Neste Oyj

Well, thank you and good afternoon, ladies and gentlemen. Welcome to this conference call to discuss Neste's first quarter results published 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, Carl Nyberg 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 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.

Thank you very much, JP, and good afternoon to all of you also on my behalf. We're extremely pleased to present to you Neste's outstanding performance in the first quarter and to discuss the way forwards.

If you look at Slide number 4, we had a great start in the year, and we made a strong comparable EBIT of €378 million. Our renewable product had an outstanding performance and posted the best ever quarterly comparable EBIT.

It was a result of very successful sales margin optimization and very good manufacturing outputs. This is what particularly a good achievement taking into account that the first quarter results did not include any support from the U.S.

Blender's Tax Credit. And for example, the first quarter of 2018, was positively impacted by €140 million from the retail excess Blender's Tax Credit in 2017.

Our oil products results they were impacted by a less supportive refining margin environment and that was risen by a weak gasoline market, and a narrow Urals-Brent differential. Our additional margin averaged at $5 per barrel and that was based on the updated reference margin formula and it equals $6 per barrel with the old formula.

Additional margin was strong even though for example the base oils margins were weaker than in the first quarter of 2018. Marketing and services that segment was on track with the normal seasonality in the first quarter and we were able to maintain our comparable operating profit at last year's level.

The other segments comparable EBIT was €34 million lower than in the first quarter of 2018, and mainly due to the poor performance of Nynas. Nynas's business has been impacted negatively by the U.S.

sanctions on Venezuela, and Nynas has a crude oil supply problems that were caused by that U.S. sanctions.

Neste is highly committed to safety. Our performance on both occupational safety and process safety was satisfactory in the first quarter and we did not meet our targets.

Safety is an area that requires continuous focus and systematic work every day and we have further reinforced our activities in this area. As you know, we introduced an updated strategy in our Capital Markets Day in February and we have introduced a new organizational setup and we are making good progress in growth strategy implementation and I will come back to this at the end of the presentation.

The strong financial performance on Slide number 5 is also visible in our financial targets. We reached a return on average capital employed of 19.8% clearly exceeding the 15% target.

And our leverage ratio continues to be on a very low level at the end of the first quarter. And as stated before, the strong financial position enables the implementation of our growth strategy going forward, while maintaining a healthy dividend distribution.

Now with these remarks, I would like to hand over to Jyrki, our CFO, to discuss the financials in more detail.

Thank you, Peter. So let's take into some details now.

Yes, now we have the group results. Like mentioned earlier, we had a great start for year 2019, there were many positive things but also items around the market environment.

Our Group comparable EBIT reached €378 million which compared to last year quarter one was a great result when taking into account the U.S. Blender's Tax Credit Quarter One, 2018.

If you have like-for-like comparison between these two quarters, we improved 45% our comparable EBIT. If you look at the figures here Renewable products posted again outstanding financial results.

High sales volumes, combined with close to $700 per ton sales margin led to highest ever quarterly comparable EBIT. If we exclude BTC from 2018 first quarter figures, the improvement from €156 million to €337 million like-for-like was close to 120%.

Sales margin per ton improved 32%, sales volumes 25%, California credit improved 40%, palm oil decreased the price by 15%. So we talk a lot about sales margin optimization.

And here you'll see the results when the engine is nicely greased. If we then move to oil products, they had a weak reference margin quarter and the total refining margin basically decreased by 7% and that was through refining markets.

You'll see the comparable EBIT last year it was €99 million, and now it was €73 million, and of course the reference margin was impacted by the weak gasoline market and a very narrow Urals-Brent differential. If you look at the marketing and services, they went forward steadily like a train, same profit as was the one in 2018, €13 million.

And then we move to the point to which we had also a lot of questions already earlier today, it's the others. We had an element that really pushed the quarter compared with all the way down to minus €43 million compared to €9 million -- sorry €7 million 2018.

And the reason like explained already earlier in the report was the poor financial performance of Nynas AB in Sweden, our joint venture with the state-owned PDVSA with Neste, we are the minority shareholder. We have been the shareholder since 1990s and really the U.S.

sanctions to us PDVSA who was the main crude oil supplier for Nynas has an impact on Nynas operations through availability and quality of crude oil. Of course the low business season in Nynas has always a negative impact during quarter one and quarter two for Neste reports.

