Refining nZ INTERIM REPORT 2013 (1.8) Proce ss ing F ee - Six months to 30 J un e 201 3 (93.9) Proce...

Refining nZ

INTERIM REPORT

2013

Contents

About this reportThis Interim Report of The New Zealand Refining Company Limited is for the six months ended 30 June 2013 and was approved for issue by the Board of Directors on 23 August 2013. The Company trades as Refining NZ and so references to this name relate to the Company as a legal entity.

2 group performance summary

3 Chairman’s Report

5 2013 Revised profit matrix

6 interim financial Statements

6 Consolidated Interim Income Statement

7 Consolidated Interim Statement of Comprehensive Income

8 Consolidated Interim Balance Sheet

10 Consolidated Interim Statement of Changes in Equity

11 Consolidated Interim Statement of Cash Flows

12 Notes to the Consolidated Interim Financial Statements

18 Corporate directory

For and on behalf of the Board:

D A JACKSOn Director

P M SPRingfORD Director

Group performance summary 30 JuNE 2013 30 JuNE 2012

OPeRATing ReSULTS

operating revenue ($000) 126,023 112,981

Net profit/(loss) before income tax ($000) 7,430 (3,225)

Net profit/(loss) after income tax ($000) 5,285 (2,322)

SHARe inDiCATORS

Net asset backing (per share) $2.14 $1.98

earnings per share (annualised) 4 cents (2) cents

nUMBeRS

Shareholders 3,713 3,812

employees 410 389

Processing Fee Revenue• RevenueearnedfromprocessingfeesisthemaincomponentofOperatingRevenueasdisclosedinnote2.

• ProcessingFeesearnedforthesixmonthsended30June2013,were20%higherthanthepreviouscorrespondingfinancialperiod.

• TheCompany’sprocessingfeerevenueisimpactedbytherefiners’margin(differencebetweenproductandfeedstockpricesintheinternationalmarkets),volumeoffeedstockprocessedandtheexchangerate.Thekeyvariablesforthesixmonthsended30Junecanbesummarisedasfollows:

fOR THe SiX MOnTHS enDeD 30 JUne 2013 2012

KeY VARiABLeS:

intake (‘000 Barrels) 20,984 20,522

Gross refining Margin (USD/Barrel) 5.27 4.36

Average USD exchange rate 0.82 0.80

• Thegraphbelowshowstheimpactofthemovementinthekeyvariables,whencomparingprocessingfeerevenuesforthesixmonthsended30June2013tothepreviouscorrespondingfinancialperiod(30June2012).

Processing fee 2012-2013 ($ million)

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Margin (16.7)

Exchange Rate(-2.5)

Intake (1.8)

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ProcessingFee - Sixm

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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 of the net loss reported a year ago (2012: $2.3 million1). earnings before interest, tax and depreciation (eBiTDA) were $45 million (2012: $30 million).

Chairman’s Report Half Year 2013

While better than the 2012 Half Year this result has been achieved in challenging business conditions early in the year. Processing feerevenueinthefirstquarterwasnegativelyimpactedbyweakRefiners’margins,thestrongNewZealanddollar,delayedcrudedeliveries and an unplanned outage at the refinery.

However,thereliableprocessingonthehydrocrackerandsupporting units after planned maintenance in February coincidedwiththesteadyimprovementinRefiners’marginswhichwewereabletocapitaliseon.Bymaximisingourthroughputinthelastthreemonthswehavebeenabletogainback much of the ground lost by the relatively disappointing start to the year.

Refiners’marginshavecontinuedtoimprovethroughoutJulybutthe company does not expect this recovery to be sustained. there isstillanexcessofcapacityinglobalrefiningandthiswilldrivefurthermarginvolatility,whiletherelativestrengthoftheNewZealand dollar continues to pressure our earnings.

Key performance highlights • TheCompany’smarginupliftoverSingaporeComplex

Marginswasmaintainedthroughouttheperiodandwasboosted by a steady improvement in the second quarter, particularlyinJune.

• Thefirsthalfperformancewasnotablefortheimprovingutilisation of key processing units. An excellent operational performanceonupgradingprocessingunitssawthehydrocracker operating at near maximum levels from March onwards.TheCompanycontinueswithitsrigorousfocusonthroughput, underlying plant reliability, energy efficiency and costs.

