Risks Of Caltex Australia Limited & How They Can Be Avoided In Future (Research Paper Sample)

Assignment ID 32786 Table of Contents TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc527477185 \h 3Company profile PAGEREF _Toc527477186 \h 3Caltex Australia Annual Report 2017 PAGEREF _Toc527477187 \h 5Fig 2: Caltex report 2017 PAGEREF _Toc527477188 \h 5Fig 3: Caltex Australia performance PAGEREF _Toc527477189 \h 6The risks exposed to the Caltex Australia PAGEREF _Toc527477190 \h 6Fig 4: Oil prices PAGEREF _Toc527477191 \h 8Risk hedging strategies PAGEREF _Toc527477192 \h 10References PAGEREF _Toc527477193 \h 12 Introduction The research study is designed to perform risk analysis on Caltex Australia Limited which is a leading fuel supplier and retailer in the country. The research study will provide a detailed information on the company profile along with their market position, revenue generated, performance in the market, and much more with the help of graphical representation. Apart from that, the study will also discuss some of the various and major risks associated with the company by performing a risk analysis. It will also talk about the impact of these risks to the company's profit and revenue, and how the company can overcome these issues. Apart from that, the research study will also develop a risk hedging strategy which would allow in finding the ways Caltex Australia can tackle the risks. With the help of relevant security exchange, the study will find out the best derivative for Risk hedging along with its other elements such as the cost of hedging, number of contracts, benefit of hedging and the overall outcome of the hedging. All in all, this paper will provide a better understanding to the user on the various risks which the contacts Australia is exposed to and what measures the management of the company needs to take along with utilizing derivative securities in order to tackle the challenges to achieve organizational growth. Company profile Caltex Australia Limited is a leading fuel retailer and supplier in Australia and holds around 20 % of the market share. The company is a locally and public owned organization which also enable the investors to invest (Caltex Australia 2017). It was one of the first oil Companies in Australia along with Ampol to be listed on the Australian securities exchange and in the late 1940s, both the companies open their Refineries where they fiercely competed against each other in the oil industry. Both the companies work still relatively small until 1995 when both decided to merge and become the largest fuel and oil company in Australia. There are over 3600 employees are currently working with the car tax Australia and is known for its fuel service infrastructure with a large number of road tankers, storage and depot in both premium and regular type (Caltex Australia 2017). The company was founded in 1900s and is currently the only Australian oil and fuel company which is listed on the Australian security exchange. Caltex Australia has its headquarter in Sydney and they offer a large range of products which include diesel, premium fuels, lubricants, biofuel blend, and low aromatic blend (Caltex Australia 2017). The company deals in purchasing, distributing, refining and marketing petroleum products which source the supply of both the refined products and crude oil in the international market and refine crude oil into diesel, petrol, base oil for lubricants, jet fuel, bitumen and petroleum gas. Caltex Australia use network of pipelines, contracted and company owned transport played along with reports in order to supply products. As of 2014, the market capital of Caltex Australia was $5.36 billion with sales touching $23.49 billion. As per the statistics 2017, the cost operating profit of the company was $619 million, which increased by 1.5% as compared to the previous year along with $621 million of Replacement Cost operating profit, increased by 18 % as compared to the previous corresponding year (Caltex Australia 2017). Caltex Australia Annual Report 2017 Fig 2: Caltex report 2017 Fig 3: Caltex Australia performance The risks exposed to the Caltex Australia Caltex Australia is considered as the largest Oil and fuel industry in the country which is undergoing a significant change, which has also putting pressure on retaining and share price. Even though, amid all the challenges, there are many positive happenings of the company. Although, similar to any other company in the industry, Caltex Australia is also exposed to various risks (Dodson, 2008). The oil and gas industry accounts for the majority of energy generation in the world and is also play the most important role in the transportation. There are various risk factors associated with the industry which can affect the company within the industry greatly. As for the Caltex Australia, the stakeholders and brokers were disappointed that the company failed to offer capital management in the first half outcome (Walker, 1996). Ord Minnett states