2021 Annual Report
refiningnz.com
NZX RELEASE
31 March 2022
2021 Annual Report
Attached is the 2021 Annual Report of The New Zealand Refining Company Limited (NZR), being the
last report issued by the Company under the ticker code NZR. As previously announced, the
company will change its name to Channel Infrastructure NZ Limited and its ticker code will change to
CHI from 1 April 2022.
The 2021 Annual Report, reflecting the last full year of refining at Marsden Point is currently available
online at www.refiningnz.com and, from 1 April 2022, www.channelnz.com. The attached Section 209
Notice has been mailed to Security Holders.
- ENDS-
Authorised by:
Chris Bougen
General Counsel and Company Secretary
Media contact
Laura Malcolm
communications@refiningnz.com
+6421 02363 297
---
ANNUAL
REPORT
2021
2
Refining NZ Annual Report 2021
DIRECTORS’ STATEMENT
The Directors are pleased to present the New Zealand Refining
Company Limited’s Annual Report and Financial Statements
for the year ended 31 December 2021. This document should
be read together with the Sustainability Report published by
the Company. The Annual Report of the New Zealand Refining
Company Limited is signed on behalf of the Board by:
S C Allen
Chair
28 March 2022
J B Miller
Chair, ARFC
Refining NZ Annual Report 2021
3
CONTENTS
2 Directors’ Statement
4 2021 Key Priorities & Highlights
6 Chair and CEO’s Statement
9 Governance at Refining NZ
12 Remuneration and People Report
18 Board of Directors
19 Corporate Lead Team
20 Shareholder and Bondholder Information
24 Statutory Disclosures
26 Consolidated Financial Statements
76 Independent Auditors’ Report
80 Trend Statement
83 Glossary
84 Corporate Directory
13.4
RAP THROUGHPUT
(2020 14.7)
2021 KEY PRIORITIES & HIGHLIGHTS
MBBL
USD/BBL
SAFE, RELIABLE AND
COMPLIANT OPERATIONS
THROUGHOUT
MAINTAIN CASH
BREAKEVEN OPERATIONS
AT THE FEE FLOOR
CONCLUDE IMPORT
TERMINAL NEGOTIATIONS
WITH CUSTOMERS
PROGRESS REQUIRED SHAREHOLDER
AND LENDER APPROVALS AND
DETAILED PLANNING
TURNAROUND EXECUTED
SAFELY, ON TIME AND
WITHIN BUDGET
TSA’S WITH TAKE OR PAY COMMITMENTS,
PPI INDEXATION OF ALL FEES
1
Operating costs excluding natural gas and other pass throughs.
2
Core ITS fees are expected to average $95million per annum (real) across the initial 10-year term.
3
Private storage fees are expected to average $9 million peer annum (real) across the initial 10-year term.
10 YEAR
99%
SHAREHOLDERS
VOTING IN SUPPORT
GRM 3.73
(2020 1.63)
0
RECORDABLE PERSONAL
SAFETY INCIDENTS
(2020 0)
4
Refining NZ Annual Report 2021
29.2
REFINERY THROUGHOUT
(2020 29.9)
2021 KEY PRIORITIES & HIGHLIGHTS
Refining NZ maintained excellent safety and operational performance
through the Strategic Review and on-going COVID-19 impacts.
Lower throughput reflects a
simplified refinery operations and
COVID-19 demand impacts
Turnaround included first statutory
inspection of the CCR
MBBL
C.
c.100ML
FROM
APRIL 2022
$33.4M
CAPITAL EXPENDITURE
(2020 $33.9M)
PRIVATE STORAGE CONTRACTED
(EST REVENUE: $9
3
MILLION P.A.)
TRANSITION TO AN
IMPORT TERMINAL
10
RELEASES OUTSIDE OF CONSENT
(2020 5)
No recordable personal safety
incidents in over two years
Process safety incidents responded
to quickly, with no significant
damage to plant
Cash neutral at the fee floor,
including turnaround and
Strategic Review costs
Successful $47 million equity raise
to fund private storage growth
Terminal Services Agreements
signed with bp, Mobil and Z
Additional private storage
capacity contracted
Lender and shareholder consent and
conversion funding secured
Final investment decision taken
Impacts of conversion reflected in
FY21 financial statements
180ML
SHARED IMPORT TERMINAL CAPACITY
(EST. REVENUE: $95
2
MILLION P.A.)
30%
OPERATING COSTS
1
VS 2019
$1.33
NET ASSETS PER SHARE
(2020 $1.51)
2
TIER I AND II SAFETY INCIDENTS
(2020 0)
$184M
NET DEBT
(2020 $231M)
Refining NZ Annual Report 2021
5
6
Refining NZ Annual Report 2021
CHAIR AND CEO’S
STATEMENT
Naomi James
Chief Executive Officer
Simon Allen
Chairman
Refining NZ Annual Report 2021
7
2021 has been a hugely significant year in the 60-year history of
Marsden Point. This report represents the last full year operating as
a refinery, and is the final annual report for the Company as Refining NZ.
As we make our transition to the new business, with the support of our
shareholders and customers, we look back on our history and legacy
with pride.
With change, comes opportunity, and as we take
a big step towards the future, we do so with a
plan for our new business, that will ensure we
can continue to contribute to New Zealand’s
energy supply long into the future.
Maintaining our excellent health and safety record
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. In 2021,
we celebrated the milestone of no recordable injuries in
over two years.
This is a huge achievement, and a testament to the hard work
and dedication of every member of the Refining NZ team.
Refining margins remained low
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. Customers have paid
fee floor subsidies amounting to around $123 million –
equivalent to c.US$2 per barrel – across the last two years.
Despite the challenging operating environment for the
Company, we have been focused on maintaining safe
operations, delivering to our customer plans and operating
the Refinery cash neutral within the fee floor, while we took
the time to engage with all of our stakeholders through the
Strategic Review process.
Concluding our Strategic Review
A huge focus for your Board, and the whole company,
has been planning to enable the conversion to
Channel Infrastructure.
The Board initiated its Strategic Review to identify the
best way to realise the full value of the Company’s
infrastructure, to deliver more sustainable “through the
cycle” returns to shareholders, while continuing to support
secure, competitive fuel supply to New Zealand.
Our implementation of the simplified refinery model at the
start of 2021, provided the Company, and our workforce,
time to plan for a potential change; to engage with our
community, and the Government about our future, and
negotiate with customers to find the right long-term
solution – without destroying shareholder value or being
under pressure to conclude negotiations quickly.
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 signed with all three
customers on terms consistent with those presented
to shareholders.
Higher minimum take or pay commitments over the first
six years of these agreements will support the debt funding
of conversion costs and allow time for a recovery in jet fuel
demand from the impacts of COVID-19, with PPI-based
indexation of fees protecting the company in an inflationary
environment.
The signing of Terminal Services Agreements in November
2021 enabled the Board to take a Final Investment Decision
to proceed with the conversion and a name change to
Channel Infrastructure NZ Limited (NZX: CHI) to align with
the commencement of import terminal operations from
April 2022.
8
Refining NZ Annual Report 2021
Our transition to Channel Infrastructure
Our 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 their transition and into new employment or
training opportunities.
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, position the Company to actively participate in the
decarbonisation of the New Zealand energy market.
Import terminal assets have been revalued to “fair value”
based on an independent valuation resulting in net assets
equivalent to $1.33 per share as at 31 December 2021.
The balance sheet is ready to support conversion with
$155 million of liquidity headroom at 31 December 2021,
excluding debt maturing in the next 12 months and
refinancing planned for this year to diversify funding, extend
tenor and capture the benefit of the Company’s improved
credit profile.
Estimated conversion costs remain in line with what has
previously been communicated to the market and the
Company has reconfirmed its expectation that dividends
should recommence within one to two years of the
commencement of import terminal services.
4
Supporting our people
Achieving this milestone was only made possible by our
people, who played a significant role by delivering on the
key imperatives for the year.
Given the uncertainty that our strategic review has brought
for our people, we want to acknowledge their dedication
and commitment to staying focused on the job at hand.
We acknowledge the professionalism and dedication of
our whole team throughout the strategic review, refinery
simplification, COVID-19 restrictions and preparations for
conversion – the team have continued to quickly adapt to
overcome these challenges while ensuring that we can
continue to safely and reliably supply New Zealand with its
fuel needs.
While not a significant change for most New Zealanders,
a conversion to import terminal operations is a significant
change for our operations, for everyone at our Marsden
Point site and the Northland community.
As we look to our future as Channel Infrastructure, a key
focus for us will be to support our employees and their
families and work closely with our community to help
lessen the impacts of this change.
Focused on future growth opportunities
At the same time, your Board continues to focus on future
growth opportunities for Channel Infrastructure, with the
first of these already being realised through the contracting
of additional private storage services.
Towards the end of 2021 the Company successfully raised
$47 million of new equity to fund private storage services
and in February we announced we have now contracted
a total of c.100 million litres of private storage capacity in
addition to the c.180 million litres of shared import terminal
capacity. We expect this private storage to generate c.$90
million (real) of incremental revenue over 10 years. The
inventory stockholding fuel security measures announced
by the New Zealand Government provide potential
opportunity for additional private storage at Marsden Point.
The terminal conversion will deliver a step change in
our direct carbon emissions, with further opportunities
to contribute to the decarbonisation of New Zealand’s
economy. The Company will publish its first Sustainability
Report in April, reporting to Task Force on Climate-related
Financial Disclosures (TCFD) standards a year earlier than
these requirements are introduced in New Zealand.
We are passionate about keeping Aotearoa moving today
and, as our energy needs as a nation change, we will
continue to investigate how Channel Infrastructure can
play a role in meeting the needs of tomorrow’s fuel and
energy markets, by utilising the capabilities of our site.
Our memorandum of understanding with Fortescue Future
Industries (FFI) to study hydrogen production at Marsden
Point and Maranga Ra solar project are examples of
these opportunities.
We take this opportunity to thank all of our people for
their dedication and commitment to staying focused on
the safe operation of the Refinery through a period of
significant change.
On behalf of the Board and management, we would also
like to thank our contractors, suppliers, tangata whenua,
the local community, customers, Government, lenders,
shareholders and other stakeholders for their support
through our Strategic Review process over the last two
years and in 2022 as we transition to a new business
model, building a sustainable long-term future for our
operations at Marsden Point.
4
The Board reserves the right to adjust the payout ratio 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 medium term 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 term economic and market conditions and estimated financial performance.
Refining NZ Annual Report 2021
9
GOVERNANCE
AT REFINING NZ
The New Zealand Refining Company
Limited (“the Company”, “Refining
NZ”) operates in New Zealand and
is listed on the NZX’s Main Board.
It is subject to regulatory control
and monitoring by both the NZX
and the Financial Markets
Authority (“FMA”). Our corporate
governance framework sets out
our Board’s practices and processes
to provide accountability to
shareholders for Refining NZ’s
actions and performance.
This section of the Annual Report provides summary
information on our current corporate governance
framework. The Company’s full Governance Statement,
including detailed reporting against the NZX Corporate
Governance Code, together with our governance
policies can be viewed on the ”Investor Centre” section
of our website: www.refiningnz.com.
