Neste Oyj

Juha-Pekka Kekäläinen - Head, Investor Relations Matti Lievonen - President and CEO Jyrki Mäki-Kala - Chief Financial Officer Matti Lehmus - Oil Products Kaisa Hietala - Renewable Products Panu Kopra - Marketing & Services

Mehdi Ennebati - Société Générale Peter Testa - One Investments Henri Patricot - UBS Pasi Väisänen - Nordea Bank Josh Stone - Barclays Georgia Harris - Bank of America Merrill Lynch Giacomo Romeo - Macquarie Peter Low - Redburn Elena Malareva - Goldman Sachs

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 today are President and CEO, Matti Lievonen; CFO, Jyrki Mäki-Kala; and the business area heads, Matti Lehmus of Oil Products; Kaisa Hietala of Renewable Products; and Panu Kopra of Marketing & Services. We will be referring to the presentation that can be found on our website.

As always, please pay attention to the disclaimer since we will be making forward-looking statements in this conference call. With these remarks, I’m pleased to hand over to Matti Lievonen to start with the presentation.

Matti, please go ahead.

Thank you, Juha-Pekka. Welcome to this teleconference.

I’m very pleased to discuss about our first quarter results, because I felt there is a lot of things that are very positive to Neste. And if you start look at the business environment, so global Oil Products demand is increasing and that is third year that it’s increasing and what is remarkable is now that the distillates seems to be that it will increase 2.5% globally and the gasoline 1%.

So it’s a good sign for the demand and under special item, middle distillates. Then if we look at the reference margin, so if you look at the forecast and so we feel that reference margin will be around $5 per barrel.

So it’s very good and then accounting top of that our recent margin. So the global environment around Oil Products looks good for us in our respective.

And then if you look at Renewables, so this change of precedence also helped keep this Renewables volume of the case and meanwhile and then there was of course the application what comes to demand and bring values to the U.S.A. But EPA made a decision that this Renewable volume application is in place on 2017 and 2018, what’s coming to advanced biofuels and there is a growth of 5% to 6% each year, so very positive.

The other positive things was happening around us is Sweden and their policy proposal has underlined really the CO2 reduction, and it’s very much based on renewable diesel, because the biggest part of the emissions comes from the heavy-duty transportation. And then if you look at really local and Finland, so heavy traffic increasing every month has increased and then there’s a good growth now in Finland, what’s coming to heavy traffic.

But, all-in-all, I am very pleased. We had a good start of the year.

But we knew it and when we made our comments for this year when we say that this will be another good year. We knew it that it will be and this first quarter showing that it is really the case.

If you take our comparable EBIT is €204 million, a 17% higher than the last year. Very happy that Oil Products, they put the really strong result in the first quarter, mainly coming from volumes and then the additional margin.

But Matti will explain a little more. And then, the thing that was put on the table that how is the Renewable Products, because there is no blender’s tax credit, how you could survive.

And for us, it’s not assured what game, it’s really that a game what we are playing. So we are always looking at best possible market and really optimizing our sales.

And once again, we could post the same result, same last year and without blender’s tax credit. That’s the remarkable achievement.

Then our marketing and service result, that was a disappointment also for us because it has been very good year-on-year. But at this time, there was a really increased competition in Finland and in Russia.

But Panu Kopra will tell more. But we have our ways to, in fact, taking action that we are coming back to the normal route.

All-in-all, we are very, very happy what’s happening in the first quarter and also if you look at our balance sheet, it’s very strong, if you look our financial targets, return on capital and after-tax saw 16.6% and the leverage is 15.3%. So, we have a good balance sheet to really look at our growth and then also to being a good dividend payer also in the future.

So, by this word, I hand over to our CFO, who will go through the Group financials.

Okay. So, welcome also on my behalf.

So I will go through few slides concerning the Group level financials and also some of the big things that is there in the presentation. But it is like our CEO said, overall, the first quarter delivered a good and solid start for the year 2017 and it’s really -- if you look just on a broad level first about our three businesses, it’s really that Oil Products, they really made an excellent performance in quarter one.

If you look at total refining margin, $11 per barrel, it was really a good achievement. Refineries run with good utilization level.

So this time kind of outcome what they delivered. It is really based on the doings what we are doing here in our refineries and also with our supply chain as well.

And if you look Renewables, like Matti Lievonen mentioned, the comparable EBIT out of our business for the first quarter was exactly same as 2016 first quarter and really think about without the BTC that was 2016. So you see that the thing what we mentioned in mid-February when we came out with our 2016 figures is that we continue to optimize our volumes with Renewables and find the best margins and best market for our product.

So that is exactly what we did and what we promised to do in February. And then Marketing & Services used to be called retail, so they have a little bit rocky start with a new name, but I think Panu Kopra will tell you a little bit more about where we are with that one.

So if we turn to the page where we have the Group financials, just a few comments out of this page. If you look to revenue at the top, we made more than €3 billion sales for the first quarter and it’s really €600,000 is coming of higher oil price.

