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Chairman and Managing Director's Report (continued)
Biofuels expansion
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.
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.
Acknowledgments
The Board wishes to acknowledge the strong contribution of Mr Richard Warburton AO who retired as Chairman of Caltex on 30 September 2007, a position he had held since April 2001. The Board expressed its appreciation for his leadership during a period which has seen a substantial improvement in Caltex’s performance.
The Board welcomes the appointment of Mr Greig Gailey as a director in December.
Above all, the Board would like to express its thanks to employees, contractors, franchisees and resellers for their commitment and contribution to Caltex’s success in 2007.
Elizabeth Bryan
CHAIRMAN
Desmond King
MANAGING DIRECTOR
AND CHIEF EXECUTIVE OFFICER