Caltex to end franchise system as annual profit edges higher

Caltex will spend up to $120m buying out franchisees to have only company-owned service stations, as profit edged higher.

Caltex Australia CEO, Julian Segal. Pic: AAP

Fuel retailer Caltex Australia will spend up to $120 million buying out its franchisees to have only company-owned service stations by 2020.

Caltex made the announcement alongside its full-year profit result, that was largely in line with guidance, and after a two-year review into its convenience retail model.

Franchisees operate 433 sites and the company currently operates 314 sites, up from 152 sites a year ago.

“Caltex aims to transition all retail franchise sites to company operations by mid-2020,” the company said in a statement.

Total costs of the store conversion are estimated to be around $100 million to $120 million over the next three years.

This includes money for franchisees who agree to a reduced tenure and acquisition of working capital and fixed assets.

Caltex has rolled out 26 of its new format “The Foodary” pilot stores that offer healthy food on-the-go and convenient services like parcel pick-up and dry cleaning.

It came as Caltex said annual profit inched higher despite a strong rise in revenue, held back by one-off costs.

Net profit was up 1.5 per cent at $619.1 million in 2017 from $US609.9 million the year before, slightly below a target laid out by the transport-fuels company last December.

The result included a $14 million one-time loss as a profit on the sale of a fuel-oil business was offset by restructuring costs and a fund set up for franchisee assistance.

On a replacement cost-of-sales basis, and before one-time items, earnings were 19 per cent higher at $621 million, slightly above the top end of the company’s guidance range. The measure, favoured by the refinery industry, seeks to smooth out movements in oil prices.

Revenue for the year was also 19 per cent higher at $21.42 billion from $17.94 billion.

The company (CTX) said it would pay a dividend for the second half of the year of 61c a share, a 17 per cent increase on last year, taking the full-year payout to $1.21.

Caltex — which manufactures and supplies a range of fuels, oils and greases, with more than 1900 gas stations across Australia — has pushed abroad in recent years even as it has faced competition in Australia. At the end of 2016, it agreed to buy Gull New Zealand to give it a foothold in the country’s north with a fuel-import terminal and chain of retail outlets. Then late last year it moved to buy a stake in, and become a supplier to, Seaoil Philippines Inc., one of the largest transport-fuel marketing companies in the Philippines.

In Australia, a supply pact between Caltex and Woolworths won a reprieve after the country’s antitrust regulator in December blocked plans by BP to buy the retailer’s network of gas stations.

With the New Zealand acquisition, and another deal to pick up a portfolio of gas stations in Australia, the Sydney-based company’s net debt climbed to $814 million at the end of December from $454 million a year earlier. The company said it remained committed to a “BBB+” credit rating.

In August, the company moved to split its operations along two lines, fuels and infrastructure and a separate convenience-retail business.

Today it said it had determined it could better grow its retail division if it controlled the core business, which would mean pulling out of franchise arrangements for retail sites.

Caltex said it further expected to complete a review of alternative ownership structures for its assets by mid-2018.

AAP, Dow Jones Newswires