Neste Oyj

Thank you. Good afternoon, ladies and gentlemen.

It's a perfect winter day here in Espoo. Welcome to this conference call to discuss Neste's fourth quarter and full year 2018 results announced earlier today.

I'm Juha-Pekka Kekäläinen, Head of Neste's IR. And with me here are President and CEO, Peter Vanacker; CFO, Jyrki Mäki-Kala; and the business area heads, Kaisa Hietala of Renewable Products, Matti Lehmus of Oil Products, and Panu Kopra of Marketing & Services.

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

With these remarks, I would like to hand over to our CEO, Peter Vanacker, to start with the presentation. Peter, please go ahead.

Thanks a lot, JP, and good afternoon to you also on my behalf. And I must say and start that I'm really, really proud, yeah, on our employees.

I'm really proud on the excellent job that they have done, yeah, in 2018 and also in the fourth quarter of 2018. So, of course, you have seen the numbers and we are very, very pleased to share with you our excellent performance in 2018 and happy to discuss the way forward with you.

Now, if we look at Slide #4, we had, as alluded to before, a very strong year in 2018 and we made an all-time high comparable EBIT of over €1.4 billion. As I said, our employees, they have delivered an excellent performance.

And we as a company have made another big step forward in developing our Renewable Products business. Renewable Products has an outstanding performance as a result of favorable markets and successful sales margin optimization.

And this was particularly a good achievement considering the scheduled maintenance turnarounds that we have implemented in Rotterdam in the second quarter and in Singapore in the fourth quarter. And except for the plant maintenance, all of our manufacturing units run at a very high capacity output.

The Oil Products result was impacted by a less supportive refining margin environment and a weaker U.S. dollar.

These two elements alone has a negative impact of some €100 million on the comparable operating profit compared to the year 2017. Additionally, we have more scheduled refinery unit maintenances than in the previous year.

And on a positive note, and I hope you also saw this, our additional margin was strong and we averaged at US$6.2 per barrel in the year 2018 as a result of our successful investments and an improved reliability in our manufacturing units. Also Marketing & Services improved its financial performance versus the previous year.

We were able to maintain our sales volumes and even increased our unit margins in a very competitive market. The final investment decision to expand the Singapore Renewable production capacity was made in December.

And this strategic decision has been prepared very diligently and it was the most important event of the year. And now, we are moving to project execution in full speeds and we are fully on track.

I will come back to this later in the presentation. Our occupational safety figures improved and the occupational safety TRIF result was 1.7 and that was one of the best ever at Neste.

And of course, also here, I would like to take the opportunity to thank our personnel for their safe and productive work that makes the outstanding financial results possible. The Board of Directors also proposes to the AGM that the dividends would be increased by 34% to €2.28 per share.

And this reflects also the confidence by the Board on the company's ability to create profitable growth and generate a solid cash flow. The strong financial performance is also visible in our financial targets.

And we reached a record high ROACE of 21.1%, by far exceeding the 15% target for the fourth year in a row. And our leverage ratio was very low at the end of 2018.

And more importantly, the strong financial position enables us in the implementation of our growth strategy going forward while maintaining a healthy dividend distribution. So with these starting remarks, I would like to hand over to Jyrki to discuss the financials in more detail.

Okay, so good early afternoon also on my behalf. So it's really my pleasure to go into the details concerning the 2018 financials.

Like stated earlier, 2018 was a very strong year for Neste, and like we promised already early August last year, that we are heading towards a very strong year. We actually had four strong quarters 2018 and like stated already earlier our ROACE improved basically quarter by quarter to the record level to 21.1 percent unit.

And our balance sheet got stronger quarter on quarter as we saw the leverage structure for the first time below 0%. If we then look the financials in figures, 2018, if we first look the quarter four, our quarter four financials were strong like it was also in quarter three.

So Peter first CEO quarter was very successful. Basically, with similar net sales on quarter four 2017, we posted 12% better EBIT and this is really coming from our operations what we basically are managing globally in our operation and also concerning our sales activities.

If you look Renewable Products for fourth quarter, it was basically 80% of the group comparable EBIT and that figure has been going up year on year if you look back the history. From the free cash flow point of view, the last quarter posted close to €400 million free cash flow.

If we then move to the full year figures, you see the big change in our comparable EBIT year-on-year, 29% improvement compared to 2017. And the main reasons that I will expand it a bit later is really coming out of the activities around managing the sales margin.

Renewable Products improved a massive 75% compared to previous year, and even taking out the Blender's Tax Credit, what we posted early part of 2018, the improvement was still very impressive. It was 50%.

Oil Products has roughly €100 million of lower EBIT. But if you look the background where it's coming from, it's basically coming from lower reference, meaning the market, and also the impact coming out of U.S.

currency rate. So the market has - market changes played a big role in the profitability of Oil Products.

And then last but not least, Marketing & Services, they improved nicely 13% of their comparable EBIT compared to last year and that improvement mainly came during quarter four, so very good achievement. Strong cash flow, nearly 40% improvement compared to last year.

And like stated earlier, the comparable EPS, that is the basis for the dividend proposal, it basically improved by 35%. If you very briefly look where the last quarter's improvement came, just a few words here, I think the businesses will explain it a bit more going forward.

We have roughly 12% improvement compared to 2017 last quarter. And basically just one reason for business that you are seeing here, Renewable Products sales margin went up 54% quarter on quarter.

