Z Energy first-half profit up 10pc
Retail network acquisition key to boost in sales
ZEnergy lifted first- half profit 10 per cent as the acquisition of Chevron New Zealand’s retail network swelled sales, even as retail margins shrank from what the transport fuels company described as the top of the cycle.
Net profit rose to $80 million in the six months ended September 30 from $73m a year earlier, the Wellington-based company said.
Sales climbed 26 per cent to $2.09 billion on a 13 per cent increase in the volume of fuel sold to 2.1 billion litres, although margins shrank to 17.3c per litre from 18.2c a year earlier.
On Z’s preferred measure, which strips out the changes in the value of inventory, replacement cost operating earnings before interest, tax, depreciation, amortisation and fair value adjustments rose 19 per cent to $221m, reflecting a full six-month contribution from Chevron compared to just four months a year earlier. The company affirmed annual guidance on that basis to be between $445m-$475m.
“We’ve seen softer contribution from the retail business as retail margins appear to be at the top of the cycle, while the commercial business has improved both volumes and margins,” said chief executive Mike Bennetts. “Z’s strength across the supply chain has also contributed to the result due to greater economies of scale.”
Z is embarking on a new longterm strategy as it beds in the Chevron assets more quickly and efficiently than it had anticipated, which will let it repay debt taken on for the acquisition earlier and start paying larger dividends to shareholders.
The board declared an interim dividend of 10.4c per share, payable on December 12, with a record date of November 24, up from 9.4c a year earlier. From 2019, it plans to pay 80-100 per cent of free cash flow in dividends, which it expects will deliver “a material increase” while enabling it to keep reducing debt.
Operating cash flow rose to $185m from $131m a year earlier, while capital spending was a net $27m in the period.
Net debt shrank to $960m, or 2.1 times underlying earnings, compared to $1.09b, or 2.6 times earnings a year earlier.
Bennetts said it submitted to the Ministry of Business, Innovation and Employment last month about the fuel market financial performance study, saying it was not concerned about a potential inquiry into the possibility of a borrow and loan registry and more liquid wholesale market.
“However, given New Zealand’s fuel supply has become more and more efficient over the last 30 years, any changes would need to be very carefully considered in order to avoid unintended negative consequences.”
Z has yet to talk to new Energy Minister Megan Woods about the work. Its shares closed down 3c yesterday at $7.17.