FLLYR: NZR: Full Year Announcement 2018 08:31a.m. 
22/02/2019 08:31  
REL: 0831 HRS The New Zealand Refining Company Limited  
FLLYR: NZR: Full Year Announcement 2018  
Results for announcement to the market  
Reporting Period 12 months to 31 December 2018  
Previous Reporting Period 12 months to 31 December 2017  
The Directors of the New Zealand Refining Company Limited today announced the  
Company's financial results for the year to 31 December 2018, details of  
which are attached. This report, including the results for the previous  
corresponding year, is consistent with the audited financial statements of  
the New Zealand Refining Company Limited for the year ended 31 December 2018.  
1. RESULTS $NZ 000  
Revenue from ordinary activities  
Current year $359,576 [1]  
Down 13%  
Previous corresponding year $411,706 [1]  
Profit from ordinary activities after tax attributable to security holder.  
Current year $29,616  
Down 62%  
Previous corresponding year $78,530  
Net profit attributable to security holders.  
Current year $29,616  
Down 62%  
Previous corresponding year $78,530  
Amount per security: NZ 4.5 cents per share.  
Imputed amount per security: NZ 1.75 cents per share (fully imputed)  
Record date7 March 2019  
Dividend Payment Date: 21 March 2019  
As at 31 December 2018 $2.42  
As at 31 December 2017 $2.54  
Strong second half operational performance following the planned maintenance  
shutdown, healthy margins and improved exchange rate together delivered an  
NPAT of $29.6m (2017: $78.5m).  
Gross refining margin (GRM) averaged USD 6.31 per barrel (2017: USD 8.02 per  
barrel) or USD 7.33 per barrel allowing for the 2018 shutdown.  
Total Refinery throughput for the second half of 2018 was the highest in the  
Refinery's history.  
Annual throughput record for the Refinery to Auckland Pipeline (RAP) on the  
back of the Company's investment in capacity upgrading projects.  
Crude intake of 40.4 million barrels (2017: 41.7 million barrels).  
Refining NZ has reported a Net Profit after Tax (NPAT) of $29.6 million  
(2017: $78.5 million) for the year ended 31 December 2018.  
Commenting, Chief Executive, Mike Fuge acknowledged the impact on earnings of  
the first planned full refinery shutdown in 14 years in the first half of the  
year which was partially mitigated in the second half by healthy refining  
margins, a weakening exchange rate and a strong operational performance.  
Fuge confirmed that the underlying business fundamentals remained strong:  
"While the NPAT result was impacted by the planned maintenance shutdown in  
April-June the reliable running on processing units for the remainder of the  
year saw refinery throughput for the second half of 2018 at its highest ever,  
which allowed the Company to capitalise on healthy refining margins."  
The Gross Refining Margin averaged USD 6.31 for the year (2017: USD 8.02 per  
barrel) or USD 7.33 when normalised for the 2018 shutdown - at the top of its  
historical USD 4.00 to USD 6.00 per barrel range - supported by global demand  
growth and our continued progress in optimising the Refinery's operational  
efficiency. Looking ahead, Fuge added that refining margins have softened  
since the beginning of 2019  
RNZ's uplift over Singapore Complex Margins, averaged USD 3.61 per barrel  
(2017: USD 4.27), reflecting the impact of the 2018 planned maintenance  
shutdown. The Company benefited from an improved exchange rate which averaged  
USD 0.69 for the year (2017: USD 0.71).  
While the first total refinery shutdown in 14 years took longer than expected  
to complete, due in large part to the complex refurbishment of key units,  
there are rich learnings which our shutdown team is already applying to  
planning for the next maintenance shutdown. A notable success from the 2018  
maintenance shutdown was the major refurbishing of the Refinery's Hydrogen  
Manufacturing Unit.  
"As New Zealand's largest producer of pure hydrogen this refurbishment  
underpins the Refinery's role in the fuels supply chain and presents the  
exciting possibility of developing further hydrogen infrastructure which is  
critical to our low carbon economy, and to New Zealand continuing to meet its  
climate change obligations," said Fuge.  
With the next planned, lesser-scope, maintenance shutdown in 2020, the  
Company fully expects to lift its operational performance even further and  
achieve a throughput of around 44 million barrels for the 2019 year.  
