- Comparable operating profit of EUR 181 million in the second
quarter
The second quarter in brief:
- Sales of EUR 4,420 million (Q2/07: 3,207 million)
- Comparable operating profit of EUR 181 million (Q2/07: 225 million)
- Operating profit of EUR 290 million (Q2/07: 314 million)
- Earnings per share of EUR 0.83 (Q2/07: 0.88)
- Cash flow from operations of EUR 314 million (Q2/07: 460 million)
- Net debt of EUR 1,017 million (Q2/07: 776 million)
- Total refining margin of USD 12.38 /bbl (Q2/07: 11.92), a new
quarterly record
President & CEO Risto Rinne:"The petroleum product market proved a polarized one, with gasoline
performing poorly and diesel strongly. Our refineries are geared
towards diesel production, and this saw us reporting our highest
quarterly total refining margin ever. Unfortunately the availability
of our new diesel line, which was down for most of the quarter, was
disappointing as the line has not yet delivered as it should and
can.""We made two major investment decisions that will take our strategy
forward during the second quarter. We are building a world-scale
NExBTL renewable diesel plant in Rotterdam, similar to the one under
construction in Singapore; and in Bahrain we are investing in a
large, top-tier base oil plant together with local partners."
Further information:
Risto Rinne, President & CEO, tel. +358 10 458 4990
Petri Pentti, CFO, tel. +358 10 458 4490
News conference and conference call
A press conference in Finnish on the second-quarter results for 2008
will be held today, 31 July 2008, at 11:30 am EET in the Mirror Room
at Hotel Kämp, Pohjoisesplanadi 29, Helsinki. www.nesteoil.com will
feature English versions of the presentation materials.
An international conference call for investors and analysts will be
held on the same day at 3:00 pm Finland / 1:00 pm London / 8:00 am
New York. The call-in numbers are as follows: Europe: +44 (0)20 3023
4426, US: +1 866 966 5335. Use the password: Neste Oil. A webcast of
the call can be found at
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=189806&eventID=1899772.
An instant replay will be available for one week at +44 (0)20 8196
1998 for Europe and +1 866 583 1035 for the US, using access code
725434.
NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY - 30 JUNE 2008
Unaudited
Figures in parentheses refer to the same period in previous year,
unless otherwise stated.
KEY FIGURES
EUR million (unless otherwise noted)
Last 12
4-6/08 4-6/07 1-6/08 1-6/07 2007 months
Sales 4,420 3,207 7,717 5,664 12,103 14,156
Operating profit before
depreciation 343 359 606 562 996 1,040
Depreciation,
amortization and
impairments 53 45 112 84 195 223
Operating profit 290 314 494 478 801 817
Comparable operating
profit * 181 225 300 383 626 543
Profit before income
tax 284 304 475 465 763 773
Earnings per share, EUR 0.83 0.88 1.38 1.34 2.25 2.29
Investments 110 77 192 177 334 349
Net cash from operating
activities 314 460 201 353 541 389
30 June 30 June 31 Dec
2008 2007 2007 LTM
Total equity 2,509 2,184 2,427 -
Interest-bearing net
debt 1,017 776 755 -
Capital employed 3,600 3,032 3,234 3,600
Return on capital
employed pre-tax, % 29.2 32.3 26.2 24.8
Return on average
capital employed after
tax,% - - 15.5 12.7
Return on equity, % 28.8 32.2 25.6 25.2
Equity per share, EUR 9.78 8.52 9.47 -
Cash flow per share,
EUR 0.79 1.38 2.11 1.52
Equity-to-assets ratio,
% 43.5 47.2 49.9 -
Leverage ratio, % 28.8 26.2 23.7 -
Gearing, % 40.5 35.5 31.1 -
* Comparable operating profit is calculated by excluding inventory
gains/losses, gains/losses from sales of fixed assets, and unrealized
changes in the fair value of oil and freight derivative contracts
from the reported operating profit.
The Group's second-quarter results
The Group's sales increased by 38% to EUR 4,420 million (3,207
million) in the second quarter, largely due to higher petroleum
product prices.
The second-quarter operating profit totaled EUR 290 million (314
million) and includes an inventory gain of EUR 119 million (55
million).
The Group's comparable operating profit was EUR 181 million (225
million) in the second quarter. The increase in total refining
margin, as well as strong renewable fuels sales margin and crude
freight rates, were offset by the negative impacts of the weak US
dollar and reduced sales margins at the Specialty Products Division.
In addition, maintenance costs and depreciation were higher compared
to the same quarter in 2007. The full potential of strong diesel
margins was missed, however, because the new diesel production line
at the Porvoo refinery was down for almost the whole quarter as a
result of a fire in April.
During the second quarter the comparable operating profit of Oil
Refining was EUR 133 million (168 million), Renewable Fuels EUR 13
million (-5 million), Specialty Products EUR 19 million (41 million),
Oil Retail EUR 11 million (17 million), and Shipping EUR 20 million
(12 million).
The Group's profit before taxes was EUR 284 million (304 million),
and net profit for the period was EUR 213 million (227 million).
Earnings per share were EUR 0.83 (0.88).
The Group's January-June results
Sales of the Neste Oil Group totaled EUR 7,717 million in the
January-June period, compared to EUR 5,664 million in the same period
in 2007.
The Group's six-month operating profit totaled EUR 494 million (478
million). Inventory gains reached EUR 194 million during the period
(84 million).
The Group's comparable operating profit for the period was EUR 300
million (383 million). Higher total refining margin and good sales
margin on renewable fuels had a positive impact, whereas the weak US
dollar and lower margins at Specialty Products had a negative impact
on the comparable operating profit.
The six-month comparable operating profit of Oil Refining was EUR 230
million (274 million), Renewable Fuels EUR 15 million (-10 million),
Specialty Products EUR 27 million (73 million), Oil Retail EUR 20
million (28 million), and Shipping EUR 29 million (33 million).
The Group's profit before taxes was EUR 475 million (465 million),
and net profit for the period was EUR 356 million (345 million).
Earnings per share were EUR 1.38 (1.34).
