Neste Oyj

Juha-Pekka Kekalainen - Head of IR Matti Lievonen - President & CEO Jyrki Maki-Kala - CFO Matti Lehmus - EVP, Oil Products Kaisa Hietala - EVP Renewable Products Antti Tiitola - EVP, Oil Retail

Peter Eliot - Berenberg Mehdi Ennebati - Societe Generale Mukhtar Garadaghi - Citi Julian Beer - SEB Henri Patricot - UBS Olof Grenmark - ABG Sundal Collier Yulia Veselova - Bank of America Merrill Lynch Thomas Adolff - Credit Suisse Josh Stone - Barclays

Thank you, and good afternoon, ladies and gentlemen. Welcome to this conference call to discuss Neste’s first quarter results published earlier today.

I am Juha-Pekka Kekalainen, Head of Neste’s IR. And with me here today are President and CEO, Matti Lievonen; CFO, Jyrki Maki-Kala; and the business area heads, Matti Lehmus of Oil Products; Kaisa Hietala of Renewable Products; and Antti Tiitola of Oil Retail.

We will be referring to the presentation that can be found on our website. As always, please pay attention to the disclaimer since we will be making forward-looking statements in this conference call.

With these remarks, I am pleased to hand over to CEO, Matti Lievonen, to start with the presentation. Matti, please go ahead.

Thank you, Juha-Pekka, and welcome my behalf also. Starting to discuss about Neste, I should say that our heading is very good, had a good start for the year and there is a few things that I am proud to say.

We had posted EUR175 million comparable EBIT. It was behind of consensus, but I think that there is really clear reason for that and it doesn’t really make my nights very nervous that we couldn’t beat consensus as we use to do.

But if we look a bit the environments of refining market, we could say that this follow the normal seasonality, but of course, inside that seasonality there was a difference as compared to last year first quarter. And we could say that the gasoline was really the strong part of the barrel and diesel was lower than the last year and then really there was a lot of imports from Middle East, the new products and the USA and Russia and the European markets.

And we had also in the oil production side, we had availability issues as we informed last year fourth quarter, so it lasted also in the first quarter and in month of January. So that was one part.

The other part was that renewable products continue to deliver really strong profit, and that is very good. We will come later - Kaisa Hietala will come and tell you more, but very proud that we could capture double - we could double our comparable EBIT on renewable product side.

Also we have a solid cash flow coming from minus to plus, strong balance sheet. And those two things has given us the possibilities also focused, not only this quarter, but all year and then we have been using this balance sheet and cash flow for building up continuous story.

So I said, we had a Finnish press conference, I said there that we could beat consensus also in the first quarter, but we rather look the whole year and then where we get the best profits and these contango profits, we start to take in second and third and fourth quarter. So I think that in that respect we could say that we had a very good start for the year and we are confident that we got a good way.

If we looked our financial targets, we have comfortably met those targets, so we have capital employed after-tax of 16% 12 months rolling and the leverage 28.3%. If we think about the process industry and the area where we are, so someone who could post sort of financial targets could be said that the things are in good order and perhaps what Neste has things are really in good order and we are looking very optimistic, but realistic this year that we could really make a good year also for 2016.

With that I hand over to Jyrki Maki-Kala, our CFO to go through the Group financials. Jyrki, please.

Yes, good afternoon also from my behalf. So let’s focus on the Group financials and the table stating and comparison between the quarter one compared to last year’s quarter.

Quarter one, if we talk about the revenues, it’s very clear what has happened in the oil market that this lower revenue is directly related to the crude price changes, that has affected also our product prices, so no alarm issues in that sense. Our comparable EBITDA strongly some 10% below last year’s first quarter, so nothing surprising inside the figures, but if we more focus on the comparable operating profit where we landed roughly EUR40 million below last year’s performance.

On a broad picture really why we landed EUR40 million short was really coming out of the oil product and the changes in the oil market, especially with the reference margin, it was $2.6 per barrel lower compared to last year, so that is a big effect in the background. What can be seen in the oil product EUR70 million lower comparable EBIT compared to last year, of course, there are some issues also like earlier talking about the product discrepancies that we had in our Porvoo refinery basically in January this year affecting also our profitability.

Renewable products like we had in our headline as well continued the strong performance. Nearly 100% improvement in comparable EBIT is strong.

Let’s say reference also that things are in good shape with our renewable business in many ways. And oil retail, it made the best ever quarter one profitability 2016, really coming out of the good sales volume, but also we had some positive things that we were able to cash in during the first quarter for oil retail.

Maybe one of the most surprising, let’s say, surprise for the analysts that said about others, where we had instead of zero last year, we had minus 13 and this is really about things what happened in 2015 at our joint venture Nynas in Sweden, they more or less had a very strong last quarter 2014 because we are reporting one quarter later with that company, and they had a very strong quarter for 2014 really coming out of hedging relating to crude oil basically. And this year 2015 last quarter that kind of thing didn’t take place, so that’s why we basically landed minus 13 compared to zero in the previous reporting quarter one.

