Ampol Limited · ASX:ALD
Ampol — Investor Day (December 2019)
74 slides from Ampol's investor day presentation, Dec 5, 2019
Slide 1: Business Update and Investor Day Presentation
5 December 2019 BUSINESS UPDATE AND INVESTOR DAY PRESENTATION Caltex Australia Limited (ASX:CTX) today announces: • the expected sale of the first tranche of 25 higher and better use (HBU) retail sites for ~$136 million; • an intention to undertake an issuance of AUD denominated hybrid capital secur
Slide 2: Unaudited profit guidance for year ended 31 December 2019
Caltex is a previous issuer of hybrid capital securities and believes that they are an effective long-term capital management tool. The proposed issue will diversify the company's capital sources, strengthen the balance sheet and increase financial flexibility in line with its capital allocation fra
Slide 3: Caltex Investor Day
Caltex Investor Day 5 December 2019 5 December 2019
Slide 4: Welcome and overview
2 Welcome and overview Julian Segal MD and CEO
Slide 5: Welcome and overview and session presenters
3 Welcome and Couche-Tard Industry outlook and Fuels & Convenience overview proposal update and strategy update Infrastructure Retail financial outlook Julian Segal Alan Stuart-Grant Louise Warner Joanne Taylor MD and CEO Matthew Halliday EGM Strategy & Corporate EGM Fuels & EGM Convenience CFO Deve
Slide 6: Agenda
4 Agenda 09:00 – 09:30 Welcome and overview Julian Segal 09:30 – 10.00 Couche-Tard proposal and financial outlook Matthew Halliday 10:00 – 10:25 Session 1 Q&A 10:25– 10:35 Morning tea break 10:35 – 10:50 Industry outlook and strategy update Alan Stuart-Grant 10:50 – 11:30 Fuels & Infrastructure Loui
Slide 7: Caltex is the #1 transport fuels company in Australia
5 Caltex is the #1 transport fuels company in Australia Our privileged assets, deep business and retail customer base, and supply chain capabilities provide the platform for our strategy Over Australia’s only 3M Integrated & Customers per Independent Complex week supplier supply chains Cost efficien
Slide 8: We operate in three large and growing markets
6 We operate in three large and growing markets Our strong platform means we are well positioned to take advantage of growth opportunities in all of these markets Australian Asia-Pacific Convenience transport fuels transport fuels and QSR Annual Outlook 57BL ~1,100BL $8.6bn+ KMs travelled Population
Slide 9: We are evolving with our three markets
7 We are evolving with our three markets We are well positioned to create opportunity from change and deliver sustainable value into the future Key market themes… And why we will create value… Supportive long-term domestic demand outlook 1 for liquid transport fuels Our core strengths of customer, a
Slide 10: We have a clear strategy
8 We have a clear strategy We will continue to deliver everyday convenience to our customers, expand in international markets and, in the future, evolve with our customer energy needs
Slide 11: We are well positioned to deliver our strategy
9 We are well positioned to deliver our strategy We have laid the foundations to deliver growth Creation of 66 Foodarys, Ampol and with learnings closure of captured in EG Group new formats Network Kurnell supply renewal Transition to review refinery and WOW company completed for International partn
Slide 12: Clear path for earnings growth
10 Clear path for earnings growth Opportunities to deliver higher earnings through execution of strategy Improvement in Network Continuation of CRM in 2H 2019 review & convenience F&I international from 1H 2019* retail format uplift expansion opportunity Improvement in retail fuel margins $100m cost
Slide 13: Caltex – high quality resilient business with a focus on capital discipline
11 Caltex – high quality resilient business with a focus on capital discipline Large resilient cash flow from core business Targeted action to manage market dynamics Transport fuels focused Initiatives to increase balance sheet capacity Strong competitive advantages Capital discipline integr
Slide 14: Response to Couche-Tard proposal
12 Response to Couche-Tard proposal The Board of Caltex concluded that the Couche-Tard proposal undervalues the Company and does not represent compelling value for Caltex’s shareholders. However, the Board is open to engaging further with Couche-Tard Indicative cash price of $34.50 less any divide
