Neste Oyj - Interim report (Q1 and Q3)

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




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Attachments:

Neste Interim Report Q1_2017.pdf