Jukka Miettinen: Neste's Q3 results that were published this morning. My name is Jukka Miettinen, Vice President of Investor Relations at Neste. Here with me, we have our President and CEO, Heikki Malinen, and our CFO, Eeva Sipilä. We are referring to the presentation that was published on our website early this morning. The key highlights of our presentation today include the highlights of our Q3 performance, as well as our financial performance. On the topicals, we will discuss an update on our Rotterdam expansion project, as well as our newly established dividend policy that was launched today. We will have time for discussions, and please pay attention to the disclaimer, as we will be making forward-looking statements. With these remarks, I would like to hand over to our President and CEO, Heikki Malinen. Heikki, please.
Heikki Malinen: Thank you, Jukka, and good morning, good afternoon to all of you. Nice to see you again in this webcast. Today we are going to go through Q3 2026. Let me first of all say that this really is a historical achievement. We had a really great quarter. I am very happy and very pleased with the performance of the Neste team. I know people have been working very hard to get us out of the trough we saw in 2023 and 2024. Many things went really well in the third quarter. The operational performance, especially in our Renewable Products area, was very good. Singapore and Rotterdam ran very well, and those volumes helped to improve the performance and financial results of the third quarter.
Heikki Malinen: I think our utilization rate in the third quarter in RP, renewables, demonstrates that when we get to full production, how much potential there really is in our business. We have added resources and focus on predictive maintenance. This really is improving our ability to get more stability in the production lines. We have also emphasized the need to have faster response times when we have technical issues, which occur from time to time. That also helped to get us into a good result. We are now in the midst of a heavy turnaround season. Porvoo TA26 has been completed. Rotterdam turnaround has started, and then in the next year, we will have turnaround in Singapore. Overall, the objective is to increase our reliability, availability, and of course, then secure good volumes. A few words about Porvoo 2026 turnaround. We prepared very thoroughly.
Heikki Malinen: We had a lot of people on the site. Overall, I am very pleased with the outcome. TA26 was clearly better than TA24, so we have learned as an organization how to manage these complex turnarounds. With this turnaround now complete, we can run Porvoo into 2029 with good production. Given how strong the market is at the moment, this, of course, is a favorable fact. Global markets remain tight. The market is very volatile. Margins are comparably high. It is, of course, very difficult to forecast what will happen to markets in the coming quarters. But for the time being, markets are very good. Then Rotterdam, I will come back to Rotterdam a bit later, but as said, the Rotterdam budget has now been revised. Finally, on the financial position, it is strengthening, has been strengthening every quarter.
Heikki Malinen: The deleveraging of the company is, for me, very positive. I am pleased to announce that we now have a new dividend policy, which we will then review a bit later in more detail. Safety is, of course, at Neste the number one subject. Looking at these charts here, I have to say we have been going sideways. I want to emphasize that we spent a huge amount of time with the Neste management to try to improve safety, but we have been going sideways. So, we have work to be done. We analyze data, we work with our employees, we have good relationships with our workers' unions to try to move this to a better level, but so far, the curves are not changing. So for 2027, we need to come up with new medicine. So, the job still is not done when it comes to safety.
Heikki Malinen: I can assure you that the commitment to improve those figures is extremely high. Looking at then still Q3, as said, we are very pleased with the volumes, almost 1.3 million tons. It is a record level. Singapore and Rotterdam did very, very well, and recognizing that we also had turnaround in Porvoo, those two small lines. Our OP refining margin was also exceptionally high at $48 per barrel. Overall, we had very strong earnings. EBITDA for the whole company was over EUR 1.5 billion. RP made EUR 1 billion in the quarter, which is really a record amount. As a result of our strong performance, as said, our deleveraging continues. Eeva will talk about the balance sheet in more detail, but as said, the direction of travel has been very positive. With those introductory remarks, let me hand it over now to Eeva to take it from here.
Heikki Malinen: Eeva, please.
Eeva Sipilä: Kiitos, Heikki, and a very good afternoon to everybody on my behalf as well. I will start with the renewable diesel reference margin developments. The margin moved quite a bit in the quarter, had a very upward trend in the beginning of the quarter, and then turned downwards in September. Overall, it was still $100 up on average compared to the previous quarter. Moving then to the Neste figures. Renewable Products delivered two-thirds of our EUR 1,555 million comparable EBITDA result, and Oil Products then half a billion for its part. Obviously, this half a billion illustrates the strength of the market, considering that we were in turnaround since late August. Very pleased with the performance improvement program, which continued to deliver a very strong result.
