AI assistant
Neste Oyj Interim / Quarterly Report 2017
3230_rns_2017-04-27_d5d62fc8-635d-406e-a691-d1c453bc6047.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
NESTE
27 April 2017
Neste Corporation Interim Report January-March 2017
NESTE
Neste's Interim Report for January-March 2017
Good start of the year - comparable operating profit up 17% year-on-year
First quarter in brief:
- Comparable operating profit totaled EUR 204 million (EUR 175 million)
- IFRS operating profit totaled EUR 271 (EUR 254 million)
- Oil Products' total refining margin was USD 11.00/bbl (USD 10.49/bbl)
- Renewable Products' comparable sales margin was USD 286/ton (USD 288/ton)
- Cash flow before financing activities was EUR -25 million (EUR 73 million)
- Return on average capital employed (ROACE) was 16.6% over the last 12 months (2016: 16.9%)
- Leverage ratio was 15.3% at the end of March (31.12.2016: 15.4%)
President & CEO Matti Lievonen:
"The year has started well as Oil Products delivered improved results and Renewable Products successfully maintained its comparable operating profit at last year's first quarter level. Neste recorded a comparable operating profit of EUR 204 million during the first quarter, compared to EUR 175 million in the corresponding period of 2016. Cash flow was impacted by the temporary effect of building profitable contango inventories.
Oil Products posted a comparable operating profit of EUR 126 million, compared to EUR 86 million in the first quarter of 2016. Reference margin, which reflects the refining market, averaged USD 4.9/bbl during the quarter. It was practically same as in the corresponding period last year. However, we were able to increase our additional margin to USD 6.1/bbl, which had a positive impact of EUR 20 million on the results year-on-year. Sales volumes and the use of Russian crude oil increased.
Renewable Products recorded a comparable operating profit of EUR 80 million, which was the same as in the first quarter of 2016. Renewable Products' comparable sales margin was maintained at the first quarter 2016 level despite the expiry of the US Blender's Tax Credit (BTC) at the end of 2016. Sales margin was optimized by volume allocation between our core markets. Sales volumes were 543,000 tons, a 2% increase on volume compared to the corresponding period last year. Sales volumes are typically lowest in the first quarter. The temporary administrative freeze of the US biofuel mandates for 2017 ended in March, and the growing mandates were reconfirmed. Clearly higher share, approx. 82% of sales volumes were allocated to Europe during the first quarter. Renewable diesel production facilities operated at a high 99% utilization rate. Feedstock optimization continued and the share of waste and residue feedstock was 72% of total renewable inputs.
In Marketing & Services our sales volumes continued at the previous year's first quarter level, but unit margins were clearly lower particularly in Russia and Finland due to competition. The segment generated a comparable operating profit of EUR 11 million (22 million).
Neste expects Oil Products' reference refining margin to be on average similar to that in 2016. 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.
Renewable Products' reference margin is expected to be higher than the average level of the year 2016. Neste continues to optimize sales margin by volume allocation between the core markets, and we have attractive markets in Europe. Sales volumes of the renewable diesel delivered as 100% to end-users are expected to continue growing
Neste Corporation – Interim Report for January-March 2017
NESTE
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. Utilization rates of our renewable diesel facilities are expected to stay high.
In Marketing & Services the sales volumes and unit margins are expected to improve towards the summer period, supported by the previous years' seasonality pattern, and internal actions.
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."
Neste Corporation – Interim Report for January-March 2017
NESTE
Neste's Interim Report, 1 January - 31 March 2017
Interim Report is unaudited.
Figures in parentheses refer to the corresponding period for 2016, unless otherwise stated.
Key Figures
EUR million (unless otherwise noted)
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Revenue | 3,071 | 2,306 | 3,421 | 11,689 |
| EBITDA | 361 | 341 | 396 | 1,521 |
| Comparable EBITDA* | 293 | 262 | 356 | 1,349 |
| Operating profit | 271 | 254 | 302 | 1,155 |
| Comparable operating profit* | 204 | 175 | 262 | 983 |
| Profit before income taxes | 236 | 229 | 297 | 1,075 |
| Net profit | 201 | 214 | 262 | 943 |
| Comparable net profit | 143 | 146 | 228 | 793 |
| Earnings per share, EUR | 0.78 | 0.83 | 1.02 | 3.67 |
| Comparable earnings per share**, EUR | 0.56 | 0.57 | 0.89 | 3.10 |
| Investments | 98 | 71 | 146 | 422 |
| Net cash generated from operating activities | 44 | 117 | 394 | 1,193 |
| 31 Mar 2017 | 31 Mar 2016 | 31 Dec 2016 | ||
| --- | --- | --- | --- | |
| Total equity | 3,988 | 3,095 | 3,755 | |
| Interest-bearing net debt | 718 | 1,223 | 683 | |
| Capital employed | 5,216 | 4,912 | 5,226 | |
| Return on capital employed pre-tax (ROCE)***, % | 22.4 | 14.9 | 22.6 | |
| Return on average capital employed after tax (ROACE)***, % | 16.6 | 16.0 | 16.9 | |
| Equity per share, EUR | 15.50 | 12.02 | 14.60 | |
| Leverage ratio, % | 15.3 | 28.3 | 15.4 |
- Comparable operating profit is calculated by excluding inventory gains/losses, unrealized changes in the fair value open commodity and currency derivatives, capital gains/losses, insurance and other compensations and other adjustments from the reported operating profit.
** Comparable net profit is calculated by excluding total financial income and expense, income tax expense, non-controlling interests and tax on items affecting comparability from the reported comparable operating profit. Comparable earnings per share are based on comparable net profit.
***Last 12 months
Neste Corporation – Interim Report for January-March 2017
NESTE
The Group's first-quarter 2017 results
Neste's revenue in the first quarter totaled EUR 3,071 million (EUR 2,306 million). The increase mainly resulted from higher oil price. The Group's comparable operating profit was EUR 204 million (EUR 175 million). Oil Products improved its result clearly from the first quarter of 2016, mainly thanks to higher additional margin. Renewable Products was able to maintain its comparable operating profit at the same level as in the corresponding period last year. Renewable Products' additional margin was lower than last year, mainly due to expiry of the US BTC, but it was compensated by stronger reference margin and optimized sales allocation. Marketing & Services had clearly lower comparable operating profit compared to the first quarter of 2016, and it was negatively impacted by lower unit margins. The Others segment's comparable operating profit was also lower compared to the first quarter of 2016, mainly due to Nynas' lower results.
Oil Products' first-quarter comparable operating profit was EUR 126 million (86 million), Renewable Products' EUR 80 million (80 million), and Marketing & Services' EUR 11 million (22 million). The comparable operating profit of the Others segment totaled EUR -17 million (-11 million); Nynas accounted for EUR -7 million (0 million) of this figure.
The Group's IFRS operating profit was EUR 271 million (254 million), which was impacted by inventory gains of EUR 42 million (48 million), and changes in the fair value of open commodity and currency derivatives were EUR 24 million (23 million). Profit before income taxes was EUR 236 million (229 million), and net profit EUR 201 million (214 million). Comparable earnings per share were EUR 0.56 (0.57), and earnings per share EUR 0.78 (0.83).
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 204 | 175 | 262 | 983 |
| - inventory gains/losses | 42 | 48 | 51 | 280 |
| - changes in the fair value of open commodity and currency derivatives | 24 | 23 | -11 | -118 |
| - capital gains/losses | 3 | 8 | 0 | 23 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | -1 | 0 | 0 | -13 |
| OPERATING PROFIT | 271 | 254 | 302 | 1,155 |
Variance analysis, MEUR
| 1-3 | |
|---|---|
| Comparable operating profit, 2016 | 175 |
| Sales volumes | 12 |
| Reference margin | 35 |
| Additional margin | -14 |
| Currency exchange | 12 |
| Fixed costs | -10 |
| Others | -7 |
| Comparable operating profit, 2017 | 204 |
Neste Corporation – Interim Report for January-March 2017
NESTE
Variance analysis by segment, MEUR
1-3
| Group comparable operating profit, 2016 | 175 |
|---|---|
| Oil Products | 40 |
| Renewable Products | 0 |
| Marketing & Services | -11 |
| Others including eliminations | -1 |
| Group comparable operating profit, 2017 | 204 |
Financial targets
Return on average capital employed after tax (ROACE) and leverage ratio are Neste's key financial targets. ROACE figures are based on comparable results. The company's long-term ROACE target is 15%, and the leverage ratio target is 25-50%. At the end of March, ROACE calculated over the last 12 months was maintained over the target level, and leverage ratio continued on a downward trend.
| 31 Mar 2017 | 31 Mar 2016 | 31 Dec 2016 | |
|---|---|---|---|
| Return on average capital employed after tax (ROACE)*, % | 16.6 | 16.0 | 16.9 |
| Leverage ratio (net debt to capital), % | 15.3 | 28.3 | 15.4 |
*Last 12 months
Cash flow, investments and financing
The Group's net cash generated from operating activities totaled EUR 44 million (117 million) in the first quarter of 2017. Working capital increased from the year-end 2016 level mainly due to building of contango inventories. Cash flow before financing activities was EUR -25 million (73 million). The Group's net working capital in days outstanding was 32.1 days (18.1 days) on a rolling 12-month basis at the end of the first quarter.
