Oil refiner and marketer, Caltex Australia, loves to play games with its profits, reporting them in two ways.
One is its preferred way of the Replacement Coast of Sales Operating Profit.
That’s described as excluding "the impact of the fall or rise in oil prices (a key external factor) and presents a clearer picture of the company’s underlying business performance. It is calculated by restating the cost of sales using the replacement cost of goods sold rather than the historical cost, including the effect of contract based revenue lags."
That produced a profit of $163 million after tax and before extraordinary items for the six months to June 2010, compared with $298 million for the first half of 2009. Including the one off-items, after tax profit was $149 million vs. $298 million.
The second is on the basis of historical cost accounting, like every other company and on that basis, profit fell to $141 million after one off-items from $362 million.
So by both measures, a not so good result, it would seem.
So why did the company’s shares rise more than 2.7%, or 28c yesterday at one stage?
They ended a touch lower than that, up 2.5% or 26c at $10.48.
The wider market ended down 2 points, but seemed unable to get out of its own way yesterday as it mulled over the election result.
Well, the company’s directors boosted interim dividend to 30c a share from 25c.
Now companies normally don’t reward shareholders is they are worried about future earnings and concerned about volatile prices for its main raw materials, as well as the impact of a strong currency.
They usually cite clichés like ‘headwinds’ or ‘lack of visibility’ in the outlook and play it safe and hang on to the money.
But not the directors of Caltex.
Yes, Caltex’s first half profit has more than halved on the back of a strong Australian dollar and market volatility.
And yes, external volatility impacted the result, with "Singapore refiner margins were stronger than expected due to the weakness in the Tapis crude price relative to other crudes", the company said.
"However, the higher average Australian dollar during the period, compared with the same period in 2009, resulted in a lower Australian dollar Caltex Refiner Margin."
Operating expenses, including refining and supply, marketing and corporate increased by $23 million, while net finance costs increased $19 million.
But the company did have a very solid first half, as it explained in its profit statement.
"Marketing continued to deliver strong results in the first half of 2010, achieving a 31% increase in earnings before interest and tax (EBIT) over the prior corresponding period," Caltex said yesterday.
"Total transport fuel sales volumes grew strongly, up 3.6% compared to 2009. Growing demand for diesel, jet and premium fuels more than offset a small reduction in demand for petrol.
"While there was a slight decline in overall petrol sales, premium petrol sales grew strongly.
"Shop sales also grew in excess of 3% compared to the corresponding period last year.
"Finished lubricants growth was outstanding with Caltex achieving a market share of 20% in May and progressing to number two in the market.
"Refinery reliability continued to improve. However, production volumes declined in the first half of 2010 due to higher planned maintenance at the Lytton and Kurnell refineries, compared to 2009.
"This planned maintenance was completed successfully and overall production of petrol, diesel and jet fuel was 4.3 billion litres (first half 2009: 5.1 billion litres)."
And the company revealed that it is in the process of expanding dramatically into the booming market for diesel in the mining areas of north west WA.
"In addition, construction of two new large diesel tanks in Port Hedland is planned to commence in September.
"When completed in late 2011, Caltex will be transformed from being a relatively small player in that region to one where we have the capability required to take a leading role in supplying fuel and lubricants to the iron ore and natural gas developments in the north west."
And while the weaker Aussie dollar impacted earnings (because of the weakness in May and June), was it as much the fault of management as the forex market?
Yesterday’s result said this: "However, the higher average Australian dollar during the period, compared with the same period in 2009, resulted in a lower Caltex Refiner Margin. The Caltex Refiner Margin for the period averaged 6.79 Australian cents per litre, a decrease of 15% over the first half of 2009.
"The fall in the Australian dollar towards the end of the period resulted in a net foreign exchange loss on US dollar payables for the half of $36 million, compared with a net gain of $75 million in the same period in 2009.
"As advised to the market on 24 June 2010, given the significant ongoing exchange rate volatility, the Board decided to implement a policy of hedging 50% of Caltex’s $US crude and product payables exposure (after applying natural hedges) with effect from 1 July 2010."
So to protect itself against the dollar’s moves, the company’s board is going to partly cover the US dollar cost of its crude and product (diesel etc) by hedging.
It’s obvious that the hedging would