Marketing & Services, they had an improvement of 53% compared to quarter four 2017. And Oil Products, little bit lower EBIT, really coming out of the reference margin and the big turnaround in quarter four relating our Porvoo operations.

So that was kind of big changes in quarter four when looking businesses. But if we then move into these details that there are more explained in our quarterly report, the full year changes here if you look overall, the improvement was €321 million.

If you want to have a very simple answer to this, you just look the third column there. Additional margin improved €326 million.

That is basically the same as the improvement between two years. But this is not the full truth.

But all the other items relating to market changes and our cost management, et cetera, they basically balance each other. But if just open this a little bit more, if you look at year 2018 with Neste, we have really big unit turnarounds in Neste, both in Renewables Singapore and Rotterdam, and also in Oil Products higher turnaround here basically than 2017.

And we got this negative change with the lower sales volume impacting our comparable EBIT, this €171 million. And if you then basically combined the reference margin, roughly €206 million, Renewable Products was very, very positive with the market coming out of reference margin, €267 million positive, while oil products has negative of €61 million compared to 2017, but overall, also very positive when looking overall combining these two elements.

And then the few cost items there at the end of the presentation. The FX market rate mainly coming out of US$60 million roughly, fixed cost again reflecting the high turnaround activities what we had in the refineries.

And basically, the others is mostly depreciation coming out for our higher CapEx operation basically in the previous years. So that's basically, how we landed with record high €1.422 billion comparable operating profit.

With these words, then I turn into our business areas, so Kaisa of Renewable Products.

Thank you, Jyrki. Good afternoon, everybody.

Great to be here today and report these fantastic results from Renewable Products, both for the fourth quarter 2018, but also for the full year 2018. If we first look into the fourth quarter, comparable EBIT €281 million, in the quarter, when we also had two months longer turnaround in Singapore, it's really outstanding.

This created comparable sales margin for our sales for the first time being above US$700 per ton. This sales margin was impacted by several factors.

First of all, the markets were favorable, I will be showing you the feedstock market trends as well as the - for example, the USA market parameters, so we were operating in a favorable markets. And also our sales allocation was optimal, and on top of that also our operations, when it comes to the refineries that was very good.

At the Singapore turnaround was delivered on schedule and in time. So in a way operationally, this was a very successful quarter and we also got a lot of support from the market.

Our sales volume was 575 kilo tons, clearly impacted by the Singapore turnaround. Our sales allocation was accepted the same as in 2017 Q4 73% sales to Europe, the remaining to North America.

The share of 100% renewable diesel was a bit below 30%, because of the Singapore turnaround. But then if we look at the full year 2018, we did reach 30% as an outcome and this is taking us in the right direction considering the longer-term target we have.

The share of waste and residue feedstock was 77% again impacted by the Singapore turnaround, but then if we look at the full year, we are above 80% and this is also very well align with the strategy to increase the use of waste and residues at the feedstock. Investments €50 million, there you can see the impact of Singapore turnaround, but also the investments we are allocating for the Singapore expansion work that was down during last year Q4.

And this brings us to the comparable RONA above 50%, very, very high numbers. Just quickly commenting on the full year results, so [€583 million] [ph] comparable EBIT with revenue of €3.2 billion.

If we then look at the bridge between Q4 2017 and Q4 2018, here you can see that the sales volume was 12% lower in 2018 than in Q4 2017. The impact was €86 million, while the sales margin really created a big boost recording more than €150 million higher comparable EBIT elements.

The rest was more or less according to Q4 2017. But let's look at the markets.

And I'll start from the European market parameters. And it was interesting Q4.

I mean, if we first look at the European biodiesel margin, very strong peak was visible in Q4, and this is related to sales and demand imbalance. There was a very low water levels across the European rivers at most of the biodiesel or the biodiesel feedstocks are transported by river branches to the Central European facilities.

And while that activity was not possible due to the low water levels, this is what we saw. I have never seen anything like this during my times.

And this adamantly has now corrected, and of course, clearly this creates sort of challenges how to interpret the reference margin. The second thing which is important to note here is the vegetable and animal fat pricing.

We saw very low palm oil prices in Q4. Again, if I look back, I think, it was around years 2005, 2006, when we have been seeing levels of US$500 per ton or even below US$500 per ton palm oil price.

So there has been high inventories and also some import restrictions in place, but we have already now started to see that the palm oil prices are recovering. Then if we move to the North America, and look at the market parameters over there.

Let's first look at the U.S. Soy methyl ester margin that was clearly lower than in 2017, if we look at the Q4, it was hardly pushed down by the crude oil price, but also the fact that the soybean oil price is very low.

And then if we look at the California, the Low Carbon Fuel Standard credit prices remaining on a very strong level above 190 almost throughout the whole quarter, so that was very supportive for us. Also we saw at the biodiesel RINs were recovering during the Q4.

Due to the same level as in Q4 2017, but still the long lasting decline of the value of RINs now seems to be turned and we saw that turn happening during Q4. Then finally, let's look at the comparable sales margin elements, I mean, this was historically the highest sales margin recorded US$750 per ton.

This was clearly supported the markets, whether it was the feedstock market or then the LCFS and RIN prices. But also, it was a result of a very good production, I mean, utilization rate at 80% even though we had two months turnaround in Singapore.