If you look the quarter one 2016, the oil price at the end of the quarter it was $38 and now it was $52 or so, 36% higher oil price, so it automatically goes into sales prices. So that’s basically the major thing in our turnover and our revenues, of course, some volume development positive also took place with oil production also in Renewables.

So it’s a combination of many things, but the oil price is a leading factor with our revenues. The Oil Products that I mentioned with their excellent start for the year, they improved their profitability 46% compared to 2016 first quarter.

And it’s really coming out of what took place with our operations. I’ll talk a little bit more about the businesses with complete analysis.

I just mentioned this cash flow before financing activities. It was minus €25, but we continue building sizeable contango inventories also in quarter one, and those profits and also the change in working capital will take place later this year mainly in quarter three and quarter four.

So there is some good to come for our free cash flow when we are entering the second half of 2017. If we then move to this fixed analysis, first, like, overall what the business looks like.

Like I mentioned, the Oil Products had a very nice improvement, €40 million compared to 2017, sorry, 2016 first quarter and it’s really coming part of this strong total refining margin. But it’s really the additional margin that was about $6 per barrel that really deliver the better results compared to 2016, but it also improved the utilization rate both in bottomline also in underline, they were better than 2016.

So the operational things, we are really strong in 2017. Renewable, like I mentioned, they continue to deliver same kind of comparable EBIT than 2016 first quarter and we didn’t have the BTC in place like I mentioned earlier.

So we -- basically we deliver more to Europe versus North America compared to 2016. So it is again like I mentioned before that we have market also in Europe that are very favorable and that is exactly what we manage to capture for 2017 and if you look also, the comparable sales margin that is pretty important for Neste.

The quarter one comparable sales margin return was higher than quarter four 2016, if you exclude the blended tax rate. So it’s a positive story that we have the markets that really supports the story and the volumes what are delivering to the marketplace.

And then Marketing & Services is €11 million lower profitability. It’s really coming out of the lower margins in Finland and in Northwest Russia.

But we have these things in place going forward with internal actions, et cetera, how things are getting better. Volume-wise everything is okay.

The volumes were higher compared to first quarter 2016. But, all-in-all, if you think all these axis and details behind you go to the next slide when the same profit is also split into this, let’s say, items what we are basically commenting in our reports, the volumes mainly coming out of OP and RP, OP 5% plus and then Renewable Products 2% plus.

So it’s really good but there was also some shipment especially in Renewable Products that were slipped into the first days of April. So we are getting those in quarter two.

So it’s not like lost volumes. It’s just a matter how the unloading takes place.

Reference margin, very strong in Renewables up 21% year-on-year and basically Oil Products more or less the same at the level of $5 per barrel. And then the additional margin, I think that is something that it’s very interesting to comment in that sense that Oil Products had a very strong additional margin generating plus €20 million more additional margin.

But here, you’ll see the impact also of the BTC with the Renewable Products, because it was minus €35 million additional margin in Renewables. Part of that is BTC.

There are other items as well. But the, overall, you see that the picture is different in additional margin versus the reference margin that takes place in the marketplace.

FX change is very clear, U.S. dollar impact, positive things.

Fixed costs were slightly higher mainly coming out of fixed cost relating to marketing and headcount, et cetera, what we have in our businesses. And finally, the others, it’s more about depreciation and also how our joint ventures are performing units and also Neste take.

So that’s how we basically landed from €175 million to €204 million comparable EBIT, so, 17% improvement year-on-year first quarter performance, so good and solid start for the year. Now, I hand over to Oil Products and Matti Lehmus to continue.

Thank you. And I’ll start with a comment that I’m really pleased with the start of the year.

It was a good start of the year for Oil Products and we came out with good numbers, strong financial performance. If I look at it from the perspective that we improved our EBIT from €86 million to €126 million, I think it’s important to know immediately that this did not come from the market.

The market continued to be good, $4.9 per barrel, exactly like last year at this time of the year, but it’s really the operational performance where we could actually then create the improvement. And I just take two highlights, that’s all, this slide already from the operational performance.

I think the fact that we were able to sell 5% more is of course directly a result from higher utilization rates, 91% in Porvoo, more than 70% in Naantali. But I think very important also, what is mentioned here, the systematic we have done -- work we have done to increase our crude.

Crude oil flexibility paid off and we were able to use 73% of euro share -- of euros, which is clearly higher than a year ago, 64% at the same time. And this results from, of course, optimization but also the capability that we have with, for example, better sulfur removal capability.

Finally, we have continued our focus on working capital management and I’ll take out broader number of 19.8% return on net assets for the last 12 months. So that continues to be our focus.

Then a quick look at the waterfall and perhaps making this very simple statement that it is quite easy to see where the profit improvement came from. Three elements, it was volumes, 5% more sales, meaning €9 million, better profitability.

It was €20 million from additional margin and I’ll comment that a bit more in detail a bit later. And then also worth noting that FX continued to evolve favorably, so €7 million from FX impacts versus a year ago.

