Z Energy improves fuel margins while continuing to drop market share

Earnings results for the year to March 31 show Z Energy [NZX: ZEL] continues to improve profit margins on fuel sales while ceding market share, and coping with a poor year's performance from its shareholding in the Marsden Point oil refinery.

Statutory net profit for the year was $91 million, compared with $137 million in the prior year, which benefited from a one-off $46 million in proceeds from the sale and leaseback of petrol station sites around the country.

However, the company's preferred profit measure, which strips out the distorting impact of changes in the value of fuel inventories, saw earnings before interest, tax, depreciation, amortisation and the fair value of financial instruments rise 12 percent to $219 million.

The transport fuels refiner, distributor and retailer is forecasting Ebitdaf for the 2015 financial year of between $220 million and $240 million, with growth derived from building four to six new sites and refurbishments at up to nine others, and improving fuel margin.

Capital expenditure in the year ahead is forecast to be between $80 million and $100 million, compared with $74 million in the year just past, reflecting both a $20 million carryover from the 2014 financial year and $16 million to build a small, commercial scale biodiesel plant on its Wiri tankfarm site, in south Auckland.

The company has declared a fully imputed final cash dividend of 14.3 cents per share, payable June 4, and bringing total distributions for the year to 22 cents a share, or 87 percent of historic cost NPAT.

The company improved fuel margins by an average 5 percent over the period, but at some cost to volumes sold. Petrol sales of 832 million litres were 6 percent lower than the previous year and diesel sales fell 3 percent to 634 million litres.

Fuel margins rose to 17.1 cents per litre, up from 15.8 cents per litre the previous year and ahead of forecast, which had targeted 16.5 cents per litre.

The "decline in petrol volumes due to optimising the volume and margin mix" was "not sufficiently offset by new sites and rebuilds," the company says in its presentation notes on the result, released to the NZX this morning.

The company lost two large commercial diesel contracts and saw tough competition for sales of aviation fuel, although diesel sales "turned around in the second half as we selectively acquire new accounts."

"While being willing to deliberately trade some volume for the sake of better unit margins, Z closed the year with market leading positions across petrol and diesel sales with total market share down two percentage points from April 2010, when the company was bought," said chief executive Mike Bennetts in a statement.

A combination of unexpected outages and historically low global refining industry margins hit performance from New Zealand Refining, in which Z owns a 15.6 percent share. Refining margins fell 20 percent against the previous year, while the refinery shut down twice instead of an expected once, and the fourth quarter shutdown was 22 days longer than expected, producing an unexpected $4 million to $6 million cost, which will crystallise in the first quarter of the current financial year.

While investments at the refinery will improve its competitiveness over the next two years, Z expects global refining margins to remain under pressure in the year ahead.

Figures comparing the actual performance for the last financial year with the forecasts included in its prospectus for listing on the NZX last August, show revenue at $3.37 billion coming in under the targeted $3.55 billion.

However, operating costs of $281 million were down on an expected $296 million, to produce replacement cost operating Ebitdaf of $219 million for the year, compared with the prospectus forecast of $207 million.

Results from the company's non-fuel operations, where it's targeting more sales of food, coffee and car washes showed an improvement of 7 percent in non-fuels margin, although a decline in total transactions was "driven by decisions on optimising fuel margins and the competitive conditions in the market."

Z shares were trading at $3.87, one cent down on yesterday's closing price, having risen from a low point since listing of $3.47 in mid-December.

(BusinessDesk)