Neste Oil's Interim Report for January-June 2014 Neste Oil

Neste Oil Corporation Interim Report 5 August at 9 a.m. (EET) Neste Oil's Interim Report for January-June 2014 Internal improvement actions started to bear fruit in a challenging market. Second quarter in brief: * Comparable operating profit totaled EUR 85 million (Q2/2013: EUR 88 million) * Total refining margin was USD 8.35 /bbl (Q2/2013: USD 8.82/bbl) * Renewable Products' reference margin was USD 214/ton (Q2/2013: USD 346/ton) * Renewable Products' additional margin was USD 155/ton (Q2/2013: USD 88/ton) * Net cash from operations totaled EUR 219 million (Q2/2013: EUR 312 million) January-June in brief: * Comparable operating profit totaled EUR 140 million (1-6/2013: EUR 223 million) * Return on average capital employed (ROACE) was 10.6% over the last 12 months (2013: 11.8%) * Leverage ratio was 36.1% as of the end of June (31.12.2013: 30.0%) * Comparable earnings per share: EUR 0.31 (1-6/2013: EUR 0.56) President & CEO Matti Lievonen: "Although the challenging market situation has continued, Neste Oil has successfully taken a number of actions to compensate for the low reference margins in Oil Products and Renewable Products. We recorded a comparable operating profit of EUR 85 million during the second quarter, compared to EUR 88 million during the corresponding period last year. Oil Products' reference refining margin was at its lowest in May, as diesel imports to Europe continued to run at a high level. The reference refining margin averaged USD 4.2/bbl compared to USD 5.7/bbl in the second quarter of 2013. Oil Products' result was also impacted by an unscheduled 40-day maintenance outage on production line 4 at the Porvoo refinery. Our additional margin averaged a reasonable USD 4.1/bbl, however, and enabled Oil Products to record a comparable operating profit of EUR 33 million compared to EUR 30 million in the second quarter of 2013. Renewable Products' market situation has improved slightly, but decisions on US biofuel regulation for 2014 are still pending. Sales volumes allocated to North America were approx. one third of total in the second quarter. The profitability of our European business was impacted by the narrow price differential between FAME biodiesel and palm oil. Sales volumes were high, at 566,000 tons, and our NEXBTL renewable diesel refineries continued to operate at high utilization rates. We further increased our usage of waste and residues to 66% of total renewable inputs. Renewable Products recorded a comparable operating profit of EUR 31 million compared to EUR 33 million in the second quarter of 2013. Oil Retail continued to perform well, achieving reasonable margins in all markets. The segment generated a comparable operating profit of EUR 20 million, slightly below the EUR 22 million booked in the second quarter of 2013. We expect the Group's full-year comparable operating profit to be within the earlier guided EUR 450 million +/- 10% range in 2014. As Neste Oil's reference refining margin is currently expected to average USD 3.5/bbl rather than the earlier estimated USD 4.0/bbl in 2014, our full-year comparable operating profit is likely to be at the lower end of the guidance range. We will continue to implement a series of performance improvement initiatives related to both variable and fixed costs aimed at improving comparable operating profit by at least EUR 50 million in 2014, which will contribute to reaching the guided result level." The Group's second-quarter 2014 results Neste Oil's revenue in the second quarter totaled EUR 4,248 million (EUR 3,970 million). This increase resulted mainly from higher sales in Oil Products and Renewable Products. The Group's comparable operating profit came in at EUR 85 million. Comparable operating profit for the corresponding period in 2013 was EUR 88 million. Oil Products' result was negatively impacted by reference refining margins, which were lower than in the second quarter of 2013, as well as a 40-day unscheduled maintenance outage at the Porvoo refinery. The solid additional margin helped secure the segment's overall result. Renewable Products' comparable operating profit was similar to that recorded in the second quarter of 2013. The impact of Renewable Products' lower reference margin was largely compensated for by higher sales volumes and the higher additional margin achieved by internal measures designed to optimize the sales and feedstock mix. Oil Retail's solid performance continued, as it delivered virtually the same comparable operating profit as in the corresponding period in 2013, despite the negative currency effect. The result of the Others segment improved marginally compared to the second quarter of 2013. Oil Products' second-quarter comparable operating profit was EUR 33 million (30 million), Renewable Products' EUR 31 million (33 million), and Oil Retail's EUR 20 million (22 million). The comparable operating profit of the Others segment totaled EUR 2 million (-1 million). The Group's IFRS operating profit was EUR 69 million (112 million) and reflected inventory gains totaling EUR 2 million (losses of 26 million) and changes in the fair value of open oil derivatives totaling EUR -18 million (7 million). Pre-tax profit was EUR 47 million (96 million), profit for the period EUR 38 million (90 million), and earnings per share EUR 0.15 (0.35). The Group's January-June 2014 results Neste Oil's revenue totaled EUR 7,902 million during the first six months of the year compared to EUR 8,228 million during the same period last year. This decline resulted mainly from lower sales in Oil Products in the first quarter and the disposal of the retail business in Poland. The Group's six-month comparable operating profit totaled EUR 140 million compared to EUR 223 million in the first half of 2013. The main reason for the reduced comparable operating profit was the lower reference margins in both Oil Products and Renewable Products, which had a total negative impact of EUR 173 million. Higher sales volumes in Renewable Products and higher additional margins saw the comparable operating profit come in EUR 83 million below the figure booked during the first six months of 2013. Oil Products' six-month comparable operating profit was EUR 66 million (141 million), Renewable Products' EUR 46 million (59 million), and Oil Retail's EUR 35 million (33 million). The comparable operating profit of the Others segment totaled EUR -9 million (-13 million). The Group's IFRS operating profit was EUR 124 million (198 million), which was impacted by inventory losses totaling EUR 1 million (61 million) and net capital losses totaling EUR 2 million (gains 43 million). The pre-tax profit was EUR 85 million (161 million), profit for the period EUR 69 million (137 million), and earnings per share EUR 0.27 (0.53). 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 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 middle distillate imports into Europe from the Middle East and the US. Gasoline margins are expected to follow normal seasonality, which supports the reference margin during the summer driving season. 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 during 2014 are likely to widen from the current narrow levels 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 been proposed in the US Congress, but is not likely to make any progress until the mid-term elections in November. Reintroduction would have a positive impact on Neste Oil's result. It is not included in the present result guidance. The NEXBTL refinery in Singapore is scheduled for a major turnaround lasting approx. eight weeks during the third and fourth quarter of 2014. Neste Oil expects the Group's full-year comparable operating profit to be within the earlier guided EUR 450 million +/- 10% range in 2014. As Neste Oil's reference refining margin is currently expected to average USD 3.5/bbl rather than the earlier estimated USD 4.0/bbl in 2014, the full-year comparable operating profit is likely to be at the lower end of the guidance range. Neste Oil will continue to implement a series of performance improvement initiatives related to both variable and fixed costs aimed at improving the Group's comparable operating profit by at least EUR 50 million in 2014, which will contribute to reaching the guided result level. 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 second-quarter results will be held today, 5 August 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 5 August 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 9543, Europe: +44 (0)20 3427 1908, US: +1 212 444 0895, using access code 8887105. The conference call can be followed at the company's web site. An instant replay of the call will be available until 12 August 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 8887105#. 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 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 [HUG#1846474]