But nothing alarming in that sense in the background. The operating profit coming out of the IFRS report for the first time for a long period, better than the comparable EBIT and I think that this also that we had inventory gains coming in for the first quarter compared to losses if we think about the whole 2015.

Like our CEO mentioned already, the cash flow that we generated in the first quarter, it was positive by EUR70 million. It’s a big thing, because we really continued building this contango inventories in the background and we will cash in those during the second half of 2016.

And at the end of the day, the comparable earnings per share pretty much the same level of 2015 first quarter, $0.57 per share. And what are here stated is also the split analysis concerning the Group level from 2015 to EUR175 million.

You will see that the reference margin that is basically coming out of the oil products was basically compensated by additional months in positive side and currency changes, plus the volumes, so that’s basically more or less zero effect as a total. We had a higher fixed cost in quarter one because we had this products and issues, we had higher maintenance in the background, but also we had some higher fixed cost relating to ongoing R&D project, ICT project, with SAP and also some communication programs what we are currently running in Neste.

And the others minus 24, there we have the depreciation EUR10 million and talking about this change in the others, the EUR14 million combined with some of the cost in the headquarters and that’s basically are the points how we landed into EUR175 million comparable EBIT during the first quarter. But overall, the performance was good.

It was solid. We could have done little bit better, but I think overall, we are very satisfied with the results, strong cash flow, good balance sheet and we have continued to go forward with our actions.

I hand over then to segment reviews, and Matti Lehmus from our Oil Products will continue.

Thank you, Jyrki. This is Matti Lehmus.

And I go through the oil products performance, which indeed reflected seasonally normalized refining market. First on some of the highlights.

The reference margin indeed was clearly lower than last year. We went from a level of 7.5 to 4.9.

And that is of course then the main driver also for the lower EBIT, which went from EUR166 million to EUR86 million. At the same time, the result was at a similar level as in the fourth quarter.

If I take some other highlights, I think it’s good to note that sales were slightly lower in general and also the Baltic states. From a volume perspective, here the main reason is indeed related to the contangos and that’s the comment I would make here is that I am very pleased with the timing because the timing when we made the decisions was very good and that time that contangos structures were attractive in the market.

The other highlight I would like to make is that, we did have a relatively wide Urals Brent differential in the first quarter, so I am also pleased that we are able to increase the share of Urals in our feed to 64% following the optimization. As for investments, just a quick note, we are continuing as a main investment, SDA unit, the pre-treatment unit in Porvoo that is progressing well.

If I then turn to the waterfall, just a couple of comments here. So first obvious comment, the impact of the reference margin decline is clear, minus EUR56 million.

And this is partially compensated by the additional margin increase of plus EUR11 million, and only partially compensated. Here the main thing was indeed that FX hedges contribution was better than a year ago.

It is important to note that we did indeed have maintenance issues in the first quarter. We did announce this already in the fourth quarter, some smaller additional one in the first quarter.

And this is very clearly visible in two places. First of all, it did of course impact our additional margin maximization, and secondly, you can see that fixed costs were higher than a year ago.

This also reflects that maintenance. Here I would also state that looking forward, we do not plan any major maintenance works in our refining systems for the remainder of the year, so we clearly expect to run at higher utilization rates than in the first quarter.

Then turning to the market, a couple of comments. First observation is that it was a clearly gasoline-driven market.

We did have a seasonally quite strong gasoline market of $14.5 per barrel on average. And if I look at where we are today, we have of course now ended the period of the year we are about to enter the driving season, we have more to some qualities, so also from this perspective it looks like the gasoline market will continue to be strong.

At the same time, the diesel market was clearly weaker year-on-year. We did drop to a level of $8.7 per barrel.

And this reflects indeed the fact that the diesel market is very well supplied and we at the same time have inventories, and like mentioned, we did observe for Europe, for example, high imports, both from North America, Russia and Middle East. And while the market is growing for diesel globally at 1.5 %, it takes time to absorb all the new capacity, so we are clearly seeing that at the moment.

It’s best by the way good to note for the gasoline market that here the demand growth has continued strong. For example, for US, we have seen numbers as high as 5% year-on-year for the local demand growth.

My third highlight would be on the market, RED market. The average differential between Brent and RED was quite wide in the first quarter at minus 2.7%, clearly wider than a year ago.

And this indeed reflects the improved availability of medium and heavy crudes, especially from the Middle East. So we do see that the increased volumes out of even countries create a situation where the RED differential seems to be at this somewhat wider level at the moment.

So summarizing, while it doesn’t look like the super strong market that we had in 2015, I think the market looks quite okay and we expect both gasoline and RED continue having a good impact on our reference margin. Final comments is on the total refining margin and like you can see in the picture, it came $1.2 lower than a year ago, but as additional margin was higher than a year ago, that supported still the total refining margin and compensated some of the reference margin decline.

