Neste : Interim Report for January-March 2016

Neste Corporation
Interim Report
27 April 2016 at 9 am. (EET)

Neste's Interim Report for January-March 2016

Good start for the year - renewables continued strong performance and refining market followed normal seasonality

First quarter in brief:

· Comparable operating profit totaled EUR 175 million (Q1/2015: EUR 215 million)
· IFRS operating profit totaled EUR 254 (Q1/2015: EUR 233 million)
· Oil Products' total refining margin was USD 10.49/bbl (Q1/2015: USD 11.66/bbl)
· Renewable Products' comparable sales margin was USD 288/ton (Q1/2015: USD 205/ton)
· Cash flow before financing activities was EUR 73 million (Q1/2015: EUR -83 million)
· Return on average capital employed (ROACE) was 16.0% over the last 12 months (2015: 16.3%)
· Leverage ratio was 28.3% at the end of March (31.12.2015: 29.4%)

President & CEO Matti Lievonen:

"The year has started well despite the volatile market environment. Optimization of our global operations and margin management have played a key role as our internal improvement actions. Neste recorded a comparable operating profit of EUR 175 million during the first quarter, compared to EUR 215 million in the corresponding period last year, impacted by a lower Oil Products' reference margin.

Oil Products posted a comparable operating profit of EUR 86 million, compared to EUR 156 million in the first quarter of 2015. Reference margin averaged USD 4.9/bbl during the first quarter, some USD 2.6/bbl lower than a year ago, which had a EUR 56 million negative profit impact year-on-year. Gasoline margins continued as the main driver of the reference margin, while diesel margins were flat. On the average gasoline margins were high for the season, but volatile during the quarter. We have continued to build crude oil and product contango inventories during the first quarter. Overall maintenance costs increased mainly due to the earlier announced production limitations at the Porvoo refinery.

Renewable Products recorded a comparable operating profit of EUR 80 million, compared to EUR 42 million in the first quarter of 2015. Renewable Products' average reference margin remained at the same level as in the corresponding period last year. We were able to increase our additional margin significantly by successful margin management and by capturing a high share of the US Blender's Tax Credit. Sales volumes were higher than in the corresponding period last year, and a larger share of the sales were allocated to North America. The share of waste and residue feedstock was again high, 75% of total renewable inputs, in the first quarter.

In Oil Retail we were able to increase profits by growing volumes in network sales in all markets. The work focusing on our customers continues to bear fruit. The segment generated a comparable operating profit of EUR 22 million (17 million), which was a new record for the first quarter.

Crude oil and renewable feedstock price changes, as well as supply and demand balances, will be reflected in the oil and renewable fuel markets. Low crude oil prices are expected to continue supporting product demand. Neste expects Oil Products' reference margin to be supported by good gasoline margins, while diesel margins are expected to remain flat. Profits from the contango inventories will be recorded in our financials during the second half of the year, and the corresponding working capital release will improve our cash flow.  Our Porvoo refinery is expected to run at high utilization rate with no major maintenance shutdowns scheduled. In the second quarter of 2015 we had a major turnaround at the Porvoo refinery, which had a negative EBIT impact of EUR 130 million. Renewable Products' reference margin is expected to remain at approximately the year 2015 average level, and the additional margin is expected to remain strong. Utilization rates of our renewable diesel production facilities are expected to be high, excluding the scheduled turnaround at the Rotterdam refinery in the second quarter. Due to an unexpected equipment failure identified during the ongoing turnaround, it is now expected to last for nine weeks. The negative EBIT impact of the turnaround is expected to be approx. EUR 35 million. In Oil Retail the sales volumes and unit margins are expected to follow the previous years' seasonality pattern.

The year has started well, our market outlook is generally positive, and we expect good operational performance of our production facilities and businesses. Therefore, we are confident that the year 2016 will be another successful one for Neste."

The Group's first-quarter 2016 results

Neste's revenue in the first quarter totaled EUR 2,306 million (EUR 2,744 million). The decrease mainly resulted from lower overall sales prices due to the oil price decline. The Group's comparable operating profit totaled EUR 175 million (EUR 215 million). Results of the Oil Products and Others segment were lower, but Renewable Products and Oil Retail improved their comparable operating profit from the first quarter of 2015. Oil Products' result was negatively impacted by lower reference margin year-on-year. Renewable Products improved as a result of successful margin management. Oil Retail's result was positively impacted by higher sales volumes in all markets. The Others segment's comparable operating profit was lower compared to the first quarter of 2015, mainly due to Nynas' lower result.

