Neste's Financial Statements Release for 2017

Neste Corporation
Financial Statements Release
7 February 2018 at 9 am (EET)

Neste's Financial Statements Release for 2017

Very successful year 2017 with record-high financial results -
Dividend proposed to be increased by over 30% to EUR 1.70 per share

Year 2017 in brief:

Comparable operating profit totaled EUR 1,101 million (EUR 983 million)
Operating profit totaled EUR 1,171 million (1,155 million)
Renewable Products' comparable sales margin was USD 365/ton (USD 348/ton)
Oil Products' total refining margin was USD 11.08/bbl (USD 10.38/bbl)
Cash flow before financing activities totaled EUR 628 million (EUR 834 million)
Return on average capital employed (ROACE) was 17.5% (16.9%)
Leverage ratio was 8.7% at the end of December (31.12.2016: 15.4%)
Comparable earnings per share were EUR 3.33 (EUR 3.10)
Board of Directors will propose a dividend of EUR 1.70 per share (1.30), totaling EUR 435 million (EUR 332 million).

Fourth quarter in brief:

Comparable operating profit totaled EUR 311 million (EUR 262 million)
Operating profit totaled EUR 296 million (EUR 302 million)
Renewable Products' comparable operating profit was EUR 209 million (EUR 146 million)
Oil Products' comparable operating profit was EUR 89 million (EUR 98 million)
Marketing & Services' comparable operating profit was EUR 11 million (EUR 19 million)
Cash flow before financing activities was EUR 287 million (EUR 267 million)

President & CEO Matti Lievonen:

"Neste had a very successful year in 2017, as a result of determined strategy implementation, good operational performance and improved safety. We posted an all-time high comparable operating profit of EUR 1,101 million compared to EUR 983 million in 2016. Renewable Products was able to exceed the previous year's very good performance and was again the largest comparable operating profit contributor. Also Oil Products improved as a result of a favorable refining margin environment and good operational performance. We generated a strong cash flow and reached a 8.7% leverage ratio. Return on average capital employed after tax reached 17.5%, which exceeds our long term target level of 15%.

Renewable Products posted an excellent full-year comparable operating profit of EUR 561 million (EUR 469 million), which was a great achievement without the US Blender's Tax Credit. Sales volumes were almost 2.6 million tons, a new annual record and up 16% from the previous year. We allocated a higher share of sales volumes to the European markets compared to 2016. As planned, the share of 100% renewable diesel delivered to end-users increased from 15% in 2016 to 25% of total volumes in full-year 2017. Feedstock mix optimization towards lower-quality raw materials continued successfully, and the proportion of waste and residue inputs was 76%. Operational performance was good as the renewable diesel production facilities operated at a 98% utilization rate in 2017. We have announced the selection of Singapore as the location for the new renewables production capacity. The technical design of the new production unit has been initiated with the aim of a final investment decision by the end of 2018. If the project proceeds as planned, production at the new unit will begin by 2022.

Oil Products posted a comparable operating profit of EUR 495 million (EUR 453 million) in 2017, which was the strongest in this decade. Global oil demand continued solid, and product supply and demand were quite well balanced. The overall refining market was favorable, and the reference margin averaged USD 5.7/bbl in 2017, which was USD 0.8/bbl higher than in the previous year. Oil Products' additional margin was USD 5.4/bbl, supported by good operational performance and contribution of the new strategic investments towards the end of the year. The strategic investments in the Solvent Deasphalting (SDA) unit and the OneRefinery concept were completed during 2017, which will enable reaching our average additional margin target of at least USD 5.5/bbl going forward.

In Marketing & Services we were able to maintain our sales volumes at the previous year's level. However, the markets continued to be competitive and unit margins were clearly lower than in 2016. The segment generated a full-year comparable operating profit of EUR 68 million (EUR 90 million).

Neste expects the Renewable Products' additional margin to stay at a good level in 2018. Sales volumes of the 100% renewable diesel delivered to end-users are planned to grow from the levels in 2017 towards our 50% target in 2020. The vegetable oil market is expected to remain volatile, and Neste continues to expand the use of lower-quality waste and residue feedstock. Utilization rates of our renewable diesel facilities are expected to be high, except for the planned maintenance shutdowns.

Oil Products' reference margin is expected to be below the 2017 average in early 2018, but to get support from the start of the driving season in the spring. Oil product supply and demand are expected to be balanced with continued robust demand growth. Distillates margins are seen to be supported by lower inventory levels compared to the previous year. Crude oil supply limitations by producing countries are likely to lead to a slightly narrower Urals-Brent price differential compared to 2017. We expect high reliability to continue in OneRefinery operations supporting good utilization rate in 2018. We will implement several scheduled unit turnarounds during the spring and autumn.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern. Several actions have been initiated to improve financial performance.

As a conclusion, we expect 2018 to be a strong year for Neste."

The Group's fourth-quarter 2017 results

Neste's revenue in the fourth quarter totaled EUR 3,636 million (3,421 million). The increase resulted from higher sales prices, which had a positive impact of approx. EUR 200 million, and higher sales volumes, which also had approx. EUR 200 million positive impact on the revenue. A weaker USD exchange rate had a negative impact of approx. EUR 200 million on the revenue. The Group's comparable operating profit was EUR 311 million (262 million). Renewable Products' sales volumes and additional margin were higher than in the fourth quarter of 2016. Oil Products' result was slightly lower than in the fourth quarter of 2016, mainly due to a weaker USD exchange rate. Marketing & Services was able to maintain its sales volumes, but had clearly lower unit margins, which lead to a lower comparable operating profit compared to the fourth quarter of 2016. The Others segment's comparable operating profit was marginally below the corresponding period of 2016.

