Neste Oil's Financial Statements for 2014

Neste Oil Corporation
Financial Statements Release
4 February 2015 at 9.00 a.m. (EET)


Neste Oil's Financial Statements for 2014


Strong full-year comparable operating profit as a result of a record fourth quarter

2014 in brief:

• Comparable operating profit totaled EUR 583 million (2013: EUR 596 million)
• Total refining margin was USD 9.83/bbl (2013: USD 9.60/bbl)
• Renewable Products' comparable sales margin was USD 278/ton (2013: USD 328/ton)
• Net cash from operations totaled EUR 248 million (2013: EUR 839 million)
• Return on average capital employed (ROACE) was 10.1% (2013: 11.7%)
• Leverage ratio was 37.9% as of the end of December (31.12.2013: 30.0%)
• Comparable earnings per share was EUR 1.60 (2013: EUR 1.89)
• The Board of Directors will propose a dividend of EUR 0.65 per share (2013: 0.65), totaling
  EUR 166 million (2013: EUR 167 million).

       
Fourth quarter in brief:

• Comparable operating profit totaled EUR 254 million (Q4/2013: EUR 163 million)
• Total refining margin was USD 11.43/bbl (Q4/2013: USD 9.53/bbl)
• Renewable Products' comparable operating profit was EUR 141 million (Q4/2013: EUR 94 million), including EUR 89 million from US Blender's Tax Credit 2014
• Net cash from operations was EUR 351 million (Q4/2013: EUR 629 million)

President & CEO Matti Lievonen:

"Neste Oil generated a strong comparable result in 2014 despite of the market volatility and operational incidents at the Porvoo refinery. The 50% decline in crude oil price during the second half of the year caused significant inventory valuation losses, and impacted our cash flow. However, we were able to improve our internal performance by lowering costs, which resulted in more than EUR 50 million improvement, as promised in April. We achieved a full-year comparable operating profit of EUR 583 million (596 million) in 2014.

Oil Products' reference refining margin was volatile, but strengthened against expectations during the second half of the year, and averaged USD 4.7/bbl in 2014. European demand for petroleum products remained soft, and additional refining capacity was brought on-line in the Middle East and Asia. Also diesel imports from the US to Europe grew especially during the summer. Productivity at the Porvoo refinery was negatively impacted by an unscheduled production outage in production line 4 in the spring and a damaged hydrogen unit in August. Supported by various improvement actions, Oil Products segment recorded a comparable operating profit of EUR 285 million compared to EUR 275 million in 2013.

Renewable Products' reference margin remained significantly below the levels seen in 2013. We were able to grow our additional margin via feedstock flexibility and improvement actions in supply chain. Our sales volume increased by 9% from the previous year. A significantly higher share, 73% of the volume, was allocated to the European market in 2014. The volume allocation reflected the margin situation and continued regulatory uncertainty in the US. Decision to reintroduce the US Blender's Tax Credit for the year 2014 was confirmed in late December. It had an almost EUR 90 million positive impact on the segments' comparable operating profit.  The use of waste- and residue-based feedstock was successfully expanded and averaged 62% of total renewable inputs in 2014. Renewable Products recorded a full-year comparable operating profit of EUR 239 million compared to EUR 273 million in 2013.

Oil Retail's station sales continued to grow, but unit margins were increasingly under pressure in Finland and Northwest Russia due to tightening competition, weakening ruble, and inventory valuation losses caused by the oil price decline during the fourth quarter. The segment generated a full-year comparable operating profit of EUR 68 million, below the record-high EUR 77 million booked in 2013.

Crude oil price changes, supply and demand balances, together with uncertainties related to political decision-making on biofuel mandates, the US Blender's Tax Credit and other incentives will be reflected in the oil and renewable fuel markets. We expect the Group's full-year 2015 comparable operating profit to remain robust, although probably lower than that reached in 2014."

The Group's fourth-quarter 2014 results

Neste Oil's revenue of EUR 3,552 million in the fourth quarter was lower than that during the last quarter of 2013 (EUR 4,516 million). The decrease mainly resulted from lower overall sales prices due to the oil price decline. The Group's comparable operating profit came in at EUR 254 million. Comparable operating profit for the corresponding period in 2013 was EUR 163 million. Oil Products' result was positively impacted by reference refining margins, which were clearly higher than in the last quarter of 2013. Also Renewable Products improved significantly due to the Blender's Tax Credit (BTC), which was confirmed in the US for the year 2014 in late December. Oil Retail's performance was lower than that during the corresponding period in 2013. Oil Retail's result was negatively impacted by lower margins particularly in Russia and Finland. The Others segment improved from the fourth quarter of 2013, but it was still loss-making at comparable operating profit level.

Oil Products' fourth-quarter comparable operating profit was EUR 109 million (67 million), Renewable Products' EUR 141 million (94 million), and Oil Retail's EUR 8 million (15 million). The comparable operating profit of the Others segment totaled EUR -2 million (-11 million); joint arrangements accounted for EUR 1 million (-9 million) of this figure.

