Neste's Financial Statements Release for 2016 N

Neste Corporation Financial Statements Release 7 February 2017 at 9 am (EET) Neste's Financial Statements Release for 2016

Continued successful strategy implementation and record-high financial results 2016 - dividend proposed to be increased by 30% to EUR 1.30 per share

2016 in brief:

• Comparable operating profit totaled EUR 983 million (EUR 925 million)
• IFRS operating profit totaled EUR 1,155 million (699 million)
• Oil Products' total refining margin was USD 10.38/bbl (USD 11.79/bbl)
• Renewable Products' comparable sales margin was USD 348/ton (USD 299/ton)
• Cash flow before financing activities totaled EUR 834 million (EUR 480 million)
• Return on average capital employed (ROACE) was 16.9% (16.3%)
• Leverage ratio was 15.4% at the end of December (31.12.2015: 29.4%)
• Comparable earnings per share were EUR 3.10 (EUR 2.84)
• The Board of Directors will propose a dividend of EUR 1.30 per share (1.00), totaling EUR 332 million (EUR 256 million).

Fourth quarter in brief:

• Comparable operating profit totaled EUR 262 million (EUR 352 million)
• IFRS operating profit totaled EUR 302 million (EUR 245 million)
• Oil Products' comparable operating profit was EUR 98 million (EUR 91 million)
• Renewable Products' comparable operating profit was EUR 146 million (EUR 231 million)
• Oil Retail's comparable operating profit was EUR 19 million (EUR 17 million)
• Cash flow before financing activities was EUR 267 million (EUR 300 million).

President & CEO Matti Lievonen:

"Neste had another successful year in 2016, as we posted a comparable operating profit of EUR 983 million compared to EUR 925 million in 2015. For the first time Renewable Products had the largest full-year profit contribution, which reflects the continuing strategic transformation of the company. I am very pleased to note that all business areas improved their result from the previous year. We also generated strong cash flow and further strengthened our balance sheet. All key financial indicators showed improvement, and the return on average capital employed after tax reached 16.9%, which was over the long term target level of 15%.

Oil Products posted a comparable operating profit of EUR 453 million (EUR 439 million). Our reference margin averaged USD 4.9/bbl, which was USD 2.9/bbl lower than the exceptionally high level in 2015. Global oil product supply and demand were reasonably balanced, but high product inventories limited the upside on refining margins. Oil Products' additional margin was increased to USD 5.5/bbl level, which was USD 1.5/bbl higher than in 2015. This resulted from operational performance and successful leveraging of contango opportunities, with sales volumes back on track after the Porvoo refinery turnaround year 2015.

Renewable Products recorded a full-year comparable operating profit of EUR 469 million (EUR 402 million). Reference margin and additional margin averaged higher than in 2015. Our sales volumes reached 2.22 million tons, only 2% below the previous year, despite of the scheduled major turnaround implemented at the Rotterdam refinery in the second quarter. A slightly higher share of the sales volume was allocated to the North American market compared to 2015. In the US market the Environmental Protection Agency (EPA) finalized increased volume mandates for biomass-based diesel for 2017 and 2018 in November 2016. Feedstock optimization continued, and the share of waste and residue feedstocks was successfully expanded to 78% of total renewable inputs in 2016. Acquisition of a new feedstock pretreatment facility in the Netherlands will further enhance our capability to process lower quality wastes and residues.

In Oil Retail we were able to increase profits by growing sales volumes and improving unit margins particularly in the Baltic markets. The segment continued to improve its performance and generated a full-year comparable operating profit of EUR 90 million (EUR 84 million).

Crude oil and renewable feedstock price changes, as well as supply and demand balances, will be reflected in the oil and renewable product markets. Crude oil prices are expected to increase moderately as crude oil supply and demand is expected to become more balanced.

Neste expects Oil Products' reference refining margin to be quite similar to that in 2016 on average. Our Porvoo refinery is expected to run at a high utilization rate as only normal unit maintenances are planned. A major two month turnaround at the Naantali unit is scheduled for the third quarter. We are targeting at least USD 5.5/bbl additional margin after mid-2017 as the ongoing strategic investments are completed.

