Refining NZ INTERIM REPORT 2014

Transcription

1 Refining NZ INTERIM REPORT 2014

2 Contents Group performance summary Chairman s Report Condensed Interim Income Statement Condensed Interim Statement of Comprehensive Income Condensed Interim Balance Sheet Condensed Interim Statement of Changes in Equity Condensed Interim Statement of Cash Flows Notes to the Condensed Interim Financial Statments 18 Corporate directory About this report This Interim Report of The New Zealand Refining Company Limited and it s subsidiary, Independent Petroleum Laboratory Limited is for the six months ended 30 June 2014 and was approved for issue by the Board of Directors on 21 August The Company trades as Refining NZ and so references to this name relate to the Company as a legal entity. For and on behalf of the Board: D A JACKSON Director M TUME Director

3 Group performance summary OPERATING RESULTS 30 June June 2013 Operating revenue ($000) 91, ,023 Net (loss)/profit before income tax ($000) (9,558) 7,430 Net (loss)/profit after income tax ($000) (6,950) 5,285 SHARE INDICATORS Net asset backing (per share)* $2.04 $2.13 Earnings per share (annualised) (4 cents) 4 cents NUMBERS Shareholders 3,623 3,713 Employees *Net asset backing (per share) is a non-gaap performance measure. It is calculated as net assets disclosed in the balance sheet, divided by the number of shares on issue at the end of the reporting period (see note IO of the condensed interim financial statements). Processing Fee Revenue Revenue earned from processing fees is the main component of Operating Revenue as disclosed in note 2. Processing Fees earned for the six months ended 30 June 2014, were 32% lower than the previous corresponding financial period. The Company s processing fee revenue is impacted by the refiners margin (difference between product and feedstock prices in the international markets), volume of feedstock processed and the exchange rate. The processing fee is subject to a fee floor, which comes into effect if the total processing fee for a calendar year is below a minimum value. This is set at $126 million for The key variables for the six months ended 30 June can be summarised as follows: REFINING NZ interim Report GROUP PERFORMANCE SUMMARY FOR THE SIX MONTHS ENDED 30 JUNE KEY VARIABLES: Intake ( 000 Barrels) 19,862 20,984 Gross Refining Margin (USD/Barrel) Average USD Exchange rate

4 REFINING NZ Interim Report Chairman's Report Chairman s Report Half Year 2014 The weakening of refiners margins has been brought about by a marked decline of the benchmark Singapore refiners margin. However, with the exception of the shutdown, the Company maintained an uplift over the Singapore margin during the period and further cushioned the impact of weak margins on our processing fee income by replacing catalyst, implementing margin improvements on the hydrocracker, and drawing on the fee floor via the processing arrangements with our customers. The floor mechanism recognises the criticality of the refinery to our customers and to the New Zealand fuels supply chain. It is an entirely unique arrangement for the refining sector and was agreed with our customers in 1995 to counter exactly the conditions the Company has experienced over the last six months. On a personal note, during numerous visits to Marsden Point I have been impressed by the positive attitude of the staff and contractors and their continued resilience in what have proved to be trying circumstances since the beginning of the year. Key performance highlights Refining NZ remains on track to achieve a structural uplift in the Company s Gross Refining Margin (GRM) of USD 0.66 per barrel from a series of technical and other improvements on the refinery s hydrocracker unit. The Company has strengthened its balance sheet to counter the weakening margin environment, extending bank borrowing facilities by $150 million and adding $54 million of capital raised from institutions and individual investors. A rigorous focus on cost management sees the Company on track to exceed targeted cost reductions of $7 million, with a further $6 million over the remainder of the year. The $365 million Te Mahi Hou project (TMH) is progressing to plan, with all key TMH units delivered, civil and mechanical work (for example, pipe fabrication) well advanced. To date $240 million has been invested in this key project. A new Customer Value Proposition involving the refinery in selecting crude, has been taken up by two oil company customers and is reaping benefits for all parties to the agreement. Gases company BOC is investing $40 million in a CO 2 purification plant at the refinery as part of an agreement to supply them with CO 2. The agreement creates an additional revenue stream independent of refining margins and the exchange rate. Weakening refiners margins and a strong New Zealand dollar during the first half of the year have seen Refining NZ report an interim net loss after tax of $6.9 million for the six months ended 30 June 2014, a turnaround from the net profit reported a year ago (2013: $5.2 million). While this result was to be expected given the harsh business environment, it also reflects the robustness of the processing arrangements the Company has with its oil company customers. Business environment The Gross Refiners Margin (GRM) generated in the first half of the year averaged USD 1.66 a barrel (2013: USD 5.27). The planned shutdown of the hydrocracker limited the Company s ability to upgrade low-value residue to higher value products, and negatively impacted processing fee income. Coupled with the decline in Singapore complex margins, the Company invoked the fee floor in the processing arrangements with its customers, with a total pro rata payment of $36 million in the first six months. Overcapacity in global refining continues to impact margins, but refiners are tackling the issue rationally, with ongoing closures, run cuts and the postponement of investment in capacity upgrades, notably, by two Korean refiners as well as Chinese refiners and their international partners. This presents the possibility of a modest improvement in refiners margins over the second half of 2014.