Eeva Sipilä: We now reached EUR 697 million of annualized EBITDA run rate impact, and the realized in-quarter impact in the Q3 was EUR 172 million. We saw the share of revenue and margin optimization increase a few percentage points from the previous quarter, totaling now 44% of the total, and cost reductions then covered 56% of the total. This two-year program is coming to its final month, and we will end the program at the end of this year, as earlier announced. Moving into the quarterly performance by our segments. Let me start with the Renewable Products. The graph on the left shows very nicely the clear step-up in renewable sales volumes in the quarter.
Eeva Sipilä: Despite the light blue line that indicates the sales margin being down, this obviously contributed to an improvement in EBITDA results, and to that roughly EUR 1 billion level that Heikki Malinen already mentioned. When we look at the right-hand side, which gives you the main items driving the Renewable Products EBITDA compared to the Q2, you really see the importance of the sales volumes, and the majority of that came from renewable diesel. SAF margins continue to be less attractive for us. The share of Europe continues very stable, 73%, and North America on the 27%. The sales margin was down despite the increase in diesel prices, and this due to the higher feedstock prices as well as a negative hedging impact.
Eeva Sipilä: In this market, I would say that the negative hedging result is more an expected outcome, whereas the Q2 was more of an outlier when we had more of an abrupt jump in the soya prices, and that sort of netted out the negative impacts. Moving to Oil Products. Starting on the left-hand side shows very clearly the light blue line, the impact of the turnaround. Our utilization rate dropped to around 50%. In the Q3, we lost some 1.5 million tons of product due to a turnaround. But then indeed, the dark blue columns bar shows how high indeed that $48 per barrel refining margin took us. On the right-hand side, a very similar story to the left-hand side. The waterfall really tells it all.
Eeva Sipilä: Volumes down while margin significantly up, and obviously a slight increase in fixed cost as we had some turnaround-related costs booked in that row. Finally, on Marketing & Services segment. Here, it has been a very volatile year, and you could say that the inventory gains or losses have really driven the quarterly ups and downs. In the Q1, we had a significant gain from inventory as the market prices really reacted to the Middle East crisis in the March period. Then we had a significant inventory loss in Q2 when prices came down towards the end of June, and now again, as we saw significant price impacts in increases in September, we had a very significant inventory profit. Pretty much it sort of explains the whole difference. As such, the Marketing & Services team is doing a good job in running the sort of daily operations.
Eeva Sipilä: So with that, I move back to the group level figures. Cash out investments in the quarter, EUR 327 million. Obviously up due to the turnaround in Oil Products, very much in line with our earlier guidance. We have indicated from the beginning of the year that this year is a CapEx-heavy year in the H2. This will continue in the Q4. We will see some further increase as the two turnarounds in Renewable Products have gotten going. We maintain our full year guidance on investments of approximately EUR 1.2 billion. I am very pleased with our ability to deliver cash flow despite the challenging market when one thinks of the working capital and really the big fluctuations in prices. Strong profitability was obviously a big driver behind EUR 877 million result for cash flow result for the quarter.
Eeva Sipilä: I would say though that we succeeded very well in inventory planning in Oil Products around the turnaround, and this then helped moderate the impact of working capital in the quarter. We are sitting on a very high level of inventories at the end of September in Renewable Products due to the fact that we have obviously prepared to deliver seamlessly to our customers during the turnarounds. All in all, the negative impact from working capital was a lot less than it could have been, and a good job from the team. Then finally, my final slide illustrates our financial position. We have made very good progress on deleveraging for the past 12 months, and our leverage now stands at 22.6%. We are more than comfortably hitting already the financial targets that we set for ourselves in early 2025. With that, handing it back to you, Heikki.
Heikki Malinen: Kiitos, Eeva. Let us see now. Here. So let us talk now about the Rotterdam expansion budget, its revision, and also about the business case. As I am sure you can recognize, this is a very complex project. There are thousands of detail. We have hundreds of thousands of different parts that we are trying to put together to get a working refinery. Even minor changes in the sequence or in the setup can cause delays, and delays, of course, once they start, there is always the risk of domino effects. For example, if there are, for example, delays in the welding of pipes, we need to move all the equipment up into the units, the whole sequencing, if there are any delays, that then can lead to sequential issues. In order to correct the course, keep up the pace of the project, we have added new suppliers.
Heikki Malinen: We have added more people, more resources, more qualified staff to try to close the gaps. But as said, there are limits to how much, even by adding resources, you can tighten the schedule. The conclusion is though that when you are trying to keep up the pace on a mega project like this, it is not easy. I want to also underline that in Europe, reality is that we have not had projects of this magnitude in the last decade. They have taken place in the Middle East and Asia, where we had our own refinery, Singapore Line 2, but not here in Central Europe. The budget revision is, of course, unwelcome. It is not something that we planned for and we desire, but it is still where we are today. However, given our strong and much strengthened financial position, we will manage this.
