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Freedom of
Convenience
2017
Annual Report
Caltex Australia Limited
2017 Annual Report
About Caltex
2017 Highlights
Message from the Chairman
and the Managing Director & CEO
Our Strategy
Operations Reports
Fuels & Infrastructure
Test and Learn at Caltex
Convenience Retail
Sustainable Operations
Our People, Purpose and Values
Safety and Environment
Caltex in the Community
2017 Financial Report
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The Caltex Freedom of Convenience strategy gained momentum
in 2017 as new ventures, improved practices, and a refined
mindset embedded convenience thinking across the business.
Life just got easier for our customers, employees and partners.
Read more in our case studies
New crudes to
Lytton refinery
The
Foodary
p13
p17
Nashi
p20
A great start
for Sofia
Powered
by the sun
The sky’s the
limit for Darcey
p24
p29
p31
We want life to be easier
in every way possible.
Simply follow our links to
use your digital device for
rich online content.
About this Report
This 2017 Annual Report for Caltex Australia
Limited (ACN 004 201 307) has been prepared
as at 27 February 2017. Please note that terms
such as Caltex and Caltex Australia have the same
meaning as Caltex Group, unless the context
requires otherwise. An interactive version of the
Annual Report is available on our website. Visit
www.caltex.com.au to download or view a copy.
Shareholders can request a printed copy of
the Annual Report free of charge by emailing
secretariat@caltex.com.au or writing to the
Company Secretary, Caltex Australia Limited,
Level 24, 2 Market Street, Sydney
NSW 2000 Australia.
Convenience
is our new
mindset
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About Caltex
A proud and iconic Australian company,
Caltex has grown to become the
nation’s leading transport fuel supplier,
with a network of approximately 1,900
company-owned or affiliated sites.
Our complex supply chains safely and
reliably deliver fuel and an evolving
range of convenience products and
services, to more than three million
customers each week.
Our history
Caltex refines, imports and markets the fuels
and lubricants which meet one third of all
Australia’s transport fuel needs. With a history
that dates back to the early 1900s, we have
come a long way – to around 4,700 employees
and a convenience retail network that
covers Australia.
Making life easier
Ease is the greatest benefit we can offer to
anyone who engages with Caltex. Whether this
is our fuel customers wanting to stay on the
move, our retail customers who want to get
more of what they love under one roof, our
business customers who want the complex
made simple, or our employees benefiting
from working in an environment where
delivering for our customers is easier than
ever before, at Caltex we make life easier.
Embracing innovation
Our focus on convenience has resulted in new
digital enablers, streamlined transactions and
efficiency improvements that are truly world
class. We are using the latest technologies
to improve the experience of our customers,
reconfigure our manufacturing operations and
maximise the highest value products.
By embracing new technologies, we are taking
convenience to a whole new level.
This is an exciting time for Caltex.
3
3
2017
Highlights
Lytton refinery’s strong
operational performance,
resulting in higher refiner
margins and continued growth
of Caltex’s businesses,
supported the 2017 results.
$619M
Full year historic cost
profit after tax
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Historic cost of sales
operating profit
(HCOP) ($million)
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14 15
16
17
Year
On an historic basis, Caltex
recorded an after-tax profit
of $619 million for the 2017
full year. This includes crude
and product inventory gains
of $12 million after tax.
$308M
Lytton refinery earnings
before interest and tax
6.2BL
produced at
the Lytton refinery
Transport fuel sales
(Billion Litres)
4
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6
1
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6
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1
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6
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6
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2
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6
1
$733M
Supply & Marketing earnings
before interest and tax
16.2BL
of total domestic
transport fuel volume
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13
14
15
16 17
Year
Total sales volumes of
transport fuels increased
3.4% to 16.2 Billion Litres
(BL) from the previous year
of 16.0 BL. By product, total
diesel volumes increased
7.3% to 7.6 BL, while total
petrols decreased 2.8% to
5.7 BL, broadly in line with
industry trends.
2017
Highlights
5
5
Replacement cost of sales
operating profit
(RCOP) ($million)
8
2
6
1
2
6
4
2
5
3
9
4
2
3
3
12
13
14 15
16 17
Year
Caltex recorded an after-tax
profit for the 2017 full year of
$621 million, excluding significant
items, on a RCOP basis. This is our
preferred measure, as it excludes
net inventory gains and losses and
better represents the underlying
performance of the business.
RCOP NPAT of $621 million is
up 18% on the 2016 result of
$524 million.
Refinery transport fuel production
(Billion Litres)
*
2
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6
5
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5
5
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1 5
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5
4
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5
3
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3
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9 3
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2
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2
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0
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14
15
16
17
Year
Lytton refinery transport fuel production
of 6.2 BL was in line with the record
2016 performance (6.2 BL).
* Reflects production from the Lytton
refinery only, following the conversion
of the Kurnell refinery into a fuels
import terminal.
Message from
the Chairman and the
Managing Director & CEO
We continued to
demonstrate our
track record in sound
decision making
Steven Gregg
Chairman
Julian Segal
Managing Director & CEO
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Replacement cost of sales
operating profit (RCOP) of
$621M
up 18% on 2016
Dear Shareholders,
2017 was a successful year for Caltex for many
reasons. The result was the second highest RCOP
NPAT we have ever delivered. We continued
to demonstrate our track record in sound
decision making in anticipation of the changing
business environment, increased sales, launched
new retail formats, and captured operating
efficiencies, all aimed at improving our capability
for ongoing, sustainable growth.
The year began with the potential loss of our
3.5 BL fuel supply to Woolworths, and the need
to identify and secure new revenue. We acted to
accelerate a growth agenda that included targeted
acquisitions and new overseas market investments.
At the same time, we improved the efficiency of
our operations by identifying annualised operating
cost savings of $60 million.
We announced a significant change to the
company’s organisational structure in 2017,
driven by our Freedom of Convenience strategy.
The establishment of the two businesses
within the company — Fuels & Infrastructure
(Supply, B2B, Refining and Infrastructure), and
Convenience Retail (petrol and convenience) —
was a milestone in our evolution from the nation’s
leading provider of transport fuels to becoming a
leader in complex supply chains and delivering the
needs of our diverse customer base.
We have reported our 2017 results under
Supply & Marketing and Refining. We will report
under our new structure — Fuels & Infrastructure
and Convenience Retail — at our Half Year
results later in 2018. In 2017, we formalised and
embedded the new structure, bringing into core
focus our evolving Convenience Retail business
and accelerating our growth strategy, informed
by the millions of customers we see each week
and a refreshed mindset of making life easier.
7
Safety
Our year was marked by tragedy. Each one of us
at Caltex was saddened by the loss of a colleague
who was fatally injured when he was struck by a
third party vehicle during a routine delivery at a
customer’s site late in 2017.
The health and safety of our people is our primary
focus and this fatality has deeply affected
everyone at Caltex. Our thoughts are with our
colleague’s family, friends and all who knew him
well. His memory is with us daily as we strive to
continue improving our personal and process safety.
This tragic loss was against a backdrop of
otherwise strong, continued improvement in
personal safety measures. The measures for Total
Recordable Injury Frequency Rate (TRIFR), and
Days Away From Work Injury Frequency Rate
(DAFWIFR), show a trend of solid improvement
over the previous three years. Our measure for
contractor days away from work was the best
result we have had to date.
The Fuels & Infrastructure business expanded
into new geographic markets with the completion
of our first international acquisition of Gull in
New Zealand, and a new strategic partnership
with SEAOIL in the Philippines.
These acquisitions leverage the trading and
shipping capability of Ampol in Singapore and
create a platform for further expansion.
Our refinery at Lytton had a very
strong year — its second best year in
production volumes — driven by B2B
growth, and it continues to be a
reliable source of revenue.
We know the capability of our people is at
the heart of the company’s success. The
evolution of the business is supported by agile,
committed people with the expertise required
to deliver sustainable returns and growth for our
shareholders. In addition, the core skills of our
current leaders have been complemented by
the targeted recruitment of external talent with
experience in retail, digital and technology. As
a result, the broader Caltex leadership team is
poised to deliver on our strategic imperatives.
Freedom of Convenience
By the end of 2017, we had opened 23 new
convenience retail stores, operating under
The Foodary format. The early results are
encouraging, with strong customer feedback
and an average sales uplift of around 35%, in
an average period of just four months.
We intend to launch between 50 and
60 The Foodary sites and 5-10 Nashi
high street convenience sites in 2018
at a capital cost of up to $100 million,
ahead of a further rollout in later years.
On 27 February 2018, we announced the outcome
of the two year review of our Convenience Retail
operating model. This review determined that
controlling our core Convenience Retail business is
the best way to deliver our retail growth objectives.
This will see Caltex transition our 433 franchise
sites to company owned operations and we are
aiming to complete this by mid 2020.
Throughout the year, we continued to audit
our entire franchise network in response to the
initial discovery of alleged wage underpayment
of employees by certain Caltex franchisees.
Additionally, we established an assistance fund
for those franchisee employees impacted by
underpayment or wage fraud and supported
those franchisee employees by offering
them employment with Caltex. During 2017,
875 employees have now been employed
by Caltex.
Caltex will not tolerate illegal and unfair practice
and we are committed to stamping it out anywhere
in the franchise network. The Caltex audit
program is ongoing and we will continue to take
all necessary action to stop underpayment or
mistreatment of franchisee employees.
Message from
the Chairman and the
Managing Director & CEO
Our financial performance
For the full 2017 year, on an historic cost profit
basis, Caltex’s after-tax profit was $619 million.
This result was up 1.5% on the 2016 result of
$610 million after tax, with a net $14 million
loss in significant items.
The 2017 full year result includes crude and
product inventory gains of $12 million after tax,
compared with crude and product inventory
gains of $86 million after tax in 2016.
On a replacement cost of sales operating profit
(RCOP) basis, we delivered a RCOP of $621 million,
up 18% on the previous corresponding period, and
marginally above the 2017 profit guidance.
Supply & Marketing delivered strong results with
an EBIT result of $733 million, up by 3.4% from
the previous year. This result includes unfavourable
externalities of $43 million, comprising a realised
loss on foreign exchange of $26 million and a
price timing lag loss of $17 million, which are
both improvements on the previous year.
The underlying Supply and Marketing EBIT increased
5.1% to $776 million, excluding externalities.
Acquisitions added approximately $22 million
EBIT in the second half of the year.
Commercial diesel volumes grew 9.2% to 4.4 BL
due to retention of core B2B customers, and
increased resource and commercial activities.
Jet volumes increased 6.25% to 2.8 BL, reflecting
strong market activity, particularly across the
East Coast, and increased volumes from new
and growing carriers.
The Lytton refinery recorded an EBIT of
$308 million, up 50% on 2016. This reflects
continued strong operational performance, the
benefit of higher average refiner margins.
The refinery continues to operate well with
sales from production of 6.1 BL.
New markets for fuel supply
We continued to grow our international trading
and shipping capability and expertise with our
first international acquisition, Gull New Zealand.
The acquisition of Gull New Zealand enables
Ampol to extend the capability of Caltex’s
supply base.
We also announced that we have entered into
a strategic partnership with SEAOIL, a leading
independent transportation fuels company in the
Philippines, by acquiring a 20% equity interest
in SEAOIL and managing the supply of fuels via
our Ampol capability in Singapore. This new
relationship will deliver mutual benefit for both
Caltex and SEAOIL, allowing us to contribute to
the future growth of this exciting business in one
of the fastest growing import markets in Asia.
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Advances in diversity and inclusion
Caltex was recognised by the Workplace Gender
Equality Agency (WGEA) as a 2017 Employer of
Choice with a Gender Equality citation. This is
the third consecutive year that we have received
such recognition and reflects our commitment
to gender equality.
To guide our progress toward
gender equality, we have set a goal
of 40% female representation in
senior leadership positions by
31 December 2020.
Women currently represent 37% of all senior
leadership positions and achieved 48% of all
promotions to senior leadership positions in 2017.
The gains in female representation on the Caltex
Leadership Team have been maintained at 37.5%
and there has been an increase on the Caltex
Board at 42% female representation (up from
29% in 2016).
Our gender pay difference stands at a minimal
rate of 0.93% in favour of males on a like-for-like
job basis.
In 2017, we also formalised a flexible work
structure, recognising the importance of flexibility
to retaining key talent and making it easier to
return to work following parental leave. 83% of
employees surveyed last year agreed that they
have the flexibility to manage their work with their
caring responsibilities.
Acknowledgment
In August 2017, Greig Gailey retired as Chairman
of the Caltex Board. We would like to acknowledge
and thank Mr Gailey for his considerable
contribution as Chairman since December 2015
and nearly 10 years of service as a Director. During
his tenure, Caltex Australia was transformed from
a fuel refiner-marketer to a leading integrated
transport fuels player delivering significant value
to shareholders.
The year ahead
Freedom of Convenience continues to be the right
strategy to deliver top quartile shareholder returns
by making life easier for our diverse customer
base across Australia. Caltex will continue to
protect, grow and extend our businesses, and
expand further into the convenience market where
we are already making great strides.
We continue to see the growth of new capabilities
that make us agile and adaptable, capabilities
we couple with our track record in good
decision-making in order to set us up for future
earnings. This is a great time to be a part of the
Caltex story as we work towards reinventing the
convenience retail offer in the Australian market,
as well as growing our fuels business.
On behalf of Caltex’s Board and management,
we wish to thank our employees and business
partners for all that they do to support our
company in being a proud Australian employer,
delivering results for our customers and the
communities in which we operate.
9
We would also like to thank our shareholders for
your continued support as we continue to deliver
on our exciting plans for the future of Caltex.
Our
Strategy
Freedom of
Convenience
To be the market leader in complex
supply chains and the evolving
convenience marketplace, by
delivering the fuel and other
everyday needs of our diverse
customers through our networks.
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Strategy
Protect,
Grow and
Extend
Fuels &
Infrastructure
Convenience
Retail
Regional
expansion
Optimise
infrastructure
position
Grow trading
and shipping
Serve business
customers to
protect and grow
the supply base
Enhance the fuel
retail customer
offering
Create new
customer solutions
in the convenience
marketplace
Safety
Efficiency
People
Technology
Fit for Purpose
Enhance capabilities and competitiveness
Caltex aspires to be the market
leader in complex supply chains
and the evolving convenience
marketplace, by delivering fuel and
other everyday needs of our diverse
customers through our networks.
