Neste Oyj (NESTE) Earnings Call Transcript

Good afternoon, ladies and gentlemen. Welcome to this conference call to discuss Neste's half year results published this morning. I'm Anssi Tammilehto, Head of Neste IR. And here with me on the call are President and CEO, Matti Lehmus; CFO, Martti Ala-Harkonen; and the business unit heads, Carl Nyberg of Renewable Products; and Markku Korvenranta of Oil Products. We will be referring to the presentation that can be found on our website and as always, 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 President and CEO, Matti Lehmus, to start with the presentation. Matti, please go ahead.

Thank you, and good afternoon also on my behalf. It's great to have you all participating in the call. We had a challenging quarter as the market in renewables weakened further, both in the U.S. and in Europe. At the same time, I want to emphasize that our operational performance was solid, and we completed the major Porvoo turnaround as planned. We keep focusing on the execution of our strategy and leveraging our competitive advantages to support our performance in this challenging market environment. So moving to the first slide. Our group comparable EBITDA was EUR 240 million in the second quarter, clearly below last year's performance of EUR 784 million. Our planned 9-week major turnaround in Porvoo, of course, had an impact on the results. But another key factor was the weakening of the Renewable Products' sales margin to $382 per ton compared to $800 per ton a year ago. Compared to the first quarter of the year, middle distillate prices, U.S. bioticket and renewable credit prices as well as renewable spot premiums in Europe decreased further. At the same time, waste and residue feedstock average prices increased slightly as feedstock demand continued to be robust. As a result of the rapidly changed market conditions, the second quarter comparable sales margin also includes a one-off valuation loss in our bioticket and credit inventories totaling EUR 36 million, which is equivalent to minus $40 per ton in the comparable sales margin. Our year-on-year sales volumes were basically flat in Renewable Products impacted by the preparation for the upcoming turnarounds at our refineries in Rotterdam and Singapore. We continued our efforts to grow the sustainable aviation fuel sales, and we expect our SAF sales to grow clearly in the third and fourth quarter. In Oil Products, the comparable EBITDA in the second quarter totaled EUR 62 million as sales volumes were affected by the earlier mentioned Porvoo major turnaround. We currently estimate that the second quarter will be the weakest quarter of the year for Neste in terms of results and cash flow to be substantially positive in the second half of the year. Let us now turn to the market environment during the quarter. The summary of key market indicators illustrates clearly the weakness of the renewables market in the quarter. In the U.S., the average RIN credit prices weakened by 13% versus the previous quarter and by 66% versus a year ago. Also, diesel prices decreased as, for example, the European diesel reference price was 7% lower compared to the previous quarter, whereas the average cost for our relevant feedstocks increased by approximately 4% quarter-on-quarter. On a positive note, certain market drivers in renewables improved slightly towards the end of the quarter, such as, for example, RINs. In Oil Products, product margins strengthened versus the previous quarter for gasoline, whereas seasonally, on the other hand, the diesel margin weakened over 30%. So while the current market environment is challenging, our strategy remains very clear, and we continue our full focus on the key elements to support value creation. This includes: leveraging our competitive advantages in feedstock; the growth in the most attractive market segments; and sales optimization based on our strong global market position; and finally, a strong focus on leveraging our economies of scale for efficiency and long-term competitiveness. Also for the short term, our priorities are very clear. They include SAF sales growth, ramp-up of our new production capacity and continued actions to improve our cost efficiency and cash flow. With these words, I now hand over to Carl Nyberg who will go through the Renewable Products segment review. Carl, please?

