Neste Oil Corporation Stock Exchange Release
9 February 2007 at 9:00 a.m. EET
NESTE OIL'S FINANCIAL STATEMENTS FOR 2006
- Comparable operating profit reached EUR 597 million, up 5.7% on 2005
Neste Oil continued to deliver solid performance in 2006. Both reported and
comparable operating profit exceeded the corresponding figures for 2005, despite
lower reference refining margins especially in the fourth quarter. The company
reduced its net debt by 10%, which brought the leverage ratio down to 25.6% from
33.0% in 2005. The Board proposes a dividend of EUR 0.90 per share, equivalent
to 37% of earnings per share.
2006 performance in brief:
· Net sales of EUR 12,734 million (9,974 million)
· Comparable operating profit of EUR 597 million (565 million)
· Operating profit of EUR 854 million (831 million)
· Earnings per share of EUR 2.46 (2.60)
· EUR 535 million (668 million) capital expenditure, virtually covered
by EUR 512 million (596 million) of cash flow from operations
· Net debt reduced to EUR 722 million (796 million)
· The Board of Directors proposes a dividend of EUR 0.90 per share (0.80)
President & CEO Risto Rinne:
"We reported another good result in 2006. We were able to offset much of the
negative impact of the weak refining margins and low freight rates in the last
quarter. Especially Base oils and Oil Retail businesses improved their
contribution. Our capital expenditure remained high, as we invested over 530
million euros during the year. We are now in the process of starting up a new
diesel production line at the Porvoo refinery, and in the summer we will
commission the world's first plant producing high-quality renewable NExBTL
diesel."
"In 2006 we also updated our strategy and set new growth targets for oil
refining and premium-quality biodiesel. In line with this, we continued to
divest non-core businesses. The company's financial targets and dividend policy
were updated as well. I have every reason to believe that we have a strong
strategy and a good platform to grow and add shareholder value in 2007 and
beyond."
Further information:
Risto Rinne, President & CEO, tel. +358 10 458 4990
Petri Pentti, CFO, tel. +358 10 458 4490
News conference and conference call
A press conference in Finnish on the 2006 results will be held today, 9 February
2007, at 11:30 am EET in the Mirror Room at Hotel Kämp, Pohjoisesplanadi 29,
Helsinki. www.nesteoil.com will feature English versions of the presentation
materials.
A conference call in English for investors and analysts will be held today, 9
February 2007, at 3:00 pm EET. The call-in numbers are as follows: Europe: +44
(0)20 7162 0125, US: +1 334 323 6203. Use the password: Neste Oil. An instant
replay of the call will be available until 16 February 2007 at +44 (0)20 7031
4064 for Europe and +1 954 334 0342 for the US, using access code 735104.
NESTE OIL FINANCIAL STATEMENTS, 1 JANUARY 31 DECEMBER 2006
Audited
Figures in parentheses refer to the full-year financial statements for 2005,
unless otherwise stated.
KEY FIGURES
EUR million (unless otherwise noted)
1012/06 1012/05 2006 2005
Sales 2,956 2,752 12,734 9,974
Operating profit before 207 356 1,007 984
depreciation
Depreciation, amortization 40 44 153 153
and impairment charges
Operating profit ** 167 312 854 831
Comparable operating profit * 87 114 597 565
Profit before income tax 165 322 841 823
Earnings per share, EUR 0.54 1.11 2.46 2.60
Capital expenditure 151 184 535 668
and investment in shares
Net cash from operating 136 272 512 596
activities
31 Dec 31 Dec
2006 2005
Total equity 2,097 1,612
Interest-bearing net debt 722 796
Capital employed 2,890 2,487
Return on capital employed pre- 31.9 37.0
tax, %
Return on average capital 15.4 19.7
employed,%
Return on equity, % 34.3 51.3
Equity per share, EUR 8.15 6.26
Cash flow per share, EUR 2.00 2.33
Equity-to-assets ratio, % 48.4 42.4
Leverage ratio, % 25.6 33.0
Gearing, % 34.4 49.4
* Comparable operating profit is calculated by excluding inventory gains/losses,
gains/losses from sales of fixed assets, and unrealized changes in the fair
value of oil and freight derivative contracts from the reported operating
profit.
** Neste Oil divested major non-core assets during the third and fourth quarter
of 2005. As a result, the company amended its definition of 'Operating profit'
so that its share of the profit/loss of associates and joint ventures (in
general shareholdings where Neste Oil holds 20-50% of the entity's voting power)
is included in 'Operating profit' in the income statement as of 1 January 2006.
The comparative figures for the consolidated income statement and segment
information for 2005 have been restated accordingly.
The Group's full-year results
Neste Oil's sales increased 28% to EUR 12 734 million in 2006, compared to EUR
9,974 million in 2005.
The Group achieved an operating profit of EUR 854 million (831 million), which
represents an increase of 2.7% compared to 2005. This includes EUR 210 million
gain on sales of assets (150 million) and an inventory gain of EUR 56 million
(127 million).
The full-year comparable operating profit increased by 5.7% to EUR 597 million
(565 million), thanks mainly to higher volumes, stronger refining margin, and
improved base-oil profitability in Oil Refining. Retail operations in the Baltic
Rim as well as improved profitability of Neste Oil's joint venture Nynäs
Petroleum also made a positive contribution.
The comparable operating profit includes a write-down on trade receivables and
inventories amounting to EUR 23 million in the accounts of Neste Canada, Inc;
and a negative item of EUR 7 million from a fine imposed on Nynäs Petroleum by
the European Commission.
Oil Refining recorded a comparable operating profit of EUR 533 million (446
million), Oil Retail EUR 65 million (46 million), and Shipping EUR 32 million
(85 million).
Profits from associated companies and joint ventures totaled EUR 39 million (40
million).
The Group's profit before taxes amounted to EUR 841 million (823 million).
Taxes for the period were EUR 205 million (153 million), and the effective tax
rate was 24.3% (18.5%).
Net profit for 2006 totaled EUR 636 million (670 million) and earnings per
share, EUR 2.46 (2.60).
Given the capital-intensive and cyclical nature of its business, Neste Oil uses
return on average capital employed after tax (ROACE%) as its primary financial
indicator. At the end of December, the rolling twelve-month ROACE was 15.4%
(financial period 2005: 19.7%).
The Group's fourth-quarter results
Sales at the Group amounted to EUR 2,956 in the last quarter of 2006 (10-12/05:
2,752 million).
Neste Oil's fourth-quarter operating profit was EUR 167 million (10-12/05: 312
million). The operating profit in the fourth quarter of 2005 included a capital
gain of EUR 141 million on the sale of shares in SeverTEK.