Given the capital-intensive nature of its business, Neste Oil uses
return on average capital employed after tax (ROACE) as its primary
financial indicator. As of the end of June, the rolling twelve-month
ROACE was 12.7%, which is below the target of at least 15% over the
cycle (financial period 2007: 15.5%).
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
COMPARABLE OPERATING PROFIT 181 225 300 383 626 543
- changes in the fair value of
open
oil derivative positions -10 32 -8 6 -5 -19
- inventory gains 119 55 194 84 174 284
- gains from sales of fixed
assets 0 2 8 5 6 9
OPERATING PROFIT 290 314 494 478 801 817
Capital expenditure and financing
Investments during the first six months totaled EUR 192 million (177
million), of which Oil Refining accounted for EUR 68 million,
Renewable Fuels EUR 77 million, Specialty Products EUR 3 million, Oil
Retail EUR 23 million, and Shipping EUR 1 million. Capital
investments in the Other segment totaled EUR 20 million.
Depreciation in January-June period was EUR 112 million (84 million).
Interest-bearing net debt totaled EUR 1,017 million at the end of
June (31 Dec 2007: 755 million). This increase was mainly caused by
higher net working capital due to increased crude oil and petroleum
product prices. Net financial expenses between January and June were
EUR 19 million (13 million).
The average interest rate of borrowings at the end of June was 4.5%,
and the average maturity 4.4 years.
Net cash from operating activities between January and June was EUR
201 million (353 million).
The equity-to-assets ratio was 43.5% (31 Dec 2007: 49.9%), the
gearing ratio 40.5% (31 Dec 2007: 31.1%), and the leverage ratio
28.8% (31 Dec 2007: 23.7%).
Cash and cash equivalents and committed, unutilized credit facilities
amounted to EUR 1,246 million at the end of June (31 Dec 2007: 1,492
million).
In accordance with its hedging policy, Neste Oil has hedged the
majority of its net foreign currency exposure for the next 12 months
using mainly forward contracts and currency options. The most
important hedged currency is the US dollar.
Market overview
Crude oil price continued to increase in the second quarter and Brent
Dated reached a new record of USD 139.10/bbl in June, averaging USD
121.38/bbl (68.76) in the quarter. Although the supply/demand balance
was not tight, crude oil inventories decreased as a consequence of
high crude prices and the unfavorable market structure. Financial
market problems, the weakening US dollar, and poor returns from bonds
and equities made investors move their funds to commodities,
including oil, in increasing volumes. The price differential between
Brent Dated and Urals crude widened to USD -4.44/bbl (-3.45) due to
low fuel oil margins and increased supply of heavier crude.
Reference refining margins were lower compared to the same quarter in
2007. A strong distillate market resulted in higher margins compared
to the first quarter, while margins for other products were weak. The
international reference refining margin in North West Europe, IEA
Brent Cracking, averaged USD 5.51 /bbl (7.90).
Middle distillates, diesel in particular, were the strongest
performer during the quarter, as refinery maintenance and reduced
runs at simple refineries reduced overall supply and inventories
continued to decline. Demand for diesel as a transportation fuel
continued to increase and margins were further supported by demand
for the fuel in energy generation in China and South America.
US gasoline demand was lower than a year ago, as record-high pump
prices and the slowing domestic economy started to impact consumer
behavior. Gasoline margins were very low, despite decreasing
inventories. Current prices are encouraging an increased use of
ethanol blending, putting further pressure on margins.
Fuel oil margins were extremely weak, due to large Russian export
volumes.
Demand and margins for high-quality NExBTL renewable diesel have
remained good.
High oil prices put pressure on retail margins and volumes,
especially in respect of gasoline. The continued growing popularity
of diesel cars has kept diesel demand healthy.
The crude freight market was very strong in the second quarter due to
temporary tightness in global capacity. North Sea crude freight rates
were 81% and Baltic freight rates 75% higher compared to the second
quarter of 2007.
Key drivers
4-6/08 4-6/07 1-6/08 1-6/07 July 08 July 07 2007
IEA Brent cracking
margin, USD/bbl 5.51 7.90 4.38 5.80 1.84 2.98 5.09
Total refining
margin, USD/bbl 12.38 11.92 12.14 10.84 n.a. n.a. 10.46
Urals - Brent price
differential,
USD/bbl -4.44 -3.45 -3.68 -3.51 -3.78 -2.36 -3.10
Brent dated crude
oil, USD/bbl 121.38 68.76 109.14 63.26 134.12 77.01 72.52
Crude freights,
Aframax WS points 228 126 187 144 227 124 136
USD/EUR exchange
rate 1.56 1.35 1.53 1.33 1.58 1.37 1.38
Sales and production
Sales from in-house production (in 1,000 tons and % of total)
4-6/08 % 4-6/07 % 1-6/08 % 1-6/07 % 2007 %
Motor gasoline 1,322 36 1,290 34 2,116 30 2,217 31 4,384 31
Gasoline
components 75 2 123 3 153 2 197 3 357 2
Diesel fuel 1,226 33 1,301 34 2,609 37 2,418 34 5,137 36
Jet fuel 169 5 168 4 306 4 343 5 729 5
Base oils 75 0 79 2 152 2 153 2 304 2
Heating oil 134 4 128 3 314 4 375 5 764 5
Heavy fuel oil 309 8 269 7 516 8 595 8 1,097 8
LPG 87 2 85 0 185 3 0 0 317 2
NExBTL
renewable
diesel 35 1 0 0 53 1 0 0 28 0
Other products 358 10 348 11 662 9 816 11 1,215 8
TOTAL 3,790 100 3,791 100 7,066 100 7,114 100 14,332 100
Sales from in-house production by market area (in 1,000 tons and % of
total)
4-6/08 % 4-6/07 % 1-6/08 % 1-6/07 % 2007 %
Finland 1,805 48 1,849 49 3,572 51 3,994 56 8,053 56
Other Nordic
countries 500 13 586 15 926 13 940 13 2,059 14
Other Europe 724 19 658 17 1,450 20 1,106 16 2,340 16
Russia &
Baltic
countries 25 1 12 0 46 1 16 0 59 0
USA & Canada 729 19 670 18 995 14 1,004 14 1,703 12
Other
countries 7 0 16 0 77 1 54 1 118 1
TOTAL 3,790 100 3,791 100 7,066 100 7,114 100 14,332 100
Diesel sales were little lower compared to the second quarter of
2007, due to problems with the new diesel line and other maintenance
at Porvoo. Gasoline sales were higher year-on-year, because of
clearance of the company's gasoline inventories.
