Caltex Australia (ASX:CTX)

Julian Segal
Market Cap (AUD): 8.77B
Sector: Energy
Last Trade (AUD): 34.55 -0.56 (-1.62%)
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1. About

Caltex has grown to become the nation’s leading transport fuel supplier, with a network of approximately 1,900 company owned or affiliated sites. Its complex supply chains safely and reliably deliver fuel and an evolving range of convenience products and services, to more than three million customers each week. Caltex refines, imports and markets the fuels and lubricants which meet one-third of all Australia’s transport fuel needs. The Company has come a long way – to around 4,700 employees and a convenience retail network that covers Australia.

2. Business model


The Company operates the following divisions:[1]



Revenue ($’000)

% of total Revenue

% of Operating Profit (before Int & Tax)

Profit drivers[2]

Supply and Marketing




  • Supply and Marketing delivered an EBIT result of $733 M. This result includes unfavourable externalities of $43 M, comprising a net realised loss (after hedging) on foreign exchange of $26 M (2016: a realised loss of $4 M) and a price timing lag loss of $17 M (2016: a price timing lag loss of $25 M)
  • The underlying Supply and Marketing EBIT increased 5.1% to $776 M, excluding externalities (+2.1% excluding the impact of acquisitions made during the year). Acquisitions added approximately $22 M EBIT during the year





  • Lytton Refinery delivered an EBIT of $308 M in 2017, up $103 M or 50% on the prior year (2016 EBIT: $205 M)
  • The refinery continues to operate reliably well with sales from production of 6.1 B litres. This was marginally below the record 2016 performance (6.2 B litres), due to some mini-turnaround maintenance work throughout the year

3. Strategy


The Group’s main strategies include:[3]


Freedom of Convenience

To be the market leader in complex supply chains and the evolving convenience marketplace, by delivering the fuel and other everyday needs of its diverse customers through its networks

Fuels & Infrastructure - Protect and Grow

  • Optimise infrastructure position
  • Grow trading and shipping
  • Serve business customers to protect and grow the supply base

Convenience Retail - Extend

  • Enhance the fuel retail customer offering
  • Create new customer solutions in the convenience marketplace


Assessing each element in turn

  • Optimise infrastructure position : Maintain a relentless focus on a cost-competitive supply chain through excellence in infrastructure and refinery management and being proactive in adapting to changing market dynamics and pursuing new infrastructure opportunities
  • Grow trading and shipping: Continue to develop and expand the capabilities and operations of Ampol. This allows Caltex to capture opportunities for value creation in sourcing and delivering the product and enables international expansion into the Asia Pacific region
  • Protect and grow supply base: Execute organic and inorganic strategies to increase marketing volumes in target regions to support long-term infrastructure investment and competitive supply
  • Enhance the fuel retail customer offering: Continue to develop elements of the fuel site retail offer which will attract more customers to Caltex sites and increase customers’ spend while there
  • Create new customer solutions in the convenience marketplace: Leverage Caltex’s existing strong consumer-facing business, including its network of over 900 retail sites and over three million weekly customer visits, to build a new and differentiated convenience offer for customers across multiple formats, products, locations, and channels.


All of these elements of the strategy are underpinned by a strong focus on continually enhancing Caltex’s capabilities and competitiveness through:

  • Safety – systematically managing both personal and process safety across the business to drive towards zero injuries and environmental harm.
  • Efficiency – continuing to drive down costs and utilise assets more efficiently to ensure an industry-leading cost structure.
  • People – continuing to invest in its people to strengthen organisational capability and agility.
  • Technology – continuing to invest in new technologies in order to drive operational efficiencies.
  • Fit for Purpose – culture, metrics, and measurement will vary between the two businesses.

4. Markets


The Company operates in markets including:[4]


Industry (Australia)

Industry Revenue (2018)

Growth Rate (annual 13-18)

Petroleum Refining and Petroleum Fuel Manufacturing

 $17 billion (2018)


Fuel Retailing

$35 billion (2017)


5. Competition


Major competitors include:[5]


  • Exxon Mobil Corporation (NYSE: XOM)
  • Royal Dutch Shell Plc Class B (LON: RDSB)
  • BP plc (LON: BP)

6. History



Founded as an oil importing company



Caltex was born, the result of a merger between Socal and Texaco both U.S oil companies