To reflect our Freedom of Convenience
vision, in 2017, Caltex changed its
operating model and established
two different but inter-connected
businesses which require separate
cultures, processes and systems, both
with significant growth options. The
company merged Supply, B2B, Refining
and Infrastructure into one business unit
(Fuels & Infrastructure) to better optimise
our value chain. Convenience Retail will
focus on the company’s consumer-facing
petrol and convenience business.
Top quartile
shareholder
returns for
investors
The “Protect and Grow” aspect of the
strategy is focused on capturing the
many opportunities that exist to continue
to enhance and expand across the
businesses. “Extend” will build on our
current assets, capabilities and customer
base to develop the business in both
existing and new adjacent markets.
We are confident our Freedom of
Convenience strategy is the right one to
deliver top quartile shareholder returns.
Values
Connect to win
Collaborate and
unite diverse
ideas to reach
commercial goals
Find new ways
Test big and small
ideas to learn and
lead change
Own it
Be accountable,
take considered
risks and be
courageous enough
to call it
11
Make a difference
for customers
Know your customers,
personalise the
experience and make
life easy for them
Never stop caring
Act with integrity
and respect,
constantly challenge
each other to be
better and always
be safe
Caltex’s Freedom of Convenience strategy continues to evolve
and has been updated since 31 December 2017 to reflect the
regional expansion within the company.
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Operations
Reports
Fuels &
Infrastructure
For more than 117 years,
Caltex has built a reputation
across Australia as a safe,
reliable provider of high
quality fuels and lubricants
to our many customers.
We know the world is ever-changing, and that we
are equipped to take these challenges head on.
That is why, in 2011, Caltex set a vision – to be the
outright leader in transport fuels across Australia.
We continue to evolve our physical operations,
skills and capabilities with our strength in creating
value from our integrated, and complex supply
chains. In 2017, we combined our Supply, Trading
and Shipping, B2B Sales, Refining, Lubricants
and other asset operations groups to become
a single business – Fuels & Infrastructure. This
integrated business supplies more than one third
of all Australia’s transport fuel needs through our
network of distribution assets across the country
including the Lytton refinery, 19 Caltex owned or
part owned terminals, 89 depots, pipeline networks
in Sydney and Brisbane, and freight logistics.
Our strong base in Australia, combined with our
Trading and Shipping team in Ampol Singapore,
has also allowed us to expand our international
operations into New Zealand with Gull NZ.
Our Lytton manufacturing team produces around
35% of the fuel products and 80% of the lubricants
sold by Caltex, and we continue to make the right
investments in our core business to improve the
reliability and efficiency of our wide-reaching
supply network.
We are proud to serve a broad range of customers
throughout Australia and provide the fuels and
other products and services needed to keep this
nation, and our economy, moving. At Caltex we
excel at this, using our unique combination of deep
industry knowledge, strong customer relationships
and an integrated supply chain.
Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
Lytton
production
6.2BL
StarCard
Number of
StarCard
customers
900,000
Enabling our strategy
The “Protect and Grow” aspect of the Caltex
strategy is focused on delivering value from our
foundation operations in Australia and identifying
and leveraging new opportunities within our
Fuels & Infrastructure business.
Growing our trading and shipping capability
During 2017, our Trading and Shipping team in
Ampol successfully delivered new value to Caltex
through its role as a competitive and reliable
supplier to our Australian business. This new
capability for Caltex provides our external market
understanding, critical for our operations amidst
a global business, while also providing a platform
for growth.
Ampol plays a critical role in our integrated value
chain by leveraging our infrastructure positions
such as the Kurnell terminal, optimising the supply
chain around the Caltex Lytton refinery, including
crude and feedstock, sourcing from a broader
range of locations, and make-or-buy decisions
around premium fuels. The international market
knowledge provided by the experienced team and
the strong shipping and operational capability
allows Caltex to access new opportunities more
rapidly as market conditions change. This includes
Case Study
New crudes to
Lytton refinery
Visit the link for rich online content.
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Annualreports/2017/
Supply ship at Caltex Fuel Terminal, Lytton
reoptimising the trade flow for Australia, and
capturing sales into new markets such as
New Zealand, the Philippines and other regional
supply locations.
Our conservative approach to trading and shipping
remains unchanged, with our activities focused on
our strength of physical supply and optimisation.
We continue to improve our risk management
capability, by enhancing our prudent commodity
risk management systems to enable opportunities
in the international market, capture higher earnings
and reduce cash flow volatility.
13
At our Lytton refinery we are constantly looking
for ways to maximise value from market conditions.
Our independent Trading and Shipping capability at
Ampol in 2017 has enabled us to expand the list of
crudes processed at Lytton.
Seven new crudes that have not been used at the
Lytton refinery in recent history were sourced
through a collaboration between the refinery and
our Trading and Shipping teams in Singapore.
Through a careful selection of new crudes these
teams optimised value, created alternative
shipping opportunities, forged new relationships
and changed refinery operations to maximise the
highest value products.
This delivered a higher than planned financial
outcome, resulting from the optimisation of
supply location selection, term vs spot decision
making, parcel and shipping vessel size selection,
co-load optimisation, and economic decisions to
build and draw inventory to benefit from market
sale opportunities.
Philippines
Our offshore operations
New Zealand
Singapore
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Australia
Optimising our infrastructure
position means we run our assets
in a safe and cost efficient way.
This means we can supply what
our customers need, anywhere
they need it, safely and reliably,
ultimately making their lives easier.
Countries
from where
we bought and
sold product
and crude
18
Customers
Number of
commercial
customers
13,900
Serving business customers to protect
and grow our supply base
Through our deep understanding of our customers’
needs and our strong infrastructure position across
Australia, we are able to deliver flexible customer
solutions for fuels, lubricants and related services,
across a broad range of industries in both rural and
metro locations.
Despite the ongoing competitive market, in 2017
we have experienced solid growth volumes in B2B
for the first time in three years. This is a result of
combining all of our knowledge into one team
in Fuels & Infrastructure, adapting our offer to
meet the changing needs of our customers, and
Caltex’s enduring commitment to always safely
and reliably supply high quality products and a
local experience.
Gull service station,
New Zealand
Optimising our infrastructure position
We take pride in our expertise in managing
complex supply chains and have demonstrated
continued investment in distribution
infrastructure across Australia throughout 2017,
enabling us to better serve our customers and
remain their supplier of choice.
In 2017, we completed $75 million of upgrade
works to our Newport Terminal in Melbourne.
This allowed improved reliability and flexibility
in our Jet Fuel supply to Melbourne Airport,
and contributing to growth within Australia’s
South-East. It was also a demonstration of
our ongoing commitment to safety through
upgrades to terminal traffic management,
improving operations within the terminal and
as part of the Newport community.
Following the successful conversion of the
Kurnell refinery in NSW into Australia’s largest
fuel terminal, we are well progressed on the
refinery decommissioning and demolition
program, with completion expected in
mid 2018. The total Kurnell transformation
project remains on plan, with ongoing
remediation work progressing well and in
consultation with the community.
Lytton refinery continues to deliver on its
promise to be a safe, reliable and competitive
part of our supply chain. We take pride
in the maintenance and performance of
Lytton and view it as one of our most valuable
assets. In combination with our Trading and
Shipping team, the Lytton team was able to
take advantage of favourable market conditions
through its reliable operations and optimisation
of feedstocks and product yields. This resulted
in Lytton repeating its strong 2016 production
performance, despite minor outages for planned
maintenance and upgrades. These upgrades
included the conversion of the benzene
hydrogenation unit (BHU) to a new configuration,
allowing Lytton to further increase its ability
to produce high quality gasoline products with
improved yield.
Growing our Fuels & Infrastructure business
The strong foundations of our Fuels &
Infrastructure business and strategy have
provided opportunities during 2017 to grow
into adjacent areas. Our growth in Trading and
Shipping has allowed us to strategically target
international expansion and increase the scale,
and scope, of our Singapore-based fuel sourcing
and shipping operations.
During the year we acquired Gull New Zealand,
a challenger brand in the north island of
New Zealand. Gull New Zealand supplies our
customers across 84 locations on the north island
of New Zealand, including 33 technology-driven
unmanned sites and New Zealand’s largest
independent fuels import terminal at Mount
Maunganui. We are pleased to have the Gull New
Zealand team join Caltex, and we can already see
opportunities for both organisations to deliver
new value together.
On 21 December, Caltex entered into a strategic
partnership with SEAOIL, the leading independent
fuel company in the Philippines. The 20% ownership
and fuel supply arrangement will further support
our targeted international expansion strategy
and allows us the ability to increase the scale
and scope of our Singapore-based fuel sourcing
and shipping operations.
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$75M
INVESTMENT
Horizons terminal upgrade
completed in 2017
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Test and
Learn at Caltex
At Caltex, we see the role of convenience in our
customers’ lives as being significantly wider than
the traditional purchase of fuel and some items
in store.
The Freedom of Convenience is also about
exploring what our existing capabilities and
technology can do to make our customers’ lives
easier, while at the same time exploring new
capabilities and new technologies.
Our digital capability at Caltex allows us to
continuously engage, listen to and co-create
solutions with our customers with the aim of
bringing everyday convenience retail value to
them. Innovation sits within our overall strategy
that starts with the customer in mind — taking an
outside-in approach.
Caltex has a long history of adapting to changing
consumer needs — our business started in 1900 and
today is Australia’s leading transport fuel supplier.
From new types of fuel such as engine-cleaning
Vortex, fresh food and barista-made coffee at
The Foodary through to new ways to pay such as
StarCard and FuelPay, Caltex is always looking for
the next generation of innovative ideas.
We are investing in creativity, innovation and
software engineering capabilities and focusing
on delivering convenient solutions that respond
to what our customers are thinking and desiring.
Caltex’s Telematics solution is delivering
real time insights into vehicle performance in
terms of mechanical aspects, safety and efficiency,
which is translating into lower fleet operating
and maintenance costs as well as improved
safety outcomes.
We are working with strategic partners to
deliver vendor-managed inventory solutions to the
transport and mining sectors to provide them with
supply reliability and less administration to allow
our customers more time to focus on their core
business priorities.
Our FuelPay app, due to launch in mid 2018 was
developed off the back of an extensive test to
create a frictionless, fast and simple pay experience
without leaving your car. Customers can pre-
order coffee and snacks at The Foodary using our
app, and we are taking a close look at number
plate recognition technology to provide another
frictionless payment option for our customers.
Other areas of priority include replacing our core
platforms and starting to use artificial intelligence
bots and robotics automation to drive better
customer experiences in our sites. This includes
personalised offers using our new big data platform,
self-checkout, electronic receipting options, and
enhanced app and website customer interactions.
The customer is central to all decisions, and we are
redesigning our corporate systems to ensure that
we deliver on our customer promises accurately,
simply and at speed.
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Case Study
The Foodary
The Foodary has gone from strength to strength
in 2017. January saw our first store open in
Concord, Sydney which marked the start of our
journey to reinvent the convenience retail offer
in the Australian market.
From Granville to Gelorup,
The Foodary has by the end of 2017
more than 23 stores, which includes
Caltex’s first non-fuel location at
the Newcastle Interchange train
station in New South Wales.
The Foodary is making a difference for customers
by offering higher quality, fresh on-the-go food
and barista-made coffee. We are partnering with
leading quick service restaurant providers, with
a common focus on freshness and convenience,
a more inviting store experience and a seamless
digital platform.
Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
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Operations
Reports
Convenience
Retail
Each week, we serve more
than three million customers
and 70,000 business
customers who are looking
for ways to make life easier.
The opportunity to meet the needs of our
customers is becoming significantly wider than
the traditional purchase of fuel and the odd item
in store. That is why our ambition is to become
a world-class convenience retailer. It is about
exploring what our existing capabilities, footprint
and technology can do while at the same time
discovering new capabilities and technologies
which will add value to the lives of our customers.
2017 was a transformational year for the
Convenience Retail business, and we are
energised and encouraged by what we have
achieved so far.
With new stores, new formats, a vastly improved
offer and the launch of high street retailing, we
are building an inviting shopping experience
underpinned by digital enablers and convenient
services for customers.
Our overall fuel sales volumes remained steady
in a competitive market, with volume continuing
to grow across total premium products, while, as
expected, sales of base unleaded petrols continue
to decline. We continue to transform our in-store
offer and operating model with a focus on the
customer experience, value-for-money deals
and engaging marketing.
Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
The Foodary was named as one of the
top three retailing concepts globally in
2017 by independent strategic market
researcher Euromonitor International.
The report What’s New in Retail:
Emerging Global Concepts in 2017
highlights the evolution and
reinvention of the retail environment
around the world and recognises The
Foodary for its stand-out convenience,
quality and commitment to reinventing
service station forecourts in Australia.
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Through a new and refreshed format, we have
achieved an in-store sales up-lift averaging 35%.
Caltex has also seen a strong acceptance of fresh
food and barista coffee. With an enticing offer,
we are encouraging customers to shop with us
more often.
By the end of 2017, we had opened
23 The Foodary stores, which
included the opening of our first
non-fuel standalone location in a
transport hub in Newcastle,
New South Wales.
The acquisition of Nashi in January 2017 brought
seven stores across Melbourne to the Caltex
network and marked our expansion into high street
retailing and fresh food, with a commercial kitchen
facility making fresh food, daily. In December 2017,
we opened the doors to our first Nashi store in
Sydney, with plans to continue to roll this offer
out by utilising former ticket booths in several key
locations across Sydney train stations.
The Foodary and Nashi are bold departures from
what Caltex has done before and illustrate our
proven track record of delivering new solutions
for our customers.
The Foodary at Newcastle, NSW;
one of Caltex’s first non-petrol sites
Our large-scale petrol and convenience retail
network continues to be one of Australia’s largest,
and with more than three million weekly customer
transactions, we are well placed for the future. In
2017, we added 38 stores to the network including
17 new to industry sites and 21 new to Caltex
stores. In addition, we also completed 24 major
property projects including five knock-down
rebuilds, 12 major upgrades and seven Star Mart to
The Foodary transitions. All this while, transitioning
46 additional retail sites through the acquisition
of Milemaker Petroleum, which added key stores
to our previously under-represented position in
Melbourne, Victoria and its outer suburbs.
Reinvigorating our offer
As our customers’ needs and wants evolve,
we continually focus on making a difference for
customers and building a shop offer that gives
them a reason to come to our sites — whether that
be to fill up their vehicle, enjoy a barista-made
coffee or have a digitally enabled experience to
enjoy both.
