Ann: HALFYR: NZR: Preliminary Half Year Results

• Release Date: 23/08/13 11:41
• Summary: HALFYR: NZR: Preliminary Half Year Results
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NZR
23/08/2013 09:41
HALFYR

REL: 0941 HRS The New Zealand Refining Company Limited

HALFYR: NZR: Preliminary Half Year Results

The New Zealand Refining Company Limited
Results for announcement to the market

Reporting Period six months to 30 June 2013
Previous Reporting Period six months to 30 June 2012

The Director's of the New Zealand Refining Company Limited today announced
the Company's financial results for the six months to 30 June 2013, details
of which are attached.

This report, including the results for the previous corresponding year, is
consistent with the unaudited interim financial statements of the New Zealand
Refining Company Limited for the six months ended 30 June 2013.

Consolidated Results

1. Results $NZ 000

Revenue from ordinary activities
Current year $126,467
Up 12%
Previous corresponding year $113,326

Profit from ordinary activities after tax attributable to security holder.
Current year $5,228
Up 321%
Previous corresponding year $(2,367)

Net profit attributable to security holders.
Current year $5,228
Up 321%
Previous corresponding year $(2,367) 1

( ) = denotes loss

2.Interim Dividend

Amount per security NZ 2 cents per share
Imputed amount per security NZ 0.8 cents per share
(Fully imputed)

Record Date 19 September 2013
Dividend Payment Date 26 September 2013
There is no dividend reinvestment plan in place.

3. Net Tangible Assets Per Security

As at 30 June 2013 $2.13
As at 30 June 2012 $1.97

COMMENTARY

Improving margins and a return to reliable processing during the first half
of 2013 has seen Refining NZ report an interim net profit after tax of $5.2
million for the six months ended 30 June 2013, a turnaround from the net loss
reported a year ago (2012: $2.3 million). Earnings before interest, tax and
depreciation (EBITDA) were $45 million (2012 $30 million).

Describing the result as better than the 2012 Half Year, Chairman of the
Northland based company, David Jackson said it had been achieved in
challenging business conditions early in the year.

"Processing fee revenue in the first quarter was negatively impacted by weak
Refiners' margins, the strong New Zealand dollar, delayed crude deliveries
and an unplanned outage at the refinery.

"However, the reliable processing on the hydrocracker and supporting units
after planned maintenance in February coincided with the steady improvement
in Refiners' margins which we were able to capitalise on.  By maximising our
throughput in the last three months we've been able to gain back much of the
ground lost by the relatively disappointing start to the year."

Jackson said that Refiners' margins have continued to improve throughout July
but cautioned that the Company did not expect this recovery to be sustained.

"There is still an excess of capacity in global refining and this will drive
further margin volatility while the relative strength of the New Zealand
dollar continues to pressure our earnings."

KEY PERFORMANCE HIGHLIGHTS

The Company's margin uplift over Singapore Complex margins was maintained
throughout the period and was boosted by a steady improvement in the second
quarter, particularly in June.

The first half performance was notable for the improving utilisation of key
processing units. An excellent operational performance on upgrading
processing units saw the hydrocracker operating at near maximum levels from
March onwards. The Company continues with a rigorous focus on throughput,
underlying plant reliability, energy efficiency and costs.

The $365 million Te Mahi Hou project is progressing to plan. Fabrication of
key processing units is well underway with delivery dates later in the year.
Preparation of the foundations for the CCR unit is advancing. To date $118
million has been invested in the project.

The refresh of the Company's business strategy in May has generated a plan of
activity which will ensure the Company is able to compete in the
ultra-competitive Asia Pacific region. Cost management measures initiated as
part of that plan, are already producing positive results.

BUSINESS ENVIRONMENT

David Jackson said the Company's Gross Refinery Margin (GRM) was relatively
healthy at the Half Year, with the average (GRM) generated in the first six
months at USD 5.27 barrel (2012: USD 4.36).

