Caltex Australia has flagged big changes as it embarks on “Project Quantum Leap”, the first stage of which will see a retail unit separated from the rest of the refining and wholesale business, in a move that will cost 120 jobs and save $60 million a year.
The review, announced by Caltex yesterday with its interim results, could also result in asset sales — with managing director Julian Segal saying no assets are sacrosanct — and a longer-term demerger of the retail business.
“Quantum leap means a fundamental review of the way we do business,” Caltex managing director Julian Segal said yesterday. “We need to evolve to meet the changing competitive landscape.”
The restructure was announced with a first-half net profit of $265m, down 16 per cent on a year ago because of non-cash crude oil and product inventory losses. Replacement cost of sales operating profit (RCOP), which strips out the impact of oil price movements on inventories, was up 21 per cent to $307m for the six months to June 30, because of a strong performance from the Lytton refinery.
This was at the top end of recent guidance of $290m to $310m.
A fully-franked interim dividend of 60c per share was declared, up from 50c a year earlier.
The first phase of Quantum Leap and its $60m a year savings will go some way to offsetting an expected annual $150m hit to earnings before interest and tax, on the loss of a contract to supply Woolworths after the supermarket giant agreed to sell its petrol stations to BP. The rest of the hit will be addressed by recent Caltex acquisitions of Milemaker and Gull, which will add $55m to $60m to EBIT, with refinancing of a subordinated note to add another $15m to $20m.
But Mr Segal and his chief financial officer Simon Hepworth were at pains to point out Quantum Leap, and whatever its second stage brings, will be about more than cost-cutting.
It is a recognition that the company has traditionally been a fuel business that subcontracted out its retail business to franchisees, and that this will need to change as retail becomes more competitive and disruptive technologies become more prevalent in transport.
Caltex will restructure into two units, retail and “fuels and infrastructure”, by the end of the year.
“We will have two interconnected businesses but businesses with possibly different cultures, it’s quite a fundamental change,” Mr Segal said. “Some aspects of the culture must develop in their own way and, in time, there could be a conclusion that those assets might be delivering more benefit to shareholders in a different structure,” he said, when asked if a demerger could be an option.
The Quantum Leap focus this half will include a close look at “optimisation of asset ownership”, with Mr Segal saying nothing in the company’s portfolio is ringfenced from potential sales.
Caltex’s retail strategy has been front of mind for more than a year, after Mr Segal said the company wanted to create a new convenience offering to deal with changing consumer preferences and disruptive technology including electric and self-driving cars.
Extracted from The Australian.