Neste's Financial Statements Release for 2022

Neste Corporation, Financial Statements Release, 8 February 2023 at 9 a.m. (EET)

Excellent performance in all businesses

Year 2022 in brief:

• Comparable EBITDA totaled EUR 3,537 million (EUR 1,920 million)
• EBITDA totaled EUR 3,048 million (EUR 2,607 million)
• Cash flow before financing activities totaled EUR -390 million (EUR 511 million)
• Comparable return on average capital employed (Comparable ROACE) was 30.1% over the last 12 months (18.3%)
• Leverage ratio was 13.9% at the end of December (31 Dec 2021: 0.6%)
• Comparable earnings per share were EUR 3.04 (EUR 1.54)
• Earnings per share: EUR 2.46 (EUR 2.31)
• Board of Directors proposes a maximum dividend of EUR 1.52 per share (0.82 per share), consisting of an ordinary dividend of EUR 1.02 per share, an extraordinary dividend of EUR 0.25 per share and a discretionary second extraordinary dividend of EUR 0.25 per share, totaling a maximum of approximately EUR 1,167 million (EUR 630 million)

Fourth quarter in brief:

• Comparable EBITDA totaled EUR 894 million (EUR 591 million)
• EBITDA totaled EUR 748 million (EUR 689 million)
• Renewable Products' comparable EBITDA was EUR 415 million (EUR 418 million)
• Renewable Products' comparable sales margin was USD 783/ton (USD 779/ton)
• Oil Products' comparable EBITDA was EUR 450 million (EUR 168 million)
• Marketing & Services' comparable EBITDA was EUR 21 million (EUR 22 million)

President and CEO Matti Lehmus:

"Neste ended the year 2022 with a strong performance in all its business units as the fourth quarter comparable EBITDA reached EUR 894 million (EUR 591 million). Renewable Products' comparable sales margin for the fourth quarter reached USD 783/ton (USD 779/ton) with sales volume at 779 (774) thousand tons, both slightly above last year and with renewables sales volume increasing from previous quarter's level. In Renewable Products, we were able to continue optimizing our sales mix also towards the end of the year while benefiting simultaneously from somewhat lower feedstock costs. As to Oil Products, our total refining margin was strong at USD 23.5/bbl (USD 10.0/bbl). Yet another highlight for the quarter was the clear improvement in our cash flow and the reduction in our net working capital compared to previous quarters.

The war in Ukraine had a significant impact on international energy markets in 2022. In the exceptional market environment, our full year comparable EBITDA reached an all-time high EUR 3,537 million compared to EUR 1,920 million in the previous year. All our businesses improved their performance in 2022. As to the Group's financial targets, we reached a Comparable ROACE of 30.1% over the last 12 months and a leverage ratio of 13.9% at the end of the year, both clearly meeting our financial target levels. Cash flow before financing activities was at EUR -390 million in a year of significant investments and M&A transactions. Our solid financial position enables the continued implementation of our growth strategy going forward.

Renewable Products posted a strong full-year comparable EBITDA of EUR 1,762 million (EUR 1,460 million). The renewable diesel demand remained robust, but feedstock markets continued to tighten during 2022. Despite the higher feedstock costs and increasing production costs, we were able to further increase our comparable sales margin, which averaged USD 804/ton (USD 715/ton). This was an excellent achievement driven by a strong diesel market, and optimization of market allocations and feedstock mix. Sales volumes were 3.03 million tons in 2022, in line with the previous year, reflecting good operational performance in a year with multiple scheduled plant shutdowns. The share of waste and residues increased further and averaged 95% (92%) of the total renewable material inputs in 2022.

Oil Products posted a full-year comparable EBITDA of EUR 1,654 million (EUR 353 million). The main product margins improved significantly during the year. Rising production costs were successfully mitigated by optimizing the supply and use of utilities, leading to a total refining margin level of USD 23.4/bbl (9.0/bbl). Sales volumes increased significantly compared to the previous year, as the utilization rate increased to 85% (72%).

Marketing & Services generated a full-year comparable EBITDA of EUR 126 million (EUR 103 million). Despite the overall decline in market demand, we were able to deliver strong unit margins and gain market share in our main products.