In these numbers, you can also see the impact of the maintenance that we had, so it’s reflected both in the utilization rates and in the production cost per barrel that we had in Porvoo and I repeat that we look forward to remainder of the year to be operationally good period and clearly higher utilization rates. With these words, I hand over to Kaisa Hietala to take us through the renewable products.

Thank you Matti. Good afternoon.

Let’s now look into the renewal products performance in Q1 this year. I think that over the past three years, we have started to see a pattern in this market and that is the fact that the Q1 seems to be the slow season for biofuels.

I think it’s quite natural when thinking about the nature of mandates and biofuel applications, which are on a calendar basis and also in many markets, there is a possibility to over fulfill the mandates on the previous year and then grow over some of the fulfillment to the following year. And that typically happens in Q1.

So with this mind, I have to say that I am very pleased with our results. We were able to increase our sales volume compared to last year as well as continue optimizing our sales allocation based on margins.

Our share of waste and residue feedstock increased to 75% and all the refineries are using waste and residue as a raw material. And our biopropane investment has also started up and in Q1 majority of the EUR70 million of investment was towards the biopropane facility which we are building at the Rotterdam refinery.

The overall EBIT, comparable EBIT in Q1 was EUR80 million, so clearly higher than last year and this equals to roughly 24% RONA. So if we then look into the bridge between last year and this year Q1, the reference margin didn’t’ really help us.

I mean it’s exactly on the same level as last year. So we had a lot to do ourselves to improve the results.

We continue to optimize our feedstock base. It’s a really, really important asset for us to be able to use more than 10 different raw materials at every refinery.

We also continue to optimize our sales allocation based on global margin management. In the USA, the Blender’s Tax Credit decision was made last year and it was also applied for this year and naturally that has then become a topic which we are negotiating in our commercial deals in the USA.

So, all in all, the additional margin element was the one that clearly improved our results year-on-year and then there were small changes around volume and fixed cost and so on. But, if we then looking into the markets and I think now we are starting to see market element and some patterns.

First, if we look into the biodiesel margins in Europe, clearly the Q1 seems to be a very challenging margin environment for biodiesel producers. It happens to be the time of the year when the biodiesel quality, specification requirement is much higher than it is for summer, so there is a summer grade and winter grade.

Naturally the winter grade biodiesel is more expensive and therefore it seems that the biodiesel blenders have stated to optimize more blending over the summer months and therefore we seem to see - start to see sort of a lower demand in Q1 for biodiesel. Secondly, the blend wall is starting to be more and more evident in many countries in European Union when 7% is the maximum that you allow to blend through the diesel pool or traditional biodiesel and therefore the many countries today are also needing drop in more advanced biofuels like this renewable diesel.

Another interesting market element is the raw material price element and there what we can conclude regarding Q1 2016 is that we have palm oil crisis strengthening due to the El Nino weather pattern in the Pacific Ocean. It is now coming down and we have started to see the increase of production both in Malaysia and Indonesia as well as having the current inventory levels on a good level, so let’s see how the palm oil price will develop in the future, but as you can see, it has been increasing quite a lot in Q1.

Another interesting raw material pattern is the tallow, the animal fat price. This price in this graph is the US tallow price shipped to Europe to Rotterdam and there I think the reason for such a steep increase of the price is clearly the fact that now the BTC is in place for 2016 and raw materials like tallow have been able to capture some of the BTC in USA.

Then if we look into the US market parameters, the biodiesel margin in USA has been improving throughout the first quarter. I would say now we are on sort of historical average levels and let’s see how it develops from there.

Also the RINs have kept their current level pretty well and I think what we need to pay attention here is that if we compare the Q1 2015 and Q1 2016, the difference between D4 and D6 have decreased quite a lot and this is a clear sign that there are blend wall issue especially on blending ethanol into the gasoline pool. If we are then looking into the additional margin element, as said, the reference margin is exactly the same as last year and it’s not really helping this industry.

However, we were able to maximize the additional margins. We continued the feedstock optimization.

We continued the sales allocation against margins and we managed to keep our production costs in control. Also I think the blend wall in Europe and the drop in quality of our fuel in USA is really starting to kick in.

We have also quite recently gained a European-wide specification for renewable diesel. It was a long process for several years, but now there is a specification in place and that of course naturally gives us more opportunities to sell this fuel as a pure component to many segments.

But this was the summary of renewable products performance during Q1 2016 and let me now hand over to Antti Tiitola to tell us about Oil Retail.

Hello, this is Antti Tiitola. Also I am very happy with the development in Oil Retail.

If you remember, the 2015 year was already high from the result in our history in retail and I am very happy that the first quarter with EUR22 million EBIT was quite a lot over the EBIT of last year which was EUR17 million and if you remember 2014 it was EUR14 million, so we had a good development in the first quarter, actually the fifth quarter in row where the EBIT is higher than the EBIT from last year. I believe one of the big reasons is that we work towards the customer, so this is bringing the good results, so as you see that the sales has increased in all markets and although there are some challenges in different markets especially in Russia somehow also you could say also in Finland, but we are very happy with the volumes in the markets.

