Z Energy released integration update details to the market which showed the company was on track to benefit by $28.2million in the 2018 financial year, after just four months into the integrated business.
So far this year, the company had gained nearly $2.9million in benefits and was expected to gain about $12million next year.
"Analysis of the six-week discovery process is progressing to plan. The discovery process was run to understand the combined business, identify further potential synergies and how to realise any additional value through combing and operating the company."
Forsyth Barr broker Damian Foster said he expected more savings would come as Z had not talked about the results of its discovery programme which was about finding additional merger benefits over and above the "low-hanging fruit" it had already disclosed.
"We believe there could easily be a further $20million to $30million or merger benefits to come — albeit they will take longer to realise," he said.
Z expected to provide an update on the preliminary analysis of the discovery process at the company’s investor day on October 19, the company said.
Z had reached an agreement with Refining New Zealand regarding how the efficiency benefits of combining the Caltex crude volume into the existing Z and BP refining programme would be identified and allocated.
Combining the additional crude volume would enable Z to realise an estimated $7million of annual benefits, on top of the $8million realised through combining import volumes with BP, established in 2014.
About $1million of the additional benefit would be realised in 2017 and the full $7million in 2018.Z and Refining NZ would work together to get the most value available through planning and sequencing crude supply to the refinery, Z said.
Progress towards confirming the organisational design of the new company, including managing duplication of roles, remained on track.
Heritage Chevron (the previous owner of Caltex) staff would be offered Z’s employment terms and conditions in October and the organisational design would be completed before the end of the year.
The company expected to save about $400,000 a year after consolidating office space.
During the discovery programme, an unexpected anomaly was found in how Caltex staff had their annual leave calculated and paid.
Z had incurred an additional $1.1million of one-off, people-related expenses to fix the problem.
Last week, Z made a $25million payment as the first instalment of the company’s debt-reduction programme.
The programme to divest 19 retail service stations and one truck stop was on track.
Craigs Investment Partners broker Chris Timms said while there were capital costs related to the forced sale of the 19 retail sites and one truck stop, two of the sites being sold were low-margin Challenge sites.
"We had not previously considered this as a potential issue. This reduces the negative volume impact from divestment on the core business."
The sale of the 19 sites would probably be the poorer quality sites, he said.
Z said during September, contracts had been signed for the sale of 12 sites, and eight were in the process of finalising documentation.
There had been interest and bids from a diverse range of parties and bids for the assets had covered a wide range of earnings multiples, sometimes very different for the same location.
The company had signed, or was negotiating, contracts for the 20 assets based on consideration for the boundaries within the Commerce Commission’s approval and balancing the commitment to maximise sale proceeds with limiting future earnings downsides.
Z shares last traded at $8.27.
At a glance
• Integration benefits of $28.2million by 2018
• Broker believes up to $30million more benefits to come
• Contracts signed for the sale of 12 sites
• More guidance expected on October 19
