Neste Oyj Unsp/Adr

Welcome to discuss Nestes Q1 25 results that were published this morning. My name is Anssi Tammelehto. I'm the Senior Vice President, Strategy M&A and Investor Relations. And here with me on the call today are our President and CEO, Heikki Malinen, and our CFO, Eva Sipilä. During this call, it's good to note that we will be making forward-looking statements in the presentation, so please make sure that you are familiar with the disclaimer also. And the agenda is as follows. First, we will go through the Q1 in brief, discussed by Heikki. Then financial performance by Eva Sipilä. And then last but not least, the Topicals and Outlook by Heikki again. And finally, we will have also time for your questions and happy to have a discussion with all of you. So with these remarks, happy to hand over to Heikki Malinen. Thank you.

Thank you, Anssi, and good afternoon. Good morning, everybody. Welcome also on my behalf to this call. First of all, let me thank Anssi for the great work he did as interim CFO. Really appreciated Anssi jumping into this role at short notice and an excellent job he did. So thank you, Anssi. Very, very appreciative. And it's also my pleasure to welcome Eva. You will see her in a moment here. I'm very happy that Eva is joining the team. and together we will then work with you all to tell the Neste story and hopefully provide you with good perspective on the company and our business. Eva's a great CFO. She's very smart. She's tough. She has a lot of relevant experience, and she will be a great addition to the Neste team. So this is my first full quarterly release. I started in mid-October, as you know, so it's a real pleasure to now start to tell you also the full story. Now let's go to the first slide. And at Neste, we start always our presentations with safety. If you look at this slide, it basically has two pieces of information. On the left-hand side, you can see data on our total recordable incident frequency rate. It basically tells you about employee safety, what is happening on that side. And then on the right-hand side, you see process safety, which is very relevant information when you look at refining industry. A couple of observations. First of all, on the left-hand side, you can see this line has been going up. That is, of course, not good performance. The data actually includes two businesses. If we look at our businesses, we have the refining business, which is the bulk of Neste. But we also have feedstock sourcing collection in the United States, which is primarily Mahoney. Mahoney is a logistics business, not refining. And the Mahoney data tweaked this number upwards. So if I just look at the refining side of the business, the figure was about 1.7%. for Q1. 1.7 is actually for refining. It's not great. First quarter performance would be much more in the 1.0, 1.2 area. So we have at Neste a lot of work to do to improve, not only bring the whole curve down with Mahoney included, but also then improve our refinery people safety. On the right-hand side, then, you can see the data on process. This, of course, is really, I'm very happy with the results. We ended up with zero. The way we track this is that if there are no Tier 1 or 2 incidences, then you basically get down to this level. Our refineries ran well in the first quarter, and we really did not have any major process incidents. So that was a, from my standpoint at least, it was a very good result indeed. Then if we go to the numbers, so comparable EBITDA of 210 million. I am, of course, not pleased with the overall level of profitability. It is not at all where it needs to be. And as you know, we are working very hard. towards improving that, but we did have a number of things we did right. As I said, our operational production was solid in our refineries, and I was pleased that our renewable sales volume increased. On the soft side, I saw good momentum in our sales activities in the first quarter, and it gives me a good feeling for 2025 on soft sales. And, of course, we're being helped by the fact that in the EU, the refuel EU legislation is now coming into force. You have seen the data on the margins. Our sales margin went up to 310. It was helped by the fact that our refineries ran well and full, and we were able to get a bit of a lift off on our sales side. Also, as you know, we have started hard work on reducing our costs. and there is more coming from that end. our usually seasonally cold winter up here in the north, disappointed. So we were looking for some bitterly cold winter weather to sell our winter products. But unfortunately, it was very mild. And hence, both on the marketing and services side and on the all-products side, we did not succeed in selling as much winter grades as we had hoped to do. The four things we're really working on here are shown here on this chart. So first of all, of course, the profit improvement a program which is sort of a build-on on the operational performance. I already talked about our refineries. We had a high level of utilization. Basically, I would say we were trying to run full in our refineries, and that is how we see the business from our standpoint. We have these refineries. We need to be low-cost, competitive, and then run refineries and sell the volume. That is the way we look at our business. But to support our competitiveness, of course, we have kicked off the performance improvement program. You heard a lot of the details in our capital markets update in February. That is very high on my agenda. We are very committed to this 350 million run rate improvement, and I'll come back to that a bit later in my presentation. I was pleased that we were able to now officially get the SAF investment in Rotterdam line number one complete. And we are now ready to supply EU-based production of SAF for our customers out of Rotterdam. So we are good to go and production has started. And then, of course, the big thing at Neste is the new huge investment in Rotterdam to build a second line. You heard last time how the timeline had to be changed and the costs have increased, but basically we are now moving according to that revised schedule and budget according to plan, and I'm staying very close to the project and monitoring it regularly and also visiting Rotterdam regularly to stay on top of that. When I started at Neste, I talked about the importance of our customers and how critical it is that we have good reliability, that when customers order, that they can for sure get the products they have ordered. I'm happy to tell you briefly about one customer story. We're developing a good relationship with DHL. DHL is a great company. It's a world leader in global express parcel. It's a fantastic business, and I'm very proud that DHL has been ready to cooperate with Neste, and we are joining together our forces to provide low-carbon fuel. for their fantastic company. So there is more information about this coming later, but anyway, this is the main story on DHL. And I hope to tell you more customer cases in the coming quarters. Then coming to our performance improvement program, the main message for you this quarter is that our annualized run rate improvement that was achieved in the first quarter is 52 million. Eva will go through this in detail. And as we move forward, we will open more the granularity of what we are achieving concretely so that you get a sense of what progress we're making. But anyway, if you make note of this 52 million, the work has now started. On the commercial side, we are downsizing and sharpening our terminal network. We're taking costs out. On the logistics side, we have done a number of, let's say, optimizations, changing also some of our buying criteria to be able to be more competitive on the buying side. That will yield results. The refining area is, of course, a big potential area for value creation. We started the refinery piece a bit later than the rest, so we will be, I would say, a step further in Q2 to talk more about the specifics there. once the initial phase of that fairly comprehensive work has been finalized. On the external cost side, we have a big spend bucket. We have now a good procurement team, and they are working hard to find alternative sources of procurement. We've become a better company at tendering and also looking for ways how we can also stop spending where the spending is not critical for the business as it stands today. And then finally, on the organizational front, We did announce our employee negotiations in February to reduce our headcount. We have completed those negotiations. I feel that the negotiations were professionally run. They were done on time. And I want to thank especially our employee representatives for the good collaboration to get this fairly complicated matter done in a professional way. So thank you to our shop stewards for their help. for their professional approach. Anyway, that is now done, and the new organization comes into effect May 1. So that part of the performance improvement program can be noted as having been complete and closed. Then it is time to move on to the financial performance, and this is where I would like to hand it over to Eva. She will go through the figures, and then I will come back with some of my own commentary, a bit about regulatory topics. I'll talk a bit about the markets a bit more broadly from a macro perspective, and then I will give you the outlook, and we will take your questions afterward. But Eva, it's all yours.

