievonen takes over.
The Chief Financial Officer, Petri Pentti, left Neste Oil at the end
of September to work in another company. His successor is yet to be
nominated. Corporate Controller Risto Takkala will serve as Interim
CFO until the new CFO joins the company.
Personnel
Neste Oil had an average of 5,162 (4,806) employees in the third
quarter. At the end of September, Neste Oil had 5,182 employees (30
September 2007: 4,834).
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 5.8 (5.7) at the end of
September 2008. The target for 2008 is below 5.
The cumulative number of lost workday injuries was 41 at the end of
September, with the frequency (LWIF) of 3.4. The target is below 3.
Strategy implementation
Neste Oil has continued to implement its clean fuel strategy. As part
of this the company's current investment projects consist of new
plants to increase the production of renewable diesel and
high-quality base oils. The company is also investing in an
isomerization unit to improve gasoline quality. All ongoing
investment projects in Porvoo, Singapore, Rotterdam and Bahrain are
progressing according to plan.
The basic engineering for a new hydrocracker unit at the Naantali
refinery has been completed. Due to uncertainty in the global
economic situation and high investment costs, the company has decided
not to proceed with the project for the time being.
Potential short-term and long-term risks
The oil market continues 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 in the foreseeable future is the slowdown of
the world economy, which is likely to reduce the demand for petroleum
products and gasoline in particular. The problems in the
international financial market have increased uncertainties. As a
consequence, managing customer receivables risks has become even more
important. Sudden and unplanned outages at Neste Oil's production
units or facilities continue to represent a short-term 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 development and content of the bio fuel legislation in the EU and
other key market areas may influence the speed at which the demand
for these fuels develops.
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 2007.
Outlook
Uncertainty in the global economy looks set to continue and this has
already resulted in unprecedented volatility in oil prices. Neste Oil
expects to report additional inventory losses in the fourth quarter
of 2008.
Forecasts for global oil demand have been revised down throughout the
year, and reduced demand has been most evident in gasoline and the US
in particular.
Demand for diesel and middle distillates is believed to remain strong
relative to gasoline, primarily driven by Asian demand. This is
likely to support the competitiveness of complex refining companies
that are geared towards diesel production, such as Neste Oil.
Volumes of NExBTL renewable diesel will be low during the fourth
quarter, due to a one-and-a-half month planned maintenance outage at
the Porvoo plant.
Base oil margins are expected to stay healthy for the remainder of
2008. Demand for iso-octane gasoline component demand is estimated to
suffer from the weak gasoline market.
The continuation of the economic slowdown is likely to affect the oil
retail market in Finland and around the Baltic Rim.
Oil freight rates have normalized after unseasonably high rates
during the past two quarters.
The Group's capital expenditure estimate for 2008 has been revised
down to approximately EUR 550 million from EUR 600 million
previously.
Reporting date for full-year and fourth-quarter 2008 results
Neste Oil will publish its full-year and fourth-quarter results for
2008 on 5 February 2009 at approximately 9:00 a.m. EET.
Espoo, 23 October 2008
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
2008
Unaudited
CONSOLIDATED INCOME
STATEMENT
MEUR
Last
Note 12
