Strategic Management Accounting of Caltex Australia Limited

This report analyses the strategic management accounting of Caltex Australia Limited, including its value chain analysis, Porter's Five Forces Model, external stakeholders, and performance measurement. The report also includes the company's vision, mission, goals, and objectives.

Running Head: Caltex Australia Limited
STRATEGIC MANAGEMENT
ACCOUNTING

Caltex Australia Limited 1
Executive Summary:
Caltex Australia Limited is one among the leading corporations of the Energy sector of
Australia. This report sets out the vision, mission, goals and objectives of the business of
Caltex. As a part of this report the company’s value chain analysis will be undertaken to
create a better understanding of company’s business. Further, the analysis of all the forces
that influences the performance of the company is undertaken in the further section of the
report is undertaken. This analysis has been undertaken in accordance with the porter’s five
forces model. Further, the external stakeholders of the business are identified as government,
suppliers, customers, finance providers etc. The annual report of Caltex has also been
reviewed to identify the performance measures of the company and RCOP (NPAT), total
shareholder’s return, Convenience retail measure etc.

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Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................4
Part A: Value Creation...............................................................................................................4
1. Value: Diagram of Value Chain Analysis of Caltex Limited.........................................4
2. Vision and Mission of Caltex..........................................................................................6
3. Goals and objectives of Caltex........................................................................................6
Part B: Strategic Management:..................................................................................................7
1. Porter’s Five Forces Model.............................................................................................7
 Threats of the new entrants:........................................................................................8
 Bargaining Power- Suppliers:......................................................................................8
 Bargaining Power- Customers:....................................................................................8
 New Substitute product’s threat:.................................................................................9
 Threat of rivalries:.......................................................................................................9
2. External stakeholders of Caltex:.....................................................................................9
Part C: Performance Measurement:........................................................................................10
1. Performance measures..................................................................................................10
2. Reward system of top executives..................................................................................11
Conclusion:..............................................................................................................................12
References................................................................................................................................13

Caltex Australia Limited 3
Introduction:
Caltex Australia is a company that is listed on the Australian Stock Exchange. Headquarter of
the company is located in Sydney, Australia. The company was incorporated in the year 1900
(Caltex, 2018). Caltex deals in petroleum products and as a part of its business it is engaged
in purchase, refinement, selling and distribution of petroleum products across the Australian
country as well in other countries like New Zealand and Singapore. The company operates
through various segments such as supply & marketing segments, Lytton Segments (Caltex,
2017).
Part A: Value Creation
1. Value: Diagram of Value Chain Analysis of Caltex Limited
Inbound
Logistics
Operations Outbound
Logistics
Marketing and
Sales Service
Distribution of
Petroleum
Product
Refining of
Petroleum
Products
Warehousing
Shipment
Customer
value,
convenience
retailing
Customer
Service
Primary Activities
Procurement Technological
Development
Human
Resource Infrastructure
Secondary Activities
Purchasing
raw material
Product
Design
R&D
Recruiting,
hiring, training
General
management
Finance

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Value chain analysis:
It is the strategic management technique that can be used to analyse the internal activities of
the company. The activities of the firm are primarily classified as primary and support
activities (MBA Skool, 2018). These activities are discussed in details further:
Primary activities: These activities are undertaken to create and sell the product or service.
 Inbound logistics: These processes are concerned with procurement and storage of
inputs required for the business.
 Operations: These are the processes that are used to convert the inputs i.e. raw
materials into the final products.
 Outbound logistics: These are the processes that are implemented to collection and
storage of the final products.
 Marketing & Sales: These processes are used to persuade the customers of the
company and to distribute the finished goods in the market.
 Service: These services are the after sales services provided to maintain the value of
product of the company.
Support Activities: These activities are undertaken to support the primary activities of the
business.
 Procurement- This is related to the activities performed by the organization to arrange
the resources it require to operate. It comprises negotiating the best price and
identifying the vendors.
 Human Resource Management- This step of Value chain analysis talks about how
organization hires, motivates, retains, recruits, rewards, and trains. Human are one of

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the essential source of value, so, organizations can gain a competitive advantage with
effective practices of HR.
 Technological Development- These types of activities are associated with the
processing and management of information, along with protecting the knowledge base
of the company.
 Infrastructure- Infrastructure is the support systems of the company, and the functions
that permit it to manage the day-to-day operations.
2. Vision and Mission of Caltex
Vision:
Caltex Australia Limited has the vision to become the most leading oil refining company in
the Australian market. Also, the company aims to evolve as the convenient market place for
the delivery of fuel as well as other daily needs products of the customers of the company
through its supply chain networks (Caltex, 2018).
Mission Statement:
The mission of the Caltex Australia Limited is to supply and to distribute the fuel as well as
lubricant products to various sorts of market i.e. the industrial market, rural market and retail
market by emphasising on the service that is designed to broaden the market share of the
company and to increase the overall profitability of the business while maintaining a good
relationship with its customers (Crokers, 2016).
3. Goals and objectives of Caltex
Goals:
The goal of Caltex Australia Limited is to operate its business in such a way that it can
minimise the severe negative impact of the business on the environment as well as the

