Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neste OYJ (NTOIF, Financial) completed the major Porvoo turnaround as planned, demonstrating strong operational performance.
- The company expects the second quarter to be the weakest of the year, with substantial positive cash flow anticipated in the second half.
- Neste OYJ (NTOIF) is seeing positive momentum in the Sustainable Aviation Fuel (SAF) market, with expected sales growth in the third and fourth quarters.
- The Martinez JV utilization rate increased towards the end of the quarter, reaching around 75% of design capacity.
- Fixed costs were EUR 20 million lower quarter-on-quarter, reflecting efficiency improvements.
Negative Points
- Group comparable EBITDA was EUR 240 million in Q2, significantly lower than EUR 784 million in the same period last year.
- Renewable products sales margin weakened to $382 per ton from $800 per ton a year ago.
- The second quarter included a one-off valuation loss in bioticket and credit inventories totaling EUR 36 million.
- Sales volumes in renewable products were flat year-on-year, impacted by preparations for upcoming turnarounds.
- The oil products segment saw a comparable EBITDA of EUR 62 million, affected by the Porvoo turnaround.
Q & A Highlights
Q: The first question is about the balance sheet. With the current financial situation close to the 40% threshold, which are the tools you may use if you reach this level? Are you thinking about potentially even a capital increase, if needed?
A: Thank you, Alejandro, for your question. I'll try to answer the first one on the balance sheet. So we have definitely noticed that, of course, the leverage has been going up in the recent quarters, down 134.5%. But what I said earlier, firstly, we definitely believe there will be a substantial positive cash flow in the second half of the year. We have a number of actions in place regarding the cash out, improve our cash flow. I mentioned the working capital elements, particular focus on the inventory levels, we have certain issues we can look into streamlining our CapEx outlay also. Otherwise, then of course, we did also mention that we expect this to be the lowest quarter of the year and the results to lowest quarter in terms of results. And as far as personally concerned, so my target would be rather to see the going forward that our leverage would not go upwards. So of course, we have full focus on the cash flow and the efficiency improvements.
Q: Are you still happy to invest in growing capacity given your current outlook for supply, demand? Do you still expect these projects to find supportive demand environment when it comes online in the coming years?
A: Yes. Thank you, Giacomo. Perhaps I can take the first question still on the CapEx. And obviously, we continue executing our Rotterdam capacity growth project, it is progressing as planned. And when I look at the big picture, obviously, the market environment is very challenging at the moment. At the same time, looking at the mid-term and longer-term, it’s also clear that we expect the demand to continue growing globally and also in Europe. And as you will remember, the Rotterdam capacity growth project also includes flexibility to produce SAF, which is also an important driver for this project.
Q: I just wanted to understand how we should be thinking about the uplift margin provided by SAF volumes in the second half. Regarding SAF pricing in sulfur, what should we be using as a reference point? Should we be using jet fuel prices or is it referenced on renewable diesel and the premium over renewable diesel. If you could give us some color on what goes into your negotiations for contracted SAF volumes?
A: Yes. Thank you. I can start, Carl can then add is yes. So in general, on the SAF market development, I would perhaps refer in a way that you can get an indication, of course, by looking at the public references that are out there, for example, follow the SAF premium over fossil jet. That is one good indicator that you can deduct there. And you will note that, for example, during the second quarter, this has been slightly, let’s say, the SAF multiple versus fossil jet, slightly under 3% is -- has been the level where it has ended. And I think in general, of course, I think while the market is still evolving and the liquidity needs to further improve these reference prices give some indication clearly of where the market is heading. And that, of course, means that from a margin perspective, even if there is always, of course, extra costs in processing SAF and the logistics for SAF continues to be a premium product.
Q: Do you expect some, let’s say, supportive impact to be visible already this year as this duty should be in place starting from mid-August, if I recall correctly. And then also, what else also related to SAF, it is actually excluded from this duties?
A: Yes. Thank you, Artem. And perhaps I can initially comment. So obviously, we will see the EU last Friday publish these provisional import duties. And then in a way, those will be implemented in the late part of August. So we will see what type of market impact there is perhaps the one way to look at it, I’m just looking at the magnitude of these imports based on the public data from last year. So the imports of biofuels from China were around 2 million tons to Europe. And you can compare this number to the bio diesel market in Europe, which is around 11 million tons last year. And I think the renewable diesel market was around 4.5 million tons, so that gives a flavor of the impact. But it is, of course, something that we will see going forward, what type of impact there is. On the topic of SAF exclusion, we note that this has been provisionally excluded, obviously, I’m sure there will be comments on the proposal. So let’s see and whether that changes going forward.
Q: Are you able to put a number or a range perhaps on how much you expect demand to grow next year? and what some of the big moving parts are?
A: Yes. Thanks, Peter. And I can perhaps start with the demand outlook question, like I can then comment on the CFPC question. So in general, obviously, we will see the exact demand growth going forward. But our current estimates are is that next year, the overall growth of renewable diesel SAF globally could be somewhere around 4 million tons which is a bit more than this year. And I think the main thing we anticipate is that in Europe, the growth after a year where the growth has been basically close to zero, we would again grow next year. And this is, of course, driven on one hand by the fact that the refuel aviation will increase SAF demand in Europe, but also we expect some of the mandate updates to also create some renewable diesel demand in Europe. But this is the big picture. And then, of course, if there is any update or new regulation, et cetera, then we need to update our forecast.
Q: With the repeal of Chevron difference by the US Supreme Court, I'm interested to hear how you expect that could impact any EPA led RFS and blending mandates?
A: Yes. So perhaps if I start with the second question around SAF. So I mean, we are, of course, having different types of contracts in our portfolio. We are currently still very much focusing on spot sales in the current year, but we are also turning our view towards the upcoming year and terming up volumes. And it's really a combination of different types of contracts that we have in our portfolio. Obviously, the coming months will be very important as we move into the discussions for 2025 as well and the buildup of the SAF market in Europe.
Q: What would be actually the net effect coming from the improving sales mix and exploration of the blenders tax credit for next year? So when looking at these two major earnings drivers that will say SAF and blenders tax credit combined, is it going to be a negative or positive for
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
