Record-high full-year comparable operating profit and strong cash flow - dividend proposal EUR 1.00 per share

Neste Corporation
Financial Statements Release
4 February 2016 at 9 am. (EET)

Record-high full-year comparable operating profit and strong cash flow - dividend proposal EUR 1.00 per share

2015 in brief:

· Comparable operating profit totaled EUR 925 million (2014: EUR 583 million)
· IFRS operating profit totaled EUR 699 million (2014: 150 million)
· Oil Products' total refining margin was USD 11.79/bbl (2014: USD 9.83/bbl)
· Major turnaround at the Porvoo refinery completed during the second quarter.
· Renewable Products' comparable sales margin was USD 299/ton (2014: USD 278/ton)
· Cash flow before financing activities was EUR 480 million (2014: EUR -59 million)
· Return on average capital employed (ROACE) was 16.3% (2014: 10.1%)
· Leverage ratio was 29.4% at the end of December (31.12.2014: 37.9%)
· Comparable earnings per share were EUR 2.84 (2014: EUR 1.60)
· The Board of Directors will propose a dividend of EUR 1.00 per share (2014: 0.65), totaling EUR 256 million (2014: EUR 166 million).

Fourth quarter in brief:

· Comparable operating profit totaled EUR 352 million (Q4/2014: EUR 256 million)
· Oil Products' comparable operating profit was EUR 91 million (Q4/2014: EUR 110 million)
· Renewable Products' comparable operating profit was EUR 231 million (Q4/2014: EUR 142 million)
· Oil Retail's comparable operating profit was EUR 17 million (Q4/2014: EUR 8 million)
· Cash flow before financing activities was EUR 300 million (Q4/2014: EUR 237 million)

President & CEO Matti Lievonen:

"Neste generated an excellent result in 2015 despite the largest major turnaround in the history of the Porvoo refinery. We posted a full-year comparable operating profit of EUR 925 million (583 million), almost 60% over the previous year's level. I am very pleased to note that all business areas were able to improve their result. Crude oil prices continued to decline in 2015, which reduced our revenue, but the margin environment remained favorable. We generated a strong cash flow. One of the major achievements in 2015 was that our return on average capital employed after tax exceeded the long term target level of 15%.

Oil Products posted a comparable operating profit of EUR 439 million, compared to EUR 285 million in 2014. During the year refining margins were supported by a particularly strong gasoline market, which was mainly driven by demand growth in the low oil price environment. Neste's reference margin averaged USD 7.7/bbl in 2015, more than 60% higher than in 2014. The scheduled major turnaround at the Porvoo refinery, which was successfully completed in June, had a EUR 130 million negative impact on the operating profit. A favorable USD/EUR exchange rate affected the result positively.

Renewable Products recorded a full-year comparable operating profit of EUR 402 million, compared to EUR 239 million in 2014. Renewable Products' average reference margin was lower than in 2014, but we were able to grow our additional margin. Stronger US Dollar had a positive impact on the segment's result. Our sales volumes reached a new record of 2.267 million tons, an 8% increase from the previous year. A slightly higher share, 31% of the volume, was allocated to the North American market in 2015. In the US market the Environmental Protection Agency (EPA) has finalized growing volume mandates for biomass-based diesel for 2016 and 2017, and the Blender's Tax Credit (BTC) was reinstated retroactively for 2015 and in advance for 2016. The positive contribution of the BTC on operating profit was higher in 2015 than in 2014. The use of waste- and residue feedstock was successfully expanded to average 68% of total renewable inputs in 2015.

In Oil Retail we were able to increase profits by growing sales volumes and improving unit margins. The segment generated a full-year comparable operating profit of EUR 84 million, which was the highest ever and a clear improvement from 2014.

Crude oil and renewable feedstock price changes, as well as supply and demand balances, will be reflected in the oil and renewable fuel markets. Low crude oil prices are expected to continue supporting product demand. Neste expects Oil Products' reference refining margin to continue to be supported by relatively good gasoline margins. Our Porvoo refinery is expected to run at high utilization rate with no major maintenance outages scheduled. Renewable Products' reference margin is expected to remain at approximately the year 2015 average level. Utilization rates of our renewable diesel production facilities are expected to be high, excluding the scheduled turnaround at the Rotterdam refinery in April-May. In Oil Retail the sales volumes and unit margins are expected to follow the previous years' seasonality pattern."

The Group's fourth-quarter 2015 results

Neste's revenue of EUR 2,759 million in the fourth quarter was lower than that during the last quarter of 2014 (EUR 3,552 million). The decrease mainly resulted from lower sales prices caused by the oil price decline, which had a negative impact of EUR 1.5 billion on the revenue year-on-year. A change in USD/EUR exchange rate had a positive impact of EUR 0.3 billion, and higher sales volumes had a positive impact of EUR 0.3 billion year-on-year. The Group's comparable operating profit came in at EUR 352 million. Comparable operating profit for the corresponding period in 2014 was EUR 256 million. Oil Products' result was positively impacted by a favorable USD/EUR exchange rate, but negatively impacted by a lower additional margin and higher depreciations than in the last quarter of 2014. Renewable Products improved significantly due to a higher sales volume, impact of the US Blender's Tax Credit (BTC), and the favorable USD/EUR exchange rate. Oil Retail's performance was clearly better than that during the corresponding period in 2014. Oil Retail's result was positively impacted by higher sales volumes and lower fixed costs. The Others segment improved significantly from the fourth quarter of 2014, mainly due to improvement of Nynas' result.

Oil Products' fourth-quarter comparable operating profit was EUR 91 million (110 million), Renewable Products' EUR 231 million (142 million), and Oil Retail's EUR 17 million (8 million). The comparable operating profit of the Others segment totaled EUR 15 million (-2 million); joint arrangements accounted for EUR 22 million (1 million) of this figure.

