27 April 2017 Releases and news

Neste's Interim Report for January-March 2017

Neste Corporation
Interim Report
27 April 2017 at 9 am (EET)


Neste's Interim Report for January-March 2017

Good start of the year - comparable operating profit up 17% year-on-year

First quarter in brief:

· Comparable operating profit totaled EUR 204 million (EUR 175 million)
· IFRS operating profit totaled EUR 271 (EUR 254 million)
· Oil Products' total refining margin was USD 11.00/bbl (USD 10.49/bbl)
· Renewable Products' comparable sales margin was USD 286/ton (USD 288/ton)
· Cash flow before financing activities was EUR -25 million (EUR 73 million)
· Return on average capital employed (ROACE) was 16.6% over the last 12 months (2016: 16.9%)
· Leverage ratio was 15.3% at the end of March (31.12.2016: 15.4%)

President & CEO Matti Lievonen:

"The year has started well as Oil Products delivered improved results and Renewable Products successfully maintained its comparable operating profit at last year's first quarter level. Neste recorded a comparable operating profit of EUR 204 million during the first quarter, compared to EUR 175 million in the corresponding period of 2016. Cash flow was impacted by the temporary effect of building profitable contango inventories.

Oil Products posted a comparable operating profit of EUR 126 million, compared to EUR 86 million in the first quarter of 2016. Reference margin, which reflects the refining market, averaged USD 4.9/bbl during the quarter. It was practically same as in the corresponding period last year. However, we were able to increase our additional margin to USD 6.1/bbl, which had a positive impact of EUR 20 million on the results year-on-year. Sales volumes and the use of Russian crude oil increased.

Renewable Products recorded a comparable operating profit of EUR 80 million, which was the same as in the first quarter of 2016. Renewable Products' comparable sales margin was maintained at the first quarter 2016 level despite the expiry of the US Blender's Tax Credit (BTC) at the end of 2016. Sales margin was optimized by volume allocation between our core markets. Sales volumes were 543,000 tons, a 2% increase on volume compared to the corresponding period last year. Sales volumes are typically lowest in the first quarter. The temporary administrative freeze of the US biofuel mandates for 2017 ended in March, and the growing mandates were reconfirmed. Clearly higher share, approx. 82% of sales volumes were allocated to Europe during the first quarter. Renewable diesel production facilities operated at a high 99% utilization rate. Feedstock optimization continued and the share of waste and residue feedstock was 72% of total renewable inputs.

In Marketing & Services our sales volumes continued at the previous year's first quarter level, but unit margins were clearly lower particularly in Russia and Finland due to competition. The segment generated a comparable operating profit of EUR 11 million (22 million).

Neste expects Oil Products' reference refining margin to be on average similar to that in 2016. Our Porvoo refinery is expected to run at a high utilization rate and to have normal planned unit maintenance. A major two month turnaround at the Naantali unit is scheduled for the third quarter.

Renewable Products' reference margin is expected to be higher than the average level of the year 2016. Neste continues to optimize sales margin by volume allocation between the core markets, and we have attractive markets in Europe. Sales volumes of the renewable diesel delivered as 100% to end-users are expected to continue growing and be close to 25% of the total sales volumes in 2017. The vegetable oil market is expected to remain volatile, and we aim to expand the use of lower quality waste and residue feedstock further. Utilization rates of our renewable diesel facilities are expected to stay high.

In Marketing & Services the sales volumes and unit margins are expected to improve towards the summer period, supported by the previous years' seasonality pattern, and internal actions.

Our strategy implementation is proceeding well, we continue to focus on our customers and growth initiatives, and will be completing the already announced strategic investments in 2017. Therefore, we are confident that the year 2017 will be another successful one for Neste."