It’s also important to note those items which are not on the list, so we did continue to work on the fixed costs, we’re able to slightly increase services a year ago and also the margin -- reference margin, like I said earlier, did not have any significant impact year-on-year. And then a couple of comments on the market and I would say that I’ll start with a comment that reference margin level of 4.9 for me is healthy, solid market, very much in line with the average that we have last year.

If you look into the product side it’s worth noting a couple of highlights. So, first of all, diesel clearly have improved versus a year ago in the first quarter.

We ended having a diesel margin of $11.4 per barrel, which is clearly stronger than a year ago. The fuel oil would be the other part of the barrel which has clearly improved versus a year ago.

And behind this trend, I would say, I would highlight a couple of things which impact the oil market. Global demand has been on a quite healthy level, more than 2% growth for distillates, 1.5% growth for gasoline.

If I look at the inventories, I think it’s important to note that after a long period of builds, we finally started actually decreasing inventory levels, especially in the North American market and this is true for both gasoline and diesel. Worth noting we are still on a relatively high level, but clearly the trend has reversed.

If I then turn to the crude side, a couple of comments on the Urals versus Brent differential. So the first quarter ended up with a differential of minus 2.1 and while being slightly more narrow than a year ago where it was 2.7, I would still say that the same fundamental drivers for yielding this differential wide are still there.

So we continue to have a solid export level of REB out of the Baltic Sea. We continue to have also Middle Eastern import into the Baltic Sea when it comes to medium-heavy grades.

So we clearly see that the drivers for a wide Urals differential continue to be there. And at the same time it’s worth noting there had been cuts by OPEC and also meaning that it seems natural that it’s slightly narrower than the year ago.

Then finally some comments on the refining margin itself. So like Matti earlier commented, my first observation is we were again able to come in with a strong total refining margin, clearly above $10 per barrel.

And I think this is something very important for the Oil Products business in Neste that, while the reference margin maybe volatile, we are doing good actions, I would say, to always come out with an overall strong total refining margin. And here, of course, the additional margin of $6.1 per barrel in the first quarter is a very good number and I would highlight a couple of things, which enabled us to come with this strong performance.

The first one is the high euro share. I mentioned earlier, 73% at a wide Urals differential.

The second one is the higher utilization and especially the fact that we are able to increase Porvoo utilization was important. But perhaps as a third item, I would also highlight that we did have good sales and supply performance and we were, for example, able to utilize seasonal opportunities to really optimize around winter qualities.

We were also able to get the timing of our feedstock supplies very well. So this $6.1 is, of course, a very good level that I’m happy with.

Final comment here would be that when the refineries run relatively well, also the production costs can be kept well in check. So this level of $3.7 per barrel is quite well in line with what we have been targeting as a stable production cost level.

I’ll finalize this presentation by mentioning that we are in a very interesting period of starting up the SDA unit. So we expect that to be up and running during the first half of the year.

So we’re looking forward to second quarter. With these comments, I’ll hand over to Kaisa Hietala to talk about the Renewable Products.

Thank you, Matti. Good afternoon also on my behalf.

The Q1 result in Renewable Products is clearly reflecting the seasonality of this business, especially now when we left behind the BTC year, 2016, the Q1 sales volume and the sort of the demand/supply, it was like last year Q1, and therefore, showing that the Q1 tends to be the slow quartile for us. If you look at the key performance indicators, one could easily say that the EBIT sales volume, share of waste and residues, that this was a copy of last year, but then looking at the market parameters behind this, this was very different compared to last year.

First of all, we reduced our sales to North America, because there were attractive markets in Europe, as well as the European reference margin was higher. And this enabled us to optimize the overall comparable EBIT to be on a same level as last year, despite the fact that the U.S.

market was basically pretty oversupplied due to the maximized blending in Q4, because the BTC ending and then there was the administrative freeze, which I think eventually then hit the market quite strongly in the middle of the quartile. If we look at the waterfall between the quartiles, 2016 and 2017, it is all about optimizing the reference or maximizing the reference margin and then being able to compensate the loss in additional margin, which was due to the U.S.

market situation. Otherwise, our volumes were slightly higher, and as our CEO already mentioned, there were timing issues and then there was the forex exchange and the fixed cost impacts included in this.

But I would like us to look into the margin environment, because this was definitely -- this was the key for our Q1 performance. Here you see the European margin graphs and as you can see, the European margin during the Q1 in 2017 was clearly better than it was last year and it was also pretty stable, I mean, it was above $200 per ton, a small fluctuation as always.

And then at the same time, if you look at the feedstock prices, which are here on the right hand side, the vegetable oil prices, you can note that we started the quartile with clearly higher, roughly $50 per ton higher margin or price environment which was reflecting the tightness of the vegetable complex and then the prices have been easing up a little bit since then. So this was the sort of the margin environment in Europe and if we then compare this to the margin environment in U.S.A, which you can see now on this slide, here you can see the massive volatility.

And this was really hitting the market around the mid-Q1 and basically slowing down the demand. And this is also visible in the RIN price development, which only started to recover at the end of the quartile when the freeze was over and the EPA was basically announcing that the Renewable mandates for 2017 and ‘18 are in place and no changes have done.

