Fill 'er up: Z Energy goes for $350 mln capital raise after big losses

Business

Z cancels final dividend for year after reporting $88 million after-tax loss; has attained some 'covenant relief' from lenders; aims to reduce costs by up to $96 mln this year

11th May 20, 9:28am by David Hargreaves

Z Energy's looking to put more gas in the tank via a $350 million capital raising after slumping to a full-year after-tax loss of $88 million.

Z is the latest company to go to the market looking for more money after being affected by the pandemic. Auckland Airport and Kathmandu are two companies for example that have already raised hefty amounts of money from investors.

About $180 million of the money raised by Z will go towards repaying debt.

Z says it will raise $290 million through a fully underwritten placement and up to $60 million through a share purchase plan (SPP).

"The equity raising has been sized with the intention of delivering a robust capital structure that allows Z to navigate the current market conditions while favourably positioning the business to take advantage of opportunities as the New Zealand economy begins to recover from the effects of Covid-19," the company said.

Z is not offering any guidance on expected profit for the forthcoming year. It has cancelled the final dividend for the year just gone. And it has obtained some 'covenant relief' from some of its lenders.

Chief Executive Mike Bennetts said: "The full year result highlights the competitive intensity of the retail fuel market in New Zealand and the severity of the low refining margins we saw in the last quarter.

"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 gave the following highlights:

▪ Full year FY20 operating result in line with latest guidance; earnings impacted by competitive retail market and low refining margins. GAAP Net Profit after Tax reflects impairment of intangibles

▪ FY21 likely to be significantly impacted by the effects of Covid-19. No FY21 guidance provided and dividends will not be paid until after 30 September 2021

▪ Rigorous focus on cash flow generation – Z initiates operating cost reductions of between $74 million and $96 million expected to be realised in FY21

▪ Equity capital raising of up to $350 million via an equity placement + share purchase plan to address Covid-19 business impact and to support a resilient capital structure

▪ Z maintains focus on safe and reliable operations while positioning the business for expected improved trading conditions

See here for more details on the equity raising.

And see here for more details on the results.

And this is the annual accounts.

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56 Comments

by Boatman | 11th May 20, 4:49pm 1589172569

I have no sympathy whatsoever , Z HAS BEEN SELLING FUEL BACK INTO WORLD MARKETS AT A LOSS !!!!!!!!!!!!

WTF ?

Why not sell it at a loss to their own country's citizens and businesses ?

Z energy CEO , Mike Bennets confirmed three weeks ago on 21 April that oil was resolf at a loss

Why did they not sell it to New Zealanders at lower prices ?

Its good that the market has punished its arrogance , intransigence and hubris, when it was patently clear that prices would fall off a cliff , they kept prices at disgracefully high levels

If they thought they could treat us in the appalling way they did during the lockdown , then they deserve to lose money .............in fact it would serve them right if they went bust

We shut our businesses , lost our income ( and in some cases our jobs) , took lower salaries and dropped the prices of our products .

Some Kiwis are in dire financial straits , and the economic benefits of lower fuel prices feeds into everything in our daily lives , including food delivery costs for example

All of us were in this together .................all, except the fuel companies who thought they could screw us relentlessly with their pricing , when oil prices collapsed to 12 cents a litre wholesale in the US and 20 cents a litre in Singapore

They kept petrol at over $2.00 a litre , and we boycotted them , well at least I did

Now they are in trouble .........I hope Z goes bust the thieving arrogant sods .

by PocketAces | 11th May 20, 10:02am 1589148125

Good luck with BP then

by Smalltown | 11th May 20, 11:28am 1589153329

Boatman seems to have a hardon against Z but up our way Z, Mobil, BP, Caltex and even Pak n Save have only 1c in their spreads. You would think in these difficult times there would be more of a spread?, more of a drop??

Its almost like a cartel.....

by Boatman | 11th May 20, 12:28pm 1589156890

Cartel ? .........in the fuel sector ? ..............No never !

by Smalltown | 11th May 20, 2:10pm 1589163005

There seems to be several on here trying to defend the indefensible. I suspect they might be running interference.
Time for Labour to stand out from the crowd. Punch n Judy sent a pls explain and left it that in the Key years.

by Lanthanide | 11th May 20, 10:03am 1589148201

when oil prices collapsed to 12 cents a litre wholesale in the US and 20 cents a litre in Singapore

Yes, for one morning, for land-locked crude oil in the central US states where there was 0 storage tanks available but the contracts were coming to term and the crude HAD to be collected.