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| EBITDA (IFRS) | 361 | 341 | 396 | 1,521 |
| Capital gains/losses | -3 | -10 | -1 | -28 |
| Other adjustments | -22 | -15 | -2 | 121 |
| Change in working capital | -227 | -136 | 43 | -229 |
| Finance cost, net | -52 | -42 | 8 | -56 |
| Income taxes paid | -13 | -21 | -50 | -137 |
| Net cash generated from operating activities | 44 | 117 | 394 | 1,193 |
| Capital expenditure | -99 | -71 | -116 | -407 |
| Other investing activities | 30 | 28 | -11 | 49 |
| Free cash flow (Cash flow before financing activities) | -25 | 73 | 267 | 834 |
Cash-out investments were EUR 99 million (71 million) in the first quarter of 2017. Maintenance investments accounted for EUR 30 million (20 million) and productivity and strategic investments for EUR 69 million (51 million). Oil Products' investments amounted to EUR 55 million (45 million), with the largest single project being the Solvent
Neste Corporation – Interim Report for January-March 2017
NESTE
Deasphalting (SDA) unit at Porvoo refinery. Renewable Products' investments were EUR 22 million (17 million), mainly related to the ongoing biopropane unit investment at the Rotterdam refinery. Marketing & Services' investments totaled EUR 10 million (2 million) and were mainly related to the station network. Investments in the Others segment were EUR 11 million (7 million), mainly related to IT and business infrastructure upgrade.
Interest-bearing net debt was EUR 718 million at the end of March, compared to EUR 683 million at the end of 2016. Net financial expenses for the quarter were EUR 35 million (25 million). The average interest rate of borrowing at the end of March was 3.5% (3.4%) and the average maturity 4.0 (3.6) years. The interest-bearing net debt/comparable EBITDA ratio was 0.5 (1.0) over the previous 12 months at the end of the first quarter.
The leverage ratio was 15.3% (31 Dec. 2016: 15.4%), and the gearing ratio 18.0% (31 Dec 2016: 18.2%). The Group has a strong financial position, which enables the implementation of our growth strategy going forward and maintaining healthy dividend distribution.
The Group's cash and cash equivalents and committed, unutilized credit facilities amounted to EUR 2,161 million as of the end of March (31 Dec 2016: 2,438 million). There are no financial covenants in the Group companies' current loan agreements.
In accordance with its hedging policy, Neste hedges a large part of its net foreign currency exposure for the next 12 months, mainly using forward contracts and currency options. The most important hedged currency is the US dollar. At the end of March the Group's foreign currency hedging ratio was slightly above 50% for the next 12 months.
US dollar exchange rate
| | 1-3/17 | 1-3/16 | 10-12/16 | 2016 |
| --- | --- | --- | --- | --- |
| EUR/USD, market rate | 1.06 | 1.10 | 1.08 | 1.11 |
| EUR/USD, effective rate* | 1.10 | 1.10 | 1.09 | 1.11 |
- The effective rate includes the impact of currency hedges.
Segment reviews
Neste's businesses are grouped into four reporting segments: Oil Products, Renewable Products, Marketing & Services, and Others.
Neste Corporation – Interim Report for January-March 2017
NESTE
Oil Products
Key financials
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Revenue, MEUR | 2,009 | 1,359 | 2,159 | 7,395 |
| EBITDA, MEUR | 234 | 148 | 179 | 780 |
| Comparable EBITDA, MEUR | 177 | 139 | 151 | 670 |
| Comparable operating profit, MEUR | 126 | 86 | 98 | 453 |
| IFRS operating profit, MEUR | 182 | 95 | 126 | 563 |
| Net assets, MEUR | 2,629 | 2,484 | 2,424 | 2,424 |
| Return on net assets*, % | 26.2 | 10.4 | 23.2 | 23.2 |
| Comparable return on net assets*, % | 19.8 | 14.9 | 18.7 | 18.7 |
- Last 12 months
Variance analysis, MEUR
| 1-3 | |
|---|---|
| Comparable operating profit, 2016 | 86 |
| Sales volumes | 9 |
| Reference margin | 1 |
| Additional margin | 20 |
| Currency exchange | 7 |
| Fixed costs | -2 |
| Others | 4 |
| Comparable operating profit, 2017 | 126 |
Key drivers
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Reference refining margin, USD/bbl | 4.92 | 4.87 | 5.19 | 4.88 |
| Additional margin, USD/bbl | 6.08 | 5.61 | 5.34 | 5.50 |
| Total refining margin, USD/bbl | 11.00 | 10.49 | 10.53 | 10.38 |
| Urals-Brent price differential, USD/bbl | -2.12 | -2.72 | -2.20 | -2.48 |
| Urals' share of total refinery input, % | 73 | 64 | 66 | 68 |
Oil Products' first-quarter comparable operating profit totaled EUR 126 million, compared to EUR 86 million in the first quarter of 2016. Average reference margin, which reflects the refining market, was similar to the corresponding period last year. Additional margin was USD 0.5/bbl stronger than a year ago, which had a positive impact of EUR 20 million on the segment's operating profit. Our sales volumes were 5% higher than in the first quarter of 2016, which had a positive impact of EUR 9 million on the result year-on-year. Additionally, stronger USD exchange rate had a EUR 7 million positive effect on the comparable operating profit. The use of Russian crude was increased to 73% (64%) of total input, and the price differential to Brent remained favorable.
The average utilization rate at the Porvoo refinery was 91% (88%), which reflected some unit maintenance during the first quarter. Naantali unit recorded an average utilization rate of 70% (62%) as a result of production optimization and some mechanical limitations in certain process units. Oil Products' comparable return on net assets was 19.8% (14.9%) at the end of March over the previous 12 months.
Neste Corporation – Interim Report for January-March 2017
NESTE
During January and February crude oil price was trading in a narrow range between USD 54 and USD 57/bbl, supported by the agreement between OPEC and non-OPEC countries to cut oil production, and high compliance of the agreement. In March crude oil price came under pressure and Brent price touched USD 50/bbl as a result of high US inventories, and a rising US oil rig count, while the ability of the production cut agreement to stabilize the global crude oil market was questioned. However, Brent price recovered to USD 53/bbl level at the end of the quarter.
The Russian Export Blend (REB) crude averaged USD 2.1/bbl lower than Brent during the first quarter. High Russian production and continued high exports through the Baltic Sea ports contributed to a reasonably wide differential during the quarter. Also competition by Middle Eastern sour crudes in the Baltic Sea and Mediterranean markets drove a wider REB differential.
Neste reference margin was healthy for the season as declining product inventory levels, an active maintenance period on both sides of the Atlantic, and some unexpected refinery outages had a positive impact on margins. Compared to the first quarter of the previous year diesel margins were clearly higher, which was driven by normal winter season demand. On average gasoline was still the strongest part of the barrel during the first quarter. Neste's reference margin averaged USD 4.9/bbl in the quarter.
Production
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Porvoo refinery production, 1,000 ton | 2,997 | 2,899 | 2,770 | 11,718 |
| Porvoo refinery utilization rate, % | 91 | 88 | 78 | 89 |
| Naantali refinery production, 1,000 ton | 511 | 388 | 456 | 1,869 |
| Naantali refinery utilization rate, % | 70 | 62 | 52 | 62 |
| Refinery production costs, USD/bbl | 3.7 | 3.9 | 5.3 | 4.2 |
| Bahrain base oil plant production, (Neste's share) 1,000 ton | 51 | 46 | 11 | 159 |
Sales from in-house production, by product category (1,000 t)
| 1-3/17 | % | 1-3/16 | % | 10-12/16 | % | 2016 | % | |
|---|---|---|---|---|---|---|---|---|
| Middle distillates* | 1,501 | 46 | 1,394 | 45 | 1,652 | 46 | 6,590 | 46 |
| Light distillates** | 1,071 | 33 | 1,006 | 32 | 1,185 | 33 | 4,706 | 33 |
| Heavy fuel oil | 389 | 12 | 435 | 14 | 414 | 11 | 1,594 | 11 |
| Base oils | 109 | 3 | 119 | 4 | 109 | 3 | 461 | 3 |
| Other products | 192 | 6 | 155 | 5 | 245 | 7 | 965 | 7 |
| TOTAL | 3,263 | 100 | 3,109 | 100 | 3,605 | 100 | 14,316 | 100 |
- Diesel, jet fuel, heating oil
** Motor gasoline, gasoline components, LPG
Sales from in-house production, by market area (1,000 t)
| 1-3/17 | % | 1-3/16 | % | 10-12/16 | % | 2016 | % | |
|---|---|---|---|---|---|---|---|---|
| Baltic Sea area* | 1,944 | 60 | 1,871 | 60 | 1,831 | 51 | 8,037 | 56 |
| Other Europe | 1,062 | 33 | 1,077 | 35 | 1,376 | 38 | 4,596 | 32 |
| North America | 126 | 4 | 88 | 3 | 236 | 7 | 1,198 | 8 |
| Other areas | 131 | 4 | 73 | 2 | 162 | 4 | 485 | 3 |
- Finland, Sweden, Estonia, Latvia, Lithuania, Poland, Denmark
Neste Corporation – Interim Report for January-March 2017
NESTE
Renewable Products
Key financials
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Revenue, MEUR | 699 | 584 | 870 | 2,690 |
| EBITDA, MEUR | 118 | 174 | 189 | 628 |
| Comparable EBITDA, MEUR | 107 | 104 | 176 | 578 |
| Comparable operating profit, MEUR | 80 | 80 | 146 | 469 |
| IFRS operating profit, MEUR | 91 | 150 | 158 | 518 |
| Net assets, MEUR | 1,844 | 1,828 | 1,811 | 1,811 |
| Return on net assets*, % | 25.5 | 21.3 | 28.6 | 28.6 |
| Comparable return on net assets*, % | 26.0 | 24.1 | 25.9 | 25.9 |
- Last 12 months
Variance analysis, MEUR
| 1-3 | |
|---|---|
| Comparable operating profit, 2016 | 80 |
| Sales volumes | 3 |
| Reference margin | 33 |
| Additional margin | -35 |
| Currency exchange | 5 |
| Fixed costs | -5 |
| Others | -2 |
| Comparable operating profit, 2017 | 80 |
Key drivers
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| FAME - Palm oil price differential*, USD/ton | 230 | 160 | 264 | 194 |
| SME - Palm oil price differential**, USD/ton | 181 | 125 | 321 | 222 |
| Reference margin, USD/ton | 271 | 224 | 338 | 268 |
| Additional margin***, USD/ton | 125 | 194 | 127 | 210 |
| Comparable sales margin, USD/ton | 286 | 288 | 335 | 348 |
| Biomass-based diesel (D4) RIN, USD/gal | 0.96 | 0.76 | 1.06 | 0.91 |
| Palm oil price***, USD/ton | 662 | 607 | 669 | 634 |
| Crude palm oil's share of total feedstock, % | 28 | 23 | 27 | 19 |
- FAME seasonal vs. CPO BMD 3rd (Crude Palm Oil Bursa Malaysia Derivatives 3rd month futures price) + 70 $/t freight to ARA (Amsterdam-Rotterdam-Antwerp)
** SME US Gulf Coast vs. CPO BMD 3rd
***Based on standard variable production cost of USD 130/ton in 2016 and USD 110/ton in 2017 figures
*** CPO BMD 3rd
Renewable Products' comparable operating profit totaled EUR 80 million during the first quarter, which was the same as in the corresponding period of 2016. The reference margin was USD 47/ton higher than in the first quarter of 2016, which had a positive impact of EUR 33 million on the operating profit year-on-year. Our additional margin
Neste Corporation – Interim Report for January-March 2017
NESTE
was approx. USD 70/ton lower compared to the corresponding period last year, mainly due to the expiry of the US Blender's Tax Credit. We were able to reach similar comparable sales margin year-on-year by optimizing volume allocation between our core markets. Sales volumes totaled 543,000 tons, a 2% increase on volume compared to the corresponding period last year. Sales volumes are typically lowest in the first quarter. The temporary administrative freeze of the US biofuel mandate for 2017 ended in March, and the growing mandates were reconfirmed. Clearly higher share, approx. 82% (72%) of sales volumes were allocated to the European market during the first quarter and 18% (28%) to North America. Share of 100% renewable diesel delivered to end-users was 18%. Our renewable diesel production achieved a high average utilization rate of 99% (94%) during the quarter. Feedstock optimization continued and the proportion of waste and residue inputs was 72% (75%) on average. Renewable Products' comparable return on net assets was 26.0% (24.1%) at the end of March based on the previous 12 months.