Thank you, Heikki. Good afternoon on my behalf as well, and great to be part of the Neste team and with you all today. I'll start with this reference graph. It illustrates the development of the renewable diesel. margins, and you see well that the Q1 was weak. This was especially driven by high feedstock costs at a time when the sales prices were under pressure. Now, we were able to capture a margin of 310 US dollars per ton sales margin in our full renewables business, obviously, including both the renewable diesel and SAF. And this was really thanks to production running well, as Heikki mentioned, and a very successful optimization in the various fronts and from our team. Now, just a reminder that when you look at this reference margin, so do note that we have used, as earlier, a fixed sales ratio between European Union and North American sales of 60-40, 60 for European Union. And the real sales distribution, be it for us or any other industry player, will obviously vary between the quarters. For the Q1, our group comparable EBITDA was €210 million. Now, the biggest contribution gained from oil products, €120 million. Renewable products delivered €72 million, and marketing and services, €17 million. I'll come back to the segments more in detail shortly. Our performance improvement plan is delivering its first results, even though it was just started a few months ago. And this is something we're obviously following very closely and will be reporting to you all on a continuous basis. As Heikki already mentioned, 52 million euros of a run rate was achieved by the end of first quarter. Now, good to understand that if you want to get a quarterly run rate or quarterly outcome of that, then you can divide that 52 by 4 and you get to 13. In the first quarter, however, we only had a 6 million outcome, not the 13, and this is really due to the program starting only midway in the quarter. Heikki also mentioned already the important milestone of the operating model simplification. And now those savings will be delivered as of the Q2 onwards. 65 million in total, I would say a majority of them during Q2, but obviously some of those savings will also come only into realization in the later months. As the negotiations were concluded, we were able to book the one-off provision as restructuring in our end-of-March balance sheet, and this $24 million is visible in the notes in the PAC. Moving then to the segments, so renewable products. The recovery of production volumes during the quarter was very important for us, and as you see, it supported very well the recovery also in our sales margin. Now, in an environment where the feedstock costs and sales prices are pressuring our margins from both sides, you see this on the right-hand side graph very well, going the full history from 2020. Onwards, I'd clearly say that we did better than expected on our optimization to reach the 310. We sold relatively low volumes in the US as the European market was clearly more attractive. We mostly sold SAF in the US market during the quarter. Now, overall, the SAF volumes, 130 kilotons, were still on the light side, as expected, though. And this is driven by the annual mandate structure, which drives a more back-end loaded behavior from our customers. So we would expect to see sales volumes increase in the second half of the year. Moving to oil products, refining margins continue to normalize if you look at the sort of longer trend or year-over-year. Compared to the previous quarter, there the main contributor to a decrease in the refining margin was really the mild winter, like you already mentioned. So we missed good volumes from the middle distillates, be it then heating oil or winter-grade diesel. Overall, sales volumes were also seasonally low. And this we, of course, expect to improve as we go into the busier driving season. Now that spring and summer are coming to our home markets. Utilization rate in our operations was solid also in this segment and an important achievement. Then in marketing services, our third segment, main points are very similar to those of the oil products. Sales volumes were seasonally a bit on the low side, and then combined with the mild winter, this had a negative mixed impact on our margins. Comparable EBITDA was €17 million for the quarter. Now, despite the lower market demand and certainly a competitive market environment, our performance in terms of market share was solid during the quarter. Moving to cash flow. So our cash flow in the quarter was negative 225 million euros. Now we needed to normalize our inventories coming out of the outages in the fourth quarter and abnormally low inventory levels. So this obviously affected the networking capital part of the cash flow. Now we are at a level where we are more comfortable in being able to both optimize and serve our customers with the position that they expect and we want to do. Now, good to know that working capital is part of our performance improvement program. So we will be looking at many ways on how we optimize our performance also in this area. Even though we more talk about the EBTA side of the program, this will increasingly be part of our communication in the quarters to come. Now related to cash flow after financing activities, I'd just like to highlight two main achievements in the quarter. We issued a new green bond of 700 million in the quarter. The cash flow impact is slightly less as part of those proceeds were used to pay back previous debt. Not visible in the cash flow or in the quarter as such, but coming just after the close of the quarter, was then the refinancing of our revolving credit facility. We also raised the facility slightly to 1.3 billion euros. Then on the investment side, now as communicated earlier, we are running Neste with very tight capital discipline. CAPEX decreased in Q1 as planned and is expected to be, as guided in February, around 1.2 billion euros for the full year. The Rotterdam capacity growth investment is really the one main project we have ongoing this year and also in 26. And thereafter, again, as communicated earlier, we expect to be focused on maintenance type of investments only. And that will obviously then ease the pressure on our cash flow and enable us to strengthen the balance sheet. which is a nice bridge to the financial targets. Again, nothing new on this slide, but just to reiterate our focus on delivering the performance improvement EBITDA savings, as well as we are focused on ensuring the leverage around 40%. And with that, I'd like to hand it back to Heikki.

