Historic Cost versus Replacement Cost Basis
Caltex reports its results for statutory purposes on a
historical cost basis. We also provide
information on our financial results on a replacement cost of sales
operating profit (RCOP) basis. The RCOP result
removes the impact of fluctuations in the US$ price of crude and
foreign exchange on cost of sales. Such impacts
constitute a major external influence on company profits.
RCOP restates profit to remove these impacts.
The Caltex RCOP methodology is consistent with the basis of
reporting used by other refining marketing groups.
As a general rule, an increase in crude prices on an Australian
dollar basis will create a gain for Caltex. Conversely, a drop in
crude prices on an Australian dollar basis will create a
loss. This is a direct consequence of the first
in first out costing process used by Caltex in adherence to
accounting standards to produce the financial result on a
historical cost basis. With Caltex holding
approximately 45-60 days of inventory, revenues reflect current
prices in Singapore whereas first in first out costings reflect
costs some 45-60 days earlier. The timing
difference creates these impacts on cost of sales, referred to as
"inventory gains and losses". To remove the impact of this on
earnings and to better reflect the underlying performance of the
business, the RCOP methodology calculates the cost of goods sold on
the basis of theoretical new purchases instead of actual costs from
inventory. The cost of these theoretical new
purchases is calculated as the average monthly cost of cargoes
received during the month of those sales.
Replacement Cost Earnings Before Interest and Tax
The breakdown of RCOP shown here represents a management
reporting view of the breakdown and, as such, individual components
may not reconcile to statutory accounts.
For the year ended 31 December.
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 is calculated in the following manner:
| |
|
Weighted Singapore product prices (standard Caltex
basket of products)
|
| Less: |
Reference crude price (from 1 January 2011 the Caltex
reference crude marker is Dated Brent)
|
| Equals: |
Singapore Weighted Average Margin (Dated
Brent basis)
|
| Plus: |
Product quality premium
Crude discount
Product freight
|
| Less: |
Crude premium
Crude freight
Yield Loss
|
| Equals: |
Caltex Refiner Margin |
Note that from 1 January 2011, Caltex changed its reference
crude marker to Dated Brent following a period of comparative
substantial volatility in the APPI Tapis crude
benchmark. As a result of this volatility crude
producers increasingly moved to the use of Dated Brent as the
relevant marker for pricing sales of crude on either a term or spot
basis. As the proportion of crudes priced off
the Dated Brent benchmark had increased to represent more than half
of our monthly requirements, Caltex has moved its calculation of
Singapore Weighted Average Margin to a Dated Brent basis effective
1 January 2011. Similarly the calculated crude discount/premium
will reflect the difference between the prices paid by Caltex for
its crude requirements and the average of the Dated Brent price for
the relevant period.
The Caltex Refiner Margin earned for the year ended 31 December
is the total of the product of each month's average unit lagged
Caltex Refiner Margin (US$/bbl) and CRM Sales
from Production which is then converted to Australian dollars using
the prevailing average monthly exchange rate. Investors and
analysts can track the monthly realised Caltex Refiner Margin and
CRM Sales from Production figures on this website or via the ASX
releases published on the ASX website.
| |
Lagged* CRM
(US$/bbl) |
CRM Sales
from Production (ML) |
|
Month
|
2012 |
2011
|
2012 |
2011
|
|
January
|
8.19 |
8.86
|
791 |
847
|
|
February
|
4.65 |
6.44
|
866 |
755
|
|
March
|
5.55 |
6.32
|
726 |
928
|
|
April
|
12.39 |
6.16
|
826 |
753
|
|
May
|
10.93 |
11.30
|
1,055 |
790
|
|
June
|
9.09 |
7.90
|
901 |
766
|
|
First Half Average
|
8.47 |
7.82
|
|
|
|
July
|
12.19 |
5.40
|
1,005 |
863
|
|
August
|
17.35 |
8.97
|
927 |
908
|
|
September
|
14.03 |
8.86
|
846 |
869
|
|
October
|
16.72 |
12.09
|
1,013 |
805
|
|
November
|
12.98 |
5.59
|
1,003 |
795
|
|
December
|
12.49 |
7.17
|
951 |
888
|
|
Second Half Average
|
15.7 |
8.15
|
|
|
|
Full Year Average
|
11.83 |
7.99
|
10,913 |
9,967
|
*Caltex uses a rolling 7 day average of the international
benchmark prices to calculate wholesale petrol prices. This smooths
out daily movements as a result of price volatility. This means
there is usually a lag of about a week between movements in
international benchmark prices and wholesale prices here in
Australia. As the Australian dollar price of crude rises the
lag has the effect of reducing the Caltex Refiner Margin.
