Refining NZ Full Year 2020 Financial Statements
CONSOLIDATED FINANCIAL
STATEMENTS
For the year ended 31 December 2020
REFINING NZ
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Contents
Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement 1
Consolidated Statement of Comprehensive Income 2
Consolidated Balance Sheet 3
Consolidated Statement of Changes in Equity 5
Consolidated Statement of Cash Flows 7
Notes to the Consolidated Financial Statements 8
INDEPENDENT AUDITOR’S REPORT 56
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Income Statement
FOR THE YEAR ENDED 31 DECEMBER 2020
1
GROUP
GROUP
2020
2019
NOTE
$000
$000
INCOME
Revenue
4
233,937
344,861
Other income
4
11,810
3,514
TOTAL INCOME
3, 4
245,747
348,375
EXPENSES
Purchase of process materials and utilities
82,119
98,082
Materials and contractor payments
19,992
31,340
Wages, salaries and benefits
20
61,532
61,247
Administration and other costs
31,681
39,471
TOTAL EXPENSES
195,324
230,140
EARNINGS BEFORE DEPRECIATION, IMPAIRMENT,
FINANCE COSTS AND INCOME TAX
50,423
118,235
Depreciation and disposal costs
11
87,218
99,931
Impairment of assets
10,11
223,697
-
TOTAL DEPRECIATION, DISPOSALS AND IMPAIRMENT
310,915
99,931
NET (LOSS)/PROFIT BEFORE FINANCE COSTS AND INCOME TAX
(260,492)
18,304
FINANCE COSTS
Finance income
(176)
(44)
Finance cost
11,096
13,489
NET FINANCE COSTS
10,920
13,445
NET (LOSS)/PROFIT BEFORE INCOME TAX
(271,412)
4,859
Income tax
6
(73,133)
694
NET (LOSS)/PROFIT AFTER INCOME TAX
(198,279)
4,165
ATTRIBUTABLE TO:
Owners of the Parent
(198,279)
4,165
EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO
THE SHAREHOLDERS OF THE NEW ZEALAND REFINING
COMPANY LIMITED
CENTS
Basic earnings per share
7
(63.5)
1.3
Diluted earnings per share
7
(63.3)
1.3
THE ABOVE CONSOLI DATED I NCOME STATEMENT I S TO BE READ I N CONJUNCTI ON WI TH THE NOTES ON
PAGES 8 TO 55.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2020
2
GROUPGROUP
20202019
NOTE$000$000
NET (LOSS)/PROFIT AFTER INCOME TAX(198,279)4,165
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to the Income Statement
Defined benefit plan actuarial (loss)/gain20(4,130)7,681
Deferred tax on defined benefit actuarial loss/(gain)6(b)1,156(2,151)
Total items that will not be reclassified to the Income
Statement(2,974)5,530
Items that may be subsequently reclassified to the
Income Statement
Movement in cash flow hedge reserve2211,092(3,094)
Deferred tax on movement in cash flow hedge reserve6(b)(3,106)866
Total items that may be subsequently reclassified to
the Income Statement227,986(2,228)
TOTAL OTHER COMPREHENSIVE INCOME, AFTER
INCOME TAX5,0123,302
TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE
YEAR, AFTER INCOME TAX
(193,267)7,467
ATTRIBUTABLE TO:
Owners of the Parent
(193,267)7,467
THE ABOVE CONSOLI DATED STATEMENT OF COMPREHENSI VE I NCOME I S TO BE READ I N CONJUNCTI ON WI TH
THE NOTES ON PAGES 8 TO 55.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Balance Sheet
AS AT 31 DECEMBER 2020
3
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Balance Sheet
AS AT 31 DECEMBER 2020
4
GROUPGROUP
20202019
NOTE$000$000
EQUITY
Contributed equity8266,057265,771
Treasury Stock8, 23(896)(960)
Employee share entitlement reserve8, 23779681
Cash flow hedge reserve8, 225,298(2,688)
Retained earnings292,692493,940
Total Equity563,930756,744
For and on behalf of the Board:
S C AllenJ B Miller
DirectorDirector
THE ABOVE CONSOLIDATED BALANCE SHEET IS TO BE READ CONJUNCTION WITH THE NOTES ON
PAGES 8 TO 55.
THE BOARD OF DIRECTORS OF THE NEW ZEALAND REFINING COMPANY LIMITED AUTHORISED THESE CONSOLIDATED
FINANCIAL STATEMENTS FOR ISSUE ON 16 FEBRUARY 2021.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2020
5
CONTRIBUTED
EQUITY
TREASURY
STOCK
EMPLOYEE
SHARE
SCHEME
ENTITLEMENT
RESERVE
CASH
FLOW
HEDGE
RESERVE
RETAINED
EARNINGS
TOTAL EQUITY
GROUPNOTE$000$000$000$000$000$000
AT 1 JANUARY 2019
265,771(969)732(460)504,562769,636
COMPREHENSIVE INCOME
Net profit after income tax
----4,1654,165
Other comprehensive income
Movement in cash flow hedge reserve22
---(3,094)-(3,094)
Defined benefit actuarial gain20
----7,6817,681
Deferred tax on other comprehensive income22
---866(2,151)(1,285)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX
---(2,228)5,5303,302
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23--241--241
Shares vested to employees
23-292(292)--
Treasury shares purchased
-(283)---(283)
Dividends paid
----(20,317)(20,317)
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT-9(51)-(20,317)(20,359)
AT 31 DECEMBER 2019265,771(960)681(2,688)493,940756,744
THE ABOVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 8 TO 55.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2020
6
CONTRIBUTED
EQUITY
TREASURY
STOCK
EMPLOYEE
SHARE
SCHEME
ENTITLEMENT
RESERVE
CASH
FLOW
HEDGE
RESERVE
RETAINED
EARNINGS
TOTAL EQUITY
GROUPNOTE$000$000$000$000$000$000
AT 1 JANUARY 2020
265,771(960)681(2,688)493,940756,744
COMPREHENSIVE INCOME
Net loss after income tax
----(198,279)(198,279)
Other comprehensive income
Movement in cash flow hedge reserve22
---11,092-11,092
Defined benefit actuarial loss20
----(4,130)(4,130)
Deferred tax on other comprehensive income22
---(3,106)1,156(1,950)
TOTAL OTHER COMPREHENSIVE LOSS, AFTER INCOME TAX
---7,986(2,974)5,012
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23--448--448
Shares vested to employees
23350(350)-
Treasury shares issued
23286(286)---
Unclaimed dividends written back
----55
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT2866498-5453
AT 31 DECEMBER 2020266,057(896)7795,298292,692563,930
THE ABOVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 8 TO 55.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2020
7
GROUPGROUP
20202019
NOTE$000$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers224,044351,625
Payment for supplies and other expenses(128,379)(151,172)
Payments to employees(57,518)(62,780)
Interest received17644
Interest paid(11,267)(14,418)
Net GST paid(1,041)(1,936)
Income tax paid5,609(4,238)
NET CASH INFLOW FROM OPERATING ACTIVITIES
17
31,624117,125
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment(33,939)(77,695)
Proceeds from sale of intangibles13,320-
NET CASH OUTFLOW FROM INVESTING ACTIVITIES(20,619)(77,695)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from/(repayments of) bank borrowings27,900(13,200)
Dividends paid to shareholders8-(20,317)
Lease payments10(871)(1,154)
Purchase of treasury stock23-(283)
NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES27,029(34,954)
NET INCREASE IN CASH AND CASH EQUIVALENTS38,0344,476
Cash and cash equivalents at the beginning of the year5,255779
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR43,2895,255
THE ABOVE CONSOLI DATED STATEMENT OF CASH FLOWS I S TO BE READ I N CONJUNCTI ON WI TH THE NOTES
PAGES 8 TO 55.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
8
REPORTING ENTITY
The New Zealand Refining Company Limited (‘Parent’, ‘Company’ or ‘Refining NZ’) is a profit-
oriented company registered under the Companies Act 1993 and an FMC Reporting Entity for
the purposes of the Financial Markets Conduct Act 2013. Refining NZ is listed, and its ordinary
shares are quoted on the NZX Main Board Equity Market (“NZX Main Board”) and its
subordinated notes quoted on the NZX Debt Market.
The consolidated financial statements (hereinafter ‘financial statements’) for the year ended 31
December 2020 presented are those of Refining NZ together with its subsidiaries (‘the Group”).
Subsidiaries are all entities over which the Group has control and includes Independent
Petroleum Laboratory Limited, Maranga Ra Holdings Limited and Maranga Ra Limited.
BASIS OF PREPARATION
These consolidated financial statements for the year ended 31 December 2020 comply with:
• The Financial Markets Conduct Act 2013;
• Generally Accepted Accounting Practice in New Zealand (‘NZ GAAP’);
• New Zealand equivalents to the International Financial Reporting Standards (‘NZ IFRS’),
International Financial Reporting Standards (IFRS) and other authoritative
pronouncements of the External Reporting Board, as appropriate for for-profit entities.
The consolidated financial statements are prepared on the basis of historical cost, except for
derivative financial instruments and plan assets (included in the net defined benefit pension
plan liability) which are measured at fair value.
The consolidated financial statements are prepared on a GST exclusive basis and presented in
New Zealand dollars ($) which is the Group’s functional currency, and the financial information
has been rounded to the nearest thousand dollars ($000), unless otherwise stated.
Use of judgements and estimates
The preparation of financial statements requires directors to make certain judgements,
estimates and assumptions that affect the application of accounting policies and reported
amounts of assets, liabilities, income and expenses. The areas involve estimates and
assumptions that can significantly affect the amounts recognised in the consolidated financial
statements:
• Impairment assessment of assets – refer to note 12 for further details.
• Useful lives of the property, plant and equipment – refer to note 11 for further details.
• Going concern – these financial statements have been prepared on a going concern basis.
Management and the Board consider that this is appropriate based on the Group’s current
cash position and available credit facilities, and that the Board expects that Refining NZ
will be able to continue in operation and meet covenants under its facility agreements
over the next twelve months.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
9
Refining NZ’s forecast for the next twelve months indicates the Group has the ability to
continue to operate as a going concern despite the challenges arising from the current low
margin environment and COVID-19, based on the implementation of a simplified refinery
which enables the Company to run cash neutral from 2021 under a Fee Floor scenario.
(Refer to note 1, for detail of potential impacts of Strategic Review outcomes and note 24,
Contingencies, in relation to customer notices of dispute).
• Recoverability of tax losses – in the twelve months ended 31 December 2020, Refining NZ
generated a tax loss of $37.6 million, increasing the Group’s cumulative tax losses to $54.9
million. A deferred tax asset in respect of these unutilised tax losses has been recognised.
On the basis that at least a 49% continuity of shareholding is maintained, Management
and the Board believe that future taxable profits will be available against which the tax
losses can be recovered and therefore the deferred tax asset can be realised. Any adverse
change in future profits, or significant change in the shareholding of Refining NZ, could
limit the Company’s ability to realise the deferred tax asset.
Estimates are designated by a symbol in the notes to these consolidated interim financial
statements.
SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial
statements have been consistently applied to all periods presented, except for the change in
presentation of deferred taxes in the statement of financial position to present deferred tax
assets and deferred tax liabilities on a gross basis, to increase the transparency of the deferred
tax asset in relation to tax losses accumulated by the Company, being a significant estimate
under Basis of Preparation. Comparatives in the statement of financial position have been
updated to ensure consistency between financial reporting periods.
There were no new and amended accounting standards mandatory for the year ended 31
December 2020 that were considered to have a material impact to the Group. The IASB has
issued a number of standards, amendments and interpretations which are not yet effective,
and which may have an impact on the Group’s consolidated financial statements.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
10
1 Strategic review
On 15 April 2020, the Refining NZ Board announced a Strategic Review to determine the
optimal business model and capital structure for its assets to maximise “through the cycle”
returns to shareholders and deliver secure, competitive fuel supply to New Zealand.
The first phase of the Strategic Review was to assess all the options, including opportunities to
improve the competitiveness of refining operations and options to separate the refining and
infrastructure assets or convert to a fuel import business model.
On 25 June 2020, the Company announced that it would take two business model options
forward; a Simplified Refinery (to improve the near-term viability of its current business
model), while continuing to evaluate a possible future staged transition to an import terminal
(including exploration of a commercial framework with customers, overseen by the
Independent Directors).
Simplified Refinery model
Under the Simplified Refinery model, implemented from January 2021, refining capacity was
reduced by circa 18% (being an equivalent of circa 34 million barrels per annum) with total
refined fuels production levels similar to levels at the time of commencement of the Processing
Agreement in 1995 and bitumen production ceased. An organisational restructure was finalised
prior to 31 December 2020, at a cost of circa $5.6 million to reduce the workforce by around
25%, with circa 90 employees leaving the Company either through redundancies, retirements
or resignations during November 2020 through to April 2021. (Refer to note 20.) Under the
Simplified Refinery model, lower labour costs and a reduction in other costs are intended to
enable the Company to extend cash neutral operations in 2021 under a scenario where
processing fee income is at the Fee Floor (of circa $141 million) and refinery operations are
uninterrupted.
Refining NZ’s customers, bp Oil New Zealand Limited, Mobil Oil New Zealand Limited, and Z
Energy Limited have all issued notices of dispute under the Processing Agreement, in relation
to the simplification of Marsden Point oil refinery operations as detailed in note 24.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
11
Import Terminal model
Discussions with Refining NZ’s customers in relation to the potential future staged transition to
an import terminal continue. The Independent Directors, who have been overseeing
discussions with customers, continue to see significant unrealised value in the Company’s fuels
distribution infrastructure with the added benefit of significantly lowering the Company’s
carbon emissions profile on transition to an import terminal. Any decision to proceed with a
conversion to an import terminal will need to meet a number of requirements, including new
agreements with the Company’s customers that will be voted on by non-customer
shareholders.
Impact on Financial Reporting
These financial statements have been prepared based on Group operations under the current
Processing Agreements, with a simplified refinery operating through to 2035 followed by a
conversion to an import terminal as outlined under note 12. There is a wide range of potential
outcomes from the Strategic Review, commercial negotiations with customers and customer
disputes, which are not solely within the Company’s control. The potential outcomes may
therefore impact, positively or negatively, including in a material way, the financial
performance and financial position of the Group in the future.
2 COVID-19 Pandemic
On 11 March 2020 the World Health Organisation declared a global pandemic as a result of the
outbreak and spread of COVID-19. The New Zealand Government subsequently raised its Alert
Level to 4 (full lockdown of non‑essential services) for an initial four-week period. As an
essential service, the Group continued to operate during the lockdown, and subsequently
throughout COVID-19 Alert Levels 3, 2 and 1 (as well as Auckland’s Level 3 lockdown in August).
During 2020, in response to the significant fuel demand reduction resulting from travel and
transport restrictions and the consequential reduction in revenue through weak global refining
margin and lower refinery throughputs, Refining NZ implemented the following measures:
• Reduced refinery production
Refining NZ agreed with its customers to change the way it operated the refinery whereby
its processing facilities were operated in different modes to enable the refinery to produce
substantially lower volumes to help balance fuel supply across New Zealand.
• Reduced non-essential activity on-site
All safety critical work continued during COVID-19; however, all non-essential activity on-
site was suspended including the deferral of the planned maintenance turnaround of the
main crude distiller and the gasoline manufacturing unit from May 2020 to March 2021.
• Increased and extended debt facilities (refer to note 9)
Refining NZ extended and expanded its existing bank facilities, increasing the weighted
average term to over three years at the time and adding $50 million of additional capacity,
which brought the total available debt funding facilities to $400 million (including the
company’s $75 million subordinated notes on issue) as at 31 December 2020.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
12
The key direct and indirect impacts on the Group can be summarised as follows:
• Total refinery throughput for the year ended 31 December 2020 was 29.8 million barrels,
30% lower than in 2019 and circa 35% lower from the time the pandemic was declared.
• Our customers were invoiced at the Fee Floor amounting to $140 million during the year
ended 31 December 2020. The actual processing fee earned from operations was below
the Fee Floor, resulting in circa $90 million being paid by customers as fee floor payments
as outlined in note 4.
• Pipeline revenues were 19% lower than 2019 at $29 million, reflecting the impact of
reduced demand for transport fuels, particularly jet fuel into Auckland International
Airport, offset by higher pipeline fees. Pipeline volumes were circa 35% lower from the
time that the pandemic was declared compared to the prior year.
• The Group accessed the Government wage subsidy totalling $5.1 million as outlined in
note 4.
• The capital budget for 2020 was reduced from $70 million to a spend of circa $32 million.
• Operating costs excluding natural gas were circa $25 million or 13% lower than 2019 due
to lower electricity and other costs largely as a result of reducing non-essential activity on
site and lower production.
• The Company operated on a cash neutral basis following lockdown (Alert Level 4), through
to October 2020, when it’s net cash position improved by circa $17 million, due to savings
realised from the six-week temporary shutdown of the refinery in July/August and the
proceeds of asset sales. The net debt position as at 31 December 2020 was $231 million.
Refer to notes 9 and 17 for further detail.
• The Company declared Force Majeure under the Negotiated Greenhouse Agreement to
relieve the Company of its obligation to meet world’s best practice energy intensity
pathway in 2020 while the refinery was impacted by COVID-19 travel restrictions. This
continued through to the end of the year with land fuels demand recovering and jet
remaining at 30-40% of pre-COVID-19 levels (refer to note 11).
• The Company declared Force Majeure under its natural gas supply contract, to relieve the
Company of its “take or pay” obligations, given the lower refinery throughputs. The
supplier subsequently exercised their right of termination in response to a constrained gas
supply market in New Zealand. The Company has since secured a supply of natural gas
through 2021 to meet the refinery’s minimum requirements.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
13
In addition to the above, other direct and indirect impacts of COVID-19 on the Refining NZ’s
balance sheet include:
Item COVID-19 impacts assessment
Cash and cash equivalents
The Group maintained cash and cash equivalent balances of
between $15-45 million throughout the year.