The Governance Statement is annually reviewed and
approved by the Board and is current as at 22 February
2022. The Board is currently undertaking a Corporate
Governance Review in light of the impending change
in the Company’s business operations from oil refining
to import terminal services, and intends to publish a
revised governance statement later in 2022 following
the conclusion of the Corporate Governance Review.
The Board considers that it has followed the
recommendations in the NZX Code during the financial
year ending 31 December 2021, except that it notes that
the offer of new shares in the Company announced on
29 November 2021 was structured as a placement and
share purchase plan, rather than as an offer to existing
shareholders on a pro rata basis before the shares were
offered to other investors.
The Board supports the intent of the NZX Code
recommendation and the principle that existing
shareholders should have the option to participate pro
rata in a share offering to avoid dilution. However, in
the circumstances in which the offer by the Company
was undertaken, the Board considers that the structure
chosen for the share offer was in the best interests
of the Company and all shareholders as a whole.
The Company had recently made a final investment
decision to fundamentally change its business,
markets were volatile as a consequence of COVID-19
uncertainties, and customer shareholder support for
the share offer was not certain. These factors gave rise
to heightened uncertainty of the outcome of the share
offer. Structuring the offer as a placement enabled the
Company to move quickly to raise new capital and in
a relatively cost-effective way with a lower discount to
closing market price than might have been expected
in the circumstances, and with greater certainty
of a successful raise. The lower discount achieved
minimised any dilutionary impact of the placement, and
the placement allocation process sought to prioritise
existing shareholders, including retail brokers who bid
on behalf of existing clients who (given the size of their
holdings) would not have been able to take up their
pro-rata entitlement through the share purchase plan.
The Board was also very keen to ensure existing smaller
retail investors had an opportunity to participate in the
offer through the share purchase plan, and importantly
that the share purchase plan had an ability to accept
oversubscriptions. The share purchase plan received
strong shareholder support, with Refining NZ accepting
all oversubscriptions, further minimising the dilutionary
impact of the offer for existing shareholders in line with
the principles of the NZX Code.
10
Refining NZ Annual Report 2021
Responsibilities of the Board and its Committees
The Board is responsible for setting the Company’s
strategic direction and for providing oversight of the
management of the Company, with the aim of increasing
shareholder value and ensuring the obligations of the
Company are properly met. The Board is accountable to
shareholders for the performance of the Company, with
day-to-day management of the Company delegated to the
Chief Executive Officer.
The Board uses committees to address certain issues
that require detailed consideration by members of the
Board who have specialist knowledge and experience.
The Board retains ultimate responsibility for the functions
of its committees and determines their responsibilities.
There are currently four Board Committees
5
:
• the Audit, Risk and Finance Committee comprising four
members, of which three are Independent Directors;
• the People, Nominations and Remuneration Committee
comprising five members, of which four are Independent
Directors;
• the Independent Directors Committee comprising all
four Independent Directors; and
• the Health, Safety, Environment and Operations
Committee comprising all Directors.
The respective roles of the Board, its Committees and
Management (the Corporate Leadership Team) are set out
in the Board’s and relevant Committees’ Charters.
The Directors, the Board and all Committees annually
evaluate their own performance, processes and procedures
to ensure that they are appropriate to assist the Board in
effectively fulfilling its role and meeting its duties.
Independence of Directors
The Board currently consists of seven Directors:
• Simon Allen (the Chair), Vanessa Stoddart, Paul Zealand
and James Miller are Independent Directors.
• John Bourke, Lindis Jones and Lucy Nation are not
Independent.
The Chairman is an Independent Director, responsible for
representing the Board to shareholders.
Independence is assessed according to the NZX Main
Board Listing Rules criteria. Major shareholders
(bp, ExxonMobil and Z Energy) do not have a constitutional
right to appoint Directors, although it is accepted that they
are entitled to representation.
The three largest shareholders of the Company are also
major customers, either directly or through wholly owned
subsidiaries, and have representation on the Board which
could lead to a conflict of interest. Clause 8.16.1 of the
Constitution allows for the Independent Directors to act
as the Board in respect of matters that pose a conflict
of interest if raised at the full Board. The role of the
Independent Directors is:
• to act as the Board in relation to those matters to be
decided by the Board in which all of the other Directors
have an interest which disqualifies them from forming
part of the quorum and voting; and
• to act as a Committee of the Board to deal with matters
delegated or referred to it by the Board or Management,
including ensuring that issues concerning the major
customers, and in particular any conflicts of interest, are
dealt with in a transparent manner for the benefit of the
Company as a whole.
5
The Board may also establish ad hoc committees from time to time, and in 2021 it established a Due Diligence Committee as an ad hoc committee of the board for the purposes of the equity raise
undertaken in Q4 of 2021.
Refining NZ Annual Report 2021
11
BOARD
MEETING*
AUDIT, RISK
AND FINANCE
COMMITTEE
PEOPLE,
REMUNERATION
AND
NOMINATION
COMMITTEE
INDEPENDENT
DIRECTORS
COMMITTEE
HEALTH, SAFETY,
ENVIRONMENT
AND
OPERATIONS
COMMITTEE
DUE DILIGENCE
COMMITTEESITE WALKS
6
S C AllenIndependent Chair22/227/74/418/186/64/44
D C Boffa
7
Non-independent1/1------
J L BourkeNon-independent8/8---2/2-1
R Cavallo
8
Non-independent14/14---4/4-2
NL JonesNon-independent20/227/7--6/6-4
J MillerIndependent22/227/74/418/186/64/43
L NationNon-Independent21/22-4/4-6/6-3
V C M StoddartIndependent22/22-4/418/186/6-4
P A ZealandIndependent22/227/74/418/186/64/44
* includes June 2021 Annual Shareholders’ Meeting and August 2021 Special Meeting
6
Combination of physical walks and virtual engagements.
7
Ms Boffa resigned as a Director of Refining NZ effective from1 February 2021. The Board appointed Ms Nation to fill the casual vacancy, and she was elected by shareholders at the Company’s
Annual Meeting on 24 June 2021.
8
Mr. Cavallo resigned as a Director of Refining NZ effective from 27 August 2021. The Board appointed John Bourke as a director with effect on 10 September 2021, to fill the casual vacancy.
Meeting attendance
2021 was a very busy year for the Company and the Board, due to ongoing Strategic Review workstreams (including
major commercial negotiations with customers, detailed planning for a conversion to import terminal operations, a Special
Meeting of shareholders to approve the conversion, and an equity raise). This Strategic Review work, combined with
managing the challenges of COVID-19 lockdowns, required additional board and sub-committee meetings to be held in 2021.
In addition to the normal meeting schedule, 30 additional Board and committee meetings were convened, averaging more
than one Board or Committee meeting every week. Director attendances at Board and Committee meetings during 2021
were as follows:
12
Refining NZ Annual Report 2021
REMUNERATION AND
PEOPLE REPORT
Refining NZ Annual Report 2021
13
Director and Corporate Lead Team Remuneration
The Company has adopted a Director and Executive
Remuneration Policy for remuneration of the Board
and Corporate Lead Team. Refining NZ’s remuneration
framework and policies are overseen by the People,
Nominations and Remuneration Committee in accordance
with the People, Nominations and Remuneration
Committee Charter.
Remuneration
Refining NZ aims to attract and retain appropriately qualified
and experienced individuals. Refining NZ applies a fair and
equitable approach to remuneration and reward practices,
considering internal and external relativities balanced
against the commercial environment. Refining NZ is
committed to pay-equity, and it will continue to review and
monitor this as it transitions to Channel Infrastructure.
The Board will take independent advice and establish
market rates and medians against New Zealand businesses
of comparable size and complexity, having regard to
industry specific and generic roles. Individual performance,
company performance and market relativity are key
considerations in setting remuneration levels.
Directors’ Remuneration
The Board determines the level of remuneration paid to
Directors within the amounts approved by shareholders
(that is, from the approved collective pool). The current
approved fee pool limit is $900,000 and was approved
by shareholders at the Annual Shareholders’ Meeting in
April 2018. Directors’ remuneration is set at a level to
remain comparable with other companies in New Zealand,
considering the expertise, skills, and responsibilities of
Directors. The Directors of subsidiary companies (refer to
page 25) are not remunerated in those positions.
In February 2020 the Board reviewed Directors’ fees, based
on a market benchmarking report prepared by Ernst and
Young Limited
9
(EY). Based on the market positioning, EY
recommended that Board Members receive an increase
in their fees for director and committee roles to bring
remuneration into line with companies of a similar size,
scope and complexity. The Board considered EY’s analysis
and determined that even with the significant workload
of the Board
10
, an increase in Directors’ fees was not
appropriate in either the 2020 or 2021 financial years given
the Company’s financial performance. Directors’ fees were
last increased in 2018.
The Board will review the level of Directors’ fees in 2022,
in light of the impending conversion from refining to import
terminal operations and the change in the nature of the
business of the Company.
The remuneration and other benefits, excluding
reimbursements, received by the individual Directors of the
Company during the 2021 financial year were as follows:
APPOINTEDBOARD FEES
AUDIT, RISK
AND FINANCE
COMMITTEE
FEES
PEOPLE,
REMUNERATION
AND NOMINATION
COMMITTEE FEES
INDEPENDENT
DIRECTORS
COMMITTEE
FEES
HEALTH, SAFETY,
ENVIRONMENT
AND
OPERATIONS
COMMITTEE FEESTOTAL FEES
S C AllenIndependent Chair4 Dec 2014180,000----180,000
D Boffa
11
Non-independent23 Aug 20176,250-417--6,667
J L BourkeNon-independent10 Sep 202131,250----31,250
R Cavallo
12
Non-independent12 Apr 201743,750----43,750
L JonesNon-independent19 Mar 201875,00012,500---87,500
J MillerIndependent1 Nov 201875,00030,0005,00020,000-130,000
L NationNon-independent1 Feb 202168,750-4,583--73,333
V C M StoddartIndependent20 May 201375,000-20,00020,000-115,000
P A ZealandIndependent29 Aug 201675,00012,5005,00020,00010,000122,500
9
Prior to their appointment as auditors to the company.
10
2020 and 2021 were very busy years for the Company and the Board, due to ongoing Strategic Review workstreams. In the current financial year, this included major commercial negotiations
with customers, detailed planning for a conversion to import terminal operations, a Special Meeting of shareholders to approve the conversion, and an equity raise. This Strategic Review work,
combined with managing the challenges of COVID-19 lockdowns, required additional board and sub-committee meetings to be held in 2021. In addition to the normal meeting schedule, 30
additional Board and sub-committee meetings were convened, averaging more than one Board or committee meeting every week.
11
Ms. Boffa resigned as a Director of Refining NZ effective from 1 February 2021, replaced by Ms. Nation effective from 1 February 2021.
12
Mr. Cavallo resigned as a Director of Refining NZ effective from 27 August 2021, replaced by Mr. Bourke effective from 10 September 2021.
The Directors do not participate in any profit-based incentive system. No Director of the Company has received, or become
entitled to receive, a benefit (other than a benefit included in the total emoluments received or due and receivable by
Directors shown in this report), including shares, remuneration paid by subsidiary company or other payments from services
provided (including Directors and Officers insurance cover). The Chairman does not receive additional fees for being on a
Committee. No loans have been made to Directors.