Thank you, Martin. So good afternoon also on my behalf. So let's now go through the results and market update for Renewable Products. Go to the next slide. The market environment continued to weaken in the second quarter, and this clearly had an impact on the sales margin. As mentioned earlier, the sales margin was USD 382 per ton, and this is, of course, now clearly visible in the waterfall compared to the second quarter a year back. As we have highlighted for some time already, the additional capacity has impacted the market, especially in the U.S. where the biocredits have come off, but this is also visible in Europe, where spot premiums have weakened. There were also some one-off inventory valuation losses related to the U.S. credit impact in the quarterly sales margin in the quarter. Our sales were quite evenly balanced between Europe and North America, and we continue to optimize across our full value chain in this weaker market environment. Operationally, we had a solid quarter at our own refineries. Also, the Martinez JV utilization rate was successfully increased towards the end of the quarter and we have now reached the capability to produce around 75% of our design capacity. The Martinez site continued to have a diluting impact on our sales margin overall, but we expect the profitability to improve as we move along with the ramp up and continue to optimize the site further. It's also good to notice here that our fixed costs were EUR 20 million lower quarter-on-quarter. So to summarize, we are facing a tough market situation. There is no going around that. On the other hand, we also see positive momentum building, especially in the SAF market. The SAF sales is proceeding and the reference price differential for SAF compared to renewable diesel widened slightly at the end of the second quarter. So let's then move it to the next slide and look at our short-term priorities. So to summarize really, first of all, our global end-to-end optimization continues to provide competitive advantage also in this market situation as we continue to drive value creation both in the feedstock space as well as in how we optimize our production towards the most attractive customer segments. Second, we continue to focus on growing our SAF business, where we have had good progress in sales towards the end of the quarter. We also see positive momentum building, especially towards the end of the year as the regulation-driven mandates start to kick in, particular so, in Europe. There is obviously also very high focus on finalizing the capacity ramps up and the new project at our sites in Singapore and Rotterdam as well as with our JV in the U.S. executing on our cost and efficiency improvement plans remain a high priority as well. And then last but not least, feedstock continues to be at the core of our strategy, and we continue to build our capabilities to further strengthen and widen our reach of feedstock. Let me then show you a couple of slides, which we also shared in our Investor Day in the spring. So when we look at the buildup of the SAF market, it's good to remember that the year 2024 is still based on voluntary demand and only next year, there are going to be significant mandates in place. Most notably, of course, the ReFuelEU Aviation, this will substantially change the SAF market dynamics and clearly driving demand. While mandates will be in place in 30 countries and states, we also continue to see SAF incentive programs emerging and also play an important role in the market. If we then move to the next slide, let me also emphasize the importance of the partnerships we are building with our aviation customers across the globe. Neste continues to be uniquely positioned to offer global supply of SAF for our aviation customers. The Neste Impact, which was launched earlier in the year, also provides an interesting tool to cater for a growing pool of corporate customers in their efforts to lower aviation-related Scope 3 emissions. So this covers my part. Thank you, and over to you, Markku.

Thanks, Carl. Good afternoon, all. Now a quick update from Oil Products. Our Q2 was dominated by the refinery-wide major turnaround which started at the beginning of April and was successfully completed 3rd of June and the ramp-up afterwards has also progressed well. So let's look at the EBITDA bridge comparing Q2 '24 to the year before. The EBITDA was EUR 177 million lower at EUR 62 million. The key driver was the turnaround-related sales volume reduction with EUR 151 million negative effect. The customer deliveries in the Nordic markets were not affected, while our presence in export spot market was clearly at the lower level. Total refining margin was at USD 15.1 per barrel compared to USD 16.7 per barrel the year before. This drop resulted in a EUR 17 million reduction to the EBITDA. Finally, the combined effect of fixed cost, FX and other is negative EUR 9 million. Now let's look at the Oil Products focus areas for the remainder of the year. Clearly, after the turnaround, the main goal is to run the Porvoo refinery at high operating rates with optimal feedstock and product portfolio. The value of operational excellence is significant in today's still healthy margin environment, leading to a positive cash flow generation. The portfolio planning of the gradual Porvoo transformation announced in December 2023 is progressing. We are currently reviewing the optimal timing of the initiatives. Further, during the coming quarters, we will be taking steps to strengthen chemical recycling logistics as well as further enhancing our co-processing capabilities. Finally, within the Neste Excellence program, the key focus areas are end-to-end supply chain and capacity availability optimization as well as energy efficiency. When successfully implemented, this will add to our competitive advantage and cash generation capability. Now hand it back to Matti.

