Fuel retailer Caltex, which plans to sell a $500 million stake in its convenience sites, has conceded it may have erred with a decision to cut its dividend after shareholders sold off the stock on expectations of a more generous capital return.

The $8 billion Sydney-based company trimmed its interim dividend by 5 per cent to 57c per share, from 60c previously, after first-half benchmark profit barely budged from last year on higher costs and crimped refining margins.

While representing a payout ratio of 50.3 per cent, in the middle of its target of between 40 per cent to 60 per cent, Caltex said some shareholders had told management that were disappointed by the lower return.

“One issue that was mentioned by some investors was this perception that we cut the dividend,” chief executive Julian Segal told The Australian. “That’s certainly not the way we looked at it. But some investors took a negative view to that.”

Caltex’s replacement cost of sales operating profit, which strips out the impact of oil price movements on inventories, rose by just 1 per cent to $296 million for the six months to June 30, at the lower end of recent guidance of $295m to $315m.

Still, Mr Segal said Caltex could have paid a higher dividend, based on the result. “For many years we have paid smack in the middle at a 50 per cent ratio and that’s what we’ve done this time,” said Mr Segal. “Maybe we should have been a bit more aware of the extra sensitivity of investors and we could certainly have paid the 60c we paid last year. But we just didn’t consider that as an issue.”

Shareholders were also grappling with a planned $500m sale and leaseback of its convenience retailing sites as part of a new property partnership, with real estate investors vying for the role including Charter Hall, Dexus, CKI and Singapore’s GIC.

Following a strategy review, Caltex will sell up to a quarter of its freehold site portfolio, which is worth about $2bn, and is expected to retain a stake of between 25 and 50 per cent in the venture.

“I think some investors had difficulty understanding what we communicated in terms of the asset optimisation review,” said Mr Segal. “It will take a bit of time for them to better understand what it is we are doing.”

A second potential plan to consider asset sales in its fuels and infrastructure unit was shelved, with Caltex deciding it was better to keep the assets in-house. The company said while there was strong buyer interest, it was not a straightforward infrastructure model for some investors.

“There was a recognition the assets are different to other infrastructure assets like ports and pipelines where there is anticipated growth,” Caltex chief financial officer Simon Hepworth said in reference to its fuels and infrastructure business. “For an investor to get very interested in our infrastructure they were looking for structures that made the investment more attractive to them, like take or pay. And the tariffs that were being talked about were much higher than the throughput fees that are payable in Australia.”

Net income, which accounts for the impact of oil prices on the value of stockpiles, rose 45 per cent to $383m from $265m, just short of Caltex’s June guidance of $385m to $405m.

Raw earnings from its Lytton refinery in Brisbane fell by 30 per cent to $105m from $149m due to a lower refiner margin.

Headline earnings from its fuels and infrastructure unit rose 9 per cent to $314m.

Extracted from The Australian