Neste Oyj — Earnings Release 2021

Feb 10, 2022

Neste's Financial Statements Release for 2021

Neste's Financial Statements Release for 2021

Neste Corporation, Financial Statements Release, 10 February 2022 at 9 a.m.
(EET)

Excellent performance in a year of major scheduled maintenance shutdowns and
high input costs

Year 2021 in brief:

· Comparable EBITDA totaled EUR 1,920 million (EUR 1,929 million)
· EBITDA totaled EUR 2,607 million (EUR 1,508 million)
· Comparable operating profit totaled EUR 1,342 million (EUR 1,416 million)
· Operating profit totaled EUR 2,023 million (EUR 828 million)
· Cash flow before financing activities totaled EUR 511 million (EUR 1,019
million)
· Return on average capital employed (ROACE) was 15.5% over the last 12 months
(17.3%)
· Leverage ratio was 0.6% at the end of December (31 Dec 2020: -4.7%)
· Comparable earnings per share were EUR 1.54 (EUR 1.60)
· Earnings per share: EUR 2.31 (EUR 0.93)
· Board of Directors will propose a dividend of EUR 0.82 per share (0.80),
totaling EUR 630 million (EUR 614 million)

Fourth quarter in brief:

· Comparable EBITDA totaled EUR 591 million (EUR 512 million)
· EBITDA totaled EUR 689 million (EUR 297 million)
· Comparable operating profit totaled EUR 432 million (EUR 380)
· Operating profit totaled EUR 524 million (EUR -2 million)
· Renewable Products' comparable operating profit was EUR 357 million (EUR 338
million)
· Renewable Products' comparable sales margin was USD 779/ton (USD 760/ton)
· Oil Products' comparable operating profit was EUR 90 million (EUR 37
million)
· Marketing & Services’ comparable operating profit was EUR 14 million (EUR 15
million)

President and CEO Peter Vanacker:

“Neste ended the year 2021 with an excellent performance in all business units.
Our business proved to be very resilient amid the continued COVID-19 pandemic,
scheduled maintenance and high utility and feedstock costs in 2021. We posted a
solid comparable operating profit of EUR 1,342 million, compared to EUR 1,416
million in the previous year. Renewable Products was able to improve its sales
volumes and sales margin despite having several scheduled shutdowns, but was
negatively impacted by a weaker US dollar and higher fixed costs. The refining
market recovered and Oil Products was able to exceed the previous year’s result
despite the largest ever turnaround implemented at the Porvoo refinery and the
closure of the Naantali refinery. Also Marketing & Services improved its
performance compared to the previous year. We reached a ROACE of 15.5% over the
last 12 months and a leverage ratio of 0.6% at the end of the year. Our cash
flow before financing activities was very solid at EUR 511 million in a year of
significant investments and acquisitions. The solid financial position enables
the implementation of our growth strategy going forward while continuing to
reward our shareholders.

Renewable Products posted a very good full-year comparable operating profit of
EUR 1,238 million (EUR 1,334 million) considering the multiple scheduled plant
shutdowns. The renewable diesel demand remained robust, but feedstock markets
continued to tighten during 2021. Despite the higher feedstock costs, we were
able to further increase our comparable sales margin, which averaged USD
715/ton. This was an excellent achievement driven by the optimization of price
premiums, market allocation, feedstock mix and successful margin hedging. Sales
volumes were 3.02 million tons in 2021, about 2% higher than in the previous
year. The increase in sales was enabled by a new annual production record of
3.01 million tons. Our continued focus on the Neste Excellence program has
enabled us to increase our nameplate capacity from 3.2 million to 3.3 million
tons while keeping the nameplate capacity target of 4.5 million tons unchanged
once the EUR 1.5 billion expansion investment in Singapore has been started up.
The share of waste and residues increased further and averaged 92% of the total
renewable material inputs in 2021. The term sales negotiations for 2022 have
been successfully completed.

Oil Products posted a full-year comparable operating profit of EUR 71 million
(EUR 50 million). The reference margin, which reflects the general market
conditions, improved significantly during the year. The additional margin was,
however, burdened by higher utility costs, which offset a major part of the
reference margin improvement. The largest ever turnaround at the Porvoo refinery
was successfully and safely executed within the twelve-week schedule in the
second quarter. This turnaround was a significant investment to ensure the
safety, availability and competitiveness of the refinery going forward. Combined
with the Naantali refinery closure in March, the Porvoo major turnaround
materially reduced Oil Products’ sales volumes in 2021. Substantial cost
reduction measures were successfully implemented with an impact of approximately
EUR 30 million in 2021, also supported by the Naantali refinery closure.

