Neste Oyj

Juha-Pekka Kekäläinen - Head, IR Matti Lievonen - President and CEO Jyrki Maki-Kala - CFO Matti Lehmus - EVP, Oil Products Kaisa Hietala - EVP, Renewable Products Panu Kopra - EVP, Marketing & Services

Mehdi Ennebati - Societe Generale Henri Patricot - UBS Sasikanth Chilukuru - Morgan Stanley Giacomo Romeo - Macquarie Josh Stone - Barclays Thomas Adolff - Credit Suisse Peter Low - Redburn Matt Lofting - JP Morgan Georgia Harris - Bank of America

Thank you. And good afternoon, ladies and gentlemen.

And welcome to this conference call to discuss Neste’s third quarter results published earlier today. I’m Juha-Pekka Kekäläinen, 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 Panu Kopra of Marketing & Services. We will be referring to the presentation that can be found on our website.

Please pay attention to the disclaimer since we will be making forward-looking statements in this conference call. With these remarks, I would like to hand over to our CEO, Matti Lievonen, to start with the presentation.

Matti, please go ahead.

Thank you, Juha-Pekka, and welcome to this conference call. I could say that I feel the same that I have felt the whole year.

So really, really good and then stronger quarter, but it’s a continuation what we have done during the years, and we are really on track to deliver a very successful year. If I look on this very positive that all the business areas, they performed very well.

Of course, comparable EBIT was €350 million. And we need to keep in mind that we do not have any BTC, Blender’s Tax Credit here, so it’s came really from our own performance and really highlighting the Renewables.

They did a excellent results, and probably, we will discuss very much to additional margin. But if I look at the second quarter additional margin, I think that it was a disappointed for us.

And then we told in that time that we will improve, and the second half of the year, we’ll be much better what’s coming to the margins. And we have really done a good job there.

So what’s coming to the markets, optimization, feedstocks, I think that there also we are back on the track. And also the operational renewables did a really good; refineries run really well.

Also the Oil Products, of course, the markets help us very much that if we can give better reference margin, that was $3.3 per barrel higher than the last, but -- also the operational performance was excellent what’s coming to Porvoo. And we have discussed several times here production line 4.

So production line 4 made a -- the recurred 303 days and then we took it to the planned shutdown. So it was really good.

And also the cost-wise, production cost was in a good level. So all-in-all, in this business, this was really good.

And when we started the years and after first quarter, the Marketing & Services get into -- posted a very good result because of a very tight competition, and we promised that we will come back, and we are doing internal things. So we have done it and also the Marketing & Services posted better result in the year before the same period.

So all in all, I’m really pleased and confident that with this team what I have here, this people and then the other 5,000, we are really on track to deliver a very successful year. And of course, good financials and the result we can see in financial targets.

So ROACE, we are now over 17%, leverage, 14%. So in that respect, also very satisfied and looking forward to grow end of this year and then looking to next year also.

But I will give the floor to Jyrki Maki-Kala, who will go through the financials. Jyrki?

Yes. So good afternoon also on my behalf.

So it’s really pleasure to show you these figures that is basically showing improvement in all our key metrics, that is they are concerning quarter 3. And it’s also important now that we are also seeing the revenue growth at the top of them.

Top of the table that business is really performing well in OP, RP and also in Marketing & Services. And everything starts from the revenue how the volumes are moving.

If you look really the comparable operating profit that seems to be kind of a surprise for the market that we did €350 million, which is a huge improvement compared to last year. And remember here really that last year we had the Blender’s Tax Credit.

In this quarter, it meant quite a lot. In fact, the right figure here it was €45 million last year in quarter 3.

And in Renewable Products, we made nearly 50 million higher comparable EBIT without the BTC. So that’s why I think the improvement is really visible also in the group level.

Oil Products really coming out with a very strong reference margin in the background, getting very, very strong result, 158 million. Renewables, like mentioned, it sorts out the additional margin.

It was a higher volumes and also improvement there in the reference margins as well. So many things went to the right direction during our quarter 3.

And finally, Marketing & Services, really they beat last year results by 2 million, which is nearly 10% from their profit level. We have talk a lot about also in the Capital Market Day about the cash flow, et cetera, et cetera, and now you’ll see in our cash flow that we did nearly €300 million cash flow.

And we said that we are unwinding this contango story 3 that we had in our balance sheet. And we did most of them by the end of September, but there is still little bit more to -- some volumes still to come in for the rest of the year.

And finally, the comparable earnings per share went up 35% compared to last year, so very strong performance in the bottom line. It’s really combines all these positive things what I basically mentioned.

