Full Year 2021 Results
The New Zealand Refining Company Limited
Group
Consolidated Financial Statements
For the year ended
31 December 2021
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 51
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Income Statement
FOR THE YEAR ENDED 31 DECEMBER 2021
1
GROUPGROUP
20212020
NOTE$000$000
INCOME
Revenue
4
231,742233,937
Other income
42,35211,810
TOTAL INCOME
3, 4
234,094245,747
EXPENSES
Purchase of process materials and utilities72,08382,119
Materials and contractor payments18,24319,992
Wages, salaries and benefits40,51161,532
Administration and other costs30,41131,681
TOTAL EXPENSES161,248195,324
EARNINGS BEFORE DEPRECIATION, IMPAIRMENT,
CONVERSION COSTS, FINANCE COSTS AND INCOME TAX
72,84650,423
Depreciation and disposal costs
1184,03887,218
Conversion costs
15175,516-
Impairment of assets
11, 18567,361223,697
TOTAL DEPRECIATION, DISPOSALS, CONVERSION COSTS
AND IMPAIRMENT
826,915310,915
NET LOSS BEFORE FINANCE COSTS AND INCOME TAX(754,069)(260,492)
FINANCE COSTS
Finance income(112)(176)
Finance cost11,10311,096
NET FINANCE COSTS10,99110,920
NET LOSS BEFORE INCOME TAX(765,060)(271,412)
Income tax credit
6(212,431)(73,133)
NET LOSS AFTER INCOME TAX(552,629)(198,279)
ATTRIBUTABLE TO:
Owners of the Parent(552,629)(198,279)
EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE
SHAREHOLDERS OF THE NEW ZEALAND REFINING
COMPANY LIMITED
CENTSCENTS
Basic and diluted earnings per share
7(173.9)(63.5)
THE ABOVE CONSOLIDATED INCOME STATEMENT IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 8 TO
50.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2021
2
GROUPGROUP
20212020
NOTE$000$000
NET LOSS AFTER INCOME TAX(552,629)( 198,279)
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to the Income Statement
Defined benefit plan actuarial gain/(loss)20(c)20,225( 4,130)
Revaluation of property, plant and equipment
11587,182-
Deferred tax
6(b)(170,074)1,156
Total items that will not be reclassified to the Income
Statement437,333( 2,974)
Items that may be subsequently reclassified to the Income
Statement
Movement in cash flow hedge reserve22(2,209)11,092
Deferred tax 6(b)
619
( 3,106)
Total items that may be subsequently reclassified to the
Income Statement
(1,590)
7,986
TOTAL OTHER COMPREHENSIVE INCOME, AFTER INCOME
TAX
435,7435,012
TOTAL COMPREHENSIVE LOSS FOR THE YEAR, AFTER INCOME
TAX
(116,886)( 193,267)
ATTRIBUTABLE TO:
Owners of the Parent
(116,886)
( 193,267)
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 50.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Balance Sheet
AS AT 31 DECEMBER 2021
3
Comparatives for Property, Plant and Equipment, Investment properties, Employee benefits and Provisions have
been updated to ensure consistency between financial reporting periods.
GROUPGROUP
20212020
NOTE
$000
$000
ASSETS
Cash and cash equivalents
17
16,06943,289
Trade and other receivables
16
139,847160,894
Income tax receivable684677
Derivative financial instruments
22
5,2638,766
Inventories
18
2,0154,431
TOTAL CURRENT ASSETS163,878218,057
NON-CURRENT ASSETS
Inventories
183,71914,176
Derivative financial instruments
22
4,875371
Intangibles
1227,0599,968
Property, plant and equipment
11869,137881,884
Investment property
116,2005,250
Right-of-use assets
106503,335
Deferred tax assets
682,05934,857
TOTAL NON-CURRENT ASSETS993,699949,841
TOTAL ASSETS1,157,5771,167,898
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
19155,167162,752
Derivative financial instruments
22
387725
Lease liabilities
10, 17805202
Employee benefits
209,9376,897
Provisions
1587,0884,372
TOTAL CURRENT LIABILITIES253,384174,948
NON-CURRENT LIABILITIES
Derivative financial instruments
22-974
Borrowings
9, 17199,698274,611
Lease liabilities
10, 171,6003,940
Provisions
1598,3497,802
Employee benefits
207,95344,819
Deferred tax liabilities
6
101,10596,874
TOTAL NON-CURRENT LIABILITIES
408,705429,020
TOTAL LIABILITIES662,089603,968
NET ASSETS495,488563,930
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Balance Sheet
AS AT 31 DECEMBER 2021
4
GROUP
GROUP
20212020
NOTE$000$000
EQUITY
Contributed equity
8
313,974266,057
Revaluation reserve
8, 11
422,771-
Treasury stock
8, 23(1,168)( 896)
Employee share scheme entitlement reserve
8, 23
1,586779
Cash flow hedge reserve
8, 22
3,7085,298
Retained earnings(245,383)292,692
TOTAL EQUITY495,488563,930
For and on behalf of the Board:
S C AllenJ B Miller
DirectorDirector
THE ABOVE CONSOLI DATED BALANCE SHEET I S TO BE READ CONJUNCTI ON WI TH THE NOTES ON PAGES 8 TO
50.
THE BOARD OF DI RECTORS OF THE NEW ZEALAND REFI NI NG COMPANY LI MI TED AUTHORI SED THESE
CONSOLI DATED FI NANCI AL STATEMENTS FOR I SSUE ON 22 FEBRUARY 2022.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2021
5
CONTRIBUTED
EQUITY
REVALUATION
RESERVE
TREASURY
STOCK
EMPLOYEE
SHARE SCHEME
ENTITLEMENT
RESERVE
CASH FLOW
HEDGE
RESERVE
RETAINED
EARNINGS
TOTAL EQUITY
GROUPNOTE$000$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(c)
-----(4,130)(4,130)
Deferred tax on other comprehens ive income6
----(3,106)1,156(1,950)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX
----7,986(2,974)5,012
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-s ettled s hare-bas ed payments
23---448--448
Shares vested to employees
23--350(350)---
Treasury shares issued
286-(286)----
Unclaimed dividends written back
-----55
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT286-6498-5453
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 50.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2021
6
CONTRIBUTED
EQ UITY
REVALUATION
RESERV E
TREASURY
STOCK
EM PLOYEE
SHARE
SCHEM E
ENTITL EM ENT
RESERV E
CASH
FL OW
HEDGE
RESERV E
RETAINED
EARNINGS
TOTA L EQ UITY
GROUP
NOTE$000$000$000$000$000$000$000
AT 1 J ANUARY 2 0 2 1
266,057-(896)7795,298292,692563,930
COM PREHENSIV E INCOM E
Net loss after income tax
-----(552,629)(552,629)
Other comprehensive income
Revaluations of property, plant and equipment11
-587,182----587,182
Movement in cash flow hedge reserve22
----(2,209)-(2,209)
Defined benefit actuarial gain20(c)
-----20,22520,225
Deferred tax on other comprehensive income6
-(164,411)--619(5,663)(169,455)
TOTAL OTHER COM PREHENSIV E INCOM E/(LOSS), AFTER INCOM E TAX
-422,771--(1,590)14,562435,743
TRA NSA CTIONS WITH OWNERS OF THE PA RENT
Equity-settled share-based payments
23---1,076--1,076
Shares vested to employees
23--269(269)---
Treasury shares issued
23541-(541)----
Equity issue
847,376-----47,376
Unclaimed dividends written back
-----(8 )(8 )
TOTA L TRA NSA CTIONS WITH OWNERS OF THE PA RENT47,917-(272)807-(8 )48,444
AT 31 DECEMBER 2021313,974422,771(1,168)1,5863,708(245,383)495,488
THE ABOVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IS TO BE READ IN CONJ UNCTION WITH THE NOTES ON PAGES 8 TO 5 0 .
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2021
7
GROUP
GROUP
20212020
NOTE$000
$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers221,353224,044
Payment for supplies and other expenses(118,277)(128,379)
Payments to employees(57,352)(57,518)
Interest received112176
Interest paid(10,566)(11,267)
Net GST paid(567)(1,041)
Income tax (paid)/received(8)5,609
NET CASH INFLOW FROM OPERATING ACTIVITIES
17
34,69531,624
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment(33,447)(33,939)
Proceeds from sale of intangibles1,94713,320
NET CASH OUTFLOW FROM INVESTING ACTIVITIES(31,500)(20,619)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments of)/proceeds from bank borrowings(75,000)27,900
Net proceeds from issue of share capital47,376-
Lease payments
10(2,782)(871)
Unclaimed dividends(9)-
NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES(30,415)27,029
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS(27,220)38,034
Cash and cash equivalents at the beginning of the year43,2895,255
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR16,06943,289
THE ABOVE CONSOLIDATED STATEMENT OF CASH FLOWS IS TO BE READ IN CONJUNCTION WITH THE NOTES
PAGES 8 TO 50.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
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 (‘N ZX 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 2021 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, Channel Terminal Services Limited (previously named Maranga
Ra Limited) and Maranga Ra Holdings Limited.
In November 2021, the Board made the Final Investment Decision to convert Refining NZ’s
principal business from a toll oil refinery into a dedicated fuel import terminal. These financial
statements therefore reflect the last full year of refining operations as the New Zealand
Refining Company Limited, which will be renamed to Channel Infrastructure NZ Limited
(NZX:CHI) (Channel Infrastructure) from April 2022. Refer note 1 for further information.
BASIS OF PREPARATION
These consolidated financial statements for the year ended 31 December 2021 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.
Effective 31 December 2021 the Group has changed its accounting policy for the measurement
of property, plant and equipment from historical cost to a fair value model, as disclosed in Note
11. The change in accounting policy was made to provide readers of the financial statements
with reliable and more relevant information regarding the value of the infrastructure assets,
owned and operated by the Group, in accordance with NZ IAS 16 Property, plant and
equipment and NZ IAS 8 Accounting policies, changes in accounting estimates and errors.
The consolidated financial statements are prepared on the historical cost basis, except for
property, plant and equipment, investment properties, 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.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
9
Use of judgements and estimates
The preparation of financial statements requires directors and the Management 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:
• Fair value and useful lives of property, plant and equipment – the Group adopted the fair
value model as the measurement base for property, plant and equipment during the
reporting period. Refer to note 11 for further details.
• Provisions – the Group has recognised several provisions in relation to the conversion of
the refinery into a dedicated fuel import terminal. Refer to note 15 for further details.
• Recoverability of tax losses – the Group has recognised a deferred tax asset in respect of
unutilised tax losses accumulated to 31 December 2021. Refer to note 6 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.
The Company expects to operate the refinery cash neutral under a Fee Floor scenario
through to refinery closure, with the Terminal Services Agreements coming into effect
from 1 April 2022. The Group expects to have sufficient liquidity to debt fund the expected
conversion costs in the next twelve months. Refer to Note 1 for further information
relating to the import terminal conversion.
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
Group’s accounting policy in relation to the measurement base of property, plant and
equipment from historical cost to a fair value model (refer to note 11 for further details).
There were no new and amended accounting standards mandatory for the year ended 31
December 2021 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, of
which an impact on the Group’s consolidated financial statements is not yet determined.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
10
1 Import terminal conversion
In 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.
Decision to convert to an import terminal
As a result of the Review, the Company simplified the refinery operations effective 1 January
2021 and in parallel continued to evaluate a future, staged conversion to a dedicated fuel
import terminal.
A proposal was presented to shareholders to convert Refining NZ’s Marsden Point site into a
dedicated fuel import terminal and to cease operations as a toll oil refinery (the “Proposal”) on
5 July 2021. The Proposal was approved by Shareholders on 6 August 2021.
On 22 November 2021, t he Company announced that it had entered into long-term
agreements with bp, Mobil and Z Energy for the provision of import terminal services,
consistent with the terms described in the Explanatory Booklet and approved by shareholders.
All customers and Refining NZ have agreed to withdraw existing dispute notices under the
Processing Agreements with effect from the commencement of import terminal services under
the terms of the Terminal Services Agreements.
On the basis of the shareholders’ approval received in August, the Board made the Final
Investment Decision (FID) to proceed with the conversion and a name change to Channel
Infrastructure NZ Limited (NZX:CHI) (Channel Infrastructure) to align with the commencement
of import terminal operations from April 2022.
Conversion Costs
Total conversion cash costs (operating and capital) are expected to be in the range of $200 to
$220 million incurred over the next five to six years, and c.$50 to $60 million of demolition
costs longer-term. Any costs that meet the recognition criteria have been provided for as at 31
December 2021. Refer to note 15 for further details.
Impact on Financial Reporting
a) In the year ended 31 December 2021:
These financial statements have been prepared based on Group operations and include
Management’s best estimate of the impacts of the decision to convert from a refinery to an
import terminal, including:
• A non-cash impairment of refinery assets (including property, plant and equipment,
right-of -use assets and inventories) amounting to $567 million ($408 million net of
tax) being recognised in the Consolidated Income Statement – refer to notes 10, 11
and 18 for further details.
