Ampol Limited · ASX:ALD
Ampol — Caltex Australia — Investor Day (October 2018)
78 slides from Ampol's investor day presentation, Oct 30, 2018
Slide 1: Caltex Investor Day
Caltex Investor Day 30 October 2018 30 October 2018
Slide 2: Caltex brands
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Slide 3: Welcome and Introduction
3 Welcome and Introduction Julian Segal MD and CEO
Slide 4: Safety of our people and customers is our top priority
4 Safety of our people and customers is our top priority Caltex’s lengthy history of safety and reliability underpins our commitment to our customers and employees Fuels and Infrastructure Personal Safety Process Safety 10 12 8 10 8 6 6 4 4 2 2 0 0 2015 2016 2017 2018 H1 20181H 2015 2016 2017 2018 H
Slide 5: Welcome and Introduction; Group financial guidance and outlook
5 Welcome and Group financial Introduction guidance and outlook Julian Segal Simon Hepworth MD and CEO CFO Fuels & Asset Convenience Infrastructure optimisation Retail Louise Warner Alan Stuart-Grant Richard Pearson EGM Fuels & EGM Strategy EGM Convenience Infrastructure Retail
Slide 6: We are proud of the transformation we have already achieved
6 We are proud of the transformation we have already achieved and will continue to evolve successfully In fuels, we have secured our position as the market leader in Australia and become an emerging player in the Asian region, as well as commencing our journey on convenience retail FIVE YEARS AGO TO
Slide 7: Caltex is the leading Australian transport fuel company
7 Caltex is the leading Australian transport fuel company, which has successfully embarked on its regional expansion, and is progressing well with its convenience retail growth strategy Our strategy is to build and monetise capability and scale across the fuels and convenience value chain, to maximi
Slide 8: We are strong across the entire value chain
8 We are strong across the entire value chain Our strategies across the business are focused on delivering integrated value and growth across the chain Developed Record Advantaged Retained scale KEY Creation of new formats production national and customer SUCCESSES Ampol and volumes position relatio
Slide 9: Our strong network of assets provides a platform for growth
Our strong network of assets provides a platform for growth 9 We control a hard to replicate, privileged network of retail and distribution assets Large, well located retail real estate network Advantaged regional infrastructure National presence We control the entire supply chain
Slide 10: Our capabilities are providing valuable new growth options
10 Our capabilities are providing valuable new growth options INTERNATIONAL ▪ Ampol enabled material supply chain efficiency and is now handling over 3 billion litres of international volumes ▪ International assets seeing mid teens profit growth rates CONVENIENCE RETAIL STORES ▪ Natural adjacency fo
Slide 11: Commercial separation enables the cultures and systems required to deliver our strategy
11 Commercial separation enables the relevant cultures and systems required to deliver our strategy Caltex Australia 66% of EBIT 34% of EBIT Fuels and Infrastructure Convenience Retail ✓ Full supply chain view ✓ Foster retail culture ✓ Improved efficiency ✓ Apply retail specific KPIs ✓ Continued foc
Slide 12: Business units are positioned to create value for shareholders
12 Business units are positioned to create value for shareholders Fuels & Convenience Corporate Infrastructure Retail Transformed Business Primed for Growth Effective Capital Management ▪ Predictable earnings ▪ Stable earnings base ▪ Increased payout ratio ▪ Cash generative ▪ Expanded capability ▪ I
Slide 13: Caltex has increased its dividend payout ratio to 50-70%