So if you look very briefly the peaks between last year’s quarter 3 and this year, the improvement there, it’s volumes, mostly coming out of the Renewable Products that, I think, Kaisa will talk little bit more. Reference margin coming both from OP and RP, mostly in this time, from OP roughly €80 million.

Additional margin, like it state here, this is really good to remember that it went down compared to last year, but if you take out the Blender’s Tax Credit impact of 45 million, so actually it was positive by €20 million. FX changes.

The currencies are in a total different level this year compared to last year, but we have very effective hedging management in the background. So you’ll see from the figures what was the outcome for the third quarter.

So it was only 21 million the effect for our P&L. Fixed cost.

We are still focusing on strategic projects, very key projects especially for the Renewable Products that we are seeing some higher fixed cost really for the future. And in Others, we have performed also in other product lines very nicely that are not included in our additional margin.

So very much green on this page. I’m talking about the performance of the one quarter.

If you then move to a little bit bigger figures, looking about the year-to-date for the growth, and if you think about the whole cumulative comparable EBIT that we had there in the background, it’s really run through with very positive development also coming out of a sales volumes and reference margin, but also totally different kind of level. Because we don’t have the BTC and that was 130 million last year cumulatively nine months.

And we made the excellent results that can be seen in the next page. With these nine month figures, so revenue much higher compared to last year, €1.33 billion higher revenues comparably.

EBIT, like mentioned here, 10% higher compared to last year. Very strong performance with most of our businesses.

Cash flow positive. And like I mentioned, there’s more to come during quarter four.

And finally, the comparable earnings per share improving €2.32 per share so far during the first nine months of the year. And all these what I had said is then next page, where you have the peaks analysis.

You’ll see, what I mentioned, the volumes, very positive. Reference margin, strong markets in both OP and RP.

Additional margin getting so-called hit by the non-BTC in the year 2017. Without that, it would have only been minus 12, that’s total different figure.

FX, no big change, plus/minus. Fixed cost, same reason here to tag like it has been all through the year what we have said about the strategic project.

And that’s why -- and that’s how we basically landed to this level of €790 million for the first nine months of the year. So that was kind of a short the group level outcome and comments.

And now I hand it over to Matti Lehmus, who will describe little bit more about Oil Products.

Thank you, and good afternoon also on my behalf. So commenting on the Oil Products, I’ll start with a comment that it was really good result.

I’m very pleased with the third quarter. The EBIT came in 30% higher than a year ago at €158 million.

And I think indeed, it’s a reflection that the market was strong, but at the same time, we were really able to run especially Porvoo refinery really well and to capture all the opportunities that we had overall, but also especially, for example, September, where we had a spike in the market. If you look at the performance of Porvoo, we basically had no significant unplanned shutdown time.

That means an utilization of 97%. So it ran really well.

And that means also that we were continuing our ramp-up of the new SDA unit. At the same time, we did have a turnaround in Naantali, starting in mid-August and that is, for example, then reflected in the sales volume numbers that are a bit lower than a year ago, and also the euro share was lower than a year ago, which is very much related to the Naantali turnaround.

But overall, a very good quarter. And that means then also strong cash flow and good return on net assets.

Looking briefly at the waterfall versus a year ago. The message is very clear.

Firstly, the reference margin was $7.2 per barrel, that is clearly higher than the $3.9 per barrel of last year, which means that the reference margin added €84 million. This was particularly driven by a strong diesel market that strengthened versus a year ago.

On the additional margin, the impact was €30 million lower. And some of the key factors behind this is that we were in a market where the REB differential was very tight.

We also had the Naantali turnaround. And thirdly, of course, also there was lower contango income than a year ago.

So there were a number of items affecting that additional margin versus a year ago. And finally, the FX impact is also visible here, self-medium because of a stronger euro this year.

Moving briefly to the markets, couple of highlights from the third quarter. So first comment I would have is that diesel was actually, for me, the strongest performer in the market.

From a level of $11.5 per barrel a year ago, we were at $14 per barrel margin in the third quarter. And this, of course, follows a trend, where we have seen lowering inventories, starting already in Q2.

So that trend has continued. And we actually had quite low inventories, almost 15% lower than a year ago at the moment.

Also, gasoline had a good quarter and especially, it spiked in September when we had the supply outages caused by the Harvey Hurricane, but like visible in the chart, the situation then normalized actually quite quickly. So we are now in a more normal gasoline market again.

And then perhaps on the REB differential, the quarter averaged minus 1. So that is a narrow differential versus Brent.

For example, a year ago, it was 2.4. And here we can clearly see that the quarter started with a very narrow differential.