Heikki Malinen: I am, however, confident that this is still the right decision to do. The market outlook looks positive. The mandate environment, the regulatory framework is very positive. As you know, we have mentioned in the previous presentations that the outlook for renewable diesel in Europe is very positive. The market will double by the turn of the decade. Then, of course, we have the potential to produce SAF, and we hope the mandates will then be taken to 6% as we get to 2030. Overall, RED III is a major boost, and as said, this is the only large investment of this magnitude here in Europe, and therefore, with the element of also discussion about energy security, this is the right thing. Here you can see a latest picture of the site. You can see the state of affairs. Construction is already fairly well advanced.
Heikki Malinen: Some parts of the refinery are already in pre-commissioning phase. Some are already being commissioned. Others are still in the midst of more piping work. But as said, we will get the job done. Overall, very impressed with the site. There are thousands of people on there, and we are trying to. Obviously, people are doing their best to get the job done. Once completed, we have 1.3 million tons of new capacity. We have in Rotterdam existing capacity of 1.4 for a total of 2.7. Then, of course, if you look at everything we have in this sector, it will be to 6.8. So, we are really the largest producer globally in this market. Then the dividend policy. Obviously, as our financial performance has made a very, very positive turn and earnings have increased, it is also a good moment to stop and update the dividend policy.
Heikki Malinen: The board of directors have made a decision that the dividend policy will be that we pay 20% to 40% of the earnings per share. A few words about the thinking here. Fundamentally, first of all, our priority is to make sure that we have a resilient balance sheet, and that will then enable us to grow also market, our investments as time goes by. Secondly, I said the market outlook looks favorable. Once Rotterdam is complete, we will then think of the next wave of growth, but the time for that will be then sometime into the future. Thirdly, there is the question of shareholder remuneration. We believe this is a strong signal of confidence that with our cash generation, with a new dividend payout, we will also be meeting the expectations of our shareholders in this area. Then the outlook. Outlook remains unchanged.
Heikki Malinen: The guidance remains unchanged, so I will not now walk through that in any more detail. In a summary, that is the presentations today. I will come back to my final comments after the Q&A, but for now, shall we move on to the questions and answers? Kiitos.
Operator: If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Alejandro Vigil from Santander. Please go ahead.
Alejandro Vigil: Yes. Hello. Thank you for taking my questions, and congratulations for the strong results this quarter. I have two questions. The first one is, I know your guidance is to maintain and change the sales volumes in Renewable Products, but looking at the strong Q3 sales, if you can elaborate a bit more about the Q4. You are seeing a significant reaction in sales, or it could maintain this level another quarter. I understand the maintenance that is ongoing there, so you can elaborate on that. The second question is also on the Renewable Products in general, the outlook for the near term, how you see evolution of feedstock costs and margins in the short term. Thank you.
Heikki Malinen: Okay, if I take the second and you take the first.
Eeva Sipilä: Yeah. Thanks, Alejandro. If I start with the sales volume guidance, it is good to bear in mind that always the Q4 is impacted by the turnaround. So we are selling what we had in inventory to a large degree in the end of September. Singapore still producing some, but obviously with the delay in transportation, that really won't move to customers. Obviously, the guidance is approximately on the same level, so we will do our utmost to sell as much as our customers need, but I think we are comfortable with the guidance as such.
Heikki Malinen: Thank you. On the outlook, if I just say on renewable diesel, overall outlook is very positive. Obviously, we have high fuel prices, and there has been discussion in various countries about how to react to that, but we have not seen any concrete decisions that would lead to pulling back or reversing or slowing down the implementation of RED III. In that respect, we feel good. Also, the reality is that the crisis in the Middle East has raised this whole discussion about energy security in Europe, and I think that in itself is also a further boost for the production of fuels here in our European continent. So net positive on renewable diesel. On SAF, the situation is different. We have the small mandate, the 2%. There is voluntary growth, but the reality is that we have more and more volume from China coming in.
Heikki Malinen: I said we have advocated quite strongly about the need for anti-dumping duties on SAF, and we continue that work, and we will see if in 2027 we will get some remedy on that. But it is still a work in process, and we will then see what happens next year.
Alejandro Vigil: Thank you. Kiitos.
Operator: The next question comes from Artem Beletski from SEB. Please go ahead.
Artem Beletski: Yes, good afternoon, and thank you for taking my question. Also, congrats on record earnings once again. I have two questions from my side. The first one is relating to term contract negotiations. I guess some of the contracts have been already signed, so are you happy with those terms? Maybe relating to the terms, would there be any changes, or is it still basically premiums over gas oil? How will those be done? The second one is relating to taking initiatives in renewables and nameplate capacity, as you did really hit record volumes in the quarter, and also utilization was at 97%. Could you maybe talk a bit more about how you see nameplate capacity and those actions paying off?
