Neste Oil in 2014 The only way is forward Year 2014 NESTE OIL IN 2014 5 Reporting principles 123 CEO’s review 6 Principles for calculating key indicators 124 Strategy 8 GRI content index 126 Megatrends 10 Independent Assurance Report 132 Strategy implementation 2014 12 Business areas in brief 15 GOVERNANCE 134 Oil Products 18 Corporate Governance Statement 2014 135 Achievements in 2014 20 Annual General Meeting 136 Renewable Products 21 Shareholders’ Nomination Board 136 Achievements in 2014 24 Board of Directors 137 Oil Retail 26 Members of the Board of Directors 139 Achievements in 2014 28 Board committees 140 Key figures 29 President & CEO 141 Financial targets 31 Neste Executive Board 141 Members of the Neste Executive Board 142 SUSTAINABILITY 32 Neste Executive Management Board 143 Sustainability Management and Strategy 33 Company Auditor 144 Managing sustainability 34 Internal Audit 144 Sustainability goals 37 Insider guidelines 145 Sustainability policies and principles 39 Main features of internal control and risk management systems Materiality assessment 40 pertaining to the financial reporting process 145 Risks and opportunities 42 Risk management 148 Certified management systems 44 Risk management governance 149 Sustainability ratings 45 Risk reporting 149 Sustainability key figures 46 Risk relating to Neste Oil’s business 149 Neste Oil Sustainable Way 48 Risk management focus in 2014 151 Cleaner solutions 49 Neste Oil Remuneration Statement 2014 152 Cleaner and safe products 50 Letter from the Chair of the Personnel and Remuneration Products’ carbon footprint 51 Committee 152 Safety 55 Neste Oil Executive Remuneration Policy Report 153 Process safety 56 Neste Oil Executive Annual Remuneration Report 155 People safety 58 Neste Oil Board Remuneration Review 159 Transport safety 60 Our people 62 INVESTOR INFORMATION 160 Way Forward – our way of working 63 Wellbeing at work 65 Review by the board of directors 163 Developing people’s skills and expertise 67 The Group’s results for 2014 163 Equality and diversity 68 Financial targets 164 Remuneration 70 Cash flow, investments, and financing 165 Neste Oil employees in 2014 71 Segment reviews 165 Society 75 Shares, share trading, and ownership 169 Economic contribution 76 Corporate governance 170 Tax contribution 79 Personnel 171 Stakeholders 81 Health, safety, and the environment 171 Stakeholder dialogue in 2014 89 Research and development 172 Human rights 90 Main events published during 2014 172 Involvement in organizations and joint projects 92 Events after the reporting period 173 Support for communities 93 Potential risks 173 Climate and resource efficiency 95 Risk management 174 Climate 97 Outlook 174 Energy efficiency 98 Dividend distribution proposal 174 Material efficiency 100 Operational environmental impact 102 FINANCIAL STATEMENTS 175 Environmental and emission permits 103 Key financial indicators 175 Air 104 Calculation of key financial indicators 177 Water 107 Soil and biodiversity 108 Consolidated financial statements 178 Waste 110 Consolidated Statement of Income 178 Sustainable supply chain 112 Consolidated Statement of Comprehensive Income 179 Ways to ensure sustainability in supply chain 114 Consolidated Statement of Financial Position 180 Legislation and market requirements 116 Consolidated Cash Flow Statement 181 Raw material use 2014 116 Consolidated Statement of Changes in Equity 182 Raw material suppliers 118 Notes to the Consolidated Financial Statements 183 Traceability 119 1. General information 183 Certified raw materials and production plants 121 2. Summary of significant accounting policies 183 Year 2014 3. Financial risk management 193 23. Other contingent liabilities 253 4. Segment information 202 24. Shares and holdings 254 5. Assets held for sale 205 25. Disputes and potential litigations 255 6. Acquisitions and disposals 206 Proposal for the distribution of earnings and signing of 7. Analysis of revenue by category 207 the Review by the Board of Directors and the Financial 8. Other income 207 Statements 256 9. Materials and services 208 Auditor’s Report 257 10. Employee benefit costs 208 Quarterly segment information 258 11. Depreciation, amortization and impairment charges 209 12. Other expenses 209 13. Financial income and expenses 210 14. Income tax expense 211 15. Earnings per share 212 16. Dividend per share 212 17. Property, plant and equipment 213 18. Intangible assets 214 19. Investments in joint ventures 216 20. Carrying amounts of financial assets and liabilities by measurement categories 217 21. Non-current receivables and available-for-sale financial assets 220 22. Inventories 221 23. Current trade and other receivables 221 24. Cash and cash equivalents 221 25. Derivative financial instruments 222 26. Equity 224 27. Non-current and current liabilities 225 28. Deferred income taxes 226 29. Provisions 227 30. Employee benefit obligations 228 31. Share-based payments 231 32. Related party transactions 233 33. Group companies on 31 December 2014 235 34. Contingencies and commitments 237 