5 The Company result has also been influenced by the strong New Zealand dollar. In the first six months of the year the rate averaged USD 0.84 (2013: USD 0.82) and negatively impacted processing fee revenue. While the NZ dollar coming off its peak of USD 0.87 is welcome, we expect to see foreign exchange volatility for the foreseeable future. Strategic action plan The Company s strategic plan of action, focused on managing our cost base and generating more of the high-value products from the same barrel of crude oil continues to gain traction, with the Company on track to reduce costs by $13 million over the year, which is $6 million more than was announced to the market in February. Early impetus has come from cementing-in the substantial savings from renegotiating electricity and natural gas supply contracts, and changing contractor arrangements, including introducing ten hour working days. Modern procurement practices are delivering further savings. The Company has completed over 80 procurement actions, all of which are contributing positively to our performance. In July, the Company announced the results of the margin improvement initiatives on the hydrocracker unit including the replacement of hydrocracker catalyst; the revamp of the Vacuum Distillation column; installation of the MVC bleed line to the BDU; as well as a record use of natural gas in the refinery. Results show that the combined margin improvement from each initiative is tracking in line with the forecast USD 0.66 per barrel margin uplift announced to the market in February. These initiatives will have an even greater positive impact as the margin environment improves. In February the Company launched a new Customer Value Proposition in response to ultra-competitive pricing from Asia Pacific refiners. The Company s new role, selecting crude for two of its customers, is reaping benefit from improved scheduling of the refinery. Te Mahi Hou (TMH) TMH is progressing to schedule and budget. Construction activity on the project has ramped-up with all key TMH units delivered to the refinery, and civil and mechanical work (for example, pipe fabrication) well advanced. The next milestone comes in October when the project team lifts the major TMH components into position. In August the project team reached one million hours without a lost time injury, a credit to everyone involved, given the number of people on site and the volume of work being undertaken at any one time. Reliability and plant performance In March the Company carried out a planned maintenance shutdown on the hydrocracker and related units. A combination of bad weather, emergent repairs and the failure of a compressor during start-up added 16 days to the shutdown schedule. We continued to manufacture via processing units not included in the shutdown, and by bringing processing units online after completed planned maintenance. This proved critical to assisting our customers manage country fuel stocks, particularly jet fuel for the aviation industry. Overall, a good operational performance during this period and the sale of excess hydrocracker feed at a higher than anticipated valuation, meant the Company was able to limit the financial impact of the extra shutdown days to a one-off impact on processing fee revenue of around $10 million. The extra shutdown days were a disappointment, particularly for our maintenance and operations teams who worked continuously to bring the impacted units back into operation, and for our customers with whom we worked closely to minimise the impact of the delay on their respective businesses. On the upside, the shutdown was an opportunity to replace catalyst and carry out a number of technical improvements on the hydrocracker unit. These improvements have been successfully implemented and are showing positive early results. The Company is also planning a maintenance pit stop for a preventative fix on a compressor. Defined benefit scheme review Following a review of the defined benefit scheme in 2013, the Company had offered pensioners more options - including the option to cash up part of their benefit entitlement, based on actuarial assessment of the value for each individual member. Around 40% of the scheme s pensioners have taken up the offer, which has decreased the scheme s balance sheet liabilities by around $7 million. Over the longer term this means the Company s exposure to the scheme s volatility is reduced. The Company is close to having an offer for staff members early next year. Independent directors review of the processing arrangements As part of the 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, Hale and Twomey. A full report will be made available to shareholders once the review has been completed. Shareholder returns and director fees Given the loss making result for the six months ended June 30, 2014, the Directors have resolved not to pay an interim dividend to shareholders. The Directors have also agreed that where a shareholder is represented by two Directors on the Board, with immediate effect, the 2014 fee for the second Director will be waived. Future outlook The Company is lifting its performance by sticking to its strategic plan of action and having the support of the robust processing arrangements. As a result, the Directors have every confidence that the Company will prove itself capable of weathering the business environment in the latter part of the year. David Jackson Chairman REFINING NZ interim Report Chairman's Report