Renewable Products' fourth-quarter comparable operating profit was EUR 209 million (146 million), Oil Products' EUR 89 million (98 million), and Marketing & Services' EUR 11 million (19 million). The comparable operating profit of the Others segment totaled EUR 0 million (2 million); Nynas accounted for EUR 3 million (9 million) of this figure.

The Group's operating profit was EUR 296 million (302 million), which was impacted by inventory losses of
EUR 1 million (gains of 51 million), and changes in the fair value of open commodity and currency derivatives of EUR -13 million (-11 million), mainly related to hedging of inventories. Profit before income taxes was EUR 287 million (297 million), and net profit EUR 244 million (262 million). Comparable earnings per share were EUR 1.00 (0.89), and earnings per share EUR 0.96 (1.02).

The Group's full-year results for 2017

Neste's revenue in 2017 totaled EUR 13,217 million (11,689 million). The revenue increase mainly resulted from higher sales prices, which had a positive impact of approx. EUR 1,300 million. Higher sales volumes increased the revenue by approx. EUR 400 million. A weaker USD exchange rate had a negative impact of approx. EUR 200 million on the revenue. The Group's comparable operating profit was EUR 1,101 million (983 million). Renewable Products' higher sales volumes and reference margin compensated the effect of lower additional margin, and the segment achieved a new record in comparable operating profit. Oil Products' result was positively impacted by a higher reference margin compared to the previous year. Marketing & Services' result was negatively impacted by lower unit margins. The Others segment recorded almost similar comparable operating profit compared to 2016.

Renewable Products' full-year comparable operating profit was EUR 561 million (469 million), Oil Products' EUR 495 million (453 million), and Marketing & Services' EUR 68 million (90 million). The comparable operating profit of the Others segment totaled EUR -24 million (-23 million); Nynas accounted for EUR -2 million (11 million) of this figure.

The Group's operating profit was EUR 1,171 million (1,155 million), which was impacted by inventory gains totaling EUR 31 million (280 million), and changes in the fair value of open commodity and currency derivatives totaling EUR 24 million (-118 million), mainly related to hedging of inventories. Profit before income taxes was EUR 1,094 million (1,075 million), and net profit EUR 914 million (943 million). Comparable earnings per share were EUR 3.33 (3.10), and earnings per share EUR 3.56 (3.67).

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. According to current market estimates, the US dollar is expected to stay weak in 2018.

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.

Global oil product demand is expected to remain strong in 2018, driven by a solid macroeconomic growth, and to be reflected in both distillates and gasoline demand. Recent oil demand growth estimates for 2018 vary between 1.3 and 1.7 million bbl/d. Global crude oil inventories have started to decline from their peak levels in the second half of 2017, which has led to a crude price increase to above USD 65/bbl. OPEC's decision to continue its production cuts into 2018 is expected to support crude oil price and market structure also in the first half of 2018.

In Marketing & Services the sales volumes and unit margins are expected to follow the previous years' seasonality pattern. Several actions have been initiated to improve financial performance.

As a conclusion, we expect 2018 to be a strong year for Neste.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 50 percent of its comparable net profit in the form of a dividend. The parent company's distributable equity as of 31 December 2017 amounted to EUR 1,948 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 1.70 per share (1.30) for 2017, totaling EUR 435 million (332 million) based on the number of outstanding shares. The Board of Directors will also propose that the annual dividend shall be paid in two installments. The first installment of dividend, EUR 0.85 per share, would be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the first dividend installment, which shall be Monday, 9 April 2018. The Board proposes to the AGM that the first dividend installment would be paid on Monday, 16 April 2018. The second installment of dividend, EUR 0.85 per share, would be paid to shareholders registered in the shareholders' register of the Company maintained by Euroclear Finland Ltd on the record date for the second dividend installment, which shall be Wednesday, 10 October 2018. The Board proposes to the AGM that the second dividend installment would be paid on Wednesday, 17 October 2018. The Board of Directors is authorized to set a new dividend record date and payment date for the second installment of the dividend, in case the rules and regulations on the Finnish book-entry system would be changed, or otherwise so require.

The proposed dividend represents a yield of 3.2% (at year-end 2017 share price of EUR 53.35) and 51% of the comparable net profit in 2017, and an increase of 31% compared to the dividend distributed in the previous year.

Conference call

A conference call in English for investors and analysts will be held today, 7 February 2018, 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 7479 0404 rest of Europe: +44 (0)330 336 9411, US: +1 786 789 4797, using access code 1221392. The conference call can be followed at the company's website. An instant replay of the call will be available until 14 February 2018 at +358 (0)9 8171 0562 for Finland, +44 (0)20 7660 0134 for Europe and +1 719 457 0820 for the US, using access code 1221392.

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

Neste in brief

Neste (NESTE, Nasdaq Helsinki) creates sustainable solutions for transport, business, and consumer needs. Our wide range of renewable products enable our customers to reduce climate emissions. We are the world's largest producer of renewable diesel refined from waste and residues, introducing renewable solutions also to the aviation and plastics industries. We are also a technologically advanced refiner of high-quality oil products. We want to be a reliable partner with widely valued expertise, research, and sustainable operations. In 2017, Neste's revenue stood at EUR 13.2 billion. In 2018, Neste placed 2nd on the Global 100 list of the most sustainable companies in the world. Read more: neste.com

Attachments:

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Neste's Financial Statements Release for 2017

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