Heikki Malinen: Well, if I first start on the terms, I remember last year we made a comment that the term negotiation season had started quite early. This year it has been clearly slower to start. Maybe the overall volatility in the market is creating some delays. Usually, though, in November, things start happening. We are still here in the last days of October, so I cannot unfortunately share much information. I said we have usually termed, I think last year we said about half, 60%. That has been the practice in the past. At this moment, I think that is sort of a good working hypothesis for the time being. But I said it has been a slow start to term negotiations, but I would say mainly probably because of the volatility, and there are a lot of uncertainties. But in November, things should start moving.
Heikki Malinen: Then on the RP's utilization, 97%, I was extremely pleased with that result because the folks have really been doing a lot of work on these refineries. So, it was sort of expected that we should start getting to higher levels from those 70s where we have been even in some of the earlier quarters. We have continuously multiple projects underway to improve the reliability of those plants. As I said, we have added and will continue adding some staff when it comes to maintenance, becoming even more data-driven in terms of how we can predict where we might have issues. Running a refinery in this industry, in renewables, in my view, it is in some ways much more complex than it is on the traditional refining side because this is still a new industry.
Heikki Malinen: There is a lot of learning, a lot of causality, which we are learning a bit as we go forward. So, good work. I am confident about next year. I think that is all I can say. Of course, do not forget, we have the turnaround. So, the purpose of the turnarounds in Rotterdam and then in Singapore is really to increase ultimately the reliability of those assets so that we get good production afterward.
Artem Beletski: Great. Thank you.
Operator: The next question comes from Kate O'Sullivan from Citi. Please go ahead.
Kate O'Sullivan: Hi. Good afternoon, Heikki, Eeva, Jukka. I would just like to follow up on my question from last quarter about growth beyond Rotterdam really. You were clear last quarter the priority was to improve returns from existing investments and deleverage. Margins remaining exceptionally strong. What is the main constraint on committing to further capacity? Is it confidence in delivering projects at an acceptable cost given the experience at Rotterdam, or perhaps uncertainty over the durability of the industry returns and policy support? I would appreciate your views there.
Heikki Malinen: Well, you raised two questions. One is, how do you execute projects? The other is the regulatory side. I first want to be very clear that we see ourselves as a growth company, growth business, and we are thinking about growth. But for the time being, our focus must be in completing two things. One is completing all the turnarounds and increasing the reliability of Singapore Line 2, which we are doing, and then Rotterdam 1, where we still have some potential. Then secondly, when it comes to the mandates, of course, continuing to advocate for that. Currently, the main news is the mandates and the regulatory framework in Europe has been very positive. My personal view is really here that with the emphasis on energy security, I only believe that will even further enforce the need for renewables.
Heikki Malinen: I think the business case is even stronger today given the add-on emphasis on energy security. In that respect, I am good. We will come back to the question of what after Rotterdam when we are a bit closer, but today is not the time.
Kate O'Sullivan: Okay. Thank you, Heikki.
Operator: The next question comes from Sasikanth Chilukuru from Jefferies. Please go ahead.
Sasikanth Chilukuru: Hi. Thanks for taking my questions. I had two, please. Firstly, on Rotterdam expansion project, we have now seen a second CapEx increase, taking the project to around EUR 3 billion, as well as another delay. I was just wondering, how is today's revision different from the first one that happened last year? What gives you the confidence that the revised cost and schedule are now robust? Just wondering how much contingencies are in place for this new guidance as well. The second one on operations and efficiency. Utilization was very strong this quarter, and you have highlighted the addition of resources and greater focus on predictive maintenance. Looking into 2027, should we expect this to translate into materially shorter turnaround durations in Singapore compared to 2026?
Heikki Malinen: Yeah, thank you for your questions. Well, first of all, regarding Rotterdam, we are fairly advanced with the actual construction. Some of the lines are now already in pre-commissioning. Some of them are even in commissioning. Some parts of the project have gone really well, and we are already almost done. The thing, of course, is this refinery is not running until every single piece has been completed, and then we can say, "Okay, so now let us press the button." We just have to get every single piece done, hydro-tested, and then we are up and running. We still need the extra time here. Has anything changed? I think it is just the fact that I do not think really anything has materially changed. Reality is, it is very complex.
Heikki Malinen: As I have said before, I think if we compare Rotterdam 2 to Singapore Line 2, which was also done partially in the midst of COVID, there is a clear difference in terms of how much experience in the Asian market and Middle East there is in running these mega projects and a project of this size. People have less experience in running them in Europe. I think that is the main. But then again, after this, we will be, of course, much, much more experienced at Neste, much more wiser, and there are many learnings from this which we will then take into the next initiative, whatever it may be. Then regarding the turnaround, and you were asking about the length of the turnaround.