Trade and other
receivables
Trade receivables reflect an increased receivable in respect of the
processing fee floor payments due in 2020. Refiners margins
were weak in the last two months of 2019 resulting in very low
processing fee income, but no Fee Floor payments were
receivable as at 31 December 2019 given that the year-to-date
revenue had exceeded the Fee Floor amount. Refer to note 16
for further details.
Income tax
The Company generated tax losses of $37.6 million in the twelve
months ended 31 December 2020. Refer to note 6. Total tax
losses available to the Group to offset against future taxable
income amount to $54.9 million (refer to key judgements and
estimates under Basis of Preparation).
Derivative financial
instruments
COVID-19 has impacted commodity markets. Derivatives are
recognised at fair value, hence the impact on the financial and
commodity markets is included in the derivative instruments’
valuation.
Inventories
Obsolescence assessment has been conducted with regards to
inventories. Refer to note 18 for further details.
Property, plant and
equipment
Impairment assessment has been conducted with regards to
property, plant and equipment. Refer to notes 1, 11 and 12 for
further details.
Right-of-use assets
Impairment assessment has been conducted with regards to
right-of-use assets. Refer to notes 10 and 12 for further details.
Intangibles
Included are New Zealand Units (NZUs) held by the Parent
company, recognised at historical cost and tested for impairment
with reference to market value of carbon units. No impairment
was recognised on intangible assets.
Trade and other payables
Trade and other payables are lower due to non-essential activity
being reduced, with a corresponding reduction in capital and
operating costs. Refer to note 19.
Borrowings
In response to the global uncertainty, Refining NZ extended and
expanded its existing bank facilities. Refer to note 9 for further
details.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
14
Lease liabilities
No impact – refer to right-of-use assets.
Employee benefits
A significant proportion of the Company’s staff agreed to take
annual leave during the six weeks that the refinery was in “hot
standby” in July-August 2020, reducing the annual leave liability
by $1.2 million during the period.
In addition, lower investment returns earned by the Pension
Fund following COVID-19 and amended assumptions
underpinning the valuation, particularly a lower yield curve
impacting the discount rate, contributed to the actuarial loss
reported in the year ended 31 December 2020.
An organisational restructure was undertaken in 2020 to reduce
the workforce by circa 25% in preparation for a refinery
simplification (refer to note 1). A redundancy provision of $4.4
million was recorded as at 31 December 2020. Refer to note 20
for further details.
Provisions
Present value of provisions updated for the impact of financial
and commodity markets on interest rates.
Deferred tax asset The Group incurred tax losses in the period which increased the
deferred tax asset. Refer to note 6 for further details.
Deferred tax liability The Group has recognised an impairment of assets which
decreased the deferred tax liability. Refer to notes 6 and 12 for
further details.
3 Segment reporting
(a) Identification and description of reportable segments and reporting measures
Management (the Corporate Lead Team) reviews the Group’s internal reporting in order
to assess performance and allocate resources including the definition of operating
segments – oil refining and infrastructure:
- Oil Refining – the Company operates the Marsden Point oil refinery as a toll
processor.
- Infrastructure - the Company owns infrastructure to support the distribution of
manufactured products to its customers, including the Refinery to Auckland Pipeline
(RAP) which transfers product to the Wiri Oil terminal located in South Auckland. In
addition, the segment includes laboratory testing services undertaken by
Independent Petroleum Laboratory Limited
- Inter-segment – represents transactions between segments carried out on normal
commercial terms.
The Corporate Lead Team primarily uses revenue and adjusted earnings before finance
costs, tax, depreciation and amortisation (or ‘Adjusted EBITDA’) of the Parent Company as
measures to assess the performance of the operating segments. For Non-GAAP
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
15
information refer to note 26.
Assets and liabilities information, depreciation, finance income and costs and taxes are
managed on a Group basis and are therefore not presented as part of the segment
information.
The presentation of segments in this financial report has changed from the 2019 full year
consolidated financial statements to align with the way that the Corporate Lead Team now
monitors the segmental financial performance, as outlined above.
Revenue derived from major customers, and the relevant operating segments, is disclosed
in note 5.
(b) Segment results
(*) prior to consolidation eliminations
31 DECEMBER 2020OIL REFININGINFRASTRUCTURETOTAL
NOTE$000$000$000
External customer4200,42345,324245,747
Inter-segment-4,2194,219
TOTAL INCOME
(*)
200,42349,543249,966
Adjusted EBITDA2626,02832,66658,694
31 DECEMBER 2019OIL REFININGINFRASTRUCTURETOTAL
$000$000$000
External customer4297,83650,539348,375
Inter-segment-5,7335,733
TOTAL INCOME
(*)
297,83656,272354,108
Adjusted EBITDA2680,37041,511121,881
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
16
4 Revenue
Processing fees, pipeline fees and other services provided by the Group are identified as
distinct performance obligations which are satisfied over time and for which a transaction price
is separately determined and allocated.
Revenue from other contracts (primarily relating to provision of services) is recognised over
time as goods or services are delivered to customers. Rental income from operating leases
(including Wiri Oil terminal rental) is recognised on a straight-line basis in accordance with the
substance of the relevant agreements. No significant judgement is involved in the price
determination and allocation. An output method is applied to measure progress of the services
provided.
The Group does not have contracts with customers where significant financing components,
non-cash considerations or consideration payable to customers, obligations for refunds or
specific warranties would be existent.
The processing fee revenue is subject to a fee floor, which comes into effect if the total
processing fee for a calendar year is below a minimum value. Processing fee revenue prior to
any fee floor was circa $50 million in 2020, with an additional circa $90 million in income
earned from Refining NZ customers under the Fee Floor and an additional $1.6 million of
processing fee revenue recognised in 2020 relates to prior periods. In 2019 no fee floor
payments were made as processing fee revenue exceeded the fee floor.
Included in other income is $5.1 million of COVID-19 wages subsidy paid by the New Zealand
Government (2019: nil), refer to note 2, and a gain on sale of assets of $5.9 million (2019: nil).
FOR THE YEAR ENDED 31 DECEMBER 2020GROUPGROUP
20202019
$000$000
Comprises:
Processing fees141,601241,970
Natural Gas recovery30,15639,579
Other refining related income18,13916,287
REFINING REVENUE189,896297,836
Pipeline fees29,28336,400
Other distribution income11,7506,598
DISTRIBUTION REVENUE41,03342,998
Other operating revenue3,0084,027
TOTAL REVENUE233,937344,861
Other income11,8103,514
245,747348,375
TOTAL INCOME
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
17
5 Related parties
(a) Shareholders and other related parties
The Group enters into transactions with the oil companies who are also shareholders of the
Parent, and Wiri Oil Services Limited (Wiri Oil), a company that is owned by shareholders of the
Parent. Details of shareholdings at 31 December are:
The nature, transactions and balances with the shareholders and other related parties are as
follows:
• Processing fees – separate processing agreements with each of the three oil companies
have been in place since 1995. Subject to any rights of termination that may arise at
law, the processing agreements are intended to operate as long-term “evergreen”
contracts which continue unless renegotiated or terminated by mutual consent or by a
customer on one year’s notice. 91% (2019: 93%) of the Group’s total revenue is earned
under the processing agreements. No customer has given notice of termination as at
the date of these financial statements. For credit terms refer to note 21.
• Distribution revenue – includes Refinery to Auckland Pipeline fees, terminalling and
handling fees associated with products imported by the oil companies, as well as other
income associated with the Wiri Oil infrastructure that is owned by the Parent
Company and located on the land owned by Wiri Oil. The land and plant are leased
back to Wiri Oil. The leases are non-cancellable operating leases, which expire in
February 2025 with no right of renewal. At the end of the lease term, ownership of the
Wiri Oil terminal reverts to Wiri Oil Services Limited.
• Excise Duty – collected from the Oil Companies and paid to the New Zealand Customs
Service on the same day each month (refer notes 16 and 19) and is included in the
below balances outstanding as at 31 December.
• Purchases of goods and services – the Group purchases sulphur, a by-product of the
refining process, which is on sold to third parties, and other fuels. In addition, a portion
of insurance premium in relation to material damage and business interruption is paid
to companies related to shareholders.
* Revenue excludes excise duty.
202020192020201920202019202020192020201920202019
$000$000$000$000$000$000$000$000$000$000$000$000
BP59,16089,06640,40238,0609673558-372335--
Mobil57,78180,8944,82532,955148311139-571331--
Z Energy96,581151,83692,79568,0801411,13395185----
Wiri Oil7,0047,0734229--------
TOTAL220,526328,869138,064139,1243852,179292185943666--
BALANCES OUTSTANDING
AS AT 31 DECEMBER
Revenue*PurchasesOther charges
TRANSACTION VALUES
FOR THE YEAR ENDED 31
DECEMBER
BALANCES OUTSTANDING
AS AT 31 DECEMBER
TRANSACTION VALUES
FOR THE YEAR ENDED 31
DECEMBER
BALANCES OUTSTANDING
AS AT 31 DECEMBER
TRANSACTION VALUES
FOR THE YEAR ENDED 31
DECEMBER
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
18
(b) Directors’ fees and key management personnel compensation
Directors’ fees and key management (Corporate Lead Team) personnel remuneration (paid
during the financial year) were as follows:
Salaries and other short-term employee benefits include fees paid to Mr P Zealand totalling
$187,000 (2019: nil), who acted as Managing Director during the period February to April 2020
to assist in the CEO transition. For key management personnel share scheme, refer to note 23.
6 Taxation
(a) Income tax expense
GROUPGROUP
20202019
$000$000
Salaries and other short-term employee benefits3,9153,929
115139
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION4,0304,068
779795
4,8094,863
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION
& DIRECTORS' FEES
Post-employment benefits
Directors' fees
GROUPGROUP
20202019
NOTE$000$000
(271,412)4,859
(75,995)1,361
Income not assessable for tax(1,286)(203)
Expenses not deductible for tax3,78361
365(525)
(73,133)694
Represented by:
(389)457
6(b)(72,744)237
(73,133)694INCOME TAX EXPENSE
Deferred tax recognised in the income statement
Net (loss)/profit before income tax expense
Tax at the New Zealand corporate income tax rate
of 28% (2019: 28%)
Tax effect of amounts which are either non-
deductible or taxable in calculating taxable
income:
Adjustments in respect of current income tax in
INCOME TAX EXPENSE
Current tax expense
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
19
(b) Deferred tax
The Group has unused tax losses of $54.9 million (2019: $17.3 million) available to carry
forward. A deferred tax asset in respect of these unutilised tax losses has been recognised.
(Refer to Basis of Preparation: Use of judgements and estimates).
The Group has changed its presentation of deferred taxes in the statement of financial position
to present deferred tax assets and deferred tax liabilities on a gross basis to increase the
transparency of the deferred tax asset in relation to tax losses accumulated by the Company,
being a significant estimate under Basis of Preparation of these Financial Statements.
Comparatives in the statement of financial position have been updated to ensure consistency
between financial reporting periods.
7 Earnings per share
Earnings per share is calculated by dividing the profit attributable to shareholders of the
Company by the weighted average number of ordinary shares on issue during the year. The
Company’s share-based payments described in note 23 have no material dilutive effect on the
earnings per share.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
20
8 Equity and dividends
Contributed Equity. The issued capital of the Company is represented by 312,893,643 ordinary
shares (2019: 312,576,453) issued and fully paid, less 519,859 (2019: 417,644) treasury shares
held by CRS Nominees Limited (refer to note 23). All ordinary shares rank equally with one vote
attached to each ordinary share.
Treasury stock. Treasury stock represents the value of shares acquired by CRS Nominees
Limited on-market, or shares issued by the Company, in respect of the Employee Share
Purchase Scheme (refer to note 23).
Employee share entitlement reserve. The employee share entitlement reserve is used to
recognise the fair value of shares granted but not vested to employees (as part of the
Employee Share Purchase Scheme) or to the Chief Executive within the Share Rights Scheme.
Amounts are transferred to share capital when the shares vest to the employee (refer to note
23).
Cash flow hedge reserve. The cash flow hedge reserve comprises the effective portion of the
cumulative net change in the fair value of hedging instruments used in cash flow hedges
pending subsequent recognition in the income statement (refer to note 22).
Dividends. No dividends were paid or declared in 2020. Imputation credits available to
shareholders for subsequent reporting periods amount to $20.944 million as at 31 December
2020 (2019: $23.589 million).
9 Borrowings
The carrying amounts of borrowings approximate their fair value. The borrowings are
unsecured. The Parent can determine which revolving cash advance facility will be drawn upon
to meet funding requirements. The Parent borrows under a negative pledge arrangement
which requires certain certificates and covenants, including debt to total debt and equity,
guarantor coverage ratio and EBITDA to interest ratios. All these requirements have been met.
In 2020, the Company increased and extended its existing committed bank facility limits from
$275 million to $325 million and increased the weighted average senior debt tenor from 2.9
years at 31 December 2019 to 3.1 years at the time of the extension. The weighted average
senior debt tenor as at 31 December 2020 was 2.6 years.
TOTALTOTAL
NOTE20202019
($000)(198,279)4,165
000's8312,293312,177
000's8313,335312,420
(63.5)1.3
(63.3)1.3DILUTED EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
Profit after tax attributable to shareholders of the Company
Weighted average number of shares on issue
Weighted average number of shares on issue (incl. dilutive shares)
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
21
The maturity profile of the Company’s borrowing facilities as at 31 December 2020, including
the utilisation of those facilities and undrawn amounts is as follows:
The carrying value of the subordinated notes as at 31 December 2020 amounts to $74.6
million. The difference between the carrying value and the $75 million face value is due to
unamortised issue costs and accrued interest. While the expiry of the subordinated notes is on
1 March 2034, the maturity profile reflects the notes as maturing in 2024 to align with the first
election date, when the Company may elect to either redeem the notes or to offer new
conditions to the noteholders.
10 Lease liabilities
Lease liabilities are associated with the following right-of-use assets:
• land, foreshore license, barge ramp where the oil tanker jetty is located and offices. The
right-of-use asset is depreciated over the period until the expiry of the lease;
• platinum held in catalysts used in the oil refining process. The leased platinum must be
returned to the lessor at the end of the lease term. The estimated cost of reclamation,
discounted to present value, is included as a provision in the Group’s balance sheet, refer
to note 15. The lease payments are variable and represent interest paid to the lessor
based on an agreed fixed rate and with reference to the market value of the leased
platinum.
There are no restrictions or covenants imposed by leases, or exposure arising from residual
value guarantees. Extension and termination options included in some leases are used to
maximise operational flexibility in terms of managing contracts and are exercisable by the
Group.
35
70
25
70
45
5
35
15
25
75
-
20
40
60
80
100
120
140
160
180
0-1 year1-2 years2-3 years3-4 years4-5 years
$M
Utilised facilities (cash advance)Undrawn facilities (cash advance)Subordinated Notes
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
22
The balance sheet shows the following amounts relating to right-of-use assets and lease
liabilities:
The income statement includes the following amounts in relation to leases:
The total cash outflow for leases in 2020 was $871,000 (2019: $1,154,000).
GROUPGROUP
20202019
$000$000
Right-of-use assets
Opening net book value4,0284,468
Additions273-
Lease extensions and modifications659-
Depreciation charge(455)(440)
Impairment(1,170)-
CLOSING NET BOOK AMOUNT3,3354,028
Cost5,5814,664
Accumulated depreciation and impairments(2,246)(636)
NET BOOK AMOUNT, INCLUDING:3,3354,028
Freehold land and improvements545209
Buildings and jetties178-
Refining Plant1,3952,197
Catalysts1,2171,622
GROUPGROUP
20202019
$000$000
Lease liabilities
Opening lease liability3,4543,778
Additions284-
Lease extensions and modifications659-
Revaluations(55)-
Lease payments (capital portion)(200)(324)
CLOSING LEASE LIABILITY, INCLUDING:4,1423,454
Current202248
Non-current3,9403,206
GROUPGROUP
20202019
$000$000
Depreciation charge455440
Impairment1,170-
Interest expense (included in Finance costs)352342
190220
427609
Expense relating to short-term leases (included in Administration
and other costs )
Expense relating to leases of low-value assets that are not short term
leases (included in Administration and other costs )
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
23
11 Property, plant and equipment, and intangibles
Property, plant and equipment and intangibles are initially recognised at cost which includes
expenditures directly attributable to the acquisition. Major inspections associated with planned
plant shutdowns (or turnarounds) and tank maintenance are capitalised at cost and recognised
in the carrying amount of the refining plant, provided the recognition criteria are met.
During the year the Group has capitalised borrowings costs amounting to $0.7 million (2019:
$2.1 million) on qualifying assets. Borrowing costs were capitalised at the weighted average
rate of its general borrowings of 5.4% (2019: 5.9%). Property, plant and equipment are
included in the negative pledge arrangement as detailed in note 9.
Depreciation is provided on a straight-line basis on all property, plant and equipment other
than freehold land, capital work in progress and precious metals (rhenium, platinum) contained
in certain catalysts.
Following an impairment of assets recognised as at 30 June 2020, the Group reassessed the
remaining useful lives of assets from 1 July 2020 to align with the base assumption that the
refinery would operate until 2035 and then convert to an import terminal.
As a result of the remaining life assessment carried out by in-house subject matter experts, the
weighted average remaining useful life of the refining assets has been reduced, resulting in an
increase in the depreciation in the second half of the year by approximately $3.6 million). The
impact of the revised useful lives on the future years is estimated at circa $7 million.
The standard useful lives used by the Group are as follows:
Useful lives (years)
Freehold improvements 5-50
Buildings and jetties 5-50
Refining plant
- tankage 15-50
- rotating equipment 15-30
- piping 15-50
- vessels and columns 15-40
- instruments 10-15
- electrical and electrical cabling 15-25
- plant shutdown and tank maintenance 2-20
- other refining plant 10-65
Catalysts 3-10
Refinery to Auckland Pipeline
- pipeline 78
- plant and equipment 10-34
Wiri Oil terminal (leased) 20
Equipment and vehicles
3-25
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
24
Intangibles relate to the New Zealand Units (NZUs) and are recognised at historical cost with an
indefinite useful life. Carbon units are issued by the Crown to the Parent company, pursuant to
the Company’s Negotiated Greenhouse Agreement (NGA), which expires in 2022. The Company
is currently exempted from the Emissions Trading Scheme (ETS) due to the NGA and the
Company’s demonstrated commitment to progress in reduction of energy intensity along a
world’s best practice pathway, noting that in 2020 the Company declared Force Majeure under
the NGA in response to COVID-19 (refer to note 2).