Marketing & Services generated a full-year comparable operating profit of EUR 74
million (EUR 68 million). Despite the pandemic still impacting product demand
particularly in the aviation and marine sectors, we were able to improve our
performance by higher sales volumes and successful margin management.

During the year we continued executing our strategy by agreeing on numerous
partnerships and acquisitions to grow our three renewables businesses –
Aviation, Polymers and Chemicals and Road Transportation – expanding our global
access to waste and residue recycling. We also broadened our sustainability
vision to include climate, biodiversity, human rights and our supply chain and
raw materials. Our safety record was very good despite the heightened risks
posed by pandemic and the major turnaround of our Porvoo refinery. As announced
in our Capital Markets Day in September, we have set a target to make Porvoo the
most sustainable refinery in Europe by 2030. Our Singapore renewables capacity
expansion investment project is currently on schedule for start-up by the end of
the first quarter 2023. The new production line will also include optionality to
produce up to 1 million tons/a Sustainable Aviation Fuels (SAF). Together with
our Rotterdam SAF optionality project, we expect to reach SAF production
capability of 1.5 million tons/a by the end of 2023. The project for a possible
next worldscale renewables refinery in Rotterdam is in the engineering phase,
and its scope is relatively similar to the new Singapore unit. We are
approaching readiness for a final investment decision during the next months to
continue to grow our business in renewables. During 2021 we acquired Bunge’s
pretreatment facility in Rotterdam, and Agri Trading in the US to strengthen our
feedstock sourcing platform, and announced an agreement to sell our base oils
business to Chevron. All of these actions support our strategic transformation.
Uncertainty on the further development of the COVID-19 pandemic and its impact
on the global economy continues. However, we are making good progress in our
journey to become a global leader in renewable and circular solutions.”

The Group's fourth quarter 2021 results

Neste's revenue in the fourth quarter totaled EUR 4,968 million (3,028 million).
The change in revenue resulted from higher market and sales prices, which had a
positive impact of approx. EUR 1.8 billion, and higher sales volumes, which had
a positive impact of approx. EUR 100 million on the revenue. Additionally, the
stronger US dollar had a positive impact of approx. EUR 100 million on the
revenue compared to the corresponding period last year.

The Group’s comparable operating profit was EUR 432 million (380 million).
Renewable Products' comparable operating profit was EUR 357 million (338
million), showing very good sales performance in a tight feedstock market. Oil
Products' comparable operating profit was EUR 90 million (37 million) as a
result of improved refining market. Marketing & Services comparable operating
profit was EUR 14 million (15 million). The Others segment's comparable
operating profit was EUR -26 million (-7 million), mainly due to timing of cost
allocations.

The Group’s operating profit was EUR 524 million (-2 million), which was
impacted by inventory valuation gains of EUR 128 million (losses of 21 million),
and changes in the fair value of open commodity and currency derivatives
totaling EUR -33 million (-48 million), mainly related to utility price hedging.
Profit before income taxes was EUR 500 million (-21 million), and net profit EUR
456 million (6 million). Comparable earnings per share were EUR 0.49 (0.44), and
earnings per share EUR 0.60 (0.01).

The Group's full-year 2021 results

Neste's revenue in 2021 totaled EUR 15,148 million (11,751 million). The change
in revenue resulted from higher market and sales prices, which had a positive
impact of approx. EUR 6.6 billion, and lower sales volumes mainly due to the
Porvoo refinery major turnaround, which had a negative impact of approx. EUR 2.9
billion on the revenue. Additionally, a weaker US dollar had a negative impact
of approx. EUR 300 million on the revenue.

The Group’s comparable operating profit was EUR 1,342 million (1,416 million).
Renewable Products' comparable operating profit was EUR 1,238 million (1,334
million), lower than in 2020, mainly due to the weaker US dollar and higher
fixed costs. Despite the Porvoo refinery major turnaround, Oil Products' reached
a comparable operating profit of EUR 71 million (50 million) in the improved
refining market. Marketing & Services’ comparable operating profit was EUR 74
million (68 million) as a result of higher sales volumes and unit margins. The
Others segment's comparable operating profit was EUR -35 million (-37 million).

The Group’s operating profit was EUR 2,023 million (828 million), which was
impacted by inventory valuation gains of EUR 573 million (losses of 119
million), and changes in the fair value of open commodity and currency
derivatives totaling EUR 106 million (-112 million), mainly related to margin
hedging. Profit before income taxes was EUR 1,962 million (786 million), and net
profit EUR 1,774 million (714 million). Comparable earnings per share were EUR
1.54 (1.60), and earnings per share EUR 2.31 (0.93).

