Six-month profit substantially lower

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 reporting season.

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.


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