Fuel company Z Energy produced a good result for the year ended March but not as good as it could have been, Forsyth Barr broker Damian Foster said yesterday.
The company, which recently received approval to buy Chevron NZ's Caltex assets, reported operating earnings of $272million for the year, 10% better than the previous corresponding period (pcp) but $15millon below forecast.
Mr Foster said there were two main reasons for the difference.
First, the discount between MBIE margins and Z's reported fuels gross margin had increased to a new record of 8.2c per litre (cpl) in the second half of the year, up from 5.8 cpl in the first half and 6.2 cpl in the second half of last year.
"In essence, the level of discounting has increased more than expected. This has meant the reported 2016 gross fuels margin of 20.5 cpl was 0.3 cpl lower than our forecast and contributed to $8million of the forecast difference.''
The second area of difference was operating costs coming in at $4million, or 1.3%, higher than forecast.
Marketing and professional fees were both up 10% against the pcp and were the main sources of difference in forecasts, he said.
Below the operational line, Z's results were largely as expected.
Reported profit was $123million, up slightly on the pcp.
That had allowed Z to declare a final dividend of 18.1 cents per share, ahead of forecast.
Z had provided 2017 reported profit guidance of between $260million and $290million, excluding any Chevron figures.
Relative to Forsyth Barr's last forecast, the refining margins had fallen significantly. Recalibrating for the lower realised gross fuels margin would see a modest downgrade to the broking firm's forecast, Mr Foster said.
"Overall, it was a result a good step higher than the pcp but not quite as good as it could have been. We continue to believe Z will deliver more synergies than expected from the Chevron acquisition and remain positive about the short-term outlook.''
Z chief executive Mike Bennetts said growth had been driven across the chain.
Z's exposure to the performance of Refining New Zealand had been positive with the refinery contributing $48million, up from $31million in the pcp.
While achieving its financial goals, Z also needed to remain mindful its total sales volume was maintained within a band that allowed the company's supply chain to operate at maximum efficiency, he said.
Z and Progressive Enterprises, the operator of Countdown supermarkets, would end their supermarket docket relationship from July 31.
The contract had constrained Z from offering discounts through its other commercial partners.
"Loyalty offers are changing quickly, as are customer preferences, and it's important we move with those trends and develop market-leading offers. We are doing some work on Z's loyalty offer, which we will update later this year,'' Mr Bennetts said.
At a glance
• Z Energy operating profit up 10% at $272million
• Reported profit $123million, up 2% on last year
• Final dividend of 18.1%, up 10% on last year
• Z and Countdown end their supermarket docket loyalty programme