Slide 15: Couche-Tard proposal and financial outlook
13 Couche-Tard proposal and financial outlook Matthew Halliday CFO
Slide 16: Observations on Couche-Tard’s proposal
14 Observations on Couche-Tard’s proposal 1 Proposal should be assessed against the Caltex share price post announcement of the Property IPO and trading update On this basis the proposed price represents a premium of 15.8%1 As part of a more disciplined approach to capital allocation and returns,
Slide 17: Couche-Tard’s proposal should be assessed against the Caltex share price
15 1 Couche-Tard’s proposal should be assessed against the Caltex share price after announcement of the Property IPO and trading update Caltex’s closing share price of $29.79 on 25 November is the appropriate reference point for Couche-Tard’s proposal, as it represents a fully-informed market view o
Slide 18: Strong progress made on retail network review
16 2 Strong progress made on retail network review Actions taken on ~550 sites to create value and position for the future. Options narrowing for balance of network Caltex retail network of ~2,000 StarCard-accepting sites Maintain fuel supply Core company- Alternate use sites Branded Retail and Star
Slide 19: Higher and Better Use (HBU) sites divestment update
17 2 Higher and Better Use (HBU) sites divestment update First tranche of 25 HBU sites expected to be sold for ~$136m Process to divest ~50 higher and better use sites commenced in August 2019 Strong domestic and international interest in first tranche of 25 sites, with these sites expected to b
Slide 20: Intended IPO of up to 49% interest in approximately 250 core retail sites
18 2 Intended IPO of up to 49% interest in approximately 250 core retail sites Transaction to release significant capital that will enable Caltex to explore capital management opportunities in line with our capital allocation framework Listed structure benefits include: Illustrative transaction metr
Slide 21: The strategy we have in place targets meaningful earnings growth
19 3 The strategy we have in place targets meaningful earnings growth A plan that aims to deliver $195 million of uplift from opportunities by 2024 Caltex has strong earnings growth potential: 200 A plan that aims to deliver ~$195 million of earnings uplift from opportunities by 2024, including: 1
Slide 22: Ahead of schedule in delivering $100m in savings by end 2020
20 3 Ahead of schedule in delivering $100m* in savings by end 2020 Taking action on costs to deliver a Caltex that is fit for the future Ahead of schedule, compared to run- rate target of >50% by end 2019 Retail Cost-out target is risk-adjusted, based supplier on the progress of various initiati
Slide 23: Initiatives that could release franking credits
21 4 Caltex is pursuing initiatives that could allow us to release a significant proportion of franking credits Caltex is actively considering a range of initiatives that could release franking credits to shareholders. Consistent with our Capital Allocation Framework, an off market buy-back is our p
Slide 24: Capital discipline extending to focus on embedded capital efficiency
22 Capital discipline extending to focus on embedded capital efficiency Initiatives underway will create balance sheet capacity for growth and returns, consistent with Allocation Framework KEY INITIATIVES CAPITAL ALLOCATION FRAMEWORK 1 CAPEX REDUCTION Stay-in- COST-OUT business Focused on safety a
Slide 25: Couche-Tard proposal does not sufficiently value Caltex
23 Couche-Tard proposal does not sufficiently value Caltex Proposal should be assessed against the Caltex share Returns focus can unlock price post announcement of material value and returns to the Property IPO and shareholders trading update Caltex’s strategy targets Caltex is exploring initiatives
Slide 26: Unaudited profit guidance for year ended 31 December 2019
24 Unaudited profit guidance for year ended 31 December 2019 F&I (excluding Lytton) EBIT: Decrease vs 2018 due to ~$50m Profit guidance (unaudited) 2019 $M 2018 $M negative EBIT impact from repriced EG Group fuel supply contract; when adjusted, earnings up ~2% y-o-y, with strong 1H Fuels & Infrast