Neste Oil refined 3.6 million tons (3.6 million) of crude oil and
feedstocks at its refineries in the second quarter, of which 2.9
million tons (2.9 million) at Porvoo and 0.7 million tons (0.7
million) at Naantali. The Porvoo refinery operated at a crude
distillation capacity utilization rate of 89% (96%) during the
quarter, while Naantali reached 96% (95%) capacity utilization.
The proportion of Russian Export Blend in Neste Oil's total refinery
input was 54% (43%) in the second quarter.
SEGMENT RESULTS
Neste Oil's businesses are grouped into six segments: Oil Refining,
Renewable Fuels, Specialty Products, Oil Retail, Shipping, and Other.
Oil Refining
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
Sales, MEUR 3,624 2,516 6,170 4,298 9,348 11,220
Operating profit, MEUR 231 246 417 353 640 704
Comparable operating profit,
MEUR 133 168 230 274 484 440
Capital expenditure, MEUR 36 44 68 116 193 145
Total refining margin
USD/bbl 12.38 11.92 12.14 10.84 10.46 11.12
Oil Refining posted an operating profit of EUR 231 million (246
million) and a comparable operating profit of EUR 133 million (168
million).
Neste Oil's total refining margin reached a new quarterly record of
USD 12.38 /bbl (11.92). In euros, however, the total refining margin
was lower than a year earlier. The IEA Brent Cracking reference
margin weakened to USD 5.51 /bbl (7.90). This was mainly thanks to a
strong diesel market and was supported by a more favorable
differential between Urals and Brent crude, as well as good margins
for low vapor pressure gasoline sold to the US. Higher variable
costs, such as energy, put pressure on the total refining margin.
The increase in refining margin was not enough to compensate for the
negative impact of the weaker US dollar, maintenance costs, and
trading activities.
Oil Refining's rolling 12-month comparable return on net assets at
the end of June was 19.5%.
Renewable Fuels
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
Sales, MEUR 46 4 69 6 40 103
Operating profit, MEUR 12 -4 13 -7 -12 8
Comparable operating profit,
MEUR 13 -5 15 -10 -13 12
Capital expenditure, MEUR 50 17 77 34 69 112
Renewable Fuels posted an operating profit of EUR 12 million (-4
million) and a comparable operating profit of EUR 13 million (-5
million) in the second quarter.
The increase was caused by the first production plant at Porvoo and
healthy margins for NExBTL renewable diesel. Project and development
costs had a negative impact on the segment's results.
Renewable Fuels' rolling 12-month comparable return on net assets at
the end of June was
8.0%.
Specialty Products
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
Sales, MEUR 164 181 330 347 649 632
Operating profit, MEUR 28 47 33 78 122 77
Comparable operating profit,
MEUR 19 41 27 73 109 63
Capital expenditure, MEUR 2 1 3 2 5 6
Specialty Products posted an operating profit of EUR 28 million (47
million) and a comparable operating profit of EUR 19 million (41
million) in the second quarter.
All businesses in the segment showed lower profitability compared to
the second quarter of 2007. Base oil margins were under pressure due
to the steady increase seen in feedstock prices. Sales volumes and
margins in respect of gasoline components were lower compared to the
very strong second quarter in 2007. Nynas Petroleum suffered from
high crude prices.
Specialty Products' rolling 12-month comparable return on net assets
at the end of June was 18.0%.
Oil Retail
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
Sales, MEUR 1,078 843 2,026 1,617 3,435 3,844
Operating profit, MEUR 11 18 22 29 60 53
Comparable operating profit,
MEUR 11 17 20 28 59 51
Capital expenditure, MEUR 15 11 23 18 51 56
Total sales volume*, 1,000 m3 1,051 1,097 2,107 2,242 4,519 4,373
- gasoline station sales,
1,000 m3 381 372 715 695 1,457 1,504
- diesel station sales, 1,000
m3 373 332 704 654 1,334 1,436
- heating oil, 1,000 m3 161 148 359 374 763 776
- heavy fuel oil, 1,000 m3 77 104 175 264 473 446
*includes both station and terminal sales
Oil Retail recorded an operating profit of EUR 11 million (18
million) and a comparable operating profit of EUR 11 million (17
million) in the second quarter. These figures include a EUR 4 million
write-down on business partner-related receivables in Baltic Rim
terminal operations.
Neste Oil's domestic market share in gasoline increased and sales
volumes grew, despite a reduction in overall demand for gasoline in
Finland. Diesel demand, however, has increased, which resulted in a
9% growth in the company's diesel sales. Neste Green diesel fuel was
launched in Greater Helsinki and the surrounding area in May. This
fuel, which includes at least 10% of the company's NExBTL renewable
diesel component, has proven to be a success.
Conversion of Finnish stations to a unified Neste Oil brand is under
way and 88 stations had been revamped as of the end of June. A total
of 275 stations are to be revamped in 2008.
Sales volumes in Russia increased somewhat, but margins were lower
compared to a very strong second quarter in 2007. The economic
slowdown in Estonia and Latvia has resulted in lower demand for
gasoline, but margins have remained largely unchanged.
At the end of the quarter, Neste Oil had 893 (896) outlets in Finland
and 277 (248) around the Baltic Rim.
Oil Retail's rolling 12-month comparable return on net assets at the
end of June was 14.1%.
Shipping
4-6/08 4-6/07 1-6/08 1-6/07 2007 LTM
Sales, MEUR 123 115 223 225 394 392
Operating profit, MEUR 23 16 30 39 30 21
Comparable operating profit,
MEUR 20 12 29 33 28 24
Capital expenditure, MEUR 1 0 1 1 2 2
Fleet utilization rate, % 97 94 97 94 94 95
Shipping recorded an operating profit of EUR 23 million (16 million)
and a comparable operating profit of EUR 20 million (12 million).