Thank you, Markku. And I will cover briefly the Marketing & Services results. The comparable EBITDA for the Marketing & Services was at EUR 24 million, which is lower than the EUR 29 million in the second quarter of last year, and this was impacted by slightly lower sales volumes and unit margins year-on-year. At the same time, I want to note that our market share continued to be strong, and also the comparable return on net assets improved to 32.2%, which is a good achievement. Now handing it over to Martti to go through the group's financials.

Thank you, Matti. So let's now take a more detailed view on some of the key financials for the second quarter, and I would like to start by reiterating first our financial priorities. In the short term, our focus is a lot in efficiency as well as cash flow generation. We continue our Neste Excellence program. Markku already highlighted that well, targeting over EUR 350 million of sustainable EBIT value creation by 2026, with 2022 acting as the baseline year. Like we have stated many times earlier, we are currently very well on that track. In the first quarter call, I said that we will see this year our fixed cost growth rate leveling out. From our consolidated income statement, it can now be observed that in the second quarter, our reported compound employee costs as well as other expenses combined, that is fixed cost, they were EUR 23 million lower than last year and EUR 28 million lower than in the first quarter this year. This is, of course, a clear efficiency improvement. At the same time, we have continued to fine-tune our operating models across all our businesses to make them more optimized in cost as well as net working capital management. And as an example of this, we have clear actions in place to reduce our net working capital and particular inventory level in the second half of the year to secure solid cash flow generation. At the end of the second quarter, our inventories were still on a high level at about EUR 4 billion due to the Porvoo turnaround and while in renewables also preparing for the upcoming maintenance shutdowns in Rotterdam and Singapore. We have also completed necessary funding arrangements to support our liquidity. And in addition, it's important to highlight the work we continue to execute in the area of risk management. We have continued active business-driven hedging. And in the second quarter, our overall hedging ratio was above 38% and the overall hedging result positive in Renewable Products. Let's then turn to our second quarter result bridges by business segment as well as by business driver. When first looking at the second quarter comparison bridge by business segment, on the lefthand side in this graph, we can see that while our comparable EBITDA was EUR 240 million in the quarter compared to EUR 784 million last year, the result decline year-on-year comes mainly from two sources. First, in Renewable Products, performance was impacted by market prices continuing to weaken in the second quarter compared to the first quarter of the year; and second, in Oil Products, the second quarter performance was impacted by our planned major turnaround in Porvoo. Like stated earlier, the turnaround was completed safely on time and according to budget. It is important to highlight here also that the second quarter comparable EBITDA in Renewable Products includes a one-off valuation loss in our bioticket and credit inventories totaling EUR 36 million. Without this one-off valuation loss, the comparable EBITDA of Renewable Products would have been EUR 188 million instead of EUR 152 million. In the comparable sales margin, the valuation loss is equivalent to USD 40 per ton, hence, without the one-off impact, the sales margin would have been USD 422 instead of USD 382 per ton. And the valuation loss stems from the clearly falling bioticket credit prices, particularly in LCFS credits in California with some impact also from the Oregon Clean Fuels Program credits as well as RINs. Then looking at the comparison by driver year-on-year on the righthand side. The impact from sales volume is mainly from the Porvoo major turnaround in Oil Products, while the sales margin [ end up ] mainly from Renewable Products. Of note here that the group's comparable fixed costs were EUR 18 million lower in the second quarter compared to a year ago. On a positive note, certain market parameters in Renewable Products improved slightly towards the end of the quarter. And like Matti already stated earlier, we estimate the second quarter to be the weakest quarter of the year for Neste in terms of results. On the next page, we are making the same analysis in a half year comparison. In these graphs, we can see pretty much the same story as in the second quarter comparisons. The impact of the weak renewables market in the first half of the year and the impact of the Porvoo major turnaround in the second quarter in Oil Products are the main explanatory factors. Then a short look at our performance against our financial targets. At the end of June this year, our comparable ROACE calculated over the last 12 months was 14.4% and leverage, 34.5%. We do maintain a solid financial position in the midst of a challenging market. Turning to our cash flow. Our cash flow before financing activities was EUR 461 million negative in the second quarter. Cash flow was impacted by the weak EBITDA, while at the same time our inventory level, like I mentioned, stayed at about EUR 4 billion at the end of the second quarter, only marginally down from the end of Q1. More precisely, and when looking at the balance sheet number, our inventories are up by EUR 677 million in the first six months of the year compared to end of last year, impacting negatively our net working capital and cash flow. Like we have communicated, the buildup of inventories, that's mostly related to: the aforementioned major turnaround at Porvoo, which is now completed; our upcoming maintenance shutdowns in Rotterdam and Singapore in Renewables in the third and fourth quarter; as well as the buildup of our SAF inventories for projected sales in the second half of 2024, which Carl earlier mentioned. Looking forward, we do expect major releases from inventory levels, particularly towards the end of the year. Good to note that in the same period comparison period, there has also been a positive impact in other elements of working capital, that is in receivables and trade payables. The group's net working capital in days outstanding was 41 days on a rolling 12-months basis at the end of the second quarter, that is two days higher compared to a year earlier. Our cash out investments totaled EUR 455 million in the second quarter, main project being our Porvoo major turnaround, Rotterdam expansion project and our SAF project in Rotterdam. Looking forward into the rest of the year, we do expect our cash flow to be substantially positive in the second half of the year. And to close up, I also want to remind everybody that despite the short-term challenges, it's good to remember that the long-term demand outlook in renewables remains very positive. This ends the financial review, and I will hand back to our CEO, Matti, please.