We had maintenance in the Primorsk pipeline system and the number of other factors. During the quarter, the differential actually normalized towards that $1.5 per barrel that we have seen on average.

And at the moment, we have even wider levels as we are in the middle of the maintenance season. And finally, looking at the total refining margin, that was very strong at $12 per barrel in spite of a very tight REB market.

And this is, of course, combination of both strong reference margin and then a healthy additional margin at $4.8 per barrel. We -- when looking at the additional margin, this was indeed impacted by the Naantali turnaround and some other factors.

In the fourth quarter, we are now then having the production line four turnaround, which is happening in October. And we are currently actually in the middle of the startup of that unit.

Finally, a comment on the production cost. As we had very good operational performance in the third quarter, also the production cost came in.

They’re at a good level of $4.0 per barrel. And here, the increase versus last year is actually reflecting mainly higher utilities costs coming from a higher crude level.

With these comments, I will hand over to Kaisa Hietala to take us through the Renewable Products.

Good afternoon, everybody. Renewable Product was able to demonstrate a very, very strong result in Q3.

And let me take you through the drivers for this. I mean, we have been working very hard since the beginning of this year to find the ways to compensate the lost Blender’s Tax Credit.

Q1 was very challenging for us due to the regulatory uncertainty, especially in U.S.A., which was basically visible in the markets and also visible in the demand. In Q2, as also my CEO was saying, it was a bit disappointing for us due to a couple of one-off items.

But now in Q3, I think we are able to show that the actions we have taken are now bearing fruit, and we are able to catch up the lost margin related to Blender’s Tax Credit. I’m very proud of my team and their activities that we were able to now basically increase the comparable EBIT over last year’s level, clearly increase it.

And also we were keeping the good level of sales volumes, 637 kilotons. And our share of sales was roughly the 30% to North America, 70% to Europe, and the share of waste and residue feedstock up 77%.

So there are step changes that we have made, not only on a feedstock side, but throughout the whole value chain. We have been also structurally looked into our sales allocation and made some improvements.

So all in all, excellent quarter for Renewable Products. If we then look at the waterfall between last year Q3 and this year, volume difference is probably one of -- is the biggest driver.

Last year, we had major turnaround in Rotterdam and that was impacting our inventories and sales volumes still in Q3. And here you can see the difference.

Reference margin was more favorable this year, but then the additional margin, even though now the number €5 million doesn’t look that large, but please take into consideration the Blender’s Tax Credit impact. So this was a massive change.

I would also like to highlight the increase in fixed costs, which is linked to our strategic growth project. And as said during the Capital Markets Day, we will be making a decision on the site selection still this year and then the final investment decision will take place at the end of 2018.

If we then look at the market. First, the European market.

We were roughly on a same level as last year. The European market has been much more stable this year compared to previous years.

However, now the recent news around lowering the import duties for Argentinian biodiesel, that has had some impact and will definitely increase the volatility of the market. On a raw material price side, palm oil prices got a bit stronger during the quartile, sort of within the normal volatility range.

And the -- maybe it’s good to point out that the tallow price has been sort of coming down. However, I think we are still within roughly the same frame as last year.

If we then move to the U.S.A. market, it’s a different picture.

U.S.A. has been suffering a lot or the U.S.A.

market has been suffering a lot from the regulatory uncertainty. Based on the very recent news that the EPA will not consider lowering the future blending mandate any longer, I think now all the regulatory topics should be cleared for this year.

And maybe the only topic, which is still pending, is the decision on BTC. And unfortunately, we do not have any additional information on this.

It has typically been decided at the very late every year. And unfortunately, we do not have further visibility on this.

The RIN values have been going through a quite a radical changes over the past weeks as well. The EPA announcement three weeks ago to review the mandate targets for 2018 and ‘19 created quite a volatility in the RIN market.

And now the decision that such consideration will not take place has recovered the market. We were just noticing that the D4 RIN is trading at $1.1 per gallon.

So it has recovered very well. So that looks very good.

Finally, I would like us to look at our comparable sales margin drivers. This is probably the highest ever comparable sales margin for Renewables.

And it’s a great achievement. We are pushing really hard to optimize our value chain, and the optimization has been very successful.

There are several elements driving this. First of all, our feedstock optimization was good.

We have been very aggressive in the market. We have been really opening up also new sources and the new geographies as discussed, for example, during the Capital Markets Day.

We have looked through the whole production platform, supply chain management, all elements that the business is very well optimized. We had a very high utilization rate, 99%.