During the year we continued to execute our growth strategy in our three renewables businesses - Aviation, Polymers and Chemicals and Road Transportation. A strategic decision was made to invest into new renewable products' production capacity in Rotterdam. The Rotterdam refinery expansion investment of approx. EUR 1.9 billion will expand Neste's overall renewable product capacity by 1.3 million tons per annum by the first half of 2026, bringing our total renewable product capacity in Rotterdam to 2.7 million tons annually, of which sustainable aviation fuel (SAF) production capability will be 1.2 million tons. We also established a 50/50 joint operation with US-based Marathon Petroleum. The joint operation will produce renewable diesel following a conversion project of Marathon's refinery in Martinez, California. Neste's total investment will amount to approx. EUR 0.9 billion (USD 1.0 billion). The project is expected to increase Neste's renewable products capacity by slightly over 1 million tons per annum by the end of 2023. The facility is targeting to reach full Phase I capacity by the end of the first quarter of 2023. At the same time, we continued to implement our sustainability vision in the fields of climate, biodiversity, human rights, our supply chain and raw materials.

Our Singapore renewables capacity expansion investment project reached mechanical completion at the end of 2022 and is currently on schedule for start-up by the end of the first quarter 2023. The expanded Singapore refinery will also include an optionality to produce up to 1 million tons/a of SAF. Together with our Rotterdam SAF optionality project, we target to reach a SAF production capability of 1.5 million tons/a in the beginning of 2024. After commissioning the next world-scale renewables refinery in Rotterdam, our total SAF production capability is projected to increase to 2.2 million tons/a by the end of 2026.

We obtained a credit rating from Moody's (A3), which will enable us funding arrangements to further execute our strategy.

All these actions support our strategic transformation, and we are pleased with the progress on our journey to become a global leader in renewable and circular solutions." 

The Group's fourth quarter 2022 results

Neste's revenue in the fourth quarter totaled EUR 6,562 million (4,968 million). The growth in revenue resulted from higher market and sales prices, which had a positive impact of approx. EUR 1.6 billion, and lower sales volumes, which had a negative impact of approx. EUR 0.4 billion on the revenue. Additionally, the stronger US dollar had a positive impact of approx. EUR 0.4 billion on the revenue compared to the corresponding period last year.

The Group's comparable EBITDA was EUR 894 million (591 million). Renewable Products' comparable EBITDA was EUR 415 million (418 million), showing very good sales performance in a tight feedstock market. Oil Products' comparable EBITDA was EUR 450 million (168 million) as a result of improved refining market. Marketing & Services comparable EBITDA was EUR 21 million (22 million). The Others segment's comparable EBITDA was EUR 4 million (-13 million).

The Group's EBITDA was EUR 748 million (689 million), which was impacted by inventory valuation losses of EUR 200 million (gains of 128 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 48 million (-33 million). Profit before income taxes was EUR 563 million (500 million), and net profit EUR 514 million (456 million). Comparable earnings per share were EUR 0.84 (0.49), and earnings per share EUR 0.67 (0.60).

The Group's full-year 2022 results

Neste's revenue in 2022 totaled EUR 25,707 million (15,148 million). The growth in revenue resulted from higher market and sales prices, which had a positive impact of approx. EUR 7.5 billion, and higher sales volumes which had a positive impact of approx. EUR 2.1 billion on the revenue. Additionally, a stronger US dollar had a positive impact of approx. EUR 1.2 billion on the revenue. Also, the revenue was negatively impacted by lower trading volumes and the divestment of the Base Oils business, total impact approx. EUR -0.2 billion.

The Group's comparable EBITDA was EUR 3,537 million (1,920 million). Renewable Products' comparable EBITDA was EUR 1,762 million (1,460 million), higher than in 2021, mainly due to a higher sales margin and stronger US dollar offsetting higher fixed costs. Oil Products reached a comparable EBITDA of EUR 1,654 million (353 million) in the improved refining market and with increased sales volumes. Marketing & Services' comparable EBITDA was EUR 126 million (103 million) as a result of higher sales volumes and unit margins. The Others segment's comparable EBITDA was EUR -4 million (11 million).

The Group's EBITDA was EUR 3,048 million (2,607 million), which was impacted by inventory valuation losses of EUR 352 million (gains of 573 million) and changes in the fair value of open commodity and currency derivatives totaling EUR -131 million (106 million). Profit before income taxes was EUR 2,279 million (1,962 million), and net profit EUR 1,891 million (1,774 million). Comparable earnings per share were EUR 3.04 (1.54), and earnings per share EUR 2.46 (2.31).

Outlook

Visibility in the global economy continues to be low due to high inflation, reduced economic growth expectations and continued geopolitical uncertainty. The war in Ukraine has had significant impacts on the global energy markets, and energy prices have risen to a high level. We expect volatility in the oil products and renewable feedstock markets to remain high, making the forecasting of margins challenging in both Renewable Products and Oil Products.