In April 2020, the New Zealand Government approved the making of regulations to bring the
Company in to the New Zealand Emissions Trading Scheme (NZ ETS) as an Emissions Intensive
Trade Exposed (EITE) business with an industrial allocation of carbon units after the NGA
expires at the end of 2022.
Under the regulations the industrial allocation will be based on 90% of the Company’s 2006-
2009 emissions data, in accordance with the Climate Change Response Act 2002. The Climate
Change Response (Emissions Trading Reform) Amendment Bill provides for a 1% per year phase
out of rates of assistance over 2021 to 2030, meaning that the applicable rate of assistance at
the time Refining NZ enters the NZ ETS in 2023 would be 87%.
The Government has signalled that further regulatory reforms, as a result of a review of
industrial allocation policy and electricity allocation factors, may result in very different
allocative baselines in the future, including the amount that the Company is ultimately
allocated when it enters the NZ ETS in 2023. Refining NZ continues to engage with Government
during this review process, but no outcome is guaranteed at this stage.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
25
11 Property, plant and equipment and intangibles (continued)
(a) Summary of fixed assets movements
FREEHOLD LAND
AND
IMPROVEMENTS
BUILDINGS
AND JETTIES
REFINING
PLANT
CATALYSTSREFINERY TO
AUCKLAND
PIPELINE
WIRI OIL
TERMINAL
(LEASED)
EQUIPMENT
AND
VEHICLES
CAPITAL
WORK IN
PROGRESS
TOTALINTANGIBLES
(note 5)
NOTE$000$000$000$000$000$000$000$000$000$000
78,265200,2912,887,12480,885224,49744,167129,73990,9843,735,95214,309
(53,979)(101,858)(2,102,586)(39,600)(116,081)(41,442)(88,458)-(2,544,004)-
24,28698,433784,53841,285108,4162,72541,28190,9841,191,94814,309
24,28698,433784,53841,285108,4162,72541,28190,9841,191,94814,309
4,07865278,4784,206125-4,480(13,175)78,8447,828
---(1)--(2)(430)(433)-
11(b)(1,567)(4,744)(72,701)(10,057)(3,389)(390)(6,210)-(99,058)-
26,79794,341790,31535,433105,1522,33539,54977,3791,171,30122,137
82,343200,9432,903,13384,856224,62144,042134,20477,3793,751,52122,137
(55,546)(106,602)(2,112,818)(49,423)(119,469)(41,707)(94,655)-(2,580,220)-
26,79794,341790,31535,433105,1522,33539,54977,3791,171,30122,137
YEAR ENDED 31 DECEMBER 2019
Ope ni ng ne t book va l ue
Addi ti ons /tra ns fe rs
Di s pos a l s
NET BOOK AMOUNT
De pre ci a ti on/a morti s a ti on cha rge
CLOSI NG NET BOOK AMOUNT
AT 31 DECEMBER 2019
Accumul a te d de pre ci a ti on
AT 1 JANUARY 2019
Cos t
Accumul a te d de pre ci a ti on
NET BOOK AMOUNT
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
26
(b) Depreciation
FREEHOLD LAND
AND
IMPROVEMENTS
BUILDINGS
AND JETTIES
REFINING
PLANT
CATALYSTSREFINERY TO
AUCKLAND
PIPELINE
WIRI OIL
TERMINAL
(LEASED)
EQUIPMENT
AND
VEHICLES
CAPITAL
WORK IN
PROGRESS
TOTALINTANGIBLES
(note 5)
NOTE$000$000$000$000$000$000$000$000$000$000
YEAR ENDED 31 DECEMBER 2020
Ope ni ng ne t book va l ue26,79794,341790,31535,433105,1522,33539,54977,3791,171,30122,137
9168,86730,4291,963(18)-911(17,957)25,111(4,785)
Di s pos a l s--5(230)----(225)(7,384)
De pre ci a ti on cha rge11(b)(1,743)(5,279)(64,714)(6,164)(3,927)(380)(4,343)-(86,550)-
I mpa i rme nt of a s s e ts12-(75)(201,825)(9,275)(11,328)(222,503)-
CLOSING NET BOOK AMOUNT
25,97097,854554,21021,727101,2071,95536,11748,094887,1349,968
AT 31 DECEMBER 2020
Cos t83,259208,6152,928,03981,627224,60344,042135,34659,4223,764,9539,968
Accumul a te d de pre ci a ti on a nd i mpa i rme nt l os s e s(57,289)(110,761)(2,373,829)(59,900)(123,396)(42,087)(99,229)(11,328)(2,877,819)-
NET BOOK AMOUNT
25,97097,854554,21021,727101,2071,95536,11748,094887,1349,968
Addi ti ons /tra ns fe rs
GROUPGROUP
20202019
NOTE
$000$000
11(a )86,550 99,058
10455440
213 433
DEPRECIATION CHARGE87,21899,931
Depreciation on Property, Plant and Equipment
Depreciation on Right-to-Use Assets
Loss on disposal of Property, Plant and Equipment
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
27
12 Impairment assessment
Property, plant and equipment is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The carrying value of
the Group’s assets were tested for impairment as at 30 June 2020, resulting in an impairment of
assets of circa $219 million (or circa $158 million net of deferred tax). In addition, the stock
obsolescence provision was increased by $3.4 million for year-ended 31 December 2020. The
Company updated the impairment analysis as at 31 December 2020 and as a result of this latest
assessment, no change to the impairment loss recognised as at 30 June 2020 was identified.
Key judgements underpinning the 31 December 2020 assessment include:
- Strategic Review
As a result of the Strategic Review undertaken in 2020, the company has transitioned to a
simplified refinery from the start of the 2021 year, aiming to achieve cash breakeven of
the Group at the Fee Floor, while the commercial discussions with customers on the
possible future transition to an import terminal continue (refer to note 1).
As set out in note 1, there is inherent uncertainty associated with the potential conversion
to an import terminal and its timing and the potential outcomes from the commercial
negotiations with the Company’s customers, which are not solely within the Company’s
control, are currently unknown.
The Processing Agreements are long-term “evergreen” contracts which, subject to any
termination right arising at law, continue unless renegotiated or terminated by mutual
consent or by a customer on one year’s notice. As at the date of these financial
statements, no customer has given notice of termination and any decision to proceed with
a conversion to an import terminal will require new agreements with the Company’s
customers to be voted on by non-customer shareholders. As such, the Board and
Management have conducted the value in use impairment assessment as at 31 December
2020 based on the Group’s existing business model and the existing Processing
Agreements, with updates to reflect the Company’s response to COVID-19 (see note 2)
and taking into account the effects of the refinery’s simplification from 2021.
Once commercial discussions with customers are finalised and if a decision to proceed
with the conversion to an import terminal is approved by non-customer shareholders,
there may or may not be, a material favourable or unfavourable impact on future value in
use assessments of the carrying value of the Group’s assets.
- Resource consents
The Company’s resource consents for activities at its Marsden Point site are considered to
be on track to be renewed prior to expiry in May 2022. It is the opinion of Management
and the Board that the risks of not renewing resource consents on a commercially
acceptable basis is low.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
28
- New Zealand Emissions Trading Scheme (NZ ETS) and Climate Change Response (Zero
Carbon) Amendment Act 2019
In April 2020 the Government approved the making of regulations to bring the Company
in to the NZ ETS as an Emissions Intensive Trade Exposed (EITE) business with an industrial
allocation of carbon units, with effect upon the expiry of the Negotiated Greenhouse
Agreement with the Crown on 31 December 2022.
Under the regulations the Company’s industrial allocation entitlement will be based on
90% of the Company’s 2006-2009 emissions data submitted in accordance with the
Climate Change Response Act 2002. The Climate Change Response (Emissions Trading
Reform) Amendment Act 2020 provides for a 1% per year phase out of rates of assistance
over 2021 to 2030, meaning that the applicable rate of assistance at the time the
Company enters the NZ ETS in 2023 would be 87%. This is the basis on which we have
completed the 31 December 2020 impairment testing.
However, the Government has signalled that further regulatory reforms (resulting from a
review of industrial allocation policy and electricity factors), may result in very different
allocative baselines in the future, including a change in the number of carbon units that
the Company is ultimately allocated when it enters the NZ ETS in 2023.
On 31 January 2021, the Climate Change Commission (hereinafter as “Commission”)
released its draft advice for consultation on New Zealand’s carbon budgets for the next 15
years. The draft budgets propose carbon budget targets of a 2% reduction on 2018
greenhouse gas emissions by 2025, a 17% reduction by 2030 and a 36% reduction by 2035
and a doubling of the containment reserve trigger in the ETS to $70/tCO
2
. The
Commission’s modelling indicates that meeting the 2050 target will involve marginal
abatement costs at around $140/tCO
2
in 2030.
A significant increase in carbon unit prices, or a change in the allocation of units to the
Company under the NZ ETS may have a material financial impact on the future financial
performance of the Company.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
29
- COVID-19 global pandemic
COVID-19 has had a significant impact on current demand for transport fuels and
therefore demand for refined products, resulting in significant market uncertainty. How
long a recovery will take is uncertain and some independent experts are forecasting that
the recovery from COVID-19 will be slow, impacting the longer-term demand forecasts for
transport fuels, particularly jet fuel which currently remains at 30-40% of pre-COVID
levels.
- Market outlook – refining margins
An increased supply of refined product and lower than expected demand for transport
fuels in the Asia Pacific region has resulted in a reduced outlook for refining margins
generally. (Refer to note 1).
The global drop in oil demand triggered by COVID-19 and the expectation of a slow
recovery in oil and refined products demand, particularly jet fuel, has further exacerbated
the oversupply in the global refining market. This has resulted in very weak refining
margins during the financial year, and significant uncertainty regarding refining margins in
the future.
- Future New Zealand transport fuel demand
The Climate Change Response (Zero Carbon) Amendment Act 2019 has set a target for
New Zealand to reduce its net emissions of all greenhouse gases (except biogenic
methane) to zero by 2050.
This target was reiterated in the draft advice issued by the Climate Change Commission on
31 January 2021, for consultation on New Zealand’s carbon budgets. To meet targets set
for the transport sector, the Commission assumes:
• The phase out of the import of light internal combustion engine vehicles between
2030 and 2035, leading to a 40% electric vehicle penetration in the light vehicle
market by 2035, with a consequential impact on domestic petrol demand.
• That medium and heavy trucks will electrify more slowly, with around 15% of the
medium trucks and 8% of heavy trucks imported into New Zealand being electric
by 2030, increasing to 84% and 69%, respectively by 2035, with a consequential
impact on domestic diesel demand.
• A scale up of manufacturing low emissions fuels (i.e. biofuels or hydrogen-derived
synthetic fuels), is assumed, with 140 million litres per year of low emissions fuels
by 2035 (an equivalent of circa 3% of total domestic liquid fuel demand, or 1.5% of
total fuel demand including international transport, in 2035).
According to the Commission, there will continue to be a need for liquid fuels for some
transport uses, such as off-road vehicles and equipment, aviation, and shipping. The
Commission notes that given there is no commercially viable sustainable aviation fuel
supply in New Zealand, the aviation sector will be challenging to decarbonise.
The pace of transition to alternative fuels and the manner by which that transition may
occur, remains uncertain. Any significant change in demand for refined products in New
Zealand could therefore impact, favourably or unfavourably, on future assessments of the
carrying value of the Group’s assets.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
30
There is significant volatility and uncertainty in the market as a result of COVID-19, oversupply in
the global refining market and proposed Government policy to address climate change risks and
the impacts on future demand for transport fuels, and the outlook for refiner’s margins cannot
be reliably predicted. Management and the Board have used their refining industry experience
and independent expert forecasts, where appropriate, to determine the base assumptions
adopted in the impairment testing as at 31 December 2020. These and other assumptions
detailed in this note have the potential to impact the timing and other aspects of a potential
conversion to an import terminal.
The approach to the impairment testing, including the key assumptions and sensitivities,
reflecting the market uncertainty, are outlined below:
Cash Generating Unit
The Group identifies two cash generating units being: Refining NZ’s assets and the assets of its
subsidiary, Independent Petroleum Laboratory Limited (“IPL”).
Recoverable amount
The recoverable amount of the assets was determined on a value in use basis using a discounted
cash flow methodology. In determining the recoverable amount, the Company considered fair
value less cost of disposal, noting the inherent limitations in this approach as noted above under
Strategic Review (refer to note 1 for further detail).
Based on the impairment assessment carried out, the recoverable amount of the Company’s
assets was determined at circa $770 million which resulted in an impairment loss of $219 million
being recognised for the year ended 31 December 2020 ($158 million net of deferred tax) and
allocated to the refining segment.
Key assumptions
The key assumptions used in the impairment testing include:
- NZ transport fuel demand
Refining NZ uses demand forecasts formulated by an independent expert, which reflects a
faster transition away from fossil fuels, driven by New Zealand’s commitment to zero net
greenhouse gas emissions by 2050, than previously anticipated. According to the latest
demand outlook, petrol and diesel demand will start declining from circa 2025 and 2030,
respectively, reaching the Company’s refinery production levels by circa 2035 and 2040,
respectively. This outlook is considered to be largely in line with the Climate Change
Commission “Draft Advice for Consultation” issued on 31 January 2021.
Jet fuel demand forecasts have a wide range due to the uncertainty around COVID-19
recovery and viable alternative sources of energy for air travel, however independent
expert forecasts used by the Company have demand forecast to recover to pre-COVID-19
levels by 2025 and grow until circa 2040. Given the long-term uncertainty with respect to
alternative fuels, including biofuel demand which could replace some of the decline in
crude oil derived fuel production, potential contribution of biofuel demand to revenue has
not been considered for impairment assessment purposes at this time.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
31
- Refining and pipeline volumes
The base assumption is that the refinery will operate until 2035, followed by a conversion
to an import terminal, noting that the outlook for transport fuels demand remains highly
uncertain. The Processing Agreements are long-term “evergreen” contracts which, subject
to any termination right arising at law, continue unless renegotiated or terminated by
mutual consent or by a customer on one year’s notice. As at the date of these financial
statements, no customer has given notice of termination and therefore the assumed date
for conversion to an import terminal in 2035, is aligned to the timeframe by which the
refinery’s production is forecast to exceed domestic petrol demand..
The refinery and pipeline throughputs were assumed at an average of circa 34 million
barrels and circa 18.5 million barrels per annum, respectively, in the 15-year period to
2035. Near-term volumes have been adjusted for the impacts of COVID-19 driven demand
reduction; longer-term, Refining NZ used demand forecasts developed by independent
industry experts.
- Refining margins and pipeline fees
Consistent with previous impairment assessments, the Company has used refining margin
forecasts developed based on the latest crude and product pricing issued by independent
expert market commentators used by Refining NZ. Given the current uncertainty in outlook,
a downside to these forecasts has been incorporated into the gross refining margins used
for this impairment assessment. Whilst margins are not expected to recover to above the
Fee Floor equivalent until 2023, independent forecasts assume margins averaging to circa
USD6.00 per barrel through the refinery forecast period to 2035.
Pipeline revenue in the 15-year period to 2035 is determined with reference to the current
Processing Agreement to 2035, and then subsequently as a combination of estimated
pipeline, terminal and wharfage fees.
- Exchange rate
Forward US dollar rates as at the end of the reporting period have been applied, with a
range of 0.70 to 0.73 over the forecast period.
- Operating costs and capital spend
Operating costs (excluding pass through costs such as natural gas) and capital spend
associated with an operation of the simplified refinery are assumed at an average of
approximately $135 million and $55 million per annum, respectively, in the 15 years to
2035.
- Discount rate
A nominal post-tax weighted average cost of capital has been used as assessed by external
advisors at 7.7% in the 15 years to 2035 (period of the refinery operation) and 6% beyond
2035 (import terminal operation), noting that in the 31 December 2019 impairment
assessment a weighted cost of capital of 7.7% was used.
- Carbon cost
The Company will enter the NZ ETS as an Energy Intense Trade Exposed (EITE) business at
the expiry of the Negotiated Greenhouse Agreement on 31 December 2022. The base
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
32
assumption is that the Company will receive an industrial allocation of 87% in 2023 with a
1% per year phase out until 2030 and 2% beyond 2030. Carbon unit prices used average
$42/t from 2021-2035 based on independent expert forecasts.
- Import terminal conversion
An import terminal is assumed to commence its operation from 2036, with an estimated
average revenue of circa $90 million per annum in real terms, reflecting detailed analysis of
the value of the infrastructure and forecast fuel demand assumptions. Operating and
capital costs are estimated at an average of circa $35 million per annum in real terms,
reflecting managements best estimate of costs given forecast fuel demand assumptions.
- Forecast period and terminal value
Due to the long-term, cyclical nature of the business, a 30-year forecast period has been
adopted with a terminal value.
Sensitivities
The following chart outlines a range of possible sensitivities associated with each of the key
assumptions, across the full period modelled and based on a range of potential outcomes for
each of these assumptions. It should be noted that changes in a combination of the key
assumptions could also have a significant impact upon the recoverable amount assessed.
(*) The sensitivity shown for EITE industrial allocations under the ETS and carbon unit prices is
intended to show both the impact of a change in the industrial allocation made to the Company
(from 87% on entry to the NZ ETS 2023) as well as the impact of a change in carbon costs. For
illustrative purposes, a sensitivity has been shown based on a 60% allocation in 2023 and a 1%
per year phase out of rates of assistance over 2021 to 2030, and a carbon cost of $70/t (being a
doubling of the containment reserve trigger in the ETS as proposed by the draft advice from the
Climate Change Commission).
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
33
13 Operating leases
Lease income from operating leases, where the Group is a lessor, are recognised as income on a
straight-line basis over the period of the lease.