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communities in which Caltex is operating and to become the market leader in the area of
distribution of petroleum and other energy consumable products.
Objectives:
 To achieve strong and sustainable profitability of the business through the brand
leadership
 To manage the cost of the business by reducing the unit costs of the products through
the implementation of innovative techniques and technologies and the improvement in
the work processes (Operational Report, 2015).
 To achieve the capital stewardship by way of investing in the project opportunities
that are best for the company and to execute such opportunities in such ways that
provides the company a strong competitive advantage over other firms of the industry.
 To achieve the operational excellence of the business through safe and reliable
operating practices that are environmental-friendly
To connect with the employees and various other stakeholders of the business by adopting the
theory of stakeholder engagement and by building such relationships with them that are
mutually beneficial (IBIS World, 2017) .
Part B: Strategic Management:
1. Porter’s Five Forces Model
One of the key tools of strategic management that is used to analyse the industry and the
forces that surrounds the industry is Porter Five Forces Model. The said model acts as the
comprehensive framework that supports strategic decision making for the company. The
managers of Caltex can also adopt this model to understand and analyse all the underlying

Caltex Australia Limited 7
forces of the w industry in which the company is operating its business. The use of Five
Forces model will allow the top management of the company to formulate such strategy that
will provide the company a competitive edge over other rival firms of the industry and it will
also contribute positively to the long term profitability.
 Threats of the new entrants:
This type of risk arises when it is easy for the new firms to enter into the energy industry in
which Caltex is operating its business. However, there are stringent barriers to the entry of
new firms in the energy industry for Australia. Also, the firms in this industry require strong
distribution channels which are not affordable by everyone. Even the customers of the
industry are quite loyal with the existing brands and hence it is not easy for the businesses to
enter in this sector. Hence risk of new entrants is low.
 Bargaining Power- Suppliers:
There are certain raw materials that are consumed in the energy sector which are supplied by
almost all of the vendors of the industry and for such raw materials the bargaining power of
the suppliers is low. However, there are certain products such as petroleum, diesel, auto-gas,
lubricant stores which are not easily available with all the suppliers of the energy industry
and in such cases the bargaining power of limited suppliers is high.
 Bargaining Power- Customers:
Buyers of this industry are generally quite price and quality sensitive and this could impose
high pressure on the company. If there are limited customers of energy products in the market
the bargaining power of such customers increases and they become more powerful to seek for
discounts from the company. However, it is generally observed that the Caltex is engaged in

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the business of petroleum products, oil products and other products of convenience stores that
are consumed on the routine basis and by almost every class of the society and it can be said
that the customers under this industry covers a wide base and hence they do not have the
privilege of negotiating for the prices. Thus the bargaining power of the customer is low.
 New Substitute product’s threat:
When an alternative product of the Caltex’s product is introduced in the market which has the
potential of the satisfying the needs of the customers of the market at the same level as is
done by the products of Caltex, the risk of substitute takes place. There are fewer substitutes
of products and services of Caltex and hence the risk of new substitute is less. However, for
convenience stores where daily consumables are sold, risk is high because of easy availability
of substitutes.
 Threat of rivalries:
There are fewer firms in the energy industry of Australia that are giving competition to the
business of Caltex Limited. The major competitors of Caltex Ltd. are Ford Motor Company,
Cenovus Energy, Mazda Motor Corporation etc. Hence, the threat from the rivalry firms in
the energy sector of Australian economy is low (Fern Fort University, 2018).
2. External stakeholders of Caltex:
The external stakeholders are those parties that are associated with the company and are
present in the external environment of the business. The governmental bodies which regulates
the energy industry forms the key stakeholders of the company. Example: Australian
Competition and Consumer Commission. The other external stakeholders of the business are

Caltex Australia Limited 9
its customers, suppliers, competitors, providers of finance such as banks and other financial
institutions, shareholders etc. (Real World Drive, 2017). As these parties are not directly
involved in the business operations of the company they are regarded as the external
stakeholders of the company.
Part C: Performance Measurement:
1. Performance measures
Performance measures are the standards against which the performance of the company is
measured. These are generally the quantifiable indicators that are used to determine as how
well the company is performing its operations and functions towards the achievement of
desired objectives. The performance measures of Caltex Limited for the financial year 2017
are derived from current year’s business plan of the company. These measures have been
identified in line with the Board’s direction. Following performance measures have been
identified in the annual report.
 The primary performance measure for the short term incentives is the RCOP NPAT
(Replacement cost of sales operating profit (RCOP) NPAT as this element eliminates
the impact of gains and losses related to the inventory and hence gives the true
indication regarding the company’s underlying financial performance.
 Another performance measure that have been identified in the annual report of the
company for long term incentives are the total shareholder’s return, strategic growth
measure and the strategic convenience retail measure.
 The relative TSR measure is evaluated as against the comparator group of the ASX
100 companies. This performance measure of the company has been weighted at 60%.