Oil Products' first-quarter comparable operating profit was EUR 86 million (156 million), Renewable Products' EUR 80 million (42 million), and Oil Retail's EUR 22 million (17 million). The comparable operating profit of the Others segment totaled EUR -11 million (3 million); Nynas accounted for EUR 0 million (10 million) of this figure.

The Group's IFRS operating profit was EUR 254 million (233 million), which was impacted by inventory gains totaling EUR 48 million (losses of 76 million), changes in the fair value of open commodity and currency derivatives totaling EUR 23 million (18 million), and capital gains of EUR 8 million (79 million), related to the sale of Neste's existing power plant to Kilpilahti Power Plant Ltd. Profit before income taxes was EUR 229 million (205 million), net profit EUR 214 million (181 million), and earnings per share EUR 0.83 (0.70).

Outlook

Developments in the global economy have been reflected in the oil, renewable fuel, and renewable feedstock markets; and volatility in these markets is expected to continue.

Low crude oil prices are expected to continue supporting product demand. Crude oil supply is expected to increase as the economic sanctions against Iran are lifted and more medium heavy crude oil will be brought to the European market in 2016. Global oil demand growth estimates for 2016 are typically at 1.2 million bbl/d level, and especially gasoline demand is expected to continue solid growth. In light of the expected refining capacity growth the global product supply and demand look reasonably balanced.

Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks, but no fundamental changes in the drivers influencing long-term average feedstock price differentials are expected. Market volatility in feedstock prices is expected to continue, which will have an impact on the Renewable Products segment's profitability.

In 2016, Neste's effective USD/EUR exchange rate is expected to stay close to the current market rate, the Capital expenditure is estimated to be approximately EUR 400 million, and the Group's effective tax rate is expected to average approx. 20%.

Neste expects Oil Products' reference margin to be supported by good gasoline margins, while diesel margins are expected to remain flat. Profits from the existing contango inventories will be recorded in our financials during the second half of the year, and the corresponding working capital release will improve our cash flow. The Porvoo refinery is expected to run at high utilization rate with no major maintenance shutdowns scheduled. In the second quarter of 2015, Neste had a major turnaround at the Porvoo refinery.

Renewable Products' reference margin is expected to remain at approximately the average level of the year 2015, and the additional margin is expected to remain strong. Utilization rates of our renewable diesel production facilities are expected to be high, excluding the scheduled turnaround at the Rotterdam refinery in the second quarter of 2016. Due to an unexpected equipment failure identified during the ongoing turnaround, it is now expected to last for nine weeks. The negative EBIT impact of the turnaround is expected to be approx. EUR 35 million.

In Oil Retail the sales volumes and unit margins are expected to follow the previous years' seasonality pattern.

The year has started well, our market outlook is generally positive, and we expect good operational performance of our production facilities and businesses. Therefore, we are confident that the year 2016 will be another successful one for Neste.

Espoo, 26 April 2016

Neste Corporation

Board of Directors

Further information:

Matti Lievonen, President & CEO, tel. +358 10 458 11
Jyrki Mäki-Kala, CFO, tel. +358 10 458 4098
Investor Relations, tel. +358 10 458 5292

News conference and conference call

A press conference in Finnish on first-quarter 2016 results will be held today, 27 April 2016, at 11:30 a.m. EET at the company's headquarters at Keilaranta 21, Espoo. www.neste.com will feature English versions of the presentation materials. A conference call in English for investors and analysts will be held on 27 April 2016 at 3 p.m. Finland / 1 p.m. London / 8 a.m. New York. The call-in numbers are as follows: Finland: +358 (0)9 6937 9590, rest of Europe: +44 (0)20 3479 5300, US: +1 646 254 3363, using access code 9536406. The conference call can be followed at the company's web site. An instant replay of the call will be available until 4 May 2016 at +358 (0)9 2310 1650 for Finland, +44 (0)20 3427 0598 for Europe and +1 347 366 9565 for the US, using access code 9536406.

Neste in brief

Neste is a pioneer in oil refining and renewable solutions. We provide our customers with premium-quality products for cleaner traffic and industrial products based on world-class research. We are the world's leading producer of renewable diesel, and our annual production capacity is more than 2 million tons. We also are the world's largest company providing renewable fuel from waste and residues. Our sustainable operations have received recognition in the Dow Jones Sustainability World Index and the Global 100 list of the world's most sustainable companies, among others. Our net sales for 2015 amounted to approximately EUR 11 billion, and our shares are listed on NASDAQ Helsinki. Cleaner traffic, energy and life are moved forward by about 5,000 professionals. More information: neste.com/en