Dear Shareholder,
Caltex’s profit for the first half of 2007 was 46% higher than for the first half of 2006 when the result was negatively affected by the delay in the completion of the Clean Fuels Project. The profit reflected continued strong performance across the business, robust refiner margins and increased sales volumes. The strong results have enabled continuing significant investment in the business while providing a sound return to shareholders.
The after tax profit on a replacement cost of sales operating profit (RCOP) basis for the first half of 2007 was $255 million, compared with $175 million for the first half of 2006.
The Board declared an interim dividend of $127 million or 47 cents per share. 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) from 2006 once the high capital commitments of the Clean Fuels Project were completed.
The Caltex refiner margin (CRM) averaged US$10.74 a barrel in the first six months of 2007 up from US$9.76 a barrel in the same period in 2006, reflecting strong regional demand and tight supply affected by regional refinery maintenance shutdowns.
However, the stronger Australian dollar in the first six months of 2007 (average US81 cents) compared with the same period in 2006 (average US74 cents) moderated earnings gains from the US dollar denominated refiner margin. Had the exchange rate averaged the same amount in the first half of 2007 as it did in the first half of 2006, the CRM contribution to profit would have been approximately $30 million higher.
First half 2007 operating costs increased by $36 million compared with the first half 2006 driven primarily by depreciation and operating costs related to clean fuels production and increased provisions for environmental expenditure.
This first half 2007 profit equates to 2.6 cents per litre on average for all petroleum products sold. Consumers this year have benefited from the stronger Australian dollar which resulted in the price of petrol at times being up to 10 cents per litre lower than if the $A had remained at February levels.
Total excise and GST on Caltex’s sales for the first half was $3.4 billion.
Both Caltex refineries operated at near record throughput rates, together averaging 85% utilisation for the first six months of 2007. Production of high value transport fuels (petrol, diesel and jet fuel) was 5.4 billion litres, significantly above the 4.6 billion litres in the first half of 2006, which was affected by the delayed start-up of new clean fuels plants.
In the Marketing business, total transport fuels sales volumes of petrol, diesel and jet fuel were 6.7 billion litres in the first six months of 2007, up from 6.5 billion litres in the first half of last year. Diesel sales volumes grew 8.9% which was above market growth. The main growth was in commercial diesel sales with increases in both bulk sales and card sales to fleet operators.
First half 2007 total petrol sales volumes were 2.0% up on the first half of last year. Margins were negatively affected by the highly competitive retail environment. Sales volumes of premium petrol in the first half of 2007 were 10.5% higher than for the first half of last year.
Non-fuel income was 4.9% higher than the first half last year with higher earnings from card sales and a 7.7% increase in shop sales with Caltex maintaining its position as Australia’s number one convenience retailer.
Caltex plans to spend over $300 million a year in the next three years on strengthening the company’s core operations. This will include completing refining improvement projects and strengthening infrastructure including terminals, depots and service stations as well as maintenance and compliance work across the company.
Refiner margins are expected to remain robust, with the usual seasonal decline in the third quarter and with the likelihood that a continued strong A$ will moderate US$ refiner margin earnings. However, the refineries are on track to deliver 11 billion litres of petrol, diesel and jet fuel for the full year (2006: 10.2 billion litres) and the Marketing business will continue to pursue profitable growth, particularly in diesel sales.
Richard Warburton AO
CHAIRMAN
Desmond King
MANAGING DIRECTOR AND CEO