We are continuing the investment in our core
Star Mart network by offering unique-to-market
products such as Frozen Oak. With more than
550 Star Mart stores, we are attracting customers
to return with seasonal campaigns showcasing the
breadth of our offer while continuing to explore
new ways of merchandising. A Voice of the
Customer program is giving us insights straight
from our customers, which helps improve our offer
and find new ways to add value to our customers’
lives and those of our team members. This
program will be rolled out nationally in 2018.
We opened our first The Foodary in January 2017
which delivers barista-made coffee, fresh food,
quality grocery products and services such as
parcel pick-up for customers on the move.
Case Study
Nashi
Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
January marked our expansion beyond the
petrol and convenience space and into high
street retailing via the acquisition of grab-and-go
Nashi Sandwich and Coffee Bar and its seven
stores in Melbourne. The purchase of Nashi
provided Caltex with an immediate high
street presence in the fresh food space and
a commercial kitchen facility that makes fresh
food daily.
Late in 2017, our first Nashi store in Sydney
opened on Clarence Street at Wynyard
station in the Sydney CBD. A partnership
with Transport for NSW will deliver exciting
new developments in train station locations
during 2018 for both Nashi and The Foodary.
By repurposing the ticketing booths at key
locations including Bondi Junction, Chatswood,
Parramatta and Kings Cross, we’ll be reaching
out to meet the changing needs of our consumers,
wherever they travel.
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Finding new ways
Caltex’s Freedom of Convenience vision means
that many of the experiences our customers have
with us need to be underpinned by technology.
Our customers are becoming digitally savvy and,
over 2017, we trialled a new FuelPay app across
13 locations. FuelPay allows customers to fill their
vehicle and pay via the app. FuelPay will be rolled
out across our sites nationally in the first half
of 2018.
With more than 70,000 businesses relying on
the reach of our network and the reliable supply
of fuel and other products, the StarCard offer
was reinvigorated. This included partnering with
Australia’s number one loyalty program Qantas
Business Rewards and leading accountancy
software provider Xero to deliver a differentiated
proposition for Australian business. Against the
backdrop of a declining card market, more than
9,000 new accounts were opened, which equates
to a 125% increase year on year. This growth led to
an additional 400,000 transactions and increased
the proportion of our Vortex Premium fuel volume
sales within the card base from 39% in 2016 to
55% in 2017.
To enhance the Caltex brand, we have continued
key commercial sponsorships with the Football
Federation Australia, including naming rights
for the Caltex Socceroos, and also a broader
partnership with the Westfield Matildas. Both
teams had a successful 2017, with the Caltex
Socceroos securing their spot at the 2018 World
Cup, and the Westfield Matildas taking out the
inaugural Tournament of Champions. We are proud
to help develop the next generation of Australian
football stars.
We also continued our partnership with the
Red Bull Holden Racing team, including
2017 Virgin Australia Supercars Champion
Jamie Whincup and Shane van Gisbergen, as well
as AutoBarn Lowndes Racing with Craig Lowndes.
The Red Bull Holden Racing Team achieved
second place in the team championship at the
Virgin Australia Supercars Championship.
Looking to the future
In 2018, Caltex will continue focusing on customer
experience, reviewing our operating model and
delivering technology to drive more value for our
customers. We’ll continue to improve The Foodary
format while working with our suppliers and
partners to achieve our ambition to become
a world-class convenience retailer.
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Sustainable
Operations
Our People,
Purpose and
Values
During 2017, Caltex embarked
on a major cultural review that
resulted in a newly defined
purpose and refreshed
organisational values.
Our employees helped to define the company’s
culture and refreshed values that would drive
continued success for Caltex into the future, as
well as provide a clear purpose to make Caltex a
great place to work for our people.
In October 2017 Caltex announced that its purpose is
to make life easier, whether this is for our wide range
of customers who want the freedom of convenience,
whether it’s making the complex simple, or improving
the way our employees work in an environment that
will inspire them to work their best.
Five core values which represent an evolution from
our earlier values have been launched, reflecting the
strengths within our culture, while also propelling us
to change and continually improve in important ways:
• Connect to win
• Find new ways
• Own it
• Make a difference for customers
• Never stop caring
Our new values tell a story about what is important to
us as a business and how we need to work to deliver
outstanding business results and deliver on our promise
to make life easier.
In 2017, we continued to focus on enhancing key
capabilities across the business, to enable the growth
within our interconnected Fuels & Infrastructure and
Convenience Retail businesses. Through acquiring new
talent and building internal pipelines of talent, this goal
is supported by our own Caltex Academy. Started two
years ago, the Caltex Academy, in partnership with
leading institutions, fosters a culture of learning and
innovation by having a targeted approach that delivers
structured career development and leadership programs
and self-directed learning content for our employees’ key
stages of their working careers.
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Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
Our People,
Purpose and
Values
Employees
Number of
employees
4,724
Gender representation at Caltex
Senior
Leaders
Executive
Team
Overall
Company
37 %
63%
37.5%
62.5%
39%
61%
Caltex graduates and
CareerTracker Interns
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Diversity and inclusion
At Caltex, we know that a diverse and inclusive
workplace makes us more effective, more resilient and
more vibrant. That’s why we take a proactive approach
to developing our workforce.
Gender equality
Reflecting our commitment to diversity and inclusion
and our best practice programs to promote gender
equality, we were proud to be awarded a 2017
Employer of Choice for Gender Equality citation from
the Workplace Gender Equality Agency, for the third
consecutive year.
To guide our progress toward gender equality, we
have set a goal of 40% female representation in senior
leadership positions by 31 December 2020. Women
currently represent 37% of all senior leadership
positions, and achieved 48% of all promotions to
senior leadership positions in 2017. The female
representation on the Caltex Leadership Team has been
maintained at 37.5% and there has been an increase
on the Caltex Board to 42% female representation
(up from 29% in 2016). The pipeline of female talent
and the representation of women in senior positions
will continue to grow and be supported by the Caltex
Leadership Academy and Talent programs.
Our gender pay differential stands at a minimal rate
of 0.93% in favour of males on a like-for-like job basis,
which is a reduction of 0.1% since 2016.
Sustainable
Operations
Indigenous employment
An ongoing focus for Caltex is to make a real
difference in the lives of Indigenous Australians by
providing sustainable employment and development
opportunities. In 2017, the number of Aboriginal and
Torres Strait Islander employees doubled, and the
first Indigenous graduate, a former participant in the
CareerTrackers program, moved into a permanent
role. We also employed our first Indigenous school
based trainee and continued our support of the
CareerTrackers program, employing an additional
three interns. This brings the total number of interns
to nine since the partnership began in 2014.
In 2017, Caltex formed a Reconciliation Action
Plan (RAP) Working Group with Indigenous and
non-Indigenous employees from across the business.
This group is developing Caltex’s first RAP, which
will build on and formalise Caltex’s commitment
to support reconciliation in Australia and will be
launched in 2018.
Flexibility and inclusion
In 2017, Caltex launched a Flexible Work Program
which is designed to help employees manage their
career and balance it with their personal interests
and commitments outside work. This program is
designed to further embed our flexible work culture.
83% of employees surveyed in 2017 agreed that
they have the flexibility to balance their work with
their caring responsibilities, and we look forward to
improving this even further.
Our BabyCare package also continues to provide
practical and financial support to parents in their
transition back to work, with 58 parents accessing
the package in 2017. This innovative package aims
to provide flexible work arrangements and options
for parents wanting to return to work at Caltex.
Flexibility continues to be essential to parents, with
over 50% of employees returning to a flexible work
arrangement on their return from parental leave
in 2017.
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Case Study
A great start
for Sofia
Now in its fifth year, our BabyCare package
gives meaningful support for parents returning
to work — providing primary caregivers with
confidence and support when transitioning
back to work. Until their child turns two, Caltex
employees (who are the primary caregiver) have
access to a range of offerings including a 12%
bonus on annual salary, emergency childcare
sessions and a childcare finding service.
For Caltex Telematics Manager,
Jacques Lepron, our BabyCare
package gave him and his wife
Caroline great peace of mind.
“When my wife and I were expecting our first
child, Sofia, we were overjoyed! But we were
also worried about practical things like taking
time out of the workforce and finding childcare
when returning to work. It was also a challenging
time, as Caroline was in the process of launching
her new start-up business, which required more
of her time and commitment.”
This prompted Jacques to access our primary
carers leave and allowed him the opportunity to
spend quality time with Sofia, as well as helping
his wife concentrate on the growth of her new
start-up.
“I’ve now returned to work and already utilised
the childcare finding service. The bonus has
been a wonderful benefit for my family, not only
to offset our childcare costs but also because,
as working parents, it’s comforting to have your
company’s full support.”
Visit the link for rich online content.
http://microsites.caltex.com.au/
Annualreports/2017/
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Sustainable
Operations
Safety and
Environment
Caltex strives for incident-free
operations. We are relentless
in our commitment to ensuring
that our workforce goes home
safe every day and that we
protect the environment in
which we operate.
SAFETY
Personal safety
Safety culture is fundamental to who we are at
Caltex. Tragically, in 2017, a Caltex tanker driver was
fatally injured by a third party vehicle during a routine
delivery at one of our customer’s sites. The memory
of our colleague inspires our continued commitment
to personal safety — to ensure that our people go
home safe every day. We will continue to strive to
make sure that our people prioritise safety in their
day-to-day activities.
This tragic loss was against a backdrop of otherwise
strong, continuous improvement in personal safety
measures. In 2017, Caltex transitioned one of its key
personal safety metrics from Total Treated Injury
Frequency Rate (TTIFR) to Total Recordable Injury
Frequency Rate (TRIFR) to align more closely with
the reporting classification used by comparable
companies and industries. The Caltex TRIFR for 2017
was 5.20, which represents an 8.6% improvement
on the personal safety performance of 2016, where
the TRIFR was 5.69, and a 9.4% improvement when
compared with the TRIFR average for the previous
three years. Similar improvements were also seen
in Days Away From Work Injury Frequency Rate
(DAFWIFR), where 2017 performance at 1.36
represents a 21% improvement on 2016 (1.73), and
a 56% improvement when compared with the average
DAFWIFR of the previous three years.
There were 46 recordable injuries during 2017.
Of these, 12 resulted in days away from work,
21 required temporary work restrictions but no
days away, and 12 required medical treatment but
no days away. Thirty-three of the recordable injuries
involved employees, and 13 involved our contractors.
Caltex undertakes a Drug and Alcohol Program that
aims to mitigate occupational risks associated with
certain lifestyle factors. In 2017, 2,416 drug and
2,916 alcohol tests were conducted on employees
and contractors at safety critical sites across the
business. This involved an extensive testing program
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Visit the link for additional detail of Caltex’s
Safety and Environment reporting in 2017.
http://microsites.caltex.com.au/
Annualreports/2017/
Safety and
Environment
during specific potential high-risk activities, such as
during the Caltex Lytton refinery alky maintenance
shutdown and the Newport Horizons Terminal
Expansion Project, both of which involved large
contractor labour forces.
While maintaining focus on improving performance
by the prevention and management of low severity
injuries, Caltex has introduced a new measure
in 2017 to elevate focus on the prevention of
incidents that have the potential for high severity
consequences (HiPo incidents). A high-potential
incident is an incident or near-miss that could
have, under other circumstances, caused a high
consequence injury or a fatality. Awareness of
high-potential incidents is a key factor in preventing
them from occurring. There were six HiPo incidents
in 2017 and the majority of these incidents did not
result in high consequence injuries.
Process safety
Process safety focuses on the safe manufacture,
distribution and transportation of products, and the
safe operation of all Caltex facilities. In 2017, there
was one Tier 1 and two Tier 2 process safety events,
both at the Lytton refinery. Neither had any material
impact on the environment.
Health and wellbeing
Caltex undertakes targeted health and wellbeing
programs every year, including the provision of the
Caltex Employee Assistance Program. This program
assists employees and their immediate families to
improve their wellbeing and morale.
In 2017, Caltex supported 210 employees to
participate in the Global Corporate Challenge, a
16 week team-based program aimed at promoting
and increasing physical activity levels.
Caltex has a strong commitment to mitigating the
health risks associated with physical exposure
to hazards within the workplace by controlling
exposures at their source.
In 2017, we continued to strengthen occupational
health and hygiene programs across the business.
Work undertaken included a detailed review of how
Caltex manages the risk of noise-induced hearing
loss across Caltex Aviation facilities. The outcome of
this review will be used to develop a comprehensive
Hearing Conservation Program for Aviation in
2018. Significant work has also been undertaken in
developing fit for purpose online awareness training
packages for Caltex employees involved in the
management of asbestos and chemical hazards.
Contractor safety
Contractors perform extensive work across our
facilities. Ensuring that this work is undertaken
safely is of utmost importance to Caltex.
In 2017, the contractor DAFWIFR, representing
more serious injuries, was the best on record at
0.37 per million man hours worked. This was a
notable achievement considering the number
of large scale projects over the year such as the
Lytton refinery Turnaround and Inspection, the
Newport Terminal expansion, and the Kurnell
decommissioning and demolition. These projects
carry a higher risk due to the nature of the work
involved, and the engagement of a more itinerant
contract workforce.
In addition to a robust contractor engagement,
vetting and on-boarding process, Caltex undertook
189 safety reviews as part of its contractor safety
management process.
Risk management
The Caltex Risk Management Framework provides a
comprehensive high level view of the risks faced by
Caltex, including strategic risks, business related risk
and risks that are a threat to our employees or the
environment. Workshops with senior staff regularly
review the status of risks and determine further
management needs. Quarterly governance reports
are provided to the Caltex Board. At an operational
level, a comprehensive suite of risk management
tools are used to identify, assess and address facility
and workplace risks.
ENVIRONMENT
Protecting the environment
Caltex is committed to protecting the environments
in which we operate through full compliance with
regulations and standards and robust operational
management. We regularly conduct internal and
external monitoring to ensure that our organisation
meets these standards.
Caltex’s businesses are subject to a range of
environmental laws and regulations as well as
project and site-specific environmental licences
and approvals issued by both federal and
state governments. The international operations
of the businesses, including shipping activities,
also work to comply with any additional international
or applicable countries obligations.
Our Lytton refinery, six licensed terminals across
Australia (Kurnell, Banksmeadow, Mackay, Cairns,
Gladstone and Port Hedland) and the Lytton
lubricants manufacturing facility are operated
in accordance with an ISO-14001 compliant
Environment Management System. These systems
are subject to external surveillance audits to ensure
continued compliance to the 14001 standard.
In 2017, companies in the Caltex Group held
21 environmental protection licences relating to
the Lytton refinery, 11 terminals, six marketing
facilities, one aviation refuelling facility, our lubricants
manufacturing facility and a bulk shipping facility.
