Neste Oyj Unsp/Adr

and welcome to Nesta's Q4 and full year 2024 results webcast. Today, we are broadcasting you live from London, where we will also be hosting our capital markets update later today. I want to welcome you all to join us also, and the webcast link is available on our website. Since we have live audience here today, I would like to extend a warm welcome to all of you here in the room as well. My name is Riikka Toivonen and I'm part of Neste's investor relations team. I will be your host for this afternoon. Joining me today are Heikki Malinen, our president and CEO, and Anssi Tammilehto, Neste's interim CFO. We will begin with presentations followed by a Q&A session. As usual, we will also take questions from those joining us online. But today, since we have live audience, we will also take questions from the room. Presentation is available on our website, nested.com slash investors. Before we begin, please take a note of the disclaimer, as today's discussion will include forward-looking statements. And with that, I'm pleased to hand over to our president and CEO, Heikki Maline. Welcome.

Thank you. Good afternoon, everybody. Nice to see so many of you here. I look forward to a very lively and good interaction today with you and with those folks online as well. So today, the program will be following. Well, first, honestly, we will go through the Q4 results as well as talk about 2014, 2024. And then we'll take a little break after about an hour after questions, and then we will move on to our CMU section. which will be starting with a fairly comprehensive presentation by myself, followed then by Ansi's commentary, more from a CFO angle, and then we'll be happy to take your questions. So there's a lot of material to go through today, so look forward to working through them with you. So let me start with the first slide here today. As Rika mentioned, safety really is the highest priority at Neste. The industry we operate in is actually very sensitive. Fires, et cetera, can create a lot of damage at Neste. We want to make sure everybody comes and goes home safe and we have no environmental issues. So it is really extremely important and we pay a lot of attention and focus to it. If we look at the statistics of our safety performance, I can say that, you know, we have over the last decade, we've made a fair amount of progress. But over the last few years, our progress has slowed down. And in some ways, if you look at the recordable incidence frequency rate, you can say that we've actually gone a few steps backwards. It just shows us that we have our work cut out for us. Last year in 2024, we had a number of incidents in our facilities. We had a fire in Rotterdam. We had some other issues in Singapore and so forth. All of them were managed very professionally and very quickly. But anyway, this shows that one needs to be very diligent and really need to manage this internally in a way that these things just do not happen. So we will continue the work. And I'm personally a CEO very much involved in that. 2024 in brief. Well, I think as the title of the presentation said, we are living through some challenging times at Neste and looking at the financial performance and particularly when you compare the financial performance of 2024 to prior years, 2024 was a tough year for the company. The financial performance is in no way satisfactory. It's unsatisfactory and in many ways I like to say it is unsustainable. And so we really have to take a lot of actions to turn around the corner. There were many, many factors that impacted our business. I think from the renewable product side, of course, the big, big challenge we face is simply overcapacity. There's been a strong belief in renewable growth. It's driven by mandates, and I'll talk about that in the CMU section. But today we are going through a period of digestion in terms of the overcapacity, and that has impacted our margins. On the oil product side, which is an important part, it's an important leg of Neste. So we have had some years with very high margins, and now the margins have pretty much normalized to where they have been over the longer term. We have a lot of good capacity. We have modern assets. But also in this area, in particular in the fourth quarter, we did not deliver all the volume we wanted to deliver. So in that respect, Q4 was a disappointment. So a lot of work needs to be done, and it will be done. Looking at the fourth quarter and putting that also in the annual context, you still see some figures for 2020 toward 2024. You can just see the significant spike in earnings in 2022 and 2023, and then where we ended up with 1.25 billion of comparable EBITDA last year. The company is investing heavily. We at Nested believe very strongly that this is a growth industry, and we will give you more information on this, on why I believe it's a growth industry, also long term in the next presentations. But against the backdrop of that opportunity, the company is investing and has invested. And so for that reason, of course, you can see those spikes, those bars in the middle being very high. Overall, last year, we spent 1.6 billion. And that includes also a turnaround. In Porvo, we do these turnarounds nowadays at roughly about a two and a half year frequency. So the turnaround last year would have been about 400 million in the box of CapEx. And the cash flow before financing items ended up negative. We had a good rebound in the fourth quarter, but still ended up negative figures. And here you can then see the Q4 numbers in a snapshot. So 168 million of EBITDA for the whole quarter. Comparable sales margin for the renewable side at 242. And the decline is quite remarkable when you compare it to 813 in the comparative period. So a very significant drop. Positive was that our sales volume did increase in renewables. But