Thank you, Martti. And let's now take a look at our outlook for the full year 2024. In general, we expect the geopolitical situation to result in continued volatility. In Renewables, we have specified the guidance as follows. We expect that the average sales margin for the full year will be in the range of $480 to $580 per ton, whereas the earlier guidance included a wider sales margin range of $480 to $650 per ton. For SAF sales, we expect the sales volume to increase towards the end of the year and to be in the range of 0.5 million to 0.7 million tons, whereas the earlier guidance included a wider SAF sales volume range of 0.5 million to 1 million tons. Otherwise, the guidance is unchanged. And as communicated earlier, we will have a number of planned maintenance shutdowns in the second half of the year in Rotterdam and both Singapore lines. The ramp-up of Martinez Renewables is progressing. And after running at below 50% utilization in the first half of the year, the facility is targeted to reach 75% utilization during the third quarter and 100% by the end of the year. Then looking at the longer-term picture, I want to emphasize that the long-term demand outlook in renewable and circular solutions remains strong in all key markets and continues to be supported by the regulatory development including, for example, the Renewable Energy Directive, the ReFuel Aviation directive in Europe and the low-carbon fuel schemes in the U.S. We also follow closely the interesting regulatory developments, for example, in South America and Asia. On a very recent development, the EU last week published provisional import tariffs for Chinese biodiesel and renewable diesel. I want to conclude by reiterating Neste's focus on the areas supporting value creation, both short term and long term: our unique feedstock position; growth in the most attractive markets and optimization based on our strong global market position; and continued focus on efficiency. This ends the presentation, and we are now ready to take the questions. Please, operator?

[Operator Instructions] And the first question comes from the line of Alejandro Vigil from Santander.

The first question is about the balance sheet. With the current financial situation close to the 40% threshold, which are the tools you may use if you reach this level? Are you thinking about potentially even a capital increase, if needed? And the second question is about the CapEx. This year is still very, very intensive in terms of CapEx, about EUR 1.5 billion. What are your expectations for next year in this situation in which some of your competitors are delaying investments or even canceling projects?

Thank you, Alejandro, for your question. I'll try to answer the first one on the balance sheet. So we have definitely noticed that, of course, the leverage has been going up in the recent quarters, now at 34.5%. But what I said earlier, firstly, we definitely believe there will be a substantial positive cash flow in the second half of the year. We have a number of actions in place regarding the cash out, improve our cash flow. I mentioned the working capital elements, particular focus on the inventory levels. We have certain issues we can look into streamlining our CapEx outlay also. Otherwise, then of course, we did also mention that we expect this to be the lowest quarter of the year and the results to lowest quarter in terms of results. And as far as personally concerned, so my target would be rather to see the going forward that our leverage would not go upwards. So of course, we have full focus on the cash flow and the efficiency improvements.

