Neste Oyj Unsp/Adr

Good afternoon everybody and welcome to discuss Neste's Q2 results that were released this morning. My name is Jukka Miettinen, Vice President for Investor Relations for Neste. Here with me we have our President and CEO Heikki Malinen as well as our CFO Eeva Sipila. We are referring today to the presentation that was released in our website early this morning. The key highlights of our presentation include, for example, the performance in the ongoing market volatility, our Q2 financial performance. We will be also discussing the changes in the RP demand outlook as well as opportunities and uncertainties. We will have discussions with all of you, and please pay attention to the disclaimer as we will be making forward-looking statements in this call. But with these remarks, I would like to hand over to our President and CEO Heikki Malinen. Heikki, please.

Thank you, Jukka, and good morning to the folks in the US and good afternoon here in Europe. Hope everybody is enjoying the nice summer we're having. So let's go into the presentation here. First of all, this Q2 was the best quarter financially ever for Neste. I'm really pleased with the results. I have to say I'm also proud with the work that the folks at Neste have done. Things have changed quite a lot since the last few years, so of course we at NIST are very happy with the improved financial performance. The market environment has been favorable for us, and we've been able to take advantage of the opportunities ahead. Also, strategically, I'm very pleased that the Renewable Energy Directive 3 decisions have finally started to be implemented in Europe, and also the RVO decisions in the US were a positive signal also for us for the future. I think many of the stars around Neste are aligning nicely. Our financial position has strengthened and Eeva will go into the balance sheet and cash flows in more detail later on today. And then I said the work on Rotterdam continues. But always at Neste, we start with safety because that is our license to operate. On the left-hand side, you can see our total recordable injury frequency rate. And for the second quarter, we had clearly better performance than we've had in the past. We had some cases, injuries, but they were, I would call them minor, less risky. Our focus, though, in terms of People Safety is to make sure there are no fatalities and no serious injuries. Work continues, we are striving for zero, but overall direction of travel in second quarter was good. On the right hand side you see the data for process safety. We had very good performance for process safety in Q2, and we basically recorded no category one or two incidences, so very pleased with that performance. Let's look at the figures briefly. So on the upper left-hand side, you can see our renewable product sales. We sold over a million tons. And in terms of our financial result, in terms of EBITDA, 1.2 billion, and that is record EBITDA for Neste. I'm very pleased with the RP margin. I know a lot of us talk about the sales margin and follow that closely. $1,200 per ton is a record number. I think the way I sort of see it is that it is a positive signal that we have been able to monetize the market opportunity that has been here in the second quarter. In terms of refining margin for OP, $25 per barrel. Market conditions have helped. That is, of course, clear. But overall, if I look at the first half of this year, Porvo as a refinery has performed quite well. And so overall, I'm personally pleased with the performance of the team in Porvo. I said Eeva will go into the financial numbers in more detail in a moment. So Eeva, I hand it over to you for a more detailed discussion. Please.

All right, thank you, Heikki, and good afternoon to everybody on my behalf as well. I'll start with the reference margins. This graph illustrates the renewable diesel gross margins in the quarter, and you can see it was a volatile quarter. Margins charged up quite dramatically. In the early part of the quarter, and then as the feedstock cost also kind of started to catch up, the margins did come down, but overall the average was still well above $1,000 per ton. For Neste, our comparable EVTA for the quarter was indeed the all-time high of 1.2 billion, and almost three quarters of that came from renewable products. Oil product services had a more challenging market with slightly lower volumes and tighter unit margins. We continued our strong progress in the performance improvement program. And as a run rate, annualized run rate impact, we reached 594 million euros at the end of June, whereas then the realized in-quarter impact was 145 million euros. And if one looks at the and roughly 40% from revenue and margin optimization. And as you may remember, we are pushing this program until the end of this year, so obviously now coming to the sort of late part of the program. Moving then to the segments, and I'll start with the renewable products. On the left-hand side in the graph, you can see that volumes were up from Q1, so sequentially up, but year over year, slightly down. Now, importantly, the blue line kind of shows really the continued uptick in the margins. On the right hand side then we can compare sequentially the main items that affected the result and you can really see that it was a story of margin and volume, everything else was marginal. Starting from the volumes, so the RD market continued to be the more attractive market, so you see our SAF volumes were relatively modest. Then looking at the main components in the margins, so we all know diesel prices were high in the quarter, but I would also draw your attention to the RIN prices. So we've seen a market strengthening in the U.S. market, started already in Q1 and continued in Q2, and that's obviously supporting our U.S. business significantly. Then, on the other hand, our utilization rate of 75% was unsatisfactory and hence the work on operational reliability continues. And we are actually preparing now to implement broader upgrade work in connection with our upcoming turnarounds. in the second half. You may remember that we have discussed the fact that some of the improvement actions are unfortunately very difficult to implement while the refineries are running, so they do sort of make more sense to combine with the turnarounds and when we have a general shutdown. Then moving to oil products. So again, on the left-hand side, the blue line shows our utilization rate. It was up to 90% in the quarter. I think coming so close to the end of the catalyst, a very solid performance from the team to be able to drive at these levels. Again, on the right-hand side, if we analyze the main items, explaining the results sequentially, so indeed you see slightly lower sales volumes. And this is purely due to the fact that we are preparing for the turnaround, and we actually sold very little spot volumes. We wanted to keep those in our inventory so that then we can fulfill our term sales promises to our customers in the third quarter. Then on the total refining margin in the quarter, it ended up at $25.8 per barrel. And actually, despite the outlook looking tougher at the beginning of the quarter due to very high crude premiums when we met last time, Those premiums actually came significantly down into the May-June periods, which then supported the refining margin to actually improve on the already strong Q1 level. And then finally on the marketing of services. So indeed, a slightly more challenging market. Then again, as you may remember, you can well see from the graph on the left-hand side that the Q1 was quite exceptional. We had quite a bit of inventory, profits hiking the result. and in that sense we're satisfied with the 23 million achieved. The high pump prices are having an impact on demand when it comes to Finland and Baltics. And then the fixed costs are here slightly up and it's really the ongoing investments into the network to improve the customer experience that we have been working on for a few quarters now already. Then moving back to the group figures, so on the left-hand side, the cash-out investments, very stable quarter compared to Q1. Now as we have the plans ready for the turnarounds, we have been able to narrow our guidance on the full-year capex. and we have today guided you on approximately 1.2 billion, so the upper range of the previous range. And as said, really, we're trying to maximize the opportunity that those shutdowns give us to improve reliability. Then moving to the right hand side, so cash flow before financing activities. Networking capital was a big mover in the quarter. The higher market prices obviously have an impact on all values, they do tie cash. and especially then combined with the fact that we are, as mentioned, preparing for the turnaround in oil products, so we have been running up inventories. So the combination of higher volume and high prices had a significant impact on cash flow. Considering all this, we have to be satisfied with the 164 million that we generated in the quarter, really thanks to the strong profitability. Looking forward, we all know the recent re-escalation in the Middle East makes obviously predicting market prices very difficult. I would think that we all agree that they're unlikely to come down in the short term. However, from a cash flow point of view, as we get into Q4, I certainly expect our inventory volumes to come down. and that will then ease the pressure on the cash flow late in the year. And then to conclude, a financial position strengthened market leader during the quarter. We took our first concrete step in deleveraging by tendering 500 million of notes successfully in the quarter. Now this took our gross debt down and with a stable cash position our net debt to capital went below 30%. I'm also pleased that Moody's noted our progress in strengthening our financial position with a recent decision from this week to confirm our A3 rating and with a stable outlook. All in all, we are comfortably hitting our financial target set for 2025-2026. And with that, handing back to Heikki.