Rotterdam was performing well as well as units in Porvoo. So all in all, these elements combined with a good sales allocation, Renewable Products was able to reach this historically high comparable sales margin levels.

Let me now hand over to Matti Lehmus to discuss Oil Products.

Thank you, Kaisa. So I'll turning to Oil Products, so what I would to start with is that after a very strong third quarter.

The fourth quarter in Oil Products business was impacted by both scheduled maintenance, but also a weaker market. And then, it means that the comparable EBIT of €60 million then also came in lower than a year ago, when it was €85 million.

And if we compare and start with the reference margin that had a value of US$4.3 per barrel in the fourth quarter. And this is of course clearly weaker than the US$6 that we saw in the third quarter also weaker than a year ago at US$4.9.

On the scheduled maintenance it is indeed something that was a big impact on the Porvoo operations. Every second year we have clearly bigger scope of turnaround in PL4 and that is exactly what happened in 2018.

At the same time, it's fair to say that the scope turned to be even a bit wider than we had anticipated and hence the impact also was €10 million more than what we had anticipated. This scheduled turnaround is also reflected of course in the euro share in the average utilization rate that you can see.

If I then turn to the waterfall and compare the fourth quarter to last year, I think, there is a couple of very clear messages. First of all reference margin impact was €50 million, because of the weaker margin level.

And also the wider and broader maintenance is clearly reflected in the fixed costs, which were $27 million higher than a year ago. And third thing, which is a bit not as visible in the numbers, is that the effective FX rate was actually weaker for the dollar, so also that have €15 million impact negative in total.

The positive thing is that the additional margin continued to be very strong we came in at US$6.2 per barrel. And this is actually a reflection that in spite of the scheduled maintenance, we were first of all able to run outside the maintenance, the refinery really well.

So immediately, as of December the configuration was really fully up and running again. And also there was some good success in the sales of exports of diesel and gasoline.

Then a few comments on the market, if you look at the fourth quarter there is a couple of things to highlight. So first of all, it's clear that the gasoline market, which started the quarter quite okay, clearly weakened and went into a week level in November, December, in particular.

This was driven by very high utilization particularly in the U.S., increasing inventory levels combined then with the normal seasonal shift with the qualities and being outside of the driving season. At the same time, diesel actually performed really well.

We continue to see strong demand for diesel and like you can see the diesel crack actually average almost US$18 per barrel in the fourth quarter. So this reflects a continued strong market for distillates.

On the Urals, the quarter averaged minus 0.9, and which is a relatively strong Urals market. And here of course the combined impact of OPEC cuts, the sanctions on Iran now also recently less heavy crude oil from Venezuela has supported the Urals market.

And we are now of course waiting for some impact from the maintenance season going forward to widen the differential somewhat. And finally looking at the total refining margins, we were able in spite of the weaker market to maintain total margin level of more than US$10 per barrel.

And I think it's in particularly important here that the additional margin now for the fourth time in a row came over US$6 per barrel. And this is really, let's say, two things which are driving the additional margin.

It's the fact that one refinery configuration has been running extremely well. And that we have been able to maintain a very good utilization and reliability throughout the year.

So I'm very happy about that. And then of course finally the production costs, of course, reflected higher maintenance and we are now very clearly focusing on coming back to a normal level, when it comes to production costs.

With these words I hand over to Panu Kopra, who will comment on the Marketing & Services.

Thank you, Matti. This is Panu Kopra speaking.

If we start from the Q4 EBIT results, and results really improved from €11 million to €19 million and taking into account extremely difficult market situation in Russia. It can be more than just satisfy, I mean, with these results.

Also full year EBIT from €68 million to €77 million, we can say that is satisfactory result. And how we did it so that in Q4, we squeezed fixed costs really down, we sold all time high volumes in truck network, all B2B sales went well.

We can mention bunker, aviation and lubricants sales performed extremely well. And at the same time net unit margins improved mainly due to our internal measures, so very active intensive pricing, market optimization and successful new customer acquisitions.

All these elements together then enabled the good result. And some examples of new innovative customer work, that we opened here in December in Finland new type of station with absolutely new customer experience.

There is real robot who is filling up the car, so the customer don't have to any more step up to the cold weather. And payment is done by mobile or invoiced automatically.

Unless the customer is willing to have coffee or snack while the robot is filling up, the customer can go to our unmanned shop. There is really no staff at all, and also the payment is done automatically.

This is something new still in the pilot phase. But we got lot of good media attention due to this one.

And also, customers are very interested about this project. Customer satisfaction stayed in good level.

Our B2B NPS was still at level of 56. And we continue to work even for the better customer experience.

Almost entire Neste K station is now rebranded, so almost 80 new upgraded stations with updated offering ready to serve customers. So this is shortly of Marketing & Services.

Handing over back to CEO, Peter.

Okay, thank you very much, Panu. And it's always great to hear that in all aspects we keep on being very innovative and creative in our company.

So let's now move on to the current topics. As an outlook for the first quarter what do we see?

Yeah, we see the following that the Renewable Products first quarter sales volumes are expected to be higher than in the fourth quarter of 2018. No major changes in the sales allocation.

Our utilization rates of our renewable production facilities are expected also to be high. And the scheduled Singapore refinery turnaround, which was a completed during the fourth quarter, is estimated to have a negative EBIT impact of around €15 million in the first quarter 2019.

