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Greenstone's Shell surprises with market share grab

Tuesday 16th November 2010

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Local decision-making, preference for Kiwi ownership, and the damage to the BP brand of the Gulf of Mexico oil spill are the most likely reasons for Shell petrol stations' strong sales growth in their first six months under Greenstone Energy ownership, says 50% owner and manager, Infratil.

Greenstone's assets, the Shell chain of petrol stations and associated distribution, had 4% sales growth in a flat market and produced $100 million in operating earnings, expressed as EBITDAF, Infratil chief executive Marko Bogoievski told an analysts' briefing in Wellington. That was up from $71 million for the same period a year earlier, before Shell New Zealand sold its downstream assets to Greenstone.

"There have been big moves in market share in the last six months, but not at the expense of margin," he said. "That speaks to the underlying opportunity" represented by the Greenstone venture.

Some $90 million of Greenstone's earnings were from downstream assets, while around $9 million came as dividends from its 17% share of New Zealand Refining Co., and Bogoievski suggested $80 million as a reasonable benchmark for six monthly operating earnings, while refinery earnings were expected to remain stable.

It was difficult to know how to attribute such a dramatic sales shift, but it was likely to be a combination of factors, not least the locally owned unit's capacity to make decisions quickly whereas multi-national competitors such as BP are often part of slower, less predictable global decision-making processes.

The BP oil spill is known to have hurt sales at Shell's biggest competitor.

It was possible that customers were choosing a New Zealand-owned supplier, although this would rarely influence purchasing decisions by "hard-nosed" commercial users, said Bogoievski. Greenstone has three year's use and renewal rights on the multi-national Shell brand in New Zealand. A brand and customer strategy review is "nearing completion."

Commenting on TrustPower, 50.5% owned by Infratil, Bogoievski drew attention to the completion of the Highbank pumping station, for the Barrhill Chertsey irrigation scheme, the first in a series of infrastructure investments to produce both irrigation and hydro-electricity on the Canterbury Plains.

"Keep a close eye on this one," he said.

Both Greenstone and a strongly improved contribution from the Infratil Energy Australia segment pushed Infratil to a $16.1 million profit for the six months to September 30, from a $31.4 million loss in the same period last year.

The value of IEA assets grew from $256 million to $354 million over the half-year, showing for once a clean result with no abnormals and EBITDAF of A$48.6 million over the half-year, up A$40.6 million from the same period last year.

Operating earnings for the year are forecast at between A$30 million and A$38 million, with second half trading affected by traditional seasonal patterns.

Earnings would return to these levels after 2013 when IEA locks in new, more advantageous gas contracts in the over-supplied Australian market. Wholesale market dynamics were favouring the Perth generation business, while the recently launched east coast Australian retail energy brand, Lumo, was performing despite heavy competition and 28% customer churn.

Infratil's European airports play continued to be "no fun to run", but the cost minimisation strategy was working.

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