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Z confident in $30mn savings from Chevron acquisition

Wednesday 25th May 2016

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Z Energy is confident of the savings it can make from the $785 million acquisition of Chevron New Zealand's Caltex and Challenge! petrol station chains, which it predicts will be up to $30 million. 

In a statement, Z said it was confident in its previous guidance of between $25 and $30 million in savings once the companies are integrated. 

The company will update the market in the last week of every month until October as it works to smooth the acquisition, but said that until settlement occurs Chevron remains a competitor and all actions it takes will be "planned and prepared for in such a way that the competitive integrity between the two companies is preserved at all times."

Z will provide operational data for the June quarter in mid-July, but said this would exclude Chevron data, with the first combined operational data released in October. 

When announcing its full year results two weeks ago, Z said it would fund the acquisition, which will be settled on June 1, through a mix of cash and bank debt, and will undertake a retail bond issue to reduce the level of bank debt and replace a retail bond which will mature on Oct. 15. The timing of the bond is yet to be confirmed.

Z had net debt of $354 million for the year to March 31, up from $224 million a year earlier, which included a $79 million deposit for the Chevron acquisition. It said the transaction would be financed by $115 million in cash, $705 million in additional debt, and the proceeds from selling 19 retail service stations and one truck stop to satisfy the Commerce Commission. 

The fuel retailer has Chevron's financial statements for the 2015 calendar year, but will not have access to the company's operating plan for the current financial year until settlement. Z expects to update its own 2017 guidance by the end of August and is also running an investor day on Oct. 19 to outline its plans and update the market.

In its annual results, Z said it had spent $25 million preparing to integrate the new business into its IT system and another $7 million in capital expenditure. It expects to spend a further $24 million in operating expenditure and $9 million in capital expenditure in the first half of 2017 "to settle the transaction and complete cutover." Today it said adopting the new fuel stations into its IT systems had 600 separate milestones and is being undertaken by 200 people, with progress reported twice daily to Z's executive team.

Z is buying Chevron's business with no core IT systems or processes, and said one of the most significant milestones will be transitioning Chevron's master file data and transactions into Z's system.

The shares fell 1.1 percent to $8.14.

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