So the implementation continued and that meant plus 5% more demand this year compared to last year, and then another plus 5% going forward. And this led us to optimize between the markets such a way that our share of sales to Europe was 72%, while our share of sales to North America was 80%.

And then if we look at the comparable sales margin, how it was divided between the reference margin and the additional margin, here you can see that by optimizing the sales allocation between the markets, we were pushing up the reference margin compared to Q1 2016 and then the additional margin was clearly less than in Q1, because the BTC and the low demand season in U.S.A. But, all-in-all, we were able to compensate the disappearance of the BTC and the optimization worked well and the timing issues for the sales volumes, those will be then visible in Q2 and so far what we have seen regarding the U.S.

market after the freeze, the sales have been picking up very well. So with these comments regarding Renewable Products, I would now hand over to Panu Kopra to discuss the Marketing & Services.

Hello to everyone. Let’s have a look of this quarter and indeed, unsatisfactory start for the year.

Comparable EBIT dropped from €22 million to €11 million. We faced very tough competition both in Finland and in Northwest Russia, which cut our net unit margin significantly.

In addition to that, there were some one-offs in the year 2016, plus this year our fixed costs were slightly higher than last year and when we put all these elements together, we landed to this disappointing result. However, I am pleased the sales volumes did not decrease and we were able to keep the number of customer and customer transactions, and there is even few 1,000 increase in the sales of diesel volumes, which is mainly from the heavy-truck segment and it’s outcome of active good sales work.

Like I mentioned previously, we launched in January new diesel product in Finland. It’s called Neste Marine this refined without any drop of fossil crude oil instead of feedstock, waste and residues.

We started the sales at six stations, and now it is available in 15 stations around the southern part of Finland. And roughly 15,000 to 20,000 diesel car users or customers of those stations are using this product.

So we are satisfied with the product launch and looking new ways to increase the sales of this unique product. We had active marketing campaigns on focus for new customer acquisitions.

We gained roughly 8,000 new customers in Q1. In Baltics, it was signed new contracts with several big trucking companies and truck plus service solution was installed to more than 400 trucks during Q1.

Mobile payment was under piloting in Finland, and perhaps, next time I can give more details about the launching of mobile solution in Finland. We opened five new stations and continued renewing programs of existing ones together with Kesko.

Currently, there are almost 30 new Neste K stations in Finland. If you look back five years period and compare Q1 to Q2, always Q2 have been better than the Q1 and again Q3 better than Q2, so based on our historical performance, our internal access relate to boost in sales and sales margin focus for the working with the customers and acquiring new customers, cut of the cost, we expect we expect financial performance to improve.

Thank you, and with this, first, I hand over to Matti Lievonen.

Thank you, Panu. Let’s discuss about the outlook 2017.

Panu said that strategy implementation proceeding well and this is really how it’s doing. So, we had the Capital Markets Day and then we also launched the strategic initiatives and there was the one worse a biochemicals and I’m very happy to say that first time we have done during the Q1 an industrial scale trial with the bioplastics and it went really well.

And the next step is that at the end of the year our aim is to do bigger industrial scale bioplastic production. Then the biosolvents, we have found a lot of new customers and then also the application where we could use or the customer could use our biochemicals.

Also, the strategy implementation, the focus was very much on customers and the growth initiatives and those will continue. But the customer side, Panu also said, what’s happening in the Marketing & Services side.

But I’m really pleased of how we have been able to increase 100% renewable diesel sales. It has increased already to quarter one.

We was 18%, our target is 25%, the feedback from the customers are excellent globally where we are serving. Then the other thing is that we’re very pleased of how we have taken these key account management in the company.

So, Oil Products, Renewable Products and also the Marketing & Services are doing well and we are measuring really all those things by Net Promoter Score card. I’m very happy that we have a positive trend and I don’t know how many companies in our sector really are focused on customers, but we see that this is the only way to be profitable and swapping between the different markets when you have a strong customer commitment.

Then, what’s coming in these investment initiatives, so first, priorities of course that we will take this $3 million out of our existing Renewable units. It’s a good way onto the call and it’s really means that we are increasing Renewable Products capacity 5% per year up to 2020.

Then these bigger investments in what we announced that either Singapore or U.S.A, its either investments that we are doing for 20 year, 25 years. So, you never do out of decision when you are speaking about so long investments.

So it’s always a really needs to start from the profitability. We are looking to markets, how the markets are developing, what is the feedstock availability, how it’s fitting our Renewable system in this facility.

Political framework, but there is not one single thing that it’s dictated, yes, we are doing reinvestment in that place or on that place. So, it’s a really under very thoroughly thinking and we are doing very much on the work and we have a groups that has been working on these issues.

But I’d like to say that we are not taking any additional pressure from outside, because this is our decision. We are doing that with the finance house and that it’s really fit in our strategy.

So please be patience and we will inform when we have something to tell you. But, all-in-all, so we are very confident, I feel very confident that the year 2017 will be another successful one for Neste.

