Julian Segal’s swansong financial year is not stacking up as one of his best performances as Caltex chief executive over the past decade, but he still deserves praise for being a rare change agent among top 100 CEOs.
The half-year results released on Tuesday were in line with the profit downgrade guidance provided in June when the company said it would miss consensus 2019 earnings by more than 30 per cent.
While it is disappointing for shareholders that Caltex’s retail strategy needs more refinement, there is no doubt Segal has made a huge difference to investors who backed his strategic change.
There are very few leaders in Australian business who have been able to take over a company with a deeply entrenched position in a market heavily exposed to volatile commodity prices and successfully bring about a transition in the business to a completely different strategic paradigm.
Segal brought intellectual rigor to the task of reinventing Caltex’s business in Australia. He identified the international trend of convenience stores becoming the high growth sector in food and grocery retailing.
He took the best of the convenience store networks overseas and brought these features to the Caltex petrol station network to create a differentiated offering that prompted copycat activity by competitors.
It says a lot about Segal’s foresight that BP and David Jones this week revealed a partnership that will combine the David Jones food range with BP’s Wild Bean cafes in selected BP petrol stations.
BP and David Jones said their partnership reflected the evolution of convenience retailing and global urbanisation trends.
“Household sizes are getting smaller and the notion of three seated meals a day and an hour of grocery shopping on the weekend no longer holds for many busy Australians,” the companies said.
“Customers are eating on the go more frequently and planning their meals in advance less and less.”
The brilliance of Segal’s transformation of Caltex was evident from the step-up in the market’s valuation of Caltex shares. It moved from a lowly rated fuel refining company to a more highly rated, diversified business.
The switch to convenience retailing at Caltex has not been without its problems. This was shown with Tuesday’s announcement of a review of the Caltex convenience retail sites and a $100 million cost-cutting program.
The review has identified about 500 Caltex sites that will deliver strong returns and growth from an enhanced convenience offer, and 50 sites that will be sold.
It is not clear how the capital from the divestment of sites will be used, but chief financial officer Matthew Halliday hinted that the funds would be used to restore more conservative settings to the Caltex balance sheet.
Halliday has proven with his performance over a relatively short space of time that he should be in the frame for the CEO position to replace Segal.
But he will have a hard act to follow. During Segal’s tenure, Caltex shares have risen threefold and the valuation of the company has soared from $4 billion to $6 billion.
Extracted from AFR