Marketing Review:
growing our number one position

With a strong business strategy and continued focus on operational excellence and the health and safety of our employees, contractors, franchisees and resellers, Caltex remains the number one and growing petroleum and convenience marketer in Australia.

Growth was experienced across all Caltex fuels, lubricants, specialty products, convenience store goods and StarCard products throughout Australia. This was through the broad reaching national retail network as well as a large and diverse number of commercial customers. Throughout 2008, this growth was continually supported by an integrated and efficient supply chain incorporating refining, supply and logistics.

Retail

2008 saw a year of increased total transport fuel sales, with Caltex supplying over one third of the wholesale transport fuels in Australia

Caltex has retained its position as the number one convenience retailer in Australia. Average weekly sales growth was a robust 3.6% across our national convenience store network, and significantly higher than the industry average.

Our growth was driven by superior operational execution, investment in major store upgrades, new to industry sites and the performance of key product categories such as beverages and the new fresh bakery and coffee offer.

The new twenty first century Caltex (21CC) store format is now the standard for all future Caltex Star Mart convenience retail stores following positive customer feedback and strong performance in trial sites. As at year end, 10 of the 21CC Star Mart stores were in operation, with plans to progressively roll out the format across the network.

In recognition of our industry leadership, Caltex was honoured by the Australian Association of Convenience Stores (AACS) with their prestigious "Retailer of the Year 2008" Awards in both the company owned and franchise operated categories. Also, with around 490 franchise operated stores representing 85% of our convenience retail network, our established franchise business model was recognised by the Franchise Council of Australia as a finalist in their "Franchisor of the Year Award 2008".

Our continuing success as a major retailer and leading franchisor in Australia is underpinned by both a strong company network and a franchise operated network. All stores are supported by a world-class offering with systems, tools and programs incorporating field management, dry goods, logistics, mystery shopper and store execution programs, ensuring consistency and compliance across our convenience retail network.

Commercial

Direct sales to commercial customers continued to grow strongly across all channels including automotive, industrial, specialties, transport, mining, aviation, farming and small to medium enterprises.

The commercial business strives to consistently deliver value to customers by providing unrivalled customer support, superior personal service and high quality products at a competitive price. This focus has seen the commercial business grow significantly year-on-year since 2003. In 2008, direct sales to large strategic customers contributed strong growth to marketing earnings.

Targeted segment growth strategies and an increased focus on customer relationship management, supported by more effective business processes and technology, have driven both customer loyalty and revenue growth. In 2008, Caltex also invested in further sales and product training to build on the capabilities and knowledge across the commercial sales channels, ensuring continued comprehensive product knowledge and enhanced customer service.

One of the ways Caltex services our commercial customers is through resellers. These comprise both independent branded resellers and 100% equity resellers. Resellers service the small to medium enterprise customers in the transport, agricultural, mining and commercial and industrial sectors.

To facilitate further growth, a streamlining and restructuring program in the reseller business began in 2008 to remove duplication, create synergies, maximise asset optimisation and achieve overall economies of scale. The business has been transitioned into four regional hubs, New South Wales, Queensland, Western Australia and Victoria/South Australia and the business strategy has been redefined and realigned to focus on the small to medium business arena.

This restructure allows the reseller business to draw upon the knowledge and expertise of the broad Caltex network while still maintaining a focus on the needs of the local community. This is an appealing proposition to our local business partners.

Through our ongoing commitment to local customer service and support, and with Caltex’s broad range of fuels, lubricants and specialty products, Caltex will continue to actively pursue new and increased business going forward.

Products

2008 saw a year of increased total transport fuel sales, with Caltex supplying over one third of the wholesale transport fuels in Australia. Since 2005, sales volume of transport fuels has grown by more than one billion litres to 14.4 billion litres in 2008.

Caltex currently offers our customers a large range of products including premium diesel, biofuel blends and low aromatic blends for regional Australia. This places Caltex as the leader in the industry with the most comprehensive suite of fuels to meet our Australian customer needs.

The Caltex biofuel network is now the largest in Australia with over 400 Caltex branded sites selling one or more biofuel blends. This is supported by three new ethanol blending and storage facilities at the Banksmeadow terminal in Sydney, the Newcastle terminal and at the Lytton terminal in Brisbane. This is in response to customer demand and the New South Wales and Queensland state governments’ current and pending mandates.

Caltex continued to lead unleaded fuel sales in part due to the Woolworths partnership with co-branded Caltex Woolworths sites.

Caltex diesel outperformed the industry with strong growth in diesel sales volumes of 10%, a result exceeding the industry growth rate of 6.6% and increasing Caltex’s market share for diesel across Australia.

Vortex premium petrol sales growth outperformed the industry by 6.4% from 2007 to 2008, resulting in a market share jump from 30.9% to 32.9%. This was achieved in a turbulent year in which early strong sales were impacted by slowing sales in the middle of the year due to record high prices. The Vortex Premium Fuel portfolio was expanded during 2008 with the conclusion of a successful trial of Vortex premium diesel. This product complements the current offering of Vortex 95 and Vortex 98 premium petrol products. In 2009, Caltex will roll out Vortex diesel to a number of key markets to take advantage of the significant growth in diesel passenger car sales in Australia, particularly among the premium import brands.

In 2008, Caltex revitalised the design of the fuel branding on the forecourt. This new livery makes for easy customer selection and points the customer to the desired island when entering the forecourt. The updated branding will continue to be rolled out across Australia in 2009.

Integration across the supply chain provides a wide range of products that add value to the overall business. Specialty products, by-products of refining, including base oils, marine products, lubricants, liquid petroleum gas, petrochemicals, bitumen and wax continued to contribute solidly to Caltex earnings. 2008 also saw a considerable increase in the market share held by finished lubricant products from 15.3% in 2007 to 16.5% in 2008, and a growth in sales volume of over 10%.

Jet fuel volumes also increased significantly to 1.8 billion litres in 2008 – an increase of 10% over 2007.

The Caltex card portfolio has experienced another year of strong growth and is the leading fuel card portfolio with the largest network and market penetration in Australia. A 9% increase in volume was achieved across the StarCard, StarFleet and StarCash portfolio.

Brand of choice

Caltex regularly tracks customer satisfaction using a number of measures. Caltex is recognised among our customers as a brand of choice and this is reflected in the volume of site visits each day. The consistent intent and focus for the business is to be number one in the hearts and minds of our customers and to ensure we are meeting the needs of our customers with clean, safe and reliable operations.

Leading change

Sound asset management, cost control and compliance are a priority within the marketing business and across Caltex. As such, the marketing business undertook a number of national compliance and reliability programs in 2008, including an enhanced pump meter calibration program ensuring all of Caltex’s 27,000 pump hoses accurately dispense the correct volume. Other programs included upgrading the underground fuel storage systems, pump replacement, spillbox compliance and automatic tank gauging.

Future focus

The marketing business will continue to focus on operational excellence, the safety of our employees, contractors and customers, reliability of our products and services and strategies and processes to ensure Caltex remains the number one and growing petroleum and convenience marketer in Australia.

Caltex is focused on building upon the supply chain infrastructure to support the expanding marketing business.

Caltex will continue to progressively upgrade the retail network and drive profitable growth in shop and fuel sales. This is in addition to continuing to grow the commercial businesses and increase market share across all products.