Caltex lifts profit, cuts debt, resumes
August 29, 2003
||Six months ended 30 June
|Replacement cost of sales result
|Operating profit (RCOP) after tax
|Earnings before interest and tax
|Earnings per share
|Net profit after tax (including inventory gains/losses and
|Earnings per share
- Profit after tax on RCOP basis $86.1 million up 35.1%
- Debt reduced to $855 million and gearing to 43%
- Dividend resumed, 4 cents a share
Caltex Australia Limited recorded a significantly improved result
for the first half of 2003 as a result of robust refiner margins
and sound marketing margins. The replacement cost of sales
operating profit (RCOP) after tax was $86.1 million, up 35% on the
$63.7 million profit in the first half of 2002. The company also
continued to reduce debt and improve gearing.
Caltex Chairman Dick Warburton said the RCOP figure, which strips
out the impact of crude oil price movements, presents a clearer
picture of how the business is performing than the statutory
(historical cost) profit.
"The RCOP reflects how the company is performing in key areas we
can influence such as refining operations, costs and volumes, in
addition to the margins available from the market. It is one of the
primary measures we look at in considering the issue of the
dividend," Mr Warburton said.
When the oil-price driven inventory losses are included, the
statutory after tax profit for the half year ended 30 June 2003 was
$76.2 million compared with $130.4 million in the first half of
2002. Regional crude oil prices fell during the period (averaging
US$29.47 a barrel in December 2002 and US$26.36 a barrel in June
2003). However, due to the pattern of crude price volatility
throughout the period this resulted in a net inventory loss of
$14.2 million compared with an inventory gain of $105.9 million in
the first half of 2002.
The company continued to rebuild its financial strength by reducing
debt to $855 million at 30 June 2003, down from $1,036 million at
30 June 2002, reducing gearing to 43% (30 June 2002: 53%). Earnings
per share increased to 31.9 cents on an RCOP basis (30 June 2002:
"The Board recognises that sufficient progress has been made in
improving the financial strength of the company to resume dividend
payments," Mr Warburton said. "The Board declared an interim fully
franked dividend of $10.8 million, or 4 cents a share. The record
date is 12 September, with the dividend payable on 3 October.
"The Board's objective is to pay dividends commensurate with
Caltex's need to fund investment in new plant for the manufacture
of clean fuels to meet government standards that come into effect
in 2006 and build its retail network. This will be done at the same
time as achieving a long term capital structure that will allow
Caltex to withstand the volatility of oil prices and margins that
characterise the industry."
Caltex Managing Director Dave Reeves said the focus, hard work and
commitment of Caltex employees during the first half of 2003 had
contributed strongly to the company's improved result and
reputation as a reliable supplier of quality petroleum products and
"Caltex continued to work systematically towards its goal of
incident free operations with the introduction of a comprehensive
company-wide Loss Prevention System during the first half of the
year," Mr Reeves said. "This system is now being rolled out across
"Strong Singapore refiner margins averaging US$3.34 a barrel for
the first half of 2003 (compared with US$2.70 a barrel for the
first half of 2002) were largely offset by high crude premiums and
freight charges compared with the same period last year.
Uncertainty surrounding Iraq and continued demand in Japan for
electricity from oil-fired power plants replacing off-line nuclear
plants led to high regional crude oil premiums in the first half of
"The program to improve Caltex refinery reliability and safety
performance is progressing well. As a result, there were no
disruptions to supply during the period. At the Lytton refinery in
Brisbane, the reliability of its power supply was boosted with the
commissioning in May of a new external substation along with the
installation within the refinery of automatic motor control
restarts to 300 pieces of equipment that feed the refinery's
"Marketing margins remained strong while at the same time total
transport fuels sales increased compared with the first half of
2002. Caltex's share of the national transportation fuels market
increased to 29.7%, up from 28.3% in the first half of 2002.
"Lubricants and specialties volumes remained flat but margins were
stronger and industrial, automotive and base oils expanded their
customer base compared with the same period the previous year. In
the non-fuel retail area, Star Mart convenience store sales
increased by 5.2% and smaller Star Shop sales by 6.2% on a like for
like basis compared with the same period the previous year.
"In May, Caltex launched a trial of a 10 per cent ethanol/petrol
blend at five Caltex and Ampol service stations in Cairns. E10
Unleaded contains ethanol produced from Queensland sugar cane.
Results to date are encouraging, with E10 Unleaded representing 20
to 25 per cent of total unleaded petrol sales. A clearly-labelled
10 per cent ethanol blend is also sold at Bogas service stations in
country New South Wales.
"Caltex has made significant progress this year in its preparations
for production of cleaner fuels at both refineries in line with new
government standards being introduced through to 2006. Detailed
feasibility studies are under way to revamp the existing diesel
hydrotreaters at both refineries to produce lower sulfur diesels
and construct new hydrogenation plants for lower benzene in petrol.
Approval of the estimated $250 million funding for the project will
be determined by the Board in the first quarter of 2004.
"In June 2003, Caltex refineries started production of ultra low
sulfur diesel ahead of its mandated introduction in 2006. Ultra low
sulfur diesel contains a maximum of 50 parts per million (ppm)
sulfur and currently attracts a 1 cent a litre lower rate of excise
than low sulfur diesel that contains a maximum of 500 ppm
"On 28 March 2003, Caltex welcomed an announcement by the ACCC that
it had dropped its investigation into the company and other oil
majors relating to allegations of a breach of the Trade Practices
Act made by an anonymous so-called 'whistleblower'."
A number of significant, positive policy decisions were made by the
Commonwealth Government in the half year: the excise incentive for
early production of ultra low sulfur diesel commenced on 1 July
2003; the May Budget announced a program for reform of fuel
taxation through 2012, including production subsidies for the early
production of 50 ppm sulfur premium unleaded petrol and 10 ppm
sulfur diesel from 2006 and 2007; ethanol was limited to a maximum
10% in petrol from 1 July 2003 and legislation introduced to allow
for mandatory labelling; the Dawson inquiry made numerous
recommendations consistent with Caltex's submission; and a draft
Oilcode has been prepared. Regulatory issues in the second half of
the year will focus on standards for cleaner petrol and diesel
after 2006, regulation of cleaner fuels incentives and
"Caltex will continue to focus on the drive to achieve incident
free operations, building financial strength through further debt
reduction, improved gearing and higher earnings through revenue
enhancement and cost savings," Mr Reeves said.
"We are pleased with progress made in reducing debt and expect
Caltex to make continued progress towards a strong and sustainable
long term capital structure.
"Caltex and Woolworths Limited announced on 21 August they had
agreed plans for a 50/50 joint venture that will expand Caltex
branding and deliver its quality fuels to approximately 300 more
outlets while gaining the benefits of Woolworths' buying for the
joint venture and Caltex convenience stores. The joint venture will
build its network up to 450 service stations located adjacent or
near to Woolworths' stores. Caltex will manage these sites.
Woolworths' petrol pricing policy will apply to the joint venture
sites and Woolworths will continue its redemption discount fuel
offer to its customers. Subject to execution of final transaction
documents, the joint venture is proposed to start operations prior
to Christmas 2003 following regulatory and third party approvals.
It will be EBIT positive from day one.
"The outlook for crude oil prices for the balance of the year is
expected to be driven by supply side considerations, the rate at
which Iraq can resume crude oil exports, and how quickly economic
activity in the world's largest economies return to higher levels
"Singapore refiner margins since 30 June have been strong averaging
US$4.59 per barrel due to the strength of petrol margins in
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