This stronger profitability was driven by unseasonably high crude
freight rates and an excellent fleet utilization rate. This positive
development was undermined by increases in bunker prices and port
charges and the weak US dollar.
Shipping's rolling 12-month comparable return on net assets at the
end of June was 8.1%.
Shares, share trading, and ownership
A total of 111,427,885 Neste Oil shares were traded in the second
quarter, totaling EUR 2.2 billion. The share price reached EUR 23.29
at its highest and EUR 17.81 at its lowest, and closed the quarter at
EUR 18.72, giving the company a market capitalization of EUR 4.8
billion as of 30 June 2008. An average of 1.8 million shares were
traded daily, equivalent to 0.7% of the shares outstanding.
Neste Oil's share capital registered with the Company Register as of
30 June 2008 totaled EUR 40 million, and the total number of shares
outstanding is 256,403,686. The company does not hold any of its own
shares, and the Board of Directors has no authorization to buy back
company shares or to issue convertible bonds, share options, or new
shares.
At the end of June, the Finnish state owned 50.1% of outstanding
shares, foreign institutions 24.7%, Finnish institutions 17.1%, and
Finnish households 8.0%.
Legal proceedings
As announced in the beginning of April, the disagreement that has
arisen in the final financial settlement for the mechanical
installation works on the new diesel line in Porvoo is being
processed against the main constructor, the YIT Group, at the court
of arbitration.
Personnel
Neste Oil employed an average of 5,099 (4,761) employees in the
second quarter. At the end of June, Neste Oil had 5,477 employees (30
June 2007: 4,956).
Health, safety, and the environment
The indicator for safety performance used by Neste Oil - total
recordable injury frequency (TRIF, number of cases per million hours
worked) for all work done for the company, combining the company's
own personnel and contractors - stood at 6.3 (5.7) at the end of June
2008. The target for current year is below 5.
The cumulative number of lost workday injuries was 29 at the end
June, with the frequency (LWIF) of 3.6. The target is below 3.
Strategy implementation
Neste Oil has continued to implement its clean fuel strategy by
making investment decisions to increase production of renewable
diesel and other high-quality products, such as base oils.
NExBTL renewable diesel
The cornerstone of Neste Oil's growth strategy is the company's
proprietary NExBTL technology, which produces a premium-quality
renewable diesel fuel that clearly outperforms both existing
biodiesel (FAME) products and crude oil-based diesel products
currently on the market. NExBTL renewable diesel can be produced from
almost any vegetable oil or animal fat.
A second NExBTL plant is under construction at Porvoo and is
scheduled to be commissioned in 2009. The capital cost of the second
unit is estimated at more than EUR 100 million. The plant will have
the same design capacity, 170,000 t/a, as the first plant currently
operating at the Porvoo refinery. Construction of an 800,000 t/a
NExBTL renewable diesel plant in Singapore started in March; this has
a capital cost budgeted at EUR 550 million and is expected to be
completed by the end of 2010.
In June, Neste Oil announced a decision to build another 800,000 t/a
plant in Rotterdam, in the Netherlands. The estimated cost of the
plant is EUR 670 million, and it is expected to come on stream in
2011.
An update of biofuel legislation is under way in the European Union,
and a plenary vote of the EU Parliament on the new Renewable Energy
Directive is expected to take place in September.
The company will continue to be active in R&D in the renewable fuels
area, and aims to switch completely to non-food feedstocks, such as
wood residue and new type of non-edible oils, by 2020. The Neste Oil
and Stora Enso joint program to develop wood residue gasification and
gas purification technology for producing of renewable diesel
feedstock is progressing according to plan.
Base oils
Neste Oil, Bahrain's Oil & Gas Holding Company (OGHC) and the Bahrain
Petroleum Company (Bapco) announced their decision in June to build a
high-quality lubricant base oils plant in Bahrain. The plant will
have an annual capacity of 400,000 tons of VHVI (Very High Viscosity
Index) base oil for use in blending top-tier lubricants. It will be
one of the world's largest VHVI base oil plants when it begins
production, which is scheduled for the end of 2011. The total
investment cost of the project is estimated to be between EUR 250 and
300 million, of which Neste Oil's share is 45%.
Refinery projects
In June, Neste Oil decided to build a new isomerization unit, costing
approximately EUR 80 million, at the Porvoo refinery. The new unit
will be capable of processing 600,000 t/a of existing gasoline
fractions into higher-value, premium-quality gasoline, and will
increase the refinery's total gasoline output by 200,000 t/a.
Construction of the new unit will begin in 2009, and it is scheduled
to come on stream at the beginning of 2011.
The company continues to review opportunities for investing in new
conversion capacity at the Naantali refinery to increase diesel
production.
Potential short-term and long-term risks
The oil market continues to be very volatile. Oil refiners are
exposed to a variety of political
and economic trends and events, as well as natural phenomena, that
affect the short- and long-term supply of and demand for the products
that they produce and sell.
The largest uncertainties during the remainder of 2008 are related to
high crude oil price and the economic slowdown in the US, which are
likely to have an impact on the demand for petroleum products and
gasoline in particular. Sudden and unplanned outages at Neste Oil's
production units or facilities also represent a short-term risk.
Over the longer term, access to funding and rising capital costs as
well as challenges in procuring and developing new competitive and
reasonably priced raw materials, may impact the company's growth
plans.
The key market drivers for Neste Oil's financial performance are
international refining margins,
the price differential between Russian Export Blend (REB) and Brent
crude, and the USD/EUR
exchange rate.
For more detailed information on Neste Oil's risks and risk
management, please refer to the
company's Annual Report and Financial Statements for 2007.
Outlook
In the US and Europe gasoline consumption has declined and an
increasing proportion of demand is being met by ethanol. This is
expected to continue and keep gasoline margins low and capacity
utilization at gasoline-focused refineries modest. Simple refineries
are suffering from poor margins on gasoline and heavy fuel oil, and
are reducing output as a result. This is also cutting diesel
production volumes.
The diesel supply/demand balance is expected to remain tight and
margins strong for the foreseeable future benefiting refiners that
have high diesel yield like Neste Oil.
