neste oil capital markets day - appspot.com · agenda 12:30 creating value through competitiveness...

Neste OilCapital Markets Day11 September 2014London

Agenda12:30 Creating value through competitiveness and growth Matti Lievonen

13:15 Baltic Sea champion in refining Matti Lehmus

14:00 Break

14:30 Growth in global renewable feedstock-based markets Kaisa Hietala

15:15 Focusing on performance and growth Jyrki Mäki-Kala

15:45 General Q&A

16:00 Concluding remarks Matti Lievonen

16:15 Cocktails

11 September 2014 Capital Markets Day 2

Disclaimer

The following information contains, or may be deemed to contain, “forward-looking statements”.These statements relate to future events or our future financial performance, including, but notlimited to, strategic plans, potential growth, planned operational changes, expected capitalexpenditures, future cash sources and requirements, liquidity and cost savings that involveknown and unknown risks, uncertainties and other factors that may cause Neste OilCorporation’s or its businesses’ actual results, levels of activity, performance or achievementsto be materially different from those expressed or implied by any forward-looking statements. Insome 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 comparableterminology. By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events and depend on circumstances that may or may not occur in thefuture. Future results may vary from the results expressed in, or implied by, the followingforward-looking statements, possibly to a material degree. All forward-looking statements madein this presentation are based on information presently available to management and Neste OilCorporation assumes no obligation to update any forward-looking statements. Nothing in thispresentation constitutes investment advice and this presentation shall not constitute an offer tosell or the solicitation of an offer to buy any securities or otherwise to engage in any investmentactivity.


SpeakersMatti Lievonen(born 1958)

President & CEO, Chairman of the Neste Executive BoardB.Sc. (Eng.), eMBA.President & CEO since 1 December 2008.

Jyrki Mäki-Kala(born 1961)

Chief Financial OfficerM.Sc. (Econ.)Member of the Neste Executive Board since 2013.

Joined the company in 2008. Served as President of the Fine and Speciality Papers Division at UPM-Kymmene Corporation, and in a number of other senior positions at UPM, 1986 and 2008, and priorto that at ABB. Member of UPM-Kymmene’s Executive Board 2002–2008. Chairman of the Boards ofthe Chemical Industry Federation of Finland and Nynas AB. Member of the Board of SSAB. Memberof the Board of the Confederation of Finnish Industries. Chairman of the Supervisory Board ofIlmarinen Mutual Pension Insurance Company and member of the Advisory Board, NationalEmergency Supply Agency. Member of the Supervisory Board of The Finnish Fair Corporation.

Joined the company in 2013. Responsible for the Group’s financial management, investorrelations, and risk management. Served in various business and corporate financial positions atKemira in 2005–2013. Previously worked for Finnish Chemicals.


SpeakersMatti Lehmus(born 1974)

Executive Vice President, Oil ProductsM.Sc. (Eng.) and eMBA.Member of the Neste Executive Board since 2009.Joined the company in 1997. Responsible for the Oil Products business area. Previously served asExecutive Vice President of the Oil Products and Renewable Fuels (2011-2014), Executive VicePresident of the Oil Products (2009–2010), Vice President of the Base Oils business in the SpecialtyProducts Division (2007–2009), Vice President of Oil Refining Business Development (2007) andGasoline Exports and Trading Manager (2004–2007) in the Oil Refining Division. Vice Chairman of theBoard of the Finnish Petroleum Federation.

Kaisa Hietala(born 1971)

Executive Vice President, Renewable ProductsMaster of Science (M.Sc., Finland), Master of Philosophy (MPhil, UK)Member of the Neste Executive Board as of 16 June 2014.Joined the company in 1998. Responsible for the Renewable Products business area. Served inseveral positions at Neste Oil, most recently as Vice President of the Renewable Fuels business(2011–2014), Vice President of Supply in Singapore (2009-2011), Commercial Director inSingapore (2008), and Feedstock Manager in the Renewable Fuels Business operations (2006-2008).


Creating valuethrough competitivenessand growthMatti Lievonen, President & CEO

Delivering on targets

Focusing investments andrestructuring low-performing assets

• Solid additional margin development inOil Products and Renewable Products

• Restructuring of shipping• Investment in isomerization• Over-the-fence hydrogen production

Focusing on profitablemarkets and customer

segments

Ensuring operational and costefficiency

• Renewable Products’ plants capable ofrunning at high utilization rates of 120%.

• Oil refineries have not met targets

• Renewable Products business establishedglobally and feedstock range expanded.

