Neste Oyj - Financial Statement Release

Neste's Financial Statements Release for 2016

Neste Corporation
Financial Statements Release
7 February 2017 at 9 am (EET)


Neste's Financial Statements Release for 2016

Continued successful strategy implementation and record-high financial results
2016 - dividend proposed to be increased by 30% to EUR 1.30 per share

2016 in brief:
  * Comparable operating profit totaled EUR 983 million (EUR 925 million)
  * IFRS operating profit totaled EUR 1,155 million (699 million)
  * Oil Products' total refining margin was USD 10.38/bbl (USD 11.79/bbl)
  * Renewable Products' comparable sales margin was USD 348/ton (USD 299/ton)
  * Cash flow before financing activities totaled EUR 834 million (EUR 480
    million)
  * Return on average capital employed (ROACE) was 16.9% (16.3%)
  * Leverage ratio was 15.4% at the end of December (31.12.2015: 29.4%)
  * Comparable earnings per share were EUR 3.10 (EUR 2.84)
  * The Board of Directors will propose a dividend of EUR 1.30 per share (1.00),
    totaling EUR 332 million (EUR 256 million).

Fourth quarter in brief:
  * Comparable operating profit totaled EUR 262 million (EUR 352 million)
  * IFRS operating profit totaled EUR 302 million (EUR 245 million)
  * Oil Products' comparable operating profit was EUR 98 million (EUR 91
    million)
  * Renewable Products' comparable operating profit was EUR 146 million (EUR
    231 million)
  * Oil Retail's comparable operating profit was EUR 19 million (EUR 17 million)
  * Cash flow before financing activities was EUR 267 million (EUR 300 million).

President & CEO Matti Lievonen:

"Neste had another successful year in 2016, as we posted a comparable operating
profit of EUR 983 million compared to EUR 925 million in 2015. For the first
time Renewable Products had the largest full-year profit contribution, which
reflects the continuing strategic transformation of the company. I am very
pleased to note that all business areas improved their result from the previous
year. We also generated strong cash flow and further strengthened our balance
sheet. All key financial indicators showed improvement, and the return on
average capital employed after tax reached 16.9%, which was over the long term
target level of 15%.

Oil Products posted a comparable operating profit of EUR 453 million (EUR 439
million). Our reference margin averaged USD 4.9/bbl, which was USD 2.9/bbl lower
than the exceptionally high level in 2015. Global oil product supply and demand
were reasonably balanced, but high product inventories limited the upside on
refining margins. Oil Products' additional margin was increased to USD 5.5/bbl
level, which was USD 1.5/bbl higher than in 2015. This resulted from operational
performance and successful leveraging of contango opportunities, with sales
volumes back on track after the Porvoo refinery turnaround year 2015.

Renewable Products recorded a full-year comparable operating profit of EUR 469
million (EUR 402 million). Reference margin and additional margin averaged
higher than in 2015. Our sales volumes reached 2.22 million tons, only 2% below
the previous year, despite of the scheduled major turnaround implemented at the
Rotterdam refinery in the second quarter. A slightly higher share of the sales
volume was allocated to the North American market compared to 2015. In the US
market the Environmental Protection Agency (EPA) finalized increased volume
mandates for biomass-based diesel for 2017 and 2018 in November 2016. Feedstock
optimization continued, and the share of waste and residue feedstocks was
successfully expanded to 78% of total renewable inputs in 2016. Acquisition of a
new feedstock pretreatment facility in the Netherlands will further enhance our
capability to process lower quality wastes and residues.

In Oil Retail we were able to increase profits by growing sales volumes and
improving unit margins particularly in the Baltic markets. The segment continued
to improve its performance and generated a full-year comparable operating profit
of EUR 90 million (EUR 84 million).

Crude oil and renewable feedstock price changes, as well as supply and demand
balances, will be reflected in the oil and renewable product markets. Crude oil
prices are expected to increase moderately as crude oil supply and demand is
expected to become more balanced.

Neste expects Oil Products' reference refining margin to be quite similar to
that in 2016 on average. Our Porvoo refinery is expected to run at a high
utilization rate as only normal unit maintenances are planned. 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 after mid-2017 as the ongoing
strategic investments are completed.

Renewable Products' reference margin is expected to be at approximately the
average level of the year 2016. Neste continues to optimize sales allocation
based on the total margin, and we have new attractive markets in Europe. For
example, Norway has set a biofuel target in traffic growing from 7.5% in 2017 to
20% in 2020. California continues to be an important market for Neste. Sales
volumes of the renewable diesel delivered as 100% to end-users are expected to
continue growing from 15% in 2016 to 25% of the total renewable 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. The
completed acquisition of the new feedstock pretreatment and storage facility in
the Netherlands will support this goal. A new nameplate capacity of 2.6 million
tons is effective 1 January, 2017, and utilization rates of our renewable diesel
facilities are expected to be high.

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

Neste will continue to implement its global renewables growth strategy. The
demand for renewable products is expected to continue growing globally. Neste's
renewables capacity increase program will include both debottlenecking of the
existing production capacity to 3 million tons by 2020, and building of new
capacity. We are currently evaluating the feasibility of options to invest in
new production capacity.  The options under review include locations in the US
and Singapore.

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 fourth-quarter 2016 results

Neste's revenue in the fourth quarter totaled EUR 3,421 million, approx. 24%
over the EUR 2,759 million reported in the corresponding period last year. The
revenue increase resulted from higher oil price and higher sales volumes. The
Group's comparable operating profit totaled EUR 262 million (EUR 352 million).
Oil Products' result was negatively impacted by a lower reference margin and
higher maintenance costs, but positively impacted by higher additional margin
and sales volumes. Renewable Products' result was strong, but lower compared to
the corresponding period last year, when the full-year US Blender's Tax Credit
for 2015 was recorded in the quarter's comparable operating profit. Oil Retail's
result was positively impacted by higher sales volume and unit margin. The
Others segment's comparable operating profit was lower compared to the fourth
quarter of 2015, mainly due to Nynas' lower result.

