Caltex Australia has its eye on more Asian investments and supply contracts as it looks to take advantage of the skills in its Ampol fuel sourcing and trading business and prepares for an expected peaking of local demand for petrol and diesel in 10 to 15 years.
Chief Financial officer Simon Hepworth said Caltex’s recent deal to buy 20 percent of independent Philippines fuel retailer SEAOIL, which followed an acquisition in New Zealand six months ago, would help build the credibility of Singapore based Ampol as a wholesale supplier in Asia, which could lead to more openings in the region.
“There is no reason why Ampol cannot leverage [its] capability and supply fuel into markets other than Australia.” Mr Hepworth said in an interview.
“It’s a significant opportunity area for us to capture growth opportunities in markets outside of Australia.”
The fuels supplier and convenience retailer is meanwhile still considering a potential broader restructuring that could result in a real estate spin-off or demerger, as advised at the interim results in August.
Caltex sealed a deal just before Christmas to buy a minority stake in SEAOIL Philippines for about $115 million and will supply the player from Ampol. It completed its first overseas acquisition of New Zealand retailer Gull last July.
Mr Hepworth described the SEAOIL deal as a “low-risk entry” that paved the way for a broader relationship over time into areas such as retailing or franchising.
The Philippines, where SEAOIL has a market share of 6 percent, saw fuels demand expand 10 percent a year in 2014-16 and further “strong growth” is expected, said Louise Warner, head of Caltex’s fuel and infrastructure business.
Ms Warner said the growth would all be met by imported products, playing to the capabilities of Ampol, which Caltex built up in 2014 when it started to rely more heavily on imports for its Australian business after closing one of its two refineries, at Kurnell south of Sydney.
SEAOIL, the fourth-largest petrol and diesel retailer in the Philippines, is aiming to double its network of service stations and terminals over the next five years across the archipelago.
With sales limited to petrol and diesel, and with just a small lubricants business, the company also has potential to grow in other fuel products, and down the track potentially in convenience retailing, Ms Warner said.
“They see their business growth being supply-chain led. That sits well with the set of skills we have in Caltex, given our long history of operating in quite complex and remote locations,” she said.
“Certainly they would see a future in building out their retail offer as you would expect in a country like the Philippines; it’s still a developing market.”
Caltex has been on the hunt for investments to help replace the expected loss of its large wholesale supply contract with Woolworths, which would be transferred to BP if the supermarket owner successfully challenges objections from the competition watchdog to the $1.8 billion sale of its retail network.
But Mr Hepworth said Caltex’s overseas ambitions are unrelated to the future of the Woolworths contract. The deal covers 3.5 billion litres a year of fuel and contributes up to $150 million of annual earnings.
“It was always contemplated that we would leverage Ampol and its capabilities,” he said.
“We will continue to supply Woolworths in accordance with the terms of the supply contract. Clearly having that supply is good. Whatever BP and Woolworths decide to do from here is up to them.”
In the meantime, Caltex is continuing to revamp its retailing offer, having restructured its business as of January 1 to run convenience retailing separately from its fuels and infrastructure business.
The SEAOIL investment, being closely linked with Ampol, is part of fuels and infrastructure, which now effectively has the convenience retailing arm as a customer.
Mr Hepworth said the new structure recognised the fundamental differences between the two parts of the business, which had different capabilities, cultures and drivers.
“There’s no logical reason for any other relationship other than a fuels supply between the two business units,” he said.
“By doing that you get much more management focus on the real drivers of those respective businesses and can make better … decisions.”
Even so, the question of whether to consider a more comprehensive restructure, to sell real estate assets into a trust, or dispose of other infrastructure assets wasn’t straightforward, Mr Hepworth said.
“There are benefits to owning and controlling assets when you control the whole supply chain. But there are financial attractions in the eyes of investors and analysts to do that.”
As a result, Caltex is spending time “looking very carefully at the pros and cons of how we own and operate assets” and would complete the review and inform the market of the results this June half, as advised.
Extracted from Australian Financial Review.