Any instances of non-compliance against these
licences were reported to the environmental
regulator. All significant spills and environmental
incidents were recorded and reported as required
to government authorities.
Caltex maintains emergency response plans to
respond to and minimise the potential severity
of environmental incidents. We conduct thorough
investigations when an actual or potential significant
environmental incident occurs to understand the
cause and identify corrective actions to prevent
similar events.
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• Continued focus on energy efficiency projects
at our Lytton refinery.
• Evaluation of solar installations across our company
operated WA service station network.
We also recognise that climate related risks are just
one part of our broader corporate ESG governance
framework and to this end we considered that our
historical climate related risk reporting via the Carbon
Disclosure project (CDP) can be effectively reported in
the future via an integrated annual report.
Our participation in the CDP for over the past five years
has provided a valuable framework to enhance our
management and internal communication on climate
change. Over this time our Scope 1 and 2 combined
emissions have reduced from 2.1m tonnes to 0.9m
tonnes per annum. A focus on energy efficiency
continues at our Lytton Refinery, which is responsible
for 97% of our total annual Scope 1 emissions.
A safeguard mechanism was implemented by the
Clean Energy Regulator (CER) to ensure that emissions
reductions purchased by the Government are not offset
by significant increases in emissions above business-
as-usual levels elsewhere in the economy.
The safeguard mechanism commenced on
July 2016 and in mid December 2017, the CER
issued Caltex Australia Limited with a calculated
emissions baseline determination for a baseline of
711,162 tonnes of CO2. This determination has effect
from July 2016 to June 2019.
Caltex continues to support greenhouse gas
reduction policies which maintain the international
competitiveness of Australian industries such as
petroleum refining.
Total Scope 1 and Scope 2 emissions
FY12
13
FY13
14
FY14
15
FY15
16
FY16
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Scope 1,
metric tonnes
of CO2-
equivalent
Scope 2,
metric tonnes
of CO2-
equivalent
1,849,610 1,704,466
938,680
733,537
737,663
288,640
269,848
197,970
178,273
183,784
Sustainable
Operations
Regular internal audits are carried out to assess
the efficacy of management systems to prevent
environmental incidents, as well as to control other
operational risks. Improvement actions determined
through the audit process are reviewed by the
Board’s OHS & Environmental Risk Committee
and senior management.
Caltex Soil Remediation Facility
The Caltex Soil Remediation Facility located at the
Caltex Kurnell Terminal continues to operate and
to date has negated approximately 20,000 tonnes
of soil from going to landfill. This equates to over
1,000 truckloads of soil otherwise destined for
Sydney landfill.
Once remediated, the contaminated soil is re-used
within the Kurnell Terminal as part of the ongoing
demolition and remediation project of the former
refinery site. This reduces the volume of quarried
material Caltex would otherwise have to import to
the site for levelling works.
Climate change
At Caltex, climate related risk is overseen by the
Board’s OHS & Environmental Risk Committee.
Caltex engages with federal government departments
and regulators directly and indirectly via industry
groups on climate change policy and legislation,
to ensure material risks to our business are both
understood and can be effectively managed.
Prioritisation is based on the anticipated material
impact of the mitigated risk and likelihood rating
derived from a cross functional review of the Caltex
risk management framework.
Caltex has undertaken a review on the following
climate related risks to our business:
• Risks driven by changes in physical climate
parameters.
• Risks driven by changes in other climate-related
developments.
• Risks driven by changes in regulation.
The opportunities that we have identified while
undertaking our risk review include:
•
Implementation of relevant Task Force
on Climate-related Financial Disclosures
recommendations.
Metric tonnes of CO2 equivalent
1,800,000
1,350,000
900,000
450,000
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SCOPE 1
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Case Study
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Caltex continues to look at ways to further
improve its portfolio-wide energy efficiency
and is reviewing ways to use smart metering,
smart switchboards, demand management and
whole-of-life asset efficiency assessments.
The review will include continued LED
upgrades and solar evaluations at our highest
electricity consuming sites.
An energy review last winter at two sites in Western
Australia compared a new site designed with our broader
convenience offering in mind with a well-established
service station focused on fuel sales. The comparison of
the different sites helped Caltex understand the major
areas of energy use and identify opportunities to improve
energy efficiency and reduce costs. Refrigeration, air
conditioning and lighting are major users of energy
at both new and old sites which can be improved
with insulation, new technology and LED lighting,
alongside training for the employees in our stores.
Both reviews also identified that we could achieve
more than 25% reduction in our electricity use by
embracing solar energy while future-proofing sites
for batteries. This would also give the potential
to support the charging of electric vehicles from
renewable sources in the future.
As a result of these findings, Caltex embarked on a
solar photovoltaic (PV) panel pilot trial at the two sites
in July 2017. This trial found that using solar PV panels
improved energy efficiency by over 30%, reduced peak
demand and delivered a greenhouse gas emissions
reduction of over 20%. The initial pilot success
resulted in broader trials which have now commenced
at additional sites with a view to scale up, initially in
Western Australia in 2018, and to explore further rollout
potential on the eastern seaboard and in South Australia.
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Energy efficiency and greenhouse gas emissions
During the year Caltex continued to implement
greenhouse gas emissions related reduction activities
to improve energy efficiency within our operations.
This included the ongoing installation of lower
energy usage light fittings in new service station
canopy designs. These activities have reduced
energy usage as well as operational and maintenance
costs at current service station locations.
Furthermore, energy audits conducted at service
station sites in 2017 have identified efficiency
opportunities which will be tested in 2018, including
smart switchboards and demand response/smart
metering solutions.
In 2017, Lytton refinery’s site Energy Intensity Index
(EII) was 98.8, a slight increase on 2016 as a result
of unit outages throughout the year.
Reporting under the National Greenhouse and
Energy Reporting Scheme continued in 2017.
Scope 1 emissions are from energy sources owned
and controlled by Caltex, and Scope 2 emissions are
purchased energy from electricity, heat or steam.
Caltex’s Scope 1 and Scope 2 emissions increased
slightly from the previous year given Lytton refinery’s
increased throughput (Scope 1) and as a result of
an increase in the Caltex operated service station
network (Scope 2).
Infrastructure, integrity and product stewardship
Reliable, quality supply and a strong infrastructure
network are keystones of Caltex’s ability to meet
Australia’s transport fuel needs. Product quality
specialists at Caltex oversee the integrity of fuel through
our supply chain, including shipping, manufacturing,
storage and delivery systems, to ensure that our
customers receive high quality products, our legal
and regulatory obligations are met and performance
is consistently high. Our quality specialists work with
customers to improve performance and efficiency
and develop new products to meet their needs.
Underground tank replacement and monitoring
Caltex reduces potential environmental risks by
actively monitoring our Underground Petroleum
Storage Systems (UPSS), which are used at both
service stations and depots. The 2017 program
prioritised the replacement of UPSS at 12 sites. Since
the program’s inception in 2007, underground tanks
at 146 sites have been replaced.
Waste management
The Australian Packaging Covenant (APC) is a
sustainable packaging initiative which aims to change
the culture of business to design more sustainable
packaging, increase recycling rates and reduce
packaging litter. As a signatory to the APC, Caltex
is pleased to report 100% compliance among our
product suppliers for our Star Mart brand. With the
introduction of our fresh food offer branded under
The Foodary, we are actively working with our
suppliers on packaging design, and incorporating
recycled content into primary private label packaging.
Sustainable
Operations
Caltex in
the Community
At Caltex, we value our
role in working with our
operating communities
to create meaningful and
sustainable impacts.
Our approach
Whether providing high quality fuel or everyday
convenience to our customers, we consider the
environmental, social and governance (ESG) risks
associated with all our business activities. We
recognise that our stakeholders want companies
to be more transparent about communicating
their ESG frameworks, investments and any
related risks.
Our people in the community
We know that our employees are also passionate
about our communities and making a positive,
sustainable impact.
Caltex employees regularly donate a percentage
of their pre-tax salary to a range of community
programs, with Caltex matching their contributions
dollar-for-dollar. Together, we raised more than
$90,000 for nine charity partners in 2017.
A number of Caltex employees also volunteered
at non-profit organisations including The Clontarf
Foundation and The Smith Family, to help
build capacity and deliver the critical work
of these organisations.
Caltex Community Partnerships
Beyond our employee engagement initiatives, our
strategic social investments focus on three core
areas — road safety, youth education and children’s
health. Our aim is to contribute to the quality of life
for our operating communities.
Our long-standing partnerships with various local
and national charitable organisations are evidence
of our shared deep commitment to improving
our society’s wellbeing through a diverse range
of initiatives.
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Caltex in
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Make-A-Wish
Australia
Since our
partnership
began in 2013,
more than
$1.2 million has
been raised for
Make-A-Wish
Australia by
Caltex stores and
our employees
$1.2M
Caltex Best
All Rounder
Award
For 32 years,
Caltex has
recognised the
best students
in Australia’s
secondary
schools last
year, with
2,120 students
receiving the
Caltex Best
All Rounder
Award
2,120
students
Building the capability of our youth
We believe access to education can change
life outcomes for individuals and so are keen
supporters of educational initiatives that are having
this impact. Since 2011 Caltex has supported The
Clontarf Foundation which aims to improve the
education, discipline, life skills, self-esteem and
employment prospects of young Aboriginal and
Torres Strait Islander men.
We are enormously proud to support Clontarf’s
work with our 2017 funding covering its staff costs
to provide full-time mentoring to almost 6,000
young Aboriginal and Torres Strait Islander men
across its nation-wide network of 87 academies.
Further to this, 527 of these participants were
Year 12 school leavers, enabling Clontarf to guide
each of these leavers to successfully transition into
employment, training or further study.
Caltex’s support commenced in 2011, and
since then we continue to further deepen
our partnership by providing other valuable
opportunities for Clontarf participants to further
learn and grow. An example was in late 2017,
when a group of Year 10 boys from Moree in
New South Wales visited our Lytton refinery –
from the control room to the chemical testing
laboratory, the students came away with a better
understanding of the complex environment of our
oil production plant.
Driving home the road safety message
Safety is at the core of everything we do at Caltex,
and we want to ensure that safety is top of mind for
motorists whenever and wherever they travel.
This is why we value being a founding partner of the
Australian Road Safety Foundation’s Fatality Free
Friday (FFF), Australia’s only national community
based road safety initiative. Held annually since
2007, the program promotes a Fatality Free Friday
to reinforce safe driving messages, and aims to
reduce the devastating impact of road trauma.
Caltex reinforces driver safety messages at our
various sites and stores.
Internally, we also foster higher awareness and
understanding of driver safety by encouraging
our employees to pledge their FFF support online,
while our Operational Excellence and Risk team has
prepared a range of support materials including
toolbox talks.
Granting life-changing wishes
Since 2013, Caltex staff and customers have
supported Make-A-Wish Australia by raising much
needed funds to help make the wishes of seriously
ill children and teenagers come true through the
Star Mart Wish Drive.
In 2017, 134 Caltex stores across Australia
participated in this month-long campaign, with over
$160,000 raised through gold coin collections and
on-site activities. This takes our total funds raised
for Make-A-Wish to more than $1.2 million since
partnering together in 2013.
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Two years ago, at the Clontarf Academy as part of the
Endeavour Sports High School, Darcey Moran could
not have imagined he would be working at Australia’s
largest liquid fuel import terminal as part of his two
year traineeship at Caltex.
Combining paid work, training and school, Darcey is
now working one day a week at our Kurnell terminal
while completing his High School Certificate (HSC)
and Business Studies course. Upon completion,
Darcey will earn an industry recognised national
qualification as well as credit towards his HSC.
Clontarf’s CEO, Gerard Neesham, says, “That’s a key
goal for Clontarf – to prepare the boys in our program
for life after school and build practical knowledge and
skills that support their qualifications.”
For Darcey, “The people I work with at Caltex are really
welcoming, and I’ve already learnt so much from them.
Also, Clontarf has helped me to be more disciplined
and value teamwork. I now think the sky’s the limit,
anything is possible – just give it a go!”
Case Study
The sky’s the limit
for Darcey
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Sustainable
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The Kids’ Cancer Project fuelled by Caltex
raised over $200,000 in August 2017
Our financial and in-kind support in 2017 for
various community groups remained strong,
and included the following:
• Caltex Lytton refinery workers rolled up their
sleeves to donate 155 blood and plasma
collections to the Australian Red Cross Blood
Service.
• We fuelled the Kids’ Cancer Project’s big yellow
bus to travel nearly 10,000km across Australia’s
east coast to raise awareness of the importance
of investing in scientific research to help
children with cancer. This month-long drive in
August 2017 raised over $200,000 in pledged
donations, equating to 1.4 scientists employed
for a year.
• Lytton refinery staff volunteered at the Wynnum
Community “Meals for the Homeless” initiative.
• Caltex partnered with the Port of Brisbane to
present a “Safety 1 Forum”, which showcased
the importance of safety and mental health
across the business and at home.
• We launched a community art competition in
December 2017 to celebrate the recent upgrade
of our Newport Fuel Terminal in Victoria,
with the winner’s artwork to be recreated on
the largest of our 19 tanks on site. We have
engaged local government representatives to be
part of the judging panel, and the winner will be
announced in August 2018.
• Our Sydney corporate head office employees
took part in The Smith Family’s annual
Christmas Toy and Book Appeal by donating
new toys and books to be given to children
in need.
Motivated to change our young drivers’
behaviour
Another safety initiative Caltex supports is
Motorvation, a unique program designed to change
young driver attitudes and behaviour. The program
provides driver tuition to young people aged 15 to
20 years with an aim to decrease risk-taking and
collision risk, and ultimately create safer drivers.
Our support of Motorvation began in 2013, when
we initially supplied the fuel needed to deliver the
40-50 courses annually across the eastern states
of Australia. Two years later, we increased our
support to include financial sponsorship, aiding
Motorvation to visit more secondary schools and
youth organisations.
Recognising our best all rounders
The Caltex Best All Rounder Award has earned
a reputation for being one of Australia’s most
respected secondary education recognition
programs. It has been presented to thousands of
final-year students, acknowledging their all-round
contributions to their schools and communities.
Now in its 32nd year, the program has seen
participation steadily growing, with last year
around 75% of all secondary schools in Australia
taking part, and 2,120 students receiving the
award. Our employees also get involved by
presenting the award to the worthy recipients.
31 of our people volunteered their work time
to award the 2017 winners at their schools.
