Supply chain bolsters fuel sales for Caltex

Caltex rode on its fuel sales in the first half of 2011 strengthened by supply chain infrastructure investment

Supply chain bolsters fuel sales for Caltex
Supply chain bolsters fuel sales for Caltex

By Anna Game-Lopata | August 23, 2011

Caltex Australia rode on its fuel sales in the first half of 2011 strengthened by supply chain infrastructure investment

The fuel refiner and distributor delivered a net profit after tax of $113 million for the first half of the year. On a Historical Cost operating profit basis the company says the result was $270 million.

Caltex Australia Managing Director and CEO Julian Segal told investors the results reflected the strong performance of the company’s fuel sales business, while refining faced considerable challenges.

Segal says in recognition of the challenging environment for refining, which was impacted by political events in Libya, natural disasters in Japan and a rising Australian dollar, the company has initiated a review to understand the role its refineries will play in maintaining continuity of supply to customers.

"As part of a broader review of refining we are considering the optimal operation of the two catalytic crackers at Kurnell," he says.

as part of the company’s growth strategy there was a sustained focus on earnings from premium fuels, diesel, jet, finished lubricants and convenience store income.

"We have seen the success of this organic growth strategy with double digit compound annual growth rates," Segal says.

Investment in strategic infrastructure to strengthen the company’s supply chain
is credited as
underpinning this success.

"Major investments include our North Queensland terminals which were completed earlier this year," Segal says.

Overall transportation fuel sales were up 4.3 percent, underpinned by growth in commercial diesel, jet and premium fuel sales.

"Average transport fuel marketing margins were maintained in the volatile market while cash opex was well controlled," Segal says.

"The finished lubricants business continued its success of last year with sales volumes up by more than 10 percent and market share up by 2.9 percent to 22.1 percent.

Other initiatives to improve efficiency include ‘Project Catalyst’, initiated in 2010,
which has a strong focus on procurement.

Segal says it is a long journey to transition the performance of Refining, but Caltex remains on track to achieve its EBIT improvement target of $100 million per annum
by the end of 2012 through its Refining Improvement Initiative.

Part of this initiative includes outsourcing most of the company’s maintenance function at its Lytton and Kurnell refineries to the Wood Group PSN. This is now well underway.

"A small core team of employees will be retained to ensure that core skill sets are retained within Caltex," Segal says. "By capturing maintenance best practices we expect to see an improvement in the reliability and availability of the refineries over time."

Segal adds progress on the lube refinery closure is on track with some units already decommissioned and all production expected to cease by the end of the year.

"Our infrastructure developments remain on track with two additional diesel tanks in Mackay and Gladstone completed earlier this year," he says.

"In addition, construction of the two new large diesel tanks in Port Hedland is well advanced with completion expected late in 2011.

Segal confirms plans to boost supply reliability in South Australia are on track with a proposed 25 year deal with Terminals Pty Ltd to nearly double the fuel storage capacity for the state.

The new facility is expected to open in 2013 and in the first phase will provide 85 million litres of storage capacity for all grades of petrol, diesel and biodiesel.

"The Sydney jet fuel pipeline expansion project is progressing well with the procurement phase completed and early preparations for the construction phase underway," he says.

Segal says Caltex’s outlook for demand remains largely unchanged as diesel and jet fuel demand growth is expected to continue.

"While we expect overall gasoline demand to remain in decline we expect continued growth in the premium grades," he says.

"The forecast for capacity in 2011 has increased due to higher forecast additions in China and a reduction in forecast closures in Japan due to the disruptions to its refining capacity following the recent earthquake and tsunami," he says.

"The key to margin improvement continues to be the speed and magnitude of recovery in product demand, but it also depends on the actual output of the global refining network as crude runs are cut to match demand."

Despite significant extreme weather events and the unplanned outages at Caltex refineries Segal says the company has achieved a significant improvement in its environmental performance.

"Major spills are down from 7 to 4 incidents in the first half of 2011 and I am extremely please to say we have had no licence exceedances this half compared with 6 in the first half 2010,’ he says.

"This is attributable to improvements across the business."

While Segal talked up the growth in Caltex’s fuel sales, he says organic growth won’t be enough to meet the company’s long term growth ambitions.

"To this end we have already assessed and rejected a number of opportunities although there is nothing specific to discuss at this time we will continue to scan the environment for value accretive inorganic opportunities," he reveals.

Segal also says the government’s Carbon Tax will cost the company between $5 and ten million in its first year.

"Changes to the excise system may occur as a result of a review by the Productivity Commission, which we expect to occur by 2015," he says.

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