And both refineries, large refineries, Singapore and Rotterdam made their production record during the Q3. And then finally, we have been reallocating some of our sales.

We are focusing on 100% renewable diesel sales. The share was already 27% in Q3.

It is a profitable market for us. And also, we have been allocating sales within the markets, whether it is North America or Europe, slightly differently to really find the right segments for this great product.

So with these comments from Renewable Products, I would like to hand over to Panu Kopra to discuss Marketing & Services.

Hello, this is Panu Kopra speaking. The first time this year I can say that we were better than the last year and this is what I’m happy about.

€27 million EBIT achievement is a good one for us, taking into account that the market didn’t support us at all. So this was done mainly by then the internal measures and actions.

Like you can see from the previous slide from this quarter for all, but is mainly due to very tight fixed cost control, which we started already after this first quarter. Gasoline volumes were less, but it was compensated by the diesel volumes, especially the truck segment continues its strong performance and still grew by 2.5%.

Maybe one product, which I would like to highlight is just a one, which grown now by more than 10% compared to last year. So we have grown together with our biggest clients there.

Number of customer grown again. We gain more than 4,600 new customer, especially in the Baltics, but also in Finland compared to last year.

So it seems that our favorite marketing constraints, especially on the -- for small and medium size of the companies are working well and delivering good results. Last time I informed about the launch of new mobile payment application.

And now I can say that there are more than 50,000 consumers who have loaded Neste app, and we continue developing of this application and its features for the B2B customers and B2C as well. All in all, good third quarter for us.

Safety performance, number of new customers, customer satisfaction, they have been in good level, and finally, now EBIT as well. Thank you, and now handing over to Matti Lievonen.

Thank you, Panu. And let’s look at the outlook for 2017.

As the global demand is doing well in all products side, then our own actions and good demand also are the great product, as Kaisa Hietala mentioned. So we are very confident that our expectation to year 2017, it will be very successful.

Few words about the segments outlook. So Oil Products, of course, reference margin expected to decrease from the third quarter peaks.

And of course, there is not the driving season anymore, but we believe that it’s continuing strong for the season. And if we look at the whole year reference margin average, it’s expected to be above the previous year.

And then utilization rate. So in Porvoo, we have this line four decoking maintenance and now the unit is starting up.

And then Naantali turnaround, is also -- it’s now it’s running about the 70% rate. So it will come up there.

So then we have done this conversion, and in the next year, we will be in the full speed with all the changes what we have made. Then the Renewable Products.

So we expect that the additional margin stay at a good level during the fourth quarter, and Kaisa Hietala also delight a bit that the -- what’s -- why it will be so. And also we believe that the -- even we haven’t written here that reference margin will be stay at level about where we are.

Utilization rate. So we are running flat out, except for two weeks shutdown of Singapore refinery due to that hydrogen supplier having a planned maintenance outages.

And the Marketing & Service, of course, they follow the previous seasonal pattern, but they really pushing to make even better than earlier. Then if we take the next page, that we continue to focus on and that has been in our several years.

But if I take the safety, for example, very proud to say that we have positive there. So we are improving cash flow.

We are improving as our CEO told refinery productivity, both Oil Products and Renewables. They are improving their markets and customers.

So also there, all 3 businesses are improving new customers. Then it’s, of course, fantastic that this Neste MY 100%ish so that it present 27% already now in the Renewable Products and it will increase.

We launch also the operation with Geneva airport with renewable jet fuel. And there is queue of other airports who wants to start to work with us.

And of course, we reaffirm and we get to more to come. And then very happy that now all business areas, they are also measuring this Net Promoter Score card, and then we see there also the clear improvement.

So the focus what we have had so it’s not good to change them all the time. So it’s really good.

So very happy to listen your questions. So we are ready for the questions.

Congratulations for those very impressive results. I will ask two questions, please.

The first one regarding the Renewable Fuel division. So your additional margin have been extremely high compared to H1.

I understand that you don’t want to provide too much detail about your achievement. You already provided enough, but I just ask you if there has been some kind of one-offs explaining et cetera high additional margin or not at all?

And do you think that you can be able to keep additional margins much higher than H1, meaning both $200 per ton at least for Q4 ‘17 and also 2018? Second question, regards with the maintenance.

So can you please quantify the impact at the EBIT level from the four weeks maintenance at production line 4 and the two weeks maintenance at Singapore refinery?

Thank you for the questions. I’ll start with Renewable Product additional margin.

There were no any major one-offs impacting the margin in Q3. Naturally, some of the market elements are also reflected in our additional margin such as the -- some portion of the LCFS prices, but no sort of major significant one-offs.