We have had some investments and we will continue also the investment for the future. We are putting - we are opening new stations in all the countries, so this will certainly be part of our business in the future as well.

RONA 45.1 is an excellent as well. This is the rolling 12 months for RONA.

If you look at the EBIT bridge, so there you see that the volumes has increased our EBIT and on the other hand we have a couple of one-off items which has been also very positive which are positive effect to our overall EBIT in the first quarter, so I am very happy with the work of the team, so that’s hopefully Oil Retail. I hand over now to Matti Lievonen,

Thank you. Let’s look at the outlook for 2016.

I think that you all agree that the year has started well when you listen our comments and also we see market outlook is generally positive and where that is coming so that the global demand growth is estimated to be 1.2 million barrels per day, so there is growth and also the gasoline will support the reference margin, the driving season will start now, so second and third quarter is good for gasoline in our oil products, but also in our retail. Then in renewable side, there is a new market.

It has been open like Norway, they put the new targets for the renewable, so also the France, they increased their targets after 2020, so there is a positive. Also if we look at the USA, Kaisa Hietala mentioned, so the renewable use has had a positive trend.

We see some possibilities for the blending walls so that will help us also. Then we see that we will have a good operational performance.

There is no plant shutdowns in our oil products operation. Last year we had big turnaround.

Then I think that overall when I look at what we have done, so we have done a - we have utilized our cash for contangos, we do not have - expect any operational or performance issues. We see the global markets that it’s helping us.

So we are very confident that year 2016 will be another successful one for Neste. If you look the segment outlook, I repeat a bit myself, but if we look at the reference margin, so it will be supported by good gasoline margin.

Diesel will be flat, that’s what we are expecting and Rotterdam refinery we run a full [indiscernible] what we have had and last year we had this huge turnaround and it’s cost last year EUR130 million, this year we do not have that sort of turnaround and the renewable products we are very cautious that the reference margin that they will stay in 2015 level and - but in additional margin side we expect to remain very strong for us what we have posted in the last years. Utilization rates, we have this planned turnaround in Rotterdam as we are doing every fifth year and during this turnaround, when we started we know this that in one column there is some mechanical defects.

We have been repairing those defects and we are estimating that it’s probably give some two weeks extra shutdown. We said that this Rotterdam turnaround will have - effect a few tens of millions impact and now we are giving more precisely the EUR35 million.

In Oil Retail, unit margin and sales volume, they will follow the seasons and we have been able to increase our sales volumes as Kaisa Hietala mentioned. So all in all we are confident that the year 2016 will be another successful year for us.

And then few other things, so Neste launched a new global project to study future renewable solution. We have like ambassador, his august name Prince Ea.

He is very famous in social media. He has over almost 600,000 followers.

His videos has watched millions of millions of time, so we launched this Pre-order of the Future project really doing a better - people to participate in the development of future renewable solution globally, not here in Finland, not in the Europe, but globally. And our aim is to raise awareness of renewable materials as an existing solution to really use carbon footprint and this is the aim.

And we have promised that one product and service concept to be developed into the prototype that we will be launching in 2017. Now when we launch these programs, so in first few days, there was 26 million post for this thing and now after one week, we have over 36 million and I think that this is the record breaking here at least in the Scandinavia, I don’t know if it’s record breaking also in the Europe and I encourage you to go to our webpage and really look this Pre-order to Future.

There is a very good video. It will encourage everyone and showing that there is lot to do in the world.

Other thing is that we will have the Capital Markets Day 2016 in London 14 of September and invitation will follow and there we will go through the strategies where we are, what we have been implemented that we told last time. That’s briefly the first quarter and we are [indiscernible] as a company we have - we focus around the same thing, so safety, cash flow, refinery productivity, markets and customer and I should say that cash flow is doing the right direction.

Refinery productivity we need to develop still. Markets and customer we are taking the new step.

As an example, in a retail side, so we had - last year we started the followers, we had 10,000 followers, now we have 100,000 followers. We have been able to increase our sales and we were slated as the number one retail chain in England after these activities.

Safety side also we need to improve our doing. But, thank you for listening and now we are ready for the questions.

Hi. Thanks for taking my question.

Just on the Blender’s Tax Credit, are you able to give us any idea of the percentage of that, the Neste that’s capturing in the US and do you see that as likely to remain stable going forward? And then any other comments you had on its likely renewal for 2017 and when you expect to hear on that will be great?

Thank you.

Thank you. This is Kaisa Hietala speaking.

So the first question was about the BTC percentage which we are capturing in our sales deals. We have been capturing the majority of the BTC and that has been the case now for couple of years and it seems to continue very well.

So majority of the BTC is being captured and it has become a part of sort of a normal sales negotiation process. Then there was a second question regarding the renewal of BTC.

