NZR
30/04/2013 15:47
MEETING
REL: 1547 HRS The New Zealand Refining Company Limited
MEETING: NZR: Annual Meeting- Chairmans Address
Chairman's Address
It is a pleasure to welcome you all to Refining NZ for this Annual Meeting of
shareholders.
This meeting has a full agenda to work through, but before I review the
Company's performance in 2012 I would first like to comment on the
resolutions put by shareholder, Mr Bryan Halliwell.
I do so principally because these are matters that have been raised and dealt
with by previous annual meetings, but also because some shareholders have
received correspondence from Mr Halliwell ahead of this meeting concerning
these resolutions.
The Board is required, pursuant to the Companies Act 1993 and the
constitution of the Company to put the resolutions before shareholders: - the
notice of meeting sets out the resolutions with a supporting statement by Mr
Halliwell.
These matters are not new. The Company, and in particular myself and fellow
Independent Directors, Peter Springford and Andrew Clements have been dealing
with the matters raised by Mr Halliwell since 2009.
o Shareholders will remember that Mr Halliwell proposed a resolution dealing
with the same matters at the AGM in 2010 - and that the resolution was
defeated by a majority of 98.9 percent.
o Another resolution was proposed in 2011 but was withdrawn by Mr Halliwell
before the Annual meeting.
o Since 2009 the Independent Directors and Management have invested
considerable time and effort on correspondence and meetings with Mr
Halliwell. The Company has sought legal advice and the Company's lawyers have
been instructed to respond on Refining NZ's behalf with respect to the
matters raised by Mr Halliwell. In addition to that advice received by the
Company the Independent Directors have considered it appropriate to take
their own, independent legal advice.
Speaking on behalf of my fellow Directors I wish to highlight for
shareholders the Board's growing concern that repeatedly dealing with these
matters raised by one shareholder is diverting management. Given the
difficult business environment the Company encountered in 2012 and the
likelihood of this continuing in 2013, the need for management to retain its
business focus is absolutely crucial. To be clear, their focus right now
should be to:
o Run a critical New Zealand manufacturing business - safely, reliably, and
profitably - in an environment marked by ongoing market volatility;
o Run a refinery that is capable of matching the growing competition from
bigger, newer Asia Pac refineries, in a sector where, with increasing
regularity, lesser competitors are being sold, closed for good, mothballed or
converted to import terminals.
The amount of time and resource spent on dealing with the issues raised by Mr
Halliwell has also come at some cost to the Company, with a not insignificant
amount already spent on legal fees.
And yet, Mr Halliwell continues to press his case.
Mr Halliwell will have the opportunity to speak to these resolutions later in
the meeting however, I would like shareholders to note that the Company's
Independent Directors disagree with the motions put forward by Mr Halliwell
and have advised shareholders to vote against the motions.
Turning now to the Company's financial results
2012 was year of contrasting halves with a disappointing loss in the first
six months turned around on the back of record processing to post a profit
after tax of $32.7 million for the year. Earnings before interest, tax,
depreciation and amortisation (EBITDA) were $113.5 million, down 14 percent
on the previous year.
2012 was marked by increasingly difficult business conditions with the
ongoing weakness in the US dollar and volatile refiners' margins both
weighing heavily on our performance in the first half. However, by retaining
a focus on the safe and reliable running of our refinery we were able to
capitalise on an improvement in refiners' margins .This ability to
continually lift operational performance has been critical to achieving a
better than expected financial result for the full year.
Refiners' margins began the year weak and remained so through the first half,
but steadily improved -especially in the last quarter - where we saw a marked
uplift in our margin over Singapore. The average GRM achieved for the year
was US$5.77, which compares to US$6.11 for the previous year. We are not
expecting the uplift in margin late in the year to be sustained and consider
it likely that the margin volatility experienced in 2012 will continue
through 2013.
The New Zealand dollar remained strong against its US counterpart and this
continued to significantly impact our processing revenue. In 2012 the average
exchange rate for the year was US$ 0.81 which compares to US$ 0.79 for the
previous year. We are not expecting the New Zealand dollar to weaken
appreciably against the US dollar in the short term.
