Neste Oyj

Thank you and good afternoon, ladies and gentlemen. And welcome to this conference call to discuss Neste's third quarter results published this morning.

I'm Juha-Pekka Kekäläinen, Head of Neste's IR. And with me here are President and CEO, Peter Vanacker; CFO, Jyrki Mäki-Kala; and the business unit heads, Matti Lehmus of Renewable Products; Marko Pekkola of Oil Products; and Panu Kopra of Marketing & Services.

We will be referring to the presentation that can be found on our website. Please pay attention to the disclaimer since we will be making forward-looking statements in this call.

With these remarks, I would like to hand over to our CEO, Peter Vanacker, to start with the presentation. Peter, please go ahead.

Yes, thanks, JP. And a very very good afternoon also on my behalf, because we are really pleased to be able to share with you Neste’s record high performance in the third quarter, and of course to discuss how we see the way forward.

So let me now go immediately to slide number four on the current quarter. As said [ph] we make the highest quarterly comparable operating profit ever and our comparable EBIT was €435 million which is 10% higher than in the already excellent third quarter of 2018 and I may say an outstanding achievements by the entire Neste team.

The renewable diesel market continues to be favorable, the feedstock markets remains tight, but we were able to improve our sales allocation and pricing in selected markets compared to the second quarter and continued to make good progress in entering new geographic markets. As a result, our comparable sales margins increased to $635 a tonne which we consider an excellent level.

Our sales volumes were a high at 716,000 tonnes as we were also building inventories to prepare for the Rotterdam Catalyst change in the fourth quarter. We had a very good operational performance at the refineries, which were running at an average of 101% utilization rates.

As communicated already in the second quarter results release, we have established the production capacity of 3 million tons per year. Oil Products had a solid performance despite the scheduled decoking maintenance at the Porvoo refinery Production Line 4 which was brought forward to September and finished within budget and on time.

The reference margin reflecting the general market conditions started to improve towards the end of the quarter. The maintenance activities had an impact on our sales volumes and additional margin.

Our additional margin averaged at $4.8 per barrel, which is at the targeted level. The marketing and services segment again improved its unit margins and had one of their best quarterly results ever.

This is something for the business also to be proud of. We continue to focus heavily on safety and a number of investment actions have been included in the turnaround 2020 in Porvoo.

We also continue to make very good progress in our strategy implementation and I will come back to that at the end of the presentation. So if you have a look at slide number five, the very strong performance is also visible in our financial targets.

We reached an ROAC of 21% clearly exceeding the 15% target. Our leverage ratio was 6.6% at the end of the third quarter.

A number of working capital projects have been identified and will be implemented until the year-end to further support the cash flow. As stated before, the strong financial position enables the implementation of our growth strategy going forward, while maintaining a healthy dividend distribution.

With these opening remarks, I would like to hand over to Jyrki to discuss the financials in more detail.

Thank you, Peter. Let's more into the group financial.

I think Peter explained very well that for the quarter we basically had the best ever with €435 million compatible here. But if you look at the figures, now quarterly and also year-to-date because maybe you have calculated the same kind of positive figures of EBITDA went up by 36% between these two quarters 2019 and 2018.

And if you look at the comparable operating profit, which is very important in a sense how we compare last year, if you looked up on a quarterly basis, is 435 compared to 395. Last year third quarter is really 10% improvement.

But if you go back and look at the first nine months of the year, and if you remove the BBC from the year 2018 for the nine months on a comparable basis, you are seeing an improvement of 27% compared to year-to-date figures 2019 and 2018. So a remarkable positive change with our financials, with our profitability measured by comparable operating profit.

And it's really interesting that if you look at the renewable product, it improved 34% quarter three compared to the same 2018, but again if you look the figures year-to-date then excluding the BDC the improvement was 52%. So you see that the tremendous good financial performance in quarter three, 2019 certainly was mostly led by the excellent performance of our renewable products business.

Oil products, slightly lower than last year, but the figure and the reasons you are seeing coming out of the volumes and also the margin. Marketing and Services one of the best quarters ever 4 million, but it’s a 15% improvement year-on-year when we are talking about the quarterly figures.

So overall, the business performance is has been very strong. And in this Others, maybe kind of the highlight that's like you have seen in our report, we have now our minority company, we don’t have anything in our balance sheet.

So we basically write down all the remaining assets €34 million but also the shareholder loan with the interest €59 million. Peter already mentioned about the cash flow, you'll see from the figures that year-to-date we are some to 270 million below 2018 performance but you have to remember that we are preparing ourself for the quarter for Rotterdam catalyst change so our inventories are high.

Another big thing is that during this period especially the quarter three our sales was really high, meaning the receivables are high. That's kind of a logical political reason, but like mentioned already earlier, we have the action in place to find good things during the quarter four to get our free cash flow again to the levels where it used to be.

If you move to the next page where we have the result improvement basically by business, and you are seeing that very clearly where the improvement came from compared to 2018 third quarter, it is a renewable products really coming out of the volumes. The volumes were really strong during the quarter three.

Oil products that is more about volumes and also some margin changes end up in the background. But it’s more interesting to look for next space, where you have the results by categories.

And if you look the first one, really the volumes driven by renewables, 97 million an all -- some 20 million, negative mainly coming from the maintenance what was there in Porvoo of diesel line 4. Margin, both OP and RP slightly lower 2018 performance albeit some 20 million RP 5 million effect change is certainly positive, and now seeing where the U.S.

dollar is basically divided 50:50 between OP and RP. And certainly fixed costs are higher than last year.

We are following our faster and bolder and together strategy going forward. So it's a natural, we are looking for the future and having actions and action balancing in the company.

And then moving the first nine months, the next base, there we have even bigger figures to look after a year. Really looking off to the change nine months this year, and nine months last year, without BDC the improvement have really been 27 7% and the volume development certainly has been very positive and that is coming out of renewable products.

Margin has been stable. If you look the full year or nine months compared to last year, mainly positive.

In the RP side and then negative on the OP, but the overall 25 million is a combination out of these two. And that's basically for an FX change is mainly coming onto the U.S.

dollar again, that is basically 50:50 between these two businesses, but very positive and also how we have hedging our sales going forward. But that's basically how we landed into this 1.198 and in the Others, the Nynas impact driven by first nine months is minus 60 million.