If you want to put some crude oil in your car that you've sourced from central USA and transported to New Zealand, go ahead.

Meanwhile, stop spouting rubbish that is completely irrelevant to the refined fuels market in New Zealand.

by nymad | 11th May 20, 10:06am 1589148371

It's just Boatman's daily rants about a market he doesn't understand.

by Boatman | 11th May 20, 11:16am 1589152563

I fully understand the dynamics of the fuel price , there is a thing called a "clearing price " and they did not drop prices to get rid of the stock ..............now they are sitting with it ............good luck to them

by Basil brush | 11th May 20, 11:45am 1589154347

Please enlighten us with this concept of a "clearing price" and how it relates to the NZ fuel market.

by nymad | 11th May 20, 11:56am 1589154986

He obviously thinks fuel has a high price elasticity of demand during a 'lockdown'.
If only they had dropped the price of petrol to $1, everyone would have spent their 4 weeks of lockdown driving backwards and forwards in their driveway.

But don't worry, he "fully understand(s) the dynamics of the fuel price."

by Boatman | 11th May 20, 12:34pm 1589157261

Well it irrelevant whether you are talkng about fuel , strawberries or the price of a tin of baked beans .

When there is an over-supply in a free-market , prices drop so that businesses can sell the product and move on .

Holding fuel at the retail outlets without doing everything to get rid of it is just plain stupid .

Fixed costs dont go away in a business with declining sales , and if you are not selling your stock you need to drop the price and get rid of it, at a price that enables you to pay your fixed costs and taxes .

Z and BP did not do this , who knows what they were thinking , but it was either arrogance , incompetence or hubris

by mfd | 11th May 20, 2:41pm 1589164861

It does make a difference what the product is. If fruit goes cheap, sure I'll buy it because I can eat more, process it, preserve it. If I got a really good price I'd buy 10kg of strawberries and make wine. Baked beans, sure, I can stick 50 tins in my cupboard if I want to. Get a really good price I could stash another 100 in the roof if I wanted to. Petrol - nah, if it was half price tomorrow we'd only fill up the tank. We can't buy more and wouldn't do unnecessary driving just because petrol is cheap, especially when unnecessary driving is essentially illegal.

Why drop the prices dramatically if it won't encourage significantly more purchasing?

by Boatman | 11th May 20, 4:12pm 1589170342

Dont be utterly ridiculous .............The economic benefits of lower fuel prices are good for the entire country , it reduces distribution costs for food from the farm to the kitchen via the factory , the warehouse and the supermarket .

Everyone benefits from a proper functioning competitive fuel market

by mfd | 11th May 20, 4:21pm 1589170905

My comment wasn't about the economic benefits of lower fuel prices. Neither was yours. Your original post was about how the fuel retailers should be having fire sales (bad choice of words perhaps) to clear stock. My argument is that doesn't work for a product that can't be stored easily, and one which is currently difficult to use much of without breaking coronavirus restrictions. Makes much more sense for Z to sell X litres at Y dollars than X+20% litres at 0.5Y dollars.

by Boatman | 11th May 20, 4:34pm 1589171674

Except they were NOT selling the fuel ...............and their fixed costs remained there , rolling up each day 24/7.

Had the price dropped , I might have filled up both our diesel cars and the one takes 90 litres , so I am sure many people would have done the same .

I can afford to hold out for a very long time before filling up right now , and I will

We usually spend $400 to $500 a month in Diesel , and my 2 sons about another $200 each .

I am waiting for prices to come down , and I can wait

by nymad | 11th May 20, 10:04am 1589148299

Again, you don't understand the fuel market in NZ.
Z doesn't buy much wholesale refined products on short notice.

by Boatman | 11th May 20, 12:37pm 1589157467

Its irrelevant where they buy their refined product from , the fact remains , they have fixed costs , sunk costs , and taxes to pay , and they should have reduced the price of the stock in the tanks and got rid of the expensive stock at cost .

Had they done this they could be re-stocking now at very low prices .

They did not do it , and are facing the consequences, and again I have NO SYMPATHY

by nymad | 11th May 20, 1:18pm 1589159931

No. It is especially relevant.
Because...Marsden is responsible for probably 95% of their refined/retail supply.
Their forwarding arrangements means that they deal in very little purchasing at spot prices of any kind of fuels.