6 REFINING NZ interim Report 2014 Condensed Interim Income Statement 30 June 30 June NOTE $000 $000 5 Condensed Interim Income Statement INCOME Operating revenue 2 91, ,023 Other income TOTAL INCOME 92, ,467 EXPENSES Purchase of process materials and utilities 24,523 31,382 Materials and contractor payments 8,170 11,798 Wages, salaries and benefits 8 23,068 25,792 Depreciation and disposal costs 33,728 37,097 Other operating losses Administration and other costs 10,742 12,297 TOTAL EXPENSES 100, ,494 NET (LOSS)/PROFIT BEFORE FINANCE COSTS (8,042) 7,973 FINANCE COSTS Finance income (28) (59) Finance cost 1, NET FINANCE COSTS 1, Net (loss)/profit before income tax (9,558) 7,430 (Add)/less income tax (2,608) 2,145 NET (LOSS)/PROFIT AFTER INCOME TAX (6,950) 5,285 ATTRIBUTABLE TO: Owners of the Parent (6,964) 5,228 Non-controlling interest (6,950) 5,285 EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE SHAREHOLDERS OF REFINING NZ CENTS CENTS Basic earnings per share (2.23) 1.87 Diluted earnings per share (2.23) 1.87 THE ABOVE CONDENSED INTERIM INCOME STATEMENT IS TO BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES.

7 Condensed Interim Statement of Comprehensive Income REFINING NZ interim Report June 30 June NOTE $000 $000 6 NET (LOSS)/PROFIT AFTER INCOME TAX (6,950) 5,285 OTHER COMPREHENSIVE INCOME Items that will not be reclassified to the Income Statement Defined benefit actuarial (loss)/gain (1,738) 18,942 Deferred tax on items that will not be reclassified to the Income Statement 487 (5,304) Total items that will not be reclassified to the Income Statement (1,251) 13,638 Items that may be subsequently reclassified to the Income Statement Movement in cash flow hedge reserve 756 7,375 Deferred tax on items that may be subsequently reclassified to the Income Statement (212) (2,065) Total items that may be subsequently reclassified to the Income Statement 544 5,310 TOTAL OTHER COMPREHENSIVE (LOSS)/INCOME, AFTER INCOME TAX (707) 18,948 TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE PERIOD, AFTER INCOME TAX (7,657) 24,233 ATTRIBUTABLE TO: Owners of the Parent (7,671) 24,176 Non-controlling interest (7,657) 24,233 THE ABOVE CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME IS TO BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES. Condensed Interim Statement of Comprehensive Income