The Group leases land and refining plant to Wiri Oil Services Limited (refer to note 5) under a
non-cancellable operating lease which expires in February 2025 with no right of renewal. The
annual Wiri land and terminal lease income and cost are recognised on a straight-line basis over
the period of lease and amounted to $0.5 million and $6.0 million, respectively, in 2020 (2019:
$0.5 million and $6.0 million).
14 Capital commitments
Commitments are related to asset purchases contracted as at the reporting date but not
provided for in the consolidated financial statements. As at 31 December 2020 the capital
commitments amounted to $20.2 million (31 December 2019: $28.1 million).
15 Provisions
Provisions of $7.8 million include the jetty restoration provision of $6.9 million (31 December
2019: $11.8 million) and the platinum reclamation provision relating to leased platinum (refer to
note 10 for further details).
The restoration of the seabed which the jetty is situated on at Marsden Point is dependent on,
the term of the lease, inflation rate (2020: 1.5%, 2019: 2%) and discount rate assumptions
(2020: 3.58%, 2019: 1.83%).
These changes resulted in a net decrease in the provision of $5.5 million. An increase in the
provision as a result of the passage of time (unwinding of discount) of $0.2 million was
recognised as a finance cost.
GROUPGROUP
20202019
$000$000
Lease payments receivable from operating leases where the Group is a lessor
- No later than one year6,5896,609
- One to five years14,69221,248
- Beyond five years--
TOTAL21,28127,857
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
34
16 Trade and other receivables
Trade receivables in respect of processing fees and distribution are due from customers, non-
interest bearing and are normally settled on 7 to 21-day terms.
Excise duty receivable is due from customers and collected by the Parent on behalf of the New
Zealand Customs Service and paid on the same day each month (corresponding offset is
presented as a payable in note 19).
Other receivables and prepayments generally arise from transactions outside the usual
operating activities of the Group, for example prepaid insurance premiums.
The Group does not expect to have any contracts where the period between the transfer of the
promised goods or services to the customer and payment by the customer exceeds one year.
Therefore, the Group does not adjust any of the transaction prices for the time value of money.
No allowance for impairment loss has been recognised as at 31 December 2020 (2019: Nil).
Credit risk disclosures required pursuant to NZ IFRS 9 are outlined in note 21(b).
The carrying value of trade receivables approximates their fair values.
Trade and other receivables related party balances are disclosed in note 5.
GROUPGROUP
20202019
NOTE
$000$000
11,967 4,096
3,0273,773
Other trade receivables3,6964,023
19
135,793127,581
Derivatives pending settlement9291,645
5,482 3,945
TOTAL TRADE AND OTHER RECEIVABLES160,894145,063
Other receivables and prepayments
Excise duty
Product distribution
Processing fees
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
35
17 Cash and cash equivalents
Reconciliation of net cash flow from operating activities to reported (loss)/profit:
In the Consolidated Statement of Cash Flows, the deposits placements and withdrawals and
bank borrowings receipts and repayments are presented on a net basis as their turnover is
quick, amounts are large, and the maturities are relatively short.
GROUPGROUP
20202019
NOTE
$000$000
(198,279)4,165
11(b)
87,21899,931
223,697-
6(b)
(70,794)1,522
Add movement in deferred tax on items included
in other comprehensive income6(b)(1,950)(1,285)
15
(4,841)1,777
Less decrease/(increase) in jetty restoration
provision
relating to property, plant and equipment 5,096(1,491)
23448241
Decrease/(Increase) in intangibles
11
12,169(7,828)
Less proceeds from sale of intangibles(13,320)-
(679)620
16
(15,831)7,649
19
(8,266)18,457
Less increase/(decrease) in trade and other
payables relating to property, plant and equipment
and intangibles4,392(712)
20
7,333(9,280)
Less employee entitlements included in other
comprehensive income20(c)(4,130)7,681
5,218(4,501)
18
4,143179
31,624117,125
Decrease in inventories
Impact of changes in working capital items
Net cash inflow from operating activities
Movement in provisions
Interest and other non-cash movements
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Increase/(decrease) in employee benefits
Decrease/(increase) in income tax receivable
Employee share scheme entitlement reserve
NET (LOSS)/PROFIT AFTER INCOME TAX
Adjusted for:
Depreciation, disposal and amortisation costs
Impairment
Movement in deferred tax
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
36
The below sets out an analysis of the Group’s liabilities for which cash flows have been, or will
be, classified as financing activities in the statement of cash flows:
Cash and cash equivalents include $4.6 million (2019: $4.8 million) held by Refining NZ’s
electricity futures broker as collateral.
18 Inventories
Inventories are reviewed annually for impairment. The inventory obsolescence depends on a
number of assumptions, including age and condition of each of the individual inventory items.
As at 31 December 2020 the inventory obsolescence provision amounted to $8.2 million (2019:
$4.8 million).
The consumption of inventories and any associated write downs are recognised as part of the
purchase of process materials and utilities and materials and contractor payments expense lines
in the Consolidated Income Statement.
Inventories are included in the negative pledge arrangement (refer note 9).
CASH AND
CASH
EQUIVALENTS
BORROWINGS
DUE WITHIN
ONE YEAR
BORROWINGS
DUE AFTER
ONE YEAR
NET CASH
POSITION
FINANCE
LEASE DUE
WITHIN
ONE YEAR
FINANCE
LEASE DUE
AFTER ONE
YEAR
TOTAL
$000
$000$000$000$000$000$000
NET (CASH)/ DEBT AS AT 1
JANUARY 2019
(779)50,000208,601257,8221712,302260,295
Ca s h fl ows (Ca s h)(4,476)(50,000)36,800(17,676)--(17,676)
Fi na nce l e a s e pa yme nts----(171)(152)(323)
Adopti on of I FRS 16 'Le a s e s '----1531,1511,304
Othe r non-ca s h move me nts--1,2151,21595(95)1,215
NET DEBT AS AT 1 JANUARY 2020
(5,255)-246,616241,3612483,206244,815
Ca s h fl ows(38,034)-27,995(10,039)--(10,039)
Fi na nce l e a s e pa yme nts----(200)-(200)
Othe r non-ca s h move me nts----154734888
NET (CASH)/DEBT AS AT 31
DECEMBER 2020
(43,289)-274,611231,3222023,940235,464
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
37
19 Trade and other payables
Trade payables are unsecured, non-interest bearing and are usually paid within 30 days of
recognition.
Changes to excise duties have no direct impact on the results of the Group as they are collected
from the oil companies (note 16) and paid to the New Zealand Customs Service on the same day
each month.
Deferred income relates to the New Zealand Units (NZUs) received in advance – refer to note
11.
Trade and other payables related party balances are disclosed in note 5.
20 Employee benefits
Liabilities for employee benefits comprise the following:
Defined benefit pension plan (scheme closed since 31 December 2002)
Nature of benefits
The Parent contributes to a defined benefit pension plan (the “Plan”) for eligible employees. The
defined benefit pension plan obligation is calculated annually by independent actuaries using
the projected unit credit method, at present value of the estimated future cash outflows using
interest rates of government bonds that have terms to maturity approximating the terms of the
related pension liability. There were no Fund amendments, curtailments or settlements during
2020 (2019: Nil).
GROUPGROUP
20202019
NOTE$000$000
Trade payables22,56331,967
Goods services tax payable9091,847
Deferred income
11
3,487
9,623
Excise duty
16
135,793127,581
TOTAL TRADE AND OTHER PAYABLES162,752171,018
CURRENTNON-
CURRENT
TOTALCURRENTNON-
CURRENT
TOTAL
NOTE
$000$000$000$000$000$000
20(a )
-32,73332,733-24,90724,907
20(a )
177,1857,2021049,95810,062
6,466-6,4666,610-6,610
4,372-4,372---
4144,9015,3151,1476,0297,176
TOTAL11,26944,81956,0887,86140,89448,755
Redundancy provision
Long-service leave and retirement bonus
20202019
Defined benefit pension plan
Medical plan
Wages, salaries, annual leave and sick leave
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
38
Total membership of the scheme as at 31 December 2020 was 192 (2019: 196) and includes:
• current staff members contributing to the scheme, who have pension entitlements
based on final salary and membership;
• retirees/pensioners receiving regular pension payments;
• members receiving disability pensions, which can be paid from the Plan until normal
retirement age.
Regulatory framework
The Financial Markets Authority licenses and supervises regulated superannuation schemes. The
Fund is an employer related restricted workplace savings scheme under the Financial Markets
Conduct Act 2013 (the Act).
The Act requires an actuarial valuation to be performed for each defined benefit superannuation
scheme at least every three years to assess whether the Company’s current level of
contributions to the Plan is sufficient to meet future obligations (funding valuation).
Responsibilities for the governance of the fund
The Trustees of the Fund are responsible for the governance of the Fund. The Trustees are
appointed by the Company and have a legal obligation to act solely in the best interests of the
Fund beneficiaries. The Trustees have the following roles:
• Administration of the Fund and payment to the beneficiaries from Plan assets when
required in accordance with the Plan rules.
• Management and investment of the Plan assets.
• Compliance with superannuation law and other applicable regulations.
Description of risks
Under the defined benefit pension plan the Group has a legal obligation to pay further
contributions if the Fund does not hold sufficient assets to pay all employees the benefits they
are entitled to. There are a number of risks that could expose the Company to such a shortfall;
the more significant risks being:
• Investment returns – the funding valuation assumes a certain return on assets, which
will be available to fund liabilities. Lower than assumed returns could require the
Company to increase contributions to offset the shortfall.
• Life expectancy – the majority of the Plan’s obligations are to provide benefits for the
life of the member, so increases in life expectancy will result in an increase in the Plan’s
liabilities.
The Plan liabilities are calculated, for financial reporting purposes, using a discount rate set with
reference to New Zealand Government Bonds. A decrease in the government bond yield will
increase Plan liabilities for financial reporting purposes, but not necessarily impact upon the
funding requirements of the Company.
Medical plan (scheme closed since 1996)
The Parent pays health insurance premiums in respect of 15 former employees (2019: 21 former
and current employees) when they retire, until their death. This arrangement is no longer
offered to new employees. The medical plan is accounted for in a similar manner to the defined
benefit plan outlined above, with an accounting valuation performed by an independent actuary
at each balance date. In 2020 the Company offered medical retirees a lump sum payment in
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
39
exchange for ceasing on-going Company contributions. Three medical retirees accepted this
offer. (In February 2021, a further six medical retirees accepted a revised cash-out offer.)
Redundancy provision
An organisational restructure was undertaken in 2020 to reduce the workforce by around 25%
with circa 90 employees leaving the Company either through redundancies, retirements
or resignations from November 2020 through to April 2021 (refer to note 1). The total cost of
the restructure was $5.6 million, recognised in wages, salaries and other benefits in the year
ended 31 December 2020. Redundancy payments totalling $1.2 million were paid out prior to
31 December 2020, with the balance of $4.4 million to be paid in the first quarter of 2021.
Long-service leave and retirement bonus
Long service leave and retirement bonuses are measured based on an actuarial assessment and
represent the present value of the estimated future cash outflows, which are expected as a
result of employee services provided up to the balance date.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
40
(a) Reconciliation of medical and defined benefit pension plan
PRESENTFAIR TOTALPRESENTFAIR TOTAL
VALUEVALUE VALUEVALUE
OF OF OF OF
OBLIGATIONPLANOBLIGATIONPLAN
ASSETSASSETS
NOTE
$000$000$000$000$000$000
(8,197)-(8,197)(106,120)83,054(23,066)
---(1,901)-(1,901)
(226)-(226)(2,552)1,985(567)
20(b)
(226)-(226)(4,453)1,985(2,468)
----9,8939,893
(550)-(550)(2,710)-(2,710)
(1,375)-(1,375)(748)-(748)
20(c)
(1,925)-(1,925)(3,458)9,8936,435
----2,4112,411
---(453)453-
286-2865,735(5,735)-
---427(427)-
(10,062)-(10,062)(108,322)91,634(16,688)
(8,219)
(10,062)(24,907)
PRESENTFAIR TOTALPRESENTFAIR TOTAL
VALUEVALUE VALUEVALUE
OF OF OF OF
OBLIGATIONPLANOBLIGATIONPLAN
ASSETSASSETS
NOTE
$000$000$000$000$000$000
(10,062)-(10,062)(108,322)91,634(16,688)
---(2,117)-(2,117)
(103)-(103)(1,126)939(187)
933-933---
20(b)
830-830(3,243)939(2,304)
----676676
(745)-(745)(5,310)-(5,310)
2,397-2,397759-759
20(c)
1,652-1,652(4,551)676(3,875)
-Empl oye rs
----936936
-Pl a n pa rti ci pa nts
---(394)394-
379-3795,458(5,458)-
---341(341)-
20(d)
(7,201)-(7,201)(110,711)88,780(21,931)
(10,802)
(7,201)(32,733)
Premiums and expenses paid
Net Liability Excluding Taxes
Contributions Tax
NET LIABILITY IN BALANCE SHEET 31 DECEMBER 2020
MEDICAL PLANPENSION PLAN
Benefits paid
AT 1 JANUARY 2020 EXCLUDING TAXES
Amounts recognised in consolidated Income
Statement:
Curre nt s e rvi ce cos t
I nte re s t (e xpe ns e )/i ncome
Se ttl e me nt ga i n
Amounts recognised in Other Comprehensive Income
(excluding contributions tax):
Actua l re turn on pl a n a s s e ts l e s s i nte re s t
i ncome
Actua ri a l l os s e s a ri s i ng from cha nge s i n
a s s umpti ons
Actua ri a l (l os s e s )/ga i ns a ri s i ng from l i a bi l i ty
e xpe ri e nce
Contributions:
Net Liability Excluding Taxes
Contributions Tax
NET LIABILITY IN BALANCE SHEET 31 DECEMBER 2019
MEDICAL PLAN
I nte re s t (e xpe ns e )/i ncome
Amounts recognised in Other Comprehensive Income
(excluding contributions tax):
Actua l re turn on pl a n a s s e ts l e s s i nte re s t
i ncome
Actua ri a l l os s e s a ri s i ng from cha nge s i n
a s s umpti ons
Actua ri a l (l os s e s )/ga i ns a ri s i ng from l i a bi l i ty
e xpe ri e nce
Contributions:
-Empl oye rs
-Pl a n pa rti ci pa nts
Benefits paid
Premiums and expenses paid
PENSION PLAN
AT 1 JANUARY 2019 EXCLUDING TAXES
Amounts recognised in consolidated Income
Statement:
Curre nt s e rvi ce cos t
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
41
(b) Amounts recognised in the Consolidated Income Statement
(c) Amounts recognised in the Consolidated Statement of Comprehensive Income
(d) Fair value of defined benefit pension plan assets
2020201920202019
$000$000$000$000
Service cost--2,1171,901
Net interest cost103226187567
Settlement gain(933)---
Plan expense(830)2262,3042,468
Contributions tax--1,1371,217
PLAN EXPENSE PLUS TAXES(830)2263,4413,685
MEDICAL PLANPENSION PLAN
20202019
$000$000
(4,551)(3,457)
6769,893
2,585(1,925)
(933)-
(2,223)4,511
(1,907)3,170
(4,130)7,681Total recognised in other comprehensive income with contributions tax
Defined benefit actuarial loss
Actual return on plan assets less interest income
Actuarial gain/(loss) medical scheme
Gains arising from settlement
Total recognised in other comprehensive income
Contributions tax
SIGNIFICANT
INPUTS
LEVEL 2
$000
1,004
8,540
79,236
TOTAL ASSETS88,780
Net current assets
Debt instruments
Investment Funds – Composite Funds
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
42
The percentage invested in each asset class at the balance date are:
(e) Actuarial assumptions and funding arrangements
Assumptions are determined either by the Group in consultation with the independent actuary
(such as expected rate of salary increases) or by the independent actuary (mortality in
retirement, discount rate).
As at 31 December 2020 the following actuarial assumptions were applied:
The average term at which the expected future discounted cash flows are due is 12 years (2019:
13 years). The average undiscounted expected term of all liabilities is 14 years (2019: 15 years).
Expected employer contributions to the defined benefit pension plan and medical scheme in
2021 is $995,000 (after the deduction of ESCT) and $251,000, respectively.
The last full actuarial valuation performed under the Financial Markets Conduct Act 2013 was as
at 31 March 2019 at which time the Defined Benefit Plan was fully funded based on the
assumptions used by the Actuary. These assumptions were consistent with the actuarial
assumptions outlined above, except for the discount rate determined based on the expected
long-term future returns of the plan rather than the risk-free rate of return. The funding
objective adopted at the 31 March 2019 funding valuation is to ensure that the Fund’s assets are
not less than the value of accrued benefits. The Company contributes a fixed amount of $1.5
million (including contributions tax at 33%) and a lump sum contribution to fund new disability
pensions. The next statutory actuarial valuation is due no later than 31 March 2022.
20202019
Australasian Equity11.1%10.3%
International Equity33.5%33.3%
Fixed Income33.1%33.3%
Cash10.8%11.3%
Property and Other11.5%11.8%
PENSION PLAN
MEDICAL PLANPENSION PLANMEDICAL PLANPENSION PLAN
Discount rate1.8%1.7%2.1%2.0%
Expected rate of future salary increases-1.5%-2.5%
Pension increases-No provision-No provision
Mortality in retirement
8.0%-8.0%-
Rate of Fringe Benefit Tax42.86%-42.86%-49.25%-
New Zealand Life Tables 2012-2014 mortality table, set
20192020
Health insurance premium
back by 1 year, together with an age related future
mortality improvement scale.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
43
(f) Sensitivity analysis – pension plan
The sensitivity analysis is based on a change in an assumption while holding all other
assumptions constant. In practice, this is unlikely to occur, and changes in some of the
assumptions may be correlated. The methods and types of assumptions used in preparing the
sensitivity analysis are consistent with those applied during the comparative reporting period.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
44
21 Financial risk management
The Group’s activities expose it to a variety of financial risks (market, credit and liquidity) in the
normal course of the Group’s business.