Heikki Malinen: For Singapore, of course, our objective is to. For line number 2, of course, it is now the first major turnaround after construction, so there are many sort of mandatory elements which we have to do. As said earlier, we are going to make investments there to make sure we get the reliability more systematically to a higher level, and that will require some time. We need some patience here to get through those, but I feel confident that after Rotterdam 1 and 2 turnaround, we are going to be at a much better level. Thank you.
Sasikanth Chilukuru: Thank you.
Operator: The next question comes from Alice Winograd from Morgan Stanley. Please go ahead.
Alice Winograd: Hi. Thank you both for taking the questions, and congrats on the results. First, can I ask for an update on how you think about capital allocation going forward? I guess this was a quarter with a couple of cash drags in the sense that there was a working capital outflow, there was the turnaround, you are still delivering on Rotterdam, and even so, you have basically made EUR 1 billion in free cash flow. Gearing is already in the low 20s, so I think it is fair to say that balance sheet repair as such is behind us. So, it is easy to see how that can continue to come down pretty sharply, even with the dividend reset, even with the additional budget for Rotterdam.
Alice Winograd: So my question ultimately is, if you think about the marginal EUR in 2027, how do you think it is best spent between higher distributions, organic or inorganic growth, and in the absence of any other movements, I guess just trending towards net cash? Thank you.
Eeva Sipilä: Sure, Alice. So, I think as long as we have the geopolitical uncertainty moving markets like they have, I think we have to be prepared for swings in the working capital. Like I mentioned in my comments earlier, it is something that, despite heavy efforts, it is obviously something a bit out of our control. And as it now looks, I think where 2027, we will see that continuing. But obviously, the question on the marginal EUR, I think it is best explained by the one slide Heikki presented on the dividend policy, because we had obviously a rather lengthy discussion in the board on capital allocation principles, and the dividend policy is just kind of one part of that. And there, really the deleveraging, indeed, I am thankful for your optimism. We obviously will continue the work on that.
Eeva Sipilä: But I think in 2027, it is really the second box on that slide. So it is these organic investments. We have debottlenecking investments where we see relatively good paybacks and short paybacks. And obviously now with the increase in the Rotterdam 2 expansion cost, obviously that half a billion increase is basically what you will see going out in 2027. So those working capital swings, we got to just be prepared for that, debottlenecking, and then the Rotterdam 2 expansion. So that would be our 2027.
Heikki Malinen: And I would just say
Alice Winograd: Kiitos.
Heikki Malinen: I would just add on and say that from the standpoint of management, obviously, we want to stay very focused on completing Rotterdam 2. We want to be very focused on running now those assets. And then if you think about capital allocation, we have had out of the performance improvement program where our run rate is nearly EUR 700 million, which by the way, I am really pleased because our target was EUR 350 million. So there are also a bunch of ideas how we can debottleneck and get even more out. So, I think that is the management focus now. And then, I think to the earlier question about what is beyond 2020 or beyond Rotterdam 2, we will then come back to that later.
Alice Winograd: Thank you, Heikki. If I may ask a second question, please, to Eeva. You mentioned already the impact of the diesel hedges in RP margins. Can you quantify to some extent how much this was a drag in Q3, and what is the expectation for Q4, given that there is more planned downtime next quarter than in Q3? Thank you.
Eeva Sipilä: Well, the impact was some EUR 180 per ton in Q3. Again, Q4 will depend on how the market prices move in the quarter. With these price levels, obviously any hedging done on diesel late last year will have a negative impact just because of the huge swing we have seen in market levels. But where exactly things then land towards the end of the year, of course, will depend on what happens in the Middle East in the coming weeks and a couple of months.
Alice Winograd: Thank you.
Operator: The next question comes from Nash Cui from Barclays. Please go ahead.
Nash Cui: Hi. Good afternoon. Thanks for taking my questions. The first one is just on Rotterdam 2 expansion. I wonder how we should interpret the startup date, kind of end of 2027, and could you comment on the ramp-up profile to reach the 1.3 million tons nameplate capacity? The second question is on shipping rates. I know shipping rate has been quite elevated. I wonder what is the impact on your Oil Products margins? How should we think about the net impact going forward? Thank you.
Heikki Malinen: So, if I start with the Rotterdam. Our plan here is now that we will have a startup, technical startup, end of 2027, and then commercial ramp-up will start in early 2028. Remember that our Singapore Line 2 commercial startup was fairly patchy. We have taken a lot of learnings from Singapore. Our Rotterdam operational team has now been recruited. They are all hired. They are going through the production lines item by item. We had multiple teams visiting Singapore to learn from what could have been done differently in the Singapore startup. So with those learnings and having our teams well-trained, we are, of course, hoping for a good startup curve. But in terms of giving a projection of what that is going to look like, I cannot comment on this now. But I said, trying to learn a lot organizationally from Singapore too.