that Caltex is experiencing huge change and the fuel supply concurrence with Woolworths ((WOW)), union locales and sustenance sourcing have all weighed on the offer cost and profit various. In the mean time, the progress from an establishment to corporate working model remains to some degree vague, albeit the majority of the expenses have been very much hailed. Transport fuel edges should bolster the center business in the midst of sound industry rivalry, the agent proposes (Dodson, 2008). Morgan Stanley, then again, visualizes proceeded with weight on profit, as the Woolworths contract is re-valued, alongside troublesome retail conditions and higher expenses. While the case for changes to foundation have been killed, the representative accepts there are challenges from developing fuel utilization drifts crosswise over Australia (Walker, 1996). Some writing shows that the effect of oil value changes on the macroeconomy is hilter kilter, i.e., oil value climbs negatively affect GDP, however that falls in oil costs don't really prompt a positive effect on yield and not of a similar degree. In like manner, we might want to decide if the unbalanced effects on monetary yield additionally convert into industry returns (Dodson, 2008). Therefore, if the Caltex Australia needs to increase their market share and achieve growth in the business, the management of the company needs to identify the risks associated with the oil and fuel industry along with the challenges ahead for their respective Organisation in order to tackle the issue (Puri & Abraham, 2012). Below are provided some of the risks exposed to the company which they need to consider efficiently. Political risk: The essential way that governmental issues can influence oil is in the administrative sense, still it's not really the main way. Generally, an oil and gas organization such as Caltex Australia is secured by a scope of directions that farthest point where, when and how extraction is finished (Caltex Australia 2017). This understanding of laws and directions can likewise vary from state to state. All things considered, political hazard for the most part increments when oil and gas organizations are dealing with stores abroad (Dodson, 2008). The political factors have played a very important role in determining the long term profitable the Caltex Australia. The companies operating in energy in over a dozen of countries and expose themselves to different types of political risks (Walker, 1996). The company achieve success in dynamic energy industry in various countries and to diversify systematic risk of the political environment. Some of the political risk associated with the company include risk of military invasion, political instability, increased corruption, antitrust laws related to energy, increased taxation rate. The Caltex Australia Limited have a tendency to lean toward nations with stable political frameworks and a background marked by conceding and upholding long haul leases. In any case, a few organizations basically go where the oil and gas is, regardless of whether a specific nation doesn't exactly coordinate their inclinations (Walker, 1996). Various issues may emerge from this, including sudden nationalization as well as moving political breezes that change the administrative condition. Contingent upon what nation the oil is being separated from, the arrangement an organization begins with isn't generally the give it winds up with, as the legislature may change its psyche after the capital is contributed, with the end goal to take more benefit for itself (Puri & Abraham, 2012). Political hazard can be self-evident, for example, creating in nations with an unsteady tyranny and a background marked by sudden nationalization, or more unobtrusive, as found in countries that modify remote proprietorship standards to ensure that residential organizations gain an intrigue. An essential methodology that an organization goes out on a limb incorporates watchful investigation and building maintainable associations with universal oil and gas accomplices – in the event that it would like to stay in business for the long run (Puri & Abraham, 2012). Price risk: Past the political risks, the cost of oil and gas is the essential factor in choosing whether a save is monetarily achievable. Fundamentally, the higher the land boundaries to simple extraction, the more value hazard a given undertaking faces. This is on the grounds that unusual extraction more often than not costs in excess of a vertical penetrate down to a store. This doesn't imply that oil and gas organizations naturally stop tasks on a venture that ends up unrewarding because of a value plunge (Puri & Abraham, 2012). Regularly, these tasks can't be rapidly closed down and after that restarted. Rather, Caltex Australia Limited endeavor to estimate the probable costs over the term of the undertaking with the end goal to choose whether to start. Once an undertaking has started, value hazard is a consistent friend. Fig 4: ...