NZ Refining annual profit drops 69% from a record year

NZ Refining's annual profit sank 69% from a record a year earlier with margins significantly lower than 2015, when low global oil prices bolstered earnings, despite the oil refinery operator's efforts to improve profitability in the second half.

Net profit fell to $47.2 million in calendar 2016, from $150.8 million a year earlier, the Whangarei-based company said. Revenue dropped 21% to $354.2 million, while processing fees, NZ Refining's main source of revenue, dropped 27% to $276.6 million.

Gross refinery margin averaged $US6.47 a barrel over the year, down from $US9.20 in 2015. The first half of the year was weaker, with gross refining margins at $US5.25 a barrel from $US9.09 in 2015. Stronger margins in the second half were helped by "continued strong demand for gasoline on the back of new vehicle growth in New Zealand and Asia and a 19% year-on-year increase in jet fuel demand driven by record visitor numbers to Auckland International Airport," chief executive Sjoerd Post said.

NZ Refining earned its highest-ever processing fees in 2015 when it processed a record number of barrels. Its refining margins were boosted by a weaker kiwi dollar and a sharp drop in oil prices and as investments in upgrades and efficiencies started to pay off. The company had cancelled dividend payments in 2014, the first time it had ever done so.

The company's $365 million Te Mahi Hou upgrade, which opened at the end of 2015 after four years of development and construction, contributed 90USc a barrel in gross refining margin, Mr Post said, while a $5 million investment in "small-to-medium, short payback projects" lifted margins by 10USc  per barrel. The upgrade allows the plant to produce an extra two million barrels of petrol annually and reduce its greenhouse gas emissions by 120,000 tonnes of carbon dioxide annually owing to energy efficiency improvements

The company declared a final dividend of 6c a share, with a March 16 record date, payable March 30. In 2015, it paid a 20c final dividend.

Bank borrowings rose 9.8% to $219.5 million in the year, while its cash reserves dropped to $1.7 million from $7.6 million in 2015, and operating cash inflow more than halved to $127.8 million. Gearing was at 21%, from 19% a year earlier.

"While we are above the upper limit of our target debt, we believe payment of a 6cps dividend balances our desire to manage the company prudently and provide an adequate return to shareholders," Mr Post said.

The shares dropped 4% to $2.67 and have fallen 25% in the past year.

(BusinessDesk)