So you’ll see major part of that is coming out of Nynas. But now the Nynas financials in Neste no more quarters where we have Nynas.

So then I leave the word now to the segment reviews, and we start with Matti.

Thank you, Jyrki. And let's review the renewable products Q3.

So I'll start with a comment that I'm very pleased with the Q3 performance, both operationally and financially. We had no process safety incidents, higher utilization in the production and the 34% EBIT improvement versus previous year third quarter.

So the team has really done some excellent work. A few highlights on this first slide.

You can note that the sales margin improved versus the second quarter by 12%. And I will comment a bit later on this one in more detail, but of course it reflects a good sales performance.

We also continued our work of developing both existing markets and new markets, and this is reflected in a continued high sales volume at 716 kilotons, inspite of the fact that we were building some inventories for the upcoming Rotterdam turnaround. The share of the sales to Europe increased again from the second quarter and was back to a level of roughly 70%.

And this is part of our normal sales allocation optimization. And finally, on the feedstock side, I note that we continued to have a high share of 81% for waste and residues feedstock.

And this is a result of our very active feedstock mix optimization that we continue doing. If you move on and have a look at the waterfall versus last year's third quarter, I think the message is very clear.

The main driver for the EBIT improvement has been the higher volume, an impact of €97 million and of course, it's good to note that apart from continuing to drive high utilization, we also last year in the third quarter had a scheduled turnaround, so that explains also some of the growth. The other main impact is that the FX has supported our result development with €15 million.

And I just note that this year the dollar versus euro rate was 1.11 versus 1.16 a year ago. And then on the other hand, the fixed costs like Jyrki already commented also in the renewables, the fixed costs have been growing by €18 million versus a year ago.

And of course, there's a number of drivers of it, but I think, most importantly I would emphasize that we have been strengthening our headcount in anticipation of future business growth, including the Singapore expansion in 2022. And we continue to have a high level of activity in development projects according to our strategy.

So that also explains the growing fixed costs. Then we're having a look at the raw material development.

And like I said on the header they continued on an increasing trend. I would make the comment that crude palm oil prices did increase slightly versus the second quarter, and I think this is very much following strengthening let’s say a less bullish outlook for the production of palm oil, while at the same time demand continues to be strong.

So there is an anticipation of strengthening palm oil prices, and at the same time we also continued having global animal fat and used cooking oil prices strengthening. And here for example, the impact of the swine flu still had an impact in the third quarter.

Then having a quick look at U.S. markets.

We continued to have a very strong market of LCFS credits in California, and the pricing actually appreciated from $184 per ton in the second quarter to $198 in the third quarter. And I think it's fair to note that we continue to have a very strong level as the credit then continues shrinking with an increasing need for credits with the growing targets for decarburization.

On the RIN side, we had a slight appreciation of the D4 RINs from $0.38 in the second quarter to $0.46. And here I think a main driver has been that there is now a lot of expectation on new mandates, new renewable volume obligations for next year, and of course here the anticipation is still that these need to be confirmed, but already the expectation has strengthened the RIN markets.

My final comments would be on the sales margin. And here I have to note that I am also very pleased with the sales margin that improved by 12% versus the second quarter.

That is an improvement of $67 by ton, and I would say that the main, there there's actually two main elements explaining this improvement versus the second quarter. So the first one is which is probably half of that improvement is that the U.S.

margin improved. And this is related mainly to a normal credit generation and sales following the updated carb rules, as you will remember in the second quarter we did not sell any credits.

And now, according to the new accounting rules, we were again able to sell credits normally. So that really explains most of the U.S.

margin improvements. You can of course also note from the previous slide that LCFS credit to RINs also improved slightly, which also supported the U.S.

margins. The other half of the margin improvement is explained by a number of factors.

And I would list things such as we had a very successful hedging in the third quarter. We did have a very successful geographic sales allocation, continuing our work to optimize markets, and also we were successful in increasing premium in some selected markets.

So that's really a combination of things that helped us increasing the margins in the third quarter. And then turning to utilization.

I just note that again we had a very good quarter with 101% utilization. This reflects a very good performance both in Rotterdam and Singapore, some minor maintenance in Porvoo.

And having a quick look at next year, I would -- and the fourth quarter I would already comment that we are actually at the moment having a shutdown in Rotterdam, that's proceeding well, and 28 days catalyst change out, and next year we expect to have a catalyst shutdown of approximately four weeks in Singapore in the second quarter. We of course with the turnaround at Porvoo refinery, we will also have a 11-week maintenance in the next BPL units there in the second quarter.

And finally, we do at the moment expect to have again a catalyst shutdown of roughly four weeks in Rotterdam, in Singapore for the year-end. The exact timing of course is something that we will need to optimize as we go along.

With these comments, I will hand over to Marko Pekkola to take us through the oil products.

Thank you, Matti. I'll comment on the oil products third quarter and well starting with the comparable EBIT, it came in at 130 million which was like I said in the header were really good considering the scheduled maintenance we have done in September.

We've brought forward a plan decoking shut down there in the Porvoo refinery production line number four, and executed it during September. Due to planned maintenance, the utilization rates for our refineries were 8% lower and sales volumes ended up at 3.2 million tonnes being 11% lower than in Q3, 2018.

The Urals share in the third quarter was at 73% on a long term normal level. Investments were higher compared to the Q3, 2018 due to ongoing investments and also the preparation for the major turnaround in Porvoo next spring.

If we then move on to the bridge between Q3, 2018 and 2019. Lower sales volumes had a negative impact of €20 million versus Q3, 2018.

Reference margin averaged at that $7.3 per barrel with similar being on comparing with the 7.2 Urals per barrel last year. Our additional margin was $4.8 per barrel which was at a targeted level, but lower than lower than 5.2 last year.

And the main factors for the lower additional margins were the plant, decoking maintenance of Porvoo and a narrower Urals-Brent differential. This had a negative impact off of €22 million.

Positive impact came through improved FX rates and which had 13 million positive impact versus Q3, 2018. In the Others, four million negative change versus last year mainly reflected the lower profitability of our base oil business.

