Refining NZ promises expansion as profit falls

Refining NZ (NZR) has announced an after tax profit of $34.5 million for the year ending December 31 2011, down on $57.7 million the previous year.

The company's directors used the occasion to confirm their support for a $425 million project to expand and update the Northland refinery’s petroleum processing units.

Earnings before interest, tax and depreciation were $132.2 million, compared with $156.7 million in 2010.

NZR chairman David Jackson described the result as a sound performance in a challenging business environment, made more difficult by a slump in refiners’ margins at the end of the year.

“A return to healthier margins in January 2011 continued for much of the year, falling off at the end of the year as Singapore margins fell on the back of Asia Pacific gasoline prices," Mr Jackson said.

“Throughout 2011 we also had to contend with a persistently weak US dollar."

The exchange rate between the US and NZ dollars rose from US75 cents in January peaking at US88 cents in August, he said.

"The exchange rate average of US79 cents over the year has had a marked impact on processing fee revenue."

Mr Jackson said the state of global refining reflected a weakness in global economies.

“Generally there is reduced demand for oil products, particularly in the US and Europe and while the economic powerhouses of China and India continue to grow, China’s growth rate is less than predicted.

"Rationalisation and the emergence of new and efficient refineries, means that over capacity will remain an issue for some time."

Concerns about crude supply in the Middle East - particularly Libya and Iran - have dominated while continuing excess refining capacity, notably in Europe and other OECD countries continues to cause volatility in refining margins, Mr Jackson said

Earlier today the NZR board received an investment proposal that included an engineering report, complete with detailed costings and schedule of work, for a growth project.

Mr Jackson said project was highly attractive from a financial perspective and was expected to deliver a significant increase in intake volumes and refining margins, leading to increased revenue, profitability and dividends.

"The project will deliver higher margins as a result of improved energy efficiency, reduced fuel losses and better product yields," he said.

“Having considered the investment proposal the directors support and recommend the project to shareholders for approval at the company’s annual meeting on April 27, 2012."

Mr Jackson said the NZR directors resolved to pay a final dividend of 9 cents per share, with full imputation credits attached.

He said an interim dividend of 3 cents per share was paid in September, 2011 resulting in a total dividend payment of 12 cents for the year.