New Zealand Refining's annual profit sank 69 per cent 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 $150.8m a year earlier, the Whangarei-based company said. Revenue dropped 21 per cent to $354.2m, while processing fees, NZ Refining's main source of revenue, dropped 27 per cent to $276.6m.

Gross refinery margin averaged US$6.47 per barrel over the year, down from US$9.20 in 2015. The first half of the year was weaker, with gross refining margins at US$5.25 a barrel from US$9.09 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 percent 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.

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The company's $365m Te Mahi Hou upgrade, which opened at the end of 2015 after four years of development and construction, contributed 90 US cents per barrel in gross refining margin, Post said, while a $5m investment in "small-to-medium, short payback projects" lifted margins by 10 US cents per barrel. The upgrade allows the plant to produce an extra 2 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 6 cents per share, with a March 16 record date, payable March 30. In 2015, it paid a 20 cent final dividend.

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

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

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