And perhaps on the second question on the CapEx, this is Matti Lehmus, I can answer. So obviously, we haven't guided yet for the capital expenditure level next year. This year, we expect it to be between EUR 1.4 billion and EUR 1.6 billion. At the same time, looking into next year, one observation is that we, of course, continue to execute our Rotterdam capacity growth project, which is a major project. We also will have normal maintenance investments. At the same time, it's clear that in this situation, we will be very carefully scrutinizing any capital expenditures. So overall, it is, of course, likely that the level will be going downward from this year's level.

And there are absolutely no need for any -- the funding is in place, supporting adequate strong liquidity.

The next question comes from the line of Giacomo Romeo from Jefferies International.

If I go back to the point of CapEx, you are -- obviously, Rotterdam investment is a key growth project you are executing on. As you mentioned, we have seen a number of projects in Europe being pulled back. Are you still happy to invest in growing capacity given your current outlook for supply-demand? Do you still expect these projects to find a supportive demand environment when it comes online in the coming years? Second question, I'd like to go back to the comments you made in your earlier remarks on improvements on the fixed cost side. We clearly see in Renewable Products. Do you think that the EUR 190 million we're seeing this quarter is a good sustainable level going forward? Do you think there's more improvements you can make on that baseline?

Yes. Thank you, Giacomo. Perhaps I can take the first question still on the CapEx. And obviously, we continue executing our Rotterdam capacity growth project. It is progressing as planned. And when I look at the big picture, obviously, the market environment is very challenging at the moment. At the same time, looking at the midterm and longer term, it's also clear that we expect the demand to continue growing, globally and also in Europe. And as you will remember, the Rotterdam capacity growth project also includes flexibility to produce SAF, which is also an important driver for this project. On the fixed cost, Martti, please.

Yes. On the fixed cost [indiscernible], I mentioned earlier that if you look into the consolidated financial statements, so if you add up the employee benefit costs as well as the other expenses, you arrive at EUR 313 million. And if you compare that to last year, it's EUR 23 million lower. Also, if you compare to the first quarter, EUR 28 million lower. Elements have been that we have been saving actually already since the second half of last year. And on the employee side, as an example, if you just look at our number of employees at the end of June, it was 5,862 versus a year ago, 6,396. So it's 564 employees less. That's actually more than the 400 we calculate through the reduction that we had earlier. But otherwise, maybe, Carl, do you want to add something from the Renewable Products side? I think the question was a bit from Giacomo also towards that? And then maybe to end up from my side. So we continue all the efforts to keep our fixed cost and to streamline. But we have no specific further guidance on that. You can find there are a few sentences in the additional information after the guidance on that.

Yes and perhaps if I add on that to Martti's comments. So if I look at the renewables side, so it is clear, of course, that we continue to grow with our projects, and there is certain pressure also from that side coming in the fixed cost side. But we continue to scrutinize our cost basis continuously here, and we will remain very diligent in how we continue to build up our capabilities in the renewable space then to also stay in control of these costs.

And the next question comes from the line of Sasikanth Chilukuru from Morgan Stanley.

I have two, please. The first one was regarding SAF margins and pricing. I just wanted to understand how we should be thinking about the uplift to margin provided by SAF volumes in the second half. Regarding SAF pricing and sulfur, what should we be using as a reference point? Should we be using jet fuel prices? Or is it referenced on renewable diesel and the premium over renewable diesel? If you could give us some color on what goes into your negotiations for contracted SAF volumes? Slightly related to that, how does the current spot price differential of SAF to renewable diesel impact your disclaimers with clients? The second was also related to SAF. I wanted to understand the noncompliance costs for airlines in Europe from 2025. Are there penalties that are already established? Have they become a law? Or are they currently at any hard proposal stage?

Yes. Thank you. I can start. Carl can then add his here. So in general, on the SAF market development, I would perhaps refer in a way that you can get an indication, of course, by looking at the public references that are out there, for example, follow the SAF premium over fossil jet. That is one good indicator that you can deduct there. And you will note that, for example, during the second quarter, this has been slightly -- let's say, the SAF multiple versus fossil jet, slightly under 3% has been the level where it has ended. And I think in general, of course, I think while the market is still evolving and the liquidity needs to further improve, these reference prices give some indication clearly of where the market is heading. And that, of course, means that from a margin perspective, even if there is always, of course, extra costs in processing SAF and the logistics it, SAF, for us, continues to be a premium product. Regarding the noncompliance costs, I would mainly have the comment that based on the ReFuel EU directive, it is actually the fuel suppliers who are the mandated parties and there are also penalties defined. But I don't have that exact number here now, but it is perhaps good to note that the mandate is actually put on the fuel suppliers.

