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Income statement
for the half year ended 30 June 2007

Millions of dollars
2007
2006
1   Total revenue1 9,082 9,297
2   Total expenses2 (8,693) (9,027)
3   Replacement cost EBIT 389 270
4   Net borrowing costs (25) (19)
     Income tax expense (109) (76)
     Replacement cost profit (RCOP) 255 175
5   Inventory gain – after tax 113 102
     Historical cost net profit 368 277
6   Interim dividend per share 47c 32c
     Final dividend per share N/A 48c
     Basic earnings per share
     – Replacement cost 94.4c 64.7c
     – Historical cost 136.2c 102.5c
     RCOP earnings per litre 2.6c 1.8c
1   Excludes interest revenue.
2   Excludes interest expense, inventory gains/(losses).


Discussion and Analysis

1

Total revenue

2%

Total revenue decreased slightly primarily due to:

  • The impact of the stronger Australian dollar on domestic wholesale prices.

This was partly offset by:

  • Higher marketing margins and higher sales volumes than prior year.

2

Total expenses – replacement cost basis

4%

Total expenses decreased primarily due to:

  • Lower cost of sales, reflecting the impact of the stronger Australian dollar on US dollar-denominated crude and product imports.

This was partly offset by:

  • Higher operating expenses including the impact of additional depreciation of the Clean Fuels Project

3

Replacement cost EBIT

44%

 Increase in Caltex's underlying performance primarily resulted from:

  • Increased refinery production of high value products.

  • Completion of the Clean Fuels Project in 2006 which had adversely affected production mix, increased imports of compliant products and increased exports of non-compliant products.

  • Higher marketing sales volumes and margins.

    • Breakdown of replacement cost EBIT is detailed on pages 7 and 8.3
3The breakdown of RCOP shown here represents a management reporting view of the breakdown and as such individual components may not reconcile to statutory accounts.

RCOP EBIT breakdown

Caltex refiner margin (CRM)

$457m

CRM represents the difference between the cost of importing a standard Caltex basket of products to eastern Australia and the cost of importing the crude oil required to make that product basket. The CRM calculation basically represents: average Singapore refiner margin + product quality premium + crude discount/(premium) + product freight – crude freight – yield loss.

CRM was slightly higher in 1H07 at US$10.74/bbl compared with US$9.76/bbl for 1H06. However, this was partly offset by the increased AUD/USD exchange rate. With the Clean Fuels Project now completed, sales from production increased from 5.1 billion litres in 1H06 to 5.5 billion litres in 1H07 despite a planned shutdown of a crude distillation unit at the Kurnell Refinery in February/March 2007.

Transport fuels marketing margin

$173m

Transport fuels comprise petrol, diesel and jet. The transport fuels marketing margin is based on the average net margin over Import Parity Price in Australia.

  • The average transport fuels marketing margin on an acpl basis was 10% higher than 1H06. Higher diesel margins were offset by increased retail competition for petrol.
  • Additionally, transport fuels sales volume increased by 3% driven by increased demand for diesel and petrol partly offset by declined jet sales.

Lubricants and specialties margin

$53m

Lubricants and specialties products include finished lubricants, base oils, liquified petroleum gas, petrochemicals, bitumen, wax and marine fuels.

  • Specialties volumes declined by 7% mainly due to lower production of fuel oil as a result of the completion of the Clean Fuels Project.

Non fuel income

$73m

Non fuel income includes convenience store income, franchise income, royalties, property, plant and equipment rentals, Starcard income and share of profits from non controlled equity distributors.

  • Non fuel income increased by 5% compared with the same period last year due to increased card income and royalties, partly offset by decreased franchise income.

Operating expenses

($372m)

Operating expenses in this caption include refining and supply, marketing, corporate and other operating expenditure.

  • 1H07 operating costs increased by $36 million compared with the 1H06 driven primarily by depreciation and operating costs related to clean fuels production and increased provisions for environmental expenditure.

Other

$5m

Other includes foreign exchange impacts, clean fuels grant, pipeline and charter revenue.

Total RCOP EBIT

$389m

  

4

Net borrowing costs

32%

Gross borrowing costs were slightly lower in 1H07 versus 1H06. However, in accordance with accounting standards, Caltex capitalises interest associated with large capital projects. During 1H06, approximately $9m was capitalised to the Clean Fuels Project. 1H07 did not include any individually material projects and minimal interest was capitalised, thereby increasing reported net borrowing costs in 1H07 compared to 1H06.

5

Inventory gain after tax

11%

Regional crude oil prices rose significantly in 2007, (averaging US$76.89/bbl in June 2007 compared with US$59.54/bbl in December 2006). This increase resulted in net inventory gains of $161 million ($113 million after tax) compared with net inventory gains of $146 million ($102 million after tax) in 1H06.

6

Interim dividend

The Board declared an interim fully franked dividend of $126.9 million or 47 cents per share. The dividends have a franking credit of 100%. The record date is 10 September 2007, with the dividend payable on 28 September 2007.