The company's most recent diesel capacity addition, the new diesel
line in Porvoo, has suffered from operational constraints following
the fire in April. To eliminate these, the unit will be shut down for
maintenance for about one and a half months beginning in the second
half of August.
Margins on base oils are expected to recover when crude oil prices
stabilize. Margins on gasoline components are expected to remain
lower than previous year due to weak gasoline market.
Maintenance and technical improvements will be carried out at the
NExBTL renewable diesel plant in Porvoo during the second half.
Neste Oil's retail volumes are expected to increase in the second
half of 2008 compared to 2007, although demand is likely to decline
due to high oil prices and the economic slowdown in Baltic Rim
countries.
Shipping's freight rates have continued to be unseasonably high in
July.
The weak US dollar will have a negative impact on the Group's profit
in the second half.
The Group's capital expenditure in estimated to be approximately 600
million in 2008.
Reporting date for the third-quarter 2008 results
Neste Oil will publish its third-quarter results on 24 October 2008
at approximately 9:00 a.m. EET.
Espoo, 30 July 2008
Neste Oil Corporation
Board of Directors
The preceding information contains, or may be deemed to contain,"forward-looking statements". These statements relate to future
events or our future financial performance, including, but not
limited to, strategic plans, potential growth, planned operational
changes, expected capital expenditures, future cash sources and
requirements, liquidity and cost savings that involve known and
unknown risks, uncertainties, and other factors that may cause Neste
Oil Corporation's or its businesses' actual results, levels of
activity, performance or achievements to be materially different from
those expressed or implied by any forward-looking statements. In
some cases, such forward-looking statements can be identified by
terminology such as "may,""will,""could,""would,""should,""expect,""plan,""anticipate,""intend,""believe,""estimate,""predict,""potential," or "continue," or the negative of those terms
or other comparable terminology. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Future results may vary from the results expressed in, or
implied by, the forward-looking statements, possibly to a material
degree. All forward-looking statements made in this report are based
on information presently available to management and Neste Oil
Corporation assumes no obligation to update any forward-looking
statements. Nothing in this report constitutes investment advice and
this report shall not constitute an offer to sell or the solicitation
of an offer to buy any securities or otherwise to engage in any
investment activity.
NESTE OIL
GROUP
JANUARY- JUNE
2008
Unaudited
CONSOLIDATED INCOME
STATEMENT
MEUR
Last
Note 12
4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Sales 3 4 420 3 207 7 717 5 664 12 103 14 156
Other income 9 9 25 17 27 35
Share of profit
(loss) of
associates and
joint
ventures 3 10 13 11 14 39 36
Materials and -12
services -3 824 -2 674 -6 640 -4 691 -10 279 228
Employee
benefit costs -79 -64 -154 -127 -256 -283
Depreciation,
amortization
and
impairments 3 -53 -45 -112 -84 -195 -223
Other
expenses -193 -132 -353 -315 -638 -676
Operating
profit 290 314 494 478 801 817
Financial income and
expenses
Financial
income 2 2 4 4 8 8
Financial
expenses -11 -9 -24 -13 -40 -51
Exchange rate and
fair value gains and
losses 3 -3 1 -4 -6 -1
Total financial
income and expenses -6 -10 -19 -13 -38 -44
Profit before income
taxes 284 304 475 465 763 773
Income tax
expense -71 -77 -119 -120 -183 -182
Profit for
the period 213 227 356 345 580 591
Attributable
to:
Equity holders
of the company 212 226 354 343 577 588
Minority
interest 1 1 2 2 3 3
213 227 356 345 580 591
Earnings per
share from
profit
attributable to
the equity
holders
of the Company
basic and
diluted (in
euro per share) 0,83 0,88 1,38 1,34 2,25 2,29
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 Dec
MEUR Note 2008 2007 2007
ASSETS
Non-current assets
Intangible assets 5 53 38 41
Property, plant and equipment 5 2 500 2 396 2 436
Investments in associates and
joint
ventures 190 155 178
Non-current receivables 8 2 3
Pension assets 84 79 81
Deferred tax assets 7 5 7
Derivative financial instruments 6 64 37 22
Available-for-sale financial
assets 2 3 2
Total non-current assets 2 908 2 715 2 770
Current assets
Inventories 1 422 795 968
Trade and other receivables 1 164 943 955
Derivative financial instruments 6 218 112 126
Cash and cash equivalents 74 71 52
Total current assets 2 878 1 921 2 101
Total assets 5 786 4 636 4 871
EQUITY
Capital and reserves attributable to the
equity holders
of the company
Share capital 40 40 40
Other equity 2 2 463 2 141 2 383
Total 2 503 2 181 2 423
Minority interest 6 3 4
Total equity 2 509 2 184 2 427
LIABILITIES
Non-current liabilities
Interest-bearing liabilities 880 580 662
Deferred tax liabilities 292 267 289
Provisions 14 5 8
Pension liabilities 11 12 11
Derivative financial instruments 6 67 27 22
Other non-current liabilities 3 7 5
Total non-current liabilities 1 267 898 997
Current liabilities
Interest-bearing liabilities 211 268 145
Current tax liabilities 60 25 14
Derivative financial instruments 6 191 86 77
Trade and other payables 1 548 1 175 1 211