Nynas has been a financial investment for Neste already like mentioned since late 1990s. And if you look this others impact minus €37 million compared to 2018, Nynas net profit takes €27 million out of this difference and our engineering arm, NES, and the Group unallocated cost basically takes the rest of the €10 million and that's how you get the €37 million lower results compared to last year's quarter one.

If we move then to cash flow before financing activities, it was €8 million, and here you really see, if you look our net sales during the first quarter it was really high and then you have a high sales, you also turn out to have a higher receivables at the quarter end and also inventories were higher due to higher crude oil price but also higher fixed prices. Comparable earning at the end of the quarter reported exactly the same as quarter four, 2018 €0.38 per share.

If we then move the next page and looking for comparable EBIT bridge between these two first quarters of 2018 and 2019, I think the outstanding results of the renewable business is seen in the volumes and sales margin. If you look at the first two green path there €135 million, renewables part of that is higher because oil product has a negative effect from the marketplace.

So these two green basically compensated very closer to BTC 2018. U.S.

Dollar, Euro rate gave us a positive close to €40 million and fixed costs were pretty close to the last year figures. And here the others is then a combination of what I had to explain about Nynas and the others, the difference of €37 million and then also higher depreciation of interim outlook CapEx basically 2017 and 2018.

So this is basically how we land from €401 million last year to €378 million 2019. And now I would like to leave the stage to Carl, please.

Thank you, Jyrki. Good afternoon everybody.

This is Carl. So great to be here in this call for the first time with these outstanding results for renewables in the first quarter.

So if we dive into the numbers directly, one can conclude that this record high quarter comparable EBIT result of €337 million was achieved of a number of reasons and of course an outstanding performance from the teams. First of all, we had excellent operations at the refineries reaching very high utilization and therefore also record high quarterly production.

On the other hand, our supply team managed to optimize our supply performance despite rising feedstock prices. Last but not least, we managed to optimize our sales allocation and reached record high sales volumes of 692 kilotons, while at the same time delivering a margin also actually at 692 USD per metric ton.

So in addition to the €337 million, 692 is an important number to remember from this quarter. The share of waste and residue was back to 80% again from Q4 and despite the strengthening feedstock market; we were able to reach almost a strong margins as seen in Q4.

The run up in renewables was again above 50% at 53.1% here in Q1 which again is a very, very high number. So then if you go to the next slide, let's take a look at the bridge between the Q1 2018 and Q1 2019 results.

So first of all, the high production and corresponding high sales volume at 692 kilotons is about 142 kilotons above one year ago figures contributing here about €87 million towards the comparable quarter result. On the other hand, our sales margin also -- was also $173 per metric ton higher than the one year ago adding another €81 million.

So the combined result of these then will compensate €140 million Blender's Tax Credit that we received in 2018 and now is not concluded in this year's results. The FX change also then help boost our results by another €20 million pushing the quarter results to the record level of €337 million.

Then if we move on quickly towards the feedstock and the feedstock market outlook. So the feedstock market continued to recover throughout the quarter after bottoming out earlier into Q4.

We expect that this trend likely will continue as the veg oil complex supply/demand picture is looking increasingly constructive and will likely remain so in the coming quarter. Okay.

Then if we take a look at the market fundamentals in the U.S. So the LCFS credits have remained strong during the first quarter at above $190 per metric ton.

The state of California remains highly committed to the LCFS program and continues to curb the GHG emissions by reducing the carbon intensity in traffic through this program. The weakness in the RINs came back during the quarter after recovering slightly from the recent lows in Q4.

The RINs are likely to remain under pressure while traditional biomass-based diesel margin seems to be under severe pressure at these levels. Then finally, we will take a look at the comparable sales margin.

So as mentioned, the comparable sales margin was just a bit shy of the $700 per metric ton at $692 per metric ton which again is very high especially considering the higher sales volumes compared to record margin received in Q4 2018. LCFS credits remained at a very healthy level above $190, while the RINs continue to be depressed as mentioned and Neste MY Renewable diesel sales came slightly off for the fourth quarter, while we still expect the share of the high blend sales to recover in the coming months.

Finally, as already discussed, we had excellent performance at the refineries operations that were running smoothly and we managed to push for high production volumes and achieve this high utilization rate at 99%. So all in all, excellent performance from the teams across the whole value chain to deliver these stellar results.

