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.