We are guiding at the moment that we expect the Q4 additional margin to be at good level. Unfortunately, no more specific guidance is given.

I’m very confident that we have done the right step changes within Renewable Products. It’s not only sort of marginally optimize the value chain, but really pretty aggressive moves, both on the feedstock and on the sales allocation side.

Then on the second question. I will start on the impact of the PL4 maintenance.

The shutdown has gone well. We are in startup.

The exact financial impact, of course, depends a bit on the market still. But I would say the order of magnitude of this and some smaller unit maintenance is around €20 million.

And just maybe the two weeks maintenance at Singapore refinery, should we expect any material impact on at all?

It is two weeks maintenance break by our hydrogen supplier. We are not speaking any sort of major impact on this, €10 million, something like this.

So we are really, I mean, optimizing the sales, and we have pretty good inventories. We are prepared for this.

Two questions for me. The first one is, I like to follow up on the additional margin.

I was wondering if you could give us some sort of bridge between the second quarter level and the third quarter? How much of the improvement in the additional margin came from the sales allocation?

How much from the feedstock? How much from the increase in the share of the 100% renewable diesel plant?

And any other factors that you can think of and are willing to disclose? And secondly, just looking a bit longer term, in light of the recent vote that the EU Parliament Environment Committee on the biofuel market post 2020.

Have your view change in any way as to the final outcome of the discussions around this framework in European biofuels?

Let’s get back to the Renewable Products additional margin. Unfortunately, we do not provide sort of a detail split between the different value chain elements.

So sort of a no guidance regarding how much was due to sales allocation or feedstock and so on. But as said, we have made pretty aggressive changes.

And that is explaining the big difference between Q2 and Q3. The second question was around last week -- sorry, this week’s voting of Environmental Committee of the European Parliament.

Just quickly to give you the background. So last year, European Commission made a proposal to amend the current renewable energy directive to start from 2021 and lasting till 2030.

This is so-called co-decision process. This means that the both European Parliament and the Council, which is the 28-member state, will together come up with a final decision.

And within the European Parliament, there are now two committees, who are drafting their own proposals and voting on those. And Environmental Committee was -- is one of the committees and they did their vote this week.

And it’s pretty understandable that they are pushing through very sort of a strong NGO-related agenda. But the second committee, who will be voting later in October, is a very important committee also connected, that’s the Industrial Committee.

And they are the ones who are looking the interest of the industries and investments and so on. And after these two voting, then at some point early next year, the European Parliament will have a preliminary vote to come up with the parliament overall view.

And typically, this is then a compromise between the Environmental Committee and the Industrial Committee opinions. And only then will the council start to work together with the 28-member states to come up with a compromise that is acceptable for all the member states.

So we still have a long way to go. So hopefully, this gave you an idea where do we stand regarding the process.

Okay. And what’s your view on the outcome at this stage?

I mean, it was pretty understandable that the Environmental Committee wants to have a strong view on certain topics, like feedstock sustainability and so on. But we are also very pleased to see that they want to support aviation to be part of the mandate.

And also, they are clearly stating that the whole renewable energy target in Europe should be higher than 27%. They are proposing 35%.

That’s a good news. And also they are saying that the member states should have a right to go beyond the RED, the renewable energy directive targets if that is part of them fulfilling the overall renewable energy target.

So I think it was a good combination of supporting elements and of cost as understandable also a strong voice from the NGOs, the environmental NGOs.

But we need to remember that there was a vote inside in this committee. It’s Matti Lievonen here.

And there was for votes 31 and then the against for 29. So that’s still in the -- as Kaisa mentioned, that there is now the long debate at what will be the final outcomes but there was good things and then the details that need to be given.

I had two actually. I was just wondering, on the Oil Products side, given that the current forward refining margins are very strong.

I was just wondering if you are trying to lock them down by hedging? And the other question I had was, again, on additional margins.

Just trying to get some context, if you were to look at the additional margin generated this quarter, the $256 per ton, would you classify that as good or very good?

Thank you for the question. This is Matti Lehmus starting with the OP question.

We typically, in all products, have a quite low hedging ratio. We, for example, at the moment also have, let’s say, very low hedging ratio.

So I would say if there are extraordinary opportunities in the market, we can take advantage of our hedging policy to hedge, but it’s not typically something we do. It’s not in place at the moment.

And this is Kaisa Hietala speaking. Regarding the Renewable Products additional margin, currently, we are giving the guidance that we are expecting the additional margin to remain at a good level.

So this is what we are saying about the details.

The first one is back on the European Parliament decision. And just trying to get some sense from you on whether the plan to phase out palm oil would include also residue from palm oil refining processes like PFAD?