So this concludes the renewables part. Let me now hand over to Matti Lehmus who will discuss the oil products.

Thank you, Carl, and good afternoon to everybody on my behalf. So I'll comment on the oil products first quarter and first starting with a comparable EBIT which came in at €73 million which was lower than the €99 million we reached one-year ago and this of course reflects clearly weaker market than what we had in the first quarter.

The refineries run quite smoothly. We had an average utilization of 95%.

And at the same time, if you compare the sales volume, this was exceptionally high a year ago at 3.9 million tons. So now it came in some 6% lower at 3.6 million ton.

And this reflects some maintenance we had during the quarter, also some mechanical limitations that we had in our crude unit, these have now been fixed and that resulted in this 3.6 million tons. The Urals share in our first quarter was at 67% slightly lower than last year reflecting the continuous crude mix optimization we are doing in a market where the Urals was very strong in the first quarter.

Let's then have a look at the bridge versus last year's results and there's a couple of highlights, I would like to make. So first of all, the main driver impacting the change in result is the reference margin which came in at 4.5 versus the 5.1 last year ago and this had a €50 million negative impact, so clearly market driven impact.

The other big impact came from the FX rate. So the dollar strengthened versus the Euro to 1.14 which had an €18 million positive impact.

But at the same time we had in place hedges. And actually we had quite a significant negative contribution from the FX hedges which is all reflected in the additional margin.

And actually without this impact, we would have a positive contribution from additional margin compared to last year. The third item I would highlight from the bridge is the others where we had €12 million change negative versus last year and this reflects mainly the fact that the base oils margin contribution has been lower reflecting weaker markets in the beginning of the year.

Also we have slightly higher depreciations following our investments and outsources. Very good, let's have a look at the markets then and a couple of comments on the product margins.

So like you can see in the chart, the gasoline market was very weak in the beginning of the year. When the year started inventories in the U.S.

for example were 5% above last year, demand was also quite slow. And that was reflected in particularly weak gasoline markets.

In March, the dynamics then changed. The turnaround season started and we have now reached a point where inventories are actually 5% below last year's level in the U.S.

and this has led to some recovery in the gasoline margins. Overall, the whole quarter was still weak for gasoline with $3.7 per barrel margin.

On the distillate side, I would comment that performance was quite solid, margin over the first quarter was $16.4 per barrel and this clearly reflects the fact that inventories were quite low and demand was also quite solid for distillate. On the Urals versus Brent, the first quarter averaged minus 0.2 and if you compare this for example to last year's average which was minus 1.5 or the first quarter of last year which was minus 1.6.

This reflects clearly the fact that we had a very strongly Urals market. And this of course reflects the current situation where we have tightness on heavy crudes coming from a number of factors, the Venezuela situation, sanctions on Iran, OPEC cuts.

So there's a number of factors creating this tightness on heavy crude supplies. Finally, a look on the additional margin.

And I'm very pleased with the fact that the additional margin actually came in on a good level of 5.0 with the old formula, this would have been $6 per barrel. And this reflects the continued good contribution from our SDA unit.

The fact that the refinery was running well without any major maintenance and at the same time there were some seasonal impacts. On one hand, we had support from winter product premia.

At the same time like I commented earlier, the FX hedges, the base oils were having a negative impact on the additional margin but overall still very happy with the additional margin level of $5 per barrel. On the refinery production costs, I know that they were quite stable in spite of the increasing crude price and the utility costs.

So this reflects also quite smooth operations. With these comments, I hand over to Panu Kopra who will discuss the Marketing & Services for the first quarter.

Hello, this is Panu speaking. Taking into account current market situation and high-level of pump prices, we can be relatively satisfied through the results.

Unfortunately fixed costs were exceptionally high. They were mainly due to some one-offs and the timing of maintenance and marketing costs.

The volumes mainly gasoline but these was compensated by healthy margin. Customer satisfaction stayed at very high-level B2B average Net Promoter Score was 54 and we continue to work hard for even better customer experience.

New Neste application for B2B customer segment is now launched and the customer feedback have been very good. It is the first this kind of application for B2B segment in the entire Baltic Sea area.

Neste MY is now available in most of Finnish cities and we can see growing demand and interest from both consumer segment and business to business customers. It's going really well.