• The$365millionTeMahiHouprojectisprogressingtoplan.Fabricationofkeyprocessingunitsiswellunderwaywithdelivery dates later in the year. Preparation of the foundations for the ccr unit is advancing. to date $118 millionhasbeenspentontheproject.

• TherefreshoftheCompany’sbusinessstrategyinMayhasgeneratedaplanofactivitywhichwillensuretheCompanyisable to compete in the ultra-competitive Asia Pacific region. cost management measures initiated as part of that plan, are already producing positive results.

Business environmentTheCompany’sGrossRefineryMargin(GRM)wasrelativelyhealthyattheHalfYear,withtheaverageGRMgeneratedin the first six months at USD 5.27 barrel (2012: USD 4.36).

OurGRMisalsoinfluencedbyglobaldemand,whereacombinationofsluggishgrowthinEuropeaneconomiesandslowerthanexpectedgrowthforecasts 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 for2013oildemandgrowthbythekeyagencies(oPec, eiA, ieA2) is notable and clearly colouringmarketsentiment.ThestrongNewZealand dollar also had a marked influence on the company result. in the first six months of the year the rate averaged US 82 cents (2012: US 80 cents) and negatively impacted processing fee revenue. We expect that foreignexchangevolatilitywillcontinueforthe foreseeable future.

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future outlookThepickupinRefiners’marginsseeninthesecondquarteroftheyearhascontinuedintoJuly.However,weexpectthisrecoverywillberelativelyshortlived,asmarginsfallbackinthe coming month and remain volatile for the remainder of theyear.TheDirectorsareconfidentthattheCompanyiswellplacedtoweatherfuturevolatilityandthatthestrategicactionplanwillsharpenRefiningNZ’sabilitytocompetesuccessfully in the Asia Pacific region.

the company has issued a revised profit matrix based on the June30,2013resultandtheoutlookfortheremainderoftheyear. this is included on page 5 of this interim report.

Board appointmentsin the first six months of the year the company confirmed a number of key appointments to the Board.

InApril,IndependentDirectorAndrewClementsstooddownafter12yearsassociationwiththeCompany.OnbehalfoftheBoardIwishtothankAndrewforhisoutstandingcontributionover the years and for the high level of professionalism he brought to his duties as an independent Director.

InMay,VanessaStoddartwasappointedasanIndependentDirector after a broad international search. Vanessa has 25 years experience in legal, manufacturing, packaging, airline andengineeringindustries–includingroleswithCarterHoltHarveyandAirNewZealand.TheBoardbelievesVanessa’sskillsandexperiencewillcomplementthatofherfellowDirectorsandcontributegreatlytotheCompany’sperformance improvement strategy.

AlsoinMay,PeterMorriswhorepresentedtheinterestsofChevronNewZealandresignedandhasbeenreplacedbyDeanGilbert,GeneralManagerChevronNewZealand.

Reliability and plant performancePeriodicshutdownforassetinspectionandessentialmaintenance is critical for the reliable and safe running of the Refinery’sprocessingunits.

in February, the company carried out a 10 day planned maintenanceshutdownforcatalystreplacementonthehydrocracker unit (top bed skim). the maintenance programmewassuccessfullycompleted,however,aftertheshutdownasteamleakonthehydrogenmanufacturingunitneeded repairing and resulted in a five day unplanned outage onthehydrocrackerunit.Duringthisperiodweworkedcloselywithourcustomerstominimisetheimpacttotheirbusinessandtohelpensurethecountry’sfuelsuppliesweremaintained.

Strategy refreshin May, the management team led by chief executive, SjoerdPostembarkedonarefreshofthestrategicplanfor thenext5-10years,workingwiththeBoardandexternalexpertstoassesstheCompany’scompetitivepositionandagreeawayforward.

ThescaleofchangeintherefiningsectormeantitwastimelytolookagainattheCompany’sstrategy.RefiningintheAsiaPacificregionhasbecomeultra-competitivewiththerecentspateofnewmanufacturingcapacitycomingonstreamandmore to come. this definitely gives customers more supply choices,butwecaninfluencetheirdecisionto‘make-or-buy’withacompellingpropositionbasedoncontinuingtoproducehighquality‘onspec’products;arelentlessfocusonreliability,provenbyworldclassratesofunplanneddowntime;andbeingcompetitive on price.