If I could add one more question. I just wanted if you could update the start-up and the ramp-up of the SAF of optionality project in Rotterdam. When are you expecting that?

Yes. Okay. So Carl here, I can give an update on that. So we plan to start that one up during the third quarter here. So that is our plan currently.

And the next question comes from the line of Artem Beletski from SEB.

The first one is really related to recent news when it comes to import tariffs on Chinese biodiesel and renewable diesel. Do you expect some, let's say, supportive impacts to be visible already this year as these duties should be in place starting from mid-August, if I recall correctly? And then also, what else also related to SAFs? It is actually excluded from these duties? Then second question is relating to Martinez and what was the magnitude of margin dilution now in Q2? Was it similar to Q1? What you commented at that stage? So maybe those are two questions from my side.

Yes. Thank you, Artem. And perhaps I can initially comment. So obviously, we will see. The EU last Friday published these provisional import duties and then in a way, those will be implemented in the late part of August, so we will see what type of market impact there is. Perhaps the one way to look at it, I'm just looking at the magnitude of these imports based on the public data from last year, so the imports of biofuels from China were around 2 million tons to Europe. And you can compare this number to the biodiesel market in Europe, which is around 11 million tons last year. And I think the renewable diesel market was around 4.5 million tons so that gives a flavor of the impact. But it is, of course, something that we will see going forward, what type of impact there is. On the topic of SAF exclusion, we note that this has been provisionally excluded. Obviously, I'm sure there will be comments on the proposal. So let's see then whether that changes going forward. On Martinez, we commented in the first quarter that the impact on the overall total sales margin was dilutive and in a similar way, also in the second quarter. The order of magnitude is quite similar, so around 10%.

Okay. That's clear. And maybe just a quick follow-up from my side. Just this bioticket inventory revaluation topic, what you highlighted in the report. What was actually the reason for it to being flagged? Is it somehow exceptional in terms of magnitude? Or have there been any changes when it comes to accounting practices what you have been using?

Thanks, Artem. Martti here, I'll try to answer that. So yes, this was exceptional in the order of magnitude compared to our overall comparable sales margin. And where that stems from is that particularly when we sell this in the state credits, LCFS on Oregon. When we conclude the sale, we get a ticket, but it's still, at that time, an obligation. We still have to make an application like in California to CARB and there's a time lag of about 1 to 2 quarters when we get back a ticket approved, which is then a sellable ticket. So hence, we are open to price risk. And actually, we do, on an ongoing basis, mark-to-market revaluation of our existing bioticket credits in the inventory. And in this quarter, which is also visible in the result, there was a very markable decline in the value, particularly in the LCFS value. It came from the end of March this year, USD 67 per ton to USD 46 per ton at the end of June, so USD 21 the difference, about 31%. So hence, we report it. It is a one-off revaluation and it's very clear to highlight. We also wanted to highlight from the fact that we have started -- at least for the time being started to see the market stabilize, not market parameters declining further. So one shouldn't expect at this time that there would be another one like that at least in the short term. Of course, we are always open to a certain extent to that kind of a risk.

The next question comes from the line of Peter Low from Redburn Atlantic.

The first was on your outlook for 2025 renewable diesel demand growth. Are you able to put a number or a range perhaps on how much you expect demand to grow next year and what some of the big moving parts are? And then the second one, U.S. and next year's switch from a blender's tax credit to a producer's tax credit. Is that confirmed now? Or does that still need to be approved? And how should we think about that impacting your sales mix? For example, will more products from Singapore go to Europe than perhaps it has done historically?

