Petrol sales fall up to 50pc, as Caltex considers asset sale
Petrol sales have been slashed by COVID-19 restrictions, says Caltex, as it considers a trade sale of its retail sites.
Caltex says some of its marginal petrol station sites could be forced to shut after COVID-19 cut sales by up to half, with the fuels retailer bringing forward the closure of its Lytton refinery for maintenance to address cash flow issues.
Petrol sales have fallen between 30-50 per cent on 2019 volumes since stage two and three coronavirus restrictions were implemented in late March, while diesel use is down 10-30 per cent.
Caltex could be forced to close some sites if volumes continue to deteriorate, with the company weighing a range of scenarios across its 1900-site network.
“Clearly a number of sites right across the industry are going to be challenged as we move through these sorts of demand destruction numbers,” acting chief executive Matt Halliday said. “The whole industry will be pulling response levers to take cost out to continue to operate and it will be extremely challenging for a number of sites. We understand our role as an essential service but equally we need to make sure we are making the necessary decisions to preserve the cash flows of the business.”
Its Lytton refinery in Brisbane will be shut down for maintenance from May from its original July target, with steep falls in global fuel demand impacting refining conditions as the coronavirus takes hold. Weak refiner margins have created operating cash flow challenges at Lytton. Its cash break-even is typically between $US4 and $US5 a barrel compared, with $US4.14 a barrel in February.
Caltex had already flagged a 80-90 per cent fall in demand for jet fuel as airlines shut most of their capacity due to travel restrictions. The company has $2.7bn of debt and $1.5bn of undrawn facilities and cash on hand.
“Clearly with demand destruction in gasoline and jet fuel in particular, which make up a significant proportion of our refinery production, our margins have been challenged and will continue to be challenged in the coming months,” Mr Halliday said. “That’s why it’s prudent to make the decision that we have.”
Amid market volatility, Couche-Tard’s $8.8bn takeover offer for Caltex still remains a live process, with the Canadian suitor expected to wrap up due diligence later in April.
“The teams are doing a good job of conducting due diligence under these circumstances through video conferences and phone calls,” Mr Halliday said. “The due diligence will come to a conclusion in the coming weeks so that we can establish the pathway forward.”
With Caltex’s shares still about 30 per cent off Couche-Tard’s offer price of $35.25, there’s significant uncertainty over whether a deal would still be entertained in the current market.
Caltex continues to prepare a $1bn property sharemarket float containing a half stake in 250 of its retail sites and is now also looking at a potential trade sale alternative after being approached by buyers.
“We have seen a range of interest come through from other parties looking to do something on a trade sale basis so we’ll look to engage on both tracks as we go forward,” Mr Halliday said. “We continue to see the IPO path as being attractive. It means we have a market out there every day in terms of the value of the property that we’d continue to hold. But equally it makes sense to fully explore how we can maximise value and if that’s through a trade sale that’s how we’ll do it.”
Spending in 2020 will be lowered to $250m from a prior $300m target following a review of its aviation business and deferral of capital investments.
RBC said a “hunkering-down approach” had been adopted for Lytton which was sensible.
“While demand for most of its products (ex-wholesale diesel) continues to take a significant hit from COVID-19 related demand pressures, we believe that these are predominantly short-term issues that Caltex will be able to work through over time,” RBC analyst Ben Wilson said.
Caltex shares rose 6.6 per cent on Monday to $24.51.