8 REFINING NZ Interim Report 2014 Condensed Interim Balance Sheet AS AT 30 JUNE 2014 (UNAUDITED) 30 JUNE 31 DECEMBER NOTE $000 $000 7 Condensed Interim Balance Sheet ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables 111, ,048 Consumable stores and spares 11,759 12,708 Income tax receivable 4,366 8,658 TOTAL CURRENT ASSETS 128, ,746 NON-CURRENT ASSETS Property, plant and equipment 7 1,039, ,018 Derivative financial instruments 1,133 2,426 TOTAL NON-CURRENT ASSETS 1,040, ,444 TOTAL ASSETS 1,169,128 1,064,190 LIABILITIES CURRENT LIABILITIES Bank overdraft 4 - Trade and other payables 119, ,762 Employee entitlements 5,557 5,390 Derivative financial instruments 494 2,644 TOTAL CURRENT LIABILITIES 125, ,796 NON-CURRENT LIABILITIES Deferred tax 97, ,099 Employee entitlements 9,020 9,026 Restoration provision 6,685 6,502 Defined benefit pension plan obligation 8 7,978 7,087 Bank borrowings 9 285, ,000 Derivative financial instruments TOTAL NON-CURRENT LIABILITIES 406, ,293 TOTAL LIABILITIES 532, ,089 NET ASSETS 636, ,101

9 Condensed Interim Balance Sheet As at 30 JUNE 2014 (UNAUDITED) 30 JUNE 31 DECEMBER NOTE $000 $000 REFINING NZ interim Report 2014 EQUITY Contributed equity , ,400 Cash flow hedge reserve (397) (941) Retained profits 370, ,960 EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 636, ,419 Non-controlling interest TOTAL EQUITY 636, ,101 The Board of Directors of The New Zealand Refining Company Limited authorised these financial statements for issue on 21 August For and on behalf of the Board: D A Jackson Director M Tume Director 8 Condensed Interim Balance Sheet THE ABOVE CONDENSED INTERIM BALANCE SHEET IS TO BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES.

10 REFINING NZ Interim Report 2014 Condensed Interim Statement of Changes in Equity attributable to owners of the parent CONTRIBUTED CASH FLOW RETAINED TOTAL NON- TOTAL E equity HEDGE PROFITS $000 CONTROLLING EQUITY NOTE $000 RESERVE $000 interest $000 $000 $000 9 Condensed Interim Statement of Changes in Equity AT 1 JANUARY 2013 (restated) 212,400 (4,459) 379, , ,453 COMPREHENSIVE INCOME Net profit after income tax - - 5,228 5, ,285 Other comprehensive income Foreign exchange hedges transferred to property, plant and equipment - 1,354-1,354-1,354 Foreign exchange contracts entered into during the year Movement in value of foreign exchange contracts held throughout the year - 4,012-4,012-4,012 Movement in value of interest rate swaps held throughout the year Interest rate swaps entered into during the year Defined benefit actuarial gain ,942 18,942-18,942 Deferred tax on other comprehensive income - (2,065) (5,304) (7,369) - (7,369) TOTAL OTHER COMPREHENSIVE INCOME, AFTER INCOME TAX - 5,310 13,638 18,948-18,948 TRANSACTIONS WITH OWNERS OF THE PARENT Dividends paid - - (14,000) (14,000) - (14,000) TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT - - (14,000) (14,000) - (14,000) AT 30 JUNE , , , ,686 AT 1 JANUARY ,400 (941) 378, , ,101 COMPREHENSIVE INCOME Net (loss)/profit after income tax - - (6,964) (6,964) 14 (6,950) Other comprehensive income Foreign exchange hedges transferred to property, plant and equipment - 2,666-2,666-2,666 Foreign exchange contracts entered into during the year - (9) - (9) - (9) Movement in value of foreign exchange contracts held throughout the year - (608) - (608) - (608) Interest rate swaps entered into during the year - (944) - (944) - (944) Movement in value of interest rate swaps held throughout the year - (349) - (349) - (349) Defined benefit actuarial loss - - (1,738) (1,738) - (1,738) Deferred tax on other comprehensive income - (212) TOTAL OTHER COMPREHENSIVE INCOME, AFTER INCOME TAX (1,251) (707) - (707) TRANSACTIONS WITH OWNERS OF THE PARENT Proceeds from issuance of shares 53, ,371-53,371 Dividends paid (35) (35) TOTAL TRANSACTIONS WITH OWNERS OF THE PARENT 10 53, ,371 (35) 53,336 AT 30 JUNE ,771 (397) 370, , ,780 THE ABOVE CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY IS TO BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES.

