Neste Oyj Unsp/Adr

Good afternoon, everybody, and welcome to discuss Neste's Q1 results that were published this morning. My name is Jukka Miettinen, Vice President of Investor Relations at Neste. Here with me, we have our CEO and President Heikki Malinen and our CFO, Eeva Sipilä. We are referring to the presentation that was launched on our website early this morning. The key highlights of our presentation include today – our position in the ongoing market volatility, our Q1 financial performance. We will also cover the status of our performance improvement program and the progress towards our financial targets. We are also discussing our near-term focus areas as well as the current opportunities and uncertainties. We will have time for discussions with all of you. And please pay attention to the disclaimer as we will be making forward-looking statements in this call. With these remarks, I would like to hand over to our president and CEO, Heikki Malinen. Heikki, please, the floor is yours.

Thank you, Jukka. Good morning, good afternoon, everybody. Welcome also on my behalf to the Neste Q1 call. Really great to be here today again with Eva. Let's start with the summary for the first quarter. Five main highlights. Obviously, as we all know, we had tremendous market volatility originating from the Iran crisis, especially during the month of March. And I can say Neste, we feel, was able to manage through that volatility period pretty well. Our financial performance for the first quarter was really good. Looking at the levels we achieved, I'm very satisfied with your absolute profits. Our utilization in the RPE business was low. We'll come back to that. We could have done somewhat better. There's still work to be done. I'll talk about that. The execution of our performance improvement program continues really well. Eva will give you summer update on that, but I would just say that overall, I'm very pleased with how the team at Neste is executing the program. And then finally, the work on the Rotterdam line number two investment continues The closer we get to 2027, I think the more clear it is that the timing of the investment is good, and I really look forward to getting our production up and running then in 2027. But as always at Neste, we start with safety. Safety is our, so to speak, our license to operate, and we are striving to improve our safety both in terms of employee safety, which we measure as TRIF, it's recordable incident frequency, and then process safety. We have a very systematic five-year roadmap that we're executing. However, if we look at the results for the first quarter, I'm not very pleased. We have not been able in TRIF to move the needle downward, trending sideways, and in particular here in the Nordic region, And in the United States, the cold, harsh winter did impact our safety. We should have been able to perform even better as winter comes every year. But that is work that we need to then learn on. On the process safety side also, we had a few, very few but still, events. And they raised then the score in the wrong direction. So I said safety is number one topic and it is absolutely the highest priority for myself and my colleagues within the Neste organization. But if we look at the figures, again maybe the six main numbers and Eva will talk about them. Obviously on the left hand side renewable product sales volume 874,000 tons. You can see that we had the turnarounds both in Martinez and in Singapore. line number one and then we will talk about the other other topic from from singapore production but i said uh we are at three 874 and would have of course like to have a tad more the margin sales margin for renewables was very strong 856 dollars per ton compared to where we were just a bit of a year ago and in 2024 in the last quarter we've come a long way Our margins are now clearly much better, which of course, considering also how much capital we have invested in the business, these margins are necessary in order for us then to get good returns on the investment. On the right-hand side, you can see oil products refining margin, $23 per barrel. It is an improvement from the previous quarter, just as recognition where we were a year ago, and we were less than 10. So again, significant improvement in refining margins in the oil products business. 861 million euros of comparable EBITDA, and our free cash flow was very, very positive, and we, of course, are pleased with that because it impacts our leverage. As we all know, the markets were very volatile. For those of you who don't follow this that closely, I think the message we want to say to you here is threefold. We've seen significant volatility in crude oil prices. I think Neste was able to manage the volatility pretty well. Subsequently, we saw significant spikes in diesel pricing and jet fuel pricing. when we look at our renewable diesel and soft business. So there is an interlinkage between those prices and also the fossil version of fuel. And this is one big strength is that our product positioning is very much in the middle distillate. So we are primarily a diesel and jet fuel producer, both for renewable and fossil. And our product positioning of course is good given the circumstances we are now facing in the energy markets. And what is very important to note is that if you look at the renewable feedstock prices, maybe you cannot really see that that well from this graph, but the message we want to communicate to you is that the feedstock prices, animal fats, cooking oil, et cetera, in the markets where we buy most of our volumes, they were fairly stable. We did see some movement towards the end of the quarter, originally initially from the U.S., following the big RBO decision. So you saw soybean oil movement, you saw then animal fats in some markets in Asia move. But overall for Neste, the feedstock cost overall burden stayed fairly stable. And I think that is an outcome of the fact that our sourcing is very diversified globally and we're able to then always optimize and try to go for a lower cost position. Now if we talk about where the world is today in geopolitics, Of course, very important is to understand where does actually Neste produce its products. And as you can see, we are logistically and location-wise far away from the crisis areas. In the Nordics, with the portable refinery resource, most of our crude from the North Sea. In Netherlands, west coast of the U.S., I think overall our geographic footprint is good and helps us in this situation to stay away from the conflict area. As said, our crew supply was stable and we were not, from a supply standpoint, impacted by the crisis. So I think that shows that it puts Deste comparatively in a good position. Those were my initial remarks. I'll now hand it over to Eva to go through the financials, and then I'll come back and talk a bit more about Neste and where we are. So let's click then. Eva, please.