If we look to segment outlook, it has mentioned several times that we expect that the reference margin will be level of 4.9 to 5 was last year and there’s some margin over 5.5 when we have done all those strategic investments. Of course, you might ask a question, but you are already 6.

But to 6, there is the seasonality that is not margin, but after this investment, we will be quarter-by-quarter or 5.5. Then the utilization rate in our Oil Products will be high utilization rate.

We have built four. We have a de-coking in autumn, that what’s we need to do once per year.

Hopefully it will be then extended when we have SDA unit in the full run. And then we have Naantali units scheduled for the maintenance two months turnaround when we are moving this more like unit for the using a feedstock to Porvoo refinery.

Renewable Products, we expect that the reference margin is higher than 2016 and utilization rate is expected to stay high. And I think that Panu Kopra told very precisely what we are going to do that Marketing & Services will deliver a good result also this year.

Then one advertising that we will have a -- our Capital Markets Day 19th September in London, so welcome, we will send invitation soon. And as we are very small company, so we haven’t changed our focus.

So we focus still safety and the safety figures have improved, when we started this year. Cash flow was explained that we are utilizing our storage facilities and we have a built up a contango, but cash flow will be very strong also this year.

Refinery productivity both in RP and OP side, we see that the refineries are doing well and better than the last year. Markets and customers, I already told.

So those are our focus areas. And we feel that really doing those, implementing our strategy and keep our eyes on the ball, so we are posting good results also for this year.

Thank you. And now we are ready for the questions.

Hi. Good afternoon all and thanks for taking my questions.

So, I will ask two questions, please. First, on Renewable fuels reference margins, you guide higher reference margins in 2017 than 2016, whether Q1 ‘17 has been in line, more or less in line with 2016 average.

And since beginning of April, the reference margin that you published on your website is going down? So what makes you think that the Renewable fuel reference margin are going to rise and when do you think this will happen despite the Californian tax rate is currently much lower than last year?

Second question regarding your Renewable fuel additional margins, which we had $125 per ton in Q1 ‘17? So looking at the past, we can see that in general Q1 additional margins are lower than the rest of the year.

So should we consider that this kind of seasonal impact is still valid, meaning that from Q2 ‘17, the additional margins should improve? I also noticed that last year from Q1 to Q3 ‘16 you’ve increased your additional margin by $50 per ton.

Is that kind of figure still valid? Thank you.

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

The first question was around the reference margin outlook and the fact that we believe the reference margin in 2017 to be on a higher level than 2016. And the basis driver for this, of course, there is a volatility, absolutely -- so the basis driver for this is that we have now seen the whole veg oil regional complex which is sort of driving feedstock elements for all biofuels starting to become much more healthier than what it was.

Maybe you remember the weather problem called El Niño hitting the South America and Southeast Asia in late 2015 and lasting well to 2016. And the yields and the harvest have been suffering from this greatly in 2016 and that was putting quite a lot of pressure on tightness of veg oil inventories.

And now the new harvest and the yields, for example for palm oil that we are seeing is showing a clear recovery. And typically, it has taken time and that is how it is typically.

So, basically we are basing our view on the overall veg oil market recovery and the availability of raw materials impacting the reference margin in a positive way this year compared to last year. Then there was a second question regarding additional margin development and the fact that whether the Q1 last year and this year is sort of reflecting the rest of the year or whether the crowd typically see it in Q2 to Q4 is sort of something which could be forecasted to happen also in 2017.

And here, I have to say that our additional margin is a combination of feedstock sourcing, the overall asset performance or operational excellence and then the sales allocation and lots of details which unfortunately we cannot share with you, and therefore, it really depends on these different elements are developing during the quartile. Unfortunately, we do not give a guidance on the additional margin developments, but this time, we wanted to give our view on the reference margin development.

Thank you.

So, please, just maybe soft April, if you don’t want to forecast anything, just regarding April as we are at the end of the month. Did you obtain higher additional margins than in average Q1?

Unfortunately, we do not give other than the quartile-based information.

Okay. Thank you very much.

Hi. Thanks very much.

Two questions, please. One is on Renewable.

If you look at Q2 last year, you had quite low volumes in the quarter and you talked about this year’s spillover volumes in Q1 to Q2. I was wondering whether that you would expect that to have a significant benefit on the volume growth or even the operating leverage effect on the margin in Renewables.

And then the second is just on the Oil Products business and the high proportion of euro used. I am wondering whether you had any views based upon OPEC compliance on your ability to maintain that supply and comments of folks about the differential margin impact year-over-year going forward?

Thank you.

Thank you very much. This is Kaisa Hietala speaking.

Let me take the first question, which was about the Q2 2016 low volumes and also sort of a view on volume development for 2017. I think it’s good to remember that we had a major turnaround in Rotterdam in Q2 2016.

Our whole refinery, which is a 1-million ton refinery was down for nine weeks altogether and therefore, the Q2 2016 volume as a reference is not a good reference for this year because this year we are not having any major turnarounds. The Q1 is typically a slow quartile.

