Consistent with the forecast lodged with the Australian Stock Exchange on 6 December 2001, Caltex Australia in 2001 recorded a full year operating loss after tax of $186.1 million compared with a profit of $36.1 million in 2000. The 2001 result included a $147.5 million write-off of goodwill relating to the company's purchase of Pioneer International Limited's 50% interest in Caltex Australia Petroleum Pty Ltd in 1997, booking of a $16 million profit on a transaction relating to a vessel chartered by Caltex, and full provision for the $11.4 million ($8.0 million after tax) debt owed to it by Ansett. Excluding the goodwill write-off, the company made an after tax loss of $38.6 million.

If the impact of the fall in crude oil prices - a key external factor - is excluded, the replacement cost of sales operating profit (before abnormals, interest and tax) in 2001 was $200.9 million, up from $115.7 million in 2000. Inventory losses totalled $186.1 million in 2001 (2000: $40.1 million gain).

(The replacement cost of sales operating profit excludes losses or gains from inventory, which are calculated with reference to the underlying US dollar crude oil costs. A fall in crude prices results in a gap between what the company paid for its crude inventory and the price refined products can be sold in the market place. The impact is approximately $20 million less profit before tax for every US$1 a barrel fall in crude price. The reverse situation applies in a rising crude market.)

Caltex Australia Managing Director Tony Blevins said that, despite the disappointing statutory profit result, 2001 had been a year marked by a significant improvement in the company's underlying business performance.

"There has been marked improvement in refinery reliability and safety performance and stronger marketing earnings through the year," Mr Blevins said. "The focus on these issues will continue in 2002 and we are confident that the improvements achieved are sustainable and further improvements can be made."

Working capital benefited from the fall in crude prices but this was partially offset by the higher inventory volumes required to accommodate the planned major maintenance shutdown at the company's Lytton refinery in Brisbane in the final quarter. This was reflected in the net debt of $1.26 billion at the end of 2001 ($1.28 billion 30 June 2001).

The Board remains very conscious of its stated objective of paying consistent dividends. However, taking into account the company's level of earnings, available cash flows and taxation position - the key factors upon which payment of a dividend is dependent - the directors have determined that no final dividend will be declared for 2001.

This decision reflects the poor result for the year and the need to reduce debt levels and improve gearing. In focusing on improving these factors, the company is working to position itself to better withstand the impact of external factors beyond its control and return to profit and cash flow levels which will support payment of a consistent dividend.

Manufacturing And Supply

Caltex refineries recorded a strong improvement in reliability and safety performance through the year. The Kurnell refinery in Sydney returned to full operating capacity at the end of the first quarter with the completion of a project to replace an exhaust stack that developed a structural fault in November 2000.

Other improvements are attributable to early progress on implementing recommendations covering technical actions and management and people systems made by a team of independent experts commissioned by the Board. In March 2001, the team reported its findings on the causes of reliability incidents that caused unscheduled production interruptions at the Kurnell and Lytton refineries in 2000.

The division's operating profit was significantly lower than the previous year due to losses on inventory. The price of regional benchmark Tapis crude fell from US$27.38 a barrel in December 2000 to US$18.64 a barrel in December 2001, averaging US$24.99 for the year (2000: US$29.45), reflecting a global downturn in demand.

Regional oversupply of petrol led to sharp falls in refiners' margins¹ to negative levels between May and August, falling as low as -US$2.08 a barrel in July. Regional refineries had ramped up production in response to what proved to be erroneous forecasts of expected shortages of petrol supplies for the North American summer driving season. The oversupply situation resulted in Singapore margins averaging US$1.61 a barrel in 2001, down from US$3.05 a barrel the previous year.

Caltex refinery production of petrol, diesel and jet fuels in 2001 was slightly higher than the previous year. Production of specialty products increased by 4.5%, particularly LPG.

In the second half of the year, operations were significantly more reliable than the first with the major event affecting refinery production being the planned total plant shutdown at the Lytton refinery in October/November. The shutdown program included maintenance and capital improvements to the refinery's electrical, steam, fuel gas and flare systems. These improvements make Lytton more robust in dealing with the consequences of any external power failure.

Marketing

In 2001, Caltex increased its returns from fuels sales despite intense market competition. This was achieved by margin improvements particularly in retail petrol sales. Total retail sales of petrol and diesel were 2% higher in volume than the previous year, with premium unleaded petrol (including Vortex and Ampol Gold) accounting for 7.4% of retail petrol sales in 2001.

Diesel and aviation fuel sales volumes were slightly down on last year but margins recovered from the previous year with improved recovery of freight costs. Despite a slowing of international demand for aviation fuel following the terrorist attacks in the US in September, Caltex sales recovered and were down by less than 1% by the end of the year. Aviation earnings were also affected by provision for the Ansett debt.

Specialty products recorded improved sales and margins with a strengthening of marine, bitumen and LPG sales.

Regional supply disruptions and adverse weather conditions affecting harvest areas had a negative impact on fuel sales to distributors and independent resellers, with diesel and petrol sales in these channels down from the previous year.

Finished lubricants margins improved although total volumes suffered due to the downturn in some key industry sectors, notwithstanding strong volume growth in sales of some products. Sales of the flagship diesel engine oil Delo 400 more than doubled from the previous year in response to successful promotion and sales strategies.

Crop spray oils also recorded continued strong growth, up 30% from the previous year.

The convenience store program has contributed significantly to non-fuel earnings income of $41.2 million in 2001, an increase of 10% on $37.5 million the previous year.

The national convenience store network continued to grow in size and average store turnover. At the end of 2001, there were 405 Star Marts and Star Shops (2000: 359). Average Star Mart store sales grew 5% and sales from the smaller Star Shop were 6% higher than the previous year.

Outlook

Mr Blevins said that, in positioning itself for the future, Caltex has improved refinery productivity, reliability, efficiency and cost savings and developed more effective and better-targeted marketing strategies.

"This enhanced underlying performance has been achieved in an environment of refiners' margins that have fallen by 25% in the four years since the 1997 Asian economic crisis and an increasingly competitive domestic market," Mr Blevins said.

"Caltex's core business of refining and marketing petrol is sound and the fundamentals of the company are strong. While maximising returns from investment in real estate and its retail network, the company continues to build up non-fuel revenue streams to improve its consistency of earnings.

"The 2001 merger of Chevron Corporation and Texaco Inc. has begun to generate a number of benefits for Caltex Australia and this will increase in the future. These benefits will be in the areas of strategic alignment and the sharing of best practices in both manufacturing and marketing.

"Prior to 2006, Caltex and other Australian refiners will be required to make changes to diesel and petrol processing units to manufacture fuels to comply with new Commonwealth fuel specifications.

"Caltex has been conducting feasibility studies and reviewing process design and technical options for both refineries to produce fuels to meet the new standards for benzene in petrol and sulphur in both petrol and diesel required in 2005 and 2006.

"The company's key objective is to maximise profit and cash flow to improve gearing. Our primary focus will be on reducing debt while maintaining capital expenditure."

Media contact

Richard Beattie
Manager Corporate Affairs
Phone 02 9250 5224
Pager 02 9214 1146

Analyst contact

Michael Ridley-Smith
Manager Investor Relations
Phone 02 9250 5595

¹ Refiners' margin is the difference between the price of the Tapis crude oil feedstock and the quoted Singapore ex-refinery price of petroleum products.