7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Sales 3 4 521 2 978 12 238 8 642 12 103 15 699
Other income 12 4 37 21 27 43
Share of profit
(loss) of
associates and
joint
ventures 3 28 17 39 31 39 47
Materials and -13
services -4 228 -2 546 -10 868 -7 237 -10 279 910
Employee
benefit costs -77 -60 -231 -187 -256 -300
Depreciation,
amortization
and
impairments 3 -56 -55 -168 -139 -195 -224
Other
expenses -156 -158 -509 -473 -638 -674
Operating
profit 44 180 538 658 801 681
Financial income and
expenses
Financial
income 2 2 6 6 8 8
Financial
expenses -18 -13 -42 -26 -40 -56
Exchange rate and
fair value gains and
losses 8 -1 9 -5 -6 8
Total financial
income and expenses -8 -12 -27 -25 -38 -40
Profit before income
taxes 36 168 511 633 763 641
Income tax
expense -2 -36 -121 -156 -183 -148
Profit for
the period 34 132 390 477 580 493
Attributable
to:
Equity holders
of the company 33 132 387 475 577 489
Minority
interest 1 0 3 2 3 4
34 132 390 477 580 493
Earnings per
share from
profit
attributable to
the equity
holders
of the Company
basic and
diluted (in
euro per share) 0,13 0,52 1,51 1,86 2,25 1,91
CONSOLIDATED BALANCE SHEET
30 Sep 30 Sep 31 Dec
MEUR Note 2008 2007 2007
ASSETS
Non-current assets
Intangible assets 5 52 40 41
Property, plant and equipment 5 2 578 2 396 2 436
Investments in associates and joint
ventures 190 173 178
Non-current receivables 10 2 3
Pension assets 86 83 81
Deferred tax assets 12 5 7
Derivative financial instruments 6 30 22 22
Available-for-sale financial assets 2 3 2
Total non-current assets 2 960 2 724 2 770
Current assets
Inventories 1 070 935 968
Trade and other receivables 1 303 905 955
Derivative financial instruments 6 130 104 126
Cash and cash equivalents 107 55 52
Total current assets 2 610 1 999 2 101
Total assets 5 570 4 723 4 871
EQUITY
Capital and reserves attributable to the
equity holders
of the company
Share capital 40 40 40
Other equity 2 2 456 2 288 2 383
Total 2 496 2 328 2 423
Minority interest 7 3 4
Total equity 2 503 2 331 2 427
LIABILITIES
Non-current liabilities
Interest-bearing liabilities 1 165 601 662
Deferred tax liabilities 283 278 289
Provisions 22 6 8
Pension liabilities 11 11 11
Derivative financial instruments 6 35 18 22
Other non-current liabilities 3 7 5
Total non-current liabilities 1 519 921 997
Current liabilities
Interest-bearing liabilities 237 333 145
Current tax liabilities 26 24 14
Derivative financial instruments 6 183 62 77
Trade and other payables 1 102 1 052 1 211
Total current liabilities 1 548 1 471 1 447
Total liabilities 3 067 2 392 2 444
Total equity and liabilities 5 570 4 723 4 871
CONSOLIDATED STATEMENT OF CHANGES IN
TOTAL EQUITY
Attributable to equity holders of the
Company
Share Reserve Fair Translation Re- Mi- Total
ca- fund value diffe- tained nority equity
pital and rences ear- inte-
other nings rest
MEUR Note reserves
Total equity at 1
January 2007 40 9 26 3 2011 8 2 097
Dividend
paid -231 -231
Treasury
shares 2 -12 -12
Income and
expenses
recognized
directly in
equity
Translation
differences and
other
changes 1 -2 -1 -2
Cash flow
hedges
recorded in
equity, net of
tax 36 36
transferred to
income statement,
net of tax -27 -27
Net investment
hedges,
net of tax -2 -2
Share-based
compensation 2 2
Change in
minority -7 -7
Items recognized
directly in
equity 1 11 -4 -1 -7 0
Profit for
the period 475 2 477
Total recognized
income and
expenses 1 11 -4 474 -5 477
Total equity
at 30
September
2007 40 10 37 -1 2 242 3 2 331
Share Reserve Fair Translation Re- Mi- Total
ca- fund value diffe- tained nority equity
pital and rences ear- inte-
other nings rest
MEUR Note reserves
Total equity at
1 January 2008 40 10 42 -11 2 342 4 2 427
Dividend
paid -256 -256
Income and
expenses
recognized
directly in
equity
Translation
differences and
other
changes 1 -10 -1 -10
Cash flow
hedges
recorded in
equity, net of
tax -1 -1
transferred to
income
statement,
net of tax -46 -46
