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Caltex back in black - shares rally on good oil

26 Feb 2013 THE AGE
BY BRIAN ROBINS


HOPES of freeing up cash after the Kurnell refinery closes helped to buoy shares in refiner Caltex Australia, after the group returned to the black for 2012, amid rising demand for premium fuels.

Caltex earned a net profit of $57 million in 2012, as its ailing Kurnell refinery broke even ahead of its planned closure late next year. In 2011, Caltex lost $714 million.

The profit was after making a $309 million provision for the closure of Kurnell, while in 2011 it took a $1.1 billion write-down in the value of this asset.

Investors welcomed the turnaround, with Caltex shares rallying 43¢ to close at $18.67 on Monday, recouping some of its recent losses.

Despite the profit, Caltex cut the final dividend to 23¢ from 28¢ a share, trimming the annual payout to 40¢ from 45¢. It has decided to reduce to 20 per cent from 40 per cent the dividend payout ratio to fund the Kurnell closure and refit the site as an import terminal.

In the year, earnings per share were 21¢, after a loss of 264¢ in 2011. Revenue rose to $23.3 billion from $22.1 billion. All of the refining division's profit was generated by the Lytton refinery in Brisbane, with Kurnell only breaking even, the company said, after taking into account the provisions made for its planned closure.

Caltex has flagged a significant freeing up of capital once the Kurnell refinery is closed, since this will remove the need for about $75 million of ongoing capital spending undertaken at the refinery annually in recent years.

Additionally, about half of its crude oil is imported from west and north Africa, which requires several weeks at sea. Following Kurnell's closure in 2014, the bulk of the crude oil and refined oil product will be sourced from Asia, which needs only several days of sailing, and hence will tie up less money. This will free up a further source of capital, the company told analysts.

"Lytton makes good money," the company's chief financial officer, Simon Hepworth, said. "Kurnell struggles to make a contribution to the bottom line." As much as 13 per cent of Kurnell's output is in either low margin or unprofitable products, such as naphtha, which would require significant investment to change, he said.

The year was also a good one for Caltex managing director Julian Segal, who pocketed $5.3 million in total remuneration, up from $4.6 million received in 2011.

The company is targeting growth of 5 per cent annually in pre-tax profits from its key marketing and distribution activities.

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