Risk management is performed by Group Management who evaluate and hedge certain financial
risks including currency risk and interest rate risk under a Treasury Policy that is approved by the
Board of Directors.
a) MARKET RISK
Market risk includes refining margin, electricity pricing, currency and interest rate risk.
Refining margin risk
The refining margin (margin) generated by the Group is a key input to the calculation of the
processing fee revenue which is set as 70% of the gross refining margin generated, subject to a
fee floor of circa $140 million (2019: $136 million), and margin cap of USD9.00 per barrel for
each customer. This 70/30 split of the refining margin reflects the fact that Refining NZ’s
customers bear the risks and associated costs of crude purchasing, the finance and currency
costs and risks associated with maintaining crude, feedstock and product inventories, shipping
and demurrage risks and guaranteeing a minimum processing fee.
The margin is calculated as the typical market value of all the products produced, minus the
typical market value of all feedstock processed. The typical market value of products is
determined by using quoted prices for the products in Singapore plus the typical freight cost to
New Zealand plus product quality premia. The typical value of feedstock is determined by using
the market value for crude oil and other feedstock at the point of purchase, plus the typical cost
of freight to New Zealand.
Refining margin risk is the risk of volatility in the typical product and feedstock prices to which
the Group is exposed. The Group’s revenue is likely to be impacted, favourably or unfavourably,
during periods of market price volatility (refer to notes 1 and 12). The Group does not hedge this
risk. The downside in the volatility of margin and foreign exchange risk is limited by the
processing fee floor, which comes into effect if the total processing fee for a calendar year does
not exceed a minimum value.
Processing fee revenue in 2020 was charged at the fee floor which accounted for 61% of the
Group’s total revenue (2019: 70%, with no fee floor payments made by customers).
Electricity
The Group is also exposed to commodity price risk in relation to the purchase of electricity. This
exposure exists as a result of the Group purchasing electricity via the New Zealand Electricity
Wholesale Market, which is subject to price volatility caused by both demand/supply and
transmission constraints. The Group uses electricity futures and Contracts for Differences to
hedge the electricity price risk, with targeted coverage of forecast consumption up to three
years.
Currency risk
The Group is exposed to foreign exchange risk as a result of transactions denominated in
currencies other than the Group’s functional currency. The primary currencies giving rise to the
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
45
currency risk are US dollar, Singaporean dollar, Euro and Australian dollar. Currency risk arises
from the processing fee (being calculated in US dollars and billed in New Zealand dollars) and
future commercial transactions (purchase of property, plant and equipment, goods or services).
The Group may enter into hedging agreements with Board approval and in accordance with the
Group’s Treasury Policy which requires all purchases of all capital items of value exceeding
certain thresholds to be hedged with either forward exchange contracts or currency options.
Interest rate risk
The Group’s interest rate risk arises from fixed term borrowings at floating interest rates. The
Group may use interest rate hedging instruments to manage interest rate risk.
Sensitivity analysis
The graphs below summarise the potential impact of each type of market risk exposures on the
Group’s profit before tax and equity (assuming all other factors remain unchanged), except for
electricity risk which was effectively hedged in 2019 and 2020.
• Price risk - an increase and decrease of refining margin by USD1.00 per barrel.
In 2020 there is no sensitivity due to a decrease in refining margins as the fee floor under the
Processing Agreements was in effect for the full year, with margins having to be at least USD2.78
per barrel higher in 2020, for Processing Fee revenue to be above the fee floor, (based on the
2020 throughputs).
• Currency risk – the sensitivity analysis is presented based on the impact of the New
Zealand dollar weakening or strengthening against foreign currencies, such as US dollar,
Singaporean dollar, Euro and Australian dollar. A 10% movement in foreign currencies is
considered as reasonably possible given the volatility in foreign exchange rates in the
prior years.
There is no currency risk when the Company is at the Fee Floor as it is a fixed New Zealand
dollar amount.
• Interest rate risk – a change in interest rates by 25 basis points (bps) is considered by
the Group reasonably possible over the short-term.
In 2020 the remainder of the interest rate swaps matured leaving the Company exposed to
$200 million floating debt (2019: $72.1 million).
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
46
b) CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits
with banks and financial institutions, as well as credit exposures to customers from outstanding
receivables and committed transactions.
For banks only parties with a minimum long-term credit rating of A+ or A1 are accepted. Gross
limits are set for financial institutions and the usage of these limits is determined by assigning
product weightings to the principal amount of the transaction.
Transactions are spread across several counterparties to avoid concentrations of credit
exposure. No credit limits were exceeded during the reporting period and Management does
not expect any losses from non-performance by counterparties.
The Group is exposed to credit risk if counterparties fail to make payments as they fall due in
respect of payment of trade receivables as invoices fall due 7-14 days for the Parent and 30 days
for its subsidiary after being raised. The receivables from the oil companies (as disclosed in the
related party note 5) present a concentration of credit risk, however, Management has assessed
the credit quality of these customers as being high. Based on the analysis of the historical
payments of the Group’s customers and with reference to their credit rating and short payment
terms, the Group assessed the expected credit losses in respect to 31 December 2020
receivables to be immaterial. No collateral is held over trade receivables. (Refer to note 24).
The maximum exposure to credit risk at balance date is the carrying amount of the financial
assets.
Overdue trade receivable balances at 31 December 2020, which were subsequently paid in
January 2021, totalled $1.126 million (2019: $0.343 million).
c) LIQUIDITY RISK
The Group monitors rolling forecasts of liquidity requirements to ensure it has sufficient cash to
meet operational needs while maintaining sufficient headroom on the Group’s undrawn
borrowing facilities (note 9).
Surplus cash held by the Group over and above the balance required for working capital
management is invested in interest bearing current accounts, term deposits, and money market
deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide
sufficient headroom as determined by the above-mentioned forecasts.
Non-derivative financial liabilities
The following table sets out the maturity analysis for non-derivative financial liabilities based on
the contractual terms as at balance date. The amounts presented are the contractual
undiscounted cash flows and are based on the expiry of the bank facility or maturity of the
subordinated notes.
The liquidity analysis set out below discloses cash outflows resulting from the financial liabilities
only and does not consider expected net cash inflows from financial assets (including trade
receivables) or undrawn debt facilities which provide liquidity support to the Group. Contractual
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
47
cash flows associated with bank borrowings include interest for the period until the debt
rollover date (typically within six months from the balance date) and subordinated notes include
interest in the period until 1 March 2034.
Derivative financial liabilities
The table below details the liquidity risk arising from derivative liabilities held by the Group at
balance date. Derivative financial liabilities are split into the Gross settled derivatives which
include foreign exchange forward contracts with the inflow being based on the foreign currency
converted at the closing spot rate, and the net settled derivatives which include interest rate
swaps (with the floating rate being based on the most recent rate set), electricity futures and
contracts for differences.
GROUP 2020
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
OVER 5
YEARS
TOTAL CASH
FLOWS
NOTE$000$000$000$000$000$000$000
NON-DERIVATIVE
FINANCIAL LIABILITIES
Trade payables19
(22,563)(22,563)----(22,563)
Lease liabilities10
(4,142)(405)(277)(675)(1,817)(3,885)(7,059)
Bank borrowings9
(200,000)(1,290)345(35,000)(165,000)-(200,945)
Subordinated notes9(74,611)(1,913)(1,913)(3,825)(11,475)(107,513)(126,639)
TOTAL NON-
DERIVATIVE FINANCIAL
LIABILITIES
(301,316)(26,171)(1,845)(39,500)(178,292)(111,398)(357,206)
CONTRACTUAL CASH FLOWS
GROUP 2019
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
OVER 5
YEARS
TOTAL CASH
FLOWS
NOTE$000$000$000$000$000$000$000
NON-DERIVATIVE
FINANCIAL LIABILITIES
Trade payables19
(31,967)(31,967)----(31,967)
Lease liabilities10
(3,454)(252)(290)(532)(1,551)(3,499)(6,124)
Bank borrowings9
(172,100)(1,681)-(98,100)(74,000)-(173,781)
Subordinated notes9
(74,516)(1,913)(1,913)(3,825)(11,475)(111,337)(130,463)
TOTAL NON-
DERIVATIVE FINANCIAL
LIABILITIES
(282,037)(35,813)(2,203)(102,457)(87,026)(114,836)(342,335)
CONTRACTUAL CASH FLOWS
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
48
22 Derivative financial instruments
Derivatives are only used for economic hedging purposes and not as speculative investments.
The Group designates certain derivatives as hedges of a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognised in equity in the cash flow hedge reserve. Hedge effectiveness
is determined at inception of the hedge relationship, and through periodic effectiveness
assessments to ensure that an economic relationship exists between the hedged item and
hedging instrument. The gain or loss relating to the ineffective portion is recognised
immediately in other operating gains/losses in the Income Statement.
The fair value of derivative financial instruments approximates their carrying value.
GROUP 2020
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
OVER 5
YEARS
TOTAL CASH
FLOWS
NOTE
$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUMENTS
Net settled derivatives227,4384,8093,232(603)--7,438
Gross settled derivatives
Outflows-------
Inflows-------
Total gross settled
derivatives
-------
TOTAL DERIVATIVE
FINANCIAL LIABILITIES22
7,4384,8093,232(603)--7,438
CONTRACTUAL CASH FLOWS
GROUP 2019
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-
2 YEARS
BETWEEN 2-
5 YEARS
OVER 5
YEARS
TOTAL CASH
FLOWS
NOTE$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUMENTS
Net settled derivatives22(4,302)524(74)(2,001)(2,739)-(4,290)
Gross settled derivatives
Outflows-(87)(1,193)(4,757)--(6,037)
Inflows-891,1794,706--5,974
Total gross settled
derivatives22
(86)2(14)(51)--(63)
TOTAL DERIVATIVE
FINANCIAL LIABILITIES22
(4,388)526(88)(2,052)(2,739)-(4,353)
CONTRACTUAL CASH FLOWS
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
49
The net movement in the cash flow hedge reserve comprises:
The full fair value of a hedging derivative is classified as a non-current asset or liability if the
remaining maturity of the hedged item is more than 12 months.
Financial instruments are measured at fair value using the following fair value measurement
hierarchy:
Level 1 - Quoted prices from the Australian Securities Exchange (ASX) for electricity futures,
Level 2 - Inputs other than quoted prices included within level 1 that are observable for:
- Interest rate swaps: fair value calculated as the present value of the estimated future
cash flows based on observable yield curves, and
- Forward foreign exchange contracts: fair value determined using forward exchange
rates at the balance date, with the resulting value discounted back to present value.
- Contracts for differences: fair value determined using the inputs from active market
(ASX) for electricity futures, adjusted for respective location factors.
20202019
$000$000
86(13)
-(90)
3,5661,301
-1,998
(561)(780)
(4,732)(5,510)
12,733-
11,092(3,094)
(3,106)866
7,986(2,228)
Deferred tax
Net movement in cash flow hedge reserve
Forei gn exchange hedges trans ferred to property, pl ant and equi pment
Forei gn exchange contracts entered i nto duri ng the year
Movement i n val ue of i nteres t rate s waps hel d throughout the year
Gross movement in cash flow hedge reserve
Movement i n val ue of el ectri ci ty futures hel d throughout the year
Interes t rate s waps maturi ng i n the year
El ectri ci ty futures and contracts for di fferences entered i nto duri ng the year
El ectri ci ty futures and contracts for di fferences s ettl ed i n the year
ASSETSLIABILITIESASSETSLIABILITIES
NOTE$000$000$000$000
Cash flow hedges:
---(15)
8,766(725)4,421(416)
---(3,566)
TOTAL CURRENT PORTION8,766(725)4,421(3,997)
Cash flow hedges:
---(71)
371(974)205(4,946)
----
TOTAL NON-CURRENT PORTION371(974)205(5,017)
NET POSITION217,438(4,388)
- interest rate swaps
2019
- forward foreign exchange contracts
- electricity futures and contracts for differences
- interest rate swaps
- forward foreign exchange contracts
- electricity futures and contracts for differences
2020
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
50
The effects of the derivative financial instruments on the Group’s financial position and
performance are as follows:
For all hedges the quantity of the hedging instrument matched the quantity of the hedged items
therefore the hedge ratios were 1:1.
Electricity futures and contracts for differences are used to hedge highly probable cash flows
associated with purchases of electricity at spot market and an ineffective portion of the hedge
may occur due to a volume mismatch and location factor. At balance date the hedge
ineffectiveness from these cash flow hedges amounted to $79,000 (2019: $73,000).
AUDEURSGDUSD
31 DECEMBER 2020
- - - - - 7,438
- - - - - 45,097
- - - - - 2021-2022
- - 1:11:11:11:1
- - (4)90 3,566 8,174
AU$/NZ$EUR/NZ$SG$/NZ$US$/NZ$
-----$100.2/MWh
31 DECEMBER 2019
- - 4 (90)(3,565)(736)
- - 202 5,836 100,000 85,060
- - 2020-20212020-202120202020-2022
- - 1:11:11:11:1
3 (12)(4)(90)3,299 (6,973)
AU$/NZ$EUR/NZ$SG$/NZ$US$/NZ$
--0.92520.66555.65%$113.4/MWh
Maturity date
Hedge ratio
Weighted average hedged rate
Change in fair value of hedging instrument ($000)
INTEREST RATE
SWAPS
ELECTRICITY
FUTURES AND
CONTRACTS FOR
DIFFERENCES
Carrying amount – net asset/(liability)
($000)
Notional amount (equivalent of NZ$000)
Notional amount (equivalent of NZ$000)
Maturity date
Hedge ratio
Change in fair value of hedging instrument ($000)
Carrying amount – net asset/(liability)
($000)
Weighted average hedged rate
FOREIGN EXCHANGE FORWARD CONTRACTS
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
51
23 Employee share-based payments
The Company operates the following share schemes:
• A Share Rights Plan for the Chief Executive Officer (“plan”) in the form of:
o a grant of initial performance rights equivalent to one year’s base salary ($995,000) that
will vest on the fourth anniversary of commencement subject to vesting conditions
being that the CEO has to remain in the role during the four-year period after grant date
being the commencement of the employment;
o performance rights equivalent to 25% of base salary on the first anniversary of the
commencement date, 25% on the second anniversary and 50% on each successive
anniversary, with each tranche having a three-year vesting period with a further year to
vest.
The CEO’s entitlements under the Share Rights Plan (or any other share rights plan) on
vesting are capped at NZ$6 million.
In the year ended 31 December 2020, the Company recognised an expense of $0.20
million in relation to the Chief Executive Officer’s share rights plan.
• An Employee Share Purchase Scheme (“scheme”). The Scheme qualifies as an “Exempt
ESS” under section CW26C of the Income Tax Act 2007and is classified for accounting
purposes as equity-settled transactions. Eligible employees are offered $1,000 worth of
shares, multiplied by the Business Performance Factor (BPF) during the year of award and
increased by an employee contribution of $1. The shares are either purchased on market
(as in 2019) or issued (as in 2020) and held by CRS Nominees Limited, during a three-year
vesting period. As at 31 December 2020 there have been 214,975 shares vested to the
Company employees (31 December 2019: 92,910).
The details of the scheme, including expenses arising from the scheme (as presented in
Employee Share Scheme Entitlement Reserve), are as follows:
(*) A share offer in relation to the performance year 2020 has not been made by the Company to its employees as at
31 December 2020.
PERFORMANCE
YEAR
GRANT
DATE
VESTING
DATE
NUMBER OF
ELIGIBLE
EMPLOYEES
COMPANY
CONTRIBUTION
PER EMPLOYEE
TOTAL
20162017201820192020
$$000$000$000$000$000$000
Employee Share Scheme
201626 March 20174 May 2020
91628010017350
201726 March 20188 May 20213021,050
77 70 68 43 258
201826 March 20196 May 2022314900
- 68 65 53 186
201926 March 20206 May 2023291981
129 129
2020
(*)
-
---- - - - -
Share Rights Plan -CEO
20206 April 20206 April 20241-
206 206
4481,129
SHARES VESTED IN 2020(350)
SHARE SCHEME RESERVE AS AT 31 DECEMBER 2020779
EXPENSES ARISING FROM THE SCHEME
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
52
Shares issued or acquired by the Company are held as Treasury Stock by CRS Nominees Limited
until vesting. The movement in Treasury Stock during the year ended 31 December 2020 is as
follows:
24 Contingencies
Refining NZ has received contractual dispute notices from each of its three oil company
customers in relation to the steps it is taking to simplify its refinery and reduce throughput in
response to a reduction in demand for its products. Refining NZ has also issued its own dispute
notice in which the Company makes a separate claim that the total fee “floor” payable by all of
the customers should be higher. (Refer to note 1).
In 2020, Refining NZ undertook a Strategic Review, the outcome of which was a decision to
simplify its refinery operations to reduce throughput and cost in the near term. Refining NZ did
this with a view to operating on a cash neutral basis while margins remain at a level that require
its customers to pay it a minimum annual fee under its Processing Agreement with each of them
(the fee “floor”). In parallel, Refining NZ is exploring with its customers a potential future
transition to an import terminal, which the customers have advised is their preference.
Refining NZ’s simplification project involves reducing refining capacity by circa 18% to circa 34
million barrels per annum, with total refined fuels production levels similar to levels at the time
of commencement of the Processing Agreement in 1995 and bitumen production ceased. The
changes are intended to enable Refining NZ to operate at the lowest cost possible while
continuing to meet its contractual obligations to its customers, thus providing time to consider
options for the future. Refining NZ undertook the simplification changes following its
customers’ rejection of proposals Refining NZ made to them to increase their minimum fee floor
payments in order to maintain refining capacity at 2020 levels.
Refining NZ’s customers have each given notice that they object to the simplification changes.
They have served formal contractual dispute notices expressing the view that Refining NZ is not
entitled to make the changes. They have either indicated that they expect to suffer significant
losses as a result of the changes, for which they say Refining NZ will be contractually liable, or
they reserved their rights. In addition, Z Energy Limited has stated that it intends to withhold
any top-up sum necessary to reach the fee floor in respect of the 2021 financial year. While
they have indicated that they will pay the first invoice due in February 2021, pending resolution
of the dispute, it has been expressly stated to be without prejudice to their position.