13 Increased dividend payout With transformation well advanced, Caltex now has the capacity to sustainably pay higher dividends, whilst retaining sufficient capital headroom to support growth aspirations in both Fuels & Infrastructure and Convenience Retail The transformation of Caltex has created a
Slide 14: In summary, we offer a clear investment proposition
14 In summary, we offer a clear investment proposition Defensive and reliable cash flow from Execute on TSR Catalysts Core Business Invest in Growth Realise Franking ✓ Transport fuels focused Engines Credits ✓ Strong competitive advantages Where excess ▪ International ✓ Cash generative business capi
Slide 15: Caltex's 2019 Deliverables
15 Caltex’s 2019 Deliverables Continued growth in F&I Progress Convenience Retail earnings Strategy ▪ Deliver Seaoil and Gull ▪ Deliver sustainable fuels profits investment cases by optimising value & volume ▪ Grow volumes at market ▪ Leverage Woolworths rates partnership ▪ Grow international earnin
Slide 16: Group financial guidance and outlook
16 Group financial guidance and outlook Simon Hepworth CFO
Slide 17: Caltex 1H18 by the numbers
17 Caltex 1H18 by the numbers – substantive and well positioned Operating Financial Shareholder Balance sheet performance performance value Fuel sales volumes RCOP NPAT Net Debt* 1H dividend 10.2 BL $296m $1.0bn 57 cps Refining production Operating cash flow Gearing HCOP EPS 3.2 BL $140m 24% 147 cps
Slide 18: Our strategy is delivering earnings growth, and underpinning shareholder returns
18 Our strategy is delivering earnings growth, and underpinning shareholder returns EBIT (ex refining) has achieved ~10% CAGR for last 4 years. Growth has become steady and reliable STEADY AND GROWING PROFITABILITY* ENHANCED ABILITY TO PAY DIVIDENDS 1200 Operating Cash Flow and Dividends Per Share (
Slide 19: Capital allocation framework defines capital priorities
19 Caltex’s capital allocation framework defines capital priorities to support top quartile TSR objective ✓ Target Adj. Net Debt / EBITDA range 1.5x - 2.0x 1 Capital Structure ✓ Where Adj. Net Debt > 2.0x EBITDA, debt reduction plans become a focus 2 Maintenance Capex ✓ Safety and reliability of sup
Slide 20: Strong focus on capital discipline to deliver strong returns
20 Strong focus on capital discipline to deliver strong returns to shareholders Top Quartile TSR is the Overarching Objective 2. 1. Optimal 4. Financial Disciplined 3. Capital Capital Risk Capital Efficiency Structure Management Allocation
Slide 21: Caltex has a record of effective capital allocation
21 Caltex has a record of effective capital allocation >20% ROCE on capital allocated 16% ROCE 12%(1) ROCE 7%(2) ROCE ROCE<WACC to growth EPS Accretive EPS Accretive EPS Neutral EPS Dilutive initiatives Caltex Opportunity not Ownership 3 years+ 16 months 6 months 18 months pursued in 2016 Rationale
Slide 22: Robust Financial Risk Management
22 Robust Financial Risk Management Caltex’s enhanced risk management platform supports growth in Fuels & Infrastructure KEY RISK TOOLS INTERNATIONAL ROBUST SUPPLY CHAIN CALTEX VALUE CHAIN SOURCING AND REFINING DISTRIBUTION WHOLESALE RETAIL MANAGEMENT SUPPLY STRONG CUSTOMER BASE IS SUBJECT TO HAVING
Slide 23: Committed Liquidity Headroom
23 Caltex’s transformation enabled an overhaul of funding platform; materially improving terms, conditions and pricing Committed ✓ Final legacy debt issue to be repaid Facilities Committed Liquidity Liquidity Buffer 2,000 Nov 2018 ($150m AMTN @ 7.25% Headroom Headroom 1,500 Buffer coupon) Peak 1,000
Slide 24: Updated financial guidance
24 Updated financial guidance 2018 GUIDANCE 2019 GUIDANCE ▪ 3Q Retail fuel volumes and margins impacted by high ▪ CY19 Earnings anticipated to be an increase on CY18. crude price and low AUD, as well as targeted competitor Continued growth in F&I business to offset Woolworths fuel actions. Negative
Slide 25: Q&A
25 Q&A
Slide 26: Fuels & Infrastructure
26 Fuels & Infrastructure Louise Warner EGM Fuels & Infrastructure
Slide 27: What does F&I do?
