Neste Oil's Interim Report for January-September 2007
Posted on: Tuesday, 30 October 2007, 03:00 CDT
- Comparable operating profit came in at EUR 159 million in the third quarter
The third quarter in brief:
- Comparable operating profit of EUR 159 million (Q3/06: 202 million) - Operating profit of EUR 180 million (Q3/06: 254 million) - Earnings per share of EUR 0.52 (Q3/06: 0.72) - Comparable operating profit of Oil Refining EUR 154 million (Q3/06: 183 million), Oil Retail EUR 22 million (Q3/06: 22 million), and Shipping EUR -2 million (Q3/06: 4 million) - Softer refining market compared to the third quarter of 2006 - The new diesel line contributed positively to the total refining margin of USD 10.20 /bbl (Q3/06: USD 10.80 /bbl) - The first deliveries of NExBTL Renewable Diesel were supplied
Risto Rinne, President & CEO:
"The market was very volatile during the third quarter and challenging for Oil Refining and Shipping, in particular. Despite this and the challenge of the start-up of our two new production lines, our performance was satisfactory."
"Although our new diesel line was operational for only part of the quarter, it already proved its ability to contribute to the total refining margin according to our expectation. With regard to the recent valve problems, the valves are now changed and the line is being started up."
"In renewables, we have faced two challenges, namely the new unique technology and feedstock sustainability. Now the technology is proven to function and the first deliveries have been supplied to the customers. We will use various feedstocks, and the work to ensure their sustainability will continue. This includes complete traceability of the palm oil whenever it is used, and building certification systems for sustainable production."
Further information:
Risto Rinne, President & CEO, tel. +358 10 458 4990 Petri Pentti, CFO, tel. +358 10 458 4490
News conference and conference call
A press conference in Finnish on the third-quarter results will be held today, 30 October 2007, at 11:30 am EET in the Mirror Room at Hotel Kaemp, Pohjoisesplanadi 29, Helsinki. www.nesteoil.com will feature English versions of the presentation materials.
An international conference call for investors and analysts will be held today, 30 October 2007, at 3:00 pm Finland / 1:00 pm London / 9:00 am New York. A live webcast of the conference call can be followed at www.nesteoil.com. The call-in numbers are as follows: Europe: +44 (0)20 3023 4426, US: +1 866 966 5335. An instant replay of the call will be available for one week at +44 (0)20 8196 1998 for Europe and +1 866 583 1035 for the US, using access code 725434.
NESTE OIL INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 2007
Unaudited
Figures in parenthesis refer to the third quarter of 2006, unless stated otherwise.
KEY FIGURES
EUR million, unless otherwise stated.
Last 12 7-9/07 7-9/06 1-9/07 1-9/06 2006 months Sales 2,978 3,464 8,642 9,778 12,734 11,598 Operating profit before depreciation 235 292 797 800 1,007 1,004 Depreciation, amortization and impairment charges 55 38 139 113 153 179 Operating profit 180 254 658 687 854 825 Comparable operating profit * 159 202 542 510 597 629 Profit before income tax 168 246 633 676 841 798 Earnings per share, EUR 0.52 0.72 1.86 1.92 2.46 2.39 Capital expenditure and investment in shares 59 139 236 384 535 387 Net cash from operating activities -32 248 321 376 512 457 30 Sep 30 Sep 31 Dec Last 12 2007 2006 2006 months Total equity 2,331 1,941 2,097 - Interest-bearing net debt 879 850 722 - Capital employed 3,265 2,902 2,890 3,265 Return on capital employed pre-tax (ROCE), % 28.5 34.1 31.9 26.8 Return on average capital employed after tax (ROACE), % - - 15.4 15.8 Return on equity (ROE), % 28.7 37.3 34.3 28.9 Equity per share, EUR 9.10 7.54 8.15 - Cash flow per share, EUR 1.25 1.46 2.00 1.79 Equity-to-assets ratio, % 49.4 43.0 48.4 - Leverage ratio, % 27.4 30.5 25.6 - Gearing, % 37.7 43.8 34.4 -
* Comparable operating profit is calculated by excluding inventory gains/losses, gains/losses from sales of fixed assets, and unrealized changes in the fair value of oil and freight derivative contracts from the reported operating profit.
The Group's third-quarter results
Neste Oil's sales totaled EUR 2,978 million in the third quarter (3,464 million). This decrease of 14% was mainly due to the divestment of the Group's stake in Eastex Crude Company earlier in the year. Excluding this, sales were largely unchanged.
The Group's operating profit for the period was EUR 180 million (254 million). Operating profit includes unrealized changes of oil derivatives valued at EUR -15 million (18 million) and inventory gains of EUR 36 million (-61 million).
The comparable operating profit for the quarter totaled EUR 159 million, which is some 21% lower than in the corresponding period last year (202 million). The most significant impact came in the form of a lower total refining margin, a weaker US dollar, and lower shipping crude freight rates. In addition, comparable operating profit was affected by increased fixed costs linked to the Group's growth projects and a higher level of depreciation. A fine was imposed by the European Commission on Nynaes Petroleum, a Neste Oil joint venture, and this had a negative impact of EUR 5 million.
Oil Refining posted a comparable operating profit of EUR 154 million (183 million), Oil Retail EUR 22 million (22 million), and Shipping EUR -2 million (4 million).
