Annual Shareholders’ Meeting 2020 – Presentation Materials

NZX Statement

Annual Shareholders’ Meeting – Presentation Materials
The New Zealand Refining Company Limited provides a copy of the Chairman’s Address, CEO’s
Address and Presentation to the Annual Shareholders’ Meeting, being held today via a virtual
meeting at 2:00pm.
The meeting can be viewed on-demand via the company’s website (www.refiningnz.com) from
Thursday, 30
th
April 2020.


D.M. Jensen
Chief Financial Officer / Company Secretary

29 April 2020

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REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
CHANGE.
•Jarek’schanges
•Also, the script changes (Greg to
make those changes)
•Me to hold pen on script
•Greg: in sync
•JS to hold pen on pres+ script
•Greg: QA (incl. Naomi LTI, carry
value, director renumeration)
Designer just do an agenda

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
ATTENDEES –QUESTION PROCESS
•When the Question function is available,
the Q&A icon will appear at the top of
the app.
•To send in a question, simply click in the
‘Ask a question’ box, type your question
and the press the send
arrow
•Your question will be sent
immediately for review

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
3
3
BOARD OF DIRECTORS

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
SIMON ALLEN
CHAIRMAN’S ADDRESS

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
5
AGENDA

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
6
DISCLAIMER
•This presentation does not constitute an offer or invitation by The New Zealand Refining Company Limited (hereafter referred to as “Refining NZ”) or any of its subsidiaries
(together “the Group”) or any other person to acquire any securities in any member of the Group or any part of the Group’s business or assets.
•This presentation contains forward looking statements concerning the strategy, plans, projections, assumptions, expectations,forecasts, prospects, potential exposure to the
market and business risks, financial condition, results and operations of the Group.
•Forward looking statements are subject to the risks and uncertainties associated with the refining environment, including price/refining margin and foreign currency
fluctuations, regulatory changes, environmental factors, production results, site and infrastructure operations, demand for the Group’s products or services and other
conditions. Forward looking statements are based on management’s current expectations and assumptions, which may or may not prove to be correct, reasonable or reliable,
and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these
statements.
•Forward-looking statements are all statements other than statements of historical fact, including (without limitation) any statement regarding strategy, financial condition, plans,
projections, assumptions, expectations, prospects, estimates, forecasts, management targets, potential exposure to market andbusiness risks, and any other statement or
estimate regarding the future prospects or performance of the Group, its business or its assets.
•Readers should not place undue reliance on forward looking statements. Forward looking statements should be read in conjunction with Refining NZ’s financial statements
available on its website: https://www.refiningnz.com/. This presentation is for information purposes only and does not constitute legal, financial, tax, financial product advice or
investment advice or a recommendation to acquire securities of any member of the Group, and has been prepared without taking into account the objectives, financial situation
or needs of individuals. Before making an investment decision, you should consider the appropriateness of the information havingregard to your own objectives, financial
situation and needs and consult an NZX Firm or solicitor, accountant or other professional adviser if necessary. Any reliancebyany person on any information in this
presentation is a matter for that person’s own judgement and no liability is accepted by any member of the Group or any of theirofficers, directors, agents, employees or
advisors for any such reliance.
•In light of these risks, results could differ materially from those stated, implied or inferred from the forward looking statements contained in this presentation. No member of the
Group guarantees future performance and past performance information is for illustrative purposes only. To the maximum extentpermitted by law, the directors of each
member of the Group, the members of the Group and their affiliates, and their respective offices, partners, employees, agents, associates and advisers do not make any
representation or warranty, express or implied, as to accuracy, reliability, reasonableness, or completeness of the information in this presentation, or likelihood of fulfilment of
any forward looking statement or any event or results expressed or implied in any forward looking statement, and disclaim allresponsibility and liability for these forward
looking statements and the information (or omission therefrom) in this presentation (including, without limitation, liabilityfor negligence).
•Except as required by law or regulation (including the NZX Main Board Listing Rules), no member of the Group undertakes any obligation to provide any additional or updated
information whether as a result of new information, future events or results or otherwise.
•Forward looking figures in this presentation are unaudited and may include non-GAAP financial measures and information. Not all of the financial information (including any
non-GAAP information) will have been prepared in accordance with, nor is it intended to comply with: (i) the financial or other reporting requirements of any regulatory body or
any applicable legislation; or (ii) the accounting principles generally accepted in New Zealand or any other jurisdiction with IFRS. Some figures may be rounded and so actual
calculation of the figures may differ from the figures in this presentation. Non-GAAP financial information does not have a standardised meaning prescribed by GAAP and
therefore may not be comparable to similar financial information presented by other entities. Non-GAAP financial information in this presentation is not audited or reviewed.
•Each forward looking statement speaks only as of the date of this presentation.