So, their costs have essentially not changed over this past month. This is not to say their future costs may not decrease.

by davef | 11th May 20, 10:06am 1589148374

About half the cost of fuel is tax. Z makes a few cents profit a litre. There are retailer margins transport costs etc. https://z.co.nz/motorists/fuel-pricing/

by GV 27 | 11th May 20, 10:23am 1589149382

Importer margin has remained resilient despite the drop in costs. In fact importer margin is well up on the period of time when the PM said we were being fleeced, yet she has had surprisingly little to say about it in recent times. Why is that, I wonder?

by Basil brush | 11th May 20, 10:29am 1589149755

Drop in costs?

by GV 27 | 11th May 20, 10:53am 1589151192

Perhaps, but importer margin growth has been showing an upward trend for a few months prior to lockdown.

by ShoreThing | 11th May 20, 10:30am 1589149831

Is that tax proportional to the cost of the fuel? I understand in Auckland we have an 11c per litre levy which is applied regardless of the cost of fuel, but I would imagine most of the rest of the tax is proportionate. An article like that implies that the taxes are fixed which I doubt is the case.

by Pragmatist | 11th May 20, 12:16pm 1589156164

You imagine wrong, apart from Gst, the rest of the levies and taxes are fixed.
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…

by ShoreThing | 11th May 20, 12:48pm 1589158112

Thanks for clearing that up! Good to know.

by Boatman | 11th May 20, 11:19am 1589152797

Re fuel taxes .........Half the costs of fuel is a % not and absolute number , ( only the Auckland levy is fixed ) so if the price dropped to 99Cents a litre , as it did in Australia , then the Government would only get its % , the rest would go to the fuel co .

Either way you look at it , Z and the rest of them have been arrogant and unfair on us , and are getting just what they deserve

by Basil brush | 11th May 20, 11:50am 1589154631

The AA states there are other taxes that are fixed per litre irrespective of the price.

https://www.aa.co.nz/cars/owning-a-car/fuel-prices-and-types/petrol/

by Pragmatist | 11th May 20, 12:18pm 1589156339

All the levies are fixed ($/L) ,except gst.

by Lanthanide | 12th May 20, 10:22am 1589235770

But Boatman fully understands the dynamics of fuel price.

by Basil brush | 12th May 20, 10:16am 1589235398

Nice suggestion but Im not sure that there are many able and willing buyers of crude oil with no NZ taxes applied in NZ boatman.

by GnT | 12th May 20, 10:21am 1589235675

And who exactly would they be selling the excess to during lockdown? You realize the reason for selling back to the market was storage because no demand. In a lockdown situation dropping the price wouldn't lift demand unless people wish to fill their swimming pools with it.

by ShoreThing | 11th May 20, 9:42am 1589146976

Another timely example of capital markets functioning as they should. Companies that need capital will raise it from their shareholders, open a line of credit, or cease to be a going concern. Govt intervention not necessary.

by Boatman | 11th May 20, 9:44am 1589147059

Agreed , the market is ruthless , as it should be when businesses think they can rort the public

by Toppertee | 11th May 20, 10:05am 1589148335

Shut down for 10% of the year and the weight of debt cripples a company whilst our local governments seek to raise their debt limits to 300%? Is NZ mortgaged to the hilt?

by Squishy | 11th May 20, 2:04pm 1589162670

Clearly the strategic mistake Z mades was not running an airline, they could be rolling in taxpayer money by now...

by Justa comment | 11th May 20, 10:04am 1589148293

Another 'dividend play' flogged to small investors after big boys get out ( ala SKT ) ends up with big drop in share price that far exceeds the 'strong dividends' marketed to the small fry.

by Squishy | 11th May 20, 2:07pm 1589162860

In a cyclical business, that doesn't carry a large reserves, dividends will always fluctuate through the cycle.

by The_4th_estate | 11th May 20, 10:14am 1589148841

The difference between private ownership (Infratil) good turnaround, rebrand, high levels of investment into new showrooms and forecourts etc but management highly accountable to owners...screw up and your head is in the basket. Two or three years post IPO...management utterly unaccountable and run the business onto the rocks. I feel sorry for the shareholders...NZInc... destroying shareholder wealth since forever!

by Kate | 11th May 20, 10:49am 1589150951

Raising capital to repay debt. You'd have to be nuts to buy into that.

by bw | 11th May 20, 11:08am 1589152116

All that there Magic Money that our RBNZ is conjuring up?
Well here (and the other capital raisings) is where it is going.
Now. Tell me about stimulating the consumer again......

by Boatman | 11th May 20, 12:56pm 1589158613

Kate , I suspect there is more to this than meets the eye ................its called BANKING COVENANTS .