The mandates are being fulfilled for the previous year and especially now with the BTC expiring, there were lots and lots of banking of -- a lot of blending and lots of banking of credits and this is the seasonality of this business. Going forward, I, expecting the volumes to grow and based on what I have seen after the freeze was ended in USA, we have seen the demand picking up, and in Europe we have a healthy demand typically throughout all quartiles of the year.

And if you have the effects of volume impact on margins in [inaudible] (44:15), I am trying to think about the capacity, because, obviously, have the benefits of coming out of the Rotterdam shutdown year-over-year plus the volume effects. So I’m wondering whether this should be something we should see impacting the margin just mechanically.

Well we are -- we have now the capacity to produce 2.6 million tons over all the assets that we have and then eventually the sales volume and then the impact on the additional margin that is a combination of what feedstock we are using at each refinery, how well we are then cost efficiently managing all the operations and then eventually to which market and to which segment we are selling the products. And this is the element which we do not really give any forward-looking views.

And then this is Matti Lehmus from Oil Products and the second question which was around REB and Urals-Brent differential. So first I’ll start with the comment that those who have followed Neste and the Oil Products for longer know that we have worked systematically on improving our crude oil flexibility and I think it’s good to see that we clearly now have reached already an ability to go over the 70% of Urals, always economic optimization, but the capability is there.

And looking forward, it’s of course positive that now with the startup of the new feedstock unit for our Production Line 4, we expect to further drive that flexibility and like we said in last year’s Capital Markets Day, the target is to clearly create a capability to go over 75% capability of REB usage. So that’s sort of positive from a flexibility perspective.

Then fast commenting briefly on the market outlook a bit more, I think, if you look at the first quarter of this year 2017. It actually shows already for me the impact of the cuts that have been taking place from OPEC and also non-OPEC countries.

If the average of the REB-Urals differential was $2.5 last year, with many factors driving a wide differential, the fact that we now ended at $2.1 already includes those impacts. So, for me, I think it’s clearly something where we’d expect that we still continue to have a wide Urals-Brent differential, could be slightly narrower than last year, but still clearly attractive from that perspective.

Great. Okay.

Thanks so much.

Yes. Hello, everyone.

Thank you for the presentation. I have a few more questions for Kaisa on the Renewables.

First one is on the potential antidumping anti-dumping duties in the U.S. on imports from Argentina and Indonesia.

If these were to be implemented, should we expect to see much higher exports from yourselves to the U.S. and what do you see the price of biodiesel in the U.S reacting to these duties?

And secondly on this topic, do you see any connection with the attempt to switch to sub trade, is it a case of kind of either the anti-dumping duties or we go more aggressively for the pre set actually for the U.S. biodiesel producers?

And then, finally, just I want to get an update on the pretreatment unit in the Netherlands when you expect this to start up and have an impact on the operations? Thank you.

Thank you. Let me start with the first question which was about the anti-dumping duties the consideration in U.S.A.

So basically in U.S.A. there has been an initiative and now under authority review that some of the biodiesel imports namely from Argentine and from Indonesia are benefiting from the lower duty levels from the destination countries, and therefore, creating sort of unfair competition situation in U.S.A.

This review is fully focusing first of all on biodiesel and secondly it is looking into two countries Argentine and Indonesia. What would be the impact on markets, of course both of these countries have been exporting biodiesel to U.S.A.

and especially last year when they were also eligible for the BTC received. However, we have already now seeing that without the BTC, for example in January, the imports from Argentine were down a lot.

So let’s see how this review develops. We are expecting it to take still quite a long time, but naturally, this is an important topic also for us to follow because there will be market impact for sure.

Then the second question was related to anti-dumping duties and is there a link to the PTC or BTC, I mean, this discussion between the Blender’s Tax Credit versus Producer’s Tax Credit and these are two totally different processes. The anti-dumping duty is an initiative brought on the table due to the high import numbers in 2016, while the BTC versus PTC discussion is a part of the extenders tax package discussion taking place almost on an annual basis in USA.

So unfortunately, I’m not able to give you an answer where this link over that there is some kind of a connection between these, we are following both of these very closely. And then the last point was about our pre-treatment facility in Netherlands in Sluiskil which we bought at the end of last year.

We were concluding the deal in late January and now we have been taking over the site. We are developing a maintenance plan and doing necessary modifications to -- so that the unit is serving our purpose.

And we will be starting it up still this year. Let’s see how it goes exactly.

But it’s a very interesting opportunity for Neste to continue our feedstock strategy to increase waste and residue, share as well as move towards lower quality raw materials which are also very important element promoted by our customers and the policy makers.

Okay. Thank you.

Hi. Thanks.

Pasi from Nordea. I have two short questions.

Firstly, so are you able to compensate these missing vendors tax grade also in the second quarter and also in the third quarter? And secondly about this recent weakness in the retail business.

So is the relative weakness going to stay regardless of positional improvement in the second quarter or what was precisely the guidance for the short future? Thanks.

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

The BTC compensation as such, it’s part of our global optimization of our value chain. We optimized the feedstock selection and then the refineries where we operate or process those raw materials, and then, finally the end customers.