Profit before taxes was EUR 168 million in the third quarter (246 million), and net profit for the period was EUR 132 million (186 million). Earnings per share was EUR 0.52 (0.72).
The Group's January-September results
The Group's sales in the first nine months of 2007 totaled EUR 8,642 million (1-9/06: 9,778 million).
Operating profit totaled EUR 658 million (1-9/06: 687 million) and comparable operating profit EUR 542 million (1-9/06: 510 million). The comparable operating profit was positively impacted by high total refining margin in the first half of the year.
Oil Refining posted a comparable operating profit of EUR 493 million (1-9/06: 455 million), Oil Retail EUR 49 million (1-9/06: 49 million), and Shipping EUR 31 million (1-9/06: 31 million) during the first nine months.
Profit before taxes was EUR 633 million (1-9/06: 676 million) and net profit for the period EUR 477 million (1-9/06: 496 million). Earnings per share was EUR 1.86 (1-9/06: 1.92).
Given the capital-intensive nature of its business, Neste Oil uses return on average capital employed after tax (ROACE) as its primary financial indicator. At the end of September, the rolling twelve-month ROACE was 15.8% (2006 financial period: 15.4%).
7-9/07 7-9/06 1-9/07 1-9/06 LTM 2006 COMPARABLE OPERATING PROFIT 159 202 542 510 629 597 - changes in the fair value of open oil derivative positions -15 18 -9 8 -26 -9 - inventory gains/losses 36 -61 120 42 134 56 - gains/losses from sales of fixed assets 0 95 5 127 88 210 OPERATING PROFIT 180 254 658 687 825 854
Capital expenditure
After the completion of two major projects, Neste Oil's capital expenditure in January-September 2007 totaled EUR 236 million (1-9/06: 384 million). Oil Refining accounted for EUR 199 million of investments (1-9/06: 348 million), Oil Retail EUR 27 million (1-9/06: 24 million), and Shipping EUR 2 million (1-9/06: 9 million).
Depreciation in January-September was EUR 139 million (1-9/06: 113 million).
Financing
Interest-bearing net debt amounted to EUR 879 million at the end of September (31 Dec 2006: 722 million). Net financial expenses between January and September were EUR 25 million (1-9/06: 11 million).
The average interest rate of borrowings at the end of September was 4.5%, and the average maturity 3.9 years.
Net cash from operating activities between January and September was EUR 321 million (1-9/06: 376 million). A high level of working capital had a significant impact on the third-quarter cashflow of EUR -32 million (248 million).
The equity-to-assets ratio at the end of September was 49.4% (31 Dec 2006: 48.4%), the gearing ratio 37.7% (31 Dec 2006: 34.4%), and the leverage ratio 27.4% (31 Dec 2006: 25.6%).
Cash and cash equivalents and committed, unutilized credit facilities amounted to EUR 1,593 million at the end of September (31 Dec 2006: 1,667 million).
Market overview
Gasoline margins weakened dramatically in July, once higher refinery runs had balanced supply and demand in the US. Towards the end of the quarter, however, stocks dropped to their lowest level in five years as gasoline production was cut due to refinery problems and planned maintenance outages. As a result, gasoline margins increased and were further supported by growing hurricane fears.
In July, the weak gasoline market pushed refining margins down. The very strong physical North Sea crude oil market also put pressure on margins. In August and September, improving distillate margins helped refining margins recover. The international reference refining margin in North West Europe, IEA Brent Cracking, averaged USD 4.18 /bbl (4.42) during the quarter.
Turmoil on the financial markets and investor activity kept crude oil prices very volatile. After falling in the wake of weakening gasoline prices, tightening crude oil market fundamentals pushed them up again in late August, when Brent Dated reached an all-time high of USD 81.10 /bbl. In the third quarter, Brent Dated averaged USD 74.87 /bbl (69.49). New record prices for crude were seen at a number of points in October after the reporting period. The price differential between Urals and Brent Dated narrowed during the third quarter due to increased demand for heavier crudes. In addition, the Brent Dated basket has become heavier in 2007. The differential averaged USD -2.53 /bbl (-4.21) in the third quarter.
Distillate margins widened during the third quarter as inventory balances tightened on both sides of the Atlantic. The growth in diesel demand stayed healthy and refinery shutdowns supported diesel margins, especially in North-west Europe.
The price differential of both low-sulfur and high-sulfur fuel to crude remained widely negative. Low-sulfur product still suffered from poor demand, and expectations of a price increase following the tightening of the North Sea bunker fuel sulfur specification in August failed to materialize.
The first-generation biodiesel (FAME) industry has continued to suffer from over-capacity and low profitability. Public discussion on raw material sustainability has intensified and a lot of work is being done to build objective sustainability criteria. Demand for high-quality renewable diesel remains healthy.
Crude freight rates in the North Sea were 28% lower compared to the third quarter of 2006, and those from Primorsk 24% lower.
Key drivers
7-9/07 7-9/06 1-9/07 1-9/06 Oct 07 2006 IEA Brent cracking margin, USD/bbl 4.18 4.42 5.26 4.42 2.85 3.73 Neste Oil's total refining margin, USD/bbl 10.20 10.80 10.63 9.62 n.a. 9.11 Urals-Brent price differential, USD/bbl -2.53 -4.21 -3.18 -4.44 -2.80 -4.28 Brent dated crude oil, USD/bbl 74.87 69.49 67.13 66.96 81.42 65.14 Crude freight rates, Aframax WS points 107 147 131 138 122 145
SEGMENT REVIEWS
Neste Oil's businesses are grouped into four segments: Oil Refining, Oil Retail, Shipping, and Other. Biodiesel is included in Oil Refining.