Vegetable oil prices started to decline during the first quarter. Crude palm oil (CPO) stocks were low at the beginning of the year, but higher production volumes led CPO prices on a downward trend. Soybean oil (SBO) prices declined due to improved crop outlook in South America, and the planned US anti-dumping measures against Argentinian SBO based biodiesel. European rapeseed oil (RSO) prices have been under pressure by increased availability of sun flower oil.
During the first quarter European Fatty Acid Methyl Ester (FAME) prices declined by USD 80/ton and US Soy Methyl Ester (SME) biodiesel prices by USD 150/ton, mainly reflecting the downtrend in vegetable oils. The US Renewable Identification Number (RIN) prices reflected market volatility, but after the administrative freeze on biofuel volume mandates ended in March, D4 RIN prices rose back to USD 1/gallon level. The California Low Carbon Fuel Standard (LCFS) credit prices softened to USD 80/ton level during the quarter.
Production
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Neste Renewable Diesel, 1,000 ton | 649 | 582 | 551 | 2,213 |
| Other products, 1,000 ton | 49 | 48 | 45 | 175 |
| Utilization rate, % | 99 | 94 | 88 | 88 |
Sales
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Neste Renewable Diesel, 1,000 ton | 543 | 531 | 662 | 2,222 |
| Share of sales volumes to Europe, % | 82 | 72 | 68 | 66 |
| Share of sales volumes to North America, % | 18 | 28 | 32 | 34 |
Neste Corporation – Interim Report for January-March 2017
NESTE
Marketing & Services
Key financials
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Revenue, MEUR | 948 | 776 | 964 | 3,552 |
| EBITDA, MEUR | 18 | 27 | 25 | 111 |
| Comparable EBITDA, MEUR | 17 | 27 | 26 | 112 |
| Comparable operating profit, MEUR | 11 | 22 | 19 | 90 |
| IFRS operating profit, MEUR | 12 | 22 | 19 | 89 |
| Net assets, MEUR | 212 | 164 | 196 | 196 |
| Return on net assets*, % | 40.6 | 42.7 | 47.3 | 47.3 |
| Comparable return on net assets*, % | 40.6 | 45.1 | 47.5 | 47.5 |
- Last 12 months
Variance analysis, MEUR
| 1-3 | |
|---|---|
| Comparable operating profit, 2016 | 22 |
| Sales volumes | 0 |
| Unit margins | -7 |
| Currency exchange | 1 |
| Fixed costs | -2 |
| Others | -3 |
| Comparable operating profit, 2017 | 11 |
Marketing & Services' comparable operating profit was EUR 11 million (22 million) in the first quarter of 2017. Sales volumes remained at the same level year-on-year. Average unit margins were clearly lower particularly in Russia and Finland, which had a negative impact of EUR 7 million on the comparable operating profit. Stronger ruble had a positive impact of EUR 1 million on the result compared to first quarter of 2016. The fixed costs were EUR 2 million higher, and other income had EUR 3 million lower contribution year-on-year. Marketing & Services' comparable return on net assets was 40.6% (45.1%) at the end of March on a rolling 12-month basis.
Marketing & Services' markets grew modestly in Finland and more rapidly in the Baltic countries. Traffic fuel demand is seasonally lower during the winter period, and another mild winter impacted heating oil demand. Heavy duty traffic continued to recover in Finland. Increased competition in the Finnish and Russian markets has negatively impacted unit margins. Also the sluggish Russian economy has lowered consumer demand.
Sales volumes by main product categories, million liters
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Gasoline, station sales | 246 | 250 | 274 | 1,112 |
| Diesel, station sales | 417 | 403 | 432 | 1,695 |
| Heating oil | 147 | 154 | 181 | 620 |
Neste Corporation – Interim Report for January-March 2017
NESTE
Net sales by market area, MEUR
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Finland | 691 | 562 | 658 | 2,497 |
| Northwest Russia | 69 | 51 | 70 | 248 |
| Baltic countries | 187 | 163 | 207 | 777 |
Others
Key financials
| 1-3/17 | 1-3/16 | 10-12/16 | 2016 | |
|---|---|---|---|---|
| Comparable operating profit, MEUR | -17 | -11 | 2 | -23 |
| IFRS operating profit, MEUR | -17 | -11 | 2 | -11 |
The Others segment consists of the engineering and technology solutions company Neste Jacobs, 60/40-owned by Neste and Jacobs Engineering; Nynas, a joint venture 50/50-owned by Neste and Petróleos de Venezuela; and common corporate costs. The comparable operating profit of the Others segment totaled EUR -17 million (-11 million) in the first quarter; Nynas accounted for EUR -7 million (0 million) of this figure. Nynas' result continued to be negatively impacted by lower margins and effects of the delayed Harburg refinery start-up.
Annual General Meeting
Neste Corporation's Annual General Meeting (AGM) was held in Helsinki after the reporting period on 5 April 2017. The AGM adopted the company's Financial Statements and Consolidated Financial Statements for 2016, and discharged the Board of Directors and the President & CEO from liability for 2016. The AGM also approved the Board of Directors' proposal regarding the distribution of the company's profit for 2016, authorizing payment of a dividend of EUR 1.30 per share. The dividend was paid on 18 April 2017.
In accordance with the proposal made by the Shareholders' Nomination Board, the AGM confirmed the membership of the Board of Directors at eight members, and the following were re-elected to serve until the end of the next AGM: Mr. Jorma Eloranta, Ms. Laura Raitio, Mr. Jean-Baptiste Renard, Mr. Willem Schoeber and Mr. Marco Wirén. The following were elected as new members: Ms. Martina Flöel, Ms. Heike van de Kerkhof and Mr. Matti Kähkonen. Mr. Eloranta was re-elected as Chair and Mr. Matti Kähkonen was elected as new Vice Chair.
Convening right after the Annual General Meeting, Neste's Board of Directors elected the members of its two Committees. Jorma Eloranta was elected Chair and Heike van de Kerkhof, Matti Kähkonen and Jean-Baptiste Renard as members of the Personnel and Remuneration Committee. Marco Wirén was elected Chair and Laura Raitio, Martina Flöel, and Willem Schoeber as members of the Audit Committee.
In accordance with a proposal by the Board of Directors, PricewaterhouseCoopers Oy, were appointed as the company's Auditor, with Authorized Public Accountant Mr Markku Katajisto as the principally responsible auditor for Neste Corporation, until the end of the next AGM. Payment for their services shall be made in accordance with their invoice approved by the Company.
Neste Corporation – Interim Report for January-March 2017
NESTE
Shares, share trading, and ownership
Neste's shares are traded on NASDAQ Helsinki Ltd. The share price closed the quarter at EUR 36.56, up by 0.2% compared to the end of 2016. At its highest during the quarter, the share price reached EUR 37.19, while at its lowest the price stood at EUR 31.15. Market capitalization was EUR 9.4 billion as of 31 March 2017. An average of 0.75 million shares were traded daily, representing 0.3% of the company's shares.