14
Refining NZ Annual Report 2021
Chief Executive Officer Remuneration
Naomi James commenced her employment as Chief
Executive Officer on 6 April 2020. Naomi James’s total
remuneration package includes:
• a base salary of $995,000 per annum, (2020: $995,000).
• a short-term performance incentive (STI) payment
based on achievement of agreed key performance
indicators (KPI’s). The STI is an incentive with an “on
target” incentive of 45% of base salary per plan year,
with the potential for this to increase to 65% depending
on performance. Short term incentive payments are
deemed “at risk” payments designed to motivate and
reward performance in the financial year. The STI is paid
in the year following the performance period;
• a long-term incentive plan (LTI) in the form of:
-a grant of initial performance rights (in the form of
shares in the Company) equivalent to one year’s base
salary ($995,000) that will vest on the 6 April 2024
subject to the achievement of a minimum “on target”
performance against annual controllable KPI’s during
the vesting period;
-performance rights equivalent to 25% of base salary
on the first anniversary of the commencement date,
25% on the 2nd anniversary and 50% on each successive
anniversary, with each tranche having a three-year vesting
period with a further year to vest. The Chief Executive
Officer’s LTI entitlement (including the initial performance
rights) is capped at $6 million.
The total remuneration paid to the Chief Executive Officer
during the year ended 31 December 2021 comprised the
following components:
• fixed remuneration - base salary of $995,000;
• share rights (equivalent to $540,000) granted in respect
of performance in the 2020 year and subject to a
two-year retention
13
;
• share rights (equivalent to $250,000) granted following
the announcement of a Final Investment Decision on
22 November 2021 and subject to vesting conditions
including the safe, on time, on budget and to plan
conversion to import terminal operations;
• $1,000 Employee Share Scheme award; and
• other benefits of $46,000.
The Chief Executive Officer’s KPIs, with respect to the
short-term incentive, agreed for the 2021 financial year
relate to:
KPI CATEGORY WEIGHTING (%)
Delivery against the Company scorecard (HSE, deliver to customer plan, build organisational capability and cash neutral at the
Fee Floor)
50
Deliver value to shareholders through execution of Strategic Review outcomes Terminal Services Agreement (TSA) agreed,
lender and shareholder approval, final investment decision and develop future growth strategy)
50
A short-term incentive in respect of the 2021 year will be paid in early 2022, amounting to $646,000 recognising Ms James
performance against the KPIs outlined above.
The table below provides a summary of all share performance rights issued to the Chief Executive Officer.
PERFORMANCE
YEAR
GRANT
DATE
VESTING
DATE
NUMBER OF
SHARERIGHTS
COSTS RECOGNISED
(FINANCIAL YEAR)
TOTAL
2020
$000
2021
$000
$000
Chief Executive Performance Rights
2020 Initial share rights6 April 20206 April 20241,250,000* 165 222
387
2020 Share rights
14
1 April 20211 April 20231,178,782 41 176
217
2021 Final Investment Decision share rights22 Nov 202128 Feb 2023282,253* - 19
19
Total Performance Rights2,711,035206417
623
Chief Executive Employee Share Scheme
202116 Dec 202116 Dec 20241,1571
1
Total 2,712,192 206 418
624
*These share rights are included for the purpose of applying the $6 million cap on the CEO’s LTI entitlements referred to above.
13
In April 2021, the 1st tranche of LTI share rights under the employment agreement were offered to the CEO. Ms James voluntarily declined to accept the offer, recognizing the challenging and
uncertain circumstances of the Company at that time.
14
Ms James short-term incentive in respect of the 2020 year was not paid in cash. Instead, share rights equivalent to $540,000 were granted in April 2021, with a two-year retention.
Refining NZ Annual Report 2021
15
Five-yearsummary – Chief Executive Remuneration
For the purposes of historical comparison, set out below is a five-year summary of the costs recognised in each of the past
five years, in relation to the Chief Executive Officer’s remuneration package.
COSTS RECOGNISED IN YEAR $000
FINANCIAL
YEARCEO
BASE
SALARY
$000
OTHER
$000
TOTAL
FIXED
REMUN-
ERATION
$000
SHARE
RIGHTS
$000
SHORT TERM
INCENTIVE
KPI BASED
$000
SHORT TERM
CASH INCEN-
TIVE DISCRE-
TIONARY
$000
EMPLOYEE
SHARE
SCHEME
TOTAL
VARIABLE
REMUNERA-
TION
$000
TOTAL
REMUNERA-
TION
$000
FY2021
Naomi James995461,041417646
15
-11,064
2,105
FY2020
Naomi James77347820206---206
1,026
FY2020
Paul Zealand187-187-----
187
FY2020
Mike Fuge1304134-----
134
FY2019
Mike Fuge90032932-----
932
FY2018
Mike Fuge31661377-165--165
542
FY2018
Sjoerd Post 70537742-300300-600
1,342
FY2017
Sjoerd Post982451,027-405150-555
1,582
15
The short-term incentive in respect of the 2021 performance year, amounting to $646,000, will be paid in the first quarter of 2022.
2021 workforce changes
The impacts of the simplification changes arising from the
Strategic Review undertaken in 2020 continued into the
2021 year with around 70 staff leaving the business across
the first two quarters of the year. Redundancies amounting
to $4.4 million were paid in 2021 (2020: $1.2 million).
Redundancy payments are included in the employee
remuneration table set out on page 16.
The business continued to support staff through the
transition with exit and transition support. Within six
months of exit, 98% of staff had found employment.
Corporate Leadership Team and other employees
remuneration profile
The Corporate Lead Team and employees with Individual
Employment Agreements (IEAs) are remunerated with a
mix of base salary and benefits, and short-term performance
incentives. The determination of fixed remuneration is
based on responsibilities, individual performance and
experience, and market data. At risk, variable remuneration,
comprises short term incentives based on the KPIs in
the Company Scorecard and individual performance. The
Company Scorecard included HSE, customer, capability and
cash performance metrics, with an above target outcome
recorded against these KPIs. STI payments in respect of
2021 performance will be made in 2022.
Share Rights for a successful conversion to an
import terminal offered to key business leaders
To incentivise and retain key business leaders through the
conversion project, and delivery of the conversion to import
terminal operations in 2022, the Board approved an award
of share rights (in the form of shares in the Company),
under which selected individuals in key management roles
critical to the safe delivery of the conversion project were
offered share rights.
The share rights are subject to vesting conditions, including
in relation to the safe, on time, on budget and to-plan
conversion to import terminal operations in 2022, and the
employee remaining employed when satisfaction of that
condition is assessed in February 2023 (subject to vesting
entitlement for no-fault terminations before February
2023). If vesting conditions and other terms of the offer are
satisfied, the share rights will vest on 28 February 2023.
In awarding the share rights, the Board considered it
important to continue to incentivise and reward key
business leaders for committing to, and delivering, a safe
and successful conversion to an import terminal, which the
Board considers aligns with the objective of long-term value
creation for shareholders.
16
Refining NZ Annual Report 2021
Employee Share Purchase Scheme
The Company established the Employee Share Purchase
Scheme which is tax exempt in accordance with section
CW26C of the Income Tax Act 2007 (as amended). The
purpose of the Employee Share Purchase Scheme was to
recognise the important contribution of all employees to the
Company’s future and to assist the Company in retaining
and motivating employees.
A trust has been created under the Employee Share
Purchase Scheme for the purpose of holding Company
shares on behalf of each participating employee over a
three-year period. For further details on the scheme refer to
the consolidated financial statements included in the latest
Annual Report.
The Company estimates that the annual cost of operating
the scheme is approximately $31,000. The value of the
awards under the Employee Share Purchase Scheme
amounted to $2,000 for each eligible employee in 2021,
including a $1,000 award in respect of 2020 performance
and a $1,000 award at the time of the final investment
decision on the conversion to import terminal to recognise
and reward all employees for their contribution through
the transition and to incentivise employee retention.
The funds, totalling $544,000 for the two awards, were
provided to CRS Nominees Limited (Trustee), as trustee
of the Employee Share Purchase Scheme, to pay the
subscription price in cash for the issue of the shares as fully
paid ordinary shares. The shares are held by the Trustee
for the participating employees until they are withdrawn by
the participants following a restricted period of three years
from the acquisition date, unless released earlier in certain
limited circumstances (e.g. death, sickness, redundancy
etc). The participating employees may vote the shares and
receive dividends, if paid.
The total financial assistance given in 2021 in the form of
advances to the Trustee to acquire the Shares and fund
the annual costs of operating the Scheme amounted to
$575,000. (2020: $300,000).
Employee Remuneration
The following table shows the number of employees and
former employees (including members of the Corporate
Lead Team), not being Directors, who, in their capacity
as employees, received remuneration and other benefits
during 2021 of at least $100,000.
The remuneration figures include all monetary payments
made during the year, including redundancy payments and
contributions made by the Company as part of the share
scheme. No employees appointed as a Director of IPL, a
subsidiary company of Refining NZ, receive or retain any
remuneration or other benefits for holding this office.
NUMBER OF EMPLOYEES
AMOUNT OF REMUNERATION
$00020212020
100-1091027
110-1191211
120-1292027
130-1391020
140-1491235
150-1592639
160-1692237
170-1792434
180-1891736
190-1992414
200-209188
210-219173
220-229124
230-23933
240-24951
250-25941
260-2694-
270-27931
290-2991-
300-3092-
310-31911
330-339-1
350-35921
360-369-1
370-3791-
380-389-1
390-399-1
430-43911
450-4591-
470-4791-
500-509-1
780-789-1
810-819-1
1,020-1,0291-
Refining NZ Annual Report 2021
17
The analysis (see table) is compiled on a cash basis; the variable performance rewards (linked to individual and business
performance for a financial reporting period) in respect of the 2021 financial year, will be paid in March 2022 and reported as
part of the remuneration banding for the 2022 year.
The 2021 remuneration does not include amounts paid past 31 December 2020 that relate to performance during the 2020
financial year as there was no monetary short-term incentive payment made to staff in relation to 2020 performance, other
than a nominal $500 to each employee.
The ratio between employee remuneration (median) and Chief Executive’s total annualised, on-target remuneration for the
2021 financial year (on a cash basis) was 1:7 (2020: 1:7).