Conversely, as the Australian dollar price of crude falls the lag
has the effect of increasing the Caltex Refiner Margin.
Transport Fuels Marketing
Margin
Transport fuels comprise petrol, diesel and jet. The transport
fuels marketing margin is based on the average net margin over
Import Parity Price (due to Australia requiring to import a
significant proportion of its transport fuel needs) in Australia.
Import Parity Pricing refers to the landed cost
of refined fuel to import terminals around
Australia. It includes:
- the benchmark price for refined fuel
- the 'quality
premium' for specific Australian and State fuel
standards
- freight
- exchange rate
- wharfage, insurance and loss.
Caltex sells approximately 15 billion litres of petrol, diesel
and jet each year.
Lubricants and specialties products include finished lubricants,
base oils, liquefied petroleum gas, petrochemicals, bitumen, wax
and marine fuels. These products are either
imported or are bi-products from the refining process which are
transferred internally to our Marketing business at Import Parity
Pricing or purchase cost. The total earnings from this part of the
business are dependent on sales volumes and the average net margin
achieved over the price our Marketing business paid for the
products.
Non-fuel Income
Non-fuel income includes royalties paid to Caltex by franchisees
based on turnover, convenience store income from company operated
stores, franchise fees, royalties, property, plant and equipment
rentals, income from the company's fuel card (Starcard) and the
company's share of profits from non-controlled equity
distributors.
Other
Other margin includes gross margin other than
CRM. The largest component of "other" is the
foreign exchange impact on crude and product
payables. An appreciating dollar has a
positive impact on the business in that it creates a short-term
benefit due to a realised exchange rate gain on US dollar
denominated payables. In the short term, any gain or loss
resulting from the impact of changes in the exchange rate on the
monthly crude and product payables outweighs the refiner margin
impact. In the longer term, the reverse is true.
Caltex has a foreign exchange risk management program in
place aimed at reducing the impact of movements in the AUD-USD
exchange rate.
To explain the impact of the exchange rate on US dollar
payables, when Caltex purchases crude oil or petroleum products,
the cost in A$ is recorded in its accounts at the time the cargo is
loaded by converting the agreed US$ price (oil is traded
internationally in US$ per barrel) at the current exchange rate.
However, when payment is actually made, the cost in A$ may have
changed due to a change in the exchange rate. If the actual
cost is less than the amount recorded in the accounts, the
difference is added to earnings as an exchange rate gain, and vice
versa. Caltex purchases approximately 6 million barrels (bbl)of crude and product per month and
over multiple cargoes (usually about 10 to 15) per month.
A simplified example is provided
below :
Assumptions
| |
|
| CRM |
US$7/bbl |
| Crude |
US$100/bbl |
| AUD/USD exchange rate |
100 cents falling to 90 cents |
| Buy |
6 million bbls per month |
Month 1
|
|
USD ($m)
|
AUD ($m) |
CRM
|
6 million bbls x $7
|
42
|
|
|
@ 100 cents
|
|
42
|
|
@ 90 cents
|
|
46.67
|
|
|
|
|
| Result is an increase in the CRM of A$4.67
million. |
| |
|
|
|
| Payables |
Exposure of 6 million bbls x $100 |
600
|
|
| |
@ 100 cents |
|
600
|
| |
@ 90 cents |
|
667 |
|
|
|
|
Realised loss on payables is $67 million and after hedging 50%
is reduced to $33.5 million.
In this example, it would take 7 months for the CRM benefit to
offset the realised loss on payables. Note,
however, exchange rates move continuously and it is longer term
trends that are important.
Definitions
Barrel (per barrel) or bbl
A measure used for oil production and sales.
One barrel equals approximately 159 litres.
Caltex Basket of Products
The Caltex basket of products reflects the combined typical
yield of petrol, diesel, jet and fuel oil from Caltex's two
refineries at Kurnell and Lytton. The Caltex
yield is approximately 50% gasoline, 30% diesel, 17% jet and 2%
fuel oil.
Dated Brent
Dated Brent is the price for prompt shipments of Brent crude as
reported by price agencies. It is the price
benchmark for the vast majority of crude oils sold in Europe,
Africa, Middle East and now the Asia Region, and one of the most
important benchmarks for spot market prices.
Quality Premium
A quality premium is added to product prices to take into
account Australia's high fuel standards (particularly around the
gasoline specification) when compared to the rest of the Asia
Pacific region.