The Group's comparable operating profit for the fourth quarter was EUR 87
million (10-12/05: 114 million), reflecting soft market conditions at the end of
2006. The comparable operating profit was negatively impacted by lower refining
margins and lower crude freight rates compared to the equivalent period in 2005.
In addition, the planned maintenance shutdown at Naantali resulted to a negative
impact of EUR 15 million.
Oil Refinings comparable operating profit in the fourth quarter was EUR 78
million (10-12/05: 85 million), Oil Retail's EUR 16 million (10-12/05: 7
million), and Shipping's EUR 1 million (10-12/05: 28 million).
Profits from associates and joint ventures in the fourth quarter increased to
EUR 12 million (10-12/05: 4 million). The main contributor to this was the
strong performance at Nynäs Petroleum.
10-12/06 10-12/05 2006 2005
COMPARABLE OPERATING PROFIT 87 114 597 565
- changes in the fair value of -17 63 -9 -11
open oil derivative positions
- inventory gains 14 -14 56 127
- gains from sales of fixed 83 149 210 150
assets
OPERATING PROFIT 167 312 854 831
Capital expenditure
2006 was another year of heavy capital spending in the Neste Oil Group.
Investments totaled EUR 535 million (668 million), of which EUR 250 million went
on the Diesel project and EUR 56 million on the biodiesel plant at Porvoo. Oil
Refinings other investments accounted for EUR 172 million, Oil Retail EUR 44
million, and Shipping EUR 10 million.
Depreciation in 2006 was EUR 153 million (153 million).
Financing
Neste Oil's financial position improved in 2006. Interest-bearing net debt
decreased by EUR 74 million to EUR 722 million by the end of the year, compared
to EUR 796 million at the end of 2005. Net financial expenses between January
and December were EUR 13 million (8 million).
The average interest rate of borrowings at the end of 2006 was 4.1%, and the
average maturity 4.3 years.
Net cash from operating activities between January and December was EUR 512
million (596 million). The reduction in this figure compared to 2005 is largely
explained by the higher level of working capital resulting from higher
inventories at the end of the year compared to the end of 2005.
Good profitability and asset disposals strengthened Neste Oil's balance sheet
during 2006. The year-end equity-to-assets ratio was 48.4% (31 Dec 2005: 42.4%),
the gearing ratio 34.4% (31 Dec 2005: 49.4%), and the leverage ratio 25.6% (31
Dec 2005: 33.0%).
The Group's liquidity remained healthy. Cash and cash equivalents and committed,
unutilized credit facilities amounted to EUR 1,667 million at the end of
December (31 Dec 2005: 1,429 million).
In accordance with its hedging policy, Neste Oil has hedged the majority of its
net foreign currency exposure for the next 12 months using mainly forward
contracts and currency options. The most important hedged currency is the US
dollar.
In January 2006, Neste Oil signed a EUR 150 million, 8-year loan agreement with
the European Investment Bank, which was used to finance the Diesel project.
Market overview
Crude oil prices continued to increase in 2006 from the record levels seen in
2005. Prices remained strong through the year and, supported by hurricane
expectations in the US, reached new records in July and August. Brent Dated
recorded an all-time high of USD 78.69 /bbl in early August. Prices stabilized
at around USD 57 /bbl in October. A production cut agreed by OPEC in November,
together with increasing refinery runs and stronger Asian demand, led to a
tighter crude market and kept prices up. In 2006, Brent Dated averaged USD 65.14
/bbl (54.52); the average for the fourth quarter was USD 59.60 /bbl (10-12/05:
56.90).
The price difference between heavy and light crude remained volatile, widening
in the first months of the year but decreasing from May onwards. The average
differential between Urals and Brent Dated in 2006 was USD -4.28 /bbl (-4.42).
During the fourth quarter, the differential narrowed further and averaged USD -
3.79 /bbl (10-12/05: -3.91).
Reference refining margins were lower compared to 2005, but still above long-
term averages. The international reference refining margin for complex
refineries in North West Europe, IEA Brent Cracking, averaged USD 3.73 /bbl
(4.98). High product inventories at the beginning of the fourth quarter weakened
the supply-demand balance, and strong crude prices since mid-November reduced
margins further. IEA Brent Cracking averaged USD 1.66 /bbl (10-12/05: 5.24)
during the quarter.
Gasoline prices rose steadily during the first half of 2006, pushed up by US
hurricane expectations, but fell back in July and August. The market slowly
recovered during the fourth quarter after being exceptionally weak during the
fall. US inventories declined as shutdowns and refinery problems cut gasoline
production. Seasonally good US demand also contributed to a tighter market.
The middle distillate market was less volatile. Exceptionally warm weather in
the Northern Hemisphere during the last months of 2006 reduced heating oil
demand and the gasoil margin gradually declined. The diesel fuel market remained
healthy, due to good demand and occasional supply disruptions caused by refinery
shutdowns.
The fuel oil market remained weak throughout the year, mainly due to low demand
and large high-sulfur heavy fuel oil exports from Russia. Warm weather also kept
utility demand for low-sulfur heavy fuel oil poor in the fourth quarter.
Strong demand for high-quality lubricant base oils, such as EHVI (Enhanced High
Viscosity Index), continued and was reflected in healthy margins and strong
profitability.
Consolidation and competition for market share continued on the oil retail
market in Finland. Demand for traffic fuels continued to grow in the Baltic Rim
area.
Increased competition and exceptionally warm weather reduced crude freight rates
about 30% on the Baltic market in 2006. North Sea freight rates averaged some
10% lower compared to 2005.
In January 2007, the IEA Brent cracking margin averaged USD 2.35 /bbl (USD 2.07
/bbl in January 2006, and USD 3.17 /bbl in Q1/06). The price difference between
Urals Rotterdam and Brent Dated was USD -3.95 /bbl (USD -3.76 /bbl in January
2006 and USD -4.06 /bbl in Q1/06). The daily price of Brent Dated varied between
USD 50.68 and 58.62 /bbl.
Key drivers
10-12/06 10-12/05 2006 2005 Jan 2007
IEA Brent cracking margin, 1.66 5.24 3.73 4.98 2.35
USD/bbl
Neste Oil's refining 7.46 8.27 9.11 8.82 n.a.
margin, USD/bbl
Urals - Brent price -3.79 -3.91 -4.28 -4.42 -3.95
differential, USD/bbl
Brent dated crude oil, 59.60 56.90 65.14 54.52 53.68
USD/bbl
Crude freight rates, Aframax WS 165 231 145 164 171
points
SEGMENT REVIEWS
Neste Oil's businesses are grouped into four segments for external reporting
purposes: Oil Refining, Oil Retail, Shipping, and Other. The Components business
was included in Oil Refining during 2006.