The second question is regards the Argentina antidumping case and the potential discussion between Argentina and the U.S. to basically put on hold the process in exchange for a price limit for Argentina’s volumes.

And what’s your view there in terms of how much these could actually reintroduce -- to what extent it could reintroduce Argentine’s volumes into the U.S. market?

Thank you for the question. Let’s take the renewable energy directive proposal question first.

So there was a proposal from the Environmental Committee that they would like to phase out palm oil. However, they did not specify any further what does that include.

And we want to see the -- sort of the analysis before we can comment on this. They were just referring to palm oil generically.

So that’s something that we do not have any further information than what has been written about this topic. So we will then come back to this when the details are being announced because it’s -- the public voting result is -- has not been announced yet.

The second question was around the antidumping case between, I think, it’s Argentine and U.S.A., which you are referring to. And the discussions whether there could be some kind of a compromise to put this case on hold and agree on some sort of like a price levels for the soybean imports and so on.

To be honest, we do not have any detailed information of this. We are following the regulatory case, but we are not looking into the [indiscernible] politics around it.

So we do not have a further information on this.

I got two questions, please. Firstly, in Renewables, on the pretreatment facility in the Netherlands.

Can you update us on when you expect that to start up? And then secondly, a follow up on the contango trades in refining.

Are you still seeing opportunities to sell product from a forward curve? Or is it now the case which is realizing everything you’ve already sold?

Thank you for the questions. The first question was around our new pretreatment facility in Sluiskil in Netherlands.

We are starting up the unit in November. The sort of the works are almost completed.

And the feedstock cargos have been taken in. So it’s progressing, and we’ll be then ramping-up during Q4 and then Q1.

And this is Matti Lehmus on that question on contango outlook. If you analyze the market structure, currently, it is actually very flat.

And that means that at the moment, there are not very attractive opportunities on the forward curve, but of course, it’s natural to say that the market may change over the coming months and year. And we will obviously keep monitoring and take advantage of any opportunities, which may emerge.

Just on Renewables, please. Just on the feedstock.

Can you just remind me what you’re doing differently now? And why wasn’t available to you in prior quarters?

And I guess just to your last point on the pretreatment facility, I’m guessing that as we look out to 2018, there should be additional benefits from being able to treat lower-quality animal fats. Just quick -- that’s on the Renewables side.

Maybe also on the Renewables side, if you can remind us if you have any major plant maintenance in 2018? And I guess, just an overall a bigger-picture question on your performance year-to-date.

Presumably, you did have a scorecard at the start of the year. And when you look at the first 9 months and what you’ve achieved so far, would you say you’re on track to deliver what you’ve internally targeted?

Or are you actually slightly ahead? And if so, where exactly you’re ahead?

Or where are you running behind by division?

Thank you for the questions. Most probably, I need to ask you to repeat the number 3 because I’ve been writing down.

But the first one was around feedstock and what have we done differently. We have said that our -- one of our assets is the fact that our technical system is capable to handle different raw materials and especially, the lower-quality feedstock.

And this is what we are really doing. I mean, we are improving our capabilities to be able to source and also process low-quality feedstock.

And this is also what our customers want to have and also the governments, they just love the story. So I would say that we are really following or implementing our strategy.

The second question was also link a bit to the feedstock that how does the new pretreatment facility in Sluiskil, what kind of a additional benefit does it bring to us? We are not really opening up the sort of share of our value creation around feedstock.

Naturally, there are reasons why we decided to acquire this facility in Netherlands and why we are now doing the maintenance works and everything to get it up and running. So clearly, we see that this kind of a pretreatment capability is important for companies like Neste.

And then the last question...

Okay. And just -- if I can interrupt you for a second.

Just in terms of where you are today, do you think you are at a very optimal level? Or do you think you can improve?

And obviously, you can’t control pricing volatility in the market, but in terms of operationally where you are, are you -- where you think you should be? Or is there room for improvements?

I was trying to describe this during the Capital Markets Day that our feedstock strategy has three key elements. One of them is that we want to have a really global sourcing, and we are developing that all the time.

We want to be able to source from all parts of the world. The second thing was that we want to be technically very capable at our refineries to be able to blend and use different raw materials.

And the third element is exactly the pretreatment capabilities and the technical innovations we are developing around it. There are room for improvement in all of these areas as always.

So this is part of our strategy implementation. And we have a roadmaps ready for next year, and we will definitely then share more information during our next Capital Markets Day.

