Caltex acquisitions filling the gap as Woolworths contract uncertain

Angela Macdonald-Smith
May 10, 2018
AFR

Caltex Australia has risen to the challenge of closing the $150 million earnings gap left by the expected loss of a large fuels supply contract with Woolworths, according to chief executive Julian Segal, signalling potential further acquisitions in New Zealand and the Philippines to help complete the task.

Mr Segal said that combined with cost savings on operations and debt, recent acquisitions such the Milemaker business in Victoria and Gull New Zealand meant Caltex is “very close” to replacing earnings from the 3.6 billion litres a year wholesale contract.

In the meantime, the lengthy delay in Woolworths completing the sale of its petrol stations – due to competition obstacles – has given Caltex more time to get the job done and reduced the risk of an earnings shortfall. The acquisitions added $22 million to earnings before interest and tax in 2017, based only on a partial year’s contribution and before this year’s purchase of a stake in SEAOIL in the Philippines.

“At the moment we still supply and in fact the longer we keep on supplying the more time we’ve got to catch up,” Mr Segal said after Caltex’s annual shareholder meeting in Sydney.

Woolworths’ $1.8 billion sale deal with BP, which was agreed in December 2016, is due to lapse around mid-year, meaning the supermarket owner will decide next month whether to scrap it and pursue other offers, chief executive Brad Banducci said earlier this month. After initial strong signalling by BP that it would legally challenge the ruling by the Australian Competition and Consumer Commission, the oil refiner has not yet followed through with any such move.

Caltex chairman Steven Gregg told shareholders that acquisitions such as Milemaker, Gull and SEAOIL have also demonstrated the benefit of Caltex developing its own trading and shipping business, the Ampol division in Singapore.

Mr Segal said the acquisitions in the Fuel & Infrastructure business were “not haphazard” but took into account Ampol’s very strong position in Singapore, which complements Gull’s ownership of the biggest import terminal in New Zealand and the entry into the Philippines, one of the fastest growing fuels markets in the region.

“I’m confident that given our capabilities in Singapore and capabilities in New Zealand we’ll be able to keep on growing the business in New Zealand, and possibly additional acquisition there – I’m not talking about big acquisitions, just to be clear,” he said.

“In the same way, now we’ve got credibility in the Philippines, certainly we have a team of people in business development that are searching for opportunities there.”

Restructuring businesses

Mr Gregg, who was elected as chairman last August, noted that Caltex is still undertaking a review of its real estate and infrastructure assets, after restructuring its operations into two businesses, Fuels & Infrastructure and Convenience Retail. 

“We are well progressed and working through all the options for an outcome that delivers the most long-term value for shareholders,” he said, flagging an announcement at the half-year results in August. 

Meanwhile, Caltex has made strides to add the internal skills and capacity to carry out its growth strategy in convenience retailing, with Mr Segal pointing to executives who have joined from Tesco, Woollies and other major brands and industries worldwide to boost the line-up.

“We’ve got a team that is significantly better qualified to run this concept today than we enjoyed months ago,” he said, underlining that the retail strategy goes far beyond shops to meeting stringent standards for food manufacturing and national distribution of fresh and frozen food, and developing digital platforms to communicate with suppliers, delivery agents and customers. 

“These are the capabilities that we are building, and I think nobody can put their hand up and say they’ve got in fact better capabilities overall than us,” Mr Segal said. 

Caltex, which is addressing a worker underpayment scandal amongst some franchisees, announced in February it would end its franchise system and bring all its petrol stations under its own ownership.

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