The Star > The ebbs and flows of the AGM

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High oil prices do not mean high profits for Caltex. High crude prices are a cost to the company and are a problem

AGM addresses petrol pricing

Petrol pricing was an inevitable topic at the Caltex AGM. In her address to shareholders Chairman Elizabeth Bryan said petrol prices are rising and are expected to continue to rise, but not because of collusion or price gouging as our critics suggest.

She said Caltex has continued to make every effort to get a consistent, factual message out about petrol prices and stimulate well-informed discussion. “Oil refining and marketing is a very high volume, very low margin business and we operate in a very competitive market,” she said.

Crude oil prices had rocketed, Elizabeth said, and Caltex, which does not produce any crude oil but uses it as a main input had to pay world prices for it on the open market. She explained that in addition to the strong global demand for oil, other factors contributing to long-term upward pressure on petrol prices included increasing oil exploration and production costs and environmental regulation to minimise emissions.

This was why Australians, like other motorists around the world, can expect to pay more, but these underlying reasons are rarely acknowledged by regulators and commentators.

“We wish crude oil prices were not so high,” she said. “We wish motorists did not have to pay high prices. It would be better for Caltex if there was a lower crude oil price – working capital for our inventories of crude and products would be lower. Debt requirements would be lower. Interest costs would be less.”

Gallery

Shareholder Des Chapman with grandson Cooper Ellison at the meeting

The ebbs and flows of the AGM

Over the next two hours, the Chairman Elizabeth Bryan and Managing Director and CEO Des King will review the past financial year’s performance (2007). Shareholders or their proxies (representatives) will get an opportunity to be involved in some company decisions. They will vote on the election and remuneration of directors, for example, and get to ask the chairman some tough questions.

Members of the press are here too. What they write can impact how the marketplace views Caltex, and as a result, its share price. Naturally, all personnel involved take it seriously. Some are a little nervous.

Today the AGM will run smoothly and to time, but this apparent ease is deceptive. The meeting is actually the end result of much hard work and behind-the-scenes preparation.

For weeks, members of Caltex’s Secretariat, Investor Relations, Policy, Public & Government Affairs and Brand teams have been managing the compliance work for the event and helping the Chairman and CEO fine-tune key messages and prepare presentations.

They have also sent out letters to shareholders, made sure the equipment is working so proceedings can be webcast and recorded and that the autocue and PowerPoint presentations will function well.

Safety first

To a swirl of music, images on a screen above the stage depict vignettes from a typical day in the life of Caltex. As the audience settles, Elizabeth Bryan stands at the lectern and welcomes guests. “I declare the meeting open,” she says, and starts by introducing fellow members of the Board and the Caltex Leadership Team.

Elizabeth introduces herself as the company’s new chairman, elected last October in preparation for the retirement of Dick Warburton, who was in the role for six years and who’s making his final appearance as a director of the board today. The company made significant advances during his tenure, she adds.

At Caltex, meetings of five or more people always open with an incident-free operations topic and this one is no exception. Elizabeth discusses a $22 million pipeline replacement project at the Lytton refinery to improve safety.

Then she moves on to Caltex’s financial performance. Higher earnings in 2007 were the result of record production by the refineries and a strong contribution by the marketing business. Full year profit after tax increased to $444 million.

Refiner margins squeezed

Now CEO Des King takes the podium to talk about operational highlights. The Caltex refiner margin fell, mainly as a result of external factors, Des says. “The main impacts were a decline in underlying Singapore margins, the strengthening of the Australian dollar and rising crude prices.”

But there were pluses. Marketing transport fuel sales volumes increased by 3.6 per cent to 13.8 billion litres while non-fuel income increased by 3.5 per cent to $152 million. The refineries produced a record volume of transport fuels: 10.9 billion litres.

Big issues

Next, Elizabeth flags four issues shareholders have written to say they’re most concerned about. These are the recent performance of the share price, the level of dividends paid for 2007, a proposed increase in non-executive directors’ fee pool and the impact of a carbon trading system on Caltex.

She addresses each one. The market has judged that Caltex is facing tougher times, while dividends were in line with policy to pay out between 40 and 60 per cent of the replacement cost of operating profit after tax.

The proposed increase in the board’s fees was considered appropriate in the interests of continuity and succession. Meanwhile Caltex is suggesting to government that because higher fuel prices have little effect on the fuel needed to be used by motorists, Australia could decide not to impose a carbon cost on motorists, the same as in Europe.

‘Let’s vote’

It’s time to vote on resolutions. “If you hold a yellow card you are entitled to vote and you should raise your card to indicate your vote,” Elizabeth says.

One of the first resolutions is to increase the fee pool for non-executive directors from $1.4 million to $1.6 million. A shareholder stands up to object. “Why should you be getting more when we’re getting less?” he asks.

To keep good talent you have to remunerate people accordingly, is the essence of Elizabeth’s answer. Like all resolutions today, this one passes on a show of hands, though it gets more hands raised in opposition than any other.

Another resolution is to elect Greig Gailey to the Caltex board. Greig, sitting on stage with the other directors, introduces himself and summarises his career. “I am currently president of the Business Council of Australia. I was previously chief executive of Zinifex and before that chief executive of Fletcher Challenge New Zealand,” he says. “Before that I was with BP for 34 years, so I hope you’ll agree I have considerable experience that I can bring to the company.”

Question time

Shareholders’ questions from the floor are plentiful. They span water usage, refinery maintenance turnaround costs, liquidity, safety, high crude oil prices, biofuels and how genetically engineered canola in Brazil is killing bees. Elizabeth and Des answer them all thoughtfully or tell questioners their comments are welcomed and noted.

Plans to use recycled water at refineries are far advanced, turnaround costs are inevitable because refinery equipment is sophisticated and complex and Caltex had the best year in its history for safety in 2007, Des says.

Elizabeth makes clear why high oil prices do not mean high profits for Caltex. “High crude prices are a cost to the company so they’re a problem, not a pleasure for Caltex,” she explains.

Women’s business

A shareholder asks the chairman an unusual question: “How does your thinking as a woman contribute to Caltex?”

“I sincerely hope it is contributing,” Elizabeth replies, smiling. “I’m a strong supporter of woman’s progress in industry. Do I interpret things differently as a woman? I don’t know, I’ll leave it to you to judge.”

With all resolutions passed, the meeting closes and everyone moves to an adjacent room for tea and snacks. Each gets a small Caltex “show bag” with samples of items sold in Caltex’s convenience stores.

Shareholder Des Chapman of Miranda, Sydney, is having tea with his seven-year-old grandson Cooper Ellison, who sat with him through the meeting.

Cooper watched the proceedings patiently but admits he didn’t find it very exciting.

His granddad doesn’t regret bringing him though. “Maybe one day he’ll be chairman of a company like Caltex,” he says proudly.