18
Refining NZ Annual Report 2021
LUCY NATION
DIRECTOR
Equity interest: Nil
JAMES MILLER
INDEPENDENT DIRECTOR
Equity interest: 117,574 shares (2020: 23,000)
LINDIS JONES
DIRECTOR
Equity interest: Nil
JOHN BOURKE
DIRECTOR
Equity interest: Nil
PAUL ZEALAND
INDEPENDENT DIRECTOR
Equity interest: 87,000 shares (2020: Nil)
SIMON ALLEN
INDEPENDENT CHAIRMAN
Equity interest: 53,072 shares (2020: 35,000)
VANESSA STODDART
INDEPENDENT DIRECTOR
Equity interest: Nil
BOARD OF DIRECTORS
Refining NZ Annual Report 2021
19
CHRIS BOUGEN
GENERAL COUNSEL & COMPANY
SECRETARY
CAZ JACKSON
CHIEF PEOPLE OFFICER
DENISE JENSEN
CHIEF FINANCIAL OFFICER
JACK STEWART
PROJECT DIRECTOR CONVERSION
KEVIN STILL
GM CUSTOMER & COMMERCIAL
KARL PHILPOTT
PRODUCTION MANAGER
BRETT PICKFORD
ENGINEERING MANAGER
NAOMI JAMES
CHIEF EXECUTIVE OFFICER
CORPORATE LEAD TEAM
20
Refining NZ Annual Report 2021
SHAREHOLDER
AND BONDHOLDER
INFORMATION
Refining NZ Annual Report 2021
21
Twenty largest shareholders
As at 31 January 2022
TOTAL SHARES
HELD% OF TOTAL
SHAREHOLDERS
1Mobil Oil New Zealand Limited53,760,000 14.44%
2Z Energy Limited47,999,980 12.90%
3BP New Zealand Holdings Limited31,572,640 8.48%
4Accident Compensation Corporation *28,888,201 7.76%
5Citibank Nominees (New Zealand) Limited *15,727,231 4.23%
6HSBC Nominees (New Zealand) Limited *13,471,365 3.62%
7Leveraged Equities Finance Limited12,754,916 3.43%
8New Zealand Depository Nominee Limited9,023,421 2.42%
9BNP Paribas Nominees (NZ) Limited (NZCSD<COGN40>) *8,704,279 2.34%
10UBS New Zealand Limited7,894,017 2.12%
11BNP Paribas Nominees (NZ) Limited (NZCSD<BPSS40>) *6,835,213 1.84%
12JP Morgan Chase Bank NZ NZ Branch - Segregated Clients Acct *4,956,899 1.33%
13FNZ Custodians Limited4,665,918 1.25%
14Public Trust Class 10 Nominees Limited *4,559,750 1.23%
15HSBC Nominees (New Zealand) Limited A/C State Street *4,550,000 1.22%
16Custodial Services Limited (<A/C 4>)4,342,045 1.17%
17ASB Nominees Limited3,495,144 0.94%
18Custodial Services Limited (<A/C 3>)3,000,000 0.81%
19Century Securities Limited2,800,000 0.75%
20Public Trust *2,560,314 0.69%
271,561,33372.97%
*The Shareholder spread table on page 24 groups shares held by NZCSD (denoted by * in the table above) as a single legal holding.
22
Refining NZ Annual Report 2021
Twenty largest bondholders
As at 31 January 2022
TOTAL
BONDS HELD% OF TOTAL
BONDHOLDERS
1Tea Custodians Limited Client Property Trust Account (NZCSD<TEAC40>)*FNZ Custodians Limited21,534,000 28.71%
2Forsyth Barr Custodians Limited (<1-CUSTODY>)14,847,000 19.80%
3JBWere (NZ) Nominees Limited8,605,000 11.47%
4JPMorgan Chase Bank NA NZ Branch - Segregated Clients Acct (NZCSD<CHAM24>)*1,913,0002.55%
5Citibank Nominees (New Zealand) Limited (NZCSD<CNOM90>)*1,800,000 2.40%
6Hobson Wealth Custodians Limited1,750,000 2.33%
7Nicholas Peter Gordon & Richard Anthony Johnston1,528,000 2.04%
8Forsyth Barr Custodians Limited (<ACCOUNT 1E>)1,000,000 1.33%
9Jill Gordon 930,0001.24%
10Nicholas Peter Gordon & Andrea Lee Bull892,000 1.19%
11RGTKMT Investments Limited888,0001.18%
12FNZ Custodians Limited (<DTA Non Resident A/C>)847,0001.13%
13Forsyth Barr Custodians Limited (<A/C 1 NRLAIL>)500,000 0.67%
14Sierra Investments Limited500,000 0.67%
15Craig John Thompson500,0000.67%
16Woolf Fisher Trust Incorporated 500,000 0.67%
17Falstaff Investments Limited484,000 0.65%
18Investment Custodial Services Limited 400,000 0.53%
19Custodial Services Limited297,000 0.40%
20Custodial Services Limited 290,0000.39%
60,005,00080.02%
*The bondholder spread table on page 24 groups bonds held by NZCSD (denoted by * in the table above) as a single legal holding.
Substantial product holders
As at 31 December 2021
NO. OF ORDINARY
SHARES
PRODUCT HOLDERS
Mobil Oil NZ Limited53,760,000
Z Energy Limited47,999,980
BP New Zealand Holdings Limited31,572,640
Accident Compensation Corporation30,246,938
Refining NZ Annual Report 2021
23
Shareholder and bondholder spread
As at 31 January 2021
SHAREHOLDERSBONDHOLDERS
NO. OF
SHARES/BONDS
NO. OF
SHAREHOLDERS% HOLDER
NO. OF
SHARES
% OF
SHARES
NO. OF
BONDHOLDERS% HOLDER
NO. OF
BONDS
% OF
BONDS
1 - 4992555.7063,0400.02----
500 - 9992816.28194,9770.05----
1,000 - 1,99956112.54755,6200.20----
2,000 - 4,9991,07624.073,402,4800.92----
5,000 - 9,99969315.504,684,7211.26387.81215,0000.29
10,000 - 49,9991,25428.0425,803,8426.9333168.106,792,0009.06
50,000 - 99,9991743.8911,510,1523.096212.803,359,0004.48
100,000 - 499,9991322.9524,766,1796.65398.016,100,0008.12
500,000 - 999,999140.319,475,9632.5581.645,557,0007.41
1,000,000 - upwards320.72291,566,50378.3381.6452,977,00070.64
Total4,472100372,223,47710048610075,000,000100
Geographical spread
As at 31 January 2021
SHAREHOLDERSBONDHOLDERS
LOCATION
NO. OF
SHAREHOLDERS% HOLDER
NO. OF
SHARES
% OF
SHARES
NO. OF
BONDHOLDERS% HOLDER
NO. OF
BONDS
% OF
BONDS
Auckland (Greater)1,48533.21138,817,05837.2914329.4310,219,00013.63
Wellington (Greater)54912.28154,056,44541.3912024.6945,662,00060.88
Whangarei/
Northland58112.9913,957,8453.75112.26575,0000.77
Other North Island86119.2523,637,2246.3511022.633,397,0004.53
South Island87019.4532,506,2918.739719.9613,328,00017.77
Australia731.638,794,2342.3610.211,750,0002.33
Other Overseas531.19454,3800.1340.8269,0000.09
Total4,472100372,223,47710048610075,000,000100
24
Refining NZ Annual Report 2021
Directors’ and Officers’ Insurance
The Company has granted indemnities to its Directors,
Corporate Lead Team members, and persons whom it
has appointed as Directors of its subsidiaries in relation
to potential liabilities and costs they may incur in those
roles. The indemnities are subject to certain limitations
that are prescribed by law and they do not cover
settlements or admissions prejudicing a successful
defence of a claim without the Company’s consent as
well as the indemnified person’s advisor costs after the
defence of a claim has been assumed by the Company,
unless they are reasonably necessary.
The Company has arranged Directors’ and Officers’
Liability Insurance for its Directors, Corporate Lead
Team and persons whom it has appointed as Directors
of its subsidiaries, which provide them with insurance
in respect of certain liabilities and costs they may incur
in those roles. This insurance is limited to cover that is
not prohibited by law.
Independent professional advice
With the approval of the Chairman, Directors are
entitled to seek independent professional advice
on any aspect of their Director’s duties, at the
Company’s expense.
Use of Company information
The Board did not receive any notices from any
Director of the Company or its subsidiaries during
the year, requesting to use Company information
received in their capacity as a Director, which would
not otherwise have been available to them.
Donations
The Company made donations of $14,000 during
the year ended 31 December 2021 (2020: $50,000).
No political donations were made.
Credit rating
The Company does not have a credit rating.
STATUTORY
DISCLOSURES
Refining NZ Subsidiary Directors
REFINING NZ SUBSIDIARYNAME OF DIRECTORS
Independent Petroleum Laboratory Limited Naomi James, Denise Jensen
Channel Terminal Services Limited (formerly Maranga Ra Limited) Naomi James, Denise Jensen
Maranga Ra Holdings Limited Naomi James, Denise Jensen
Refining NZ Annual Report 2021
25
Diversity
20212020
BOARDCORPORATE
LEAD TEAM
WORKFORCEBOARDCORPORATE
LEAD TEAM
WORKFORCE
No.%No.%No.%
No.%No.%No.%
GENDER
Male
571%457%23582%
571%457%28084%
Female
229%343%5218%
229%343%5716%
Other
16
------
------
ETHNICITY
NZ European/Pakeha
471%571%17460%
571%571%19357%
Other European
329%229%4315%
229%229%5817%
Maori & NZ European
- - - - 166%
- - - - 227%
Maori
- - - - 166%
- - - - 227%
Asian
- - - - 93%
- - - - 103%
Other
17
- - - - 2910%
- - - - 329%
NATIONALITY TOTAL
New Zealand
- - - - 23377%
- - - - 27177%
United Kingdom
- - - - 124%
- - - - 145%
Australia
- - - - 124%
- - - - 134%
South Africa
- - - - 82%
- - - - 123%
Other
- - - - 3412%
- - - - 257%
Information not provided
- - - - 21%
- - - - 164%
AGE
Under 30
- - - - 124%
- - - - 237%
30-50
229%343%16557%
343%457%19356%
Over 50
571%457%11039%
457%343%12135%
16
Other, for the purpose of gender diversity, includes: transgender, non-binary, agender, genderfluid, polygender, and any other form of gender identification.
17
Other, for the purpose of ethnic diversity, includes Maori & Other Ethnicity, Pacific Islander, Pacific Islander & Other Ethnicity, African, Indian, Middle Easterner, Pakistani, Sri Lankan, South
American, North American, and Information not provided.
26
Refining NZ Annual Report 2021
CONSOLIDATED
FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Annual Report 2021
27
CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS PAGE
Consolidated Income Statement 28
Consolidated Statement of Comprehensive Income 29
Consolidated Balance Sheet 30
Consolidated Statement of Changes in Equity 32
Consolidated Statement of Cash Flows 34
Notes to the Consolidated Financial Statements 35
INDEPENDENT AUDITOR’S REPORT 76
28
Refining NZ Consolidated Financial Statements 2021
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
THE ABOVE CONSOLIDATED INCOME STATEMENT IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 35-75.
