1 Nov 2018

Z Energy's underlying profit drops 31 percent after price hike

3:06 pm on 1 November 2018

The country's biggest fuel company, Z Energy, has reported a big rise in its half year profit on the back of high oil prices and a lower currency.

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Photo: RNZ

The net profit for the six months ended September was $139 million compared with last year's $80m.

But its underlying profit, which eliminates the volatility in prices and currency and is regarded as a better indicator of performance, fell by 31 percent to $72m, and operatings earnings before one-off items were down 21 percent.

Chief executive Mike Bennetts said global fuel prices have risen 25 percent in the past year, the New Zealand dollar had fallen, and there had also been the increase in fuel taxes nationally and regionally.

These led to record high prices at the pump, which hit demand.

"Record high prices meant that demand was impacted. No doubt that that affects household budgets, and businesses, so people bought less."

He said increased competition in some regions has also seen motorists shopping around, while it had also been pressured by the longer-than expected maintenance shutdown of the Marsden Point refinery .

Lower margins

"Margins typically come under pressure when crude prices rise steeply, as prices at the pump lag behind the increases in the price of crude oil, and customers are sensitive to new, higher price points," he said.

Z's gross fuel margin fell to 15.5 cents a litre from 17 cents a year ago.

Z lowered its forecast for full year operating earnings by around five percent to between $400m-$435m because of volatility in fuel prices and the exchange rate.

Mr Bennetts said he was not worried about the prospect of an inquiry into prices by the Commerce Commission, which a recent law change has made possible.

"We will continue to point to the facts; our books are open and financial returns are not excessive given the complexity of the business and the capital employed, competition is intense and our returns are consistent with similar companies around the world," he said.

In addition to its 345 stations and truck stops, Z also has a bio-diesel production plant, and owns 70 percent of the electricity retailer Flick Energy