On Oil Products, we are expecting that the reference margin will continue to be low in the first quarter driven by this weak gasoline markets. But we expect it to strengthen towards the end of the quarter.

And utilization rates of our production facilities are anticipated to be high in this first quarter. And with regards to Marketing & Services, the sales volumes and unit margins are expected to follow the previous years' seasonality pattern during the first quarter.

Let's have a look again at the Singapore investments that we had announced in December. And this slide here actually summarizes the key facts about this investment decision.

I will not go through it, I mean, in detail, but I would like to state that with this investment we continue here to execute our global growth strategy and lead the transition to Renewable Products. And the investment decision was based on a growing market demand for low-carbon solutions in transport, cities, aviation, polymers and chemicals.

And it enables us to help more and more customers to make their business more sustainable. And these kinds of examples are great landmarks for us as we are building a healthier planet for our children.

And we are and we will be working hard with our partners to make this investment a success. And as I said already at the beginning, we are very well on track and have had the very good start with the work that is being performed in engineering on one hand side and then also opening the site on the other hand side.

On the Capital Markets Day, remember, we will organize our Capital Markets Day in London on Wednesday, February 27. And there we will present our updated strategy with new ambitions and actions forward.

And of course, you are warmly welcomed to attend. So please contact our IR team for more information on the registration and you can also find the contact details on our websites.

So this concludes now our presentation and we would be happy to take your questions. Thank you very much.

Hi, good afternoon all, and thanks for the presentation. So we ask two questions please, the first one regarding the Renewable Products sales allocation.

So I was just wondering if inside your European market there has been some material changes regarding the sales allocation since the beginning of the second half of 2018. And did you notice an increasing appetite for your Renewable Products since, let's say, second half of 2018.

The second question is about the feedstock price, so can you tell us how is the feedstock price, let's say, your feedstock price is currently evolving compared to Q4 2018? And what is your, let's say, estimate for 2019, based on your knowledge?

And do you think that Demeter acquisition is already helping you regarding feedstock optimization? Thank you.

Thank you for the question. This is Kaisa speaking.

The first question was around our sales allocation during the second half of 2018, and especially whether we have made material changes in our sales allocation within Europe. We haven't.

I mean, have been targeting the most valuable segments where the greenhouse gas reduction carries the highest value. And that change was already developed earlier in 2018 when I was discussing the structural changes we have done.

So no changes within the - material changes within the Europe, which we would have implemented in the second half. The second question was around the feedstock price, how is it developing, how do we forecast 2019.

And this was referring to the total pool of Neste feedstock. Unfortunately, we do not share the information of different feedstock price levels or the price developments.

But clearly, what I already indicated is that the vegetable oil prices seem to be bottomed at the end of last year and now trending upwards. And then there was a question, whether the Demeter acquisition has been supporting us in feedstock sourcing.

And the answer is yes. This was one of the strategic initiatives to expand the feedstock availability and also the ability to collect and aggregate the waste and residue feedstock in Europe.

Okay. This has already impacted principally your margins in Q4, the Demeter acquisition?

The joint venture has been operational since October 1. But we have been working closely with the Demeter as the supplier earlier.

Of course, we have a strategy how to go forward and that implementation started immediately when the joint venture was formalized on October 1.

Okay. Thank you very much.

Hi. I have two questions, please, one on the dividend policy.

Essentially, given where your net cash position that you have right now are, why haven't you increased the current 50% payout policy of payout? Are there any indications of whether you would be looking to increase that going forward?

The second question I had was on the renewables. Can you give us an update on the commercial sales of bioplastics?

What would the volume contribution be for this year? Are your expectations of the margins on these projects comparable to the ones that you're seeing on MY Renewable Diesel?

Thanks.

Okay. Thank you very much for your question, and the first question was on the dividend policy.

Actually, may I remind you that we have a 51% payout that is going to be proposed, I mean, to the AGM, which means that there is a 34% higher dividend payout if that would be approved, I mean, by the AGM compared to last - to 2017. I think that's a substantial recognition I would call it, I mean, of the performance that we have delivered in 2018.

And I said also, I mean, it reflects the confidence that we have as the leadership of the company as well as our Board's maneuverability, I mean, to create a profitable growth and generate a solid cash flow. So we have our distant policy in place that we have said, I mean, we will pay out a minimum 50% of the comparable EPS.

Sorry, just on that itself, I was just wondering, increasing it from 50% to maybe 60% or something of that sort, is that on the table?

We are having great IDs also investing in the company. And one of those great IDs that we have communicated that is actually now into operation is the Singapore investments.

We see great potential, I mean, in the market as we have explained also, have explained also during December and in continuing to grow in road transportation, renewable jet fuel, and then as you alluded also in your second question renewable polymers and chemicals. So we will, of course, then - as we are talking then in the CMD at the end of the month, be a bit more explicit on the growth opportunities that we see there.

So as to your second question, bioplastics or biopolymers and bio chemicals, we have made very good progress in signing up brand owners and cooperating with them. On one hand side, we gave one announcement on the cooperation, I mean, with IKEA, but on the other hand side also with partners that we have along the value chain.

And we made a communication here on the specialty chemicals company, Clariant, a cooperation that we have with them. And, of course, these are examples of the kind of cooperation that we have, very important ones.

