Caltex Australia: Transformation to an integrated value chain delivers solid operating result
Key points:
- First half HCOP NPAT of $375 million (includes a $95 million after tax inventory gain, and significant item of $29 million gain after tax, relating to the sale of a surplus property in Western Australia)
- First half RCOP1 NPAT of $251 million, excluding significant items
- Strong progress in transforming business model to an integrated transport fuels supply chain business, maintaining position as outright leader in transport fuels, whilst building on our leading retail convenience position
- Supply and Marketing EBIT of $264 million (includes direct shipping & demurrage costs of $20 million incurred in support of Lytton major maintenance program)
- Lytton refinery EBIT of $154 million, reflecting strong first half refiner margins, and the impact of the major Turnaround & Inspection program, which occurred during May and June
- Interim dividend 47.0 cents per share (fully franked) declared, reflecting higher dividend pay-out ratio
Historic Cost Profit
On an historic cost profit basis, Caltex’s after tax profit was $375 million for the first half of 2015, including a significant gain of $29 million (after tax) relating to the sale of surplus property in Western Australia. This compares favourably to the $163 million after tax profit for the first half of 2014.
The 2015 half year includes crude and product inventory gains of $95 million after tax, compared with crude and product inventory losses of $10 million after tax for the previous half year to 30 June 2014.
Replacement Cost Operating Profit
On a replacement cost of sales operating profit (RCOP) basis, Caltex’s after tax profit was $251 million for the first half of 2015. This compares with $173 million for the first half of 2014.
Business performance
With the closure of the Kurnell refinery and the establishment of Ampol Singapore to source the company’s crude and refined product, Caltex continues to evolve towards an integrated transport fuels supply chain business. Caltex’s business model creates value by optimising the entire value chain from product sourcing to the customer.
Following its establishment in 2013 and the ramp up of capabilities and activities in 2014, Ampol has now taken on accountability for sourcing all crude, feedstock and product imports during the first half of this year.
The level of activity in Ampol has increased significantly following the closure of Kurnell in late 2014, the introduction of crude and feedstock sourcing activity from the start of 2015 and the commencement of the previously announced BP supply deal late in the half. Ampol has sourced more than 45 Million barrels of crude, product and feed stocks in the first half of 2015.
The competitive landscape continues to be challenging, particularly in the Business to Business sector. However, the change in our business model to one integrated transport fuels supply chain business, optimising the entire value chain, is enabling us to maintain our position as the outright leader in transport fuels across Australia.
The Supply and Marketing segment delivered an EBIT result of $264 million for the 2015 half year. This result includes a realised loss on US dollar denominated product payables of $17 million (2014 first half: a realised gain of $13 million) and a price timing lag loss of $14 million (2014 first half: a price timing lag gain of $11 million). These impacts reflect the significant volatility in both the Australian dollar and the price of crude oil in the first six months of 2015. Normalising for externalities, the underlying Supply and Marketing EBIT of $295 million compares with an underlying EBIT result in the first half of 2014 of $276 million.
The Supply & Marketing EBIT result also includes $20 million in one-off supply costs incurred in support of the Lytton major maintenance program in May and June.
Total sales volumes of transport fuels for the first half of 2015 were 7.7 billion litres, 4.4% lower than in the same period of 2014 (8.1 billion litres), reflecting primarily the timing impact of a major diesel supply contract loss, without the full benefit in the first half of a new larger long term diesel supply contract.
Higher sales of premium grades Vortex 95 and Vortex 98 partially offset the long term decline in demand for unleaded petrol, including E10. Total petrol volumes fell 2.2% to 3.0 billion litres, broadly in line with industry trends.
Total diesel volumes declined 5.2% to 3.5 billion litres. This was driven by the timing of the major supply contract loss mentioned above, lower spot volume marine diesel sales in Western Australia compared to prior year, and reduced diesel requirements as a number of LNG projects near completion. However, the strong growth in premium Vortex diesel product across Caltex’s retail segment continues. Premium diesel now represents 30% of total diesel sales.