Oil Refining
Oil Refining's third-quarter operating profit stood at EUR 177 million (227 million) and the comparable operating profit at EUR 154 million (183 million). The lower comparable operating profit was mainly due to lower total refining margin, the weak US dollar exchange rate, and higher fixed costs and depreciation compared to the same period last year.
Neste Oil's total refining margin averaged USD 10.20 /bbl (10.80) in the third quarter, while the benchmark margin (IEA Brent cracking) averaged USD 4.18 /bbl (4.42).
The total refining margin was affected by low product margins in July, higher variable costs at the refineries and a narrower price differential between Brent and Russian crude. On the other hand, the new diesel line at Porvoo had a positive impact on the total refining margin.
Oil Refining's comparable return on net assets (annualized) was 25.3% (27.5%).
Key figures
7-9/07 7-9/06 1-9/07 1-9/06 LTM 2006 Sales, MEUR 2,451 2,973 7,053 8,337 9,484 10,768 Operating profit, MEUR 177 227 603 590 684 671 Comparable operating profit, MEUR 154 183 493 455 571 533 Capital expenditure, MEUR 46 120 199 348 329 478 Total refining margin, USD/bbl 10.20 10.80 10.63 9.62 9.85 9.11
Production
Neste Oil refined 4.0 million tons (3.3 million) of crude oil and other feedstocks at its refineries in the third quarter, of which 3.3 million tons (2.9 million) at Porvoo and 0.7 million tons (0.4 million) at Naantali. Both refineries operated at their full crude distillation capacity during the quarter. In the third quarter of 2006, the Porvoo refinery also operated at full capacity, whereas utilization at Naantali was 60.2%, as a result of a planned maintenance shutdown.
As a result of the start-up of the new diesel line at Porvoo, the proportion of Russian Export Blend used increased to 62% (42%) of total refinery input in the third quarter.
Sales
Sales volumes in Finland totaled 2.0 million tons in the third quarter (2.0 million), and export volumes 1.6 million tons (1.4 million). Thanks to the new diesel production line, diesel sales increased by 22% and sales of heavy fuel oil decreased by 24%. The first deliveries of NExBTL Renewable Diesel took place in July.
Sales from in-house production, by product category (1,000 t)
7-9/07 7-9/06 1-9/07 1-9/06 2006 Motor gasoline and components 1,194 1,169 3,630 3,799 4,974 Diesel fuel 1,421 1,163 3,839 3,550 4,821 Jet fuel 189 198 532 524 702 Base oils 74 76 227 231 302 Heating oil 164 129 539 487 684 Heavy fuel oil 180 237 775 812 1,069 NExBTL Renewable Diesel 5 0 5 0 0 Other products 407 421 1,201 1,182 1,543 TOTAL 3,634 3,393 10,748 10,585 14,095
Sales from in-house production, by market area (1,000 t)
7-9/07 7-9/06 1-9/07 1-9/06 2006 Finland 1,987 2,031 5,981 6,034 8,083 Other Nordic countries 635 517 1,575 1,462 1,906 Russia & the Baltic countries 28 16 44 26 53 Other Europe 606 539 1,712 1,712 2,420 USA & Canada 362 284 1,366 1,140 1,417 Other countries 16 6 70 211 216 TOTAL 3,634 3,393 10,748 10,585 14,095
Oil Retail
Oil Retail posted an operating profit of EUR 22 million in the third quarter (23 million), and a comparable operating profit of EUR 22 million (22 million). The positive impact from increased volumes was partly offset by higher fixed costs related to expansion of the station network in the Baltic Rim area.
Figures for 2007 no longer include rental and other income from a number of service station properties sold in Finland in 2006.
Oil Retail's comparable return on net assets (annualized) was 19.5% (17.2%).
Key figures
7-9/07 7-9/06 1-9/07 1-9/06 LTM 2006 Sales, MEUR 853 841 2,470 2,470 3,280 3,280 Operating profit, MEUR 22 23 51 53 136 138 Comparable operating profit, MEUR 22 22 49 49 65 65 Capital expenditure, MEUR 9 11 27 24 47 44 Product sales volume, 1,000 m3 1,087 1,070 3,330 3,248 4,505 4,424
Gasoline sales at Neste Oil's stations in Finland increased by some 4% in the third quarter compared to the same quarter in 2006. Diesel fuel sales were up by almost 6% due to good demand. Heating oil sales, however, declined by 3% as a result of lower demand.
A project is under way in Oil Retail designed to strengthen its profitability and position in Finland.
Sales volumes in the Baltic Rim station network increased by 18% compared to the same quarter in 2006. Sales of diesel fuel increased by 28%. The number of outlets in the Baltic Rim totaled 257 at the end of September.