NOTE
GROUP
2021
$000
GROUP
2020
$000
INCOME
Revenue
4231,742 233,937
Other income
42,352 11,810
TOTAL INCOME
3, 4234,094 245,747
EXPENSES
Purchase of process materials and utilities72,083 82,119
Materials and contractor payments18,243 19,992
Wages, salaries and benefits40,511 61,532
Administration and other costs30,411 31,681
TOTAL EXPENSES161,248 195,324
EARNINGS BEFORE DEPRECIATION, IMPAIRMENT, CONVERSION COSTS,
FINANCE COSTS AND INCOME TAX72,846 50,423
Depreciation and disposal costs
1184,038 87,218
Conversion costs
15175,516 -
Impairment of assets
11, 18567,361 223,697
TOTAL DEPRECIATION, DISPOSALS, CONVERSION COSTS AND IMPAIRMENT826,915 310,915
NET LOSS BEFORE FINANCE COSTS AND INCOME TAX(754,069)(260,492)
FINANCE COSTS
Finance income(112)(176)
Finance cost11,103 11,096
NET FINANCE COSTS10,991 10,920
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 LIMITEDCENTS
Basic and diluted earnings per share
7(173.9)(63.5)
Refining NZ Consolidated Financial Statements 2021
29
THE ABOVE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 35-75.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
NOTE
GROUP
2021
$000
GROUP
2020
$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 reserve
22(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 TAX435,743 5,012
TOTAL COMPREHENSIVE LOSS FOR THE YEAR, AFTER INCOME TAX(116,886)(193,267)
ATTRIBUTABLE TO:
Owners of the Parent(116,886)(193,267)
30
Refining NZ Consolidated Financial Statements 2021
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2021
NOTE
GROUP
2021
$000
GROUP
2020
$000
ASSETS
Cash and cash equivalents
1716,069 43,289
Trade and other receivables
16139,847 160,894
Income tax receivable684 677
Derivative financial instruments
225,263 8,766
Inventories
182,015 4,431
TOTAL CURRENT ASSETS163,878 218,057
NON-CURRENT ASSETS
Inventories
183,719 14,176
Derivative financial instruments
224,875 371
Intangibles
1227,059 9,968
Property, plant and equipment
11869,137 881,884
Investment property
116,200 5,250
Right-of-use assets
10650 3,335
Deferred tax assets
682,059 34,857
TOTAL NON-CURRENT ASSETS993,699 949,841
TOTAL ASSETS1,157,577 1,167,898
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
19155,167 162,752
Derivative financial instruments
22387 725
Lease liabilities
10, 17805 202
Employee benefits
209,937 6,897
Provisions
1587,088 4,372
TOTAL CURRENT LIABILITIES253,384 174,948
NON-CURRENT LIABILITIES
Derivative financial instruments
22- 974
Borrowings
9, 17199,698 274,611
Lease liabilities
10, 171,600 3,940
Provisions
1598,349 7,802
Employee benefits
207,953 44,819
Deferred tax liabilities
6101,105 96,874
TOTAL NON-CURRENT LIABILITIES408,705 429,020
TOTAL LIABILITIES662,089 603,968
NET ASSETS495,488 563,930
Comparatives for Property, Plant and Equipment, Investment properties, Employee benefits and Provisions have been updated to ensure consistency between financial reporting periods.
THE ABOVE CONSOLIDATED BALANCE SHEET IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 35-75.
Refining NZ Consolidated Financial Statements 2021
31
NOTE
GROUP
2021
$000
GROUP
2020
$000
EQUITY
Contributed equity
8313,974 266,057
Revaluation reserve
8, 11422,771 -
Treasury stock
8, 23(1,168)(896)
Employee share scheme entitlement reserve
8, 231,586 779
Cash flow hedge reserve
8, 223,708 5,298
Retained earnings(245,383)292,692
TOTAL EQUITY495,488 563,930
The Board of Directors of the New Zealand Refining Company Limited authorised these Consolidated Financial Statements for issue on
22 February 2022.
For and on behalf of the Board:
S C Allen J B Miller
Director Director
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2021
THE ABOVE CONSOLIDATED BALANCE SHEET IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 35-75.
32
Refining NZ Consolidated Financial Statements 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
CONTRIBUTED
EQUITY
REVALUATION
RESERVE
TREASURY
STOCK
GROUPNOTE$000$000$000
AT 1 JANUARY 2020265,771 - (960)
COMPREHENSIVE INCOME
Net loss after income tax- - -
Other comprehensive income
Movement in cash flow hedge reserve
22- - -
Defined benefit actuarial loss
20(c)- - -
Deferred tax on other comprehensive income
6- - -
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX- - -
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23- - -
Shares vested to employees
23- - 350
Treasury shares issued286 - (286)
Unclaimed dividends written back- - -
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT286 - 64
AT 31 DECEMBER 2020266,057 - (896)
AT 1 JANUARY 2021266,057 - (896)
COMPREHENSIVE INCOME
Net loss after income tax- - -
Other comprehensive income
Revaluations of property, plant and equipment
11- 587,182 -
Movement in cash flow hedge reserve
22- - -
Defined benefit actuarial gain
20(c)- - -
Deferred tax on other comprehensive income
6- (164,411)-
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX- 422,771 -
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23- - -
Shares vested to employees
23- - 269
Treasury shares issued
23541 - (541)
Equity issue
847,376 - -
Unclaimed dividends written back- - -
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT47,917 - (272)
AT 31 DECEMBER 2021313,974 422,771 (1,168)
THE ABOVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IS TO BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 35 TO 75.
Refining NZ Consolidated Financial Statements 2021
33
CONTRIBUTED
EQUITY
REVALUATION
RESERVE
TREASURY
STOCK
GROUPNOTE$000$000$000
AT 1 JANUARY 2020265,771 - (960)
COMPREHENSIVE INCOME
Net loss after income tax- - -
Other comprehensive income
Movement in cash flow hedge reserve
22- - -
Defined benefit actuarial loss
20(c)- - -
Deferred tax on other comprehensive income
6- - -
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX- - -
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23- - -
Shares vested to employees
23- - 350
Treasury shares issued286 - (286)
Unclaimed dividends written back- - -
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT286 - 64
AT 31 DECEMBER 2020266,057 - (896)
AT 1 JANUARY 2021266,057 - (896)
COMPREHENSIVE INCOME
Net loss after income tax- - -
Other comprehensive income
Revaluations of property, plant and equipment
11- 587,182 -
Movement in cash flow hedge reserve
22- - -
Defined benefit actuarial gain
20(c)- - -
Deferred tax on other comprehensive income
6- (164,411)-
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), AFTER INCOME TAX- 422,771 -
TRANSACTIONS WITH OWNERS OF THE PARENT
Equity-settled share-based payments
23- - -
Shares vested to employees
23- - 269
Treasury shares issued
23541 - (541)
Equity issue
847,376 - -
Unclaimed dividends written back- - -
TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT47,917 - (272)
AT 31 DECEMBER 2021313,974 422,771 (1,168)
EMPLOYEE SHARE
SCHEME ENTITLEMENT
RESERVE
CASH FLOW
HEDGE RESERVE
RETAINED
EARNINGS
TOTAL
EQUITY
$000$000$000$000
681(2,688)493,940 756,744
- - (198,279)(198,279)
- 11,092 - 11,092
- - (4,130)(4,130)
- (3,106)1,156 (1,950)
- 7,986 (2,974)5,012
448 - - 448
(350)- - -
- - - -
- - 5 5
98 - 5 453
779 5,298 292,692 563,930
779 5,298 292,692 563,930
- - (552,629)(552,629)
- - - 587,182
- (2,209)- (2,209)
- - 20,225 20,225
- 619 (5,663)(169,455)
- (1,590)14,562 435,743
1,076 - - 1,076
(269)- - -
- - - -
- - - 47,376
- - (8)(8)
807 - (8)48,444
1,586 3,708 (245,383)495,488
34
Refining NZ Consolidated Financial Statements 2021
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
THE ABOVE CONSOLIDATED STATEMENT OF CASH FLOWS IS TO BE READ IN CONJUNCTION WITH THE NOTES PAGES 35 TO 75.
NOTE
GROUP
2021
$000
GROUP
2020
$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers221,353 224,044
Payment for supplies and other expenses(118,277)(128,379)
Payments to employees(57,352)(57,518)
Interest received112 176
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
1734,695 31,624
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment(33,447)(33,939)
Proceeds from sale of intangibles1,947 13,320
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 year43,289 5,255
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR16,069 43,289
Refining NZ Consolidated Financial Statements 2021
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
REPORTING ENTITY
The New Zealand Refining Company Limited (‘Parent’, ‘Company’ or ‘Refining NZ’) is a profit-oriented company registered under the Companies
Act 1993 and an FMC Reporting Entity for the purposes of the Financial Markets Conduct Act 2013. Refining NZ is listed, and its ordinary shares
are quoted on the NZX Main Board Equity Market (‘NZX Main Board’) and its subordinated notes quoted on the NZX Debt Market.
The consolidated financial statements (hereinafter ‘financial statements’) for the year ended 31 December 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.
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.
36
Refining NZ Consolidated Financial Statements 2021
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.
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, the 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 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. .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
37
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-19 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.
• 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
38
Refining NZ Consolidated Financial Statements 2021
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.
(b) Segment results
31 DECEMBER 2021NOTE
OIL REFINING
$000
INFRASTRUCTURE
$000
TOTAL
$000
External customer4187,104 46,990 234,094
Inter-segment- 4,276 4,276
TOTAL INCOME (*)187,104 51,266 238,370
Adjusted EBITDA(**)
2633,839 35,429 69,268
31 DECEMBER 2020
OIL REFINING
$000
INFRASTRUCTURE
$000
TOTAL
$000
External customer4200,423 45,324 245,747
Inter-segment- 4,219 4,219
TOTAL INCOME (*)200,423 49,543 249,966
Adjusted EBITDA(**)
2625,912 32,666 58,578
(*) prior to consolidation eliminations
(**) Adjusted EBITDA is adjusted earnings before depreciation, impairment, conversion costs, finance costs and income tax
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
39
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.
FOR THE YEAR ENDED 31 DECEMBER 2021
GROUP
2021
$000
GROUP
2020
$000
Comprises:
Processing fees140,465 141,601
Natural Gas recovery25,431 30,156
Other refining related income20,101 18,139
REFINING REVENUE185,997 189,896
Pipeline fees29,437 29,283
Other distribution income13,110 11,750
DISTRIBUTION REVENUE42,547 41,033
Other operating revenue3,198 3,008
TOTAL REVENUE231,742 233,937
Other income2,352 11,810
TOTAL INCOME234,094 245,747
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).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
40
Refining NZ Consolidated Financial Statements 2021
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:
2021
%
2020
%
bp New Zealand Holdings Limited (BP)8.4810.09
Mobil Oil NZ Limited (Mobil)14.4417.18
Z Energy Limited (Z Energy)12.9015.34
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, the
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.
