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Operations Report - Fuels and Infrastructure

Fuels & Infrastructure

With capability and scale across the transport fuels supply chain, we have secured our position as the market leader in Australia and become an emerging player in the Asian region.

For more than 118 years we have safely and reliably supplied high quality fuels and lubricants to our diverse customer base. Our capability in product sourcing, our peerless infrastructure and our network assets, coupled with our strong customer relationships, allow us to run an integrated business and drive value from international sourcing through to the wholesale supply of fuels and lubricants.

In a changing and ever-competitive market, Fuels & Infrastructure has transitioned successfully over the last five years from a refiner to create a strong platform for both domestic and international growth. In 2018 we continued to strengthen these foundations, including key achievements such as the retention of our longstanding Woolworths wholesale fuel supply agreement for another 15 years, the execution of our partnership with Seaoil in the Philippines and the continued growth of volumes sourced and supplied by our Ampol team. We also continued to leverage our industry knowledge and strong relationships to continue to build our wholesale fuel supply volumes.

Strong safety performance

Our long history of strong safety performance underpins our commitment to customers and employees. In 2018, Fuels & Infrastructure’s safety performance improved on last year, reflecting our commitment to safe and reliable operations. Our high standards for our safety management systems are brought to life by our leadership team and safety resources located across our business, who work day-to-day with our operational teams and customers to help them stay safe. Our focus on leadership in the field this year translated into fewer recordable injuries and days away from work for our employees and a reduction in spills.

Strong growth in international sourcing and supply operations

Over the last five years we have focused on growing our international fuel sourcing and supply capabilities through our Ampol business in Singapore. Ampol was established in 2013 to source crude and finished products to meet Caltex requirements, leveraging our leading infrastructure positions, such as the Kurnell fuel import terminal in New South Wales, and optimising our supply chain around our refinery in Lytton, Queensland. 

Annual Report 2018 Case Study

Throughout this time, Ampol has grown significantly and now handles over 3 billion litres of international volumes each year. Our scale in key Asian markets allows Ampol to capture value by sourcing product directly, and as the largest importer into Australia, with growing supply volumes to other markets around the world, Ampol is a strategic customer for virtually every exportfocused refiner in Asia and globally.

This trading and shipping expertise has been built from scratch using the broad base of industry knowledge in Singapore and across Caltex. This homegrown capability is evidence of the transition strategy that has been successfully executed since the closure of the Kurnell refinery in 2014 and of Caltex’s ability to transform to deliver growth. Caltex is now the largest importer of fuel products into Australia and the capabilities of Ampol and from across Fuels & Infrastructure provide a platform for international growth. Our investments in Gull New Zealand and in Seaoil in the Philippines, which have both performed strongly in 2018, are the first examples of this strategy.

Lytton refinery continues to perform well  

Our Lytton team continues to produce around 35% of the fuel sold by Caltex and represents a major centre of technical expertise critical to deliver core earnings. While earnings and volumes through Lytton were down in 2018, impacted by a lower Caltex Refiner Margin and an unplanned outage in October, Lytton’s operating performance continues to be strong. Our focus on reliable and efficient operations and high value products, plus optimisation across our Fuels & Infrastructure business, has allowed us to continue to produce at record levels over recent years and with reduced earnings volatility. This has helped transform Lytton into a solid driver of earnings and an important part of our value chain.

In 2018 we commenced execution of our renewed Lytton turnaround and inspection (T&I) strategy replacing large, site-wide, multi-year events with annual events of reduced scale. This approach will smooth cash flow impacts and reduce safety, execution and margin risks.

The activity in 2018 delivered successful outcomes across all key metrics, including on safety, quality, schedule compliance and cost. We are committed to continuous improvement in the operation of Lytton and have also made modest investments, such as modifications to crude unit pre-heat and distillation capacity, to improve plant utilisation, throughput and margin capture.

Leveraging our advantaged infrastructure and improving wholesale customer volumes and relationships

The heart of our business is the scale enabled through our strong demand base in Australia. The Australian economy is, and will remain, heavily dependent on transport fuels for mining, shipping, transport, agriculture and industrial purposes.

In 2018 we continued to leverage the strength and scale of our integrated network to drive earnings value growth through the safe and reliable supply of fuel to Caltex-owned retail sites and our B2B customers.

Our strategic focus remains on maximising the value from our infrastructure position, and our Kurnell terminal – the largest product import terminal in Australia – is just one of our advantaged distribution assets in New South Wales, which is Australia’s largest state for fuel imports.

In 2018 we successfully defended and grew domestic business and commercial volumes by steadfastly defending our market position through the strength of our assets and through our industry knowledge and relationships. Overall, wholesale fuel volumes increased by approximately 4% to 12.1 billion litres. Excluding supply to Woolworths, our wholesale fuel volumes increased by 10%, which is above market growth and was achieved through strong performance in diesel and jet fuel.

The key highlight was the retention of the Woolworths fuel supply contract which was renewed for a further 15 years. Securing this fuel volume will allow us to make the right long-term decisions to further optimise our domestic supply chain.

By combining our supply chain capability in Fuels & Infrastructure with our strong Convenience Retail network, we achieve scale, volumes and brand credibility; which underpins our leading fuel card offer, StarCard. We have longstanding and trusted relationships with our broad base of end customers across major Australian industries and we’re known for our track record of supplying high quality fuel safely and reliably combined with local support.

Longer term the Australian business and commercial customer markets are less prone to disruption from emerging alternate transport solutions given the dominance of heavy vehicles in key sectors. We will continue to grow our sales volumes, and we believe that commercial diesel and aviation markets are both expected to see growth over the medium term.

International expansion is enabling growth  

In 2018 we focused on expanding our network and supply chain internationally to enable future growth, leveraging our scale and capability foundation.  

We are delighted with the performance of our acquisition of Gull, a challenger brand in the North Island of New Zealand. In 2018, Gull has grown earnings and fuel volumes, continuing to grow its network and customer base.

Our strategic partnership with Seaoil, an independent fuel company in the Philippines, also commenced in 2018, with Ampol now supplying wholesale fuel to Seaoil operations and Caltex holding a 20% equity interest in the business. Our investment in Seaoil has performed strongly in 2018. The Philippines is a fast growing, deregulated and short market and the partnership provides an opportunity to transfer capability from Caltex’s existing strengths in managing complex supply chains.

These investments provide a platform for growth, giving us access to fast growing assets and allowing us to capitalise on synergies from supply chain integration and to further capture value through growth in fuel supply volumes. 

Focused on execution in 2019

Fuels & Infrastructure is a strong and efficient business that continues to deliver strong cash flow and earnings for Caltex. In 2019 we will continue to run our business safely, reliably and competitively to deliver continued earnings growth.

The focus for Fuels & Infrastructure will be on further optimising the performance of Lytton, growing Australian wholesale fuel volumes above market growth rates, extracting further benefits from our international investments and increasing international supply volumes.