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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Z Energy</h2>
<p><strong>Pumping in the Equity — FY20 Result</strong></p>
<p><strong>RESTRICTED&nbsp;</strong></p>
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<div>Z Energy's (ZEL) FY20 result announcement was the supporting act to the equity raise announcement and cost out initiatives. ZEL is seeking to raise up to $350m, $290m from an Institutional Placement and $60m from a Share Purchase Plan. The equity raise is required to improve balance sheet metrics due to COVID-19 negatively impacting on operational performance. In addition to the equity raise, ZEL has indicated it is targeting to deliver $74m of opex saving in FY21 and will not be paying a dividend until 30 September 2021, at the earliest. The FY20 result was slightly ahead of expectations and ZEL latest guidance, but not materially so.</div>
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<p><strong>Up to $350m equity raise announced one of three initiatives to deal with&nbsp;COVID-19 effects</strong></p>
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<p>COVID-19 has materially impacted ZEL operations, with retail fuel volumes down -80% vs. normal during the five-week Alert Level 4 lockdown period. This has placed pressure on ZEL's balance sheet, such that following discussions with its debt funding providers it is seeking to raise $350m of equity, with $180m being used immediately to repay bank debt. In addition, ZEL will not be paying a dividend until 30 September 2021, (1H22) at the earliest, having previously suspended its 2H20 dividend. The final step to address the challenging operational environment is to cut between $74m and $96m of operating costs from the business in FY21.</p>
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<p><strong>Cost out will help competitive position</strong></p>
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<p>ZEL had already been seeking to reduce costs following the challenging 2Q20 and 3Q20 period, with COVID-19 increasing the importance of reducing its cost base. $48m of the $74m to $96m opex saving is expected to be ongoing, increasing to $55m in FY22 as a full year of cost savings kick in. The remaining $26m cost savings (of the $74m) in FY21 are one-off in nature, with $18m coming from lower volumes. The $74m cost saving represents a ~-16% cut in underlying opex. If conditions are tougher than ZEL expects, it has identified a further $22m of one-off savings it can make at short-notice (taking the total savings to the top of the range, $96m).</p>
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<p><strong>FY20 result slightly better than guidance and our forecast</strong></p>
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<p>ZEL's&nbsp;FY20&nbsp;EBITDAF&nbsp;result of $366m is slightly above its revised $355m to $365m guidance range. In addition,&nbsp;ZEL&nbsp;has increased&nbsp;COVID-19 related provisions +$6m to $33m, in effect taking the result +$7m above the top of its guidance range. Nevertheless, that is still -16% lower than the prior year due to challenging second and third quarters and weak refining conditions in 2H20. In addition,&nbsp;ZEL&nbsp;has taken a $61m write-off against its&nbsp;Caltex&nbsp;acquisition, taking the total FY20 asset write-off to $96m (following a $35m Flick Electric impairment in 1H20).&nbsp;ZEL&nbsp;has not provided any FY21 guidance given the current uncertain operating conditions.</p>
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<p><strong>Andrew Harvey-Green</strong><br>andrew.harvey-green@forsythbarr.co.nz<br>+64 4 495 8185</p>

Z Energy
Pumping in the Equity — FY20 Result
RESTRICTED&nbsp;

Z Energy's (ZEL) FY20 result announcement was the supporting act to the equity raise announcement and cost out initiatives. ZEL is seeking to raise up to $350m, $290m from an Institutional Placement and $60m from a Share Purchase Plan. The equity raise is required to improve balance sheet metrics due to COVID-19 negatively impacting on operational performance. In addition to the equity raise, ZEL has indicated it is targeting to deliver $74m of opex saving in FY21 and will not be paying a dividend until 30 September 2021, at the earliest. The FY20 result was slightly ahead of expectations and ZEL latest guidance, but not materially so.





Up to $350m equity raise announced one of three initiatives to deal with&nbsp;COVID-19 effects

COVID-19 has materially impacted ZEL operations, with retail fuel volumes down -80% vs. normal during the five-week Alert Level 4 lockdown period. This has placed pressure on ZEL's balance sheet, such that following discussions with its debt funding providers it is seeking to raise $350m of equity, with $180m being used immediately to repay bank debt. In addition, ZEL will not be paying a dividend until 30 September 2021, (1H22) at the earliest, having previously suspended its 2H20 dividend. The final step to address the challenging operational environment is to cut between $74m and $96m of operating costs from the business in FY21.

Cost out will help competitive position

ZEL had already been seeking to reduce costs following the challenging 2Q20 and 3Q20 period, with COVID-19 increasing the importance of reducing its cost base. $48m of the $74m to $96m opex saving is expected to be ongoing, increasing to $55m in FY22 as a full year of cost savings kick in. The remaining $26m cost savings (of the $74m) in FY21 are one-off in nature, with $18m coming from lower volumes. The $74m cost saving represents a ~-16% cut in underlying opex. If conditions are tougher than ZEL expects, it has identified a further $22m of one-off savings it can make at short-notice (taking the total savings to the top of the range, $96m).

FY20 result slightly better than guidance and our forecast

ZEL's&nbsp;FY20&nbsp;EBITDAF&nbsp;result of $366m is slightly above its revised $355m to $365m guidance range. In addition,&nbsp;ZEL&nbsp;has increased&nbsp;COVID-19 related provisions +$6m to $33m, in effect taking the result +$7m above the top of its guidance range. Nevertheless, that is still -16% lower than the prior year due to challenging second and third quarters and weak refining conditions in 2H20. In addition,&nbsp;ZEL&nbsp;has taken a $61m write-off against its&nbsp;Caltex&nbsp;acquisition, taking the total FY20 asset write-off to $96m (following a $35m Flick Electric impairment in 1H20).&nbsp;ZEL&nbsp;has not provided any FY21 guidance given the current uncertain operating conditions.

Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz +64 4 495 8185

Z Energy: Pumping in the Equity — FY20 Result

Z Energy Ltd

Z Energy: Pumping in the Equity — FY20 Result