• A revaluation of fuel import terminal’s property, plant and equipment to fair value
amounting to $587 million ($423 million net of tax) being recognised in the
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
11
Consolidated Statement of Comprehensive Income – refer to note 11 for further
details.
• Provision recognition in relation to the import terminal conversion amounting to
$176 million ($127 million net of tax) being recognised in the Consolidated Income
Statement – refer to note 15 for further details.
b) Following conversion to an import terminal from April 2022:
• Segmental reporting
Refining operations will cease on commencement of import terminal operations,
which is expected to result in the Oil Refining segment being presented as
‘discontinued operations’ from that time, and the consequential alignment of
reportable segments to the internal reporting for the import terminal.
2 COVID-19 Pandemic
In March 2020 the World Health Organisation declared a global pandemic as a result of the
outbreak and spread of COVID-19. Global refining margins have remained significantly lower
than the historical average during 2020 and 2021 due to the on-going fuel demand reduction –
particularly jet fuel – resulting from travel and transport restrictions.
In response to the continued significant fuel demand reduction resulting from travel and
transport restrictions and the consequential reduction in revenue through weak global refining
margins and lower refinery throughputs (resulting in revenue at the Fee Floor in both 2020 and
2021), Refining NZ implemented the simplified refinery model from January 2021 by reducing
refining capacity and workforce.
During the Level 3 and Level 4 lockdowns and subsequent restrictions (under the ‘traffic light’
settings as defined under the COVID-19 Protection Framework), all safety critical work
continued, however, non-essential activity was limited. The Company established strict
protocols to limit on-site personnel to essential staff only during periods of elevated COVID risk
and lockdowns, and to separate key operational staff and shifts. In parallel, the Company’s
employees and contractors were offered on-site vaccinations.
The lockdowns, especially those imposed in Auckland, resulted in lower demand for fuels from
customers, resulting in the refining plant periodically being operated at reduced throughputs.
Pipeline volumes were also significantly lower than pre-COVID-19 levels, predominantly due to
lower jet fuel demand from the Auckland Airport.
The below outlines revenue impacts for the year ended 31 December 2021 from continued
weak refiner’s margins and lower pipeline throughputs:
• Our customers were invoiced the Fee Floor amounting to c. $140.5 million during the
year ended 31 December 2021 (consistent with the previous corresponding period).
The actual processing fee earned from operations was below the fee floor, resulting in
$32.5 million (31 December 2020: $90 million) being paid by Customers as Fee Floor
payments as outlined in Note 4.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
12
• Pipeline throughputs in the year ended 31 December 2021 were 13.4 million barrels,
around 9% lower than the previous corresponding period and 36% lower than in the
2019 (pre-COVID-19), predominantly due to reduction in demand for jet fuel into
Auckland International Airport and Auckland lock-downs.
3 Segment reporting
(a) Identification and description of reportable segments and reporting measures
Management 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.
Currently Management primarily uses revenue and adjusted earnings before depreciation,
impairment, conversion costs, finance costs and income tax (or ‘Adjusted EBITDA’) of the
Parent Company as measures to assess the performance of the operating segments. For
Non-GAAP 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.
Revenue derived from major customers, and the relevant operating segments, is disclosed
in note 5.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
13
(b) Segment results
(*) prior to consolidation eliminations
(**) Adjusted EBITDA is adjusted earnings before depreciation, impairment, conversion costs,
finance costs and income tax
31 DECEMBER 2021OIL REFININGINFRASTRUCTURETOTAL
NOTE$000$000$000
External customer4187,10446,990234,094
Inter-segment-4,2764,276
TOTAL INCOME
(*)
187,10451,266238,370
Adjusted EBITDA
(**)
2633,83935,42969,268
31 DECEMBER 2020OIL REFININGINFRASTRUCTURETOTAL
$000$000$000
External customer4200,42345,324245,747
Inter-segment-4,2194,219
TOTAL INCOME
(*)
200,42349,543249,966
Adjusted EBITDA
(**)
26
25,91232,66658,578
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
14
4 Income
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 exist.
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. Actual processing fee revenue
was circa $108 million in 2021 (2020: $50 million) compared to the guaranteed revenue of
$140.5m (the Fee Floor) resulting in c.$32.5 million (2020: $90 million) earned as Fee Floor top-
up payments from customers.
Included in other income was a gain on sale of assets of $1.1 million (2020: $5.9 million). (2020
also included $5.1 million of COVID-19 wages subsidy received from the New Zealand
Government).
FOR THE YEAR ENDED 31 DECEMBER 2021GROUPGROUP
20212020
$000$000
Comprises:
Processing fees140,465141,601
Natural Gas recovery25,43130,156
Other refining related income20,10118,139
REFINING REVENUE185,997189,896
Pipeline fees29,43729,283
Other distribution income13,11011,750
DISTRIBUTION REVENUE42,54741,033
Other operating revenue3,1983,008
TOTAL REVENUE231,742233,937
Other income2,35211,810
234,094245,747
TOTAL INCOME
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
15
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 as 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. These agreements will be terminated and replaced with
the long-term Terminal Services Agreements, upon commencement of import terminal
services expected to occur in April 2022. Refer to note 1.
In 2021 c. 89% (2020: c.91%) of the Group’s total revenue was earned under the
processing agreements. For credit terms refer to note 21.
• Distribution revenue – includes Refinery to Auckland Pipeline fees, terminaling 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. These fees are earned under the
existing Processing Agreements which will be replaced by the Terminal Services
Agreements upon commencement of import terminal services expected to occur in
April 2022. Refer to note 1.
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. Following the commencement of
import terminal services, t he Company will no longer be a Customs Controlled Area
and will therefore cease to collect and pay excise duty as described above.
• 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.
20212020
%%
8.4810.09
14.4417.18
12.9015.34
bp New Zealand Holdings Limited (BP)
Mobil Oil New Zealand Limited (Mobil)
Z Energy Limited (Z Energy)
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
16
Revenue, purchases and other charges from related parties
* Revenue excludes excise duty.
(b) Directors’ fees and key management personnel compensation
Directors’ fees and key management personnel remuneration paid during the financial year
were as follows:
Salaries and other short-term employee benefits in 2020 include fees paid to Mr P Zealand
totalling $187,000 who acted as Managing Director during the period February to April 2020 to
assist in the CEO transition.
The cost associated with the key management personnel’s share scheme (not included in the
above key management personnel compensation) amounts to $0.9 million (2020: $0.2 million).
Refer to note 23 for further information.
2021
20202021202020212020202120202021202020212020
$000$000$000$000$000$000$000$000$000$000$000$000
BP60,95859,16020,56940,4021,1599610558401372--
Mobil56,23157,78154,45121,4311,18114870139526571--
Z Energy89,20896,58159,00092,7951,43114126995----
Wiri Oil6,9557,0044542--------
TOTAL213,352220,526134,065154,6703,771385444292927943--
BALANCES OUTSTANDING
AS AT 31 DECEMBER
Revenue*
Purchases
Other 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
GROUPGROUP
20212020
$000$000
Salaries and other short-term employee benefits3,3193,915
123115
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION3,4424,030
790779
4,2324,809
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION &
DIRECTORS' FEES
Post-employment benefits
Directors' fees
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
17
6 Taxation
(a) Income tax expense
GROUPGROUP
20212020
NOTE$000$000
(765,060)( 271,412)
(214,217)( 75,995)
Income not assessable for tax-( 1,286)
Expenses not deductible for tax1,2203,783
566365
(212,431)( 73,133)
Represented by:
(5)( 389)
6(b)(212,426)( 72,744)
(212,431)( 73,133)
INCOME TAX EXPENSE
Deferred tax recognised in the income statement
Net loss before income tax expense
Tax at the New Zealand corporate income tax rate
of 28% ( 2020: 28%)
Tax effect of amounts which are either non-
deductible or taxable in calculating taxable
income:
Adjustments in respect of current income tax in
respect of previous years
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 2021
18
(b) Deferred tax
The Group has unused tax losses of $70.0 million (2020: $54.9 million) available to carry
forward. 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 significant change in the shareholding of Refining NZ, or adverse change in future earnings
and profitability, could limit the Company’s ability to realise the deferred tax asset. Specifically,
in case of shareholder continuity breach occurring prior to the import terminal conversion, the
carry forward of tax losses would be subject to the Business Continuity Test and therefore
dependent on “there being no major” or a “permitted major change” in the business.
NET DEFERRED TAX
ASSET / (LIABILITY)
RECOGNISED IN
PROFIT OR L OSS
RECOGNISED IN OTHER
COM PREHENSIV E
INCOM E
NET DEFERRED
TA X A SSET /
(LIABILITY)
DEFERRED
TAX ASSET
DEFERRED
TAX LIABILITY
1 JAN 202031 DEC 2020
$000$000$000$000$000$000
Property, plant and equipment( 156,909)63,031-( 93,878)-( 93,878)
Provisions3,305( 2,053)-1,2521,252-
Employee benefits13,0127811,15614,94914,949-
Financial instruments1,044-( 3,106)( 2,062)-( 2,062)
Intangibles493( 719)-( 226)-( 226)
Right-of-use assets( 513)( 195)-( 708)-( 708)
Leases565227-792792-
Inventory1,344947-2,2912,291-
Tax losses4,84810,725-15,57315,573-
( 132,811)72,744( 1,950)( 62,017)34,857( 96,874)
NET DEFERRED TAX
ASSET / (LIABILITY)
RECOGNISED IN
PROFIT OR L OSS
RECOGNISED IN OTHER
COM PREHENSIV E
INCOM E
NET DEFERRED
TA X A SSET /
(LIABILITY)
DEFERRED
TAX ASSET
DEFERRED
TAX LIABILITY
1 JAN 202131 DEC 2021
$000$000$000$000$000$000
Property, plant and equipment(93,878)158,795(164,411)(99,494)-(99,494)
Provisions1,25241,125-42,37742,377-
Employee benefits14,9492,693(5,663)11,97911,979-
Financial instruments(2,062)-619(1,443)-(1,443)
Intangibles(226)1,099-873873-
Right-of-use assets(708)540-(168)-(168)
Leases79295-887887-
Inventory2,2914,136-6,4276,427-
Tax losses15,5733,943-19,51619,516-
(62,017)212,426(169,455)(19,046)82,059(101,105)
TOTAL
TOTAL
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
19
7 Earnings per share
Earnings per share is calculated by dividing the loss 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.
8 Equity and dividends
Contributed Equity. The issued capital of the Company as at 31 December 2021 is represented
by 372,223,477 ordinary shares (2020: 312,893,643) issued and fully paid, less 1,175,163 (2020:
519,859) treasury shares held by CRS Nominees Limited. All ordinary shares rank equally with
one vote attached to each ordinary share.
In 2021 the Parent issued 47,022,683 shares as an institutional placement, and 11,716,235
shares pursuant to a Share Purchase Plan (SPP). The issue shares rank equally with existing fully
paid ordinary shares.
Revaluation reserve. Revaluation reserve represents an accumulated revaluation gain on
property, plant and equipment valued at fair value. Please refer to note 11 for further details.
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 Consolidated Income Statement (refer to note 22).
Dividends. No dividends were paid or declared in 2021 (2020: nil). Imputation credits available
to shareholders, subject to 66% shareholder continuity, for subsequent reporting periods
amount to $20.9 million as at 31 December 2021 (2020: $20.9 million).
TOTAL
TOTAL
NOTE20212020
($000)
(552,629)(198,279)
000's8317,756312,293
Cents
(173.9)
(63.5)
BASIC AND DILUTED EARNINGS PER SHARE
Loss after tax attributable to shareholders of the Company
Weighted average number of shares on issue
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
20
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.
In 2021, the Company extended its $25 million facility maturing in September 2021 out to
March 2023 and increased its existing committed bank facilities by $30 million with maturities
between December 2022 and March 2023. As at 31 December 2021 total committed facilities
amounted to $335 million (or $410 million including the subordinated notes on issue). The
weighted average total debt tenor as at 31 December 2021 was 3.7 years.
The maturity profile of the Company’s borrowing facilities as at 31 December 2021, including
the utilisation of those facilities and undrawn amounts is as follows:
The carrying value of the subordinated notes as at 31 December 2021 amounts to $74.7
million. The difference between the carrying value and the $75 million face value is due to
unamortised issue costs and accrued interest. The subordinated notes expire on 1 March 2034,
noting that the first election date, when the Company may either redeem the notes or to offer
new conditions to the noteholders, is in March 2024.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
21
10 Right-of-use assets and lease liabilities
Lease liabilities as at 31 December 2021 are associated with the lease of the oil tanker jetty
seabed and offices. The right-of -use asset is depreciated over the period until the expiry of the
lease.