If we then move on to the next and then have a look on -- look at the markets where we see the strong, where we can see strong diesel margin, and quite a lot of volatility both in euros. Brent differential as seen gasoline cracks during Q3.

2019 Urals-Brent differential averaged at minus $1 per barrel compared to $1.3 minus in Q3, 2019. The main reasons for Urals-Brents volatility were generally tight supply of medium, heavy crude oil due to OPEC's production cuts in heavier grades and lower export volumes from Iran and Venezuela.

REB differential was narrowed during the early part of the quarter but widened clearly towards early August. On longer term, differentials should be widened due to the decline in heavy fuel oil market mainly as a result of IMO bunker Sulfur change.

The distillate margins were quite solid over the quarter, average being $16.6 per barrel for Q3, which were higher than in the second quarter, and when it was $13.7 per barrel and in Q3 2018 $15.1. If we then move on the last two or if we take a look on the margins, our total refining margin recovered Q2 and -- Q2 this year and was almost on the same level comparing Q3, 2019.

Main impacts due to the total margin were both improved reference margins, due to market conditions and recovered additional margin. With these words, I would like then hand over to Panu to talk about the marketing and services.

Good afternoon. This is Panu Kopra speaking.

In Marketing & Services, we continued outstanding performance from Q2 to Q3 as well. We had really liked it earlier before, one of the best ever Q3 comparable EBIT increased from €24 million upto €28 million.

In traffic fuels, we lost a bit of volumes, but on the other hand, Jet A1 and bunker volumes were growing very well. Slightly lower diesel and gasoline volumes were compensated by healthy margins, mainly due to excellent performance of station network.

Return on net assets were almost upto 30%. Customer satisfaction improved as well.

B2B average NPS was over 16, and we continue to work hard for even better customer experience. New Neste application for B2B customer segment was launched and the customer feedback have been very good and volumes are growing in a healthy way as well.

The availability of Neste MY is expanding not only in Finland, but also in the Baltic countries, which is enabling consumers in the Baltics to make more sustainable choice at Neste stations. We have seen lately growing interest from the big transportation companies to make more sustainable services to their customers.

We have here in Finland successful sustainability [Indiscernible] in the land logistics and now other companies wants to follow the way to be more sustainable and responsible in transportation and logistics. Therefore, I believe Neste MY demand is even better than before.

I would like to highlight one exceptional item. We informed in July that we signed shares and purchase agreement with Tatneft concerning selling out of our Russian network business.

The sales process proceeds well, and we are aiming to close the deal during early Q4. All-in-all solid Q3 in marketing services, handing over to CEO, Peter.

Thanks a lot Panu. And let’s now move on to the current topics, and starting to make a couple of comments on our progress in strategy implementation.

And I must say that we have a very good progress also on our strategy implementation, so that has continued. As discussed earlier, we have grouped the key programs in three execution areas.

They are first, scale up faster and bolder. Secondly, to drive efficiency and operations, and third, to increase innovations.

I will make a couple of comments on all these three execution areas. Faster and bolder, the Singapore renewables capacity expansion project is proceeding as plans, within budgets and on time.

And I'm very pleased to see the progress that we have made by having personally visited the site a couple of times during Q3. Our availability and supply chain set up for upto 100,000 tons of renewable jet fuel have been implemented, and we're happy to have full availability in Europe and in the United States.

In addition, we have signed sales agreements for renewable jet fuel. We have Lufthansa and other major airlines, and have started to supply continuously.

We expect sales volumes in this new application area to gradually ramp up since we see a growing acceptance to set blending mandates in several countries. We've also opened three new offices; the Shanghai office starts renewable raw materials sourcing operations in China, fully operational.

Happy to report that the first certified volumes of used cooking oil from China have been delivered. Our new office in Dusseldorf in Germany will serve as the global hub for our renewable polymers and chemicals business units and we have made a number of announcements on coal operations.

We have leading polymers and chemicals companies. We also have opened an office in Hoofddorp, which is in greater Amsterdam which will serve as the global hub for the growing Renewable Aviation business and can actually see from our office the airport and Schiphol.

The opening of these offices shows that we are serious in moving faster and bolder to become the global leader in renewable and circular solutions. Recruitment of key people is also ongoing, and I'm very pleased to note that Thorsten Lange has been appointed as EVP of Renewable Aviation and a member of the Neste Executive Committee.

He will join Neste in February at the latest. And as you probably know, he will transfer to Neste from the Lufthansa Group and is a highly experienced aviation industry leader with outstanding knowhow on the industry especially in fuels, including sustainable aviation fuel through his career and he has also served as chair of the ESR fuel committee.

So we are also well on track to meet the targets set for our operational excellence program, and that is -- a remember that to improve EBIT by €100 million by the end of 2022. In the area of innovation, we are making good progress in the selected new business platforms, namely linear cellulosic fuels and materials, scalable new feedstocks for renewable aviation fuels, and we have also initiated partnerships and strategic projects with universities.

So these are just a couple of highlights that I wanted to mention, there’s quite a lot going on. We have a very clear strategy, and we are moving ahead decisively.

Let's have an outlook on the next slides for the fourth quarter as what we see currently happening, since we are already of course in Q4. Demand for renewable diesel is expected to remain strong, in anticipation of the growing mandates in 2020.

As Matti already alluded to, utilization rates of our renewable production facilities are expected to remain high, except of course for the scheduled catalyst change at the Rotterdam refinery. This catalyst change is currently ongoing as Marty said, also and it was previously estimated to have a negative impact of approximately €50 million on the segments comparable operating profits, and lots of activities we have undertaking to reduce actually approximately half this impact, through inventory buildup and other mitigation actions.

The oil products fourth quarter reference margin is expected to be slightly lower than in the third quarter, and utilization rates of our production facilities are anticipated to remain high in our current quarter, except for normal unit maintenance. And in marketing and services, the sales volumes and unit margins are expected to follow the previous year seasonality pattern, and the winter periods is always our low season in the retail business.

And as Panu also said the divestment of our Russian operation is expected to be completed in the fourth quarter. As we move to slide 25, we felt it was appropriate at this point to discuss our plans on the schedule for refinery major turnarounds next spring.