The Group's first-quarter 2017 results

Neste's revenue in the first quarter totaled EUR 3,071 million (EUR 2,306 million). The increase mainly resulted from higher oil price. The Group's comparable operating profit was EUR 204 million (EUR 175 million). Oil Products improved its result clearly from the first quarter of 2016, mainly thanks to higher additional margin. Renewable Products was able to maintain its comparable operating profit at the same level as in the corresponding period last year. Renewable Products' additional margin was lower than last year, mainly due to expiry of the US BTC, but it was compensated by stronger reference margin and optimized sales allocation. Marketing & Services had clearly lower comparable operating profit compared to the first quarter of 2016, and it was negatively impacted by lower unit margins. The Others segment's comparable operating profit was also lower compared to the first quarter of 2016, mainly due to Nynas' lower results.

Oil Products' first-quarter comparable operating profit was EUR 126 million (86 million), Renewable Products' EUR 80 million (80 million), and Marketing & Services' EUR 11 million (22 million). The comparable operating profit of the Others segment totaled EUR -17 million (-11 million); Nynas accounted for EUR -7 million (0 million) of this figure.

The Group's IFRS operating profit was EUR 271 million (254 million), which was impacted by inventory gains of EUR 42 million (48 million), and changes in the fair value of open commodity and currency derivatives were EUR 24 million (23 million). Profit before income taxes was EUR 236 million (229 million), and net profit EUR 201 million (214 million). Comparable earnings per share were EUR 0.56 (0.57), and earnings per share EUR 0.78 (0.83).

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.

Crude oil supply and demand are expected to become more balanced, which could end the growth trend in crude oil inventories. Global oil demand growth estimates for 2017 by recognized experts currently vary between 1.2 and 1.6 million bbl/d. In light of the expected refining capacity growth the global product supply and demand look relatively balanced.

Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Market volatility in feedstock prices is expected to continue, which will have an impact on the Renewable Products segment's profitability.

Neste expects Oil Products' reference refining margin to be on average similar to that in 2016. Our Porvoo refinery is expected to run at a high utilization rate and to have normal planned unit maintenance, including a decoking maintenance at the Production Line 4 in the autumn. The new SDA unit is currently being started up. A major two-month turnaround at the Naantali unit is scheduled for the third quarter. We are targeting at least USD 5.5/bbl additional margin when the ongoing strategic investments in the Porvoo SDA unit and Naantali reconfiguration are completed.

Renewable Products' reference margin is expected to be higher than the average level of the year 2016. Neste continues to optimize sales margin by volume allocation between core markets, and we have attractive markets in Europe. Sales volumes of the 100% renewable diesel delivered to end-users are expected to continue growing and be close to 25% of the total sales volumes in 2017. The vegetable oil market is expected to remain volatile, and we aim to expand the use of lower-quality waste and residue feedstock. Utilization rates of our renewable diesel facilities are expected to be high. Neste is currently evaluating the feasibility of options to invest in new renewables production capacity. The options under review include locations in the US and Singapore.

In Marketing & Services the sales volumes and unit margins are expected to improve towards the summer period, supported by the previous years' seasonality pattern, and internal actions.

Our strategy implementation is proceeding well, we continue to focus on our customers and growth initiatives, and will be completing the already announced strategic investments in 2017. Therefore, we are confident that the year 2017 will be another successful one for Neste.

Espoo, 26 April 2017

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

Conference call

A conference call in English for investors and analysts will be held today, 27 April 2017, 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 2310 1620, rest of Europe: +44 (0)20 7136 2056, US: +1 718 354 1158, using access code 1815525. The conference call can be followed at the company's web site. An instant replay of the call will be available until 3 May 2017 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 1815525.

Neste in brief

Neste (NESTE, Nasdaq Helsinki) creates sustainable choices for the needs of transport, businesses and consumers.  Our global range of products and services allows customers to lower their carbon footprint by combining high-quality renewable products and oil products to tailor-made service solutions. We are the world's largest producer of renewable diesel refined from waste and residues, and we are also bringing renewable solutions to the aviation and plastics industries. We want to be a reliable partner, whose expertise, R&D and sustainable practices are widely respected. In 2016, Neste's net sales stood at EUR 11.7 billion, and we were on the Global 100 list of the 100 most sustainable companies in the world. Read more: neste.com