Jet volumes declined 8% off a strong prior corresponding period volume performance, driven by reduced domestic capacity and by a single major customer spreading supply risk.
Caltex continues to profitably invest in its retail site and terminal network, with 8 new to industry (including 1 diesel stop), 7 new to Caltex and 4 knock down and rebuild retail sites completed in the first half of 2015.
Lytton refinery delivered an EBIT of $154 million in the first half, compared with an EBIT of $40 million for the first half of 2014. The 2015 result does not include supply costs of approximately $20 million incurred in support of the Lytton major Turnaround and Inspection (T&I) maintenance program in May and June 2015. As noted above, these costs are included in the Supply and Marketing result.
Focussed improvement initiatives at Lytton enabled a strong operational performance during the first four months of the year, taking advantage of favourable refiner margins. The Singapore Weighted Average Margin was US$14.51/bbl for the first half of 2015, compared with US$12.60/bbl in the prior corresponding period. For the first four months of the year, the average realised Caltex Refiner Margin was US$15.71/bbl. The average realised CRM2 for the six months to 30 June 2015 was US$16.00/bbl, above the prior year equivalent of US$9.20/bbl.
During May and June, Lytton refinery successfully completed a T&I maintenance program, which occurs every five years. Consequently, sales from production from the refinery in the first half totalled 2.4 billion litres, down from 2.9 billion litres in the same period last year.
Strong balance sheet
Net debt at 30 June 2015 was $715 million, compared with $639 million at 31 December 2014 and $827 million at 30 June 2014. This equates to a gearing ratio of 21% (net debt / net debt plus equity). On a lease adjusted basis, gearing was 30%. Caltex’s strong balance sheet has provided the financial flexibility to enable Caltex to continue to invest in growth opportunities and increase its dividend over time.
Interim dividend
The Board has declared an interim fully franked dividend of 47.0 cps for the first half of 2015, in line with the dividend pay-out ratio of 40% to 60%. This compares to Caltex’s 2014 interim dividend of 20 cps, fully franked. The record and payment dates for the interim dividend are 8 September 2015 and 30 September 2015, respectively.
Capital Management
In February 2015 we highlighted that over the next 12 months there would be a focus on the efficient allocation of capital.
Management is actively considering options to grow the business, leveraging our core capabilities of retailing, franchising, supply chain management, infrastructure services and product sourcing. We have underway a formal process to evaluate these options and are doing so in a structured and diligent manner.
The successful closure of the Kurnell refinery in October 2014 and the company’s continued evolution into an integrated transport fuels supply chain business, enhanced by the company’s ongoing cost and efficiency program, has resulted in significantly improved cash flows. Those improved cash flows will provide greater flexibility to invest in growth opportunities and/or to return additional capital to our shareholders while maintaining the company’s target BBB+ credit rating. In the absence of material growth opportunities, the preferred form of additional capital return is an off-market share buy-back.
1 The replacement cost of sales operating profit (RCOP) excludes the impact of the fall or rise in oil and product prices (key external factors) and presents a clearer picture of the company’s underlying business performance. It is calculated by restating the cost of sales using the replacement cost of goods sold rather than the historic cost, including the effect of contract-based revenue lags.
2 The Caltex Refiner Margin (CRM) represents the difference between the cost of importing a standard Caltex basket of products to Eastern Australia and the cost of importing the crude oil required to make that product basket. The CRM calculation represents: average Singapore refiner margin + product quality premium + crude discount/(premium) + product freight – crude freight – yield loss.
Analyst contact:
Rohan Gallagher
Head of Investor Relations
Phone: 02 9250 5247
Email: [email protected]
Media contact:
Sam Collyer
Senior Media & Communications Adviser
Phone: 02 9250 5094
Email: [email protected]
