Z Energy's second full year of operation since its sale to local investors by Shell has produced a 13.1 per cent lift in operating earnings, although sales have fallen as the transport fuels distributor cut out loss-making contracts and faced severe competition on petrol station forecourts.
Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments came in at $195 million in the year to March 31. That was up from $172 million the previous year, despite a five per cent slide in the total volume of sales to 2.524 million litres of petrol, diesel, aviation fuel and other products.
Z's truncated disclosure documents, posted with the NZX this morning, do not include a total revenue figure for the year, but show retail petrol sales were down 9 per cent to $867 million and commercial diesel sales were off 14 per cent to $562 million.
The latter fall reflected a "conscious decision" either to reprice or remove uneconomic commercial accounts.
Z is preparing for a possible sharemarket listing this year and appointed lead advisers for a float earlier this week, as its 50/50 owners, the New Zealand Superannuation Fund and Infratil, seek to reduce their exposure to the business and, in Infratil's case, to accumulate funds for other investments and debt restructuring.
The operating result falls squarely within the guidance range Z had already announced.,
Capital expenditure of $71 million was at the low end of the announced $70 million and $90 million range, but some $20 million of unexpended capex is to be carried forward on incomplete projects.
Chief executive Mike Bennetts said forward guidance would be given for the year ahead would come from Infratil rather than Z, because of the potential share offer, which restricted the company's usual ability to make forward-looking statements.
On a tax-paid basis, profit for the year was down 50 per cent at $35 million, but the figure is heavily impacted by fuel holdings and other factors at balance date and is not regarded as an accurate indicator of underlying performance.
The company says operating costs were higher in the last year because of an $11 million increase in retailer commissions and $4.5 million of Christchurch earthquake-related repairs, which were expensed to the balance sheet.
Rebranded Z outlets showed a 9 per cent increase in store sales, compared with a decline in those outlets still operating under a format unchanged since Shell's ownership, with a jump in store-only sales, in line with strategic intentions.
A sale and leaseback programme for its retail sites realised a net $82 million during the year to give a yield of approximately 7.6 per cent.
The profit presentation papers also show a $12 million impairment has been booked against the company's 17 per cent shareholding in the Marsden Point oil refinery, and is projecting a US$7 per barrel refining margin, down from US$7.40 in the year just ended.
However, Bennetts signalled improving margins from its crude and refined product supply chain.
"We expect new international procurement contracts for refined fuel and crude oil negotiated by Z over the last 12 months to deliver substantial for the company.
"With moves by Port of Tauranga to dredge to enable larger vessels, Z is positioning itself to use larger and most-effective import vessels to deliver Z's finished fuel products, which should also represent significant cost savings", with Z also reorienting to North Asian refineries.
The company is also advancing investment in 40 million litres of new storage capacity at Tauranga and the Port of Lyttelton.
"Ensuring the capital cost of terminal operations is captured in commercial contracts is also already sending important investment signals and enabling much needed reinvestment in the country's fuel infrastructure," Bennetts said.
The company is budgeting a $20 million dividend payment to its two shareholders and faces emissions trading scheme costs of $40 million.