Revenue, purchases and other charges from related parties
Revenue*PurchasesOther charges
TRANSACTION VALUES
FOR THE YEAR ENDED
31 DECEMBER
BALANCES
OUTSTANDING AS AT
31 DECEMBER
TRANSACTION VALUES
FOR THE YEAR ENDED
31 DECEMBER
BALANCES
OUTSTANDING AS AT
31 DECEMBER
TRANSACTION VALUES
FOR THE YEAR ENDED
31 DECEMBER
BALANCES
OUTSTANDING AS AT
31 DECEMBER
2021
$000
2020
$000
2021
$000
2020
$000
2021
$000
2020
$000
2021
$000
2020
$000
2021
$000
2020
$000
2021
$000
2020
$000
BP60,958 59,160 20,569 40,402 1,159 96 105 58 401 372 - -
Mobil56,231 57,781 54,451 21,431 1,181 148 70 139 526 571 - -
Z Energy89,208 96,581 59,000 92,795 1,431 141 269 95 - - - -
Wiri Oil6,955 7,004 45 42 - - - - - - - -
TOTAL213,352 220,526 134,065 154,670 3,771 385 444 292 927 943 - -
* Revenue excludes excise duty.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
41
(b) Directors’ fees and key management personnel compensation
Directors’ fees and key management personnel remuneration paid during the financial year were as follows:
GROUP
2021
$000
GROUP
2020
$000
Salaries and other short-term employee benefits3,319 3,915
Post-employment benefits123 115
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION3,442 4,030
Directors' fees790 779
TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION & DIRECTORS' FEES4,232 4,809
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.
6 Taxation
(a) Income tax expense
NOTE
GROUP
2021
$000
GROUP
2020
$000
Net loss before income tax expense(765,060)(271,412)
Tax at the New Zealand corporate income tax rate of 28% (2020: 28%)(214,217)(75,995)
Tax effect of amounts which are either non-deductible or taxable in calculating taxable income:
Income not assessable for tax- (1,286)
Expenses not deductible for tax 1,220 3,783
Adjustments in respect of current income tax in respect of previous years566 365
INCOME TAX EXPENSE(212,431)(73,133)
Represented by:
Current tax expense(5)(389)
Deferred tax recognised in the income statement
6(b)(212,426)(72,744)
INCOME TAX EXPENSE(212,431)(73,133)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
42
Refining NZ Consolidated Financial Statements 2021
6 Taxation (continued)
b) Deferred tax
NET DEFERRED
TAX ASSET /
(LIABILITY)
RECOGNISED IN
PROFIT OR LOSS
RECOGNISED
IN OTHER
COMPREHENSIVE
INCOME
NET DEFERRED
TAX ASSET /
(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)- 1,252 1,252 -
Employee benefits13,012 781 1,156 14,949 14,949 -
Financial instruments1,044 - (3,106)(2,062)- (2,062)
Intangibles493 (719)- (226)- (226)
Right-of-use assets(513)(195)- (708)- (708)
Leases565 227 - 792 792 -
Inventory1,344 947 - 2,291 2,291 -
Tax losses4,848 10,725 - 15,573 15,573 -
TOTAL(132,811)72,744 (1,950)(62,017)34,857 (96,874)
NET DEFERRED
TAX ASSET /
(LIABILITY)
RECOGNISED IN
PROFIT OR LOSS
RECOGNISED
IN OTHER
COMPREHENSIVE
INCOME
NET DEFERRED
TAX ASSET /
(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)
Provisions1,252 41,125 - 42,377 42,377 -
Employee benefits14,949 2,693 (5,663)11,979 11,979 -
Financial instruments(2,062)- 619 (1,443)- (1,443)
Intangibles(226)1,099 - 873 873 -
Right-of-use assets(708)540 - (168)- (168)
Leases792 95 - 887 887 -
Inventory2,291 4,136 - 6,427 6,427 -
Tax losses15,573 3,943 - 19,516 19,516 -
TOTAL(62,017)212,426 (169,455)(19,046)82,059 (101,105)
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
43
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.
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.
TOTALTOTAL
NOTE20212020
Loss after tax attributable to shareholders of the Company($000)(552,629)(198,279)
Weighted average number of shares on issue000's
8317,756 312,293
BASIC AND DILUTED EARNINGS PER SHARECents(173.9)(63.5)
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).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
44
Refining NZ Consolidated Financial Statements 2021
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
$M
Drawn bank facilties
Undrawn bank facilitiesSubordinated Notes
20343-4 YEARS2-3 YEARS1-2 YEARS0-1 YEAR
55
50
45
50
75
95
0
25
50
75
100
125
150
15
25
Refining NZ Consolidated Financial Statements 2021
45
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:
GROUP
2021
$000
GROUP
2020
$000
Right-of-use assets
Opening net book value3,335 4,028
Additions- 273
Lease extensions and modifications540 659
Depreciation charge(952)(455)
Impairment(2,273)(1,170)
CLOSING NET BOOK AMOUNT650 3,335
Cost801 5,581
Accumulated depreciation and impairments(151)(2,246)
NET BOOK AMOUNT, INCLUDING:650 3,335
Freehold land and improvements524 545
Buildings and jetties126 178
Refining Plant- 1,395
Catalysts- 1,217
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
46
Refining NZ Consolidated Financial Statements 2021
10 Right-of-use assets and lease liabilities (continued)
GROUP
2021
$000
GROUP
2020
$000
Lease liabilities
Opening lease liability4,142 3,454
Additions- 284
Lease extensions and modifications540 659
Revaluations175 (55)
Lease payments (capital portion)(2,452)(200)
CLOSING LEASE LIABILITY, INCLUDING:2,405 4,142
Current805 202
Non-current1,600 3,940
The Consolidated Income Statement includes the following amounts in relation to leases:
GROUP
2021
$000
GROUP
2020
$000
Depreciation charge952 455
Impairment2,273 1,170
Interest expense (included in Finance costs)330 352
Expense relating to short-term leases (included in Administration and other costs)208 190
Expense relating to leases of low-value assets that are not short term leases (included in Administration and
other costs)343 427
The total cash outflow for leases in 2021 was $2.8 million (2020: $0.9 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
47
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 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
48
Refining NZ Consolidated Financial Statements 2021
11 Property, plant and equipment, and investment property (continued)
• 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 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:
SENSITIVITYVALUATION IMPACT
Volumes+/-10%$55m / ($52m)
Operating costs+/-10%($42m) / $43m
Capital expenditure+/-20%($18m) / $18m
Discount rate+/-1%($132m) / $105m
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
(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 improvements5-50
Buildings and jetties5-50
Plant5-50
Refinery to Auckland Pipeline10-78
Equipment and vehicles3-25
The depreciation charge for the year comprises:
NOTE
GROUP
2021
$000
GROUP
2020
$000
Depreciation on Property, Plant and Equipment11(e)82,657 86,550
Depreciation on Right-to-Use Assets
10952455
Loss on disposal of Property, Plant and Equipment429 213
DEPRECIATION CHARGE84,03887,218
50
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
11 Property, plant and equipment, and investment property (continued)
(e) Summary of fixed assets movements
FREEHOLD
LAND AND
IMPROVEMENTS
BUILDINGS AND
JETTIES
REFINING
PLANT
NOTE$000$000$000
AT 1 JANUARY 2020
Cost77,093 200,943 3,032,031
Accumulated depreciation(55,546)(106,602)(2,203,948)
NET BOOK AMOUNT
21,547 94,341 828,083
YEAR ENDED 31 DECEMBER 2020
Opening net book value21,547 94,341 828,083
Additions/transfers916 8,867 32,392
Disposals- - (225)
Depreciation charge
11(d)
(1,743)(5,279)(71,258)
Impairment of assets- (75)(211,100)
CLOSING NET BOOK AMOUNT
20,72097,854577,892
AT 31 DECEMBER 2020
Cost78,009 208,615 3,053,708
Accumulated depreciation and impairment losses(57,289)(110,761)(2,475,816)
NET BOOK AMOUNT
20,720 97,854 577,892
YEAR ENDED 31 DECEMBER 2021
Opening net book value
20,720 97,854 577,892
Additions
- 13,198 5,555
Disposals
- - -
Depreciation charge
11(d)
(1,496)(10,579)(62,219)
Impairment of assets
(8,644)(72,321)(421,665)
NET BOOK AMOUNT AFTER IMPAIRMENTS10,580 28,152 99,563
Transfers
(6,236)(28,152)(65,863)
Revaluation
11,275 - -
CLOSING NET BOOK AMOUNT15,619 - 33,700
AT 31 DECEMBER 2021
Revalued amount
15,619 - 33,700
Accumulated depreciation
- - -
NET BOOK AMOUNT15,619 - 33,700
Refining NZ Consolidated Financial Statements 2021
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
EQUIPMENT
AND VEHICLES
REFINERY TO
AUCKLAND
PIPELINE
IMPORT
TERMINAL
SYSTEM
CAPITAL
WORK IN
PROGRESS
TOTALINVESTMENT
PROPERTY
$000$000$000$000$000$000
134,204 224,621 - 77,379 3,746,271 5,250
(94,655)(119,469)- - (2,580,220)-
39,549 105,152 - 77,379 1,166,051 5,250
39,549 105,152 - 77,379 1,166,051 5,250
911 (18)- (17,957)25,111 -
- - - - (225)-
(4,343)(3,927)- - (86,550)-
- - - (11,328)(222,503)-
36,117101,207- 48,094881,8845,250
135,346 224,603 - 59,422 3,759,703 5,250
(99,229)(123,396)- (11,328)(2,877,819)-
36,117 101,207 - 48,094 881,884 5,250
36,117 101,207 - 48,094 881,884 5,250
1,254 - - 15,140 35,147 -
- - - (429)(429)-
(4,951)(3,412)- - (82,657)-
(10,831)- - (38,530)(551,991)-
21,589 97,795 - 24,275 281,954 5,250
(21,589)(97,795)219,635 - - -
- - 575,907 - 587,182 950
- - 795,542 24,275 869,136 6,200
- -795,542 24,275 869,136 6,200
- - - - - -
- -795,542 24,275 869,136 6,200
52
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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: Nil).
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.
GROUP
2021
$000
GROUP
2020
$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
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.
Refining NZ Consolidated Financial Statements 2021
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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
AT 1 JANUARY 2020
- 11,800 1,302 13,102
Additions-- 4,372 4,372
Disposals - (5,100)(400) (5,500)
Finance costs - 200 - 200
AT 31 DECEMBER 2020
- 6,900 5,274 12,174
Current - - 4,372 4,372
Non-current - 6,900 902 7,802
AT 1 JANUARY 2021 - 6,900 5,274 12,174
Additions - conversion related
88,395 55,380 31,741 175,516
Additions - other
- 6,776 - 6,776
Disposals
(5,150) - (4,372) (9,522)
Finance costs
123 322 48 493
AT 31 DECEMBER 2021 83,368 69,378 32,691 185,437
Current
60,924 460 25,704 87,088
Non-current
22,444 68,918 6,987 98,349
54
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
15 Provisions (continued)
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
20th 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.
Refining NZ Consolidated Financial Statements 2021
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
16 Trade and other receivables
NOTE
GROUP
2021
$000
GROUP
2020
$000
Processing fees11,939 11,967
Product distribution4,2043,027
Other trade receivables4,4613,696
Excise duty
19114,222135,793
Derivatives pending settlement-929
Other receivables and prepayments5,021 5,482
TOTAL TRADE AND OTHER RECEIVABLES139,847160,894
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.