All in all, solid and stable start of the year. Handing over to CEO, Peter Vanacker.

Thank you very much, Panu, and let's move on to the current topics. We're making good progress as I said at the beginning in our growth strategy implementation.

And as we had announced at the Capital Markets Day, we've grouped the key programs in three focus areas of execution. They are first scale up faster and bolder; second, drive efficiency in operations; and the third, increase innovations.

We've established a new organizational setup to support the execution and our hiring process for key positions is proceeding very well. The expansion project in Singapore has also started well and is fully on track.

And I'm happy also to announce that we have signed an agreement with Air BP to supply and this is the first agreements to supply renewable jet fuel to airline and airport customers in Sweden in 2019. Now we've also initiated a long-term development pre-study on the Rotterdam Renewable Sites including capabilities for renewable jet fuel production.

In the renewable polymers, we also had the first large commercial trial with our partners and we have very good results that we have received in the meantime from those trials. Now we expect sales volumes in both of these new application areas to gradually ramp up.

In the area of efficiency, the operational improvements through the 75 breakthrough programs are proceeding. And a Program Management Office has been established to ensure systematic tracking and progress of the programs.

The first two innovation teams have also been selected and they are scalable feedstocks for aviation fuels and lineal cellulosic fuels. These are just a couple of highlights that I wanted to mention and our people are very excited about taking the company to the next level.

Now let's have a look at the second quarter. What do we see for the second quarter?

In renewable products, we expect that the second quarter sales volumes are going to be approximately at the same level as in the first quarter with no major changes in the sales allocation, we expect the renewable raw material prices to increase from the first quarter 2019 level, and utilization rates of oil renewable production facilities are also expected to be high in the second quarter. We also would like to make a point that we have scheduled a catalyst change maintenance at the Rotterdam refinery in the fourth quarter of this year.

In oil products, our oil price reference margin is expected to be higher in the second quarter than in the first quarter and that is driven by a seasonally improving gasoline markets and as already referred before by Matti. Utilization rates of our production facilities were anticipated to remain high in the second quarter and except for the normal unit maintenance.

There is a scheduled four week decoking maintenance at the Porvoo Production Line 4 and that's scheduled for the period September/October this year. Marketing and services sales volumes and unit margins are expected to follow the previous year's seasonality pattern in the second quarter.

Now this concludes the presentation and as usual we would be happy to take your questions now. Thank you.

Hi, good afternoon all and thanks for taking my questions. So two questions.

First one regarding the Nynas cost. So is it fair to consider that Nynas results will continue being particularly weak in the coming quarters so you highlighted in the second quarter but now the Q3 and Q4, if the U.S.

sanctions remain as they are or do you think that some measures can be taken by Nynas management to stop on the well facilities. And if I may, I understand this is in non-cash, but can you tell us about Nynas balance sheet level, is the company strong enough to face several quarters of that or do you think the shareholders including you will have to put some money in the table at some time.

The second question is about the renewable product set to the final customer. So it has been relatively low this quarter 22%.

So I wanted to know what was the reasons of such a low level and if this has negatively impacted your renewable product realized margins. So can you also tell us if you're comfortable with your 50% by 2020?

Thank you.

Yes, it is Jyrki Mäki-Kala. So commenting on Nynas.

One thing you have to remember out is really poor result of Nynas is for quarter four 2018 net profit so it include taxes and interest cost and everything and there were some reverse tax accrual included. So the quarter one what's we have a test for Nynas, it was not that bad as the quarter four.

So it is improving and now we are heading toward the high season of the business for quarter two and quarter three when the bitumen and naphtha deliveries will start to take place. So this was exceptionally for quarter four but we recorded basically.

Second question Carl will answer that.

Yes, okay. Carl here.

If I may just a follow-up on Nynas, so is it fair to consider that we might come back to close to kind of normal result which you've last year regarding Nynas for the next quarter or do you still think it would be lower?

No, not to give any exact guidance on this thing but the issues relating to the U.S. sanctions, they are still there relating to the crude oil deliveries.

But like I said, it coming -- it will come closer to the historical levels but not that good. So it still remain negative at least for the time being.

Okay.

And it's a bit difficult of course to talk about the future on what will happen in the crude oil supplies and what stability there will be. I can assure you that the team that is running Nynas that we have a minority position.