Slide 27: Q&A
25 Q&A
Slide 28: Industry outlook and strategy update
26 Industry outlook and strategy update Alan Stuart-Grant EGM Strategy & Corporate Development
Slide 29: Australian core liquid fuels remains a long-term attractive market
27 Australian core liquid fuels remains a long-term attractive market Robust diesel and jet growth outlook expected to offset longer term petrol decline Australian Liquid Fuel Demand Outlook (BL) Key drivers Economic & industrial activity growth 80 CAGR% 70 (13-18)(18-30) Population & income growth
Slide 30: Caltex is well-positioned for the eventual transition to alternate fuels
28 Caltex is well-positioned for the eventual transition to alternate fuels Alternate fuel displacement of diesel and jet will take time. Caltex is well positioned for this potential transition Currently, EV disruption is primarily targeted at light passenger Australian Liquid Fuel Volume (2018) v
Slide 31: Accessing growing markets in Asia Pacific
29 Caltex is actively accessing to access growing markets in Asia Pacific Leveraging our asset base and core capabilities to deliver growth across international markets Oil product demand '18 (BL pa) Oil product demand CAGR '18-25 Oil product demand CAGR '18-30 Australia and NZ 4.0% 400.0 provide
Slide 32: Successful track record of transformation underpinned by core capabilities
30 Successful track record of transformation underpinned by core capabilities Our core capabilities have enabled the transformation of our business model and customer offering, positioning us well for the future #1 in Australian transport fuels: We have Integrated Positioned transformed Integrated R
Slide 33: We have a clear strategy
31 We have a clear strategy We will continue to deliver everyday convenience to our customers, expand in international markets and, in the future, evolve with our customer energy needs
Slide 34: Fuels & Infrastructure
32 Fuels & Infrastructure Louise Warner EGM Fuels & Infrastructure
Slide 35: Caltex operates across a fully integrated value chain
33 Caltex operates across a fully integrated value chain Caltex leverages our competitive advantages to deliver integrated value Complex supply chains Privileged assets Deep customer base Integration benefits: Reporting segments Value beyond sum of the parts Australian F&I (ex Lytton) B2B Lytton (F&
Slide 36: Each segment plays a fundamental role in creating value
34 Each segment plays a fundamental role in creating value The combination ensures we benefit from efficiency driven by scale, demand certainty and end-to-end control Rapid decisions on market knowledge Global markets risk management Trading & Shipping Make vs buy flexibility High yield of most valu
Slide 37: We serve our customers from our privileged infrastructure base
35 We serve our customers in diverse locations from our privileged infrastructure base Our Australian volumes are diversified and underpinned by privileged infrastructure and long term customer relationships, providing stability to our rateable short position Length of relationship: Top 20 customers
Slide 38: Lytton: Refinery earnings have improved in 2H 2019
36 Lytton: Refinery earnings have improved in 2H 2019 Improvements made in recent years have allowed Lytton to remain resilient through low margin conditions in 1H 2019 Lytton EBITDA and CRM (1H 2016A to 2H 2019F*) 250 15.00 211 200 12.00 177 156 136 150 129 9.00 US$/bbl 115 A$m 91 100 6.00 179 149
Slide 39: We are ready to manage uncertainties relating to IMO2020
37 We are ready to manage uncertainties relating to IMO2020 While CRM is variable, our scale and integrated supply chain provides us with flexibility to address possible IMO2020 scenarios Option set for Shipowners Possible impacts for Lytton Install high sulfur fuel oil scrubbers No impact Use alter
Slide 40: Trading & Shipping: Ampol increases market knowledge and operational flexibility
38 Trading & Shipping: Ampol increases market knowledge and operational flexibility Ampol’s capability build is increasing optionality to sustainably grow long-term earnings How does Ampol deliver strong, Ampol metrics show increasing optionality to support sustainable and growing earnings earnings1
Slide 41: Trading & Shipping: How does Ampol grow earnings?