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
7
See our Full Financial Statements for further detail, available at http://www.refiningnz.com/investor-centre.aspx
1Per 200,000 hours, rolling 12-month
2For a full definition please refer to Glossary
3For a full definition please refer to Glossary
4Net Profit Before Finance Costs and added back Depreciation and disposal costs
FY 18FY19
PersonalTRCF
[1,2]
0.760.27
Process
Tier 1 (>US$25k)
[2]
20
Tier 2 (>US$2.5k)
[2]
30
Releases outside consent51
Throughput
Mbbl
40.442.7
RAP Throughput
Mbbl
21.020.8
Singapore complex margin
[3]
US$/bbl
2.701.02
EBITDA
[4]
NZ$M
153118
NPAT
NZ$M
304.2
Exchange rate
US$/NZ$
0.690.66
Excellent operational and safety performance, despite challenging environment for refiners
FY19 RESULT SUMMARY

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ANNUAL GENERAL MEETING | 29 APRIL 2020
8
A CHALLENGING START TO 2020
RNZ has responded quickly
ROBUST COVID-19 RESPONSE
Rapid response to COVID-19
Plan to operate cash-neutral
COVID has compounded structural
pressure on global refining margins
DIVIDENDS
Fully imputed dividend 2.0 cents per
share
No final dividend paid reflects
challenging low margin environment
REFINANCING
Increase in total available debt funding
facilities to $400 million
No significant maturities until March 2022
Increases the average term of the bank
facilities to over three years

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
9
RECENT BUSINESS CHANGES
BOARD & MANAGEMENT
Naomi James appointed CEO
Paul Zealand in Managing Director
role to assist with CEO transition
Andrew Brewer appointed to new role
of COO
EMISSIONS TRADING SCHEME
RNZ to enter the Emissions Trading
Scheme when NGA expires
Allocation based on 2006-2009 emissions
data
Further reforms may alter allocative
baselines
EXTERNAL AUDIT CHANGE
Audit independence policy aligned to
Financial Markets Authority guidance
Ernst & Young (EY) appointed after
thorough market assessment
EY standing for reappointment today

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
10
WHY? STRATEGIC REVIEW RATIONALE
Change is needed
▪Return on capital is not acceptable
▪Structural changes resulting in low refining margins globally due to oversupply
▪Current business model and processing agreements largely unchanged since 1995
▪Examine options to extract more value from infrastructure assets

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ANNUAL GENERAL MEETING | 29 APRIL 2020
11
HOW? STRATEGIC REVIEW PROCESS
CEO TO LEAD
Naomi James, CEO will lead the process
The new CEO started in April, with the
need for strategic change identified.
International search for:
•Change management
•Strategy development
•Oil and gas experience
•Transformation of commodity
businesses
INDEPENDENT GOVERNANCE
•There will be competitive matters not
appropriate to share with full Board
•Independent directors committee will
oversee these issues
•Committee will separately oversee
and take decisions on these matters
WORKSTREAMS + PHASES
•2 workstreams: Business Model and
Capital Structure
•Initial phase to assess options
•Support and expert advice from
external advisors

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
NAOMI JAMES
CEO ADDRESS

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ANNUAL GENERAL MEETING | 29 APRIL 2020
13
-Aims:
-Determine the optimal business model and capital structure
-Maximise “through cycle” returns to shareholders
-Deliver secure, competitive fuel for NZ, now and into a lower carbon future
-Unlock value of infrastructure
STRATEGIC REVIEW: INTRODUCTION

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ANNUAL GENERAL MEETING | 29 APRIL 2020
14
RETURNS BELOW THE COST OF CAPITAL
Refining NZ Return on Invested Capital, 2006-2019
1
Refining NZ Gross Refining Margin, 2006-2019
8.37
8.14
11.30
4.16
6.17
6.11
5.77
4.58
4.96
9.20
6.47
8.02
6.31
5.34
20062007200820092010201120122013201420152016201720182019
USD/bbl
21.5
13.2
15.7
3.3
7.1
5.1
4.8
(0.2)
1.0
13.7
5.2
7.8
3.3
1.0
20062007200820092010201120122013201420152016201720182019
ROIC (%)
1) 2006 was the first year for full adoption of NZ IFRS, comparing returns on capital
in earlier years would be misleading
Refinery has not earnt its cost of capital through the cycle due to:
▪Regional supply/demand imbalance
▪Structure of the processing agreements (est.1995)
▪Increased cost of operations (especially electricity and natural gas) and investments made