It will be in approximately 11 weeks turnarounds during the second quarter of 2020. This is something that we have implemented every five years and the last one took place of course in 2015.

The turnaround includes maintenance and also a lot of investments in the area of operational excellence and safety. This is the most expensive turnaround ever.

It is also a major scheduling exercise with thousands of professionals working safely at the sites. And on the financial impact of the turnaround, we currently estimate that it will have a negative EBIT impact of approximately €180 million on the oil product segments, and approximately €40 million on the renewable products.

Both of these impacts are mainly in the second quarter, and this turnarounds will ensure the competitiveness of our Porvoo facility for many years to come. We further planned the usual catalysts change in our renewable products manufacturing sites in Singapore in the second quarter, and in Rotterdam towards the end of 2020.

So this concludes our presentation, and of course we are happy to take your questions. Thank you.

Hello. I have two questions related to the renewables products division please.

So you mentioned, during mandates in 2020, can we have more clarity on those mandates. And the second question is about the maintenance cycle expected for 2020?

Can you clarify what is a normal maintenance cycle for the renewables business? Is it a month, every year, to every year or is another piece?

Thank you.

Yes. This is Matti Lehmus.

Thank you for the questions. The first one was on the 2020 changing mandates, and I think in general, indeed I was referring to the fact that in many European countries, and also in North America we do see that targets are being increased according to the roadmaps that the individual countries have set themselves.

I think, if I take a few examples from first of all Europe, we do for example have a situation in Germany, which is a large market where the carbon reduction target or greenhouse gas reduction target is being increased from 4% to 6% in 2020. So that is a substantial increase.

We do also have increasing targets in countries such as France, Netherlands, Finland, so there is actually a number of countries where according to their RED targets, the targets are being increased. A bit similarly one could look at North America, and here I think the more straightforward example is California, where again they have a very clear road map where their carbon intensity reduction is being increased from 6.25% this year to 7.5%.

Then there was a second question on the maintenance cycle, and here the comment I would make is indeed if you have followed us for a longer period of time, we used to have a typical maintenance cycle of changing the catalyst at our units of somewhere around one and a half years. If you look now over the last few years, we have been increasing utilization rate, running the units harder, of course also the feedstock mix has been moving towards waste and residues.

So we have observed that catalysts change cycle in an optimal mode is a bit shorter, and that is something we typically continue to optimize, but it looks if I look at recent history that we have reached a period where it's somewhere between 13 and 15 months, depending how the optimization goes.

Thank you. That’s very good.

Hi, good afternoon. I've got two questions please, also on the renewables business.

Firstly, just on the -- on the renewables sales margin improving from better sales allocation. Can you talk a bit more about what that meant in practice, and how the mix of sales changed with regards to new and old markets, versus the second quarter.

If there's any sort of dilution effect that unwound at 3Q? And you also talked within that you talked about increasing premiums in selected markets, maybe due to a more specific on which markets you're seeing higher pricing already?

And if they include some of the new markets you've been selling into? And then the second question on the feedstock side.

You've made pretty clear feedstock markets have been strengthening. You highlighted that the African swine fever effect.

Is that -- it's helping you [Indiscernible] effect a bigger effect that is during the 4Q. And also is it the case your raw material costs track the feedstock markets or are there other things you're doing to be a better indicator and actually you beat your benchmark in that case?

Certainly if you can give that, it would be great. Thank you.

So thank you for the questions. I'll start with the sales margin and the sales allocation question.

I would look at it from two angles, as we have explained in many quarterly results. We do continuously optimize the geographic mix of our sales.

And one optimization that you can observe in the numbers is that we of course continuously look at how much do we sell into Europe, how much should we sell into North America. And in this third quarter for example, you can observe that we increased slightly the sales to Europe and of course similarly then decreased slightly sales to the U.S.

That's part of it. The other part of this is of course within Europe we also continuously look at how we develop the mix between the different European markets.

And here is another optimization that we can do slightly adjust between the quarters. So these are the two main drivers.

On the increasing premia we haven't actually opened in which markets that is happening. I would just highlight in general, that is a continuous effort of course to understand in which customer segments we have the highest value of the product and then to continuously to look for selling into these customer segments.

And that was, that was successful again in the third quarter. On feedstock markets, I would perhaps make the general comment that there is two important drivers why the feedstock markets have been strengthening.

The first one is, around waste and residue and we have had in general, I would say two drivers, one has been in general a good demand for waste and residues type material, because of the low carbon intensity. And secondary we have had impacts especially around animal fat where the swine flu has tightened the markets temporarily.

The other one that I would mention is that we of course also see that farm oil prices have started appreciating in the third quarter, and there is still some link between waste and residues and farm oil, so some of these waste and residues also follow farm oil movements. And we of course continuously optimize the whole chain.

Looking at both the feedstock mix and also then which markets we sell into.

So Joshua, it’s Peter here. I mean, nothing much has changed.

I mean, we keep on focusing on margin management, and look at the different margins that we can make in different geographical markets, as well as what combination do we take in terms of waste and residues to maximize our margin.

Okay great. Thank you.

Yes, hello everyone and thank you for the update. Also I have two questions on renewable products.

And interesting to follow up on the two questions on the margin for the fourth quarter, only two elements that do highlight are on stronger demand on the one side, and on the other side, a fairly high feedstock prices. So is it's fair to expect that the overall margin should be flat quarter-on-quarter in Q4 of this year?

And then secondly, there's one thing which I found a bit surprising, which is around you even shaved [ph] 100% blend in your sales, which was lower this quarter and yet you managed to take it to a higher margin. Can you perhaps talk a bit about the dynamics around the 100% blend and where you still target an increase of that product in overall sales?

Thank you.

Yes, thank you Henri. So first on the fourth quarter margin, as you know we are not giving any exact margin guidance.

I think like you correctly pointed out, we did highlight two things in the outlook. One is that we continue seeing very good demand and at the same time, we do continue to see a slightly strengthening trend on the feedstock side.

So I think these are two factors which come into it. The one thing I would add that we also have a catalyst turnaround in Rotterdam in the fourth quarter and naturally that at some costs that, that's of course, natural in any quarter where we have turnaround.