NUMBER OF
SHARES
AVERAGE
PURCHASE/
ISSUE PRICE
VALUE OF
SHARES
NUMBER
OF SHARES
AVERAGE
PURCHASE/
ISSUE PRICE
VALUE OF
SHARES
ACQUIRED
000’s$ per share$000000’s$ per share$000
AT 1 JANUARY
417.6
2.30960
375.82.58969
Shares issued
317.2
0.90286
--
-
Shares acquired
--
-
134.7
2.10283
Shares vested
(215.0)
2.39(513)
(92.9)3.14
(292)
AT 31 DECEMBER519.81.41733417.62.30960
20202019
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
53
Refining NZ believes that it is entitled under its Processing Agreements to simplify its refinery
operations and it does not accept that it is liable for any losses that the customers may incur as
a result. If necessary, it intends to rely upon certain contractual liability protections in its
Processing Agreements with its customers. In addition, Refining NZ believes that Z Energy is
obliged to pay any top-up sum necessary to reach the fee floor and would be in breach of its
Processing Agreement if it does not make such payments as are required under it.
Refining NZ is negotiating term sheets for the proposed conversion to an import terminal with
each of its customers, who at present are not actively pursuing the disputes raised in their
dispute notices. Some or all customers may decide to progress the disputes.
Given the nature of the disputes, they are expected to take some time to resolve if referred to
arbitration. In order to avoid the uncertainties and disruption caused by the disputes and
preserve its commercial relationships with its customers, Refining NZ intends to continue to
work with customers to seek to agree terms for an import terminal conversion which are
acceptable to both Refining NZ and customers, and respond to customer disputes should they
choose to progress them while these negotiations are ongoing. Disclosure of an estimate of the
financial effect of the disputes has not been made as contemplated by NZ IAS 37, on the basis
the possibility of an outflow of resources is remote, and disclosure would prejudice seriously the
position of Refining NZ.
25 Auditor’s fees
The 2019 fees for the Darden Executive Development Program and the Remuneration market
data report were paid to EY prior to their appointment as auditors of the Company.
GROUPGROUP
20202019
NOTE$000$000
Auditor's fees comprises:
Audit of financial statements 225215
Reimbursement of travel and accommodation 2015
Other assurance services:
AGM scrutineering 5-
Interim review20-
Other services:
Executive development course fees -49
Remuneration market data report -8
270287AUDITOR'S FEES
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
54
26 Non-GAAP disclosures
Refining NZ’s standard profit measure prepared under New Zealand Generally Accepted
Accounting Practice (NZ GAAP) is net profit/(loss) after tax. Refining NZ has used non-GAAP
measures when discussing financial performance in this Report. The Directors and Management
believe that these measures provide useful information as they are used internally to evaluate
segmental and total Group performance, to establish operating and capital budgets as well as
being used for bank covenant purposes.
Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New Zealand
equivalents to International Financial Reporting Standards) and are not uniformly defined,
therefore the audited non-GAAP profit measures included in this report are not comparable
with those used by other companies. They should not be used in isolation or as a substitute for
GAAP profit measures as reported by Refining NZ in accordance with NZ IFRS. Terms are defined
as follows:
Reported EBITDA: Reported Net Profit/(Loss) before depreciation and disposal costs,
impairment of assets, finance costs and income tax.
Adjusted EBITDA: Reported EBITDA adjusted for other non-cash expenses and used for
bank covenant purposes.
GROUPGROUP
20202019
NOTE$000$000
Reported net (loss)/profit after tax for the year (GAAP)(198,279)4,165
Add back:
Income tax6(a)(73,133)694
Net finance costs10,92013,445
Impairment of assets12223,697-
Depreciation and disposal costs
11(b)
87,21899,931
Reported EBITDA50,423118,235
Add back non-cash expenses:
Stock obsolescence provision
18
3,383155
Defined benefit pension fund cost20(b)3,4413,685
Non-cash share rights cost697-
Interest income17644
Loss on disposal11(b)(213)(433)
Stock write offs and other787195
Adjusted EBITDA58,694121,881
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2020
55
27 Events subsequent to balance date
Climate Change Commission released its draft advice for consultation
On 31 January 2021, the Climate Change Commission released its draft advice for consultation
on New Zealand’s carbon budgets for the next 15 years. The budgets are underpinned by an
assumed transition to alternative fuels, including electric vehicles, biofuels and hydrogen-
derived synthetic fuels. A significant change in demand for refined products in New Zealand
would impact refinery throughputs and the assumed date for a conversion to an import terminal
as outlined in note 12.
COVID-19 Auckland Level 3
On 14 February 2021 the Government announced a change in Alert Levels to Level 3 in Auckland
and Level 2 in the rest of the Country. The duration of these new measures is currently unknown
and may have an impact on the New Zealand fuel demand and volumes of product supplied to
Auckland via the Refinery to Auckland Pipeline. As of the date of these financial statements, the
Refinery continues to operate as an essential service with appropriate safety measures in
operation.
56
A member firm of Ernst & Young Global Limited
Independent auditor’s report to the Shareholders of New Zealand Refining Company
Limited Group
Opinion
We have audited the consolidated financial statements of The New Zealand Refining Company Limited (“the
company”) and its subsidiaries (together “the group”) on pages 1 to 55, which comprise the consolidated balance
sheet of the group as at 31 December 2020, and the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for
the year then ended of the group, and the notes to the consolidated financial statements including a summary of
significant accounting policies.
In our opinion, the consolidated financial statements on pages 1 to 55 present fairly, in all material respects, the
consolidated financial position of the group as at 31 December 2020 and its consolidated financial performance
and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial
Reporting Standards and International Financial Reporting Standards.
This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so that we
might state to the company's shareholders those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's shareholders, as a body, for our audit work, for this report, or
for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.
We are independent of the group in accordance with Professional and Ethical Standard 1 International Code of
Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the
New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Ernst & Young provides other assurance services to the group. Partners and employees of our firm may deal with
the group on normal terms within the ordinary course of trading activities of the business of the group. We have no
other relationship with, or interest in, the group.
Emphasis of Matter
We draw attention to Note 1 of the financial statements, which outlines the status and potential outcomes of the
strategic review being undertaken by the group. Our opinion is not modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the consolidated financial statements of the current year. These matters were addressed in the context of our audit
of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial
statements section of the audit report, including in relation to these matters. Accordingly, our audit included the
57
A member firm of Ernst & Young Global Limited
performance of procedures designed to respond to our assessment of the risks of material misstatement of the
financial statements. The results of our audit procedures, including the procedures performed to address the
matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
Impairment
Why significant How our audit addressed the key audit matter
NZ IAS 36 requires the group to assess whether any
indicators of impairment exist for each cash
generating unit (“CGU”). If an indicator of
impairment exists for a CGU, the group must
estimate the recoverable amount of the CGU. The
group concluded impairment indicators existed for
the NZ Refining CGU and impairment testing was
undertaken for the CGU.
In performing impairment testing the group
estimated both the value in use and fair value less
cost to sell of the CGU and compared these to the
recorded value of the CGU’s net assets. The group
has recognised an impairment of $223 million in the
year.
The impairment testing process is complex and
highly judgmental. It is based on assumptions which
are impacted by the anticipated future operating
model of the business, expected future
performance and market conditions. The
recoverable amount is highly sensitive to changes in
key assumptions, judgements and estimates used.
Disclosures regarding the group’s key assumptions
and the sensitivity of the result to these
assumptions is included in Note 12 of the financial
statements.
In obtaining sufficient appropriate audit evidence we:
► evaluated the group’s determination of CGUs based
on our understanding of the nature of the group’s
business units.
► evaluated the group’s assessment of whether
indicators of impairment or reversal of impairment
existed.
► gained an understanding of the group’s impairment
assessment process and the basis for determining
key assumptions.
► evaluated the assumptions and methodologies used
by the group. We considered the judgements and
estimates underlying the forecast cash flows and
the information which the group used to make those
estimates, such as gross refining margin, fuel
demand, foreign exchange rates, operating costs
and inflation rates.
► involved our valuations specialists extensively to
assist in key aspects of our impairment audit work
which included evaluating the value in use and fair
value less costs to sell discounted cash flow models
prepared by the group and their inputs as well as
performing sensitivity analysis on the models. In
doing so, we:
o considered the potential impacts of
planned operational initiatives and the
strategic review, and how these had been
included in management’s cash flow
assumptions and sensitivities;
o considered future fuel demand profiles and
compared the volumes included in
management’s models to third party views
obtained by the group;
o considered refining margins with reference
to third party forecasts and analyst views;
o evaluated discount rates, inflation rates
and foreign exchange rates with reference,
where applicable, to market information
and indices, broker reports and our
assessments; and
o considered a third party report relating to
verification of the mathematical accuracy
of the group’s impairment models.
► considered the adequacy of the disclosures
regarding the assumptions, key estimates and
judgements applied by management and
sensitivities in relation to the group’s impairment
assessment.
58
A member firm of Ernst & Young Global Limited
Processing Fee Revenue
Why significant How our audit addressed the key audit matter
The most significant revenue stream of the group,
and a key determinant of its operating result, is
processing fee revenue. In 2020 this amounted to
$142m of the total group revenue of $234m.
Processing fees are material related party
transactions with the group’s shareholding oil
companies, who are also its customers.
The processing fee calculation is complex and
includes many variables and, when applicable, fee
floor payments. The calculation is based on an
agreed formula defined in the processing
agreements with each of the shareholding oil
companies. Note 21 (a) discloses a summary of the
method of calculation and the key inputs into the
calculation of the processing fees, including fee
floor payments.
Notes 4 and 5 of the consolidated financial
statements explain the accounting policies used and
an analysis of processing fee revenue.
In obtaining sufficient appropriate audit evidence we:
► evaluated the group’s process for calculating and
recording processing fee revenue. We understood
and verified the design of key controls including
management’s review and authorisation of monthly
processing fee calculations.
► understood the processing fee calculation
methodology used to recognise revenue and
compared this to the method and pricing prescribed
in the processing fee agreements, including the
application of the fee floor.
► used data analytic techniques to assess the
correlation of revenue, trade receivables and cash.
► confirmed the total annual processing fee with each
customer.
► tested payments received from the shareholding oil
companies during the year and agreed post year-
end cash receipts from each of the shareholding oil
companies to the outstanding receivables at year
end.
► reviewed the group’s disclosures with regard to
IFRS 15, ‘Revenue from Contracts with Customers’
and IAS 24 ‘Related Parties’.
Information other than the financial statements and auditor’s report
The directors of the company are responsible for the Annual Report, which includes information other than the
consolidated financial statements and auditor’s report, which is expected to be made available to us after the date
of this auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be
materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance and, if uncorrected, to take appropriate action to bring
the matter to the attention of users for whom our auditor’s report was prepared.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated
financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards
and International Financial Reporting Standards, and for such internal control as the directors determine is
59
A member firm of Ernst & Young Global Limited
necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the
entity the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the group or cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
A further description of the auditor’s responsibilities for the audit of the financial statements is located at the
External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-
responsibilities/audit-report-1/. This description forms part of our auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Simon O’Connor.
Chartered Accountants
Auckland
16 February 2021
---
NZX Release
17 February 2021
Refining NZ reports 2020 full-year results
Summary
• An outstanding operational and financial response to one of the most challenging business
environments in the Company’s 60 years of operation.
• The Refining NZ team delivered the best personal and process safety performance on record with no
recordable injuries or Tier 1 or 2 process safety events.
• Refinery and RAP throughputs were c.30% lower than 2019 due to the significant demand impact of
COVID-19 travel restrictions.
• Singapore Complex Refining Margins were negative throughout most of 2020, reflecting structural
overcapacity in the Asian refining sector exacerbated by the ongoing impacts of COVID-19.
• Gross Refining Margin of USD1.63 per barrel earned – the second lowest since the 1995 Processing
Agreements came into effect – with c.$90 million of Fee Floor payments protecting the Company
from the impacts of low margins and demand.
• Significant opex and capex reductions made (c.$80 million) to reset the 2020 cost base to cash break-
even at the Fee Floor.
• Early action taken to strengthen the balance sheet by increasing and extending bank facilities,
maintaining significant liquidity and covenant headroom and no material near-term maturities.
• Net debt down $10 million to $231 million, reflecting the financial discipline of cash neutral
operations.
• A net loss after tax of $198.3 million, including the previously announced (after tax) non-cash
impairment of the refining assets amounting to c.$158 million.
• Strategic Review undertaken and simplified refinery plans implemented to make the refinery robust
to an extended period of low margins.
• Significant progress made assessing import terminal option, with potential to unlock latent value in
our highly strategic infrastructure assets – in principle agreement reached with bp on key commercial
terms (non-binding and subject to conditions).
Financial snapshot
Commentary
Refining NZ today released its financial results, with Chief Executive Officer Naomi James reporting
that the Company had safely navigated one of the most challenging business environments in its 60-
year history while establishing a pathway to deliver shareholder value.
“The results reflect an outstanding effort by the Refining NZ team who responded quickly and decisively
to COVID-19 - finding new ways of running the refinery, reducing the year-on-year cost base by c.$80
million, while delivering the Company’s best safety performance on record. I am proud of what the
team has delivered under such challenging business conditions,” said Ms. James.
The weak refining margins prevailing at the start of the year, resulting from excess refining capacity in
the Asia Pacific region, were exacerbated by the ongoing impact of COVID-19 across the 2020 year. “The
global drop in demand triggered by COVID-19 and the expectation of a slow recovery in oil and refined
product demand, particularly for jet fuel, weighed heavily on an already oversupplied market. Singapore
Complex Margins were negative across most of the year and the Gross Refining Margin of USD1.63 per
barrel earned was the second lowest in the 25-year history of the Company’s Processing Agreements,”
said Ms. James.
The significant fuel demand reduction resulting from travel and transport restrictions, along with the
reduction in revenue through weak global refining margins, required the Company to make significant
operational changes – working in partnership with customers to reduce refinery production and non-
essential activity on site. This included operating the refinery’s processing facilities on a rotating basis to
1
The financial statements have been prepared based on existing Group operations under the current Processing Agreements.
The potential outcomes from the Strategic Review, which are not solely within the Company’s control, may be substantially
different from such existing operations and may therefore impact the financial performance and financial position of the Group
in the future.
2
EBITDA = Reported Earnings before depreciation, impairment, finance costs and income tax.
3
Adjusted EBITDA = EBITDA adjusted for other non-cash expenses and used for bank covenant purposes.
4
Capex = investing cashflow associated with property, plant and equipment (as presented in the consolidated statement of
cash flows).
5
Free cash flow – net cash flows from operating activities less net cash flows from investing activities.
Full year
1
2020 2019 Change
Income
NZ$ m
245.7 348.4 (29.5%)
EBITDA
2
NZ$ m
50.4 118.2 (57.4%)
Adjusted EBITDA
3
NZ$ m
58.7 121.9 (51.8%)
Capex
4
NZ$ m
(33.9) (77.7) (56.4%)
NPAT
NZ$ m
(198.3) 4.2 <nm>
Free cash flow
5
NZ$ m
11.0 39.4 (72.1%)
Net debt
NZ$ m
231.3 241.4 (4.2%)
enable the refinery to produce at substantially lower rates, as well as a full six-week shutdown of the
plant in the middle of the year to help balance fuel supply across New Zealand.
“This mode of operating the refinery was unique, and to do so safely - with no process safety incidents
or recordable cases - was an outstanding achievement. A significant number of our staff supported the
business by taking leave during the six-week shutdown. This is a testament to the capability and
commitment of our people. I would like to thank the entire team for their huge contribution and
support as we navigated the challenges of COVID-19 and the turbulent market conditions,” said Ms.
James.
The safety of Refining NZ’s workplace and the health and wellbeing of its people are core company
values, at the heart of the on-site culture. The E Tu Tangata safety culture programme, an employee-led
initiative, was a significant contributor to improved performance during the year and won the New
Zealand Workplace Health and Safety Engagement Award in September 2020.
Refinery and pipeline throughputs for the year were c.30% lower than in the previous financial year.
Throughput on the refinery was 29.9 million barrels (FY19: 42.7 million barrels) and the Refinery to
Auckland Pipeline 14.7 million barrels (FY19: 20.8 million barrels). Land fuel volumes recovered to just
above pre-COVID levels by the end of the year, while jet volumes remain weak at c.30-40% of pre-COVID
volumes.
The Fee Floor provided protection against the impacts of both low margins and the reduced refinery
throughputs.
Processing fee revenue prior to Fee Floor payments was c.$52 million (FY19: $242 million). In addition,
Refining NZ customers were invoiced c.$90 million in Fee Floor payments, increasing the Gross Refining
Margin from USD1.63 to USD4.40 per barrel.
The average Singapore Complex Margin (SCM) across the year was negative USD1.65 per barrel (FY19:
+USD1.02 per barrel); the uplift earned by Refining NZ over the SCM was USD3.28 per barrel (FY19:
USD4.32 per barrel). The reduced uplift reflects higher crude versus product freight costs and the
impact of the COVID-19 induced rotating operations on refinery fuel and loss.
Refinery to Auckland Pipeline (RAP) revenue was down 20% due to lower volumes, partially offset by an
increase in per barrel pipeline fees. Pipeline charges are expected to increase again in 2021, due to an
increase in notional freight rates.
Total income for the year was $245.7 million, down $102.7 million (c.30%) on the previous financial
year. The reported net loss after tax of $198.3 million includes the previously announced non-cash
impairment of refining assets due to revised long-term margin assumptions.
Cost base reset to breakeven at the Fee Floor
The Company acted quickly to reset its cost base to operate within the Fee Floor, reducing year-on-year
expenditure by c.$80 million
6
for the year.
6
Excluding pass-through costs (natural gas, carbon credits and sulphur) and other one-off costs (including: restructuring,
strategic review costs and an inventory write offs, totaling c.$11 million).
“This significant reduction in costs required a ‘whole of business’ response and strong financial
discipline. This was achieved through a combination of both short-term measures – stopping and
deferring all non-essential work and reducing variable costs due to the lower throughput – and through
longer-term structural changes including a reset of our turnaround philosophy,” said Ms. James.