Oil Retail sales volumes (1,000 m3)
7-9/07 7-9/06 1-9/07 1-9/06 2006 Gasoline 405 379 1,158 1,062 1,452 Diesel fuel 407 391 1,258 1,107 1,510 Heating oil 172 192 546 686 932 Heavy fuel oil 103 108 367 394 530 TOTAL 1,087 1,070 3,330 3,248 4,424
Oil Retail sales volumes by market area (1,000 m3)
FINLAND 7-9/07 7-9/06 1-9/07 1-9/06 2006 Gasoline 182 175 494 501 652 Diesel fuel 264 250 786 748 1,008 Heating oil 172 177 537 598 814 Heavy fuel oil 103 108 367 394 530 TOTAL 721 710 2,184 2,241 3,004 BALTIC RIM * 7-9/07 7-9/06 1-9/07 1-9/06 2006 Gasoline 223 204 665 560 800 Diesel fuel 143 141 472 359 502 Heating oil 0 15 9 88 118 TOTAL 366 360 1,146 1,007 1,420 LPG (1000 t) 51 59 173 188 254
*Volumes from stations and terminals combined
Shipping
Shipping's operating profit for the third quarter came in at EUR -4 million (11 million) and the segment's comparable operating profit totaled EUR -2 million (4 million). The weaker comparable operating profit was due to significantly lower freight rates and softer US dollar exchange rate.
Shipping's comparable return on net assets (annualized) was 13.6% (13.1%).
Key figures
7-9/07 7-9/06 1-9/07 1-9/06 LTM 2006 Sales, MEUR 82 65 307 220 380 293 Operating profit, MEUR -4 11 35 69 44 78 Comparable operating profit, MEUR -2 4 31 31 32 32 Capital expenditure, MEUR 1 6 2 9 3 10 Total fleet days 2,871 2,446 8,375 7,071 11,423 10,119 Fleet utilization rate, % 95 93 95 95 94 94
Shipping's total fleet days (the number of days vessels have been operational, including repair and waiting days) amounted to 2,871 in the third quarter (2,446). Fleet days for crude fleet totaled 552 (515), and 2,319 (1,931) for the product fleet.
Neste Oil owned or controlled through contracts a total of 31 (28) tankers as of the end of September. Expansion of the fleet has focused on larger crude and product tankers. Crude carrying capacity as of the end of September was 680,407 dwt (660,767), and for products 606,723 dwt (483,604), totaling 1,287,130 dwt (1,144,371).
The fleet utilization rate for the period remained high, at 95% (93%).
Shares, share trading, and ownership
A total of 119,808,257 Neste Oil shares were traded in the third quarter, totaling EUR 3.1 billion. The share price reached EUR 29.80 at its highest and EUR 23.62 at its lowest, and closed the quarter at EUR 25.67, giving the company a market capitalization of EUR 6.6 billion as of 30 September 2007. A total of 1.8 million shares were traded daily on average, equivalent to 0.7% of the company's shares.
Neste Oil's share capital registered with the Company Register as of 30 September 2007 totaled EUR 40 million, and the total number of shares outstanding is 256,403,686. The company does not hold any of its own shares, and the Board of Directors has no authorization to buy back company shares or issue convertible bonds, share options, or new shares.
At the end of September, the Finnish state owned 50.1% of outstanding shares, foreign institutions 26.9%, Finnish institutions 16.0%, and Finnish households 7.0%.
Divisional restructuring and changes in segment reporting
Neste Oil announced a new divisional structure and new heads for four divisions on 27 September. These changes were designed to give the company better potential to implement its strategy going forward. A new division, Specialty Products, was formed, and includes the base oil and gasoline component businesses and is also responsible for Neste Oil's interests in the joint venture company, Nynaes Petroleum.
The heads of the five divisions are as follows: Jorma Haavisto (Oil Refining), Jarmo Honkamaa (Biodiesel), Kimmo Rahkamo (Specialty Products), Sakari Toivola (Oil Retail), and Risto Naesi (Shipping). Jarmo Honkamaa has been appointed Deputy CEO. These changes came into effect on 16 October.
Neste Oil will change its segment reporting as of 1 January 2008, after which the performance of all five divisions will be reported separately. The figures for Biodiesel and Specialty Products currently come under Oil Refining segment.
Personnel
The Group employed an average of 4,806 (4,678) employees between January and September. The number of employees at the end of September totaled 4,834 (30 September 2006: 4,693).
Health, safety, and the environment
The main indicator for safety performance used by Neste Oil - cumulative lost workday injury frequency (LWIF, number of cases per million hours worked) for all work done for the company, combining the company's own personnel and contractors - stood at 3.1 (3.5) at the end of September 2007.
Under EU emissions trading, Neste Oil's carbon dioxide allowances for 2007 are expected to equal its carbon dioxide emissions for the year and it is likely that no allowances will need to be obtained from the market by the end of 2007.
Neste Oil has been included in the Dow Jones Sustainability World Index, which features over 300 companies from 24 countries that excel in their commitment to a more sustainable future. In addition, the company has participated in the Carbon Disclosure Project (CDP). As a result, Neste Oil's record on emission disclosure was ranked among that of the top 10 Nordic companies in the energy-intensive sector.
Update on growth projects
Neste Oil will continue to implement its clean fuel strategy through a number of projects aimed at building new capacity to produce NExBTL Renewable Diesel and review alternatives for investing in new conversion capacity at its existing refineries.