• Share of waste and residues reached 66%

Executing globalgrowth strategies


Results visible in financial performance

0%

5%

10%

15%

2010 2011 2012 2013 H1/2014

Leverage ROACE (rolling 12 months)

0%

10%

20%

30%

40%

50%

2010 2011 2012 2013 H1/2014


Share price outperforming the peers

*Peer group: ERG, Hellenic Petroleum, Lotos, MOL, Motor Oil Hellas, PKN Orlen, Saras, Tesoro, Tupras, Valero Energy

Relative share pricepeer group* index average

50

100

150

200

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Neste Oil

Peer group

+ 57%

+ 7%


Headwinds from challenging markets

High dieselimports from theUS, Russia and

Middle East

Overcapacity andlow utilization

rates in Europeanrefining

Regulatoryuncertainties and

protectionismimpacting markets

Feedstock pricevolatility expected

to continue

Demand for oilproducts weak

in Europe

Competitioncontinues to

intensify


Addressing the challenges

Focusing onour strategy

Enhancingcompetitiveness Creating growth


Our vision sets the direction

To be thepreferredpartner forcleaner trafficfuel solutions


Two strategic objectives based onstrong competitive advantages

Baltic Sea downstreamchampion

Growth in global renewablefeedstock-based markets

• Complex capacity

• Logistical advantage

• Ability to optimize operationsover the whole value chain

• Unique offering withrenewable products

• Strong brand

• Strong market position

• Technology and know-how

• Excellence in feedstock supplychain and sustainability

• Flexibility of productionplatform

• Opportunities with new drop-infuel and non-fuel applications


Enhancing competitiveness

Leader inefficiency

andproductivity

Customerfocused

• Understanding customers andtheir needs

• Developing people andenhancing the way of working


• Continuous performanceimprovement

• Optimized operations

• Restructuring of lowperforming assets

Creating growth within existing andnew businesses

Baltic Seadownstream

champion

Growth inglobal

renewablefeedstock-based

markets

• Investments to increaseadditional refining margin

• Enhancing position in captiveoil retail market

• Adding value in productionby investing in bio propane

• New applications such asrenewable aviation fuel

• New market entries


Enabling growth in new businesses

Drop-in productfeatures Scale of operation

Opportunities forfurther processing

Capabilitiesthrough globalsupply chain


Several applications and marketsidentified

NEXBTL isoalkane

• Functional fluids• Lubricants

NEXBTL isoalkane distillates

• Solvents• Inks• Coatings• Pharma and personal care

Refined NEXBTL

• Bio-plastics for e.g. packaging

Total market size forbiobased lubricants 2 Mton

Total market size foraliphatic and aromaticsolvents 6 Mton

Total market size for bio-plastics 3-5 Mton

Potential applications Indicative market sizes by 2020


Value levers for customers

Equal productqualities

compared to fossilequivalent

Bio-premiumthrough customer

preference

Drop-in qualitiesin processing and

production

Sustainabilitythroughout the

value chain

100%biocontent

CO2 footprint


Strategic choices creating value

Value (illustrative)New businesses• Bio propane• Bio-based chemicals

Oil Retail• Growing captive volumes

Renewable Products• Further capacity expansion• New market entries

Oil Products• Additional margin increase• Asset developmentCurrent Challenging

marketEnhancingcompetiti-

veness

Growth Neste Oil2020


Strong integrated business model

Oil Products

Oil Retail

RenewableProducts

Newbusinesses

Synergies


Consistent cash allocation strategy

Reducing debt Paying outstable dividends

Investing inproductivity andopportunities for

growth


Short-term outlook

• Reduced refinery output andshutdown of Production Line 4

• Repairs to be completed by endof October

• Estimated EBIT impact M€ 60

• Stronger-than-expected market isestimated to compensate theimpact by M€ 30

• Neste Oil revised its outlook for2014 on 29 August

• Comparable operating profit for2014 expected to come in atunder M€ 400

Incident at Porvoorefinery’s hydrogen unit

Company outlook for 2014


Creating value throughcompetitiveness and growth

Growth in globalrenewable

feedstock-basedmarkets

Performanceimprovement

actions

Baltic Seadownstreamchampion


Questions& answers

Baltic Seachampionin refining

Matti Lehmus, EVP, Oil Products

Business logic based on complexassets and strong home market position

Complex assetscreating highvalue product

mix

Feedstockflexibility ascompetitiveadvantage

Strong marketposition inBaltic Sea



• Targets reached in supply chainoptimization and energy efficiency

• Availability development unsatisfactoryEnhancing productivity

Strong position in homemarkets

• Continued high share of salesvolumes to Baltic Sea area(64% in 1/2013-6/2014)