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
15
STRATEGIC ASSETS
▪Infrastructure critical to NZ fuel supply
▪Deeply integrated with rest of supply chain
▪Unique competitive advantage
▪Technical capability of skilled employees
▪Land –strategic location

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ANNUAL GENERAL MEETING | 29 APRIL 2020
16
REFINERY OPPORTUNITIES

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ANNUAL GENERAL MEETING | 29 APRIL 2020
17
OPPORTUNIT Y TO UNLOCK INFRASTUCTURE VALUE
Storage
Refinery
Land
Refinery -More volatile earnings stream
Infrastructure –less volatile earnings stream
PipelineJetties
Refinery and Infrastructure assets are owned and operated by a single vehicle
Customer terms are primarily governed by the processing agreements
RNZ believes that the value of the Infrastructure assets is not appropriately reflected in its share price
The Strategic Review will seek to address this
Laboratory

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
18
OPTIONS
▪Options to optimise business model and capital structure to maximise value for shareholders
▪Maximise “through cycle” returns to shareholders
▪Deliver secure, competitive fuel supply to New Zealand
Improvecurrent refining model
Strategic
Review
options
Alterrefinery business model
(including processing/distribution agreements)
Separaterefining and infrastructure assets
(change structure and funding)
Convertto an import terminal
(new commercial arrangements)
Future Growth options
▪Evaluate growth potential under different
operating models
▪Potential for Refining NZ to improve the
resilience and performance of NZ supply
chain, as the independent operator of
shared infrastructure
▪Options to progress Maranga Ra solar farm
project and other low carbon energy options

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
19
NEXT STEPS
Create value for shareholders and support secure, competitive fuel
supply to New Zealand, now and into a lower carbon future
We are actively engaging with employees, customers, Government and
other stakeholders
All options are on the table
Expect to update the market on the Strategic Review in June 2020

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
CHAIRMAN
SIMON ALLEN

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
ATTENDEES –QUESTION PROCESS
•When the Question function is available,
the Q&A icon will appear at the top of
the app.
•To send in a question, simply click in the
‘Ask a question’ box, type your question
and the press the send
arrow
•Your question will be sent
immediately for review

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
RESOLUTIONS
RESOLUTIONS
ANNUAL MEETING

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
ATTENDEES –VOTING PROCESS
•When the poll is open, the vote will
be accessible by selecting the
voting icon at the top of the screen
•To vote simply select the direction in
which you would like to cast your
vote, the selected option will change
colour.
•There is no submit or send button,
your selection is automatically
recorded.

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
APPOINTMENT
OF AUDITOR
RESOLUTION 1
REAPPOINTMENT
OF AUDITOR

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
“That Ernst & Young (EY) be reappointed as auditor to the Company for the financial year
ending 31 December 2020.”
RESOLUTION 1

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
RESOLUTION 1
FORAGAINSTDISCRETIONARYTOTALABSTAIN
Proxies and
Postal votes
190,971,125113,82832,803,203223,888,156424,911
RESOLUTION 1

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
APPOINTMENT
OF AUDITOR
RESOLUTION 2
AUDITOR FEES AND
EXPENSES

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
“That Directors be authorised to fix the fees and expenses of Ernst & Young as
auditor to the Company for the financial year ending 31 December 2020.”
RESOLUTION 2

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
RESOLUTION 2
FORAGAINSTDISCRETIONARYTOTALABSTAIN
Proxies and
Postal votes
190,791,883290,20832,800,173223,882,264430,803
RESOLUTION 2

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
RE-ELECTION/
ELECTION
OF DIRECTORS
RESOLUTION
RE-ELECTION
OF DIRECTOR
RESOLUTION 3

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
INDEPENDENT DIRECTOR
JAMES MILLER

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
“That Mr S.C. Allen, who retires by rotation in accordance with clause 8.9 of the
Constitution, be re-elected as a Director of the Company.”
RESOLUTION 3

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
RESOLUTION 3
FORAGAINSTDISCRETIONARYTOTALABSTAIN
Proxies and
Postal votes
190,501,324516,02132,836,456223,853,801459,266
RESOLUTION 3