Perhaps then on the 100% diesel that was the other question; the MY diesel. I would look at it from the angle that it is for us a very natural thing that we continue developing the markets where we can sell pure renewable diesel.

These are typically premium markets. And while the percentage share has actually not grown a lot, the absolute volume continues growing.

At the same time I would refer to what CEO, Peter was saying earlier, the most important target still for us is always maximizing margin. So, this is in parallel.

We of course adjust the speed of growing these MY diesel sales to making sure we always over – optimize the overall margin.

Yes. And of course maybe add to that.

It's Peter here. Maybe add to that is of course in 2020 we will have this major turnaround in Porvoo.

So we also do make sure that we have the right volumes available yet to serve also 2020.

Okay. Thank you.

Thanks for taking my questions. I've got a couple.

So first just to referring back to couple of questions before. Is it fair to say, you've obviously commented on the fact that you are seeing rising mandate across a number of markets?

Your supply from a renewable fuel perspective is not increasing significantly into 2020. So should we expect therefore that pricing should be higher in 2020 versus 2019 or certainly what you've seen so far in 3Q?

That was my first question. Secondly, Peter Conley, thank you for the update on the strategy.

One of the things you didn't talk about was potential to be faster and bolder in expanding capacity. I would just wonder whether you could talk a bit more your efforts and plans to expand your renewables capacity over the medium-term beyond Singapore.

And then, just finally just a quick clarification on the turnaround strategy of Porvoo. Thanks for the EBIT impact.

But could you perhaps give us the CapEx impact. I remember back to 2015, it was about a €200 million I think CapEx increase for that turnaround.

So I just wondered whether that's a sort of good number to key off for 2020? Thank you.

Let me take it your first question, Michael. And you talked about and Matti also alluded to that one of the elements that we had in the margin improvements in Q3 was also related to some sales premia increases.

So let me just leave it at that, that -- and I keep – I know on purpose repeating myself that we always look at the environment around us and we try to maximize the margins. So we will not deviate from that strategy moving forward.

Then your second question, Michael, yes, was on the capacity topic. So, as you have seen when we talk on the – on our Capital Markets Day in February, we were talking about 2.7 million tons of nameplate capacity.

Now we're talking about 3 million tons of nameplate capacity. So, we've been able to increase our nameplate capacity by 300,000 tons already and we keep on working on that.

This is all I mean on the operational excellence with limited amounts of CapEx, but a very high amount of creativity of our excellent people. In terms of the Singapore expansion, I alluded already to that fully on track by the middle of 2022.

We'll going to have that 1.3 million tons of additional capacity up and running. And currently, we are in process of doing our homework.

We indicated that we would start that homework when we were talking on the Capital Markets Day, which is looking at different other opportunities in how can we buildup additional capacity that project work doesn't start after we have started that Singapore, that started up immediately after the Capital Markets Day. So, to say concretely, I don't have yet a decision that we can communicate.

But we are working very focused, very heavily looking at our Finnish manufacturing sites, our Rotterdam sites as well as United States and what would be the right location? What would be the scale?

How would we set up the next investments? And then you ask on turnarounds 2020 and I would give that question to Jyrki.

Yes. Of course, like we have communicated and this is a biggest turnaround basically what will be and overall bolder was going through 2020.

We are in the finalizing mode to look about the last project and their impact for 2020. So we will come back with that figure.

But certainly it will be higher than the figure was there at 2015, but not to say exact figure at this point of time.

Okay. Thanks, Peter, thanks, Jyrki.

Yes. It's Artem from SEB.

A couple of questions from my side. So first what comes to renewable sales allocation, as I look sales to other European countries has been growing quite substantially in Q3 year-over-year, so does it basically describe initiatives, what you're doing, what comes to basically new market entrants within European markets?

Then the other question is relating to your several corporations, what comes to renewable plastics. And could you maybe say whether we should be anticipating some concrete or, let's say, significant implications out of these developments, what comes basically volume progress in 2020 and beyond?

And the last question is relating to newness. I just wanted to clarify, Jyrki mentioned that it will not have any impact any more, so will it be reported discontinued operations or what was – did I understand it correctly?

Okay. Let's go one question at a time.

As rightfully recognized, Artem, yes, we are proceeding and we did that in Q2 and we continue to do it in Q3, because we believe strategically it’s very important that we develop other new markets. Matti already commented on that on the mandate, the pathways in those markets.

So, we see a good healthy development and we're having as you could see from the sales margin on a comparable basis, we're very satisfied overall with that development. So that something of course to be continued.

And I cannot go in to one specific EU market. It's relatively broad in different markets that we are going into.

As one specific one that we announce with the opening of our office in the Netherlands; we see a very favorable atmosphere in the Netherlands. People are very sustainability-conscious, and we have started that corporation with four partners, so our Neste MY is already now available at 60 tank stations in the Netherlands.

So on the renewable plastics, we have made and this market creation what we are currently doing. So we've made very, very good progress.

I'm very happy with the progress. I'm very happy also with the margins that we're capturing on a dollar per ton basis and positioning ourselves in that market.

You've seen a number of announcements that we have made. I was last week on Friday on the K Fair, which is the biggest plastics fair in the world that happens every three years.

And we are really in the middle of a big change movement that is happening in that entire industry. So we have made the announcement with the big companies, the big corporations that produce plastics; LyondellBasell, Borealis and Clariant were the ones that we announced, more to come.

But I would say we will of course look at margin management also in 2020, so we will compare of course the margins that we can capture on road transportation and aviation and polymers and chemicals as we are moving forward. So that said, I repeat this is creating new markets.

You don't create a new market by now suddenly making a big, big, big splash from one year to the other, but good traction. Now, New Neste again, I give that one to Jyrki.

Okay. Thank you, Peter.

Yes, about the New Neste, as we have fully written down our shareholding in New Neste, its result will not be consolidate in Neste numbers any more. So New Neste continue its operation, but it has no financial impact in Neste's operating profit nor net profit.

All right, Jyrki, thank you very much.

Hi. Thanks for taking my questions.

The first is on refining margin, IMP 2020 is finally approaching and it looks like it could be beginning to have an impact. Are you currently seeing the effects of IMO on product or crude market and how do you expect that develop moving forward?