So this is a financial investment as Jyrki also outlined that the team that is running Nynas that they are doing everything that is possible to mitigate the risks and manage the company. So in fact can we move to the second question?

Yes. Okay.

So this is Carl. The question was around Neste MY share of the total sales.

So I think it's important to note here that we had a significant increase in the total volumes. And if you look at the absolute volumes, there were not that different actually from the Q4.

So we were at the 153 kilotons in Q1 and 160 in Q4. So we will continue to focus on growing the 100% Neste MY market share.

But it's important to note here as well that we are continuously optimizing our margin and that remains our top priority. So we will still continue growing the Neste MY market share but the margin remains our top priority.

So what that means is that there is not a material difference between Neste MY realized margins and when you sell the products let's say to exceeding let's say to some [indiscernible]. So I’m understanding right.

You have to look at it from the whole value chain perspective. And it's clear that the Neste MY product is going to different kind of market segments than the volumes that we are selling for the blending purposes and it's a constant sort of optimization on where we want to allocate the volumes.

Hi guys, thanks for taking my question. Two if I may please, the first one on cost, given that the revenue has declined quarter-on-quarter your comparable margin was pretty resilient.

Do you hedge your forward purchases on costs. It seems like the public quotation don't quite correspond to what you guys manage to do.

The second probably is too early to have much color but it seems like a new version of the Blender's Tax Credit bill has passed or is being introduced to Congress. Do you have any view on likely outcomes of timing that this could come through?

Thank you.

So, no, no, I've lost about the question you're referring to renewable products?

Yes, absolutely. So what I'm trying to get to basically is the revenue per ton is down, renewable comparable margin is pretty stable which means that cost is actually being quite good in spite of the quotation we're looking going up.

So are you hedging ahead some of the cost on the purchases?

We have normal hedging policies in place. I'm talking about feedstocks as an example.

So there is no change in that sense.

Where we can hedge.

Hedge, exactly.

And then second question is on the BTC. I was just recently in Washington D.C.

and it's difficult to give any clear answer on that because the people locally actually they don't know either. Yes, you're right.

I mean there is a new attempt that has been placed with an attempt to get the BTC and you can imagine that the biodiesel manufacturers in the United States are very adamant about it that they absolutely need this BTC and that was the new attempt is covering the years 2018, 2019 but that remains to be seen and we don't expect I mean that there is going to be on the short-term decision on this.

Yes, hello. Good afternoon.

Thanks for taking my question. First question is on your Oil Products business.

We have seen some headlines regarding contaminated Urals crude also from the Port of Ust-Luga. Just wondering what's your view on that one and how it can affect your potential year results in the second quarter and to what type of mitigation strategies that you could take if these disruption gone for longer than expected.

And the second question is could you -- can you please provide a bit more details regarding what is discussed as being a potential increase in the feedstock prices for renewable products in the second quarter? What's driving that and what sort of products or any more color would be greatly appreciated?

Thank you very much.

Yes. Thank you for the question.

This is Matti Lehmus on the Oil Products question; yes we are of course monitoring very closely the situation that you referred to that there are these findings of fluoride in the Ust-Luga pipeline. We have checked of course all the cargos that Neste has received and for all our crude we have been in the normal operational window within the specification.

So it has no operational impacts on Neste. We continue monitoring the situation very closely.

And of course like we have explained earlier that we have a lot of flexibility when it comes to crude in terms of converting different types of crude. So we obviously prefer to also then diversify crude sources if the situation changed going forward.

This is Carl so responding to the question around feedstock costs going forward. So as mentioned in the presentation, the supply/demand picture looks constructive for the veg oils going forward and we believe that that will remain the case in the second quarter.

Hi good afternoon. Two questions please.

First, just following up in Nynas again, when you talked about some measures at the JV are looking at to optimize earnings? Are there any limitations as to why they couldn't switch crude away from Venezuela?

Are there any commitments there? I know could you just give more detail around what sorts of things they are trying to do to optimize that business.

And secondly following up from a previous conference call on the PFAD reclassification in Sweden to a co-product from July. Could you talk about what measures Neste taking to sustain their margins in Sweden in the face of that reclassification of feedstock?

Thank you.

Yes, this is Jyrki Mäki-Kala. Talking about the Nynas, we have been working on Nynas Management has been working since November of last year to improve the situation with all the measures.

