Neste Oil's Financial statements for 2009
(Thomson Reuters ONE) - Stock Exchange ReleaseNeste Oil Corporation4 February 2010 at 9.00 a.m. (EET)- Full-year comparable operating profit of EUR 116 million (2008: 602 million)- The year ended with a Q4 comparable operating profit of EUR -29 million,including a negative impact of EUR 30 million from non-recurring items2009 in brief: * A new operational model was introduced, aimed to improve implementation of our strategic projects and to make the most of our best practises and expertise * Comparable operating profit was EUR 116 million (2008: 602 million) * IFRS operating profit was EUR 335 million (2008: 186 million) * Investments totaled EUR 863 million (2008: 508 million), of which EUR 625 million was allocated to Renewable Fuels * Sales volumes decreased by approx. 400,000 tons year-on-year, as a result of contango storage * Contango storage had a negative impact on net cash from operations, which came in at EUR 177 million (2008: 512 million) * Interest-bearing net debt increased to EUR 1,918 million (2008: 1,004 million) * The Group's safety performance improved compared to 2008 * The Board of Directors will propose a dividend of EUR 0.25 per share (2008: 0.80)Fourth quarter in brief: * Comparable operating profit of EUR -29 million (Q4/2008: 103 million), including the following non-recurring negative items: - EUR 10 million environmental provision (non-cash) booked against Nynas AB's result in Others - EUR 9 million one-off costs resulting from personnel reductions announced in October - EUR 3 million additional depreciation charge (non-cash) at Renewable Fuels - EUR 4 million additional depreciation charge (non-cash) booked at Oil Products related to the Porvoo refinery's major turnaround in 2005 - EUR 4 million IFRS pension cost adjustment (non-cash), booked in Others * IFRS operating profit of EUR 9 million (Q4/2008: -352 million) * Total refining margin of USD 5.85/bbl (Q4/2008: 15.05) * Significant contango storage was built up in anticipation for the maintenance turnaround at the Porvoo refinery * Contango storage depressed cash flow from operations by approximately EUR 250 million, leading to a net cash from operations figure of EUR -225 million (Q4/08: 486 million)President & CEO Matti Lievonen:The refining industry had a very difficult year in 2009, which was reflectedclearly in our result. A virtually unprecedented drop in oil demand, coupledwith increased new refining capacity, led to lower refining margins compared torecent years. During these challenging times, I would like to thank ourpersonnel for their hard work and what we achieved during the year. We were ableto bring our fixed costs down by 10% and started many improvement projects thatwill benefit us in the future.2010 appears likely to be another challenging year due to the slow pace ofeconomic recovery. We will put a lot of focus on implementing our strategy andwill be aiming for a smooth ramp-up of the new renewable diesel plant inSingapore during the second half. In addition, we will concentrate on ensuring aproblem-free maintenance turnaround at the Porvoo refinery during the secondquarter.NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY - 31 DECEMBER 200910-12/2009 and 10-12/2008 unaudited, full year 2009 and 2008 auditedFigures in parentheses refer to the corresponding period for 2008, unlessotherwise stated.KEY FIGURESEUR million (unless otherwise noted) 10-12/09 10-12/08 7-9/09 2009 2008---------------------------------------------------------------------------- Revenue 2,491 2,805 2,500 9,636 15,043 Operating profit before depreciation 74 -297 171 569 409 Depreciation, amortization, and impairments 65 55 58 234 223 Operating profit 9 -352 113 335 186 Comparable operating profit * -29 103 42 116 602 Profit before income tax 4 -382 102 296 129 Earnings per share, EUR -0.01 -1.14 0.29 0.86 0.38 Investments 263 185 216 863 508 Net cash from operating activities -225 486 162 177 512 31 Dec 31 Dec 2009 2008------------------------------------------------------------------------- Total equity 2,222 2,179 Interest-bearing net debt 1,918 1,004 Capital employed 4,257 3,237 Return on capital employed pre-tax (ROCE), % 9.0 6.1 Return on average capital employed after tax (ROACE)**, % 2.5 13.1 Return on equity (ROE), % 10.2 4.4 Equity per share, EUR 8.64 8.48 Cash flow per share, EUR 0.69 2.00 Equity-to-assets ratio, % 39.1 46.3 Leverage (Net debt to capital), % 46.3 31.5 Gearing, % 86.3 46.1* Comparable operating profit is calculated by excluding inventory gains/losses,capital gains/losses, and unrealized changes in the fair value of oil andfreight derivative contracts from the reported operating profit. Inventorygains/losses include changes in the fair value of all trading inventories.