11 Condensed Interim Statement of Cash Flows 30 JUNE 30 JUNE NOTE $000 $000 REFINING NZ interim Report 2014 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 83, ,538 Payments for supplies and expenses (47,690) (55,687) Payments to employees (23,754) (25,846) CASH GENERATED FROM OPERATIONS 11,659 43,005 Interest received Interest paid (831) (262) GST received/(paid) 5,164 (2,986) Income tax received/(paid) 4,163 (14,505) 8,524 (17,693) NET CASH INFLOW FROM OPERATING ACTIVITIES 6 20,183 25,312 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment and computer software (130,746) (71,987) NET CASH OUTFLOW FROM INVESTING ACTIVITIES (130,746) (71,987) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from non-current bank borrowings 57,500 60,000 Proceeds from issuance of ordinary shares 53,371 - Dividends paid to shareholders - (14,000) Dividends paid to non-controlling interest (35) - NET CASH INFLOW FROM FINANCING ACTIVITIES 110,836 46,000 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 273 (675) Cash and cash equivalents at the beginning of the period 332 1, Condensed Interim Statement of Cash Flows CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD THE ABOVE CONDENSED INTERIM STATEMENT OF CASH FLOWS IS TO BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES.

12 REFINING NZ Interim Report 2014 Notes to the Condensed Interim Financial Statements 1 Basis of preparation of condensed interim financial statements 11 Notes to the Condensed Interim Financial Statements These condensed interim financial statements as at and for the six months ended 30 June 2014 comply with New Zealand Generally Accepted Accounting Practice ( NZ GAAP ) and have been prepared in accordance with New Zealand Equivalents to International Accounting Standard ( NZ IAS ) 34: Interim Financial Reporting and International Accounting Standard ( IAS ) 34: Interim Financial Reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December Entities reporting The condensed interim financial statements for the Group are for the economic entity comprising Refining NZ ( Parent or Company ) and its subsidiary, Independent Petroleum Laboratory 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 Refining NZ is incorporated in New Zealand, registered under the Companies Act 1993 and is an issuer pursuant to the Securities Act The condensed interim financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act Accounting policies The accounting policies used in the preparation of these condensed interim financial statements are consistent with those used in the previously published condensed interim financial statements as at and for the six months ended 30 June 2013 and the audited financial statements as at and for the year ended 31 December 2013.

13 Notes to the Condensed Interim Financial Statements 2 Operating revenue FOR THE SIX MONTHS ENDED 30 JUNE REFINING NZ interim Report JUNE 30 JUNE $000 $ Comprises: Processing fees 63,710 93,930 Natural Gas recovery 5,870 9,632 Other refining related income 3,720 4,587 REFINING REVENUE 73, ,149 Distribution revenue 13,930 13,455 Operating lease income: Wiri land and terminal 3,262 3,262 Other Other operating income 1,402 1,115 TOTAL OPERATING REVENUE 91, ,023 The processing fee is subject to a fee floor, which comes into effect if the total processing fee for a calendar year is below a minimum value. This is set at $126 million for At 30 June 2014 the actual processing fee earned from operations was below the pro-rated fee floor, resulting in $36 million being paid by Customers as an interim fee floor payment. The pro rata fee floor payment by Customers to 30 June 2014 could be offset by processing fee revenue earned for the remainder of the year, if processing fees earned from operations were to exceed the annual fee floor. 3 Segment information (a) Description of segments The Leadership Team is the chief operating decision-maker. This Team reviews the Group s internal reporting in order to assess performance and allocate resources including the definition of the operating segments: oil refining and distribution. Management has determined the operating segments based on these reports. The Leadership Team considers the business from an operations perspective and assesses the performance of Oil refining and Distribution. The Group is organised into two main business segments. Oil refining The Company owns and operates an oil refinery located at Marsden Point, 160 kilometres north of Auckland. The oil refinery is able to process a wide range of crude oil types imported from around the world. 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 performance of the operating segments is based on net profit after income tax. This information is measured in a manner consistent with that in the condensed interim financial statements. The Group manages assets and liabilities on a central basis and therefore does not provide any segment information of this nature. Notes to the Condensed Interim Financial Statements Distribution The Company owns infrastructure to support the distribution of manufactured products to its customers. The Refinery to Auckland pipeline transfers product to the Wiri Oil terminal located in South Auckland.

