The company’s historical cost profit after tax will come in between $530 million and $550 million, compared with the $619 million result posted last year. Morgan Stanley analyst Adam Martin had expected a HCOP net profit of $625 million.

Segal’s argument is that 2018 has been a year in which Caltex has set up its fuels & infrastructure business and its convenience retail division for the future.

In the former, the acquisition of fuel marketing and distribution business Seaoil in the Philippines, and the impact of a full year’s earnings contributions from Gull New Zealand, boosted international fuel sales volume by 34 per cent, and helped lift the fuels & infrastructure division’s earnings by 21 per cent to between $405 million and $415 million.

But this excludes the performance of the company’s Lytton refinery, where an unplanned outage in the third quarter and a lower regional refining margin saw earnings fall by 51 per cent to between $155 million and $165 million.

It’s the convenience business that has investors nervous, though.

It will deliver earnings before interest and tax of between $295 million and $305 million, which while higher than the guidance provided in late October, is about 10 per cent lower than the prior year.

Higher oil prices and the transition from Caltex’s previous franchise model to a company-owned one have weighed on earnings.

Segal is in the middle of a major rejuvenation of the Caltex convenience offering, chasing the big prize of raising Australia’s convenience fuel spending rates to those of Britain and Japan, which are around six times higher.

It’s a nut that several groups, including the ASX’s other listed fuel player, Viva Energy, have tried or are trying to crack.

Caltex’s key weapons are the rollout of its Foodary food and beverage concept – the 55th outlet was completed in December – and the expansion of its recently re-signed Woolworths partnership, which will see the Woolworths “Rewards” loyalty program rolled out across the Caltex network, and the grocery giant’s fuel redemption offer made available at another 125 Caltex sites.

But the convenience push will be a long and potentially difficult haul, as Tuesday’s announcement showed.

Caltex will take a $19 million after tax loss on the sale of its 49 per cent interest in Kitchen FoodCo, a business Caltex invested in to develop a fresh food supply offer to its network. But now the group “believes that it can accelerate the delivery of its fresh food offer by working with a broader range of suppliers, including Woolworths through its previously announced convenience retail partnership”.

That’s a pretty expensive change of strategy, even though Caltex will partly offset this $19 million with a $7 million write-back on the franchise employment assistance fund it established last year, and apparently hasn’t been drawn on as heavily as previously expected.

Still, investors could be forgiven for seeing the Kitchen FoodCo loss as symbolic of the struggles that Caltex has faced – and could yet face – as it tries to get this convenience business right.

James Thomson

j.thomson@afr.com

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