Working together with our local communities
At Caltex, we place great importance in
continuously engaging key stakeholders and the
surrounding communities around our sites and
facilities. We do this through regular consultation
with community groups, written information about
our operations and a 24 hour free call line available
for people with any concerns regarding our
Lytton refinery.
2017 FINANCIAL REPORT
FOR CALTEX AUSTRALIA LIMITED
ACN 004 201 307
Contents
Directors’ Report
Financial Statements
34
77
Comparative Financial Information
120
Replacement Cost of Sales Operating
Profit Basis of Accounting
Shareholder Information
Directory
121
122
124
The 2017 Financial Report for
Caltex Australia Limited includes:
• Directors’ Report
• Lead Auditor’s Independence Declaration
• Directors’ Declaration
•
Independent Auditor’s Report to the
Shareholders of Caltex Australia Limited
• Consolidated Income Statement
• Consolidated Statement of
Comprehensive Income
• Consolidated Balance Sheet
• Consolidated Statement of Changes
in Equity
• Consolidated Cash Flow Statement
• Notes to the Financial Statements
for the year ended 31 December 2017
Caltex Group
For the purposes of this report,
the “Caltex Group” refers to:
• Caltex Australia Limited (Caltex), the parent
company of the Caltex Group listed on the
Australian Securities Exchange (ASX)
• Major operating companies, including
Caltex Australia Petroleum Pty Ltd
• Wholly owned entities and other entities that
are controlled by the Caltex Group
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Directors’ Report
The Board
Introduction
The Board of Caltex Australia Limited presents the 2017
Directors’ Report (including the Remuneration Report)
and the 2017 Financial Report for Caltex Australia Limited
(Caltex) and its controlled entities (Caltex Group) for
the year ended 31 December 2017 to shareholders.
An Independent Audit Report from KPMG, as external
auditor, is also provided.
Board of directors
The Board of Caltex Australia Limited comprises
Steven Gregg (Chairman), Julian Segal (Managing Director
& CEO), Trevor Bourne, Melinda Conrad, Bruce Morgan,
Barbara Ward AM, and Penny Winn.
The following changes to the composition of the Board
have occurred since 1 January 2017:
• Mr Greig Gailey retired as Chairman of the
Caltex Board from August 2017
• Mr Steven Gregg was appointed as Chairman of the
Caltex Board from August 2017
• Ms Melinda Conrad was appointed to the Caltex Board
as an Independent, Non-executive Director, effective
1 March 2017.
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1 Steven Gregg
Chairman and Independent, Non-executive Director
Date of appointment: 9 October 2015
Appointed Chairman: 18 August 2017
Board committees:
Nomination Committee (Chairman)
Steven Gregg has over 25 years of investment banking
experience in Australia and internationally and brings
to the Board extensive executive, corporate finance,
strategy, and mergers and acquisitions experience.
Mr Gregg has held various roles with ABN AMRO,
most recently as Global Head of Investment Banking
and the CEO of the United Kingdom. Following this,
Steven was a Partner in the Strategy and Financial
Institutions practice at McKinsey & Company in Sydney
and internationally.
Mr Gregg is a director of Challenger Limited,
Challenger Life Company Limited, Lorna Hodgkinson
Foundation, Tabcorp Holdings Limited and William
Inglis & Son Limited. He is the Chairman of Unisson
Disability Limited and a trustee of the Australian
Museum. He has previously served as Chairman of
Goodman Fielder Limited and Austock Group Limited,
and was a member of the Grant Samuel non-executive
advisory board.
Mr Gregg holds a Bachelor of Commerce from the
University of New South Wales.
2 Julian Segal
Managing Director & CEO
Date of appointment: 1 July 2009
Julian Segal joined Caltex from Incitec Pivot Limited,
a leading global chemicals company, where he served
as the Managing Director & CEO from June 2005 to
May 2009.
Prior to Incitec Pivot, Mr Segal spent six years at Orica
in a number of senior management positions, including
Manager of Strategic Market Planning, General
Manager – Australia/Asia Mining Services, and Senior
Vice President – Marketing for Orica Mining Services.
Mr Segal is a director of the Australian Institute of
Petroleum Limited (appointed 1 July 2009).
Mr Segal holds a Bachelor of Science (Chemical
Engineering) from the Israel Institute of Technology
and a Master of Business Administration from the
Macquarie Graduate School of Management.
3 Trevor Bourne
Independent, Non-executive Director
Date of appointment: 2 March 2006
Board committees:
OHS & Environmental Risk Committee
(Chairman), Human Resources Committee
and Nomination Committee
Trevor Bourne brings to the Board broad management
experience in industrial and capital-intensive
industries, and a background in engineering and
supply chain. From 1999 to 2003, he served as CEO
of Tenix Investments. Prior to Tenix, Mr Bourne spent
15 years at Brambles Industries, including six years as
Managing Director of Brambles Australasia. He has also
previously worked for Incitec Pivot and BHP.
Mr Bourne is Chairman of Senex Energy Limited
(appointed 10 March 2015), a director of Sydney
Water Corporation (appointed February 2014) and
was recently appointed as a director of Virgin Australia
Holdings Limited (appointment 1 January 2018).
He was previously a director of Origin Energy Limited
(from February 2000 to November 2012).
Mr Bourne holds a Bachelor of Science (Mechanical
Engineering) from the University of New South
Wales and a Master of Business Administration from
the University of Newcastle, and is a Fellow of the
Australian Institute of Company Directors.
4 Melinda Conrad
Independent, Non-executive Director
Date of appointment: 1 March 2017
Board committees:
Audit Committee, OHS & Environmental Risk
Committee and Nomination Committee
Melinda Conrad brings to the Board expertise in
strategy and governance and a background in retail
and technology-led transformation.
Ms Conrad is currently a non-executive director of
ASX Limited, OFX Group Limited and The George
Institute for Global Health. She is also a member
of the ASIC Director Advisory Panel and the
Australian Institute of Company Directors Corporate
Governance Committee.
Ms Conrad has previously served as a non-executive
director of The Reject Shop Limited, David Jones
Limited, APN News & Media Limited and the Garvan
Medical Research Institute Foundation. Ms Conrad
held executive roles at Harvard Business School,
Colgate-Palmolive, several retail businesses as founder
and CEO, and in strategy and marketing advisory.
Ms Conrad holds a Bachelor of Arts (Hons) from
Wellesley College in Boston, and a Master of Business
Administration from Harvard Business School, and is a
Fellow of the Australian Institute of Company Directors.
5 Bruce Morgan
Independent, Non-executive Director
Date of appointment: 29 June 2013
Board committees:
Audit Committee (Chairman), Nomination Committee
and OHS & Environmental Risk Committee
Bruce Morgan brings to the Board expertise in financial
management, business advisory services, risk and
general management. He is the Chairman of Sydney
Water Corporation and Redkite, and a director of
Origin Energy Limited (appointed November 2012),
the University of New South Wales Foundation and the
European Australian Business Council. Prior to this,
Mr Morgan was a partner with professional services
firm PricewaterhouseCoopers (PwC) for over 25 years,
where he practised as an audit partner with a focus
on the energy and mining sectors. He was previously
Chairman of the PwC Board and a member of the PwC
International Board. Prior to that, he was managing
partner of PwC’s Sydney and Brisbane offices.
Mr Morgan is a Fellow of the Australian Institute
of Company Directors and Chartered Accountants
Australia and New Zealand, and holds a Bachelor
of Commerce (Accounting and Finance) from the
University of New South Wales.
6 Barbara Ward AM
Independent, Non-executive Director
Date of appointment: 1 April 2015
Board committees:
Human Resources Committee (Chairman),
Audit Committee and Nomination Committee
Barbara Ward brings to the Caltex Board strategic
and financial expertise in senior management
roles, including as Chief Executive Officer of Ansett
Worldwide Aviation Services and General Manager
Finance at TNT Limited. Ms Ward also served as
a Senior Ministerial Adviser to the Honourable
Paul Keating.
Ms Ward is a director of Qantas Airways Limited and
various Brookfield companies. An experienced director,
she has previously served on the boards of various
public companies including the Commonwealth Bank
of Australia, Lion Nathan Limited and Multiplex Limited,
and public sector entities, including as Chairman
of Country Energy and, most recently, the Sydney
Children’s Hospital Foundation.
Ms Ward is a member of the Australian Institute of
Company Directors and holds a Bachelor of Economics
and a Master of Political Economy from the University
of Queensland.
7 Penny Winn
Independent, Non-executive Director
Date of appointment: 1 November 2015
Board committees:
OHS & Environmental Risk Committee,
Human Resources Committee and Nomination
Committee
Penny Winn brings to the Board Australian and
international strategic, major transformation
and business integration, technology and retail
marketing experience.
Prior to her appointment to Caltex, Ms Winn was
Director Group Retail Services with Woolworths Group
Limited, and she has over 30 years of experience
in retail with senior management roles in Australia
and internationally.
Ms Winn is Chairman of Port Waratah Coal Services
Ltd, a director of CSR Limited and has been recently
appointed a director of Goodman Limited and
Goodman Funds Management Limited. Ms Winn is a
member of the University of Technology, Sydney (UTS)
Business School’s Advisory Board and a graduate of
the Australian Institute of Company Directors. She
has previously served as a director of a Woolworths
business, Greengrocer.com, a Myer business, sass
& bide, and Quantium Group and was a member of
the Australian Payments Clearing Association’s CECS
Advisory Council.
Ms Winn holds a Bachelor of Commerce from the
Australian National University and a Master of
Business Administration from the University
of Technology, Sydney.
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Directors’ Report
continued
Leadership Team
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1 Andrew Brewer
Executive General Manager, Transformation
Andrew Brewer was appointed to this position in
2017. He is an experienced senior executive in the
energy and resources sector. Commencing his career
as a professional electrical engineer, Andrew has held
leadership roles in engineering, project management,
maintenance, reliability, operations, business strategy,
planning and general management.
Andrew's career has spanned the minerals
processing, resources and energy industries across
Australia and in Canada where he was Downstream
Country Chair and General Manager of the Burnaby
oil refinery for Chevron Canada. Andrew also
previously managed the Kurnell refinery.
2 Viv Da Ros
Chief Information Officer
Viv Da Ros was appointed to this position in
December 2016 and is responsible for leading
the technology transformation program at Caltex.
He is a commercially-driven senior technology
executive focused on customer-centric, innovative
solutions which deliver operational efficiencies and
engagement. His nearly 30 years of experience
includes senior leadership positions in Australia,
Asia and Europe, predominantly in the retail sector
with the ASW Group, Tesco, KPMG and Dairy Farm
International. Viv holds a Master of Business
Administration from Manchester Business School and
a Master of Project Management from the University
of Technology, Sydney.
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3 Simon Hepworth
Chief Financial Officer
Simon Hepworth was appointed to this position
in 1999. He joined Ampol in 1996, after 10 years
with Arthur Andersen. He is responsible for
Finance, accounting and decision support, Treasury,
Taxation, Investor Relations, Information Technology
and procurement.
Simon holds a Bachelor of Arts and a Masters of
Applied Finance. He is a member of the Institute
of Chartered Accountants in England and Wales.
He is also a member of the Australian Institute of
Company Directors.
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Executive General Manager, Human Resources
Joanne Taylor joined Caltex in 2016.
She is an accomplished human resources leader,
having worked in human resources and operational
roles for businesses such as McDonald’s Australia,
Westpac, The Star and The Australian Industry Group.
Her last role at McDonald’s was Senior Vice President
Human Resources, Corporate Communications
and Supply Chain. Prior to this, her roles included
leading the franchise and company operations across
New South Wales and the Australian Capital Territory
for approximately 290 retail stores.
Joanne holds a Bachelor of Commerce from the
University of New South Wales.
8 Louise Warner
Executive General Manager, Fuels & Infrastructure
Appointed as Caltex Australia’s Executive General
Manager, Fuels & Infrastructure in 2017, Louise Warner
is responsible for ensuring competitive reliable fuel
supply for our customers.
Louise joined Caltex in 1999 and her career has
spanned a range of roles within the company, starting
as a process engineer at the Kurnell refinery. Louise
gained commercial and trading experience through
her secondment to Chevron UK. Recently, she was
responsible for successfully establishing Caltex
Australia’s first overseas operation, Ampol Singapore,
which includes the company’s global trading and
shipping function.
Louise holds a Bachelor of Engineering (Chemical)
from the University of New South Wales.
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4 Richard Pearson
Executive General Manager, Convenience Retail
Appointed in August 2017, Richard Pearson is
accountable for leading the transformation of Caltex’s
retail and consumer fuel business.
Richard has worked in retail and consumer goods for
twenty years in Australia and the UK with a broad range
of leadership experience across commercial functions.
Before joining Caltex, Richard was a member of the
leadership team at Coles Supermarkets where he was
most recently the Supply Chain & Strategy Director.
Prior to this, Richard was the Merchandise Director and
the Director responsible for Coles Express. Richard
holds a Bachelor of Arts from Cambridge University.
5 Lyndall Stoyles
Executive General Manager, Legal and Corporate Affairs
Appointed as Executive General Manager Legal and
Corporate Affairs in October 2016, Lyndall Stoyles
manages Caltex’s legal, secretariat, internal audit,
compliance and corporate affairs teams. As Executive
General Manager Legal and Corporate Affairs, she
is responsible for providing legal advice to Caltex’s
Board, CEO and broader leadership team. She is also
Company Secretary to the Board.
Lyndall has more than 20 years’ experience in advising
on competitor, commercial and corporate head office
legal issues. Prior to joining Caltex, Lyndall was Group
General Counsel and Company Secretary for former
logistics business Asciano and spent more than a
decade with Clayton Utz advising on competition,
commercial and corporate law issues in a broad range
of industries.
Lyndall holds a Diploma of Law/Master of Law from the
University of Sydney and is a member of the Australian
Institute of Company Directors.
6 Alan Stuart-Grant
Executive General Manager, Strategy and
Corporate Development
Appointed as Executive General Manager, Strategy
and Corporate Development in November 2017, Alan
Stuart-Grant manages Caltex’s strategy, corporate
development and M&A activities.
Prior to joining Caltex, Alan held a senior position in
the Oil and Gas department of Glencore plc, and prior
to that spent more than a decade in private equity
and investment banking, working in Sydney, London
and Singapore.
Alan holds a Bachelor of Science (Business
Administration) degree from the University of Bath,
and is also a member of the Australian Institute of
Company Directors.