The Group also has leases of platinum held in catalysts, used in the oil refining process. As at 31
December 2021, following the decision to convert to an import terminal, the Group recognised
an impairment of the right-of -use assets associated with platinum, while the lease liability
continues to be recognised until the expiry of the leases.
There are no restrictions or covenants imposed by leases, or exposure arising from residual
value guarantees.
The Consolidated Balance Sheet shows the following amounts relating to right-of -use assets
and lease liabilities:
GROUPGROUP
20212020
$000$000
Right-of-use assets
Opening net book value3,3354,028
Additions-273
Lease extensions and modifications540659
Depreciation charge(952)( 455)
Impairment(2,273)( 1,170)
CLOSING NET BOOK AMOUNT6503,335
Cost8015,581
Accumulated depreciation and impairments(151)( 2,246)
NET BOOK AMOUNT, INCLUDING:6503,335
Freehold land and improvements524545
Buildings and jetties126178
Refining Plant-1,395
Catalysts-1,217
GROUPGROUP
20212020
$000$000
Lease liabilities
Opening lease liability4,1423,454
Additions-284
Lease extensions and modifications540659
Revaluations175( 55)
Lease payments (capital portion)(2,452)( 200)
CLOSING LEASE LIABILITY, INCLUDING:2,4054,142
Current805202
Non-current
1,6003,940
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
22
The Consolidated Income Statement includes the following amounts in relation to leases:
The total cash outflow for leases in 2021 was $2.8 million (2020: $0.9 million).
11 Property, plant and equipment, and investment property
Property, plant and equipment are included in the negative pledge arrangement as detailed in
note 9.
(a) Impairment of property, plant and equipment
The Final Investment Decision taken by the Board on 22 November 2021, to cease refining
operations from April 2022, has resulted in the Company recognising a non-cash impairment of
all refining assets (part of property, plant and equipment that will not be used in the import
terminal operations). The impairment of property, plant and equipment amounted to c.$552
million and is reflected in the Consolidated Income Statement as “Impairment of assets”,
together with the impairment of inventories (c.$13 million) (refer to note 18) and right-of -use
assets (c.$2 million). (Total impairment charge of $567 million (2020: $224 million)). The
residual value of refining assets was assessed at $34 million, based on an independent
assessment of the scrap value of refining plant (post demolition) and the fair value of refining
units that could be sold or used in the production of renewable fuels.
(b) Revaluation of property, plant and equipment
Effective from 31 December 2021, the Group has changed its accounting policy in relation to
property, plant and equipment from a historical cost measurement base to a revaluation
model. The change in accounting policy was made to provide readers of the financial
statements with more relevant information regarding the value of the infrastructure assets,
owned and operated by the Group, in accordance with NZ IAS 16 Property, plant and
equipment and NZ IAS 8 Accounting policies, changes in accounting estimates and errors (refer
to note 1).
All property, plant and equipment is recognised at fair value less accumulated depreciation,
except capital work in progress which is recognised at historical cost. Any surplus on
revaluation of property, plant and equipment is transferred directly to the Revaluation Reserve
unless it offsets a previous decrease in value recognised in the Consolidated Income Statement,
in which case it is recognised in the Consolidated Income Statement. A deficit on revaluation of
property, plant and equipment is recognised in the Consolidated Income Statement in the
GROUPGROUP
20212020
$000$000
Depreciation charge952455
Impairment2,2731,170
Interest expense (included in Finance costs)330352
208190
343427
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 2021
23
period it arises where it exceeds any surplus previously transferred to the Revaluation Reserve.
The carrying amount of the Group’s property, plant and equipment that will be used in the
import terminal, under the cost model was $248 million as at 31 December 2021.
(c) Fair valuation of import terminal property, plant and equipment
The Company engaged PwC, a qualified independent valuer to provide a valuation of the
Group’s import terminal property, plant and equipment as at 31 December 2021. The
valuation, undertaken in accordance with NZ IAS 16 – Property, Plant and Equipment and NZ
IFRS 13 – Fair Value Measurement, established a “fair value” based on the price a market
participant could obtain from selling the assets in an orderly, well-structured competitive sales
process, and includes the benefit from a higher tax depreciable value of property, plant and
equipment for an acquirer. The net present value methodology was used to determine a
market participants sales value.
The fair value of assets (excluding the value of capital work in progress, surplus land and
residual value of refining assets) was determined to be in the range of $756 million to $822
million, with a mid-point valuation of $793 million used for asset revaluation purposes. This
valuation exceeded the carrying value of property, plant and equipment by $587 million which
was recognised through the Consolidated Statement of Comprehensive Income (Revaluation
Reserve). As a consequence of the revaluation, accumulated depreciation on the import
terminal assets has been reset to nil.
The key assumptions underpinning the valuation include:
• Fuel demand forecasts. Demand forecasts were formulated by a third party oil and gas
market expert, and are largely consistent with the outlook presented in the
Explanatory Booklet dated 5 July 2021 (issued for the purpose of the August 2021
Shareholder’s Meeting in connection with a proposal to convert to an import terminal).
According to the demand outlook, petrol and diesel demand will start declining from
circa 2025 and 2030, respectively. While there is significant uncertainty in relation to
the future demand and demand peaks, this outlook was largely in line with the Climate
Change Commission’s report on New Zealand’s carbon budgets issued in June 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 expert
forecasts have demand forecast to recover to pre-COVID-19 levels by 2027, growing
until circa 2040. The valuation forecast includes a terminal value at a negative growth
rate of 2.5% after the 30-year forecast period.
• Import terminal fees. Terminal fees were estimated based on the fuel demand
forecasts for the Company, and the pricing that is consistent with Terminal Services
Agreements and Private Storage Agreements agreed with the customers, and subject
to a PPI escalation.
• Operating costs and capital spend. Operating costs and capital spend associated with
the fuel only import terminal operation are largely consistent with the earlier provided
market guidance on 29 November 2021, and subject to inflationary increase in the
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
24
longer-term. Cash flows used for import terminal asset valuation exclude those
conversion costs that are related to refining assets and winding up of refining
operations.
• Discount rate. The independent valuer has used a nominal post-tax weighted average
cost of capital range between 6.4% to 7.1%, with a mid-point estimate of 6.7%.
Tax amortisation benefit. As set out above, it is assumed that in a well-structured, competitive
sales process, an acquirer would ascribe full value to the higher depreciable tax base of the
property, plant and equipment in an asset acquisition. Based on the mid-point valuation of
$793 million, this would amount to c.$100 million.
The following table outlines a range of 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 fair valuation:
Sensitivity Valuation impact
Volumes +/-10% $55m / ($52m)
Operating costs +/-10% ($42m) / $43m
Capital expenditure +/-20% ($18m) / $18m
Discount rate +/-1% ($132m) / $105m
(d) Depreciation
Depreciation is provided on a straight-line basis on all property, plant and equipment other
than freehold land and capital work in progress which are not depreciated.
The standard useful lives used by the Group are as follows:
Useful lives
(years)
Freehold improvements 5-50
Buildings and jetties 5-50
Plant 5-50
Refinery to Auckland Pipeline 10-78
Equipment and vehicles 3-25
The depreciation charge for the year comprises:
GROUPGROUP
20212020
NOTE
$000$000
11(e )
82,657 86,550
10952455
429 213
DEPRECIATION CHARGE84,03887,218
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 2021
25
11 Property, plant and equipment and investment property (continued)
(e) Summary of fixed assets movements
FREEHOLD LAND
AND
IMPROVEMENTS
BUILDINGS
AND JETTIES
REFINING
PLANT
EQUIPMENT
AND
VEHICLES
REFINERY TO
AUCKLAND
PIPELINE
IMPORT
TERMINAL
SYSTEM
CAPITAL
WORK IN
PROGRESS
TOTALINVESTMENT
PROPERTY
NOTE$000$000$000$000$000$000$000$000$000
77,093200,9433,032,031134,204224,621-77,3793,746,2715,250
(55,546)(106,602)(2,203,948)(94,655)(119,469)--(2,580,220)-
21,54794,341828,08339,549105,152-77,3791,166,0515,250
21,54794,341828,08339,549105,152-77,3791,166,0515,250
9168,86732,392911(18)-(17,957)25,111-
--(225)----(225)-
Depreciation charge11(d)
(1,743)(5,279)(71,258)(4,343)(3,927)--(86,550)-
-(75)(211,100)---(11,328)(222,503)-
20,72097,854577,89236,117101,207-48,094881,8845,250
78,009208,6153,053,708135,346224,603-59,4223,759,7035,250
(57,289)(110,761)
(2,475,816)(99,229)(123,396)-
(11,328)
(2,877,819)-
20,72097,854577,89236,117101,207-48,094881,8845,250
YEAR ENDED 31 DECEMBER 2020
Opening net book value
Additions/transfers
Disposals
NET BOOK AMOUNT
Impairment of assets
CLOSING NET BOOK AMOUNT
AT 31 DECEMBER 2020
Cost
Accumulated depreciation and impairment losses
AT 1 JANUARY 2020
Cost
Accumulated depreciation
NET BOOK AMOUNT
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
26
FREEHOLD LAND
AND
IMPROVEMENTS
BUILDINGS
AND JETTIES
REFINING
PLANT
EQUIPMENT
AND
VEHICLES
REFINERY TO
AUCKLAND
PIPELINE
IMPORT
TERMINAL
SYSTEM
CAPITAL
WORK IN
PROGRESS
TOTALINVESTMENT
PROPERTY
NOTE
$000$000$000$000
$000$000$000$000
$000
YEAR ENDED 31 DECEMBER 2021
Opening net book value
20,72097,854
577,892
36,117101,207
-
48,094
881,884
5,250
-13,1985,5551,254--15,14035,147
-
Disposals
---
---
(429)(429)
-
Depreciation charge11(d)
(1,496)(10,579)
(62,219)
(4,951)(3,412)
-
-
(82,657)
-
(8,644)(72,321)(421,665)
(10,831)--
(38,530)(551,991)
-
NET BOOK AMOUNT AFTER IMPAIRMENTS
10,58028,152
99,56321,58997,795
-24,275281,9545,250
Transfers
(6,236)
(28,152)(65,863)
(21,589)
(97,795)
219,635-
-
-
Revaluation
11,275-
- --575,907-
587,182950
CLOSING NET BOOK AMOUNT15,619-33,700--795,54224,275869,1366,200
AT 31 DECEMBER 2021
Revalued amount
15,619
-33,700-
-795,542
24,275869,1366,200
Accumulated depreciation
---
---
---
NET BOOK AMOUNT15,619
-33,700--795,54224,275869,136
6,200
Impairment of assets
Additions
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
27
12 Intangibles
Intangibles relate to New Zealand Units (NZUs), being carbon units issued under the New
Zealand Emissions Trading Scheme (NZ ETS) by the Crown to the Parent company pursuant to
the Company’s Negotiated Greenhouse Agreement (NGA), which will come to an end with the
cessation of refining activities from April 2022.
NZUs are recognised at historical cost and presented on a gross basis, i.e. intangibles represent
all carbon units held by the Company at balance date, including those that are expected to be
surrendered to the Crown.
Carbon units have an indefinite useful life as they remain in indefinite circulation under the NZ
ETS. A review of useful lives and an impairment assessment has taken place as at year end,
concluding that the useful life remains appropriate, and the intangibles are not impaired (2020:
Ni l
).
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 has the following leases where it acts as a lessor:
- Lease of land and refining plant located at Wiri, South Auckland, 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 2021 (2020: $0.5 million and $6.0
million);
- Lease of some surplus land at Marsden Point – the original lease ending in 2021 was
renewed by the lessor for another period of 21 years.
14 Contractual commitments
Commitments are related to asset purchases and other on-going contractual commitments as at
the reporting date but not provided for in the consolidated financial statements. As at 31
December 2021 the total contractual commitments amounted to $21.5 million (31 December
2020: $20.2 million), and are primarily related to site reconsenting obligations and import
terminal conversion project costs.
GROUP
GROUP
20212020
$000$000
Lease payments receivable from operating leases where the Group is a lessor
- No later than one year6,6636,589
- One to five years8,53614,692
- Beyond five years2,088-
TOTAL17,28721,281
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
28
15 Provisions
Provisions are liabilities of uncertain timing and amount, recognised where the Group has an
obligation (legal or constructive) whose settlement will require an outflow of resources and can
be reliably measured.
All provisions are recognised in amounts reflecting the present value of future expected cash
outflows. In estimating the provisions, the Group assumed an inflation rate of 1.9% (2020: 1.5%)
and discount rates between 1.3% and 3.1% (2020: 3.58%), respectively.
As outlined in note 1, the Group recognised a number of provisions as a result of the import
terminal conversion.