14 REFINING NZ Interim Report 2014 Notes to the Condensed Interim Financial Statements 3 Segment information cont. (c) Segment results JUNE 2014 OIL REFINING DISTRIBUTION OTHER TOTAL $000 $000 $000 $000 Notes to the Condensed Interim Financial Statements Total operating revenue 73,300 17,192 3,494 93,986 Inter-segment revenue - - (2,050) (2,050) REVENUE FROM EXTERNAL CUSTOMERS 73,300 17,192 1,444 91,936 Other income Interest received Interest paid (1,539) - (5) (1,544) Depreciation and disposal costs (30,112) (3,434) (182) (33,728) Income tax 6,027 (3,384) (35) 2,608 Net (loss)/profit after income tax (16,442) 8, (6,950) 30 JUNE 2013 OIL REFINING DISTRIBUTION OTHER TOTAL $000 $000 $000 $000 Total operating revenue 108,149 16,717 3, ,270 Inter-segment revenue - - (2,247) (2,247) REVENUE FROM EXTERNAL CUSTOMERS 108,149 16,717 1, ,023 Other income Interest received Interest paid (602) - - (602) Depreciation 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, ,285

15 Notes to the Condensed Interim Financial Statements 4 Capital expenditure commitments 30 JUNE 31 DECEMBER $000 $000 REFINING NZ interim Report 2014 Capital expenditure contracted for in relation to property, plant and equipment at the end of the period but not yet incurred. 26,856 47,705 5 Contingent liabilities The Group has no contingent liabilities at 30 June 2014 (2013: nil). 6 Reconciliation of net cash flow from operating activities to reported profit FOR THE SIX MONTHS ENDED 30 JUNE 30 JUNE 30 JUNE $000 $000 NET (LOSS)/PROFIT AFTER INCOME TAX (6,950) 5,285 Adjusted for: Depreciation and disposal costs 33,728 37,051 Movement in deferred tax (3,014) 6,986 Less deferred tax on items included in other comprehensive income 275 (7,369) Movement in provisions Non-cash items - 1,023 Movement between defined benefit pension plan employer contributions and expense (846) 1,436 Movement in hedge reserve - (164) Impact of changes in working capital items: (Increase)/decrease in trade and other receivables (11,425) 14,979 Increase/(decrease) in trade and other payables 5,559 (21,408) Less included in property, plant and equipment (2,729) - Increase/(decrease) in employee entitlements 161 (1,490) (Increase)/decrease in income tax receivable 4,292 (11,977) Decrease in consumable stores and spares Other non-cash movements Notes to the Condensed Interim Financial Statements Net cash flows from operating activities 20,183 25,312

16 REFINING NZ Interim Report 2014 Notes to the Condensed Interim Financial Statements 7 Property, Plant and Equipment 30 JUNE 30 June $000 $ Notes to the Condensed Interim Financial Statements Opening net book amount 940, ,766 Additions/transfers 133,498 71,987 Disposals - (1,078) Depreciation charge (33,728) (37,089) Closing net book amount 1,039, ,586 Significant additions include $76 million in capital work in progress, and $50 million in refining plant. 8 Defined benefit pension plan obligation The defined benefit pension plan obligation at 30 June 2014 represents the accounting valuation performed, as at that date, by an independent actuary in accordance with NZ IAS 19 Employee Benefits. During the period the Trustees of the New Zealand Refining Company Pension Fund offered all existing pensioners the choice of converting their future pension benefits to a one-off cash lump sum. The cash lump sum offered was calculated by the Plan s actuary as the expected future cost to the Plan of providing individual pensioners their current pension. The expected future cost used individual pensioner details and those assumptions used for the actuarial valuation performed under the Superannuation Schemes Act to assess whether the Company s current level of contributions to the plan is sufficient to meet future obligations (the funding valuation). $7.1 million was paid out in pursuant to this cash offer. A settlement gain of $1.5 million has been recognised in the Income statement (as part of wages, salaries and benefits), and has arisen due principally to the different discount rates used in the determination of pension fund liabilities for funding and financial reporting purposes. 9 Bank borrowings 30 JUNE 31 DECEMBER $000 $000 BANK LOANS 285, ,000 TOTAL BANK BORROWINGS 285, ,000 EFFECTIVE INTEREST RATE Bank loans 6.0% 4.9% The Group has the following un-drawn borrowing facilities: Revolving Cash advance (expiry 2016) 56,500 33,000 Revolving Cash advance (expiry 2017) 108,000 39,000 Revolving Cash advance (expiry 2019) - 50,000 Term loan (expiry 2020) - 100,000 TOTAL UN-DRAWN BORROWING FACILITY 164, ,000 The carrying amounts of bank borrowings approximate their fair value. The borrowings are unsecured. The Parent borrows under a negative pledge arrangement which requires certain certificates and covenants. All these requirements have been met. The Parent has the ability to determine which revolving cash facility will be drawn upon to meet funding requirements.

