CALTEX PROFIT HIT BY WEAK ECONOMY

PERRY WILLIAMS

AUGUST 27, 2019

The Australian 

Fuel supplier Caltex has abandoned a target of delivering an earnings jump of up to $150 million from its convenience retail stores by 2024 and plans to sell some sites and introduce a new cost-cutting drive to steady its flagging performance.

After announcing his plan earlier this month to step down from the chief executive’s role, Julian Segal said while Caltex still remains confident in its convenience retail strategy it now concedes a previously forecast uplift target of $120m to $150m by 2024 will not be met, based on “learnings” from the past two years and the results of an ongoing review.

“Caltex is confident with the progression of its convenience retail strategy and still anticipates it will deliver a meaningful growth opportunity,” the company said. “Caltex will take the necessary time to ensure the disciplined execution of the strategy, including tailoring the right format with the right cost base to the right local market and will provide further updates as the retail strategy is executed.”

Caltex is in the midst of a major overhaul of its retail strategy, which includes bringing its franchise sites into the company’s control and a boosted retail offering for consumers.

However it has proved a messy rejig to date, with earnings continuing to disappoint the market, leading some analysts to question the company’s strategy.

Caltex said it would sell 50 metropolitan freehold sites in the second half of 2019 and keep a further 500 in its network. Further work would be conducted on assessing the remaining sites in its portfolio.

The Sydney-based company will also embark on a major cost-cutting drive with plans to slash $100m annually in operating costs from the overall business.

Its central Sydney headquarters would be relocated and it hopes to “leverage learnings” from optimising its Lytton refinery across the business.

The company also sharply lowered its capital expenditure guidance for 2019 to $300m from a $320m to $385m range and in comparison with $355m in 2018.

Caltex saw its first half net profit more than halve amid oil refining volatility and a weak retail performance.

“Economic weakness, soft retail fuel margins, lower refining margins and outages have impacted our performance,” Mr Segal said noting the result was disappointing.

“Fuels and infrastructure continues to deliver underlying growth and reliable cash flows and convenience retail has regained market share while remaining disciplined in a tough retail fuels market.”

Profit on a replacement cost basis fell 54 per cent to $135 million from $296m for the same period last year and within the $120m to $140m guidance issued to the market on June 20.

Earnings before interest and tax in the company’s convenience retail business fell 47 per cent to $85m from $161m, at the top end of its previously forecast $75m to $85m range.

However, its Lytton refinery saw EBIT slump to just $1m from $105m, just scraping in at the lower end of a zero to $10m guidance range as it continues to feel the pain of margin pressure.

An interim dividend of 32c per share will be paid.