** Rolling 12 monthsThe Group's full-year results for 2009Sales at the Neste Oil Group totaled EUR 9,636 million, compared to EUR 15,043million in 2008. The decline primarily resulted from lower petroleum productprices.The Group's comparable operating profit was EUR 116 million, compared to EUR602 million in 2008. The most important negative contributor was thesignificantly weaker market environment experienced in all segments,particularly Oil Products. This was only partly offset by an 10% reduction infixed costs, which totaled EUR 604 million (679 million).Oil Products' full-year comparable operating profit was EUR 105 million (602million), Renewable Fuels' EUR -30 million (2 million), Oil Retail's EUR 50million (22 million), and Others' -7 million (-29 million).Profits from associated companies and joint ventures totaled EUR 20 million (13million).Operating profit under IFRS was EUR 335 million (186 million). The increaseoriginated from inventory gains that totaled EUR 261 million and compares to aninventory loss of EUR 453 million in 2008.The full-year profit before taxes was EUR 296 million (129 million) and theeffective tax rate was 23.8% (21.8%). Profit for 2009 was EUR 225 million (101million) and earnings per share were EUR 0.86 (0.38)Given the capital-intensive nature of its business, Neste Oil uses return onaverage capital employed after tax (ROACE) as its primary financial target.ROACE calculation is based on comparable results. At the end of December, therolling twelve-month ROACE was 2.5% (2008 financial year: 13.1%).The Group's fourth-quarter results in 2009Neste Oil's fourth-quarter sales totaled EUR 2,491 million (2,805 million),reflecting lower sales volumes.The Group's comparable operating profit was EUR -29 million in the fourthquarter, compared to EUR 103 million a year earlier. The weak result was mainlya consequence of a 61% drop in the total refining margin year-on-year and aweaker freight market compared to 2008. Oil Retail's profitability improvedcompared to the last quarter of 2008, which included significant inventorylosses. A reduction in fixed costs of 10% compared to the fourth quarter of2008 made a positive contribution.Oil Products' comparable operating profit was EUR -11 million (154 million) inthe fourth quarter, Renewable Fuels' EUR -10 million (-10 million), Oil Retail'sEUR 5 million (-5 million), and Others' EUR -11 million (-38 million).Profits from associated companies and joint ventures totaled EUR -1 million (-26million), and were depressed by a EUR 10 million provision at Nynas AB. Nynasbooked major inventory losses in the fourth quarter of 2008.The Group's fourth-quarter 2009 IFRS operating profit was EUR 9 million (-352million), as inventory profit totaled EUR 58 million, compared to an inventoryloss of EUR 467 million in 2008.Pre-tax profit was EUR 4 million (-382 million). Profit for the period was EUR1 million (-289 million) and earnings per share EUR -0.01 (-1.14). 10-12/09 10-12/08 7-9/09 2009 2008-------------------------------------------------------------------------------- COMPARABLE OPERATING PROFIT -29 103 42 116 602 - inventory gains/losses 58 -467 62 261 -453 - changes in the fair value of open oil derivatives -20 10 8 -43 24 - capital gains/losses 0 2 1 1 13 OPERATING PROFIT 9 -352 113 335 186Cash flow, investments, and financingNeste Oil Group's net cash from operating activities between January andDecember totaled EUR 177 million (512 million). The difference compared to 2008resulted from an increase in working capital, largely due to the contangostorage of petroleum products. Approximately EUR 250 million was tied up incontango storage at the end of the year.Investments totaled EUR 863 million in 2009 compared to EUR 508 million in2008. Oil Products' capital spending was EUR 198 million (165 million),Renewable Fuels' EUR 625 million (249 million), Oil Retail's EUR 29 million (63million), and Others' EUR 11 million (31 million).The Group's interest-bearing net debt was EUR 1,918 million at the end of theyear (1,004 million). Net financial expenses between January and December wereEUR 39 million (57 million). The average interest rate of borrowings at the endof 2009 was 2.2%, and the average maturity 3.8 years.The year-end equity-to-assets ratio was 39.1% (46.3%), the leverage ratio 46.3%(31.5%), and the gearing ratio 86.3% (46.1%).The Group's liquidity remained healthy. Cash and cash equivalents and committed,unutilized credit facilities amounted to EUR 1,407 million at the end ofDecember (1,536 million). In September, Neste Oil issued a EUR 300 millionseven-year domestic bond with an annual coupon of 6.00%, and raised a bilateralbank loan of EUR 200 million in December. There are no financial covenants inexisting loan agreements.In accordance with its hedging policy, Neste Oil has hedged the majority of itsnet foreign currency exposure for the next 12 months, mainly using forwardcontracts and currency options. The most important hedged currency is the USdollar.Main events during the reporting periodOn 5 February 2009, Neste Oil announced that its operations would be reorganizedaround three business areas, Oil Products, Renewable Fuels, and Oil Retail, andseven common functions as of 1 April 2009. The new Neste Executive Board (NEB)was appointed.On 28 April, Neste Oil announced that it would postpone its plans to investmentin an isomerization unit at the Porvoo refinery. The decision resulted from theweaker demand for petroleum products, and enabled resources to be concentratedon the company's strategic growth projects. The cost of the isomerization unitwas estimated to be approximately EUR 80 million. The engineering work for theunit is