Aviation, tourism and energy writer for the Business Herald

Z to freeze out rivals with yoghurt

Forecourt battle heats up with self-service treats and more pay-at-pump facilities.

Z chief Mike Bennetts says research showed shorter queues at the till encouraged people to spend more in store.
Z chief Mike Bennetts says research showed shorter queues at the till encouraged people to spend more in store.

Z Energy is forecasting a boost in earnings this year and is set to roll out its latest weapon in the cut-throat battle of the forecourt - frozen yoghurt.

The company - which reported a drop in net profit on last year but a rise in replacement cost operating earnings - says it is also on track to install pay-at-the-pump technology to 100 sites by the middle of the year.

Non-fuel income was $56 million and its service station stores' margins are up 7 per cent on last year. Highest growth categories were coffee, food and chilled beverages.

Chief executive Mike Bennetts said the company would install self-service frozen yoghurt machines in the coming year.

"We had a machine here in head office and people went mad on it."

Z was also expanding the types of food on sale at its 213 stations and would expand its range of chilled drinks.

Bennetts said motorists were able to pay at the pump at 49 stations and this number was set to more than double.

Research showed this did not lead to a fall in shop sales - where margins were higher and turnover ranged from $19,000 to $37,000 a week per site.

"We have found that sales went up a bit.

"The folks who want to get in and out quickly don't buy from the store anyway and other people who are happy to wander in the store will see a shorter queue and are happier to buy," Bennetts said.

Net profit for the year was $91 million, down from $137 million in 2013 when the company benefited from $46 million in proceeds from the sale and leaseback of 47 petrol station sites.

However, the company's preferred profit measure, which strips out the distorting impact of changes in the value of fuel inventories, saw earnings before interest, tax, depreciation, amortisation and the fair value of financial instruments rise 12 per cent to $219 million.

In guidance for the 2015 year, Z says operating earnings will range from $220 million to $240 million based on volume growth from new stations.

Fuel margins rose to 17.1c per litre, up from 15.8c per litre the previous year and ahead of forecast, which had targeted 16.5c per litre. The fall in petrol volumes due to optimising the volume and margin mix was not sufficiently offset by new sites and rebuilds, the company said.

It lost two large commercial diesel contracts and saw tough competition for sales of aviation fuel, although diesel sales "turned around in the second half as we selectively acquire new accounts".

"While being willing to deliberately trade some volume for the sake of better unit margins, Z closed the year with market leading positions across petrol and diesel sales with total market share down two percentage points from April 2010, when the company was bought," Bennetts said.

Z has a 15.6 per cent stake in Refining NZ, which this year faced a similar macro environment plus gains from efficiencies and downside from an extended refinery shutdown.

The revival of refining in the United States due to shale oil production had hit global refining margins.

Z Energy had invested around $70 million a year during the past four years and will spend between $80 million and $100 million in the current year on maintenance, new sites, carryover spending from last year's projects and a biodiesel plant in Wiri.

Z shares closed down 3c at $3.85 yesterday.

- NZ Herald

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