Caltex Australia fill earnings gap after takeover

CaltexCaltex Australia announced its plans to fill the earnings gap left after the acquisition of Woolworths’ petrol stations in Melbourne and Sydney.

The petrol global giant failed after oil and gas multinational BP struck a $1.79 billion deal with Woolies last December.

The fuel alliance between the two major companies for 13 years is expected to end early next year as BP commits to completing an acquisition that is still subject to regulatory approval.

“I feel confident that by the end of 2017 we will be making up for the shortfall,” Caltex chief executive Julian Segal said.

He said he sees Caltex will not encounter many difficulties in filling the $52 million to $142 million earnings gap that the Woolworths alliance is expected to leave. It currently has 1,442 service stations across Australia.

Despite not reaching its long-term fuel alliance with Woolworths, Caltex said on an ASX statement that the company will maintain its “financial discipline, deliver on supply chain efficiency improvements and pursue profitable growth.”

They will also secure new wholesale and retail volumes including recently acquiring Milemaker and Gull. Caltex will also invests in supply chain, retail networks and core transport fuels infrastructure.

Segal also mentioned the petrol giant decided against buying Woolies’ fuel business because it was not “going to deliver” because of declining supermarket redemption volumes, restrictive commercial terms to continue fuel discounts and the sites were leased rather than owned by Woolworths.

The fuel giant’s net profit rose 17 per cent to $610 million in the year to December 31, with its retail business partly offsetting lower refinery margins from its Lytton plant in Brisbane. Its more closely watched replacement cost operating profit (RCOP), which strips out the impact of crude oil price fluctuations, dropped 17 per cent to $524 million, with revenue down 10 per cent at $17.9 billion. The group’s RCOP was modestly better than its guidance of $500 million to $520 million.

Caltex has also sought to reassure the market on its franchise model following recent allegations of wage underpayment from franchises. The company announced from an ASX statement that they will continue “to enhance its governance system and procedures for franchised sites, including already-implemented changes to the process for accepting franchisees into its network. Wage underpayment or mistreatment of staff is unacceptable to Caltex, and we will continue to remove franchisees who do the wrong thing.”

The gasoline giant had a case in 2013, wherein 150,000 litres of unleaded petrol gushed into a bund at their Banksmeadow fuel terminal in the Port Botany Industrial Estate.

Caltex was ordered to pay a $400,000 Environmental Service Order, a record penalty for a single prosecution brought by the NSW EPA, as well as $450,000 in EPA legal costs. The protection watchdog said this spill could have caused major environmental and community damage.

EPA chair and CEO Barry Buffier said he was pleased with the result for a serious incident that was entirely preventable.

“Caltex procedures resulted in 150,000 litres of highly flammable fuel flooding in to a bunded area, which could have caused significant environmental and community impact,” Buffier said.

“Fortunately that did not happen in this instance but that does not lessen the significance of the incident. It is the role of companies within our community to ensure that they are operating in an environmentally safe and responsible manner, and in this instance that was unfortunately not the case.”

Buffier further added Caltex “applied their own required processes, then checks would have been in place to prevent an incident as serious as this from occurring.”

The fuel spillage happened after the hose disengaged during a transfer of petrol from a storage tank. It doused two onsite contractors and a firefighter were brought to the hospital. The employees from a nearby industrial premises were also evacuated and local roads were closed because of the potential risk of fire or explosion from the highly flammable material.

Caltex also recent launched earlier this month its pilot service station and convenience store rebadged The Foodary. The store carries fresh food on the go, barista-made coffee and includes laundry and parcel pick-up services. It has also partnered with Boost Juice, Sumo Salad and Guzman Y Gomez with outlets inside the store in Sydney’s inner west suburb of Concord.

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