OIL REFINING
Oil Refining recorded a full-year operating profit of EUR 671 million (570
million), and a comparable operating profit of EUR 533 million (446 million), an
increase of 19.5% from 2005.
Neste Oil's refining margin increased to USD 9.11/bbl in 2006, compared to USD
8.82/bbl in 2005. The reference refining margin (IEA Brent cracking), however,
was lower on average than in 2005, at USD 3.73/bbl in 2006 and 4.98/bbl in 2005.
Neste Oil's higher margin resulted from better productivity and increased
volumes, especially at the Porvoo refinery, and a strong contribution from base
oils margins. Nynäs Petroleum's good profitability also had a positive impact on
Oil Refining's figures.
Oil Refining posted an operating profit of EUR 81 million (10-12/05: 135
million) in the fourth quarter and a comparable operating profit of EUR 78
million (10-12/05: 85 million). Performance was good, given the soft market
conditions during the quarter.
Neste Oil's refining margin averaged USD 7.46/bbl in the fourth quarter (10-
12/05: 8.27). This was down on 2005 due to market weakness, clearly visible in
the IEA Brent cracking margin, which averaged USD 1.66 /bbl (10-12/05: 5.24).
Good productivity, especially in December, and high base oil margins were the
strongest positive contributors.
Oil Refining's return on net assets (RONA) in 2006 was 29.9% (34.7%). Comparable
return on net assets was 23.8% (27.1%).
Key figures
10-12/06 10-12/05 2006 2005
Sales, MEUR 2,431 2,282 10,768 8,150
Operating profit, MEUR 81 135 671 570
Comparable operating profit, MEUR 78 85 533 446
Capital expenditure, MEUR 130 153 478 589
Total refining margin USD/bbl 7.46 8.27 9.11 8.82
Production
Neste Oil refined a total of 13.8 million tons (12.9 million) in 2006, of which
11.6 million tons (10.3 million) at Porvoo. The Naantali refinery processed 2.2
million tons (2.6 million), the reduction on 2005 resulting from a major
maintenance shutdown in the fall. Crude distillation capacity utilization at the
Porvoo refinery was 100.0% (89.2%), while the maintenance shutdown at Naantali
pushed its rate down to 82.5% (96.1%).
The company refined 3.5 million tons (3.4 million) of crude oil and feedstocks
in the fourth quarter, of which 3.0 million tons (2.8 million) were refined at
Porvoo and 0.5 million tons (0.6 million) at Naantali. Production volumes at
Naantali were reduced by the maintenance shutdown.
Crude distillation capacity at Porvoo reached 100% (10-12/05: 100%) in the
fourth quarter. At Naantali, capacity utilization rate was 75.6% (10-12/05:
96.1), resulting from the planned maintenance shutdown.
In 2006, 43% of total refinery input comprised heavier Russian Export Blend
(47%). REB accounted for 41% (46%) in the fourth quarter.
Sales
Sales volumes in Finland totaled 8.1 million tons in 2006 (7.5 million), and
export volumes 6.0 million tons (5.6 million).
In the fourth quarter sales volumes in Finland totaled 2.0 million tons (10-
12/05: 1.9 million) and exports 1.5 million tons (10-12/05: 1.5 million).
Neste Oil's wholesale market share of key petroleum products in Finland rose
compared to 2005 and averaged 83% in January-November 2006 (77%). The October-
November average was 84% (78%).
2006 was a record-breaking year for sales of high-quality lubricant base oils,
such as EHVI (Enhanced High Viscosity Index). Demand for these products grew
continuously and this was reflected in high volumes and strong margins.
Neste Oil's sales from in-house production, by product category (1,000 t)
10-12/06 10-12/05 2006 2005
Motor gasoline and components 1,153 1,269 4,856 4,673
Diesel fuel 1,271 1,262 4,821 4,183
Jet fuel 178 181 702 608
Biofuels 22 28 118 111
Base oils 72 82 302 274
Heating oil 197 190 684 791
Heavy fuel oil 257 146 1,069 946
Other products 360 227 1,543 1,460
TOTAL 3,510 3,385 14,095 13,046
Neste Oil's sales from in-house production, by market area (1,000 t)
1012/06 1012/05 2006 2005
Finland 2,049 1,898 8,083 7,455
Other Nordic countries 445 510 1,906 2,135
Other Europe 707 646 2,420 2,000
Russia & the Baltic countries 27 3 53 29
USA & Canada 277 311 1,417 1,246
Other countries 5 17 216 181
TOTAL 3,510 3,385 14,095 13,046
OIL RETAIL
Oil Retail's operating profit in 2006, EUR 138 million (45 million), was
positively impacted by gains from sales of assets. The segment's full-year
comparable operating profit was EUR 65 million (46 million), thanks to increased
volumes and healthy margins in the Baltic Rim area and improved performance in
Finland.
In the fourth quarter asset disposals contributed to Oil Retail's operating
profit of EUR 85 million (10-12/05: 11 million). Comparable operating profit for
the period was EUR 16 million (10-12/05: 7 million).
Oil Retail's return on net assets (RONA) in 2006 was 37.2% (13.2%). Comparable
return on net assets was 17.5% (13.5%).
Key figures
10-12/06 10-12/05 2006 2005
Sales, MEUR 810 782 3,280 2,931
Operating profit, MEUR 85 11 138 45
Comparable operating profit, MEUR 16 7 65 46
Capital expenditure, MEUR 20 14 44 47
Product sales volume, 1,000 m3 1,175 1,078 4,424 4,115
Neste Oil's retail market share in Finland was 26.2% (27.2%) in gasoline and
40.9% (40.6%) in diesel fuel. At the end of 2006, Neste Oil had 887 stations in
Finland, of which 37 were net-price NEX stations.
The company opened 28 new stations outside Finland in 2006, in response to
growing demand.
Neste Oil had 40 stations in Russia, 37 in Estonia, 38 in Latvia, 34 in
Lithuania, and 89 in Poland at the end of 2006. Sales volumes increased by 32%
in the Baltic Rim area.
Sales of heating oil decreased in Finland as a result of very warm weather
during the second half of the year.
Improved sales were recorded in all of Oil Retail's other businesses in 2006,
including aviation, LPG, and lubricants.
Oil Retail sales volumes (1,000 m3)
10-12/06 10-12/05 2006 2005
Gasoline 391 337 1,452 1,353
Diesel fuel 403 359 1,510 1,364
Heating oil 246 240 932 887
Heavy fuel oil 135 142 530 511
TOTAL 1,175 1,078 4,424 4,115
Oil Retail sales by market area (1,000 m3)
FINLAND 10-12/06 10-12/05 2006 2005
Gasoline 151 162 652 686
Diesel fuel 260 249 1,008 971
Heating oil 216 230 814 873
Heavy fuel oil 135 142 530 511
TOTAL 762 783 3,004 3,041
BALTIC RIM 10-12/06 10-12/05 2006 2005
Gasoline 240 175 800 668
Diesel fuel 143 110 502 394
Heating oil 30 10 118 13
TOTAL 413 295 1,420 1,075
LPG (1000 t) 67 62 254 235
SHIPPING
Shipping posted a full-year operating profit of EUR 78 million for 2006 (EUR 87
million) and a comparable operating profit of EUR 32 million (85 million). These
figures were negatively impacted by lower crude freight prices and volumes
compared to 2005.
