Woolworths, Caltex Renew Vows
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In French its “plus ça change, plus c’est la même chose” (In English that translates to “the more it changes, the more it’s the same thing”). On the ASX it was yesterday’s renewal of vows by former partners, Woolworths and Caltex.
But the renewal might be a temporary situation so far as Woolies is concerned as it continues to look to sell the petrol business (it will continue to be supplied by Caltex with petrol and other oil products.
After looking elsewhere because it wanted out of petrol retailing and had decided to sell to BP after its agreement with Caltex expired, Woolies is back in the gas game with Caltex.
The driving force for the reconciliation was the ACCC, the competition regulators, strong ’no’ to BP’s purchase of the Woolies petrol sites around the country.
So Woolworths and Caltex have struck a new 15-year fuel supply agreement and entered a long-term alliance covering convenience stores, wholesale food supply and loyalty rewards.
But with the Viva oil station and marketing and refining float in the offing, Woolies reckons its still open to the idea of a float or sale of its petrol business, which has been supplied with fuel by Caltex since 2004.
Woolworths said the new alliance would add 125 Caltex sites to the existing 638 fuel sites where its customers could redeem their 4¢-a-litre fuel discounts and earn Woolworths Rewards points.
Woolworths will supply wholesale food to more than 700 existing Caltex convenience sites, and the companies will roll out a convenience offering under the Metro banner to up to 250 Caltex sites over the next six years, with 50 sites planned over the next two years. (Metro is a small format supermarket idea that Woolies has toyed with for years).
Under the new deal Caltex will make a one-off payment of around $50 million to Woolworths this month under the fuel supply deal, which is expected to deliver a pre-tax earnings boost of $80 million a year to Woolies’ petrol business and annual reduction in earnings before interest and tax of the same amount for Caltex.
Caltex said the new fuel supply agreement was "stapled" to the Woolworths’ sites, regardless of ownership, providing certainty of supply for Caltex.
Woolworths said it had set up an expanded management team and structure to position the petrol business for growth on a standalone basis as it pursued its float or sale. James Goth, currently Woolworths' director of corporate development, has been appointed chief executive of the business.
“While we were disappointed with the termination of the BP agreement, we believe the customer benefits of our alliance with Caltex, combined with a new fuel supply agreement, will allow us to deliver a compelling outcome for both our customers and our shareholders,” Woolworths’ CEO Brad Banducci said in a statement on Thursday.
“The Woolworths Petrol business is in a good position to pursue its own growth agenda supported by a highly competitive fuel supply agreement and a strengthened management team, all underpinned by solid links to the Woolworths food business.”
Caltex, which stood to lose its fuel supply contract with Woolworths at a cost of $150 million in annual earnings if the BP sale happened, continued to supply Woolworths’ fuel in the interim.
Woolies shares hardly moved - up nearly 1% at $30.666, while Caltex shares edged up 0.2% to $32.56.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.