But normally when you have these kind of, let's say, issues facing from the outside world, and Nynas is using other kind of crude oil not just the Venezuelan crude oil. So there are other options as well to mitigate these difficulties with the supply coming out of Venezuela.

But this is like I mentioned it's not an easy situation but the management is at the top of the issues on managing the business going forward.

But to be clear I mean this is not I mean left to right. This is not something that you can say that Nynas can switch I mean like we could do for example and let's say in the oil products business, we can take different kinds of crude oil.

It's much more complex for them. So they cannot switch I mean from one month to the other months to other qualities of crude oil.

Okay. And on the question on the PFAD, so what Sweden has done is basically reclassified PFAD from Russia due to a by-product or co-product which means that the traceability of the feedstock needs to be traced back all the way to the plantation.

We at Neste are well-positioned to develop this and we have already managed to trace a significant part of our volumes back to the plantation this work will continue. We have previously said that by 2020, we will have full traceability of our PFAD to the plantation.

So we -- this work continue and we will continue to operate in the Swedish market and which is an important market for us.

Thank you. Kind of just a follow-up on that second question.

So does that mean the effective product price you get of a PFAD feedstock in Sweden would be the same? If you can trace it back to where the PFAD has come from i.e.

there is no impact to the top-line because of that change? Thanks.

There is an impact on the GHG calculation but there -- as such it is still possible to use -- use and deliver that into the Swedish market.

Thank you for the update. I have two questions on renewable products and the first one on this after long-term development of Rotterdam.

Are you thinking about something very similar to Singapore? You mentioned also renewable jet fuel production is the case that you could bring onstream some additional renewable jet fuel capacity faster than what you're doing in Singapore.

Just want to get a sense of what's your plans there. And then secondly renewable jet fuel and the contract that you signed with Air BP, where you planning to start selling your product exactly and what kind of volumes, what sort of blend are we talking about there?

Thank you.

Yes, let me take your first question. I mean we've started as we alluded to I mean in the Capital Markets Day and you see it also from the organizational development and setting up this renewable production platform.

We also stated that we would start already looking at what comes after Singapore whilst we were building the next line in Singapore. So as one of the initiatives that I talked about is we are looking at what decides in Rotterdam eventually needs to do first if we are building up and installing an additional distillation set to the existing renewable refinery.

And secondly what does this mean in terms of utilities infrastructure. Also taking into consideration in case, we would build a second line in Rotterdam like we are currently building the second line in Singapore.

So the main focus at this point in time is on building up additional optionality in Rotterdam, so that we also in the Western European markets would have a own made renewable jet fuel capacity up and running. We cannot give any idea because the study has just started.

What that means in terms of timing, when that would come onstream that's a bit premature but we're putting quite a lot of emphasis on that pre-study for Rotterdam. Having said that in the meantime, we also made quite some progress on setting up the manufacturing structure through tolling and supply chain agreements not just in Europe but also in North America.

And we've been quite successful in doing so. So we in a couple of months will have sufficient volumes available and we do not want to be constrained by capacities, when we are going to this important markets.

As another update on that I mean we talked about the Air BP. Of course I mean as you can hopefully understand it was an agreement with Air BP, we do not disclose anything in terms of what were the volumes and how are the volumes going to flow and what the day they're going to flow exactly.

That was also a wish that we need to respect I mean from Air BP. But beyond Air BP, as I said in the Capital Markets Day, we are intensively negotiating also with other leading airline partners so making very good progress.

Hi, this is Sasikanth from Morgan Stanley. I had one question on your innovation themes.

Essentially you talk about cellulosic fuels, I was just wondering where Neste was with regards to this innovation. Does it have the technology and is it a question of scaling up or getting into commercial volumes or do you still have to correct that hold the technology of actually producing these fuels?

Yes, the new innovation platforms that we are setting up and that we also talked about a bit in the Capital Markets Day, they are focused on mid to long-term developments of new technology platforms. So this is not-short term like we have the renewable jet fuel and like the renewable polymers and chemicals but this is on the mid to long-term.

So when I talk about mid to long-term that is beyond five years.

Hi, thank you. I was just trying to come back and understand a bit more about this relative margin optimization point you discussed earlier in the Q&A, you've seen a situation in the U.S.

biodiesel margins for say conventional biodiesel producers have been pretty unattractive with the rent and feedstock situation. And then the relative vegetable oil feedstock margins have been on track, also in Europe.