Second question was just on cost in renewables. So fixed costs and depreciation were higher sequentially due to growth projects you're investing in.

Now given that investment in growth is likely to continue, is it fair to assume that those costs is going continue at a similar level going forward? Thanks.

Okay. Maybe I can take the first question.

Thanks you. So here is Marko.

The refining margin as we've been earlier saying that's based on the markets and how the markets look on the forward. I think on the average because of the IMP 2020 and that would be on the level of $1 per barrel.

And I think – well, there are different analysis and estimate also on that, but I think on the other it would around that one barrel, sorry, $1 per barrel.

Okay. And then on the second question, on the fixed cost side, of course, I mean, we are building up and you see that with the offices that we build up in China and Germany and the Netherlands and some expansion in other offices as well as we are looking at other geographical markets both from one hand side, going more upstream and waste residue procurement and then on the other hand side, downstream where received very good margin opportunities in selected markets.

So, we've done quite a lot already in 2019, but also one need to look at the big picture of the transformation that we are making in the company. We have sold a part of our net engineering solutions business to Railers, so that has reduced also fixed costs and we are in the process of selling the operations in Russia, which we consider as not strategic for Neste moving forward because we were buying oil products in the local market and selling it through our network of tank stations in the local markets.

So that is as Panu said, is that to be closed relatively soon now, so that would also review the fixed cost that we have here and these were not businesses where we were making huge comparable EBIT margins if you look at it. So, there is a part of the fixed cost that will disappear.

There is a part of the fixed cost that we already have build up and we will of course be always very conscious on the how do we continue to build up the access to the different markets, but it's clear that we want to continue to be the leader both in waste residue collection, aggregation, qualification specification as well as auditing, and then also on the markets that we have developed assets in our strategy renewable transportation, renewable variation, renewable polymers and chemicals and setting up innovation platforms.

Thank you.

Hi. Good afternoon.

Most of my questions have been answered, but I just had two quick clarifications please. Firstly, on the working capital build, you'd highlighted that there are certain projects have been identified to normalized [Indiscernible] whether that means you'd expect to see a big – a majority of the reversal of €961 [ph] million build by the end of 2020 or by the end of 2019 or would it extend into 2020 during as well?

The second question was on the reference margin and the oil products, reference refining margin, it is expected to be slightly lower in 4Q, is it possible to outlook with the expectations on the individual product cracks. You mentioned the $1 per barrel improvement in margin due to IMO.

Have they been at significant, or have there been any change in that underlying improvement assumption over 2019 or has it remained constant? Thanks.

Yes, this is Jyrki Mäki-Kala about the networking capital, what I mentioned also in my presentation. What I was referring to was the action relating especially for the quarter for talking about the inappropriate inventories, both finished products and also feedstock side.

And certainly, when you are going towards the year and the sales per month is lower compared to the high season in quarter three. So receivables side will certainly go down, meaning this 961 million negative will certainly be much lower at the year end when look into the full year working capital.

So affecting positively on the free cash flow, and certainly we are doing always action relates to working capital, it's not just the quarter for 2019. It's an ongoing effort relating to your policy inventories and receivables you can – you can count on that.

Then I would comment on Marko here on the refining margins, now either in the end of 2019 and especially for 2020. So I think, not any remarkable sort of formal, I think the markets are now forming when it comes to the IMO 2020.

So I think, it's a little bit open and based on the estimates so far.

But we were coming continuously as you said in your presentation, Mark on the number $1 per barrel, and that's what we see in the forwards, here right now.

Thank you.

Yes, afternoon. Thanks for the presentation, gents.

Two things if I could please first. If I can follow up on the update on the aviation business, could you provide a sense of where renewable jet sales volumes currently set versus the hundred 100,000 ton of prevailing a new capacity, and perhaps help us to understand the extent to which there is already acting as an accretive lever within the aggregate renewables margin?

And then, secondly just circling back on Neste’s preparations for the 2020 maintenance cycle, and the working cap triangulation. Could you clarify roughly how much of the inventory part of the working cap build in Q3 related to preparation for the Rotterdam maintenance in four key versus perhaps early cycle preparations for the Porvoo work next spring?

Thanks.

Yes. Let me make, it’s Peter here Matt.

Couple of comments I mean to the aviation business. I mean, just for clarity, the 100,000 tonnes is part of the 3 million tonnes of nameplate capacity that we have overall.

So, as we are steering our business based upon margin managements, if we don't sell that 100,000 tonnes we sell them in the renewable transportation area or in renewable polymers and chemicals. So maybe I think that's important, I mean to clarify that just from a steering point of view.

At this point in time, it’s also a bit the same like in polymers and chemicals. It's moving from a feasibility into the execution and not having slots of campaigns or batches, that we are selling in the market, but moving to sales contracts, so that we have to continue supply.

So that's the status that we are in. I said in my presentation, Lufthansa, we have Air BP announced.

I mean previously, we have a couple of other airlines as well off taking, I cannot disclose their names yet, because they have asked us not yet to disclose the names because they also want to come out and later with an appropriate communication on it. So it's more positioning that we are doing, so that we don't have just one customer, but we have a set of global leading airline companies, that we are on a continuous basis supplying.

So the volumes at this point in time are still small. But as you saw from the numbers in terms of how we are running the production, as well as what we are selling, we are selling the product I mean as renewable diesel, or build up.

And now I want to make the link a bit TA2020, build up some inventory to first of all overcome the period that we have as a catalyst change in renewables, which is currently ongoing. And then of course also making sure that we have sufficient volumes to continue to grow and support the markets in 2020.

So maybe, Matti if you want to make a couple of comments on renewables.

Yes, I'll be happy to. I would say in general, you can look at for example, the Rotterdam Catalyst change that we are now having in Q4 this year.

And like we were commenting earlier, it's a four week catalyst turnaround, which is quite typical. That means roughly 100 kilotons.

And, we have been able to build up inventories already in the third quarter in order to mitigate at least partially that loss. And I think this is a very typical philosophy we would be doing.

We tend to build up at least some of the lost volume in previous quarters, so that we have a more smooth sales volume curve. And that is of course something, we would not normally continue doing also going forward.