Oil Products' fourth-quarter comparable operating profit was EUR 98 million (91
million), Renewable Products' EUR 146 million (231 million), and Oil Retail's
EUR 19 million (17 million). The comparable operating profit of the Others
segment totaled EUR 2 million (15 million); Nynas accounted for EUR 9 million
(22 million) of this figure.

The Group's IFRS operating profit was EUR 302 million (245 million), which was
impacted by inventory gains totaling EUR 51 million (losses of 91 million),
changes in the fair value of open commodity and currency derivatives totaling
EUR -11 million (7 million), mainly related to hedging of inventories. Profit
before income taxes was EUR 297 million (219 million), net profit EUR 262
million (209 million), and earnings per share EUR 1.02 (0.81).

The Group's full-year results for 2016

Neste's revenue in 2016 totaled EUR 11,689 million (EUR 11,131 million). Sales
volumes increased, but the revenue was negatively impacted by a lower average
oil price year-on-year. The Group's comparable operating profit was EUR 983
million (EUR 925 million). Oil Products' result was negatively impacted by
reference margin, which was materially lower than in 2015. However, our
additional margin increased, and the sales volume was higher compared to last
year, which was impacted by the scheduled turnaround at the Porvoo refinery.
Renewable Products operating profit improved as a result of higher reference
margin and additional margin. Oil Retail's result was positively impacted by
increased sales volumes and unit margins. The Others segment recorded a lower
comparable operating profit compared to 2015, mainly due to Nynas' lower result
and higher common corporate costs.

Oil Products' full-year comparable operating profit was EUR 453 million (439
million), Renewable Products' EUR 469 million (402 million), and Oil Retail's
EUR 90 million (84 million). The comparable operating profit of the Others
segment totaled EUR -23 million (2 million); Nynas accounted for EUR 11 million
(29 million) of this figure.

The Group's IFRS operating profit was EUR 1,155 million (699 million), which was
impacted by inventory gains totaling EUR 280 million (losses of 263 million),
and changes in the fair value of open commodity and currency derivatives
totaling EUR -118 million (-15 million), mainly related to hedging of
inventories. IFRS operating profit was also impacted by capital gains totaling
EUR 23 million (76 million), mainly related to the sale of Ekokem shares and the
sale of Neste's power plant to Kilpilahti Power Plant Ltd. Profit before income
taxes was EUR 1,075 million (634 million), net profit EUR 943 million (560
million). Comparable earnings per share were EUR 3.10 (2.84), and earnings per
share EUR 3.67 (2.18). The Group's effective tax rate was 12% (12%), which is
lower than the Finnish statutory tax rate 20% mainly due to lower taxation in
Latvia, Lithuania, Singapore and Switzerland, where Neste has business
operations. Neste's manufacturing investment in Renewable Products during
2008-2010 in Singapore is subject to tax exemption for 2010-2023 under the
applicable Singapore legislation.

Outlook for 2017

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, leading to a
stronger crude market. 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 quite similar to
that in 2016 on average. 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. We are
targeting at least USD 5.5/bbl additional margin after mid-2017 as the ongoing
strategic investments in the Porvoo Solvent Deasphalting (SDA) unit and the
Naantali configuration change are completed.

Renewable Products' reference margin is expected to be at approximately the
average level of the year 2016. Neste continues to optimize sales allocation
based on the total margin, and we have new attractive markets in Europe. For
example, Norway has set a biofuel target in traffic growing from 7.5% in 2017 to
20% in 2020. California continues to be an important market for Neste. 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. The completed
acquisition of the new feedstock pretreatment and storage facility in the
Netherlands will support this goal. A new nameplate capacity of 2.6 million tons
is effective 1 January, 2017, and utilization rates of our renewable diesel
facilities are expected to be high. Our production costs have been reduced and
we lower our variable production cost guidance from USD 130 to USD 110/ton.

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

Neste will continue to implement its global renewables growth strategy. The
global demand for renewable products is expected to continue growing globally.
Neste's renewables capacity increase program will include both debottlenecking
of the existing production capacity to 3 million tons by 2020, and building of
new capacity. We are currently evaluating the feasibility of options to invest
in new production capacity. The options under review include locations in the US
and Singapore.

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.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 40 percent of its comparable
net profit in the form of a dividend. The parent company's distributable equity
as of 31 December 2016 amounted to EUR 1,670 million, and there have been no
material changes in the company's financial position since the end of the
financial year. The Board of Directors will propose to the Annual General
Meeting that Neste Corporation pays a cash dividend of EUR 1.30 per share (1.00)
for 2016, totaling EUR 332 million (256 million) based on the number of
outstanding shares.

The proposed dividend represents a yield of 3.6% (at year-end 2016 share price
of EUR 36.50) and 42% of the comparable net profit in 2016.

News conference and conference call

A press conference in Finnish on 2016 results will be held today, 7 February
2017, 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 7 February
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 1621, Europe: +44 (0)20 3427 1918, and
US: +1 646 254 3360, using access code 4114183. The conference call can be
followed at the company's web site. An instant replay of the call will be
available until 14 February 2017 at +358 (0)9 2310 1650 for Finland, at +44
(0)20 3427 0598 for Europe, and +1 347 366 9565 for the US, using access code
4114183.

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

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


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Attachments:

Neste Financial Statement Release 2016.pdf