Z Energy lifts earnings and fattens margins

Z Energy [NZX: ZEL] lifted first-half earnings 15% as it fattened its margins in a tightly contested market, ceding market share in the process.

Replacement cost operating earnings before interest, tax, depreciation, amortisation and fair value adjustments, the company's preferred earnings measure, rose to $105 million in the six months ended September 30 from $92 million a year earlier.

Revenue dropped 20% to $1.31 billion as the service station chain's volume of petrol sales fell 2% against an industry increase of 2%, while diesel sales declined 6% in a flat market.

"The level of competition across the retail and commercial markets continues to be very strong," chief executive Mike Bennetts says.

"In the retail markets Z continues with its tactical commitment to match price board discounting and in the commercial markets is continuing to be judicious around the business it retains and the acquisition of new customers."

Z widened its gross margin on fuels 8% to $225 million in the half, by trimming out marginal business, while its non-fuels margin increased 7% to $31 million and its refining margin more than doubled to $24 million, earned through its shareholding in the country's only oil refinery. This reflected a weaker kiwi dollar and strong regional conditions supporting refineries.

The company reported a trebling in net profit to $67 million, bouncing back from a year earlier when it was dragged down by falling prices for oil and refined fuels.

The board declared an interim dividend of 8.5c per share, payable on December 2 with a November 20 record date.

The shares last traded at $6.75 and have gained 45% this year.

Z is seeking regulatory approval to buy Chevron's Caltex and Challenge! brands, which would give it 49% of the nation's retail market. In September, it raised its estimated savings from the merger to between $25-30 million from an earlier range of $15-25 million.

The company affirmed guidance for annual earnings to be within $245 million and $265 million, which included a one-off $24 million charge from additional Customs duties and penalties and the timing of the Chevron cut-over date.

(BusinessDesk)