A strategic plan of action aimed at delivering value for shareholders, has been developed focusing on aggressively managingtheCompany’scostbase,andgeneratingmoreofthe high-value products from the same barrel of crude oil.

Te Mahi HouTheTeMahiHouprojectisprogressingtoplan.Modificationstoexistingstructureshavenowbeencompleted,includingtheremovaloftwocrudecomponenttanksinJune.Excavatingthe foundations for the ccr unit has begun in preparation for aconcretepour,whilefabricationofkeyunitsisontargetwithdeliveryfromSeptemberonwards.

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 onthiskeyproject.

Shareholder returnsthe Directors have declared a fully imputed interim Dividend of2centsbepaidon26September2013witharecorddateof19 September 2013. in setting the dividend the Directors have taken into account the impact of continued margin and exchangeratevolatilityontheCompany’sfinancialperformance,aswellastheforwardlookingdebtprofilefortheTeMahiHouproject.

DAViD JACKSOn cHAirMAN

1. coMPArAtiVeS HAVe BeeN reStAteD to reFlect tHe cHANGe iN AccoUNtiNG PolicY iN ADoPtiNG iAS 19 (reViSeD) eMPloYee BeNeFitS. FUrtHer NoteS Are iNclUDeD oN PAGe 12 oF tHiS iNteriM rePort.

2. OPEC:-ORGANISATIONOFTHEPETROlEuMExPORTINGCOuNTRIES;EIA:-uSENERGYINFORMATIONAGENCY;IEA-INTERNATIONAlENERGYAGeNcY.

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2013 Revised profit matrixthe profitability of a refining business is largely dependent on refiners margins and the US$ exchange rate. these variables are largely outside our control and can have significant volatility. As a result it is difficult for the company to provide absolute forecasts ofprofitability;insteadweprovideaprofitmatrix.Thisindicatesourexpectednetprofitafterincometaxforgivenmarginandforeign exchange rates. throughput and costs (excluding interest and tax) are constant at all levels of the profit matrix.

The2013profitmatrixwasoriginallyissuedinFebruary2013.InAugustarevisedprofitmatrixwasissuedbytheCompanytoshow2013expectednetprofitaftertaxforarangeofmarginandexchangeratevariables.Therevisedmatrixisbasedontheactualprofitaftertax‘banked’at30June,plusourlatestestimateofcostsandthroughputfortheyear.

US$ eXCHAnge RATe YTD (JAn-JUn) 0.82 0.82 0.82 0.82 0.82 0.82 0.82

US$ eXCHAnge RATe fOReCAST (JUL-DeC) 0.65 0.70 0.75 0.80 0.85 0.90 0.95

Margin YTD forecast Margin full year margin US$/bbl US$/bbl US$/bbl $ million nPAT

5.27 2.00 3.67 (25) (27) (29) (31) (32) (34) (35)

5.27 3.00 4.62 (9) (12) (15) (18) (20) (22) (24)

5.27 4.00 4.65 7 2 (2) (5) (8) (11) (13)

5.27 5.00 5.14 22 17 12 8 4 0 (3)

5.27 6.00 5.63 38 31 25 20 16 12 8

5.27 7.00 6.12 54 46 39 33 28 23 19

5.27 8.00 6.70 69 60 52 46 40 35 30

5.27 9.00 7.09 85 75 66 58 52 46 40

ProDUctioN (BArrelS MillioN) 41NoN ProceSSiNG Fee reVeNUe ($ MillioNS) 66NoN cASH coStS ($ MillioNS) 74

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inCOMe

operating revenue 2 126,023 112,981

other income 444 345

TOTAL inCOMe 126,467 113,326

eXPenSeS

Purchase of process materials and utilities 31,382 35,474

Materials and contractor payments 11,798 10,978

Wages and salaries 25,792 24,854

Depreciation, amortisation and disposal costs 37,097 30,596

other operating losses 128 2,541

Administration and other expenses 12,297 10,587

TOTAL eXPenSeS 118,494 115,030

PROfiT/(LOSS) BefORe finAnCe COSTS 7,973 (1,704)

finAnCe COSTS

interest paid 602 1,596

interest received (59) (75)

neT finAnCe COSTS 543 1,521

Net profit/(loss) before income tax 7,430 (3,225)

less/(add) income tax 4 2,145 (903)

neT PROfiT/(LOSS) AfTeR inCOMe TAX 5,285 (2,322)

ATTRiBUTABLe TO:

OwnersoftheParent 5,228 (2,367)

Non-controlling interest 57 45

5,285 (2,322)

eARningS PeR SHARe fOR PROfiT ATTRiBUTABLe TO THe SHAReHOLDeRS Of Refining nZ CENTS CENTS

Basic earnings per share 1.87 (0.85)

Diluted earnings per share 1.87 (0.85)

THEABOVECONSOlIDATEDINTERIMINCOMESTATEMENTISTOBEREADINCONJuNCTIONWITHTHEACCOMPANYINGNOTES.