The company's ability to generate strong cashflows from operations continues
to underpin a strong balance sheet. Strong free cashflows of $55 million
allowed us to invest further in Te Mahi Hou, shareholder dividends and
ensuring the integrity of the Company's assets.
The strength of the Company's balance sheet was further bolstered by a
prudent approach to managing debt with borrowings at the year end standing at
$62 million. This careful management of debt leaves substantial room in our
facilities to meet the future capital needs of the Company.
At this meeting last year we talked of the need to reconsider the company's
approach to debt. While a focus on de-leveraging was prudent during the
Global Financial Crisis the Board recognized the need to consider whether
this is appropriate for the long term capital structure of the Company.
In 2012 a review undertaken by independent banking consultants made a number
of recommendations about the Company's optimal capital structure. These will
form part of a wider review of business strategy to be conducted later in the
year, a review that will also take account of the increased capital
requirements of Te Mahi Hou as it progresses towards commissioning in late
2015, and dividend policy.
Taking into account the Company's strong balance sheet, especially in a
challenging business environment, the Directors resolved to pay a final
dividend of five cents per share with full imputation credits attached. With
the interim dividend of two cents paid on 20 September 2012 the total
dividend amounted to seven cents per share for the year.
The 2012 full year result achieved by the Company is a credit to our team of
talented and committed individuals. It also justifies our policy of continued
investment in a reliable manufacturing operation that customers can depend on
for high quality transport fuels.
Turning now to the Company's operational performance
Personal safety as well as the safety of the working environment at the
refinery - is top of mind for our people. Their continued commitment to safe
working through the Health and Safety Action Plan meant that between May 2010
and July 2012 (when a back strain resulted in lost time) there were no
incidents requiring staff or contractors to be off work as a result of a work
related injury. Over this period we achieved 2.7 million hours without a lost
time injury.
Our safety performance was rewarded with the Safeguard New Zealand 2012
Health & Safety Award for the Best Initiative to Encourage Engagement in
Health & Safety. The Company was also at the forefront of promoting awareness
of process safety initiating a cross industry forum for New Zealand
manufacturers, and working to establish a technical advisory group for the
Business Leaders Health & Safety Forum.
Despite our safety achievements we had three recordable cases in 2012, all of
them avoidable and we fell short of our aspiration to a world-class health
and safety performance. As part of the Company's Health and Safety Plan we
are striving to ensure such incidents are not repeated. The safety of our
people and our processes will receive continued focus in 2013 as we undertake
two planned shutdowns and construction on Te Mahi Hou gathers pace.
Investing cash in the integrity of the refinery's processing assets - through
inspection, maintenance and refurbishment ensures our refinery can continue
to run reliably and safely. Reliable performance also underpins our ability
to compete with imported product from around the world - especially the
newer, bigger Asia Pacific (Asia Pac) refineries.
A key measure of our reliability is the annual rate of unplanned downtime. In
2012 the rate achieved was 0.6 percent, better than the 1 percent target for
the year and an improvement on the previous year (1.4 percent).
In February 2012 the Company carried out a seven day shutdown on the
hydrocracker unit for emerging maintenance and in April, a 17 day shutdown
sustained the processing performance on the Platformer and Crude Distiller
units. Both shutdowns were executed safely, with no personal or process
safety incidents, within budget and to the timeframe agreed with the
Company's customers.
Our Customers depend on us to be reliable - at the same time there is a
constant imperative to achieve high rates of operational availability in
order for the refinery to remain fully loaded by our Customers.
In 2012 good operational performance saw the Company achieve a number of
records:
o Overall crude throughput at 42.1 million barrels was ahead of the
refinery's previous best, and up two percent on the previous year.
o Throughput on the Refinery's crude distillation unit grew 16 percent (ahead
of the 15 percent capacity growth business case for the 2009 Point Forward
project investment.
o Distillate outturn of 33.6 million barrels was up four percent on the
previous year (2011: 32.3 million barrels).
When our customers can depend on us to meet their needs they are more likely
to make us their supplier of choice for high quality transport fuel products
ahead of imports.