Thank you, Eeva, for reviewing the financial details. Now let's move on and talk about some other topical themes and the outlook. So first, an update on the regulatory environment. As we all know, it is very critical that we make progress in this area as well. The important message to the market is that, in terms of the European Union, the Red 3 implementation progresses. And you may recall that last autumn, after the summer, there was news that Germany was going to increase its mandates for renewable diesel. It's taken quite a long time, but now in May, the German government and parliament then made its decisions, and we have a very positive outcome. Netherlands following, and most recently, Spain has also made a decision to implement Red Free. So gradually, member state by member state, The directive gets implemented and overall the decisions are very positive, very favorable for renewable diesel demand here for the coming years. And I will then go through that in a moment with some other data. In the U.S., the decision on RVO, as said, very favorable, significant anticipated demand growth expected. and it also takes away a lot of the uncertainty and ambiguity we've had regarding where will the policy go, but as said, decisions are very positive for this sector. And then with respect to Asia Pacific area, It is, of course, a very large market, huge amount of population. Australia is gradually moving forward. There are now discussions about a mandate for low-carbon liquid fuels. So let's see how that moves and whether the Middle East situation will further accelerate the trend. And then in South Singapore, one of the leading countries in Asia in this area is now moving forward then to implement, take the first step In this chart, you can then see These are our estimates on the left hand side you can see the global demand For renewable diesel, we're estimating it to be somewhere around 20 million tons. And with these decisions, we project demand to grow about 10% per year, heading then beyond 30 million tons per annum. On the right-hand side, we have the situation on software. No major decisions announced this year. We are on the current trajectory still with 35% increase. Still, of course, a small market, very nascent market. But of course, recognizing that the fossil jet fuel market is huge and continues to grow, there is also significant upside potential in this area as we go forward. And of course, we are. We are doing our own work to advocate the benefits of SAF and look forward to seeing the 6% then being implemented in 2030 in Europe. Here is just an updated photo on Rotterdam. I don't really have anything new of substance to report at the moment. As you can see from the photo again, work continues. We have a lot of people on the site, a lot of activity. The work continues. My own view though is that if you I want to compare now Rotterdam vis-à-vis the decisions that have been taken. So if you go back, remember a couple of years ago, there was discussion of whether it makes sense to invest in this sector. Quite a number of companies have canceled or postponed their investments. We made a decision to move forward, even recognizing some of the uncertainty. It's my clear view that this was the right call to make at Neste. and the timing of this investment then in 27 with a startup I think will be well timed now when the European demand outlook also looks quite favorable so or looks really favorable so overall very pleased with this work and decision. Then a few words about opportunities. So the topic of the time is, of course, energy security. The situation in the Middle East raises, of course, a lot of questions about how much energy reserves and supplies countries should have. I personally, together with Eeva, we are of the view that this will increase the discussion about having more inventory, more production, buying more locally. and this in itself will also support the demand for renewables. The volume increases coming from RBO in the US are substantial. That is going to help us also in our Martinez Refinery in California. And we also see that the situation today is most likely going to continue for a while where the middle distillates market is tight, supply is reduced, and for Porvo in particular, Porvo is very much focused and concentrated, optimized around middle distillates, so Porvo is also benefiting from this opportunity. On the uncertainties, well, geopolitical tensions are high. and they are creating volatility in the oil market, so many things are possible, but so far for Neste, the direction of travel has been very supportive. The availability of production components is something we monitor carefully. We saw during COVID, there were disruptions in the supply chains. So far, we have not seen anything in our area, but we monitor very carefully that we have all important spare parts and chemicals and other things we need to produce, that we have them in stock in the right amounts. Feedstock prices, well, over the last year, if we look at Europe, we've seen feedstock prices maybe rise about 10%, maybe a bit less than that. In the US, clearly more. It would not be unsurprising if gradually also the pressure on feedstock price rises, comes also gradually more to Europe. But so far, in the first half, we have benefited from the fact that feedstock price increases have been fairly moderate. And of course at Neste, we are buying from all sources globally, so that allows us to try to take advantage and optimize Thank you very much. Renewable product sales volume in 2026 are expected to be approximately at the same level as in 2025. Oil product sales volumes in 2025 are expected to be lower than in 2025. Sorry, oil product sales volumes in 2026 are expected to be lower than in 2025 due to the planned maintenance turnaround in Port of Aux. The Group's full-year 2026 cash-out capital expenditure, excluding M&A, is estimated to be approximately €1.2 billion. There are three scheduled maintenance turnarounds in the second half of 2026, with the following approximate durations in Porvo, We have an eight-week turnaround starting now, end of August 2026. In Rotterdam, we will have an eight-week turnaround during the fourth quarter of this year. And in Singapore, we're going to have an 11-week turnaround starting in December 2026 for one of the production lines. So, in this stronger market, we have We believe that there are attractive business cases to invest in Singapore and Rotterdam more, particularly because, first of all, of course, on safety, we always need to make sure we have good safety levels. But we also need to improve our utilization, and we believe these turnarounds will help that. and secondly, we need to continue expanding our ability to process a variety of feedstocks, also more challenging feedstocks with higher buyer premiums. And we believe that the EU mandates are also driving towards that direction. So those are some of the reasons for the longer turnarounds in Rotterdam and Singapore. But with those comments, I guess we move on then to the Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Alejandro Vigil from Santander. Please go ahead.