largely complete, and the intention is to move ahead with constructionwhen the market situation improves.On 11 June, Neste Oil and Stora Enso inaugurated their demonstration plant forbiomass to liquids (BtL) production utilizing forestry residues in Varkaus,Finland. A 50/50 joint venture, NSE Biofuels Oy, has been established to developtechnology for commercial-scale biocrude and later to produce this product as afeedstock for renewable diesel.On 29 July, Neste Oil announced that it has successfully started up its secondNExBTL renewable diesel plant at the Porvoo refinery, bringing the company'stotal nameplate capacity of renewable diesel to 340,000 t/a.On 5 August, Neste Oil announced its intention to save over EUR 60 million inannual fixed costs and to secure around EUR 30 million of this throughpersonnel-related measures. Statutory employer-employee negotiations and aconsultation process were started in Finland and it was anticipated that 450people would be affected.On 6 August, a fire broke out on the main diesel production line at the Porvoorefinery. Fortunately, no injuries were caused to personnel and no danger toanyone outside the immediate area. The line was back in normal operation in lateSeptember.On 7 September, Neste Oil issued a EUR 300 million seven-year domestic bond withan annual coupon of 6.00%. The proceeds of the offering were used for generalcorporate and refinancing purposes.On 29 September, Neste Oil hosted a Capital Markets Day in Porvoo and Helsinki.The event covered topical issues, such as the profitability of the company's keygrowth business, renewable fuels, and the company's cost structure and capitalinvestments. The main message of the event was that Neste Oil remains fullycommitted to its clean traffic fuel strategy. It was announced that thecompany's financial targets remain unchanged.On 1 October, the Finnish Court of Arbitration issued an arbitration award onthe contract dispute between Neste Oil and YIT Industrial and Network Servicesrelating to disagreements linked to the final financial settlement of mechanicalinstallation work on diesel production line 4 at Neste Oil's Porvoo refinery,which was completed and came on stream in summer 2007. The dispute was putbefore the Court of Arbitration in April 2008. The final decision had nomaterial impact on Neste Oil's result.On 13 October, Neste Oil completed the statutory employer-employee negotiationscovering Finnish-based personnel employed by the company and its subsidiaries,which began on 5 August 2009. As a result of the negotiations, Neste Oil'spersonnel in Finland will be reduced by a total of 351. Of these, around 240people will leave the company through voluntary retirement. The last job lossesrelated to these reductions will take place during 2010.On 7 December, Neste Oil announced that it will transfer the management of itsstatutory occupational pensions and the associated pension portfolio to theIlmarinen Mutual Pension Insurance Company as of 1 April 2010. The statutorypension liabilities that are currently the responsibility of the Neste OilPension Fund and that will be transferred to Ilmarinen totaled approximately EUR310 million as of the end of 2009. As a result of the transfer, a non-recurringcharge is expected to be booked against Neste Oil's consolidated IFRS financialstatements in the second quarter of 2010. The transfer is expected to have apositive cash flow impact.Strategy implementationNeste Oil continued to implement its clean fuel strategy in 2009. The company'scurrent capital projects consist of new plants designed to increase productionof renewable diesel and high-quality base oil.Strategic projectsConstruction of two world-scale, 800,000 t/a, renewable diesel plants continuedin Singapore and Rotterdam. The plants are expected to be mechanically completein summer 2010 and spring 2011 respectively. Both projects proceeded on-scheduleand on-budget.Two smaller renewable diesel plants are operational at the Porvoo refinery. Thesecond of these achieved mechanical completion in summer 2009 and started upvery successfully in a couple of weeks. The nameplate capacity of both Porvooplants has been increased to 190,000 t/a each from the original 170,000 t/a.Construction of a 400,000 t/a base oil plant in Bahrain, jointly owned by NesteOil (45%) and local partners, has proceeded according to plan. The plant isexpected to be mechanically complete in the second half of 2011.Market overviewAfter collapsing in the second half of 2008, crude oil prices increased steadilyin the first half of 2009 and continued to rise towards the end of the year,despite some short-lived downturns. Brent Dated doubled from around USD 40/bblto nearly USD 80/bbl towards the end of the year. Prices were mainly driven bynews of a recovery in the global economy, strengthening stock and commoditymarkets, and a weaker US dollar - although oil market fundamentals remainedweak. Price differentials between heavier and lighter crudes were very narrow,reflecting the reduced supply of heavier grades following OPEC production cuts.Refining margins weakened significantly compared to 2008 on the back of poorproduct demand, especially for middle distillates. As a consequence, refineryruns declined to