Now2005 ANNUAL REPORT CONTENTS HIGHLIGHTS 2 CHAIRMAN & MANAGING DIRECTOR’S REPORT 4 REFINING & SUPPLY REVIEW 8 MARKETING REVIEW 14 CORPORATE REVIEW 20 CORPORATE GOVERNANCE REPORT 26 SIMPLIFIED FINANCIAL REPORT 41 DIRECTORS’ REPORT 48 2005 FINANCIAL REPORT 82 SHAREHOLDER INFORMATION 164 STATISTICAL INFORMATION 166 DIRECTORY 167 CALTEX’S VISION BC FRONT COVER: 50 years on and now the same tank, same stairs that appear in the 1956 Kurnell refinery photograph (below) take refinery technicians Luke Pesa (left) and Steve Seaton to the top to inspect it in early 2006. Caltex celebrating 50 years of refining &fuel forthen... Australia 1956 – 2006 ADVICE TO SHAREHOLDERS THE CALTEX AUSTRALIA GROUP FINANCIAL CALENDAR FOR CALTEX AUSTRALIA LIMITED The 2005 Annual Report provides The Caltex Australia Group consists of: YEAR ENDED 31 DECEMBER 2005 an overview of Caltex Australia’s – Caltex Australia Limited (ACN 004 201 307), Annual general meeting 27 April 2006 main operating activities for the which is the parent company of the Caltex year ended 31 December 2005. Australia Group YEAR ENDING 31 DECEMBER 2006* Half year results & interim dividend announcement 25 August 2006 The 2005 Financial Report, which – our major operating companies including Record date for interim dividend entitlement 8 September 2006 is contained within the 2005 Caltex Australia Petroleum Pty Ltd, Caltex Interim dividend payable 29 September 2006 Annual Report, provides detailed Refineries (NSW) Pty Ltd, Caltex Refineries Full year results and final dividend announcement 23 February 2007 financial information for the (Qld) Pty Ltd, Caltex Petroleum Distributors Record date for final dividend entitlement 9 March 2007 Caltex Australia Group for the Pty Ltd and Caltex Lubricating Oil Refinery Final dividend payable 30 March 2007 year ended 31 December 2005. Pty Ltd, and * These dates may be subject to change. Please note that 2005 Annual – a number of wholly owned entities and other Report can be found at our web companies that are controlled by the group. site, www.caltex.com.au Please note that terms such as Caltex and Caltex Australia have the same meaning in the 2005 Annual Report as the Caltex Australia Group unless the context requires otherwise. CALTEX ANNUAL REPORT 2005 1 $M 18% 500 450 increase 400 The profit after tax 350 (excluding significant 300 items) on a replacement 250 cost of sales operating 200 basis was $414 million 150 (2004: $350 million) 100 REPLACEMENT COST OF SALES 50 OPERATING PROFIT 0 02 03 04 05 60 18% 50 increase The total dividend was 40 46 cents per share fully franked (31 cents per 30 share final dividend and 20 15 cents per share interim dividend) up 10 from 39 cents per share total dividend in 2004 DIVIDENDS CENTS PER SHARE 0 03 04 05 $ 25 78% increase 20 The Caltex share price opened the year 15 at $10.86 and closed at $19.38. 10 5 01/01/05 01/05/05 SHARE PRICE 0 01/02/05 01/03/05 01/04/05 01/06/05 01/09/05 01/11/05 31/12/05 01/07/05 01/08/05 01/10/05 Highlights 2005 was a year of records for Caltex 2 Hig – Higher earnings The record earnings were the result of a strong operating performance by the company’s refining and marketing businesses combined with global market factors – Higher shareholder return There was a 78% increase in the Caltex share price and an 18% increase in dividends in 2005 compared with 2004 – a result that provided a total shareholder return of 82% – Higher throughput at refineries Improved throughput rates and near record production at the refineries enabled Caltex to capture the benefit of higher refiner margins – Record transport fuels sales volumes Caltex strengthened its market leadership in transport fuels sales with growth in petrol, diesel and jet fuel volumes HighlCALTEX ANNUAL REPORT 2005 3 g The RCOP result provides a clear picture of the company’s underlying business performance as it excludes the impact of international oil price movements.When oil-price driven inventory gains are included, profit after tax for the year ended 31 December 2005 on an historical cost basis (excluding significant items) was $574 million * (2004: $457 million). Dividend Caltex was in the top tier The Board declared a final dividend for of performers in the Australian share market 2005 of $84 million or 31 cents per share making a total year dividend of 46 cents for the third year in a row per share fully franked including the interim dividend of 15 cents per share paid in September 2005 (2004 total dividends: 39 cents per share). This payment reflects the company’s stated dividend policy of declaring ordinary We are pleased that the confidence of dividends of 20% to 30% of the RCOP Caltex shareholders has been rewarded by (after tax excluding significant items) in another year of record earnings. 