Caltex Australia Half Year Result: CTX profits lift on recovery of its refining margins

CommSec

 Fuel supplier and retailer, Caltex (CTX) posted a 21% lift in Replacement Cost Operating Profit (RCOP) to $307m for the six months ended 30 June 2017. This was at the top-end of guidance provided 22 June 2017 by the company of between $290m - $310m and largely in-line with analyst expectations. The result was boosted mainly thanks to a healthier than expected lift in refining margins at its Lytton refinery in Brisbane.

 RCOP is a closely watched profit result by analysts which presents a clearer picture of underlying performance. It removes the impact fluctuations in the USD price of oil and other products, which would otherwise skew performance. Historical cost net profit fell by nearly 17% but includes the fluctuations in oil prices and is not as closely watched by analysts.

 CTX will pay investors a $0.60 per share interim dividend on 6 October 2017. This marks a 20% increase on last year.

 Its refining business (its best improver), which now only operates out of its Lytton site in Brisbane, lifted EBIT by $92m or 62% to $149m. CTX sold 3 billion litres of fuel it produced at its Lytton refinery over the half, which was broadly in-line with the record production a year earlier. The boost to earnings was mainly thanks to a lift in its margins, which at 30 June 2017 was US$12.59/barrel. This compares to US$10.10/barrel a year earlier.

 CTX’s Supply & Marketing business (its biggest earner) lifted underlying profits by 8% to $377m over the half. Growth has continued across most of the premium fuels it sells. CTX said a lift in diesel volumes has more than offset a modest decline in premium petrol volumes. Caltex has opened 10 new convenience retail stores and intends to open a further 10 by the end of the FY17. It has partnerships with Boost Juice, Guzman Y Gomez and Sumo Salad and is experimenting with fresh produce.

 In late 2016, Woolworths announced the sale of its Australian fuel retail business to BP for $1.785bn and is still subject to regulatory approval which is expected later this year. This will likely end Caltex’s alliance with Woolworths and expects this to impact EBIT by up to $150m annually. To make up for the loss CTX has been acquiring fuel retailers and rethinking its retail strategy. It has now completed the $95m acquisition of Victoria’s Milemaker Petroleum which adds 46 sites to its network of service stations. The NZ$340m purchase of Gull NZ has received regulatory approval and is expected to be completed post 1H17. Gull is an owner of 77 service stations in New Zealand.

 CTX said it has ‘identified’ initial costs savings ~$60m which expects to take impact in 2018 and beyond. This includes 120 job cuts over the next six months. It expects further cost and efficiency benefits to be identified in 2H17.

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