as I said, we actually could have produced even more. So as CEO, I need to make sure that our reliability of our plants gets better. So we could have produced more. The refining margins came down to $11.8 per barrel. And on the oil side, production was a bit over 3 million tons per barrel. Now, the numbers are not impressive by any chance, any means. And as I said, I mean, they're not satisfactory. But I still want to say that the Neste people do a lot of good things. And internally, we have a number of things to be happy about. Let me just highlight a few of them to give you a more comprehensive and fuller picture. So we are improving the foundation for value creation. We are moving forward with our investments. The assets we have built now, Singapore second line, the conversion in Rotterdam number one line, which, by the way, will be producing soft here in the first quarter. So these are all very positive things. We're also strengthening our soft sales, investing a lot of effort to find new customers, to work with channel partners, to increase that. And we made good progress on the soft sales last year. As you know, feedstock, used cooking oil, animal fats, novel vegetables, they're very important source of value creation for us. The streams of molecules that we pick up from around the world, it's quite a logistic challenge. And I think that's something where Neste really stands out as being very good at this. We have opened up offices now in Brazil. We have activities now in India to further extend and widen our pool of potential sources of these valuable feedstocks. We also sold our first volumes, the big volumes, to Canada. We announced an important deal there. Whether Canada, Chicago Airport, or here, you see our product there. Positive things. And if you look at our margins, statistically, if you compare them, even though they're low, we are getting a premium despite the weak market. And Ansi will show you some more detailed information on how we justify that premium, where that's really coming from. So that was sort of my intro to Q4. And I said when we get to the CMU, I will be doing most of the talking here in the front end. But I'll let Ansi walk through the numbers now and you get the more detailed picture. I'll come back, talk about the outlook a bit then. And I will also make some commentary about today's announcement regarding the next steps on the full potential program, what we're going to do. But I will leave the bulk of the story then to the CMU. Ansi, please. Thank you.

So good afternoon all. Nice to see you all here live and also online. So let's go through the Q4 24 and also full year 24 results. And as Heikki already allured you to the topic, the results obviously weren't satisfactory to us. and various reasons, of course, but I will first walk you through the industry and how we see the market environment that has been developing quite dramatically even during the last couple of years. So as you can see, of course, in 22, 23, we had experienced quite extraordinarily high margins in this industry. The market was short. Field stock prices weren't inflated that much. And also, of course, the diesel price plays a role in this margin creation. Also, the bio ticket prices were supporting the margin creation. And here in this graph in the solid line, you can see the renewable diesel quote in ARA area in Europe deducted by feedstock costs, yield adjusted feedstock costs basically. And you can see that even that came down during 24 years. Also, when you take also the production costs into account, you land somewhere around the equivalent to the sales margin of Neste. But of course, as mentioned, we have a premium on top of that. But that is the methodology is the same approximately than how you calculate our sales margin. So you take out the production costs, yield, and then the feedstock, obviously. And that comprises the majority of the cost side of things. There was a spike obviously in Q4, 24 as you can see clearly in the picture also, but it was quite short-lived and due to the operational topics we had both in Singapore and in Rotterdam, we did not enjoy those high margins on spot basis. Also our term ratio was quite high during Q4, so that was short-lived as mentioned. But if we then take into account how we generate premium on top of this reference margin, we have been discussing this a lot with you and we have been going through some of the topics. But I think it's worth mentioning that what drove the 24 premiums on top of the reference price? First of all, I think what matters is that we are acting globally. We have production in three continents, in California, in Finland, Rotterdam and Singapore. This gives us lots of opportunities to just optimize and maximize margin wherever we see the best potential at a given time. At the same time, our feedstock integration, whether it's collection or trading capabilities or logistics capabilities, give us an advantage in that sense. Also, of course, term deals impacted the 24 margins, and we typically negotiate these annually, so the term deals were made predominantly in 23. SAF had an accretive impact on the sales margin in 24 despite the fact that the markets basically became more pressed during 24 in SAF also and the price for SAF fell. Also what impacted positively our margin in 24 was the hedging that had a positive impact. But then again, poor availability in Q4, then on the opposite direction. So these are the topics impacting our 24 margin. And now when you follow the reference margin from different external service providers, You can see that that's not the entire truth of the story because we make something on top of that. Well, what changes in 2025 and maybe a couple of years beyond is, of course, certain regulatory topics as described on the right-hand side of the slide. For example, the anti-dumping