Thank you, Eva. So let's... go through a couple of topicals and outlook matters here. Let me first start with the couple of comments on mandates. Obviously, in our RP business, regulatory issues, mandates are crucial for increasing the demand for renewable fuels. At Neste, of course, we welcome the fact that we have Refuel EU coming now into effect, and the objective is, of course, that in 2030, we will go from 2% to 6%. I think from Neste's standpoint, I just want to communicate Of course, Neste is investing heavily within the European Union to add soft capacity, so we expect that European policymakers will work from their side to safeguard a level playing field and also ensure the competitiveness of European industrial companies. So we at Neste are doing our part, and of course we welcome any efforts from the Commission to do theirs. We really need a predictable operating environment to ensure these investments create value then also for our shareholders. On the tariff side, a lot happened in the month of April, as we all know. I guess the main feeling at Neste here, as we look at what we have read from different sources, is simply that the direct impact of these tariffs are expected to be fairly limited for this company. RD, SAF, and most of the oil products are actually exempt from the announced tariffs. Singapore has a free trade agreement with the United States. So I think this basically sort of set up situation is actually pretty reasonable given the things that are ongoing. On the feedstock side, what we are seeing is that the United States has implemented tariffs, which, of course, will impact, for example, Yuko coming from China and going into the United States. So that does not impact our Singapore business negatively. In the United States, in Martinez, of course, we have Neste's own Mahoney operations, which can provide also wheat stock from domestic sources. From the standpoint of our operations, the U.S. market is open for Neste, so our decision whether we sell from Singapore to the West Coast or into the Gulf area or even up into Canada, which, of course, is a separate market not related to U.S. circumstances. But anyway, whether we ship to the east or whether we ship then from west is purely an economic question. So we are constantly looking at the margin differentials, and then based on that, we will take our own commercial decisions, you know, very tactically and very agile, in an agile manner. So Singapore location is good in that respect. If we then look at the opportunities and uncertainties in our business at the moment, so, of course, the thing we're working on where we would like to see progress is a decrease in the cost of feedstock. We have seen some signs, especially on Chinese yuko, coming down, maybe roughly 5%, but that is clearly not enough. In Indonesia, we see export restrictions on feedstock, so a combination of both of those are at the moment still keeping the feedstock prices too high vis-à-vis where the selling prices are. The U.S. renewable fuel incentives and obligations are critical for anyone producing these products. Our view is that it is a gradual process. We will see some of these incentives come back in different forms. during the course of the year. So I think we're not terribly pessimistic about it. It's just a matter of time. Of course, the loss of the BTC, per se, that is a fact, and we will probably not see that in its current form be replaced with anything else. If we look at the European side, I want to just mention the way I look at the situation is that Germany, among others, is now... in basically borrowing a trillion euros and investing in infrastructure and also defense, but these euros are ultimately also going to flow into logistics and into increasing investment, and Germany being a large part of the European market and also a very important market for renewables, so that should be a longer-term positive boost. And then I already talked about the need for EU working on these SAF anti-dumping matters. On the uncertainties... Of course, as I already talked about a moment ago, there's a lot of uncertainty about the U.S. margins, so we need to constantly be agile in terms of where we ship from Singapore. The global macro situation is, of course, challenging. I think the base case, as we see it, is a U.S. recession of some form is coming. Some parts of Europe have already been in recession for multiple quarters. We will then need to see whether the U.S. recession is a moderate and short one or something a bit longer, but time will tell. And then finally, geopolitical tensions. And unpredictable trade policies are creating their own challenges. But I think net-net, I think the outlook from our side is clearly weighted more towards the opportunity side than the uncertainty side, in spite of all the news headlines you see out there. Then on the market outlook, so the uncertainty in global trade and geopolitics and their impact on the global market outlook are causing volatility. Markets for both renewable fuels and oil products are sensitive to oil price development, and the market in renewable fuels is expected to remain oversupplied in 2025. And then if we look at our guidance, which basically is unchanged from the last quarter. So I won't now read it line by line because we have already – it is basically unchanged. So I just leave it here for your attention. So that in itself is our presentation, and I think it's now a good moment to go to Q&A and – Please, let's get started.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Alejandro Vigil from Santander. Please go ahead.

