Neste Oil's Interim Report for January-March 2015

Neste Oil Corporation
Interim Report
24 April 2015 at 9 am. (EET)

Neste Oil's Interim Report for January-March 2015

Excellent start for the year as a result of strong refining market and good internal performance

First quarter in brief:

·Comparable operating profit totaled EUR 215 million (Q1/2014: EUR 50 million)
·Total refining margin was USD 11.66/bbl (Q1/2014: USD 8.44/bbl)
· Renewable Products' comparable sales margin was USD 205/ton (Q1/2014: USD 182/ton)
· Net cash from operations totaled EUR -185 million (Q1/2014: EUR -178 million)
· Return on average capital employed (ROACE) was 12.6% (2014: 10.1%)
· Full-year 2015 guidance revised upwards on 21 April

President & CEO Matti Lievonen:

"The year has started positively in a very favorable refining margin environment. We are also pleased with the internal performance in all our business areas. Neste Oil recorded a strong comparable operating profit of EUR 215 million during the first quarter, compared to the EUR 50 million during the corresponding period last year.

Oil Products generated a high comparable operating profit of EUR 156 million, compared to EUR 32 million in the first quarter of 2014. Neste Oil's reference margin strengthened during the first quarter, and averaged USD 7.5/bbl. Reference margin ended USD 4.1/bbl higher than in the corresponding period last year. Gasoline margins were particularly strong, supported by weak crude oil market, good demand, contango storage building, strikes and refinery outages in the US. Our Porvoo refinery operated at a high utilization rate, and preparations for the major turnaround proceeded according to plan.

Renewable Products recorded a comparable operating profit of EUR 42 million, compared to EUR 12 million in the first quarter of 2014. Renewable Products' reference margin remained clearly below the levels seen during the corresponding period last year. We were able to maintain our additional margin at a good level by successful margin management and feedstock flexibility. Weaker euro also had a positive effect on our result. Our sales volume increased by 5% from the first quarter of 2014. After successful debottlenecking in 2014, we have increased our renewable diesel nameplate production capacity from 2.0 million to 2.4 million tons per year, which has also lead to lower production costs.

Oil Retail's markets continued competitive, but we were able to increase profits by introducing new products, such as low sulphur marine fuel, and by improving margins particularly in Northwest Russia. The segment generated a comparable operating profit of EUR 17 million, higher than the EUR 14 million booked in the first quarter of 2014.

As a result of the strong performance during the first quarter and based on the current market outlook for the remainder of the year, Neste Oil revised its guidance on 21 April, and now estimates the Group's full-year 2015 comparable operating profit to remain robust and to be higher than that reached in 2014. Previously Neste Oil expected the full-year comparable operating profit to remain robust, although probably lower than that reached in 2014.

On 1 April the Annual General Meeting decided the company name to be Neste Corporation from the beginning of June. Therefore, this will be the last interim report under Neste Oil name. During the recent years our company has changed remarkably, and the new name reflects this change. We are moving forward."

The Group's first-quarter 2015 results

Neste Oil's revenue in the first quarter totaled EUR 2,744 million (EUR 3,510 million). The decrease mainly resulted from lower overall sales prices due to the oil price decline. All segments improved their result from the first quarter of 2014, and the Group's comparable operating profit came in at EUR 215 million (EUR 50 million). Oil Products' result was positively impacted by reference refining margins, which were clearly higher than in the first quarter of 2014. Also Renewable Products improved as a result of successful margin management, feedstock optimization and favorable USD/EUR exchange rate. Oil Retail's result was positively impacted by higher margins, particularly in Northwest Russia. The Others segment recorded a higher comparable operating profit compared to the first quarter of 2014.

Oil Products' first-quarter comparable operating profit was EUR 156 million (32 million), Renewable Products' EUR 42 million (12 million), and Oil Retail's EUR 17 million (14 million). The comparable operating profit of the Others segment totaled EUR 3 million (-11 million).

The Group's IFRS operating profit was EUR 233 million (50 million), which was impacted by inventory losses totaling EUR 76 million (3 million), changes in the fair value of open oil derivatives totaling EUR 18 million (5 million), and non-recurring items totaling EUR 77 million (-2 million), mainly related to the capital gain from the disposal of the Porvoo electricity grid. Pre-tax profit was EUR 205 million (33 million), profit for the period

EUR 181 million (26 million), and earnings per share EUR 0.70 (0.10). The Group's effective tax rate was 12% (21%) mainly due to the tax-exempt items, such as the sale proceeds of the shares of Kilpilahden Sähkönsiirto Oy, electricity grid company.

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 with growth estimates generally at approx. 1 million bbl/d for 2015. At the same time, 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. The forward reference refining margin is currently reasonably strong for the coming quarters, also reflecting the upcoming driving season, which typically supports the gasoline market in spring.

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 has started in April and is expected to last for approx. 8 weeks. The turnaround is expected to have an approx. EUR 100 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. The US Environmental Protection Agency (EPA) has announced that it will propose Renewable Fuel Standard volume requirements for 2014, 2015 and 2016, as well as the biomass-based diesel volume requirement for 2017, by 1 June, and finalize them by 30 November, 2015.

As a result of the strong performance during the first quarter and based on the current market outlook for the remainder of the year, Neste Oil revised its guidance on 21 April and now estimates the Group's full-year 2015 comparable operating profit to remain robust and to be higher than that reached in 2014. Previously Neste Oil expected the full-year comparable operating profit to remain robust, although probably lower than that reached 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 first-quarter 2015 results will be held today, 24 April 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 24 April 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 6937 9590, rest of Europe: +44 (0)20 3427 1909, US: +1646 254 3364, using access code 8790300. The conference call can be followed at the company's web site. An instant replay of the call will be available until 1 May 2015 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 8790300.

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