In the fourth quarter weak crude freight market and a lack of ice premiums in
freight prices had a negative effect on Shipping's performance, when operating
profit totaled EUR 9 million (10-12/05: 31 million) and comparable operating
profit totaled EUR 1 million (10-12/05: 28 million). Increase in time-charter
and fuel costs had an additional negative impact to the comparable operating
profit.
Shipping's return on net assets (RONA) was 25.0% (26.7%) in 2006. Comparable
return on net assets was 10.3% (26.1%).
Key figures
10-12/06 10-12/05 2006 2005
Sales, MEUR 73 93 293 352
Operating profit, MEUR 9 31 78 87
Comparable operating profit, MEUR 1 28 32 85
Capital expenditure, MEUR 1 16 10 24
Deliveries total, millions of tons 8.3 9.1 34.4 40.2
Fleet utilization rate, % 92 93 94 92
Shipping's total cargo capacity was 1.0 million tons in 2006 (1.3 million), and
the fleet carried a total of 34.4 million tons (40.2 million). Crude shipments
stood at 19.8 million tons (22.8 million) and product shipments at 14.6 million
tons (17.4 million).
Total shipments during the fourth quarter, at 8.3 million tons, were lower than
in the same period in 2005 (10-12/05: 9.1 million). Crude shipments stood
unchanged at 4.7 million tons (10-12/05: 4.8 million), and product shipments 3.6
million tons (10-12/05: 4.3 million).
Volumes were lower due to disposal of older or non-ice-classed vessels and
timing of new deliveries of 1A and 1A super ice-classed vessels.
North Sea crude freight rates for the year as a whole averaged 145 Worldscale
points (164). In the fourth quarter, crude freight level averaged 165 WS points
(10-12/05: 231), partly as a result of reduced ice premiums due to the milder
winter.
Crude freight rates from Primorsk averaged some 35% lower in 2006 and 28% lower
in the fourth quarter compared to 2005, resulting from reduced ice premiums.
Average product freight prices were also lower than 2005, when they peaked in
the wake of the hurricanes in the US Gulf.
Shipping continued to renew its fleet during 2006 and divested three tankers and
time-chartered new vessels. At the end of 2006, Neste Oil's fleet comprised 7
crude tankers and 23 product tankers.
Corporate restructuring
As part of the implementation of Neste Oil's new growth strategy, the biodiesel
business was separated from Components Division and established as a division in
its own right from the beginning of 2007. The Components Division has ceased to
exist, and the lubricant base oils and gasoline components businesses are now
included in the Oil Refining Division. This restructuring will have no impact on
segment reporting structure.
The Shipping division was incorporated as of 1 January 2007. The new company,
known as Neste Shipping Oy, is 100%-owned by Neste Oil, and all of Shippings
personnel have transferred to the new company. The spin-off has been carried out
to enable Neste Oils Shipping business to take maximum advantage of the
benefits that are expected to become available as and when Finland changes its
shipping-related taxation policy. These changes are aimed at improving the
competitiveness of the Finnish maritime sector.
Shares, share trading, and ownership
Neste Oils share price was down by 4% in 2006 compared to the end of 2005. At
its highest during 2006, the share price reached EUR 29.95, while at its lowest
the price stood at EUR 21.00, with the weighted average for the year coming in
at EUR 25.19. The share price closed the year at EUR 23.03 or 53.5% above the
subscription price in April 2005, giving the company a market capitalization of
EUR 5.9 billion as of 31 December 2006.
The share price was volatile during the course of the year, and trading was
strong. A total of 1.4 million shares were traded on average daily, equivalent
in value to EUR 36 million. This represents 0.5% of the Companys shares. An
average of 30 million shares were traded monthly, equivalent in value to EUR 757
million. During the year as a whole, 360 million shares, or 141% of the total
number of shares, were traded, making Neste Oil one of the most traded stocks on
the Helsinki Stock Exchange.
Neste Oils share capital registered with the Company Register as of 31 December
2006 totaled EUR 40 million, and the total number of shares outstanding is
256,403,686. The company does not hold any of its own shares, and the Board of
Directors has no authorization to buy back company shares or to issue
convertible bonds, share options, or new shares.
At the end of 2006, the Finnish state owned 50.1% of outstanding shares, foreign
institutions 28.9%, Finnish institutions 13.9%, and Finnish households 7.1%.
Long-term incentive program
The Board of Directors announced a new share-based incentive plan for Neste
Oil's key personnel. This includes two three-year earning periods, which will
start in 2007 and 2010, with benefits payable partly in company shares and
partly in cash in 2010 and 2013. The maximum amount payable for each three-year
earning period, however, will be a persons accumulated fixed gross annual
salary for three years. The proportion to be paid in cash will cover the
relevant taxes and tax-related costs. The maximum amount of total rewards in the
first program will be equivalent in value to 360,000 Neste Oil shares.
The triggers for paying an incentive will be the development of Neste Oil's
comparable operating profit and the total shareholder return of Neste Oil's
share against an international oil industry share index (FTSE Global Energy
Total Return Index).
The plan prohibits the transfer of shares within one year from the end of the
earning period, i.e. the length of the plan is four years for each lot of
shares. The companys senior management will be required to own shares
equivalent in value to their annual gross salary. This obligation to own shares
relates to shares earned from these incentive programs, and will be valid as
long as service or employment in the Group continues.
Personnel
Neste Oil employed an average of 4,678 (4,528) employees in 2006. At the end of
December, Neste Oil had 4,740 employees (Dec 2005: 4,486), of which 3,506 (Dec
2005: 3,447) worked in Finland.
Health, safety, and the environment
No serious environmental accidents resulting in liability, or accidents
resulting in significant interruptions to production, occurred in 2006 at Neste
Oil's refineries and other production facilities. The Porvoo refinery received a
new environmental permit in late October 2006.
Environmental emissions and discharges of Neste Oil operations remained at a low
level in 2006. The atmospheric emissions of the Naantali refinery were smaller
than in 2005 due to the maintenance shutdown. The most significant improvement
was achieved in wastewater treatment of the refineries, which were operating
without any upset conditions. The oil discharge in wastewaters was 0.23 g/ton of
crude oil processed. The amount is less than one tenth of the recommendation 3
g/t by the Baltic Marine Environment Protection Commission.
