A new head office, job cuts, a slashed interim dividend – the knives are out at Caltex Australia after the oil group’s interim results matched the downgraded guidance issued in June.
The cost cutting revealed yesterday makes it clear the company does not see much chance of a significant rebound in earnings over the rest of 2019.
Shareholders will feel a lot of the pain with the interim set at 32 cents a share, down from 57 cents a year ago after a 54% slump in interim underlying profit to $135 million.
Caltex has undergone considerable change in recent years to become a smaller presence in oil refining and distribution with a larger retailing operation.
It is clear from the interim results that the retail convenience store business is flagging and that the continuing weakness in global oil prices and volatile currencies – and slowing economic growth and demand in Australia – is making life tougher for the company
Caltex blamed margin pressure, sluggish consumer spending and softer demand from sectors such as transport and construction as being major factors driving its profit down from $296 million the year before.
Caltex chief executive Julian Segal (who announced his retirement in June) described the result as disappointing overall but said the company was responding by driving down costs.
“We are responding to the tough conditions through a focus on capital discipline and by sustainably reducing our cost base,” he said.
So besides the payout to shareholders, the long-established head office on the northern edge of Sydney’s expensive CBD will be left behind when the company settles on a long lease over 9,500 square metres of space in a yet-to-be-built four-story building in the Sydney suburb of Alexandria (near Sydney airport and the company’s big distribution operation at nearby Banksmeadow.
Caltex said it was also cutting its investment this year to about $300 million, from the $320 million to $385 million previously indicated.
Caltex said it was still learning from its convenience retail strategy as it still expects to complete a buyout of its franchisees by 2020.
But hopes for a big profit contribution by 2024 will now not be met – which will be a blow to the company ambitions for a major non-oil earnings source.
The company indicated yesterday that a review has indicated the company won’t be able to deliver on its forecast that a 2018 deal with Woolworths to create 250 market-leading retailers to boost earnings by $120 million to $150 million by 2024.
“Caltex will take the necessary time to ensure the disciplined execution of the strategy, and will provide further updates as the retail strategy is executed,” the company said.
In other words there is no timetable and if the lack of progress continues it wouldn’t surprise to see the idea disappear.
It has transformed 63 petrol stations into so-called “Foodary” sites with premium offerings (rival BP announced a similar venture with retailer David Jones yesterday).
The company will see around 50 of its metropolitan freehold petrol stations after deciding they were worth more as alternative developments and a further 240 sites have still to be assessed.
The company said it has decided to keep 500 of its 790 company-owned and operated petrol stations.
Investors gave the news a big thumbs down yesterday, marking the shares down 4.6% to $24.66.