SHUT DOWN AND
DECOMMISSIONING
DEMOLITION
AND
RESTORATION
WORKFORCE
AND OTHER
PROVISIONS
TOTAL
$000$000$000
$000
-
11,8001,302
13,102
Additions--
4,3724,372
-
( 5,100)( 400)( 5,500)
-200-200
-6,9005,27412,174
--4,3724,372
-6,9009027,802
SHUT DOWN AND
DECOMMISSIONING
DEMOLITION
AND
RESTORATION
WORKFORCE
AND OTHER
PROVISIONS
TOTAL
$000$000$000$000
-6,900
5,27412,174
88,39555,38031,741
175,516
Additions - other-
6,776-6,776
(5,150)-(4,372)(9,522)
12332248493
83,36869,37832,691185,437
60,92446025,70487,088
22,44468,9186,98798,349
Current
Non-current
AT 1 JANUARY 2021
Additions - conversion related
AT 31 DECEMBER 2021
Finance costs
Disposals
Current
Non-current
Disposals
AT 1 JANUARY 2020
Finance costs
AT 31 DECEMBER 2020
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
29
The provisions as at 31 December 2021 include:
• Refinery shut-down and decommissioning
Costs associated with the staged shut-down of refining assets and the subsequent
decommissioning of redundant assets which are not suitable for immediate repurposing. This
includes the de-inventorying, de-energising and isolation of redundant assets to leave them in a
safe condition for future demolition. Redundant assets include the refinery processing units,
surplus tanks, piping and other equipment not required for terminal operation and surplus
utility infrastructure including boilers and a portion of the electrical system.
• Demolition and restoration
Included in demolition and restoration provisions is the demolition of select refining assets,
assumed to occur 10 years after the import terminal conversion, as well as jetty demolition at
the end of the lease period.
The Company also recognised a provision associated with environmental obligations resulting
from Refining NZ’s commitments, as part of the resource consents obtained in April 2021, to
continue maintaining the current high level of environmental standards. Environmental
measures at Marsden Point include operation of a groundwater hydraulic containment system
and hydrocarbon recovery program reducing the extent of legacy contamination over time as
part of the ongoing remediation of the site.
As a condition of the resource consent, Refining NZ has also committed to work with the
Northland Regional Council ahead of time (during the 20
th
year of consent or at least 12 months
prior to the cessation of terminal operations) to set out the actions necessary to maintain
compliance for the discharges of contaminants. Given the unknown nature of the future
activities that may be agreed with the Northland Regional Council, no liability has been
recognised in the Consolidated Balance Sheet other than the cost associated with ongoing
environmental monitoring activities over a period of 20 years. (Refer to note 24).
• Workforce and other provisions
As a result of the transition, the current Group’s workforce of c.300 is expected to reduce over
the two years following commencement of import terminal operations to c.70 employees. The
total cost of the workforce transition and restructure (including employee benefits such as long
service leave and retirement provisions that were previously separately recognised as Employee
Benefits in the Consolidated Balance Sheet) is estimated at $26 million.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
30
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 2021 (2020: 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.
GROUP
GROUP
20212020
NOTE
$000$000
11,939 11,967
4,204
3,027
Other trade receivables
4,4613,696
19
114,222135,793
Derivatives pending settlement-929
5,021 5,482
TOTAL TRADE AND OTHER RECEIVABLES139,847
160,894
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 2021
31
17 Cash and cash equivalents
The Group’s cash and cash equivalents comprise cash on hand, demand deposits and short-
term, highly liquid investments that are readily convertible to known amounts of cash.
Reconciliation of net cash flow from operating activities to reported loss:
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.
GROUP
GROUP
20212020
NOTE
$000$000
(552,629)
( 198,279)
11(d)
84,03887,218
567,361223,697
6(b)
(42,971)( 70,794)
Add movement in deferred tax on items included
in other comprehensive income
6(b)(169,455)( 1,950)
15
173,263( 4,841)
Less (increase)/decrease in provisions relating to
property, plant and equipment
(17,739)
5,096
23
1,076448
(Increase)/decrease in intangibles
12
(17,091)12,169
Less proceeds from sale of intangibles(1,947)( 13,320)
(4,879)( 679)
16
21,047( 15,831)
19
(7,585)( 8,266)
Less increase/(decrease) in trade and other
payables relating to property, plant and equipment
and intangibles
2914,392
Less other non-cash increase in trade and other payables2,650-
20
(33,826)7,333
Less employee entitlements included in other
comprehensive income20(c)20,225( 4,130)
(7)5,218
18
12,8734,143
34,69531,624
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
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in employee benefits
(Increase)/decrease in income tax receivable
Employee share scheme entitlement reserve
NET LOSS AFTER INCOME TAX
Adjusted for:
Depreciation and disposal 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 2021
32
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 $3.0 million (2020: $4.6 million) held by Refining NZ’s
electricity futures broker as collateral and $4.9 million (2020: nil) held as cash prudential for spot
electricity purchases.
18 Inventories
Inventories have reduced significantly due to an impairment of the refinery’s stock and spare
parts recognised as at 31 December 2021 of $13.1 million (2020: $8.2 million) under
“Impairment of assets” in the Consolidated Income Statement (together with an impairment of
property, plant and equipment, and right-of -use assets).
The consumption of inventories is 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 DEBT
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
2020
(5,255)-246,616241,3612483,206244,815
Cash flows (Cash)(38,034)-27,995(10,039)--(10,039)
Finance lease payments----(200)-(200)
Other non-cash movements----154734888
NET (CASH)/DEBT AS AT 1 JANUARY
2021
(43,289)-274,611231,3222023,940235,464
Cash flows27,220-(74,913)(47,693)--(47,693)
Finance lease payments----(2,782)-(2,782)
Other non-cash movements----3,385(2,340)1,045
NET (CASH)/DEBT AS AT 31
DECEMBER 2021
(16,069)-199,698183,6298051,600186,034
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
33
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
12.
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.
GROUP
GROUP
20212020
NOTE$000$000
Trade payables21,32122,563
Derivatives pending settlement1,417-
Goods services tax payable354909
Deferred income
12
17,853
3,487
Excise duty
15
114,222135,793
TOTAL TRADE AND OTHER PAYABLES
155,167162,752
CURRENTNON-
CURRENT
TOTALCURRENTNON-
CURRENT
TOTAL
NOTE
$000$000$000$000$000$000
20(a )
-4,2274,227-32,73332,733
20(a )
483,7263,774177,1857,202
9,542-9,5426,466-6,466
347-3474144,9015,315
TOTAL9,9377,95317,8906,89744,81951,716
Long-service leave and retirement bonus
2021
2020
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 2021
34
Total membership of the scheme as at 31 December 2021 was 131 (2020: 192) 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.
The Fund was curtailed during 2021 on recognition of the restructuring outlined in Note 15
(2020: Nil), refer to “Restructuring curtailment”, following the closure of the refinery (refer to
note 1) and new employment agreements in place for Channel Terminal Services Limited which
exclude Defined Benefit Pension Plan benefits.
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.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
35
Restructuring curtailment
In November 2021, the Company recognised a provision for restructuring costs associated with
the transition from a refinery to an import terminal as described further in note 1. This triggered
the curtailment of the defined benefit pension plan, resulting in a curtailment gain of $1.6
million (or $2.4 million including contributions tax) being recognised in the Consolidated Income
Statement as part of “wages, salaries and other benefits”.
Cash-Out offer
In May 2021, the Company offered pensioner members of the defined benefit pension plan
the choice of converting some or all of their pension benefits to a one-off cash lump sum. In
total 65 pension fund members accepted the offer. In addition, seven former members of the
fund were made redundant as part of the refinery simplification (refer to note 1). Total
settlement payments in relation to the cash-out offer and redundancies amounted to $25.4
million, extinguishing defined benefit obligations of $30.2 million, resulting in a settlement gain
of $4.7 million (or $7.0 million including contributions tax). The settlement gain was recognised
in the Consolidated Income Statement as part of “wages, salaries and other benefits”.
Medical plan (scheme closed since 1996)
The Parent pays health insurance premiums in respect of nine former employees (2020: 15
former and current employees) when they retire, until their death. This scheme was closed in
1996 and has not been offered to new employees since. 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 2021, beneficiaries of the medical plan were offered the choice of converting their
entitlements to post-retirement health insurance benefits to a one-off cash lump sum. Six
retirees (2020: three retirees) accepted the cash out offer and a total of $0.6 million (2020: $0.1
million) was paid out to the beneficiaries, resulting in a settlement gain of $2.7 million (2020:
$0.9 million) recognised in the Consolidated Income Statement as part of “wages, salaries and
other benefits”.
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 2021
36
(a) Reconciliation of medical and defined benefit pension plan
PRESENTFAIR TOTALPRESENTFAIR TOTAL
VAL UEVAL UE VAL UEVAL UE
OF OF OF OF
OBL IGATIONPLANOBL IGATIONPLAN
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)
----936936
---( 394)394-
379-3795,458( 5,458)-
---341( 341)-
( 7,201)-( 7,201)( 110,711)88,780( 21,931)
( 10,802)
( 7,201)( 32,733)
PRESENTFAIR TOTALPRESENTFAIR TOTAL
VAL UEVAL UE VAL UEVAL UE
OF OF OF OF
OBL IGATIONPLANOBL IGATIONPLAN
ASSETSASSETS
NOTE
$000$000$000$000$000$000
(7,201)-(7,201)(110,711)88,780(21,931)
---(1,712)-(1,712)
(17)-(17)(281)229(52)
2,657-2,6576,323-6,323
20(b)
2,640-2,6404,3302294,559
----7,8697,869
328-3286,017-6,017
(318)-(318)(342)-(342)
20(c)
10-105,6757,86913,544
-Employers
----996996
-Plan participants
---(281)281-
777-77730,628(30,628)-
---358(358)-
20(d)
(3,774)-(3,774)(70,001)67,169(2,832)
(1,395)
(3,774)(4,227)
PENSION PLAN
AT 1 JANUARY 2020 EXCLUDING TAXES
Amounts recognised in consolidated Income
Statement:
Current service cost
Net Liability Excluding Taxes
Contributions Tax
NET LIABILITY IN BALANCE SHEET 31 DECEMBER 2020
MEDICAL PLAN
Settlement gain
Amounts recognised in Other Comprehensive Income
(excluding contributions tax):
Actual return on plan assets less interest income
Actuarial losses arising from changes in assumptions
Actuarial gains arising from liability experience
Contributions:
-Employers
-Plan participants
Benefits paid
Premiums and expenses paid
Interest (expense)/income
MEDICAL PLAN
PENSION PLAN
Benefits paid
AT 1 JANUARY 2021 EXCLUDING TAXES
Amounts recognised in consolidated Income
Statement:
Current service cost
Interest (expense)/income
Settlement & curtailment gain
Amounts recognised in Other Comprehensive Income
(excluding contributions tax):
Actual return on plan assets less interest income
Actuarial losses arising from changes in assumptions
Actuarial losses arising from liability experience
Contributions:
Premiums and expenses paid
Net Liability Excluding Taxes
Contributions Tax
NET LIABILITY IN BALANCE SHEET 31 DECEMBER 2021
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
37
(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
2021202020212020
$000$000$000$000
Service cost--1,7122,117
Net interest cost1710352187
Settlement & curtailment gain(2,657)(933)(6,323)-
Plan expense(2,640)(830)(4,559)2,304
Contributions tax--(2,245)1,137
PLAN EXPENSE PLUS TAXES(2,640)(830)(6,804)3,441
MEDICAL PLANPENSION PLAN
20212020
$000$000
5,675(4,551)
7,869676
102,585
-(933)
13,554(2,223)
6,671(1,907)
20,225(4,130)
Total recognised in other comprehensive income with contributions tax
Defined benefit actuarial gain/(loss)
Actual return on plan assets less interest income
Actuarial gain medical scheme
Gains arising from settlement
Total recognised in other comprehensive income
Contributions tax
SIGNIFICANT
INPUTS
LEVEL 2
$000
376
5,875
60,918
TOTAL ASSETS67,169
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 2021
38
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 2021 the following actuarial assumptions were applied:
The average term at which the expected future discounted cash flows are due is 10 years (2020:
12 years). The average undiscounted expected term of all liabilities is 15 years (2020: 14 years).
The 2021 assumptions do not include future salary increases due to the planned closure of the
refinery as outlined in note 1, with new employment agreements in place for Channel Terminal
Services Limited, excluding benefits of the Defined Benefit Pension Plan.
Expected employer contributions to the defined benefit pension plan and medical scheme in
2022 is $1.485 million (after the deduction of ESCT) and $0.16 million, respectively.
20212020
Australasian Equity9.9%11.1%
International Equity33.9%33.5%
Fixed Income33.9%33.1%
Cash9.5%10.8%
Property and Other12.8%11.5%
PENSION PLAN
MEDICAL PLANPENSION PLANMEDICAL PLANPENSION PLAN
Discount rate2.7%2.7%1.8%1.7%
Expected rate of future salary increases---1.5%
Pension increases-No provision-No provision
Mortality in retirement
8.0%-8.0%-
Rate of Fringe Benefit Tax49.25%-42.86%-
20202021
Health insurance premium
New Zealand Life Tables
2012-2014 mortal i ty tabl e ,
set back by 1 year, together
with an age related future
mortality improvement
2019 mortality table, set 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 2021
39
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 contributed 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 will be completed in 2022.