record low levels, especially in OECD countries. Gasolinemargins recovered from the low level seen in 2008 but fell again in the latterhalf of 2009. Demand for gasoline was quite stable, but production was limiteddue to low refinery runs. The margins for middle distillates continued todecline and sank to their lowest level in five years during the summer. Demandfor middle distillates was hit by the economic recession, and stocks built up torecord-high levels despite low refinery runs. The European market neverthelessattracted large import volumes from the US and Asia.Fuel oil margins were stronger than in 2008, supported by demand in Asia and theUS and cuts in refinery output. In addition, due to reduced crude oil usage,some refineries refined light products from fuel oil.In the biofuel market, feedstock prices increased through the end of 2009, afterthe low levels seen in spring. This led to lower margins for biofuel producers.The price premium between high-quality renewable diesel and conventionalbiodiesel remained stable.In the oil retail market, demand dropped year-on-year in all market areas, andthis was most evident in trucking and other business-related traffic. Oil demanddecreased in Finland by around 7% in 2009, whereas Baltic Rim markets showeddeclines of over 10% and even close to 20% in the case of gasoline in the lastquarter.Freight rates for crude tankers in North Sea were only half of those seen in2008, impacted by the increased number of vessels available.Key drivers 10-12/09 10-12/08 7-9/09 2009 2008 Jan 10 Jan 09 Reference refining margin, USD/bbl 1.73 8.66 2.20 3.14 9.93 2.81 6.62 Neste Oil total refining margin, USD/bbl 5.85 15.05 5.97 7.35 13.39 n.a. n.a. Urals-Brent price differential, USD/bbl -0.68 -1.82 -0.46 -0.81 -2.95 -0.46 -1.11 NWE Gasoline margin*, USD/bbl 7.73 2.69 10.09 9.26 5.34 10.0 3.95 NWE Diesel margin*, USD/bbl 10.14 28.04 9.24 11.18 31.23 10.4 20.51 NWE Heavy fuel oil margin*, USD/bbl -6.41 -16.16 -5.95 -7.44 -25.16 -5.6 -9.27 Brent Dated crude oil, USD/bbl 74.56 54.87 68.27 61.51 96.98 76.19 43.59 USD/EUR, market rate 1.48 1.32 1.43 1.39 1.47 1.43 1.32 USD/EUR, hedged 1.33 1.45 1.40 1.41 1.42 n.a. n.a. Crude freights, WS points (TD7) 97 144 70 81 179 132 144--------------------------------------------------------------------------------Production and salesNeste Oil's total production in 2009 was 15.5 million tons (15.5 million), ofwhich 0.2 million tons (0.1 million) took the form of NExBTL renewable diesel. Atotal of 15.1 million tons (15.2 million) of crude oil and otherhydrocarbon-based feedstocks were refined, 12.5 million tons (12.4 million) atPorvoo and 2.6 million tons (2.8 million) at Naantali.During the fourth quarter, the corresponding figure for total production was4.1 million tons (4.0 million), with a NExBTL renewable diesel accounting for0.1 million tons (0.0). Neste Oil refined 3.3 million tons (3.3 million) atPorvoo and 0.7 million tons (0.7 million) at Naantali, totaling 4.0 million tons(4.0 million).The Porvoo refinery operated at an average capacity utilization rate of 87%(82%) in 2009, while Naantali reached 87% (92%). Utilization at the Porvoorefinery was negatively affected in August and September by a fire on Line 4.Excluding the latter incident, the line's performance improved compared to2008, which was the main reason behind Porvoo's higher utilization rate. AtNaantali, capacity utilization was negatively affected by unplanned maintenanceshutdowns during the first half of the year. During the fourth quarter, bothrefineries operated well, with capacity utilization at Porvoo running at 92%(89%) and at Naantali at 89% (91%).The proportion of Russian Export Blend (REB) in Neste Oil's total refinery inputrose to 63% (57%) for the year as a whole and 67% during the fourth quarter(57%).Refinery production costs decreased to USD 4.4/bbl (5.9) for the year as awhole. In the fourth quarter, the figure was USD 4.3/bbl (6.3).The proportion of diesel fuel in Neste Oil's sales remained close to 40% in2009, while the proportion of gasoline and heavy fuel oil increased. Lessfavorable arbitrage economics resulted to a shift of gasoline exports from theUS to other markets.During the fourth quarter, a total of 400,000 tons of gasoline and middledistillates were stored in preparation for the Porvoo refinery's scheduledmaintenance shutdown during the second quarter of 2010. As of the end of 2009,Neste Oil's contango storage stood at around 570,000 tons, which is scheduled tobe sold during the second quarter of 2010.Neste Oil's sales from in-house production, by product category (1,000 t) 10-12/09 % 10-12/08 % 7-9/09 % 2009 % 2008 % Motor gasoline 837 24 1,052 28 1,146 33 4,218 30 4,056 28 Gasoline components 51 1 33 1 62 2 270 2 253 2 Diesel fuel 1,449 41 1,585 42 1,292 37 5,228 37 5,583 38 Jet fuel 191 5 154 4 136 4 613 4 658 5 Base oils 62 2 58 2 66 2 257 2 278 2 Heating oil 178 5 245 7 99 3 631 4 763 5 Heavy fuel oil 291 8 220 6 308 9 1,300 9 981 7 LPG 51 1 70 2 27 1 220 2 340 2 NExBTL renewable diesel 66 2 19 1 68 2 209 1 94 1 Other products 382 11 318 8 318 9 1,233 9 1,565 11-------------------------------------------------------------------------------- TOTAL 3,559 100 3,755 100 3,522 100 14,178 100 14,571 