Key points:

• Replacement cost of sales profit increased to $444 million
• 
  
• Solid financial performance despite declining refiner margins
• 
  
• Record refinery production
• 
  
• Strong marketing earnings driven by higher sales volumes
• 
  
• Total dividend 80 cents per share (2006: 80 cents per share)
• 
  
• Volume of biofuels sold trebled
• 
  
• Improved safety performance

Results summary	Full year ended 31 December
2007	2006
Replacement cost of sales operating profit (RCOP)1 result (excluding significant items):	$M	$M
- after tax	444	430
- before interest and tax	675	655
Historical cost result
(net profit after tax, including inventory gains and excluding significant items)	646	466

Caltex Australia Limited announced today an after tax profit of $444 million on a replacement cost of sales operating profit (RCOP) basis for the year to 31 December 2007. This compares with an RCOP result of $430 million for the full year 2006.

Caltex Managing Director Des King said Caltex operates in a highly competitive market and the $444 million 2007 RCOP profit after tax equates to an average of 2.2 cents per litre for all petroleum products sold². (Full year 2006: 2.2 cents per litre.)

"In the case of petrol alone, Caltex's profit after tax was around 1.5 cents a litre (cpl) compared to the Australian Government's tax at the bowser of approximately 50 cents a litre³," Mr King said.

"Caltex recorded a solid financial performance despite a worsening external environment. Record refinery production helped offset declining refiner margins and there was a stronger contribution from the marketing business with higher transport fuel sales, particularly diesel, along with increased non-fuel income. Marketing contributed approximately half of Caltex's earnings in 2007.

"The company had its best safety performance to date in 2007 and also managed to keep its unit operating expenses in line with inflation despite strong cost pressures for materials and skilled labour.

"By growing sales volumes, increasing production and good operating cost control we have been able to offset the negative impact of external factors of currency movements and declining refiner margins.

"There was a 17% drop in the Caltex refiner margin (CRM)⁴ in Australian cents per litre terms compared to 2006. The higher Australian dollar in 2007 had the net effect of lowering after tax profit by approximately $40 million relative to the previous year.

"The CRM averaged A7.0 cents per litre (US$9.26 a barrel) in 2007 compared with A8.44 cents per litre (US$10.13 a barrel) in 2006. This margin excludes operating costs."

Dividend

Caltex Chairman Elizabeth Bryan said the Board had declared a final dividend of $89.1 million or 33 cents per share fully franked. This makes the total dividend declared for 2007 80 cents per share fully franked after 47 cents per share paid in September 2007 (2006 total dividends: 80 cents per share).

The company is facing increasing cash demands as a result of rising capital costs and higher working capital requirements due to the significant rise in the cost of crude oil. The level of dividend has been set taking into consideration future cash flow requirements and the need to maintain a prudent debt level in an environment of declining refiner margins.

Record refinery production

Mr King said there had been a strong operating performance in refining with a record 12.1 billion litres production of all products for the year (2006: 11.9 billion litres), including 10.9 billion litres of high value transport fuels (petrol, diesel and jet fuel), up from 10.2 billion litres in 2006.

"New throughput records were set during the year with average utilisation for the fuels refineries increasing to 84% (2006:78%) although production was slightly lower than anticipated due to unscheduled unit shutdowns for essential repair and maintenance work at both the Kurnell (Sydney) and Lytton (Brisbane) refineries in November and December," Mr King said.

"Significant progress was made during the year on major capital projects including a second diesel hydrotreater unit (DHTU) at the Lytton refinery and new crude oil and diesel storage tanks at the Kurnell refinery.

"The DHTU construction is on track for completion in the first quarter of 2009 with the final construction contracts still to be awarded. Globally, capital costs continue to rise due to the tight availability of skilled labour and materials cost increases. Independent data shows capital costs in the refining industry generally have risen by more than 60% over the last three years. Caltex is experiencing similar cost pressures for the Lytton DHTU with final costs currently anticipated to be around $320 million. This compares with the initial estimate for the project of approximately $250 million. When commissioned the unit will increase Caltex's overall capacity to produce extra low sulfur diesel (maximum 10 parts per million sulfur) by 40%.

Growing contribution from Marketing

"There was an increased contribution from the marketing business which maintained its market leadership in fuels sales and convenience store retailing. There were higher transport fuel sales of 13.8 billion litres in 2007, compared with 13.4 billion litres in the same period in 2006. The strongest growth was in diesel sales with Caltex volumes up by 11.5% from the prior year compared with market growth of 6.4%. Diesel sales increased across all channels.