And we will keep on working very hardly in realizing deferred Sales in 2009. So this is quite a lot of hard work in research, development and market making possibilities at this point in time.

Thank you.

Yes, hi, this is Artem Beletski from SEB. Can you hear me?

Yes, we can.

Questions from my side, so firstly what comes to maintenance outlook for 2019, could you maybe comment, to provide some further color on both segments, as it appears to be quite clean year for you in terms of those activities? And then one question to Jyrki relating to CapEx outlook for 2019, and also tax rate and maybe some indications on that front?

And the last one is really Blender's Tax Credit situation in the U.S., whether you expect some news from there in recent weeks? Thank you.

So let's cover first of all, I mean, the maintenance question. And if Kaisa Hietala would comment on Renewable Products and then Matti Lehmus will comment on Oil Products.

Very good. Regarding Renewable Products, regular year, in that respect we had the large maintenance both in Rotterdam and in Singapore last year, so 2019 should not have such a maintenance break.

And then - Matti Lehmus - commenting on Oil Products, we do expect to have a normal scheduled annual maintenance for the PL4, again in autumn likely more limited in scope than what we had this year. Apart from that, it's mainly some minor unit maintenance.

so quite a clean year. As a reminder, of course, that in 2020, we do expect to have the major scheduled turnaround in Porvoo in Spain, yeah.

So, I mean, of course, there will be some smaller things, I mean, and that are very likely, I mean, in autumn. And that could be a catalyst change that we have in Rotterdam.

And then the cooking on the PL4 in Porvoo, just to give you a complete picture on what were we looking at for 2019, Jyrki, on CapEx?

Yeah. Based on two questions, really the CapEx estimate now for 2019, we are talking about with a range of €650 million to €750 million.

And this high figure is naturally coming out of the fact of the Singapore CapEx that is basically now going on with full speed. And then the other question was about the tax rate going forward.

I think that if you look at the big picture, our tax rate on an average, we are talking about the level of 15% to 17% unit on the annual basis.

And nothing new on the BTC, Kaisa nothing new?

Nothing new regarding BTC, situation is unclear, timeline has not been defined or communicated. So unfortunately, we do not have any additional information regarding this.

Okay. Very clear.

Thank you.

Hi, good afternoon. I've got a question on Renewable Products pricing please.

It just seems a very sharp step up in the pricing you achieved in the quarter. I hope you can talk to some of the moving parts what drives that and sustainability into next year?

Specifically how important is the underlying diesel price, to the renewable diesel price? How much of the benefit did you get from the same price spike in the fourth quarter?

And help us understand how much a seasonal as well? Thank you.

Thank you for the question. This is Kaisa speaking.

The renewables comparable sales margin is a combination of how attractive feedstock sourcing we are doing, how do we optimize the waste and residue sourcing basically from where at the price levels. And then the second important element is that how well we are operating the supply chain as well as the production units, and then comes the sales price element.

So there is not really a sales price sort of a, element which would be dictating the sales margin, but it is over the whole value chain. And now in Q4, we saw the raw material prices being favorable to us, you saw some of the graphs, which we are showing.

Also our sales allocation was optimal. We were reaching the targeted segments.

And then there was a question like, okay, underlying in diesel price or how much did we benefit from the biodiesel price hike and so on. It depends quite a lot of customers are valuing the CO2 reduction.

So it is a value based sales and there is of course the element of supplier demand. All in all, it is the combination of how successfully we are sourcing raw materials, how well we are operating the supply chain and the production, and then eventually how well we are placing the markets to the most valuable segments in Europe and in North America.

Okay. Thank you.

If I can just quickly follow-up just on that very sharp spike and same. Is it fair to think that there is some benefit from renewable diesel pricing there?

Or is it the case that wasn't very relevant? Thank you.

Well, renewable diesel price and renewable diesel market, it's not link to the biodiesel market that much anymore. Most of the customers in our core segments, it's really value based sales.

So therefore the link between the biodiesel price movements and the renewable diesel price, it's not there anymore. And that's why we're also now moving from reference margin and additional margin followed sort of a system into a comparable sales margin.

Okay. Thank you.

Yes. Henri Patricot from UBS.

I have a question on Renewable Products and have one on Oil Products. On Renewable products, I remember a few quarters ago first quarter 2018 were the first step up in the margin?

And at the time you said that there was change in some of your contract as of the January 1, 2018. Should we expect something similar for the January 1, 2019 that you shift some contracts to more valuable structure for you?

And perhaps second question on Renewable Products and margins - all products. Matti, you mentioned that you were expecting to get the production cost back to a normal level.

What level do you have in mind, and what's the timeframe to get there? And on the maintenance in the fourth quarter, which took a bit longer, what is actually some unexpected issues, or did you actually do a bit more work than expected some more tricks perhaps, end of, eyeing more 2020?

Thank you.

Thank you for the questions. The first one was related to whether we are expecting that there is some structural changes are sort of the contractual sales allocations moving from 2018 to 2019.

And at the moment I don't see that there was going to be a material changes.

And then on the other question, Matti here, answering. So first of all I comment on the maintenance in PL4 in autumn, like I commented earlier, first comment is that every second year the maintenance by nature is more broader in scope than every second year.

There is more work to be done in terms of cleaning the coking, et cetera. But indeed in the last one that we had in October, November, there were also some findings where we did some work beyond the scope that we have planned.

