Z integration plan going well

Z Energy’s integration of Caltex into its business model is working to plan. Photo by Gerard O...
Z Energy’s integration of Caltex into its business model is working to plan. Photo by Gerard O'Brien.
Z Energys integration of 127 Caltex stations into its operations is going to plan, with Z releasing the first month of a conjoined financial statement, covering June.

In a market update this week, Z Energy reiterated it was tracking towards earlier guidance of making savings from business synergies of $25 million-$30 million.

Savings in pump and tank-maintenance contracts and electricity supply are beginning to accrue but renewal of a AA Smartfuel contract before settlement date meant a $5 million reduction in forecast earnings, Z Energy said.

"Completing month-end resolves the one remaining risk from the June 1 cutover. Z now considers risks across the combined portfolio to be the ‘business-as-usual' operational risks that investors are already familiar with,'' the company said.

In April, Z Energy received Commerce Commission clearance to buy 100% of Caltex New Zealand for $785 million; of which $670 million was debt and $150 million was cash.

At the time, Z had 213 branded service stations and Caltex 127 stations, but the commission required Z to divest itself of 19 stations in order to keep its market share at 49%.

Forsyth Barr broker Suzanne Kinnaird she was encouraged by the early signs of integration.

The share price target was lifted by 70c to $9.10 recently.

"The cutover from Chevron to Z Energy went better than expected and we are confident that there is more earnings upside than that indicated by Z Energy,'' she said.

She was confident the forecast $25 million to $30 million cost synergies were conservative, and believed there were moderate revenue synergies worth an additional $20 million in earnings before interest, tax, depreciation and amortisation annually.

Z Energy said the required divestment of 19 stations and one truck stop was "progressing to plan'', with interest from several potential buyers, with the next step being the receipt of a non-binding offer in August.

"At this stage, the financial impacts of the divestment programme are unknown'', with an update on divestment due with first half results in November.

Z Energy said while Caltex and Z Energy's respective assumptions on expected performance were "largely consistent'' with one another, there was "one adverse finding''.

After Z Energy's due diligence but before settlement, Caltex renewed the AA Smartfuel contract and, while commercially sensitive, Z said there would be a $5 million reduction in earnings.

Z Energy had moved its pump and tank maintenance contracts to the Caltex supplier, with expected annual savings of $900,000, while the pair's existing electricity contracts had been aligned to end in January next year, with a tendering process to be started shortly for future supply.

simon.hartley@odt.co.nz

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