And then -- sorry, there was a question whether we have planned turnarounds for 2018 in Renewable Products? And indeed, Singapore will be having a major turnaround in 2018 during the late Q3, early Q4.

We will give more details on the duration and the exact timing then -- when going forward next year.

And the question on the scorecard, that would be great as well for the business as a whole.

I was struggling to capture that question. Could you quickly repeat it to me?

So this is for Neste as a business, not necessarily Renewables. I’m just trying to understand where you are versus your scorecard at the start of the year?

Whether you’re actually running ahead of plan? And if so, driven by what across all the divisions?

That would be great.

Sorry that didn’t listen so well because I was concentrating your RP questions. But as always, as we went through in during the CDM, the strategy and where we’re focusing.

So I’m very happy that we are really doing as we have planned with the strategy, also the targets what we are doing. But we are always targeting higher.

So we do not -- we are never satisfied, and that’s probably the good thing. But very happy as third quarter shown and second also in the way that we are going the right direction.

And when I described this four blocks like safety, that’s a positive cash flow, it’s positive refinery utilization, it’s a positive -- customers and markets are positive. Yes, it’s a positive, but we still want to be better.

We are never satisfied.

If you say the target set at the start of the year is actually better than what you’ve achieved so far, where -- which division has underperformed and where?

Every division is doing so well that I’m happy and they are improving all the time. You can see the third quarter figures.

As I mentioned that in the first quarter was a bit difficult the Marketing & Service, but they have done a great comeback with their internal measures and that’s the thing. So I could not tell that -- I appreciate all the businesses.

And as I mentioned at the beginning, I appreciate very much the whole Neste and Neste personnel. They are really doing -- we have a very great team here, and we all enjoyed working with Neste with higher targets always and then beating those.

That’s our target.

I’ve two, if I may, on Renewables. Firstly, I understand that there are currently discussions in Sweden around banning certain feedstock such as palm oil and PFAD.

Can you give us any details on that kind of how likely you think it is? And what would the potential impact be on Neste?

And then my second question is, again, on Renewables. You talk about improving sales allocation in that business.

Can you help us in understanding what that actually means in practice? Perhaps, if you could give us an example of what improving sales allocation means?

That would be very helpful.

Thank you. First question was regarding Sweden.

Sweden will be moving towards biofuel mandate next year. And this is the first time, by the way, Sweden is introducing a mandate regulation.

At the same time, they are also considering to reclassificate their raw material sort of a sustainability criteria. There is no question about banning any raw materials in Sweden.

I think it’s a pretty natural that the policymakers are discussing these topics. I mean, it’s a constant dialogue between the environmental NGOs and the policymakers and the industry that where do we draw the line.

Neste’s asset is really our ability to be flexible when it comes to raw materials. Already now we are listening our customers more than the policymakers.

Our customers want to have low-carbon fuels. They want to have a very high carbon savings, and they are looking for a very low-carbon footprint.

This is the key for our sales. I mean, what we are selling is a carbon reduction.

And then when we say that we have a large pool of waste and residues, naturally, those residues and waste raw materials, which have the highest carbon reduction, they are also the most preferred for our customers and policymakers. So our feedstock flexibility throughout the whole value chain is the key to manage potential changes that might take place in regulation.

The second question was around concrete examples, what do we mean when we say that we have been doing sales allocation or changing our sales allocation? Let me give you two examples.

We are moving more and more towards 100% renewable diesel sales. Earlier, we were selling more a renewable component, which was then blended within diesel and it sort of disappeared in the market.

Nowadays, we want our customers to use renewable diesel as a 100% blend, and we also want them to promote that this is Neste product. So we are putting Neste brand on it.

So this is one example. The second example is that within our current large markets, like North America and Europe, there are segments, which value a lot sort of easy use of renewables.

I mean, no blend wall, no need to invest in different tanks, no need to have a separate or segregation logistics, nothing like this, which is typical for the first generation biofuel. And we have been really actively marketing and promoting our products to those segments.

And this is what I mean when I say that we are reallocating some of our sales, for example, within Europe. We are opening up those segments all the time.

It could be fleet customers, it could be cities, airports, like a ground fleet at airports and so on. So it’s not the purely geographical market, but it’s the segments within these large markets like Europe and North America.

I’d like to circle back on the additional margins, if possible, more with respect to Oil Products. With the refinery configuration investments largely executed, can you talk about, is the refining platform now fully prepared to deliver the targeted $5.5 a barrel additional margin going into next year?

Could there even be some upside to that in -- under prevailing market conditions? Or the extent to which is -- or further optimization works required?

And then separately, just on FX hedging. Continued tailwind in Q3 in terms of the effective versus market rate.