Neste's share capital registered with the Company Register as of 31 March 2017 totaled EUR 40 million, and the total number of shares was 256,403,686. As resolved by the AGM held on 1 April 2015, the Board of Directors was authorized to purchase and/or take as security a maximum of 1,000,000 company shares using the company's unrestricted equity. At the end of March 2017, Neste held 613,545 treasury shares purchased under this authorization. The Board of Directors has no authorization to issue convertible bonds, share options, or new shares.
As of 31 March 2017, the Finnish State owned 50.1% (50.1% at the end of 2016) of outstanding shares, foreign institutions 30.1% (30.3%), Finnish institutions 10.1% (10.0%), and Finnish households 9.7% (9.6%).
Personnel
Neste employed an average of 5,067 (4,885) employees in the first quarter, of which 1,623 (1,580) were based outside Finland. As of the end of March, the company had 5,113 employees (4,878), of which 1,640 (1,575) were located outside Finland.
Health, safety, and the environment
Key figures
| 1-3/17 | 1-3/16 | 2016 | |
|---|---|---|---|
| TRIF* | 3.1 | 4.0 | 2.8 |
| PSER** | 2.3 | 4.6 | 3.1 |
- Total Recordable Incident Frequency, number of cases per million hours worked. Includes both Neste's and contractors' personnel.
** Process Safety Event Rate, number of cases per million hours worked.
Neste's safety performance improved compared to the corresponding period in 2016. Our occupational safety key performance indicator TRIF was better than in the first quarter of 2016, but slightly worse than the result for whole 2016. PSER, the main indicator for process safety, improved compared to both the first quarter and full-year 2016. Several initiatives are under way to ensure reaching the targets for 2017. Our long-term safety development activities continue according to the corporate-wide Way Forward to Safety program plan focusing on behavior, leadership, operational discipline, process safety and contractor safety. Short-term actions focus additionally on effective learning from incidents, using leading indicators, and managing risk effectively also in routine work.
Neste's operational environmental emissions were in substantial compliance at all sites during the first quarter. A total of two minor environmental non-compliance cases occurred at Neste's operations with limited local environmental impact only. No serious environmental incidents resulting in liability occurred at Neste's refineries or other production sites.
Neste Corporation – Interim Report for January-March 2017
NESTE
Neste reached the Global 100 list of the world's most sustainable companies for the 11th consecutive time. This year Neste improved its ranking from 39th to 23rd, and was considered the best performing company within the Oil and Gas Industry. In the Sustainability Yearbook 2017 of RobecoSAM, Neste was selected among the sustainability leaders in the refining & marketing sector with the distinction "Industry Mover".
Read more about the topics on Neste's website.
Main events published during the reporting period
On 17 January, Neste announced having started R&D cooperation with Bioenergy La Tuque with the objective of studying the potential of using forest residues as a raw material in biofuel production in La Tuque, Canada. The cooperation supports Neste's goals to expand the raw material selection available and increase the use of waste and residues.
On 27 January, Neste announced that the Shareholders' Nomination Board will propose to the AGM to be held on 5 April 2017 that the company's Board of Directors should comprise the following members: Mr. Jorma Eloranta should be re-elected as Chair, and Board members Ms. Laura Raitio, Mr. Jean-Baptiste Renard, Mr. Willem Schoeber and Mr. Marco Wirén should be re-elected for a further term of office. The Shareholders' Nomination Board further proposed that the Board should have eight members and that Ms. Martina Flöel (PhD, Chemistry), Ms. Heike van de Kerkhof (BSc, Eng, and MBA) and Mr. Matti Kähkönen (M.Sc. Eng) should be elected as new members. The Nomination Board further proposed that Mr. Kähkönen should be elected as the Vice Chair of the Board.
On 7 February, Neste announced that its Oil Retail business area will from now on be called Marketing & Services. Marketing & Services is one of Neste Corporation's three reporting segments. The reason for renaming the business area is the increased importance of solutions and services.
On 21 March, Neste announced that the Regulatory Freeze Pending Review by the new US administration, which was applied to the renewable fuel volume requirements for 2017, has expired. Hence, the Environmental Protection Agency (EPA) continues to implement the final ruling under the Renewable Fuel Standard (RFS) program as published on 23 November 2016. The ruling calls for increases in the renewable fuel volume requirements for 2017, and includes a volume requirement for biomass-based diesel for 2018.
On 24 March, Neste announced that it welcomes the Swedish government's draft law proposals for the emission reduction mandate for traffic fuels and the continued tax exemption for high-blend biofuels. Long-term perspective and ambitious targets provide a much needed basis for innovation and investments in the biofuels sector, while ensuring the necessary carbon emission reductions in transportation.
Potential risks
There have been no significant changes in Neste's short-term risks or uncertainties since the end of 2016.
Key market risks affecting Neste's financial results for the next 12 months include rapid changes in global oil markets, unexpected changes in the product and feedstock prices of Oil Products and/or Renewable Products, weakening of USD against EUR, and adverse changes in the current biofuel legislation in our main markets. Any scheduled or unexpected shutdowns at Neste's refineries would have a negative effect on Neste's financial results.
Neste Corporation – Interim Report for January-March 2017
NESTE
For more detailed information on Neste's risks and risk management, please refer to the Annual Report and the Notes to the Financial Statements.
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.
Crude oil supply and demand are expected to become more balanced, which could end the growth trend in crude oil inventories. 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 on average similar to that in 2016. Our Porvoo refinery is expected to run at a high utilization rate and to have normal planned unit maintenance, including a decoking maintenance at the Production Line 4 in the autumn. The new SDA unit is currently being started up. 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 when the ongoing strategic investments in the Porvoo SDA unit and Naantali reconfiguration are completed.
Renewable Products' reference margin is expected to be higher than the average level of the year 2016. Neste continues to optimize sales margin by volume allocation between core markets, and we have attractive markets in Europe. Sales volumes of the 100% renewable diesel delivered 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. Utilization rates of our renewable diesel facilities are expected to be high. Neste is currently evaluating the feasibility of options to invest in new renewables production capacity. The options under review include locations in the US and Singapore.
In Marketing & Services the sales volumes and unit margins are expected to improve towards the summer period, supported by the previous years' seasonality pattern, and internal actions.
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.
Neste Corporation – Interim Report for January-March 2017
NESTE
Reporting date for the company's second-quarter 2017 results
Neste will publish its second-quarter 2017 results in the Half Year Financial Report on 3 August 2017 at approximately 9:00 a.m. EET.
Espoo, 26 April 2017
Neste Corporation
Board of Directors
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
Conference call
A conference call in English for investors and analysts will be held today, 27 April 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 1620, rest of Europe: +44 (0)20 7136 2056, US: +1 718 354 1158, using access code 1815525. The conference call can be followed at the company's web site. An instant replay of the call will be available until 3 May 2017 at +358 (0)9 2310 1650 for Finland, +44 (0)20 3427 0598 for Europe and +1 347 366 9565 for the US, using access code 1815525.
The preceding information contains, or may be deemed to contain, "forward-looking statements". These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, potential growth, planned operational changes, expected capital expenditures, future cash sources and requirements, liquidity and cost savings that involve known and unknown risks, uncertainties, and other factors that may cause Neste Corporation's or its businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, such forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," or "continue," or the negative of those terms or other comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Future results may vary from the results expressed in, or implied by, the forward-looking statements, possibly to a material degree. All forward-looking statements made in this report are based on information presently available to management and Neste Corporation assumes no obligation to update any forward-looking statements. Nothing in this report constitutes investment advice and this report shall not constitute an offer to sell or the solicitation of an offer to buy any securities or otherwise to engage in any investment activity.
