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.