Operating costs were down c.$35
5
million compared to 2019, with savings achieved in electricity and
chemical costs due to cyclic mode of operation and hot stand-by contract renegotiations and stopping
all non-essential activity on site. Capital expenditure was reduced by c.$44 million following changes to
asset management strategies and the deferral of the platformer and crude distillation turnaround into
2021.
Significant liquidity and covenant headroom and no significant near-term maturities
The Company took early action to strengthen the balance sheet by increasing and extending bank lines,
providing significant debt headroom and eliminating material near-term maturities.
Free cashflow was $11 million for the year (2019: $39 million) which allowed the Company to reduce net
debt to $231 million as at 31 December 2020 (2019: $241 million). This reflected cash neutral
operations and optimisation of the balance sheet through $13 million of asset sales, used partly to fund
the restructuring that began in late 2020.
At year end, the Company had cash and facility headroom of c. $170 million. The Company remained in
compliance with its debt covenants, with headroom on interest cover ratios expected to increase in
2021 due to the maturing of historical interest rate swaps in December 2020 and the benefit of lower
floating rates.
Given the challenging low margin environment, Directors have resolved that it is prudent to not pay a
dividend to shareholders in relation to the 2020 financial year.
Strategic Review undertaken, with plans well progressed to unlock shareholder value
Following the commencement of new CEO, Naomi James, the Company initiated a Strategic Review in
April 2020 to determine the optimal business model and capital structure to maximise “through the
cycle” returns to shareholders and deliver secure, competitive fuel supply to New Zealand.
A substantial increase in the supply of refined product from low-cost refineries, including integrated
petrochemical producers, and lower than expected demand growth for transport fuels in the Asia Pacific
region, resulted in a reduced outlook for refining margins. High energy, shipping and labour costs in
New Zealand also affected the Marsden Point oil refinery’s competitiveness. This reduced outlook for
margins resulted in the Company recognizing an impairment of its refining assets amounting to c.$158
million after taxation in June 2020.
The first phase of the Strategic Review was focused on assessing all the options for the refinery and the
alternative of conversion to an import terminal business model. Extensive stakeholder engagement was
undertaken, including with customers and Government. This was completed in June, with the Company
taking forward a near-term simplification of refinery operations to enable the Company to extend cash
neutral operations in 2021 under a scenario where processing fee income is at the Fee Floor. In
parallel, the Company commenced engagement with customers to evaluate a possible future staged
transition to an import terminal.
Simplified refinery plans implemented, to make the business robust to an extended period of low
margins
Plans to simplify refinery operations were finalised in October 2020 and implemented from January
2021, enabling Refining NZ to continue to operate the refinery safely in 2021 in a low margin
environment and providing time to properly assess the import terminal option. Simplification included
reducing total refined fuels production to levels similar to levels at the time of commencement of the
Processing Agreement in 1995, and the cessation of bitumen production.
Naomi James said: “Simplification has involved change for everyone working at the Marsden Point site.
We have had a strong focus through this time on operating the refinery safely and supporting our
people who are affected by the changes we needed to make. We have worked closely with local,
regional and national authorities and agencies to provide support to help our people transition, with the
aim of having everyone impacted in new jobs or retraining within 6 months.”
Significant progress made assessing the import terminal option, confirming potential to unlock latent
value in our highly strategic infrastructure assets
Refining NZ is now well progressed in its assessment of the import terminal option, with an
understanding of the costs and time involved in a conversion to an import terminal with Front End
Engineering and Design (FEED) and detailed planning work now underway. The proposed import
terminal system would have annual capacity of c.3 billion litres, supplying the Auckland and Northland
markets which make up c.40% of the total New Zealand market.
Refining NZ has been negotiating with each of its customers, seeking to agree commercial terms which
include a lengthy initial term (10+ years), a combination of fixed annual access fees and variable
throughput fees linked to actual volumes – targeting total estimated fees (across all customers) of
c.$100m p.a. during the initial term – and provision for third party access to unutilised RAP capacity.
Refining NZ announced today that Refining NZ and bp have reached in principle agreement on key
commercial terms including price
7
.
Refining NZ Chief Executive Naomi James said, “We have been working closely with all of our customers
to negotiate terms on which we could recommend a transition to an import terminal business model to
our shareholders.
"Reaching in-principle agreement on key terms with bp is a significant milestone which now allows us to
progress preparations for the required approvals while continuing to negotiate to reach agreement with
our other customers.”
Negotiations with Z Energy and Mobil are ongoing, with Refining NZ focused on agreeing terms which
are acceptable to customers and fair to non-customer shareholders.
7
The in principle agreement is non-binding and subject to a number of conditions including Refining NZ reaching agreement
with its other customers (Z Energy and Mobil), Refining NZ shareholder and lender approvals, completion of detailed planning
and commercial due diligence, negotiation of a binding Terminal Services Agreement and final approval by the independent
directors of Refining NZ and by bp.
Disputes in relation to the simplified refinery raised by customers are not currently being actively
pursued while these negotiations continue. Some or all of the customers may decide to progress the
disputes.
“There is a strong commitment from management and the Board to realise fair value for shareholders
from the Company’s strategic infrastructure assets while continuing to support secure, competitive fuel
supply to New Zealand. Ultimately, any decision to proceed with a conversion to an import terminal will
be a decision voted upon by the non-customer shareholders following an Independent Appraisal
Report,” said Naomi James.
Conversion to an import terminal would result in a 98 per cent reduction in carbon emissions for the
site, making a significant contribution to New Zealand’s emission reduction commitments, and would be
the lowest emissions option for delivering fuel to the Auckland market.
Planning would also include looking at future opportunities to repurpose the Marsden Point site as a
fuels and energy hub, with the potential to support future production, storage, handling, import and
export of energy sources including biofuels, sustainable aviation fuel, hydrogen, LNG and electricity.
“An import terminal would require a much smaller footprint than our operations today and this could
open up repurposing potential for the site given its strategic location next to a deep-water harbour and
close to New Zealand’s largest population base,” said Naomi James.
Refining NZ continues to work closely with the local, regional and national authorities and agencies to
ensure any future transition is smooth and the impact on its people and the region is minimized.
Refer to the investor presentation for further details regarding the potential import terminal conversion.
Outlook
The outlook for refining margins remains challenging in the near term, with COVID-19 travel restrictions
likely to affect jet fuel demand through 2021, and significant refining capacity closures required to
return refinery utilisation in the Asian region to more normal levels. Lower jet demand is expected to
continue impacting RAP revenue, until New Zealand COVID-19 border restrictions are relaxed.
The Company’s 2021 plan is focused on continuing to operate the refinery safely, completing the
maintenance turnaround (deferred from 2020) and meeting commitments to customers under the
Processing Agreements while operating within the Fee Floor.
The four-week turnaround, starting in late February 2021, includes the first statutory inspection for the
CCR Platformer (Te Mahi Hou Project commissioned in 2015) and routine inspection and maintenance
for the crude distillation unit and associated plant. During the turnaround, all other processing units not
undergoing maintenance will be temporarily shut down, with customers importing refined products
through this period. The estimated cost of the turnaround is c.$20 million, within a total capital budget
of c.$50 million in 2021.
Refining NZ will host a results presentation call for investors and analysts at 11:00am, Wednesday 17
February 2021. Dial in instructions are available on the Company website at: www.refiningnz.com.
Ellie Martel,
Government and External Affairs Manager
E: Ellie.Martel@refiningnz.com
T: +64 (0)20 4174 7226
---
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuer The New Zealand Refining Company Limited
Reporting Period 12 months to 31 December 2020
Previous Reporting Period 12 months to 31 December 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$245,747 (29%)
Total Revenue $245,747 (29%)
Net profit/(loss) from
continuing operations
($198,279) (4,861%)
Total net profit/(loss) ($198,279) (4,861%)
Final Dividend
Amount per Quoted Equity
Security
NZ$ Nil
Imputed amount per Quoted
Equity Security
NZ$ Nil
Record Date Not Applicable
Dividend Payment Date Not Applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$1.75 $2.36
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to attached NZX announcement commentary
Authority for this announcement
Name of person
authorised
to make this announcement
Chris Bougen, Company Secretary
Contact person for this
announcement
Ellie Martel
Contact phone number +64 (0)20 4174 7226
Contact email address ellie.martel@refiningnz.com
Date of release through MAP
17/02/2021
Audited financial statements accompany this announcement.
---
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
use
17 February 2021
2020 ANNUAL RESULTS
PRESENTATION
R E F I N I N G N Z
2 0 2 0 F I N A N C I A L R E S U L T S B R I E F I N G
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
2
DISCLAIMER
•This presentation contains forward looking statements concerning the financial condition, results and operations of The New Zealand Refining Company Limited
(hereafter referred to as “Refining NZ”).
•Forward looking statements are subject to the risks and uncertainties associated with the refining environment, including price and foreign currency fluctuations,
regulatory changes, environmental factors, production results, demand for Refining NZ’s products or services and other conditions. Forward looking statements
are based on management’s current expectations and assumptions 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 include among other things, statements concerning the potential exposure of Refining NZ to market risk and statements expressing
management’s expectations, beliefs, estimates, forecasts, projections and assumptions. Forward looking statements are identifiedby the use of terms and
phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “goals”, “intend”, “may”, “objectives”, “outlook”, “plan”, “probably”, “project”, “risks”, “seek”,
“should”, “target”, “will” and similar terms and phrases.
•Readers should not place undue reliance on forward looking statements. Forwardlooking statements should be read in conjunction with Refining NZ’s financial
statements released with this presentation. 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 Refining NZ’s securities, 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 having regard to your own
objectives, financial situation and needs and consult an NZX Firm or solicitor, accountant or other professional adviser if necessary.
•In light of these risks, results could differ materially from those stated, implied or inferred from the forward looking statements contained in this announcement.
RefiningNZ does not guarantee future performance and past performance information is for illustrative purposes only. To the maximum extent permitted by law,
the directors of Refining NZ, Refining NZ and any of its related bodies corporate and affiliates, and their officers, partners, employees, agents, associates and
advisers do not make any representation or warranty, express or implied, as to accuracy, reliability 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 all
responsibility and liability for these forward-looking statements (including, without limitation, liability for negligence).
•Except as required by law or regulation (including the NZX Listing Rules), Refining NZ undertakes no 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 (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 announcement,17 February 2021.The financial statements referenced in this presentation have
been prepared based on existing Group operations under the current Processing Agreements, as at 16 February 2021.The potentialoutcomes from the
Strategic Review, which are not solely within the Company’s control, may be substantially different from such existing operations and may therefore impact the
financial performance and financial position of the Company in the future.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
FY 20 PERFORMANCE
STRATEGIC REVIEW
UPDATE
LOOKING FORWARD TO
FY21
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
4
SUMMARY
Refining NZ has safely navigated the most challenging business environment in its 60-year history and established the pathway to
future value creation for shareholders
Best safety performance on record
P
Effective operational response to unprecedented COVID-19 demand impacts
Reset the 2020 cost base to cash-breakeven at the Fee Floor
Strengthened balance sheet and lowered net debt
Strategic Review undertaken to assess refinery and infrastructure options
Simplified operations to make refinery robust to extended period of low margins
Long term plan to unlock unrealized infrastructure value
P
P
WIP
P
P
P
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
5
2020 PERFORMANCE HIGHLIGHTS
Safely navigated COVID-19 impacts and reset cost base
FY 19FY20
PersonalTRCF
[1]
0.270
Process
Tier 1
[1]
00
Tier 2
[1]
00
Releases outside of consent15
Throughput
Mbbl
42.729.9
RAP Throughput
Mbbl
20.814.7
Operational availability
%
99.798.2
Cashflow from operations
NZ$M
11732
Net debt
NZ$M
241231
Operating costs
[2]
NZ$M
184161
Capital Expenditure
[3]
NZ$M
7834
PSafe operations
PReset cost base to Fee Floor levels
PDeliver to customer plan
$
1.For a full definition please refer to the Glossary in Appendix 1
2.Excludes natural gas & other passthrough costs, but includes strategic review, restructuring costs and non-cash inventory write off of c.$11million
3.Payments for property, plant and equipment (cashflow basis)
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
6
SAFE OPERATIONS
Best safety performance on record
•Incident free operations during period of significant disruption
through COVID-19:
-No recordable injuries
-No Tier 1 or Tier 2
[1]
process safety events
•Strong focus on risk and management of change through cyclic
mode of operations, hot stand-by and simplification changes
•Refining NZ’sE TuTangatasafety culture program recognisedat
the 2020 New Zealand Workplace Health and Safety Awards,
winning the “Engagement Category”
•Good environmental performance during cyclic operations and
hot-standby, with action taken to address minor environmental
non-conformances
•Working with Northland Regional Council and stakeholders to
finalise resource consent renewal.
1For a full definition please refer to Glossary in Appendix 1
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
7
DELIVER TO CUSTOMER PLAN
FY 19FY20Change
Refinery Throughput
Mbbl
42.729.912.8▼
30%
RAP Throughput
Mbbl
20.814.76.1▼
29%
Operational availability
%
99.798.21.5▼2%
Effective operational response to unprecedented demand changes
•Unprecedented fuel demand destruction, due to COVID-19 travel
restrictions
•Gasoline and diesel demand have largely recovered to pre-
COVIDlevels, however demand for jet fuel remains weak at c.30-
40% v pcp
•Production rates were substantially lowered with specific strategies
adopted to minimisejet fuel production, avoiding need
forcustomers to export jet:
-Operational availability adjusted to align with reduced
demand
-Plant operated in low production mode and cycled three
times (with half of the plant operating each cycle), as well
as being put into “hot stand-by” for a period of six weeks to
help our customers balance fuel supplies across New
Zealand.
•An outstanding achievement by our dedicated and capable
workforce –many of whom agreed to take leave while the refinery
was on “hot stand-by”.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
8
1
The Singapore Complex Margin is calculated using Platts Dubai crude and Singapore product prices, VLCC freight to Singapore, andthe International Energy Agency’s Dubai complex refinery yields adjusted for fuel & loss.
US$/BARREL
FY 19FY 20Change
Singapore Complex Margin
(SCM)
1
1.02(1.65)(2.67)
Freight1.801.55(0.25)
Product quality0.750.69(0.06)
Plant availability(0.13)(0.16)(0.03)
Crude cost and yield1.901.20(0.70)
Refining NZ uplift4.323.28(1.04)
RNZ GRM5.341.63(3.71)
REFINING MARGINS
Second lowest GRM on record
•Low Asian refining margins due to excess capacity exacerbated by COVID-19 demand impacts
•Refining NZ uplift impacted by volatility in shipping costs and yield impacts of cyclic mode and “hot stand-by”
•Significant Fee Floor contributions due to low margins and low throughput
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
9
2020 FINANCIAL SNAPSHOT
1.For further information, please refer to our FY20 Financial Statements, available at http://www.refiningnz.com/investor-centre.aspx
2.For a reconciliation of these Non-GAAP measures, please refer to Appendix 2 and our FY20 Financial Statements for further detail
3.Payments for property, plant and equipment (cashflow basis)
4.For a full definition please refer to the Glossary in Appendix 1
Cash break-even maintained through COVID-19 impacts
•Significant decline in revenue due to low margins and
throughput –COVID-19 impacts
•Fee Floor in operation for all of 2020, protecting
against the full extent of margin and demand decline
•Lower pipeline volumes (due to COVID-19 impacts),
offset by fee increase and terminal fees
•Net loss after tax impacted by half-year impairment of
c.$158million (net of tax)–revised refining margin
assumptions reflecting excess global capacity and
COVID-19 impacts
•Net debt $10 million lower than FY19, reflecting cash
neutral operations and the divestment of carbon units
•No dividend
FY 19FY20Change
Revenue -Refinery
[1]
NZ$M
297.8189.9107.9 ▼36%
Revenue -Infrastructure
[1]
NZ$M
43.041.02▼5%
EBITDA
[2]
NZ$M
118.250.467.8 ▼57%
Adjusted EBITDA
[2]
NZ$M
121.958.763.2▼52%
Capital Expenditure
[3]
NZ$M
77.733.943.8▼56%
Free cash flow
[4]
NZ$M
39.4
11.028.4 ▼72%
Net Profit/(Loss) after tax
NZ$M
4.2(198.3)(202.5)▼nm
Net Debt
[4]
NZ$M
241.4231.310.1▼4%
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
10
Decline in revenue partly offset by Fee Floor payments and cost
reductions
2020 v 2019 EBITDA COMPARISON
Other Income includes
Gain on assets sale $5.9m
Wage subsidy $5.1m
GRM▼(69)%
FY20: US$1.63/bbl
FY20 FFE
1
: US$4.40/bbl
FY19:US$5.34/bbl
Processing Fee Revenue ▼(41)%
FY20 $142m
FY19 $242m
Refinery volumes
▼(30)%
FY 20: 29.9 Mbbl
FY 19:42.7 Mbbl
Infrastructure Income
▼(5)%
Pipeline volumes ▼29%
Pipeline fee (/bbl) ▲16%
Terminal fees ▲$5m
1
Fee Floor Equivalent
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
11
Reset cost base to cash break-even at Fee Floor
2020 v 2019 COST COMPARISON
•Optimisationof capital budget in line with the latest
asset management strategy
•Deferral of platformer and crude distillation
maintenance turnaround to 2021
•Compliance-based capital expenditure continued
•OPEX
1
•Electricity and chemical decrease due to cyclic
mode and “hot stand-by”
•A focus on compliance and preventative works,
and deferral of all non-essential work
•Contracts renegotiated and other savings
•2020 opex
1
includes one-off inventory write-off
(non-cash), simplification restructuring
2
costs
recognisedand Strategic Review costs for FY
2020
1.Excludes natural gas & other passthrough costs, but includes strategic review, restructuring costs and non-cash inventory write off of c.$11million
2.Cash outflow: $1.6m 2020: c$6m 2021
3.CAPEX represents payments for property, plant and equipment (on a cash flow basis)
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
12
NET DEBT LOWERED
Strong cash focus to protect balance sheet
Covenant compliant:
•FY20 includes 12 months at the Fee Floor
•Headroom on interest cover expected to increase as a result
of interest rateswaps maturing in December 2020
1.Refer to Appendix 3 for an outline of covenants
Gearing
Max 45%
CovenantActual
31 Dec 2020
27%
Interest cover
Min4x6x
Total Interest cover
Min 2x4x
•Cash-neutral operations through cost base reset
•Asset sales contributed $13m in cash
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
13
BALANCE SHEET STRENGTHENED
Creating runwayfor value creation through Strategic Review
•Refining NZ increased and extended its debt facilities in 2020:
•Increased bank lines by $50 million
•Extended maturities on $120 million of facilities
•c.5 years average tenure (including subordinated notes)
•Net debt reduced to c$231m at 31 December 2020:
•c.$43m cash and $275m drawn debt
•c.$125m of liquidity excluding debt maturing in next 12 months
•Average interest rate of 5.3% in FY20, down from 6.1% in FY19
•Lower interest rates expected in 2021, after expiry of historic interest rate
swaps at end 2020
1
As at 31 December 2020
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
FY 20 PERFORMANCE
STRATEGIC REVIEW
UPDATE
LOOKING FORWARD TO
FY21
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
15
STRATEGIC REVIEW UPDATE
Refinery simplification implemented. Significant progress made
assessing potential import terminal conversion
•Refinery simplification has been in effect from the beginning of 2021 –to enable Refining NZ to maintain cash neutral operations at the
Fee Floor in 2021
1
•While no decision has been made, Refining NZ is now well progressed in its assessment of the import terminal option having
focused on three distinct but interrelated areas:
‒Detailed estimation of one-off transition and conversion costs, ongoing terminal operating and capital costs, and longer-dated
refinery demolition costs. Front End Engineering Design (“FEED”) and detailed planning has been initiated to confirm cost and
timing estimates, and optimal refinery closure processes
‒Negotiation of an appropriate commercial framework and terms with customers
‒Establishing expected funding requirements and engaging with lenders. Current assumption is that no additional equity funding
would be required
•Conversion to an import terminal would reduce Refining NZ’s direct emissions by c.1.2 million tonnesCO2 equivalent p.a., equivalent
to c.5% of New Zealand’s total emissions reduction required by 2030 (Paris Agreement)
•Refining NZ and bp have reached in principle agreement
2
on key commercial terms including price. Negotiations with Z Energy and
Mobil are ongoing, with Refining NZ focused on agreeing terms which are fair to non-customer shareholders and acceptable to
customers.