Consolidated Interim Income StatementFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

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2013 2012 ReSTATeD Note $000 $000


OTHeR COMPReHenSiVe inCOMe

items that will not be reclassified to the income Statement

Defined benefit actuarial gain/(loss) 18,942 (5,995)

DeferredtaxonitemsthatwillnotbereclassifiedtotheIncomeStatement (5,304) 1,678

Total items that will not be reclassified to the income Statement 13,638 (4,317)

items that may be reclassified to the income Statement

Movementincashflowhedgereserve 7,375 (1,870)

Deferred tax on items that may be reclassified to the income Statement (2,065) 524

Total items that may be reclassified to the income Statement 5,310 (1,346)

TOTAL OTHeR COMPReHenSiVe inCOMe/(LOSS), neT Of TAX 18,948 (5,663)

TOTAL COMPReHenSiVe inCOMe/(LOSS) fOR THe PeRiOD 24,233 (7,985)

ATTRiBUTABLe TO:

OwnersoftheParent 24,176 (8,030)


24,233 (7,985)

THEABOVECONSOlIDATEDINTERIMSTATEMENTOFCOMPREHENSIVEINCOMEISTOBEREADINCONJuNCTIONWITHTHEACCOMPANYINGNOTES.

Consolidated Interim Statement of Comprehensive IncomeFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

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Consolidated Interim Statement of Comprehensive IncomeFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

30 JUne 31 DeCeMBeR 2013 2012 ReSTATeD Note $000 $000

ASSeTS

CURRenT ASSeTS

cash and cash equivalents 510 1,190

trade and other receivables 116,258 131,237

consumable stores and spares 11,544 11,779

intangible assets 321 612

income tax receivable 3,504 -

Derivative financial instruments 158 -

TOTAL CURRenT ASSeTS 132,295 144,818

nOn-CURRenT ASSeTS

Property, plant and equipment 836,171 802,034

intangible assets 415 732

Derivative financial instruments 1,274 -

TOTAL nOn-CURRenT ASSeTS 837,860 802,766

TOTAL ASSeTS 970,155 947,584

LiABiLiTieS

CURRenT LiABiLiTieS

Bank overdraft - 5

trade and other payables 108,754 130,162

income tax payable - 8,473

employee entitlements 5,202 6,699

Derivative financial instruments - 4,154

TOTAL CURRenT LiABiLiTieS 113,956 149,493

nOn-CURRenT LiABiLiTieS

Deferred tax 99,397 92,411

employee entitlements 9,770 9,763

restoration provision 7,082 6,741

Defined benefit pension plan obligation 19,178 36,684

Bankborrowings 8 122,000 62,000

Derivative financial instruments 86 2,039

TOTAL nOn-CURRenT LiABiLiTieS 257,513 209,638

TOTAL LiABiLiTieS 371,469 359,131

neT ASSeTS 598,686 588,453

Consolidated Interim Balance SheetASAT30JuNE2013(uNAuDITED)

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eQUiTY

contributed equity 212,400 212,400

Cashflowhedgereserve 851 (4,459)

retained profits 384,738 379,872

eQUiTY ATTRiBUTABLe TO OWneRS Of THe PARenT 597,989 587,813


TOTAL eQUiTY 598,686 588,453

THEABOVECONSOlIDATEDINTERIMBAlANCESHEETISTOBEREADINCONJuNCTIONWITHTHEACCOMPANYINGNOTES.


