A shrinkage in margins on selling petrol and diesel and a slump in refinery earnings have hit Caltex Australia in the March quarter, with benchmark earnings dropping 43 per cent.
In an update given ahead of the annual shareholder meeting on Thursday, Caltex said net operating profit fell to $94 million in the first quarter, down from $164 million a year earlier, in line with its update in March.
Earnings from Caltex’s oil refinery at Lytton near Brisbane crashed 90 per cent to $5 million from $51 million, dragging down profits from the fuels and infrastructure business, while convenience retail earnings more than halved.
“Our result shows the impact of both lower refiner margins and a challenging retail environment this quarter,” chief executive Julian Segal said, adding it was “pleasing” to see conditions improve in April.
“Our businesses’ strengths, including a strong balance sheet and our extensive network, as well as our steady focus on the execution of our strategy provide the foundation for delivery of our strategy in 2019.”
Caltex advised in March that the rapid rebound in crude oil prices and competition in fuels retailing would cut as much as $45 million from its convenience retail gross margins in the first quarter compared with the same time last year. Refining margins were also weak in January and February, though recovered in March and April.
Rival Viva Energy also last week advised of a hit to its retail earnings because of the sharp increase in oil prices which have squeezed margins on selling petrol and diesel.
Chairman Steven Gregg will tell shareholders at the meeting in Sydney that the board has “full confidence” in Caltex’s convenience retail strategy, which is in the middle of a major revamp.
Caltex is taking all franchise sites back into full ownership and is rolling out a more sophisticated forecourt retail offering, although some analysts have questioned when investors will start to see results from the initiative.
“While we are mindful our results have softened over the last year in a tough market, the Board and the leadership team believe that the transformation of Caltex will create more value for shareholders over the coming years,” Mr Gregg says in his address, a copy of which was released ahead of the meeting.
Caltex’s revised fuel contract with Woolworths, now Euro Garages, also affected March quarter earnings while a planned shutdown of a unit at the refinery reduced the increase in the refining margin in April.
“It is important to remember that our transformation in Convenience Retail started in 2016 and we have made great progress putting the foundations in place for the future,” Mr Segal says in his address.
“While we are seeing short-term impacts from a softening Australian fuels market, we are well positioned for growth in this business.”
All resolutions to be put to Caltex’s annual meeting look set to be passed, although the Australian Shareholders’ Association is set to vote against the remuneration report amid concerns over the structure of incentive payments for Mr Segal.
Extracted from AFR