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China Aviation Oil Q4 profit dented on deferred tax assets

CHINA Aviation Oil (CAO) was hit with a near seven-fold increase in income tax expense for the fourth quarter of 2017, due to a decline in deferred tax assets as a result of the utilisation of unabsorbed tax losses from prior years to offset the current year's profits, the group said in its earnings statement.

Income tax expense was US$3.33 million for Q4 2017 compared to US$0.42 million a year ago.

The increase was also due to recognition of deferred tax liabilities on the group's share of undistributed retained earnings from associates and tax expenses incurred on transfer of shareholding in Oilhub Korea Yeosu consequent to the liquidation procedures of CAOT Pte Ltd, CAO said.

CAOT was placed under members' voluntarily liquidation in the fourth quarter of 2017 and is expected to be completed in Q2 2018.

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As a result of the above, profit for Q4 2017 was US$14.03 million, down 21.7 per cent, on a 23.96 per cent rise in revenue to US$4.06 billion helped by ballooning oil prices.

The share of profits contributed by its associates was up by 26.19 per cent to US$16.82 million for Q4 2017 compared to US$13.33 million a year ago, primarily due to higher refuelling volumes from Shanghai Pudong International Airport Aviation Fuel Supply Company.

Other operating income increased by 109.59 per cent to US$0.96 million for Q4 2017 compared to US$0.46 million for the same period in 2016, due mainly to higher interest income after offsetting foreign exchange loss in both quarters.

Earnings per share for Q4 2017 came in at 1.64 US cents, down from 2.08 US cents a year ago, and net asset value per ordinary share for the same period was 84.12 US cents, up from the previous year.

For the overall 2017 financial year, gross profit decreased by 12.1 per cent to US$38.7 million, mainly due to lower gains from trading and optimisation activities as markets reclined to backwardation, exacerbated by increases in supply and operational costs incurred due to various supply disruptions caused by weather and refinery outages in the third quarter of 2017, CAO said.

CAO's board has proposed a dividend of 4.5 Singapore cents per share for FY2017, subject to approval at the upcoming annual general meeting, which is in line with the group's dividend policy of distributing 30 per cent of the group's consolidated net profits.

Meng Fanqiu, CAO's chief executive, said the volatile oil market in 2017 resulted in a "complex and unpredictable trading environment which contributed to lower gains from trading and optimisation activities", but "despite the difficult trading environment, CAO continued to make significant headway in penetrating key aviation markets globally, grew international revenues and at the same time built on our strengths in China's civil aviation market and expanded our global jet fuel supply and trading value chain.

"During the year, we also exercised stringent risk management to mitigate trading risks, ensure safe global operations and heightened corporate governance practices to oversee this expanded global growth platform."