•Any decision to convert to an import terminal would require the preparation of an Independent Appraisal Report and subsequent
approval of non-customer shareholders
•The earliest possible timing of import terminal commencement is in 2022
1
Prior to any Strategic Review related implementation costs
2
The in principle agreement is non-binding and subject to a number of conditions including Refining NZ reaching agreement with its other customers (Z Energy and Mobil), Refining NZ shareholder and lender
approvals, completion of detailed planning and commercial due diligence, negotiation of a binding Terminal Services Agreementand final approval by the independent directors of Refining NZ and by bp.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
16
Refinery simplified to enable cash neutral operations at the Fee
Floor in 2021
Operational
People
Process Unit
Configuration
•18% reduction in primary crude
intake:
‒CDU
1
1 continues to operate
(equivalent to c.34m bblp.a.)
‒CDU
1
2 mothballed as step to
decommissioning
•Bitumen productionceased
•Strong focus on risk and
management of change through the
transition
•Asset maintenance strategy:
‒Campaign approach
‒Predictive maintenance
•Asset Life Cycle:
‒Repair versus replace
‒2-yearly turnaround cycle
•Operating expenses c.$50m lower
than in 2019
•Capital expenditure guidance of
c.$50mfor 2021, including c.$20m
turnaround deferred from 2020
•Organisation-wide restructure largely complete:
‒Management layers flattened
‒c.25% reduction in staff
2
•Significant transitional support for impacted employees to
find work or retraining within 6 months (skills workshops, jobs
expo, well-being initiatives)
REFINERY SIMPLIFICATION
1.Crude Distillation Unit (CDU)
2.c.90 employees left or leaving Refining NZ either through redundancy or resignation from November 2020 through to April 2021
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
17
1.Indicative Optimised Depreciated Replacement Cost (ODRC) valuation of import terminal and pipeline assets of $742 million, such ODRC estimate having been calculated by BECA in October 2020 in accordance with NZ IAS 16 –Property, Plant and
Equipment with reference to NZ IFRS 13; the International Valuation Standard IVS 103 Reporting of International Valuation Standards and PINZ Guidance Note NZVTIP2 –Valuations of Real Property, Plant & Equipment for use in New Zealand
Financial Reports.The BECA valuation also uses asset-specific information provided by Refining NZ.
2.Truck Loading Facility (TLF) adjacent to Marsden Point is not owned by Refining NZ.
3.Refinery to Auckland pipeline.
4.Refining NZ leases land from the oil companies (bp, Mobil and Z Energy) and owns most of the Wiri terminal plant located on this land.The land and plant is in turn leased to Wiri Oil Services Limited (WOSL). The leases expire in February 2025 with
no right of renewal. At the end of the lease term ownership of the Wiri terminal plant currently owned by Refining NZ reverts to the oil companies.
5.Marsden Point typically holds crude equivalent to c.13 days of New Zealand crude oil demand and c.15 days refined product (and components) demand.
IMPORT TERMINAL OVERVIEW
Safe, reliable and efficient fuel supply to Auckland and
Northland markets (c.40% of total New Zealand market)
Jetty
Storage tanks
RAP
3
Wiri terminal
4
Truck Loading
Facility
2
Import Terminal System (ITS)
1
2 jetties with multi-product
capability
Combined c.180m litres of
pumpable volume
Multi-product pipeline from
Marsden Point to Wiri
terminal in Auckland
(c.170km)
•Import terminal capacity is based on c.3 billion litresof
annual throughput
‒Primarily using existing finished product storage
tanks, with upgrades to piping, tank compound
bunds and fire protection systems for site safety
and operating efficiency
•Potential for site repurposing:
‒Import terminal would not require c.80% of existing tank capacity
and c.65% of usable land at Marsden Point
‒Strongly positioned to support New Zealand fuel security initiatives
5
‒Large industrial site with deep harbour& jetty access, electricity &
gas connections, and proximity to a large population base
Green shaded
area is an
illustrative overlay
of the import
terminal on the
existing Marsden
Point site
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
18
EMISSIONS REDUCTION
Potential for significant reduction in New Zealand’s direct
emissions
•Conversion to an import terminal would result in a significant reduction in Refining
NZ’s Scope 1 and 2 emissions
-98% or c.1.2 million tonnesCO
2
equivalent p.a. lower
-Equivalent to c.5% of New Zealand’s total emissions reduction required by 2030
(Paris Agreement)
1
-Import terminal would be the lowest emissions option for delivering fuel to the
Auckland market
•An import terminal would also have c.85% lower electricity consumption
-MarangaRa solar project remains a potential pathway to zero emissions at
Marsden Point
•Fuel mix through the RAP is weighted towards jet and diesel
2
-Recently released draft Climate Change Commission (CCC) budgets include a
longer term focus on transition of heavy transport and aviation to green fuels
3
-Existing infrastructure has potential to support transition to biofuels and
sustainable aviation fuels (SAF)
•Marsden Point site and Refining NZ infrastructure presents a range of potential
growth opportunities as New Zealand fuel supply choices evolve, including:
-Production, storage, handling, import, export
-Biofuels, SAF, LNG, hydrogen and electricity (including batteries)
0
200
400
600
800
1,000
1,200
1,400
2019
refinery
emissions
Simplified
refinery
(2021
estimate)
Import
terminal
Thousands mt CO2
Scope 1 & 2 emissions
Scope 1Scope 2
98% reduction
1.Based on 2018 reported gross emissions and Paris Agreement to reduce greenhouse gases to 30% below 2005 gross emissions by 2030.
2.2019 actual RAP throughput (pre-COVID): 46% jet, 25% diesel, 29% petrol.
3.CCC budgets include a near-term focus on increased electrification of passenger vehicles, and a target for biofuel production of140m litres by 2035 (c.1.5% of forecast total liquid fuel demand including international
transport)
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
19
COST ESTIMATES
Phased transition and conversion costs over 4-5 years,
with significantly lower ongoing cash costs
•Total one-off transition and conversion costs are currently estimated at c.$200m over 4-5 years (excludes refinery demolition
costs)
‒Approximately half of these costs are expected to be incurred prior to commencement of import terminal operations,
including for organisationalchange and import terminal capital investment
‒The remainder is expected to be incurred post commencement of import terminal operations, including refinery
decontamination and decommissioning, and import terminal upgrades
‒Subject to further review and refinement through FEED and detailed planning
•Cost estimates have been benchmarked against other recent refinery conversions in Australia and South East Asia
•Annual cash operating and capital costs are currently estimated at c.$35-$40m
•A refinery closure would be expected to crystalisesignificant tax losses, currently estimated at $350m
1
•Current best estimate of future refinery demolition costs is c.$50-$60m –timing to be coordinated with reference to site
repurposing opportunities
1.Under the currently applicable rules in the Income Tax Act 2007, maintenance of tax losses would be subject to a 49% continuity of ownership test from point of recognition.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
20
COMMERCIAL FRAMEWORK
Focused on agreeing a price which is both acceptable to customers
and fair to non-customer shareholders
Current arrangements
•Current refinery Processing Agreements were entered
into in 1995 with the four fuel market participants at the
time (Shell and Caltex (now Z), bp and Mobil)
•The Processing Agreements cover use of both refinery
and infrastructure assets, with two revenue streams for
Refining NZ:
1. Processing fee
‒Refining NZ receives 70% of gross refining margin
(GRM), with product pricing at import parity
‒Customers retain 30% of GRM, to cover working
capital and coastal shipping costs
‒Fee Floor / margin cap limits Refining NZ’s
downside and upside exposure to refining margins
2. RAP fee
‒Set to reflect the alternative fuel delivery cost at
the time, based on the notional cost of shipping
from Marsden Point to Ports of Auckland
‒Adjusted annually based on notional change in
freight rates, and NZD/USD exchange rate
Potential future import terminal arrangements
•Would require customers to terminate their current Processing
Agreements and enter into new Terminal Services Agreements
•Customers have advised it is their preference is to move to an
import terminal model, with benefits including:
‒Increased earnings stability from reduced exposure to
refining margin volatility
‒Significant working capital release given the shorter
inventory cycle for imported product
‒Avoidance of any future Fee Floor payments and coastal
shipping costs
•Refining NZ has been negotiating with each of its customers,
seeking to agree commercial terms which include:
‒A lengthy initial term (10+ years)
‒A combination of fixed annual access fees and variable
throughput fees linked to actual volumes –targeting total
estimated fees (across all customers) of c.$100m p.a.
during the initial term
‒Provision for third party access to unutilisedRAP capacity
•Refining NZ and bp have reached in principle agreement on key
commercial terms including price
1
•Negotiations are continuing with all customers
1.The in principle agreement is non-binding and subject to a number of conditions including Refining NZ reaching agreement with its other customers (Z Energy and Mobil), Refining NZ shareholder and lender approvals,
completion of detailed planning and commercial due diligence, negotiation of a binding Terminal Services Agreement and final approval by the independent directors of Refining NZ and by bp.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
21
INDICATIVE TIMELINE
Earliest possible terminal commencement timing is 2022
1
Term sheet agreed
with customers
Final Investment Decision /
Refining NZ board approval
Import terminal commencement
Today
Detailed planning & approvals
(4-6 months)
Implementation
(9-12 months)
Customer negotiations
FEED
2
and detailed planning
TSA
3
negotiations
Refinery run-down planning and execution
Refinery
decommissioning
& decontamination
Site repurposing
Key milestones:
Ongoing terminal works
Import terminal conversion
Site repurposing and infrastructure growth -opportunity identification
1
Timeline is subject to ongoing review through FEED and detailed planning, as well as reaching agreement on acceptable terms with customers
2
Front End Engineering and Design
3
Terminal Services Agreement
Shareholder and lender approvals
Workforce planning
Workforce development & deployment
Workforce
implementation
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
22
NEXT STEPS
Focused on concluding customer negotiations in Q1 2021
•Refinery simplification has been in effect from the beginning of 2021, to enable Refining NZ to maintain cash neutral refinery
operations at the Fee Floor in 2021
‒Strong focus on maintaining safe ongoing operations, including February / March 2021 turnaround
•Significant progress has been made in assessing the potential to convert to a safe, reliable and efficient import terminal –
current work is focused on:
‒Concluding commercial negotiations with customers, noting Refining NZ and bp have reached in-principle agreement
1
‒FEED and detailed planning –confirming conversion cost and timing estimates, and execution plans
•Any decision to convert to an import terminal would require the approval of Refining NZ’s non-customer shareholders
−Refining NZ’s independent directors have had direct oversight of the Strategic Review process, including customer
negotiations
−Requirement for an Independent Appraisal Report to inform any shareholder vote
•As with recent simplification changes, Refining NZ will continue to work closely with local, regional and national authorities and
agencies to ensure any future transition is smooth and the impact on its people and the region is minimised
•The earliest possible timing of import terminal commencement is currently in 2022
‒Planning is continuing in parallel for the hydrocracker turnaround (which has previously been deferred to March 2022)
1.The in principle agreement is non-binding and subject to a number of conditions including Refining NZ reaching agreement with its other customers (Z Energy and Mobil), Refining NZ shareholder and lender approvals, completion of detailed
planning and commercial due diligence, negotiation of a binding Terminal Services Agreement and final approval by the independent directors of Refining NZ and by bp.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
FY 20 PERFORMANCE
STRATEGIC REVIEW
UPDATE
LOOKING FORWARD TO
FY21
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
24
OUTLOOK
•Outlook for refining margins remains challenging in the near term:
•Global oil demand has improved but remains 5.0-6.0% lower than pre-pandemic levels.
•COVID-19 travel restrictions likely to affect jet fuel demand through 2021
•Significant refining capacity closures required to return refinery utilisation in the Asian region to more normal levels
•Expect processing fees to remain at Fee Floor level though 2021 due to low margins.
•Lower jet demand expected to continue to impact RAP revenue until New Zealand COVID-19 border restrictions are relaxed
•Four-week turnaround of CCR platformer and CDU1 due to start late February. All processing units will be temporarily shut down during
this time, with customers importing refined products
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
25
2021 PRIORITIES
Safe, reliable and compliant operations throughout 2021
Turnaround 2021 executed safely, on time and within budget
Cash break-even operations at the Fee Floor
1
Conclude import terminal negotiations with customers –target Q1
Provides time
to negotiate
with
customers
Progress required shareholder and lender approvals and detailed planning
Long term
plan to unlock
infrastructure
value
1
Cash neutral excludes Strategic Review restructuring and implementation costs
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
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2020 ANNUAL RESULTS
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R E F I N I N G N Z
2 0 2 0 F I N A N C I A L R E S U L T S B R I E F I N G
A P P E N D I C E S
REFINING NZ
2020 ANNUAL RESULTS
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27
APPENDIX 1GLOSSARY
•Concawe–an organisationthat benchmarks safety performance for member companies and JV’s in the EU, Norway and Switzerland. The latest
benchmarking study was carried out in respect of 2019 performance, covering 42 member organisations.
•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 anyone-hour period.
•Net debt –Net debt comprises total borrowings less cash and cash equivalents
•Operating “cash neutral” –maintaining a “flat” net debt position (i.e. total lender debt, including subordinated notes, less and cash/funds held on deposit),
after paying all operating, capital and funding costs out of the company’s revenue receipts. This excludes Strategic Review restructuring costs.
•Reported EBITDA–Earnings Before Depreciation and Disposal Costs, Impairment of assets, Finance costs and Income Tax in a non-GAAP measure. Please
refer to Appendix II for a reconciliation
•Adjusted EBITDA -Reported EBITDA adjusted for other non-cash expenses, and used for bank covenant purposes
•Free Cash Flow –Net cash generated from operations less investing activities
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
28
APPENDIX 2NON-GAAP MEASURES
Refining NZ’s standard profit measure prepared under New Zealand Generally Accepted Accounting Practice (NZ GAAP) is net profit/(loss) after
tax.Refining NZ has used non-GAAP measures when discussing financial performance in this Full-Year Report.The Directors and Management
Team believe that these measures provide useful information as they are used internally to evaluate segmental and total Groupperformance, to
establish operating and capital budgets as well as being used for bank covenant purposes.
Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New Zealand equivalents to International Financial Reporting
Standards) and are not uniformly defined, therefore the non-GAAP profit measures included in this report are not comparable withthose used by
other companies.They should not be used in isolation or as a substitute for GAAP profit measures as reported by Refining NZ inaccordance with
NZ IFRS.
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
29
APPENDIX 3COVENANTS
Refining NZ’s banks have been granted the benefit of a Negative Pledge Deed, which sets out a number of covenants that the Company agrees to
comply with.These are outlined as follows:
Senior Interest Cover RatioThe ratio of Negative Pledge adjusted EBITDA
[1]
to Interest Expense for the Refining NZ Group which is to be not less
than 4.0 times. Interest expense includes the interest on debt but does not include any interest or Deferred Interest paid
with respect to the Subordinated Notes.
Total Interest Cover RatioThe ratio of Negative Pledge adjusted EBITDA to Total Interest Expense for the Refining NZ Group which is to
be not less than 2.0 times. Total interest expense is the Interest Expense plus any interest or Deferred Interest paid with
respect to the Subordinated Notes.
Gearing RatioThe ratio of bank deb to the sum of bank debt plus shareholder equity for Refining NZ which is required to be not greater
than 45%.
The senior interest and total interest cover ratios are tested semi-annually and are only breached if they are not met on two consecutive test
dates. The gearing ratio is tested at all times.
1.Negative Pledge EBITDA has the same meaning as “Adjusted EBITDA” as set out in Appendix 1 and 2
REFINING NZ
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PRESENTATION
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R E F I N I N G N Z
2 0 2 0 F I N A N C I A L R E S U L T S B R I E F I N G
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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