Operating and financial review
The purpose of the operating and financial review (OFR)
is to enhance the periodic financial reporting and provide
shareholders with additional information regarding the
Group’s operations, financial position, business strategies and
prospects. The review complements the Financial Report on
pages 77 to 119.
The OFR may contain forward-looking statements. These
statements are based solely on the information available at the
time of this report, and there can be no certainty of outcome
in relation to the matters to which the statements relate.
Company overview
Caltex, including predecessor companies, has safely and
reliably fuelled the needs of Australian motorists and
businesses for more than a century.
Caltex is one of Australia’s leading transport fuel suppliers and
convenience retailers and is listed on the Australian Securities
Exchange. The head office is in Sydney, and the company has
approximately 4,700 employees. Caltex aims to be the market
leader in complex supply chains and the evolving convenience
marketplace, by delivering the fuel and other everyday needs
of its diverse customers through its networks.
The principal activities of Caltex during the year were the
purchase, refining, distribution and sale of petroleum products
and the operation of convenience stores throughout Australia
and the north island of New Zealand under Gull NZ. There
were no significant changes in the nature of Caltex’s principal
activities or in the state of affairs during the financial year.
At Lytton in Brisbane, Caltex manufactures fuels including
LPG, petrol, diesel and jet fuel, lubricants, greases and other
small amounts of fuel oil and speciality products. Caltex also
buys refined products on the open market both overseas and
locally through our shipping and trading entity Ampol. The
products that Caltex manufactures and imports are marketed
and distributed to retail and commercial consumers and are
supplied via a network of pipelines, terminals, depots, barges
and company-owned and contracted transport fleets.
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Group strategy
Over the past five years, Caltex has transformed from a
refiner-marketer through to a leading integrated transport
fuels business, with a largely franchised convenience retail
business. In 2016, we launched our new vision, the “Freedom
of Convenience”, announcing our intention to continue our
transformation from being the leading provider of transport
fuels to a much more diverse organisation that operates
across complex supply chains and the evolving retail
convenience marketplace.
In 2017, Caltex made the decision to change its operating
model by establishing two inter-dependent, but different
businesses which require separate cultures, processes and
systems, both with significant growth options. The company
has merged Supply, B2B, Refining and Infrastructure into one
business unit (Fuels & Infrastructure) to better optimise our
value chain. Convenience Retail will focus on the company’s
consumer-facing petrol and convenience (P&C) business.
As part of this decision to optimise the existing operating
model, Caltex identified initial expected cost savings of
approximately $60 million (before tax) per annum, with the full
annual run rate expected to be achieved by the end of the first
quarter of 2018. Associated restructuring costs of $23 million
(including redundancy costs, other cash and non-cash costs)
were recognised in 2017. The cost savings include headcount
reduction of approximately 120 roles across both operational
and support functions and other identified cost savings.
The operating model review is continuing with a focus on
further enhancing our capabilities and competitiveness,
including the delivery of further efficiencies through more
fit for purpose operating models for each business.
Caltex will keep the market regularly updated as this review
and other phases of our transformation progress.
The strategy outlined below has been updated to reflect
the decision to establish two inter-dependent operating
businesses. The “Protect and Grow” aspect of the strategy
is focused on capturing the many opportunities that exist to
continue to enhance and expand the Fuels & Infrastructure
business. In the “Extend” aspect of the strategy, Caltex will
build on its current assets, capabilities and customer base to
develop the Convenience Retail business in both existing and
new adjacent markets.
Directors’ Reportcontinued
Caltex’s strategy – overview
Our Strategy
Freedom of
Convenience
To be the market leader in complex
supply chains and the evolving
convenience marketplace, by
delivering the fuel and other everyday
needs of our diverse customers
through our networks.
Optimise
infrastructure position
Fuels &
Infrastructure
Grow trading
and shipping
Strategy
Protect and Grow
Convenience
Retail
Extend
Serve business customers
to protect and grow
the supply base
Enhance the fuel retail
customer offering
Create new
customer solutions
in the convenience
marketplace
Connect
to win
Find new
ways
Own it
Top quartile
shareholder
returns for
investors
Make a
difference
for customers
Safety
Efficiency
People
Technology
Fit for Purpose
39
Never stop
caring
Assessing each element in turn
Optimise infrastructure
position
Maintain a relentless focus on a cost-competitive supply chain through excellence in infrastructure
and refinery management and being proactive in adapting to changing market dynamics and
pursuing new infrastructure opportunities.
Grow trading and shipping Continue to develop and expand the capabilities and operations of Ampol. This allows Caltex to
capture opportunities for value creation in sourcing and delivering product, and enables international
expansion into the Asia Pacific region.
Protect and grow
supply base
Execute organic and inorganic strategies to increase marketing volumes in target regions to support
long term infrastructure investment and competitive supply.
Enhance the fuel retail
customer offering
Continue to develop elements of the fuel site retail offer which will attract more customers to Caltex
sites and increase customers’ spend while there.
Create new customer
solutions in the convenience
marketplace
Leverage Caltex’s existing strong consumer-facing business, including our network of over 900 retail
sites and over three million weekly customer visits, to build a new and differentiated convenience
offer for customers across multiple formats, products, locations and channels.
All of these elements of strategy are underpinned by a strong focus on continually enhancing Caltex’s capabilities and
competitiveness through:
• Safety – systematically managing both personal and process safety across the business to drive towards zero injuries and
environmental harm.
• Efficiency – continuing to drive down costs and utilise assets more efficiently to ensure an industry-leading cost structure.
• People – continuing to invest in our people to strengthen organisational capability and agility.
• Technology – continuing to invest in new technologies in order to drive operational efficiencies.
• Fit for Purpose – culture, metrics and measurement will vary between the two businesses.
Through the strategies outlined above, Caltex is committed to growing earnings by capturing opportunities across all elements
of its existing business, as well as through extending into adjacent areas.
Enhance capabilities and competitiveness
Operating and financial review continued
Group strategy continued
In pursuing this clear growth agenda in both the “Protect and Grow” and “Extend” aspects of the business strategy, Caltex will
continue to assess potential acquisitions. These will only be pursued, however, where the strategic rationale is compelling and
they deliver appropriate risk adjusted returns for shareholders.
Caltex’s measure of success continues to be to safely and reliably deliver top quartile total shareholder returns.
Caltex Group results 31 December 2017
On an historical cost profit basis, Caltex recorded an after-tax profit of $619 million for the 2017 full year, including significant
items of $14 million loss. This compares with the 2016 full year profit of $610 million, which included no significant items.
The 2017 result includes a product and crude oil inventory gain of $12 million after tax. The 2017 total inventory gain of
$12 million compares with an inventory gain of $86 million after tax in 2016.
A reconciliation of the underlying result to the statutory result is set out in the following table:
Reconciliation of the underlying result to the statutory result
Net profit attributable to equity holders of the parent entity
Deduct/add: Significant items (gain)/loss
Deduct/add: Inventory (gain)/loss
RCOP NPAT (excluding significant items)
2017
$m
(after tax)
2016
$m
(after tax)
619
14
(12)
621
610
–
(86)
524
On an RCOP 1 basis, Caltex recorded an after-tax profit for the 2017 full year of $621 million. This compares with an RCOP
after-tax profit of $524 million for the 2016 full year, excluding significant items.
$m
700
600
500
400
300
200
100
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Caltex RCOP NPAT*
■ RCOP NPAT 1H
■ RCOP NPAT 2H
377
314
320
270
261
161
197
171
173
151
113
307
251
254
2011
2012
2013
2014
2015
2016
2017
* RCOP Net profit after tax, excluding significant items
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1. Replacement cost of sales operating profit (RCOP) excluding significant items (on a pre- and post-tax basis) is a non-International Financial Reporting
Standards (IFRS) measure. It is derived from the statutory profit adjusted for inventory (gains)/losses, as management believes this presents a clearer
picture of the company’s underlying business performance, and is consistent with the basis of reporting commonly used within the global refineries
industry. This is unaudited. RCOP excludes the unintended impact of the fall or rise in oil and product prices (a key external factor). 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.
Directors’ Reportcontinued
Caltex Group Results 31 December 2017 continued
Dividend
The Board has declared a final dividend of 61 cents per share (fully franked) for the second half of 2017. Combined with the
interim dividend of 60 cents per share for the first half, this equates to a total dividend of 121 cents per share for 2017, fully
franked. This equates to a total dividend of 121 cents per share for 2017, fully franked. This compares with a total dividend
payout of 102 cents per share (fully franked) for 2016. This is in line with a target dividend payout ratio of 40-60% of
RCOP NPAT.
Income statement
For the year ended 31 December 2017
1.
2.
Total revenue 1
Total expenses
Replacement cost earnings before interest and tax
Finance income
Finance expenses
3. Net finance costs
4.
5.
Income tax expense 2
Replacement cost of sales operating profit (RCOP)
Significant items gain/(loss) after tax
Inventory gain/(loss) after tax
Historical cost net profit after tax
Interim dividend per share
Final dividend per share
Basic earnings per share
Replacement cost (excluding significant items)
Historical cost (including significant items)
Discussion and analysis – Income statement
2017
$m
21,424
(20,489)
935
3
(70)
(67)
(247)
621
(14)
12
619
60c
61c
238c
237c
2016
$m
17,935
(17,122)
813
7
(80)
(73)
(216)
524
–
86
610
50c
52c
199c
232c
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1. Total revenue
▲ 19%
2. Total expenses –
replacement
cost basis
▲ 20%
Total revenue increased primarily due to the increase in world petroleum product prices, which
reflects the rise in world crude oil prices, and the impact of higher refiner margins (a component of
refined product prices). Product prices are denominated in US dollars. This increase was partly offset
by the rise of the Australian dollar.
The weighted average Brent crude oil price in 2017 was US$54/bbl, compared to US$44/bbl in 2016.
Total expenses also increased primarily as a result of higher replacement cost of goods sold due to
the higher price of refined product.
Includes other income of $2 million (2016: $2 million) less the significant item loss of $14 million (2016: nil).
1.
2. Excludes tax payable on inventory gain of $6 million (2016: $37 million tax benefit) and excludes tax cost on significant items of $10 million (2016: nil).
Operating and financial review continued
Income statement continued
RCOP EBIT breakdown 1
Caltex Refiner Margin
(CRM)
$641m
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 basically represents: average Singapore refiner margin + product quality
premium + crude discount/(premium) + product freight – crude freight – yield loss.
Transport fuels margin
$1,188m
US dollar CRM was higher in 2017 at US$13.02/bbl, compared with US$10.50/bbl for 2016. In AUD
terms, the CRM was 10.67 Australian cents per litre in 2017, compared with 8.88 Australian cents per
litre in 2016.
Total refinery production in 2017 of all products was 6.2 billion litres, compared with 6.4 billion
litres in 2016, reflecting the closure for turnaround and inspection (T&I) maintenance work that
occurred in 2017.
Transport fuels comprise petrol, diesel and jet. The transport fuels margin consists of the earnings
on these products within the Supply and Marketing segment and represents the integrated sourcing,
distribution and sales margin. 2017 margins benefited from the contributions of the Gull NZ and
Milemaker acquisitions.
Premium domestic fuel sales were 4.8 billion litres in 2017, compared with 4.4 billion litres in 2016.
Caltex’s overall domestic transport fuel sales volumes have increased 3% in 2017. Total retail diesel
margins have continued to grow strongly, driven by increased sales of the premium diesel product,
Vortex Diesel, and as a result of growth in the diesel vehicle market.
The higher transport fuel sales volumes reflected an increase in Jet and Vortex Diesel sales partly
offset by declining petrol sales. The decline in unleaded petrol sales is driven by the substitution to
vehicles requiring diesel fuels and efficiencies to internal combustion.
Jet volumes increased 6%, driven by increased domestic capacity and a high win rate of new business.
Lubricants and
specialties margin
Lubricants and specialties products include finished lubricants, base oils, liquefied petroleum gas,
petrochemicals, wax and marine fuels.
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$83m
Non-fuel income
$150m
Operating expenses
($1,052m)
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Other
($75m)
RCOP EBIT excluding
significant items
$935m
Non-fuel income includes convenience store income, franchise income, royalties, property, plant
and equipment rentals, StarCard income and share of profits from distributor businesses. Non-fuel
income is $27 million lower than in the prior year, driven by the short term impact of transition of
around 175 franchised sites to company operations (lower royalties and other franchise fees as well
as incurring costs to convert sites).
Operating expenses include Supply Chain, Marketing and Corporate operating expenditure.
There has been an increase of $39 million from 2016 due to:
• higher depreciation and amortisation of $20 million
incremental operating expenses in relation to the Milemaker and Gull NZ acquisitions,
•
•
increased major project costs (including M&A and franchisee review),
• partly offset by good cost control and a low inflationary environment.
Other includes a number of miscellaneous items that include: foreign exchange impacts, other
refining gross margin impacts, gain/loss on disposal of assets and subsidiary earnings. There was
a net foreign exchange loss of $26 million (after hedging) in 2017.
1. The breakdown of RCOP shown here represents a management reporting view of the breakdown and, therefore, individual components may not
reconcile to statutory accounts.
Directors’ Reportcontinued
Discussion and analysis – Income statement continued
3. Net finance costs
▼ 8%
4. Significant items
after tax
▲ $24m
5. Inventory gains after tax
▼ $74m
Net finance costs decreased by $6 million compared with 2016. The key driver of the reduction
in interest cost is a lower average interest rate on borrowings, driven by savings of $5 million on
repayment of subordinated notes in September 2017, partially offset by the impact of higher average
daily borrowings in 2017 relative to 2016.
During 2017, there were net significant items of $24 million loss ($14 million loss after tax).
The significant items are a result of the announced establishment of the Franchisee Employee
Assistance Fund ($20 million), restructuring and redundancy costs associated with the capability
and competitiveness project Quantum Leap ($23 million), offset by the profit on sale of Caltex’s
fuel oil business and the utilisation of prior period capital losses to partially offset tax expense
on the profit on sale.
During 2016, the Group has recognised no significant items.
Inventory gains were driven by the increase in crude oil prices in 2017, with crude oil rising from
US$54/bbl in December 2016 to US$64/bbl in December 2017. The crude price movement, partly
offset by an increase in the Australian dollar over the period, combined with the result of hedging
activity and variability in timing of purchases compared to sales, resulted in a net inventory gain of
$12 million after tax, compared to inventory gains of $86 million after tax in 2016.
Business unit performance
Supply and Marketing delivered an EBIT result of $733 million.
