Full Year Announcement 2018

Results for announcement to the market
Reporting Period 12 months to 31 December 2018
Previous Reporting Period 12 months to 31 December 2017
The Directors of the New Zealand Refining Company Limited today announced the Company’s financial results
for the year to 31 December 2018, details of which are attached. This report, including the results for the previous
corresponding year, is consistent with the audited financial statements of the New Zealand Refining Company
Limited for the year ended 31 December 2018.
FULL YEAR ANNOUNCEMENT
OUR PERFORMANCE
OUR CUSTOMER
PROMISE
OUR COMMITMENT
OUR VISION

CONSOLIDATED RESULTS
RESULTS
$NZ 000
FINAL DIVIDEND
NET TANGIBLE ASSETS
PER SECURITY
Revenue from ordinary activities
CURRENT YEAR
$359,576
1
PREVIOUS CORRESPONDING YEAR $411,706
1
Profit from ordinary activities after tax
attributable to security holder
CURRENT YEAR
$29,616
PREVIOUS CORRESPONDING YEAR $78,530
Net profit attributable to security holders
CURRENT YEAR
$29,616
PREVIOUS CORRESPONDING YEAR $78,530
Amount per security
NZ 4.5 CENTS PER SHARE
Imputed amount per security
NZ 1.75
Record date
7 March 2019
Dividend payment date
21 March 2019
DOWN
13%
DOWN
62%
DOWN
62%
As at 31 December 2018
$2.42
As at 31 December 2017
$2.54
CENTS PER SHARE
(FULLY IMPUTED)
1 Revenue from ordinary activities represents total income of $362,466 (2017: $414,620k)
less insurance recovery of $2,890 (2017: $2,914k), included in ‘other income’ as
disclosed in note 2 of the consolidated financial statements
REFINING NZ FULL YEAR ANNOUNCEMENT
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2

COMMENTARY
Refining NZ has reported a Net Profit after Tax (NPAT)
of $29.6 million (2017: $78.5 million) for the year ended
31 December 2018.
Commenting, Chief Executive, Mike Fuge acknowledged the
impact on earnings of the first planned full refinery shutdown in 14
years in the first half of the year which was partially mitigated in
the second half by healthy refining margins, a weakening
exchange rate and a strong operational performance.
Fuge confirmed that the underlying business fundamentals
remained strong: “While the NPAT result was impacted by the
planned maintenance shutdown in April-June the reliable running
on processing units for the remainder of the year saw refinery
throughput for the second half of 2018 at its highest ever, which
allowed the Company to capitalise on healthy refining margins.”
REFINING MARGINS
AT TOP HISTORIC
RANGE
The Gross Refining Margin
averaged USD 6.31 for the year
(2017: USD 8.02 per barrel) or
USD 7.33 when normalised for the
2018 shutdown – at the top of its
historical USD 4.00 to USD 6.00
per barrel range – supported by global demand growth and our
continued progress in optimising the Refinery’s operational
efficiency. Looking ahead, Fuge added that refining margins have
softened since the beginning of 2019.
RNZ’s uplift over Singapore Complex Margins, averaged USD
3.61 per barrel (2017: USD 4.27), reflecting the impact of the
2018 planned maintenance shutdown. The Company benefited
from an improved exchange rate which averaged USD 0.69 for
the year (2017: USD 0.71).
While the first total refinery shutdown in 14 years took longer
than expected to complete, due in large part to the complex
refurbishment of key units, there are rich learnings which our
shutdown team is already applying to planning for the next
maintenance shutdown. A notable success from the 2018
maintenance shutdown was the major refurbishing of the
Refinery’s Hydrogen Manufacturing Unit.
“As New Zealand’s largest producer of pure hydrogen this
refurbishment underpins the Refinery’s role in the fuels supply
chain and presents the exciting possibility of developing further
hydrogen infrastructure which is critical to our low carbon
economy, and to New Zealand continuing to meet its climate
change obligations,” said Fuge.
With the next planned, lesser-scope, maintenance shutdown
planned for 2020, the Company fully expects to lift its operational
performance even further and achieve a throughput of around
44 million barrels for the 2019 year.
Fuge confirmed that the RNZ Board had been working on the
capital structure of the business and on the 14th of December
the Company issued $75 million of unsecured, subordinated
notes for a term of approximately 15 years. The Offer provides
greater financial flexibility by diversifying RNZ’s funding sources.
The Offer was fully subscribed, and the net proceeds of the Offer
have been applied to repaying a portion of the Company’s
existing bank debt.
HIGHLIGHTS
Strong second half operational performance following the planned maintenance shutdown, healthy
margins and improved exchange rate together delivered an NPAT of $29.6m (2017: $78.5m).
Gross refining margin (GRM) averaged USD 6.31 per barrel (2017: USD 8.02 per barrel) or USD 7.33
per barrel allowing for the 2018 shutdown.
Total Refinery throughput for the second half of 2018 was the highest in the Refinery’s history.
Annual throughput record for the Refinery to Auckland Pipeline (RAP) on the back of the Company’s
investment in capacity upgrading projects.
Crude intake of 40.4 million barrels (2017: 41.7 million barrels).
OUR PERFORMANCE
REFINING NZ FULL YEAR ANNOUNCEMENT
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3