Hello, thank you for taking my questions and congratulations for these record results this quarter. My first question is about the outlook for renewal product margins in the second half of the year. I know it's difficult and you try to be cautious, but if you can elaborate about how July started and your view about margins for the rest of the year. And the second question is, thank you very much for these views about the long-term demand for renewable diesel and SAF. And also interesting in your thoughts about supply, because as you said before, there are many cancellations of projects, delays, you know, so it looks like the demand supply could be quite tight in the coming years. Your thoughts would be very welcome. Thank you.

Thank you. The first question is a tough one. We've seen from the past that it is quite difficult to forecast the movements in sales margins. They can move fairly quickly, and of course, considering the fact that underlying you also have the price of gas oil. That is also, can be very volatile. Anything you would like to add? Because I am really more erring on the cautious side.

Yeah, maybe Alejandro, just to note that our base case assumption would be that during the second half we see feedstocks costs going up somewhat, then the diesel prices is really I think we all just need to kind of follow that very closely and then sort of discuss during the quarter and as the second half goes how that looks.

On your question regarding long-term demand, I mean, the outlook is really, I think, even more favorable than we would have thought here a year ago at this time. On supply, of course, that's a good question and an important question because, of course, the commercial side is very much dependent on supply and demand. Well, I think as far as we can see on these, as far as large-scale projects like Neste Rotterdam 2, I don't think we can identify a single major one that's underway. And recognizing that it actually takes quite a long time to get these projects started, you know, it is not that easy to start or even restart a project. So I think that does give us some sort of Thank you very much. I think overall, if we look at the situation as it speaks, I would just say that I think Rotterdam 2 is coming online at a good time, and the demand looks to be out there, so the timing is really good.

Thank you. Kiitos.

The next question comes from Kate Ossoliven from Citi. Please go ahead.

Hello Heikki, Eeva, Jukka, thanks for taking my questions. So at Q1 you highlighted priorities before considering the next phase of growth, bringing Rotterdam online, demonstrating returns on that investment and continuing to deleverage. And since then we've seen margins have remained exceptionally strong. So assuming Rotterdam ramps successfully and the balance sheet reaches a level you consider appropriate, what becomes the company's next strategic priority? Given the structural growth outlook for renewable fuels and Neste's position as the market leader, should investors expect Neste to pursue another meaningful phase of capacity expansion or do you increasingly see the focus shifting towards maximising returns from the existing asset base? Thanks very much.

A very important strategic question. I think this is something we will have to come back to as we get into 2027 and 2028. At Neste, our current focus is very much now on getting returns. So we've invested quite a lot. Don't forget we also have the Singapore Line 2 investment. Both of these investments, we have to get into a phase where we get our returns up. So that is really the priority, number one. Then if we look at then, you know, beyond, you know, the 2030s, we have mentioned that we have been looking, we are looking at Ligno Cellulosic as a new technology that's out there in the public. So for me personally, for the next few years, it will be about deleveraging, getting our operational performance even higher, getting utilization higher. That's where our mind is set. And thoughts beyond that, we will then have to come back to that at the appropriate time.

Okay, thank you. The next question comes from Ednan Danani from RBC. Please go ahead.