Does this mean that you've been making much more than normally attractive margins in this area and hence why the 100% renewable diesel has been say held back by this optimization? Is this something about that market structure?

No, not at all. I mean has nothing to do with that.

As Carl already alluded to that we, yes, we have an aspirational target on how much we want to have in Neste MY. We see some benefits I mean of course out of that.

But on the short-term we will always look at optimizing our margins so that we have the best margin possible for the available capacity that we have. And as you know I mean we are not comparable in margins, I mean in the United States also with the biodiesel you cannot compare that at all.

Of course not but it just sets reference prices of what you might benefit. And then on the own feedstock side, obviously you've done a good job on feedstock costs as well.

In Q1 you have some of the investments you've made in Rotterdam and so on which are maturing. Can you give some sort of sense as to how you think about the opportunity on own feedstock cost trends throughout the balance of the year whether they are all say Q1 as a reference level or whether you expect further progress just to understand, please?

Yes, this is Carl here. So unfortunately we are not really giving guidance further than the Q2 here.

So at this point, this is not -- we cannot really comment. Although we are, what we can say is of course that we are continuing to work to create capabilities to more flexibly use based on residues feedstocks and which will enable us in the future to optimize even better.

Yes, okay and last question, I was wondering if you could just give a sense in how your LCFS credit multiplier has developed as you've rolled into 2019.

I mean the LCFS is still as you can learn I mean from public information is still at a high level.

I know the level is at a high level but you get a multiplier based upon how you fit within the standards of California that they set as a rising spectrum and just don't understand how your multiplier of that credit has evolved.

Yes, because -- it is Jyrki Mäki-Kala because a normal multiplier if I remember right is one point for the biodiesel it's one --

So this is LCFS multiplier.

Yes. But then --

[Indiscernible]. So it's around 2 pull-forward SME.

2 for SME and then depending on which kind of feedstock you are utilizing, it's going to go up to 2.7 to 2.9 levels.

Which is what you're seeing?

It's depending on the feedstock what you are.

We have not disclosed it.

Yes, depending on the feedstock, we've not disclosed the figure.

Fine, thank you.

Yes, because, I mean, just give the direct information then also and you need to understand I mean that this is something in competitive nature because it immediately I mean alludes to how we are optimizing our mix in feedstock and you can calculate it back, so that’s why we are extremely prudent in giving any details on it.

Hello. Thanks.

I'm Ivan from RBC. So yes most my questions have been answered.

Perhaps, could you just come back to the maintenance schedule in Rotterdam for September/October and give us some sense on the impact of utilization and whether it impacts more 3Q or 4Q? Thank you.

What you alluded is Rotterdam is a capitalistic change that is towards the end of the year and then we talked about the Porvoo Production Line 4 decoking that is September/October timeframe. Just to be clear but on Rotterdam on the catalysts, we are preparing everything right now, so we don't have an exact window yet, when the catalyst exchange will actually take place.

We've learned I mean continuously from the past, so we tried to optimize and minimize the time that we are spending for such a catalyst exchange. One could say that is going to be what approximately between three, four weeks something like that in terms of shutdown.

Thank you. Two questions from me please.

First again on Nynas and in terms of cash flow contribution or not from the joint venture clearly it's a non-cash effect this quarter. But do you see any need for cash to go from you to that joint venture in the future or it's well capitalized enough at the moment.

And then secondly your waste and residue share feedstock remains around 80%. Could you talk a little bit about how you see that evolving or whether you're looking to increase it in the future if the economics allow?

Thank you.

Yes, it is Jyrki Mäki-Kala talking about the Nynas. It's really like you mentioned it is sort of cash flow effect on Neste’s results.

It’s a net profit that we consolidating to our comparable EBIT. And then talking about the financing at the current position where we don’t see issues relating to refinancing or financing from the shareholders.

Okay. And on the feedstock mix, so as mentioned our waste and residue accounted for about approximately 80% in Q1.

We have of course a capability to run 100% on waste and residues and the feedstock mix is something that we are continuously optimizing. And as mentioned earlier, we are moving towards being able to utilize lower quality materials as we go-forward but it remains a continuous optimization.

Thank you.