Yes. Thanks, Peter. And I can perhaps start with the demand outlook question. And Carl can then comment on the CFPC question. So in general, obviously, we will see the exact demand growth going forward. But our current estimates are is that next year, the overall growth of renewable diesel SAF globally could be somewhere around 4 million tons which is a bit more than this year. And I think the main thing we anticipate is that in Europe, the growth, after a year where the growth has been basically close to 0, we would again grow next year. And this is, of course, driven on one hand by the fact that the refuel aviation will increase SAF demand in Europe, but also, we expect some of the mandate updates to also create some renewable diesel demand in Europe. But this is first the big picture. And then, of course, if there is any update or new regulation, et cetera, then we need to update our forecast.

Yes. Thanks, Peter. Carl here. So if I'll come back to your CFPC question. So our base assumption here is that the CFPC will come into force as from the beginning of next year. Although having said that, I think that there is a lot of uncertainty still surrounding this change, and we also saw earlier this week a BTC bill being taken to the Congress. And we'll have to see how this develops. So what is, of course, clear is that for Singapore, we will not have the benefit of getting the CFPC credits. At the same time, Singapore, being a very competitive renewables refinery, we still see opportunities to also serve our customers in the U.S. in the coming year. But I think it will be a dynamic situation, and there will probably be lots of opportunities also for us to optimize our sales in the coming year as this regulation then shapes and then takes form.

And the next question comes from the line of Kate O'Sullivan from Citi.

Just following on the U.S. environment. With the repeal of Chevron deference by the U.S. Supreme Court, I'm interested to hear how you expect that could impact any EPA-led RFS and blending mandates. And just a follow-up on SAF pricing and contracting. Of your SAF volumes that will be sold in the second half and into 2025, are these all under long-term or term contracts? When were these contracts agreed? And do you have intention to do it in advanced term contracts going forward? Or leave some related to kind of spot pricing?

Yes. So perhaps if -- thanks, Kate, if I start with the second question around SAF. So I mean, we are, of course, having different types of contracts in our portfolio. We are currently still very much focusing on spot sales in the current year. But we are also turning our view towards the upcoming year and terming up volumes. And it's really a combination of different types of contracts that we have in our portfolio. Obviously, the coming months will be very important as we move into the discussions for '25 as well and the buildup of the SAF market in Europe.

The next question comes from the line of Nash Cui from Barclays.

I have three, if that's okay; one each for Carl, Matti and Martti. Probably Carl, first question is on RP volume guidance. If I look at the second half sales volume, it will be 2.6 million, taking the midpoint of 4.4 million tons for the full year. That means the range of the guidance is very big at 0.8 million for 2H midpoint, 2.6 million tons, that's 30%. I just wonder why we come down that range. So that's my first question. Then my second question perhaps for Matti. Matti, I remember at the beginning of this presentation, you mentioned that SAF sale is clearly going to increase for the second half of this year. And in the previous question, Carl said this year, we still rely a lot on spot sales. I just wonder what gives you the confidence for SAF demand this year or SAF sales this year? Then my third question is for Martti. And Martti, I wonder if you can give a bit of a guidance on working capital release for the second half of this year. Perhaps if I'm sneaky, I can ask my question on dividend gain. I asked that last quarter. I want to ask again because dividend yield is at 7%, which is quite attractive. What will frame your thinking process to determine a new dividend yield or dividend policy.

Okay. Perhaps if I then start with the volume question. So we decided not to change the volume guidance for the time being. Obviously, I mean, we are continuing to optimize our sales and our production in this market environment and maintain to have this type of flexibility in our sales. So we are seeing significant differences in the different markets in terms of sales margin, and that remains a key element in how we optimize the business to really drive value.

Thanks. And perhaps adding perhaps to Carl's comment on the sales volume. You will remember also from earlier comments we have made, there is also uncertainty around the exact ramp-up of Martinez, for example, so that is why the range has been quite wide from the beginning, and we maintained the same range as earlier. On the SAF sales increase, I mean you will note, obviously, from the sales in the second quarter, we were at 65 kilotons. So it means that we do expect a clear increase in the second half of the year. At the same time, we have been taking very active steps in our sales. We are making progress for the second half of the year. But also, of course, we need to continue that work. And like Carl said, it's a combination of spot sales and some longer-term sales. So this work continues, and we are very focused on these proactive efforts to grow the SAF sales in the second half of the year. One observation that was made earlier is that next year, there will also be mandated demand. That is where the market is different this year, that most of the demand is voluntary rather than mandated.