Heikki Malinen: If I understood your shipping rate question, obviously they have risen a lot that more impacts the cargo or the fuel delivered from Singapore to Europe or the US. I have to say, though, in our performance improvement program, we have also been able to do some quite substantial savings in terms of how we optimize logistics to mitigate some of that. But as said, shipping rates have gone up. I thought you asked something about Oil Products in that context, but I did not exactly get it, so
Eeva Sipilä: Yeah, I can maybe add on. Nash, to your question then specifically on Oil Products, obviously similar, especially at the oil tankers where the shipping rates have risen quite sharply, obviously due to the high demand. And yes, indeed, that kind of adds on cost. But at the same time, the product prices are obviously at levels where I do not see that to be a big concern. But yeah, I think this is something we will just sort of have to live with as long as the geopolitical uncertainty is what it is.
Heikki Malinen: But also in that respect, most of our crude is coming from the North Sea, so the logistics is shorter and there is no geopolitical risk in that. Please make a note of that aspect.
Nash Cui: Perfect. Thank you very much.
Operator: The next question comes from Henry Tarr from Berenberg. Please go ahead.
Henry Tarr: Hi there, and thanks for taking my questions. The first is, clearly the environment continues to be extremely volatile. What are you seeing, what have you seen in October to date for average margins in RP and Oil Products? The second question is just on working capital. Again, there are lots of moving parts, but we have seen a very material build clearly through the first 9 months of the year. Appreciate there is a large element of pricing, but if pricing remains vaguely stable, let us hope, then what would you expect the impact of that to be on working capital for Q4? Thank you.
Heikki Malinen: Kiitos.
Eeva Sipilä: Yeah, Henry, on the volatility, indeed it has continued. No change to that in October. We have seen in the renewable side, premiums come down in the past couple of weeks somewhat. In Oil Products, again, a lot of volatility there. We know we have slightly higher-priced crude coming in now as we have started purchasing again towards the end of the turnaround. That is something that we are now chewing through. But yeah, I mean, we are still obviously early in the quarter, so a lot of things can happen. But just to your question on the past couple of weeks.
Eeva Sipilä: On the working capital, there I would say that our full-year plan is intact in the sense that, like you said, we have been building up working capital inventory, specifically product inventories, to be able to meet our customers' demand expectations during the turnarounds. In OP, that is now behind us, so we will start, and we already saw first signs, but we will definitely now be able to lower product inventories in the coming months to end up in a financially better position towards the end of the year. Whereas in RP, as I mentioned in my notes, we were kind of at the highest level in end of September, and now we start eating ourselves through as we continue to deliver, and Rotterdam is already down.
Eeva Sipilä: The plan for the volume side of working capital is definitely down in Q4. Then, like you rightly point out, obviously the EUR number multiplies volume with price, so then the price levels towards the year-end will kind of have a final implication. But I am hopeful that we will be able to continue on delivering a good free cash flow for the full year, not just this Q3.
Henry Tarr: Okay, thanks.
Operator: The next question comes from Paul Redman from BNP Paribas. Please go ahead.
Paul Redman: Yeah. Hello, all, and thank you very much for the questions. First one was just on hedging. It sounds like there's been a negative impact on hedging, both on the diesel side and in Q3 on the feedstock side. Has this made you think any differently about your hedging policy into 2027? With diesel price and feedstock prices very high at the moment, how do you think that could impact your margins in 2027? My second was just on utilization. You've mentioned it a couple of times, a very, very strong utilization rate in Renewable Products this quarter. Is this a new normal, or were there one-offs that happened in Q3 that maybe won't carry into a new normal for Well, Q4's got turnarounds, but 2027 and beyond?
Heikki Malinen: If I take the second and you take the first.
Eeva Sipilä: Sure. Paul, on the hedging, I think in a way, we are very pleased with this outcome. We obviously have a bigger positive on the earnings than what we have on the negative hedging impact. In a way, that is how hedging is supposed to work, and it sort of protects the downside, but obviously, you give up some of the upside. We will sort of continue to obviously follow the market closely and in a way sort of take the earnings from that. But in a market as volatile as we now see the middle distillates market being, and in Renewable Products, when it is kind of a pass-through, it is not really a cost item. I do not see us sort of being very easily open to sort of have a fully open position in that one on that.
Eeva Sipilä: But of course, the sort of term structure will also have an impact on our hedging decisions. It is really, that is kind of the starting point on sort of closing certain parts of the open positions on that.