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
GENERAL
BUSINESS
GENERAL
BUSINESS

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
OUR SHAREHOLDERS ARE KEY STAKEHOLDERS
We welcome your further feedback on our Strategic Review
Please email us at corporate@refiningnz.com

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
36
APPENDIX 1
Glossary
LTIF-Lost time injury frequency (rolling 12 month per 200,000 hours)
TRCF-Total recordable case frequency (rolling 12 month per 200,000 hours)
Tier 1 Process Safety Event (API 754) -A tier 1 Process Safety Event (PSE) is
an unplanned or uncontrolled release of any material, including non-toxic and
non-flammable, from a process which results in one or more of the following: A
LTI and/or fatality; A fire or explosion resulting in greater than or equal to
$25,000 of direct cost to the company; A release of material greater than the
threshold quantities given in Table 1 of API 754 in any one-hour period; A
officially declared community evacuation or community shelter-in-place.
Tier 2 Process Safety Event (API 754) -A tier 2 Process Safety Event (PSE) is
an unplanned or uncontrolled release of any material, including non-toxic and
non-flammable, from a process which results in one or more of the following: A
recordable injury; A fire or explosion resulting in greater than or equal to $2,500
of direct cost to the company; A release of material greater than the threshold
quantities given in Table 2 of API 754 in any one-hour period.
EBITDA –Net Profit Before Finance Costs and added back Depreciation and
disposal costs
ROIC-Net operating profit less adjusted taxes (NOPLAT) divided by average invested
capital, where NOPLATis net profit after tax excluding any non-operating
income/expenses, and Invested Capital includes property, plant and equipment
(adjusted for operating leases), intangibles, right-of-use assets and operating net
working capital.
Gross Refining Margin (excluding Fee Floor/Margin Cap) / Singapore Complex
Margin -The Gross Refining Margin is calculated in USD as the difference between the
value of products and the cost of feedstock for each refining customer. The value of
products use Singapore quoted prices adjusted for New Zealand quality and the cost of
importing those products to New Zealand. Feedstocks are valued using the notional
market values adjusted for the cost of getting the feedstock to the refinery. The Gross
Refining Margin incorporates the cost of hydrocarbon used as fuel and incurred as
process losses.
Typically, Refining NZ has an uplift over the Singapore complex margins of around USD
3.00 to 4.00 per barrel. The value of the uplift varies due to fluctuations in freight rates,
product quality premium, crude market premium and operational performance. Product
quality premium are the cost differentials between products made to New Zealand
quality and products made to the quality that applies to quoted prices in Singapore.
Crude market premium are the cost differences between the crude types actually
processed at Refining NZ and Dubai (used as basis for the Singapore complex
margins). Refining NZ’s crude diet comprises of crudes that price off Dubai as well as
crudes that price off different markers such as Brent. The fluctuations of these price
markers relative to each other impact the uplift.

REFINING NZ
ANNUAL GENERAL MEETING | 29 APRIL 2020
CHANGE.
•Jarek’schanges
•Also, the script changes (Greg to
make those changes)
•Me to hold pen on script
•Greg: in sync
•JS to hold pen on pres+ script
•Greg: QA (incl. Naomi LTI, carry
value, director renumeration)
Designer just do an agenda

---

1


GREG

Welcome ladies and gentlemen to the 59
th
Annual Meeting of the shareholders of
The New Zealand Refining Company Limited. My name is Greg McNeill,
Communications and External Affairs Manager.

Today’s meeting is being held online via the Lumi platform. This allows
Shareholders, Proxies and Guests to attend the meeting virtually. All attendees
can watch a live webcast of the meeting, which will be by audio only to ensure a
smoother transmission. In addition, shareholders and proxies have the ability to
ask questions and vote on resolutions.

2



Questions can be submitted at any time. To ask a question press on the speech
bubble icon. This will open a new screen. At the bottom of that screen there is a
section for you to type your question. Once you have finished typing please hit
the arrow symbol to send.

Please note that while you can submit questions from now on, we will not
address them until the relevant time in the meeting. Please also note that
your questions may be moderated or if we receive multiple questions on one
topic, these will be amalgamated. If, however, you do not feel your question has
been addressed, please resubmit it.

Finally, due to time constraints and to ensure all shareholders have a chance to
ask a question, I ask that you limit yourself to asking two questions. We may run
out of time to answer all your questions and if this happens, we will endeavour to
answer them in due course via email or by posting responses on our website.