(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 2021
40
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 the 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 $140.5 million (2020: $140 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. 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 2021 was charged at the fee floor which accounted for 60% of the
Group’s total revenue (2020: 61% charged at the fee floor).
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 2021
41
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 and 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 impact of interest rate risk exposure on the Group’s profit
before tax and equity (assuming all other factors remain unchanged). A decrease in interest
rates by 25 basis points (bps) (2020: 25 bps) and an increase in interest rates of 75 basis points
(2020: 25 bps) is considered by the Group reasonably possible over the short-term. It is noted
that the equity impact includes the effect of the valuation of interest rate swaps which are
recognised through the other comprehensive income (in accordance with hedge accounting).
As at 31 December 2021 the Company had $115 million swaps, including $40 million of forward
start swaps (31 December 2020: Nil).
Noting that sensitivities of the electricity risk is not presented as the Company was fully hedged
in 2020 and 2021, and the sensitivity of refining margins and currency is not shown due to the
Company being at Fee Floor in the years 2020 and 2021.
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.
$000
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
42
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 2021
receivables to be immaterial. No collateral is held over trade receivables.
The maximum exposure to credit risk at balance date is the carrying amount of the financial
assets.
Overdue trade receivable balances at 31 December 2021, which were largely settled in January
2022, totalled $0.576 million (2020: $1.126 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
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.
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
43
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 2021
CARRYING
AMOUN T
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
OVER 5 YEARSTOTAL CASH
FLOWS
NOTE$000$000$000$000$000$000$000
N ON -DERIVATIVE
FIN AN CIAL L IABIL ITIES
Trade payables19
(21,321)(21,321)----(21,321)
Lease liabilities10
(2,405)(484)(392)(745)(496)(699)(2,816)
Bank borrowings9
(125,000)(902)-(50,000)(75,000)-(125,902)
Subordinated notes9(74,698)(1,913)(1,913)(3,825)(11,475)(103,688)(122,814)
TOTAL NON-DERIVATIVE
FIN AN CIAL L IABIL ITIES
(223,424)(24,620)(2,305)(54,570)(86,971)(104,387)(272,853)
GROUP 2020
CARRYING
AMOUN T
LESS THAN 6
MONTHS
BETWEEN 6
MONTHS -1
YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
OVER 5 YEARSTOTAL CASH
FLOWS
NOTE$000$000$000$000$000$000$000
N ON -DERIVATIVE
FIN AN CIAL L IABIL ITIES
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
FIN AN CIAL L IABIL ITIES
(301,316)(26,171)(1,845)(39,500)(178,292)(111,398)(357,206)
CONTRACTUAL CASH FLOWS
CONTRACTUAL CASH FLOWS
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
44
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 Consolidated Income Statement.
The fair value of derivative financial instruments approximates their carrying value.
GROUP 2021
CARRYING
A M OUNT
LESS THAN 6
M ONTHS
BETWEEN 6
M ONTHS -1
YEAR
BETWEEN 1 -
2 YEARS
BETWEEN 2 -
5 YEARS
OV ER 5
YEARS
TOTA L CA SH
FL OWS
NOTE
$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUM ENTS
Net settled derivatives
229,7511,7612,806(604)(1,511)-2,452
Gross settled derivatives
Outfl ows-------
Infl ows-------
Total gross se ttle d
derivatives
-
------
TOTA L DERIV A TIV E
FINANCIAL LIABILITIES
22
9,7511,7612,806(604)(1,511)-2,452
GROUP 2020
CARRYING
A M OUNT
LESS THAN 6
M ONTHS
BETWEEN 6
M ONTHS -1
YEAR
BETWEEN 1 -
2 YEARS
BETWEEN 2 -
5 YEARS
OV ER 5
YEARS
TOTA L CA SH
FL OWS
NOTE$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUM ENTS
Net settled derivatives227,4384,8093,232(603)--7,438
Gross settled derivatives
Outfl ows-------
Infl ows-------
Total gross se ttle d
derivatives
22
-------
TOTA L DERIV A TIV E
FINANCIAL LIABILITIES
22
7,4384,8093,232(603)--7,438
CONTRACTUAL CASH FLOWS
CONTRACTUAL CASH FLOWS
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
45
The net movement in the cash flow hedge reserve comprises:
The ineffective hedges of $4.5 million relate to the release of an electricity over-hedge position
given the Company’s move to an import terminal in 2022 requiring significantly less electricity.
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;
• Forward foreign exchange contracts: fair value determined using forward exchange
rates at the balance date, with the resulting value discounted back to present value;
and
• Contracts for differences: fair value determined using the inputs from active market
(ASX) for electricity futures, adjusted for respective location factors.
20212020
$000$000
-86
-3,566
Interest rate swaps entered into during the year
4,875-
(436)( 561)
(8,040)( 4,732)
I neffec ti ve hedges - r ec yc l ed to i nc ome s ta tement
(4,523)-
5,91512,733
(2,209)11,092
619( 3,106)
(1,590)7,986
Deferred tax
Net movement in cash flow hedge reserve
Foreign exchange hedges transferred to property, plant and equipment
Gross movement in cash flow hedge reserve
Movement in value of electricity futures held throughout the year
Interest rate swaps maturing in the year
Electricity futures and contracts for differences entered into during the year
Electricity futures and contracts for differences settled in the year
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
46
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. During the financial year the hedge
ineffectiveness from these cash flow hedges amounted to $4.5 million.
ASSETSLIABILITIESASSETSLIABILITIES
NOTE$000$000$000$000
Cash flow hedges:
5,263(387)8,766(725)
TOTAL CURRENT PORTION5,263(387)8,766(725)
Cash flow hedges:
--371(974)
4,875---
TOTAL NON-CURRENT PORTION4,875-371(974)
NET POSITION
219,7517,438
- interest rate swaps
2020
- electricity futures and contracts for differences
- electricity futures and contracts for differences
2021
SGDUSD
31 DECEMBER 2021
- - 4,875 4,876
- - 115,000 19,516
- - 2026
2022
- - 1:1
1:1
- - 4,875 (2,562)
SG$/NZ$
US$/NZ$
---$113.1/MWh
31 DECEMBER 2020
- -
-
7,438
- - - 45,097
- - - 2021-2022
- - - 1 :1
(4)90 3,566 8,174
SG$/NZ$US$/NZ$
---$100.2/MWh
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)
Ma turi ty da te
Hedge r a ti o
Change in fair value of hedging instrument ($000)
Carrying amount – net asset/(liability)
($000)
W ei ghted a ver a ge hedged r a te
FOREIGN EXCHANGE
FORWARD CONTRACTS
Ma turi ty da te
Hedge r a ti o
W ei ghted a ver a ge hedged r a te
Change in fair value of hedging instrument ($000)
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
47
23 Employee share-based payments
The Company operates the following share schemes:
• A Chief Executive Share Rights Scheme 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.
In April 2021, the 1st tranche of LTI performance rights under the CEO’s employment
agreement was offered, but voluntarily declined by the CEO recognizing the challenging
and uncertain circumstances of the Company at that time.
The number of share rights granted equals the gross value of the award divided by the
volume weighted average price of the Company’s shares for the 20 days prior to the
grant date. Subject to vesting conditions, share rights convert to the Company’s shares
based on a zero exercise price.
In the year ended 31 December 2021, the Company recognised an expense of $0.2
million (2020: $0.2 million) in relation to the Chief Executive Officer’s share rights plan.
The expense is measured at its fair value (determined based on the Company’s share
price and taking into account share liquidity discount and expected dividends) and
recognised over the vesting period. The weighted average remaining life of the scheme
is 2.3 years (31 December 2020: 3.3 years).
The CEO’s entitlements under the Share Rights Plan on vesting are capped at NZ$6
million.
• Management Share Rights Scheme
An award of performance rights in the form of shares to incentivise and retain key
members of management (including the Chief Executive) through the delivery of the
conversion to import terminal operations in 2022.
The number of share rights granted equals the gross value of the award divided by the
volume weighted average price of the Company’s shares for the 20 days prior to the grant
date. The performance rights are subject to service and performance vesting conditions and
convert into the Company’s shares based on a zero exercise price.
In 2021 the Company recognised an expense of $0.7 million (2020: Nil) in relation to the
Management share rights scheme. The expense is measured at its fair value (determined
based on the Company’s share price and taking into account share liquidity discount and
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
48
expected dividends) and recognised over the vesting period. The weighted average
remaining life of the scheme is 1.1 years.
• An Employee Share Scheme (“ESS” or “Scheme”). The Scheme qualifies as an “Exempt ESS”
under section CW26C of the Income Tax Act 2007 and is classified for accounting purposes
as equity-settled transactions. In 2021 Eligible employees were offered in total $3,000
worth of shares during the year of award and increased by an employee contribution of $1.
The shares are either purchased on market or issued, and held by CRS Nominees Limited,
during a three-year vesting period. In 2021 the Company recognised an expense of $0.2
million (2020: $0.2 million) in relation to the Scheme.
Information regarding the number of shares and share rights awarded under the schemes is as
follows:
Included in the Management Share Rights Scheme are 1,461,032 share rights granted to the
CEO, comprising:
• 1,178,782 performance rights in respect to the 2020 year (granted in April 2021 with a
2-year vesting period, in place of a cash short-term incentive of $540,000), and
• 282,253 performance rights granted in November 2021 following the announcement of
a Final Investment Decision on 22 November and subject to vesting conditions including
the safe, on time, on budget and to plan conversion to import terminal operations.
24 Contingencies
Apart from the contingency disclosed in note 15, relating to conditions attached to the site
resource consents (“Demolition and restoration”) , the Group had no contingent liabilities
as at 31 December 2021.
CEO SHARE
RIGHTS SCHEME
MANAGEMENT SHARE
RIGHTS SCHEME
EMPLOYEE
SHARE SCHEME
CEO SHARE
RIGHTS SCHEME
EMPLOYEE
SHARE SCHEME
AT 1 JANUARY1,250,000-481,327
-392,838
Granted-4,488,066897,521
1,250,000317,190
Vested--(246,723)
-(197,106)
Lapsed
--(65,647)
-
(31,595)
AT 31 DECEMBER1,250,0004,488,0661,066,4781,250,000481,327
Percentage of total ordinary shares (%)0.34%1.21%0.29%
0.40%0.15%
2021
2020
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
49
25 Auditor’s fees
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 the
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 earnings before depreciation, impairment, conversion costs,
finance costs and income tax.
Adjusted EBITDA: Reported EBITDA adjusted for other non-cash expenses and used for
bank covenant purposes.
GROUPGROUP
20212020
NOTE$000$000
Auditor's fees comprises:
Audit of financial statements 290225
Audit of financial statements - prior year38-
Reimbursement of travel and accommodation 820
Other assurance services:
Agreed upon procedures - AGM scrutineering55
Agreed upon procedures - SGM scrutineering 5-
Half-year agreed upon procedures2020
366270
AUDITOR'S FEES
THE NEW ZEALAND REFINING COMPANY LIMITED GROUP
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2021
50
GROUPGROUP
20212020
NOTE$000$000
Reported net loss after tax for the year (GAAP)(552,629)( 198,279)
Add back:
Income tax
6 (a )
(212,431)( 73,133)
Net finance costs10,99110,920
Impairment of assets567,361223,697
One-off conversion costs
15
175,516-
Depreciation and disposal costs
11(d)
84,03887,218
Reported EBITDA72,84650,423
Add back non-cash expenses:
Stock obsolescence provision
18
5923,383
Defined benefit pension fund cost
20(b)
2,6333,441
Defined benefit settlement gain and curtailment (12,077)-
Non-cash share rights cost713568
Interest income112176
Loss on disposal
11(d)
(429)( 213)
Stock write offs and other303800
Restructuring costs
4,575-
Adjusted EBITDA69,26858,578
A member firm of Ernst & Young Global Limited
Independent auditor’s report to the Shareholders of The New Zealand Refining
Company Limited
Opinion
We have audited the financial statements of The New Zealand Refining Company Limited (“the
Company”) and its subsidiaries (together “the Group”) on pages 1 to 50, which comprise the
consolidated statement of financial position of the Group as at 31 December 2021, 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 50 present fairly, in all material
respects, the consolidated financial position of the Group as at 31 December 2021 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 agreed upon procedures to the Group in relation to scrutineering at
shareholder meetings and in relation to half-year financial reporting. We have no other relationship
with, or interest in, the Group.
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 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.