The new diesel production line
The new diesel production line at the Porvoo refinery was operational for only part of the quarter. The line was stopped in mid-September for a short maintenance outage, during which a number of faulty valves were identified. This kept the line down throughout October. Despite this, the new line has already contributed to higher diesel sales and lower heavy fuel oil sales and made a positive contribution to the total refining margin in the third quarter.
The company estimates that the new line will contribute an additional refining margin of more than USD 2 /bbl on its total output of approximately 100 million barrels a year over the long term.
NExBTL Renewable Diesel
Neste Oil is aiming to become the world's leading producer of renewable diesel. The cornerstone of this strategy is the company's proprietary NExBTL technology, which produces a premium-quality diesel fuel that outperforms both existing biodiesel and crude oil-based diesel grades currently on the market.
After the initial start-up in July, the first NExBTL Renewable Diesel plant at Porvoo was shut down for modifications and repairs in August and September, and restarted in the beginning of October. The NExBTL technology is now working on an industrial scale, but various opportunities for improving the process and catalysts have been identified. Benefits from these improvements will be taken into account in the designs of future plants.
A second NExBTL plant is under construction at Porvoo with the same capacity, 170,000 t/a, as the first unit. Due to some design changes, the plant is now scheduled to be commissioned in 2009.
Planning work and a lengthy Environmental Impact Assessment (EIA) on a project for a NExBTL plant jointly owned with OMV in Austria is continuing. Neste Oil is also planning further expansion of NExBTL production.
Work to ensure the sustainability of feedstocks used in renewable diesel production is continuing on an active basis.
The company is also committed to further research and development aimed at utilizing a wider range of renewable raw materials.
Potential short-term and long-term risks
The oil market continues to prove very volatile. Oil refiners are exposed to a variety of political and economic trends and events, as well as natural phenomena, which tend to affect the short-term supply of and demand for the products that companies produce and sell. Sudden and unplanned outages at production units or facilities also represent a risk. Rising investment costs and challenges in developing new competitive raw materials may impact the company's growth plans.
The key market drivers for Neste Oil's financial performance are international refining margins, the price differential between Russian Export Blend (REB) and Brent crude, and the USD/EUR exchange rate. Short-term changes in crude oil prices impact Neste Oil's financial results mainly in the form of inventory gains or losses.
For more detailed information on Neste Oil's risks and risk management, please refer to the company's Annual Report and Financial Statements for 2006.
Outlook
Global demand for petroleum products is expected to remain healthy and the amount of new capacity coming on stream limited in the near future. As a result, the outlook for refiners with complex capacity should remain favorable. The market is likely to remain highly volatile, and the reference refining margin has been under pressure in October. Recent record-breaking crude prices have further increased uncertainty on the international oil market.
Low US inventories and refinery maintenance outages seem to keep gasoline margins higher than normal in the fourth quarter. The diesel market is supported by stronger seasonal demand.
Neste Oil's new diesel production line is expected to be operational again in November.
After the ramp-up in October, the NExBTL Renewable Diesel plant is expected to operate normally for the remainder of the fourth quarter.
Demand for high-quality lubricant base oils remains strong.
Oil Retail's margins are expected to be lower in the final quarter compared to the rather good period at end of 2006.
Shipping's market is likely to remain very challenging in the next few years.
Neste Oil's capital expenditure is projected to be approximately EUR 350 million in 2007.
Reporting date for the Financial Statements for 2007
Neste Oil will publish its Financial Statements and fourth-quarter results on x February 2008 at approximately 9:00 am EET.
Espoo, 29 October 2007
Neste Oil Corporation Board of Directors
The preceding information contains, or may be deemed to contain, "forward-looking statements". These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, potential growth, planned operational changes, expected capital expenditures, future cash sources and requirements, liquidity and cost savings that involve known and unknown risks, uncertainties, and other factors that may cause Neste Oil Corporation's or its businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, such forward-looking statements can be identified by terminology such as "may,""will,""could,""would,""should,""expect,""plan,""anticipate,""intend,""believe,""estimate,""predict,""potential," or "continue," or the negative of those terms or other comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Future results may vary from the results expressed in, or implied by, the forward-looking statements, possibly to a material degree. All forward-looking statements made in this report are based on information presently available to management and Neste Oil Corporation assumes no obligation to update any forward-looking statements. Nothing in this report constitutes investment advice and this report shall not constitute an offer to sell or the solicitation of an offer to buy any securities or otherwise to engage in any investment activity.