This result includes unfavourable externalities of $43 million,
comprising a net realised loss (after hedging) on foreign
exchange of $26 million (2016: a realised loss of $4 million)
and a price timing lag loss of $17 million (2016: a price timing
lag loss of $25 million). The underlying Supply and Marketing
EBIT increased 5.1% to $776 million, excluding externalities
(+2.1% excluding the impact of acquisitions made during the
year). Acquisitions added approximately $22 million EBIT
during the year.
Caltex now has 27 new convenience retail stores operational
under “The Foodary” format. Whilst there is significant
variation by site (driven by site location, timing of opening,
nearby competitive offers), the early results are encouraging,
with strong customer feedback and an average non-fuel sales
uplift of 35%. There have been some significant learnings
with on-going development work around our fresh supply
chain and labour model. Caltex intends to launch between
50 and 60 “The Foodary” sites and 5-10 Nashi high street
convenience sites in 2018 at a capital cost of approximately
$100 million, ahead of a wider roll out in later years.
43
Total Australian transport fuel volumes increased 3.4% to
16.2 BL, with commercial B2B volumes increasing 7.5% to
7.6 BL. Retail transport fuel volumes were flat at 8.6 BL. By
product, total diesel volumes increased 7.3% to 7.7 BL, while
total petrols decreased 2.8% to 5.7 BL, broadly in line with
industry trends.
Commercial diesel volumes grew 9.2% to 4.4 BL due to
retention of core B2B customers, increased resource and
commercial activities. Jet volumes increased 6.2% to 2.8 BL,
reflecting strong market activity particularly across the East
Coast and Caltex securing increased volumes from new and
growing carriers.
In Convenience Retail, growth across Caltex’s premium Vortex
diesel (+7.2% to 2.3 BL) more than offset modest declines
across its premium petrol range (Vortex 95 down 2.1% and
Vortex 98, down 1.3%). Total retail diesel volumes of 3.3 BL
were 4.9% above prior year (2016: 3.1 BL).
Lytton Refinery delivered an EBIT of $308 million in 2017,
up $103 million or 50% on the prior year (2016 EBIT:
$205 million).
The refinery continues to operate reliably well with sales from
production of 6.1 billion litres. This was marginally below
the record 2016 performance (6.2 billion litres), due to some
mini-turnaround maintenance work throughout the year.
The average realised Caltex Refiner Margin (CRM) 1 for the
twelve months to 31 December 2017 was US$12.87 per barrel.
This compares favourably to the 2016 average of US$10.29/
bbl, which approximates the longer term (10 year) average.
Caltex has decided to change from its historical position
of 5 year whole refinery Turnaround & Inspection (T&I)
maintenance, and from 2018 will move to an annual
turnaround maintenance program. Lytton capital expenditure
in 2018 is expected to approximate $60 million, including T&I
of approximately $30 million.
Corporate costs total $106 million, up $5 million on the prior
year (consistent with previous guidance). This reflects M&A
and other major project costs (including Caltex’s company
operating model and retail franchise network audit reviews),
as well as investing in IT and retail capabilities that better
position Caltex for the future.
1. The 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.
Operating and financial review continued
Balance sheet
as at 31 December 2017
1.
2.
3.
4.
5.
Working capital
Property, plant and equipment
Intangibles
Net debt
Other non-current assets and liabilities
Total equity
Discussion and analysis – Balance sheet
2017
$m
595
2,818
517
(814)
(8)
3,108
2016
$m
396
2,691
195
(454)
(18)
2,810
Change
$m
199
127
322
(360)
10
298
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1. Working capital
▲ $199m
2. Property, plant
and equipment
▲ $127m
3. Intangibles
▲ $322m
4. Net debt
▲ $360m
The increase in working capital is primarily driven by higher volume of trade sales outstanding
at 31 December 2017.
The increase in property, plant and equipment is primarily due to capital expenditure and accruals,
including major cyclical maintenance, of $440 million and capitalised interest of $2 million.
This is partly offset by depreciation of $205 million and disposals of $112 million.
The increase in intangibles is primarily due to goodwill arising on acquisitions of $322 million.
Net debt increased by $360 million to $814 million at 31 December 2017. Caltex’s gearing
at 31 December 2017 (net debt to net debt plus equity) was 20.8%, increasing from 13.9%
at 31 December 2016. On a lease-adjusted basis, gearing at 31 December 2017 was 36.1%,
compared with 28.4% at 31 December 2016.
Current Sources of Funding
Debt Maturity Profile
Medium Term
Notes
Bilateral Bank
Facilities*
Inventory
Finance
Facilities
A$m
Source
150
Australian and Asian
Institutional
1,360
Global Banks
250
Global Banks
250
1,042
$1,760m
150
68
125
125
0
2018
2019
2020
2021
2022
0
Beyond
2022
Bilateral Bank Facilities* (A$)
Inventory Finance Facilities (A$)
Medium Term Notes (A$)
* AUD equivalent. Contains an ‘evergreen provision’ to facilitate extensions.
5. Other non-current
assets and liabilities
▼ $10m
Other net non-current liabilities have decreased primarily due to a portion of non-current
environmental liabilities becoming current as remediation works at Kurnell continue. Deferred tax
assets have also been partially utilised, resulting from timing differences between the accounting
and tax basis of inventory, provisions, and property, plant and equipment.
Directors’ Reportcontinued
Cash flows
For the year ended 31 December 2017
1.
2.
3.
Net operating cash inflows
Net investing cash outflows
Net financing cash outflows
Net increase/(decrease) in cash held
Discussion and analysis – Cash flows
2017
$m
735
(800)
(135)
(200)
2016
$m
928
(357)
(590)
(19)
Change
$m
(193)
443
(455)
(181)
1. Net operating
cash inflows
▼ $193m
2. Net investing
cash outflows
▲ $443m
3. Net financing
cash outflows
▼ $455m
While receipts from customers are higher in 2017, this was largely offset by higher payments
to suppliers, employees and governments, as both are driven by current product prices.
The increase in net investing cash outflows is primarily due to business acquisitions including
Gull NZ, Milemaker and Nashi.
The net financing outflow in 2017 arose from dividend payments. Net proceeds/repayment
of borrowings was $159 million, due to refinancing of bank facilities and repayment of the
subordinated notes.
The net financing outflow in 2016 arose from dividend payments and the execution of the
$270 million share buy-back. Net proceeds/repayment of borrowings was nil, as there were
no drawdowns or repayment of fixed borrowings in the period.
Capital expenditure
Capital expenditure in 2017 totalled $809 million. Excluding
major T&I spending at Lytton refinery of $39 million, capital
expenditure was $770 million, inclusive of the Gull NZ and
Milemaker acquisitions of $424 million. Capital expenditure
in 2018 is expected to range between $470 million and
$540 million, including the intended acquisition of a 20% share
in SEAOIL Inc. in 1H2018.
Caltex Capital expenditure
$m
568
503
454
353
329
95
385
900
800
700
600
500
400
300
200
100
0
2013
2014
2015
2016
2017
■ Capex (incl. T&I)
■ Milemaker acquisition
■ Gull acquisition
45
Business outlook and likely developments
This section includes information on Caltex’s prospects for
future financial years. As Caltex’s financial prospects are
dependent to a significant extent on external factors, such
as the market competitiveness, exchange rates and refiner
margins, it is difficult to provide an outlook on Caltex’s
financial prospects. Therefore, this section includes a
general discussion of the key business drivers. To the extent
that there are statements which contain forward-looking
elements, they are based on Caltex’s current expectations,
estimates and projections. Such statements are not statements
of fact, and there can be no certainty of outcome in relation
to the matters to which the statements relate. Accordingly,
Caltex does not make any representation, assurance or
guarantee as to the accuracy or likelihood of fulfilment
of any forward-looking statement.
Overview
Caltex’s focus is to maintain a leading position within the
transport fuels industry regionally and growing convenience
retailing. In support of this, priorities include the optimisation
of the entire value chain from product sourcing to customer,
underpinned by the company’s product sourcing requirements
via Ampol Singapore.
The Lytton refinery will continue to focus on capturing further
operational and margin improvements.
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Operating and financial review continued
Business outlook and likely developments continued
Supply and Marketing
Optimising our infrastructure position means we run our
assets in a safe and cost efficient way. This means we can
supply what our customers need, anywhere they need it,
safely and reliably, ultimately making their lives easier.
During 2017 our Trading and Shipping team in Ampol
successfully delivered new value to Caltex through its role as
a competitive and reliable supplier to our Australian business.
This new capability for Caltex provides our external market
understanding, critical for our operations amidst a global
business, while also providing a platform for growth.
Ampol plays a critical role in our integrated value chain by
leveraging our infrastructure positions such as the Kurnell
terminal, optimising the supply chain around the Caltex
Lytton refinery, including crude and feedstock, sourcing from
a broader range of locations, and make-or-buy decisions
around premium fuels. The international market knowledge
provided by the experienced team and the strong shipping
and operational capability allows Caltex to access new
opportunities more rapidly as market conditions change.
This includes re-optimising the trade flow for Australia, and
capturing sales into new markets such as New Zealand, the
Philippines and other regional supply locations.
Our conservative approach to trading and shipping remains
unchanged, with our activities focused on our strength of
physical supply and optimisation. We continue to improve
our risk management capability, by enhancing our prudent
commodity risk management systems to enable opportunities
in the international market, capture higher earnings and
reduce cash flow volatility.
We take pride in our expertise in managing complex supply
chains and have demonstrated continued investment in
distribution infrastructure into every corner of Australia
throughout 2017, enabling us to better serve our customers
and remain their supplier of choice.
As our customers’ needs and wants evolve, we continually focus
on making a difference for customers and building a convenience
retail offer that gives them a reason to come to our sites whether
that be to fill up their vehicle, enjoy a barista made coffee or have
a digitally enabled experience to enjoy both.
2017 was a transformational year for the Convenience Retail
team as the first The Foodary store opened in January. The
Foodary delivers barista-made coffee, fresh food, quality
grocery products and services such as parcel pick-up for
customers on the move. By the end of 2017, we had opened
23 The Foodary stores which included a landmark first for
Caltex with the opening of our first non-fuel stand alone
location in a transport hub in Newcastle, New South Wales.
Caltex have announced the outcome of the 2 year review
into the retail operating model to determine which operating
model will best deliver the company’s retail growth objectives.
This review has determined that controlling our core business
is essential to achieving our retail growth objectives. The
company will achieve this by seeking to move all franchise
sites to company operation by end 2020.
Lytton
The Lytton refinery is Caltex’s sole refinery. Lytton Refinery
continues to deliver on its promise to be a safe, reliable and
competitive part of our supply chain.
Business risks and management
The key business risks that could have an impact on
Caltex achieving its financial goals and business strategy
are discussed below. In addition to the risk management
procedures discussed below, Caltex has adopted a risk
management framework to proactively and systematically
identify, assess and address events that could potentially
impact its business objectives. This framework integrates the
consideration of risk into the company’s activities so that:
• risks in relation to the effective delivery of the company’s
business strategy are identified
• control measures are evaluated, and
• where potential improvements in controls are identified,
improvement plans are scheduled and implemented.
These risks are assessed on a regular basis by management,
and material risks are regularly reported to the Board
and its committees. These reports include the status
and effectiveness of control measures relating to each
material risk. The Board, the Audit Committee, the OHS &
Environmental Risk Committee and the Human Resources
Committee each receive reports on material risks relevant to
their responsibilities. The Board and the OHS & Environmental
Risk Committee also receive risk updates throughout the year.
We have not included information where it would be likely
to result in unreasonable prejudice to Caltex. This includes
information that is confidential or commercially sensitive or
could give a third party a commercial advantage (for example,
details of our internal budgets and forecasts), except where
disclosure is required pursuant to our continuous
disclosure obligations.
Caltex Refiner Margin
The CRM is a key metric which drives the profitability of
Caltex’s refinery. The 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. A low CRM will
adversely impact Caltex’s refining earnings and cash flows.
The CRM can be negatively impacted by a range of factors:
• a decline in global and regional economic activity, leading
to a surplus in refining capacity
increased regional refinery capacity ahead of demand growth
•
• a decrease in product freight rates relative to crude
freight rates
• an increase in the premium paid for light/sweet (e.g. Brent)
crudes used by Caltex compared with the heavy/sour
crudes used by major refineries in the region (the light/
heavy spread), and
• the strengthening of the AUD/USD exchange rate (as the
CRM components are US$ based, strengthening of the
AUD/USD exchange rate reduces the A$ revenue earned
by Caltex).
Directors’ Reportcontinued
Commodity price risk
Caltex is exposed to the risk of price movements in both
crude and finished product through its purchase and sales
transactions, as these impact Caltex’s earnings and cash
flows. Through its Group Treasury Policy, Caltex seeks to
manage this exposure by utilising both crude and finished
product swap contracts. Caltex’s policy has been not to hedge
refiner margins.
Foreign exchange risk
Caltex is exposed to the effect of changes in foreign exchange
rates. Caltex purchases crude and products in USD and
sells predominantly in AUD, with pricing formulas reflecting
changes in the AUD/USD exchange rate. Due to timing
differences between payments for purchases and pricing of
sales, a change in the foreign exchange rate may negatively
impact Caltex’s earnings and cash flow. Additionally, the CRM
is determined principally with reference to the USD Singapore
spot product price relative to the US dollar Brent crude price.
An increase in the AUD/USD exchange rate will adversely
impact Caltex’s Australian dollar refiner margin, and therefore
refining earnings and cash flows.
Foreign exchange contracts (forwards, swaps and options)
are used to hedge foreign currency exposure in accordance
with Group Treasury Policy. The instruments used to manage
foreign exchange risk expose Caltex to fair value foreign
exchange rate risk and counterparty credit risks. Exposure
limits are set for each counterparty to ensure that Caltex is
not exposed to excess counterparty credit risk.
Liquidity risk
Due to the nature of the underlying business, Caltex must
maintain sufficient cash and adequate committed credit
facilities to meet the forecast requirements of the business.
From time to time, Caltex will be required to refinance its
debt facilities. There is no certainty as to the availability of
debt facilities or the terms on which such facilities may be
provided to Caltex in the future. Caltex seeks to prudently
manage liquidity risk by maintaining a capital structure
that supports its activities and centrally monitoring cash
flow forecasts and the degree of access to debt and equity
markets. A key element of its funding strategy is the use
of committed undrawn debt facilities, with an extended
facility maturity profile.
Operational risk
The nature of many of Caltex’s operations is inherently risky.
Major hazards may cause injury or damage to people and/or
property. Major incidents may cause a suspension of certain
operations and/or financial loss.
