Z Energy may review current interim distribution policy

Z Energy may review its interim distribution policy after reducing debt levels ahead of schedule following its acquisition of Chevron New Zealand's Caltex and Challenge! brands.

The company expects to be close to its target range of two times net debt to replacement cost operating earnings before interest, tax, depreciation, amortisation and fair value adjustments (ebitdaf) by the end of the 2018 financial year with anticipated deleveraging in the 2018 financial year from operating earnings and divestment proceeds, it said in a statement.

"This is three to four quarters earlier than was originally anticipated at the time of announcing the acquisition," Z Energy said in a quarterly update to the NZX.

The transport fuel company bought the Chevron assets for $785 million last year, making it the country's biggest petrol retailer, with about 49% of the retail transport fuels market. Bank debt was reduced by $25 million in the second quarter of 2017 and $45 million in the third quarter with proceeds from the sale of some gas stations used to pay down debt.

The faster debt reduction provides it with the flexibility in the second half of 2018 to review its current interim distribution policy (currently 10% annual growth in DPS) and/or support investment in growth options beyond the core, Z Energy said today.

It also reiterated it is on track to deliver $40-45 million of savings in the 2018 financial year and outlined some measures to generate further savings.

Z Energy said three sites will be divested to a Caltex retailer during the 2018 financial year with net proceeds still to be determined. Two sites, Fanshawe St and North Highway in Paraparaumu have already been sold and the $22 million and $300,000 respectively will be used to reduce debt. Among other measures to build value post the merger, it aims to increase jet capacity at Auckland International Airport. However, the measures are subject to implementation planning and therefore it is premature to provide guidance, it said.

Z Energy shares were trading up 0.8% at $7.50.

(BusinessDesk)