Renewable Products' reference margin is expected to be at approximately the average level of the year 2016. Neste continues to optimize sales allocation based on the total margin, and we have new attractive markets in Europe. For example, Norway has set a biofuel target in traffic growing from 7.5% in 2017 to 20% in 2020. California continues to be an important market for Neste. Sales volumes of the renewable diesel delivered as 100% to end-users are expected to continue growing from 15% in 2016 to 25% of the total renewable sales volumes in 2017. The vegetable oil market is expected to remain volatile, and we aim to expand the use of lower quality waste and residue feedstock further. The completed acquisition of the new feedstock pretreatment and storage facility in the Netherlands will support this goal. A new nameplate capacity of 2.6 million tons is effective 1 January, 2017, and utilization rates of our renewable diesel facilities are expected to be high.

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

Neste will continue to implement its global renewables growth strategy. The demand for renewable products is expected to continue growing globally. Neste's renewables capacity increase program will include both debottlenecking of the existing production capacity to 3 million tons by 2020, and building of new capacity. We are currently evaluating the feasibility of options to invest in new production capacity.  The options under review include locations in the US and Singapore.

Our strategy implementation is proceeding well, we continue to focus on our customers and growth initiatives, and will be completing the already announced strategic investments in 2017. Therefore, we are confident that the year 2017 will be another successful one for Neste."

The Group's fourth-quarter 2016 results

Neste's revenue in the fourth quarter totaled EUR 3,421 million, approx. 24% over the EUR 2,759 million reported in the corresponding period last year. The revenue increase resulted from higher oil price and higher sales volumes. The Group's comparable operating profit totaled EUR 262 million (EUR 352 million). Oil Products' result was negatively impacted by a lower reference margin and higher maintenance costs, but positively impacted by higher additional margin and sales volumes. Renewable Products' result was strong, but lower compared to the corresponding period last year, when the full-year US Blender's Tax Credit for 2015 was recorded in the quarter's comparable operating profit. Oil Retail's result was positively impacted by higher sales volume and unit margin. The Others segment's comparable operating profit was lower compared to the fourth quarter of 2015, mainly due to Nynas' lower result.

Oil Products' fourth-quarter comparable operating profit was EUR 98 million (91 million), Renewable Products' EUR 146 million (231 million), and Oil Retail's EUR 19 million (17 million). The comparable operating profit of the Others segment totaled EUR 2 million (15 million); Nynas accounted for EUR 9 million (22 million) of this figure.

The Group's IFRS operating profit was EUR 302 million (245 million), which was impacted by inventory gains totaling EUR 51 million (losses of 91 million), changes in the fair value of open commodity and currency derivatives totaling EUR -11 million (7 million), mainly related to hedging of inventories. Profit before income taxes was EUR 297 million (219 million), net profit EUR 262 million (209 million), and earnings per share EUR 1.02 (0.81).

The Group's full-year results for 2016

Neste's revenue in 2016 totaled EUR 11,689 million (EUR 11,131 million). Sales volumes increased, but the revenue was negatively impacted by a lower average oil price year-on-year. The Group's comparable operating profit was EUR 983 million (EUR 925 million). Oil Products' result was negatively impacted by reference margin, which was materially lower than in 2015. However, our additional margin increased, and the sales volume was higher compared to last year, which was impacted by the scheduled turnaround at the Porvoo refinery. Renewable Products operating profit improved as a result of higher reference margin and additional margin. Oil Retail's result was positively impacted by increased sales volumes and unit margins. The Others segment recorded a lower comparable operating profit compared to 2015, mainly due to Nynas' lower result and higher common corporate costs.

Oil Products' full-year comparable operating profit was EUR 453 million (439 million), Renewable Products' EUR 469 million (402 million), and Oil Retail's EUR 90 million (84 million). The comparable operating profit of the Others segment totaled EUR -23 million (2 million); Nynas accounted for EUR 11 million (29 million) of this figure.

