Caltex has advised that pressure on fuel margins and ongoing store transitions will weigh on its convenience retail division in the second half.
The fuel giant, which is undergoing a transformation to make convenience retail a much larger part of its business, said on Tuesday that the division would deliver earnings of between $150 – $160 million in the 2H18, 17 per cent below its first half result.
The majority of the weakness has been put down to a reduction in retail fuel margins, driven by a time lag associated with customers adjusting to higher input costs.
Crude oil prices are rising and are currently around US$8 per barrel higher than at the end of 2017, Caltex said. Convenience store sales were impacted by disruption associated with transitioning sites from franchise to company operations.
Caltex announced earlier this year that it would spend $100 – $120 million converting its retail fuel network from franchise to company owned operations, amid investigations into the company over wide-spread wage non-compliance.
Caltex is doubling down on convenience retail as its traditional fuel business becomes less viable in the long-term and its major partner Woolworths seeks to ink a deal with BP that would leave a gaping hole in Caltex’s earnings.
Caltex said on Tuesday that 230 site transitions will have been progressed since 2H17, with the ongoing roll-out of its Foodary convenience concept. The broader Caltex business is slated to post a $385 – $405 million profit after tax, up 49 per cent on the first-half, underpinned by a strong outlook for its fuel and infrastructure division.