Caltex full year results - Profit in line with expectations, balance sheet strong

Key points -

• Full year RCOP ¹ earnings $186 million, down $258 million from $444 million in 2007
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• Unprecedented drop in Australian dollar and unplanned refinery shutdowns impact earnings
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• Cashflow improvement initiatives contribute to maintenance of strong balance sheet
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• BBB+ credit rating reaffirmed
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• No final dividend for 2008 - reflects negative second half earnings
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Results summary	Full year ended 31 December
2008	2007
Replacement cost of sales operating profit (RCOP)1 result (excluding significant items):	$M	$M
- after tax	186	444
- before interest and tax	321	675
Historical cost result
(net profit after tax, including inventory gains/losses and excluding significant items)	34	646

Caltex Australia Limited announced today an after tax profit of $186 million on a replacement cost of sales operating profit (RCOP1) basis for the year to 31 December 2008, down from $444 million in 2007. This result is in line with Caltex's forecast announcement to the market dated 14 January 2009.

$210 million of the $258 million decline was due to an unprecedented fall in the Australian dollar in the second half of 2008. The Australian dollar fell from an average of 82 cents in September to an average of 68 cents in October. This one month change alone accounted for approximately one half of the total $210 million decline.

Caltex does not actively hedge its foreign currency exposures because the impact of key external factors normally nets out over time. In 2008, the lower crude oil price offset the increase in working capital due to the lower Australian dollar with no significant impact on debt. We expect that the short term negative effect of the weaker Australian dollar on 2008 RCOP earnings will be offset by the positive impact on future earnings via a stronger Australian dollar refiner margin.

Refinery reliability was disappointing in 2008 with a single process unit at each of Kurnell and Lytton accounting for the majority of the reliability impact. Specific actions have been undertaken to address these reliability issues.

Caltex saw strong marketing volume growth and market share gains during the year. Overall, the marketing business was the major contributor to Caltex's earnings. Caltex's robust supply chain enabled the company to source and deliver high quality product to market to minimise the impact of both planned and unplanned refinery shutdowns at Kurnell and Lytton.

Overall, Caltex's 2008 RCOP profit after tax equates to an average of 0.9 cents per litre for all petroleum products sold², compared with 2.2 cents per litre in 2007.

Cashflow improvement initiatives throughout the year, and a focus on the management of operating expenses, enabled Caltex's balance sheet to remain strong in an environment of unprecedented volatility. Caltex's BBB+ credit rating was also reconfirmed in the fourth quarter of 2008.

Dividend

The Board declared no final dividend will be paid for 2008, reflecting the RCOP loss of $10 million in the second half of 2008. The interim dividend of 36 cents per share paid in September 2008, based on earnings of $196 million in the first half of 2008, represents a full year payout ratio of 52% in line with Caltex's dividend policy. This compares with a total dividend payout of 80 cents fully franked in 2007.

Marketing

Caltex's marketing business continued to provide a stable and growing platform for earnings in 2008. Total transport fuels sales volume grew to 14.4 billion litres for the full year. This 3.9% increase from 2007 was primarily driven by the strong growth in total diesel and jet sales which grew by 10.1%. In convenience retailing shop sales increased 3.6%.

Supply chain

Total production of petrol, diesel and jet was 9.8 billion litres, at an average refinery utilisation of 74%. Production and utilisation were impacted in 2008 by a combination of planned and unplanned maintenance activity and softening petrol margins in the second half of the year.

For 2008, the Caltex Refiner Margin³ averaged US$10.27 per barrel, bolstered by strong diesel and jet demand which offset flagging petrol demand. This equates to 7.9 Australian cents per litre in 2008 compared with 7.0 Australian cents per litre in 2007.

During the year, three new biofuels blending and storage facilities at the Banksmeadow terminal in Sydney, the Newcastle terminal and the Lytton terminal in Brisbane were successfully commissioned. As at the end of January 2009, Bio E10 Unleaded has been rolled out to 191 Caltex branded petrol stations in NSW, 125 in Queensland and seven in the ACT, and biodiesel blends are now available at 151 petrol stations in NSW and distributed commercially in Adelaide and Newcastle.

Outlook

"Caltex recognises that, due to the economic slowdown, we may see an impact on both marketing growth and regional US dollar refiner margins in 2009. However, the weaker Australian dollar will bolster Caltex's refiner margin in Australian dollar terms," said Caltex's Managing Director, Mr Des King.

"We have always been cognisant of the need to maintain a strong balance sheet given we operate in a cyclical industry. We will maintain our focus on cost control, cash flow and debt management.

"We will also continue to focus on our long term strategy of profitably growing the marketing business, in order to remain the leading fuel and convenience operator in Australia, with this growth underpinned by an effective supply chain".

Historical cost profit

On a historical cost profit basis (including inventory gains/losses), Caltex recorded an after tax profit of $34 million for 2008, compared with $646 million in 2007. This decline was dominated by the fall in crude oil prices and the unprecedented drop in the Australian dollar.

Analyst contact:
Frank Boys
Manager Investor Relations
Phone 02 9250 5166
Email frboys@caltex.com.au

Media contact:
Georgie Wells
Media Adviser
Phone 02 9250 5094
Email gwells@caltex.com.au

¹ The replacement cost of sales operating profit (RCOP) excludes the impact of the fall or rise in oil prices (a key external factor) and presents a clearer picture of the company's underlying business performance. It is calculated by restating the cost of sales using the replacement cost of goods sold rather than the historical cost, including the effect of contract based revenue lags.

² This calculation is based on the 2008 $186 million RCOP NPAT, which includes non-fuel income, divided by the total Caltex sales of petrol, diesel and jet fuel including sales to domestic refiners, lubricants and specialty products (20.4 billion litres).

³ The Caltex Refiner Margin (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 represents: average Singapore refiner margin + product quality premium + crude discount/(premium) + product freight - crude freight - yield loss.