Caltex Australia has put growth as its No.1 priority after completing the conversion of its Sydney refinery into a fuel import terminal and the $4.73 billion exit from its share register of US energy giant Chevron in March.
Chief executive Julian Segal will tell shareholders at the annual meeting in Sydney on Thursday morning that the company’s overarching objecting is to remain the outright leader in transport fuels across Australia.
But he and chair Elizabeth Bryan have made it clear that returns to shareholders are also on the cards.
“Our priority now is growth,” Mr Segal says in notes for his address, which were released early Thursday to the Australian Securities Exchange.
“Our focus is on leveraging our existing core capabilities in retailing, franchising, supply chain management, infrastructure services, and the processing, storage and distribution of hydrocarbons. This is what we are good at, therefore it makes sense for us to pursue these capabilities further, as areas of growth.”
Capital management, involving returns to shareholders, will also be considered, Ms Bryan says in her address.
“While our priority is to continue to invest in the business and in growth initiatives to deliver those returns, we will also consider capital management opportunities to return our surplus franking credits to shareholders,” Ms Bryan says.
“In doing so, we will at all times maintain sensible debt levels, including maintaining sufficient headroom to capitalise on growth opportunities, and to respond to changes to the operating environment and major liquidity events.”
Caltex’s sudden sale of its 50 per cent stake in Caltex raised expectations in the market of capital returns to shareholders, potentially involving the more than $1 billion it holds in in franking credits.
But Mr Segal has signalled that expansion will be a priority, potentially involving acquisitions of other retail stations, or of other assets that will bolster its fuel supply position.
Mr Segal says in his address that competition in fuels supply to both retail and business customers remains “challenging”, with sales volumes of transport fuels of 3.9 billion litres in the March quarter, down from 4.1 billion litres in the same quarter last year.
Higher sales of jet fuel and premium grades of petrol have been offset by the long-term decline in demand for unleaded petrol, including the ethanol blend E10.
Still, Caltex’s first-quarter profit after tax surged to $162 million on a replacement cost of sales basis, from $96 million in the March quarter last year, helped by a strong performance by the company’s sole remaining Australian refinery, at Lytton near Brisbane, and strong refiner margins, Mr Segal says.
On a historical cost basis, which takes in to account the impact of changing oil prices on the value of stockpiles, first-quarter profit was $174 million, up from $121 million.
However the strength in refining margins in Asia is not expected to last because of new supply starting up in the region, Mr Segal says.
Ms Bryan said that the positive reception to Chevron’s sell-down, which was the largest block trade of stock in Australian corporate history, was “an overwhelming endorsement” of Caltex’s strategy.
“Caltex remains committed to delivering top quartile returns for our shareholders,” Ms Bryan will say in her address.
“The Kurnell transformation, combined with the implementation of our cost and efficiency review, will provide the necessary financial platform for us to deliver on a focused strategy for growth and capital management.”
Extracted in full from the Sydney Morning Herald.