Their debt levels would normally have to be within a range or % of the market cap of the business , in terms of their funding agreements.

In a spectacular destruction of shareholder value , the share price has dropped from $8 to $9 all the way down to $3 so the 2/3rds of the value of Z Energy has been wiped out , and maybe the bankers are wanting their umbrella back ?

by The_4th_estate | 11th May 20, 12:43pm 1589157825

Its appalling mismanagement thats done most of the damage, Z got nailed last year by the independants that have really eaten into their customer base, but that has been a looming threat for sometime and they just ignored it. The covid outbreak has simply rammed the issue home in rather dramatic fashion. I suspect the price of a crumby pie at a Z station will become even more expensive in an effort to claw back some profits....

by Boatman | 11th May 20, 12:55pm 1589158537

@4th estate , the name Z Energy is misleading , its more and more like a corner-shop dairy business model , selling tasteless pies , cokes , coffee and chips , while trying to sell some petrol on the side

by Macawsley | 11th May 20, 1:14pm 1589159670

To be fair, has that not been the industry's ' predominant business model for the last 30yrs.

by The_4th_estate | 12th May 20, 9:43am 1589233426

You are 100% correct. Infact I used to work a Shell station for a bit when I was a student, I saw all the dirt tricks the industry uses. I'm going to write a special chapter in my memoirs just on that topic!

by egg | 11th May 20, 12:11pm 1589155889

poor planning overpriced purchases poor management, solution let dip into shareholders pockets. its becoming the really solution for more and more listed companies. nz needs managers who can find life giving profitability which means painful cost cutting. the nz economy is resized to something in the past and costs need to going back
to match what the incomes were then. Greece had to cut its wage structure and nz particularly govt and councils need to do the same or we will all die under our society's $600 billion dollar debt burden

by Becnz | 11th May 20, 12:39pm 1589157593

Z/BP face longterm competition from new startups i.e Gull/NPD/Waitomo with lower costs good luck shareholders.

by Boatman | 11th May 20, 12:59pm 1589158755

@Becnz ........Hail the free market ............like Bob Dylan sang ,

" The winners now will be later to lose
For the times they are a' changing "

by The_4th_estate | 12th May 20, 9:48am 1589233701

Some of the 'fuel only' distributors are using technology that completely undercuts Z's big highcost forecourt layout. It makes it far easier to set up a fuelstop but means less buyers going into Z's showroom for the complusive purchase of a cellphone cover, magazine and cheap sunglasses....thats the meat in their sandwhich...

by iconoclast | 11th May 20, 1:20pm 1589160008

How does Z lose $88 million after 11 months of normal trading followed by 1 month of reduced turnover during lockdown. Their real-estate still exists, their fuel stocks are still in the tanks. And they need to raise $350 million??. Does not make sense. Maybe they are dumping (writing down) goodwill

by redcows1 | 11th May 20, 1:54pm 1589162084

Same way Bauer media and a number of otherd have suddenly blamed covid19 for every poor decision make it the last however many years.
You really have to feel sorry for the viruses reputation.

by GnT | 12th May 20, 10:27am 1589236036

They wrote down $90m of goodwill

by Just a farmer | 11th May 20, 2:36pm 1589164615

Ah, this would be why prices jumped higher at my local Z station this morning (then the Mobil down the road lifted their prices to match of course).

by Boatman | 11th May 20, 4:16pm 1589170618

@ farmer ,................oil companies are thugs , plain and simple , there is no way you could just up the price of Milk or fruit or whatever you produce , you would be stuffed , and you have no say in price fixing.

Its called market asymmetry , some have more power than others ..........but covid has turned it upside down for the first time ever

And thats a good thing

by Basil brush | 12th May 20, 10:20am 1589235601

Now that you mention it I have noticed that all brands of milk and varities of fruit are all exactly the same price and have never increased in price EVER!

by GnT | 12th May 20, 10:33am 1589236396

Not too sure why people are surprised/gloating that a company has lost money in this environment. Only the beginning. If people believe consumers will be rushing back to spend money at Level 2 they're dreaming. Watch the building sector collapse, even the giants are in trouble..hello GJ.