Hello, thank you for taking my questions. And the first question is about the company's leverage. It's now very close to the 40% threshold. And I'm wondering if you are planning any investments or considering some joint ventures to reduce the burden of CapEx that you have for the next year and a half. And the second question is about feedstock. If you are, how you see in terms of demand supply the access to feedstock. And particularly, you are considering new sources of supply. You can create new sources of supply to offset this inflation we are seeing in feedstock. Thank you.

So maybe if I start with those and then Eva, please continue. So I think on leverage, as Eva said, so we have that 40 percent target. As we said earlier in February, of course, it's possible that for a short period of time we may be going over that. I think that's not critical here. The 40 percent is really critical in terms of the ceiling for us in general. We have a plan. We're working hard on delivering on the results. Obviously, it's a fact that we have an attractive portfolio of assets, but we are not considering any divestments. We believe in our plan, and we believe in our ability to take us through this phase here. Now, in terms of the demand, supply and feedstock in particular. So, yes, we are working to look at other feedstocks besides, you know, of course, yuko and animal fat. There are different types of novel vegetable oils and there are also other micro pockets of feedstock that we are researching. The reality, though, in this business, and I think this is where Neste has an advantage, is that the more complexity you bring into the mix, the blend of feedstock, the more challenging it is going to be for the pretreatment. And I urge you to understand that this is not a simple exercise of taking all this sort of the cocktail, a mix of feedstocks, and just putting them into the... into the refinery process so so uh there's a lot of value can be created by doing this nesta is good but it is not simple um i think for us short term of course the big thing is we need to get the yuko price down uh and and hopefully you know we will start seeing that in the course of 2025 let's see but eva anything you would like to comment on the balance sheet subject

No, I think you commented well. I think the quicker impact to ensure our leverage stays in the target zone is really the cost savings and the work we can do on the working capital.

Thank you.

The next question comes from Derek Whitfield from Texas Capital. Please go ahead.

Good afternoon, all, and thanks for taking my questions. I have two. So with my first, with respect to the performance program on page 13 of your presentation, would you expect rateable improvements between now and 4Q26, or can we see a couple of periods with more pronounced step changes? My second, regarding your commentary on oversupplied markets for 2025, How do the global supply-demand balances in your view projected to 2026 with the benefit of refuel EU and potentially a 5.25 billion gallon RVO in the U.S.? Thanks.

So maybe if you want to take first how that flows through.

Sure. So, Derek, on the performance improvement. So, indeed, I wouldn't say it necessarily is fully linear. I think we've seen some sort of low-hanging fruits coming into fruition now in the Q1. Now, obviously, Q2 will also be supported by Q3. by the organizational change, which is rather, even if it's not all the people necessarily leave immediately, it's obviously a big step and that will support the Q2. There may be areas then where kind of getting going takes a bit longer and hence on that. But I think the target is so high on 350 that we need to sort of be pushing this in every quarter in a visible way.

Right. So, Derek, then in terms of your question about demand and supply, I think, of course, the oversupply for 2025 is sort of a fact. You know, making these forecasts, as I said in the capital markets update, is, of course, it is challenging. It's based on a lot of assumptions. But I think, at least in our own planning, we are thinking that we will continue to see this oversupply being there for some time. Ultimately, it will balance, but we don't think it's going to be disappearing just overnight. So I think it's a good assumption that, no, into 26, we will probably see something. But as I said, it all depends on the assumptions you make. We are focusing on the plan to get ourselves through that 26 period, even if we have that oversupply there. But as I said, it depends on the assumptions, and I don't think we want to say more about it at this stage.

The next question comes from Henri Patricko from UBS. Please go ahead.

Thank you for the update. Two questions, please, from my side. The first one, I wanted to come back to the Rainbow Products margin improvement quarter on quarter, because if I look at some of the macro drivers and the loss of the BTC, that would seem to imply a fairly large drop quarter on quarter. Despite that, we had only a small drop if we compare to the at just the number that you gave in Q4, because the actual margin was $240 per ton. But you mentioned at the time that the ODGs had a negative impact of around $100 per ton. So just wondering, looking back, was that $100 per ton actually a greater negative in Q4? Or can you perhaps expand on some of the posted developments in the first quarter that we don't see on just looking at the macro drivers? And then secondly, I wanted to come back on the SAF comments that you made, because the sales volumes have improved year on year, but are down quite a lot. And you said that a lot of the sales actually went to the U.S. So we're particularly expecting quite a sharp increase in European SAF demand over the rest of the year, but very limited sales for the time being. Is that fair? Any comments you can give? a make around of things that are going in the second quarter so far. Thank you.

So maybe you could start with the first one, the margin. I'll comment on this stuff.

Sure. So indeed, on the margin, I think it is a good idea to compare on the sort of Q4 without the outages. It gives you a more sort of stable trend situation. Now, what I would say is that in this business, when we really sort of abruptly were running down, the positive impact of now being able to have a solid quarter obviously was significant. And sometimes these type of abrupt changes make a bit of a sort of, we get a bit of, it was kind of too bad in Q4 and now maybe a bit of an extra boost on that. Then again, also good to note that obviously this is a business with optimization and not always the publicly known quotes are fully comparable. There's a lot of things that go into the mix. As I mentioned, we were positive ourselves also on being able to exceed our own expectations in that front.

