2nd UPDATE: Caltex Swings To A$714 Million Loss After Refinery Writedowns

Caltex Australia Ltd. (CTX.AU) on Monday swung to steep annual loss after writing down the value of its two refineries and said the outlook for the refining industry in the Asia-Pacific-region is challenging.

Caltex's gloomy forecast for the sector will boost expectations that it will partly or wholly shut down its refining operations after completing a review of the loss-making business in six months. Caltex, which reported better results at its fuel-marketing business, has said the review may result in closures, or else further investments in those assets.

While Caltex is Australia's biggest refiner, its facilities are small compared to new refineries being built in China and India, making it tough for the company to compete with them on costs. Caltex said it expects capacity additions in line with demand growth in 2012 and 2013, but regional capacity growth to outstrip demand after 2013--with most additions taking place in China.

"Although there is a possibility of delays in timing of projects, the operating environment for refining is expected to be challenging over the medium-term," Caltex said in a slide-show presentation to the Australian Securities Exchange.

Royal Dutch Shell PLC. (RDSB) recently decided to convert its Clyde refinery in Sydney to a fuel-import terminal in a another sign that Australia's refining industry is in rapid decline.

Caltex's net loss of A$714 million for the year to Dec.31 compared with a A$317 profit in 2010--even as revenue from ordinary activities rose 18% to A$22.11 billion. The loss included the A$1.5 billion writedown of its refineries in Sydney and Brisbane announced earlier this month.

Caltex was also hit by refinery outages, higher input costs and a strong Australian dollar that eroded margins in the period.

Shares in the company slightly outperformed the wider market Monday, rising 0.4% in early trade compared to a 0.7% fall in the benchmark S&P/ASX 200 index after the company met the top end of its underlying-earnings guidance and declared a higher-than-expected final dividend.

Profit on a replacement-cost-of-sales operating basis, excluding one-offs and the value of stockpiles, fell to A$264 million from A$318 million, at the top end of company guidance of A$245 million-A$265 million.

Caltex, which is 50%-owned by Chevron Corp. (CVX), declared a final dividend of 28 cents a share, down from 30 cents a year earlier, implying a payout ratio of 46% of profit. Goldman Sachs analysts were looking for a 22 cents payout, given the poor outlook for refining.

The Sydney-based company's fuel-distribution business is performing much better than refining, buoyed by ongoing demand from Australia's relatively strong resources-driven economy. Total transport fuel sales jumped to 15.7 billion liters from 15.1 billion, and the marketing division's earnings before interest and tax increased by more than 20%.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com

Caltex Australia (ASX:CTX)
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