27 What does F&I do?
Slide 28: Our scale and capability across the whole supply chain differentiates us
28 Our scale and capability across the whole supply chain in Australia differentiates us Australian International Refining Distribution Wholesale Retail Wholesale Sourcing Market Share(1) 34% Most sites leased to Outsourced to Vitol Coles 22% 20% Sold to 7 Eleven 17% Trafigura shareholding n/a n/a S
Slide 29: F&I runs as an integrated business to drive value
29 F&I runs as an integrated business to drive value F&I comprises four interconnected operational “hubs” which form an overall supply and marketing system Third Party Wholesalers Crude & Feedstocks (Australia) MANUFACTURING Finished Products F&I’s B2B CUSTOMERS Lytton Refinery RELATIONSHIPS TRADING
Slide 30: Interaction of the system's hubs
30 HUB 1 CUSTOMER DEMAND *Caltex and WOW Retail demand is especially valuable as volume certainty is supported by strong network The interaction of the system’s HUB 3 TRADING & HUB 2 hubs make the SHIPPING Ampol Singapore Crude Supply MANUFACTURING Lytton Refinery value more Crude Oil, Feedstocks, G
Slide 31: Our network is being expanded internationally to enable growth
31 Our network is being expanded internationally to enable growth Our international supply chain and retail capability has opened up new growth options ▪ Investments in high growth businesses in New Gull NZ and Seaoil Zealand and the Philippines ▪ Added >1.7 billion litres1 of scale with scope to gr
Slide 32: F&I has transitioned from a refiner to a platform for domestic and international growth
32 In a changed market F&I has transitioned successfully from a refiner to create a strong platform for both domestic and international growth Strategic focus Enabled by a range of competitive advantages ✓ International Product Sourcing Grow Trading ▪ Ampol Singapore established in 2013 Biggest impo
Slide 33: Q&A
33 Q&A
Slide 34: Kurnell is uniquely positioned in Caltex's leading supply network
34 Kurnell wharf Kurnell is uniquely positioned in Caltex’s Gasoline export tankage leading supply network Jet export tankage Blend tanks Diesel and Jet import tanks
Slide 35: Fuel & Infrastructure Operations
35 Fuel & Infrastructure Operations Louise Warner
Slide 36: The Caltex F&I Presentation Team
36 The Caltex F&I Presentation Team Louise Warner EGM Fuels & Infrastructure Brad Phillips Derek Styles Brent Merrick David Bodger Chris Richmond GM B2B Sales GM Manufacturing GM Trading & Shipping GM Gull New Zealand GM Strategy
Slide 37: Understanding our system across the Hubs
37 Understanding our system across the Hubs HUB 1 AUSTRALIAN HUB 2 CUSTOMER MANUFACTURING DEMAND Lytton Refinery Source of scale Lubricants B2B & Retail supply Manufacturing HUB 3 HUB 4 TRADING & INTERNATIONAL SHIPPING Crude Oil Product shipping Support for domestic & international sales Internation
Slide 38: Hub 1: Australian Customer Demand
38 Hub 1: Australian Customer Demand The heart of our business is the scale enabled through our strong demand base in Australia. The Australian economy is heavily dependant on transport fuels (i.e. mining, shipping, transport, agriculture, industrial), and will be for a while yet. What does it do? H
Slide 39: How we succeed in defending and growing Australian B2B volumes
39 How we succeed in defending and growing Australian B2B volumes Australia is an attractive market for new entrants but we have steadfastly defended our market position due to the inherent strength of our assets and breadth of offer Key Competitive Advantages INTEGRATION WITH RETAIL INFRASTRUCTURE
Slide 40: B2B market less prone to disruption from alternate transport solutions
40 Longer term the B2B market is much less prone to disruption from emerging alternate transport solutions ▪ Large amount of F&I’s scale is derived from commercial diesel and aviation sales ▪ Both of these segments are expected to see robust growth over the medium term CALTEX VOLUME SPLIT (H1 2018)
Slide 41: Leveraging the integrated supply chain creates value for shareholders