A member firm of Ernst & Young Global Limited
Valuation of Property, Plant and Equipment
Why significant How our audit addressed the key audit matter
On 22 November 2021, the Board made the
Final Investment Decision to convert the
Group’s principal business from a toll oil
refinery into a dedicated fuel import
terminal, with import terminal operations to
commence in April 2022. As a result, the
Group reviewed the carrying value of
property, plant & equipment and impaired
the Refining property, plant and equipment
assets to a residual value of $34m resulting
in an impairment charge of $567m.
The Group elected to change accounting
policy to carry property, plant and
equipment assets at fair value effective 31
December 2021. The Group engaged an
external valuation specialist to estimate the
fair value of property, plant and equipment
in accordance with the requirements of NZ
IAS 16, Property, plant and equipment and
NZ IFRS 13, Fair Value Measurement. This
valuation resulted in a revaluation uplift of
$583m and property, plant and equipment
assets being carried at $865m at 31
December 2021 as set out in note 11 of the
consolidated financial statements.
The most significant inputs utilised in the
valuation of the property, plant & equipment
include forecast fuel demand, discount rate
and the tax amortisation benefit a market
participant would ascribe to the property,
plant & equipment in an asset acquisition.
Disclosures related to the valuation of
property, plant and equipment and the
method and assumptions used are included
in note 11 of the consolidated financial
statements.
Future fuel demand assumptions were
estimated by the Group’s third party fuel
forecasting expert and were considered and
adopted by the Group’s external valuation
specialist as part of their valuation
engagement. The external valuation
specialist has determined the discount rate
and the value of tax amortisation benefit
included in the valuation.
We consider the valuation of property, plant
and equipment to be a Key Audit Matter
given the significance of the assets to the
Our audit procedures included the following:
► assessing the allocation of the Group’s
property, plant & equipment between those
assets that will continue to be utilised as
part of the ongoing terminal business and
those that will be redundant when refining
activities cease. We assessed the
impairment charge associated with the
redundant assets;
► assessing whether the voluntary adoption of
a revaluation policy was appropriate;
► involving our own valuation specialists to:
► meet with the Group’s external
valuation specialist to understand their
valuation methodology and challenge
their approach;
► assess significant inputs used to
estimate the fair value of property,
plant & equipment including:
► assessing the process the Group’s
external valuation specialist used
to determine whether the forecast
fuel demand was appropriate for
inclusion in their valuation.
Additionally we, considered the
comparison the external valuation
specialist undertook of the fuel
demand forecast to a range of
market views of expected fuel
demand over the forecast period;
► assessing the appropriateness of
the discount rate used by the
Group’s external valuation
specialist; and
► assessing the tax amortisation
benefit included in the Group’s
external specialist’s valuation;
► assessing whether the valuation
multiples implied by the Group’s
external valuation specialists
valuation fell within a reasonable
range.
► assessing the competence, capability and
objectivity of the Group’s external valuation
specialist; and
A member firm of Ernst & Young Global Limited
Group, being 75% of the Group’s total assets
at 31 December 2021, and the fact the
inputs to the valuation are inherently
subjective.
► assessing the adequacy of the financial
statement disclosures in note 11.
Decommissioning and demolition provisions
Why significant How our audit addressed the key audit matter
The Group has recorded decommissioning
and demolition provisions for Refining assets
of $153m at 31 December 2021. The
judgements and estimations used in
determining the quantum of these provisions
have a material impact on the financial
statements.
The quantification of decommissioning and
demolition provisions was conducted by
specialist engineers working in conjunction
with the Group’s finance team. The
quantification required consideration of the
scope of decommissioning activities,
anticipated removal dates, the extent of
restoration activities required, the
engineering methodology for estimating
cost, potential future removal technologies,
discount rates, etc to determine the present
value of expected future cash flows.
The provisions are sensitive to changes in
the key assumptions, specifically changes in
gross cost estimates and to a lesser extent
discount rates. Accordingly, this matter was
considered to be a key audit matter.
We assessed the decommissioning and
demolition provisions prepared by the Group,
evaluating the assumptions and methodologies
used and the estimates made. Our audit
procedures, which were performed in
conjunction with our environmental specialists,
included:
► evaluating the activities undertaken by the
Group to identify decommissioning and
demolition obligations;
► evaluating the appropriateness of
management’s methodology for estimating
future costs;
► evaluating the reasonableness of
decommissioning and demolition cost
estimates;
► evaluating the appropriateness of the
discount rate used to calculate the present
value of the provision;
► assessing the competence, capability and
objectivity of the Group’s internal experts
used in the determination of the restoration
provision; and
► testing the mathematical accuracy of the
restoration provision calculations.
We also considered the adequacy and
completeness of the financial statement
disclosure of the assumptions, key estimates
and judgements applied by management. These
have been disclosed in Notes 15 of the
consolidated financial statements.
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
A member firm of Ernst & Young Global Limited
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 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 Company/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
23 February 2022
---
FY21 FINANCIAL
RESULTS
NZX Release 23 February 2022
Summary
Refining NZ maintained strong operational and financial performance through the Strategic
Review and COVID-19 impacts and delivered a long-term plan to unlock infrastructure value for
shareholders.
• An excellent personal health and safety performance, with no recordable injuries in over two years.
• The Company operated at the fee-floor for the second consecutive year, with ongoing impacts of
COVID-19 lockdowns and travel restrictions on refining margins and fuel demand, particularly jet fuel.
• Maintained cash neutral operations at the fee-floor, with refinery simplification delivering a c.30%
reduction in operating costs compared with 2019.
• EBITDA increased 44% to $72.8 million (FY20: $50.4 million) reflecting the benefits of refinery
simplification and optimisation of the balance sheet.
• Borrowings reduced to $183.6 million (FY20: $231 million) with maintenance turnaround, strategic
review and conversion costs funded from operations and including proceeds from the successful equity
raise to fund growth.
• A reported net loss after tax of $552.6 million (FY20: net loss after tax $198.3 million), including a non-
cash impairment of refining assets and the recognition of restructuring provisions associated with the
conversion.
• Import terminal assets have been revalued to “fair value” based on independent valuation resulting in
net carrying value for PPE of $869 million, resulting in net assets equivalent to $1.33 per share as at 31
December 2021.
• Concluded long-term Terminal Services Agreements with customers and secured the support of lenders
and shareholders with a final investment decision taken in November to transition to import terminal
operations from 1 April 2022.
• Additional private storage capacity contracted, with a total of c.100 million litres of private storage
capacity in addition to the c.180 million litres of shared import terminal capacity generating c.$90
million (real) of incremental revenue over 10 years.
• Transition to fuels import terminal now imminent, with conversion cost estimates and an expected
return to dividends within 1 to 2 years of commencement of import terminal services reconfirmed.
• In 2022, the immediate priority is to safely deliver the import terminal conversion, transition our
organisation from a refinery to terminal business and to support our people through the transition and
into new employment.
Financial snapshot
Commentary
Refining NZ today released its financial results, reflecting the last full year of refining operations at Marsden
Point. From 1 April 2022, the Company will convert operations to an import only fuel terminal, with work
well underway to prepare the site for this transition.
Chief Executive Officer Naomi James commented: “2021 has been a hugely significant year in the 60-year
history of Marsden Point, as we concluded our Strategic Review and took the decision to convert
operations away from oil refining. At the same time, we were able to operate cash neutral within the fee
floor, while we took the time to engage with all of our stakeholders and receive the subsequent approval of
our shareholders, lenders and customers on the future shape of our business.”
“Like many other businesses in New Zealand, we have been grappling with the impacts of COVID-19, which
for Refining NZ, has had a particularly significant impact on jet fuel demand, due to ongoing international
border restrictions. COVID-19, coupled with the on-going excess of refining capacity in the Asia Pacific
region, continued to weigh heavily on global refining margins.”
The gross refining margin earned by the Company was US$3.73 per barrel (FY20: US$1.63 per barrel) on
throughput of 29.2 million barrels (FY20: 29.9 million barrels), delivering income from refining of $107
million, prior to fee floor subsidies of $33 million (FY20: $90 million), lifting processing fee income to the
fee floor of c.$140 million.
1
EBITDA = Reported Earnings before Depreciation, Impairment, Conversion costs, Finance costs and Income tax
2
Capital expenditure = investing cashflow associated with property, plant and equipment (as presented in the
consolidated statement of cash flows).
3
Free cash flow = net cash flows from operating activities less net cash flows from investing activities
Full year 2021 2020 Change
Income
NZ$ m
234.1 245.7
(5%)
EBITDA
1
NZ$ m
72.8 50.4 44%
Capital expenditure
2
NZ$ m
33.4 33.9 (1%)
Net loss after income tax
NZ$ m
(552.6) (198.3) nm
Free cash flow
3
NZ$ m
3.2 11.0 (71%)
Total assets
NZ$ m
1,157.6 1,167.9 (0.9%)
Net debt
NZ$ m
183.6 231.3 (21%)
Net assets
NZ$ m
495.5 563.9 (12%)
Naomi James added: “The Company has now operated at the fee floor for two consecutive years, with our
customers paying fee floor subsidies amounting to around $123 million – equivalent to US$2 per barrel
across the two years.
“Year on year, pipeline volumes have remained relatively constant at 13.4 million barrels, albeit around
35% lower than 2019, before the impacts of COVID-19 travel restrictions. In 2021, petrol and diesel
demand showed strong recovery outside of lockdown periods, however jet demand remains low at around
30% of pre-COVID levels while international border restrictions remain in place.”
We maintained our excellent personal safety performance throughout 2021, achieving the
significant milestone of two-years with no recordable injuries.
Naomi James commented: “Given the uncertainty that our strategic review has brought for our people, I
want to acknowledge their dedication and commitment to staying focused on the job at hand. Over the
course of the year, we successfully transitioned to a simplified refinery to enable us to maintain cash
neutral operations at the fee-floor and completed the significant maintenance turnaround of the crude
distiller and CCR, safely and below budget, while continuing to deliver to customer plans.
Our team have continued to work hard every day to ensure the safe operation of the refinery, a task made
more challenging by the ongoing COVID-19 disruptions. To do this and achieve a record personal safety
performance is truly outstanding and a testament to the quality of the people we have working at Marsden
Point.”
A long-term plan delivered to unlock infrastructure value for shareholders
Over the course of the year, the Company successfully progressed key aspects of the Strategic Review; a
shareholder mandate was secured with 99% voting in support of the import terminal conversion, lenders
consent and conversion funding was secured, and long-term Terminal Services Agreements were executed
with all three customers on terms consistent with those presented to shareholders.
The signing of the Terminal Services Agreements enabled the Board to take a Final Investment Decision
(FID) to proceed with the conversion and a name change to Channel Infrastructure NZ Limited (NZX:CHI)
(Channel Infrastructure) to align with the commencement of import terminal operations from April 2022.
The long-term Terminal Services Agreements include a combination of fixed and throughput-based fees
intended to incentivize use of the infrastructure. All fees will be adjusted annually in line with PPI based
indexation with the first adjustment in January 2023 for the period from 1 April 2022. Higher minimum
take or pay commitments over the first six years will support the debt funding of conversion costs and
allow time for a recovery in jet fuel demand from the impacts of COVID.
Total conversion cash costs (operating and capital) continue to be expected to be between $200 million
and $220 million and will be incurred over the coming 5-6 years. The conversion project is progressing to
plan, with the refinery shutdown due to commence in March 2022. COVID risks to project costs and
delivery are being actively managed and at present remain within the budgeted contingencies.
The Company reconfirms previous guidance that it currently anticipates recommencing the regular
payment of dividends within one to two years after the commencement of import terminal services,
following an initial period of deleveraging.
Naomi James commented “We are now only weeks away from our transition to import terminal
operations. The conversion to import terminal operations is a fundamental reset of our business and is
expected to lead to significantly more stable earnings, a return to dividends for our shareholders and, by
diversifying what we do, will position the Company to actively participate in the decarbonising of the New
Zealand energy market.”
Complementary growth options already being realized, starting with contracted private storage
services
In late November, the Company successfully raised $47 million of new equity via a placement and share
purchase plan. This provided funding to establish private storage services, which is a complementary
growth opportunity beyond the shared Import Terminal System.
We are pleased to announce that the Company has now contracted total private storage capacity of c.100
million litres, in addition to the c.180 million litres of shared terminal storage. This is expected to generate
incremental revenue of c.$90 million (real) over an initial ten-year term, from an initial capital investment
of c.$45-$50 million. Private storage capacity will be progressively commissioned from commencement of
terminal operations through to mid-2023.
In January 2022, the New Zealand Government announced proposed inventory stockholding fuel security
measures, which are currently subject to public consultation. The initial opportunity assessment based on
the draft policy indicates potential for an additional 50 to 70 million litres of private storage at Marsden
Point.
A non-cash impairment of refining assets, and a revaluation of import terminal assets to fair
value based on an independent valuation
Following the final investment decision for the import terminal conversion, the Company impaired its
refinery assets by $567 million pre-tax and recognised conversion related restructuring provisions of c.