Thank you, Heikki, and good afternoon, everyone, on my behalf as well. Starting with the renewable diesel reference gross margin, as you can see, it pretty much was an upward trend throughout the first quarter, supported by the anticipation of positive regulatory news from both U.S. and Europe. Next, the comparable EVTA reached 861 million for the quarter. In renewable products, the 433 million was reflecting the significantly higher sales. Term sales premiums this year, something we indicated already last time we were here, that we're going to have a stronger year from the term sales premium point of view. But then obviously, of course, the gas oil surge in March had a positive impact. In oil products, 337 million euros and supported first by a cold winter, so we had a good January, February from a weather point of view. Cold is always good for us for the demand of our key products. And then in March, the Middle East conflict. In marketing and services, 48 million euros for the quarter similar to oil products driven by first a couple of good cold months, but then also the conflict resulted in a relatively high inventory gain in March, and that's visible in our results. Our performance improvement program continues very solid and strong progress. We achieved 115,115 million euros of EBITDA as an impact in the quarter. And in total, we've now so far reached a run rate, annualized run rate of 476 million euros of EBITDA. And we have a pretty... a pretty balanced mix, I'd say we're moving a bit more from purely sort of cost reduction to also revenue and margin optimization, so 64 versus 36 percentage from between the two main areas. Then if we move into the sort of segments and look a bit more detail into them, starting obviously with renewable products. So as you can see from the graph on the left, so indeed the sales volume was clearly low due to turnarounds, but also an equipment replacement delay in Singapore, which affected our March volumes. Maybe something worthwhile noting that as of the beginning of this year, we are now including in these sales volumes also our trading volumes. They are still very small in the total, but it's something that we see the market evolving and something obviously that we're building capabilities for, and hence we feel that this was the time to start including them in its sales. Now, of course, the light blue line on the left-hand side, the sales margin is, is one that strikes out and clearly sort of rising to $856 million, $856 per ton is something that was very supportive for our result. And on the right hand side we compare the fourth quarter and this now recent quarter and obviously a very big improvement. Sales volumes were negative but then again the sales margin more than outweighed that impact. As you can see from the few smaller numbers, so we were very focused on renewable diesel. We said already entering this year that we expect the market demand for SAF to be slow in the first part of the year, and because of the price difference not being attractive enough, we did indeed very much focus on renewable diesel in our sales. And then on the fixed cost, you don't see much of a movement, slight decrease, but that of course includes slightly higher maintenance cost and some sort of fixed costs that come in the early part of the year. So nothing significant in them as such. Moving then to oil products. So here obviously the left hand graph, you see the blue columns indicating our very strong refining margin for the quarter, $23. And indeed we had healthy January, February, so good margins also for those two months, but then really the spike in March due to the Middle East conflict was the one that took us this high. it's important to understand that the sort of how rapidly the crisis hit in March meant that during the first quarter we were still in our production using crew that was purchased prior to the conflict. And as we sort of typically have sort of one to two months, less than two months difference from procurement to actual sort of running in production, This means that we're currently already now running with crude prices that are in a very different level reflected by the conflict and hence the margin, refining margin for Q2 will be lower due to that. And then whenever the conflict ends, hopefully sooner than later, it's good to know that we'll obviously have one, two months negative of the fact that we will be then running with higher cost crude in our production system before then any sort of reduced pricing comes through the system. As Heikki already mentioned, so we are mainly procuring from the North Sea, so availability hasn't been an issue, but really the sort of prices are obviously reflecting the fact that there's a lot more buyers for North Sea oil as well now that the strait is closed. Marketing and services, similar to oil products really, so a strong quarter thanks to the cold winter and then indeed the inventory gain is something worth noting that had a big impact in the quarterly margins. Also, what you see here is in the fixed cost, they're slightly up. We have a pretty busy investment program ongoing in our retail network in Finland, and that is reflected in that number. Moving then to group figures again, so we had a busy investment quarter, the Rotterdam expansion, you'll soon hear and see more about it, is ongoing, progressing very actively, so 206 million cash out investments in the quarter. Now, despite this, we delivered healthy cash flow of 286 million euros before financing activities, and we're obviously very pleased with that. This is very much driven by the strong financial result. which enabled us to really have a step change down in our leverage. Very pleased to be at 31.7% at the end of the quarter. And this means, obviously, that we are tracking very well on both of our financial targets already this early in the year. So with that, I would hand it back to you, Heikki.