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Z Energy says economy-wide slowdown hurting sector

Friday 1st November 2019

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Tough retail competition and a slowing domestic economy may see more fuel retailers shut outlets in the coming year, Z Energy says.

Industry-wide petrol volumes in the six months through September were unchanged from a year earlier while the slowing economy saw diesel volumes fall 2 percent – particularly in the forestry, property development and roading sectors.    

Z Energy chief executive Mike Bennetts said the company is seeing a slowdown across the country.

August diesel volumes had been weak, which the company initially attributed to very wet weather curtailing construction and roading activity.

September was better, but without the “bounce-back” the company would have expected if weather was the driver, he said. Fuel volumes in October are likely to be between those in August and September.

“We are seeing this across the whole economy,” he told journalists and analysts yesterday. “We don’t see any region particularly doing very, very badly or very, very positively, other than what is happening on a sector basis.”

“We have not seen an improvement, nor have we necessarily seen a material decline,” he said. “We are stuck where we are, it seems to me, for now.”                                         

Z Energy, the country’s biggest fuel retailer, is not the only firm noticing the slowdown.

Freightways told shareholders yesterday that organic growth from its customers – excluding the impact of pricing – had slowed steadily with the local economy during the past year and contracted by 1.5 percent in the September quarter.

ANZ Bank’s monthly survey of business confidence also published yesterday showed a lift in October, although more than 40 percent of respondents still expected conditions to deteriorate during the coming year.

But firms' optimism about their own activity fell, with a net 3.5 percent now expecting things to get worse, compared with the net 1.8 percent who were negative in September. It was the fifth fall in a row and the lowest reading since April 2009.

Z Energy yesterday reported flat first-half operating earnings and warned that full-year earnings would be at the bottom of the reduced guidance it provided in September unless current retail margins lift.                 

Bennetts said all firms were feeling the pinch, not just from reduced demand but also from tough competition. Firms were having to spend more on special offers and loyalty schemes and that was also reducing margins.

A 5 cent-a-litre reduction in margins would have taken “hundreds of millions of profitability” out of the sector in the past six months, and that had to have an impact, he said.

Bennetts said Z has the balance sheet to see it through but in the rest of the industry some sites have closed. Z has also been receiving calls from outlets supplied by rivals trying to seek better details to control their costs.

Some distributors also appear to be slowing their expansion plans, which had been seeing 20 to 25 new outlets opened annually across the industry in recent years, he said.

Bennetts said the economy was the weakest he had seen it in the past 10 years. Even jet fuel volumes, which had been growing at double-digit rates, were flat in the past six months.

Airlines had consolidated routes and flight frequency in the off-season had been reduced more than usual, he said.

“Perhaps that is as much explained by a softening global economy and lower tourism numbers as it is by what is actually happening at Auckland airport in particular.”

Z would “clearly not” be getting the 4-5 percent growth in jet fuel volumes it had expected this year unless there was a significant change in the second half, he said.

“There are enough weak signals there to say that things are significantly difficult across the sector for the major and smaller companies.”

(BusinessDesk)



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