Fuge confirmed that the RNZ Board had been working on the capital structure  
of the business and on the 14th of December the Company issued $75 million of  
unsecured, subordinated notes for a term of approximately 15 years. The Offer  
provides greater financial flexibility by diversifying RNZ's funding sources.  
The Offer was fully subscribed, and the net proceeds of the Offer have been  
applied to repaying a portion of the Company's existing bank debt.  
The support we provide to key industries such as tourism, agriculture, large  
manufacturing and heavy transport is both essential to New Zealand's  
continued economic growth and beneficial for our business. This is  
highlighted by the continued demand we see for diesel, and especially for jet  
fuel which has continued to be driven by the increasing number of  
international visitors to Auckland International Airport. With an eye to  
maintaining an attractive value proposition for its customers, RNZ remains  
steadfastly focused on improving the quality, reliability and competitiveness  
of its refining operations. Fuge noted that the attention given to pursuing  
attractive, short pay back, margin enhancing projects was continuing to reap  
"Current initiatives are delivering excellent results reflecting the value of  
on-going investment in leveraging efficiencies where we can.  
"The capacity upgrading project on the RAP to help meet growing Auckland  
demand saw the refinery achieve a new annual throughput record on the  
pipeline. The first two phases of this three-phase upgrade have been  
completed. Following a review of phase three we are exploring the use of a  
drag reducing agent as an alternative de-bottlenecking option," said Fuge.  
In May the Company completed the last piece of remediation on the RAP rupture  
site near Ruakaka following the September 2017 outage on the fuel pipeline.  
In December, the Government announced an Inquiry into the pipeline outage.  
Its purpose is to draw lessons from the outage to inform how the fuel  
industry and the Government could improve the resilience of fuel supply into  
the Auckland region. The Refinery is working with the Inquiry team to assist  
them in their important work. At the same time, we are also providing  
information to the competition study into retail fuel markets.  
In December, the Environment Court confirmed the resource consents issued for  
the Refinery's crude shipping dredging project, with minor revisions agreed  
between parties to the appeal. As part of the revised conditions the Refinery  
will establish a monitoring programme to gather baseline turbidity data for  
12 months before dredging can commence and will continue to monitor turbidity  
throughout the dredging programme.  
"We consider the revisions to be effective and workable. This strategically  
important project has been de-risked considerably. Improving the economics of  
up to half of all crude delivered to the Refinery will help to keep us  
competitive with imported fuel from Asia Pacific refiners and improve the  
gross refining margin that we earn as well as save the energy consumed in  
delivering petroleum products to New Zealand," said Fuge.  
A date for the commencement of dredging has yet to be confirmed and is  
dependent on the successful completion of monitoring activity on the harbour  
and a final investment decision by the RNZ Board.  
"Notwithstanding our overall commercial success in the face of challenges  
inherent in a volatile refining sector, we recognise that there is more that  
we can do to improve our operational performance and competitiveness, while  
improving returns to our shareholders. This will be a core part of our  
strategy moving forward," said Fuge.  
Refining has a significant environmental footprint hence the Company's core  
focus on improving operations extends to a continued commitment to deliver  
world class environmental performance.  
"Gains in energy efficiency go a long way to reducing the impact of emissions  
at both a regional and national level. We continue to deliver advances in  
environmental performance including reductions in sulphur per unit of fuel  
production as well as the carbon intensity of our refining operation.  
Maintaining the environmental integrity of our refining site has seen the  
Company invest over $24 million over the past four years including on  
improving the robustness of the Refinery's waste water systems."  
"We are building on the contribution of Te Mahi Hou to an improved emissions  
profile through our partnership with EECA (Energy Efficiency and Conservation  
Authority). Together we are progressing a series of energy projects -  
including the phasing in of LED lighting across the Refinery - that will save  
energy while also improving our carbon profile."  
"The Company is reviewing a number of options and working with its customers  
and the Ministry of Transport to meet the requirements of the IMO [2] MARPOL  
regulations which are aimed at reducing the environmental impacts of nitrogen  
dioxide, particulates and sulphur dioxide from shipping. This will require a  
reduction in the sulphur content of fuel oil used in shipping from 3.5% to  
0.5%. Our expertise and technology in this space means we are well placed to  
meet the challenges and opportunities of market-disrupting regulatory change  
such as MARPOL" said Fuge.  
