6 Nov 2012
Brand, strategy delivering in tough market
Z Energy’s strengthening local brand and progress with its strategy implementation saw the company deliver solid underlying performance for the first six months of the 2013 financial year, despite vigorous competition and a stubbornly slow domestic economy.
Z’s statutory reported Net Surplus for the six months ended 30 September was $2.3 million, down 90 per cent from $22.9 million for the previous corresponding period. Z’s statutory reported numbers are calculated on an historic cost basis as required by International Financial Reporting Standards (IFRS). Historic cost calculates the cost of fuel sold on a first in, first out basis. Therefore historic cost earnings take into account changes in the value of inventory, which may be volatile depending on how much the price of oil fluctuates. Dubai crude started the period at $NZ147 per barrel and finished at $NZ133.
Z’s management (and capital providers) focus on current cost earnings as this reflects the underlying business model, with Z constantly selling fuel and buying product to replenish its inventory. Z uses various risk management tools including currency and commodity hedging to protect margin in a business which is high volume and low margin.
Current cost is calculated by revaluing the cost of fuel to its current value. The difference between historic cost earnings and current cost earnings reflects the differing valuations of the period’s opening and closing fuel (or inventory). Over time the two measurements should be similar, but there will be differences in any one accounting period and generally historic cost earnings will be more volatile.
Z’s recorded Current Cost Operating EBITDAF for the six months was $96.8 million, up 17 per cent from $82.8 million for the previous corresponding period.
Z Chief Executive Mike Bennetts said he was particularly pleased with how Z’s ongoing strategy implementation and the evolving Z brand was helping deliver consistent earnings despite continued volatility in both global and domestic fuel markets.
Volumes across the industry declined over the six months, reflecting petrol prices above $2 per litre and subdued economic activity. Within the industry, strong competition in the retail market in particular has seen shifts in market share, with Z’s petrol sales down seven per cent compared to the same period last year. This has been impacted by the closure of many Z sites over the period for rebranding and refitting.
“It’s now one year since the commitment was made to the Z brand, resulting in one of the country’s most visible rebranding projects. It’s now three months since the rebrand of 300 sites was completed, on time and on budget, with Z now a wholly independent, locally owned company trading under a distinct local brand,” said Mike Bennetts.
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