Net investment
hedges,
net of tax 0 0
Share-based
compensation 0 0
Hedging
reserves
in
associates
and joint
ventures -1 -1
Change in
minority 0 0
Items
recognized
directly in
equity 1 -48 -10 -1 0 -58
Profit for
the period 387 3 390
Total
recognized
income and
expenses 1 -48 -10 386 3 332
Total equity at
30 September
2008 40 11 -6 -21 2 472 7 2 503
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
7-9 7-9 1-9 1-9 1-12
MEUR Note /2008 /2007 /2008 /2007 /2007
Cash flow from operating
activities
Profit before taxes 36 168 511 633 763
Adjustments, total 21 60 156 121 184
Change in working capital -268 -195 -588 -254 -189
Cash generated from operations -211 33 79 500 758
Finance cost, net 70 -17 38 -24 -40
Income taxes paid -34 -48 -91 -155 -177
Net cash generated from operating
activities -175 -32 26 321 541
Capital expenditure -131 -59 -313 -236 -334
Acquisition of subsidiary 4 0 0 -10 0 0
Proceeds from sales of fixed
assets 1 2 4 14 14
Proceeds from sales of shares 3 0 10 -5 -5
Change in other investments 30 -17 4 -30 -22
Cash flow before financing
activities -272 -106 -279 64 194
Net change in loans and other
financing
activities 304 90 590 152 20
Dividends paid to the equity
holders of
the company 0 0 -256 -231 -231
Net increase (+)/decrease (-) in
cash 32 -16 55 -15 -17
and cash equivalents
KEY FINANCIAL
INDICATORS
30 Sep 30 Sep 31 Dec Last 12
2008 2007 2007 months
Capital employed, MEUR 3905 3265 3234 3905
Interest-bearing net
debt, MEUR 1295 879 755 -
Capital expenditure and
acquisition of subsidiary,
MEUR 323 236 334 421
Return on average capital
employed, after tax, ROACE
% - - 15,5 13,1
Return on capital
employed, pre-tax, ROCE % 20,7 28,5 26,2 19,5
Return on equity, % 21,1 28,7 25,6 20,4
Equity per share, EUR 9,75 9,10 9,47 -
Cash flow per share, EUR 0,10 1,25 2,11 0,96
Equity-to-assets ratio, % 45,1 49,4 49,9 -
Gearing, % 51,7 37,7 31,1 -
Leverage ratio, % 34,1 27,4 23,7 -
Average number of shares 255903686 255994173 255971365 255903686
Number of shares at the
end of the period 255903686 255903686 255903686 255903686
Average number of
personnel 5162 4806 4810 -
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance
with IAS 34, Interim Financial Reporting, as adopted by EU. The
interim report should be read in conjunction with the annual
financial statements for the period ended 31 December 2007.
The accounting policies adopted are consistent with those of the
Group's annual financial statements for the year ended 31 December
2007 with the exception that the Group applies IFRS 8 Operating
Segments as of 1 January 2008.
The following interpretations are mandatory for the financial year
ending 31 December 2008, but not relevant for the Group:
- IFRIC 11 IFRS 2 Group and Treasury Shares
- IFRIC 12 Service Concession
Arrangements
2. TREASURY
SHARES
In 2007 Neste Oil entered into an agreement with a third party
service provider concerning the administration of the new
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
future payment of the rewards, which will take place partly in Neste
Oil shares and partly in cash during 2010 and 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.
3. SEGMENT
INFORMATION
Neste Oil's businesses are grouped into six segments: Oil Refining,
Renewable Fuels, Specialty Products, Oil Retail, Shipping and Other.
Group administration, shared service functions as well as Research
and Technology and Neste Jacobs are included in the Other segment.
Last
SALES 12
MEUR 7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Oil Refining 3763 2310 9933 6608 9348 12673
Renewable
Fuels 27 7 96 13 40 123
Specialty
Products 149 164 479 511 649 617
Oil Retail 1132 853 3158 2470 3435 4123
Shipping 114 82 337 307 394 424
Other 36 20 100 67 93 126
Eliminations -700 -458 -1865 -1334 -1856 -2387
Total 4521 2978 12238 8642 12103 15699
OPERATING Last
PROFIT 12