41 Leveraging the integrated supply chain creates value for shareholders EXAMPLE: Caltex’s ~50% market share at Sydney Airport is enabled by combining trading expertise with advantaged infrastructure and customer relationships 4 1 Airfield Sales Ampol Sources Jet Fuel ▪ Caltex B2B sales team have lo
Slide 42: Hub 2: Manufacturing's role in the integrated supply chain
42 Hub 2: Manufacturing's role in the integrated supply chain Lytton refinery is one of the best performing small refineries in Asia, it represents a major centre of technical expertise critical to deliver core earnings today, and continued optimisation will support the integrated value chain What d
Slide 43: How does Lytton work
43 How does Lytton work Simplified process flow for Lytton – DHTU and FCC feed imported via Ampol is used to materially boost production FEEDSTOCKS IN DISTILLATION PROCESSING Other, 1% LPG, 2% LPG Premium Gasoline, 13% Naphtha Processing DISTILLATION Isomerisation CRUDE Gasoline Unit CRUDE Gasoline,
Slide 44: Lytton's operating performance has been exceptional
44 Lytton’s operating performance has been exceptional A refocus on reliable and efficient operations and high value products plus optimisation with Ampol has improved production and reduced historic volatility and turned Lytton into a high returning business CALTEX REFINER MARGIN(1) HIGH VALUE PROD
Slide 45: Lytton's performance compares favourably to regional benchmarks
45 Lytton’s performance compares favourably to some regional benchmarks Margin success is influenced by product mix, configuration and utilisation FY17 TOTAL PRODUCTION (ML) WHITE BARREL PRODUCTION REFINER MARGIN* (US$/bbl) 6,300 6,500 99% 13.02 6,200 10.20 94% 8.02 90% Lytton Geelong Marsden Point
Slide 46: How the Lytton turnaround has been achieved (1)
46 How the Lytton turnaround has been achieved (1) Improved processes and maintenance FEEDSTOCKS IN DISTILLATION PROCESSING ▪ Rebuild of systems and capability in LPG Naphtha inspection and Splitter DISTILLATION Isomerisation asset integrity CRUDE Gasoline Unit CRUDE ▪ Periodic T&I to smooth cash fl
Slide 47: How the Lytton turnaround has been achieved (2)
47 How the Lytton turnaround has been achieved (2) Additional yield and lower unit costs through capacity creep and other upgrades FEEDSTOCKS IN DISTILLATION PROCESSING ▪ Low cost investments in DHTU and LPG Naphtha FCC capacity Splitter DISTILLATION Isomerisation increased CRUDE Gasoline Unit CRUDE
Slide 48: How the Lytton turnaround has been achieved (3)
48 How the Lytton turnaround has been achieved (3) The benefits of sourcing from Ampol FEEDSTOCKS IN DISTILLATION PROCESSING LPG Naphtha ▪ Independent Splitter DISTILLATION Isomerisation purchasing has CRUDE Gasoline Unit CRUDE improved crude choices and prices LPG Reformer ▪ Led sourcing of Gasolin
Slide 49: IMO2020 is expected to have positive and negative impacts on Lytton
49 IMO2020 is expected to have both positive and negative impacts on Lytton IMO2020 refers to an international ban on high sulfur fuel (HSFO) oil by marine vessels which will trigger changes by shipowners to either their equipment or fuel choice Shipowners Install No impact Fuel Oil Scrubbers Use Al
Slide 50: Update on full Euro V fuels transition
50 Update on full Euro V fuels transition There are no imminent plans for a shift to low sulfur gasoline Current Situation What is Expected ▪ Australia is Euro V compliant for diesel, not ▪ Industry position is a 2027 adoption gasoline ▪ No impact on trading margins, already buying ▪ Changes will re
Slide 51: Hub 3: Trading and Shipping offers opportunity to improve margins
51 Hub 3: Trading and Shipping offers opportunity to improve margins and value Known as Ampol Singapore the trading and shipping business was established in 2013 What does it do? How Does it Create Value? ▪ Sources crude and finished product to meet Uses relationships and market ACCESS LOWER COST OF
Slide 52: For many Asian refiners Australia is an attractive outlet
52 For many Asian refiners Australia is an attractive outlet Our scale in a key Asian markets allows Ampol to capture value by sourcing product directly Why is Australia Attractive? Key Export Markets Capacity additions will see both these shorts reduce materially by 2022 ✓ Excess refining capacity