Heikki Malinen: Paul, on your question regarding utilization, is this a new normal? If we look at kind of where we were coming from the last maybe couple of years, even at mid-70s, if we made a comment that once we get into the low 80s, we have been able to achieve more level of stability. Now, this was an extraordinarily good quarter. The way I would think about it is, we are targeting that low 80s. We now have these major turnarounds coming. I think once we have gotten them done and I start to see concrete evidence, I think then we can talk about a new normal, whatever that level is. But as said, it should start with an 8, and then from time to time, maybe we get to 9. But I would not use the 90 as a new normal yet.
Heikki Malinen: More 80s is the target, and we have come from 70. I will leave it up to you at the moment to then set your own set target.
Paul Redman: Thank you very much.
Operator: The next question comes from Matti Kaurola from OP Corporate Bank. Please go ahead.
Matti Kaurola: Hello, and good afternoon on my behalf as well. First, I would like to still come back to your term negotiations. Do you have a certain target of terming, and are you open to go with more spot exposures here as bio premiums are right now on a spot base quite weak, but fundamentals for next year should be strong, and actually time should be in favor of you?
Heikki Malinen: Okay, thank you, Matti. Obviously, the market at the moment with all the mandates, and given the sort of overall geopolitical setup is, of course, very positive. As said, things can change. We are in a super volatile environment. The term negotiations, as I said earlier on, they have been very slow to start this year. Historically, we have aimed to be in the 50, 60 range. Unless we say something, that is probably a good working number. But as said, we are very, very early days here in that and need to see what our customers ultimately want to do here. Unfortunately, I cannot provide you. I simply do not have more information as we speak.
Matti Kaurola: Okay, thank you. Maybe then another question still about the political risk within the renewables. If we think about this fuel crisis to compare that to the PC of the Russian invasion in Ukraine, back then in RP market, Sweden alone was maybe one-third of the whole European demand. Do you see now after the rollout that the demand is much more diversified and the political risk is actually not that high compared to what we see a couple of years ago?
Heikki Malinen: I would go back to my earlier comment about energy security. If we look at Europe so far, yes, there have been discussions about fuel prices. Obviously, it is an issue, given where the fuel prices have been historically. Countries have taken different approaches. Many, some of them have subsidies, some of them have cut taxation, et cetera, et cetera. I cannot say that we would have seen much pushback to the question of, do you actually cut supply? Because do not forget, the renewable refinery makes renewables. If you reduce that demand, you are not going to miraculously then go to fossil. You need to keep these renewable refineries running in order to even have the supply. As you are supply constrained from Russia, or you are supply constrained especially from the Middle East, you really need that volume, otherwise the market will be even tighter.
Heikki Malinen: Having said that, I think we look at 2027 quite optimistically.
Eeva Sipilä: I think, Matti.
Matti Kaurola: Thank you.
Eeva Sipilä: Just to conclude, so indeed the RED III implementation as it has gone across Europe, so that obviously has broadened and diversified the potential markets for us.
Heikki Malinen: That is true. So, the countries we sell to is much more broad than it was in the past. That is correct.
Matti Kaurola: Thank you. That is what I like to hear.
Heikki Malinen: Right. Our markets where we supply renewables is more diversified.
Operator: The next question comes from Adnan Dhanani from RBC. Please go ahead.
Adnan Dhanani: Hi. Thanks for taking my questions. Two for me, please. First one on your RP volumes next year, you will provide more formal guidance for Q4. But are you able to provide some color on what the combined impact of all the moving parts looks like? Because with the Rotterdam expansion, which looks like there will be no contribution in 2027, with the extended turnaround at Singapore, it is going to be going into Q1, and then, as you said, with the debottlenecking at both Singapore, reliability will likely be higher year-over-year. Just trying to understand, combined with all those impacts, what the overall volumes could look like versus 2026. Then second, on your performance improvement program, as you said, you have hit double the original target, and it looks like quarter is going up by around EUR 100 million on the run rate.
Adnan Dhanani: Breakdown looks like it is also increasing the share of revenue and margin optimization. Just trying to understand how much more there could be going forward and how much lever there could be there.
Heikki Malinen: Want to take both?
Eeva Sipilä: Yes, I can take both. Adnan, I was not quite sure if you were more interested in the 2026 or 2027 volumes. For the 2026 volumes, we have the guidance intact, and to an earlier question, I said that we obviously have some less opportunity so late in the year to really get extra volumes out of anywhere. Rotterdam is down, and the transport time from Singapore is such that we are basing it on inventories, and hence the guidance is a good proxy. Obviously, we will try to empty the barrels as much as we can. Then on 2027, I would repeat what Heikki referred to earlier, that startup late 2027 in practice means then a commercial operation starting in 2028. So, for your 2027 volumes, you should not plan for the Rotterdam Line 2.
