Caltex targets ongoing supply chain focus

Caltex today reports $195m profit and solid earnings amid supply chain restructure to counter sustained refinery loss

Caltex targets ongoing supply chain focus
Caltex targets ongoing supply chain focus

By Anna Game-Lopata | August 27, 2013

Caltex today reported a $195 million profit and solid earnings amid supply chain
aimed at
bouncing back from its sustained refinery losses.

The company says the closure of its Kurnell, NSW refinery, announced last year, is on track for the end of 2014.

Caltex Managing Director and CEO Julian Segal says the company is approximately half way through the process of converting the refinery into an import terminal under a long-term deal with Chevron.

The Chevron agreement is expected to deliver petrol, diesel and jet fuel to meet with demand previously covered by the refinery.

"Regulatory approvals are on track and dredging will commence in the fourth quarter of 2013," Caltex reported to shareholders today.

The Kurnell Enterprise Agreement, which will see the refinery's workforce reduce by about three quarters, is also concluded according to the statement.

Caltex intends to spend about $250 million
on the
conversion of its Kurnell refinery.

Along with the closure of Kurnell, Caltex is planning an upgrade of supply chain information systems and the establishment of Singapore operations for product sourcing.

Meanwhile the company says there is an on-going focus on capturing further operational and margin improvements at its Lytton Refinery in Brisbane which is also running at a loss.

Caltex says the Lytton Refinery is undergoing a $47 million operational upgrade to increase production of premium gasolines
by the first quarter of 2015.

Lytton will supply 20 to 25 percent of the company’s future needs, which Caltex says maintains its viability versus imported product and 'buy-sell' arrangements.

Segal reveals his strategy for the company’s future rests on a commitment to grow the Caltex Marketing & Distribution business by targeting high growth channels, geographies and products.

"We will continue to build and leverage import infrastructure and accelerate network expansion including diesel stops, new to industry sites and knock down rebuilds," Segal tells the market.

"We will also coinsider merger and acquisition opportunities which fill network gaps or represent adjacent businesses and under-represented geographies," he says.

Caltex’s Marketing & Distribution division reports earnings of $365 million for the first half of 2013 a result just slightly down from $367 million achieved last year.

Segal says the 2013 result was adversely impacted by the sudden and significant fall in the Australian dollar during May and June as well as the loss of premium gasoline sales into the Sydney market following the pipeline outage from the Kurnell refinery
in June.

"Adjusting for the two one-off impacts above, the underlying Marketing & Distribution business continues to perform well in an increasingly competitive market," he says.

Total sales volumes of high value transport fuels were in line with prior year (7.8 billion litres).

Total diesel sales volumes continued to grow – and were up 4 percent compared with the same period in 2012. This was driven by a 19 percent increase in sales of premium Vortex retail diesel.

Commercial diesel sales volumes were in line with the prior year despite a softening environment in the industrial, transport and small and medium enterprise sectors.

Sales volumes to the mining sector remained robust with new contract sales volumes offsetting the impact of a major contract loss in the prior year.

While jet sales volumes fell 2 percent over the period, new contract volumes will come on stream in the second half of 2013.

Despite the lost volumes associated with the Sydney premium gasoline supply interruption, sales of Vortex premium gasolines grew by approximately 4 percent compared with the same period last year.

Without the impact of the Sydney premium gasoline supply interruption, underlying premium gasoline growth was in excess of 5 percent.

Growth in premium gasolines was offset by the ongoing market decline in regular unleaded gasoline sales.

Caltex also continues to invest in its infrastructure and retail network, which itl says will
contribute positively to earnings from the second half of this year.

Overall Caltex delivered an earnings before tax loss of $43 million in the first half. This compares unfavourably to a positive $2 million EBIT result in the first half of 2012.

Caltex’s national distribution network of refineries, terminals, pipelines and depots supplies around one in every three litres of gasoline, diesel and jet fuel consumed in Australia, with a leading market share.

"Caltex’s willingness to invest alongside its customers ensures it is well positioned to capture growth across Australia’s major market segments, such as resources, transportation, aviation and other commercial sectors," Segal says.

"This is likely to be supported by good underlying demand across premium gasolines, diesel and jet fuels."

Segal predicts diesel demand, underpinned by GDP growth and the increased prevalence of new diesel cars, will be robust.

"We expect increased airline passenger travel to contribute to steady growth in jet fuel," he adds.

"The shift towards higher octane, premium gasoline is also expected to continue.

"A lower Australian dollar will have a favourable impact on future Australian dollar refining margins, refining margins in the medium to longer term are likely to be challenged as a significant increase in regional capacity is forecast to outstrip demand."

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