100Neste Oil's sales from in-house production, by market area (1,000 t) 10-12/09 % 10-12/08 % 7-9/09 % 2009 % 2008 % Finland 2,034 57 1,942 52 1,831 52 7,580 53 7,537 52 Other Nordic countries 581 16 607 16 580 16 2,210 16 2,056 14 Other Europe 629 18 734 19 692 20 2,488 18 3,028 20 USA & Canada 229 6 467 12 357 10 1,686 12 1,857 13 Other countries 86 2 3 0 62 2 214 2 94 1-------------------------------------------------------------------------------- TOTAL 3,559 100 3,754 100 3,522 100 14,178 100 14,571 100SEGMENT REVIEWSAs of April 2009, Neste Oil's businesses were grouped into four reportingsegments: Oil Products, Renewable Fuels, Oil Retail, and Others.Oil Products 10-12/09 10-12/08 7-9/09 2009 2008 Revenue, MEUR 1,987 2,221 1,971 7,631 12,641 Comparable operating profit, MEUR -11 154 15 105 602 Operating profit, MEUR 27 -301 80 318 183 Total refining margin, USD/bbl 5.85 15.05 5.97 7.35 13.39Oil Products posted a significantly lower comparable operating profit of EUR105 million in 2009 compared to EUR 602 million in 2008. This decrease is mainlyattributable to a major drop in total refining margin, which averaged USD7.35/bbl (13.39) during the year. The negative impact of market conditions andlower sales volumes was only partly offset by better productivity, contango andtrading benefits, and cost reductions. The base oil business suffered fromsignificantly lower demand, and the oil tanker chartering business from very lowfreight rates. Gasoline components performed better year-on-year, thanks to abetter overall gasoline market.In the fourth quarter, Oil Products' comparable operating profit sank to EUR -11million compared to EUR 154 million in the same quarter of 2008. Refiningoperations continued to be profitable despite the considerably weaker marketenvironment, which was reflected in a drop in total refining margin to EUR5.85/bbl from USD 15.05/bbl in 2008. The profitability of the other businessesin Oil Products' portfolio declined compared to Q4/2008, due to low freightrates in oil tanker chartering, high feedstock price in gasoline components, andlower demand year-on-year in base oils. Oil Products booked additionaldepreciation of EUR 4 million related to the Porvoo refinery's major turnaroundin 2005.Oil Products' comparable return on net assets was 4.0% (21.2%) in 2009.Renewable Fuels 10-12/09 10-12/08 7-9/09 2009 2008 Revenue, MEUR 61 20 59 182 116 Comparable operating profit, MEUR -10 -10 -6 -30 2 Operating profit, MEUR -11 -9 -1 -25 2----------------------------------------------------------------------Renewable Fuels' comparable operating profit was EUR -30 million in 2009,compared to EUR 2 million in 2008. This was the result of lower margins, partlybecause of a favorable fixed feedstock price in 2008, and costs related to theexpansion of business and Research & Technology.In the fourth quarter, Renewable Fuels posted a comparable operating profit ofEUR -10 million (-10 million). This includes a EUR 3 million additionaldepreciation. Renewable diesel margins were lower in 2009, due to higherfeedstock prices, although this was offset by higher sales volumes after thesecond plant at Porvoo came online during the second half.Renewable Fuels' comparable return on net assets was -4.8% in 2009 (0.9%).Oil RetailKey figures 10-12/09 10-12/08 7-9/09 2009 2008 Revenue, MEUR 791 915 789 2,998 4,073 Comparable operating profit, MEUR 5 -5 19 50 22 Operating profit, MEUR 6 -6 19 50 25 Total sales volume*, 1,000 m3 1,030 1,142 986 4,002 4,353 - gasoline station sales, 1,000 m3 333 376 374 1,405 1,479 - diesel station sales, 1,000 m3 345 355 340 1,331 1,406 - heating oil, 1,000 m3 200 219 156 714 759 - heavy fuel oil, 1,000 m3 78 105 57 287 356* includes both station and terminal salesOil Retail's comparable operating profit totaled EUR 50 million in 2009,compared to EUR 22 million in 2008. The Comparable operating profit for 2008included a EUR 15 million write-down on bad debts and EUR 10 million ininventory losses. Volumes were lower in 2009 and there was substantial pressureon margins. A reduction in fixed costs year-on-year provided a positivecontribution.In the fourth quarter of 2009, volumes and margins were weak in the Balticcountries and North-West Russia, and Oil Retail's comparable operating profitcame in at EUR 5 million (-5 million). The last quarter of 2008 was depressed bysignificant inventory losses.Oil Retail's comparable return on net assets was 15.8% (6.0%) in 2009.Shares, share trading, and ownershipNeste Oil's shares are traded on the NASDAQ OMX Helsinki Ltd. The share priceclosed 2009 at EUR 12.42, which is 17% higher compared to the end of 2008. Atits highest during 2009, the share price reached EUR 13.44, while at its lowestthe price stood at EUR 8.80, with the weighted average for the year coming in atEUR 10.85. Market capitalization was EUR 3.2 billion as of 31 December 2009.An average total of 1.1 million shares were traded daily. This represents 0.4%of the Company's shares. An average of 22.4 million shares was traded monthly.During the year as a whole, 269 million shares, or 105% of the total number ofshares, were traded.Neste Oil's share capital registered with the Company Register as of 31 December2009 totaled EUR 40 million, and