3


Also on this web cast today are Chairman, Simon Allen, Chief Executive Officer,
Naomi James and Refining NZ’s Directors:

Ms Debi Boffa
Mr Riccardo Cavallo
Mr Lindis Jones
Mr James Miller
Ms Vanessa Stoddart
Mr Paul Zealand

Also on the call with us today are representatives from our:
- external auditors Ernst & Young, Simon O-Connor and Neil Calder
- legal advisors Minter Ellison Rudd Watts, Silvana Schenone and Igor
Drinkovic; and
- share registrar Computershare Investor Services Limited.

I now hand over to Simon to formally open the meeting.

4


SIMON

Thank you, Greg

Ladies and Gentlemen, fellow shareholders – Good afternoon. I’m Simon Allen
Chairman of the New Zealand Refining Company Limited – and it gives me great
pleasure to welcome you all to the 59
th
Annual Meeting of shareholders.

Normally we would meet you face-to-face, but these are not normal times for
anyone. Even so, we’ve done all we can to enable shareholders to participate
and thank you for taking the time to join this web cast today.

Please note that my address and the Annual Meeting presentation have been
posted on the New Zealand Stock Exchange. Both will also be available on the
Company’s website later today.

5




We have the necessary quorum of shareholders and I therefore declare the
meeting officially open.

Ahead of the formal business of the meeting Naomi and I will review the 2019
financial year and provide an update on the company’s plans going forward.

You will notice that our focus this year is much more on the future than reviewing
the year recently concluded. This is because we now find ourselves in a radically
different environment, and one that is changing all the time. We are all in a new
world, and I’m sure your focus, like ours, is on how we adapt and change as a
company under these new conditions.

PAUSE

6


Please take note of the disclaimer I would highlight the words that you should not
place undue reliance on any forward-looking statements we may give.

7

CHAIRMAN’S ADDRESS


Let me now quickly review the 2019 year, and how quickly things have changed. I
will also give you a Board perspective of our Strategic Review before our chief
executive sets this out in more detail.



I’m not going to go into too much detail about last year. Our annual report and our
recent presentation of our 2019 financial results are available to shareholders.
And we are happy to take any questions on these when it comes to question
time.

The key point I’d like to make is that last year’s results confirm a trend and put
into stark relief why we are undertaking our Strategic Review.

In 2019 we achieved a very good operating performance with 99.7 percent plant
availability – up from 90.7% the previous year and reflecting this and plant
optimisation. – Our employees and contractors helped to deliver an outstanding
personal and process safety performance for the business with only one lost time
injury during the year and no Tier 1 or Tier 2 process safety incidents. Our Safety
Case was approved in January by the regulator, Worksafe.

8

And yet, this operational performance did not deliver commensurate financial
results.

Net Profit after Tax (NPAT) was $4.2 million, compared to $30 million the year
before. EBITDA was $118 million.

Our uplift over the Singapore Complex Margin significantly increased to USD
4.32 per barrel

To put that in context, the first ten months our GRM averaged USD5.85 per
barrel, before margins fell to USD2.62 in the last two months of the year. This
weakness continued into early 2020 and has been further compounded by the
impact of COVID-19 on fuel demand.

Our 2019 result was in line with the profit matrix that we shared with shareholders
at the 2019 Annual Shareholders Meeting. It is clear that in a lower margin
environment, and with our current cost base and operating model, we do not earn
our cost of capital, and in some cases, do not cover our costs.


Before explaining the governance arrangements for the Strategic Review, I want
to pause to thank all our team for their incredible response to COVID-19 to both
safeguard the company in the short term, and to ensure New Zealand’s fuel

9

supply lines remain flexible and available in these extraordinary times.

Refining NZ responded very quickly to the reduction in fuel demand brought on
by the COVID-19 travel and transport restrictions. In late March, the company
moved to a robust operating model, agreed with customers, and this mode has
been extended until August 2020. This enables us to plan to run cash-neutral
through this time.

Given the challenging operating environment, and the uncertainty associated with
COVID-19, we chose to increase and extend our bank facilities in March. This
brings Refining NZ’s total available debt funding facilities to $400 million with no
significant maturities until March 2022.

We were very pleased with the support of our banks which reflects their
confidence in our business. Taking these actions has meant that we are in as
good a position as we can be to withstand an extended period of low demand.

In such uncertain times, the Directors have resolved that it is prudent to not pay a
final dividend. Our interim dividend of two cents paid in September becomes our
total dividend payment for the year.