Outlook

Visibility in the global economic development still remains low due to the COVID
-19 pandemic. We expect volatility in the oil products and renewable feedstock
markets to remain high.

Renewable Products’ first-quarter sales volumes are expected to be on a roughly
similar level as in the previous quarter. Waste and residue markets are
anticipated to remain tight as their demand continues to be robust. Following
the conclusion of the term sales contract negotiations, the share of term sales
is expected to be approximately 75% of sales volumes in 2022. Our first-quarter
sales margin is expected to be within the range USD 650-725/ton. The segment’s
full-year fixed costs, including, among other things, fixed costs relating to
the completed acquisitions, are expected to be approximately EUR 140 million
higher than in 2021.

Utilization rates of our renewables production facilities are forecasted to
remain high. We have scheduled a six-week turnaround at the Singapore refinery
in the third quarter, and a seven-week turnaround at the Rotterdam refinery in
the fourth quarter of 2022. The Singapore turnaround is currently estimated to
have a negative impact of approximately EUR 90 million, and the Rotterdam
turnaround a negative impact of approximately EUR 100 million on the segment’s
comparable EBITDA.

Oil Products’ market demand has recovered year-on-year, but is still seen to be
negatively impacted by the COVID-19 pandemic. The reference margin is expected
to remain volatile and to be lower than in the fourth quarter of 2021. The very
high natural gas price is expected to keep depressing the segment’s additional
margin. The first-quarter sales volumes are forecasted to come down somewhat
from the high level seen in the fourth quarter.

In Marketing & Services the sales volumes and unit margins are expected to
follow the previous years' seasonality pattern in the first quarter. The COVID
-19 pandemic is anticipated to have some negative impact on the demand and sales
volumes.

Based on our current estimates and a hedging rate of 85%, Neste's effective
EUR/US dollar rate is expected to be within a range 1.17-1.19 in the first
quarter of 2022.

Neste estimates the Group’s full-year 2022 cash-out capital expenditure to be
approximately EUR 1.1 billion, excluding M&A. Comparable EBITDA will replace
comparable EBIT as Neste’s main profitability indicator starting from the first
quarter of 2022 since we consider comparable EBITDA to better reflect our
underlying business performance during a heavy investment period. A comparable
EBITDA line has been added to the result tables of this report for information.

Dividend distribution proposal

Neste's dividend policy is to distribute at least 50% of its comparable net
profit in the form of a dividend. The parent company's distributable equity as
of 31 December 2021 amounted to EUR 2,800 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 a dividend of EUR 0.82 per share (0.80), totaling EUR 630 million
(614 million), shall be paid on the basis of the approved balance sheet for
2021. The dividend shall be paid in two installments.

The first installment of dividend, EUR 0.41 per share, will 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 1 April 2022. The Board proposes to the AGM that the first
dividend installment would be paid on 8 April 2022. The second installment of
dividend, EUR 0.41 per share, will 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 30 September
2022. The Board proposes to the AGM that the second dividend installment would
be paid on 7 October 2022. 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 1.9% (at year-end 2021 share price
of EUR 43.36) and 53% of the comparable net profit in 2021.

Conference call

A conference call in English for investors and analysts will be held today, 10
February 2022, 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 2311 3291, rest of Europe: +44 (0) 20
7192 8338, US: +1 646 741 3167, using access code 6341079. The conference call
can be followed at the company's website. An instant replay of the call will be
available until 17 February 2022 at +44 (0) 3333 009785 for Europe and +1 866
331 1332 for the US, using access code 6341079.

Further information:

Peter Vanacker, President and 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 solutions for combating climate change
and accelerating a shift to a circular economy. We refine waste, residues and
innovative raw materials into renewable fuels and sustainable feedstock for
plastics and other materials. We are the world’s leading producer of renewable
diesel and sustainable aviation fuel, developing chemical recycling to combat
the plastic waste challenge. We aim at helping customers to reduce greenhouse
gas emissions with our renewable and circular solutions by at least 20 million
tons annually by 2030. As a technologically advanced refiner of high-quality oil
products with a commitment to reach carbon-neutral production by 2035, we are
also introducing renewable and recycled raw materials such as waste plastic as
refinery raw materials. We have consistently been included in the Dow Jones
Sustainability Indices and the Global 100 list of the world’s most sustainable
companies. In 2020, Neste's revenue stood at EUR 11.8 billion, with 94% of the
company’s comparable operating profit coming from renewable products. Read more:
neste.com (http://www.neste.com/en)

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