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1 Accounting policies
The financial statements of Neste Oil Corporation (Parent company) are prepared in accordance with Finnish GAAP. The financial statements are presented in thousands of euros unless otherwise stated.
Revenue
Revenue include sales revenues from actual operations and exchange rate differences on trade receivables, less discounts, indirect taxes such as value added tax and excise tax payable by the manufacturer and statutory stockpiling fees. Trading sales include the value of physical deliveries and the net result of derivative financial instruments.
Other operating income
Other operating income includes gains on the sales of fixed assets and contributions received as well as all other operating income not related to the sales of products or services, such as rents.
Foreign currency items
Transactions denominated in foreign currencies have been valued using the exchange rate at the date of the transaction. Receivables and liabilities denominated in foreign currencies outstanding on the balance sheet date have been valued using the exchange rate quoted on the balance sheet date. Exchange rate differences have been entered in the income statement. Net exchange rate differences relating to financing have been entered in financial income or expenses.
Derivative financial instruments
Neste Oil uses derivative financial instruments mainly to hedge oil price, foreign exchange and interest rate exposures.
Oil commodity derivative contracts hedging future cash flow are booked once the underlying exposure occurs. Unrealized losses on derivatives held for trading purposes are booked immediately, but gains are booked only at maturity or when the open exposure is closed with a similar instrument.
There are two different types of foreign exchange derivative contracts: hedges for future cash flow and hedges of balance sheet items. Gains or losses on derivative financial instrument that hedge future cash flows are recognized once the underlying income or expense occurs. Derivative financial instruments used to hedge balance sheet items e.g. bank accounts, loans or receivables are valued employing the exchange rate quoted on the balance sheet date, and gains or losses are recognized in the income statement. The interest element on all forward contracts is accrued. Option premiums are treated as advances paid or received until the option matures.
Gains or losses for derivative financial instrument used to hedge the interest rate risk exposure are accrued over the period to maturity and are recognized as an adjustment to the interest income or expense of the underlying liabilities.
Fixed assets and depreciation
The balance sheet value of fixed assets consists of historical costs less depreciation according to plan and other possible write-offs, plus revaluation permitted by local regulations. Fixed assets are depreciated using straight-line depreciation based on the expected useful life of the asset. Land areas are not depreciated.
The depreciation is based on the following expected useful lives:
Buildings and structures 20–40 years
Production machinery and equipment, including special spare parts 15–20 years
Other equipment and vehicles 3–15 years
Other tangible assets 20–40 years
Intangible assets 3–10 years
Inventories
Inventories have been valued on the FIFO principle at the lower of direct acquisition cost or market value, taking into account the impact of possible hedging operations. The cost of finished goods and work in progress comprises raw materials, direct labor and other direct costs. A share of production overhead costs (based on normal operating capacity) has been recognized in inventory value in the financial period. Standard spare parts are carried as inventory and recognized in profit or loss as consumed.
Research and development
Research and development expenditures are expensed as incurred with the exception of investments in buildings and equipment.
Pension expenses
An external pension insurance company manages the pension plan.The pension expenses are booked to income statement during the year they occur.
Extraordinary items
Extraordinary items consist of received or given group contributions from or to Neste Oil Group companies.
Deferred taxes
Deferred taxes are determined on the basis of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred income tax is determined using tax rates that have been enacted at the balance sheet date and are expected to apply.
Provisions
Foreseeable future expenses and losses that have no corresponding revenue and which Neste Oil Corporation is committed or obliged to settle, and whose monetary value can reasonably be assessed, are entered as expenses in the income statement and included as provisions in the balance sheet. These items include expenses relating to the pension liabilities, guarantee obligations, restructuring provisions, expenses relating to the future clean-up of proven environmental damage and obligation to return emission allowances. Provisions are recorded based on management estimates of the future obligation.