the total number of shares outstanding is256,403,686. The company does not hold any of its own shares, and the Board ofDirectors has no authorization to buy back company shares or to issueconvertible bonds, share options, or new shares.As of the end of 2009, the Finnish State owned 50.1% (50.1%) of outstandingshares, foreign institutions 17.1% (20.6%), Finnish institutions 18.9% (19.5%),and Finnish households 14.0% (9.8%).Annual General MeetingNeste Oil's Annual General Meeting 2009 was held on 3 April at the Helsinki FairCentre. The AGM adopted the company's financial statements and consolidatedfinancial statements for 2008 and discharged the Supervisory Board, Board ofDirectors, and management from liability for 2008. The AGM also approved theBoard of Directors' proposal regarding the distribution of the company's profitfor 2008, sanctioning payment of a dividend of EUR 0.80 per share. Payment wasmade on Friday, 17 April 2009.In accordance with a proposal made by the AGM Nomination Committee, the AGMconfirmed the membership of the Board of Directors at eight members, and thefollowing were re-elected to serve until the end of the next AGM: Mr. TimoPeltola, Mr. Mikael von Frenckell, Mr. Michiel Boersma, Ms. Ainomaija Haarla,Ms. Nina Linander, Mr. Markku Tapio and Ms. Maarit Toivanen-Koivisto. Mr. HannuRy?nen was elected as a new member. Mr. Timo Peltola continued as Chairmanand Mr. Mikael von Frenckell as Vice Chairman. The AGM decided to pay thefollowing remuneration to the Board: Chairman EUR 66,000 a year, ViceChairman EUR 49,200 a year, and members EUR 35,400 a year. In addition, thoseparticipating at Board meetings and meetings convened by the Board's committeeswill receive a payment of EUR 600 per meeting, together with their travelingcosts, in accordance with the company's travel policy. A payment of double this,EUR 1,200 per meeting, will be made to Board members living outside Finland.Convening after the Annual General Meeting, Neste Oil's Board of Directorselected the members of its two Committees. Timo Peltola was elected Chairman andMichiel Boersma, Mikael von Frenckell, and Ainomaija Haarla as members of thePersonnel and Remuneration Committee. Nina Linander was elected Chairman andHannu Ry?nen, Markku Tapio, and Maarit Toivanen-Koivisto as members of theAudit Committee.The AGM confirmed that the Supervisory Board shall comprise eight members andthe following members were elected: Ms. Heidi Hautala (Chairman), Mr. KimmoTiilikainen (Vice Chairman), Mr. Esko Ahonen, Mr. Mikael Forss, Mr. TimoHeinonen, Mr. Markus Mustaj?i, Ms. Jutta Urpilainen, and Ms. Anne-MariVirolainen. Mr. Kimmo Tiilikainen was elected for the first time. Members areall Finnish Members of Parliament, with the exception of Mr. Mikael Forss, whois a Director at the Social Insurance Institution of Finland. No changes weremade to the remuneration paid to the Supervisory Board, which remains asfollows: Chairman EUR 1,000 a month, Vice Chairman EUR 600 a month, andmembers EUR 500 a month. In addition, those participating at Supervisory Boardmeetings receive a payment of EUR 200 per meeting.In accordance with a proposal by the Board of Directors, Ernst & Young Oy,Authorized Public Accountants, were appointed as the company's Auditor, withAuthorized Public Accountant Anna-Maija Simola as Responsible Auditor, until theend of the next AGM. Payment for their services shall be made in accordance withtheir invoice that is accepted by the company.Following a proposal by the Prime Minister's Office, representing the FinnishState, the AGM decided to establish a Nominations Committee to prepare proposalscovering the members of the Board of Directors and their remuneration forconsideration by the next AGM. The Nomination Committee comprisesrepresentatives of the Company's three largest shareholders and shall alsoinclude, as expert members, the Chairman of the Board, together with one memberelected by the Board from among its members unaffiliated with any of theCompany's major shareholders. In 2009, the Nomination Committee comprisedDirector General Pekka Timonen from the Ownership Steering Department at thePrime Minister's Office; Timo Ritakallio, Deputy CEO, Ilmarinen Mutual PensionInsurance Company; and Risto Murto, Chief Investment Officer, Varma MutualPension Insurance Company. The Chairman of Neste Oil's Board of Directors TimoPeltola and Vice Chairman Mikael von Frenckell served as the Committee's expertmembers.Organizational restructuringNeste Oil's operations were reorganized around three business areas and sevencommon functions as of 1 April 2009. The new structure is designed to give thecompany a more cost-efficient and customer-driven operating model, and one thatwill be better capable of implementing corporate strategy. The new matrixorganization will ensure that the best practices and know-how of business areasand functions will benefit the entire company, and that new international units,such as the renewable diesel plants currently being built, can be integratedinto the Group's operations more effectively and that reporting will be moreefficient.The business areas are as follows: Oil Products, Renewable Fuels, and OilRetail. Activities outside these business areas are grouped under