So it took a bit longer than we had anticipated. And also the impact was €10 million larger than what we had communicated beforehand.

The comment on the production cost if you look at our fixed cost you can clearly see the impact of the scheduled maintenance. The fourth quarter was very high in terms of fixed costs.

So mainly making the comment that we are back into a more normal situation, where we of course focus on the utilities cost, optimizing cost, cost in general.

Okay. Thank you.

Good afternoon. Thanks for taking the questions.

Two, if I could please. I mean, firstly renewables, the utilization rate 80% for the quarter it seems very impressive given the extent of planned maintenance of Singapore.

So I wonder if you could just talk about that number, insofar as I've seen that excludes any benefit from use of pre-bill inventory during the quarter. And if so, what that sort of tells us about the increasingly the flexibility that you have through the asset base to run at least for periods of time, above the headline nameplate number.

And then secondly on oil products, I mean, I noticed during the quarter you took a reasonably material impairment through the Bahrain base oils unit related to disadvantage tax ruling if you could clarify the context there and assume it was non-cash in the quarter. But where there's any potential future cash payable on that due if the appeal is unsuccessful.

Thanks.

Thank you for the question. The first question was about the Renewable Products utilization in Q4, last year being at 80%, which is high compared to the fact that the Singapore was down for two months.

Indeed we have been moving forward with our bottlenecking program. As you probably remember our target is to read 3 million tons production capacity by 2020, when we look at the overall production footprint we have in Renewable Products, include - I mean, this includes Rotterdam, Singapore and two units in Porvoo.

And we have been processing and brought to them quite well, but we have been also testing higher nameplate - higher than nameplate capacity, production rates in Porvoo. So all in all, this is strategic work that we've being doing over the year.

And it's been successful. And at the Singapore turnaround, of course, we will continue the debottlenecking in Singapore.

And we have good expectations that we will be able to then also increase the nameplate capacity when the time is right.

And we'll talk about that on the CMD at the end of the month, I mean, for now we stick to the 2.7 million tons, and more to come then at the end of the month.

Yeah. And then, Matthew, about your other question, relating to the spot run impairment.

It is like we stated in our report that we, as Neste bouth RIN, got this order to pay basically the retrospective corporate income tax. And then in our view, the tax claim is not as supported by the law, and not based on actual income figures.

And as a part of normal impairment process basically we have written down the Neste bought RIN assets and this kind of normal accounting principle that a public listed company need to do at the year end. So there is nothing extraordinary in that sense.

And the business continues as normal, no changes in that sense.

Clear. Thank you very much.

That was a good effort. Hi, guys.

Most of my questions have been taken, but I'm going to try to attempt, looking at the revenue per ton, in the renewables. I mean you did have two quarters of revenue per ton of higher than US$1,700 per ton.

Given that there's no going to be any contract change in the first quarter on 2019. Is that a level, we'll continue to see throughout 2019?

Or what is a normalized level of revenue per ton in the renewable segment?

Thank you for the question. This is Kaisa speaking.

Unfortunately, we do not publish our forecast, the revenue per ton numbers. I think it's very important to understand that concept that our comparable sales margin is impacted by the raw material prices.

How well we operating the supply chain and the production assets, and then how do we contract the sales. I was commenting to one of their earlier questions that we don't see material changes into our sales allocation going forward into our sort of a contract base going forward.

However, we have already seen that the raw material prices, especially the palm oil price have bottomed during - sorry, at the end of 2018 and we have seen an increasing trend over there. So that's something that we keep following up, but unfortunately our forecast given for the comparable sales margin.

Understood. Thank you.

Hi. Thanks for taking my questions.

I just have a couple, if I could. So just firstly on, when your feedstock sourcing?

Could you may be just update a little bit more is to how far forward you're buying in your feedstock? I just wanted to sense of how much you're impacted in 1Q from the tick-up in feedstock price that you alluded to earlier?

And then just secondly on the renewables business on the fixed cost side, yeah, they've been fluctuating a little bit through the year. I'm just wondering now obviously with the Singapore planned expansion launch.

I'm just wondering how we should think about fixed costs in that business going forward, certainly for 2019.

Thank you for the question. The first one was around feedstock sourcing and how far forward we are basically in the market.

Our feedstock sourcing is a global activity, we are collecting and aggregating and shipping waste and residue raw materials as well as certified and traceable crude palm oil all over the world basically. Supply chains are long and depending how do we optimize, which feedstock we want to use at each refinery, unfortunately there is no sort of a standard timeline, when exactly we are buying the feedstock, but the considering even the shipping times I mean from Southeast Asia to Europe from three to four 4 weeks voyage.

So indeed we are buying forward all the time, but it varies depending on how we optimize what to buy and where to refine the raw material.

Yeah, and then Michael there was a question about the fixed cost relating to Renewable Products, indeed you're seeing the increase coming out of the fixed cost part of that certainly is coming out of a lot of the large turnaround that is there in the background, especially for 2019. But certainly, we are implementing SAP system.

For example, in Neste, we will be also in the book for renewables, all the strategy that's basically renewables is going through in market making with aviation for polymers, et cetera. So first time, we're going to see an increase in fixed cost.

And also, of course, part of the strategy that Neste has been following the last few years, so nothing extraordinary in that sense.

Okay. Thank you.

And maybe just a follow up, it's pretty on the spot, how sustainable do you say the sales margin in renewables is like the US$700 a ton. Is this the new normal?