The Group's IFRS operating profit was EUR -27 million (185 million), which was impacted by inventory losses totaling EUR 322 million (gains of 16 million), changes in the fair value of open oil derivatives totaling EUR 49 million (4 million), and non-recurring items totaling EUR -8 million (2 million) mainly related to restructuring charges. Pre-tax profit was EUR -32 million (167 million), profit for the period EUR -23 million (193 million), and earnings per share EUR -0.09 (0.75).

The Group's full-year results for 2014

Neste Oil's revenue in 2014 totaled EUR 15,011 million (17,238 million). This decline year-on-year mainly resulted from lower overall market prices, which had an impact of EUR 1.2 billion, lower trading activity, and lower sales volume in Oil Products. The Group's comparable operating profit for the year was EUR 583 million, only slightly below the 596 million reported in 2013. Oil Products' full-year comparable operating profit was 4% higher than in 2013. The Renewable Products' result was strong, but it could not reach the record levels of 2013. Oil Retail's result was also somewhat lower than in 2013 due to lower margins. The Others segment improved significantly compared to 2013, but remained negative. The Group's fixed costs came in at EUR 654 million (693 million), a decrease that was mainly caused by the disposal of Shipping, and internal performance improvement actions.

Oil Products' full-year comparable operating profit was EUR 285 million (275 million), Renewable Products' EUR 239 million (273 million), and Oil Retail's EUR 68 million (77 million). The comparable operating profit of the Others segment totaled EUR -7 million (-31 million), of which Nynas accounted for EUR 11 million (-10 million).

The Group's full-year IFRS operating profit was EUR 150 million (632 million), which was impacted by inventory losses totaling EUR 492 million (19 million), changes in the fair value of open oil derivatives totaling EUR 74 million (4 million), and non-recurring items totaling EUR -16 million (51 million) mainly related to restructuring charges. Pre-tax profit was EUR 78 million (561 million), and profit for the period EUR 60 million (524 million). Comparable earnings per share were EUR 1.60 (1.89), and earnings per share EUR 0.22 (2.04). The Group's effective tax rate was 23.2% (6.6%).

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.

Global oil demand is anticipated to continue increasing, but growth estimates are generally slightly below 1 million bbl/d for 2015. The forward reference refining margin is currently reasonably strong. However, the refining capacity growth of more than 1 million bbl/d in Asia and Middle East, is expected to create some pressure on global product supply demand balance particularly during the second half of the year. Transatlantic supply demand balance is also dependent on the planned and unplanned refinery shutdowns. Gasoline margins are currently supported by contango buying, and the coming driving season typically supports gasoline market in the spring. Middle distillate imports from Russia, the Middle East, and the US are expected to remain on a high level also in 2015.

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. Feedstock prices have been on a downward trend, but vegetable oil price differentials have remained narrower than the historical average. Market volatility in feedstock and oil prices is expected to continue, which will have an impact on the Renewable Products segment's profitability.

In 2015, the Group's investments are expected to total approx. EUR 450 million, including some EUR 100 million for a major turnaround at the Porvoo refinery. The Porvoo turnaround is scheduled to start in April 2015 and is expected to last for approx. 8 weeks. Product inventory of approx. EUR 200 million is planned to be built in anticipation of the turnaround. The turnaround is expected to have an approx. EUR 70 million negative impact on Oil Products segment's comparable operating profit.

Crude oil price changes, supply and demand balances, together with uncertainties related to political decision-making on biofuel mandates, the US Blender's Tax Credit and other incentives will be reflected in the oil and renewable fuel markets.

Based on the above, Neste Oil expects the Group's full-year 2015 comparable operating profit to be robust, although probably lower than that reached in 2014.

Dividend distribution proposal

Neste Oil's dividend policy is to distribute at least one third of its comparable net profit in the form of a dividend. The parent company's distributable equity as of 31 December 2014 amounted to EUR 1,123 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 Oil Corporation pays a cash dividend of EUR 0.65 per share (0.65) for 2014, totaling EUR 166 million (167 million) based on the number of outstanding shares.

The proposed dividend represents a yield of 3.2% (at year-end 2014 share price of EUR 20.06) and 41% of the comparable net profit in 2014.

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 2014 results will be held today, 4 February 2015, at 11:30 a.m. EET at the company's headquarters at Keilaranta 21, Espoo. www.nesteoil.com will feature English versions of the presentation materials. A conference call in English for investors and analysts will be held on 4 February 2015 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, Europe: +44 (0)20 3427 1916, US: +1 646 254 3366, using access code 5331558. The conference call can be followed at the company's web site. An instant replay of the call will be available until 11 February 2015 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 5331558#.

Neste Oil in brief

Neste Oil Corporation is a refining and marketing company specializing in high-quality fuels for cleaner traffic. The company produces all of the most important oil products and is the world's leading supplier of diesels made of renewable raw materials. In 2014, the company's net sales stood at EUR 15 billion, and it employs some 5,000 people. Neste Oil shares are listed on the Nasdaq Helsinki.

Neste Oil has been accepted into the Dow Jones Sustainability World Index. The company has also been on the Global 100 list of sustainable companies for several years in succession. CDP Forest has selected Neste Oil as one of the best companies taking care of their forest footprint in the oil and gas industry. www.nesteoil.com