2 Revenue
Revenue by segment
MEUR           2013           2012
Oil Products 11,778 11,945
Renewable Fuels 2 0
Oil Retail 0 0
Other 111 114
Eliminations -68 -67
11,823 11,992
Revenue by market area
MEUR 2013 2012
Finland 5,604 6,424
Other Nordic countries 1,779 1,981
Baltic countries, Russia and Poland 789 681
Other European countries 2,589 1,873
North and South America 707 860
Other countries 355 173
11,823 11,992
3 Other operating income
MEUR                         2013                      2012
Rental income 8 9
Gain on sale of intangible and tangible assets 1 0
Insurance compensations 6 2
Government grants 2 3
Other 4 2
21 16
4 Materials and services
MEUR       2013      2012
Materials and supplies
Purchases during the period 11,015 10,992
Change in inventories -47 -59
10,968 10,933
External services 5 6
10,973 10,939
5 Personnel expenses
MEUR      2013     2012
Wages, salaries and remunerations 149 137
Indirect employee costs
Pension costs 38 36
Other indirect employee costs 11 10
198 183
Salaries and remuneration
Key management compensations are presented in Note 32 in the Neste Oil Group consolidated financial statements.
Average number of employees
2013 2012
Oil Products 1,578 1,558
Other 735 729
2,313 2,287
6 Depreciation, amortization and write-downs
MEUR 2013 2012
Depreciation according to plan 140 142
Write-offs 0 0
140 142
7 Other operating expenses
MEUR 2013 2012
Operating leases and other property costs 18 20
Freights relating to sales 74 86
Repairs and maintenance 87 88
Other 125 138
304 332
Other operating expenses include losses on sales of tangible assets and write-offs of fixed assets in progress 0 15
Fees charged by the statutory auditor
EUR thousands 2013 2012
Audit fees 357 349
Auditor's mandatory opinions 6 5
Tax advisory 90 8
Other advisory services 193 279
646 641
8 Financial income and expenses
MEUR                     2013                 2012
Dividend income
From Group companies 89 18
From associated companies 0 -
From others 0 0
Dividend income total 89 18
Interest income from long-term loans and receivables
From Group companies 0 1
From others 0 0
Interest income from long-term loans and receivables total 0 1
Other interest and financial income
From Group companies 1 5
Other 0 0
Other interest and financial income total 1 5
Write-downs on long-term investments -3 -
Interest expenses and other financial expenses
To Group companies -3 -4
Other -67 -75
Interest expenses and other financial expenses total -70 -79
Exchange rate differences 0 -10
Financial income and expenses total 17 -65
Total interest income and expenses
MEUR 2013 2012
Interest income 1 6
Interest expenses -62 -72
Net interest expenses -61 -66
9 Extraordinary items
MEUR          2013        2012
Group contributions
Group contributions received 161 35
Group contributions given - -165
161 -130
10 Appropriations
Change in depreciation difference
MEUR 2013 2012
Difference between depreciation according to plan and depreciation in taxation -10 -7
11 Income tax expense
MEUR 2013 2012
Income taxes on regular business operations 35 54
Income taxes on extraordinary items 39 -32
Change in deferred tax assets -1 2
73 24
12 Fixed assets and long-term investments
Change in acquisition cost 2013, MEUR
Intangible assets Goodwill Other
intangible
assets
Total
Acquisition cost as of 1 January 2013 1 108 109
Increases - 12 12
Decreases - 4 4
Transfers between items - 0 0
Acquisition cost as of 31 December 2013 1 116 117
Accumulated depreciation, amortization and write-downs as of 1 January 2013 1 69 70
Accumulated depreciation, amortization and write-downs of decreases and transfers 0 0 0
Depreciation and amortization for the period 0 4 4
Accumulated depreciation, amortization and write-downs as of 31 December 2013 1 73 74
Balance sheet value as of 31 December 2013 - 43 43
Balance sheet value as of 31 December 2012 - 39 39
Tangible assets Land areas Buildings
and
structures
Machinery
and
equipment
Other
tangible
assets
Advances
paid and
construction
in progress
Total
Acquisition cost as of 1 January 2013 25 1,085 2,168 80 120 3,478
Increases 0 55 66 4 13 138
Decreases 0 0 1 0 1 2
Transfers between items 0 0 0 0 0 0
Acquisition cost as of 31 December 2013 25 1,140 2,232 84 132 3,614
Accumulated depreciation, amortization and write-downs as of 1 January 2013 0 510 1,329 32 - 1,871