The Group's IFRS operating profit was EUR 1,155 million (699 million), which was impacted by inventory gains totaling EUR 280 million (losses of 263 million), and changes in the fair value of open commodity and currency derivatives totaling EUR -118 million (-15 million), mainly related to hedging of inventories. IFRS operating profit was also impacted by capital gains totaling EUR 23 million (76 million), mainly related to the sale of Ekokem shares and the sale of Neste's power plant to Kilpilahti Power Plant Ltd. Profit before income taxes was EUR 1,075 million (634 million), net profit EUR 943 million (560 million). Comparable earnings per share were EUR 3.10 (2.84), and earnings per share EUR 3.67 (2.18). The Group's effective tax rate was 12% (12%), which is lower than the Finnish statutory tax rate 20% mainly due to lower taxation in Latvia, Lithuania, Singapore and Switzerland, where Neste has business operations. Neste's manufacturing investment in Renewable Products during 2008-2010 in Singapore is subject to tax exemption for 2010-2023 under the applicable Singapore legislation.

Outlook for 2017

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.

Crude oil supply and demand are expected to become more balanced, leading to a stronger crude market. Global oil demand growth estimates for 2017 by recognized experts currently vary between 1.2 and 1.6 million bbl/d. In light of the expected refining capacity growth the global product supply and demand look relatively balanced.

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.

Neste expects Oil Products' reference refining margin to be quite similar to that in 2016 on average. Our Porvoo refinery is expected to run at a high utilization rate and to have normal planned unit maintenance. A major two month turnaround at the Naantali unit is scheduled for the third quarter. We are targeting at least USD 5.5/bbl additional margin after mid-2017 as the ongoing strategic investments in the Porvoo Solvent Deasphalting (SDA) unit and the Naantali configuration change are completed.

Renewable Products' reference margin is expected to be at approximately the average level of the year 2016. Neste continues to optimize sales allocation based on the total margin, and we have new attractive markets in Europe. For example, Norway has set a biofuel target in traffic growing from 7.5% in 2017 to 20% in 2020. California continues to be an important market for Neste. Sales volumes of the renewable diesel delivered as 100% to end-users are expected to continue growing and be close to 25% of the total sales volumes in 2017. The vegetable oil market is expected to remain volatile, and we aim to expand the use of lower quality waste and residue feedstock further. The completed acquisition of the new feedstock pretreatment and storage facility in the Netherlands will support this goal. A new nameplate capacity of 2.6 million tons is effective 1 January, 2017, and utilization rates of our renewable diesel facilities are expected to be high. Our production costs have been reduced and we lower our variable production cost guidance from USD 130 to USD 110/ton.

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

Neste will continue to implement its global renewables growth strategy. The global demand for renewable products is expected to continue growing globally. Neste's renewables capacity increase program will include both debottlenecking of the existing production capacity to 3 million tons by 2020, and building of new capacity. We are currently evaluating the feasibility of options to invest in new production capacity. The options under review include locations in the US and Singapore.

Our strategy implementation is proceeding well, we continue to focus on our customers and growth initiatives, and will be completing the already announced strategic investments in 2017. Therefore, we are confident that the year 2017 will be another successful one for Neste.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 40 percent of its comparable net profit in the form of a dividend. The parent company's distributable equity as of 31 December 2016 amounted to EUR 1,670 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 1.30 per share (1.00) for 2016, totaling EUR 332 million (256 million) based on the number of outstanding shares.

The proposed dividend represents a yield of 3.6% (at year-end 2016 share price of EUR 36.50) and 42% of the comparable net profit in 2016.

News conference and conference call

A press conference in Finnish on 2016 results will be held today, 7 February 2017, 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 7 February 2017 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 2310 1621, Europe: +44 (0)20 3427 1918, and US: +1 646 254 3360, using access code 4114183. The conference call can be followed at the company's web site . An instant replay of the call will be available until 14 February 2017 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 4114183.

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 choices for the needs of transport, businesses and consumers.  Our global range of products and services allows customers to lower their carbon footprint by combining high-quality renewable products and oil products to tailor-made service solutions. We are the world's largest producer of renewable diesel refined from waste and residues, and we are also bringing renewable solutions to the aviation and plastics industries. We want to be a reliable partner, whose expertise, R&D and sustainable practices are widely respected. In 2016, Neste's net sales stood at EUR 11.7 billion, and we were on the Global 100 list of the 100 most sustainable companies in the world. Read more: neste.com

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