39 Trading & Shipping: How does Ampol grow earnings? Caltex is a ‘physically backed’ system. As we broaden purchase, sale and storage locations, we create more opportunities and more value A B Ampol sources crude or product from Ampol creates a trading decision out of region when economically point
Slide 42: Active monitoring and risk management capabilities
40 Active monitoring and risk management capabilities allow Ampol to capture a broad range of physical market opportunities A case study of a trading decision-making process demonstrates how Caltex improves sourcing economics through increasing the number of supply options available for crude and pr
Slide 43: Trading & Shipping: Ampol expands its horizons
41 Trading & Shipping: Ampol expands its horizons Ampol will create new growth pathways when it opens a Trading & Shipping office in Houston and leverages its first international storage position in South East Asia in 1Q2020. These are capital light initiatives with short term opex commitments US cr
Slide 44: International businesses continue to grow
42 International businesses continue to grow Gull and Seaoil are meeting or exceeding business cases, supported by the influence of Caltex Target milestones Target milestones 2019 achievements 2019 achievements 2020 – 2022 2020 – 2022 Network site additions1 Investigate jet fuel market Network sit
Slide 45: Seaoil as a case study of leveraging core capabilities
43 Seaoil provides a case study of how Caltex can leverage the competitive advantages of the core Australian business internationally Caltex capabilities Impact for Seaoil B2B secondment and New high value business sales training line Core capabilities Supply chain More efficient transferred optimis
Slide 46: We have clear priorities to deliver international growth
44 We have clear priorities to deliver international growth International markets present higher growth opportunities where value can be extracted through leveraging our competitive advantages Why does International make sense? Higher growth We can leverage our Ampol allows Caltex to opportuni
Slide 47: We have multiple pathways to expand in new markets
45 We have multiple pathways to expand in new markets We are an attractive partner given our flexibility, independence and scale Flexible approach to Capital intensive and LT No capital or commitment transaction structures commitment Asset light Spot Long term or Partnership M&A trading supply struc
Slide 48: International initiatives will be drivers of long-term growth
46 International initiatives will be drivers of long-term growth Caltex’s international operations are evolving from a single market supply function to a long term growth engine with a trajectory of increasing volumes, capabilities and geographies 2020 2024+ 2015 – NOW New functions and Asian Enhanc
Slide 49: Fuels & Infrastructure 2020 Focus
47 Fuels & Infrastructure 2020 Focus Return Lytton to 6.0BL production, execute the Maintain continuous 2020 T&I and grow improvement culture and Australian sales at or above cash opex growth < CPI market Successfully establish Execute new Ampol and Ampol USA and progress International growth Intern
Slide 50: Convenience Retail
48 Convenience Retail Joanne Taylor EGM Convenience Retail
Slide 51: The convenience market opportunity is significant
49 The convenience market opportunity is significant The ~$8.6bn convenience market is rapidly changing and taking share from more traditional formats Changing customers and needs… …driving growth in the P&C channel as it addresses missions traditionally met by other channels Digitally Focus on conn
Slide 52: We are well-placed to succeed in convenience
50 We are well-placed to succeed in convenience Strategically advantaged given our extensive network of well-positioned sites and deep retail customer base Caltex is poised to capture the growing A premium network centred on service experience by developing new convenience opportunity strategic form
Slide 53: Petrol margin has improved in 2H19 vs. 1H19
51 Petrol margin has improved in 2H19 vs. 1H19 Caltex remains disciplined on pricing, with focus on optimising volume and margin Sydney Metro Petrol Price Cycle Petrol Average Retail Price minus Average Wholesale Price Petrol price cycles are currently observed in metro areas of Sydney, Melbourne,
Slide 54: Australian industry fuel margin has grown relative to increases in costs
52 Australian industry fuel margin has grown relative to increases in costs Industry margin has grown in line with proxy for industry site cost growth. 2H 2019 margin indicates recovery vs 1H2019 CY 15-18 average: 12.46cpl YTD 19 average: 12.26cpl 13.80 CY 11-14 average: 9.45cpl 13.09 12.55 12.04 11
Slide 55: Caltex has outperformed the industry in fuel in last 12 months
53 Caltex has outperformed the industry in fuel in last 12 months Refocusing on fuel and putting customer first has delivered strong performance in key metrics Focus on fuel with a consumer led approach Outperformed industry margin trends in last 12 months Change in Retail fuel NAM per site (vs prio
Slide 56: Convenience Retail has delivered key initiatives
Convenience Retail has delivered key initiatives 54 Which is supporting an improvement in shop performance and laying the foundations for future growth Delivered Woolworths wholesale Wave 1 & 2 supply Labour commenced Q4 optimisation 2019 8%1 reduction in Wave 3 planned for labour hours Q2 2020 Kron
