Caltex comes back from loss on the back of restructure


The decision to “rebalance” its supply chain has seen Caltex turn its fortunes around in 2012

Caltex comes back from loss on the back of restructure
Caltex comes back from loss on the back of restructure

By Anna Game-Lopata | March 28, 2013

The decision to "rebalance" its supply chain has seen Caltex turn its fortunes around in 2012.

The oil and gas company delivered a 6 percent increase in earnings supported by profitable contributions from both refining and new sources of supply.

Refinery transport fuel production increased to 10.7 billion litres from 9.8 billion in 2011 and premium fuel sales increased to 1.7 billion litres to represent 26 percent of total petrol sales.

Retail diesel sales also grew year on year, including a 40 percent growth in the company’s Vortex premium diesel range.

Caltex came back from a $714 million loss last year to report an after tax profit of $57 million for the 2012 full year.

This includes significant items of approximately $309 million, primarily relating to costs associated with the closure of the company’s Kurnell refinery in Sydney, planned for the second half of 2014.

Managing Director and CEO Julian Segal says 2012 was a watershed year.

"It was a year in which we made some difficult decisions as part of a clear strategy to secure a sustainable future for Caltex," he says.

"Pleasingly, it was also a year in which we achieved solid results."

With refineries in their current configuration disadvantaged and relatively small compared with the modern, larger scale and more efficient refineries in the Asian region, Caltex last year decided to "rebalance its supply chain".

Until now, Caltex’s Kurnell and Lytton refineries have accounted for almost a third of Australia’s total refining capacity.

Total production of petrol, diesel and jet was 10.7 billion litres in 2012, compared with 9.8 billion litres in 2011, representing the best production volumes in five years.

In part, this result was achieved through improvements in operational efficiencies and $60 million in key projects and upgrades at the Lytton Refinery, considered
a key part of the Caltex supply chain.

During 2012, Caltex broadened its crude supply base, sourcing more crude from outside this region than ever before.

"Five years ago, none of our crude came from Africa and now African sourced crudes total 43 percent of our requirements," Segal says.

"The challenges presented by refining such an expanded range of crude product from a wide variety of competitive sources, has been successfully met by our two refineries.

"Over 75 million barrels of crude were sourced by Caltex in 2012, compared with 70 million barrels in 2011."

But the new strategy involves
a reduction
in local refining operations and increase in the strategic sourcing of fuel products and distribution.

"We are growing our marketing and distribution through targeting high growth channels, geographies and products," Segal says.

"A fundamental element of this strategy was the successful negotiation of a long term product supply and shipping agreement with Chevron for the procurement and supply of transport fuels such as petrol, diesel and jet fuel to supplement domestic supply."

In 2012, Caltex’s marketing and distribution business sold 15.7 billion litres of transport fuels, split between commercial and retail.

Within retail, the Caltex Star Mart network generated in excess of $1 billion in shop turnover.

Caltex supplies one third of Australia’s transport fuel. The year saw a 10 percent improvement in premium petrol sales, with these volumes now accounting for 26 percent of all petrol sales.

Segal says central to this year’s success is Caltex’s relationship with its customers.

"It is our diverse customer base and our comprehensive supply chain that make our business so resilient," he says.

Segal says Caltex’s willingness to invest alongside its retail customers is evident with storage and distribution capacity growth across Western Australia, Queensland and New South Wales.

"We also doubled the Sydney jet fuel pipeline capacity, completed the bitumen import terminal at Sydney’s Port Botany and successfully integrated new acquisitions, including Bailey’s Marine refuelling business," Segal says.

While some proposed new greenfield projects in the mining sector were put on hold during the year, there are still significant projects going ahead in Western Australia and Queensland.

"Transport fuel requirements for the mining sector are expected to continue to grow over the medium term," Segal says.

"Caltex is well positioned to service that segment with an industry-leading reputation for being a reliable supplier through an Australian-wide network of distribution infrastructure."

During the year Caltex also strengthened its balance sheet with a successful $550 million capital raising which Segal says will provide the financial flexibility to continue investment in growth opportunities while implementing the supply chain restructure.

Throughout 2013 and beyond, investment will continue in improving retail assets, consolidating growth in commercial sectors and ensuring supply capability meets customer needs.

"By growing closer to our core, it will reduce execution risk, while enabling us to focus on what we do best," Segal says.

Retail initiatives include increasing premium fuels availability, expanding the Caltex network, upgrading sites to the 21CC store format, increasing the convenience offering, interaction via social media and systems development.

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