Renewable Products' first-quarter sales volumes are expected to be lower than in the previous quarter as sales volume is affected by a one-month shutdown at the Rotterdam refinery due to an occurrence of a fire in a process unit in late December. The expected sales volume also includes first volumes from our joint operation company Martinez Renewables in the USA. Waste and residue markets are anticipated to remain tight and volatile as demand continues to be robust. Our first-quarter comparable sales margin is currently expected to be within the range USD 825-925/ton, supported by attractive waste and residue prices in the beginning of the year. The segment's first-quarter fixed costs are expected to be approx. EUR 10 million higher than in the previous quarter, driven by the build-up of capabilities related to the upcoming start-up of our growth projects.

The utilization rates of our renewables production facilities are forecasted to remain high, except for the one-month shutdown at Rotterdam. The Rotterdam shutdown is expected to have a negative impact of approx. EUR 85 million on the segments' full-year comparable EBITDA based on the estimated production losses and repair costs, mainly affecting the first quarter.

The market in Oil Products remains volatile and impacted by the war in Ukraine. Based on the current forward market, our first-quarter total refining margin is expected to remain solid, but somewhat lower compared to the fourth quarter of 2022. The first-quarter sales volumes are forecasted to be at approximately the same level as in the previous quarter.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern in the first quarter. The slowing economy is expected to have some negative impact on the overall demand.

Based on our current estimates and a hedging rate of approx. 85%, Neste's effective EUR/US dollar rate is expected to be within the range of 1.05-1.07 in the first quarter of 2023.

Neste estimates the Group's full-year 2023 cash-out capital expenditure to be approx. EUR 1.8 billion. Possible M&A is excluded from the figure.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 50% of its comparable net profit in the form of a dividend. The parent company's distributable funds as of 31 December 2022 amounted to EUR 3,824 million, and there have been no material changes in the company's financial position since the end of the financial year.

The Board of Directors proposes to the AGM that an ordinary dividend of EUR 1.02 per share be paid on the basis of the approved balance sheet for 2022 plus an extraordinary dividend of EUR 0.25 per share, i.e. EUR 1.27 per share in total. The ordinary dividend shall be paid in two instalments. The Board furthermore proposes that the AGM would authorize the Board to decide, in its discretion, on the payment of a second extraordinary dividend of EUR 0.25 per share, by 31 October 2023. The Board expects that this discretionary second extraordinary dividend will be paid, unless there is a significant deterioration in the business environment during 2023.

The first instalment of the ordinary dividend, EUR 0.51 per share, and the extraordinary dividend of EUR 0.25 per share, i.e. altogether EUR 0.76 per share, will be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the dividend payment, which shall be Thursday, 30 March 2023. The Board proposes to the AGM that the first instalment of the ordinary dividend and the extraordinary dividend would be paid on Thursday, 6 April 2023.

The second instalment of the ordinary dividend, EUR 0.51 per share, will be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the second instalment of the ordinary dividend, which shall be Friday, 29 September 2023. The Board proposes to the AGM that the second instalment of the ordinary dividend would be paid on Friday, 6 October 2023. The Board of Directors is authorized to set a new dividend record date and payment date for the second instalment of the ordinary dividend, in case the rules and regulations on the Finnish book-entry system would be changed, or otherwise so require.

The Board notes to the AGM that if the Board decides to pay the second extraordinary dividend by virtue of the authorization, the intention of the Board is to set the record date and payment date for the second extraordinary dividend payable on the basis of the authorization so that the dates are the same as for the second instalment of the ordinary dividend.

The proposed maximum total dividend of EUR 1.52 per share represents a yield of 3.5% (at year-end 2022 share price of EUR 43.02) and 50% of Neste's comparable earnings per share in 2022. The proposed maximum total dividend in 2023 amounts to approximately EUR 1,167 million. In the event the discretionary second extraordinary dividend of EUR 0.25 per share is not paid, the dividend totals EUR 1.27 per share and represents a yield of 3.0% (at year-end 2022 share price of EUR 43.02) and 42% of Neste's comparable earnings per share in 2022, totaling approximately EUR 975 million.

Conference call

A conference call in English for investors and analysts will be held today, 8 February 2023, at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. In order to receive the participant dial in numbers and a unique personal PIN, participants are requested to register using this link: https://register.vevent.com/register/BI9035cc84e0b64e77b8be4000ae8ea40b. The conference call can also be followed as a webcast (https://edge.media-server.com/mmc/p/s8wrvvtp).

Further information:

Matti Lehmus, President and CEO, tel. +358 10 458 11
Martti Ala-Härkönen, CFO, tel. +358 40 737 6633
Investor Relations, tel. +358 50 458 8436