10

I would now like to highlight three important areas of recent change for the
business:

We’ve had some important team changes:

Naomi James was appointed Chief Executive Officer, effective April 2020. We
are pleased to have someone with Naomi’s extensive experience of change
management, during what is a time of fundamental change for this business. We
have put in place a long-term incentive package for Naomi that focusses on
retention and aligns with shareholders’ interests, as was recently announced.

Secondly, I would like to thank Paul Zealand on behalf of your Board for his
service as Managing Director during our CEO transition. Paul’s ability to step into
an executive role was very much appreciated. Paul’s ability to work with Naomi
and the Board has enabled our new CEO to hit the ground running. So, thank
you, Paul, and we’re delighted you’ve been able to resume your role as
independent director.

Thirdly, Andrew Brewer was appointed to the new role of Chief Operating
Officer, effective March 2020. Andrew brings a wealth of experience in the
refining sector, having spent the previous 18 years with Caltex in Australia and
Chevron in Canada, in refinery and supply leadership roles. 

In December, the Refining NZ Board aligned its audit policy and its external audit
services with recent market guidance from the Financial Markets Authority (FMA).
This led to our reissuing the Company’s Auditor Independence policy statement
and carrying out a market assessment of external audit services. As a result, the
Board appointed Ernst &Young to provide external audit services to the
Company, and reached a mutual agreement that PwC resign from their auditor

11

role.

The Refining NZ Board acknowledges the quality and professionalism of the audit
services provided by PwC over the last twenty years. EY is standing for
reappointment by shareholders at this Meeting. 

The final area of change relates to the Emissions Trade Scheme. The
Government has approved bringing Refining NZ into the New Zealand Emissions
Trading Scheme (NZETS) as an Emissions Intensive Trade Exposed business,
as we had negotiated with the Government. We believe that this decision by
policy makers is firm but fair, consistent with a just transition environment.




So while 2019 had its highlights, overall it underscored the serious, underlying
challenges facing the business. And then COVID-19 arrived reinforcing why we
cannot go on as we have. We are tackling these challenges in our Strategic
Review which is designed to set the company up for its next phase, leveraging its
significant assets to maximise returns to shareholders through the cycle.

12




Critical to ensuring we get the best outcome for the company and for you, our
shareholders, will be how your Board governs this important process.

Our independent directors will play a central role in representing the interests of
our non-customer shareholders through the review. We will draw on the skills of
all of our directors, but our independent directors committee will separately
oversee and take decisions on matters relating to our customer-shareholders.
You can have confidence that the outcomes from the Strategic Review will be in
the interests of all shareholders.

We will obviously carefully consider the views and interests of all our
stakeholders, while having a clear focus on our shareholders and delivering an
outcome that ensures we have a sustainable and valuable long-term business.

Our Strategic Review will be led by CEO Naomi James, who is very well qualified
for this role, supported by the management team as well as external advisers.

Following a rigorous, international search. Naomi joins the Company from Santos
Limited, one of Australia’s largest independent oil and gas producers, where she
was responsible for midstream infrastructure assets including oil and gas

13

processing facilities. At Santos Naomi led the creation of a separate business
division for Santos’ infrastructure assets with the aim of realising additional value
from these assets.

We’ve put in place a long term remuneration package that incentivises Naomi,
and we look forward to her leadership of the Strategic Review, and of the
company as it transitions to its optimal structure and operating mode based on
the best option arising from the review.

I would now like to invite your new CEO, Naomi James, to give you more detail
on the Strategic Review.

14

CEO ADDRESS


Thank you, Simon. Let me start by adding my welcome to Simon’s. Thank you for
joining us today. While it’s regrettable I can’t be meeting you face-to-face, I hope
we can do that in the not-too-distant future. Many of you I know have been part of
the life of this company for a long time. Your perspectives are something I value,
and your interests are at the heart of why I’m here and excited by this opportunity.

I was attracted to this role both by the quality of this company, and the scale of
the challenge. While I didn’t anticipate starting the role in this sort of operating
environment, it hasn’t changed my view on the opportunity to create shareholder
value at RNZ with what we have.


So to start with, what are we seeking to achieve with the Strategic Review?

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We are seeking two things from the process:

• To determine the optimal business model – which needs to be one
that delivers acceptable returns through the cycle, and
• To determine the best capital structure for that business model –
which maximises the value of those assets to our shareholders

We have a unique mix of skill, capabilities and expertise, as well as our physical
assets. And our role at the very heart of New Zealand’s transport fuels supply
chain is something we can leverage more effectively than we have been doing.