Eeva Sipilä: But as was referred to in one of the, I think it was Paul's question on that, are we striving for better utilization going forward? Absolutely, and in that sense, the focus on the existing current lines, especially now with the heavy turnaround, extra turnaround work ongoing to get more out of that. But we will be back on 2027 guidance obviously then in February. So, this is still early days, and we really want to see the outcome from the ongoing turnarounds to also be able to base our comments on those facts.
Operator: The next question comes from Derrick Whitfield from Texas Capital. Please go ahead.
Derrick Whitfield: Good afternoon, all, and thanks for taking my questions. I have two questions. First, referencing slide 11, could you elaborate on your gains in feedstock margin and yield optimization? Second, with the gains that you guys experienced in RP utilization, and sorry to come back to this, but are there one or two items that you could point to that really drove the improvement? Thank you.
Heikki Malinen: Maybe you could take-
Eeva Sipilä: Yeah, I can discuss, Derek, a bit on the feedstock. The trend we're seeing and have seen is basically one of feedstock prices increasing. But again, there are opportunities, there are ups and downs. For instance, we've seen in Q3 actually sort of feedstock prices were down as there was a bit less buying out there, and I believe also some sort of less production in your home market. So, obviously, it's still very much a market where being active, being on top of it really gives you opportunities. Of course, that's what we try to do at Neste to make sure that we're sort of ahead of the market and read it well to make sure that we buy the right quantities from the global network. That's then sort of any benefit you'll see in our sales margin.
Eeva Sipilä: But Heikki, do you want to say something on utilization, what the main improvement areas-
Heikki Malinen: It's a good question. Is there sort of the one silver bullet, Derek, that kind of changed? I think this is more of a continuum. We've added more staff in Singapore and Rotterdam. We're focusing more on maintenance, more on quick response. If I kind of just think about refining crude, you've been doing it for over 100 years. There's a lot of science around that. Here in our industry, especially now when we go into these more and more complex feedstocks, they challenge the lines. So our ability to respond to issues rapidly and to take mitigative measures, I think that is improving. We have already made some modifications to the lines to increase the resilience. Maybe that had a bit, but we didn't have enough evidence. I think one quarter is not enough evidence to confirm that.
Heikki Malinen: But as said, once we get into next year and we've completed Rotterdam 1 and Singapore 1 and 2, and we have a couple of quarters, then I think then we will know whether the combination of more expertise and more upgrading in the lines, whether then that gives us the more permanent step change. So, that's how I answer it. I need more evidence, and that will be more of a H2 2028, sorry, H2 2027 discussion when that work is done. Hopefully you can manage with that response. Thanks.
Operator: The next question comes from Nash Cui from Barclays. Please go ahead. Nash Cui, your line is now unmuted. Please go ahead.
Nash Cui: Hi, Heikki. I really want to ask a follow-up question because I like your point made on energy security. I wonder, have you had any discussions with the Finnish government around that topic, as well as the strategic importance of the Porvoo refinery? So, will there be any implications for how you think about Porvoo's long-term role or economics? Thank you.
Heikki Malinen: Energy security is an issue not only for the Republic of Finland. I am sure it is an issue for all of the European Union member states. Some of them have their own fuel supply domestically. Some of them import most of their fuel. As you know, many European countries are highly reliant on fuel imports from the Middle East, whether there is diesel or even jet fuel. It is not a Finland-specific issue. But we look at Porvoo as obviously a very critical asset. The history of Porvoo was that it was constructed following the Second World War. We wanted to have domestic fuel supply in this country, and the refinery has been developed over the last 50 years or 60 years very systematically. It is, as we call, a complex refinery. It has a lot of conversion potential.
Heikki Malinen: We know that we can, over time, convert it more and more into sustainable fuels when we see the need. But I think for the time being, the mix we have with the two lines producing renewables and the rest producing fossil for our domestic market, but also we are also supplying the more broader geographic area. So, I think Porvoo has a very important role, and obviously we are developing it on that basis. So, that is how I see the situation. Kiitos.
Nash Cui: Kiitos.
Operator: There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Heikki Malinen: Thank you very much. As always, it is a pleasure to spend the hour with you. We are very happy with the performance of the last quarter. Obviously, working very hard to make sure we can continue that. We discussed the turnarounds. The markets are very tight. We are trying to take advantage of the opportunities our customers are providing us. Rotterdam, of course, is super high on my priority as CEO. We will get that job done. I am confident that the decision to build Rotterdam, in spite of the increased cost, is the right one. We will generate a lot of cash over the coming decades as the markets continue evolving into more renewables. As said, balance sheet is getting stronger. It gives us resilience.
Heikki Malinen: It gives us a strong foundation then to not only pay dividends, but also then to invest into the future once we have our plans clarified after the Rotterdam Line 2 is done. With those messages, thank you once again for your interest and good questions. Eeva and I will join you again then in February. Take care.