From a new business in Malaya to an impressive first-year gross revenue



Caltex began operations in Pakistan



Under consignment to the Allied Forces during World War II, the Bahrain refinery’s capacity increased to 115,000 barrels a day



After the war, Caltex raised its bunkering service, boosted the manufacture of lubricating oil and asphalt sales, and dramatically increased its refining capacity



Socal and Texaco were partners in the California Arabian Standard Oil Co. (later Aramco), which soon became the most prolific oil producer in the world



Caltex entered into 50-50 partnerships with refineries in Japan, unlike most Western corporations, which preferred a controlling interest



Caltex entered a joint venture with Nippon Oil Corporation subsidiary Tokyo Tanker Co., which launched its first supertanker, Nikko Maru, and the world’s largest tanker at that time, Tokyo Maru



Caltex introduced its own brand, which spurred sales, notably in Australia, New Zealand, and South Africa. In the early 1950s, Caltex owned about 30 percent of market share in the countries east of Suez compared to 10 percent before World War II

Caltex established its own oil exploration and producing subsidiary, American Overseas Petroleum Ltd. (Amoseas), which goes on to make several discoveries



Caltex built the Philippines’ first petroleum refinery, the Batangas Refinery, on a 300-acre site along the waters of Batangas Bay, about 72 miles south of Manila. Caltex commissions closed to 20 new refineries from 1952 to 1966



Constructed Australia’s Kurnell Refinery enabled Caltex to process and distribute the increased production from Caltex Pacific Indonesia Minas and Duri Fields



Caltex operations extended to more than 70 countries.



Socal and The Texas Co. divested Caltex of all its European assets



Entered into a joint venture with Lucky Chemical Goldstar Group to officially changed its name to Caltex Petroleum Corp



Japan contributed roughly one-third of Caltex’s system-wide sales



Caltex’s advertised message stressed its multicultural employee base



Caltex started to use oil that is not produced by either the company or one of its parents, essentially became a trading company dealing on the open market



The Company opened its first trading office in Singapore. Caltex now has 17 refineries with a total capacity of about 1.4 million barrels a day.



Caltex purchased Golden Fleece Petroleum and its 1,100 retail outlets, making it Australia’s second largest marketer of petroleum products



Caltex acquired the Summit Oil Co. and its 120 outlets in Thailand.



Purchased Mobil oil operations in the Philippines and entered a joint venture in China



Caltex developed retail outlets on New Zealand’s North Island to market compressed natural gas (CNG) for automotive use



Caltex operations spread across 56 countries



Caltex expanded and upgraded most of its 14 refineries to meet the needs of the rapidly growing Pacific Rim nations



Oil demand in the Asia-Pacific increased at more than five times the world rate



As part of the streamlined of its operations, Caltex sold to Nippon Oil Co



Caltex introduced a new corporate and retail identity program with its updated logo, the Delta Star



The Company changed its name to Caltex Corp



Caltex moved its headquarters from Dallas to Singapore



Caltex its first-ever Global Headquarters Award and added a second LPG facility in Shantou



Caltex became a part of ChevronTexaco Corp



As energy demand growth strengthened, the Company’s operating and efficiency gained paid off in significant earnings improvement



ChevronTexaco Corp changed its name to Chevron Corporation



Caltex introduced the technologically advanced and exclusive Techron fuel-cleaning additive to most markets of Asia Pacific and Africa



Chevron Corporation was one of the world’s leading energy companies



Caltex brand celebrated its 75th anniversary



Caltex Notes offered successfully raised $550 million



Caltex entered into a conditional agreement to sell Bitumen business



Caltex acquired the Scott's Fuel Divisions



Its Journey continues in 29 countries around the world



Caltex successfully completed $270M off-market share buy-back



ACCC Published SOI - Proposed Acquisition of Milemaker

7. Team


Board of Directors[7]


Steven Gregg – Chairman and Independent, Non-Executive Director

Julian Segal – Managing Director & CEO

Trevor Bourne – Independent, Non-Executive Director

Mark Chellew – Independent, Non-Executive Director

Melinda Conrad – Independent, Non-Executive Director

Bruce Morgan – Independent, Non-Executive Director

Barbara Ward AM – Independent, Non-Executive Director

Penny Winn – Independent, Non-Executive Director


Management Team


Julian Segal – Managing Director & CEO

Andrew Brewer – Executive General Manager, Transformation

Viv Da Ros – Chief Information Officer

Simon Hepworth – Chief Financial Officer

Richard Pearson – Executive General Manager, Convenience Retail

Lyndall Stoyles – Executive General Manager, Legal and Corporate Affairs

Alan Stuart-Grant – Executive General Manager, Strategy and Corporate Development