Others. Thecommon functions are: Production & Logistics, Finance, Human Resources,Sustainability & HSSE, Communications, Marketing and Public Affairs, Technology& Strategy, and Legal Affairs.As of 1 April, the Neste Executive Board (NEB) comprises the following members:Matti Lievonen, President & CEO; Matti Lehmus, Executive Vice President, OilProducts; Jarmo Honkamaa, Executive Vice President, Renewable Fuels, Deputy CEO;Sakari Toivola, Executive Vice President, Oil Retail; Ilkka Poranen, Senior VicePresident, Production & Logistics; Ilkka Salonen, CFO; Hannele Jakosuo-Jansson,Senior Vice President, Human Resources, Simo Honkanen, Senior Vice President,Sustainability and HSSE; Osmo Kammonen, Senior Vice President, Communications,Marketing and Public Affairs; and Lars Peter Lindfors, Senior Vice President,Technology and Strategy. Matti Hautakangas, General Counsel, acts as secretaryto the NEB.PersonnelNeste Oil employed an average of 5,286 (5,174) employees in 2009, of which1,333 are based outside Finland. As of the end of December, the company had5,092 employees (5,262), of which 1,424 are located outside Finland. Wages andsalaries paid by the company totaled EUR 233 million in 2009 (251 million).Health, safety, and the environmentThe main indicator for safety performance used by Neste Oil - total recordableinjury frequency (TRIF, number of cases per million hours worked) for all workdone for the company, combining the company's own personnel and contractors -stood at 3.1 (5.2) at the end of 2009. The target for 2009 was below 4. Lostworkday injury frequency (LWIF) stood at 2.2. The target for 2009 was below 2.LWIF in 2008 was 3.2. Safety performance during 2009 was the best in thecompany's history.No serious environmental accidents resulting in liability occurred at NesteOil's refineries or other production facilities in 2009. The environmentalemissions of Neste Oil's operations remained low throughout the year, with theexception of short-term sulfur dioxide emissions in July, resulting from flaringdue to technical and operational problems. Permitted emission limit values werenot exceeded. The wastewater treatment plants at the refineries operated verywell. The oil content of waterborne emissions was 0.07 g/ton of crude oilprocessed. This is less than 2.2% of the 3 g/ton maximum emission recommendationby the Baltic Marine Environment Protection Commission.Neste Oil has successfully fulfilled all the requirements related to carbondioxide emissions in 2009. The verification of emissions for 2009 is scheduled,and the company is able to report and surrender allowances equal to its totalemissions in 2009. The company has received emission rights for 3.6 million tonsof CO2 emissions a year between 2008 and 2012, and will need to acquire rightsfrom the market to cover expected future emissions.The REACH (Registration, Evaluation and Authorization of Chemicals) regulationcame into force in the EU on 1 June 2007. Neste Oil has contributed to jointwork carried out under the framework of the European oil companies'organization, Concawe, and the company's project for meeting REACH requirementshas progressed according to plan.Neste Oil retained its position in or was selected for inclusion in a number ofsustainability indexes during 2009. It was included in the Dow JonesSustainability World Index for the third year in a row. Neste Oil has beenawarded 'Best in Class' recognition for its social accountability by theNorwegian banking group, Storebrand, and has been included in Innovest's Global100 list of the world's most sustainable companies three times, and featured inthe Ethibel Pioneer Investment Register.Research and developmentResearch and development focusing on both crude oil-based and renewable trafficfuels is crucial in implementing Neste Oil's strategy. Neste Oil's R&Dexpenditure totaled EUR 37 million in 2009 (37 million). The company's main R&Dprojects were related to extending the raw material and technological base forrenewable fuels.Events after the reporting periodOn 12 January 2010, Neste Oil decided to transfer the management of itssupplementary pension benefits and the associated pension portfolio of itsFinnish companies to OP Life Assurance Company Ltd. The move is expected to takeplace on 1 April 2010. A non-recurring charge is expected to be booked againstNeste Oil's consolidated IFRS financial statements in the second quarter of2010. The transfer is expected to have a positive cash flow impact.On 1 February 2010, Neste Oil announced that it is to receive a total of EUR47.5 million in compensation for damage and lost production volumes following afire on Line 4 at the Porvoo refinery on 4 April 2008. The compensation will bebooked against the company's first-quarter 2010 result.Potential short-term and long-term risksThe oil market has been and is expected to continue to be very volatile. Oilrefiners are exposed to a variety of political and economic trends and events,as well as natural phenomena that affect the short- and long-term supply of anddemand for the products that they produce and sell.The largest uncertainty over the short term continues to be the pace of theanticipated recovery of the world economy, which is likely to have a materialimpact