Results: Write-downs Produce Losses At Caltex, Gunns

As expected Caltex Australia (ASX: CTX) has reported a big loss for 2011 after taking into account the $1.5 billion write-down in the value of its two oil refineries in Brisbane and Sydney.

The company yesterday revealed a net loss of more than $800 million for calendar 2011.

The fall was due to $1.12 billion in impairment charges, which was the after tax cost of the massive write-down in the value of refineries in Kurnell in Sydney and Lytton in Brisbane.

Despite the big loss, Caltex will still pay a final dividend of 28c a share, down from the 30c a share in 2010.

Total for the year has been cut to 45c from 60c. The interim dividend was earlier cut to 17 from 30c.

Caltex shares ended down 8c at $12.90, a fall of 0.6% in a market that fell 0.8%.

On the company's preferred replacement cost basis, profit for 2011 (before the write down) was $264 million against a $318 million profit in 2010.

Taking into account the write-downs, total loss after tax was $852 million in 2011, against $302 million.

(The replacement cost of sales measure excludes the impact of changes in the oil price.)

On an historical cost basis, Caltex's net loss for 2011 was $714 million, down from a $317 million net profit in 2010.

But excluding the write-down, the historic cost profit rose to $402 million from $333 million in 2010.

Caltex said it expected the recent deterioration in the performance of its refining business, which was due to the ongoing strength of the Australian dollar, lower refiner margins and increasing costs, to be sustained for a prolonged period.

That has prompted a review of the business, announced earlier this month, which could lead to the refineries' closure.

The recent rise in world oil prices (4% last week alone for Brent crude in London); will add to the pressures on Caltex.

"The Caltex Marketing and Distribution business is strong, and we are continuing to build its position as Australia's leading supplier of petroleum fuels by further investment in the company's supply chain," CEO Julian Segal said in yesterday's announcement.

"Marketing's earnings before interest and tax (EBIT) increased by more than 20% when compared with 2010. This result was achieved through growth in sales of premium petrol, diesel, jet fuel, lubricants and non fuel income.

"This growth was supported by the investment in retail store upgrades and supply chain infrastructure, including the opening of the expanded Port Hedland terminal.

"This excellent 2011 EBIT result continues an annual growth rate of over 13% since 2007."

Caltex supplies over one third of all transport fuels in Australia and remains committed to maintaining reliable supply to its commercial and retail customers.

And staying with loss-making companies, Gunns (ASX: GNS), the Tasmanian forestry group moving to be a pulp maker, revealed a massive $173.3 million loss for the six months to December as, like Caltex, the impact of asset write-downs hit home.

The latest loss is significantly worse than the $4.65 million loss in the same period in the 2010-11 financial year.

Revenue in the six months to December of $217.4 million was down 40%, the company reported yesterday.

Just as Caltex took a big hit from cutting the value of its key assets, Gunns' big loss was associated with the continuing restructure of the group, which involves the sale of non-core and native forest assets to end the use of Australian native forest, in favour of plantation forest.

Managing director Greg L'Estrange said in yesterday's statement that the focus of the company was on completing the restructure and the controversial Bell Bay pulp mill in Tasmania.

"The future value of Gunns is clearly driven by the completion of the pulp mill project," he said.

"The steps to achieving this have been identified and are being executed by management.

"The Company is in the process of concluding a number of significant transactions.

"These include the sale of our MIS loan book, the Green Triangle forest estate sale, the Heyfield hardwood mill and the Bell Bay pulp mill equity investment."

Underlying earnings (earnings before interest and tax) in the six months to December were $12.3 million, down 40% from the underlying first profit in the 2011 financial year of $20.2 million.

Gunns said yesterday it expects full year underlying earnings to be $30 million.

The company said market conditions for its wood fibre business would remain difficult while the Australian dollar maintains its strength against the US dollar.

Earnings from Gunns' softwood sawn timber operations rely on the domestic construction sector, and that is currently in a cyclical low, the company said.

The high Australian dollar is hurting the competitiveness of Gunns' products in Asia and the level of import competition in the domestic market.

Mr L'Estrange said work was continuing to finalise the recently announced proposal to issue $150 million in new Gunns shares to New Zealand billionaire Richard Chandler.

The company also proposes to conduct a rights offer to existing shareholders that could take the amount raised to $282 million.

"The proposed equity investment proposal will be outlined in a detailed offer document currently being prepared for shareholder consideration and approval," Mr L'Estrange said.

Gunns shares were up a cent at 18.5c.