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COnTRiBUTeD CASH fLOW ReTAineD TOTAL nOn- TOTAL eQUiTY HeDge PROfiTS $000 COnTROLLing eQUiTY $000 ReSeRVe $000 inTeReST $000 $000 $000

AT 1 JAnUARY 2012 (restated) 212,400 (362) 373,793 585,831 590 586,421

COMPReHenSiVe inCOMe

Net (loss)/profit after income tax - - (2,367) (2,367) 45 (2,322)

Other comprehensive income

Movementincashflowhedgereserve - (1,870) - (1,870) - (1,870)

Defined benefit actuarial loss - - (5,995) (5,995) - (5,995)

Deferred tax on other comprehensive income - 524 1,678 2,202 - 2,202

TOTAL OTHeR COMPReHenSiVe inCOMe, - (1,346) (4,317) (5,663) - (5,663) neT Of inCOMe TAX

TRAnSACTiOnS WiTH OWneRS

Dividends paid - - (25,200) (25,200) (28) (25,228)

TOTAL TRAnSACTiOnS WiTH OWneRS - - (25,200) (25,200) (28) (25,228)

AT 30 JUne 2012 (restated) 212,400 (1,708) 341,909 552,601 607 553,208

AT 1 JAnUARY 2013 (restated) 212,400 (4,459) 379,872 587,813 640 588,453

COMPReHenSiVe inCOMe

Net profit after income tax - - 5,228 5,228 57 5,285

Other comprehensive income

Movementincashflowhedgereserve - 7,375 - 7,375 - 7,375

Defined benefit actuarial gain - - 18,942 18,942 - 18,942

Deferred tax on other comprehensive income - (2,065) (5,304) (7,369) - (7,369)

TOTAL OTHeR COMPReHenSiVe inCOMe, neT Of inCOMe TAX - 5,310 13,638 18,948 - 18,948

TRAnSACTiOnS WiTH OWneRS

Dividends paid - - (14,000) (14,000) - (14,000)

TOTAL TRAnSACTiOnS WiTH OWneRS - - (14,000) (14,000) - (14,000)

AT 30 JUne 2013 212,400 851 384,738 597,989 697 598,686

THEABOVECONSOlIDATEDINTERIMSTATEMENTOFCHANGESINEQuITYISTOBEREADINCONJuNCTIONWITHTHEACCOMPANYINGNOTES.

Consolidated Interim Statement Changes in EquityFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

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CASH fLOWS fROM OPeRATing ACTiViTieS

receipts from customers 124,538 105,576

Payments for supplies and expenses (55,687) (59,270)

Payments to employees (25,846) (24,203)

CASH geneRATeD fROM OPeRATiOnS 43,005 22,103

interest received 60 75

interest paid (262) (1,203)

GSt paid (2,986) (2,578)

income tax paid (14,505) (9,528)

(17,693) (13,234)

neT CASH infLOW fROM OPeRATing ACTiViTieS 7 25,312 8,869

CASH fLOWS fROM inVeSTing ACTiViTieS

Paymentsforproperty,plantandequipmentandcomputersoftware (71,987) (30,363)

Proceeds from sale of property, plant and equipment - 3

neT CASH USeD in inVeSTing ACTiViTieS (71,987) (30,360)

CASH fLOWS fROM finAnCing ACTiViTieS

Proceedsfromnon-currentbankborrowings 60,000 46,000

Dividends paid to shareholders (14,000) (25,228)

neT CASH infLOW fROM finAnCing ACTiViTieS 46,000 20,772

neT DeCReASe in CASH AnD CASH eQUiVALenTS (675) (719)

cash and cash equivalents at the beginning of the period 1,185 1,199

CASH AnD CASH eQUiVALenTS AT THe enD Of THe PeRiOD 510 480

THEABOVECONSOlIDATEDINTERIMSTATEMENTOFCASHFlOWSISTOBEREADINCONJuNCTIONWITHTHEACCOMPANYINGNOTES.

Consolidated Interim Statement of Cash FlowsFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

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these consolidated interim financial statements as at and for thesixmonthsended30June2013complywithNewZealandGenerallyAcceptedAccountingPractice(‘NZGAAP’)andhavebeenpreparedinaccordancewithNewZealandEquivalenttointernational Accounting Standard (‘NZ iAS‘) 34: interim Financial reporting and international Accounting Standard (‘iAS‘) 34: interim Financial reporting. the financial statements presentedare‘condensedinterimfinancialstatements’andshouldbereadinconjunctionwiththeannualfinancialstatements for the year ended 31 December 2012.

entities reporting

Thecondensedinterimfinancialstatementsforthe’Group‘arefor the economic entity comprising refining NZ (‘Parent‘ or ’Company‘)anditssubsidiary,IndependentPetroleumlaboratory limited. No separate Parent results are disclosed in these condensed interim financial statements.

the Parent and the Group are designated as profit oriented entities for financial reporting purposes.