And I think Q1 was showing quite well that we have the right levers in place to manage the situation.

Yeah. And this is Panu Kopra Pasi.

The second question, like I mentioned earlier that if you look back to our performance five years back, for example. So, it looks that in this business area, there is a clear seasonal patterns, and there’s a clear trend that the second quarter have been always better than the Q1 like the third quarter always better than the second quarter.

And with our focus of boosting the sales, adjusting the cost level and then focusing the work with the customers, we expect that the final sales performance will improve and it looks now already that in Northwest Russia the margin started getting back to normal level.

So you’re offering total because you reported you are going to second quarter at a normal level?

It’s Matti Lievonen here. It’s, of course, depending how is to market?

But as mention, so there is nothing special. There was in the first quarter wherein those are competition in different places, and we see that we could adapt in those situation.

And then, most important, in the retail is always to keep the values and you need to remember that there’s a captive volume share in Finland, so it’s very good for us that we have a captive channel.

Yeah. Okay.

Okay. I see.

Thanks. Well, the last one, if I may, still related to, I really wrote this message.

I mean, last year you said that Norway was pretty old in Europe and now there were no mentions about that, so which are the best markets in the first quarter of ‘17 and we can get to European by diesel?

Yes. This is Kaisa here at the last, speaking.

You are right. We have where we were addressing Norway in Q4 because that was the time when Norway 4 published their new regulation, towards the mandates, towards 2020.

Now, we were mentioning Sweden because the proposal just came out. I think the result and the share -- sales allocation shows that we have very good markets in Europe.

Unfortunately, we do not give a more detailed distribution of sales within Europe or within the member state.

Okay. Great.

Thanks.

Hello. I’ve got three questions, please.

Firstly on Renewables, very good production performance for the sales were around 100,000 tons or slightly more than 100,000 less. You mentioned some timing differences on the call will delay into 2Q.

I was wondering if you can maybe give us -- should we expect all of those 100,000 tons to come back or is it half or is there some sort of indication of how the size of the cargos that were or how many cargos that were deferred. And then, secondly, on the other line which is in the P&L, quite a large loss relative to previous quarters.

You referenced to line actually losing money. Do you expect to recluse some of those losses later in the year, I mean, perhaps you can give how much of that was one-off.

And then very lastly, just slightly broader, if I look back at the quarterly earnings run rates, 1Q is typically the low point of the year for Neste. Is there any reason to think that that seasonality doesn’t occur again and the earnings should sequentially improve from here?

Thank you.

Thank you. This is Kaisa Hietala speaking.

The first question was about the successful Q1 production. Thank you for that.

I fully agree, 99% utilization, but then the sales being clearly lower on a same level as in Q1 2016. And then there was a question whether we are expecting sort of a sales volume increase, 100 kilotons in Q2 and how many cargos, we’re sort of sleeping over the quartile break and so on.

The -- if you -- as you probably remember, Q4 was our sort of a sales record quartile and of course, that was because everybody knew that the blender’s tax credit was expiring. So also we were basically reducing our inventories quite a lot, because we sold much more than what we produced that was also due to production issues in Rotterdam.

So, we have been replenishing some of our inventories. And at the same time, knowing that Q1 has been a slow quartile, we are -- we were not expecting selling the full increased production either.

But, clearly, based on the good demand in Europe and also on the demand pickup that we see in U.S.A. after the freeze, we are expecting higher volumes going forward.

Unfortunately, I don’t have detailed information around exact kilotons between the quartiles and so on. We are not publishing that information.

Yes. I think that you had a question about the newness and the other segment.

It was really that we are reporting newness as quarter four 2016 and there were some issues with the start of the harbor refinery in Germany. And now, we know already now today that things are getting better and everything is in shape in that sense.

So it was by the quarter four what they published, but like I mentioned, we are getting into a little bit different kind of environment now going forward.

Hi. Thanks for taking my questions.

Just firstly, on the Oil Products additional margin and you are guiding to $5.5 sort of midyear, lots of the investments are finished. But you’ve already been achieving quite a bit above that.

Is it reasonable to think that $5.5 might be a bit conservative and there is upside to that? And then secondly, I was wondering if you could talk a little bit on the California fuel credit and market, because the price has fallen.

Do you see that increasing again throughout the year? Thanks.

And thank you for the questions. This is Matti Lehmus.

On the additional margin for OP first, so perhaps the comment I would make is that when we guided that already last autumn that our target is to get above $5.5 on the additional margin, it indeed means that that is the average level over the quarters that we guided that we will be reaching. And as there is some seasonality between the quarters, it means that sometimes we have stronger quarters, sometimes weaker.

What we are thinking regarding this quarter different is, for example, unit shutdowns. If we have a shutdown in a big unit like the Production Line 4, for example, obviously, typically has an impact.

But, I think, importantly, it is to note that we have put $5.5 as the average minimum target that we expect to reach after mid of this year. And needless to say that we are, of course, doing everything we can to get even higher than that.

So that Neste has had a track record of keeping its promises and hopefully working on further improvement.