$176 million pre-tax. The conversion related provisions include c.$54 million recognised in relation to the
future demolition of the refinery which is expected to occur 10+ years post conversion.
The net impact of these charges results in the Company reporting an FY21 net loss of $552.6 million after
tax.
To provide more reliable and relevant information regarding the value of the Company’s infrastructure, the
Company has changed its accounting policy for the measurement of assets used in the import terminal
from historical cost to fair value under a revaluation model. In FY21, the import terminal assets have been
revalued by $587 million pre-tax, based on an independent valuation undertaken in accordance with NZ IAS
16 – Property, plant and equipment and NZ IFRS 13 – Fair Value Measurement. This resulted in a net
carrying value of the Group’s property, plant and equipment as at 31 December 2021 of $869 million.
Following the recognition of the refinery impairment, conversion related provisions and terminal
revaluation, the Company reported net assets of $495 million as at 31 December 2021 (FY20: $564 million],
equivalent to $1.33 per share.
After 60-years of operations as New Zealand’s only oil refinery, we look back on the past with
pride, as we also look to the future with confidence that our business will continue to contribute
to our community, and New Zealand, long into the future.
As the Company looks forward to its future as Channel Infrastructure, it is focused on supporting its
employees and their families and working closely with the community to help lessen the impacts of this
change. The Company has some of the best talent in the region working on its site, who will continue to
play a critical role in the ongoing operation of the refinery through to shut down, and the subsequent
decommissioning of assets over the next two years.
The Company is committed to supporting its workforce during the conversion period, by helping them to
find new employment or training opportunities. This will assist with transitioning to new roles once the
refinery is safely shutdown. The Company is working with other businesses to skills-match with their
vacancies and providing all staff with training and upskilling opportunities to ensure that colleagues who
are departing do so with the skills they need to succeed in their future employment.
“Refining NZ has been part of the Northland community for 60-years, and for a number of our people, this
is the only place they have worked; for many families this spans generations. So, there is a lot of sadness as
we prepare to shut down the refinery and close the chapter on refinery operations at Marsden Point. I am
proud of the way that our people have risen to the challenges of 2021, and I look forward to joining with
them in the coming months to celebrate the proud legacy of refining at Marsden Point”, said Naomi James.
The Company’s immediate focus is on the safe shutdown of the refinery and shift to terminal
operations
The key imperative in 2022 is to ensure that the terminal conversion occurs safely, on time and within
budget, while the Company continues to play its role in reliably supplying fuel to New Zealand without
disruption.
The Company has undertaken additional planning and preparations considering the likely impacts of the
omicron COVID variant in New Zealand during this period. This has included increased COVID protocols on
site, critical workforce planning, accessing Rapid Antigen Testing and the acceleration of key materials and
supplies for conversion works.
In 2022, the Company will implement its long-term financing strategy which is aimed at ensuring its debt
financing arrangements are aligned to an infrastructure business with a competitive cost of debt.
The transition to terminal operations will enable the Company’s focus to shift to further growth
opportunities, with the Company well positioned to support New Zealand’s changing future fuel
needs over the longer-term
Commenting, CEO Naomi James said: “Channel Infrastructure will be New Zealand’s leading independent
fuel infrastructure company, with aspirations for growth, which means investigating potential
opportunities in addition to our core business of operating the fuel import terminal. “
During 2021, the Company secured renewed site resource consents for a further 35 years which
demonstrates our commitment to Marsden Point. We are committed to working with local iwi over this
time, with projects underway including work to improve the coastal environment in the vicinity of Marsden
Point.
In the near-term, as well as providing the additional private storage services to our customers and
supporting the New Zealand Government with its fuel security measures, we are looking at the import and
storage of other bulk liquids at Marsden Point. The Company has signed a Memorandum of
Understanding with Fortescue Future Industries (FFI) to study the feasibility of production, storage,
distribution, and export of industrial-scale green hydrogen from Marsden Point, with initial findings due
later in 2022. We are also exploring a range of options to lower the cost of electricity supply to the
terminal, including Maranga Ra, the previously consented solar farm, and the potential to develop solar
and battery capacity in the region in partnership with others.
Results call
A conference call will be held at 12:00 noon NZT on 23 February 2022 regarding the FY21 Results
Announcement. Dial in instructions are below:
AUDIO CONFERENCE DIAL IN DETAILS
START TIME: 12:00 noon NZT, 23 February 2022
CONFERENCE SPEAKERS: Naomi James, Denise Jensen and Jarek Dobrowolski
DURATION: 60 minutes
CONFERENCE ID: 10019094
Participants need to pre-register for the conference by navigating to
https://s1.c-conf.com/diamondpass/10019094-asm22.html
Please note that registered participants will receive their dial in number upon registration. Pre-
registration fields of information to be gathered: Full Name & Company.
About Channel Infrastructure NZ
Channel Infrastructure’s vision is to be New Zealand’s leading independent fuel infrastructure
company. It will utilise the deep-water harbour and jetty infrastructure of Marsden Point to import refined
fuel, owned by its customers. Fuel will be stored at the Marsden Point site in existing tanks at what will be
the largest fuel terminal in New Zealand, with c.180 million litres of shared capacity, plus c.100 million litres
of dedicated private storage and capacity to provide additional storage. Channel Infrastructure will continue
to provide quality fuel testing services both at the Marsden Point site and around New Zealand, through its
subsidiary, Independent Petroleum Laboratory Limited (IPL).
Fuel from Marsden Point will be distributed on behalf of Channel Infrastructure’s customers primarily to the
Auckland and Northland markets, which make up around 40% of New Zealand’s fuel demand, through the
170-kilometre Refinery to Auckland Pipeline (the RAP) and the truck loading facility (the TLF) located
adjacent to the Marsden Point site.
Conversion to an import terminal will reduce the Company’s direct CO2 emissions by almost one million
tonnes per annum, delivering around a third of the Governments’ first Emissions Reduction Budget
4
. The RAP
continues to provide the lowest carbon emissions option for delivering fuel to New Zealand’s largest market
– Auckland.
Refining NZ has been the country’s only oil refinery since it was established in 1961. In response to a
significant decline in refining margins because of excess refining capacity in the Asian region, Refining
NZ initiated a strategic review of the business in April 2020, to determine the optimal future business model
and capital structure for the Company’s future. This review included extensive engagement with a range of
stakeholders including customers and Government regarding potential options for ongoing refinery
operations and the potential conversion to import terminal operations.
For more information on Channel Infrastructure, please visit: https://www.refiningnz.com/what-is-
channel-infrastructure/.
Authorised by:
Chris Bougen
General Counsel and Company Secretary
Media contact:
Laura Malcolm,
Communications Advisor
E: communications@refiningnz.com
T: +64 (0)21 0236 3297
4
Reference: Transitioning to a low-emissions and climate-resilient future: emissions reduction plan discussion document
(https://environment.govt.nz/publications/emissions-reduction-plan-discussion-document/). The Company’s emissions are expected to
reduce by c. 3.5MT over the 2022 -2025 budget period.
---
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
1
REFINING NZ
2021
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
2021 ANNUAL RESULTS
PRESENTATION
2
IMPORTANT INFORMATION
•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, 23 February 2022.
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
3
KEY MESSAGES
Another year of excellent personal safety and operational performance
Strategic Review concluded, delivering long-term plan to unlock infrastructure value
Transition to a fuels import terminal is imminent; conversion cost estimates reconfirmed
Afundamental reset of asset base to provide earnings stability and a focus on dividends
Private storage agreements show positive early traction with a focused growth strategy
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
FY21 PERFORMANCE &
FINANCIALS
TRANSITION TO CHANNEL
INFRASTRUCTURE
FY22 LOOK FORWARD
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
5
✓Safe, reliable and compliant operations throughout 2021
2021 PERFORMANCE HIGHLIGHTS
✓Turnaround 2021 executed safely, on time and within
budget
✓Maintain cash break-even operations at the Fee Floor
✓Conclude import terminal negotiations with customers
✓Progress required shareholder and lender approvals
and detailed planning
Maintained excellent safety and operational performance through the Strategic Review and ongoing COVID-19 impacts
All 2021 key priorities achieved
•No recordable personal safety incidents in over 2 years
•Included first statutory inspection of the CCR
•Cash neutral at the fee floor, including turnaround and
Strategic Review/conversion costs
•Terminal Services Agreements signed with bp, Mobil and Z
•Additional private storage capacity contracted
•99% of shareholders voted in support of conversion
•Lender consent and conversion funding secured
•Final investment decision taken
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
6
Record personal safety performance
•Excellent personal safety performance continues with no
recordable injuries in over two years
•Two Tier 1 process safety events in 1H21 were responded to
quickly, with no significant damage to plant and actions taken to
strengthen existing controls
•Independent assessment confirmed low risk of harm to the
environment from releases of fire-fighting foam in 1H21 during
fire training exercises
•Marsden Point site resource consent, covering refinery and
import terminal operations, renewed for 35-years
1. For a full definition please refer to Glossary on slide 25
SAFE OPERATIONS
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
7
THROUGHPUT
FY20FY21Change
Refinery Throughput
Mbbl
29.929.20.7▼
2.3%
RAP Throughput
Mbbl
14.713.41.3▼
8.8%
Operational availability
%
98.295.82.4▼2.4%
COVID restrictions continued to negatively impact throughput
•Simplified refinery model implemented from January 2021,
withrefinery capacity reduced by circa18%
•Reduced capacity and product exports kept inventory balanced
through COVID lockdowns -notemporary shutdowns were
required as occurred in 2020
•Petroland diesel demand has been strong outside of
lockdownperiods, while jet demand remained low
•Operational availability impacted by the four-week
maintenanceTurnaround, successfully completed 1H21
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
8
1.The Singapore Complex Margin is calculated using Platts Dubai crude and Singapore product prices, VLCC freight to Singapore, and the International Energy Agency’s Dubai complex refinery yields adjusted for fuel & loss.