35. Disputes and potential litigations 238 36. Events after the balance sheet date 238 Parent company financial statements 239 Parent Company Income Statement 239 Parent Company Balance Sheet 240 Parent Company Cash Flow Statement 241 Notes to the Parent Company Financial Statements 242 1. Accounting policies 242 2. Revenue 244 3. Other operating income 244 4. Materials and services 244 5. Personnel expenses 245 6. Depreciation, amortization and write-downs 245 7. Other operating expenses 245 8. Financial income and expenses 246 9. Extraordinary items 246 10. Appropriations 246 11. Income tax expense 247 12. Fixed assets and long-term investments 247 13. Revaluations 248 14. Inventories 249 15. Long-term receivables 249 16. Short-term receivables 249 17. Changes in shareholders’ equity 250 18. Accumulated appropriations 250 19. Provisions for liabilities and charges 250 20. Liabilities 251 21. Contingent liabilities 252 22. Derivative financial instruments 253 4 President & CEO Matti Lievonen: "New products We are seeking in a key role in our growth in growth and renewal, on renewable which our future will be built upon" feedstock-based markets Significant positive development in safety The produced Aiming to achieve NEXBTL diesel Two Finnish a capability to use achieved a 5.6 refineries only waste in million ton operating as a renewable diesel reduction in CO2 single entity in the production emissions future Dividend proposal Neste Oil was Comparable for 2014 is EUR Aiming to be the Finland's biggest operating profit Neste Oil again number one exporter in 2014 totaled EUR one of the world's 0.65 supplier of fuel most sustainable per share solutions in the companies Baltic Sea region 583 million Neste Oil joins Global Compact This PDF document is a compilation of Neste Oil's Annual Report, which is available at 2014.nesteoil.com 5 Neste Oil in 2014 Neste Oil in 2014 Neste Oil is a refining and marketing company specializing in high-quality fuels for cleaner traffic. We produce all the most important oil products and are the world's leading producer of renewable diesel.Our aim is to be the leading supplier of fuel solutions in the Baltic Sea region and to grow in the renewable feedstock-based global market. Our customers include oil companies and other companies both in Finland and abroad, as well as consumers in Finland, the Baltic countries and the St. Petersburg region in Russia. Our revenue for 2014 amounted to EUR 15.0 billion. Neste Oil shares are listed on the NASDAQ Helsinki. Year We set new strategic 2014 objectives in figures President & CEO Matti Lievonen: "New products in a key role in our growth and renewal, on which our future will be built upon" Comparable operating Strategy Return on average profit totaled EUR capital employed implementation (ROACE) 583 in million 2014 10.1% This PDF document is a compilation of Neste Oil's Annual Report, which is available at 2014.nesteoil.com 6 Neste Oil in 2014 ► CEO's review CEO's review Dear reader, Significant investments and restructuring in Our field of business is experiencing significant change, which Finland reflects on us in several ways as well. Demand for energy is 2014 was a year of significant investment decisions and structural growing strongly, but the growth is taking place mainly outside reforms. We decided to consolidate our refinery operations in Europe. Alternative forms of energy are being developed and Naantali and Porvoo into an operating model managed as a single taking into use. Slowing down climate change and, on the other entity. The reform will be complete in early 2017. hand, satisfying the ever growing need for energy are the great The reform translates into increased efficiency, especially as we global challenges for the sector. will invest over EUR 200 million in feed pre-treatment in Porvoo Neste Oil has one solution to the energy sector’s challenges. Our and some EUR 60 million in projects to make the process more goal is to generate strong results, even in the challenging efficient in Naantali as part of the arrangement. In addition, we are circumstances of the future. Competitive capability arises from investing approximately EUR 250 million in energy-efficient power versatile development of the company, and sustainable plant units with a lower environmental load in Kilpilahti, Porvoo. operations. It is possible to respond to the challenges presented Similar to the previous decade, we will continue to be one of the by the market by doing things consistently, and by listening to the biggest industrial investors in Finland. customers. The changes that have taken place in our operations also required 2014 was a diverse year for Neste Oil. At the beginning of the our organization to undergo adjustment. In the summer, we year, we had the previous year's good performance in our minds, revised the Group and business structure and management teams as well as the turning of the Renewable Fuels business towards so as to better reflect our new operating model. In the fall, the sustainable financial success.