Neste Corporation – Interim Report for January-March 2017
NESTE
NESTE GROUP
JANUARY - MARCH 2017
The interim report is unaudited
FINANCIAL STATEMENT SUMMARY AND NOTES TO THE FINANCIAL STATEMENT
CONSOLIDATED STATEMENT OF INCOME
| MEUR | Note | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
|---|---|---|---|---|---|
| Revenue | 3 | 3,071 | 2,306 | 11,689 | 12,453 |
| Other income | 8 | 19 | 71 | 60 | |
| Share of profit (loss) of joint ventures | -6 | 1 | 14 | 8 | |
| Materials and services | -2,524 | -1,805 | -9,519 | -10,237 | |
| Employee benefit costs | -91 | -83 | -349 | -357 | |
| Depreciation, amortization and impairments | 3 | -89 | -87 | -366 | -368 |
| Other expenses | -97 | -96 | -386 | -386 | |
| Operating profit | 271 | 254 | 1,155 | 1,172 | |
| Financial income and expenses | |||||
| Financial income | 1 | 1 | 4 | 5 | |
| Financial expenses | -11 | -17 | -67 | -61 | |
| Exchange rate and fair value gains and losses | -25 | -8 | -17 | -33 | |
| Total financial income and expenses | -35 | -25 | -79 | -89 | |
| Profit before income taxes | 236 | 229 | 1,075 | 1,082 | |
| Income tax expense | -35 | -16 | -133 | -152 | |
| Profit for the period | 201 | 214 | 943 | 930 | |
| Profit attributable to: | |||||
| Owners of the parent | 200 | 213 | 939 | 926 | |
| Non-controlling interests | 1 | 1 | 4 | 4 | |
| 201 | 214 | 943 | 930 | ||
| Earnings per share from profit attributable to the owners of the parent (in euro per share) | |||||
| Basic earnings per share | 0.78 | 0.83 | 3.67 | 3.62 | |
| Diluted earnings per share | 0.78 | 0.83 | 3.66 | 3.61 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months | |
| Profit for the period | 201 | 214 | 943 | 930 | |
| Other comprehensive income net of tax: | |||||
| Items that will not be reclassified to profit or loss | |||||
| Remeasurements on defined benefit plans | 1 | -6 | -21 | -14 | |
| Items that may be reclassified subsequently to profit or loss | |||||
| Translation differences | 4 | 2 | 6 | 8 | |
| Cash flow hedges | |||||
| recorded in equity | 7 | 24 | -20 | -37 | |
| transferred to income statement | 14 | 3 | 6 | 16 | |
| Net investment hedges | 0 | 0 | 0 | 0 | |
| Share of other comprehensive income of investments accounted for using the equity method | 5 | 7 | -9 | -12 | |
| Total | 30 | 37 | -17 | -24 | |
| Other comprehensive income for the period, net of tax | 31 | 31 | -38 | -38 | |
| Total comprehensive income for the period | 232 | 245 | 905 | 892 | |
| Total comprehensive income attributable to: | |||||
| Owners of the parent | 231 | 244 | 902 | 888 | |
| Non-controlling interests | 1 | 1 | 4 | 4 | |
| 232 | 245 | 905 | 892 |
Neste Corporation – Interim Report for January-March 2017
NESTE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| MEUR | Note | 31 March 2017 | 31 March 2016 | 31 Dec 2016 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Intangible assets | 5 | 88 | 72 | 87 |
| Property, plant and equipment | 5 | 3,753 | 3,726 | 3,747 |
| Investments in joint ventures | 214 | 226 | 216 | |
| Non-current receivables | 55 | 56 | 55 | |
| Deferred tax assets | 35 | 33 | 39 | |
| Derivative financial instruments | 7 | 7 | 10 | 9 |
| Available-for-sale financial assets | 5 | 5 | 5 | |
| Total non-current assets | 4,157 | 4,128 | 4,157 | |
| Current assets | ||||
| Inventories | 1,699 | 1,116 | 1,416 | |
| Trade and other receivables | 911 | 827 | 1,034 | |
| Derivative financial instruments | 7 | 47 | 164 | 48 |
| Cash and cash equivalents | 511 | 594 | 788 | |
| Total current assets | 3,168 | 2,702 | 3,285 | |
| Total assets | 7,325 | 6,830 | 7,443 | |
| EQUITY | ||||
| Capital and reserves attributable to the owners of the parent | ||||
| Share capital | 40 | 40 | 40 | |
| Other equity | 2 | 3,924 | 3,034 | 3,693 |
| Total | 3,964 | 3,074 | 3,733 | |
| Non-controlling interest | 23 | 21 | 22 | |
| Total equity | 3,988 | 3,095 | 3,755 | |
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Interest-bearing liabilities | 1,115 | 1,126 | 1,117 | |
| Deferred tax liabilities | 246 | 265 | 246 | |
| Provisions | 54 | 40 | 53 | |
| Pension liabilities | 134 | 120 | 136 | |
| Derivative financial instruments | 7 | 2 | 7 | 2 |
| Other non-current liabilities | 11 | 10 | 11 | |
| Total non-current liabilities | 1,563 | 1,568 | 1,565 | |
| Current liabilities | ||||
| Interest-bearing liabilities | 113 | 691 | 354 | |
| Current tax liabilities | 66 | 26 | 40 | |
| Derivative financial instruments | 7 | 94 | 44 | 164 |
| Trade and other payables | 1,501 | 1,406 | 1,565 | |
| Total current liabilities | 1,775 | 2,167 | 2,123 | |
| Total liabilities | 3,338 | 3,735 | 3,688 | |
| Total equity and liabilities | 7,325 | 6,830 | 7,443 | |
| CONDENSED CONSOLIDATED CASH FLOW STATEMENT | ||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | |
| Cash flow from operating activities | ||||
| Profit before income taxes | 236 | 229 | 1,075 | |
| Adjustments, total | 100 | 86 | 538 | |
| Change in working capital | -227 | -136 | -229 | |
| Cash generated from operations | ||||
| Finance cost, net | 109 | 179 | 1,385 | |
| Income taxes paid | -52 | -42 | -56 | |
| Net cash generated from operating activities | 44 | 117 | 1,193 | |
| Cash flows from investing activities | ||||
| Capital expenditure | -99 | -71 | -407 | |
| Proceeds from sales of shares in subsidiaries | 0 | 0 | 0 | |
| Proceeds from sales of fixed assets | 4 | 15 | 40 | |
| Changes in non-current receivables and available-for-sale financial assets | 26 | 13 | 9 | |
| Cash flows from investing activities | -69 | -43 | -359 | |
| Cash flow before financing activities | -25 | 73 | 834 | |
| Cash flows from financing activities | ||||
| Net change in loans and other financing activities | -252 | -76 | -387 | |
| Dividends paid to the owners of the parent | 0 | 0 | -256 | |
| Dividends paid to non-controlling interests | 0 | 0 | -1 | |
| Cash flows from financing activities | -252 | -76 | -644 | |
| Net increase (+) decrease (-) in cash and cash equivalents | -277 | -2 | 191 |
Neste Corporation – Interim Report for January-March 2017
NESTE
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
| MEUR | Share capital | Reserve fund | Reserve of invested unrestricted equity | Treasury shares | Fair value and other reserves | Actuarial gains and losses | Translation differences | Retained earnings | Owners of the parent | Non-controlling interests | Total equity |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total equity at 1 January 2016 | 40 | 20 | 1 | -12 | -39 | -54 | -59 | 3,186 | 3,084 | 20 | 3,104 |
| Profit for the period | 213 | 213 | 1 | 214 | |||||||
| Other comprehensive income for the period, net of tax | 35 | -6 | 2 | 31 | 31 | ||||||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 35 | -6 | 2 | 213 | 244 | 1 | 245 |
| Dividend decision | -256 | -256 | -256 | ||||||||
| Share-based compensation | 3 | 2 | -3 | 2 | 2 | ||||||
| Transfer from retained earnings | 1 | 1 | 0 | 0 | |||||||
| Total equity at 31 March 2016 | 40 | 20 | 4 | -10 | -4 | -60 | -56 | 3,140 | 3,074 | 21 | 3,095 |
| MEUR | Share capital | Reserve fund | Reserve of invested unrestricted equity | Treasury shares | Fair value and other reserves | Actuarial gains and losses | Translation differences | Retained earnings | Owners of the parent | Non-controlling interests | Total equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Total equity at 1 January 2016 | 40 | 20 | 1 | -12 | -39 | -54 | -59 | 3,186 | 3,084 | 20 | 3,104 |
| Profit for the period | 939 | 939 | 4 | 943 | |||||||
| Other comprehensive income for the period, net of tax | -23 | -21 | 6 | -38 | -38 | ||||||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | -23 | -21 | 6 | 939 | 902 | 4 | 905 |
| Dividend decision | -256 | -256 | -1 | -257 | |||||||
| Share-based compensation | 3 | 2 | -2 | 3 | 3 | ||||||
| Transfer from retained earnings | 1 | -1 | 0 | 0 | |||||||
| Total equity at 31 December 2016 | 40 | 20 | 4 | -10 | -62 | -75 | -52 | 3,867 | 3,733 | 22 | 3,755 |
| MEUR | Share capital | Reserve fund | Reserve of invested unrestricted equity | Treasury shares | Fair value and other reserves | Actuarial gains and losses | Translation differences | Retained earnings | Owners of the parent | Non-controlling interests | Total equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Total equity at 1 January 2017 | 40 | 20 | 4 | -10 | -62 | -75 | -52 | 3,867 | 3,733 | 22 | 3,755 |
| Profit for the period | 200 | 200 | 1 | 201 | |||||||
| Other comprehensive income for the period, net of tax | 26 | 1 | 4 | 31 | 31 | ||||||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 26 | 1 | 4 | 200 | 231 | 1 | 232 |
| Dividend decision | 0 | 0 | |||||||||
| Share-based compensation | 2 | 1 | -3 | 1 | 1 | ||||||
| Transfer from retained earnings | 0 | 0 | |||||||||
| Total equity at 31 March 2017 | 40 | 20 | 7 | -9 | -36 | -74 | -48 | 4,065 | 3,964 | 23 | 3,868 |
KEY FIGURES
| 31 March 2017 | 31 March 2016 | 31 Dec 2016 | Last 12 months | |
|---|---|---|---|---|
| EBITDA, MEUR | 361 | 341 | 1,521 | 1,540 |
| Comparable EBITDA, MEUR | 293 | 262 | 1,349 | 1,380 |
| Capital employed, MEUR | 5,216 | 4,912 | 5,226 | 5,216 |
| Interest-bearing net debt, MEUR | 718 | 1,223 | 683 | - |
| Capital expenditure and investment in shares, MEUR | 98 | 71 | 422 | 449 |
| Return on average capital employed, after tax, ROACE % | 16.6 | 16.0 | 16.9 | 16.6 |
| Return on capital employed, pre-tax, ROCE % | 22.4 | 14.9 | 22.6 | 22.4 |
| Return on equity % | 26.3 | 20.3 | 28.1 | 26.3 |
| Equity per share, EUR | 15.50 | 12.02 | 14.60 | - |
| Cash flow per share, EUR | 0.17 | 0.46 | 4.67 | 4.38 |
| Earnings per share (EPS), EUR | 0.78 | 0.83 | 3.67 | 3.62 |
| Comparable earnings per share, EUR | 0.56 | 0.57 | 3.10 | 3.09 |
| Comparable net profit, MEUR | 143 | 146 | 793 | 790 |
| Equity-to-assets ratio, % | 54.6 | 45.7 | 50.6 | - |
| Leverage ratio, % | 15.3 | 28.3 | 15.4 | - |
| Gearing, % | 18.0 | 39.5 | 18.2 | - |
| Average number of shares | 255,730,906 | 255,636,300 | 255,696,935 | 255,720,513 |
| Outstanding number of shares at the end of the period | 255,790,141 | 255,717,112 | 255,717,113 | 255,790,141 |
| Average number of personnel | 5,067 | 4,885 | 5,013 | - |
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim report has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by EU. The condensed interim report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2016. The accounting policies adopted are consistent with those of the Group's annual financial statements for the year ended 31 December 2016. The IFRS principles require the management to make estimates and assumptions when preparing financial statements. Although these estimates and assumptions are based on the management's best knowledge of today, the final outcome may differ from the estimated values presented in the financial statements. The figures in the tables are exact figures and consequently the sum of individual figures may deviate from the sum presented.