As a major manufacturer and employer we are proud of the Refinery's  
contribution to our Northland community. Through partnerships and links with  
key organisations we continue to support the environmental and educational  
aspirations of our community.  
New Zealand's declared commitment to a low carbon energy future is an  
exciting statement of leadership on a world stage, where there is a  
determination to act on climate change. It's a commitment to which RNZ has  
much to contribute: we continue to improve our environmental footprint and  
our substantial technical knowledge brings considerable intellectual property  
to the nation's green energy and growth agendas.  
To that end, RNZ's Management and Board have been defining a business  
strategy that will shape the future direction of the Company. It recognises  
the major and continuing contribution of the refinery to the national fuels  
supply chain as well as to the Northland and national economies. Further, it  
acknowledges the challenges presented by the need to decarbonise the  
country's energy infrastructure.  
Commenting, RNZ Chairman Simon Allen said: "We have new leadership, a healthy  
balance sheet, strong free cash flow with a healthy short-term outlook, and  
deep capability."  
"Importantly, our government and other key stakeholders are fully aware of  
the need for a phased transition to a low carbon economy - and are highly  
receptive to ideas that promote energy innovation, emissions reduction and  
sustainable development, especially from companies such as RNZ: traditional  
industries that make a significant contribution to their local community and  
to their respective regional economies.  
"At the heart of our new strategy we will continue to be a profitable core  
refining business which is always looking to be commercially attractive, safe  
and reliable and a major employer fully committed to helping New Zealand meet  
its climate change obligations. A prime example of that commitment is the  
$365 million investment in Te Mahi Hou which reduced carbon emissions by  
around 120,000 tonnes a year - the equivalent of carbon emissions from 60,000  
Toyota Corollas."  
Allen said the Company's strategic review will look to generate further value  
out of the business, leveraging existing assets and capabilities to lift the  
Refinery's operational performance and with New Zealand's energy future in  
mind, build on the core through the judicious choice and implementation of  
highly economic projects.  
"On the horizon is a new look, low carbon energy industry based on a mix of  
energy sources including a greater percentage of renewables. The way forward  
- whether in electricity or transport fuels - is to harness more of our  
natural resources such as solar and hydrogen to support our existing  
"We have a proud record of meeting business challenges head-on using our  
extensive industry experience and technical expertise. Continuing to do so  
will help us build a sustainable future in a low carbon economy for our  
refinery, our community and the 500 plus people who come through the refinery  
gates every day," he said.  
We will be providing more details on our new strategy in quarter two or  
quarter three of this year at a specially-arranged Strategy Day. We look  
forward to announcing a date very soon.  
Allen confirmed that the Company's Directors resolved to pay a fully imputed  
final dividend of 4.5 cents per share to be paid on 21 March 2019, with a  
record date of 7 March 2019. With an interim dividend of 3 cents paid in  
September, the total dividend payment for the year is 7.5 cents.  
CEO Mike Fuge said that the strong operational performance in the second half  
of the year highlights the existing strengths of our refinery and the  
talented team who continue to run it safely and reliably.  
"The review of the Company's business strategy looks to build on that  
strength and opens up the possibility to transform our business, in  
realistic, credible steps, into a sustainable, low carbon energy producer.  
"Such a transformation of our refining business would contribute to New  
Zealand's climate change efforts, promote prudent investment, innovation,  
jobs and skills development and be highly valued by investors, the Government  
and our Northland community," he said.  
[1] Revenue from ordinary activities represents total income of $362,466  
(2017: $414,620k) less insurance recovery of $2,890 (2017: $2,914k), included  
in 'other income' as disclosed in note 2 of the consolidated financial  
[2] IMO International Maritime Organisation - International Convention for  
the Prevention of Pollution from Ships (MARPOL)  
Further information:  
Greg McNeill, Communications and External Affairs Manager  
T: 094325115 M: 021 873623  
End CA:00330915 For:NZR Type:FLLYR Time:2019-02-22 08:31:10