ANNUAL REPORT 2016 - Greenergy

1 ANNUAL REPORT 2016 USABRAZILCANADAUKFAR EAST/CHINAMIDDLE EAST26 Supply locations24% Sales volume increase in CanadaDomestic diesel supplyNew petrol blending joint venture908 Shipments of fuel products received137 Train wagons importing fuel to the regionWe are the UK s leading supplier of road fuelWe are replicating our UK successes to grow Litres of fuel supplied globally2016 Greenergy ANNUAL Report2 Overview (pre-exceptionals) before tax HighlightsStrategic ReportOverviewOur business model 4 Our mission 6 Strategic summary 8 Chairman s Statement 10 Chief Executive s Review14 Health and Safety Safety record 22 Approach24 Market ReviewGlobal markets 28UK market 30 Our other markets 32 Strategy in Action UK Fuels 36 International Fuels 44 Infrastructure48 Haulage56 Key Performance Indicators Financial KPIs 59 Service quality KPIs 60 Chief Financial Officer s Review 62 Managing Our RisksRisk overview 67 Risk register 68 Risk analysis 72 People and EnvironmentApprenticeships80 Employment81 Biofuel sustainability 82 Carbon emissions 84 Carbon savings from biofuel 85 Strategic REPORT

2 85 GovernanceBoard of Directors 88 Statement on corporate governance 90 Directors REPORT 92 FinancialsIndependent auditors REPORT 96 Consolidated income statement 97 Consolidated statement 98 of comprehensive incomeConsolidated and Company 99 balance sheetsConsolidated statement 101 of changes in equityConsolidated and Company 103 statements of cash flowsNotes to the financial statements 104 Officers and professional advisors 1383 Lowest cost Highest reliability Best systems and control Easiest people to deal with Most missionTo deliver long-term customer partnerships by being the fuel provider with the: 2016 Greenergy ANNUAL Report6 Overview 7UK Fuels p36 International Fuels p44UK FuelsInternational FuelsInfrastructureHaulageSTRATEGIC ICONSUK FuelsInternational FuelsInfrastructureHaulageSTRATEGIC ICONSOur aim: Develop low-cost and resilient fuel supply chains to earn the long-term loyalty of our UK customersOur aim: Expand internationally by replicating our UK successes in other marketsHighlights Continued development of our import capabilityto allow us to receive fuel on larger, lower-cost ships.

3 Strong biodiesel manufacturing margins as a resultof greater raw material flexibility, improved reliabilityand increased output. Conclusion of long-term storage contractswith Navigator Terminals at strategic locations,including where we have petrol blending facilities. Growth in sales to independent forecourtoperators, including under our BrandedWholesaler agreement with Successful start to our new Cargoflo rail-to-road supplylocation in Canada. This first-of-its-kind facility offersa low-cost distribution concept in a new location thatis convenient for our customers. First diesel imports into Brazil, marking the startof a fuel import and supply business in a new market. Planning for a new joint venture with the BahrainPetroleum Company (Bapco) to blend petrol to meetdomestic Bahraini demand and for FuelsInternational FuelsStrategic summary2016 Greenergy ANNUAL Report8 Overview Infrastructure p48 Haulage p56UK FuelsInternational FuelsInfrastructureHaulageSTRATEGIC ICONSUK FuelsInternational FuelsInfrastructureHaulageSTRATEGIC ICONSOur aim: Acquire, regenerate and operate assets that support our supply chain objectivesOur aim.

4 Make reliable and cost-efficient fuel deliveries to customers through our in-house haulage operationHighlights Opening of Thames Oilport for diesel storageand completion of infrastructure that will be needed as we move on to a fully-fledged import and distribution terminal. Creation of Navigator Terminals to invest in fuel and chemical storage in the UK. This gives Greenergy greater influence at key supply locations in theUK and creates a platform for future growth that is underpinned by long-term investment income. Sale of Greenergy North Tees to Navigator Terminals after four years of regeneration. Highlights Continued safe operations, with increased resourcingof driver training and an ever greater safety awarenessamongst drivers.

5 Cost-efficiency improvements, with an expansionof our driver workforce leading to improved fleetutilisation and was another strong year for the business, both financially and operationally. We completed strategically important infrastructure transactions and derived value from all parts of our supply chain to deliver our best-ever financial results. 2016 Greenergy ANNUAL Report10 Chairman s Statement Paul LesterChairmanHealth and Safety p20 Global markets p28UK market p30 Chairman s StatementMarketThe underlying changes in the UK fuels market continue to favour our business. Road fuel demand in the UK continued to grow this period, up This is the third consecutive year of UK market growth, following a five-year period of decline.

6 While diesel consumption rose by , petrol demand declined by , continuing the trend of the last decade, and by year-end diesel consumption reached 63% of total road fuel demand (FY15: ).This trend means that the few remaining UK refineries are increasingly producing too much petrol and not enough diesel to meet the UK s product demand profile, leaving the UK structurally short of diesel. As a result, in calendar year 2015, the UK again imported more fuel than it exported and, in spite of a temporary recovery in refinery production, net imports were at their highest level for more than 30 refinery supply of petrol and dieselThis was the most successful year ever for the business financially.

7 We have capitalised on our previous infrastructure investments and acquisitions to drive financial continue to identify, assess and mitigate the risks associated with our operations as our first priority. Our approach is founded on a culture of open and honest reporting and we encourage everyone working in the business to observe, REPORT and respond to hazards, near misses and unwanted events, without fear of blame. This is an extension of the values of care and ownership which extend across the business. We have also increased our focus on process safety at Group as well as site level, with continuous review and improvement of our safe operating standards, an extension of process safety training which included the Non-Executive Directors and completion of our first round of process integrity audits.

8 Oil prices continued to fall in the early part of this period, reaching a ten-year low of $27/barrel in January 2016 before recovering somewhat. This did not directly impact sales margins because customer pricing is based on spot market prices, our operating inventory is relatively constant and we remain hedged against price crude oil prices drove an increase in refinery production globally, which in turn resulted in an abundance of refined products and contango market conditions for diesel. This made it profitable to store oil and created opportunities for us to bring redundant storage capacity back into operation in our own facilities, including at Thames expect UK refinery production to continue to decline as refiners increasingly struggle to sell their surplus petrol in other markets and as competitive pressures grow from refiners in the US, Middle East and Asia.

9 Greenergy is best-placed to make up the shortfall in domestic refinery production by supplying low-cost product imported from the most efficient producers around the F11 Infrastructure p48 Corporate governance p91 Operational performanceWe continued to explore new sales opportunities both within the UK and internationally, expanding our fuel sales in the UK and supplying diesel into Brazil for the first time. Our Canadian business delivered a profit after two years of development and investment. Strategic investmentsDuring the period we acquired Vopak s one third share in the Thames Oilport joint venture with Shell. In addition, we co-founded Navigator Terminals with Macquarie Capital to acquire Vopak s UK operating bulk fuel storage terminals as well as Greenergy s North Tees Terminal.

10 The establishment of Navigator provides a platform for continued growth in key infrastructure to support our business, both in the UK and our low-cost model, the scale of our operation and our import infrastructure, we are ideally placed to capture future opportunities created by a growing requirement for fuel imports, both in the UK and hidden highlight for me this year was the effectiveness of our control processes across all parts of the business. Market conditions were favourable and, with robust daily operations throughout the period, we consistently captured the opportunities that the market presented. Financial performanceThis was another strong year for the company, with EBITDA (excluding exceptionals) reaching , and we derived value across all segments of our business.