• Average additional margin $4.7/bblin 1/2013-6/2014 (target > $4/bbl)Growing additional margin


Generating strong EBITDA and cashflow

0

200

400

600

2010 2011 2012 2013 H1/2014*

M€

Comparable EBITDA

0

500

1,000

2010 2011 2012 2013

M€

Cash flow

*rolling 12 months


European supply-demand outlookcontinues to be challenging

Global oil product demand andsupply

Source: Wood Mackenzie

50%

60%

70%

80%

90%

2008 2011 2014 2017 2020

Europe North America Asia-Pacific

Refinery utilization rates by region

80

90

100

110

2008 2011 2014 2017 2020

Supply Demand

millionbbl/d


Growing diesel imports from US, Russiaand Middle EastDiesel imports to Europe

thousandbbl/d

0

250

500

750

1,000

2013 2014

Russia, MiddleEast and others

US

Source: Neste Oil analysis


Russian crude export volumesunaffected by political situation

0

1

2

3

4

5

2012 2013 2014Baltic Other

millionbbl/d

Russian crude oil export


• Export volume level 250Mton/a (EU share ~60%)

• Export volume viaNorthern routesexpected to be stable inspite of increasedlogistical options

Source: Neste Oil analysis

European refining margin environmentchallenging in 2014

-2

0

2

4

6

8

10

2011 2012 2013 2014

$/bbl

Neste Oil reference margin IEA Brent cracking margin

Neste Oil reference and IEA Brent cracking margin

Source: IEA, Neste Oil

Reference marginaverages

2011 $4.4/bbl

2012 $7.4/bbl

2013 $4.8/bbl

1-8/2014 $4.2/bbl


European refinery rationalizationprogressing, albeit slowly

European refinery closures

Source: Wood Mackenzie

0

200

400

600

2011 2012 2013 2014

Western Europe Mediterranean

Northern Europe Eastern Europe

Over 1,600 kbpd refinery capacityclosed in Europe in 2011-2014

thousandbbl/d


Strategy focused on strengtheningadditional margin

11 September 2014 34Capital Markets Day

0

5

10

15

2012 2013 2014

$/bbl

Neste Oil reference margin Additional margin

Total refining margin

Additionalmargin average

$3.9/bbl in1/2012-6/2014

Targeting >$5/bbl additional margin


Focus onfeedstockflexibility

Performanceimprovement inproduction and

optimization

Assetdevelopment

Market positiondevelopment

Value of feedstock flexibility growing

Urals;59%

North Seacrudes; 18%

West African,FSU &Others; 23%


Feedstock split, H1/2014

• Shale oil growth haschanged market dynamicsand increased availability ofnew crudes in Europeanmarket

• Neste Oil has goodfeedstock flexibility withcapability to processdifferent crudes

Performance improvement focusingon availability and production costs

Production costsPorvoo and Naantali refineries

0

2

4

6

2010 2011 2012 2013 H1/2014

$/bbl


Oil refineries’ operational availability

85%

90%

95%

100%

2010 2011 2012 2013 H1/2014

Performance improvement will bereached through specific measures

Systemoptimization

Production costimprovement

Availabilityimprovement

• Maintenancedevelopment program

• Increase predictivemaintenance andinspections for criticalequipment

• Close integration ofPorvoo and Naantali

• Organizationrestructuring

• Energy efficiencyimprovement target>M€ 15/a by 2017

• Maintain fixed costlevel


Asset development focusing onadditional margin growth

High-returnproductivityinvestments

Outsourcingselected

investments

Restructuringof low

performingassets

Case study: Isomerization

• Start-up Q1/15, capex M€ 80

• Converting 600,000 tons/anaphtha and other streams tohigh-octane gasolinecomponents

• Expected payback time lessthan 4 years


Asset development principles

Strong market position with uniquecustomer offering in Baltic Sea area

64%

23%

13%

Baltic Sea areaOther EuropeOther continents

Sales allocation by regionH1/2014

Differentiated offering supportedby cross-business synergies

Combinedoffering of fossiland renewable

products

Maximizingopportunities for

captive salesthrough Oil Retail


Capitalizing on market opportunities

Sulphur directive 1.1.2015

Switch to 0.1% S bunker fuelas widely used approach

• Introduction of marine dieseloffering and distribution to theBaltic Sea market

• Product development of low-sulphur marine fuels ongoing

• Sales growth in home marketdriving additional margin

Case: Sulphur directive introduction


Neste Oil responseMarket change

Baltic Sea champion in refining

Furtherstrengthening of

Baltic Seamarket position

Assetdevelopment to

strengthenadditional margin

Performanceimprovementfocusing on

availability andcompetitive costs


Questions& answers

Growth in globalrenewable feedstock-based marketsKaisa Hietala, EVP, Renewable Products