Slide 53: Ampol enjoys competitive advantages owing to integration with Caltex
53 Ampol enjoys numerous competitive advantages owing to integration with Caltex Caltex’s Trading and Shipping expertise and advantage has been built from scratch Ability to diversify supply sources, claim discounts, vary freight terms and retain talent Scale Position Australian logistics are challe
Slide 54: Ampol is now positioned as a major growth engine for Caltex
54 Ampol is now positioned as a major growth engine for Caltex Ampol has evolved quickly after being scaled up in 2015 and is now a valuable platform capability for the group 2015 NOW FUTURE Simple Toolbox Established Capability Growth Engine Blending Improved pricing STORAGE GLOBAL MARKET SOURCING
Slide 55: Example: Dynamically managing crude purchases for Lytton
55 EXAMPLE: Dynamically managing crude purchases for Lytton Ampol’s insights and risk management capabilities can drive material supply chain value 1 OPTION 3 Ampol uses market insights to Product is stored in Singapore to buy African crude at an attractive capture freight benefits, cargo timing pri
Slide 56: Hub 4: International operations enable further system expansion
56 Hub 4: International operations enable further system expansion and growth The international operations have been developed in collaboration with Ampol What does it do? How Does it Create Value? ▪ Ownership of interests in overseas fuel Investments provide EPS ATTRACTIVE FINANCIAL marketing and d
Slide 57: Gull New Zealand was Caltex's first international acquisition
57 Gull New Zealand was Caltex’s first international acquisition Transaction completed in July 2017 ▪ 87 Gull branded retail sites across North Island ▪ Owner of New Zealand’s only scale import terminal located at Mount Manganui (91ML capacity) ▪ Prominent discounter brand with strong customer engag
Slide 58: What makes Gull successful
58 What makes Gull successful Despite being smaller, Gull retains a number of key advantages The “Gull Effect” was coined by the 70% of market’s supply is via the NZ AA in 2013. Fuel prices are single NZ refinery. Small scale known to become more imports are competitive with this competitive when Gu
Slide 59: Gull has progressed well under Caltex ownership
59 Gull has progressed well under Caltex ownership The anticipated benefits of bringing Caltex and Gull together are already being realised in the first year of ownership Original Investment Case Progress to Date ✓ Strong growth profile from a low base On Acquisition FY18 Forecast of sites Fuel Volu
Slide 60: Extension of the System into Asia is a natural step
60 Extension of the System into Asia is a natural step Global fuels demand growth is driven by emerging markets which are more attractive due to economic growth levels and wealth effects from growing vehicle ownership levels 2.7% 2.5% These trends are evident in the majors’ investment CAGR in Fuels
Slide 61: The Philippines is an attractive market in multiple ways
61 The Philippines is an attractive market in multiple ways A key factor with the Seaoil investment was the attractive market backdrop Deregulated Market Fast Growing Market ✓ Freely competitive market Industry and National Growth Rates ✓ Open to foreign investment 11.4% 10.3% ✓ No government owned
Slide 62: Seaoil provided an alternative model for growth
62 Seaoil provided an alternative model for growth In March 2018, Caltex completed the acquisition of a 20% equity interest in Seaoil for A$115m SEAOIL retail and terminal network footprint 316 10 Volumes Seaoil terminal branded retail strategically located 1.4 Seaoil branded retail sites by region
Slide 63: Our approach to further international investments
63 Our approach to further international investments Further investments will remain highly targeted 1 Market or asset is capable of growing faster than Australian fuels market EVALUATION CRITERIA 2 Unregulated market structure which does not hinder businesses reaching full potential 3 Country risk
Slide 64: Generating additional growth engines through adjacencies