And it's the margins that -- the margin that is important margin management that is important. And as you know as we have stated before we are tracing back the crude palm oil back to its region.

So there is no conflicts with deforestation, the crude palm oil that we are actually using. So at the end, it comes back to margin optimization.

Hi thanks for taking my questions. You talked about rising raw material prices.

I just wanted to clarify. Are you seeing rising prices for commodity vegetable oil, animal fats or specifically for your own feedstock sourcing or has the other two directly linked anyway.

And then secondly on the schedule catalyst change at Rotterdam in 4Q, I think you had a catalyst change in 2Q last year, should we think of 18 months as the typical cycle for that or has something happened to accelerate it? Thanks.

So on the feedstock question, first Carl here. So as mentioned, we hit the veg oil complex having supported supply/demand picture.

And if you look at the either feedstock that we are using, we are seeing that they are typically being correlating relatively strongly with this. So it's about the whole complex looking more constructive going forward.

Okay. And on the --

Catalyst?

Catalyst I was just commenting that it is probably hard to give any exact period because at the end of the day this is also an optimization. We have a certain flexibility in how we run the unit, what type of feedstock the operating conditions.

So again this is something we optimize for every catalyst side.

Yes, this is Artem from SEB. A couple of questions from my side.

So the first one is relating to renewables margins and just trying to understand whether high oil prices could have some positive impact on your pricing power in Real [ph] and maybe some firm contracts what you are having recent renewables. The other question is relating to this partnership what you have signed with City of Oakland where you are basically using City based feedstock and basically then selling renewables.

Are you planning for similar cases in some other cities and could it become a meaningful feedstock source for you in future. And the last one is must be relating to Urals-Brent spread.

What is your thinking going forward keeping in mind IMO 2020 and also later views on Urals and Iran sanctions? So basically are you expecting this spread to become more negative going forward?

Okay. Thank you, this is Carl.

So on the first question. There are no direct links to the fossil oil prices and we are selling GHG reduction typically and sustainable renewable fossil free product, so there are very limited links to the fossil prices here and our margin.

Then coming -- come back to the question around the City of Oakland and the circular concept that we have introduced there. This is certainly something that we are looking to develop in other areas as well.

We believe that this type of circularity is meaningful and concrete for our customers and we will -- we are looking at developing similar schemes in other parts of the world as well.

And then this is Matti on the Urals question, Urals-Brent outlook. Like I commented in my earlier comments the short-term outlook is quite clear.

We have several factors which are supporting quite a tight let's say a strong Urals market that is linked indeed to the sanctions in Iran, it's the Venezuela situation, it's a strong fuel oil market in general. At the same time, we do expect that towards the end of the year with IMO coming closer, we will see an effect where fuel oil will weaken and also then we should see widening of the heavy like differentials in crude.

Afternoon, thanks for taking the questions. Two if I could please.

I mean firstly just coming back to renewable sales mix, since you have a 100% renewable diesel. Understanding the points that you made earlier on quarterly optimization et cetera, is nonetheless fair to think through the cycle of 100% product should offer premium margin versus the divisional average and if so what sort of impact could a normalization in the share in this sales mix have on your margin going forward?

And then secondly noticeable that on the refining side, the share of Urals feedstocks have stayed high in the quarter despite the tightened environment that Matti just referenced, I mean absent of near-term drift bar issues, could you quantify the impact of a tightened like heavy spread relative to your plan for oil products and what would push you to implement greater feedstock flexibility? Thanks.

Okay. So commenting on the first question, so we are not really disclosing individual margins for certain segments.

It is clear that the high blend Neste MY product has certain specific segments and that it's also typically attached to certain feedstocks. And as previously said, we constantly need to optimize between these and we'll continue to do so to maximize our results.

But overall it's little different value proposition when we are selling our Neste MY.

And then on the question on the crude mix optimization, we have quite systematically over the last years made sure that we approve a large number of crudes technically. So it really becomes an optimization.

And of course, price is important but of course we also look at the product mix that it results in and also of course the freight costs are important. But it's an overall optimization and we have worked on systematically on making sure we have broad variety of crudes that we can use.

Okay. This is Juha-Pekka Kekäläinen.

Again, as there are no further questions, we thank you very much for your attention and active participation. Neste's second quarter and half year results will be published on the 25th of July.

Until then, thank you and goodbye.