As we all know the current regulation is extended until the end of 2016, so the BTC has been awarded for this year. However, there is no decision regarding 2017.

For this year I think it’s very difficult to estimate when further decisions will be made due to the fact that it is a presidential election year in USA, so unfortunately we don’t have further information on that.

Thank you.

Hi, thanks for taking my questions and good afternoon all. I will ask three questions please.

First on your additional refining margins, which have been particularly high this quarter despite the slight negative impact from the maintenance you’ve made in January and I wanted to know if there has been any kind of one-off effects impacting positively these [indiscernible] anything else and if you’re in fact confident in keeping your premium above $5 per barrel in the quarters to come, despite that for example the oil prices is going up despite that the diesel margins are lowering quite a little bit. Second question on the renewable fuel sales volume, which have been lower than my estimate in Q1, was it due to your policy of value over volume expanding why you didn’t go that much on the year on year basis, have you been also impacted from the technical issue you discovered, the Rotterdam plant, which lowered your production and then lowered your sales volumes in Q1?

And should we consider also that lower renewable fuel sales volumes should be, let’s say, should we consider that the renewable fuel sales volume should be even lower than Q1 given the maintenance and given the environment for the weighted margins, which remains tough. On the contrary, should you be able to increase it on a quarter-on-quarter basis.

And finally one question on the working capital, which increased in Q1 despite a collapse in the oil price, I wanted to know if that was on you to the inventory building prevalence, if you again try to realize some trading gains by limiting from the contango plant, given the Q1 oil price was relatively low? Thank you.

So thank you for the questions. This is Matti Lehmus starting on the additional margin question.

So the question was why the level was so high in Q1. I would raise a couple of things.

We did - compared to year ago, this time, have a much better contribution from the FX hedges. In practice, one could say that the year ago, they were negative.

Now, there was no big impact and hence the improvement versus a year ago. Other things which I would raise that went well in the operational performance is that we were successful in our optimization of sales and supply.

One example is for example the rep maximization that I mentioned earlier in a wide differential market and also it’s good to note in the winter, we of course look for the need for qualities which require good low temperature properties and hence some winter premiums. So that went well.

At the same time, like I commented earlier, in order to capture the full potential, I would of course like to see much better operational performance that we keep working on at the refineries. You also asked about outlook.

We do not give guidance on quarter, we had additional margins, but I can state that what we have said earlier also that we are committed to the $5 per barrel target and definitely after the investment program completion [indiscernible] in the second quarter, that is our target.

Then there was a question regarding the RP sales volumes, the question on the Q1 sales volume and also our view on the Q2 sales volume. The Q1 sales volume was, of course, I mean it was a little bit impacted by the Rotterdam turnaround starting up in late March.

And also we did build a little bit more inventory to manage some of our contracts in Europe during the Rotterdam turnaround. However, Q1 is the slow quartile [Technical Difficulty] in this business.

I think it’s safe to say now after a couple of years, seeing that the Q1 has not been as aggressive volume wise as Q4 and Q3 typically are. So I’m not worried about the sales volume increase in Q1 compared to last year Q1 and the Rotterdam refinery definitely plays a small role there.

And this is now bringing us to the Q2 sales volume forecast, majority of the Rotterdam turnaround happens during Q2 and definitely there will be a sales volume impact, however, some of that will be compensated by higher inventories we have been building and also the slower demand there has been in Q1. So pretty good going forward as well.

So you expect Q2 sales volume to be roughly in line with Q1 or slightly lower, but not a big move sequentially I mean?

Slightly lower.

Okay. Thank you.

Yes. And then there was this question about the working capital and really during the first quarter, our inventory level was more or less the same measured by euros, if we think about the year and it was only EUR25 million increase.

And that was really coming out of a contango building what we read in quarter one. But on the other hand also, like you see from our balance sheet, our trade receivables went down because we are cashing in the 2015 blender’s tax credit from the US.

So on the positive side, that's on the other hand, but it was really only 70 million increase overall of what we saw in our working capital during the quarter one and that was a good achievement.

Thank you very much all of you.

Good afternoon, gentlemen. Thanks for taking my question.

Could you please comment around your sales allocation between US and Europe and I appreciate the comment around your long term commitments, but just how high can they go in terms of US, how quickly can you shift and are you seeing any challenges with the depth of the US market in the context of BTC being now in place, is there a competition increase there, that will be my first question. Thank you.

This is Kaisa Hietala. Thank you for the question.

It was about our sales allocation between US and Europe. We have roughly 50% of our volumes, sales volumes contracted on a term basis, while we keep the remaining part, excuse me, on a spot basis, to be able to benefit from opportunities in both markets.

And I think it might be a bit surprising for many of you to see that European volumes in Q1 has been so high and still we are posting this level of results. And there are interesting segments and markets in Europe and we want to benefit from those as well.

So there was also a question around US volumes in the future and how do we see the market going forward. It is about supply and demand, especially in our key market in California and USA.