2005 while the company met the high In 2005, we had an 18% increase in profit, capital commitments of the Clean higher dividends for shareholders and a Fuels Project. 78% increase in the share price, which From 2006, the company intends to opened the year at $10.86 and ended at increase the dividend payout ratio to a $19.38, resulting in a total shareholder range of 40% to 60% of the RCOP after return of 82%. Caltex was in the top tier tax excluding significant items. of performers in the Australian share market for the third year in a row. It was However, the declaration and the amount also a year where Caltex’s role in the of any dividends are at the sole discretion Australian economy was highlighted as the of the Board and are dependent on the largest refiner and marketer of petrol, company’s earnings, cash flow requirements, diesel and jet fuel and the country’s leading financial conditions at the time and available convenience store retailer. franking credits. Our higher earnings were the result of global market factors combined with a Higher earnings enable strong operating performance by Caltex’s investment in the business refining and marketing businesses. Our The international fuels market is changing performance continues to be strengthened as the gap widens between the expanding as we focus on the fundamentals, including demand for transport fuels and global lifting our safety performance, which was refining capacity.Two years ago, imports our best on record. Margins for refiners were higher in 2005 RIGHT Managing Director and Chief because of continued strong demand for Executive Officer Dave Reeves and Chairman fuels in the Asia Pacific region. Improved Dick Warburton. throughput rates at both Caltex refineries enabled the company to capture the * This includes inventory gains of $160 million (after benefits of the higher margins. tax) compared with inventory gains of $106 million (after tax) in 2004. The marketing business made a strong Both the RCOP and historical cost profit exclude a contribution to earnings with another one-off after tax gain of $21 million as a result of tax successful year of record transport fuel consolidation legislation passed in 2005.The initial legislation passed in 2004 resulted in a one-off after sales, higher margins and gains in consumer tax gain of $114 million in 2004. preference for the Caltex brand. 2004 comparatives have been adjusted for the transition to Australian equivalents of International The company recorded a full year profit Financial Reporting Standards (A-IFRS). after tax of $414 million on a replacement cost of sales operating profit (RCOP) basis (excluding significant items) for the year ended 31 December 2005 (2004: $350 million). Cha4 Chairman & Managing Director’s report ha CALTEX ANNUAL REPORT 2005 5 ABOVE Caltex is Australia’s leading convenience store retailer with around 30% of national market share. Customer Service Attendant Jonathan Quantick maintains the display at flagship store Caltex Woolworths Neutral Bay in Sydney. of fuel to Australia began to increase regulated for 2008 and 2009, and will be The marketing business increased growth in as a result of continued expansion producing premium petrol in 2006 to the sales and margins across all channels, with of the economy and the closure of a 2008 sulfur standards. new strategies producing impressive competitor’s refinery. growth in key markets for lubricants, There has been a start-up delay and premium fuels and StarCash. Non-fuel It is important that Caltex evolves and significant overrun of our original planned income increased by 11% and a further keeps pace with market changes to enable investment in the Clean Fuels Project, growth in store sales consolidated Caltex’s it to continue to be a reliable, cost-effective primarily due to late delivery of materials position as Australia’s leading convenience supplier meeting the needs of its and equipment and a shortage of store retailer with around 30% of national customers.This is why Caltex is focusing on skilled labour. market share. increasing production of diesel and high This is disappointing, but the company has octane petrol, strengthening its supply chain Our venture with Woolworths has a highly competent and dedicated and focusing on operational excellence supported our growth in transport fuels workforce which has worked to overcome throughout the business. sales with the jointly branded network of these obstacles.The lessons we learned over 470 sites now accounting for almost In 2005, Caltex more than doubled the from the review of this project are 50% of our petrol sales volume.The capital expenditure on its core assets to being applied in our future capital venture is also providing benefits from $530 million, investing in projects at the development activities. improved buying arrangements for goods refineries and in other areas including sold in our convenience store network.