So on the south side, so we came into the year with fairly low inventory levels. Yes, in fact, the first volumes out of Singapore have been more steward into the U.S. market, but Europe is very critical here. We have made a number of customer contracts for this year. And we look forward to allocating more volume into the European market based on the mandates we now have. As I said earlier, Rotterdam now is producing at nameplate on a daily basis as of, you know, end of March. So we will also now start getting then, you know, the annual capacity out of there is about half a million. So all of that Rotterdam volume will then be also allocated into the EU. So from that standpoint, I would say... We believe that all the tonnage we can now produce out of Neste, it would seem to be the case that we can sell that in terms of SAF. Got it.

Thank you. The next question comes from Sasakanth Chilukuru from Morgan Stanley. Please go ahead.

Hi, thanks for taking my questions. I had two, please. The first was on the renewable product sales margin. This quarter, we've seen around $56 per tonne premium over the reference margin. I was just wondering how we should be thinking about this premium. What are the key factors that have influenced it in 1Q? Is 1Q indicative of the premium that we should be thinking about going forward if the current market conditions were to persist? The second was related to, again, the Singapore plans. If you could highlight what the utilization rate of the Singapore plans specifically was in 1Q, if possible. You talked about the SAF sales, but I was just wondering if there was any other HPO sales also directed to the U.S. market in 1Q, and if so, whether they were margin-critical or dilutive.

So do you want to take the margin first, and I'll comment on the utilization?

Sure, yeah. Yeah, so as mentioned, the premium was strong in the Q1. That really sort of incorporates the sort of full optimization value that we do in the company. And with now the market situation being so dynamic as it is, I would be a bit cautious on the short term. I mean, obviously, we have high-cost inventory on the feedstock side. Basically, as Heikki mentioned earlier in the presentation, we've seen a very very modest decrease so far and hopefully something to come. But I think that's more than a second half issue. So certainly going into the Q2, I would be a bit cautious. And then let's see if the world around us settles in one way or the other, that it would be a bit easier to comment more on this.

In terms of Singapore utilization, we were on RP overall, we were just below 80%. You need to remember that when we produce SAF, our overall tonnage comes down a little bit because there are some production losses due to the configuration of the manufacturing process. So in terms of SAF, we get somewhat less volume. But anyway... We've now been running a so-called integration mode. We have two lines there, and that basically allows us then to drive up and push the soft volume to the max. I'm sorry if I couldn't hear the end of your second question regarding the U.S. Could you repeat that, please?

I was just wondering, for the sales that have been directed to the U.S. market, if there were any on the renewable diesel side, and also if These sales to US, were they margin accretive or diluted?

Yeah, we don't sell anything if it is, you know, it has to be margin accretive. We don't sell anything at negative margins. So, yes, we did sell some, but very modest levels. It is almost, I mean, you have to be extremely agile and monitor when the ARBs are open. If they are open, we will take advantage of them. But the volumes are very, very small.

Thank you.

The next question comes from Artem Beletsky from SEB. Please go ahead.

Yes, hi, and thank you for taking my questions. I actually have three to be asked. So the first one is relating to RP and production outlook for Q2 and ahead. I think looking at Q1 numbers were quite good, but you have been normalizing inventory. So is it a good proxy on what you are doing right now in terms of production? The second one is relating to Martinez. So you have commented that the margin was dilutive in Q1. I think that makes sense given quite tough market conditions in the U.S. during the quarter. But could you maybe comment on whether you have made some further progress what comes to feedstock and how you have been performing on that end. And the last one is relating to U.S. opportunities to sell volumes from Singapore. I think looking at U.K. prices, we have seen the Chinese prices are coming down but are going up in the U.S., so it should maybe provide some opportunities to you. How do you see the market and basically import opportunities?

So if I start, thank you, Arthur, for your three questions. So your first question was about the RP production outlook. Yes, indeed. Obviously, as we discussed, our inventory levels were very low as we got into the first quarter. So we, of course, will be trying to run full in our refineries. That is the intention. We believe that we have competitive assets. They were built to produce product, and that is what we are doing. So I think the main question really is simply that how can we sort of get the maximum stuff out of it? And I said, for example, in Singapore, it requires this integration mode, and there are some practical process issues we're working on. I can't give you an exact figure for Q2, unfortunately, but I think you were right that we had the low inventories. Then on Martinez. So, look, the thing is, on Martinez, I mean, the refinery is in a great place. It's in the middle of a very important market. And I think fundamentally the regulatory outlook in California has been good, and we believe that the incentives that we have in that area will be gradually coming during the course of 2025. We had our production issues in Martinez. It's my understanding that those have basically been solved. However, there is still potential in the refinery to become more efficient on the logistic side, even better in terms of feedstock utilization. So the management in the refinery have their work cut out. On the matter of feedstock, so, you know, we are providing our share of feedstock supply. You know, we own half of the refinery. We can provide feedstock out of Mahoney and other sources. Feedstock prices, of course, are going to be rising if the tariffs, you know, as they go up, and that is something that, you know, the business then has to manage locally. Then to your question about U.S. exports out of Singapore, yes, as you mentioned, U.K. prices have fallen a bit, whereas the U.S. prices have gone up, so the spread is widening significantly. You know, as I mentioned earlier, if there is a positive enough ARB, we will sell. And that is almost a day-to-day situation. So our salespeople are following that, and we will lock that in. At the moment, there is opportunity. If the spread continues to widen, you know, there will hopefully be a bit more upside sales volume also going in RD. But as I said, our primary focus still for Singapore is to ramp up the soft side because that is still ultimately the future and the spearhead of Neste. Hopefully that gave you enough color, Artem, about where we are. Thank you.