Accumulated depreciation, amortization and write-downs of decreases and transfers 0 0 1 0 - 1
Depreciation, amortization and write downs for the period 0 32 101 2 - 135
Accumulated depreciation, amortization and write-downs as of 31 December 2013                    0 542 1,430 34 - 2 005
Revaluations 6 24 - - - 30
Balance sheet value as of 31 December 2013 31 623 803 50 132 1 639
Balance sheet value as of 31 December 2012 31 600 839 48 120 1,638
Balance sheet value of machinery and equipments used in production 772
Other long-term investments Shares
in group
companies
Receivables
from group
companies
Shares in
associated
companies
Receivables
from
associated
companies
Other
shares
and
holdings
Other
receivables
Total
Acquisition cost as of 1 January 2013 2,579 11 1 0 4 12 2,607
Increases 0 0 0 0 0 0 0
Decreases 52 6 0 0 0 2 60
Acquisition cost as of 31 December 2012 2,527 5 1 0 4 10 2,547
Accumulated depreciation, amortization and write-downs as of 1 January 2013 - - - 0 0 0 0
Accumulated depreciation, amortization and write-downs as of 31 December 2013    - - - 0 0 0 0
Balance sheet value as of 31 December 2013 2,527 5 1 0 4 10 60
Balance sheet value as of 31 December 2012 2,579 11 1 0 4 12 2,607
Interest-bearing and interest-free receivables
MEUR 2013 2012
Interest-bearing receivables 5 12
Interest-free receivables 11 12
16 24
13 Revaluations
MEUR Revaluations as of
Jan 1, 2013
Revaluations as of
Dec 31, 2013
Land areas 6 6
Buildings 24 24
30 30
Policies and principles for revaluations and evaluation methods
The revaluations are based on fair values at the moment of revaluation. Deferred taxes have not been booked on revaluations.
14 Inventories
MEUR 2013 2012
Raw materials and supplies 344 306
Products/finished goods 493 512
Advance payments on inventories 6 5
843 823
Replacement value of inventories 850 824
Book value of inventories 843 823
Difference 7 1
15 Long-term receivables
MEUR 2013 2012
Receivables from Group companies
Other long-term receivables 86 230
Deferred tax assets 2 1
88 231
16 Short-term receivables
MEUR 2013 2012
Trade receivables 367 490
Receivables from Group companies
Trade receivables 258 364
Other receivables 160 35
Accrued income and prepaid expenses 2 2
Total 420 401
Receivables from associated companies
Trade receivables 0 0
Other receivables 1 1
Total 1 1
Other receivables 17 80
Accrued income and prepaid expenses 12 20
817 992
Short-term accrued income and prepaid expenses
MEUR 2013 2012
Accrued interest 5 6
Accrued taxes - 1
Other 8 15
13 22
17 Changes in shareholders' equity
MEUR          2013         2012
Share capital at 1 January 40 40
Share capital at 31 December 40 40
Retained earnings at 1 January 1,035 1,036
Dividends paid -97 -90
Profit for the year 304 89
Retained earnings at 31 December 1,242 1,035
Distributable equity 1,242 1,035
18 Accumulated appropriations
MEUR      2013 2012
Depreciation difference 928 917
19 Provisions for liabilities and charges
MEUR                                                                                                 Provision for
environment
Total
Provisions as of 1 January 2013 1 1
Increase 1 1
Decrease 0 0
Provisions as of 31 December 2013 2 2
20 Liabilities
Long-term liabilities
MEUR 2013 2012
Bonds 1,294 1,292
Loans from financial institutions 124 487
Liabilities to Group companies
Other long-term liabilities 903 551
Other long-term liabilities 5 7
Accruals and deferred income 6 2
2,332 2,339
Interest- bearing liabilities due after five years
MEUR 2013 2012
Bonds 398 447
Loans from financial institutions 17 23
Liabilities to Group companies 858 511
1,273 981
Short-term liabilities
MEUR 2013 2012
Loans from financial institutions 165 342
Advances received 0 1
Trade payables 997 1,022
Liabilities to Group companies
Advances received 0 0
Trade payables 116 107
Other short-term liabilities 139 422
Accruals and deferred income 0 0
Total 255 529
Liabilities to associated companies
Trade payables 8 2
Other short-term liabilities 0 0
Total 8 2
Other short-term liabilities 261 368
Accruals and deferred income 105 94
1,791 2,358
Short-term accruals and deferred income
MEUR 2013 2012
Salaries and indirect employee costs 49 42
Accrued interests 26 29
Accrued taxes 28 18
Other short-term accruals and deferred income 2 5
105 94
