Business Development Report: Caltex Australia Company Analysis

This report provides an in-depth analysis of Caltex Australia, a key player in the petroleum industry. It begins with an introduction to the industry, highlighting Western Australia's dominance in oil production and the significance of refineries like Lytton and Kwinana. The report then focuses on Caltex Australia, detailing its operations in refining, wholesale, and retail, including its extensive network of StarMart fuel stations. The analysis explores the company's strengths, such as its successful StarMart operations and diverse business solutions, including telematics and fuel retailing. It also addresses criticisms, particularly the company's reliance on Woolworths for retail revenue and broker concerns regarding capital management. The report concludes with an assessment of Caltex's financial and non-financial performance, emphasizing the strategic importance of StarMart and the need for improved financial disclosures, offering insights for investors and brokers.

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Contents
Introduction to the industry.............................................................................................................3
Caltex Australia...............................................................................................................................4
One aspect company excels in.........................................................................................................5
Another aspect company excels at...................................................................................................5
One aspect company faces critcism for...........................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction to the industry
Caltex Australia belongs to the industry of refining and selling of the petroleum industry. While
observing the news articles it can be observed that Western Australia tends to be the leading oil
producing state and it has surpassed the records of Victoria. As per the current facts and figures it
can be stated that Western Australia currently produces 71% of Australia's crude oil and
condensate. As per the image below it can be sate that the Australian major market share is
covered by Cooper basin and there are so many refineries that like Lytton and Kwinana refinery
to export the refined oil (White, 2016). Caltex is one of the companies that holds the major share
in terms of the oil and refining industry in comparison to the other companies.
As per the image below it can be found out that the majority of the oil is consumed by the road
transport which eventually strengths the strategy of the company to open StarMart Fuel station.

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Caltex Australia
Caltex Australia limited is one of the renowned companies known for deriving the revenue from
refinement, wholesale and retail of petroleum. Currently the company is operating in Australia
and working with the team of 6600 employees and expanded its operations of the business in
Singapore and New Zealand. With more than 620 stores and 320 franchisees, the corporate head
office of Caltex is situated in Sydney (Caltex Australia, 2018).
The major activities that the company is involved in are the supply and marketing of petroleum
and other similar products. In terms of the infrastructure and fuels, Caltex mainly sources the
crude oil from the global market and continues to operate in Lytton, Queensland (White, 2016).
Caltex also initiated the concept of the retail business which indicates the operation of the service
stations such as StarMart one of the biggest fuel stations that is available to provide freshly
brewed coffee and a convenient meal. It is like all facilities under one umbrella. The current
profit after tax saw a jump in comparison to the previous year by 18%. The net profit after tax as
$621 million and the same was more than the previous year which was $521 million which

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emerged from the strong market performances. As a result the position created a surge in the
transport fuel margin of $1,188m vs $1,066m in 2016 (Reuters, 2018). Lubricants and Specialty
fuel are the major drivers in increased profits. Not only this the profits increased to 13% which
are majorly used for clearing out the expenses of operating nature.
One aspect company excels in
Few of the aspects which Caltex excels in is to continuously drive the business with the help of
the side operations such as StarMart one of the leading fuel station that caters the users with
extensive food benefits. This also gives a competitive advantage as Meal Deals save customers
up to 30% on meals throughout the day keeping the customers happy (Reuters, 2018). Due to
such feedback and response from the side of the customer the company walked with the ideology
of making more than doubled Meal Deal sales year-on-year. The store is convenient in many
ways such as selling the products and services. The glimpse of such products and the services are
fresh coffee and delicacies from bakery, bagged ice, certain grocery items, StarMart bread and
milk. These products are available readily and easily (Insider Retail, 2018).
Another aspect company excels at
Another aspect that Caltex excels is in offering the other business solutions such as refueling of
the vehicles on-site, telematics, hydrocarbon management, fuel retailing, and engineering

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consulting pertaining to coolant, soil remediation, grease, oil and national marine refueling. With
the help of the Star Card introduced for making the payment at every level is also a great
initiative taken by the company which implies the strong game of the company. The company is
also involved in reselling depots and a national truck network across Australia to create a new
business solution (Caltex Australia, 2018).
One aspect company faces critcism for
One of the aspects that are crazy from the side of Caltex Limited is that for earning revenue
through the retail businesses the company is dependent on Woolworths. Another aspect that
Caltex is criticized for is by the Brokers who were disappointed that Caltex Australia (CTX)
failed to excel in the area of the capital management whereas there were ample amount of the
earnings. First half results revealed operating earnings (EBIT) of $443.4m, at the lower end of
guidance, and the market is now dissecting the outcome of the asset review and the future look of
the business. The short shift of the company from a franchise to a corporate model is opaque and
unclear as majority of the costs showcased the flagged results. Since the contract with
Woolworths is fallen for re-pricing along with the extremist turbulent retail conditions and the
expensive costs of the fuel (Standen, 2017).
Earnings may have vouched a flat movement at the apex level on the contrary the fuels &
infrastructure sector saw a growth of 9% and this resulted in the decline of Lytton earnings by -
30% due to a lower refining margin. This situation is quite under appreciated by the market and
the other factors prevailing in the market. Due to such situation them mindset of the brokers
speaks of the irrelevant discount applied by the company that is truly not reflecting the feasible
position of the company. Hence, this sector shall be closely analyzed in the second half, as there

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is no clarity of the costs of the transitions, and downgrades to Neutral from Outperform (FN
Arena, 2018).
Conclusion
After the in-depth investigation it can be stated that the Caltex Star Mart is performing smoothly
in terms of the financial aspects and while considering the non-financial aspects the company is
providing the services and catering the needs of the customers of the regional areas as well. As
per the current scenario the net profit is more yet the earnings are not utilized in the professional
manner. The overall strategic decisions are made not only on the basis of the financial statements
but also through the non-financial aspects. The introduction of such facility resulted in grabbing
the greater market share. Hence, StarMart continues to be the top favorites of Caltex while
keeping the customer satisfaction and solving their voice gives the key potential to the company.
This also concludes that the company is performing well yet the disclosure of the false earnings
in the form of the discount of core concern form the company’s end. From the point of view of
the investors and the brokers the investment shall be done for the long term purposes.

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References
Caltex Australia, (2018) Annual report [Online] Available from https://www.caltex.com.au/our-
company/investor-centre/annual-reports-and-reviews [Accessed on 19th January 2020]
FN Arena, (2018) Challenges Ahead For Caltex [Online] Available from
https://www.fnarena.com/index.php/2018/08/30/challenges-ahead-for-caltex/ [Accessed on 19th
January 2020]
Insider Retail, (2018) Caltex leans on Woolworths to drive retail growth [Online] Available from
https://www.insideretail.com.au/news/caltex-leans-on-woolworths-to-drive-retail-growth-
201811[Accessed on 19th January 2020]
Reuters, (2018) Caltex Australia Limited [Online] Available from
https://www.reuters.com/companies/CTX.AX [Accessed on 19th January 2020]
Standen, C., Crane, M., Collins, A., Greaves, S. and Rissel, C., 2017. Determinants of mode and
route change following the opening of a new cycleway in Sydney, Australia. Journal of
Transport & Health, 4, pp.255-266.
White, G., (2016). Changes in Australian paving-grade bitumen: are they real and what should
Australia do about it. In 27th ARRB Conference, Melbourne, Victoria, Australia (pp. 16-18).