Statutory base

RefiningNZisincorporatedinNewZealand,registeredunderthe companies Act 1993 and is an issuer pursuant to the Securities Act 1978.

the condensed interim financial statements have been prepared inaccordancewiththerequirementsoftheFinancialReportingAct 1993 and the companies Act 1993.

Accounting policies

the accounting policies used in the preparation of these condensedinterimfinancialstatementsareconsistentwiththose used in the previously published condensed interim financialstatementsasatandforthesixmonthsended30June2012 and the audited financial statements as at and for the year ended31December2012,exceptasdescribedbelow:

• NZIAS19(revised)‘EmployeeBenefits’.NZIAS19(revised) amends the accounting for employee benefits. the Group has applied the standard retrospectively in accordancewiththetransitionprovisionsofthestandard.the revised standard has impacted accounting for the definedbenefitpensionplan,asoutlinedbelow:

– Thestandardchangesthewayinwhichthedefinedbenefit plan expense is determined. the amendment replaces the interest cost on the defined benefit obligationandthereturnonplanassets,withanetinterest cost based on applying the discount rate to the net defined benefit asset or liability at the beginning of the year. this has increased the expense as the discount rateappliedtoassetsislowerthanthepreviouslyusedexpected return on assets. this has no effect on total comprehensive income as the increased expense is offset by an increase in the actuarial gain recognised in other comprehensive income.

– the discount rate applied to the expected defined benefit pension plan obligation has been amended from a net of tax rate to a gross of tax rate and continues to reflect the risk free rate of return.

– the effect of these changes has been to increase the expense by $1,160,000 for the six month period to June2012andincreasetheactuariallossby$5,995,000 for the same period. the defined pension liability recognised in the balance sheet has been restatedasat1January2012as$41,470,000(previously$62,781,000);30June2012$49,048,000(previously $63,204,000) and 31 December 2012 $36,684,000 (previously $59,316,000). As the prior year balances have been restated the December 2012 balance sheet is unaudited.

– the effect of the change in accounting policy on the statementofcashflowsandonearningspersharewasimmaterial.

• NZIFRS13‘FairValueMeasurement’.NZIFRS13measurement and disclosure requirements are applicable for the December 2013 year end. the Group has included the disclosures required by NZ iAS 34. See note 10.

the international Accounting Standards Board has issued a number of other standards, amendments and interpretations whicharenotyeteffectiveandwhichmayhaveanimpactontheGroup’sfinancialstatements.Thesearedetailedbelow.TheGroup has not yet applied these in preparing these financial statementsandwillapplyeachintheperiodinwhichtheybecome mandatory.

Standard Description Mandatory for Refining nZ Year ending

NZ iFrS 9 Financial instruments 31 December 2015 – classification and Measurement

the standard listed above is not considered likely to have a materialimpactontheGroup’sfinancialstatements.

1 Basis of preparation of consolidated interim financial statements

Notes to the Consolidated Interim Financial StatementsFORTHESIxMONTHSENDED30JuNE2013(uNAuDITED)

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2 operating revenue

FORTHESIxMONTHSENDED30JuNE 2013 2012 $000 $000

Comprises:

Processing fees 93,930 77,964

Natural Gas recovery 9,632 11,452

other refining related income 4,469 5,657

Government grant income 118 490

Refining ReVenUe 108,149 95,563

Distribution revenue 13,455 13,136

Operating lease income:

Wiri land and terminal 3,262 3,262

other 42 42

other operating income 1,115 978

TOTAL OPeRATing ReVenUe 126,023 112,981


3 Segment information

(a) Description of segments

the chief operating decision-maker has been identified as theleadershipTeam.ThisTeamreviewstheGroup’sinternalreporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

the leadership team considers the business from an operations perspective and assesses performance of ‘oil Refining’and‘Distribution’.

TheGroupisorganisedintotwomainbusinesssegments.

Oil Refining

TheCompanyownsandoperatesanoilrefinerylocatedatMarsden Point, 160 kilometres north of Auckland. the oil refineryisabletoprocessawiderangeofcrudeoiltypesimportedfromaroundtheworld.