The main indicator for safety performance used by Neste Oil cumulative lost
workday injury frequency (LWIF, number of cases per million hours worked) for
all work done for the company, combining the company's own personnel and
contractors stood at 3.7 at the end of December 2006 (6.5), and the company
achieved its combined LWIF target of less than 4.0 for 2006.
The company established a corporate-wide Act Safe project in 2006 that will
focus on enhancing safety management and culture to improve safety performance
to a level comparable with world-class safety performers.
Neste Oil participated in carbon dioxide (CO2) emissions trading in the second
quarter by buying a small number of December 2007 emission rights futures. The
company has successfully fulfilled all the requirements related to carbon
dioxide emissions in 2006. All the required steps needed to verify and report
emissions for 2006 have been taken, and the company is able to surrender
allowances equal to its total emissions in 2006.
Under the new regulatory framework for chemicals approved by the European
Commission and known as REACH (Registration, Evaluation and Authorization of
Chemicals), enterprises that manufacture or import more than one ton of chemical
substances a year will be required to register such chemical substances in a
central database. Neste Oil has contributed to joint work carried out under the
framework of the European oil companies organization, Concawe, and the
company's project for meeting REACH requirements has progressed according to
plan. Plans have been made for starting implementation of REACH, which will come
into force on 1 June 2007.
In March 2006, Neste Oil was selected for inclusion in the Ethibel Pioneer
Investment Register. The Ethibel Investment Register is used as the basis for
Socially Responsible Investment (SRI) products by a growing number of European
banks, fund managers, and institutional investors based on two main aspects of
corporate social responsibility: sustainable development and stakeholder
involvement.
Research and development
Research and development focusing on both crude oil-based and renewable fuels is
crucial in implementing Neste Oil's strategy. Neste Oil's R&D expenditure was
EUR 8 million in 2006 (8 million). This is expected to grow in the coming years.
The core R&D projects were related to process development of cracking heavy end
of feedstocks to diesel and to enlarge raw material base for renewable diesel.
Strategy implementation and investment projects
Neste Oil announced its decision to extend its clean fuel strategy and target
making the company the world's leading biodiesel producer, in September 2006.
Oil refining will remain Neste Oil's core business, however, and the company is
currently reviewing alternatives to continue investments in new conversion
capacity at its existing refineries following the completion of the new diesel
production line at the Porvoo refinery (Diesel Project). The foundation of Neste
Oil's strategy will remain based on the company's ability to use its unique
refining know-how to produce high-quality fuels for cleaner traffic from a
variety of lower-cost raw materials. Neste Oil expects to invest several billion
euros in growth projects over the next 10 years.
Diesel Project
Mechanical completion of the Diesel Project was achieved in December.
Commissioning phase is under way, and the new production line is expected to be
in operation at the end of the first quarter of 2007.
The project represents a total investment of over EUR 700 million. The
profitability of the new line is expected to be good, and Neste Oil expects it
to contribute an additional refining margin of more than USD 2 /bbl on its total
annual output of approximately 100 million barrels.
The new diesel line will increase Neste Oil's annual production capacity of
sulfur-free diesel by over 1 million tons a year, and reduce production of heavy
fuel oil. The Porvoo refinery will also be able to switch completely to using
heavier, sourer crude input.
NExBTL renewable diesel
Neste Oil's aim to become the world's leading biodiesel producer will translate
into future production volumes of millions of tons annually. The cornerstone of
the strategy is the company's proprietary NExBTL technology, which produces a
premium-quality fuel that clearly outperforms both the existing biodiesel
products and crude oil-based diesel products currently on the market. The fuel
is based on a long-term R&D effort and can be produced from practically any
vegetable oil or animal fat.
Neste Oil plans to build a number of NExBTL diesel production facilities in
various market areas, either alone or with partners, over the next few years. In
addition, the company will be active in research and development in the biofuels
area, with the long-term aim of utilizing wider range of renewable raw
materials.
The construction of the first plant at the Porvoo refinery has proceeded as
planned, and the facility is due to enter production in summer 2007. The plant
will have an annual production capacity of 170,000 tons of NExBTL diesel.
Neste Oil decided in November to build a second NExBTL plant at Porvoo, with a
capital cost of around EUR 100 million. The plant will have the same capacity,
170,000 t/a, as the first unit. This unit is scheduled to be commissioned at the
end of 2008.
In March, Neste Oil and the Austrian oil and gas group, OMV, announced that they
are negotiating to jointly build a large-scale plant to produce NExBTL diesel.
The 200,000 t/a facility will be located at OMV's Schwechat oil refinery in
Austria, with production beginning in 2009.
Divestments in 2006
As part of ongoing efforts to focus on its core businesses, Neste Oil continued
to divest non-core assets and businesses in 2006. Capital gains from asset sales
totaled EUR 210 million (150 million).
The major divestments included 73 service station properties in Finland, 10%
holding in the Saudi European Petrochemical Company Ibn Zahr, 25% stake in
CanTerm Canadian Terminals Inc., and petroleum products direct sales
distribution business in Ontario, Canada.
In December, the company decided to divest its 70% holding in Texas-based Eastex
Crude Company for USD 15.5 million. Neste Oil expects to book a capital gain of
a few million dollars on the sale. The transaction is expected to be closed in
the first quarter of 2007.
Events after the reporting period
In February a decision was made to discontinue the planned joint venture
biodiesel project with Total due to higher-than-expected investment costs at
Total's Dunkirk refinery in France.
Also in February, Neste Oil signed an agreement with Statoil to sell its into-
plane aviation fuels business at the Riga International Airport. The value of
the transaction was not disclosed.
Outlook
The key market drivers of Neste Oils financial performance are international
refining margins, the price differential between Russian Export Blend (REB) and
Brent crude, and the USD/EUR exchange rate. Short-term changes in crude oil
prices impact Neste Oil's financial results mainly in the form of inventory
gains or losses.
The International Energy Agency (IEA) predicts demand growth for petroleum
products to be 1.4 mbbl/d in 2007, compared to 0.9 mbbl/d in 2006. Global
refining capacity is not expected to keep up with the demand during the next few
years. This is likely to keep utilization rates of complex refineries high.
Neste Oil's new diesel production line is expected to be on-stream around the
end of the first quarter. The unit is expected to improve Neste Oil's result
already in 2007, despite the start-up costs and gradual volume increase during
the first half.
The first NExBTL diesel plant will be commissioned during the second quarter.
Neste Oil's Retail business is preparing to launch NExBTL diesel sales during
the third quarter. Biofuels legislation is being applied in most European
countries and majority of the countries have decided upon mandatory use of
biocomponents in traffic fuels. Market growth and price differentials between
various fatty acids support Neste Oil's renewable-based NExBTL business.