Hi, thanks for taking my questions. Two from me, please. Just the first one, if you're able to provide some color on the turnarounds this year, particularly interested in what the utilization rates could look like, both the enhancements that you're working at at Rotterdam. And on the flip side, I appreciate you said there was a good business case for those turnarounds, but is there any scope to make those events shorter? Because obviously you'll be going offline at a time where there are pretty strong margins in the market. And then just a second one on OP. Sipila, could you look through your numbers this quarter? The middle-district sales volumes fell quite a bit quarter-by-quarter in your overall sales bid. Obviously, this is a time where district margins have been very attractive. A number of your finer peers have been maximizing their slaves to those products. I just want to understand what was the use of the switch there? Thank you.

If I just comment first on the TA utilization, the timing of RD and Rotterdam and Singapore, and then Eeva can talk about the middle distillates and where we are. Well, we obviously recognize the market situation and are not going to spend any extra days on these turnarounds. In terms of Rotterdam line number two, We had the start-up three years ago. This is the first major... Singapore. I'm sorry, Singapore. Singapore, line number two. This is the first major turnaround that we have. So that is explaining the turnaround duration. There's more work to do. And then in terms of the utilization level, there are certain upgrades we have to do in the lines to get utilization to a higher level. I don't want to comment on what the utilization could be, but we do financially believe this is an attractive business case. Then in terms of Porvo and little distillates.

Yeah, Adnan, I mentioned a few points already. Obviously, in this market, I think everybody who has a diesel slate has been pushing to the max. But as I mentioned that we're coming so close to the turnaround, our catalyst is quite worn out. So I think the team really, really did its utmost to sort of push for that. for the sort of 90% utilization. And then I said, whilst our sales volumes were down, we did produce. So they are now in inventory so that we can then sort of deliver to our customers during the turnaround. So with those two topics, I think we're happy with the outcome, but indeed recognizing that now our focus is on The next question comes from Saseekinth Chilikuru from Jefferies. Please go ahead.

Hi, thanks for taking my questions. I would again come back to the turnaround activity. I just wanted to understand If you could provide more details on the issues that are actually affecting this lower utilization. What is actually going wrong and why is utilization low? Is it more to do with some units not functioning well? And thereby actually, for the turnaround work, how much of the work is affecting reliability and how much of that is actually improving the slate of feedstocks that you could use? If you can provide some color on that. The second one was related to the 2016 CAPEX. Now it's at the higher end of the previous guidance range. Wondering what was it that kind of got it to this higher end. Slightly related to that, if you could comment on where we are with the revised budget of 2.5 billion euros for the Rotterdam expansion plant. Are we still within that budget?

If I start first, the renewable energy directives are steering the markets very much into more and more complex feedstocks. And at Neste, of course, one source of competitive advantage for Neste has been that we're able to use a variety of feedstocks. We source them from all over the world. We've been really trying to push Jens Stoltenberg The challenge to process these is higher, and that requires certain material upgrades in the lines. That is what's driving that, and we believe there's a financial return for pushing in that direction with higher margins, but we need more volume, and that's why we need to get the upgrades into the lines.

And then to your questions on the CAPEX. So we started the year with a range of 1 billion to 1.2 and then now as the plans have become more concrete, we have sort of narrowed and wanted to be more Thank you very much. And as Heikki said, it really is just a reflection of now also all these sort of additional aspects. These are not just sort of traditional catalyst changes that we're talking about, and that kind of explains the 1.2. Then on Rotterdam, so no news to report, so the 2.5 billion, we're still working with that.

Thank you very much.

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

Yes, hello everyone. Thank you for the update. Two questions for me following up on the topic of the renewable products margin for the second half of the year. Firstly, when it comes to what we've seen in July, the higher diesel prices, you mentioned that you expect feedstock prices to likely be higher in the second half of the year. Can you offset the high diesel prices already in July, or are you just expecting that prices for feedstocks are likely to be higher for the rest of the year? And then secondly, I was wondering if you can give us a sense of whether there's a difference in terms of the split between spot sales and term sales in the second half of the year versus the first half. Thank you.

Yeah, I can take the first one. So I would say now this sort of re-escalation in Middle East, so the feedstock markets haven't reacted that fast. It's more the general trend that as we see the strength both in the US and European market, we're clearly seeing more buying of feedstock and that's kind of more sort of continuing. You, of course, it's good to appreciate that We are hedged partly on the gas, also these sort of spikes we suddenly get don't necessarily materialize in our margins. So that's maybe the cautionary comment on what's happened now in the past sort of week, week and a half.

Yeah, and in terms of term sales, so we mentioned, I think it was end of last year that we have termed about roughly 60%. I would use that number throughout the whole year. There are some months when we have a bit more months, a bit less, but that is sort of the rough number through the year. Yeah.

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

Good afternoon all and thanks for taking my questions. First, building on the last question, how are you guys thinking about term pricing exposure for 2027 given the strength of the market at present? And then second, Could you speak to how you're thinking about the allocation of RP sales across your end markets, the regulatory markets, as you guys are exceptionally strong here in the U.S. and are moving higher to bid for imports?

Could you repeat the second half, please, one more time? The line was a bit unclear. So please, the second, the allocation question.

Sure. So second, could you speak to how you're thinking about the allocation of RP sales across your end markets? The regulatory markets here in the U.S. are quite strong, as you guys highlighted, and are moving higher to bid for imports.