I think you’ve said the ratio is above 50% for the next 12 months. Could you just share what that ratio was in the third quarter?

And how that evolves as you go through 2018?

First on the OP additional margin question. So yes, indeed, like commented earlier, now that we are approaching end October, we are finally in the stage of starting up the One Refinery configuration.

And looking forward into next year, yes, I’m very confident that the configuration is there and everything is ready to perform well and to reach that target of $5.5 per barrel on average. Two comments, I would make as discussed at the Capital Markets Day.

It’s still important to note that this is the average level. There will be quarters when we have, for example, scheduled maintenance, like for example, PL4, which, of course, have then a short-term impact, but the key is here that the average level, our clear target is to be above that $5.5.

And then on the other comment, are there upsides? I would say, definitely, we are continuously looking at market opportunities.

It could be particularly wide differentials on the crude side, for example. It’s also productivity improvements.

So we are continuously working on driving that level up, but that’s normal part of our work.

Yes, and then the other question. This is Jyrki Maki-Kala talking about the U.S.

dollar and euro. We had a little bit higher hedging ratio for our quarter three more than 50%, but I think that’s a level that we see already earlier part of this year that the euro is getting stronger.

So we kind of be prepare ourselves for the quarter three.

Just wanted to -- just wondering if you can clarify, so the 100% renewable diesel sales, you’ve obviously reached 27%. Can you give us any detail on how that has impacted your margins?

And do you have any further targets for next year? And similarly, when the biopropane unit starts up, is there any impact that you can give us?

And what that could do to margins in the future?

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

The 100% renewable diesel sales, the reason why we are doing it clearly is, one of the drivers is the profitability. We do not disclose the impact, the direct impact to our margin.

As said, the share of sales was 27% in Q3. And we have a longer-term target, which is 50, 50% by 2020.

So we are clearly seeing that the renewable diesel product has a very good value and a good application when we sell it as a 100% pure. And we are branding it as Neste MY Renewable Diesel, which is also very important for us.

The second question was around biopropane unit, sorry. So we are starting up the unit as we speak.

And the whole idea is that there is a small stream of side product, the fuel gas coming out from the renewable diesel refinery. And earlier, we have been selling this for energy purposes.

However, it is renewable fuel gas, so containing purely renewable molecules. And therefore, now the investment we have made in Rotterdam is to be able to purify and the propane out from that fuel gas stream and start to sell it to the market.

And there, we are working together with our distributor and sales marketing cum partner, SHV. And they will be launching brand new products around this.

And this is the first time in the world that the renewable propane is being brought to the market. We have not disclosed the margin impact, but we have disclosed that the volume is roughly 40,000 tons per year.

Just quickly, it looks like the fixed costs in refining, you have been continuing to drive year-on-year, quarter-on-quarter and obviously it’s a small number to context, but I’m sure it takes a lot of effort to do it, especially in the context of a stronger euro. So can you just talk a little bit about what you’ve done outside of high utilizations to get that?

And secondly, it looks as though the sales volume in terms of tonnage for Renewables this quarter was a bit less than the third quarter, it was about, I think, if I remember correctly it was 670 in the third quarter and now it’s about 640. Can you just talk, is that a -- was that a basically value versus volume type decision?

Or is there some seasonality or something else we should be watching on that?

Well, thanks. Matti Lehmus on the first question, OP fixed cost.

Yes, exactly like you correctly commented, it is still a very important item that is closely being managed and controlled in OP. And I would say two perhaps parts to the fixed cost.

So the first one is, it’s -- in a very general mindset, whether it’s staff costs, whether it’s external services, consulting, whatever, it’s just managing these very tightly to clearly go in line with our flat fixed cost target. The second one, which is the very important driver here is really about the reliability and the utilization.

Because obviously, maintenance is a very important part of our fixed costs. And that means that avoiding unplanned downtime is a very important driver.

And then at the same time, keeping the right fixed cost level in terms of preventive maintenance is another very important driver. So I would -- both of these are very important.

The second question was around our Renewable Products sales volume in Q3. Being a slightly lower than Q2 and was there sort of a -- what was the driver for this?

I mean, this is really in the boundaries of just natural timing issues. That kind of a difference equals one deferral meeting the Q3 window regarding the deliveries, let’s say, from Singapore to U.S.A.

So this is just a timing issue.

Okay. This is Juha Kekäläinen of Neste IR.

If there are no further questions, we thank you very much for your attention and participation. Neste’s fourth quarter and full year results will be published on the 7th of February.

Until then, have a nice rest of the year, and goodbye.