MEUR 7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Oil Refining -2 148 415 501 640 554
Renewable
Fuels -2 -7 11 -14 -12 13
Specialty
Products 23 34 56 112 122 66
Oil Retail 9 22 31 51 60 40
Shipping 22 -4 52 35 30 47
Other -7 -16 -30 -28 -37 -39
Eliminations 1 3 3 1 -2 0
Total 44 180 538 658 801 681
COMPARABLE
OPERATING Last
PROFIT 12
MEUR 7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Oil Refining 149 125 379 399 484 464
Renewable
Fuels -3 -6 12 -16 -13 15
Specialty
Products 29 34 56 107 109 58
Oil Retail 7 21 27 49 59 37
Shipping 23 -1 52 32 28 48
Other -7 -17 -30 -30 -39 -39
Eliminations 1 3 3 1 -2 0
Total 199 159 499 542 626 583
DEPRECIATION,
AMORTIZATION AND Last
IMPAIRMENTS 12
MEUR 7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Oil Refining 35 36 107 89 126 144
Renewable
Fuels 2 2 5 3 5 7
Specialty
Products 4 3 12 10 13 15
Oil Retail 9 7 25 20 27 32
Shipping 3 4 11 11 15 15
Other 3 3 8 6 9 11
Total 56 55 168 139 195 224
SHARE OF PROFIT
OF ASSOCIATES
AND JOINT Last
VENTURES 12
MEUR 7-9/2008 7-9/2007 1-9/2008 1-9/2007 1-12/2007 months
Oil Refining 0 0 0 0 0 0
Renewable
Fuels 0 0 0 0 0 0
Specialty
Products 28 17 39 31 39 47
Oil Retail 0 0 0 0 0 0
Shipping 0 0 0 0 0 0
Other 0 0 0 0 0 0
Total 28 17 39 31 39 47
NET ASSETS 30 Sep 30 Sep 31 Dec
MEUR 2008 2007 2007
Oil Refining 2761 2189 2165
Renewable
Fuels 259 122 142
Specialty
Products 403 359 324
Oil Retail 351 368 381
Shipping 287 298 297
Other 64 51 59
Eliminations 2 3 2
Total 4127 3390 3370
RETURN ON
NET ASSETS, Last
% 30 Sep 30 Sep 31 Dec 12
2008 2007 2007 months
Oil Refining 22,6 31,5 30,1 23,1
Renewable
Fuels 7,5 -19,3 -11,4 7,2
Specialty
Products 20,2 44,7 36,8 18,0
Oil Retail 11,2 20,3 17,4 10,8
Shipping 23,9 15,4 9,9 16,1
COMPARABLE RETURN ON NET Last
ASSETS, % 30 Sep 30 Sep 31 Dec 12
2008 2007 2007 months
Oil Refining 20,6 25,1 22,7 19,3
Renewable
Fuels 8,2 -22,1 -12,3 8,3
Specialty
Products 20,2 42,7 32,9 15,8
Oil Retail 9,7 19,5 17,1 10,0
Shipping 23,9 14,0 9,3 16,4
QUARTERLY SEGMENT INFORMATION
QUARTERLY SALES
MEUR
7-9 4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 3763 3624 2546 2740 2310 2516 1782
Renewable Fuels 27 46 23 27 7 4 2
Specialty Products 149 164 166 138 164 181 166
Oil Retail 1132 1078 948 965 853 843 774
Shipping 114 123 100 87 82 115 110
Other 36 33 31 26 20 24 23
Eliminations -700 -648 -517 -522 -458 -476 -400
Total 4521 4420 3297 3461 2978 3207 2457
QUARTERLY OPERATING PROFIT
MEUR
7-9 4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2008 /2007 /2007 /2007 /2007
Oil Refining -2 231 186 139 148 246 107
Renewable Fuels -2 12 1 2 -7 -4 -3
Specialty Products 23 28 5 10 34 47 31
Oil Retail 9 11 11 9 22 18 11
Shipping 22 23 7 -5 -4 16 23Other -7 -14 -9 -9 -16 -6 -6
Eliminations 1 -1 3 -3 3 -3 1
Total 44 290 204 143 180 314 164
QUARTERLY COMPARABLE OPERATING PROFIT
MEUR
7-9 4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 149 133 97 85 125 168 106
Renewable Fuels -3 13 2 3 -6 -5 -5
Specialty Products 29 19 8 2 34 41 32
Oil Retail 7 11 9 10 21 17 11
Shipping 23 20 9 -4 -1 12 21
Other -7 -14 -9 -9 -17 -5 -8
Eliminations 1 -1 3 -3 3 -3 1
Total 199 181 119 84 159 225 158
QUARTERLY DEPRECIATION, AMORTIZATION AND IMPAIRMENTS
MEUR
7-9 4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 35 34 38 37 36 29 24
Renewable Fuels 2 1 2 2 2 1 0
Specialty Products 4 4 4 3 3 4 3
Oil Retail 9 8 8 7 7 7 6
Shipping 3 4 4 4 4 3 4
Other 3 2 3 3 3 1 2
Total 56 53 59 56 55 45 39
QUARTERLY SHARE OF PROFIT OF ASSOCIATES
AND JOINT VENTURES
MEUR
7-9 4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 0 0 0 0 0 0 0
Renewable Fuels 0 0 0 0 0 0 0
Specialty Products 28 10 1 8 17 13 1
Oil Retail 0 0 0 0 0 0 0
Shipping 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
Total 28 10 1 8 17 13 1
4. ACQUISITIONS
Neste Jacobs, subsidiary of Neste Oil Group, acquired 90% of the
shares of an engineering company Rintekno, which employs 230 people.