on the demand for petroleum products generally and diesel fuel inparticular.Sudden and unplanned outages at Neste Oil's production units or facilitiescontinue to represent a short-term operational risk.Rapid and large changes in feedstock and product prices may lead to significantinventory gains or losses, or change in working capital. These may have amaterial impact on the company's IFRS operating profit and net cash fromoperations.Over the longer term, access to funding and rising capital costs, as well aschallenges in procuring and developing new competitive and reasonably priced rawmaterials, may impact the company's growth plans.The implementation of biofuel legislation in the EU and other key market areasmay influence the speed at which the demand for these fuels develops. Risksinclude also any problems or delays in completing the NExBTL renewable dieselinvestments or failure to capture the anticipated benefits from theseinvestments. In the longer term, failure to protect its proprietary technologyor introduction and implementation of competing renewable fuel technologies orhybrid and electric engines may have a negative impact on the company's results.The key market drivers for Neste Oil's financial performance are internationalrefining margins, the price differential between Russian Export Blend (REB) andBrent crude, and the USD/EUR exchange rate.For more detailed information on Neste Oil's risks and risk management, pleaserefer to the company's Annual Report and Financial Statements for 2009.OutlookThe market environment is likely to remain challenging in 2010. It is still tooearly to say whether the global economy has returned to sustainable growth evenif there are some positive signs. Oil demand forecasts for 2010 indicate growth,primarily in non-OECD countries, after the historical collapse seen in 2009, butdemand will be largely dictated by general economic developments.Refining margins are expected to increase only gradually, due to the slowrecovery of demand and the new capacity set to come on stream in 2010, as wellas high petroleum product inventories. It is likely that refinery utilizationrates will be limited globally and that more capacity will be closed eithertemporarily or for good.Diesel and middle distillate margins have strengthened somewhat during January2010, resulting from the cold weather and normal seasonal demand. Margins arenot expected to increase significantly before inventories, both onshore andfloating, which are running at high levels, have been drawn down. This isexpected to take at least six months, depending on how demand develops. Gasolineinventories are close to normal levels, and there is a possibility of positiveseasonal impact to gasoline margins ahead of the driving season.A major planned six-week turnaround will be carried out at Neste Oil's Porvoorefinery starting at the beginning of April. During this, Neste Oil will sellstored products, which totaled appr. 600,000 tons (over 4 million barrels) atthe end of 2009. This will have a positive impact on the operational cash flowin the second quarter.The Renewable Fuels business is anticipated to report negative results untilsales volumes increase significantly, which is expected during the last monthsof 2010 when the new plant in Singapore is scheduled to come on stream.No significant recovery of demand is expected on oil retail markets, either inFinland or elsewhere. Increased economic activity would have a positive impacton diesel demand in trucking and other transport use. Neste Oil will continue tooffset the impact of a weak market by increasing its internal efficiency.A non-recurring insurance compensation of EUR 47.5 million will be booked in thefirst quarter operating profit.A non-recurring charge is expected to be booked in the second quarter 2010operating profit relating to transfer of the Neste Oil Pension Fund outside thecompany. The cash flow impact of these transfers in the second quarter will bepositive.The Group's fixed costs are estimated to be on a similar level to those in 2009.The Group's cash investments are expected to be around EUR 920 million (870million), of which strategic investments will account for 580 million (670million), maintenance investments 310 million (160 million), and productivityinvestments 30 million (40 million).Dividend distribution proposal and the AGMThe Board of Directors' dividend proposal to the Annual General Meeting is EUR0.25 per share for 2009, totaling EUR 64 million.The Annual General Meeting will be held on 15 April 2009 at 11:00 a.m. EET atthe Helsinki Fair Centre.Reporting date for the first-quarter 2010 resultsNeste Oil will publish its first-quarter results for 2010 on 29 April 2010 atapproximately 9:00 a.m. EET.Espoo, 3 February 2010Neste Oil CorporationBoard of DirectorsFurther information:Matti Lievonen, President & CEO, tel. +358 10 458 11Ilkka Salonen, CFO, tel. +358 10 458 4490Investor Relations, tel. +358 10 458 5132News conference and conference callA press conference in Finnish on the fourth quarter and full-year results willbe held today, 4 February 2010, at 11:30 am EET at the company's headquarters,Keilaranta 21, Espoo. www.nesteoil.com
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