"Our GRM is also influenced by global demand, where a combination of sluggish
growth in European economies and slower than expected growth forecasts for
the Chinese economy, has contributed to a falling off in demand for oil
products."

"At the same time Global refining capacity remains ahead of forecast oil
demand. The trimming of outlooks for 2013 oil demand growth by the key
agencies (OPEC, EIA, IEA2) is notable and clearly colouring market
sentiment."

"The strong New Zealand dollar also had a marked influence on the Company
result.  In the first six months of the year the rate averaged USD 0.82
(2012: USD 0.80) and negatively impacted processing fee revenue. We expect
that foreign exchange volatility will continue for the foreseeable future,"
he said.
RELIABILITY AND PLANT PERFORMANCE
The reliable running of the Refinery's processing units requires periodic
shut down for asset inspection and essential maintenance work. In February
the Company carried out a ten day planned maintenance shutdown for catalyst
replacement on the hydrocracker unit (top bed skim).
Said Jackson: "The maintenance programme was successfully completed, however,
after the shutdown a steam leak on the hydrogen manufacturing unit needed
repairing and resulted in a five day unplanned outage on the hydrocracker
unit. During this period we worked closely with our customers to minimise the
impact to their business and to help ensure the country's fuel supplies were
maintained."
STRATEGY REFRESH

In May, the management team led by Chief Executive, Sjoerd Post embarked on a
refresh of the strategic plan for the next 5-10 years, working with the Board
and external experts to assess the Company's competitive position and agree a
way forward.

Sjoerd Post said that the scale of change in the refining sector meant it was
timely to look again at the Company's strategy.

"Refining in the Asia Pacific region has become ultra-competitive with the
recent spate of new manufacturing capacity coming on stream and more to come.
This definitely gives customers more supply choices, but we can influence
their decision to "make-or-buy" with a compelling proposition based on
continuing to produce high quality "on spec" products; a relentless focus on
reliability proven by world class rates of unplanned downtime; and being
competitive on price."

Post said that a strategic plan of action aimed at delivering value for
shareholders, has been developed, focusing on managing the Company's cost
base, and generating more of the high-value products from the same barrel of
crude oil.

TE MAHI HOU

Sjoerd Post confirmed that the Te Mahi Hou project is progressing to plan.

"Modifications to existing structures have now been completed, including the
removal of two crude component tanks in June. Excavating the foundations for
the CCR unit has begun in preparation for a concrete pour while fabrication
of key units is on target with delivery from September onwards."

"When Te Mahi Hou is completed late 2015, it is expected to generate a
structural uplift in processing fee revenue of circa $70 million per annum
and increase margin by around USD 1.10 per barrel. To date the Company has
invested $118 million on this key project," he said.

SHAREHOLDER RETURNS

David Jackson confirmed the Directors declaration of a fully imputed Interim
Dividend of 2 cents to be paid on 26 September 2013 with a record date of 19
September 2013.

"In setting the dividend the Directors have taken into account the impact of
continued margin and exchange rate volatility on the Company's financial
performance, as well as the forward looking debt profile for the Te Mahi Hou
project."

FUTURE OUTLOOK

"The pickup in Refiners' margins seen in the second quarter of the year has
continued into July. However, we expect this recovery will be relatively
short lived, as margins fall back in the coming month and remain volatile for
the remainder of the year. The Directors are confident that the Company is
well placed to weather future volatility and that the strategic action plan
will sharpen Refining NZ's ability to compete successfully in the Asia
Pacific region," he said.

The Company has issued a revised profit matrix based on the June 30, 2013
result and the outlook for the remainder of the year and is attached as
Appendix I.

ENDS
For further information contact:
Greg McNeill
Communications and External Affairs Manager, Refining NZ
T: 09 432 82311; M: 021 873 623; E: [email protected]
End CA:00240095 For:NZR    Type:HALFYR     Time:2013-08-23 09:41:09