Yeah, no, thank you. So, yeah, it is, I think, well, it's very, very quiet now. Summertime is, the summer season is upon us and most of our customers on vacations in August. So I think we will then come back to this term question later in autumn. But as you said, it is, of course, clear that price level at the moment is is on the higher side. We will have to have the negotiations as always with our customers and see then what are they looking for for 2027, and then customer by customer negotiate based on what type of needs they have. So I can't really comment on that, but recognize your question. In terms of allocation of volume, You may recall that a few years ago we allocated or we had to reallocate the Singapore volumes over to Europe. European demand has been very good and continues to be very good. So a lot of that, you know, the European market continues to be very important for us. Martinez is now the primary source for our volumes in the U.S. and Martinez is running well and And that's basically the situation for Nesta at the moment. So nothing really to tell about that at the moment.

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

Yeah, hello, guys, and thank you very much for the time. Two questions, please. The first is just to come back to margins and try to reframe the question. Can you give us any indication of what you've had in July? So has July, on average, been better than what you've got in 2Q as an average? That's both a touch on the performance improvement program. I wanted to ask where we can go from here. You're clearly making big savings and big revenue benefits. So yeah, where can we go from here? And then secondly, how much of that is baked into the margins? How much of the costs and revenue over the savings over the past year are now coming through as a dollar per ton on the margin? Thank you.

So maybe I'll ask Eeva to comment on the numerical side, and I will then talk about, you know, the performance improvement program, how we move forward.

I think what comes to July and a couple of weeks, I would say that generally when you have a sudden re-escalation like we've seen in the Middle East, the first reaction for customers is to wait and see what's coming out of this. In that sense seen huge volumes, but I would say that no change in RP, whereas then in OP obviously the cracks have reacted and that comes kind of quicker through. Now then the question is what happens on the crude premiums going forward on this, but that hopefully sort of, Paul, helps you forward and then Heikki.

Well, we kicked the performance improvement program at a time when the markets were very weak, our results were really poor, and we're trying to accelerate and extract value quickly. And if you remember, we had the headcount reduction We took out a lot of costs from sourcing and were able to capture some really quick wins. We've also been able to save quite a lot and optimize logistics and improve our commercial approach on the market. So I think these are in some ways, some of them on the sourcing and on the headcount, they're done. That value has sort of been captured. I think going forward though, our focus very much is in the refineries. It is a longer term journey. You are hearing that we say that we have these turnarounds. We need a bit more time to do them. We need some money for that. but I think they are attractive investments. They will yield better utilization and it's clearly worth doing but that is sort of a bit beyond the current program of performance improvement. I would say though that in terms of the From a leadership standpoint, implementing this program has really shown that by being very, very systematic in driving performance inside Neste, we can yield a lot of benefits. I think the Neste team has learned a lot from these two years of running the performance improvement program. We have hundreds of ideas. We have hundreds of people contributing to that. We've been able to find a lot of things turning every rock. and there are still many ideas out there that we will implement in the coming years. But I think as far as the program is concerned, the big push has now been accomplished and we're gradually, as you can see from the Eeva slide, the cash is coming in and we're booking them into the profit and loss statement.

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

Thank you, and good afternoon. In RP, if we look at the comparable sales margin versus your index, capture rose to 118% in Q2 from 102% in Q1. What were the tailwinds here, and do you think the 118% for the third quarter And then my second question, you mentioned the strength of the U.S. RVO. Do you think the U.S. is going to be short RINs at the end of 2026? Or would you think that the RIN price will move to a level where the U.S. would be attracting significant RD imports?

And has Nestea received any sort of interest from, you know, like U.S. refiners in terms of

of raising RD flows from Europe to the US. Thank you. Do you want to start?

Yeah, on the RP margins, so with all this volatility and now in the external markets, I would be cautious on drawing conclusions on a single quarter. This is hardly a normalized year. I think the difference partly between Q1 and Q2 is that We had more levers in Q2. You may remember that Q1, it was a very heavy turnaround quarter, so just kind of less levers to address. And I think in that sense, obviously very pleased that we're able in a very turbulent environment kind of really drive value. I think it kind of shows and speaks for for the sort of improvements we've been able to push through in, for instance, in our commercial and feedstock operations. But as said now, it's sort of especially Q4 for RP will be sort of very much affected by the turnarounds and by default our levers will again be slower. So that's maybe good to take into account, Matthew.

Maybe a question about allocation. I would just say that the Martinus volume is roughly about a quarter of our sales. So the last few years have been very tough in the U.S. market, and now gradually that business is starting to generate more value. It also, of course, is then shown in our average sales margins. So people easily forget that we actually have quite a large U.S. presence through Martinus. So happy to see that move upward. For the coming half year with the turnarounds in Singapore and Rotterdam, we're pretty busy taking care of our European customers, and Singapore will be contributing to this market. How does the world then look like in 2027? Later on, that remains to be seen. Singapore always has the option to ship its products both east and west. But at the moment, you know, our focus is pretty much more on the European continent, where the demand is also very robust. And then Martinus, of course, now needs to start proving itself, you know, also, you know, with a better profitability.

The next question comes from Theodor Svein-Nilsson from SB1 Meter. Please go ahead.

Good afternoon and thanks for taking my questions. First, a question on dividends and buybacks. Given your very strong year-to-date performance and earnings, how should we think around dividends and potential buybacks going into next year? Second question, that is just to follow up on the CAPEX guidance. Is it any cost increases involved in the fact that you lift the low end of the previous guidance or is it just more work to them that has driven that you remove the low end of the guidance? Thanks.

