Desmond King
(Managing Director & CEO)Elizabeth Bryan
(Chairman)
22 August 2008
Dear Shareholder,
Caltex Australia Limited delivered a strong financial result for the first half of 2008, benefiting from its strategy of growing its Marketing business and its long-term focus on debt management and cost control.
Caltex recognised early in 2008 the possible negative impact of rising crude oil prices and reduced petrol demand caused by the US economic slowdown and took measures to respond to these challenges.
The after tax profit on a replacement cost of sales operating profit (RCOP) basis for the first half of 2008 was $196 million, compared with $294 million ($255 million before exchange rate adjustment) for the first half of 2007.
The Board declared an interim dividend of $97.2 million or 36 cents per share fully franked. This represents 50% of RCOP earnings and reflects the company’s stated dividend policy of maintaining ordinary dividends within 40-60% of the RCOP (after tax excluding significant items).
The profit was underpinned by the strong performance by the Marketing business. This helped offset lower refinery production as a result of both planned and unplanned maintenance and the impact of the stronger Australian dollar and higher crude oil price on refiner margins.
Marketing continued to expand its contribution to the business, with growth in transport fuels sales volumes, margins and market share. Transport fuels sales volumes increased to 7.1 billion litres in the first half of 2008 (first half 2007: 6.7 billion). Sales of regular petrol eased in line with the overall market, but Caltex outstripped the market in growth of diesel, jet fuel and higher margin premium petrol sales.
Diesel sales volumes were 12.8% higher than for the first six months of last year, well above industry growth. Premium petrol sales volumes increased 6.0% and jet fuel sales were up 10.2%. Lubricants sales volumes and margins increased as did margins for specialties. Growth in non-fuel income continued with shop sales 3.9% higher in the first half of 2008 than in the same period in 2007.
Caltex also continued its leadership in offering biofuels to customers. The company now has over 320 sites in Queensland, NSW and the ACT selling Bio E10 Unleaded petrol which is blended with 10% ethanol and/or New Generation Diesel with 2% biodiesel.
In the Refining business, refiner margins saw exceptionally strong diesel and jet fuel margins due to demand in Asia, and this offset the weaker margins for petrol driven by the US economic slowdown.
The stronger Australian dollar meant that while the Caltex refiner margin remained flat in US dollar per barrel terms in the first half of 2008, it dropped 16% in Australian dollar terms. This translated into a Caltex refiner margin of A7.02 cents a litre for the first half of 2008, down from A8.32 cents a litre in the same period in 2007.
Caltex refinery production and average utilisation in the first half of 2008 were lower due to a major planned maintenance shutdown at the Kurnell refinery and unplanned shutdowns at both the Lytton and Kurnell refineries. Production of petrol, diesel and jet fuel was 4.7 billion litres (first half 2007: 5.4 billion litres) and average utilisation for the six months was 73% (first half 2007: 85%).
Refiner margins are expected to be volatile, but remain robust overall. Continued strength in diesel and jet fuel margins will likely compensate for the expected weakening in petrol demand.
The Australian market for transport fuels and convenience retailing will continue to grow and Caltex is well positioned to capture future market opportunities.
Caltex’s proactive stance in focusing on inventory management and cost control has helped offset the higher working capital cost of crude oil and petroleum product inventories. This has resulted in lower operating costs of 3.77 cents per litre for the first half of 2008 (first half 2007: 3.86 cents per litre).
On an historical cost profit basis (including inventory gains), Caltex’s after tax profit was $354 million for the first half of 2008 compared with $368 million for the first half of 2007. This includes product and crude oil inventory gains of approximately $158 million compared with inventory gains of $74 million after tax for the first half of 2007.
The company will continue to strengthen its Marketing business and further develop its supply chain to support this growth, including the completion of a new diesel production unit at its Lytton refinery and a number of upgrades to its fuels storage and distribution facilities around the country.
Elizabeth Bryan
CHAIRMAN
Desmond King
MANAGING DIRECTOR & CEO