Less than a week after the competition regulator refused to approve its application to buy 300 service stations from Mobil, including 53 key sites, Caltex Australia yesterday revealed plans to close a small part of its Sydney refinery and warned of a weak first half for next year and raised the possibility of another dividend omission.
Caltex shares fell 4.1% as a result, ending at $8.64, a loss of 37 cents on the day. That was after falling to a low of $8.44 on the day.
Caltex said it expected full-year 2009 operating profit on replacement cost basis, including items, of $180-205 million, compared with $186 million last year.
Even the 2009 estimate was spun: it’s after the $170 million cost of closing the small refinery in Sydney and associated costs.
Profit comparisons should be before significant or one off items that are not related trading.
Add it back in and Caltex’s own replacement cost profit is $350 to $370 million, before tax.
That’s Caltex’s own version of its profit, based on the so-called replacement cost of its inputs.
But that’s its own invention. Companies operate on historic cost in the real world, and Caltex’s earnings this year will be up, substantially.
The company said on an historic cost basis, after tax profit for 2009 would be in the range of $425 million – $455 million; or $305 million – $335 million after significant items.
The replacement cost profits this year before tax and before the restructuring costs will also be up strongly from last year, but the company didn’t highlight that in its commentary.
Comparing the two profits, the company is trying hard to spin the line that it’s under pressure.
"Global refiner margins remained under pressure in the second half of 2009 because of depressed demand and the expected growth in global surplus refinery capacity," Caltex said in a statement to the ASX.
Excluding items, Caltex expects full-year replacement cost basis profit of $300-325 million.
Caltex said it would shut down a lubricating oil refinery in Sydney as the plant produces outmoded lubricant products.
The closure will result in a one-off charge of $170 million.
Caltex’s refinery margins were also impacted by a higher Australian dollar and firmer crude oil prices.
Refinery margins fell more than 71% in the second half to $US2.60 a barrel, which is understandable given the speedy fall, then rebound in oil prices in the past year, and the impact of the 31% rise in the value of the Aussie dollar so far this year.
Caltex said it was still considering what action it will take over the ACCC’s decision on the Mobil service stations deal and was still in talks with the regulator.
Caltex said it will decide whether to pay a final dividend, depending on the outcome of those talks. The interim dividend was omitted to conserve cash for the Mobil deal.
In yesterday’s statement, Caltex gave no sign of a company under pressure:
"Operational performance across the business remained strong, with no significant unplanned refinery shutdowns during 2009 and, despite the prevailing economic conditions, marketing volumes were maintained in line with 2008.
"The production of high value transport fuels is expected to be around 10 billion litres for the full year 2009.
"As foreshadowed in the half year release on 28 August 2009, the favourable key externalities that were seen in the first half were not repeated in the second half.
"Global refiner margins remained under pressure in the second half of 2009 because of depressed demand and the expected growth in global surplus refinery capacity.
"The higher Australian dollar and higher crude oil prices further moderated the Caltex Refiner Margin.
"The Caltex Refiner Margin has fallen to an average of about US$2.6 a barrel in the second half, compared with an average of US$9.0 in the first half of 2009."
The statement talked about a "Cost efficiency drive":
"Caltex has embarked on a significant cost and efficiency drive in its base business. This drive will deliver major benefits over the next three years.
"Caltex has recognised significant items totalling approximately $170 million (before tax).
"This includes $93 million (before tax) representing amounts for asset impairment and redundancies relating to the planned closure of the Caltex Lubricating Oil Refinery (CLOR) at Kurnell in Sydney.
"CLOR is not viable going forward due to the fact that the plant manufactures outmoded lubricant products and faces declining feedstock sources.
"A decision has been made to close CLOR with further detailed work to be done to determine a precise date for closure," the company said.