Oil Retail's margins in Finland recovered slightly during the second half of
2006, and are expected to maintain this level in 2007. However, the impacts of
the recent market consolidation in the Finnish oil retail market remain to be
seen. Sales volumes and margins in the Baltic Rim are expected to remain good.
Lack of ice premiums and an increased ice-classed capacity on the Baltic market
will continue to put pressure on freight rates although some recovery has been
seen recently.
The Group's capital expenditure is expected to be somewhat over EUR 300 million
in 2007.
Dividend distribution proposal and the AGM
The Board of Directors will propose to the Annual General Meeting that Neste Oil
should pay a dividend of EUR 0.90 per share for 2006, totaling EUR 231 million.
The Annual General Meeting will be held on 21 March 2007 at 2:00 p.m. EET at the
Helsinki Fair Centre.
Reporting date for the first-quarter 2007 results
Neste Oil will publish its first-quarter 2007 results on 26 April 2007 at
approximately 9:00 a.m. EET.
Espoo, 8 February 2007
Neste Oil Corporation
Board of Directors
The preceding information contains, or may be deemed to contain, forward-
looking statements. These statements relate to future events or our future
financial performance, including, but not limited to, strategic plans, potential
growth, planned operational changes, expected capital expenditures, future cash
sources and requirements, liquidity and cost savings that involve known and
unknown risks, uncertainties, and other factors that may cause Neste Oil
Corporations or its businesses actual results, levels of activity, performance
or achievements to be materially different from those expressed or implied by
any forward-looking statements. In some cases, such forward-looking statements
can be identified by terminology such as may, will, could, would,
should, expect, plan, anticipate, intend, believe, estimate,
predict, potential, or continue, or the negative of those terms or other
comparable terminology. By their nature, forward-looking statements involve
risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Future results may vary
from the results expressed in, or implied by, the forward-looking statements,
possibly to a material degree. All forward-looking statements made in this
report are based on information presently available to management and Neste Oil
Corporation assumes no obligation to update any forward-looking statements.
Nothing in this report constitutes investment advice and this report shall not
constitute an offer to sell or the solicitation of an offer to buy any
securities or otherwise to engage in any investment activity.
NESTE OIL GROUP
JANUARY- DECEMBER 2006
Audited
CONSOLIDATED INCOME STATEMENT
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Sales 2956 2752 12734 9974
Other income 91 156 238 170
Share of profit (loss) of associates 12 4 39 40
and joint ventures
Materials and services -2635 -2441 -11183 -8443
Employee benefit costs -56 -52 -224 -223
Depreciation, amortization and -40 -44 -153 -153
impairment charges
Other expenses -161 -63 -597 -534
Operating profit 167 312 854 831
Financial income and
expenses
Financial income 2 12 8 26
Financial expenses -3 -3 -16 -29
Exchange rate and fair value gains and -1 1 -5 -5
losses
Total financial income and -2 10 -13 -8
expenses
Profit before income 165 322 841 823
taxes
Income tax expense -25 -36 -205 -153
Profit for the period 140 286 636 670
Attributable to:
Equity holders of the 138 284 631 667
company
Minority interest 2 2 5 3
140 286 636 670
Earnings per share
from profit
attributable to the equity holders of 0.54 1.11 2.46 2.60
the company
basic and diluted (in euro per
share)
Average number of 256403686 256403686 256403686 256403686
shares
CONSOLIDATED BALANCE SHEET
31 Dec 31 Dec
MEUR 2006 2005
ASSETS
Non-current assets
Intangible assets 38 50
Property, plant and equipment 2310 2009
Investments in associates and joint ventures 161 126
Long-term interest-bearing 3 17
receivables
Pension assets 73 63
Deferred tax assets 8 23
Derivative financial 22 7
instruments
Other financial assets 3 17
Total non-current assets 2618 2312
Current assets
Inventories 697 601
Trade and other receivables 808 765
Derivative financial 77 72
instruments
Cash and cash equivalents 62 79
Total current assets 1644 1517
Non-currents assets classified as held for sale 1) 78 0
Total assets 4340 3829
EQUITY
Capital and reserves attributable to equity
holders
of the company
Share capital 40 40
Other equity 2049 1565
Total 2089 1605
Minority interest 8 7
Total equity 2097 1612
LIABILITIES
Non-current liabilities
Borrowings 516 635
Deferred tax liabilities 239 192
Provisions 12 14
Pension liabilities 12 13
Derivative financial 21 10
instruments
Other non-current liabilities 4 14
Total non-current liabilities 804 878
Current liabilities
Borrowings 267 240
Current tax liabilities 43 6
Derivative financial 38 104
instruments
Trade and other payables 1027 989
Total current liabilities 1375 1339
Liabilities directly associated
with
non-current assets classified as held for sale 1) 64 0
Total liabilities 2243 2217
Total equity and liabilities 4340 3829
1) Non-current assets classified as held for sale comprise of the carrying
amount of Eastex Crude Company at 31 December 2006.