Slide 57: Accelerated recovery in sales performance post transition
55 We are demonstrating an accelerated recovery in sales performance post transition to company operations Improvement in transition execution has driven improved sales performance of stores transitioning Quarterly average sales performance Q1 2018 Transitions Q2 2018 Transitions Q3 2018 Transitions
Slide 58: Enhancing capability across the network with focused initiatives
We are continuing to enhance capability across 56 the network with focused initiatives Which will drive sales growth of >3% and gross margin improvement of >1% in 2020. We also see opportunity for further performance improvement as we focus on our 500 core sites, particularly in relation to labour p
Slide 59: The Foodary rollout has delivered valuable learnings
57 The Foodary rollout has delivered valuable learnings that will strengthen future formats and de-risk execution Foodary performance by cohort What does “good” look like? Performance Segmentation1 Average sales uplift by cohort Site A Site B Weak performers Shop sales uplift 32% 61% Poor performanc
Slide 60: Network review prioritised 500 core sites and site tiering
Learnings have been incorporated within the network review which has 58 prioritised 500 core sites and the tiering of sites to ensure the right format, in the right location Self- Flagship Tier 2 Serve A little bit of good everyday, Real Fresh Fast just got faster Fast, no frills just got easier QSR
Slide 61: We have developed a clear format design process
59 We have developed a clear format design process Enabling the right format to be delivered to each location in our core network Design process informing tiered format strategy Flagship: Metro @ Caltex Target Shopper Formats Customer Mission Good Prices Saving Time Building a CVP that Good Fo
Slide 62: Tier 1: ‘Woolworths Metro’ – North Ryde
60 Tier 1: ‘Woolworths Metro’ – North Ryde A new benchmark in convenience that is well positioned to disrupt the sector and drive growth FORMAT OBJECTIVES BEFORE... AFTER… Increased breadth and depth of range with a 1 RANGE focus on top-up shop Leveraging WoW fresh food credibility to HERO 2 OFFERS
Slide 63: Tier 2: ‘Fast Convenience’ – Five Dock
61 Tier 2: ‘Fast Convenience’ – Five Dock Right-sizing capital and reducing costs will enable the Foodary to stretch across non-flagship sites in our network FORMAT OBJECTIVES BEFORE... AFTER… Right sizing format to lower cost of 1 ROCE investment and improve returns Reduced costs to serve through i
Slide 64: Tier 3: ‘Self Serve’ – Ryde
62 Tier 3: ‘Self Serve’ – Ryde Determining proof of concept for unmanned sites in Australia, which has proven to be successful at Gull NZ FORMAT OBJECTIVES BEFORE... AFTER… Reliable and clean offer with reduced site 1 OPERATIONS costs 2 CUSTOMER Quality fuels with a simple customer journey 3 SAFETY
Slide 65: Growing with strategic partnerships & technology
63 Growing with strategic partnerships & technology A frictionless and convenient solution for ~300k Easier Ways to customers, the Caltex app drives volume, FuelPay Pay transactions and customer loyalty Powered by Downloads FuelPay® Convenience Delivering convenience wherever and 300+ UberEats Deliv
Slide 66: Potential ~$85m EBIT uplift from Convenience Retail initiatives
64 Potential ~$85m EBIT uplift opportunity from Convenience Retail initiatives The Caltex Retail business has undergone significant change as we continue our transition toward a company operated network. The focus for 2020 is on the pilot of key formats which will confirm the uplift opportunity and
Slide 67: Convenience Retail 2020 Focus
65 Convenience Retail 2020 Focus Disciplined focus on Improving fuel margin by performance across our maintaining our fuel focus tiered strategy Optimising operational Continue to progress performance and profit, transition to company leveraging the tools that operation have been developed
Slide 68: Summary & closing remarks
66 Summary & closing remarks Julian Segal MD and CEO
Slide 69: Fuels & Infrastructure 2020 Focus
67 Fuels & Infrastructure 2020 Focus Return Lytton to 6.0BL production, execute the Maintain continuous 2020 T&I and grow improvement culture and Australian sales at or above cash opex growth < CPI market Successfully establish Execute new Ampol and Ampol USA and progress International growth Intern
Slide 70: Convenience Retail 2020 Focus
68 Convenience Retail 2020 Focus Disciplined focus on Improving fuel margin by performance across our maintaining our fuel focus tiered strategy Optimising operational Continue to progress performance and profit, transition to company leveraging the tools that operation have been developed
Slide 71: Five levers of earnings growth
69 Five levers of earnings growth Improvement in Network Continuation of CRM in 2H 2019 review & convenience F&I international from 1H 2019* retail format uplift expansion opportunity Improvement in retail fuel margins $100m cost-out in 2H 2019 from program 1H 2019* * Refers to 2H 2019 improvement t
Slide 72: Q&A
70 Q&A
Slide 73: Important Notice
71 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 2019 and future years, as at 5th December 2019. This presentat
Slide 74: Thank You
CALTEX Thank You