Ann: HALFYR: NZR: Results for the six months ende

• Release Date: 23/08/12 16:53
• Summary: HALFYR: NZR: Results for the six months ended 30 June 2012
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NZR
23/08/2012 14:53
HALFYR

REL: 1453 HRS The New Zealand Refining Company Limited

HALFYR: NZR: Results for the six months ended 30 June 2012

Reporting Period 6 months to 30 June 2012
Previous Reporting Period 6 months to 30 June 2011

This report, including the results for the previous corresponding half year,
is consistent with the unaudited interim financial statements of The New
Zealand Refining Company Limited for the six months ended 30 June 2012.

Consolidated Results

1. Results $NZ 000

Revenue from ordinary activities
Current half year $113,326
Down 28.2%
Previous corresponding half year $157,877

Profit (loss) from ordinary activities after tax attributable to security
holder
Current half year ($1,532)
Down 104.9%
Previous corresponding half year $31,181

Net profit (loss) attributable to security holders
Current half year ($1,532)
Down 104.9%
Previous corresponding half year $31,181

2.Interim Dividend

Amount per security NZ 2 cents per share
Imputed amount per security NZ 0.78 cents per share
(Fully imputed)

Record Date : 13 September 2012
Dividend Payment Date : 20 September 2012
There is no dividend reinvestment plan in place.

3. Net Tangible Assets Per Security

As at 30 June 2012 $1.94
As at 30 June 2011 $2.16

Commentary

A combination of weaker than expected refiners' margins and the continued
strength of the New Zealand dollar has seen the Company report an interim net
loss  after tax of $1.5 million for the six months ended 30 June 2012, [2011:
31.2 million Net Profit After Tax]. Earnings before interest, tax and
depreciation (EBITDA) were $30 million (2011 $85 million).

While disappointing, in the current context of sustained volatility in global
refining this net loss represents a stable first half year result, delivered
through a rigorous focus on throughput, underlying plant reliability, energy
efficiency and costs. When the average refiners' margin and US dollar
exchange rate are accounted for, this result is still ahead of the profit
matrix issued in February.

This first half year result is also reflective of a change in the Company
depreciation policy, signalled by the Board at the Company Annual Meeting in
April. The Directors considered the existing policy of depreciating refining
assets over 20 years overly aggressive considering Refining NZ's well
maintained processing units. This review of the remaining useful lives of all
items of Property, Plant and Equipment (including the Refinery to Auckland
pipeline) has generated a lower depreciation charge of around $8.6 million
for the six months ending 30 June 2012.

Business Environment

Refiners' margins have remained weak throughout the first six months of the
year.
The average Gross Refinery Margin (GRM) generated in the first half of the
year was USD 4.36 per barrel [2011: USD 6.56]. Continuing poor growth in
global economies, in particular, slowing growth in China and India, has
contributed to a falling off in demand for oil products.

The impact on the profitability of our competitor refineries is apparent with
closures continuing in Europe, the US and Australia, where Shell brought
forward the closure of its Clyde refinery and Caltex Australia revealed plans
to close Kurnell near Sydney. Further reduction of the overcapacity in the
global refining sector will go some way to easing the pressure on refiners'
margins.

The strong New Zealand dollar has also had a significant influence on the
interim financial result. In the first six months of the year the rate
averaged USD 0.80 cents compared to USD 0.78 for the 2011 comparative period.
This has negatively impacted processing fee revenue in the first half of the
year and we fully expect that foreign exchange volatility will continue in
the foreseeable future.

Safety
The safe and reliable running of the refinery is the foremost priority for
employees and contracting companies. In May, the Company's innovative Safety
Warrior campaign won 'best initiative to encourage engagement in Health and
safety' at the New Zealand Safeguard awards.
In July, the Company recorded a Lost Time Incident (LTI). This was
unfortunate and comes after achieving 2.7 million hours without an LTI.  The
minor back strain was the first LTI recorded by the Company since May 2010, a
great achievement for our employees and contractor workforce and testament to
the culture of safety being generated through the Company's safety action
plan.