We are following very closely, we have ability to capture the increasing demand if it's there. So let's see how it develops, but the short term, I will see our sales to USA to grow.

Okay. Very helpful.

And my second question is for Matti, just around the opportunity on the contango unwinding, could you please quantify the performance in terms of [Technical Difficulty] balance sheet item, but just you were talking about this being a strong contributor, any sort of frame or reference that would help us to quantify that? Thank you.

Thank you, Mukhtar. I'm sure that you like that we give exact numbers, but we don't give, but we could say that it's a good number what we have targeting from contango building and it's firm that it’s not open deal.

So we will get those back what we have pulled it. So it's a guarantee profit for those.

Okay. Thank you very much.

Thank you very much and good afternoon. First question, with regards to BCCM, sorry if I've missed this in your report, could you just say what the BTC contribution was to Q1 EBIT in terms of millions of euros?

This is Kaisa Hietala speaking. Thank you for the question.

It was about BTC contribution to our Q1 2016 EBIT and unfortunately it's - nowadays, when the BTC is part of the commercial negotiations and it's not sort of retroactively placed, it's difficult to carve out exact number, but the majority of the BTC is being captured by Neste in our sales contracts.

Okay. Well, that's good to see that I didn't miss anything from the report.

Two quick questions, in the renewables portion of the report, you do refer to the new German mandate scheme, could you please give a quick summary of what that scheme looks like and explain how it impacts your competitive position for Neste compared to other biofuel alternatives? And also are there any other EU countries you see close to introducing new mandate schemes?

Okay. So a quick recap of the new German regulation that was placed already last year and this is now the second year.

So Germany was the first country in Europe who introduced not a volumetric or energy content mandate, but a clear greenhouse gas saving target. And therefore, they give much more opportunities for the obligated parties to find the way how do they fulfill the greenhouse gas reduction.

And this has led into a slightly new market pattern or market drivers where so called low carbon solutions, like, for example, biofuels who have a very high greenhouse gas reduction potential like waste and residue based biofuels or a double countable biofuels and so on. Those have become valuable for players in Germany to be able to fulfill the mandate with the minimum volume blending and I think last year, the market was learning the new system and maybe it was a surprise to some of the players that volume demand has decreased in Germany.

While they have still been able to increase the greenhouse gas reduction as a whole, and this demand we believe that it's also reflected in the European biodiesel margins since the demand for the traditional biodiesels which are made from crop based fuels might have decreased because of this new regulation in Germany. So far, we have not seen any other country to initiate a similar regulation, but I'm pretty sure that the Germans example it's been closely followed.

Okay. So the Germans do permit you to double count for your animal based residues?

They have, it's not biofuel specific, but as you said, it's a raw material specific list and they have introduced the waste and residue as the double countable in Germany and of course those have become attractive market for waste and residue based biofuels.

Great. And then very finally from me, do you have an estimate for the likely additions of hydrogenation based renewable diesel capacity around the world by competitors between now and the end of the decade?

By end of the decade, there are the projects and then I mean I'm now referring to the European projects, which you and I have been developing and then quite recently Diamond Green Diesel announced capacity increase project in USA, basically they're closely doubling their capacity, but other than these already known projects, there has not been any other projects announced.

Okay. Great.

So it's about according to your total capacity, slated for startup in the next few years?

Excuse me, could you repeat?

So would I be fair to estimate that the slated capacity increases, the ones you mentioned are approximately equal to the Neste total renewable diesel capacity?

Well, our total capacity is already 2.4 million tons and if I quickly sort of estimate where we stand currently, these new projects globally are clearly less than this.

Yes. Hello, everyone.

Thank you for the presentation. I have two questions on renewables and one on refining.

So first one on renewables, you don't mention in your report the California low carbon shoots and credit, has that made contribution to your profitability and generally what's your outlook for the price of these credits? And the second question is on the new markets in renewables, are you starting to see some new contracts, which are the ones you sign with KLM, I was wondering if you have any, if you can give us an indication in terms of the pricing contract compared to your higher volume sales and just generally how these new markets are progressing against reputations?

And finally, just a quick question on refining, I saw there was a drop in the sales of gasoline during the quarter, I was wondering what drove that? Thank you.

Let me take the first two questions. This is Kaisa Hietala speaking.

The first question was around low carbon fuel standard in California. Just to remind all of us that LCFS is California specific regulation on top of the US federal RFS2 regulation and basically what California wants to do, they want to reduce the carbon emissions and they are using the low carbon fuel standard regulation vehicle for that.

And what does this mean is that those biofuels which are applicable to generate the credits under this regulation in California, they will be then fulfilling the local Californian mandates. And biofuels are generating to these credits based on their wheel to wheel greenhouse gas emission calculations and this whole system is run by the Californian authorities.

Naturally, the waste and residue type of raw materials are also in favor in California because of their very high greenhouse gas saving potential and therefore that has created a very interesting market also for Neste to look into. We do note - specify that LCFS credits in our reporting, they behaved the same ways as RINS.

