Caltex mulls EV charging station trial after tough March quarter

Angela Macdonald-Smith
May 9, 2019
AFR

Australia’s biggest petrol and diesel supplier Caltex is in talks with potential partners for a trial rollout of electric vehicle charging stations later this year as it seeks not to be left behind in the transition toward cleaner fuels.

Speaking after Caltex reported a 43 per cent slump in March quarter earnings, chief executive Julian Segal said the company still expects the uptake of EVs to occur slower than some expect.

But he said Caltex was well aware the needs of customers were going to change and wanted to provide whatever services customers needed at its conveniently located sites. It is also “very much involved” in looking at other low-carbon fuels, including natural gas, hydrogen and biofuels.

“We are not addicted in any way to hydrocarbons,” Mr Segal said earlier at the annual shareholder meeting in Sydney as several small investors queried Caltex’s positioning for a low-carbon future.

“Now is the time for us to start piloting [EV charging stations] and making sure that the experience of our customer is the best possible,” he told the Australian Financial Review, declining to comment on whether he saw Labor’s target for half of new car sales by 2030 to be electric as feasible.

Mr Segal also defended Caltex’s support for a 2027 introduction of cleaner fuel standards, later than some envisaged, describing that timetable as “very pragmatic” given the investment required.

The lowering of the maximum sulphur content in petrol from 50 parts per million to 10ppm is estimated to cost Australia’s refining industry about $800 million, including about $200 million for Caltex’s Lytton plant.

Mr Segal said that given the cash flow generated by Lytton, making the investment “is the right thing to do” although a final decision would only be made closer to the time.

Refining stalls
Caltex’s March quarter profit was weighed down by a shrinkage in margins on selling petrol and diesel and a slump in refinery earnings, with Lytton making only $5 million of earnings before interest and tax (EBIT) in the three months, down from $51 million in the first quarter of 2018.

Total net operating profit fell to $94 million in the first quarter, down from $164 million a year earlier, in line with Caltex’s update in March.

EBIT at the fuels and infrastructure business, which includes the refinery, sank 30 per cent to $109 million. Convenience retail earnings more than halved, to $40 million.

Shares in Caltex were barely changed at $25.705 shortly before the close of trade.

“Our result shows the impact of both lower refiner margins and a challenging retail environment this quarter,” Mr Segal said, adding it was “pleasing” to see conditions improve in April.

Caltex advised in March that the rapid rebound in crude oil prices and competition in fuels retailing would cut as much as $45 million from its convenience retail gross margins in the first quarter from a year earlier. Refining margins were also weak in January and February, though recovered in March and April.

Rival Viva Energy also last week advised of a hit to its retail earnings because of the sharp increase in oil prices which have squeezed margins on selling petrol and diesel.

Chairman Steven Gregg told shareholders at the meeting that the board has “full confidence” in Caltex’s convenience retail strategy, which is in the middle of a major revamp.

Caltex is taking all franchise sites back into full ownership and is rolling out a more sophisticated forecourt retail offering, although some analysts have questioned when investors will start to see results from the initiative.

Caltex’s revised fuel contract with Woolworths, now Euro Garages, also affected March-quarter earnings, while a planned shutdown of a unit at the refinery reduced the increase in the refining margin in April.

All resolutions to be put to the meeting were passed easily, although the Australian Shareholders’ Association voted against the remuneration report amid concerns over the structure of incentive payments for Mr Segal.