By Sarah Byrne
PREMIERE Eastern Energy has made the move into the Chinese retail petrol business, with company deputy chairman David Wheeler saying as a result of the decline of the company’s once strong petrochemical business, the group is looking to become active in the petrol fuel piece of the market as a distributer, wholesaler, and as a retailer.
Speaking with Oil & Gas Australia, Mr Wheeler said having achieved the first acquisition, the company will be looking to expand.
In late April the Australian Securities Exchange listed company announced its wholly owned subsidiary, Guangzhou King-Win Enterprise Management & Services (King-Win) had entered into a binding agreement with the shareholders of Guangzhou Universal Energy Management & Consulting (Universal) in a bid to purchase 100 per cent of the shares in Universal for RMB 35,200,000 cash consideration.
Universal holds 47% of retail petrol station business Guangzhou Ba Da Petrol Station (GBD Petrol Station), and 100% of Guangzhou You Yi Convenience Stores (YY Convenience Stores).
Premiere said GBD Petrol Station operates on retail petrol station located in Guangzhou City.
Premiere completed further agreements in early May, which will allow it to acquire the remaining 53% interest in the Guangzhou City retail petrol station, through Universal, for nil consideration.
Mr Wheeler said over the past year the company had seen a decline in its revenue and profits relating to its traditional petrochemical business.
Premiere saw the potential in the Chinese retail petrol business, particularly in the two southern provinces in China where there is a large middle class demographic.
If the company was able to penetrate this market, it wouldn’t need to look elsewhere in Asia to deliver the outcomes and returns required, Mr Wheeler said.
“We had two options. The first was to develop the model ourselves from scratch and the second option was to acquire one.”
“U1 (Universal acquisition) is the one we went for because it looks very much like what we would have done anyway.”
“The fact that it had already been up and running, had the systems, and we were able to acquire it was the step we needed to take,” he said.
Mr Wheeler said with China’s move from an industrialised economy to a consumer based economy, there is a growth in the demand for petrol fuels.
“I think in China the cars have gotten ahead of the game. People are buying high quality and high performance cars, there is a huge amount of European cars on the road particularly in southern China and the big cities, such as, Shanghai and Beijing, and yet the quality of fuels still needs improvement and the quality of and access to services, such as, car washes is playing catch up.”
“Up until now the vast majority of fuel outlets in China have been fairly low tech, and unsophisticated in terms of service. “
Premiere believes once completed, these agreements will make it the first Australian Securities Exchange listed company to own full rights to retail petrol stations in China.
“Now that we have achieved the first acquisition we are able to go on and do multiple,” Mr Wheeler said.
“We have two other sites under review and they are in effect part of the first acquisition.”
“With U1 there’s a primary site which was developed to introduce the brand, to introduce the convenience store concept under the brand and to develop and test systems such as electronic payments and corporate client marketing.”
“At the same time the U1 shareholders identified two other locations and took options on them. We will exercise those options over the next while.”
Having recently signed a co-operation agreement with a Chinese financial institution, Premiere will be provided with sufficient working capital to run multiple locations over the next two years on the basis they provide 30% of the working capital or acquisition capital out of the company’s cash reserves or income.
Mr Wheeler anticipates the company will be able to develop between nine and 15 sites over the next two years.
“But we’ve got to find the right sites. They have to give us the kind of returns that we need to accommodate the facility and to repay debts in time,” he added.
Headquartered in Guangzhou, Universal has an existing team with expertise in management services, branding, marketing and IT, and will become part of the overall Premiere team responsible for the management of the petrol station and associated retail site business as it expands.