Global leader in renewable products

Global supplychain

Drop-insolutions forcustomers

Flexiblefeedstock

supply



Capacity increased

Customer and marketbase expansion

Feedstock flexibilityincreased


• Waste & residue share 64% in H1/14• New double-countable raw material

introduced: used cooking oil

• New customers in traffic fuel,petrochemical and industrysectors such as mining

• 104% utilization rates in H1/14• 120% capacity will be achieved in

2014

Solid performance in volatileenvironment

0

200

400

600

Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14

Additional marginReference margin

Renewable Products margins

$/ton


Established business proved profitable

-200

0

200

400

2010 2011 2012 2013 H1/2014*

M€

Cash flowComparable EBITDA

-900

-600

-300

0

300

600

2010 2011 2012 2013

M€

* Rolling 12 months


Margin drivers impacted by feedstockmarkets and regulatory uncertainties

*Including $70/ton freight

FAME RED Seasonal vs. Palm oilprice* differential

0

200

400

600

2012 2013 2014

SME vs. Soybean oil pricedifferential

0

200

400

600

2012 2013 2014

$/ton $/ton


Feedstock price volatility continues

600

800

1,000

1,200

1,400

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Soya Oil Dutch FOBex millRapeseed Oil DutchFOB ex millPalm oil crude CIFNWETallow US b.f. CIFRotterdam

Vegetable oil and animal fat prices*

$/ton

*Quotations in NWE, source: Oil World


Positive regulatory development in EU

11 September 2014 51Capital Markets Day

Polish marketopening for

NEXBTL

EU 10% biofueltarget 2020

firmly in place

Germany movingto GHG based

regulation

US regulatory decisions pending

Mid-termelection

BTC decisionexpected to bemade for 2014

and 2015

EPA’s originaldeadline for2014 RVO

Dec

Aug22

Final RVO proposal to Office ofManagement and Budget (OMB)

for formal interagency review,expected to last 30-90 days

Oct Dec

Apr3

Final RVO for 2014 expected to bepublished

Senate FinanceCommittee voted for

extending tax incentivesincluding BTC

Neste OilCMD 2014

Blender’s TaxCredit (BTC)

to be decided bythe US Congress

Renewable VolumeObligation (RVO)to be decided byEnvironmental

Protection Agency(EPA)


BTC expiredyear-end

Nov

DecNov4

Driving additional margin increase

Feedstockflexibility

Productivitygrowth

Product valuemaximization


Targeting 100% waste and residueprocessing capability by 2017

Share of waste and residue feedstock

0%

20%

40%

60%

80%

2012 2013 H1/2014

• Further development of globalsupply chain

• Continuous R&D to evaluatenew lower-quality feedstock

• Successful test runs with100% waste and residueblends

• Debottlenecking processingconstraints

Actions to reach 100%capability


Expanding existing annual capacityto 2.6 Mton by 2017

2015

2.3 Mton/year

< $200/ton

Capacity

Productioncosts*

*at full capacity utilization

Target 2017

2.6 Mton/year

< $175/ton


Renewable diesel capacity growing as demandfor advanced drop-in solutions increases