And on the third question, thank you Nash, for the question. So if you look at the net working capital change in the first half of the year, it's about EUR 400 million negative. Last year, about EUR 200 million negative. I have highlighted very clearly earlier in my presentation that we have the focus, particularly in the inventory levels, where we have very clear issues. We knew that we're going to have the Porvoo major turnaround and we have now filed [indiscernible] for higher inventories because of preparing for the maintenance shutdowns, like I said, in Rotterdam and Singapore and also, regarding our projective SAF sales volume. So all those combined have led to high inventories, which also actually lead to your first question on the sales. So we have, of course, regarding our sales guidance, plus/minus 10%, but we are projecting clearly higher sales in the second half of the year compared to the early part of the year. And that's also embedded. So releasing cash selling from the inventories. Other more detail than that, of course, always one has a target that you target that you shouldn't have a negative impact from working capital. Let's see where we will end up, but we have very good plans in place. And you ended up by speaking on the dividend. It's far too early to comment on that, but we have a clear dividend policy in place to have a competitive and growing dividend. So no change in that.

The next question comes from the line of Christopher Kuplent from Bank of America.

Gentlemen, I realize I'm not going to extract any new information from you on this call, numerically speaking, but maybe you can go into a bit more detail on why you decided not to be a little more specific around the financial impact of upcoming turnarounds. That seems to be a little bit of a change of communication compared to prior incidents. And secondly, I wanted to check whether you can even very broadly talk a little more around the development in the SAF versus renewable diesel premium pricing that you've referred to as we've come out of the quarter and into July and give us a little bit of a picture of where we are right now in the market?

Thanks, Chris. So perhaps I can start with the first question. I mean we actually -- when you look at the information we provide on our maintenance shutdowns, we are already giving quite a lot of detailed information on the length of the turnarounds. So you will have noted that there is a 6-week turnaround at the Rotterdam refinery and a 4-week maintenance shutdown in Singapore in the third quarter. And then also the new line is scheduled to have an 8-week maintenance shutdown in the fourth quarter. I think we -- you can, of course, quite well make estimates on the impact based on these lengths. At the same time, it's worth noting we have built inventories. So from that angle, we also intend to support our sales during this turnaround through the inventories we have built.

And perhaps if I comment on the SAF question. So I mean, obviously, this is now an emerging market and a rather small one for the time being. So we saw quite some volatility in the market over the past quarter here. And I think that since that drop we saw in late May, the market has recovered somewhat, and it seems to be relatively well supported around these current levels. And we believe that the sort of supply-demand picture for SAF looks relatively constructive going into the second half of the year now and will remain supported in that sense. But overall, I think that it's clear that what we are seeing in the price discovery in the market, it is a small and volatile [ industry ] that we are seeing.

It's Martti. I would like to add one issue there that, of course, you have all seen that one of the competitors, okay, we can say here, Shell, informed of their postponement of the Pernis project, which was quite a large one. And it was intended to also have a SAF availability. So these kind of events have increased and are increasing interest towards Neste because we have availability at the moment and the mandates are coming up.

And the next question comes from the line of Henry Tarr from Berenberg.

I have a couple. One on the impact or potential impact of RED III in Europe. I wonder whether you could sort of talk about whether that might have an impact as we go into 2025? And then secondly, on the refining piece, margins obviously came down in Q2. What's your outlook for refining margins as you look into sort of the second half of the year? Do you think we're moving back to a more sort of normal level?

Thank you, Henry. Perhaps I can start with the Red III question. This is Matti. So what is part of this directive is that every member state needs to implement it and create a path towards reaching the targets and the time line for making those plans is May next year. So I think it will be a very interesting period to follow not only for next year but also for the following years, what type of plans are going to be published. And obviously, last quarterly call, I already talked about the example of the Netherlands that already at that time, updated its targets for '24 and '25. We will then see. Of course, in our forecast, the demand forecasted earlier, we have our existing forecast, but having more information then by mid next year, obviously, makes it possible then to update the forecast also for the following years.