Yes, absolutely.

Thank you, Hekki.

The next question comes from Matthew Blair from TPH. Please go ahead.

Thank you, and good morning, good afternoon. I have three questions here. The first, maybe sticking on Martinez, could you talk about the 45Z capture at Martinez in Q1? Some other companies have mentioned that because the standards came out in the middle of January, that things weren't really optimized for Q1 and things should look better for Q2. Does that hold for Martinez? Second question is, do you have a view of On the implementation date for the new California LCFS targets, do you think they'll be backdated to the start of 2025, or is this looking more likely a January 1st, 2026 start? And then finally, you mentioned that U.S. sales in the quarter were mostly SAF. Could you talk about just your overall netbacks by region here as Is the U.S. a more attractive market for staff at the moment than Europe? Thank you.

Okay, so first of all, in terms of the Martinez situation and the tax incentives, so basically there was nothing much to book home for Q1, so unfortunately there was nothing there, hopefully later. On the LCFS situation, We believe it is going to be coming. It could be more shifted towards the end of the year, maybe early 26, but we believe it is coming. So we'll just have to now be patient with that. And then in terms of U.S. SAF, European SAF comparison, so... How should I put it? I think, you know, both markets are strategically important to us. We are trying to serve both markets. And we are not, I would say, we're not taking sort of at this stage strategically big sort of, you know, strategic decisions. decisions regarding is it U.S. or Europe. We want to serve all of our customers and ramp up our production as rapidly up as we can. And especially, but we also don't forget we will in 27, we will be getting a huge amount of new capacity from Rotterdam number two. So we already now need to be building, you know, the space then for ourselves when Rotterdam two comes online. So both markets are important. We need to have multiple customers to take on this volume.

Great, thank you.

The next question comes from Peter Lo from Redburn Atlantic. Please go ahead. The next question comes from Adnan Dhanani from RBC. Please go ahead.

Hi, thanks for taking my questions. Two for me, please. Just on the first one on refuel EU, a number of airlines recently pushed back against the mandates. So just wanted to get your thoughts on that. And if you think there's any risk of a rollback or easing in those mandates, particularly given the broader macro environment. And the second one on the CFPC credit, I understand that you put the contingent assets for the credit this quarter. Just what is your latest understanding on the guidelines there, and what do you need to see from the regulators to have more conviction in including that in your results, and just any thoughts on timing of that? Thank you.

So if I take the refuel first, and then if, Eva, you take the 40 million. Yes, you are correct that a couple of airlines have, let's say, raised the question about the timing or magnitude of the 2030 mandate. That is the 6%. Ernesto's view is very clear. Climate change needs to be mitigated. The European Union has been very clear, as well as member states, with their intention to decarbonize air travel. We have an over 360 million ton kerosene market. Soft market is just a drop in the bucket in big sense. So we are going to make a very strong argument that that mandate holds, and we will also continue to argue for a linear progression into 2030. So we are happy to work with our customers to solve their climate change problems or challenges, but we are definitely of the view that... The 2030 will hold. That is what we are working towards.

And then regarding the CFPC, so indeed we didn't book any benefit from that, although we do think that we would be eligible based on today's knowledge with a sort of 30 to 40 million euro size of the value. And then how will we proceed? Well, I think it's really around clarity on the... let's say the sort of details in a way that we uh we we obviously don't want to go be going back and forth i rather wait and uh let's see if we sort of get a bit more clarity during q2 and then we'd obviously sort of act on that and if not then uh then we'd as i said rather rather wait into into q q3

I still have to come back to you, if I may, just on this SAF matter and refuel. So you also need to recognize that we have customers who are also looking at voluntary buying. So even last year, and we're coming into this year, not all buying is only mandated. So there is also voluntary buying. So I think that many of the large customers are very committed to making sure that they are gradually reducing their emissions. So, yes, a couple of airlines might have made some comments, but we believe that the movement is definitely upward in terms of volume growth.

Great. Thanks for the call.

The next question comes from Peter Lowe from Redburn Atlantic. Please go ahead.

for taking my question. The first one was just there's been a lot of volatility in oil and diesel prices this quarter, which could flow through to your term contract sales. Can you talk at all about kind of your hedging position, to what extent that could protect you against that? And then the second was just a clarifying question on the renewable products utilization rate. Should we assume that that kind of 79% utilization rate, is it at that level because that's the extent of the volumes that you're able to profitably place into the market? Or were there any other operational reasons that it was not higher? Thanks.

Okay, do you want to first comment on the hedging issue?