Joanne Taylor – Executive General Manager, Human Resources

Louise Warner – Executive General Manager, Fuels & Infrastructure

read more

8. Financials


2018 Half Year Results Presentation


Financial Year 2016/17 (ended 31 December):[8]



Revenue ($’000)

% Change

Operating Profit (before Int & Tax) ($’000)

% Change

Supply and Marketing















9. Risk


Major risks include:[9]


Business risks and management

The key business risks that could have an impact on Caltex achieving its financial goals and business strategy are discussed below.


Caltex Refiner Margin

The CRM is a key metric which drives the profitability of Caltex’s refinery. The CRM represents the difference between the cost of importing a standard Caltex basket of products to eastern Australia and the cost of importing the crude oil required to make that product basket. A low CRM will adversely impact Caltex’s refining earnings and cash flows. The CRM can be negatively impacted by a range of factors:

  • a decline in global and regional economic activity, leading to a surplus in refining capacity
  • increased regional refinery capacity ahead of demand growth
  • a decrease in product freight rates relative to crude freight rates
  • an increase in the premium paid for light/sweet (e.g. Brent) crudes used by Caltex compared with the heavy/sour crudes used by major refineries in the region (the light/ heavy spread), and
  • the strengthening of the AUD/USD exchange rate (as the CRM components are US$ based, strengthening of the AUD/USD exchange rate reduces the A$ revenue earned by Caltex).


Commodity price risk

Caltex is exposed to the risk of price movements in both crude and finished product through its purchase and sales transactions, as these impact Caltex’s earnings and cash flows. Through its Group Treasury Policy, Caltex seeks to manage this exposure by utilising both crude and finished product swap contracts. Caltex’s policy has been not to hedge refiner margins.


Foreign exchange risk

Caltex is exposed to the effect of changes in foreign exchange rates. Caltex purchases crude and products in USD and sells predominantly in AUD, with pricing formulas reflecting changes in the AUD/USD exchange rate. Due to timing differences between payments for purchases and pricing of sales, a change in the foreign exchange rate may negatively impact Caltex’s earnings and cash flow. Additionally, the CRM is determined principally with reference to the USD Singapore spot product price relative to the US dollar Brent crude price. An increase in the AUD/USD exchange rate will adversely impact Caltex’s Australian dollar refiner margin, and therefore refining earnings and cash flows. Foreign exchange contracts (forwards, swaps and options) are used to hedge foreign currency exposure in accordance with Group Treasury Policy. The instruments used to manage foreign exchange risk expose Caltex to fair value foreign exchange rate risk and counterparty credit risks. Exposure limits are set for each counterparty to ensure that Caltex is not exposed to excess counterparty credit risk.


Liquidity risk

Due to the nature of the underlying business, Caltex must maintain sufficient cash and adequate committed credit facilities to meet the forecast requirements of the business. From time to time, Caltex will be required to refinance its debt facilities. There is no certainty as to the availability of debt facilities or the terms on which such facilities may be provided to Caltex in the future. Caltex seeks to prudently manage liquidity risk by maintaining a capital structure that supports its activities and centrally monitoring cash flow forecasts and the degree of access to debt and equity markets. A key element of its funding strategy is the use of committed undrawn debt facilities, with an extended facility maturity profile


Operational risk

The nature of many of Caltex’s operations is inherently risky. Major hazards may cause injury or damage to people and/or property. Major incidents may cause a suspension of certain operations and/or financial loss. To mitigate against potential losses from such risk, Caltex has in place an integrated management system for managing safety, health, environment and product quality, as well as a comprehensive risk management framework which actively manages and mitigates these risks from the corporate Group level through to the local site operating level and involves active engagement at the senior management level. Caltex also manages certain major risk exposures through its comprehensive corporate insurance program, which provides cover for damage to facilities and associated business interruption as well as product liability.

Caltex’s operations are heavily reliant on information technology. While these systems are subject to regular review and maintenance, and business continuity plans are in place, if these systems are disrupted due to external threat or system error, this may have an adverse effect on Caltex’s operations and profitability. In this regard, Caltex actively monitors and responds to potential local and global security threats.