Interest-bearing and interest-free liabilities
MEUR 2013 2012
Long-term liabilities
Interest-bearing liabilities 2,324 2,332
Interest-free liabilities 8 7
2,332 2,339
Short-term liabilities
Interest-bearing liabilities 304 608
Interest-free liabilities 1,487 1,750
1,791 2,358
21 Contingent liabilities
Contingent liabilities
MEUR                            2013                         2012
Operating lease liabilities
Due within a year 3 3
Due after a year 5 4
8 7
Contingent liabilities given on own behalf
Real estate mortgages 17 24
Pledged assets 0 1
Other contingent liabilities 2 2
19 27
Contingent liabilities given on behalf of Group companies
Real estate mortgages - 2
Guarantees 323 238
323 240
Contingent liabilities given on behalf of associated companies
Guarantees 1 1
1 1
Contingent liabilities given on behalf of others
Guarantees 2 1
2 1
Contingent liabilities total 353 276
22 Derivative financial instruments
Interest and currency derivative contracts and share forward contracts
MEUR 2013 2012
Contract
or notional
value
Fair value Not
recognized
as an income
Contract
or notional
value
Fair value Not
recognized
as an income
Interest rate swaps 800 17 -4 1,030 26 -6
Forward foreign exchange contracts 1,452 11 10 1,945 15 11
Currency options
Purchased 196 2 2 113 0 0
Written 192 3 3 92 2 2
Oil and freight derivative contracts
2013 2012
Volume
million
bbl
Fair value Not
recognized
as an income
Volume
million
bbl
Fair value Not
recognized
as an income
Sales contracts 6 -11 -11 19 13 13
Purchase contracts 8 10 10 17 -10 -10
The fair values of foreign exchange currency derivative contracts are based on market values at the balance sheet date. The fair values of interest rate swaps are the present values of the estimated future cash flows and the fair values of currency options are calculated with option valuation model.
The fair value of exchange traded oil commodity futures and option contracts are based on the forward exchange market quotations at the balance sheet date. The fair value of over-the-counter oil commodity derivative contracts is based on the net present value of the forward contracts quoted market prices at the balance sheet date. Physical sales and purchase agreements within trading activities are treated as derivatives and reported in the 'Derivative financial instruments' table.
23 Other contingent liabilities
Real estate investments
The Company is obliged to adjust VAT deductions made from real estate investments if the taxable utilization of real estate will decrease during a 10 years control period.
24 Shares and holdings
Country of
incorporation
No of shares Holding-% Book value
31 Dec 2013
EUR thousands
Subsidiary shares
Kiinteistö Oy Espoon Keilaranta 21 Finland 16,000 100.00 39,725
Kilpilahden Sähkönsiirto Oy Finland 2,500 100.00 3
LLC Neste Saint-Petersburg Russia 10 100.00 58,427
Neste Eesti AS Estonia 10,000 100.00 5,927
Neste Jacobs Oy Finland 2,100 60.00 438
Neste Markkinointi Oy Finland 210,560 100.00 51,467
Neste Oil AB Sweden 2,000,000 100.00 23,972
Neste Oil BR Ltd Belarus 1 100.00 -
Neste Oil Components Finance B.V. The Netherlands 40 100.00 8,022
Neste Oil Finance B.V. The Netherlands 26,090 100.00 19,177
Neste Oil Holding (U.S.A.), Inc. USA 1,000 100.00 18,428
Neste Oil Insurance Limited Guernsey 7,000,000 100.00 3,000
Neste Oil N.V. Belgium 4,405,414 99.99 414,753
Neste Oil (Suisse) S.A. Switzerland 200 100.00 62
Neste Oil US, Inc. USA 1,000 100.00 1,100
Neste Renewable Fuels Oy Finland 200 100.00 1,826,901
Neste Shipping Oy Finland 101 100.00 55,452
2,526,854
Associated companies
A/B Svartså Vattenverk - Mustijoen Vesilaitos O/Y Finland 14 40.00 124
Neste Arabia Co. Ltd. Saudi-Arabia 480 48.00 156
Porvoon Alueverkko Oy Finland 40 33.33 7
Tahkoluodon Polttoöljy Oy Finland 630 31.50 490
Vaskiluodon Kalliovarasto Oy Finland 330 50.00 17
794
Other shares and holdings
CLEEN Oy Finland 100 100
East Office of Finnish Industries Oy Finland 1 10
Ekokem Oy Ab Finland 75,000 2.13 125
Kiinteistö Oy Anttilankaari 8 Finland 51 545
Kiinteistö Oy Himoksen Aurinkopaikka Finland 51 457
Kiinteistö Oy Katinkullan Hiekkaniemi Finland 102 903
Kiinteistö Oy Katinkultaniemi Finland 51 398
Kiinteistö Oy Kuusamon Tähti 1 Finland 51 457
Kiinteistö Oy Laavutieva Finland 51 311
Kiinteistö Oy Lapinniemi & Osakeyhtiö Lapinniemi Finland 24 125
