Caltex’s earnings have plummeted over the past year as profit margins at its refineries shrank and its service stations underperformed.
But the fuel retailer is sticking to its plan to expand its retail convenience arm, and is looking at adding charging facilities for electric vehicles to its service stations to become less exposed to swings in oil prices.
In a trading update released before its annual general meeting in Sydney on Thursday, the group said its first-quarter operating earnings plunged 42 per cent from a year ago to $138 million. Net profit fell at a similar rate from $164 million to $94 million, hurt by a $38 million drop in retail fuel margins, which it had flagged in March.
“Our results shows the impact of both lower refiner margins and a challenging retail environment this quarter,” Caltex chief executive Julian Segal said.
“Our retail strategy is about building a shop experience alongside the fuel experience. What happened was that external circumstances put pressure on fuel margins, impacting both.”
Caltex had faced low refiner margins at the start of the year but managed to recover in March and April after its Lytton refinery returned to full capacity following a maintenance shutdown.
The company blamed high oil prices, a revised fuel supply contract with Woolworths and increased competition from rivals such as Viva Energy and BP for its slimmer retail margins. Its main competitor, Viva Energy and Coles Express, recently announced a strategy of dropping prices at the fuel pump to become more competitive.
Oil prices reached a four-year high in October before slumping to about $US50 at Christmas. The price has rallied again to reach $US70 a barrel.
Caltex has attempted to reduce its exposure to volatile oil prices by expanding its retail convenience arm through the opening of 59 Foodary sites. It expects to launch its first Caltex Woolworths Metro pilot sites – a mini Woolworths store located in a Caltex service station – in the second of half of the year.
The company has also bought back about 70 per cent of its franchised retail service stations and expects to control 99 per cent of its sites by 2020. “Having stores in company operation allows us to better standardise and optimise the sites’ performance,” the company said in its trading update.
Despite the disappointing retail results in the first quarter, Caltex chairman Steven Gregg told shareholders at the AGM in Sydney on Thursday he had “full confidence” in the strategy.
“Trading conditions for this business have been challenging of late,” Mr Gregg said.
“We are mindful our results have softened over the last year in a tough market.
“We do believe the growth in non-fuel retail will be substantial going forward, we’re full of confidence.”
Caltex also announced the launch of its first sustainability report, focused on the company’s efforts to shift towards a lower-carbon future and reducing emissions, and confirmed it was examining the potential of electric vehicle charging, which was raised at its last AGM.
“The sites we have are great for charging electric vehicles,” Mr Gregg said. “We are looking at some pilot sites for it later this year.”
It is understood the group is in talks with EV battery charging companies but is yet to commit to a partnership.
Caltex closed Thursday trading 0.3 per cent higher at $25.75.
Extracted from The Sydney Morning Herald