Okay. Thanks.

Hi guys. Thanks for taking my questions.

Two for me, please. On the fiscal cost inflation, I mean, you're selling CO2 reduction to your clients.

But given that we're seeing broad inflation across all of the feedstock markets, to what extent do you and your peers have the ability to pass through cost to the end customers? That will be the first one.

And the second one, I appreciate still early days in the new China office, sourcing your first UCO volumes. I just want to get a sense on what could be the addressable market -- you know in the next five years.

And secondly, I guess when is the next step into moving to Latin America for a unmodified? Thank you.

Yes, thank you for the question. So I think on the first one our own feedstock and passing the costs through.

I would say in general, of course we are in a very competitive market, and dynamic and effective market. So typically what happens at least over time is that the market adjusts.

But like always, there are different commercial structures there. There is a time lag.

So in general, it is something, which the market in a way corrects over time. And you can see like the market the references, we are showing of course there are different biodiesel markets and different credit markets and others, which typically also take into account what happens in the feedstock market at least overtime.

That that would be how I would look at that. The other one on the addressable feedstock market.

I think it's exactly like you say, I mean, we are working on a number of fronts in order to grow the feedstock for we are on one hand working in the existing markets to improve our capabilities, to collect aggregate. We are working on new feedstocks through technology development, either totally new fees or just while in the quality window.

And yes, we are in parallel working on also addressing new markets like for example announced to China this year. And the specific question of Latin America is one that we are definitely working on it is something that we are looking into for next year.

And Nick, you know I mean from previous discussions that we have, that we have identified I mean about 30 million tonnes of waste from residues. So what we are currently doing is of course, I mean getting access then to 30 million tonnes.

I mean at this point in time, of course we don't consume 30 million tonnes. But building up the geographical network and reach, so that that 30 million tonnes is not just an intensification, but that we have access.

Understood. Thank you guys.

Hi. This is [Indiscernible] from Carnegie.

Two questions, please. Firstly, what is the outlook for de-bottle necking in renewables.

And then secondly, I understand the Netherlands is considering to end the double-counting of used cooking oil. What is your view on this, and would you be able to replace that used cooking with other raw materials?

Thank you.

So first question was on de-bottle necking outlook. I would say very much like we communicated in the capital markets day.

We are well on track. So Peter, was also referring to this earlier.

We have already been successfully growing our capacity from earlier 2.7 million tonnes to now 3 million tonnes, and like we communicated in the Capital Markets Day, our target is to reach in total 4.5 million tonnes by mid-2022, so that means we are still pushing for a couple of 1000,000 tonnes more capacity creep and well on track on that work. On the other question which was specific to the Netherlands, I would just answer in general, I mean, we have continuously worked both on the sourcing side to have access to a wide pool of feedstocks including used cooking oil and then also on the technology side to have the capability to convert a variety of feedstocks into next BTL [ph].

So I think we are well-positioned to address any changes if there are in new demands. I'm actually not at the moment in detail let's say in a position to comment on the Netherlands.

Yes. Iiris, it's a bit, I mean like said I mean, we do see that market as a from a margin point of view as well as from a development point of view has a very attractive margin.

Market, sorry, you know about this biocredits mechanism that they have in place in the Netherlands and that was for us I mean also the reason to see together with our partners we make sure that we have Neste MY in 60 gas stations available, clearly identifiable as Neste MY with the corresponding branding, so we're 100% HVO.

Okay. Thank you.

Thank you very much. I've got two too many questions remaining.

The first one I think you referred to earlier, the fact that you were able to mitigate the earnings impact from the upcoming shutdown. I wonder whether you've taken similar mitigation efforts into account when you give us guidance for the impact on earnings from some of the outages we should expect next year small and big.

And a second question is purely asking you what you can see right now in terms of your reference margin on oil product as well as your premium, because clearly Q3 has been a very volatile quarter. So, any comment you can give us what you're seeing here for 4Q?

Thank you.

This is Matti Lehmus. I can take the first question.

So indeed when we communicate the impact of turnarounds like for example the estimates for 2020, this is the overall impact that we foresee. Then the question that we are working on is that we prepare for this turnaround some by building inventories and that typically means we can spread the impact over a number of quarters.

And that is in a way something we continue doing that the overall impact is the correct one it's then also a question how we can spread it over various quarters.

And then, Marko here. I can comment on the reference margin for the Q4 now, I think there has been a lot of one unexpected cases not like the Philadelphia case, I think impacting also Q3.

I think the Saudi also. But what we are expecting that the average margin would be expected slightly lower than Q3 for 2019.

Thank you. And any comment you can give on the additional margin on top?

Well, I think we've been already saying that it should be on the same level and that's what we are targeting for to keep it on what we have already said on the 4.8 level.

Okay. Thank you.

Yes. Thanks.

Thank you for taking my questions. I have two questions please.

The first one is on the Porvoo turnaround. I would like to know if there would be any additional CapEx impact due to that on the second quarter of 2020.

And secondly when we talk about the raising mandates next year, do you also see the competition raising probably say in genetic biodiesel market et cetera in conjunction to that? And finally my last question would be on when you decide to open up new markets what are the -- any other factors that you consider in addition to the mandates perhaps if you have any existing plans, if there are any access to different markets et cetera.

So could you give us some kind of a flavor on what goes on behind it? Thank you.

This is Jyrki. More about the turnaround 2020 capital expenditures what they've basically already explained that.

We are working with the final figures. It will be higher looking from the CapEx point of view than the one 2015, but we will inform the figures later on, but we don't have the figures to inform you at this point of time.

Then this is Matti. So on the question 2020 and competition, I would say in general in a way we do see both things.

We do see a growing demand because of mandates. I'd like that say both in Europe and in the U.S.

and yes at the same time there is a project pipeline and we do expect some more capacity starting up also in 2020. And my understanding is there's projects both in the U.S.

and in Europe which will also start up at some point during next year. But like I said, I mean, as the demand is growing this is also something that is needed that there is a growing supply.

I think also we said in the last quarterly call that if you calculate everything then the mandates that are changing in Europe as of 2020, our assumption is that that would create a market which is above one million tons for renewable diesels, so not biodiesel but renewable diesel. So therefore there are quite some additional demand that we see that would be created in Europe and of course in California the pathway is clear.