Well, I can make me start with the latter. So now, obviously, we gave the guidance in February. So I would say that we had a pretty good view on the sort of cost levels of various components. Naturally, the Middle East situation has stretched supply chains. So we see inflation in certain areas. But as I said, I think we're still, you know, we've been just moving in the range we already guided on. So it's more a proxy of adding more work in the turnarounds. But yeah, but that hopefully answers your question.

Yeah, regarding your question regarding Thank you very much. We need to see how the year concludes and then of course the board will make its own recommendation regarding dividend payout. Eeva and I have been very clear that at least management view is that we need to continue the leveraging the company and we're not there yet so that also needs to be factored in as we look at dividends. But as I said, we will come back to that later in the year when we have a chance to I'm going to get a better view on how the year ends and then see our monetary requirements for 2027. Understood.

Will you consider any buybacks at all?

I can't comment on that question. Sorry. Okay. That's fair. Thank you.

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

Good afternoon. Thanks for taking my questions to place. The first one is on RP term sales. You're locking 60% of your volume in a lower margin environment back in Q4, yet you beat the spot reference on slide 9, I remember, with record high margins this quarter. How should we understand the term sale impact on your margin going forward? Or in another way, what have you done right this quarter to achieve such a big margin, and were there any favorable one-off items? My second question is on RP sales volume for the second half. I understand there's heavy maintenance in Q4, but how should investors think about sales volume split in 3Q versus 4Q? How much flexibility do you have to front-load the sales into Q3? Thank you.

Well, if I, Nash, try to answer both questions, so you may remember that even in term sales, they typically, the diesel component is open, so obviously we have benefited from that, partly hedged, so we haven't got the full impact, but still I would say that obviously in these markets, that has contributed to the sort of term sales as well, so we kind of haven't missed that component. Then, like Heikki mentioned in the previous answers, the US impact, we're clearly in a much better place with our US margins thanks to the stronger So really those two, not really any sort of one-offs that, as I said in my commentary, really volume margin story, everything else was pretty marginal in the quarter. And then what comes to the sales volumes, so obviously we will prepare for the fourth quarter turnarounds in the same way as we're doing now in OP, so that we will produce in Q3 to then be able to deliver to our customers in Q4. So the sales volumes difference maybe is not that significant but now our focus is clearly in Q3 really to optimize on the production and drive utilization even if we are coming to the sort of end of the Katta List in Rotterdam clearly now in the coming weeks. But that really ends, and maybe we have some spot business in Q4 still as an availability opportunity, if you may, if the market continues to be this strong. That would certainly be something we would aim for, but maybe a bit early to comment on that yet.

Very helpful. Thanks, Eeva.

Thanks, Nash. The next question comes from Yulia Bocharnikova from Goldman Sachs. Please go ahead.

Hi. Thank you for the presentation. May I please follow up on Martinez and the The U.S. market, we've seen very strong ring prices, but also quite significant rally in feedstock prices. Is Martinez exposed to U.S. domestic feedstock price rally, or maybe there is any opportunity to optimize to maybe import cheaper feedstock from abroad, given where ring prices are? Yeah, is it still basically margin dilution Thank you.

Well, for Nesta, of course, if you recall, we also have our Mahoney business where we are actually heavily involved in the Yuko collection ourselves locally. So that gives us, you know, in some ways it's sort of a physical hedge because, you know, as the prices go up, of course, we benefit from the Mahoney side. So that does adjust, I think, overall, you know, the decisions on The feedstock choices are made by the joint venture and they make their decisions independently. It's their decision then to decide how they optimize that.

Thank you. The next question comes from Henry Tarr from Barenburg. Please go ahead.

Hi there. Two from me, please. The first one is just, was there an impact of hedging on the results as you look for Q2? And the second one, I think you mentioned earlier that you were looking at lignocellulosic potentially. So could you give a little more color on that as a technology and how interesting you find it? Thank you.

Sure. Maybe you touch on the hedging and I'll come and ignore.

Sure. So it had less impact in the quarter. I mean, the movements were big, but we had and perhaps more netting than we even estimated ourselves in the sense that obviously from the gas oil hedges we continue to take a hit. We have hedged at very different levels before the Middle East crisis obviously and that It continues to come through, but then again on the feedstock side we had a positive hedging result as some of the feedstocks took quite a big jump, especially in the US market. So the net impact was rather modest and hence I didn't flag it earlier either.

In terms of your question regarding the ligno, Neste is the world's largest buyer of these waste and residues. If we look into the 2030s, we still see ample supply available on these feedstocks, cooking oil, animal fats, and other vegetable oils. But of course, as we develop our business over decades, we need to also consider what would be the next source of feedstocks beyond and the Ligno pool is substantially larger than what we have in waste and residue. Technology is complex. We've been developing it for some years. We believe we're onto something, but there will be phases where we will need to pilot this more on industrial scale or pre-industrial scale before we really know So I would just say that we have wanted to mention Ligno to provide the markets with an understanding that we believe there is a chance to develop a source for material molecules beyond wasted residue. And this is what we're driving for. But this is definitely a 2030s story. So before 2030s, we will not be in industrial production.

The next question comes from Christopher Coupland from BOFA. Please go ahead.