Distribution

TheCompanyownsinfrastructuretosupportthedistribution of manufactured products to its customers. the refinery to Auckland pipeline transfers product to the Wiri oil terminal located in South Auckland. the Wiri oil terminal isownedbytheCompanyandisleasedtoitscustomers.

Other

other segments include the subsidiary company operations and properties. these have not been included in a reportable segment as they are not separately reported to the leadership team.

(b) Reporting measures

the leadership team assesses the performance of the operating segments based on a measure of net profit after income tax. this information is measured in a manner consistentwiththatintheconsolidatedinterimfinancialstatements.

the Group manages assets and liabilities on a central basis and therefore does not provide any segment information of this nature to the leadership team.

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3 Segment information cont.

(c) Segment results

30 JUne 2013 OiL Refining DiSTRiBUTiOn OTHeR TOTAL $000 $000 $000 $000

total operating revenue 108,149 16,717 3,404 128,270

inter-segment revenue - - (2,247) (2,247)

ReVenUe fROM eXTeRnAL CUSTOMeRS 108,149 16,717 1,157 126,023

other income - - 444 444

interest received (58) - (1) (59)

interest paid 602 - - 602

Depreciation, amortisation and disposal costs 33,492 3,434 171 37,097

income tax (1,190) 3,245 90 2,145

Net (loss)/profit after income tax (3,940) 8,344 881 5,285

30 JUne 2012 OiL Refining DiSTRiBUTiOn OTHeR TOTAL $000 $000 $000 $000

total operating revenue 95,562 16,399 3,086 115,047

inter-segment revenue - - (2,066) (2,066)

ReVenUe fROM eXTeRnAL CUSTOMeRS 95,562 16,399 1,020 112,981

other income - - 345 345

interest received (71) - (4) (75)

interest paid 1,596 - - 1,596

Depreciation, amortisation and disposal costs 25,975 4,474 147 30,596

income tax (3,898) 2,929 66 (903)

Net (loss)/profit after income tax (10,409) 7,531 556 (2,322)

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4 Income tax expense

TheGrouphasnorecognisedtaxlossesat30June2013(2012:$1.5million).


5 Capital expenditure commitments 30 JUne 31 DeCeMBeR 2013 2012 $000 $000

commitments in relation to property, plant and equipment at the end of the period not provided for in the consolidated interim financial statements 79,948 96,122

6 Contingent liabilities 30 JUne 31 DeCeMBeR 2013 2012 $000 $000

contingent liabilities under contracts, guarantees and other agreements arising intheordinarycourseofbusinessonwhichnolossisanticipatedareasfollows:

GuaranteetotheNewZealandStockExchange 75 75

7 Reconciliation of net cash flow from operating activities to reported profit

FORTHESIxMONTHSENDED30JuNE 2013 2012 $000 $000


Adjusted for:

Depreciation, amortisation and disposal costs 37,051 30,596

Movement in deferred tax 6,986 (1,677)

less deferred tax on items included in other comprehensive income (7,369) 2,202

Provision for restoration costs 340 309

Non cash items 1,023 2,335

Movementbetweendefinedbenefitpensionplanemployercontributionsandexpense 1,436 1,583

Movement in hedge reserve (164) -

impact of changes in working capital items:

Decrease/(increase) in trade and other receivables 14,979 (26,727)

(Decrease)/increase in trade and other payables (21,408) 14,504

Decrease in employee entitlements (1,490) (932)

Decrease in income tax payable (11,977) (10,956)

Decrease/(increase) in consumable stores and spares 235 (880)

other non cash movements 385 834

net cash flows from operating activities 25,312 8,869

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8 Bank borrowings 30 JUne 31 DeCeMBeR 2013 2012 $000 $000

BAnK LOAnS 122,000 62,000

TOTAL BAnK BORROWingS 122,000 62,000

effeCTiVe inTeReST RATe % %

Bank loans 4.1 3.9

AtbalancedatetheGrouphadthefollowingun-drawnborrowingfacilities:

revolving cash advance (expiry 2016) 6,000 16,000

revolving cash advance (expiry 2017) 102,000 152,000

TOTAL Un-DRAWn BORROWing fACiLiTY 108,000 168,000

Thefacilitylimitincreasedby$70millionon1July2013,withtotalborrowingfacilitiesavailabletotheCompanytotalling$300million.Theseadditionalfacilitieswillexpirein2016.

