Angela Macdonald-Smith, 17 December 2015

Caltex Australia is poised for a record full-year earnings thanks to higher returns on both refining and marketing, fanning accusations the fuel supply industry is profiting at the expense of motorists.

The stock surged 6 per cent to $36.50, its highest close since March, after Caltex said benchmark net profit excluding one-time items for calendar 2015 was set to rise to between $615 million and $635 million, as much as 29 per cent higher than last year’s $493 million.

It said strong refining margins, reliable refinery operations and an increase in marketing profits all contributed to the improved result.

Bottom line net profit, a figure less watched by the market because it includes changes in the value of oil and fuel stockpiles, should be between $560 million and $580 million, up to 29 times on the $20 million reported in 2014, Caltex said.

The record outlook comes just two days after the Australian Competition and Consumer Commission (ACCC) took petrol retailers to task for enjoying their highest margins on retail petrol and diesel sales since price monitoring started in 2002. The watchdog said retail prices had not followed crude oil prices lower to the same extent, leading to higher profits for the petrol companies at the expense of motorists.

The findings led to claims of “price-gouging” by petrol retailers, accusations rejected by the industry through the Australasian Convenience and Petroleum Marketers Association.

ACAPMA chief executive Mark McKenzie said some of the “apparent hysteria” surrounding the ACCC report was unjustified and failed to acknowledge that gross profit margins vary markedly, with some fuel retailers receiving an average of just 3¢ per litre.

Pressure for capital management

The strong profit looks set to reignite expectations that the company is gearing up for an acquisition, with chief executive Julian Segal having flagged an appetite for M&A deals. Should no acquisition be forthcoming, investors are expected to increase pressure on the company for capital management, potentially an off-market buyback.

Caltex said the higher figures reflect higher profits in supply and marketing that includes the new Ampol Singapore operation that sources crude and fuels for the Australian business since the closure of the company’s second refinery in Australia. Cost cutting and efficiency improvements seen through Caltex’s Tabula Rasa program also helped. These were only partly offset by “ongoing competitiveness” of wholesale and commercial markets and higher costs at the Kurnell import terminal south of Sydney.

A spokeswoman noted that Australian petrol prices are still the fifth-lowest in the OECD.

Earnings before interest and tax in supply and marketing are expected to be about $670 million, or $675 million on an underlying basis, up about 5 per cent on last year. The gain comes despite total sales volumes of fuel falling 5 per cent and is partly driven by improved sales of premium fuels such as Vortex Diesel.

“Higher sales of premium grades of petrol and retail diesel continue to offset the long-term decline in demand for unleaded petrol, including E10,” Caltex said.

In refining, the company’s sole remaining plant, at Lytton in Brisbane, is expected to deliver record EBIT of about $400 million, up from $218 million the precious year.

The company said that a major shutdown in the June half for maintenance and upgrading allowed the refinery to take advantage of the favourable market conditions.

Refining margins have been particularly strong this year, set to average about $US16 a barrel, Caltex said. The softening in the Australian dollar magnified the impact in local currency terms.

Extracted in full from the Sydney Morning Herald.