Financial risk management

Foreign Exchange Risk Management

The FX risk management focuses on transaction exposure, forecasted cash flow exposure and net investment exposure. All material transaction exposures excluding base inventories are hedged. The net investment exposure is managed at Neste level only and the main principle is not to hedge.

All material forecasted cash flow exposures shall be hedged on rolling basis:

• On average 70% of the next 6 months

• On average 30% of the following 6 months

• Both option and forward strategies in use.

Interest bearing debt by currency is EUR 78%, USD 14% and others 8%.

Interest Rate Risks

The interest rate risk management activities focus on the external financial items, including derivatives, which together create Neste interest rate exposure. The objective of interest rate risk management is to optimize the balance between minimizing uncertainty caused by fluctuations in interest rates and minimizing the consolidated net interest expense within risk limits.

• Average interest rate of interest-bearing debt (without lease liabilities) 3.7 % p.a.

• Flow risk EUR 13.2 million (The change in interest expenses within one year if interest rates change 1 percentage point)

• Duration 2.5 years

Capital Risk Management

Neste's objective is to secure a capital structure that ensures access to capital markets at all times despite the business cycle of the industry in which Neste operates. Neste seeks to maintain a capital structure equivalent to a strong investment-grade rating. Moody’s Investors Service has assigned an A3 long term issuer rating and a baseline credit assessment (bca) of baa1 to Neste Corporation.

Neste monitors its capital on the basis of leverage ratio, the ratio of interest-bearing net debt to interest-bearing net debt plus total equity. Interest-bearing net debt is calculated as interest-bearing liabilities less liquid funds. Over the cycle, Neste's leverage ratio is likely to fluctuate, and it is Neste's objective to maintain the leverage ratio below 40%.

Risk Management Limits

• The amount of short term financing (with a tenor less than one year) is limited to the greater of the following a) EUR 500 million or b) 30% of the total interest bearing debt.

• The Group shall at all times have access of unused committed credit facilities together with cash:

  • in minimum EUR 700 million

  • sufficient to cover all forecasted negative free cash flow and interest bearing liabilities maturing within the next 12 month period.

Credit and Counterparty Risk Management

The objective of counterparty and credit risk management is to prevent and minimize the losses incurred as a result of a counterparty not fulfilling its obligations. Limits, mandates and management principles for counterparty and credit risk are covered in the Corporate Risk Management Policy and separate principle and instruction-level documents. Credit risk limits are set at the Group level, designated by different levels of authorization and delegated to Neste's reporting segments, which are responsible for counterparty risk management within these limits.

Insurance Management

The objective for Neste insurance management is to get protection against significant monetary losses by transferring selected insurable risks to insurers.