There was a second regarding California low carbon fuel standard credit price. This is Kaisa Hietala speaking.

The California regulation is an independent regulation from the federal regulation, and therefore, they have developed a sort of a credit system where biofuels, for example, they generate credit based on their carbon intensity number and basically this credit are then being traded. And the credit price is clearly -- it’s supply-demand balanced.

And what we have seen during the Q1 has been a sort of a decrease in the credit prices and it’s interesting now to follow, for example, how the EPA freeze and the slow biofuel demand in Q1 might be impacting on the credit prices. Also the overall sort of supply of biofuels to California will be definitely then part of the supply/demand picture of the credit and therefore impacting fed prices.

So this is something that we are following.

Thank you.

Thank you. A couple of questions for me, the first one is on your use of crude palm oil as a percentage of total feedstock went up -- was quite up relative to last year, higher than it has ever been last year.

We are just wondering if you can talk a little bit about the dynamics there. Obviously, there wasn’t any I guess front related reason so if it’s just feedstock optimization if you can talk about why crude palm oil was attractive relative other feedstock’s in this quarter?

Second question I have is again on your reference margin guidance for being up in 2017 relative to 2016 and I see, obviously, what side that is continues to go down. I also noticed that the same prices in Europe are in degradation, I was wondering if you would expect a recovery margin to be more something we will see in the second half.

Thank you.

Thank you for the questions. Let me first clarify when you were talking about the reference margin in your second question were you referring to Oil Products, [inaudible] (01:03:56) reference margin or the Renewables reference margin?

The Renewable.

Renewable. Okay.

Fine. Thank you.

So, indeed, the crude palm oil share was slightly higher in Q1 compared to the earlier quartiles and this is part of the optimization that we do, different markets and different customers have different requirements for raw materials. And therefore when we are moving our sales allocation between the markets, it has an impact also on the feedstock portfolio.

There was no other reason than basically the feedstock optimization behind this. The difference is just a couple of percentages.

The second question about the reference margin guidance, as you said, the degradation in the veg oil markets, which is quite strong and being led by the soya bean oil high harvest expectations, as well as the recovering crude palm oil production in Southeast Asia, this is the main driver for the improved reference margin guidance.

Thank you.

Hi. Thanks for taking my question.

Just one quick follow-up on Renewables, do you expect the sales mix to switch back towards the U.S. from 2Q or does the lack of a BTC mean that Europe’s share would likely remain higher than last year for the entire year?

Thanks.

Thank you. Based on what we have seen after the freeze ending in U.S.A in late March.

The demand has been picking up. We are roughly stating in our reference margin calculation that the sales allocation split between North America and Europe is 30% versus 70% and I would say that’s probably roughly right also for 2017.

That’s our estimation.

Okay.

Hi. Thank you for the opportunity to ask the question.

So my first question on the fixed costs, maybe you mentioned it already, but I have missed it. I see that the fixed costs in Renewables were somewhat high in the first quarter compared to the previous quarters.

Can you explain a little why it was the case? And the second question actually is rather theoretical, so my understanding is that like theoretically, again, in the market where BTC is not in place, other mechanisms should work out to compensate, have you searched for the loss profits like in CRE and to return the market to a more like -- more balanced situation?

So, in CRE, probably, the RIN prices should have an increase, what there are -- the reference margin should have a coverage to compensate for the BTC loss to bring supply/demand in the balance, but we obviously saw that that’s not possibly happening. So, why do you think that’s the case and maybe my thinking about like the market mechanism is not fully correct, how do you think about this?

Thank you. This is Kaisa Hietala answering.

First question was about the increasing fixed costs in Renewable Products. We had a €5 million increase year-on-year.

This is mainly due to the strategy implementation. We are currently putting quite a lot of time and effort and resources into the capacity growth programs, the capacity [ph] growth (01:07:59) programs also bringing the 100% renewable diesel to new segments and markets.

So this is related to our long-term strategy implementation mainly. And the second question was about the BTC and I fully agree with you that the market reaction should be compensating the loss of BTC in the form of RIN prices increasing and so on.

I think the reason why we didn’t see this happening so clearly in Q1 was the administrative risk. There was a risk that the EPA would have decided to keep the mandate on a 2016 level and basically scrap the original plans to increase the mandates for 2017 and 2018.

However, their decision was firmly to stick to the original plan and implement the 5% growth for 2017 and 5% growth for 2018. So this is clearly what’s probably one reason why the market was behaving sort of a slightly odd way like you also described in Q1.

The second thing we have to keep in mind is that, it was -- the Q4 blending was extremely high in U.S.A. There is all the obligated parties have a right to rollover from 2016 to 2017 and since everybody knew there is no certainty on BTC in 2017.

So I think all the tanks in the harbors were full of blended product already and this has been now sort of been delivered to the market and could be sort of a one reason why the RIN prices have not reacted. Thank you.

Thank you very much.

Okay. Thank you.

This is Juha Kekäläinen again. If there are no further questions, we thank you very much for your attention and participation.

Neste second quarter and half year results will be published on the 3rd of August. Until then thank you and goodbye.