A new 15-year Wholesale Fuel arrangement with Caltex - Woolworths Limited is a diversified retailer, which operates supermarkets, general merchandise stores, liquor, electronics, and speciality and discount department stores. The Group announced that it has entered into a long-term strategic alliance with Caltex across convenience, wholesale food, redemption, loyalty and fuel supply and this alliance will increase the network of fuel sites where its customers can redeem their fuel discounts and earn Woolworths Rewards points. This will significantly expand Woolworths Group’s Metro convenience footprint and lock in a competitive fuel price for the Woolworths Petrol business for the future. By this Woolworths Group will commence a long-term wholesale food supply to over 700 existing Caltex convenience sites. The Group will continue to pursue an IPO or sale of its Petrol business.


Operating Metrics (Source: Company Reports)

As per the terms of the agreements, Woolworths’ popular four cents per litre fuel redemption offering will be expanded across 125 new sites within Caltex’s network, in addition to the 104 Caltex redemption sites that already exist today. Moreover, the Group has also signed a new 15-year wholesale fuel supply agreement with Caltex, locking in a market competitive cost of fuel that is expected to deliver a significant and sustainable earnings uplift to the Woolworths Petrol business. It is expected that pre-tax benefit will exceed $80 million per annum and will accrue to the Woolworths Petrol business which will continue to be treated as a discontinued operation for accounting purposes. Further, Caltex will make a one-off payment of approximately $50 million to the Woolworths Group. Moreover, Woolworths Group and Caltex will co-create and rollout a market leading convenience offering under the Metro banner to up to 250 Caltex sites over the next six years with 50 sites planned over the next two years.

Its focus has been to deliver consistently good shopping experiences across all stores and days of the week in FY18. Petrol sales for the third quarter of $1.2 billion were largely in line with the prior year. In Australian Food, it is expected to begin to cycle more strongly in the second half sales and will continue to aim at delivering against the BIG W turnaround plan.
The group is positioned well in terms of its market share in comparison to peers such as Coles. Meanwhile, the share prices have been rising since the start of the year and were up by 12.16 per cent as on 4 July 2018. We give a “Hold” recommendation at the current market price of $30.66 and one can wait and watch the impact of this new partnership in the market.

 
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