Coles shares dip on convenience earnings downgrade

Shares in Coles Group fell 2.5 per cent to $12.41 per share after it lowered projected EBIT for its convenience category to around $50 million in FY19.

The updated figure is a far cry from the approximate $130 million earned in FY18, reflecting the increasing cost of fuel internationally and a lower Australian dollar.

Coles chief executive Steven Cain told analysts the price of fuel had hurt its fuel business, pointing to declining volumes, with the average weekly fuel volume having fallen 15.7 per cent from the first half of FY18 to the first half of FY19, from 74.1 million litres to 62.4 million litres.

In response to falling fuel purchases, Coles has opted to restructure and extend its partnership with service-station property owner Viva Energy, which will see Coles receive a commission based on the volumes of fuel sold. Viva Energy will be responsible for setting the price of fuel, as well as marketing the offer.

As a result, Coles will no longer have exposure to retail fuel price movements, and will remain in business in Shell locations until 2029.

Cain noted that he believed the benefits of the new agreement would be compelling for customers, team members and shareholders.

Viva Energy managing director Margaret Kennedy said the business was excited about the new fuel retailing arrangements and the potential for further network growth.

Viva also notes it will be responsible for the potential introduction of renewable fuel options in future, and that it will receive an “enhanced royalty” on convenience sales.

As a result of the news, shares in Viva Energy spiked 2.6 per cent, from $2.26 per share to $2.32 per share.

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