Yes, so Matti you already answered that. We'll agree.

And then no quick comment on opening new markets. I think in general I mean we are of course looking at a number of things, the regulation is one important driver, but it's all not only looking at regulation, it's also looking at customer segments who are interest in low carbon sustainable solutions.

And at the end of the day we of course analyze where we see markets that to the high value that enable our margin optimization and future volume growth when we when we enter into new markets.

Just a follow-up, so from the discussion I conclude that probably the pricing hit that you took in last quarter that probably is not the case anymore. Is that a fair conclusion?

Thank you.

Well, how I would comment is, we continued developing new markets and existing markets and like you could see from the margin development we were successful in growing the margin versus the second quarter. So, I think it was continued development in new markets, but overall the margin improved by 12% versus last quarter.

Thank you.

Good afternoon. Three questions for me please.

Firstly on the sales and margin optimization you perform from one quarter to another, clearly shows that you have flexibility in your portfolio. My guess is opening new markets and new customer segments likely also helps in this regard.

Presumably only if you do have a certain percentage of spot exposure perhaps you can talk about the spot exposure you have or whether contracts are generally quite flexible, whether customer requirements are also quite seasonal and that kind of stuff please? And secondly also when we go back to your capital markets update, they asked you a question about whether you are open to partnerships in renewable products to expand faster and further and the answer you gave me then was yes.

And so I wanted to know whether you've made any progress in that regard if any. And then finally just going back to 2015 when you had your last major turnaround in oil products at the Porvoo refinery and I wondered whether you can remind us whether everything had gone according to plan or according to the original budget?

Thank you.

Okay very good, Thomas. I think first questions will be Matti, yes, margin optimization and new markets.

Quick one on the question on term and spot, but fully like you say, it has been for a number of years our strategy to keep some part of our sales terms some spot that makes a lot of sense because we want the flexibility. The typical split has been around 60% and 40% spot.

Then you ask the questions and refer to what I said, you're in the Capital Markets Day and rightfully so Thomas, that's what I said at the Capital Markets Day. But we at this point in time have nothing to announce.

And then relating to 2015, I think we're correct in the numbers but anyhow that outcome was 130 when we compare it on the other same compatible numbers or the EBIT impact was on €130 million at that time and now we are already saying that it's the biggest turnaround in 2020, our fourth quarter loss and the numbers -- accordingly, according to the market for the forwards.

Okay perfect. Thank you very much.

Yes. So, good afternoon.

I still had three questions. First of all, on the California credit accounting that had a negative impact in Q2 and positive impact in Q3.

I wonder if you could quantify what that impact now was in Q3 compared to Q2. You said that the negative impact was €5 million in Q2.

Then the sales to other European countries in Q3, we saw fame biodiesel produce a little bit of a spike in end of August. I wonder if that still plays into your margins in those markets.

Maybe you could comment on that? Then your capacity of 3 million tons, I wonder if that then includes the catalyst changes every 13 to 16 months?

Thank you.

So, if I -- this is Matti Lehmus, if I comment quickly. So we actually haven't quantified exactly the impact of the LCFS.

What I commented earlier is that if you look at the margin improvement then the U.S. margin improvement represents roughly half of that.

And of course this is an important part of it that we went back to a normal mode in creating and selling credits. On the biodiesel, also a quick comment.

Actually there is no direct big impact on us of what is happening in the biodiesel market, still a separate market segment. So I don't see any major impacts from that volatility that you were referring to.

And then on the nameplate capacity, this is actually then without scheduled to turn around. So typically in every year there will be some scheduled maintenance that then impacts impact to the actual production volume.

Okay. Thank you very much.

Thank you. One question on your portfolio, I mean considering the fact that you are sort of going towards developing very nice renewables business, why fundamentally would you want to have renewables and oil refining in one portfolio or in the long term.

And then the second question is when we think about your capacity 3 million tons for the next two years ballpark ish, how are you going to enjoy or rather benefit or tab volume growth for the next two years in that business? And then just the third question, sorry, is the million tons that's coming in Singapore, can you just tell us how -- do you have already plans how are you going to sell those million tones?

Thank you.

Okay. Very good questions.

First question has and I must say as we have also communicated we are working heavily yet on analyzing how we can make the oil refinery business also more sustainable by replacing crude oil to waste and residues as a feedstock. We have said by 2030 we want to take at least 2 million tons of that wastes and residues 1 million ton at least would come from waste plastics then through a chemical recycling that then replaces crude oil going into the refinery to produce I mean over for our fuel products.

So that's where that is currently ongoing from an analysis point of view by the engineers and on the first test of waste plastics as a feedstock for a refinery. We are planning a first industrial scale trial in the refinery of Natalie during the first half of 2020.

Second question on volume growth and how are we going to bridge that from the nameplate capacity of 3 million tons to then 4.5 million tons. Once we have Singapore up and running, Singapore is one point three million tons of capacity.

So three plus one point three is four point three. That means, there isn't 0.2 million tonnes of additional capacity that we still need to find.

And that is operational excellence work that is currently ongoing by our teams in the manufacturing sites, and we're quite confident on that, because we've been able to do the first step from 2.7 million tonnes to 3 million tonnes even faster than we originally had anticipated. And here we refer to the comments made in Q2 results call.

Right. And just on the Singapore in terms of the 1.3, how should we think about this?

I know it's in two years’ time but -- do you already have a sense of how much is going in on a regional basis by endmarket?

If I quickly comment on that, we are of course very much focusing already on looking at the world in two years’ time. And I think the key here is that we are very active in a number of markets.

We continue developing the existing markets, opening new markets and customer segments, and we are also working and have been working on opening new markets including then aviation and polymers. So I think that's the key for us.

Like in all, our approaches tend to be very flexible also in serving all the different markets. The key is then to be present globally.

Thank you.

Okay. This is Juha-Pekka Kekäläinen again.

As there are no further questions. We thank you very much for your active attention and active participation.

Neste’s fourth quarter and full year results will be published on the 7th of February. Wishing you all a successful rest of the year.

Thank you, and goodbye.