"Retail petrol sales remained flat in an extremely competitive market with less than 1% growth in sales volume in line with market growth. Premium (higher octane) fuel sales volumes were up 11.5% which was higher than market growth of 9.9% with sales increased following the launch of Vortex 98 petrol in Western Australia.

"Earnings from both jet fuel and finished lubricants were higher in 2007 as unprofitable business was rationalised.

"Non-fuel income was higher in 2007 with an 7.2% growth in weekly same shop sales and a strong contribution from the card business through StarCard and StarCash.

Petrol prices

"Consumers in 2007 benefited from the stronger Australian dollar which resulted in the price of petrol at times being approximately 14 cents per litre lower than if the $A had remained at 2006 levels.

"During the year Caltex made substantial contributions to the Australian Competition and Consumer Commission's 2007 inquiry into unleaded petrol prices in Australia. Caltex welcomed the ACCC report issued in December which found no reason to regulate petrol pricing and no evidence of price fixing or collusion in the industry."

Biofuels expansion

Mr King said Caltex more than met its commitment under the Australian Government's Biofuels Action Plan exceeding the 2007 target by 50%.

"The company trebled the volume of ethanol and biodiesel sold in biofuel blends in 2007. The number of service stations selling Bio E10 Unleaded and/or New Generation Diesel with 2% biodiesel increased from 237 to 306," he said.

"Bio E10 Unleaded, which contains 10% ethanol blended with regular unleaded petrol is now offered at 207 sites in New South Wales, Queensland and the ACT. The network continues to expand and the proportion of Bio E10 Unleaded in petrol sales at these sites is growing.

Looking ahead

"The company will continue to experience high cash demands as a result of rising capital costs and working capital requirements due to the significant rise in crude oil costs.

"The strong balance sheet and sound operating performance in 2007 have positioned the company to weather the outlook for tightening economic conditions and declining refiner margins.

"Caltex had an improved safety performance in 2007 achieving the lowest lost time injury frequency rate to date and a substantial decrease in the number of motor vehicle and tanker truck accidents.

"Safety and reliability performance is a priority at Caltex and a number of projects were launched in 2007 which will bring ongoing improvements.

"In 2007 the company invested $319 million in programs to strengthen its supply chain network and improve performance in its refining and marketing operations. In addition, we plan to invest over $1 billion over 2008-10 on strengthening our core operations across the business.

"Refiner margins are expected to be lower in 2008, worsened by a strong Australian dollar. Planned shutdowns in 2008 will reduce refinery production in the first half of the year with full year production of high value transport fuels expected to be similar to that of 2007. 2008 earnings will also be impacted by supply issues resulting from the unplanned refinery shutdowns in late 2007 and early 2008.

"Caltex will continue to grow earnings from its marketing business, where margins are less volatile than in the refining sector. Strong marketing earnings help buffer Caltex against any cyclical weakening of refining margins. Profitable fuel sales volume growth is being targeted with a focus on diesel, and initiatives are continuing in convenience retailing, premium fuels and biofuels.

"Transport fuels sales volumes have remained strong to date in 2008 and are expected to continue with further robust growth in diesel sales.

"The company will continue to invest in strengthening its core operations but is mindful of the significant increase in capital costs and will constantly review its portfolio of capital projects to ensure a strong balance sheet is maintained and debt kept to sustainable levels."

Historical cost profit

On a historical cost profit basis (including inventory gains), Caltex recorded an after tax profit of $646 million for 2007 (2006: $466 million). The profit includes crude oil inventory gains of $202 million after tax compared with $36 million inventory gains in 2006.

Debt at 31 December 2007 was $582 million (31 December 2006: $539 million). Debt increased towards the end of the year as the company built inventory in preparation for major refinery maintenance in the first quarter of 2008.


¹The replacement cost of sales operating profit (RCOP) excludes the impact of the fall or rise in oil prices in Australian dollar terms (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.
²This calculation is based on the 2007 $444 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 (19.9 billion litres).
³This calculation is based on a bowser price of around $1.35 a litre (excise 38.14cpl + GST 12.27cpl).
⁴The 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.

Media contact
Richard Beattie
Group Manager
Policy, Public & Government Affairs
Phone 02 9250 5224
Pager 02 9214 1146

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