Total current liabilities 2 010 1 554 1 447
Total liabilities 3 277 2 452 2 444
Total equity and liabilities 5 786 4 636 4 871
CONSOLIDATED STATEMENT OF CHANGES IN
TOTAL EQUITY
Attributable to equity holders of the
Company
Share Reserve Fair Translation Re- Mi- Total
ca- fund value diffe- tained nority equity
pital and rences ear- inte-
other nings rest
MEUR Note reserves
Total equity at 1
January 2007 40 9 26 3 2011 8 2 097
Dividend
paid -231 -231
Treasury
shares 2 -12 -12
Income and
expenses
recognized
directly in
equity
Translation
differences and
other
changes 1 1 -1 1
Cash flow
hedges
recorded in
equity, net of
taxes 10 10
transferred to
income statement,
net of tax -18 -18
Net investment
hedges,
net of taxes -2 -2
Share-based
compensation 1 1
Change in
minority -7 -7
Items recognized
directly in
equity 1 -7 -1 -1 -7 -15
Profit for
the period 343 2 345
Total recognized
income and
expenses 1 -7 -1 342 -5 330
Total equity
at 30 June
2007 40 10 19 2 2 110 3 2 184
Share Reserve Fair Translation Re- Mi- Total
ca- fund value diffe- tained nority equity
pital and rences ear- inte-
other nings rest
MEUR Note reserves
Total equity at
1 January 2008 40 10 42 -11 2 342 4 2 427
Dividend
paid -256 -256
Income and
expenses
recognized
directly in
equity
Translation
differences and
other
changes 1 -15 -1 -15
Cash flow
hedges
recorded in
equity, net of
taxes 37 37
transferred to
income
statement,
net of tax -39 -39
Net investment
hedges,
net of
taxes 0 0
Share-based
compensation 0 0
Hedging
reserves
in
associates
and joint
ventures -1 -1
Change in
minority 0
Items
recognized
directly in
equity 1 -3 -15 -1 0 -18
Profit for
the period 354 2 356
Total
recognized
income and
expenses 1 -3 -15 353 2 338
Total equity at
30 June
2008 40 11 39 -26 2 439 6 2 509
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
4-6 4-6 1-6 1-6 1-12
MEUR Note /2008 /2007 /2008 /2007 /2007
Cash flow from operating
activities
Profit before taxes 284 304 475 465 763
Adjustments, total 57 1 135 61 184
Change in working capital 17 238 -320 -59 -189
Cash generated from operations 358 543 290 467 758
Finance cost, net -9 -8 -32 -7 -40
Income taxes paid -35 -75 -57 -107 -177
Net cash generated from operating
activities 314 460 201 353 541
Capital expenditure -107 -77 -182 -177 -334
Acquisition of subsidiary 4 -3 0 -10 0 0
Proceeds from sales of fixed
assets 1 9 3 12 14
Proceeds from sales of shares 0 0 7 -5 -5
Change in other investments -2 52 -26 -13 -22
Cash flow before financing
activities 203 444 -7 170 194
Net change in loans and other
financing
activities -182 -198 286 62 20
Dividends paid to the equity
holders of
the company -11 -231 -256 -231 -231
Net increase (+)/decrease (-) in
cash 10 15 23 1 -17
and cash equivalents
KEY FINANCIAL
INDICATORS
30 June 30 June 31 Dec Last 12
2008 2007 2007 months
Capital employed, MEUR 3600 3032 3234 3600
Interest-bearing net
debt, MEUR 1017 776 755 -
Capital expenditure and
acquisition of subsidiary,
MEUR 192 177 334 349
Return on average capital
employed, after tax, ROACE
% - - 15,5 12,7
Return on capital
employed, pre-tax, ROCE % 29,2 32,3 26,2 24,8
Return on equity, % 28,8 32,2 25,6 25,2
Equity per share, EUR 9,78 8,52 9,47 -
Cash flow per share, EUR 0,79 1,38 2,11 1,52
Equity-to-assets ratio, % 43,5 47,2 49,9 -
Gearing, % 40,5 35,5 31,1 -
Leverage ratio, % 28,8 26,2 23,7 -
Average number of shares 255903686 256040167 255971365 255903686
Number of shares at the
end of the period 255903686 255903686 255903686 255903686
Average number of
personnel 5099 4761 4810 -
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance
with IAS 34, Interim Financial Reporting, as adopted by EU. The
interim report should be read in conjunction with the annual
financial statements for the period ended 31 December 2007.
The accounting policies adopted are consistent with those of the
Group's annual financial statements for the year ended 31 December
2007 with the exception that the Group applies IFRS 8 Operating
Segments as of 1 January 2008.
The following interpretations are mandatory for the financial year
ending 31 December 2008, but not relevant for the Group:
- IFRIC 11 IFRS 2 Group and Treasury Shares
- IFRIC 12 Service Concession
Arrangements
2. TREASURY
SHARES
In 2007 Neste Oil entered into an agreement with a third party
service provider concerning the administration of the new
share-based management share performance arrangement for key
management personnel. As part of the agreement, the service provider
purchased a total of 500,000 Neste Oil shares in February 2007 in
order to hedge part of Neste Oil's cash flow risk in relation to the
future payment of the rewards, which will take place partly in Neste
Oil shares and partly in cash during 2010 and 2013. Despite the
legal form of the hedging arrangement, it has been accounted for as
if the share purchases had been conducted directly by Neste Oil, as
required by IFRS 2, Share based payments and SIC-12, Consolidation -
Special purpose entities. The consolidated balance sheet and the
consolidated changes in total equity reflect the substance of the
arrangement with a deduction amounting to EUR 12 million in equity.
This amount represents the consideration paid for the shares by the
third party service provider.
3. SEGMENT
INFORMATION
Neste Oil's businesses are grouped into six segments: Oil Refining,
Renewable Fuels, Specialty Products, Oil Retail, Shipping and Other.
