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Operations Report - Fuels and Infrastructure

Fuels & Infrastructure

The success of our Fuels & Infrastructure business is underpinned by the capabilities of our people in managing complex supply chains, our privileged assets and deep customer base, the knowledge of our diverse teams and strong international partnerships.

In 2019, Fuels & Infrastructure continued to deliver its strategy and maintain its position as the leading player in Australian transport fuels. While financial performance was impacted by lower refining margins, softer economic conditions and outages at the Lytton refinery, we maintained our focus on serving our customers, improved efficiency through continuous improvement and delivered projects critical for future growth.

Milestones included the announcement of our intention to open an Ampol USA trading and shipping office in Houston, the launch of an international fuel storage pilot in South East Asia and continued growth in our international businesses. 

  • Total fuel sales volumes increased by 3% to 21.1 billion litres 
  • Announced plans to open an Ampol USA trading and shipping office in Houston
  • Launched an international fuel storage pilot in South East Asia

Financial performance 

Fuels & Infrastructure delivered an EBIT result of $450 million, a decline of 21% on 2018. The result was impacted by softer fuel demand across most customer segments, a negative EBIT impact from the repriced EG Group fuel supply contract, lower refining margins and unplanned Lytton refinery outages caused by third-party power disruptions. Pleasingly, strong underlying performance and continued growth in our international business offset some of these impacts.

The Fuels & Infrastructure EBIT, excluding Lytton, was 7% lower than 2018 at $380 million. However, after adjusting for the negative $47 million EBIT impact from the repriced EG Group contract, the result was 4% stronger than 2018, demonstrating the competitive strength and resilience of our underlying business. Total fuel sales volumes increased by 3% to 21.1 billion litres

The performance of our international business was a highlight, with overall strong performance in Gull and Seaoil. International sales volumes increased by 36% to 4.8 billion litres, underscoring the success of our international growth strategy.

Earnings at Lytton declined by approximately 57% to $70 million and production volumes fell to 5.8 billion litres, despite an improvement in margins and production in the second half of the year.

Growth pathways in trading and shipping 

Ampol Singapore plays a key role in our success, sourcing petroleum products from global markets and leveraging our privileged infrastructure to reliably and efficiently meet the needs of our customers.

Our Ampol Singapore team was first established in 2013. We have continued to expand capabilities to increase opportunities to capture value and sustainably grow long-term earnings, while maintaining our commitment to safe and reliable supply for our customers and partners. This has included expanding countries sourced from and continuing to build our international customer base.

In 2019, we continued our expansion with the announcement that we will establish an Ampol USA trading and shipping office in Houston. We also launched our first international storage position in South East Asia.

The Houston office opening is a strategic initiative that will capitalise on the USA’s unique position in international markets, now being the largest crude exporter in the world and an increasing supplier of product to the Australasian market. This new office will work in combination with our existing team in Singapore to allow Caltex to benefit from sourcing improvements and to investigate new international markets. 

The international storage pilot provides Caltex new flexibility to generate value from blending, storing and re-parcelling products. This new capability will support our ability to supply feedstocks to our refinery, allow us to meet our customers’ requirements and to increase optimisation opportunities in and out of countries adjacent to our supply chains. 

The extension of capabilities also creates a blueprint for further expansion into new locations, products and services. In 2020, we will continue to evolve our international operations, leveraging our existing skills and capabilities to increase volumes and explore opportunities in new geographies.

An emerging player in international markets 

Leveraging our trading and shipping capability to learn about new markets, we have had success with the acquisition of Gull in 2017 and the 2018 acquisition of a 20% stake and establishment of a strategic partnership with Seaoil in the Philippines. 

In 2019, Gull delivered earnings, network and volume growth and Seaoil delivered key growth initiatives. Milestones for Gull included expansion to the South Island of New Zealand and the targeted addition of new retail sites for its established North Island operations. Meanwhile, Seaoil added 86 retail sites, increased its terminal capacity by 85 million litres and grew volume by 9%. 

Caltex’s international businesses have delivered strong financial performance and continue to present attractive long-term growth opportunities both in their respective countries and further across the Asia Pacific. The investments have also enabled the two-way sharing of information to improve the overall performance of our business, including in areas such as optimising supply chains, B2B sales, retail formats, networks, and mergers and acquisitions. In 2020, we will work closely with management teams in each market and leverage our combined capabilities to continue to execute our strategy.

Maintaining our leading position in Australian transport fuels

The heart of our business continues to be the scale of our demand base in Australia and the strong knowledge and relationships we hold across key sectors. While the Australian economy is, and will remain, heavily dependent on transport fuels, our performance was impacted by a tough economic environment in 2019.

Key sectors, such as agriculture, were impacted by worsening drought conditions and a weak economy impacted construction and road transport. This was balanced against strong demand in mining and government, and our diversified customer portfolio has helped our sales volumes remain resilient.

Our focus remains on creating value for our customers and for our business. We continue to leverage the scale of our domestic supply chain, industry knowledge and broad base of customers to defend our position in the domestic market, while remaining disciplined on margin. Australian sales volumes, including to Convenience Retail and to our broader base of Australian wholesale customers, fell by 3% to 16.3BL. Jet fuel volumes declined by 4.7%; however, we remained disciplined on margin over the course of the year. 

In 2020, we will continue to leverage our strengths to improve performance in the Australian business and commercial markets. Our market-leading network creates the confidence that we can successfully and reliably serve the needs of our customers.

Improving our safety performance in 2020

Our personal and process safety performance was disappointing in 2019. While we reduced the severity of personal safety incidents, recordable injuries and days away from work both increased. Similarly, while the number of Tier One process safety incidents was reduced to zero, we had an increase in the overall number of spills against our high standards. 

Our reputation for operating safely is the foundation of our strong relationships with customers and our commitment to employees. In 2020, we will have a strong focus on improving personal and process safety performance. This includes implementing an action plan to reduce the major causes of workplace injuries, which are repetitive and high muscle load manual tasks along with slips, trips and falls.

In addition to the rollout of new training initiatives, where we know injuries occur, we will improve communication to raise personal awareness of safety hazards and increase the presence of leaders in the field to reinforce the right safety behaviours and to receive feedback from our frontline teams. We have also reviewed the causes of spills in 2019 and developed action plans for specific areas of our operations.