While I’m very focused in bringing a shareholder value lens to the process, I am
also bringing an open mind to the options. What is up for review is the way the
company operates and the ownership and capital structure of its assets. Through
this initial stage of the process we will be engaging with a range of stakeholders
to develop and assess those options.



Returns haven’t been acceptable as shown on this slide.

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Although we’ve invested significantly over the last decade, the returns on
invested capital have only once in the last 10 years exceeded the cost of capital
which was in a year of high margins.

Why are returns too low?

Firstly, substantial new supply from low cost producers in places like the Middle
East, China, India, South Korea, is depressing global and regional margins.

These changes are taking place in the context of extraordinary volatility in the
global oil market due to Covid-19 which have seen the biggest fall in oil prices
since 1991 on the back of the collapse in demand for oil products globally.
Notably, dated Brent crude, being one of the crudes we benchmark off, recently
dropped to a 21 year low of around USD 13 per barrel.

While the logical response for the excess supply we are seeing in oil and refining
capacity should be supply coming out of the market, we don’t see this occurring.
As global competition has expanded, we have moved from companies
competing, to countries competing – in many cases these competitors are
effectively national enterprises who don’t operate under the same economic
constraints that we do.

Secondly, Refining NZ has operated under the same processing agreements
with its three customers since 1995. These 25 year old agreements are now
outdated and do not reflect the current environment.

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Thirdly, our own cost structure isn’t helped by rising electricity and natural gas
costs in New Zealand which means that the fee floor in our processing
agreements no longer covers our cash costs.

So we face major structural challenges, both in terms of how we organise our
business, as well as how the global market is changing.


But we have a lot to play with, and for. We have significant and strategic
infrastructure assets with which to realise further value for shareholders. Our
assets play a crucial role in the supply of transport fuel, with 70 percent of the
nation’s fuel processed through our assets.
Our assets are deeply integrated into the fuel supply chain, including –
• The Refinery to Auckland pipeline, or RAP, which connects with the Wiri
terminal in Auckland and gives us a strong competitive advantage in that
market. This is one of the most valuable and strategic assets in the New
Zealand fuel supply chain.
• The land at Marsden Point is adjacent to Northport, which is strategically
important for importing generally and is likely to grow in importance.

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• And we have a high level of technical skills including the inherent flexibility
to adapt or repurpose parts of the refinery, including opportunities to
produce lower-carbon fuel.


A key part of the strategic review is to look at whether we can make a
fundamental change to the competitiveness of refining operations and the
economics of our business model in order to improve the financial performance of
the refinery.

We have achieved progress in several of these areas, but there is a clear
potential to do more.

On the right side of the graphic we talk about the opportunities that exist for our
refining assets and capabilities to make a very significant contribution to New
Zealand’s transition to a lower-carbon transport fuels environment.

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Part of this assessment will include how we can unlock greater value from our
infrastructure.
We know that today the combination of assets in a single corporate structure with
volatile earnings from our refinery assets effectively mean that our infrastructure
assets are under-valued.
An important part of the review will be to assess what is the right capital structure
for the business going forward.


Here’s a summary of options under consideration.

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These are illustrative and not exhaustive. The answer may involve a combination
of the options listed. But there is no status quo option – shareholder returns as
things stand are not acceptable.
Starting with the top box on the left, we will look at all options to make
significant improvements in the financial performance of the refinery within the
current business model.
Secondly, we will look at options to change the business model for the refinery,
whether that’s the processing agreement or distribution arrangements.
Thirdly, we will look at options to create separate capital structures for the
refining and infrastructure assets.
Fourthly, we will look at the alternative business model of converting to import
operations.
And we will look beyond our existing assets for opportunities to grow and diversify
our asset portfolio, where Refining NZ could, as the independent operator of
shared infrastructure, improve the resilience and performance of New Zealand’s
fuel supply chain.


We expect to provide an update in June on the Strategic Review.

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Over the next couple of months we will engage with all our stakeholders –
particularly customers and Government – to make sure we can identify and
assess the best options available.

Regardless of the outcome, we will remain a significant investor and player in
New Zealand’s transport fuel supply system.

Our assets offer enormous opportunity if we can structure them to make the most
of the market conditions we see now and into the future. Again, our priority is to
unlock the value that the market is not currently ascribing to our valuable and
strategic infrastructure assets.

