Petrol and diesel supplier Caltex Australia has rewarded shareholders with a near-trebling of its final dividend for 2014 but will give priority to acquisitions over an additional capital return.

The final dividend for 2014 was boosted to 50¢ per share, up from 17¢ a year earlier after the completion of a $270 million project to close the Kurnell refinery south of Sydney and convert it into a fuel import terminal. Shareholders have also enjoyed a 75 per cent jump in Caltex’s share price over the past 12 months.

The increase in the payout, totalling $189 million for the full year, came as Caltex posted a 48 per cent gain in full-year benchmark earnings. Net operating profit beat the company’s own guidance from December, thanks to the accelerating dive in crude oil prices late in the year, which boosted refining margins.

Chief executive Julian Segal signalled that any potential acquisitions would play to Caltex’s strengths in retailing, supply chain management and infrastructure services and may not be strictly related to fuels.

“We do believe that we do have superior capabilities in retailing, and that really should enable us to step out in adjacent opportunities more focused on retail rather than specifically on fuel,” Mr Segal said.


Caltex had lowered its dividend payout ratio for the duration of the $270 million refinery conversion project to 20-40 per cent of profit but has now returned to a 40-60 per cent payout. The final dividend will be paid on April 2.

A further increase in returns to shareholders, potentially in the form of a special dividend, could come later this year, but only if Caltex was unable to secure a suitable acquisition opportunity. The company, which is half-owned by US oil giant Chevron, still holds $1.1 billion in franking credits.

“Our priority is in the first instance to apply capital to growth, to potential acquisitions that will deliver consistent and reliable earnings growth and therefore contribute towards total shareholders returns,” chief financial officer Simon Hepworth said.

“If those growth opportunities don’t exist then we may consider returning capital to shareholders.”

Mr Segal said Caltex’s stronger financials boosted its prospects for external growth.

“We have been seeking opportunities, and we are in a stronger position now than before due to the fact that we have a much stronger balance sheet,” he said..

Shares in Caltex dipped 0.2 per cent to $36.61.

Caltex’s improved performance helped swell Mr Segal’s own remuneration by about $1.5 million in 2014 to $5.7 million, with short- and long-term incentives contributing about $2.7 million.

The lift in benchmark profit to $493 million was due to record earnings in petrol and diesel marketing, while the refining business returned to the black.

Bottom line net income, which is less important for the market because it includes the impact of changing oil prices, plummeted to $20 million, from $530 million.

The sharp dive in oil prices late last year meant that net income was lower than Caltex forecast in December, while net operating profit beat guidance.

Raw earnings in the marketing division climbed 6 per cent to $812 million, with higher sales of premium grade fuels more than offsetting the continuing decline in unleaded petrol demand.

In refining, earnings of $64 million compared with a loss of $171 million in 2013, due to higher refining margins and better operations at Caltex’s sole remaining refinery in Brisbane. The Kurnell refinery still suffered a loss in 2014.

Citigroup analyst Dale Koenders said marketing earnings were in line with his forecast, while refining earnings were higher than anticipated.

Mr Segal said he could give could give no guarantees on the long-term future of the Brisbane refinery.

Caltex’s Tabula Rasa cost and efficiency program incurred $112 million of costs but is expected to deliver up to $100 million a year of savings starting in 2016. About $15 million of savings were delivered in 2014.

Extracted in full from the Sydney Morning Herald.