Thecarryingamountsofbankborrowingsapproximatetheirfairvalue.Theborrowingsareunsecured.TheParentborrowsunderanegativepledgearrangementwhichrequirescertaincertificatesandcovenants.Alltheserequirementshavebeenmet.

TheParenthastheabilitytodeterminewhichfacilitywillbedrawnupontomeetfundingrequirements.

9 Related parties

TheGroupentersintotransactionswithrelatedparties.Detailsofrelatedpartiesandthetypesoftransactionsenteredintoduringtheperiodended30June2013areconsistentwiththosedisclosedintheauditedfinancialstatementsfortheyearended31December2012.Refertonote3fordetailsofincomewhichisderivedfromtheOilCompanies.

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10 Financial Instruments

All financial assets other than derivatives are classified as loans and receivables. All financial liabilities other than derivatives are classified as measured at amortised costs. the fair value of financial assets and liabilities approximates their carrying value.

30 JUne 31 DeCeMBeR 2013 2012 $000 $000

trade and other receivables 116,258 131,237

cash and cash equivalents 510 1,190

TOTAL LOAnS AnD ReCeiVABLeS 116,768 132,427

Bank overdraft - (5)

trade and other payables (108,754) (130,162)

Bankborrowings (122,000) (62,000)

finAnCiAL LiABiLiTieS MeASUReD AT AMORTiSeD COST (230,754) (192,167)

Derivative liabilities designated in hedging relationships

Forwardforeignexchangecontracts 72 (6,195)

Interestrateswaps 1,274 2

TOTAL DeRiVATiVe LiABiLiTieS DeSignATeD in HeDging ReLATiOnSHiPS 1,346 (6,193)

Financialinstrumentsaremeasuredatfairvalueusingthefollowingfairvaluemeasurementhierarchy:

• Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).

• Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,eitherdirectly(thatis,asprices) or indirectly (that is, derived from prices) (level 2).

• Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservableinputs)(level3).

AlltheGroup’sfinancialinstrumentshavebeenmeasuredatthefairvaluemeasurementhierarchyoflevel2(2012:level2).

Financialliabilitiesmeasuredatamortisedcostarefairvaluedusingthecontractualcashflows.Theeffectsofdiscountingaregenerallyinsignificant.

Derivative liabilities designated in a hedging relationship:

• Forwardforeignexchangecontractshavebeenfairvaluedusingforwardexchangeratesthatarequotedinanactivemarket.

• Interestrateswapsarefairvaluedusingforwardinterestratesextractedfromobservableyieldcurves.Theeffectsofdiscountingare generally insignificant.

11 Events after balance date

the Group has declared an interim dividend of 2 cents per share, fully imputed, payable 26 September 2013 (2012: 2 cents per share).

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Registered OfficeMarsden Pointruakaka

Mailing AddressPrivate Bag 9024Whangarei 0148telephone: +64 9 432 8311Facsimile: +64 9 432 8035

Websitewww.refiningnz.com

Share RegisterCOMPUTeRSHARe inVeSTOR SeRViCeS LiMiTeDPrivate Bag 92119Auckland 1142telephone: +64 9 488 8777Facsimile: +64 9 488 [email protected]

BankersAnZ BAnK neW ZeALAnD LiMiTeDBAnK Of neW ZeALAnDTHe BAnK Of TOKYO-MiTSUBiSHi UfJ, LTD

Legal AdvisersMinTeReLLiSOnRUDDWATTSCHAnCeRY gReen

AuditorPRiCeWATeRHOUSeCOOPeRS

ChairmanDAJackson

DirectorsMJBennettsAJClements(resigned1May2013)M H elliottD B Gilbert (appointed 1 May 2013)K e MacMillanPJMorris(resigned1May2013)P M SpringfordV c M Stoddart (appointed 20 May 2013)M tumeTJWallA t Warrell

Alternate DirectorsJRCrawfordAJMcClellan(resigned18June2013)JGVenn

Chief executive OfficerSPost(appointed14January2013)

Company SecretaryDMJensen

Corporate directory

Managing your shareholding online

to change your address, update your payment instructions and to viewyourregistereddetailsincludingtransactions,pleasevisit:www.computershare.co.nz/investorcentrePlease assist our registrar by quoting your cSN or shareholder number.

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Refining nZPrivate Bag 9024 Whangarei 0148, NZT: +64 9 432 8311 F: +64 9 432 8035 E: [email protected] www.refiningnz.com

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