Sure. So, indeed, as we sort of raised in the quarterly report, the volatility in the oil markets is obviously something that has an impact on us. We haven't changed our hedging per se, so we do – we do continue in a way to hedge. But of course, with all this volatility, it's not a guarantee that we would be protected on that. So it is certainly a risk that you are right to raise because And that's a bit, in a way, what we've obviously seen also in the Q1, so not a new topic per se. But, yeah, let's see where the sort of oil market goes in the coming months.

Hey, on your question about the utilization level, so... I mean, basically, you know, we have the refining piece in the performance improvement program. We see opportunity further to extract more value out of these refineries. Very sort of granular stuff around, you know, becoming even better at risk-based maintenance, predictive maintenance. little things but big things when they add up in terms of volume. So I'm actually of the view that we have more upside potential in terms of how much volume we can get out of these refineries. But I don't want to give you a number yet until we get the refinery work complete and then we get some concreteness on that. But as I said, I thought it was a good quarter given the performance of 2024. But we need to get more out of the refineries. And that's the objective for the rest of the year and into 26. So stay tuned.

The next question comes from Paul Redman from BNP Paribas. Please go ahead.

Hi, and thank you very much for the time, guys. Two questions from me. The first one's just on sales volumes and margins in Q25. So I just wanted to ask, of your sales volume this year, how much was on pre-agreed contracts versus sold on the spot basis? And just following on from that, you're talking about being cautious about Q25 margins. Could you just give me a few of the moving parts that might raise that caution? Is there anything in this quarter that may not be booked next quarter, for example? And then secondly, just on Mahoney, is there any way to give us some guidance on this business, kind of EBITDA generation or how it supports margin generation so we can kind of understand this business a little bit more? And I'm assuming in a tighter feedstock market, this business is an even better performer.

So if I take questions one and three, and you talk about Q2 margins, so let me do one and three, and then you do two. So in terms of the sales for 2025, so you could roughly say that maybe two-thirds are term and one-third is spot. Usually we would have had, historically, it's my understanding the term piece would have been higher, but at the moment for 2025, it seems about two-thirds term, one-third spot. And then in terms of the question about Mahoney, we haven't really disclosed any financial figures. Basically, it is a business where we collect different types of molecules from 90,000 kitchens in the United States. It's a logistics business. Obviously, when the feedstock prices rise, it will be accretive to the results of that business. But I think there's also a broader role, and that is a strategic role of having this feedstock collection pool because it gives us longer-term strategic optionality, whatever the Neste might do in the future. So that is another angle, which is more strategic rather than short-term financial. Would you like to comment on the second question, which was about margins and how you –

Yes, sure, Paul. I think our sort of cautiousness mainly comes from the fact that the feedstock prices, we haven't really seen a material change there. And obviously, as I said, we would hope and in a way expect that. But just realistically, we don't want to sort of give you a too optimistic view on that. I think the other moving piece is obviously then related to the tax credits in the U.S. As I said, we didn't book anything. And as I replied to a previous question, there is a possibility that we would have more clarity already during Q2. And obviously, that would be a... could have a positive impact, then we will, of course, report that then separately so you can kind of see the underlying. But those are maybe the sort of two main things, and then just otherwise referring to the sort of very dynamic environment around us that we need to sort of just be able to align and be very agile on this topic. You know, we have a good team optimizing, but it's certainly sort of a challenging environment.

The next question comes from Pozzi Verzenin from Nordea. Please go ahead.

Thanks. This is Pozzi from Nordea. When looking at your comparable margin of 300 and then in the first quarter, what actually was the positive effect coming from hedging, which was included to this margin? And secondly, were you now selling more to Sweden than before? And was the sales to Sweden actually the reason for your improved sales optimization during the first quarter period? And maybe lastly, when looking at the kind of the global supply-demand balance, so what will be the sustainable margins for the industry or for the Neste when this global balance has been reached? So, for example, something like 500 or 550 in terms of margin. Thanks.

So let me just – maybe I'll start with the last one, which is easy to answer at this stage because I'm not going to give you an answer simply at this stage. I don't think we can for sure say what is a sustainable margin long term and from what point. So if we have a point of view on that that we want to share, then we'll come back to that later. In terms of the Swedish market, yes, of course, the Nordics is important for us. We do business in Finland and the Baltics, but we also sell into Sweden. So without going into more detail, let me just say that the Swedish market is important. We have a lot of big customers there, and we did have some opportunities in Q1 to sell. to sell more to those, but I won't really go into the detail. On the hedging, would you like to comment on the hedging?

Yeah, I was looking at it in our report because I think you can find the numbers as such on that. So we had... A slight positive on the inventory valuation, then again, currency was negative. So not a big impact, really, if you look at it, those two net. And there is indeed, there's a table. It's mainly related to renewables, that table information.

Okay, great. Thanks.

The next question comes from Nash Kui from Barclays. Please go ahead.

Hey, good afternoon. May I ask two questions as well, please? The number one is on feedstock. I wonder if you could give the feedstock mix for this quarter, please, in terms of UCO, FAD, and PFAD. And also relating to feedstock, I wonder if you can let us know your hygiene position for both Q1 and also going into Q2, please. Then my second question is on gearing. I think, Heike, you mentioned that you are not too concerned for the gearing to pass or go beyond 40% temporarily because you have a plan. Just wonder if you could expand that. And how does this 40% set, is that arbitrary or does it relate to credit? Thank you.