I have said, we unfortunately we do not give a guidance on the comparable sales margin. Let's keep monitoring the markets and we are definitely pushing for the high productivity, higher volumes in Q1 compared to Q4 last year as well as the high utilization rate.

So this is the guidance we can give at the moment.

Okay. Thank you very much.

Good afternoon, thank you for taking my questions, two on renewables if I could. The first one is a little bit of around how you think about oil price leverage in the division.

As you outlined the price that customers are willing to pay depends on the value they place on greenhouse gas emissions, pubs, your insights on how you think that varies with oil prices? And then the second one is on the Singapore plant, how do you think about the margin you can achieve with that new plant relative to what the company can do now?

Do you think that with the feedstock optionality or sales allocation allows you to achieve a higher margin? Thank you.

Thank you for the questions. The first question was around oil price leverage and how does the varying oil price is impacting basically the renewables profitability.

Well, I think we have been aggressively moving away from the commodity bulk biodiesel market. Our value proposal is fully built on greenhouse gas reduction targets.

And also our customer segments nowadays, they consist cities, fleets, municipalities who have made a commitment to reduce the carbon footprint. And there the varying oil price is not seen as a key driver for renewables.

The second question was about the upcoming new Singapore expansion, and what kind of a margin levels we are expecting when starting up in 2022. I just have to conclude that it's a bit too early to comment on this.

This is a very much evolving market as you have seen over the past two to three years. And therefore, unfortunately I'm not able to disclose the numbers for you.

Thank you.

I mean, as we said also in December, I mean, every investments that we are undertaking must comply with at least 15% IRR. And that is definitely also the case, I mean, for our Singapore investments.

Thank you.

Hi. Thank you very much for taking the questions.

I have a couple, please. Firstly, just going on the point you made earlier about the proportion of your business, which is directly contracted now and less and less in the general biodiesel market, are you able to help us give us any context for what proportion of the business is essentially contracted on a customer basis?

And then, secondly, when looking at the sourcing, you've been working very hard at vertical integration. You made some acquisition in this regard as well.

Yet, asked about the feedstock prices, you refer us back to the palm price, which is a small minority of your sourcing these days. Can you give us any sense as to how your progress on vertical integration and sourcing for other materials is making a difference, which is removing this kind of market-based volatility on feedstock prices?

And then one question on the oil division please, you refer rightly to the very good results of above $6 of additional margin. You just had a major step up.

You did a bit of extra investment. Would you regard that as now a sustainable floor on the additional margin supported by this investment?

Thank you.

Thank you for the questions. This is Kaisa speaking.

The first question was about the - how much of our sales volumes are being contracted. This varies a bit between the segments.

Roughly 50% to 60% turned up, would be would be a right range, and rest remaining as a spot sale, which gives us an opportunity also to optimize the sales allocation, when we see how the markets are moving. The second question regarding renewables was about the feedstock.

And the fact that we have we have been aggressively expanding our feedstock sourcing over the past years and how has the vertical integration then helped us to balance the market volatility, it is true that the transparency over the different waste and residue market prices is very limited. These are very fragmented markets.

Those could be even regional supply/demand balances, not even global. So therefore, the volatility is something which is not visible unfortunately via any quotation, so of liters.

However, it's good to know that some of the waste and residue raw materials such as tallow oil or - sorry, animal fast, tallow, is heavily linked also to veg oils. Veg oils are typically the alternative applications if tallow is not available for some of the other industries using tallow.

So therefore, we have considered that showing the veg oil price development is at least something that we can show as a reference. But the vertical integration as such, it is more to create a wider availability of waste and residues.

And therefore, give us some more optimization opportunities globally.

And then, Matti Lehmus on the question on the OP, Oil Products additional margin, so in deed like you're aware, I'm sure we have communicated a target of minimum of $5.5 per barrel after this completion of our configuration change. And I would immediately comment that on a quarterly level, you will probably always see some volatility, because there are always items.

It could be plant shutdowns, it could be FX hedges. It could be seasonal impact.

So there will continue to be variation, which impacts that additional margin. But if I just now look at 2018, just at the fact we have had now four quarters in a row, where we did meet that, let's say, $6 per barrel and in the absence of any special impacts, we are of course pushing also in the future to maximize the additional margins.

Okay, thank you for the answers. Thank you.

Thanks. This is Pasi Väisänen.

Sorry, my line is broken. I didn't hear it all.

But two issues, the first one actually - your return on invested capital is some 50% Renewables, so how come your customers don't see it and squeeze the extra value out from your business. I mean, is there any upper limit on your pricing or is there - have you actually seen a customer was complained about the price?

And secondly, have you been able to make any studies how this possible ban for the combustion engines in Sweden or in other countries would actually affect your business in fossil fuel side or then on renewable business in long run? Thanks.

Thank you for the questions, Kaisa here again. I mean, yeah, I understand the question around how can we maintain this level of profitability.

Let me still emphasize that Neste has been the pioneer and really investing heavily to put together the pieces that makes this happen. So you need first of all go to the market and find raw materials.

You need to do the pretreatment and then have the manufacturing side that can convert that pretreated material into renewables. And ask we are currently the only player who is really playing a global game here, we have a platform where we can optimize where we find the raw materials and we can also optimize to which segments we are selling it.

