"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."
He added that lockdown has been particularly hard on the business.
"The New Zealand lockdown and subsequent progression through alert levels has very significant implications for customer demand levels, the mix of fuel required and overall market competitiveness. Consumer demand has been meaningfully impacted during the lockdown period and the associated economic effects of Covid-19 on employment and income are likely to be much longer lasting."
He said during the first four weeks of lockdown under level 4 Z had seen an 80 per cent reduction in retail fuel volumes sold, an 85 per cent decline in jet volume and 60 per cent fall in commercial fuel sales.
Demand had rebounded under level 3 but retail volumes were still 45 per cent below normal trading conditions and commercial demand was around 20 per cent down.
"Aviation demand is expected to be significantly lower in FY21 than in previous years and the timing of any recovery for international Jet travel is highly uncertain."
Bennetts said it also expected to see continued weakness in refining margins with an over-supply in various products, mainly jet.
As a result of the uncertainty Z would not be providing earnings guidance for its 2021 financial year and would not pay dividends in 2021 and no dividend would be paid until after September 30, 2021 with sharehold distributions expected to resume in 2022.
"We're taking a prudent view of demand forecast for FY21 due to the unpredictable consequences of Covid-19 related impact on demand.
"In response to this uncertainty Z will significantly reduce operating expenses, retain cash and raise equity capital to support a robust capital structure for the business. These actions will provide a solid platform for an anticipated return to more normal trading conditions in FY22."
Z had identified cost reductions of between $74m and $96m for its 2021 financial year.
As well as cost cutting Z had also taken measures to help with its liquidity including reaching an agreement with its bank lending syndicate, US private placement noteholders and the supervisor of its retail bonds.
It had been granted a temporary waiver of its bank and USPP convenants for the next two test dates in September 2020 and March 2021.
But in getting these waivers Z was required to raise equity and not pay dividends until after September 30, 2021.
It will launch an equity raise of up to $350m comprising $290m of new shares via an underwritten placement and up to $60m though a share purchase plan.
"The equity raising has been sized with the intention of delivering a robust capital structure that allows Z to navigate the urrent 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."
Z had sought an NZX waiver for the placement which could involved up to 30 per cent of its shares.
Proceeds from the equity raise would be used to pay down a bank term debt facility of $180m with surplus equity netted against its total debt.
The placement was expected to provide liquidity of $739m and would reduce Z's Ebidaf (pre-IFRS 16) gross debt from 2.7 times to 2.1 times
The placement was being underwritten at $2.75 per cent share - a discount of 12.4 per cent on its Friday closing share price.
- More to follow
