Neste Oil to Boost Biodiesel Investments
Date: 28-Sep-06
Country: FINLAND
Author: Sami Torma
Announcing its new growth strategy, Neste Oil's board also approved new financial targets, among them a goal of at least 15 percent return on average capital employed (ROACE) after tax and a dividend payout of at least a third of underlying profits.
Neste Oil usesROACE percentage as a primary financial indicator and its earlier target was 13 percent. In 2005, it reached a level of 19.7 percent.
"It is positive that they have courage to invest a lot on biodiesel. While they also gave higher financial targets, it means they believe they will be able to grow profitably," Kaupthing Bank analyst Anna Virkola-Gabran said.
Neste also said in a statement it will build several biodiesel production facilities in various market areas -- either alone or with partners.
"We are aiming to be the world's leading biodiesel producer, which means production volumes of millions of tonnes annually," said Chief Executive Risto Rinne in a statement.
But he said the firm will continue to invest in new conversion capacity at its existing refineries in Porvoo and Naantali, Finland.
In 2005, Neste refined a total of 12.9 million tonnes of crude oil.
Shares in the company were up 3.0 percent at 22.30 euros after the announcement, outperforming the DJ Stoxx European oil and gas index, which was 1.1 percent higher by 0839 GMT.
Opstock analyst Henri Parkkinen said the market areas where Neste plans new production could include Western Europe and North America, Neste's main markets.
Kaupthing's Virkola-Gabran said Neste has earlier talked about cooperation with the French energy company Total or the Austrian oil group OMV. But largest demand for biofuels has traditionally been in Germany, she added.
Finnish weekly Talouselama reported last week Neste plans to set up a biofuel plant in California and is on the look-out for possible partners.
Rinne also said Neste Oil will be more active in research and development in biofuels to use different renewable raw materials.
"The announced several billion euro investments are in line with what has been expected," Opstock's Parkkinen said. "I consider this very much justified, as the company has strong refining know-how and a technological lead."
Neste Chairman Timo Peltola said the firm's new biodiesel production line at the Porvoo refinery, due for completion this winter, will boost the company's performance and cashflow significantly.
"We have concluded that a strong growth strategy, based on biodiesel production and driven by our own technology, is the best way of generating shareholder value," Peltola said in the statement.
Earlier this month Neste said it had agreed to buy 76,000 cubic metres of ethanol per year from Finnish state-owned Altia for biogasoline production from 2009 onwards.
The Finnish government said recently it is set to propose legislation increasing the biofuels requirement in transport fuels to 5.75 percent by 2010, almost doubling the country's earlier target plans, and increasing pressure for domestic production of ethanol and biodiesel.