Posintra Oy Finland 190 34
3,465
Telephone shares
Kymen Puhelin Oy Finland 1 0
Pietarsaaren Seudun Puhelin Oy Finland 3 1
Osuuskunta PPO Finland 1 -
Savonlinnan Puhelinosuuskunta SPY Finland 1 1
2
Connection fees 65
Total 2,531,179
 
25 Disputes and potential litigations
Finnish Customs has levied a penalty payment totaling approximately EUR 44 million on Neste Oil because Finnish biofuel mandate requirements were not met in 2009 and 2010. Biofuel mandate legislation requires that companies distributing liquid fuels must provide the appropriate energy content specified for biofuels in the fuel that they supply for use by customers. The legislation in question is intended to increase the use of biofuels and thereby reduce emissions. Neste Oil has supplied the amount of biofuels required by legislation in 2009 and 2010. Neste Oil disputes Finnish Customs' interpretation and believes that it complied with the requirements according to the legislation in force at the time. The disagreement between Neste Oil and Finnish Customs covers how the legislation on biofuel mandate should be interpreted. Neste Oil has appealed the Finnish Customs' decision and considers the penalty payment unjustified and it will not affect the company's result or balance sheet for 2013. The penalty payment was paid in January 2014, when it impact the company's cash flow.
26 Separated Financial Statements
Separation according to Electricity Market Act
Neste Oil Corporation has separated electricity network operations from other operations in accounting according to Chapter 12 of Electricity Market Act (588/2013) since the act came into force 1 September 2013.
Electricity network operation covers owning a company's distribution network, electricity distribution and other related activities in Kilpilahti, Porvoo since the act came into force. Other operations include the company's oil refining operations for the entire financial period.
Separated financial statements have been prepared on the basis of company's general accounting and separate calculation in internal accounting. Revenues of Electricity network operations includes electricity transfer fees. Expenses and income have been allocated based on origin or if not applicable, a proportional allocation key has been used. Depreciation have been calculated in accordance with the existing depreciation plan.
Balance sheet items have been allocated based on origin or if not applicable, a proportional allocation key have been used. Only assets that have been considered to be necessary to carry out electricity network operations have been included in separated balance sheet. Share capital has been allocated in proportion to fixed assets and other long-term investments and long-term liabilities in proportion to fixed assets and inventories. Separated balance sheet has been balanced using other short-term liabilities.
Separated Income Statement
MEUR Electricity network
operations
1 Sep–31 Dec 2013
Other operations
1 Jan–31 Dec 2013
Revenue 2 11,821
Internal revenue 4 -4
Change in product inventories - -20
Other operating income - 21
Materials and services 0 -10,969
Network losses -1 -
Cost of upstream network -2 -
Personnel expenses 0 -198
Depreciation, amortization and write-downs -2 -138
Other operating expenses -1 -304
Operating profit 0 209
Financial income and expenses 0 17
Profit before extraordinary items 0 226
Extraordinary items - 161
Profit before appropriations and taxes 0 387
Appropriations 0 -10
Income tax expense 0 -73
Profit for the year 0 304
Separated Balance Sheet
MEUR Electricity network
operations
31 Dec 2013
Other operations
31 Dec 2013
ASSETS
Fixed assets and other long-term investments
Intangible assets - 43
Tangible assets 77 1,562
Other long-term investments - 2,547
77 4,152
Current assets
Inventories 0 843
Long-term receivables - 88
Short-term receivables 0 817
Cash and cash equivalents - 358
0 2,106
Total assets 77 6,258
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital 1 39
Retained earnings - 938
Profit for the year 0 304
1 1,281
Accumulated appropriations 30 898
Provisions for liabilities and charges - 2
Liabilities
Long-term liabilities 35 2,297
Short-term liabilities 11 1,780
46 4,077
Total equity and liabilities 77 6,258
Return on capital employed 3.5%