and anti-subsidy tariff potentials in the EU are How does the CFPC play out in the US point of view? So we don't know all the details yet how that will be implemented, but we of course have some sense what is going to happen. Also the voluntary SAF demand, that's something that remains to be seen. We only have the mandates in place in EU and UK, but this is something that we will have to just wait and see. Also, the markets are becoming more liquid and also more volatile, which actually means that we have more opportunities to optimize our margin in those prevailing market conditions. And this remains critical for us, I think, going forward. And we need to be flexible to capture the opportunities where they are. And then also something to take into account is, of course, our own actions with regards to both cost competitiveness and efficiency. If we then take the next slide and go through the Q4 results, all of our businesses contributed to the decreasing comparable EBITDA in 2024 compared to the previous year. As you can see, the renewable products in Q4 was 420 million below last year's level. Oil products minus 177. Also marketing and services suffering a bit from the warm winter and slow heating oil demand. And then also in others, others also negative minus 30. So we landed in 168. And if we look at then the bridge by driver, we can clearly see that despite the fact that we were able to sell more in the renewal products, as Heikki mentioned, we could have sold more, but due to the operational hiccups in Singapore and Rotterdam, that wasn't the case. So the remainder of the impact comes, of course, from the sales margin, both in OP and RP, as mentioned. The picture is pretty much the similar in the full year picture. So if we look at the renewable products, almost 1.4 billion decrease in full year renewable products and minus 800 in oil products. So, of course, a significant, significant decrease. And we landed in 1 billion and 252 euros. And the picture from driver point of view remains the same. So basically sales margin contributing to a vast majority of the difference. Porvo turnaround in Q2 also plays a part in that sales volume, netting the increase from renewable products. If we look at our financial targets for 24, we can see that the return on average capital employed obviously didn't meet our target of 15%. We were below our target of 40% in leverage at 36.1. That was a slight increase quarter on quarter, but this is one of the key items we need to focus also going forward to keep our leverage under 40%. And we have updated our financial targets for the years 25 and 26. And we are aiming to achieve the 350 million euros run rate EBITDA improvement from the performance improvement program. And also, and by the way, out of that 250 million are operational costs. And then, of course, to maintain the investment grade credit rating, and we need to stay below 40% leverage. And Heikki will address these topics more in his latter section in this webcast. If we then just dig a bit deeper on the details in renewable products, as you saw, the sales volumes increased. That was a positive thing. We could have, of course, increased even more. And this is something that remains to then as a key priority for Neste. SAF volume also increased quite significantly, but of course could have been even higher. The share of North American and European sales volume was a bit more even compared to a year ago, so at 47-53%. And the main elements contributing to the decreasing sales margin were basically the diesel price that was down approximately 20%. The RIN D4 price in Q4 was still down by almost 24% as well. Of course, we had lower premiums in Europe compared to the 23 levels. And then also the operational challenges that contributed by two ways, basically the yields, production costs, and then also the lower utilization rate. So overall, the efficiency just wasn't there. So we need to improve on that side. In oil products, we have seen now a more normal level in a way or normalizing total refining margin if we take the market into account. So the comparison period was still quite high after the energy crisis at 18.9 USD per barrel, whereas now it was 11.8 USD. Utilization rate a bit below previous year's level of 92, so we landed in 88, but all in all a solid performance on that front in oil products. And looking at the marketing and services, then I think it's safe to say that the returns are on a sufficient level. I think over 30% returns, it's a good return on this business. But overall, the sales volumes were to some extent pressured as the demand wasn't that high due to the warm weather and intense competition in Finland and Baltics. So that is about it from the financial point of view, and we will have a chance to discuss those also later. I would like to still note when Heikki is soon coming and discussing the current topics and the guidance for this year, I showed you the reference margin picture. And you can follow, obviously, the quotes from the market from different service providers, for example, from our website, where we have now the European used cooking oil-based RD price and also the U.S. used cooking oil and soybean oil price there, and also RINS and LCFS. They, of course, are a major contributor to the U.S. margin. And we discussed the premium drivers of the company. We don't know exactly, of course, how the regulatory frameworks will develop, but those can be certainly monitored. And we are also now talking about sales volume for 2025. So we also have included in the appendix of this presentation an illustration how the 24 sales volumes have been distributed globally and by product, and also our view that what are the drivers of change going to 25. There are regulatory topics, and then there are also our own operational topics. Okay, but I leave it to Heikki.