CUSTOMER PROMISE:
QUALITY, RELIABILITY,
COMPETITIVENESS
The support we provide to key industries such as tourism,
agriculture, large manufacturing and heavy transport is both
essential to New Zealand’s continued economic growth and
beneficial for our business. This is highlighted by the continued
demand we see for diesel, and especially for jet fuel which has
continued to be driven by the increasing number of international
visitors to Auckland International Airport. With an eye to
maintaining an attractive value proposition for its customers,
RNZ remains steadfastly focused on improving the quality,
reliability and competitiveness of its refining operations. Fuge
noted that the attention given to pursuing attractive, short pay
back, margin enhancing projects was continuing to reap benefits.
“Current initiatives are delivering excellent results reflecting the
value of on-going investment in leveraging efficiencies where
we can.
PIPELINE CAPACITY
UPGRADE DELIVERS
RECORD
THROUGHPUT
“The capacity upgrading project
on the RAP to help meet growing
Auckland demand saw the refinery
achieve a new annual throughput
record on the pipeline. The first
two phases of this three-phase
upgrade have been completed.
Following a review of phase three we are exploring the use of a
drag reducing agent as an alternative de-bottlenecking option,”
said Fuge.
In May the Company completed the last piece of remediation on
the RAP rupture site near Ruakaka following the September 2017
outage on the fuel pipeline. In December, the Government
announced an Inquiry into the pipeline outage. Its purpose is to
draw lessons from the outage to inform how the fuel industry and
the Government could improve the resilience of fuel supply into
the Auckland region. The Refinery is working with the Inquiry
team to assist them in their important work. At the same time,
we are also providing information to the competition study into
retail fuel markets.
DREDGING FOR
COMPETITIVE
ADVANTAGE AND
IMPROVED RETURNS
In December, the Environment
Court confirmed the resource
consents issued for the Refinery’s
crude shipping dredging project,
with minor revisions agreed
between parties to the appeal.
As part of the revised conditions
the Refinery will establish a monitoring programme to gather
baseline turbidity data for 12 months before dredging can
commence and will continue to monitor turbidity throughout
the dredging programme.
“We consider the revisions to be effective and workable. This
strategically important project has been de-risked considerably.
Improving the economics of up to half of all crude delivered to the
Refinery will help to keep us competitive with imported fuel from
Asia Pacific refiners and improve the gross refining margin that we
earn as well as save the energy consumed in delivering petroleum
products to New Zealand,” said Fuge.
A date for the commencement of dredging has yet to be
confirmed and is dependent on the successful completion
of monitoring activity on the harbour and a final investment
decision by the RNZ Board.
“Notwithstanding our overall commercial success in the face of
challenges inherent in a volatile refining sector, we recognise that
there is more that we can do to improve our operational
performance and competitiveness, while improving returns to our
shareholders. This will be a core part of our strategy moving
forward,” said Fuge.
OUR COMMITMENT TO
SUSTAINABILIT Y AND
COMMUNIT Y
Refining has a significant environmental footprint hence the
Company’s core focus on improving operations extends to a
continued commitment to deliver world class environmental
performance.
“Gains in energy efficiency go a long way to reducing the impact
of emissions at both a regional and national level. We continue to
deliver advances in environmental performance including
reductions in sulphur per unit of fuel production as well as the
carbon intensity of our refining operation. Maintaining the
environmental integrity of our refining site has seen the Company
invest over $24 million over the past four years including on
improving the robustness of the Refinery’s waste water systems.”
“We are building on the contribution of Te Mahi Hou to an
improved emissions profile through our partnership with EECA
(Energy Efficiency and Conservation Authority). Together we are
progressing a series of energy projects – including the phasing in
of LED lighting across the Refinery – that will save energy while
also improving our carbon profile.”
“The Company is reviewing a number of options and working with
its customers and the Ministry of Transport to meet the
requirements of the IMO
2
MARPOL regulations which are aimed
at reducing the environmental impacts of nitrogen dioxide,
particulates and sulphur dioxide from shipping. This will require a
reduction in the sulphur content of fuel oil used in shipping from
3.5% to 0.5%. Our expertise and technology in this space means
we are well placed to meet the challenges and opportunities of
market-disrupting regulatory change such as MARPOL”
said Fuge.
As a major manufacturer and employer we are proud of the
Refinery’s contribution to our Northland community. Through
partnerships and links with key organisations we continue to
support the environmental and educational aspirations of our
community.
2 IMO International Maritime Organisation - International Convention for the Prevention of Pollution from Ships (MARPOL)
REFINING NZ FULL YEAR ANNOUNCEMENT
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4