17 Notes to the Condensed Interim Financial Statements 10 Contributed Equity number o Of Shares 000 $000 REFINING NZ interim Report 2014 OPENING BALANCE 1 JANUARY , ,400 Proceeds from share placement 28,571 47,999 Proceeds from share purchase plan 4,004 6,726 Costs associated with share issue (1,354) Balance 30 June , ,771 The Group issued 28,571,429 shares, with a nominal value of $1.68 per share, on 6 March 2014 as a result of an institutional placement. The Group also issued 4,003,695 shares, with a nominal value of $1.68 per share, on 14 April 2014 pursuant to a Share Purchase Plan (SPP). The SPP was offered under the Securities Act and allowed existing shareholders the opportunity to purchase between $5,000 and $15,000 of new shares. 11 Related parties The Group enters into transactions with related parties. Details of related parties and the types of transactions entered into during the period ended 30 June 2014 are consistent with those disclosed in the audited financial statements for the year ended 31 December Notes to the Condensed Interim Financial Statements

18 REFINING NZ Interim Report Notes to the Condensed Interim Financial Statements 12 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 $000 $000 Notes to the Condensed Interim Financial Statements Trade and other receivables 111, ,048 Cash and cash equivalents TOTAL LOANS AND RECEIVABLES 112, ,380 Bank overdraft (4) - Trade and other payables (29,848) (24,515) Bank borrowings (285,500) (228,000) FINANCIAL LIABILITIES MEASURED AT AMORTISED COST (315,352) (252,515) Derivative liabilities designated in hedging relationships Forward foreign exchange contracts (1,198) (3,223) Interest rate swaps 1,133 2,426 TOTAL DERIVATIVE LIABILITIES DESIGNATED IN HEDGING RELATIONSHIPS (65) (797) Financial instruments are measured at fair value using the following fair value measurement hierarchy: quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1), inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2), and inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). All the Group s financial instruments have been measured at the fair value measurement hierarchy of level 2 (2013: level 2). The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include: The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. 13 Events after balance date There have been no events after balance date. (2013: The Group declared an interim dividend of 2 cents per share, fully imputed, payable 26 September 2013).

19 Corporate directory Registered Office Marsden Point Ruakaka Mailing Address Private Bag 9024 Whangarei 0148 Telephone: Facsimile: Website Share Register COMPUTERSHARE INVESTOR SERVICES LIMITED Private Bag Auckland 1142 Telephone: Facsimile: enquiry@computershare.co.nz Bankers ANZ BANK NEW ZEALAND LIMITED BANK OF NEW ZEALAND THE BANK OF TOKYO-MITSUBISHI UFJ, LTD Legal Advisers MINTER ELLISON RUDD WATTS CHANCERY GREEN Auditor PRICEWATERHOUSECOOPERS Chairman D A Jackson Directors M J Bennetts M H Elliott D B Gilbert K E MacMillan P M Springford V C M Stoddart M Tume T J Wall A T Warrell Alternate Directors J R Crawford J G Venn Chief Executive Officer S Post Company Secretary D M Jensen REFINING NZ interim Report 2014 corporate directory 18 Managing your shareholding online To change your address, update your payment instructions and to view your registered details including transactions, please visit: Please assist our registrar by quoting your CSN or shareholder number.

20 Refining NZ Private Bag 9024 Whangarei 0148, NZ T: F: E: corporate@refiningnz.com