Any new IFRS and IFRC changes did not have a material impact on the reported income statement, statement of financial position or notes and the Group has not applied any new standards as of 1 January 2017.
Neste Corporation – Interim Report for January-March 2017
NESTE
2. TREASURY SHARES
A total of 73,029 treasury shares of Neste Corporation has been on the 15th of March 2017 conveyed without consideration to the key persons participating in the Share Ownership Plan 2013 according to the terms and conditions of the plan. The directed share issue is based on the authorization of the Annual General Meeting on 1st April 2015. A total of 79 people are in the target group of the payment from the plan. The number of treasury shares after the directed share issue is 613,545 shares.
3. SEGMENT INFORMATION
Neste's operations are grouped into four reporting segments: Oil Products, Renewable Products, Marketing & Services and Others. Others segment consists of Group administration, shared service functions, Research and Technology, Neste Jacobs and Nynas AB. The performance of the reporting segments are reviewed regularly by the chief operating decision maker, Neste President & CEO, to assess performance and to decide on allocation of resources. Neste's Oil Retail business area will from now on be called Marketing & Services. The business area will include the same business operations as the Oil Retail business area did.
| REVENUE | ||||
|---|---|---|---|---|
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
| Oil Products | 2,009 | 1,359 | 7,395 | 8,045 |
| Renewable Products | 699 | 584 | 2,690 | 2,804 |
| Marketing & Services | 948 | 776 | 3,552 | 3,724 |
| Others | 55 | 70 | 294 | 279 |
| Eliminations | -639 | -482 | -2,241 | -2,399 |
| Total | 3,071 | 2,306 | 11,689 | 12,453 |
| OPERATING PROFIT | ||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
| Oil Products | 182 | 95 | 563 | 651 |
| Renewable Products | 91 | 150 | 518 | 459 |
| Marketing & Services | 12 | 22 | 89 | 79 |
| Others | -17 | -11 | -11 | -17 |
| Eliminations | 2 | -2 | -5 | -1 |
| Total | 271 | 254 | 1,155 | 1,172 |
| COMPARABLE OPERATING PROFIT | ||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
| Oil Products | 126 | 86 | 453 | 493 |
| Renewable Products | 80 | 80 | 469 | 469 |
| Marketing & Services | 11 | 22 | 90 | 79 |
| Others | -17 | -11 | -23 | -29 |
| Eliminations | 3 | -2 | -6 | -1 |
| Total | 204 | 175 | 983 | 1,011 |
| DEPRECIATION, AMORTIZATION AND IMPAIRMENTS | ||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
| Oil Products | 52 | 53 | 217 | 215 |
| Renewable Products | 26 | 24 | 109 | 112 |
| Marketing & Services | 6 | 5 | 22 | 23 |
| Others | 5 | 4 | 18 | 19 |
| Eliminations | 0 | 0 | 0 | 0 |
| Total | 89 | 87 | 366 | 368 |
| CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES | ||||
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 | Last 12 months |
| Oil Products | 55 | 44 | 249 | 261 |
| Renewable Products | 28 | 19 | 104 | 113 |
| Marketing & Services | 7 | 3 | 31 | 36 |
| Others | 8 | 6 | 38 | 40 |
| Eliminations | 0 | 0 | 0 | 0 |
| Total | 98 | 71 | 422 | 449 |
| TOTAL ASSETS | 31 March | 31 March | 31 Dec | |
| MEUR | 2017 | 2016 | 2016 | |
| Oil Products | 3,715 | 3,313 | 3,581 | |
| Renewable Products | 2,248 | 2,072 | 2,191 | |
| Marketing & Services | 549 | 438 | 545 | |
| Others | 503 | 596 | 502 | |
| Unallocated assets | 636 | 758 | 933 | |
| Eliminations | -325 | -347 | -310 | |
| Total | 7,325 | 6,830 | 7,443 | |
| NET ASSETS | 31 March | 31 March | 31 Dec | |
| MEUR | 2017 | 2016 | 2016 | |
| Oil Products | 2,629 | 2,484 | 2,424 | |
| Renewable Products | 1,844 | 1,828 | 1,811 | |
| Marketing & Services | 212 | 164 | 196 | |
| Others | 257 | 7 | 249 | |
| Eliminations | -11 | -10 | -12 | |
| Total | 4,930 | 4,474 | 4,667 |
Neste Corporation – Interim Report for January-March 2017
NESTE
| TOTAL LIABILITIES | 31 March | 31 March | 31 Dec |
|---|---|---|---|
| MEUR | 2017 | 2016 | 2016 |
| Oil Products | 1,086 | 830 | 1,157 |
| Renewable Products | 404 | 243 | 380 |
| Marketing & Services | 337 | 274 | 350 |
| Others | 246 | 588 | 253 |
| Unallocated liabilities | 1,579 | 2,137 | 1,845 |
| Eliminations | -315 | -337 | -297 |
| Total | 3,338 | 3,735 | 3,688 |
| RETURN ON NET ASSETS, % | 31 March | 31 March | 31 Dec |
| --- | --- | --- | --- |
| 2017 | 2016 | 2016 | |
| Oil Products | 26.2 | 10.4 | 23.2 |
| Renewable Products | 25.5 | 21.3 | 28.6 |
| Marketing & Services | 40.6 | 42.7 | 47.3 |
| COMPARABLE RETURN ON NET ASSETS, % | 31 March | 31 March | 31 Dec |
| 2017 | 2016 | 2016 | |
| Oil Products | 19.8 | 14.9 | 18.7 |
| Renewable Products | 26.0 | 24.1 | 25.9 |
| Marketing & Services | 40.6 | 45.1 | 47.5 |
QUARTERLY SEGMENT INFORMATION
| QUARTERLY REVENUE | |||||
|---|---|---|---|---|---|
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 2,009 | 2,159 | 1,961 | 1,916 | 1,359 |
| Renewable Products | 699 | 870 | 640 | 596 | 584 |
| Marketing & Services | 948 | 964 | 925 | 886 | 776 |
| Others | 55 | 77 | 73 | 75 | 70 |
| Eliminations | -639 | -649 | -564 | -546 | -482 |
| Total | 3,071 | 3,421 | 3,034 | 2,927 | 2,306 |
| QUARTERLY OPERATING PROFIT | |||||
| --- | --- | --- | --- | --- | --- |
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 182 | 126 | 125 | 218 | 95 |
| Renewable Products | 91 | 158 | 162 | 48 | 150 |
| Marketing & Services | 12 | 19 | 25 | 23 | 22 |
| Others | -17 | 2 | 6 | -8 | -11 |
| Eliminations | 3 | -3 | 0 | -1 | -2 |
| Total | 271 | 302 | 319 | 280 | 254 |
| QUARTERLY COMPARABLE OPERATING PROFIT | |||||
| --- | --- | --- | --- | --- | --- |
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 126 | 98 | 120 | 149 | 86 |
| Renewable Products | 80 | 146 | 124 | 119 | 80 |
| Marketing & Services | 11 | 19 | 25 | 23 | 22 |
| Others | -17 | 2 | -6 | -8 | -11 |
| Eliminations | 3 | -3 | 0 | -1 | -2 |
| Total | 204 | 262 | 264 | 282 | 175 |
| QUARTERLY DEPRECIATION, AMORTIZATION AND IMPARMENTS | |||||
| --- | --- | --- | --- | --- | --- |
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 52 | 53 | 56 | 54 | 53 |
| Renewable Products | 26 | 31 | 26 | 29 | 24 |
| Marketing & Services | 6 | 6 | 5 | 5 | 5 |
| Others | 5 | 5 | 5 | 4 | 4 |
| Eliminations | 0 | 0 | 0 | 0 | 0 |
| Total | 89 | 94 | 93 | 92 | 87 |
| QUARTERLY CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES | |||||
| --- | --- | --- | --- | --- | --- |
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 55 | 86 | 54 | 66 | 44 |
| Renewable Products | 28 | 31 | 16 | 38 | 19 |
| Marketing & Services | 7 | 13 | 9 | 7 | 3 |
| Others | 8 | 16 | 8 | 8 | 6 |
| Eliminations | 0 | 0 | 0 | 0 | 0 |
| Total | 98 | 146 | 88 | 118 | 71 |
| QUARTERLY NET ASSETS | |||||
| --- | --- | --- | --- | --- | --- |
| MEUR | 1-3/2017 | 10-12/2016 | 7-9/2016 | 4-6/2016 | 1-3/2016 |
| Oil Products | 2,629 | 2,424 | 2,443 | 2,451 | 2,484 |
| Renewable Products | 1,844 | 1,811 | 1,803 | 1,735 | 1,828 |
| Oil Retail | 212 | 196 | 208 | 192 | 164 |
| Others | 257 | 249 | 249 | 260 | 7 |
| Eliminations | -11 | -12 | -9 | -10 | -10 |
| Total | 4,930 | 4,667 | 4,693 | 4,628 | 4,474 |
Neste Corporation – Interim Report for January-March 2017
NESTE
4. RECONCILIATION OF KEY FIGURES TO IFRS FINANCIAL STATEMENTS
RECONCILIATION BETWEEN COMPARABLE OPERATING PROFIT AND OPERATING PROFIT (IFRS)
Group
| MEUR | 1-3/2017 | 1-3/2016 | 10-12/2016 | 1-12/2016 |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 204 | 175 | 262 | 983 |
| - inventory gains/losses | 42 | 48 | 51 | 280 |
| - changes in the fair value of open commodity and currency derivatives | 24 | 23 | -11 | -118 |
| - capital gains and losses | 3 | 8 | 0 | 23 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | -1 | -3 | 0 | -13 |
| OPERATING PROFIT (IFRS) | 271 | 254 | 302 | 1,155 |
Oil Products
| MEUR | 1-3/2017 | 1-3/2016 | 10-12/2016 | 1-12/2016 |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 126 | 86 | 98 | 453 |
| - inventory gains/losses | 29 | -6 | 15 | 157 |
| - changes in the fair value of open commodity and currency derivatives | 26 | 8 | 12 | -57 |
| - capital gains and losses | 3 | 8 | 0 | 11 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | -1 | 0 | 0 | 0 |
| OPERATING PROFIT (IFRS) | 182 | 95 | 126 | 563 |
