Stiff competition, lower margins push Z Energy into loss

Monday, 11 May 2020

Z Energy has announced swingeing cuts to its business after booking a historic loss, due to writedowns, retail market competition and low refining margins.

The fuel company made an annual net loss of $88 million in the year to March 31, compared with a profit of $186m in the previous year.

Crude oil prices have sunk to historic lows, eating into Z's returns from Refinery NZ.

Major reasons were competition at the pump and historically low refining margins for Refining NZ, in which it holds a 15 per cent stake.

In response, the company said it would cut costs, conserve cash and raise up to $360m by issuing more shares.

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The company is planning to cut costs by between $74m and $96m next year, $18m of which would result from reduced demand.

Z’s chief executive Mike Bennetts said the result highlighted how competitive the New Zealand retail fuel market had become, as well as the challenge of Covid-19.

Z Energy ceo Mike Bennetts says Covid-19 is presenting ''numerous challenges''.

''The Covid-19 global pandemic is presenting numerous operational challenges, not least a material decline in demand for product.

''Z continues to respond well to these challenges and has acted swiftly to reduce operating costs, increase cash flow and provide flexibility to the balance sheet that will position Z well for the expected improvement in post-Covid trading conditions.''

The company pulled its final dividend and 2021 forecast, saying it expected long lasting effects from the lockdown.

Fuel sales at Z stations tumbled by 80 per cent during the first four weeks of lockdown, although its results only capture the first week.

One-off costs during the year included a $35m writedown on its stake in spot electricity retailer Flick investment, and a $61m impairment on its Caltex retail supply contracts, which the company attributed in part to loss of market share after it left the AA loyalty scheme.

Z's result also includes $33m of Covid-19 related costs and provisions, up from the $27m anticipated in April.

Demand for its aviation fuel was likely to be significantly lower in the coming year ''and the timing of any recovery for international jet travel is highly uncertain,'' Bennetts said.

The company plans to raise up to $350m in equity, $290m through a placement with institutional investors, and up to $60m in a share placement plan.