Fuel retailer Z Energy has reported a $58 million net profit after tax loss for its half-year result, down 307% year-on-year.
The company says COVID-19 has had a heavy impact on its operations along with weak refining margins and low consumption particularly in jet fuel which was down 72% year-on-year due to the impact on international travel and domestic flights.
Its total fuel volume was down 28% year-on-year to 1.3 billion litres for the six months to September 30.
Diesel volumes were only down 4% and were less impacted than petrol as essential services and freight continued to move during the lockdown period.
The company completed a $347m capital raise in June to pay down $180m of bank debt and set aside for $150m of retail bonds due in November 2021.
For more than six months Z operated with a crisis team in place as the business dealt with the impacts and uncertainty of COVID-19.
“The resilience of our staff and our commercial partners during the country’s response to COVID-19 was excellent,” Z chief executive Mike Bennetts says.
“The team has ensured security of supply to New Zealand under very difficult operating conditions. We have maintained safe and reliable operations while the business has delivered a materially different set of results, both operationally and financially, than was initially expected.
“We remain alert to the potential of additional and ongoing COVID-19 outbreaks like that seen in August, but believe we are otherwise well placed to benefit from the economic recovery in domestic tourism and commercial activity driving volume and market share increases,” he says.
Z is on track to achieve $48m in annual structural cost savings for FY21, in-line with guidance. The first half has seen $22m of structural opex reduction.
Beyond the $22m of structural cost reductions Z achieved $14m of one-off cost reductions. This includes $3.4m of wage subsidy from the Government and the company says it has made only three COVID-related redundancies.
“The application for the wage subsidy needs to be seen in the context of our financial results,” Bennetts says.
“First half operating profits were around half of what they were a year ago, despite costs being reduced by $35m. Prior to Z’s application for the wage subsidy Z had already cancelled $8m of employee bonuses and cancelled the FY20 final dividend, expected to be around $90m.”
Retail fuel market changes
The company reports a “highly competitive” retail fuel market and although volumes are down the industry continues to add capacity with five new sites added in the second quarter of FY21.
Z believes a combination of lower retail fuel margins and reduced COVID-19 related volume will see an acceleration of marginal sites closing.
“COVID-19 highlighted the importance of a contactless customer experience. We saw a volume shift towards Z as we were able to provide a range of safe and efficient solutions to meet our customers’ needs,” Bennetts says.
“We’ve seen increases in customer engagement and sales through our digital solutions such as Sharetank, Fastlane, and pre-order in-App purchases for coffee increased during the lockdown and have remained.
“We know that loyalty remains a core value proposition. A year on from introducing Pumped as a unified offer across both the Z and Caltex brands, we’ve seen Caltex exceed last year’s volumes. In the first half we saw positive impact from changes to our loyalty offers with Flybuys and Air New Zealand Airpoints. Market share data availability has changed in light of the regulatory background but our data indicates that Z’s market share is increasing,” he says.
Refining margins
The company says refining margins have continued to be at levels “insufficient to cover the operational costs of domestic refining and coastal distribution”.
This has required Z to make $19m of fee floor payments to Refining NZ of which it owns a 15.4% stake in. This led to a net $14m refining margin loss for the period. The refinery operated in a ‘hot park’ mode with reduced capacity in response to reduced demand for product while the country was in lockdown.
Regulation changes
Z continues to implement the requirements of the Fuel Industry Act and says it’s ahead of schedule, having nearly completed the soon to be mandatory display of premium product pricing on price boards throughout its retail network.
“The wholesale market changes, including implementation of Terminal Gate Pricing (TGP), will open up competition in the wholesale market for which Z is well placed. The recent removal of the Nelson Terminal from the national network to operate under TGP has already seen positive results,” the company reports.
“Z believes a shift to shorter tenure and non-exclusive distributor contracts will open up a more contestable wholesale market. The current Government timelines for implementing wholesale market changes and allowing distributors to exit existing agreements is however too long. We encourage the Government to accelerate the regulatory process allowing for more wholesale competition and achieving its goal of a more competitive retail market,” it reports.
Full year outlook
Z is re-instating its full year earnings guidance and is forecasting replacement cost EBITDAF for FY21 to be between $235m and $265m.
*Click here for the full webcast presentation