And when we are sort of creating value sales, we are not sort of selling tonnes or liters. We are selling greenhouse gas reduction.

So I would say this is the key that Neste has been building a platform that enables this type of business to take place. And therefore, I think it's quite a unique set up, and therefore showing these very high returns.

The second question was about the potential or the discussion around banning combustion engines. Matti, would you like to comment this?

Yeah, I can comment on it. So that's two [indiscernible] I would have on it.

You are fully right that there is some discussion happening in a number of countries about a long-term potential ban. And perhaps the first comment I would have is I do anticipate there will be a continued discussion on this, because typically, of course, banning one technology is not necessarily always the best option.

I think that target of reducing CO2 output is very clear, of reducing emissions. And hopefully, there will be approaches where the steering is exactly towards that target of reducing and minimizing emissions.

So I anticipate still quite a lot of debate whether banning one technology is the right approach or whether it's more just putting tougher and tougher ambition on the regulation is a better approach, then also allowing other technologies, other alternative fuel solutions to come into play. The other comment I would make is that, of course, it's also good to know that the discussion is very much around passenger cars.

It is roughly 30% of the oil demand. So it's also important to note that the growing segments of heavy duty, aviation, chemicals, bunker.

They continue to be very important for current focus, of course, on those also a lot.

I would like to add, I mean, to that. And maybe if you are following the news, we just posted a press release a couple of minutes ago.

And that is that the Finnish parliament has actually now approved the 2030 bio mandate laws, which means that 30% of liquid biofuels to road traffic need to be implemented by 2029. And that's very well in line, I mean, with the target that have been set in Sweden and in Norway.

So you see and let me highlight, I mean, today I mean the solution that provides, I mean, greenhouse gas emission reductions up to 90%, that is available. It's Neste MY over 100% that we are selling in the markets, not just in Finland.

But also we have already entered in the Swedish markets and are entering know in the Californian market with those quality. So - and they are fully compatible with the existing infrastructure, so they can be used in the existing car pool immediately.

Yeah, thanks. So I guess the fair assumption is that, it's going to get better before it's going to get pushed in terms of electricity in the traffic.

Hi, this is Iiris Theman from Carnegie. Two questions please.

Firstly, how big negative EBIT impact do you expect from Porvoo turnaround in 2020? And then secondly, I understand that Sweden is going to change the legislation on the classification of feedstock for biofuels.

And if I understand it correctly, they could deny PFAD. Is this correct or confirmed?

And how this is going to affect you?

So I'll start with the first question, this is Matti Lehmus. So what I would refer to is in 2015 when we had the turnaround in Porvoo, the impact was €130 million overall.

If I look into 2020, we don't have any exact numbers yet. But I would argue it's probably going to be somewhat larger than that, just because we expect markets to be also hopefully stronger with the IMO.

And then, there was a question regarding the recent decision in Sweden, where they are changing the status and the requirements for a certain waste and residue raw materials including the PFAD, which you mentioned. There is no banning of raw materials.

But they are now requiring that, for example, for PFAD, it has to be certified and traceable. And this is the area where Neste has been the leader and currently is the leader.

I mean, we all palm oil raw materials are traced and certified. So we will just implement basically the expertise we have from the crude palm oil sourcing into this one.

so no banning or no limitation to use these reclassified raw materials in Sweden, but higher sustainability requirements on them.

Thank you.

Yeah, thanks for taking my questions. I had two, if possible please.

I'm going to come back to the Renewables margin and the sustainability of that into the medium-term. There have been a few announcements of extra U.S.

capacity in renewables over recent weeks and just wondered whether you had a comment as to how much of a threat that would be for you going forward. And the second question relates to the deterioration in the gasoline market since your last update.

To what extent - obviously, you talked IMO 2020 effect - to what will gasoline impinge upon on that, on the strength of margins on the diesel side, given we have so much gasoline around, and the crude slate appears to be getting lighter. Thank you.

Thank you for the questions. Let me first take the competitors, capacity increase sort of news recently.

If we look at the overall demand for renewable diesel solution and especially if we look at the USA, we have seen that the renewable fuel standard has been now posting the new RBOs, the new obligations for 2019, 2020, those are increasing. Also what we saw at the end of last year was that California was confirming higher ambition for greenhouse gas reductions going beyond 2020.

So the demand is increasing. And therefore, it's pretty understandable that the competitors are also increasing the capacity.

And this creates a support for the industry. It creates support for this solution, for traffic, and also in the future for aviation.

So from this point of view, we see that it's quite natural that the growing demand with the regulations are pushing strongly, especially now in USA. But we heard from people just now also here in the Nordics, this is a pretty natural development.

And then, in terms on the question on gasoline, however we look at it, if you look back a few years ago we had for a number of years the situation, where the market was clearly driven by gasoline and gasoline margins were the strongest part of the barrel. And if I compare it to the situation right now, I think we have clearly seen a change there that combination of demand being more driven by distillates.

At the moment, that's clearly where the stronger growth. And of course, IMO will support that.

And at the same time your comment that also the crude slate has become lighter. So we have clearly shifted into a situation where diesel seems to be the stronger part of that.

Okay. Thanks.

Thank you. This is Juha Kekäläinen speaking.

As there are no further questions, we thank you very much for your attention and active participation. Neste's first quarter results will be published on the April 26.

Until then, thank you and goodbye.