56
Refining NZ Consolidated Financial Statements 2021
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:
NOTE
GROUP
2021
$000
GROUP
2020
$000
NET LOSS AFTER INCOME TAX(552,629)(198,279)
Adjusted for:
Depreciation and disposal costs
11(d)84,038 87,218
Impairment567,361 223,697
Movement in deferred tax
6(b)(42,971)(70,794)
Add movement in deferred tax on items included in other comprehensive income
6(b)(169,455)(1,950)
Movement in provisions
15173,263 (4,841)
Less (increase)/decrease in provisions relating to property, plant and equipment(17,739)5,096
Employee share scheme entitlement reserve
231,076 448
(Increase)/decrease in intangibles
12(17,091)12,169
Less proceeds from sale of intangibles(1,947)(13,320)
Interest and other non-cash movements(4,879)(679)
Impact of changes in working capital items
Decrease/(increase) in trade and other receivables
1621,047 (15,831)
(Decrease)/increase in trade and other payables
19(7,585)(8,266)
Less increase/(decrease) in trade and other payables relating to property, plant and equipment
and intangibles291 4,392
Less other non-cash increase in trade and other payables2,650 -
(Decrease)/increase in employee benefits
20(33,826)7,333
Less employee entitlements included in other comprehensive income
20(c)20,225 (4,130)
(Increase)/decrease in income tax receivable(7)5,218
Decrease in inventories
1812,873 4,143
NET CASH INFLOW FROM OPERATING ACTIVITIES34,695 31,624
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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
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)- 246,616 241,361 248 3,206 244,815
Cash flows (Cash)(38,034)- 27,995 (10,039)- - (10,039)
Finance lease payments- - - - (200)- (200)
Other non-cash movements- - - - 154 734 888
NET (CASH)/DEBT AS AT
1 JANUARY 2021(43,289)- 274,611 231,322 202 3,940 235,464
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)- 199,698 183,629 805 1,600 186,034
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).
58
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
19 Trade and other payables
NOTE
GROUP
2021
$000
GROUP
2020
$000
Trade payables21,321 22,563
Derivatives pending settlement1,417 -
Goods and services tax payable354 909
Deferred income
1217,853 3,487
Excise duty
15114,222 135,793
TOTAL TRADE AND OTHER PAYABLES155,167 162,752
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:
20212020
CURRENTNON-CURRENTTOTALCURRENTNON-CURRENTTOTAL
NOTE$000$000$000$000$000$000
Defined benefit pension plan 20(a)- 4,227 4,227 - 32,733 32,733
Medical plan
20(a)48 3,726 3,774 17 7,185 7,202
Wages, salaries, annual leave
and sick leave9,542 - 9,542 6,466 - 6,466
Long-service leave and retirement bonus347 - 347 414 4,901 5,315
TOTAL9,937 7,953 17,890 6,897 44,819 51,716
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.
Refining NZ Consolidated Financial Statements 2021
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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.
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”.
60
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
20 Employee benefits (continued)
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.
Refining NZ Consolidated Financial Statements 2021
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
(a) Reconciliation of medical and defined benefit pension plan
MEDICAL PLANPENSION PLAN
PRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
TOTALPRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
TOTAL
NOTE$000$000$000$000$000$000
AT 1 JANUARY 2020 EXCLUDING TAXES(10,062)- (10,062)(108,322)91,634 (16,688)
Amounts recognised in Consolidated
Income Statement:
Current service cost- - - (2,117)- (2,117)
Interest (expense)/income(103)- (103)(1,126)939 (187)
Settlement gain933 - 933 - - -
20(b)830 - 830 (3,243)939 (2,304)
Amounts recognised in Other
Comprehensive Income
(excluding contributions tax):
Actual return on plan assets less
interest income- - - - 676 676
Actuarial losses arising from changes in
assumptions(745)- (745)(5,310)- (5,310)
Actuarial gains arising from
liability experience2,397 - 2,397 759 - 759
20(c)1,652 - 1,652 (4,551)676 (3,875)
Contributions:
–Employers- - - - 936 936
–Plan participants- - - (394)394 -
Benefits paid379 - 379 5,458 (5,458)-
Premiums and expenses paid- - - 341 (341)-
Net Liability Excluding Taxes(7,201)- (7,201)(110,711)88,780 (21,931)
Contributions Tax(10,802)
NET LIABILITY IN BALANCE SHEET
31 DECEMBER 2020(7,201)(32,733)
62
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
20 Employee benefits (continued)
MEDICAL PLANPENSION PLAN
PRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
TOTALPRESENT
VALUE OF
OBLIGATION
FAIR VALUE
OF PLAN
ASSETS
TOTAL
NOTE$000$000$000$000$000$000
AT 1 JANUARY 2021 EXCLUDING TAXES(7,201)- (7,201)(110,711)88,780 (21,931)
Amounts recognised in Consolidated
Income Statement:
Current service cost- - - (1,712)- (1,712)
Interest (expense)/income(17)- (17)(281)229 (52)
Settlement & curtailment gain2,657 - 2,657 6,323 - 6,323
20(b)2,640 - 2,640 4,330 229 4,559
Amounts recognised in Other
Comprehensive Income (excluding
contributions tax):
Actual return on plan assets less
interest income- - - - 7,869 7,869
Actuarial losses arising from changes
in assumptions328 - 328 6,017 - 6,017
Actuarial losses arising from
liability experience(318)- (318)(342)- (342)
20(c)10 - 10 5,675 7,869 13,544
Contributions:
–Employers- - - - 996 996
–Plan participants- - - (281)281 -
Benefits paid777 - 777 30,628 (30,628)-
Premiums and expenses paid- - - 358 (358)-
Net Liability Excluding Taxes
20(d)(3,774)- (3,774)(70,001)67,169 (2,832)
Contributions Tax(1,395)
NET LIABILITY IN BALANCE SHEET
31 DECEMBER 2021(3,774)(4,227)
Refining NZ Consolidated Financial Statements 2021
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
(b) Amounts recognised in the Consolidated Income Statement
MEDICAL PLANPENSION PLAN
2021
$000
2020
$000
2021
$000
2020
$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
(c) Amounts recognised in the Consolidated Statement of Comprehensive Income
2021
$000
2020
$000
Defined benefit actuarial gain/(loss)5,675(4,551)
Actual return on plan assets less interest income7,869 676
Actuarial gain medical scheme10 2,585
Gains arising from settlement-(933)
Total recognised in other comprehensive income13,554(2,223)
Contributions tax6,671(1,907)
Total recognised in other comprehensive income with contributions tax20,225(4,130)
(d) Fair value of defined benefit pension plan assets
SIGNIFICANT
INPUTS
LEVEL 2
$000
Net current assets376
Debt instruments5,875
Investment Funds – Composite Funds 60,918
TOTAL ASSETS67,169
64
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
20 Employee benefits (continued)
The percentage invested in each asset class at the balance date are:
PENSION PLAN
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%
(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:
20212020
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
2019 mortality table, set back by 1 year,
together with an age related future
mortality improvement scale.
New Zealand Life Tables 2012-2014 mortality
table, set back by 1 year, together with an age
related future mortality improvement.
Health insurance premium8.0%- 8.0%-
Rate of Fringe Benefit Tax49.25%- 42.86%-
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.
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.
Refining NZ Consolidated Financial Statements 2021
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Decrease in defined benefit obligation ($000)Increase in defined benefit obligation ($000)
(8,000)(6,000)(4,000)(2,000)02,0004,0006,0008,000
7,678
-1,814-1,436
-1,9632,187
-6,2082021 1% movement discount rate
2021 1 year movement in life expectancy
2021 1% Salary Movement
(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.
66
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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 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.
Refining NZ Consolidated Financial Statements 2021
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Sensitivity analysis
The graph below summarises 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.
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).
2020 Equity (pre-tax)
2021 Equity (pre-tax)
2020 Profit or loss before tax
2021 Profit or loss before tax80
(403)
2,828
(403)
(241)
$000
403
(969)
403
68
Refining NZ Consolidated Financial Statements 2021
21 Financial risk management (continued)
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.
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN
6 MONTHS -
1 YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
OVER 5 YEARSTOTAL CASH
FLOWS
GROUP 2021NOTE$000$000$000$000$000$000$000
NON-DERIVATIVE
FINANCIAL LIABILITIES
Trade payables
19(21,321)(21,321)- - - - (21,321)
Lease liabilities
10(2,405)(484)(392)(745)(496)(699)(2,816)
Bank borrowings
9(125,000)(902)- (50,000)(75,000)- (125,902)
Subordinated notes
9(74,698)(1,913)(1,913)(3,825)(11,475)(103,688)(122,814)
TOTAL NON-DERIVATIVE
FINANCIAL LIABILITIES(223,424)(24,620)(2,305)(54,570)(86,971)(104,387)(272,853)
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
LESS THAN 6
MONTHS
BETWEEN
6 MONTHS -
1 YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
OVER 5 YEARSTOTAL CASH
FLOWS
GROUP 2020NOTE$000$000$000$000$000$000$000
NON-DERIVATIVE
FINANCIAL LIABILITIES
Trade payables
19(22,563)(22,563)- - - - (22,563)
Lease liabilities
10(4,142)(405)(277)(675)(1,817)(3,885)(7,059)
Bank borrowings
9(200,000)(1,290)345 (35,000)(165,000)- (200,945)
Subordinated notes
9(74,611)(1,913)(1,913)(3,825)(11,475)(107,513)(126,639)
TOTAL NON-DERIVATIVE
FINANCIAL LIABILITIES(301,316)(26,171)(1,845)(39,500)(178,292)(111,398)(357,206)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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.
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
LESS THAN
6 MONTHS
BETWEEN
6 MONTHS -
1 YEAR
BETWEEN
1-2 YEARS
BETWEEN
2-5 YEARS
OVER
5 YEARS
TOTAL CASH
FLOWS
GROUP 2021NOTE$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUMENTS
Net settled derivatives
229,751 1,761 2,806 (604)(1,511)- 2,452
Gross settled derivatives
Outflows- - - - - - -
Inflows- - - - - - -
Total gross settled
derivatives- - - - - - -
TOTAL DERIVATIVE
FINANCIAL LIABILITIES
229,751 1,761 2,806 (604)(1,511)- 2,452
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
LESS THAN
6 MONTHS
BETWEEN
6 MONTHS -
1 YEAR
BETWEEN
1-2 YEARS
BETWEEN
2-5 YEARS
OVER
5 YEARS
TOTAL CASH
FLOWS
GROUP 2020NOTE$000$000$000$000$000$000$000
DERIVATIVE FINANCIAL
INSTRUMENTS
Net settled derivatives
227,438 4,809 3,232 (603)- - 7,438
Gross settled derivatives
Outflows- - - - - - -
Inflows- - - - - - -
Total gross settled
derivatives- - - - - - -
TOTAL DERIVATIVE
FINANCIAL LIABILITIES
227,438 4,809 3,232 (603)- - 7,438
70
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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.
