A tough ten-year anniversary for Julian Segal
Julian Segal has built an excellent reputation as a CEO getting the best out of highly cyclical businesses, at both Incitec Pivot for four years and at Caltex for the past ten years. It now seems the “cyclical gods” are against him.
Yesterday Caltex announced, “difficult macro-economic conditions, arising from the slowing Australian economy, low refining margins and high crude prices.” Industry sales volumes are down around two per cent compared with the June 2018 half-year.
These factors conspired to see guidance for the Caltex Replacement Cost Operating Profit (RCOP) hit a range of $120m to $140m for the six months to June 2019, and this compares with $296m for the previous corresponding period.
The issue at stake here is the Replacement Cost Operating Profit for the March 2019 Quarter, released on 9 May, was $94m, and therefore the implied guidance for the June 2019 Quarter is down to $26m to $46m, or an annualised 42 cents to 74 cents per share, on 250 million shares on issue.
Despite operating at full capacity of 5.8BL annually, the Lytton refinery was impacted by lower external refiner margins of US$1.84 per barrel, and its contribution for the June 2019 half-year will be negligible, down from $105m at the EBIT line in the June 2018 half-year. The average Caltex Refiner Margin (CRM) for the five months to May 2019 was US$8.22 per barrel (and US$7.82 in May), and this compared with an average of US$10.06 per barrel in the June 2018 half-year.
The other big hit has come from Convenience Retail. Its EBIT line is thought to be around $80m for the June 2019 half-year, half that ($161m) of the previous corresponding period.
This is “due to the impact of a significant increase in crude oil prices on industry fuel demand and margins, and competitive dynamics in the retail fuel market.”
Yesterday, the Caltex share price declined $3.63 or 13.5 per cent to $23.35, a five year low, and this is down 40 per cent from its March 2015 record high of $38.75.