64 Generating additional growth engines through adjacencies Core capabilities provide platform for growth (regionally or with relevance into adjacencies), with willingness to partner to grow. Trading & Complex B2B Infrastructure Manufacturing Shipping supply chains relationships
Slide 65: Fuels & Infrastructure wrap
65 Fuels & Infrastructure wrap Louise Warner
Slide 66: F&I is a strong, efficient, defensive business with good growth prospects
66 F&I is a strong, efficient, defensive business with good growth prospects Strong competitive Efficient execution Growth advantages ▪ Creation of an independent ▪ Attractive outlook for trading ▪ Scale trading business and shipping ▪ Full supply chain view ▪ Record refinery production ▪ Expansion
Slide 67: F&I Key Focus Areas
67 F&I Key Focus Areas Protect & Grow Safe Grow Trading & Growth via Operations Supply Shipping International Base Operations Delivering a reliable and growing earnings profile to support TSR objectives
Slide 68: F&I's 2019 Deliverables
68 F&I’s 2019 Deliverables Continue to run business Grow Australian wholesale safely, reliably and fuels at or above market competitively to generate growth rates cash Deliver investment case Grow international earnings from Gull and Seaoil • Increase international • Add 5-10 Gull NTIs volumes above
Slide 69: Glossary of industry terms
69 Glossary of industry terms DHTU Diesel Hydro Treating Unit, used by a refinery to remove sulfur from high sulfur diesel to make higher quality diesel products such as Australian grade diesel (10ppm sulfur) FCCU Fluidised Catalytic Converter Unit, used by a refinery to convert lower value crude re
Slide 70: Asset optimisation
70 Asset optimisation Alan Stuart-Grant EGM Strategy
Slide 71: Thorough asset optimisation review focused on maximising shareholder value
71 Thorough asset optimisation review focused on maximising shareholder value Objective: Thorough examination of Caltex’s portfolio of assets to determine optimal ownership structure Considered various transaction/ownership Operating impact alternatives 01 ▪ Current operations, flexibility 01 ▪ Asse
Slide 72: Infrastructure assessment
72 Infrastructure assessment Asset perimeter included all terminal facilities and pipelines (incl. and excl. Lytton storage and JVs) Structures evaluated Key assumptions ▪ 2 primary sale and leaseback cases considered ▪ 20 year lease term 1– Full take-or-pay tariff ▪ Weighted average tariff range of
Slide 73: Infrastructure assessment (cont.)
73 Infrastructure assessment (cont.) 3 sophisticated investors approached for feedback and alternative structures were encouraged. Required IRR range of 8-13% Illustrative financial & value impact based on 100% sale Key takeaways Take-or-pay Infrastructure is key strategic asset – control and 01 fle
Slide 74: Real estate assessment
74 Real estate assessment Various ownership and portfolio options considered Structures evaluated Key assumptions Portfolio summary ▪ Considered options for Convenience Defined broadly – 1 Public REIT Retail owned Representative portfolio Portfolio –1 The whole portfolio – 2 Unlisted/private capital
Slide 75: Real estate assessment (cont.)
75 Real estate assessment (cont.) Tested the market via real estate investors, REIT managers, SWFs – formal sale process now well-progressed Illustrative financial & value impact based on 100% sale Key takeaways Estimated value ~$2b (EV/EBITDA in the high Caltex real estate portfolio appears underva
Slide 76: Why a property partnership makes sense for Convenience Retail assets
76 Why a property partnership makes sense for Convenience Retail assets ▪ Intention to bring together best in Illustrative value-add opportunities class development capability with Caltex’s large and well located site network - a new strategic lever ▪ Portfolio of sites to be sold & leased 3 back ha
Slide 77: Important Notice
77 IMPORTANT NOTICE This presentation for Caltex Australia Limited is designed to provide a high level overview of aspects of the operations of the Caltex Australia Group, including comments about Caltex's expectations of the outlook for 2H 2018 and future years, as at 30th October 2018. This presen
Slide 78: Thank You
CALTEX Thank You