NESTE OIL GROUP JANUARY- SEPTEMBER 2007 Unaudited
CONSOLIDATED INCOME STATEMENT
Last 12 MEUR Note 7-9/2007 7-9/2006 1-9/2007 1-9/2006 1-12/2006 months Sales 2, 4 2978 3464 8642 9778 12734 11598 Other income 4 100 21 147 238 112 Share of 4 17 20 31 27 39 43 profit (loss) of associates and joint ventures Materials and -2546 -3098 -7237 -8548 -11183 -9872 services Employee -60 -52 -187 -168 -224 -243 benefit costs Depreciation, 4 -55 -38 -139 -113 -153 -179 amortization and impairment charges Other -158 -142 -473 -436 -597 -634 expenses Operating 180 254 658 687 854 825 profit Financial income and expenses Financial 2 2 6 6 8 8 income Financial -13 -8 -26 -13 -16 -29 expenses Exchange rate -1 -2 -5 -4 -5 -6 and fair value gains and losses Total -12 -8 -25 -11 -13 -27 financial income and expenses Profit before 168 246 633 676 841 798 income taxes Income tax -36 -60 -156 -180 -205 -181 expense Profit for 132 186 477 496 636 617 the period Attributable to: Equity 132 185 475 493 631 613 holders of the company Minority 0 1 2 3 5 4 interest 132 186 477 496 636 617 Earnings per share from profit attributable to the equity holders of the 0,52 0,72 1,86 1,92 2,46 2,39 Company basic and diluted (in euro per share)
CONSOLIDATED BALANCE SHEET
30 Sep 30 Sep 31 Dec MEUR Note 2007 2006 2006 ASSETS Non-current assets Intangible assets 5 40 38 38 Property, plant and equipment 5 2396 2218 2310 Investments in associates and joint 173 148 161 ventures Long-term interest-bearing receivables 2 14 3 Pension assets 83 65 73 Deferred tax assets 5 16 8 Derivative financial instruments 6 22 22 22 Other financial assets 3 2 3 Total non-current assets 2724 2523 2618 Current assets Inventories 935 739 697 Trade and other receivables 905 936 808 Derivative financial instruments 6 104 158 77 Cash and cash equivalents 55 108 62 Total current assets 1999 1941 1644 Non-currents assets classified as held for 2 0 53 78 sale Total assets 4723 4517 4340 EQUITY Capital and reserves attributable to the equity holders of the company Share capital 40 40 40 Other equity 3 2288 1894 2049 Total 2328 1934 2089 Minority interest 3 7 8 Total equity 2331 1941 2097 LIABILITIES Non-current liabilities Interest-bearing liabilities 601 663 516 Deferred tax liabilities 278 224 239 Provisions 6 14 12 Pension liabilities 11 12 12 Derivative financial instruments 6 18 24 21 Other non-current liabilities 7 13 4 Total non-current liabilities 921 950 804 Current liabilities Interest-bearing liabilities 333 298 267 Current tax liabilities 24 63 43 Derivative financial instruments 6 62 123 38 Trade and other payables 1052 1139 1027 Total current liabilities 1471 1623 1375 Liabilities directly associated with 0 3 64 non-current assets classified as held for 2 sale Total liabilities 2392 2576 2243 Total equity and liabilities 4723 4517 4340
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
Attributable to equity holders of the company Share Reser- Fair Transla- Retained Minority Total capital ve value tion earnings fund and differen- other ces reser- ves MEUR Note Total 40 9 -33 8 1581 7 1612 equity at 1 January 2006 Dividend -205 -205 paid Income and expense recognized directly in equity Translation -4 -4 differences and other changes Cash flow hedges recorded in 57 57 equity, net of taxes transferred to income statement, net of tax -13 -13 Net 1 1 investment hedges, net of taxes Change in -3 -3 minority Items 44 -3 0 -3 38 recognized directly in equity Profit for 493 3 496 the period Total 44 -3 493 0 534 recognized income and expenses Total 40 9 11 5 1869 7 1941 equity at 30 September 2006
Share Reser- Fair Transla- Retained Minority Total capital ve value tion earnings fund and diffe- other rences reser- ves MEUR Note Total equity 40 9 26 3 2011 8 2097 at 1 January 2007 Dividend -231 -231 paid Treasury 3 -12 -12 shares Income and expense recognized directly in equity Translation 1 -2 -1 -2 differences and other changes Cash flow hedges recorded in -18 -18 equity, net of taxes transferred to income statement, net of tax 27 27 Net -2 -2 investment hedges, net of taxes Share-based 2 2 compensation Change in -7 -7 minority Items 1 11 -4 -1 -7 0 recognized directly in equity Profit for 475 2 477 the period Total 1 11 -4 474 -5 477 recognized income and expenses Total equity 40 10 37 -1 2242 3 2331 at 30 September 2007
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
MEUR 7-9/2007 7-9/2006 1-9/2007 1-9/2006 1-12/2006 Cash flow from operating activities Profit before taxes 168 246 633 676 841 Adjustments, total 60 -84 121 -34 -85 Change in working -195 104 -254 -166 -106 capital Cash generated from 33 266 500 476 650 operations Finance cost, net -17 13 -24 -3 -7 Income taxes paid -48 -31 -155 -97 -131 Net cash from -32 248 321 376 512 operating activities Capital expenditures -59 -132 -236 -375 -526 Acquisition of shares 0 -7 0 -9 -9 Proceeds from sales 2 14 14 57 77 of fixed assets Proceeds from sales 0 79 -5 79 201 of shares Change in other -17 68 -30 19 20 investments Cash flow before -106 270 64 147 275 financing activities Net change in loans 90 -247 152 91 -74 and other financing activities Dividends paid to the 0 0 -231 -205 -205 equity holders of the company Net increase -16 23 -15 33 -4 (+)/decrease (-) in cash and marketable securities
KEY RATIOS
30 Sep 30 Sep 31 Dec Last 12 2007 2006 2006 months Capital employed, MEUR 3265 2902 2890 3265 Interest-bearing net 879 850 722 - debt, MEUR Capital expenditure and 236 384 535 387 investments in shares, MEUR Return on average capital - - 15,4 15,8 employed, after tax, ROACE % Return on capital 28,5 34,1 31,9 26,8 employed, pre-tax, ROCE % Return on equity, % 28,7 37,3 34,3 28,9 Equity per share, EUR 9,10 7,54 8,15 - Cash flow per share, EUR 1,25 1,46 2,00 1,79 Equity-to-assets ratio, % 49,4 43,0 48,4 - Gearing, % 37,7 43,8 34,4 - Leverage ratio, % 27,4 30,5 25,6 - Average number of shares 255994173 256403686 256403686 256097393 Number of shares at the 255903686 256403686 256403686 255903686 end of the period Average number of 4806 4678 4678 - employees
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU. The interim financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2006.
