Caltex Australia announces major restructuring

Caltex Australia announced that it would establish “two interdependent, but different businesses which require separate cultures, processes and systems, both with significant growth options.”

Supply, B2B, Refining and Infrastructure have been merged into one business unit (Fuels & Infrastructure) to better optimise the company’s value chain, while retail will focus on the company’s petrol and convenience (P&C) business.

The move will mean a reduction of approximately 120 jobs over the next six months, which is expected to save approximately AUD60 million (USD47.6 million) per annum before taxes. Associated restructuring costs of approximately AUD20 million (USD15.8 million), including redundancy costs, other cash and non-cash costs, will be recognised in the second half of 2017, the company said.

In the second quarter of 2017, Caltex Australia commenced a review of the company’s operating model “to reflect our strategic direction, with the focus on the delivery of top quartile total shareholder returns via earnings growth and improving returns on invested capital over the long term.”

Over the past five years, Caltex Australia has transformed itself from a refiner-marketer through to a leading integrated transport fuels player, with a largely franchised convenience retail business. In 2016, the company launched a new vision dubbed the Freedom of Convenience, “announcing our intention to continue our transformation from being the leading provider of transport fuels to a much more diverse organisation that operates across complex supply chains and the evolving retail convenience marketplace.”

In the first half, Caltex Australia reported a 2.4% decline in volume sales of petrol to 2.9 billion litres, driven by continued diesel fuel and premium petrol substitution, general long term industry-wide decline; and on-going aggressive price competition. However, volume sales of diesel fuel were up by 6.9% in the first of 2017 to 3.76 billion litres.

The company said that declining trend in total petrol volumes is projected to accelerate out to 2020, due to ongoing improvements in vehicle fuel efficiency and continued substitution to diesel vehicles.

Woolworths’ sale of its fuel business to BP, subject to regulatory approval which is expected before the end of this year, will have an estimated annualised EBIT (earnings before interest and taxes) impact on Caltex Australia, which is currently the fuel supplier for Woolworths’ fuel retail network, of up to AUD150 million (USD119.08 million). Caltex Australia’s 3.5 billion-litre fuel supply arrangement with Woolworths is linked to Woolworths’ continued ownership of the business.

The company said the review of its operating model dubbed “Quantum Leap,” is continuing which could result in asset sales, with a focus “on further enhancing the company’s capabilities and competitiveness, including the delivery of further efficiencies through more fit for purpose operating models for each business.”

“Quantum leap means a fundamental review of the way we do business,” said Julian Segal, Caltex Australia’s managing director, referring to. “We need to evolve to meet the changing competitive landscape.”

The restructuring was announced as the company posted a 21% rise in replacement cost operating profit (RCOP) of AUD307 million (USD243.7 million) over the same period a year ago.