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
Attributable to equity holders
of the company
Share Reserve Fair Trans- Retai- Mino- Total
value lation ned rity
capital fund and diffe- ear-
other rences nings
MEUR reserves
Total equity at 1 40 9 34 -4 914 5 998
January 2005
Dividend paid 0
Income and
expense
recognized
directly in
equity
Translation 21 21
differences
Cash flow hedges
recorded in -48 -48
equity, net of
taxes
transferred to
income statement,
net of tax -19 -19
Net investment -9 -9
hedges, net of
taxes
Change in -1 -1
minority
Items recognized -67 12 -1 -56
directly in equity
Profit for the 667 3 670
period
Total recognized -67 12 667 2 614
income and expenses
Total equity at 40 9 -33 8 1581 7 1612
31.12.2005
Share Reser- Fair Trans- Retai- Mino- Total
ve value lation ned rity
capital fund and diffe- ear-
other rences nings
reserves
Total equity at 1 40 9 -33 8 1581 7 1612
January 2006
Dividend paid -205 -205
Income and
expense
recognized
directly in
equity
Translation differences -9 4 -5
and other changes
Cash flow hedges
recorded in 63 63
equity, net of
taxes
transferred to -7 -7
income statement,
net of tax
Net investment hedges, 4 4
net of taxes
Share-based 3 3
compensation
Available for
sale investments
recognized in 63 63
equity, net of
tax
removed from
equity and
recognized in income -63 -63
statement, net of tax
Change in -4 -4
minority
Items recognized 59 -5 4 -4 54
directly in equity
Profit for the 631 5 636
period
Total recognized income 59 -5 635 1 690
and expenses
Total equity at 40 9 26 3 2011 8 2097
31.12.2006
CONDENSED CONSOLIDATED CASH FLOW
STATEMENT
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Cash flow from operating
activities
Profit before taxes 165 322 841 823
Adjustments, total -51 -189 -85 -40
Change in working capital 60 185 -106 -46
Cash generated from operations 174 318 650 737
Finance cost, net -4 23 -7 -2
Income taxes paid -34 -69 -131 -139
Net cash from operating activities 136 272 512 596
Capital expenditures -151 -180 -526 -664
Acquisition of shares 0 -4 -9 -4
Proceeds from sales of fixed 20 10 77 14
assets
Proceeds from sales of shares 122 193 201 193
Change in other investments 1 66 20 43
Cash flow before financing 128 357 275 178
activities
Net change in loans and other -165 -358 -74 -286
financing activities
Dividends paid to the equity holders 0 0 -205 0
of the company
Net increase (+)/decrease (-) in -37 -1 -4 -108
cash and marketable securities
KEY RATIOS
31 Dec 31 Dec
2006 2005
Capital employed, MEUR 2890 2487
Interest-bearing net 722 796
debt, MEUR
Capital expenditure and investments in 535 668
shares, MEUR
Return on average capital employed, after tax, 15.4 19.7
ROACE % 2)
Return on capital employed, pre-tax,ROCE % 31.9 37.0
Return on equity, ROE % 34.3 51.3
Equity per share, EUR 8.15 6.26
Cash flow per share,EUR 2.00 2.33
Price/earnings ratio (P/E) 9.36 9.50
Equity-to-assets 48.4 42.4
ratio, %
Gearing, % 34.4 49.4
Leverage ratio, % 25.6 33.0
Dividend per share,EUR 0.80 -
Dividend payout ratio, % 32.5 -
Dividend yield, % 3.5 -
Average number of 4678 4528
employees
2) The calculation of Return on average capital employed, after tax, (ROACE %)
has been amended as of 1 January 2006 so that unrealized changes in the fair
value of oil and freight derivative contracts, net of tax, are excluded from the
calculation of the ratio. ROACE % for the financial period ending 31 December
2005 has been restated to reflect the change. The ROACE % reported in the
financial statements for the financial period 2005 was 19.0 % compared to the
restated 19.7 %.
SEGMENT INFORMATION
Neste Oil's businesses are grouped into four segments: Oil Refining, Oil
Retail, Shipping and Other. The components business is included in Oil Refining,
Other segment includes corporate centre.
SALES
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Oil Refining 2431 2282 10768 8150
Oil Retail 810 782 3280 2931
Shipping 73 93 293 352
Other 4 2 16 10
Eliminations -362 -407 -1623 -1469
Total 2956 2752 12734 9974
OPERATING PROFIT
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Oil Refining 81 135 671 570
Oil Retail 85 11 138 45
Shipping 9 31 78 87
Other -9 136 -35 129
Eliminations 1 -1 2 0
Total 167 312 854 831
COMPARABLE OPERATING
PROFIT
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Oil Refining 78 85 533 446
Oil Retail 16 7 65 46
Shipping 1 28 32 85
Other -9 -5 -35 -12
Eliminations 1 -1 2 0
Total 87 114 597 565
DEPRECIATION, AMORTIZATION AND WRITE-DOWNS
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Oil Refining 30 30 105 101
Oil Retail 6 8 27 28
Shipping 3 5 18 22
Other 1 1 3 2
Total 40 44 153 153
SHARE OF PROFITS IN ASSOCIATED COMPANIES AND JOINT VENTURES
MEUR 10-12/06 10-12/05 1-12/06 1-12/05
Oil Refining 12 3 39 24
Oil Retail 0 0 0 -3
Shipping 0 0 0 0
Other 0 1 0 19
Total 12 4 39 40
NET ASSETS
31 Dec 31 Dec
MEUR 2006 2005
Oil Refining 2389 1889
Oil Retail 336 375
Shipping 298 326
Other 10 6
Eliminations -1 -4
Total 3032 2592
RETURN ON NET ASSETS, %
31 Dec 31 Dec
2006 2005
Oil Refining 29.9 34.7
Oil Retail 37.2 13.2
Shipping 25.0 26.7
COMPARABLE RETURN ON NET ASSETS, %
31 Dec 31 Dec
2006 2005
Oil Refining 23.8 27.1
Oil Retail 17.5 13.5
Shipping 10.3 26.1
QUARTERLY
SALES
MEUR IV/06 III/06 II/06 I/06 IV/05 III/05 II/05 I/05
Oil Refining 2431 2973 3056 2308 2282 2111 2135 1622
Oil Retail 810 841 817 812 782 834 695 620
Shipping 73 65 69 86 93 69 87 103
Other 4 4 5 3 2 4 3 1
Eliminations -362 -419 -429 -413 -407 -433 -343 -286
Total 2956 3464 3518 2796 2752 2585 2577 2060
QUARTERLY OPERATING PROFIT
MEUR IV/06 III/06 II/06 I/06 IV/05 III/05 II/05 I/05
Oil Refining 81 227 234 129 135 109 203 123
Oil Retail 85 23 17 13 11 17 20 -3
Shipping 9 11 38 20 31 3 19 34
Other -9 -8 -9 -9 136 4 -5 -6
Eliminations 1 1 0 0 -1 4 -2 -1
Total 167 254 280 153 312 137 235 147
QUARTERLY COMPARABLE OPERATING PROFIT
MEUR IV/06 III/06 II/06 I/06 IV/05 III/05 II/05 I/05
Oil Refining 78 183 178 94 85 93 177 91
Oil Retail 16 22 15 12 7 18 11 10
Shipping 1 4 5 22 28 2 20 35
Other -9 -8 -9 -9 -5 4 -5 -6
Eliminations 1 1 0 0 -1 4 -2 -1
Total 87 202 189 119 114 121 201 129
QUARTERLY DEPRECIATION,
AMORTIZATION AND WRITE-DOWNS
MEUR IV/06 III/06 II/06 I/06 IV/05 III/05 II/05 I/05
Oil Refining 30 25 25 25 30 23 25 23
Oil Retail 6 7 7 7 8 7 7 6
Shipping 3 5 4 6 5 6 5 6
Other 1 1 1 0 1 0 1 0
Total 40 38 37 38 44 36 38 35
QUARTERLY SHARE OF PROFITS IN ASSOCIATED COMPANIES AND JOINT VENTURES
MEUR IV/06 III/06 II/06 I/06 IV/05 III/05 II/05 I/05
Oil Refining 12 20 11 -4 3 13 9 -1
Oil Retail 0 0 0 0 0 -1 -1 -1
Shipping 0 0 0 0 0 0 0 0
Other 0 0 0 0 1 10 8 0
Total 12 20 11 -4 4 22 16 -2
CONTINGENT LIABILITIES
31 Dec 31 Dec
MEUR 2006 2005
Contingent liabilities
On own behalf
For debt
Pledges 8 5
Real estate mortgages 25 28
For other commitments
Real estate mortages 0 1
Other contingent 28 16
liabilities
Total 61 50
On behalf of associated
companies
Pledges and real estate 0 0
mortgages
Guarantees 6 10
Other contingent 1 3
liabilities
Total 7 13
On behalf of others
Guarantees 6 1
Other contingent 1 0
liabilities
Total 7 1
Total 75 64
31 Dec 31 Dec
MEUR 2006 2005
Operating lease
liabilities
Due within a year 117 73
Due later than one year and not later 191 58
than five years
Due later than five 165 60
years
Total 473 191
31 Dec 31 Dec
MEUR 2006 2005
Commitments
44 95
Commitments to purchase intangible 2 2
assets
Total 46 97
Derivative 31 Dec 31 Dec
financial 2006 2005
instruments
Interest rate and currency derivative Nominal Net Nominal Net
contracts and share forward contracts
MEUR value fair value fair
value value
Interest rate 301 2 308 -3
swaps
Forward foreign 992 23 942 -27
exchange contracts
Currency
options
Purchased 290 4 835 -17
Written 274 5 835 -3
Share forward 8 2 3 0
contracts
Oil and freight Volume Net fair Volume Net fair
derivative contracts value value
1 000 Meur 1 000 Meur
bbl bbl
Sales 79094 29 54496 21
contracts
Purchase 106339 -25 99888 -6
contracts
Purchased 0 0 6904 -2
options
Written 0 0 5589 2
options
The fair values of derivative financial instruments subject to public trading
are based on market prices as of the balance sheet date. The fair values of
other derivative financial instruments are based on the present value of cash
flows resulting from the contracts, and, in respect of options, on evaluation
models. The amounts also include unsettled closed positions. Derivative
financial instruments are mainly used to manage the group's currency, interest
rate and price risk.
