Z Energy operating earnings rise 10% on rebound from difficult first half

Z Energy [NZX: ZEL] posted a 10 percent increase in full-year operating earnings, as fuel and refining margins improved and the service station chain sold more fuel.

Replacement cost earnings before interest, tax, depreciation, amortisation and fair value adjustments, the company's preferred earnings measure, rose to $241 million in the year ended March 31, from $219 a year earlier, the Wellington based company said in a statement. Sales fell 9 percent to $3.06 billion.

Statutory net profit tumbled 93 percent to $7 million, which Z said was "negatively impacted by the 61 percent drop in the price of crude oil and refined fuels over the financial year."

Z says replacement cost Ebitdaf is the preferred measure for the downstream fuels industry globally. On that basis, earnings fell to $91 million in its first half, missing the company's prospectus forecast of $105 million. For 2016, the company forecasts RC operating Editdaf of $245 million to $265 million.

"The second half of the financial year was a period of recovery and increasing momentum for the company - the opposite of the conditions in the first half," the company said. "Refining margins improved markedly, Z sold more fuel than in the previous corresponding period, and fuel margins and store sales improved. The under-performance relative to financial targets in the first half of the year, resulting from costs associated with the low refining margins in that half, was reversed in the second half."

Z lifted its final dividend to 16.5 cents from 14.3 cents a year earlier. Shares of the company were unchanged at $5 and have gained 29 percent in the past 12 months, outpacing an 11 percent gain for the NZX 50 Index.

Operating expenses rose 2 percent to $294 million, with an increase in selling commissions and onsite costs, and a decline in employee benefits after restructuring in 2014. The net cash inflow from operating activities was $182 million, more than double 2014's inflow of $81 million.

The company chased volume in its latest year, "actively price matching in retail while maintaining average margin," it said. That saw its underlying fuel margin rise 6 percent in the year, at 19.3 cents per litre, while the total volume of fuel sold rose 2 percent to 2.48 billion litres. Of that, petrol sales fell 1 percent to 823 million litres, while diesel rose 1 percent to 861 million litres - with both fuels lagging behind volume growth in the industry as a whole. 'Other' fuels fell 1 percent to 625 million litres. The biggest gain came from supply sales and exports, which rose 51 percent to 172 million litres, reflecting 54 million litres of crude and condensates sold to BP through the New Zealand Refining optimisation programme.

"While Z's commitment to match up and compete on discounted prices has meant that up to 40 percent of its retail fuel volume has been discounted, this reduces margins on total retail volumes, however tactical pricing has firmed the company's fuel volumes over the second half of the year," said chief executive Mike Bennetts

(BusinessDesk)