Competitive risk

Caltex operates in a highly competitive market space, and could be adversely impacted by new entrants to the market or increased competition from existing competitors, changes in contractual terms and conditions with existing customers, and/or the loss of a major customer. Caltex has in place various strategies to manage these risks which are designed to sustain and improve margins by reducing costs, improving operating efficiencies and encouraging sustainable performance. These strategies include the implementation of organisational restructuring, geographic diversification, and the allocation of capital expenditure to those businesses with the potential to deliver strong earnings growth.


Environmental risks

Caltex imports, refines, stores, transports and sells petroleum products. Therefore, it is exposed to the risk of environmental spills and incidents. It is also responsible for contaminated sites which it operates or has previously operated. As part of its approach to managing these risks, Caltex applies strict operating standards, policies, procedures and training to ensure compliance with all applicable environmental laws, and Caltex’s spills performance is a key performance metric. Caltex is focused upon achieving better environmental outcomes across its business as part of its strategy to deliver solid and sustained performance. Further details on how Caltex manages its environmental regulations and performance are outlined below in “Environmental regulations”


Demand for Caltex’s products

Caltex’s operating and financial performance is influenced by a variety of general economic and business conditions beyond Caltex’s control, including:

  • economic growth and development, the level of inflation, and government fiscal, monetary and regulatory policies
  • in the event of a global or a local economic downturn, demand for Caltex’s products and services may be reduced, and
  • advances in automotive technologies including fuel efficiency improvements as well as technology substitution to hybrids, electric vehicles and fuel cell electric vehicles

all of which may operate to impact Caltex’s financial performance.

To manage these risks, Caltex has implemented key initiatives to reduce costs, improve operating efficiencies and encourage sustainable performance within Caltex. These initiatives include the implementation of organisational restructuring, geographic diversification, and the allocation of capital expenditure to those businesses with the potential to deliver strong earnings growth.


Labour shortages and industrial disputes

There is a risk that Caltex may not be able to acquire, deploy or retain the necessary labour for operations and development projects. This may disrupt operations or lead to financial loss. In this regard, Caltex aims to be an employer of choice; it has in place and actively manages its employee agreements and monitors the external labour markets as well as its internal employee retention data


Credit risk

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Primary credit exposure relates to trade receivables. Caltex has a Board approved credit policy and a process for the management and diversification of the credit risk to Caltex. The credit quality of Caltex’s customers is consistently monitored in order to identify any potential adverse changes in the credit risk of the customers. Caltex also minimises concentrations of credit risk by undertaking transactions with a large number of customers across a variety of industries and networks. Additionally security is required to be supplied by certain groups of Caltex customers to minimise risk.


Climate change

At Caltex, climate related risk governance is managed by the Board’s OHS & Environmental Risk Committee. Caltex engages with Federal Government departments and regulators directly or indirectly via industry groups on climate change policy and legislation to ensure that material risks to its business are both understood and can be effectively managed. Prioritisation is carried out based on the anticipated material impact of the mitigated risk and likelihood rating derived from a cross functional review of the Caltex risk management framework. Further details on how Caltex manages climate related risks are outlined in the Annual Report under the heading “Sustainable operations”


Regulatory risk

Caltex operates in an extensively regulated industry and operates its facilities under various permits, licences, approvals and authorities from regulatory bodies. If those permits, licences, approvals and authorities are revoked or if Caltex breaches its permitted operating conditions, it may lose its right to operate those facilities, whether temporarily or permanently. This would adversely impact Caltex’s operations and profitability. As part of its approach to managing these risks, Caltex applies strict operating standards, policies, procedures and training to ensure that it remains in compliance with its various permits, licences, approvals and authorities. Additionally, it proactively manages these risks through a combination of vigilance regarding current regulations, contact with relevant bodies/agencies and working in partnership with various stakeholders to reduce the likelihood of significant incidents that could impact either Caltex and/or the communities in which the Company operate.

Changes in laws and government policy in Australia or elsewhere, including regulations and licence conditions could materially impact Caltex’s operations, assets, contracts, profitability and prospects. Some examples of potentially impactful legislative changes include amendments to the Fair Work Act (Cth), specifically the protecting vulnerable workers amendments; and the proposed modern slavery laws. Caltex engages with regulatory bodies and industry associations to keep abreast of these changes. Caltex has in place a stakeholder engagement plan that is actively managed to mitigate the impact from major policy changes.