Z Energy yesterday released a complicated set of
financial accounts which showed a substantially reduced profit
for the six months ended September.
The statutory operating profit for the period was $57.9
million, down 24% on the $76.5 million in the previous
corresponding period (pcp).
The reported profit after tax was $2.1 million, down from the
$22.9 million in the pcp. Z paid $1.3 million in tax in the
half year compared to $9.1 million in the pcp.
However, Z preferred to concentrate on what it called the
"current cost" operating profit which was $96.8 million in
the half year, up 17% on the pcp.
Z is owned by listed infrastructure company Infratil and the
New Zealand Superannuation Fund which bought the assets from
Shell New Zealand.
Z chief executive Mike Bennetts said the company's management
and capital providers focused on current cost earnings as
they reflected the "underlying business model", with Z
constantly selling fuel and buying product to replenish its
inventory. Z used various risk management tools, including
currency and commodity hedging to protect margin in a
business which was high volume and low margin.
Current cost was calculated by revaluing the cost of fuel to
its current value. Current cost was a non International
Financial Reporting Standards number.
This year, companies throughout New Zealand have used
differing reporting methods to focus investor attention on
the best possible result. Terms like normalised or underlying
earnings have been prominent in the last and current
Fuel prices have been dropping in recent days and Mr Bennetts
said Z remained committed to transparency around prices,
margins and profitability.
"In a $2 per litre-plus market, the New Zealand public expect
to be told how much money a local company like Z makes."
Over the reported period, there was volatility in fuel
margins but at the end of the period, Z's current cost net
profit after tax equated to a margin of 2.6c per litre
compared to 2.4c per litre for the pcp, he said.
There had been a much-needed short-term improvement in gross
margins but that was mostly offset by growing operating and
financing costs, meaning Z was still in a high volume, low
margin industry with need for major capital investment.
"Commentators like the AA repeat that fuel margins are higher
than historical averages but they miss the point that the
post tax profits are largely the same."
Figures included in the report showed that Dubai crude
started the period at $147 a barrel and finished at $133.
It was also Z's view that the history of the industry had not
served New Zealand or the motorist well and that the current
state of the industry and its infrastructure was something to
be fixed rather than be proud of, Mr Bennetts said.
Mr Bennetts reaffirmed the company's full year current cost
guidance at $185 million to $200 million.