VISION FOR A BRIGHTER
ENERGY FUTURE
New Zealand’s declared commitment to a low carbon energy
future is an exciting statement of leadership on a world stage,
where there is a determination to act on climate change. It’s a
commitment to which RNZ has much to contribute: we continue to
improve our environmental footprint and our substantial technical
knowledge brings considerable intellectual property to the
nation’s green energy and growth agendas.
To that end, RNZ’s Management and Board have been defining a
business strategy that will shape the future direction of the
Company. It recognises the major and continuing contribution of
the refinery to the national fuels supply chain as well as to the
Northland and national economies. Further, it acknowledges the
challenges presented by the need to decarbonise the country’s
energy infrastructure.
Commenting, RNZ Chairman Simon Allen said: “We have new
leadership, a healthy balance sheet, strong free cash flow with a
healthy short-term outlook, and deep capability.
“Importantly, our government and other key stakeholders are fully
aware of the need for a phased transition to a low carbon
economy – and are highly receptive to ideas that promote energy
innovation, emissions reduction and sustainable development,
especially from companies such as RNZ: traditional industries that
make a significant contribution to their local community and to
their respective regional economies.
“At the heart of our new strategy we will continue to be a
profitable core refining business which is always looking to be
commercially attractive, safe and reliable and a major employer
fully committed to helping New Zealand meet its climate change
obligations. A prime example of that commitment is the $365
million investment in Te Mahi Hou which reduced carbon
emissions by around 120,000 tonnes a year - the equivalent of
carbon emissions from 60,000 Toyota Corollas.”
Allen said the Company’s strategic review will look to generate
further value out of the business, leveraging existing assets and
capabilities to lift the Refinery’s operational performance and with
New Zealand’s energy future in mind, build on the core through
the judicious choice and implementation of highly economic
projects.
“On the horizon is a new look, low carbon energy industry based
on a mix of energy sources including a greater percentage of
renewables. The way forward - whether in electricity or transport
fuels - is to harness more of our natural resources such as solar
and hydrogen to support our existing business.
A REALISTIC STEP BY
STEP STRATEGY BACKED
BY A COMMITTED
WORKFORCE,
SUBSTANTIAL
EXPERTISE, AND 60
YEARS OF ENERGY
PROBLEM-SOLVING
CREDIBILITY
“We have a proud record
of meeting business
challenges head-on using
our extensive industry
experience and technical
expertise. Continuing to do
so will help us build a
sustainable future in a low
carbon economy for our
refinery, our community and
the 500 plus people who
come through the refinery
gates every day,” he said.
We will be providing more details on our new strategy in quarter
two or quarter three of this year at a specially-arranged Strategy
Day. We look forward to announcing a date very soon.
DIVIDEND
Allen confirmed that the Company’s Directors resolved to pay a
fully imputed final dividend of 4.5 cents per share to be paid on
21 March 2019, with a record date of 7 March 2019.
With an interim dividend of 3 cents paid in September,
the total dividend payment for the year is 7.5 cents.
OUTLOOK
CEO Mike Fuge said that the strong operational performance in
the second half of the year highlights the existing strengths of our
refinery and the talented team who continue to run it safely and
reliably.
“The review of the Company’s business strategy looks to build on
that strength and opens up the possibility to transform our
business, in realistic, credible steps, into a sustainable, low
carbon energy producer.
“Such a transformation of our refining business would contribute
to New Zealand’s climate change efforts, promote prudent
investment, innovation, jobs and skills development and be highly
valued by investors, the Government and our Northland
community,” he said.
ENDS
Further information:
Greg McNeill, Communications and External Affairs Manager
T: 094325115 M: 021 873623 E: greg.mcneill@refiningnz.com
REFINING NZ FULL YEAR ANNOUNCEMENT
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5

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