Other contingent liabilities
Neste Oil Corporation has a collective contingent liability with Fortum Heat
and Gas Oy of the demerged Fortum Oil and Gas Oy´s liabilities based on the
Finnish Companies Act´s Chapter 14a Paragraph 6.
ACCOUNTING PRINCIPLES
This report on Annual Financial Statements has been prepared in accordance with
IFRS accounting principles. The following changes have been made compared to the
accounting principles applied in the 2005 Financial Statements.
Derivative financial instruments
Neste Oil applies hedge accounting as defined under IFRS to certain oil
commodity derivative contracts used for hedging forecast future cash flows as of
1 January 2006. Oil commodity derivative contracts designed to hedge refining
margin that are entered into 1 January 2006 onwards, are designated as hedges of
forecast future cash flows, and the effective portion of the change in the fair
value of those derivative contracts is recognized in equity. Any gain or loss
relating to the ineffective portion is recognized immediately in the income
statement. Amounts accumulated in equity are recycled in the income statement
during the periods when the hedged item affects profit or loss. When a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in the equity at that
time remains in equity and is recognized when the forecast transaction is
ultimately recognized in the income statement. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was reported in
equity is immediately transferred to the income statement. The change in
accounting principle has no effect on the reported figures for financial year
2005.
In connection with the above mentioned change in the accounting principle, the
changes in fair values of oil commodity derivatives contracts not qualifying for
hedge accounting (economic hedges and trading) are included in the income
statement lines 'Sales' or 'Other expenses'.
Share of profit (loss) of associates and joint ventures
Neste Oil divested major non-core assets during the third and fourth quarter of
2005. As a result, the company has decided to amend its definition of 'Operating
profit' so that the company's share of profit/loss of associates and joint
ventures (in general, shareholdings where Neste Oil holds 20¯50% of the voting
power in the entity) is included in 'Operating profit' in the income statement
as of 1 January 2006. The comparative figures for the consolidated income
statement and segment information for 2005 have been restated accordingly.
CALCULATION OF KEY FINANCIAL INDICATORS
Operating profit = Operating profit includes the revenue from the sale of goods
and services, other income such as gain from sale of shares or non-financial
assets, share of profits (loss) of associates and joint ventures, less losses
from sale of shares or non-financial assets, as well as expenses related to
production, marketing and selling activities, administration, depreciation,
amortization, and impairment charges. Realized and unrealized gains or losses on
oil and freight derivative contracts together with realized gains and losses
from foreign currency and oil derivative contracts hedging cash flows of
commercial sales and purchases that have been recycled in the income statement,
are also included in operating profit.
Comparable operating profit = Operating profit -/+ inventory gains/losses -/+
gains/losses from sales of fixed assets and investments - unrealized change in
fair value of oil and freight derivative contracts
Return on equity, (ROE) % = 100 x (Profit before taxes - taxes) / Total equity
average
Return on capital employed, pre-tax (ROCE) % = 100 x (Profit before taxes +
interest and other financial expenses) / Capital employed average
Return on average capital employed, after-tax (ROACE) % = 100 x (Profit for the
year (adjusted for inventory gains/losses, gains/losses from sales of fixed
assets and investments and unrealized gains/losses on oil and freight derivative
contracts, net of tax) + minority interest + interest expenses and other
financial expenses related to interest-bearing liabilities (net of taxes)) /
Capital employed average
Capital employed = Total assets - interest-free liabilities - deferred tax
liabilities -provisions
Interest-bearing net debt = Interest- bearing liabilities - cash and marketable
securities
Leverage ratio, % = 100 x Interest- bearing net debt / (Interest- bearing net
debt + Total equity)
Gearing, % = 100 x (Interest bearing net debt / Total equity)
Equity-to assets ratio, % = 100 x Total equity / (Total assets - advances
received)
Return on net assets, % = 100 x Segment operating profit / Average segment net
assets
Comparable return on net assets, % = 100 x Segment comparable operating profit /
Average segment net assets
Segment net assets = Property, plant and equipment, intangible assets,
investment in associates and joint ventures, pension assets, inventories and
interest-free receivables and liabilities allocated to the business segment,
provisions and pension liabilities
CALCULATION OF KEY SHARE RATIOS
Earnings per share (EPS) = Profit for the year attributable to the equity
holders of the company / Adjusted average number of shares during the period
Equity per share = Shareholder's equity attributable to the equity holders of
the company/ Adjusted average number of shares at the end of the period
Cash flow per share = Net cash generated from operating activities / Adjusted
average number of shares during the period
Price / earnings ratio (P/E) = Share price at the end of the period / Earnings
per share
Dividend payout ratio, % = 100 x Dividend per share / Earnings per share
Dividend yield, % = 100 x Dividend per share / Share price at the end of the
period