So thank you for your questions. There's a lot of insightful questions you had there. Now I need to, I am not exactly sure how much detail we gave out in terms of the feedstock mix. Do you have that? Can you?

Yeah, well, we have the sort of a share of waste and residues reported separately in the report and that was 97%. So basically almost all of the feedstock was that. So somewhat up from the fourth quarter.

But if I can, I mean, in terms of the actual mix of, you know, yuco, animal fat, novel vegetable oils, obviously, you know, when you look at it just so as more as a context for those who don't follow this industry. So ultimately, when we run these refineries, it is a blend usually of different things. And when you blend these feedstocks, there are certain chemical limits involved. or operating parameters that you need to focus on or achieve, and that is sort of setting the right balance between yuko and nova vegetable or animal fat. So it is not only a cost optimization question on what feedstock is cheaper and expensive. It's also a chemistry question that you need to factor in. But, of course, yuko is a big, big part, and then you have animal fat, Novo Vecuo, usually the other are very, very small parts. So Yuko is the bulk usually. Then on terms of the gearing, so maybe I hand it over to the CFO who can comment on the gearing, the 40% and our plan. And if you would like to elaborate anything else beyond what we have said earlier and the funding, I guess, or the credit question.

Sure. So the leverage target we have is to have leverage below 40%. We are quite close to that target, as you see, and obviously in this environment where our financial performance is still weak, combined with the Rotterdam investment, there is no quick way to improve that target. That ratio, we are focused on delivering on the performance improvement. So, of course, every million saved on the EBTA helps. And then, as I mentioned earlier... In my presentation, the working capital is obviously part of our overall optimization. Just to give you an example, something that saves both costs and inventories as we are looking into our terminal network, whether we need all of them. We don't think we do. And just in reducing the amount of terminals, we obviously... reduce our lease costs, but also then reduce the inventory by definition. So those actions are very important. And then I think we wanted to be proactive and early in the year on the funding needs and have successfully completed the bond as well as the RCF. So in that sense, we're rather comfortable, certainly from a liquidity point of view going forward.

Thank you very much.

The next question comes from Yulia Bochanikova from Goldman Sachs. Please go ahead.

Hi, thank you for taking my questions. I have two. First is on Singapore plants. Can you give any comments on utilization rates of Singapore renewable diesel lines, specifically in Q1, and whether these volumes were redirected to Europe? And second one is on the Red 3 directive. I wonder if you've seen any developments in terms of transposition of Red 3 into national regulation of EU countries, as formal deadline is May 21st. Thank you.

So on the Singapore, as I mentioned earlier, so on the utilization or on the production of RD, so the volumes to the United States were very limited. The European market for RD is short, and so that volume that we have produced, it has been coming to the European Union. However, I want to come back that SAF is the primary source. I think we're focusing on any residual capacity we have then. And it's coming from the line number one in Singapore would be then directed either into the United States or Europe, depending on what is more economically sensible. So that is the case. And then on the red three, so I don't have really anything new to report on that. We will continue our public advocacy work. We've actually done good work on that area, and I will hopefully be able to report something on that after Q2. My own personal focus has been very much in Q1 now to get the... These programs underway and get rapid execution, and I haven't really spent personally much time on PA, but it is obviously important and will be higher on my agenda as I see just the performance improvement program start generating results here. Good, thank you.

Thank you.

The next question comes from Kai Yilo from Jefferies. Please go ahead.

Thank you for taking my questions. So just one quickly. You mentioned you were going to resume your export only if the ops is reopened in the U.S. from your Singapore facility. So my quick question is, do you mind reminding us on the economics of the exports into the U.S.? ? U.S., and also, do you see any pressure by exporting the volumes that are not exported to the U.S. into the Europe, and how would it involve going into Tokyo?

Thank you. Yeah, so thank you very much. So obviously, you know, I think there was one of your colleagues asked about are they creative. Definitely, I mean, we don't sell at a negative margin. I mean, of course, the more margin we have there, you know, of course, the U.S. market in California is a huge market, so it does absorb these volumes. There is a market for the product. So the volume can be sold. It's purely a matter of, you know, do we make the reasonable profit on that product. So, yes, we will sell if the margin is bigger than it was, you know, in the past. Now, in terms of Europe, again, as I said, Europe is short. We have been able to find a lot of customers here, more customers. We've added new customers. But the focus is on SAF, and then the RD is really residual to fill up the refinery. Okay. There's nothing really more I can add at this stage, unfortunately.

Thank you. I appreciate it.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you very much for your attention today. It's been a good conversation. You always challenge us with your good questions, so thank you for the time that you've taken to focus on Nested today. As a summary, really from my standpoint as CEO of the company, so the three things we're focusing on here predominantly now is delivering on the performance improvement program. I'm really happy with the start. I mean, I'm very close to it myself, so I think we've had a good start. And I'm very happy that we were able to get the people part of that fourth module pretty much complete very quickly in six weeks. And so that part is now done, and we can move on with the new organization. Then on Rotterdam, of course, The expansion program continues, staying very close to that. We are on schedule and on budget based on the revised information we gave you. And then I said on SAF, we can sell the volume we now have, and our salespeople are actively finding new customers. And I'm happy also with the start on SAF in 2025. So with those words and with Eva, we will then come back to you again at the end of the second quarter, and I wish you all a very good May 1 celebration if you are into that kind of stuff. Thank you very much.

Thank you.