The acquisition was closed on 29 February 2008. Prior to this Neste
Jacobs already owned 10% of the company. Rintekno is an engineering
company specialized in engineering services for oil refining,
chemicals and biopharma industries. Neste Jacobs and Rintekno have
worked together for a number of years in connection with engineering
of Neste Oil's investment projects.
On consolidation, intangible assets related to order backlog,
customer relationships and trade name have been recognized at fair
value in the balance sheet. Total amount recognized is EUR 1 million
and the assets are depreciated during their expected life time, in
1-5 years. Goodwill recognized in the consolidated balance sheet is
attributable to the experienced and capable personnel employed by
Rintekno Group and to synergies achieved in engineering projects due
to Rintekno's previous experience as a subcontractor in Neste Oil's
major investment projects.
The profit of Rintekno Group included in the Neste Oil consolidated
income statement 1 January - 30 September 2008 is immaterial. Also,
management estimates that Rintekno Group's effect on Neste Oil's
consolidated sales or profit for the period would have been
immaterial as at 30 September 2008, had the acquisition taken place
on 1 January 2008.
Assets and liabilities of Rintekno
Group
Acquired Acquired
fair book
MEUR value value
Intangible assets 1 0
Property, plant and equipment 1 1
Trade and other receivables 5 5
Cash and cash equivalents 6 6
Total assets 13 12
Trade and other payables 5 5
Pension liabilities 1 1
Total liabilities 6 6
Acquired net assets 7 6
Purchase consideration 16
Direct costs related to the acquisition 0
Goodwill 9
Purchase consideration settled in cash 16
Direct costs related to the acquisition 0
Cash and cash equivalents in Rintekno
Group -6
Cash outflow on acquisition 10
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 2008 2007 2007
Opening balance 2477 2348 2348
Depreciation, amortization and
impairments -168 -139 -195
Capital expenditure 313 236 334
Disposals -3 -12 -12
Translation
differences 0 3 2
Acquired group
companies 11 - -
Closing balance 2630 2436 2477
CAPITAL COMMITMENTS 30 Sep 30 Sep 31 Dec
MEUR 2008 2007 2007
Commitments to purchase property, plant
and equipment 611 76 88
Commitments to purchase intangible
assets 0 1 0
Total 611 77 88
6. DERIVATIVE FINANCIAL
INSTRUMENTS 30 Sep 30 Sep 31 Dec
2008 2007 2007
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 375 -1 297 2 345 0
Forward foreign
exchange contracts 2025 -53 1155 35 1189 35
Currency options
Purchased 501 -8 334 7 353 11
Written 349 -7 199 2 188 1
Share forward
contracts 14 -5 17 3 17 2
Oil and
freight Net Net Net
derivative fair fair fair
contracts Volume value Volume value Volume value
million million million
bbl Meur bbl Meur bbl Meur
Sales
contracts 35 52 73 -38 68 -66
Purchase
contracts 43 -37 87 34 74 65
Purchased
options 2 -2 3 0 1 0
Written
options 2 2 1 0 0 0
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. CONTINGENT LIABILITIES
30 Sep 30 Sep 31 Dec
MEUR 2008 2007 2007
Contingent liabilities
On own behalf
For debt
Pledges 6 9 4
Real estate mortgages 26 26 26
For other commitments
Real estate mortgages 0 0 0
Other contingent liabilities 37 28 42
Total 69 63 72
On behalf of associates and joint
ventures
Guarantees 9 3 2
Other contingent liabilities 1 1 1
Total 10 4 3
On behalf of others
Guarantees 12 5 12
Other contingent liabilities 0 0 0
Total 12 5 12
Total 91 72 87
30 Sep 30 Sep 31 Dec
MEUR 2008 2007 2007
Operating lease liabilities
Due within one year 116 116 108
Due between one and five years 202 178 183
Due later than five years 191 125 119
Total 509 419 410
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
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 taxes)) /
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, pension assets,
inventories and interest-free receivables and liabilities allocated
to the business segment, provisions and pension liabilities
CALCULATION OF KEY SHARE RATIOS
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
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