Caltex back in black as Kurnell's end nears

CALTEX AUSTRALIA'S shares rallied strongly on Monday after the oil refiner reported a return into the black for 2012, due to a combination of rising demand for premium fuels and hopes that next year's closure of its ailing Kurnell refinery will free up some cash flow.

Caltex earned a net profit of $57 million in 2012, as the Kurnell refinery broke even ahead. In 2011, Caltex lost $714 million.

The profit was after making a $309 million provision for the closure of Kurnell. In 2011 Caltex took a $1.1 billion write-down on that asset.

Investors welcomed the turnaround, with its shares rallying by 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 lower the dividend payout ratio from 40 per cent to 20 per cent to fund Kurnell's 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 the refining division's profit was generated by the Lytton refinery in Brisbane, with Kurnell only breaking even, after taking into account the provisions made for its planned closure, Caltex said.

Caltex has signalled a significant freeing up of capital once Kurnell is closed, since this will obviate the need for about $75 million of annual capital spending on the facility.

Additionally, about half of its crude oil is imported from west and north Africa, which requires several weeks' passage at sea.

After Kurnell's closure next year, the bulk of crude oil and refined oil product will be sourced from Asia, which needs only several days' sea transportation and hence will tie up less money.

This will free up another source of capital, the company told analysts on Monday.

"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 naptha, and this would require significant investment to change, he said.

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

The company is targeting growth of 5 per cent a year in pre-tax profits from its main marketing and distribution activities, with earnings expected to be much less volatile when Kurnell is closed.