0

1

2

3

Neste Oil Others

Mtons

Future

D

C

B

A

Neste Oil

Global HVO capacity

• Drop-in solution replacingfossil alternative as fuel orfeedstock

• Flexible technologymaximizing use of waste andresidue

• Global supply chain andindustrial scale

NEXBTL is preferred solutionfor global renewablefeedstock-based markets


Expanding renewable drop-in productportfolio

NEXBTLrenewable

diesel

NEXBTLrenewable

aviation fuel

NEXBTLrenewablepropane

NEXBTLbio-basedchemicals


Fuel gas side stream upgraded tobio propane in Rotterdam in 2016

• Upgrading fuel gas streamto bio propane atRotterdam refinery in 2016

• 2-year productivityinvestment project

• Volume 40,000 tons/a

• CAPEX approx. M€ 60

• Expected payback time lessthan 5 years

0

400

800

1,200

2012 2013 2014

Coal CIF ARA (at propane heat value)Propane CIF ARATTF natural gas

Fuel gas alternative prices$/ton


Likely emergence of renewableaviation fuel with low blends

Previous approach New approach• 50% renewable aviation fuel

and 50% fossil aviation fuel

• ASTM standard approved

• Test flights done

• Commercial adoptionpending due to price gap

• NEXBTL as drop-in solutionfor aviation industry at lowblends

• For example blending 2% ofNEXBTL diesel into fossilaviation fuel

• Easy and cost efficientaccess to renewable fuel foraviation

• Seeking for ASTM approval


Growth in global renewablefeedstock-based markets

Capacityincrease

Expanding tonew drop-in

solutions

Capability touse high shareof waste and

residuefeedstocks


Questions& answers

Focusing onperformanceand growth

Jyrki Mäki-Kala, CFO

4.6%

2.6%

5.0%

11.8%10.6%

0%

5%

10%

15%

2010 2011 2012 2013 H1/2014

LeverageTarget range 25-50%

ROACE (rolling 12 months)Target 15%

Performance heading in right direction


42.6%45.7%

43.2%

30.0%

36.1%

0%

10%

20%

30%

40%

50%

2010 2011 2012 2013 H1/2014

EBITDA providing basis for strongcash flow

Comparable EBITDA and EBIT

0

200

400

600

800

1,000

2010 2011 2012 2013 H1/2014*

M€

ComparableEBIT

ComparableEBITDA

* rolling 12 monthsas of 30 June 2014


Fixed costs under tight control

0

200

400

600

800

2010 2011 2012 2013 H1/2014*

Other fixed costsRepair & MaintenanceStaff costs

M€

* rolling 12 monthsas of 30 June 2013

Fixed costs


Committed to performance improvement

Evaluation Implementationand follow-upCommitment

Ideas from

• Sales• Production• Logistics• Supply chain• Common

functions

> M€ 50EBIT

increase in2014


Normal year cash-out investmentlevel M€ 300-350

0

200

400

600

800

1,000

2010 2011 2012 2013 H1/2014

M€

Porvoo turnaround

Renewables' growth

Growth + productivity

Maintenance

Capex

Expected to beM€ 300-350 in

2014


Inventory management key for lowerworking capital

0

10

20

30

40

50

2010 2011 2012 2013 2014

InventoriesWorking capital

Working capital, rolling 12 monts

daysoutstanding


Three elements of cash allocationstrategy



growth


Solid liquidity position of M€ 2,200

1,500

269

RCF Cash

150

260

Overdrafts CP

Uncommitted liquidity*,M€

Committed liquidity*,M€

Total available committedliquidity M€ 1,769

Total available uncommittedliquidity M€ 410

*as of 30 June 2014


Healthy net debt / EBITDA ratio

0

1

2

3

4

5

2010 2011 2012 2013 H1 /2014** rolling 12 monthsas of 30 June 2014

Net debt / Comparable EBITDA


All improvement elements needed toreach 15% ROACE

• Growth in all businesses• Performance

improvement in all areas• Continuous working

capital management• Focused capital

expenditure• Fixed asset management

0%

5%

10%

15%

2010 2011 2012 2013 H1/2014

Target:15%

ROACE


Significant international ownership

Ownership structure as of August 31, 2014

50.1%

21.5%

14.2%

14.2% State of Finland

Non-Finnish shareholders

Finnish institutions

Finnish households


Payout from comparable net profit Dividends paid

54%

105%

54%

34%

0%

50%

100%

150%

2010 2011 2012 2013

90 9097

167

0

50

100

150

200

2010 2011 2012 2013

M€

€0.35per

share

€0.35per

share

€0.38per

share

Dividend policy to pay at least 1/3 ofcomparable net profit

€0.65per

share


Focusing on performance and growth

Profitability andcash flow

5 key elementsneeded to reach

15% ROACE

Performancemanagement


Questions& answers

ConcludingremarksMatti Lievonen, President & CEO

Addressing the challenges

Focusing onour strategy

Enhancingcompetitiveness Creating growth


Creating growth within existing andnew businesses

Baltic Seadownstream

champion

Growth inglobal

renewablefeedstock-based

markets


Strategic choices creating value

Value (illustrative)New businesses• Bio propane• Bio-based chemicals

Oil Retail• Growing captive volumes

Renewable Products• Further capacity expansion• New market entries

Oil Products• Additional margin increase• Asset developmentCurrent Challenging

marketEnhancingcompetiti-

veness

Growth Neste Oil2020


Consistent cash allocation strategy



growth


Creating value throughcompetitiveness and growth

Growth in globalrenewable

feedstock-basedmarkets

Performanceimprovement

actions

Baltic Seadownstreamchampion


Thank you.

neste oil capital markets day - appspot.com · agenda 12:30 creating value through competitiveness...

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