The Group's IFRS operating profit was EUR 245 million (-25 million), which was impacted by inventory losses totaling EUR 91 million (322 million), changes in the fair value of open oil derivatives totaling EUR 7 million (49 million), and non-recurring items totaling EUR -22 million (-8 million). The non-recurring items include EUR 17 million penalty payment the Finnish Customs has levied on Neste for not meeting the Finnish biofuel mandate requirements in 2011. Neste disputes the Customs' interpretation, has appealed the decision, and considers the penalty payment unjustified. Pre-tax profit was EUR 219 million (-30 million), profit for the period EUR 209 million (-21 million), and earnings per share EUR 0.81 (-0.08).

The Group's full-year results for 2015

Neste's revenue in 2015 totaled EUR 11,131 million (15,011 million). The decrease resulted from lower overall sales prices caused by the oil price decline, which had a negative impact of EUR 5.0 billion, and lower sales volumes, mainly due to the scheduled Porvoo refinery turnaround, which had a negative impact of EUR 0.6 billion. The change in USD/EUR exchange rate had a positive impact of EUR 1.6 billion on the revenue year-on-year. The Group's comparable operating profit for the year was EUR 925 million, almost 60% higher than the 583 million reported in 2014. Oil Products' comparable operating profit was positively impacted by higher reference margins and a favorable USD/EUR exchange rate, which more than compensated for the negative impact of the scheduled major turnaround at the Porvoo refinery and lower additional margin. In Renewable Products we improved our comparable operating profit mainly as a result of higher sales volume, higher additional margin and a favorable USD/EUR exchange rate. Oil Retail's result was also clearly higher than in 2014 due to higher sales volumes and unit margins. The Others segment improved significantly compared to 2014, mainly due to Nynas performance. The Group's fixed costs were EUR 668 million (654 million), an increase that was mainly caused by higher personnel and ERP system implementation costs.

Oil Products' full-year comparable operating profit was EUR 439 million (285 million), Renewable Products' EUR 402 million (239 million), and Oil Retail's EUR 84 million (68 million). The comparable operating profit of the Others segment totaled EUR 2 million (-7 million), of which Nynas accounted for EUR 29 million (11 million).

The Group's full-year IFRS operating profit was EUR 699 million (150 million), which was impacted by inventory losses totaling EUR 263 million (492 million), changes in the fair value of open oil derivatives totaling EUR -15 million (74 million), and non-recurring items totaling EUR 52 million (-16 million), mainly related to the capital gain from the disposal of the Porvoo electricity grid. Pre-tax profit was EUR 634 million (78 million), and profit for the period EUR 560 million (60 million). Comparable earnings per share were EUR 2.84 (1.60), and earnings per share EUR 2.18 (0.22). The Group's effective tax rate was 12% (23%). Effective tax rate, which was lower than in the previous year, is a result of the booked tax-exempt items during the calendar year, such as the sale proceeds of the shares of Kilpilahden Sähkönsiirto Oy, and the different distribution of profits over Neste's countries of operation.

Outlook for 2016

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.

Low crude oil prices are expected to continue supporting product demand. Crude oil supply is expected to increase as the economic sanctions against Iran are lifted and more medium heavy crude oil will be brought to the European market in 2016. Global oil demand growth estimates for 2016 have been increased to a level of 1.2 - 1.4 million bbl/d, as especially gasoline demand is expected to continue solid growth. In light of the expected refining capacity growth the global product supply and demand look reasonably balanced.

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. Market volatility in feedstock prices is expected to continue, which will have an impact on the Renewable Products segment's profitability.

In 2016, Neste's effective USD/EUR exchange rate is expected to stay close to the current market rate, the Capital expenditure is estimated to be approximately EUR 400 million, and the Group's effective tax rate is expected to average approx. 20%.

Neste expects Oil Products' reference refining margin to continue to be supported by relatively good gasoline margins. The Porvoo refinery is expected to run at high utilization rate with no major maintenance outages scheduled.

Renewable Products' reference margin is expected to remain at approximately the average level of the year 2015. Utilization rates of our renewable diesel production facilities are expected to be high, excluding the seven-week scheduled turnaround at the Rotterdam refinery in April-May 2016.

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

As communicated in the third quarter interim report on 23 October 2015, Neste has discontinued giving numerical result guidance to be consistent with industry practice.

Dividend distribution proposal

Neste'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 2015 amounted to EUR 1,411 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 1.00 per share (0.65) for 2015, totaling EUR 256 million (166 million) based on the number of outstanding shares.

The proposed dividend represents a yield of 3.6% (at year-end 2015 share price of EUR 27.63) and 35% of the comparable net profit in 2015.

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 2015 results will be held today, 4 February 2016, 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 4 February 2016 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 9543, Europe: +44 (0)20 3427 1900, and US: +1 646 254 3363, using access code 8657440. The conference call can be followed at the company's web site. An instant replay of the call will be available until 11 February 2016 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 8657440.

Neste in brief

Neste is a pioneer in oil refining and renewable solutions. We provide our customers with premium-quality products for cleaner traffic and industrial products based on world-class research. We are the world's leading producer of renewable diesel, and our annual production capacity is more than 2 million tons. We also are the world's largest company providing renewable fuel from waste and residues. Our sustainable operations have received recognition in the Dow Jones Sustainability World Index and the Global 100 list of the world's most sustainable companies, among others. Our net sales for 2015 amounted to approximately EUR 11 billion, and our shares are listed on Nasdaq Helsinki. Cleaner traffic, energy and life are moved forward by about 5,000 professionals. More information: neste.com/en