The accounting policies adopted are consistent with those of the Group's annual financial statements for the year ended 31 December 2006.
The following interpretations are mandatory for the financial year ending 31 December 2007, but not relevant for the Group:
- IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies - IFRIC 8 Scope of IFRS 2 - IFRIC 9 Reassessment of Embedded derivatives - IFRIC 10 Interim Financial Reporting and Impairment.
2. DISPOSALS
Neste Oil closed the divestment of its 70 % holding in Eastex Crude Company in mid February The company has been consolidated as a subsidiary in Neste Oil consolidated financial statements until the closing date and included in the Oil Refining segment. The company had an insignificant impact on Neste Oil's results, but has contributed significant revenues, accounting for EUR 1.8 billion of Neste Oil's total consolidated sales of EUR 12.7 billion in 2006 In 2007, Eastex Crude Company accounted for EUR 151 million of Neste Oil's sales (1-9/2006: EUR 1,441 million).
Non-current assets classified as held for sale comprise of the carrying amount of Eastex Crude Company at 31 December 2006, and carrying amount of Best Chain Ltd as at 30 September 2006.
3. TREASURY SHARES
Neste Oil has entered into an agreement with a third party service provider concerning the administration of the new share-based long-term incentive plan for key management personnel. As part of the agreement, the service provider has purchased a total of 500,000 Neste Oil shares in February 2007
in order to hedge part of Neste Oil's cash flow risk in relation to the future payment of the rewards, which will take place partly in Neste Oil shares and partly in cash during 2010 and 2013. Despite the legal form of the hedging arrangement, it has been accounted for as if the share purchases had been conducted directly by Neste Oil, as required by IFRS 2, Share based payments and SIC-12, Consolidation - Special purpose entities. The consolidated balance sheet and the consolidated changes in total equity reflect the substance of the arrangement with a deduction amounting to EUR 12 million in equity. This amount represents the consideration paid for the shares by the third party service provider.
4. SEGMENT INFORMATION
Neste Oil's businesses are grouped into four segments for external reporting purposes: Oil Refining, Oil Retail, Shipping and Other. The biodiesel business is included in Oil Refining, Other segment includes corporate centre.
SALES
MEUR 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ Last 2007 2006 2007 2006 2006 12 months Oil Refining 2451 2973 7053 8337 10768 9484 Oil Retail 853 841 2470 2470 3280 3280 Shipping 82 65 307 220 293 380 Other 5 4 14 12 16 18 Eliminations -413 -419 -1202 -1261 -1623 -1564 Total 2978 3464 8642 9778 12734 11598
OPERATING PROFIT
MEUR 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ Last 2007 2006 2007 2006 2006 12 months Oil Refining 177 227 603 590 671 684 Oil Retail 22 23 51 53 138 136 Shipping -4 11 35 69 78 44 Other -18 -8 -32 -26 -35 -41 Eliminations 3 1 1 1 2 2 Total 180 254 658 687 854 825
COMPARABLE OPERATING PROFIT
MEUR 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ Last 2007 2006 2007 2006 2006 12 months Oil Refining 154 183 493 455 533 571 Oil Retail 22 22 49 49 65 65 Shipping -2 4 31 31 32 32 Other -18 -8 -32 -26 -35 -41 Eliminations 3 1 1 1 2 2 Total 159 202 542 510 597 629
DEPRECIATION, AMORTIZATION AND WRITE-DOWNS
MEUR 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ Last 2007 2006 2007 2006 2006 12 months Oil Refining 43 25 106 75 105 136 Oil Retail 7 7 20 21 27 26 Shipping 4 5 11 15 18 14 Other 1 1 2 2 3 3 Total 55 38 139 113 153 179
SHARE OF PROFITS IN ASSOCIATED COMPANIES AND JOINT VENTURES
MEUR 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ Last 2007 2006 2007 2006 2006 12 months Oil Refining 17 20 31 27 39 43 Oil Retail 0 0 0 0 0 0 Shipping 0 0 0 0 0 0 Other 0 0 0 0 0 0 Total 17 20 31 27 39 43
NET ASSETS
30 Sep 30 Sep 31 Dec MEUR 2007 2006 2006 Oil Refining 2713 2294 2389 Oil Retail 368 426 336 Shipping 298 308 298 Other 9 5 10 Eliminations 2 -1 -1 Total 3390 3032 3032
RETURN ON NET ASSETS, %
30 Sep 30 Sep 31 Dec Last 2007 2006 2006 12 months Oil Refining 31,0 35,7 29,9 27,0 Oil Retail 20,3 18,6 37,2 38,5 Shipping 15,4 29,2 25,0 14,4
COMPARABLE RETURN ON NET ASSETS, %
30 Sep 30 Sep 31 Dec Last 2007 2006 2006 12 months Oil Refining 25,3 27,5 23,8 22,5 Oil Retail 19,5 17,2 17,5 18,4 Shipping 13,6 13,1 10,3 10,5