Competition in the global refining sector will increase, with capacity growth
through to 2017 expected to exceed oil demand. We will need to lift our
performance if we are to successfully compete in the Asia Pac region.
Underpinning our ability to compete is the $365 million Continuous Catalyst
Regeneration Platformer (CCR) Project. Approved by shareholders in April
2012, and officially named The New Venture - Te Mahi Hou (Te Mahi Hou) - the
project is progressing safely and to plan.
o $81 million has already been spent on the project, including the front end
engineering and design costs;
o Detailed engineering is progressing, orders for long lead and key equipment
have been placed and modifications made to existing equipment ahead of the
CCR site preparation.
Te Mahi Hou will provide a major impetus to the Company's competitive
position and generate sustained value for shareholders over the longer term
through a structural lift in our financial performance:
o GRM is expected to lift by US $1.10 per barrel (2012 dollar terms);
o Processing fee revenue by $70 million;
o EBITDA by $60 million.
In April the Independent Directors recommended that the processing
arrangements with Refining NZ customers be reviewed by independent oil
industry experts, Purvin & Gertz
o The Company's processing arrangements are reviewed annually by the
Independent Directors and Refining NZ management to ensure the arrangements
remain fit for purpose and are fair to all shareholders.
o As part of this annual review the Independent Directors have triggered two
further external reviews by Purvin & Gertz in 2009 and 2012, respectively,
both confirming that the processing arrangements remain reasonable.
o To quote directly from the Purvin & Gertz 2012 report: "over the 15 year
period from 1997 to 2011, the current processing fee arrangements, between
Refining NZ and the Customers is considered to be generally reasonable to all
parties, relative to the risk borne by Refining NZ and the customers."
2012 saw a number of personnel changes on the Board. During the year Director
Mike McGuinness representing BP Oil New Zealand resigned and was replaced by
Matthew Elliott. Glenn Henson representing Mobil Oil New Zealand also
resigned and was replaced by Andrew Warrell. Thanks to Mike and Glenn for
their valuable contribution to Refining NZ during their time as Directors.
This Annual Meeting will also see a change to our Independent Directors with
Andrew Clements stepping down after twelve years association with the
Company: - firstly as an alternate director for Emerald Capital Investments
and since February 2008, as an Independent Director. On behalf of the Board I
wish to thank Andrew ("Clem") for his outstanding and insightful
contributions over the years and for the high level of professionalism he
brought to his duties as an Independent Director. We are currently in the
process of searching for an Independent Director to replace Andrew.
Chief Executive Officer, Ken Rivers was farewelled in December. He has been
replaced by Sjoerd Post, who joined Refining NZ in January from Shell
International Petroleum Company Ltd, where before his resignation, he was
Executive Vice President, Downstream Strategy and Porfolio activities.
Sjoerd was appointed after a broad international search, where he proved
himself a very strong candidate for this critical position. The Board firmly
believes that the skills and experience he brings to the Chief Executive role
are not only a good match for the challenges the Company faces, but that he
will build on the strategic direction and performance improvement journey
that Refining NZ is on.
Looking ahead
In February we reissued our profit matrix for the coming year which sets out
our profitability expectations based on a series of foreign exchange and
refiners' margin scenarios. A copy of the matrix issued as part of a
presentation to investment analysts on the 28th of February, is available on
the New Zealand Stock Exchange and the Company's website.
In 2013 the Company will be reviewing the business strategy that was
established five year ago. Since it was adopted we have seen significant
structural changes in global refining, increased competition from refiners in
the Asia Pacific region and a customer change in the New Zealand. The
management team has taken this into account and consider it appropriate to
conduct a full strategic review in 2013.
We expect business conditions to remain difficult in 2013 with the volatility
in refiners' margins and the exchange rate likely to continue. However, the
Directors consider the Company is well placed to counter this through strong
revenue generation, and continued improvement in safety and operational
performances that ensure Refining NZ continues to provide its customers with
high quality fuel products.
David Jackson
Chairman
Refining NZ
End CA:00235672 For:NZR Type:MEETING Time:2013-04-30 15:47:48