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 The strategic growth measure of the company is weighted as 20%. The return on
average funds employed (RoAFE) is measured as Profit Before Interest and
Tax/Average Funds Employed. The RoAFE is included as the strategic growth
measure in order to ensure that the executive members of the board are rewarded only
in the situation when Caltex Limited has invested in appropriate projects and has also
created the value for its shareholders.
 Convenience retail measure is used to gauge the implementation of convenience
strategy of Caltex. This measure is also weighted as 20%. The board of the company
will assess this measure through quantitative as well as qualitative metrics which
includes:
 A customer metric that uses the net promoter score methodology
 An average percentage of sales uplift for each store and
 The rollout of the new format throughout the new and existing Calstores
network.
2. Reward system of top executives
The top executives of the company are its Managing directors and Chief Executive Officers,
Senior Executives, non-executive directors etc. The STI opportunity of the MD’s and CEOs
will increase by 10% from existing 60% of the basic salary. Further, EGM Fuels &
Infrastructure will receive the hike of 13.8% in their fixed remuneration in the year 2018. For,
the other senior executives the STI opportunity will increase from 50% to 60% of their total
base salary from the year 2018 and onwards. The base fees of the non-executive directors will
increase in 2018 by 2%. The Audit and Human Resources Committee Chairman will receive
an increment of $10,000 in their sitting fees along with this the OHS & Environmental Risk

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Chairman will be receiving an increment of $4,000. Further all the committee members will
receive the hike of $ 2000.
Conclusion:
From the above report it can be concluded that Caltex Australia Limited is a leading dealer of
petroleum and other consumables goods of the humans. The company is operating
successfully through its overall strategic and ethical policies. As the energy sector of
Australian economy is quite developed, there are various opportunities and threats available
to the company in the market.

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References
Caltex (2017) About Caltex [online]. Available from
http://microsites.caltex.com.au/annualreports/2017/ [accessed 7 September 2018]
Caltex (2018) Our Vision [online]. Available from
http://microsites.caltex.com.au/annualreports/2007/caltex/4060_CaltexsVision,ValuesandStra
tegicIntents.html [accessed 7 September 2018]
Fern Fort University (2018) Caltex Australia Limited Porter Five Forces Analysis [online].
Available from http://fernfortuniversity.com/term-papers/porter5/asx/454-caltex-australia-
limited.php [accessed 7 September 2018]
MBA Skool (2018) Caltex Australia SWOT Analysis, USP & Competitors [online]. Available
from https://www.mbaskool.com/brandguide/energy/8149-caltex-australia.html [accessed 7
September 2018]
Caltex (2018) Our Company Proudly fuelling Australia since 1900 [online]. Available from
https://www.caltex.com.au/our-company [accessed 7 September 2018]
Crokers (2016) Mission Statement [online]. Available from
http://www.crokers.com.au/index.php/homepage/mission-statement [accessed 7 September
2018]
Caltex (2017) Vision and Mission [online]. Available from https://caltexec.co.za/vision-and-
mission/ [accessed 7 September 2018]
(Caltex, 2017)

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Caltex (2018) Products and Services [online]. Available from
https://www.caltex.com/ph/motorists/products-and-services.html [accessed 7 September
2018]
(Caltex, 2018)
Caltex (2018) Corporate Governance [online]. Available from
https://www.caltex.com.au/our-company/investor-centre/corporate-governance [accessed 7
September 2018]
Real World Drive (2017) Caltex retailers become explicit stakeholders for the latest Fuel
Your School initiative [online]. Available from
https://realworlddrive.wordpress.com/2017/06/30/caltex-retailers-become-explicit-
stakeholders-for-the-latest-fuel-your-school-initiative/ [accessed 7 September 2018]
(Real World Drive, 2017)
Operational Report (2015) Delivering On Our Strategy [online]. Available from
http://microsites.caltex.com.au/annualreports/2015/files/OPERATIONAL%20REPORT.pdf
[accessed 7 September 2018]
(Operational Report, 2015)
IBIS World (2017) Overview [online]. Available from
https://www.ibisworld.com.au/australian-company-research-reports/manufacturing/caltex-
australia-limited-company.html [accessed 7 September 2018]