Renewable Products
| MEUR | 1-3/2017 | 1-3/2016 | 10-12/2016 | 1-12/2016 |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 80 | 80 | 146 | 469 |
| - inventory gains/losses | 13 | 54 | 35 | 123 |
| - changes in the fair value of open commodity and currency derivatives | -2 | 16 | -23 | -60 |
| - capital gains and losses | 0 | 0 | 0 | 0 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | 0 | 0 | 0 | -13 |
| OPERATING PROFIT (IFRS) | 91 | 150 | 158 | 518 |
Marketing & Services
| MEUR | 1-3/2017 | 1-3/2016 | 10-12/2016 | 1-12/2016 |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 11 | 22 | 19 | 90 |
| - inventory gains/losses | 0 | 0 | 0 | 0 |
| - changes in the fair value of open commodity and currency derivatives | 0 | 0 | 0 | 0 |
| - capital gains and losses | 0 | 0 | 0 | 0 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | 0 | 0 | 0 | 0 |
| OPERATING PROFIT (IFRS) | 12 | 22 | 19 | 89 |
Others
| MEUR | 1-3/2017 | 1-3/2016 | 10-12/2016 | 1-12/2016 |
|---|---|---|---|---|
| COMPARABLE OPERATING PROFIT | -17 | -11 | 2 | -23 |
| - inventory gains/losses | 0 | 0 | 0 | 0 |
| - changes in the fair value of open commodity and currency derivatives | 0 | 0 | 0 | 0 |
| - capital gains and losses | 0 | 0 | 0 | 12 |
| - insurance and other compensations | 0 | 0 | 0 | 0 |
| - other adjustments | 0 | 0 | 0 | 0 |
| OPERATING PROFIT (IFRS) | -17 | -11 | 2 | -11 |
RECONCILIATION BETWEEN COMPARABLE OPERATING PROFIT AND COMPARABLE NET PROFIT
| MEUR | 1-3/2017 | 1-3/2016 | 1-12/2016 |
|---|---|---|---|
| COMPARABLE OPERATING PROFIT | 204 | 175 | 983 |
| total financial income and expenses | -35 | -25 | -79 |
| income tax expense | -35 | -16 | -133 |
| non-controlling interests | -1 | -1 | -4 |
| tax on items affecting comparability | 10 | 12 | 26 |
| COMPARABLE NET PROFIT | 143 | 146 | 793 |
| RECONCILIATION OF RETURN ON AVERAGE CAPITAL EMPLOYED, AFTER TAX (ROACE), % | |||
| --- | --- | --- | --- |
| 31 March | 31 March | 31 Dec | |
| MEUR | 2017 | 2016 | 2016 |
| COMPARABLE OPERATING PROFIT, LAST 12 MONTHS | 1,011 | 886 | 983 |
| financial income | 5 | 3 | 4 |
| exchange rate and fair value gains and losses | -33 | 18 | -17 |
| income tax expense | -152 | -66 | -133 |
| tax on other items affecting ROACE | 15 | -50 | 16 |
| Comparable net profit, net of tax | 845 | 791 | 853 |
| Capital employed average | 5,092 | 4,961 | 5,047 |
| RETURN ON CAPITAL EMPLOYED, AFTER TAX (ROACE), % | 16.6 | 16.0 | 16.6 |
| RECONCILIATION OF EQUITY-TO-ASSETS RATIO, % | |||
| --- | --- | --- | --- |
| 31 March | 31 March | 31 Dec | |
| MEUR | 2017 | 2016 | 2016 |
| Total equity | 3,988 | 3,095 | 3,755 |
| Total assets | 7,325 | 6,830 | 7,443 |
| Advances received | 18 | 60 | 18 |
| EQUITY-TO-ASSETS RATIO, % | 54.6 | 45.7 | 50.6 |
Neste Corporation – Interim Report for January-March 2017
NESTE
- CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT AND CAPITAL COMMITMENTS
| CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT | 31 March | 31 March | 31 Dec |
|---|---|---|---|
| MEUR | 2017 | 2016 | 2016 |
| Opening balance | 3,833 | 3,816 | 3,816 |
| Depreciation, amortization and impairments | -89 | -87 | -366 |
| Capital expenditure | 98 | 71 | 422 |
| Disposals | -4 | -4 | -49 |
| Assets classified as held for sale | 0 | 0 | 0 |
| Translation differences | 3 | 2 | 10 |
| Closing balance | 3,841 | 3,798 | 3,833 |
| CAPITAL COMMITMENTS | 31 March | 31 March | 31 Dec |
| --- | --- | --- | --- |
| MEUR | 2017 | 2016 | 2016 |
| Commitments to purchase property, plant and equipment | 27 | 69 | 26 |
| Total | 27 | 69 | 26 |
- INTEREST-BEARING NET DEBT AND LIQUIDITY
| Interest-bearing net debt | 31 March | 31 March | 31 Dec |
|---|---|---|---|
| MEUR | 2017 | 2016 | 2016 |
| Short-term interest-bearing liabilities | 113 | 691 | 354 |
| Long-term interest-bearing liabilities | 1,115 | 1,126 | 1,117 |
| Interest-bearing liabilities | 1,229 | 1,818 | 1,471 |
| Cash and cash equivalents1) | -511 | -594 | -788 |
| Interest-bearing net debt | 718 | 1,223 | 683 |
1) includes interest-bearing receivables EUR 60 million on 31 March 2017
| Liquidity, unused committed credit facilities and debt programs | 31 March | 31 March | 31 Dec |
|---|---|---|---|
| MEUR | 2017 | 2016 | 2016 |
| Cash and cash equivalents | 511 | 594 | 788 |
| Unused committed credit facilities | 1,600 | 1,650 | 1,650 |
| Total | 2,161 | 2,244 | 2,438 |
| In addition: Unused CP programmes (not committed) | 400 | 400 | 400 |
Neste Corporation – Interim Report for January-March 2017
NESTE
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Group has not made any significant changes in policies regarding risk management during the reporting period. Aspects of the Group's financial risk management objective and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2016.
| 31 March 2017 | 31 March 2016 | 31 Dec 2016 | ||||
|---|---|---|---|---|---|---|
| Interest rate and currency derivative contracts | Nominal value | Net fair value | Nominal value | Net fair value | Nominal value | Net fair value |
| MEUR | ||||||
| Interest rate swaps | ||||||
| Hedge accounting | 250 | 5 | 600 | 12 | 350 | 6 |
| Non-hedge accounting | 0 | 0 | 0 | 0 | 0 | 0 |
| Currency derivatives | ||||||
| Hedge accounting | 1,765 | -14 | 1,205 | 21 | 1,730 | -44 |
| Non-hedge accounting | 1,387 | 1 | 787 | 16 | 1,132 | -13 |
| Commodity derivative contracts | 31 March 2017 | 31 March 2016 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Volume GWh | Volume million bbl | Net fair value MEUR | Volume GWh | Volume million bbl | Net fair value MEUR | |
| Sales contracts | ||||||
| Hedge accounting | 0 | 0 | 0 | 0 | 0 | 0 |
| Non-hedge accounting | 0 | 41 | 9 | 0 | 27 | 49 |
| Purchase contracts | ||||||
| Hedge accounting | 0 | 0 | 0 | 0 | 0 | 0 |
| Non-hedge accounting | 2,483 | 22 | -44 | 2,076 | 16 | 25 |
Commodity derivative contracts include oil, vegetable oil, electricity and gas derivative contracts.
The fair values of derivative financial instruments subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivative financial instruments are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models. The amounts also include unsettled closed positions. Derivative financial instruments are mainly used to manage the Group's currency, interest rate and price risk.
Carrying amounts of financial assets and liabilities by measurement categories
Financial assets and liabilities divided by categories were as follows as of March 31, 2017:
| Balance sheet item | Derivatives, hedge accounting | Assets/ liabilities at fair value through income statement | Loans and receivables | Available-for-sale financial assets | Financial liabilities measured at amortized cost | Carrying amounts by balance sheet item | Fair value |
|---|---|---|---|---|---|---|---|
| Non-current financial assets | |||||||
| Non-current receivables | 55 | 55 | |||||
| Derivative financial instruments | 7 | 0 | 7 | 7 | |||
| Available-for-sale financial assets | 5 | 5 | 5 | ||||
| Current financial assets | |||||||
| Trade and other receivables, excluding non-financial assets | 904 | 904 | |||||
| Derivative financial instruments | 6 | 41 | 47 | 47 | |||
| Cash and cash equivalents | 511 | 511 | |||||
| Carrying amount by category | 14 | 41 | 1,470 | 5 | 0 | 1,529 | 59 |
| Non-current financial liabilities | |||||||
| Interest-bearing liabilities | 1,115 | 1,115 | 1,170 | ||||
| Derivative financial instruments | 2 | 0 | 2 | 2 | |||
| Other non-current liabilities | 11 | 11 | |||||
| Current financial liabilities | |||||||
| Interest-bearing liabilities | 113 | 113 | 113 | ||||
| Derivative financial instruments | 20 | 74 | 94 | 94 | |||
| Trade and other payables, excluding non-financial liabilities | 1,501 | 1,501 | |||||
| Carrying amount by category | 22 | 75 | 0 | 0 | 2,741 | 2,838 | 1,380 |
Financial instruments that are measured in the balance sheet at fair value are presented according to following fair value measurement hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Inputs other than quoted price included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: Inputs for the assets or liability that is not based on observable market data (unobservable inputs).