Thank you for your attention, and for the opportunity to lead this exciting work,
and to help this iconic New Zealand enterprise take its next major step into the
future.

Thank you, Simon, and I’ll hand back to you to continue with the meeting agenda.

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SIMON

Thank you Naomi.

I draw your attention to the next slide and would now like to invite you to ask any
questions you may have in relation to my address and Naomi’s presentation.

Greg, have we received any questions at this stage?

[QUESTION AND ANSWER SESSION]

Thank you everyone, I will now hand over to Greg to explain the voting process
before we move to the formal part of the meeting.

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GREG

Thank you Simon.

Voting today will be conducted by way of a poll on all items of business. In order
to provide you with enough time to vote, Simon will shortly call for a poll on all
resolutions.


At that time, if you are eligible to vote at this meeting, a new polling icon will
appear. Selecting this icon will bring up a list of resolutions and present you with

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voting options. To cast your vote simply select one of the options. There is no
need to hit a submit or enter button as the vote is automatically recorded.

Up until the time the poll is declared closed, you have the ability to change your
vote by simply selecting another option or you may cancel your vote by clicking
‘Cancel’.

I will now hand back to Simon to conduct the formal part of the meeting.

SIMON

Thank you Greg.

I now declare a poll for all items of business. The polling icon will soon appear,
please submit your votes at any time. Please note that the poll and voting will
close after third agenda item.

ORDINARY BUSINESS

We have received 231 valid proxies and postal votes representing
71.63% of the votes able to be cast.

The items of business before the meeting today are all ordinary resolutions and
are required to be passed by a simple majority – more than 50% – of the votes of
shareholders who are entitled to vote on the resolutions and who exercise their
right to vote.

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Agenda Item 1: Reappointment of Auditor
We now move to agenda item 1 – the reappointment of the Auditor


Have we received any questions about agenda item 1 Greg?

[Respond to questions, if any]

I now move as an ordinary resolution that “Ernst & Young be reappointed as
auditor to the Company for the financial year ending 31 December 2020.”

If you have not already done so, I ask that shareholders vote on Item 1 using
Lumi.

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PAUSE FOR A MOMENT.

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Agenda Item 2: Auditor’s Fees and Expenses
We now move to agenda item 2 – the Auditor’s Fees and Expenses


Have we received any questions about agenda Item 2 Greg?

[Respond to questions, if any]

I now move as an ordinary resolution that “Directors be authorised to fix the fees
and expenses of Ernst & Young as auditor to the Company for the financial year
ending 31 December 2020.”

If you have not already done so, I ask that shareholders vote on Item 2 using
Lumi.

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PAUSE FOR A MOMENT.

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As the next resolution relates to my re-election as an independent director of the
Company I will now hand over to fellow independent Director, James Miller, to
conduct this part of the meeting.


JAMES

Agenda Item 3: Re-Election of Director

Thank you Simon.

Mr S.C Allen is required to retire by rotation and being eligible to do so, offers
himself for re-election. A brief biography for Mr Allen was included in the Notice
of Meeting.

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I will now ask Simon to make a brief statement.

[SIMON’S STATEMENT]

Thank you.

Have we received any questions for Simon or about agenda Item 3 Greg?

[Respond to questions, if any]

I now move as an ordinary resolution “that Mr S.C. Allen, who retires by rotation
in accordance with clause 8.9 of the Constitution be re-elected as a director of the
Company.”

If you have not already done so, I ask that shareholders vote on Item 3 using
Lumi.

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PAUSE FOR A MOMENT.

I now hand over to Simon to conclude the formal part of the meeting.

SIMON

Thank you James.

That concludes our discussion on the items of business.

I now close the voting system and the poll is concluded.

Our auditors EY are in attendance and will act as scrutineers. Once they have
completed their review the results of the poll will be posted on the New Zealand
Stock Exchange and then our website.

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General Business

If there are any items of general business that shareholders wish to raise, please
do so through the Q&A function.

While we are waiting for people to raise any items of general business, an email
address for your feedback is here on the screen. We would welcome your
feedback at any stage.

Greg, have we received any further questions at this stage?

There being no other matters of business, I thank you for attending today. This
virtual meeting has been a first for the Company and I would like to thank

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shareholders for making the time to connect with us today. I would also like to
acknowledge the team at our end who have worked hard to make this possible.

I now declare the meeting closed

Thank you

ENDS