NZ Refining reports 81pc profit fall

NZ Refining's Marsden Point oil refinery. Photo / Northern Advocate.

New Zealand Refining Company(NZRC) reported an 81 per cent fall in annual net profit, reflecting weak refiners' margins and a high exchange rate.

The Northland-based company announced today a $23.6 million net profit after tax for the 12 months in 2009, compared to 2008's $129.9 million.

Chairman David Jackson said the result was disappointing, but widely anticipated given market conditions in the second half of 2009.

"In August 2009, at the time of the half year result, we announced that we expected to operate at a loss in the second half of the year and that market conditions in the refining sector were extremely difficult.

"The challenge of operating with perhaps the weakest refiners' margins experienced in refining some years is borne out by these results."

Jackson said conditions were dominated by the global financial crisis which saw demand for oil products falter as new refinery capacity had come online.

"The resulting oversupply has continued to depress refiners' margins with a number of major oil companies ... declaring a significant downturn in profits."

"The situation has been exacerbated by the strengthening New Zealand dollar, or weakening US dollar, resulting in lower processing fee income."

The company's refining margin fell from around US$12 ($16.3) per barrel at the start of the year to around US$1 at year end, he said.

NZRC resolved not to pay a dividend this year given the fall in profits and demand on its capital, though it stated dividend policy had not changed and it would resume as soon as trading conditions allow.

"We have seen a slight improvement in margins from late December through January 2010, however, the supply/demand fundamentals have not changed sufficiently to expect a sustained recovery in refinery margins at this stage," said Jackson.

"While market conditions remain a challenge we have a well structured, safe and reliable plant; a business plan that's squarely focused on conserving cash and reducing our expenditure where we can and positioning ourselves for any up-turn; and capable people producing high-quality products."

NZRC shares this afternoon were trading for $3.60, down 3c.

- NZPA