Thank you very much and good afternoon. Just two more from me, if I may. Firstly, I appreciate, Eeva, you couldn't give us an update on The Rotterdam budget but maybe you can talk us through the timeline we've approached 2027 by another three quarters so I wonder whether you can be more specific around when you expect first production and probably more importantly about the expected ramp-up period because as far as I recall the Singapore new line that is now going back into maintenance did have Let's say a rough start. So I wonder whether you've taken any lessons from that in order to prepare for a smoother ramp up, shorter ramp up period in Rotterdam. And then secondly, look at your H1 Run rate for capex, would it be fair to say that 200 million X turnarounds is a useful calculation to then say okay in the second half you're obviously busier on turnarounds so they'll cost you an extra 400 million? Is that a fair calculation? Thank you.

Well, if I, Heikki, take the first one and then you can come back, take the one on the RDCG. So, Christopher, Q1 also had its turnarounds. We had turnarounds in Martinez. We had a turnaround on the other Singapore line. So I think drawing the conclusion that it would be sort of outside of turnarounds maybe is to The big differentiating factor perhaps is just that the OP Porvo turnaround is, we're talking about 400 million alone in that. And that really all comes in, mostly in Q3, probably some tails cash out still in Q4, obviously all the invoices will not come. in Q3. So that really is the moving and then the slightly additional spend on the two RP turnarounds.

Perfect. Yep. Thank you.

Yeah, the Singapore start was not the easiest. I think we've historically had a reasonably good track record, but Singapore was not an easy start. Granted, though, we were also post-COVID, maybe that time period added to some of the challenges, but we've done a lot of internal You know, analysis and, you know, reckoning on what went well and what didn't well. We've moved a number of the people who were actually working on the Singapore startup. They're now working in Rotterdam. So we've tried to make sure that that knowledge is and has been transferred. So I think that is an important step in terms of how we staff and the staff, the team. At this stage, 2027 start is what we're able to communicate. We're not able to give you a more accurate timing at this time, but when we have a better understanding, we will, of course, be communicating it to the markets, but still need to be patient.

Okay, we'll try. Thank you.

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

Yes, good afternoon and thank you for taking my question. So still two to go from my end. So the first one is related to renewable products and could you maybe comment on fixed cost outlook for second half of this year and has there been something exceptional in Q2 and then Coming to oil products and could you maybe talk about opportunities to lock in product margins within the segment to any meaningful extent what comes to volumes given the fact that spot margins are extremely high so also forward margins have forward cracks have moved up quite substantially?

Well, if I start with the fixed cost in our piece, so obviously there's some seasonality in the quarter, between the quarters, and then maybe a sort of positive issue per se, but obviously with the high We have increased the bonuses and that's actually to an extent that is visible if you compare Q2 and Q1 fixed costs. Everything else I think more falls in the line of the seasonality. and then of course the lower utilization usually brings us a certain sort of hassle cost and we've had some of that certainly in the first half so aiming for a better situation in the second half but that of course remains to be sort of proven.

Then on OP, well, in terms of our customer base, so most of our sales are in the Nordic markets and we have a certain amount of larger B2B fuel distributors with whom we do business. These are usually annual negotiations for the following year. So I think your question was asked already earlier that these are sort of on the higher level side. We just need to see how the conversations then go with the customers in the autumn period and what they need and what they would like to have. And then we will make proposals and negotiate accordingly and let's see where we end up for 2027.

And maybe just adding, Arten, to that, that obviously the turnaround kind of limits a bit our ability to use all the levers in a way. We have to be a bit cautious on how much product we have at hand because the turnaround success is obviously highly important to that. And let's hope we have an opportunity to optimize that in Q4 when we're back up.

Yes, great. Thank you very much. That's all from my side.

The next question comes from Alice Winograd from Morgan Stanley. Please go ahead.

Hi, thank you. I have a couple of questions, please. First, I would say more structurally, there's been a huge amount of volatility in prices. Last year, there was the rally into year-end, and then this year, there's the Middle East, there's the ramp in the U.S. mandate. I'm interested in, do you see a change in consumer behavior? Are people interested in locking in potentially longer-term supply contracts or to change pricing structures so they're less exposed to the volatility? And second, on the cost side, have there been any other costs other than feedstock that could affect capture rates in this disruption? So for instance, shipping, natural gas, hydrogen. Interested in your views. Thank you.

But if I start with the volatility, yes, I mean, of course, the problem is, you know, you're always, when you have volatility, is what type of a scenario are you reacting towards or trying to, you know, mitigate or minimize? And this has been a bit of a guessing game here because we've, all of these, I guess I could call them shocks in some ways, have been coming from unexpected directions. But I have to say that our customer needs vary really significantly. There are some customers who much more want security and guarantee and others who are big buyers and then maybe the part they buy from Nesta is more variable. So I cannot generalize because I said that the customer's needs are so different across the spectrum of customers we have. But I would agree with you that volatility has been significant and it doesn't make the negotiations easier because you always are not sure exactly is this the right solution then for the next year. But I guess that's just a sign of times we're living now at the moment.

And then, Alice, to your second question. So you raise a good point that shipping costs have obviously also been impacted by the disruptions in geopolitics, and we've seen them sort of hike up. Jukka Miettinen, Christian Ståhlberg, Tommi Tuovila It continues obviously as now with the re-escalation continues to be something that we need to sort of be very closely monitoring and trying to optimize that how we sort of route and how we plan for logistics. and then as Heikki mentioned also in his opportunities and risks slide that just availability of certain components and is in this type of environment just very important and so we have a lot of A lot of extra work going around, though, just to sort of know exactly what we have, what we're going to need, plan ahead with the suppliers, working much, much more closely with them to ensure that we don't get any production issues, which obviously in this market would be extremely costly. So we're trying at all costs to avoid any disruption. But certainly that's why we also highlighted it in the risks.