Fair value hierarchy, MEUR
| Financial assets | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Non-current derivative financial instruments | 0 | 7 | 0 | 7 |
| Non-current available-for-sale financial assets | 0 | 0 | 5 | 5 |
| Current derivative financial instruments | 17 | 30 | 0 | 47 |
| Financial liabilities | Level 1 | Level 2 | Level 3 | Total |
| Non-current derivative financial instruments | 0 | 2 | 0 | 2 |
| Current derivative financial instruments | 8 | 86 | 0 | 94 |
During the three-month period ended 31 March 2017, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
The fair values of non-current interest-bearing liabilities that are carried at amortised cost, but for which fair value is disclosed, are determined by using the discounted cash flow method employing market interest rates or market values at the balance sheet date. Non-current interest-bearing liabilities are classified into fair value measurement hierarchy level 2.
Neste Corporation – Interim Report for January-March 2017
NESTE
8. RELATED PARTY TRANSACTIONS
The group has a related party relationship with its subsidiaries, joint arrangements and the entities controlled by Neste's controlling shareholder the State of Finland. Related party includes also the members of the Board of Directors, the President and CEO and other members of the Neste Executive Board (key management persons), close members of the families of the mentioned key management persons and entities controlled or jointly controlled by the mentioned key management persons or close members of those persons' families.
Parent company of the Group is Neste Corporation. The transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated during consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. All related party transactions are on arm's length basis.
| Transactions carried out with joint arrangements and other related parties | 31 March 2017 | 31 March 2016 | 31 Dec 2016 |
|---|---|---|---|
| Sales of goods and services | 34 | 12 | 173 |
| Purchases of goods and services | 59 | 17 | 158 |
| Receivables | 77 | 57 | 82 |
| Financial income and expenses | 0 | 0 | 0 |
| Liabilities | 12 | 3 | 10 |
9. CONTINGENT LIABILITIES
| MEUR | 31 March 2017 | 31 March 2016 | 31 Dec 2016 |
|---|---|---|---|
| Contingent liabilities | |||
| On own behalf for commitments | |||
| Real estate mortgages | 17 | 17 | 17 |
| Pledged assets | 116 | 116 | 116 |
| Other contingent liabilities | 34 | 44 | 48 |
| Total | 168 | 177 | 182 |
| On behalf of joint arrangements | |||
| Pledged assets | 46 | 37 | 46 |
| Guarantees | 1 | 1 | 1 |
| Total | 47 | 38 | 47 |
| On behalf of others | |||
| Guarantees | 1 | 2 | 2 |
| Other contingent liabilities | 0 | 0 | 0 |
| Total | 1 | 2 | 2 |
| Total | 215 | 217 | 230 |
| MEUR | 31 March 2017 | 31 March 2016 | 31 Dec 2016 |
| --- | --- | --- | --- |
| Operating lease liabilities | |||
| Due within one year | 68 | 65 | 79 |
| Due between one and five years | 76 | 59 | 80 |
| Due later than five years | 78 | 78 | 78 |
| Total | 222 | 201 | 237 |
The Group's operating lease commitments primarily relate to time charter vessels, land and office space.
Disputes and potential litigations
The dispute concerning the bio mandate penalty payment levied in 2014 by Finnish Customs, amounting approximately EUR 44 million, is closed. The Supreme Administrative Court gave its decision in March 2017 stating that the penalty payment was levied without justification. Penalty payment was already repaid in August 2015 based on the decision of Administrative Court of Helsinki.
Neste Corporation – Interim Report for January-March 2017
NESTE
Calculation of key figures
Calculation of key figures
| EBITDA | = | Operating profit + depreciation, amortization and impairments |
|---|---|---|
| Comparable EBITDA | = | Comparable operating profit + depreciation, amortization and impairments |
| Comparable operating profit 1) | = | Operating profit -/+ inventory gains/losses -/+ changes in the fair value of open commodity and currency derivatives -/+ capital gains/losses - insurance and other compensations -/+ other adjustments. |
| Items affecting comparability | = | Inventory gains/losses, changes in the fair value of open commodity and currency derivatives, capital gains/losses, insurance and other compensations and other adjustments |
| Comparable net profit | = | Comparable operating profit - total financial income and expense - income tax expense - non-controlling interests - tax on items affecting comparability |
| Return on equity (ROE), % | = 100 x | Profit before income taxes - income tax expense, last 12 months |
| Total equity average, 5 quarters end values | ||
| Return on capital employed, pre-tax (ROCE), % | = 100 x | Profit before income taxes + financial expenses, last 12 months |
| Capital employed average, 5 quarters end values | ||
| Return on average capital employed, after-tax (ROACE), % | = 100 x | Comparable operating profit + financial income + exchange rate and fair value gains and losses - income tax expense - tax on other items affecting ROACE, last 12 months |
| Capital employed average, 5 quarters end values | ||
| Capital employed | = | Total equity + interest bearing liabilities |
| Interest-bearing net debt | = | Interest-bearing liabilities - cash and cash equivalents |
| Leverage ratio, % | = 100 x | Interest-bearing net debt |
| Interest bearing net debt + total equity | ||
| Gearing, % | = 100 x | Interest-bearing net debt |
| Total equity | ||
| Equity-to-assets ratio, % | = 100 x | Total equity |
| Total assets - advances received | ||
| Return on net assets, % | = 100 x | Segment operating profit, last 12 months |
| Average segment net assets, 5 quarters end values | ||
| Comparable return on net assets, % | = 100 x | Segment comparable operating profit, last 12 months |
| Average segment net assets, 5 quarters end values | ||
| Segment net assets | = | Property, plant and equipment + intangible assets + investments in joint ventures + inventories + interest-free receivables and liabilities - provisions - pension liabilities allocated to the business segment. |
| Research and development expenditure | = | Research and development expenditure comprise of the expenses of the Research & Technology unit serving all business areas of the Group, as well as research and technology expenses incurred in business areas, which are included in the consolidated income statement. Depreciation and amortization are included in the figure. The expenses are presented as gross, before deducting grants received. |
Neste Corporation – Interim Report for January-March 2017
NESTE
Calculation of share-related indicators
| Earnings per share (EPS) | = | Profit for the period attributable to the owners of the parent
Adjusted average number of shares during the period |
| --- | --- | --- |
| Comparable earnings per share | = | Comparable net profit
Adjusted average number of shares during the period |
| Equity per share | = | Shareholder's equity attributable to the owners of the parent
Adjusted number of shares at the end of the period |
| Cash flow per share | = | Net cash generated from operating activities
Adjusted average number of shares during the period |
| Price / earnings ratio (P/E) | = | Share price at the end of the period
Earnings per share |
| Dividend payout ratio, % | = 100 x | Dividend per share
Earnings per share |
| Dividend yield, % | = 100 x | Dividend per share
Share price at the end of the period |
| Average share price | = | Amount traded in euros during the period
Number of shares traded during the period |
| Market capitalization at the end of the period | = | Number of shares at the end of the period x share price at the end of the period |
Calculation of key drivers
| Oil Products reference margin (USD/bbl) | = | Product value - feed cost - standard refining variable cost - sales freights |
|---|---|---|
| Oil Products total refining margin (USD/bbl) | = | Comparable sales margin x average EUR/USD exchange rate for the period x standard refinery yield |
| Refined sales volume x standard barrels per ton | ||
| Oil Products additional margin (USD/bbl) | = | Oil Products total refining margin - Oil Products reference margin |
| Renewable Products reference margin (USD/ton) | = | Share of sales volumes Europe x (FAME - CPO) + share of sales North America x (SME - SBO)²⁾ |
| Renewable Products comparable sales margin (USD/ton) | = | Comparable sales margin |
| Total sales volume | ||
| Renewable Products additional margin (USD/ton) | = | Comparable sales margin - (reference margin - standard variable production cost) |
1) In the business environment where Neste operates, commodity prices and foreign exchange rates are volatile and can cause significant fluctuations in inventory values and IFRS operating profit. Comparable operating profit eliminates both the inventory gains/losses generated by the volatility in raw material prices and changes in open derivatives, and better reflects the company's underlying operational performance. Also, it reflects Neste's operational cash flow, where the change in IFRS operating profit caused by inventory valuation is mostly compensated by changing working capital. Items affecting comparability are linked to unpredictability events of a significant nature that do not form part of normal day-to-day business. They include among others impairment losses and reversals, gains and losses associated with the combination or termination of businesses, restructuring costs, and gains and losses on the sales of assets. Only items having an impact of more than EUR 1 million on Neste's result will be classified as items affecting comparability.
2) FAME = Fatty Acid Methyl Ester (biodiesel), CPO = Crude Palm Oil, SME = Soy Methyl Ester (biodiesel), SBO = Soybean Oil
Neste Corporation – Interim Report for January-March 2017
nESTE
www.neste.com