QUARTERLY SEGMENT INFORMATION
QUARTERLY SALES
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2006 2006 2006 2006 Oil Refining 2451 2673 1929 2431 2973 3056 2308 Oil Retail 853 843 774 810 841 817 812 Shipping 82 115 110 73 65 69 86 Other 5 4 5 4 4 5 3 Eliminations -413 -428 -361 -362 -419 -429 -413 Total 2978 3207 2457 2956 3464 3518 2796
QUARTERLY OPERATING PROFIT
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2006 2006 2006 2006 Oil Refining 177 288 138 81 227 234 129 Oil Retail 22 18 11 85 23 17 13 Shipping -4 16 23 9 11 38 20 Other -18 -5 -9 -9 -8 -9 -9 Eliminations 3 -3 1 1 1 0 0 Total 180 314 164 167 254 280 153
QUARTERLY COMPARABLE OPERATING PROFIT
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2006 2006 2006 2006 Oil Refining 154 205 134 78 183 178 94 Oil Retail 22 16 11 16 22 15 12 Shipping -2 12 21 1 4 5 22 Other -18 -5 -9 -9 -8 -9 -9 Eliminations 3 -3 1 1 1 0 0 Total 159 225 158 87 202 189 119
QUARTERLY DEPRECIATION, AMORTIZATION AND WRITE-DOWNS
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2006 2006 2006 2006 Oil Refining 43 35 28 30 25 25 25 Oil Retail 7 7 6 6 7 7 7 Shipping 4 3 4 3 5 4 6 Other 1 0 1 1 1 1 0 Total 55 45 39 40 38 37 38
QUARTERLY SHARE OF PROFITS IN ASSOCIATED COMPANIES AND JOINT VENTURES
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2006 2006 2006 2006 Oil Refining 17 13 1 12 20 11 -4 Oil Retail 0 0 0 0 0 0 0 Shipping 0 0 0 0 0 0 0 Other 0 0 0 0 0 0 0 Total 17 13 1 12 20 11 -4
5. CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT AND CAPITAL COMMITMENTS
CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
30 Sep 30 Sep 31 Dec MEUR 2007 2006 2006 Opening balance 2348 2059 2059 Depreciation, amortization and impairment -139 -113 -153 Capital expenditure 236 375 526 Disposals -12 -14 -22 Disposal of a subsidiary 0 0 -39 Classified as assets held for sale 0 -48 -10 Translation differences 3 -3 -13 Closing balance 2436 2256 2348
CAPITAL COMMITMENTS
30 Sep 30 Sep 31 Dec MEUR 2007 2006 2006 Commitments to purchase property, plant and 76 47 44 equipment Commitments to purchase intangible assets 1 2 2 Total 77 49 46
6. DERIVATIVE FINANCIAL INSTRUMENTS
30 Sep 2007 30 Sep 2006 31 Dec 2006 Interest rate and Nominal Net Nominal Net Nominal Net currency value fair value fair value fair derivative value value value contracts and share forward contracts MEUR Interest rate 297 2 304 1 301 2 swaps Forward foreign 1155 35 1072 7 992 23 exchange contracts Currency options Purchased 334 7 458 -6 290 4 Written 199 2 458 8 274 5 Share forward 17 3 8 1 8 1 contracts
Oil and freight derivative contracts
Volume Net fair Volume Net fair Volume Net value value fair value 1 000 bbl Meur 1 000 bbl Meur 1 000 Meur bbl Sales contracts 73394 -38 97038 110 79094 29 Purchase contracts 86953 34 116930 -87 106339 -25 Purchased options 2503 0 2185 -5 0 0 Written options 671 0 2160 4 0 0
The fair values of derivative financial instruments subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivative financial instruments are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models. The amounts also include unsettled closed positions. Derivative financial instruments are mainly used to manage the group's currency, interest rate and price risk.
7. CONTINGENT LIABILITIES
30 Sep 30 Sep 31 Dec MEUR 2007 2006 2006 Contingent liabilities On own behalf For debt Pledges 9 8 8 Real estate mortgages 26 27 25 For other commitments Real estate mortgages 0 1 0 Other contingent liabilities 28 13 28 Total 63 49 61 On behalf of associated companies Guarantees 3 13 6 Other contingent liabilities 1 4 1 Total 4 17 7 On behalf of others Guarantees 5 2 6 Other contingent liabilities 0 1 1 Total 5 3 7 Total 72 69 75
30 Sep 30 Sep 31 Dec MEUR 2007 2006 2006 Operating lease liabilities Due within a year 116 111 117 Due later than one year and not later than 5 178 176 191 years Due later than five years 125 144 165 Total 419 431 473
Other contingent liabilities
Neste Oil Corporation has a collective contingent liability with Fortum Heat and Gas Oy of the demerged Fortum Oil and Gas Oy's liabilities based on the Finnish Companies Act's Chapter 17 Paragraph 16.6.
Neste Oil Q3 Interim Report 2007: http://hugin.info/133386/R/1163974/227035.pdf
Copyright Copyright Hugin ASA 2007. All rights reserved.
SOURCE: Neste Oil Oyj
Source: MARKET WIRE
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