Thank you. The next question comes from Matt Lofting from JPM. Please go ahead.

Hi, thanks for taking the question. I wanted to ask you about operational performance, the journey that you're on and how that interacts with future maintenance requirements on the renewable refinery assets, eight and 11 weeks. and so on, into the sort of the second half of the year respectively, obviously relatively long duration schedules. When you look beyond the second half of this year and the investment and maintenance cycles for 2027 plus, should we expect sort of similar duration in the future is required in order to get the assets to where they need to be on a midterm basis? Where also do you think CapEx 2027, 2028 as Rotterdam phases off settles relative to the 1.2 billion for 2026? Thank you.

If I just start with operational performance and then Eeva you can talk about the CapEx numbers. I would go back to my earlier comment that the utilization levels need to be higher than what we see in RP. And clearly, we have been on a journey. Of course, starting up these facilities, I think we talked about the Singapore challenges. I think overall, Singapore has moved in a much better direction. The longer duration, as I said before, for line number two, that's partially linked to the fact that we have The first major turnaround after the startup. But overall, we do see that the operational performance and utilization level is going to require making certain modifications to the Thank you very much. and there's a business case, attractive business case for doing that and the combination of monetary margin potential there but then also just getting the utilization levels up, that's the driver behind the TAs. I can guarantee you we have looked at the time needed for these TAs with a really fine tooth comb, you know, Thank you very much. I'd rather take a few more days to make sure the work is really well done than maybe do a shortcut and then we have issues. Ultimately we have to run these refineries in a very safe way and we're not going to take any risks on that.

And then to your question on the CAPEX, so obviously the Rotterdam Growth Project has had a heavy impact on our CAPEX needs for now a couple of years and tails then in 27, but then from 28 onwards. That will move out. I think it's a bit early to guide on 27, 28, otherwise, but I just say that I think in our job with Heikki is obviously to drive return for our shareholders. and if it then requires capex where we have attractive paybacks then we will look at them. You can expect us to sort of want to push forward with them and whereas then if we don't see the proper returns then we will be much tighter on capex. There's good and bad capex in my books and a lot of gray in between. So it's really how rather than focusing on the numbers, especially I think we will be in a very different place from a financial position point of view at the end of this year. And I take that as purely a positive because then it gives us opportunity and options to look at, options that we didn't perhaps have a year and a half back. So I think the turnaround we've done has been The next question comes from Toni Jones from Rothschild. Please go ahead.

Good afternoon, everybody. Thank you for taking my question. I just have one left on working capital. Inventory in the quarter was up nearly a billion year on year. Could you give us a bit of an indication how much of that is finished product versus inflation and the mechanics of how that might unwind in the timing in the second half? Thank you.

Well, I would maybe sort of shy away from giving you exact numbers. It is specifically the volume in OP, but of course it is combined with the fact that we've added volume. You get a good proxy if you look at the sort of what we didn't sell versus produced. You get an idea on the inventories and then obviously the sort of market prices. It was they were slightly lower at the end of the quarter. Now they're back up again. So that's maybe good to take into account. So both aspects were important. The one we can work with is the inventory volumes. And that's where I said that we're obviously focused on delivering better cash flow than in for the full year. But that will very much sort of be a Q4 question. And in Q3, then there's less Less we can do and then we're more sort of need to sort of just see what happens on the market prices.

Thank you very much.

The next question comes from Madi Karola from Op Corporate Bank. Please go ahead.

Hello and good afternoon. I think now we've been addressing a lot of the short-term matters here in Corvus. but in the longer term your market intelligence team has grown very very well slide about demand growth it's quite a person that we saw in 23 when when they were hinting about the kind of the oversupply in the near term so my question is like in the longer term how do you see the soft market growing like there is european demand growth but is that taking place in 2030 when there is going to be a big jump in kind of mandate or is there more kind of linear path what they're assuming and then the second one I'd like to still address about the volumes next year I think Eeva you told us during the Q3 call that that for this year 80 percent utilization rate would have been justified but if we think next year is that something after the capacity creeps or the problem making that we could take as a baseline thank you

Well, I can maybe start with my previous comment that that's why we call 75% unsatisfactory, that we're not at 80%. But then handing Heikki to the soft question on how we see that.

Well, we hope it would be more linear. At the moment, things are moving forward. You know, I think SAF is here, and I think that it is the mandates we believe will go up, even though there's, you know, certain industry participants are pushing back on that. I do believe we're going to see higher mandates. And I would be personally very surprised if that 20, 30, 6% were to be withdrawn. But I think... 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 the call today in the middle of the summer. I said it's been an exciting quarter for Neste, all-time high results, something of course we're super happy about. We're pleased about the fact that the financial position is stronger, and Eeva mentioned also the Moody's rating matter. On the regulatory development, I just want to underscore the fact that, I mean, these are major decisions now that the member states have made. We believe this is a strong tailwind for the sector. And the situation with Hormuz, of course, will raise this whole question of energy security to a much more bigger topic. So that's why I believe this tailwind we're getting from regulatory side will be strong and more durable. and maybe in the past. And overall, we're well positioned to capture market opportunities. We will invest in these lines to get these utilization levels on RP higher and I think that positions Neste really well then for the future. And when we add Rotterdam to a line coming, I think that puts Neste in a good position for the coming years. So with those words, I hope you all enjoy your summer vacation and we will then see you again later in the fall when we report back on Q3 results. Take care. Bye bye.