Reliability and Plant performance

Reliability is critical as an indicator of our asset integrity and process
safety. It underpins Refining NZ's financial performance and our ability to
meet the needs of our customers and stakeholders. To help ensure the on-going
reliability of the plant we periodically have to shut down processing units
to conduct asset inspections and maintenance work.
In February the Company carried out a seven day planned outage for
maintenance on the hydro-cracker re-cycle gas compressor. Our ability to
upgrade the refiners' margin by turning lower cost feed stocks into high
value products was adversely impacted during that period.
In April/ May both margin and throughput were impacted by a planned
maintenance shutdown of the Platformer and Crude Distiller Unit for 17 days.
The shutdown was free of incident and completed successfully to plan.
The combination of these two shutdowns impacted revenue by around $12 million
for the period.  The annualised impact on the margin is around USD0.30 per
barrel.

CCR Project

Shareholder approval of the $365 million Continuous Catalyst Regeneration
Platformer Project on 27 April 2012 was a highlight of the first six months.

The project has now been officially named by the Company and will be known as
The New Venture, Te Mahi Hou.  The use of a dual title for the project
recognises the significance of Northland to New Zealand's history of
settlement and our continuing relationship with local hapu, Patuharakeke.

The Project is progressing to plan. A strong New Zealand dollar has enabled
the Company to take advantage of attractive hedging rates to cover the
exposure to foreign exchange risk.  Orders totalling circa USD 90 million
have been placed for all long lead equipment and materials.

Te Mahi Hou will provide a significant step towards achieving the Company's
aims and upon commissioning will improve profitability; strengthen Refining
NZ's competitive position to deliver improved returns to shareholders.

Capital Structure and Dividend Policy

At the same time as announcing the review of depreciation policy, the Board
highlighted its intention to carry out a review on the optimal capital
structure of the company and future dividend policy.  This work is
progressing and the Directors will advise the market once the review has been
completed.

Accounting for Defined Benefit Pension Schemes

The financial statements at 30 June 2012 include an accounting valuation of
the defined benefit pension plan liability of $63.2 million, as prepared
under the Financial Reporting Standards (NZ IAS 19 - Employee Benefits).
This compares to the funding valuation for the same period, which indicates a
net liability of $7.3 million.

The differing valuations arise due to the discount rate used in each to
assess the Plan's liabilities. The accounting valuation requires a risk free
rate to be used, while the funding valuation adopts a rate that reflects the
expected long term future returns of the Plan.

The Directors consider it appropriate to provide additional information
regarding the financial position of the Plan, which the Directors consider is
integral to the truth and fairness of the financial statements.

Future Outlook

Refiner's margins have strengthened slightly since the end of June.  This
improvement may continue but it is uncertain whether this will be sustained
across the remainder of the year.

The revised profit matrix (attached as Appendix I) is based on the June 30,
2012 result and the outlook for the remainder of the year.

Shareholder Returns

The Directors have declared that a fully imputed Interim Dividend of two
cents be paid on 20 September 2012 with a record date of 13 September 2012.
In setting the dividend the Directors were mindful of the impact of continued
margin and exchange rate volatility on the Company's financial performance,
the debt profile of Te Mahi Hou going forward and the current review of the
Company's dividend policy.

Shareholder communications
In June Refining NZ was again recognised for the excellent standard of its
financial reporting to shareholders, winning a gold award at the prestigious
Australasian Reporting Awards for the Company's 2011 Annual Report. This is
the third year the Company has been recognised and the second gold award in a
row. This is a valuable opportunity for the Company to benchmark its standard
of reporting against the best organisations in Australia and New Zealand.
Appointment of Chief Executive Officer
In July the Board announced the appointment of Mr Sjoerd Post to succeed Ken
Rivers as Refining NZ's Chief Executive Officer.
Sjoerd Post is Executive Vice President Downstream Strategy & Portfolio of
Shell International Petroleum Co Ltd and has 30 years with Shell in a variety
of leadership, technical and strategic role. Sjoerd has resigned from Shell,
effective from 31 December 2012, and will take up his position with Refining
NZ in January 2013.
Independent Directors review of Processing Fee Arrangements
As part of an annual review of the processing arrangements with management,
the Independent Directors have determined that an external review of the
arrangements will be conducted by independent industry consultants, Purvin
and Gertz.  The Independent Directors will report back to shareholders after
the review has been completed.

For more information contact: Greg McNeill, Communications and External
Affairs Manager, Refining NZ
T: 09 4328311; M: 021 873623; E: [email protected].
ENDS.
End CA:00226370 For:NZR    Type:HALFYR     Time:2012-08-23 14:53:30