They generated when one ton of product has been produced and fulfill all the requirements and then those are sold when we sell that one ton of fuel to a player in California who is the obligated party to fulfill the Californian separate mandate. So we don't have a sort of a separate reporting on that.

Then there was the second question around new markets and connection to aviation and very recent press release we made regarding KLM using our biotech fuel, biotech is produced on a demand basis and the most recent batch which we produced, it is being now used by aviation companies who are refueling at Oslo Airport. So basically the fuel is splendid at the Oslo Airport and it's available for partners who want to purchase it when they visit Oslo.

And KLM is one of the partners and this initiative was launched in January and it’s now ongoing. Since [indiscernible] is still sold on a patch basis and on a demand basis it doesn't really have a reference price and we don't really comment on that.

But I would like to remind you that we are very closely following the approval process in USA for our next initiative which is to introduce a low blend biotech asset sort of a more efficient solution for aviation industry to start to contribute towards the carbon reductions in traffic fuels. Thank you.

Then this is Matti Lievonen, on the first question on the gasoline sales indeed you are right, slight drop of 50 kilotons year-on-year, there were two main reasons one is like you mentioned earlier we have been building contango that reduces the first-quarter sales. And the second reason is that we did run Porvoo refinery at somewhat lower utilization than a year ago and that also reduced the production of gasoline slightly.

Regarding oil products you stated in the report that sales volume were 2% lower than in the first quarter of 2015 and it’s both due to the inventory, contango inventory buildup and some operational limitations. It possible to split that, how would volumes have been if you wouldn't have heard those operational limitations?

This is Matti Lehmus, we do not give that exact split, both had an impact, we maximize contango today even that was economically sensible and that storage is allowed and at the same time we obviously had this decrease in utilization that you can find in the report.

Fair enough. Then regarding this other item with the minus 13 million in the first quarter, you said that it was due to lag effects from less hedging compared to one year ago.

It is fair to assume that the other post will be roughly in line with the rest of 2015 going to the next two quarters?

This is Jyrki Maki-Kala, comment in the first quarter refresh, certainly that was coming from our joint venture Nynas differences between quarter one last year and this year we are not commenting how the rest of the year will develop but overall I think if you look the historic you will see how these others have annual basis basically develop throughout the year.

So first just a quick follow-up to the previous question on the contango inventory buildup, is it possible to broadly break it down between crude buildup and product buildup if you could? Then the second question and the third are related to each other and this is regarding the renewables business if I may to Kaisa, so the first one is on the feedstock why if you have the capability to use a 100% of the advanced feedstock why are you still using crude palm more and in this regard I'm just curious whether there are any infrastructure bottlenecks there.

And then the second question regarding North American volumes is it possible to say how much of the North American volumes are spot cargoes and how much are contractual obligations within the North American region. And then whether you could tell us what feedstock you use just very broadly again second generation or first generation for these North American volumes?

Thank you.

This is Matti Lievonen. First on the contango question.

I would say it in general, at the refineries in particular Porvoo we have very good logistics capability both for crude and for products. And as we had a market situation where there were opportunities that were attractive both in products and crudes we did obviously utilize these for both categories.

We are not giving the exact split but it's clear that we have both crude and products in contango and we expect to unwind these during the second half of the year.

Alright, this is Kaisa Hietala that is speaking, there were two questions around feedstock, the first one being that why are we still using crude palm oil and is there infra bottlenecks explaining it. Well basically, we have a 100% capability to use waste and residues at all our units, at all our refineries already.

And the sort of the split between waste and residue and crude palm oil is a combination of what our customers want, what the regulators are stating and how do we optimize our margin. So it is a combination like that but I'm pleased to see that we have been increasing the waste and residue share over the time and continue doing that also in the future.

Then there was a second question around feedstock in USA, sorry in North America, unfortunately we do not really share market specific feedstock base, therefore can't really comment on that. And there are different segments or markets also in North America which have a different feedstock regulations which are also pretty complicated.

But then there was a question that is our North America volume more of a term or spot and how large is the share of spot and also for that unfortunately we are publishing the overall term versus spot which includes also the European volumes but those markets are active, I mean there are term players and there are spot player also in North America, but unfortunately no detailed numbers around this.

Just because Californian credit value more second generation feedstocks, are you able to comment whether you're volumes to California are utilizing that benefit or again that’s not something you can talk about?

If our waste and residue share is already 75%, I think it's pretty natural to say that yes of course I mean we are able to benefit from that also in California.

Three very easy questions. One on gasoline, you're optimistic on gasoline.

The year started off quite weak in the US that mostly record showed weaker data than the weekly bullish reports. China continues to export a lot of gasoline, yes we’re going into driving season, I just wanted to know as a big exporter, which is Neste, whether you are seeing robust export demand from gasoline as it stands today.

