Neste Oil's Interim Report for January-March 2014

Neste Oil Corporation
Interim Report
25 April 2014 at 9 a.m. (EET)

Neste Oil's Interim Report for January-March 2014

Satisfactory performance in a weak market. Full-year guidance revised.

First quarter in brief:

· Comparable operating profit totaled EUR 55 million (Q1/2013: EUR 135 million)
· Total refining margin was USD 8.44/bbl (Q1/2013: USD 11.54/bbl)
· Renewable Fuels' reference margin was USD 206/ton (Q1/2013: USD 365/ton)
· Renewable Fuels' additional margin was USD 146/ton (Q1/2013: USD 66/ton)
· Net cash from operations totaled EUR -178 million (Q1/2013: EUR -105 million)
· Return on average capital employed (ROACE) was 10.7% (2013: 11.8%)
· Leverage ratio was 34.2% as of the end of March (31.12.2013: 30.0%)

President & CEO Matti Lievonen:

"The year started with a weak market situation, but Neste Oil's good operational performance has continued, resulting in reasonable additional margins for the Oil Products and Renewable Fuels businesses. We recorded a comparable operating profit of EUR 55 million during the first quarter compared to EUR 135 million in the corresponding period last year. The main reason for this decline was an approx. 45% reduction in reference margins at both Oil Products and Renewable Fuels.

Oil Products' reference refining margin was seasonally low during the first quarter, and European demand for petroleum products remained soft and imports continued at high levels. The reference margin averaged USD 3.3/bbl compared to USD 6.3/bbl in the first quarter of 2013, which was unusually strong for the early part of the year. Oil Products' result was also impacted by the planned five-week maintenance outage on production line 4 at Porvoo. Despite the outage, our additional margin averaged USD 5.1/bbl. Oil Products recorded a comparable operating profit of EUR 33 million compared to EUR 111 million in the first quarter of 2013.

Renewable Fuels encountered a difficult market situation, particularly in the US, where uncertainties related to biofuel regulation had a negative impact on prices and demand. Sales volumes were reallocated accordingly, and the proportion of product going to North America was reduced to 27%. The profitability of our European business was impacted by an unusually narrow price differential between palm oil and rapeseed oil. Our NEXBTL renewable diesel refineries operated at high utilization rates, particularly in Singapore and Rotterdam. We increased our usage of waste and residues to 62% of our total renewable inputs, which was important as palm oil prices increased. Renewable Fuels recorded a comparable operating profit of EUR 15 million compared to EUR 26 million in the first quarter of 2013.

Oil Retail continued its solid performance, with good margins in all markets. The segment generated a comparable operating profit of EUR 15 million, an improvement of EUR 4 million on the EUR 11 million booked in the first quarter of 2013.

First-quarter refining margins and renewable fuels margins were softer than previously expected. We have revised our guidance and now expect the Group's full-year comparable operating profit to be EUR 450 million +/- 10% in 2014. Previously the full-year operating profit was expected to be at the level of EUR 500 million. Neste Oil's reference refining margin is assumed to average USD 4.0/bbl during the year compared to the previous estimate of USD 4.5/bbl. We will also continue our performance improvement actions to defend good profitability in 2014."

The Group's first-quarter 2014 results

Neste Oil's revenue in the first quarter totaled EUR 3,654 million (EUR 4,258 million). This decline resulted from lower sales in Oil Products due to a planned maintenance outage on production line 4 at Porvoo, and the sale of the retail business in Poland. The Group's comparable operating profit came in at EUR 55 million. Comparable operating profit for the corresponding period in 2013 was EUR 135 million. Oil Products' result was negatively impacted by reference refining margins, which were clearly lower than in the first quarter of 2013, as well as the planned maintenance outage at Porvoo. Renewable Fuels' result was lower due to markedly less favorable markets, particularly in the US, and higher palm oil prices. Oil Retail's performance continued to be strong and was better than that during the corresponding period in 2013. Oil Retail's result was positively impacted by lower fixed costs due to the disposal of non-core businesses in Poland and Sweden. The Others segment posted a slightly smaller loss than in the first quarter of 2013.

Oil Products' first-quarter comparable operating profit was EUR 33 million (111 million), Renewable Fuels' EUR 15 million (26 million), and Oil Retail's EUR 15 million (11 million). The comparable operating profit of the Others segment totaled EUR -10 million (-12 million).

The Group's IFRS operating profit was EUR 55 million (86 million), which was impacted by inventory gains totaling EUR 3 million (losses of 35 million) and changes in the fair value of open oil derivatives totaling EUR -5 million (-14 million). Pre-tax profit was EUR 38 million (65 million), profit for the period EUR 31 million (47 million), and earnings per share EUR 0.12 (0.18).

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 generally anticipated to increase by more than 1 million bbl/d in 2014, but, as in 2013, this growth will be more than compensated for by new refining capacity in Asia and the Middle East. This is expected to lead to continued high product imports from the Middle East and the US into Europe. Diesel is projected to be the strongest part of the barrel, while gasoline margins are expected to improve seasonally during the spring and summer.

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. Consequently, price differentials are likely to widen from the current narrow levels during 2014 in both Europe and North America.

Uncertainties regarding political decision-making in the US are likely to be reflected in the renewable fuel market. Examples of pending decisions include volume targets for biomass-based diesel and the possible reintroduction of the Blender's Tax Credit (BTC), which both impact the US market. Reintroduction of the BTC for 2014 and 2015 has made some progress in the US Congress and would impact Neste Oil's result positively.

The Singapore NEXBTL refinery is scheduled for a major turnaround lasting approx. eight weeks during the third and fourth quarter of 2014.

The Group's investments are expected to total approx. EUR 300-350 million in 2014.

First-quarter refining margins and renewable fuels margins were softer than previously expected. Neste Oil has revised its guidance and now expects the Group's full-year comparable operating profit to be EUR 450 million +/- 10% in 2014. Previously the full-year operating profit was expected to be at the level of EUR 500 million. Neste Oil's reference refining margin is assumed to average USD 4.0/bbl during the year compared to the previous estimate of USD 4.5/bbl. Narrow feedstock price differentials are expected to weaken Renewable Fuels' profitability during the first half of the year, but should gradually widen thereafter. The company will also continue its performance improvement actions to defend good profitability 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 the first-quarter results will be held today, 25 April 2014, 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 25 April 2014 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 6937 9590, Europe: +44 (0)20 3427 1907, US: +1 212 444 0481, using access code 5706118. The conference call can be followed at the company's web site. An instant replay of the call will be available until 2 May 2014 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 5706118#.

Neste Oil in brief

Neste Oil Corporation is a refining and marketing company concentrating on low-emission, high-quality traffic fuels. The company produces a comprehensive range of major petroleum products and is the world's leading supplier of renewable diesel. Neste Oil had net sales of EUR 17.5 billion in 2013 and employs around 5,000 people, and is listed on Nasdaq OMX Helsinki.

Neste Oil is included in the Dow Jones Sustainability World Index and the Ethibel Pioneer Investment Register, and has featured in The Global 100 list of the world's most sustainable corporations for many years. Forest Footprint Disclosure (FFD) has ranked Neste Oil as one of the best performers in the oil & gas sector. Further information: www.nesteoil.com