Group administration, shared service functions as well as Research
and Technology and Neste Jacobs are included in the Other segment. Last
SALES 12
MEUR 4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Oil Refining 3624 2516 6170 4298 9348 11220
Renewable
Fuels 46 4 69 6 40 103
Specialty
Products 164 181 330 347 649 632
Oil Retail 1078 843 2026 1617 3435 3844
Shipping 123 115 223 225 394 392
Other 33 24 64 47 93 110
Eliminations -648 -476 -1165 -876 -1856 -2145
Total 4420 3207 7717 5664 12103 14156
OPERATING Last
PROFIT 12
MEUR 4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Oil Refining 231 246 417 353 640 704
Renewable
Fuels 12 -4 13 -7 -12 8
Specialty
Products 28 47 33 78 122 77
Oil Retail 11 18 22 29 60 53
Shipping 23 16 30 39 30 21
Other -14 -6 -23 -12 -37 -48
Eliminations -1 -3 2 -2 -2 2
Total 290 314 494 478 801 817
COMPARABLE
OPERATING Last
PROFIT 12
MEUR 4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Oil Refining 133 168 230 274 484 440
Renewable
Fuels 13 -5 15 -10 -13 12
Specialty
Products 19 41 27 73 109 63
Oil Retail 11 17 20 28 59 51
Shipping 20 12 29 33 28 24
Other -14 -5 -23 -13 -39 -49
Eliminations -1 -3 2 -2 -2 2
Total 181 225 300 383 626 543
DEPRECIATION,
AMORTIZATION AND Last
IMPAIRMENTS 12
MEUR 4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Oil Refining 34 29 72 53 126 145
Renewable
Fuels 1 1 3 1 5 7
Specialty
Products 4 4 8 7 13 14
Oil Retail 8 7 16 13 27 30
Shipping 4 3 8 7 15 16
Other 2 1 5 3 9 11
Total 53 45 112 84 195 223
SHARE OF PROFIT
OF ASSOCIATES
AND JOINT Last
VENTURES 12
MEUR 4-6/2008 4-6/2007 1-6/2008 1-6/2007 1-12/2007 months
Oil Refining 0 0 0 0 0 0
Renewable
Fuels 0 0 0 0 0 0
Specialty
Products 10 13 11 14 39 36
Oil Retail 0 0 0 0 0 0
Shipping 0 0 0 0 0 0
Other 0 0 0 0 0 0
Total 10 13 11 14 39 36
NET ASSETS 30 June 30 June 31 Dec
MEUR 2008 2007 2007
Oil Refining 2418 2076 2165
Renewable Fuels 212 112 142
Specialty Products 387 320 324
Oil Retail 385 318 381
Shipping 287 311 297
Other 68 52 59
Eliminations 0 -1 2
Total 3757 3188 3370
RETURN ON NET ASSETS, % 30 June 30 June 31 Dec Last 12
2008 2007 2007 months
Oil Refining 34,2 33,7 30,1 31,1
Renewable Fuels 13,8 -15,9 -11,4 5,3
Specialty Products 17,6 48,0 36,8 21,9
Oil Retail 11,8 17,9 17,4 14,6
Shipping 20,8 25,5 9,9 7,1
COMPARABLE RETURN ON NET ASSETS, % 30 June 30 June 31 Dec Last 12
2008 2007 2007 months
Oil Refining 18,9 26,1 22,7 19,5
Renewable Fuels 15,9 -22,7 -12,3 8,0
Specialty Products 14,4 44,9 32,9 18,0
Oil Retail 10,7 17,3 17,1 14,1
Shipping 20,1 21,6 9,3 8,1
QUARTERLY SEGMENT INFORMATION
QUARTERLY SALES
MEUR
4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 3624 2546 2740 2310 2516 1782
Renewable Fuels 46 23 27 7 4 2
Specialty Products 164 166 138 164 181 166
Oil Retail 1078 948 965 853 843 774
Shipping 123 100 87 82 115 110
Other 33 31 26 20 24 23
Eliminations -648 -517 -522 -458 -476 -400
Total 4420 3297 3461 2978 3207 2457
QUARTERLY OPERATING PROFIT
MEUR
4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 231 186 139 148 246 107
Renewable Fuels 12 1 2 -7 -4 -3
Specialty Products 28 5 10 34 47 31
Oil Retail 11 11 9 22 18 11
Shipping 23 7 -5 -4 16 23
Other -14 -9 -9 -16 -6 -6
Eliminations -1 3 -3 3 -3 1
Total 290 204 143 180 314 164
QUARTERLY COMPARABLE OPERATING
PROFIT
MEUR
4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 133 97 85 125 168 106
Renewable Fuels 13 2 3 -6 -5 -5
Specialty Products 19 8 2 34 41 32
Oil Retail 11 9 10 21 17 11
Shipping 20 9 -4 -1 12 21
Other -14 -9 -9 -17 -5 -8
Eliminations -1 3 -3 3 -3 1
Total 181 119 84 159 225 158
QUARTERLY DEPRECIATION, AMORTIZATION AND IMPAIRMENTS
MEUR
4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 34 38 37 36 29 24
Renewable Fuels 1 2 2 2 1 0
Specialty Products 4 4 3 3 4 3
Oil Retail 8 8 7 7 7 6
Shipping 4 4 4 4 3 4
Other 2 3 3 3 1 2
Total 53 59 56 55 45 39
QUARTERLY SHARE OF PROFIT OF ASSOCIATES
AND JOINT VENTURES
MEUR
4-6 1-3 10-12 7-9 4-6 1-3
/2008 /2008 /2007 /2007 /2007 /2007
Oil Refining 0 0 0 0 0 0
Renewable Fuels 0 0 0 0 0 0
Specialty Products 10 1 8 17 13 1
Oil Retail 0 0 0 0 0 0
Shipping 0 0 0 0 0 0
Other 0 0 0 0 0 0
Total 10 1 8 17 13 1
4. ACQUISITIONS
Neste Jacobs, subsidiary of Neste Oil Group, acquired 90% of the
shares of an engineering company Rintekno, which employs 230 people.
The acquisition was closed on 29 February 2008. Prior to this Neste
Jacobs already owned 10% of the company. Rintekno is an engineering
company specialized in engineering services for oil refining,
chemicals and biopharma industries. Neste Jacobs and Rintekno have
worked together for a number of years in connection with engineering
of Neste Oil's investment projects.
On consolidation, intangible assets related to order backlog,
customer relationships and trade name have been recognized at fair
value in the balance sheet. Total amount recognized is EUR 1 million
and the assets are depreciated during their expected life time, in
1-5 years. Goodwill recognized in the consolidated balance sheet is
attributable to the experienced and capable personnel employed by
Rintekno Group and to synergies achieved in engineering projects due
to Rintekno's previous experience as a subcontractor in Neste Oil's
major investment projects.
The profit of Rintekno Group included in the Neste Oil consolidated
income statement 1 January - 30 June 2008 is immaterial. Also,
management estimates that Rintekno Group's effect on Neste Oil's
consolidated sales or profit for the period would have been
immaterial as at 30 June 2008, had the acquisition taken place on 1
January 2008.