The net movement in the cash flow hedge reserve comprises:
2021
$000
2020
$000
Foreign exchange hedges transferred to property, plant and equipment- 86
Interest rate swaps maturing in the year- 3,566
Interest rate swaps entered into during the year4,875 -
Electricity futures and contracts for differences entered into during the year(436)(561)
Electricity futures and contracts for differences settled in the year(8,040)(4,732)
Ineffective hedges - recycled to income statement(4,523)-
Movement in value of electricity futures held throughout the year5,915 12,733
Gross movement in cash flow hedge reserve (2,209)11,092
Deferred tax619 (3,106)
Net movement in cash flow hedge reserve (1,590)7,986
Refining NZ Consolidated Financial Statements 2021
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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
ASSETSLIABILITIESASSETSLIABILITIES
NOTE$000$000$000$000
Cash flow hedges:
–electricity futures and contracts for differences5,263 (387)8,766 (725)
TOTAL CURRENT PORTION5,263 (387)8,766 (725)
Cash flow hedges:
–electricity futures and contracts for differences- - 371 (974)
–interest rate swaps 4,875 - - -
TOTAL NON-CURRENT PORTION4,875 - 371 (974)
NET POSITION
219,751 7,438
72
Refining NZ Consolidated Financial Statements 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22 Derivative financial instruments (continued)
The effects of the derivative financial instruments on the Group’s financial position and performance are as follows:
FOREIGN EXCHANGE FORWARD CONTRACTS
INTEREST
RATE SWAPS
ELECTRICITY FUTURES
AND CONTRACTS FOR
DIFFERENCES
SGDUSD
31 DECEMBER 2021
Carrying amount – net asset/(liability) ($000)- - 4,875 4,876
Notional amount (equivalent of NZ$000)- - 115,000 19,516
Maturity date- - 20262022
Hedge ratio- - 1:11:1
Change in fair value of hedging instrument ($000)- - 4,875 (2,562)
SG$/NZ$US$/NZ$
Weighted average hedged rate--1.5%$113.1/MWh
31 DECEMBER 2020
Carrying amount – net asset/(liability) ($000)- - - 7,438
Notional amount (equivalent of NZ$000)- - - 45,097
Maturity date- - - 2021-2022
Hedge ratio- - - 1:1
Change in fair value of hedging instrument ($000)(4)90 3,566 8,174
SG$/NZ$US$/NZ$
Weighted average hedged rate---$100.2/MWh
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.
.
Refining NZ Consolidated Financial Statements 2021
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
23 Employee share-based payments
The Company operates the following share schemes:
• A Chief Executive Share Rights Scheme in the form of:
-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;
-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 first tranche of LTI performance rights under the CEO’s employment agreement was offered, but voluntarily declined by
the CEO recognising 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 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.
74
Refining NZ Consolidated Financial Statements 2021
23 Employee share-based payments (continued)
Information regarding the number of shares and share rights awarded under the schemes is as follows:
20212020
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 DECEMBER1,250,0004,488,0661,066,478
1,250,000481,327
Percentage of total ordinary shares (%)
0.34%1.21%0.29%
0.40%0.15%
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.
25 Auditor’s fees
GROUP
2021
$000
GROUP
2020
$000
Auditor's fees comprises:
Audit of financial statements290 225
Audit of financial statements - prior year38 -
Reimbursement of travel and accommodation8 20
Other assurance services:
Agreed upon procedures - AGM scrutineering5 5
Agreed upon procedures - SGM scrutineering 5 -
Half-year agreed upon procedures20 20
AUDITOR'S FEES366 270
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Refining NZ Consolidated Financial Statements 2021
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
26 Non-GAAP disclosures
Refining NZ’s standard profit measure prepared under New Zealand Generally Accepted Accounting Practice (NZ GAAP) is net profit/(loss) after
tax. Refining NZ has used non-GAAP measures when discussing financial performance in this Report. The Directors and Management believe
that these measures provide useful information as they are used internally to evaluate segmental and total Group performance, to establish
operating and capital budgets as well as being used for bank covenant purposes.
Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New Zealand equivalents to International Financial Reporting
Standards) and are not uniformly defined, therefore the audited non-GAAP profit measures included in this report are not comparable with
those used by other companies. They should not be used in isolation or as a substitute for GAAP profit measures as reported by Refining NZ in
accordance with NZ IFRS. Terms are defined as follows:
Reported EBITDA: Reported 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.
NOTE
GROUP
2021
$000
GROUP
2020
$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 costs10,991 10,920
Impairment of assets567,361 223,697
One-off conversion costs
15175,516-
Depreciation and disposal costs
11(d)84,038 87,218
Reported EBITDA72,846 50.423
Add back non-cash expenses:
Stock obsolescence provision
18592 3,383
Defined benefit pension fund cost
20(b)2,633 3,441
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 costs4,575-
Adjusted EBITDA69,26858,578
76
Refining NZ Annual Report 2021
INDEPENDENT
AUDITOR’S REPORT
Refining NZ Annual Report 2021
77
Opinion
We have audited the financial statements of The New
Zealand Refining Company Limited (“the Company”) and
its subsidiaries (together “the Group”) on pages 28 to 75,
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 28 to 75 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.
INDEPENDENT AUDITOR’S REPORT TO THE
SHAREHOLDERS OF THE NEW ZEALAND REFINING
COMPANY LIMITED
78
Refining NZ Annual Report 2021
Valuation of Property, Plant and Equipment
Why significant
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 Group, being 75% of the Group’s total assets
at 31 December 2021, and the fact the inputs to the
valuation are inherently subjective.
How our audit addressed the key audit matter
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 assessing
the adequacy of the financial statement disclosures in
note 11.
Decommissioning and demolition provisions
Why significant
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.
Refining NZ Annual Report 2021
79
How our audit addressed the 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 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
80
Refining NZ Annual Report 2021
TREND
STATEMENT
Refining NZ Annual Report 2021
81
Trend Statement
For the years ended 31 December
2021
$000
2020
$000
2019
$000
2018
$000
2017
$000
FINANCIAL PERFORMANCE
Total income
234,094
245,747348,375362,466414,620
Expenses
161,248
195,324230,140209,819194,271
Depreciation and disposal costs, one-off conversion costs,
impairment and loss on revaluation826,915310,91599,93197,07596,146
Net (loss)/profit before finance costs (754,069)
(260,492)18,30455,572124,203
Net finance costs
10,991
10,92013,44513,80013,747
Net (loss)/profit before income tax(765,060)
(271,412)4,85941,772110,456
Income tax
(212,431)
(73,133)69412,15631,926
Net (loss)/profit after income tax(552,629)
(198,279)4,16529,61678,530
2021
$000
2020
$000
2019
$000
2018
$000
2017
$000
FINANCIAL POSITION
Funds employed
Contributed equity
313,974
266,057265,771265,771265,771
Retained profits
(245,383)
292,692493,940504,562533,369
Revaluation reserve
422,771
----
Other
4,126
5,181(2,967)(697)(6,365)
Total equity495,488
563,930756,744769,636792,775
Borrowings – non-current
199,698
274,611246,616208,601170,000
Other non-current liabilities
209,007
154,409219,182198,109174,658
Total funds employed904,193
992,9501,222,5421,176,3461,137,433
Funds utilised
Non-current assets
993,699
949,8411,241,6921,226,2181,155,053
Working capital
(89,506)
43,109(19,150)(49,872)(17,620)
Total funds utilised904,193
992,9501,222,5421,176,3461,137,433
20212020201920182017
ANALYTICAL INFORMATION
Number of shareholders
4,458
4,7804,3494,7054,908
Earnings per share ($)
(1.739)
(0.635)0.0130.0950.251
Effective tax rate (%)
28
27142929
Net tangible asset per share ($)
1.28
1.752.362.422.54
Working capital ratio
0.6
1.20.90.80.9
82
Refining NZ Annual Report 2021
20212020201920182017
DIVIDEND INFORMATION*
Dividend per share (cents)--2.07.518
Dividend paid ($000)--6,25023,44356,264
Dividends declared per share
- interim--2.0 cps3.0 cps6.0 cps
- final---4.5 cps12.0 cps
Dividend cover--0.671.261.40
* Dividend information is stated in the year to which it relates, rather than when paid.
20212020201920182017
MANUFACTURING
Barrels processed – intake (000s barrels)
29,213
29,87642,68740,44041,724
Gross refining margin (USD/barrel)
3.73
1.635.346.318.02
USD exchange rate (NZD)
0.71
0.650.660.690.71
Pipeline throughput (000s barrels)
13,361
14,71320,82821,01519,828
Refining NZ Annual Report 2021
83
TRC (Total Recordable Case)
The number of lost time incidents, restricted work
cases, medical treatment cases and fatalities.
Tier 1 Process Safety Event
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 Lost
Time Injury (LTI) and/or fatality; a fire or explosion
resulting in greater than or equal to $100,000 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; an officially declared community
evacuation or community shelter-in-place.
Tier 2 Process Safety Event
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.
Turnaround
A scheduled outage of one or more process units,
planned well in advance and typically occurring
in cycles of two years or more, for the purpose of
significant mechanical inspection and repair.
FCF (Free Cash Flow)
Calculated as net cash flow operating activities minus
payments for property, plant and equipment with each
of these items determined in accordance with GAAP.
Net Borrowings
Calculated as total borrowings (bank and subordinated
notes) minus cash and cash equivalents.
Services Effective Date (SED)
Commencement date of import terminal services.
GLOSSARY
CORPORATE
DIRECTORY
Registered Office
Marsden Point
Ruakaka
Mailing Address
Private Bag 9024
Whangarei 0148
Telephone: +64 9 432 5100
Website
www.refiningnz.com
Share Register
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
Telephone: +64 9 488 8777
enquiry@computershare.co.nz
Bankers
ANZ Bank New Zealand Limited
Bank of New Zealand
MUFG Bank, Limited
Legal Advisers
MinterEllisonRuddWatts
Chancery Green
Auditor
Ernst & Young
Chairman
S C Allen (Independent Director)
Independent Directors
J B Miller
V C M Stoddart
P A Zealand
Non-Independent Directors
J L Bourke
N L Jones
L Nation
Chief Executive Officer
N M James
General Counsel & Company Secretary
C D Bougen
Managing your shareholding online
To change your address, update your payment
instructions and to view your registered details
including transactions, please visit:
www.computershare.co.nz/investorcentre
Please assist our registrar by quoting your CSN or
shareholder number.
84
Refining NZ Annual Report 2021
REFINING NZ
ANNUAL REPORT 2021
REFININGNZ.COM
---
Online
www.investorcentre.com/nz
Address
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
Phone
+64 9 488 8777
SHAREHOLDER AND BONDHOLDER
COMMUNICATIONS
S209C NOTICE
Refining NZ’s Annual Report for the year ended 31 December 2021 is publicly available on our website
www.refiningnz.com. Future Annual Reports will also be available from this website
1
.
We encourage you to elect to receive all of your Refining NZ shareholder and bondholder communications
electronically by visiting www.investorcentre.com/nz. Existing users should login, select ‘My Profile’ and
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Please note that, although these reports are available electronically, you may at any time request a free printed copy
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Please tick this box if you would like to receive a printed copy of the Annual Report when available each
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Please fill out the relevant sections above and return this form in the reply paid envelope provided; or scan and email to
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If you have any questions about changing how you receive shareholder communications, please contact
Computershare.
1
From 1 April 2022, Refining NZ’s name changes to “Channel Infrastructure NZ Limited:, and with www.refiningnz.com redirecting
to its new website at www.channelnz.com, where current and future annual reports will be available. All previously communicated
links remain valid.
EMAIL ADDRESS:
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