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Z Energy outlook upbeat despite challenges

Z Energy, the $1.3 billion New Zealand-based importer and distributor of transport fuel announced its earnings for the 2021 financial year. Z delivered a net profit after tax of $57 million, up 165% from a loss in 2020. The result came despite earnings before interest, depreciation, and amortisation of $238 million, being down 35% from $366 million in the PCP.

Trading conditions

Z noted that the external operational environment remains challenging. Refining continues to face excess supply, along with Covid-19 related reduced demand, resulting in refining margins remaining at historic lows. Its processing agreement in place with Refining NZ means that Z is fully exposed to the downside of the market given the company’s commitment to floor payments.

Retail margins also declined, driven by the increase in crude oil prices over the period, although margins in April have increased over the 4Q average as input costs plateaued.

Z has a four-point improvement plan to reduce costs, hold market share, monetise scale and manage capital:

  • Structural costs savings target of $48m were delivered

  • Market share has stabilised in FY21

  • Z executed on its terminal network strategy, removing assets from the National Inventory Agreement that enhanced flexibility to commercial customers.

  • Z successfully raised $347m of equity which provided balance sheet strength during the worst of the Covid-19 related impacts

Outlook for FY22 and dividend guidance

Z is forecasting EBITDAF earnings for FY22 to be between $270-$310 million with dividends to be in the range of 19-23 cents per share.

The forecast is based on the expectation that retail margins will, on average, remain flat versus the PCP. Refinery production will be up versus FY21 which may require the industry to make fee floor payments.

While crude prices have seen significant increases during 2HFY21, guidance is based on a stable Brent price of +/- 10% the current NZ$95/bbl.

Guidance for FY22 does not include any provisions for Covid-19 related lockdowns and does not assume any material changes in Jet volume.

Z also expects operating costs to be flat YoY after allowing for FY21 provision release with the $49 million structural cost savings achieved in FY21 to run rate to $70 million in FY22.

CEO of Z Energy Mike Bennetts commented, “This past year has demonstrated Z’s capability to respond to challenges, build on the knowledge gained and seek out new opportunities that deliver valued customer experience and financial returns.”

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