Second question just very simple one on renewable, 1Q you talked about a seasonal low in renewable as far as volumes are concerned and if history is any guide as margins are concerned. And you made the comments on feedstock pricing, value-added but let me ask you this, is it fair to assume if diesel margins were to go down because diesel supply demand is a bit out of whack, that impact same and therefore it should impact the next retail margin as well.

And the final question unless I’ve missed it just wanted to go back to the contango discussion and I wanted to know whether you can quantify how much in terms of million barrels in contango trade you build, how many barrels of gasoline and crude et cetera? Thank you.

This is Matti Lehmus, I will start with a question on gasoline. And then expand a bit on that.

I mean if you look at some of the fundamentals in the gasoline market at the moment I think there is a couple of things I would highlight. One is that if you look at the data that is available we continue to see good demand.

And I think the most easily transparent one is the US market where we get the weekly data and it's clear that the first quarter demand data has been quite encouraging with up to 5% growth year-on-year. And I think that's a key one to watch that if you continue to have this strong demand that of course a good signal for the gasoline.

I'm aware of the weekly data but I'm making the comparison to the monthly because if we were to simply to follow the weekly data, we would have argued demand is great but if we look at the monthly data it's not. So as a big exporter, has Neste seen still robust export demand for gasoline that's kind of the question I had as opposed to what do I see on the weekly report which I can see on a weekly basis.

Thank you.

I will continue on that, yes if I look at the global picture with the US the fact that also China continues and Asia to have demand, we do see good demand for export gasoline and we have not have any difficulties placing good barrels that we produce. So in that sense I think the gasoline, the way I look at it we are now in the period of the year where we have the summer demand at the same time, we still have relatively high inventories and the interesting is then to see that once we go further into driving season and the inventories become lower what kind of dynamics that develops.

But it looks encouraging at the moment for gasoline. That would be the common, I can trust that the contango in parallel we do not give exact number of barrels but we have significant capacity of storage both for crude and product and you can see from the working capital numbers but also the capital we are having is significant so that level of information that we can give.

And there was a question around the current set of gasoline and diesel labels and whether that is impacting the same demand and potentially impacting also renewable diesel margins. Well I mean mandates are not going away whether the diesel is cheaper or more expensive and the mandates are increasing both in Europe and in North America as we speak.

So there is a demand for biodiesel and then more and more there is a demand for drop in high-quality biofuels like renewable diesel. Many European countries are hitting the blend wall, it’s a maximum 7% one is allowed to blend biodiesel into diesel poll.

And secondly the logistics savings, the quality improvement elemental renewable diesel the fact that this can be shift by pipeline in USA and so on, well these elements are now starting to really differentiate renewable diesel from same market. I mean sometimes I'm thinking about whether we should start to renew also some of our references when discussing this market because the difference to same market is becoming bigger and bigger every year.

So, no currently we do not see this current diesel price impacting renewable diesel sales or margins.

Just got two quick follow-ups from renewables and one refining. Almost back to the sales allegations between US and Europe, are we right to see the allocation was the most profitable possible during the first quarter.

And then on the blender’s tax credit you would say you got a majority of it, should we infer that to be comparable to what you got in 2015. And then on refining, apologies I got a bit cut off I might have missed this one.

On the utility cost I see they were up year-on-year which surprised me a little bit given the movements in gas prices in Europe. You explained that and how you expect utility costs in refining to go for the rest of this year?

Thanks.

Let me take the first question, this is Kaisa Hietala, it was about the sales allocation between North America and Europe whether this was exactly the best possible sales allocation. I would say that when we see the demand increasing for this year, which I’m expecting to start to see latest in Q3 and Q4.

Then we might see still some movement in our sales allocation. Short term, I'm expecting our US sales to increase but it requires the demand side also to be there.

So currently I'm very happy with our sales allocation and this shows that there are very interesting markets and segments also in Europe for our product. The second question was around the BTC impact on our comparable EBIT that are we expecting the same level for this year as in 2015.

Again depending on quite a lot of the sales volume, when it comes to the BTC’s share we are taking majority of it and it has been stable.

Very good, and then this is Matti Lievonen. The question on refining utilities costs, if you look at the data carefully you will note that year-on-year actually the utility themselves haven’t changed that much for barrel, it’s a move from 1.5 to 1.6.

However what has changed is the total production costs which have gone up from 3.5 to 3.9. And the main reason here is indeed the fact that we were because of the lower utilization and the maintenance we have to do producing less barrels that means the fixed costs went up a barrel and at the same time we also have these maintenance costs.

So these are really the drivers why the overall went up. The utilities obviously, I fully agree with you they haven't gone up it’s still the price of electricity, steam, natural gas it's all at the same or lower level than a year ago.

So looking forward, our main focus is to make sure we run a good utilization, we have a good year operationally and that will also enable us to get back to the good production cost level where we want to be.

Thank you very much, if there are no further questions, we thank you very much for your attention and active participation. Neste’s second-quarter results will be published on the 28 July, until then thank you and goodbye.