US$/BARREL
FY20FY21Change
Singapore Complex Margin
(SCM)
1
(1.65)(1.20)0.45
Freight1.551.800.25
Product quality0.690.750.06
Plant availability(0.16)(0.19)(0.03)
Crude cost and yield1.202.561.36
Refining NZ uplift3.284.931.65
RNZ GRM1.633.732.10
Second full year of operations at the Fee Floor
•Refining margins improved from 2020 levels, but remained below Fee Floor
•Stronger Refining NZ uplift due to the lower price for crudes processed, relative to Dubai
•Fee Floor contributions of c.$33 million (FY20: c.$90 million)
REFINING MARGINS
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
9
FY20FY21Change
Revenue -Refinery
1
NZ$M
189.9186.03.9▼
2%
Revenue -Infrastructure
1
NZ$M
41.042.51.5▲
4%
EBITDA
NZ$M
50.472.822.4▲
44%
Capital Expenditure
2
NZ$M
33.434.0-▼
nm
Free cash flow
3
NZ$M
11.0
3.27.8▼
71%
Net Profit/(Loss) after tax
NZ$M
(198.3)(552.6)(354.3)▼
nm
Net Debt
4
NZ$M
231.3183.647.7▼
21%
2021 FINANCIAL SNAPSHOT
1.For further information, please refer to our FY21 Financial Statements, available at http://www.refiningnz.com/investor-centre.aspx
2.Payments for property, plant and equipment (cashflow basis)
3.For a full definition please refer to the Glossary on slide 25
Cash break even at the Fee Floor
•Lower Refinery revenue reflects lower gas usage,
no wage subsidy in 2021 and lower carbon unit
sales
•Improved EBITDA reflects the benefits of the
refinery simplification and settlement gains from
“cash out” of legacy balance sheet items (refer
next page)
•Net loss after tax includes impairment of refining
assets and recognition of conversion related
provisions
•Net debt c.$47 million lower than FY20, primarily
reflects the proceeds of the equity raise to fund
Private Storage
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
10
44% increase in EBITDA, at Fee Floor revenue
2021 v 2020 EBITDA COMPARISON
NZ$M
1.Other income in FY20included COVID wagessubsidy (FY21: nil) andgain on sale of carbon units
2.Excluding natural gas and other pass-through costs and Strategic Review and conversion costs
Operating
costs
²
were
c.15%lower than
FY20 and c.30%
lower than FY19 as a
result of the refinery
simplification
Non-cash
release includes
“cash out” of
legacy balance
sheet items and
gain on
electricity
hedges
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
11
Operated cash neutral, with equity raise reducing net debt
CASH FLOW
•The Company successfully operated cash neutral at the Fee Floor, including turnaround and Strategic Review/conversion costs
•Capital expenditure of $32m included $13m of maintenance turnaround costs associated with the main crude distiller and the first statutory
inspection of the petrol manufacturing unit (CCR)
•Lower net debt includes proceeds from the successful equity raise to fund private storage
NZ$M
1Includes costs of the Strategic Review and Terminal Conversion costs less lease payments
2Capital expenditure is net of proceeds from sale of intangibles
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
12
Impacts of conversion on FY21 Balance Sheet
BALANCE SHEET
Summarised Balance Sheet
[1]
FY 20FY21
Cash
NZ$M
4316
Receivables and inventory
NZ$M
175148
Current Assets
NZ$M
218164
Property, Plant and Equipment
NZ$M
882869
Intangibles &other non-currents
NZ$M
3342
Deferred Tax Assets
NZ$M
3582
Total Assets
NZ$M
1,1681,157
Trade and Other Payables
NZ$M
164156
Employee Benefits
NZ$M
1110
Provisions
NZ$M
-87
Current Liabilities
NZ$M
175253
Borrowings
NZ$M
275200
Employee Benefits & other
NZ$M
4910
Provisions
NZ$M
898
Deferred Tax Liabilities
NZ$M
97101
Total Liabilities
NZ$M
604662
Net assets
NZ$M
564495
Overview of Accounting Adjustments for Conversion
Impairment of refining assets
•Non-cash impairment of refinery assets of $567 million
•Net residual value of $34 million for scrap & other assets with
residual value
Provisions for Conversion Costs
•Recognition of $176 million of conversion provisions including
workforce transition costs, shutdown and decommissioning costs
and future demolition of refinery
•Reduction in employee benefits reflects pension and medical plan
cash-out offers, payment of simplification redundancies and
conversion adjustments
Revaluation of Import Terminal Assets
•Import terminal assets have been revalued to “fair value” based on
independent valuation resulting in net carrying value for PPE of
$869 million
•The “uplift” on revaluation of import terminal assets of $423 million
is recognised in equity revaluation reserve
Net assets as at 31 December 2021, equivalent to $1.33 per share
Recognition of tax losses
•Tax losses of $350-400 million expected to be recognised
following refinery closure (with transfer from PPE to tax losses) –
in addition to existing tax losses of $70 million
•Subject to shareholder continuity or (if breached) business
continuity test
1. The above summarised balance sheet, should be read in conjunction with the FY21 Financial Statements, available at http://www.refiningnz.com/investor-centre.aspx
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
FY21 PERFORMANCE &
FINANCIALS
TRANSITION TO CHANNEL
INFRASTRUCTURE
FY22 LOOK FORWARD
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
14
KEY TERMINAL HIGHLIGHTS
Critical infrastructure delivering more stable earnings through long
term customer agreements
✓Ownership of critical and highly efficient infrastructure
✓Long-term customer contracts
✓Projected stable earnings, cash flow and dividends
✓Supporting decarbonisation of New Zealand’s economy
✓Focused growth strategy
Overview of ITS and Flow of Imports
1.For a full definition of terms –TLF, RAP and ITS -please refer to the Glossary on slide 25
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
15
TERMINAL ARRANGEMENTS
‘Core’ revenue contracted through bi-lateral Terminal Services
Agreements
Terminal Services Agreements
•TSA fees to commence from 1 April 2022
•Initial term of 10 years plus two rights of renewal for
a further five years each, at customers discretion
•Combination of fixed and throughput-based fees
intended to incentivise utilisation of infrastructure
•Initial minimum take or pay commitments to support
debt funding of initial conversion costs and allow
time for recovery in jet fuel demand
•‘Core’ ITS fees are expected to average c.$95 million
per annum (real) across the initial 10-year term
•Additional private storage fees (refer next slide) are
expected to average c.$9 million per annum (real)
across the same period
•Annual PPI based indexation of all fees with the first
adjustment in January 2023 for the period from 1
April 2022
Annualised Contracted Fees
Note: Private Storage Agreements have an equivalent renewal right on the basis that the TSA’s are renewed
First right of
renewal
Second right
of renewal
End of
TSA
Private Storage
$90m ToP
$35m Fixed Fee
$65m ToP
$45m Fixed
Fee
$40m Fixed
Fee
$100m ToP
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
16
PRIVATE STORAGE
Additional private storage capacity has now been contracted
Contracted private storage capacity totals c.100 ML –in addition to c.180 ML of shared terminal capacity
•Private storage provides customers with freight cost optimisationbenefits as a result of increased product supply scale and
flexibility
•In November 2021, contracted private storage required an initial capital commitment of c.$30 million for incremental revenue
of c.$50 million (real) over a 10-year term
•Additional capacity commitments have now been confirmed
•Total private storage capacity now contracted:
•Estimated capital cost of c.$45-50 million –fully funded by December 2021 equity raise of $47 million
•Incrementalrevenue of c.$90 million (real) over a 10-year initial term
•Fixed rental agreements subject to annual PPI-based indexation
•Capacity will be progressively commissioned from commencement ofterminal operations through to mid-2023
•Government announcement in January proposing inventory stockholding fuel security measures
•Public consultation on the proposed Policy is currently underway
•Initial opportunity assessment based on draft policy indicates potential for an additional 50-70 MLof private storage at
Marsden Point
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
17
CONVERSION PROGRAM
Transition to Channel Infrastructure from 1 April 2022
Quarterly Conversion Project Updates
Continuous operation of the Marsden Point storage facilities and RAP
Last crude
shipment
Refinery
shutdown
FY21
results
Revaluation
of terminal
assets
1 April:
Terminal
Services
Agreement
fees
commence
Channel
Infrastructure
rebranding
(NZR: CHI)
First
Sustainability
Report
released
10 May:
AGM
Refinery
decommissioning
commences
Target
recommencement
of dividends
All private storage
commissioned
Refinery
decommissioning
completed
24 August:
HY FY22
results
Feb 22Mar 22Apr 22May 22Jun 22Jul 22Aug 22Sep 22Oct 22Nov 22Dec 222023
•Refinery shutdown to commence in March and the TSA
fees commence from 1 April.
•COVID risks to project costs and delivery are being
actively managed and at present remain within project
budgeted contingencies
•Quarterly updates to be provided through the year as
conversion project activity is undertaken
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
18
Conversion spend phased over a number of years
•Conversion cost operating and capital expenditure in
FY21 of $15 million
•$176 million of conversion and demolition costs provided
for in FY21 financial statements.Balance of conversion
and private storage costs will be capitalized as incurred
Terminal Conversion: $200-220 million
Private Storage: $45-50 million
Demolition:
$50 million
Future spend
2021
Spend
CONVERSION COSTS
Terminal Conversion: $200-220 million
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
19
75
50 25 50 55
95
15
45
0
25
50
75
100
125
150
175
0 - 1 year1 - 2 years2 - 3 years3 - 4 years2034
$m
Subordinated notesDrawn bank facilitiesUndrawn bank facilities
CONVERSION FUNDING
Bank consents and conversion funding is in place
•In 2021,the Company received conversion consent from its bank
lenders, extended certain facilities and raised new facilities to fund
conversion
•As at 31 December 2021, the Company had committed facilities
totalling$410 million, with $155m of liquidity headroom, excluding debt
maturing in the next 12 months
•An average interest rate of 4.6% in FY21; $150 million of the
Company’s drawn debt is fixed, with additional forward start swaps in
place
•Refinancing strategy to be executed in 2022 to diversify funding, extend
debt tenor and optimisedebt costs, with the improvement in the
Company’s credit profile
•Expect lower peak leverage (Net Debt/EBITDA) as a result of equity
raising.Lender consents permit recommencement of dividends after
the end of 2022 and deleveraging to below 4.5 times Net Debt/EBITDA
•The Company reconfirms its expectation that dividends should
recommence within 1 to 2 years of the commencement of terminal
services¹.Proposed dividend policy pay-out ratio of 60-70% of Free
Cash Flow
2
Debt Maturity Profile
1.The Board reserves the right to adjust the payoutratio or expected timing for the recommencement of dividends should the timing, costs or revenue associated with the conversion(including new services such as Private Storage Services) or the
import terminal business change. The dividend policy will be subject to the Board’s due consideration of the Company’s mediumterm asset investment programme; a sustainable financial structure for Channel Infrastructure, recognising the
targeted investment grade rating (within five years of the Services Effective Date); and the risks from short and medium termeconomic and market conditions and estimated financial performance.
2.Adjusted net cash generated from operations less maintenance capex.
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
FY21 PERFORMANCE &
FINANCIALS
TRANSITION TO CHANNEL
INFRASTRUCTURE
FY22 LOOK FORWARD
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
21
2022 PRIORITIES
Safe, reliable and compliant refinery and terminal operations
On time and on budget delivery of terminal conversion project
Retain and build organisational capability through the transition
Actively manage the transition to CHI with investors and debt providers
Progress opportunities for growth, including repurposing of Marsden Point
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
22
FOCUSED GROWTH STRATEGY
A disciplined approach to near-term prioritisation whilemaintaining
longer-term options
An initial assessment of Marsden Point repurposing options has been completed ahead of confirming approach
to refinery shutdown
Horizon 1
(Existing technology/market)
Horizon 2
(Investment/market
development required)
Horizon 3
(New market/technology)
FY22 priorities:
▪Additional private storage
―ITS-related and other products
▪Government security of supply
measures
―Initial opportunity estimate of 50-70
ML
▪Electricity supply
―Exploring full range of options for
lowest cost supply, including
Maranga Ra project
Proactive preparation:
▪Bio-fuels terminal (imports)
―Biofuels mandate due to
commence 2023 –further work
needed to determine
infrastructure requirements
▪Sustainable Aviation Fuels (SAF)
―Primary solution for
decarbonising long-haul flights
―Maintaining close contact with
potential partners
Maintain options:
▪Green hydrogen
―Marsden Point site attractive
given existing industrial-scale
infrastructure (e.g. jetty access,
electricity, consents, etc.)
―MOU with Fortescue Future
Industries (FFI) to study feasibility
of industrial scale operations
underway
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
23
2022 OUTLOOK
Borrowings will increase over the year
and are expected to average around
$250 million in FY22
1
Q1 Processing Fee revenue currently
expected toexceed the Fee Floor by
c.$5 to $10million
1
FY22 Operating costs (excluding
conversion costs) expected to be c.$70
million
3
4
2
1.Subject to refinery production levels, export volumes, margins and FX. Fee Floor in 2022 amounts to $147 million
2.Based onexisting facilities, BKBM and interest rate hedging in place
Import Terminal fees to commence from
1 April, with Take or Pay commitments
of c.$75 million in FY22
5
Financing costs expected to be c.$14
million
2
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
Questions?
REFINING NZ
2021 ANNUAL RESULTS
PRESENTATION
25
GLOSSARY
•LTI–Lost time injury
•TRC –Total recordable case
•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
•Free Cash Flow –Net cash generated from operations less investing activities
•RAP–Refinery to Auckland Pipeline
•TLF–Truck Loading Facility
•Services Effective Date –is the commencement date of the Import Terminal System Services under the Terminal Services Agreements (TSA’s)
•ITS–Import terminal system
REFINING NZ
2020 ANNUAL RESULTS
PRESENTATION
26
REFINING NZ
2021
F I N A N C I A L R E S U L T S B R I E F I N G
---
Template
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 17 October 2019
Results for announcement to the market
Name of issuer The New Zealand Refining Company Limited
Reporting Period 12 months to 31 December 2021
Previous Reporting Period 12 months to 31 December 2020
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$234,094 (4.7%)
Total Revenue $234,094 (4.7%)
Net profit/(loss) from
continuing operations
$(552,629) (178.7%)
Total net profit/(loss) $(552,629) (178.7%)
Interim/Final Dividend
Amount per Quoted Equity
Security
$ Nil
Imputed amount per Quoted
Equity Security
$ Nil
Record Date Not Applicable
Dividend Payment Date Not Applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$1.28 $1.75
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
Laura Malcolm
Contact phone number +64 (0)21 0236 3297
Contact email address communications@refiningnz.com
Date of release through MAP
23/02/2022
Unaudited financial statements accompany this announcement.
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.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- NZM — NZME Limited: NZME Full Year Results to 31 December 20212022-02-22
“Note 2021 $’000 2020 Restated A $’000 Revenue2.1 348,559 322,139 Finance and other income2.1 17,07 5 13,061 Total revenue and other income 2.1 365,634 335,200 Expenses from operations before finance costs, depreciation, amortisation2.2.1 (286,854) (275,301) Depreciation and a…”
- AIR — Air New Zealand: Air New Zealand 2022 Interim Results2022-02-23
“AIR NEW ZEALAND GROUP NOTES 6 MONTHS TO 31 DEC 2021 $M R E S TAT E D 6 MONTHS TO 31 DEC 2020 $M Operating Revenue Passenger revenue Cargo Contract services Other revenue 2(b) 523 482 66 54 708 373 93 60 Operating Expenditure La…”
- CDI — CDL Investments New Zealand Limited: CDI FY2021 Results Announcement2022-02-17
“Page 1 CDL Investments New Zealand Limited CDL Investments New Zealand LimitedCDL Investments New Zealand Limited CDL Investments New Zealand Limited Consolidated Statement of Comprehensive Income For the year ended For the year ended For the year ended For the year end…”