Why oil refiner Neste is cutting 600 jobs?

Finnish oil refining and biofuel company Neste announced on Thursday that it will be reducing its workforce by approximately 600 positions. 

This decision comes after the company reported fourth-quarter core profits that fell short of market expectations. 

The job cuts are likely part of a broader cost-cutting initiative by Neste to improve its financial performance in light of challenging market conditions.

Weak financial performance

CEO Heikki Malinen said in a statement:

The Finnish company has been forced to revise its projections on the renewable sales margin downwards three times over the course of 2024. 

This comes as a direct result of the falling prices of renewable fuel, which have been negatively impacted by both weak demand and an oversupply in the market.

The company's financial performance in the fourth quarter was significantly below expectations, as reflected in its comparable earnings before interest, tax, depreciation, and amortization (EBITDA). 

This key metric, which provides insight into the company's operational profitability, experienced a dramatic decline of 78% compared to the previous period, reaching a total of 168 million euros ($175 million). 

This result fell far short of the average estimate of 308 million euros projected by analysts in a company-provided poll, highlighting a substantial miss and raising concerns about the company's underlying business health, according to Reuters.

Sales volumes may rise

Neste, a leading renewable energy company, also announced its projections for the sales volume of its renewable business in 2025. 

The company anticipates that the sales volume will surpass the figures recorded in 2024, where it reached 3.7 million tons. 

However, Neste has refrained from providing a specific range for the expected sales volume in 2025. 

This indicates that while the company is confident of growth, there are still uncertainties that could affect the exact sales figures. 

These uncertainties could stem from various factors such as market conditions, regulatory changes, or the pace of adoption of renewable energy solutions across the world. 

Despite these uncertainties, Neste's projection reflects its positive outlook on the renewable energy sector and its commitment to expanding its renewable business.

The company has announced a delay in the scheduled start of commercial operations at its renewable refinery located in Rotterdam, Netherlands. 

This setback is attributed to an increase in the total investment costs for the site, which have risen significantly from the initial estimate of 1.9 billion euros to 2.5 billion euros, the company said in the statement.

In November, the company experienced an unforeseen disruption to its operations due to a fire at its Rotterdam refinery. 

Operational challenges

The fire not only caused immediate operational challenges but also raised concerns about potential supply chain disruptions and the need for repairs and safety inspections before the refinery could resume full operations.

This incident necessitated a temporary shutdown of the facility, which was anticipated to have a significant impact on the company's ability to deliver renewable diesel for a period of several weeks. 

On Thursday, Neste Corporation revealed its proposal for a dividend payout of 0.20 euro per share for the fiscal year 2024. 

This figure marks a significant decrease from the 1.20 euro per share dividend distributed in the previous year.