Assets and liabilities of Rintekno
Group
Acquired Acquired
fair book
MEUR value value
Intangible assets 1 0
Property, plant and equipment 1 1
Trade and other receivables 5 5
Cash and cash equivalents 6 6
Total assets 13 12
Trade and other payables 5 5
Pension liabilities 1 1
Total liabilities 6 6
Acquired net assets 7 6
Purchase consideration 16
Direct costs related to the acquisition 0
Goodwill 9
Purchase consideration settled in cash 16
Direct costs related to the acquisition 0
Cash and cash equivalents in Rintekno
Group -6
Cash outflow on acquisition 10
5. CHANGES IN INTANGIBLE ASSETS AND PROPERTY,
PLANT AND EQUIPMENT AND CAPITAL COMMITMENTS
CHANGES IN INTANGIBLE ASSETS AND PROPERTY,
PLANT AND EQUIPMENT 30 June 30 June 31 Dec
MEUR 2008 2007 2007
Opening balance 2477 2348 2348
Depreciation, amortization and impairments -112 -84 -195
Capital expenditure 182 177 334
Disposals -2 -10 -12
Translation differences -3 3 2
Acquired group companies 11 - -
Closing balance 2553 2434 2477
CAPITAL COMMITMENTS 30 June 30 June 31 Dec
MEUR 2008 2007 2007
Commitments to purchase property, plant and
equipment 213 59 88
Commitments to purchase intangible assets 0 0 0
Total 213 59 88
6. DERIVATIVE FINANCIAL
INSTRUMENTS 30 June 30 June 31 Dec
2008 2007 2007
Interest rate and
currency
derivative contracts
and
share forward contracts Nominal Net Nominal Net Nominal Net
fair fair fair
MEUR value value value value value value
Interest rate swaps 372 2 299 3 345 0
Forward foreign
exchange contracts 1265 21 1275 11 1189 35
Currency options
Purchased 499 15 346 1 353 11
Written 325 3 267 3 188 1
Share forward contracts 14 -3 17 6 17 2
Net Net Net
Oil and freight fair fair fair
derivative contracts Volume value Volume value Volume value
million million million
bbl Meur bbl Meur bbl Meur
Sales contracts 58 -104 83 -41 68 -66
Purchase contracts 70 89 105 54 74 65
Purchased options 2 13 2 -1 1 0
Written options 2 -12 1 0 0 0
The fair values of derivative financial instruments subject to
public trading are based on market prices as of the balance sheet
date. The fair values of other derivative financial instruments are
based on the present value of cash flows resulting from the
contracts, and, in respect of options, on evaluation models. The
amounts also include unsettled closed positions. Derivative
financial instruments are mainly used to manage the group's
currency, interest rate and price risk.
7. CONTINGENT
LIABILITIES
30 June 30 June 31 Dec
MEUR 2008 2007 2007
Contingent liabilities
On own behalf
For debt
Pledges 6 12 4
Real estate mortgages 26 26 26
For other commitments
Real estate mortgages 0 0 0
Other contingent
liabilities 36 28 42
Total 68 66 72
On behalf of associates
and joint ventures
Guarantees 13 4 2
Other contingent
liabilities 2 1 1
Total 15 5 3
On behalf of others
Guarantees 12 5 12
Other contingent
liabilities 0 1 0
Total 12 6 12
Total 95 77 87
30 June 30 June 31 Dec
MEUR 2008 2007 2007
Operating lease
liabilities
Due within one year 105 120 108
Due between one and five years 197 184 183
Due later than five
years 105 136 119
Total 407 440 410
Other contingent
liabilities
Neste Oil Corporation has a collective contingent liability with
Fortum Heat and Gas Oy of the demerged Fortum Oil and Gas Oy's
liabilities based on the Finnish Companies Act's Chapter 17
Paragraph 16.6.
CALCULATION OF KEY FIGURES
CALCULATION OF KEY FINANCIAL INDICATORS
Operating profit = Operating profit includes the revenue from the
sale of goods and services, other income such as gain from sale of
shares or non-financial assets, share of profits (loss) of associates
and joint ventures, less losses from sale of shares or non-financial
assets, as well as expenses related to production, marketing and
selling activities, administration, depreciation, amortization, and
impairment charges. Realized and unrealized gains or losses on oil
and freight derivative contracts together with realized gains and
losses from foreign currency and oil derivative contracts hedging
cash flows of commercial sales and purchases that have been recycled
in the income statement, are also included in operating profit.
Comparable operating profit = Operating profit -/+ inventory
gains/losses -/+ gains/losses from sales of shares and non-financial
assets - unrealized change in fair value of oil and freight
derivative contracts
Return on equity, (ROE) % = 100 x (Profit before taxes - taxes) /
Total equity average
Return on capital employed, pre-tax (ROCE) % = 100 x (Profit before
taxes + interest and other financial expenses) / Capital employed
average
Return on average capital employed, after-tax (ROACE) % = 100 x
(Profit for the period (adjusted for inventory gains/losses,
gains/losses from sales of shares and non-financial assets and
unrealized gains/losses on oil and freight derivative contracts, net
of tax) + minority interest + interest expenses and other financial
expenses related to interest-bearing liabilities (net of taxes)) /
Capital employed average
Capital employed = Total assets - interest-free liabilities -
deferred tax liabilities -provisions
Interest-bearing net debt = Interest- bearing liabilities - cash and
cash equivalents
Leverage ratio, % = 100 x Interest- bearing net debt / (Interest-
bearing net debt + Total equity)
Gearing, % = 100 x (Interest bearing net debt / Total equity)
Equity-to assets ratio, % = 100 x Total equity / (Total assets -
advances received)
Return on net assets, % = 100 x Segment operating profit / Average
segment net assets
Comparable return on net assets, % = 100 x Segment comparable
operating profit / Average segment net assets
Segment net assets = Property, plant and equipment, intangible
assets, investment in associates and joint ventures, pension assets,
inventories and interest-free receivables and liabilities allocated
to the business segment, provisions and pension liabilities
CALCULATION OF KEY SHARE RATIOS
Earnings per share (EPS) = Profit for the period attributable to the
equity holders of the company / Adjusted average number of shares
during the period
Equity per share = Shareholder's equity attributable to the equity
holders of the company/ Adjusted average number of shares at the end
of the period
Cash flow per share = Net cash generated from operating activities /
Adjusted average number of shares during the period