To mitigate against potential losses from such risk, Caltex
has in place an integrated management system for managing
safety, health, environment and product quality, as well as a
comprehensive risk management framework which actively
manages and mitigates these risks from the corporate Group
level through to the local site operating level and involves
active engagement at the senior management level. Caltex
also manages certain major risk exposures through its
comprehensive corporate insurance program, which provides
cover for damage to facilities and associated business
interruption as well as product liability.
Caltex’s operations are heavily reliant on information
technology. While these systems are subject to regular review
and maintenance, and business continuity plans are in place,
if these systems are disrupted due to external threat or system
error, this may have an adverse effect on Caltex’s operations
and profitability. In this regard, Caltex actively monitors and
responds to potential local and global security threats.
Competitive risk
Caltex operates in a highly competitive market space,
and could be adversely impacted by new entrants to the
market or increased competition from existing competitors,
changes in contractual terms and conditions with existing
customers, and/or the loss of a major customer. Caltex has
in place various strategies to manage these risks which are
designed to sustain and improve margins by reducing costs,
improving operating efficiencies and encouraging sustainable
performance. These strategies include the implementation of
organisational restructuring, geographic diversification, and
the allocation of capital expenditure to those businesses with
the potential to deliver strong earnings growth.
Environmental risks
Caltex imports, refines, stores, transports and sells petroleum
products. Therefore, it is exposed to the risk of environmental
spills and incidents. It is also responsible for contaminated
sites which it operates or has previously operated. As part
of its approach to managing these risks, Caltex applies strict
operating standards, policies, procedures and training to
ensure compliance with all applicable environmental laws,
and Caltex’s spills performance is a key performance metric.
Caltex is focused upon achieving better environmental
outcomes across its business as part of its strategy to deliver
solid and sustained performance. Further details on how
Caltex manages its environmental regulations and performance
are outlined below in “Environmental regulations”.
Demand for Caltex’s products
Caltex’s operating and financial performance is influenced by
a variety of general economic and business conditions beyond
Caltex’s control, including:
• economic growth and development, the level of inflation,
and government fiscal, monetary and regulatory policies
in the event of a global or a local economic downturn,
demand for Caltex’s products and services may be reduced,
and
•
• advances in automotive technologies including fuel
efficiency improvements as well as technology substitution
to hybrids, electric vehicles and fuel cell electric vehicles
all of which may operate to impact Caltex’s financial
performance.
To manage these risks, Caltex has implemented key initiatives
to reduce costs, improve operating efficiencies and encourage
sustainable performance within Caltex. These initiatives
include the implementation of organisational restructuring,
geographic diversification, and the allocation of capital
expenditure to those businesses with the potential to deliver
strong earnings growth.
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Operating and financial review continued
Business risks and management continued
Labour shortages and industrial disputes
There is a risk that Caltex may not be able to acquire, deploy
or retain the necessary labour for operations and development
projects. This may disrupt operations or lead to financial loss.
In this regard, Caltex aims to be an employer of choice; it has
in place and actively manages its employee agreements and
monitors the external labour markets as well as its internal
employee retention data.
Credit risk
Credit risk represents the loss that would be recognised if
counterparties failed to perform as contracted. Primary credit
exposure relates to trade receivables. Caltex has a Board
approved credit policy and a process for the management and
diversification of the credit risk to Caltex. The credit quality
of Caltex’s customers is consistently monitored in order to
identify any potential adverse changes in the credit risk of the
customers. Caltex also minimises concentrations of credit risk
by undertaking transactions with a large number of customers
across a variety of industries and networks. Additionally
security is required to be supplied by certain groups of Caltex
customers to minimise risk.
Climate change
At Caltex, climate related risk governance is managed by the
Board’s OHS & Environmental Risk Committee.
Caltex engages with Federal Government departments and
regulators directly or indirectly via industry groups on climate
change policy and legislation to ensure that material risks
to our business are both understood and can be effectively
managed. Prioritisation is carried out based on the anticipated
material impact of the mitigated risk and likelihood rating
derived from a cross functional review of the Caltex risk
management framework. Further details on how Caltex
manages climate related risks are outlined in the Annual
Report under the heading “Sustainable operations”.
Regulatory risk
Caltex operates in an extensively regulated industry and
operates its facilities under various permits, licences,
approvals and authorities from regulatory bodies. If those
permits, licences, approvals and authorities are revoked
or if Caltex breaches its permitted operating conditions,
it may lose its right to operate those facilities, whether
temporarily or permanently. This would adversely impact
Caltex’s operations and profitability. As part of its approach
to managing these risks, Caltex applies strict operating
standards, policies, procedures and training to ensure that
it remains in compliance with its various permits, licences,
approvals and authorities. Additionally, it proactively manages
these risks through a combination of vigilance regarding
current regulations, contact with relevant bodies/agencies and
working in partnership with various stakeholders to reduce
the likelihood of significant incidents that could impact either
Caltex and/or the communities in which we operate.
Changes in laws and government policy in Australia or
elsewhere, including regulations and licence conditions
could materially impact Caltex’s operations, assets, contracts,
profitability and prospects. Some examples of potentially
impactful legislative changes include amendments to the
Fair Work Act (Cth), specifically the protecting vulnerable
workers amendments; and the proposed modern slavery
laws. Caltex engages with regulatory bodies and industry
associations to keep abreast of these changes. Caltex has in
place a stakeholder engagement plan that is actively managed
to mitigate the impact from major policy changes.
Events subsequent to the end of the year
Caltex announced the outcome of the 2-year review of its
Convenience Retail operating model to determine which
model will best deliver our retail growth objectives. The retail
operating model review commenced after the launch of our
Freedom of Convenience strategy in 2015. This strategy has
seen Caltex transform from a refiner-marketer to a company
with a Fuels & Infrastructure business and a separate but
interconnected Convenience Retail business.
The operating model review determined that controlling
our core business is the best way to achieve our retail
growth objectives.
Company operation of this core business is key
to accelerating the changes required to:
• provide a more consistent customer experience;
• roll out new platforms;
• standardise services; and
• simplify supply arrangements.
As at 31 December 2017, a total of 314 sites within the
810 Caltex retail consumer network were company operated.
This compares with 152 sites at 31 December 2016, and
233 as at 30 June 2017. The remainder of Caltex service
station sites are operated by franchisees or third parties.
Caltex aims to transition all retail franchise sites to company
operations by mid-2020.
Total costs of the transition to company operations is
estimated to be around $100 million to $120 million,
over the next three years. This covers:
• Anticipated transition costs covering dedicated transition
team, direct labour costs (training; on boarding),
implementation costs and anticipated downtime/
store ramp up;
• Consideration paid to franchisees if they agree to the
reduced tenure; and
• Acquisition of working capital and fixed assets in
accordance with franchise agreements
There were no other items, transactions or events of a
material or unusual nature that are likely to significantly
affect the operations of Caltex, the results of those
operations or the state of affairs of the Group subsequent
to 31 December 2017.
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Directors’ Reportcontinued
Environmental regulations
Caltex is committed to compliance with Australian laws,
regulations and standards, as well as to minimising the
impact of our operations on the environment. The Board’s
OHS & Environmental Risk Committee addresses the
appropriateness of Caltex’s OHS and environmental practices
to manage material health, safety and environmental risks,
so that these risks are managed in the best interests of Caltex
and its stakeholders.
Caltex is committed to achieving 100% compliance with
environmental regulations and to ensuring that all breaches
have been investigated thoroughly, and corrective actions are
taken to prevent recurrence.
The business had two environmental infringements in 2017.
One related to an operational issue at our licensed sewage
treatment plant associated with our service station in Blacksoil
Qld; and the other was associated with a spill by one of
Caltex’s licensed contractors at our Newport Terminal Facility.
Lead auditor’s independence declaration
The lead auditor’s independence declaration is set out on
page 72 and forms part of the Directors’ Report for the
financial year ended 31 December 2017.
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Caltex sets key performance indicators to measure
environmental, health and safety performance and drive
improvements against targets. In addition to review by the
Board, progress against these performance measures is
monitored regularly by the Managing Director & CEO and
the Executive General Managers.
Risks are examined and communicated through the Caltex
Risk Management Framework, an enterprise-wide risk
management system which provides a consistent approach
to identifying and assessing all risks, including environmental
risks. Under the framework, risks and controls are assessed,
improvements identified, and regular reports are made to
management and the Board.
The Caltex Operational Excellence Management System is
designed to ensure that operations are carried out in an
environmentally sound, safe, secure, reliable and efficient
manner. Its operating standards and procedures support
the Caltex Environment Policy, and the Caltex Health and
Safety Policy.
In 2017, Caltex made its ninth submission under the National
Greenhouse and Energy Reporting Scheme, reporting energy
consumption and production as well as greenhouse gas
emissions from Group operations. Caltex also continued to
disclose information on emissions under the National Pollutant
Inventory. Caltex continues to remain a signatory to the
Australian Packaging Covenant, with 100% of packing used
reviewed using the Sustainable Packaging Guidelines (SPG).
Compliance with environmental regulations
In 2017, companies in the Caltex Group held 21 environmental
protection licences relating to the Lytton refinery, 11 terminals,
six marketing facilities, one aviation refuelling facility, our
lubricants manufacturing facility and a bulk shipping facility.
Any instances of non-compliance against these licences were
reported to the environmental regulator. All significant spills
and environmental incidents were recorded and reported as
required to government authorities.
Regular internal audits are carried out to assess the efficacy
of management systems to prevent environmental incidents,
as well as to control other operational risks. Improvement
actions determined through the audit process are reviewed
by the Board’s OHS & Environmental Risk Committee and
senior management.
Remuneration Report
The directors of Caltex Australia Limited present the Remuneration Report prepared in accordance with section 300A of the
Corporations Act 2001 (Cth) (Corporations Act) for the Caltex Group for the year ended 31 December 2017.
The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act,
apart from where it is indicated that the information is unaudited.
1.Remuneration snapshot
1a. Key Management Personnel (KMP)
This Remuneration Report is focused on the KMP of Caltex, being those persons with authority and responsibility for planning,
directing and controlling the activities of Caltex. KMP includes the Non-executive Directors and Senior Executives (including the
Managing Director – MD & CEO). The KMP disclosed in the 2017 Remuneration Report differ from those identified as KMP in the
2016 Remuneration Report due to the change in Caltex’s operating model.
Unless otherwise indicated, the KMP were classified as KMP for the entire financial year.
Current Non-executive Directors
Steven Gregg (i)
Trevor Bourne
Melinda Conrad
Bruce Morgan
Barbara Ward AM
Penny Winn
Chairman and Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director (appointed 1 March 2017)
Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director
Former Non-executive Directors
Greig Gailey (ii)
Chairman and Independent, Non-executive Director
Current Senior Executives
Julian Segal
Simon Hepworth
Richard Pearson
Louise Warner
Former Senior Executives
MD & CEO
Chief Financial Officer
Executive General Manager, Convenience Retail (appointed 1 August 2017)
Executive General Manager, Fuels & Infrastructure
Bruce Rosengarten
Executive General Manager, Commercial (ceased employment 1 April 2017)
Note:
(i) Mr Gregg was appointed Chairman effective from 18 August 2017.
(ii) Mr Gailey retired from the Board on 18 August 2017.
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Directors’ Reportcontinued
1b. Summary of 2017 remuneration arrangements for Senior Executives
VISION
Freedom of Convenience:
To be the market leader in complex supply chains and the evolving convenience marketplace,
by delivering the fuel and other everyday needs of our diverse customers through our networks
Fuels & Infrastructure – Protect and Grow
Optimise, enhance and expand core integrated fuel
value chains and fuel retail offer
Convenience Retail – Extend
Invest in capabilities and businesses that leverage our
existing consumer and mobility assets
STRATEGY
KEY MEASURE OF SUCCESS
Top quartile shareholder returns for investors
REMUNERATION PRINCIPLES
Alignment with
shareholders’ interests
Performance focused
and differentiated
Market
competitive
Fixed remuneration
• Consists of base salary,
non-monetary benefits and
superannuation.
• Desired positioning is market
median against a peer group of
companies that are comparable
in terms of both size and
complexity.
See section 3a for further detail.
REMUNERATION COMPONENTS
Short term incentive (STI)
• Based on 12 month company,
department and individual
performance objectives which
are linked to the achievement
of the annual business plan.
• Only payable if 80% of RCOP
NPAT is achieved.
See section 3c for further detail.
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Long term incentive (LTI)
• Performance rights are
granted which vest subject
to the achievement of both
service conditions and
performance conditions over
a three year period.
• Performance measures are
relative total shareholder return
(TSR) against S&P/ASX 100
companies (60%), a strategic
fuels and infrastructure growth
measure (20%) and a strategic
convenience retail measure (20%).
• All participants are required to
hold 25% of vested shares for
an additional four years if their
Caltex shareholding is below
100% of their base salary.
• Clawback applies to unvested
LTI awards.
Remuneration Report continued
1. Remuneration snapshot continued
1c. Senior Executive remuneration outcomes in 2017
Remuneration
element
MD & CEO
remuneration
Other Senior
Executive
remuneration
increase
STI
LTI
Outcome
There were no changes to the fixed remuneration or structure of the MD & CEO remuneration package
in 2017.
Base salaries for other Senior Executives (excluding the EGM Fuels & Infrastructure) increased by an
average of 2.5%. This increase was in line with market movement and broadly consistent with the budgeted
salary increase that applied to the majority of Caltex employees. The EGM Fuels & Infrastructure’s fixed
remuneration increased by 10% in April 2017, and then by a further 5% from 1 July 2017. The increases
awarded to the EGM Fuels & Infrastructure was determined to be appropriate by the Board, taking into
account the responsibilities for her significantly broader role, her positioning relative to market, her strong
performance and strategic contribution, and internal relativities to her peers.
The 2017 RCOP NPAT result was significantly stronger than in 2016, and only just below our 2015 result,
which was a record profit result. This reflects strong retail results, exceptional operational reliability which
enabled the company to take full advantage of positive refiner margins, as well as a strong performance
from our trading and shipping business. RCOP NPAT performance in 2017 was 119% of target, and the
average 2017 STI award for Senior Executives was 120.6% of target. This outcome continues to demonstrate
the strong alignment between STI payments and profit achieved.
The 2014 LTI grant had a performance period from 1 January 2014 to 31 December 2016 and vested in
April 2017. This grant was subject to the achievement of relative TSR against S&P/ASX 100 companies (60%),
free cash flow (20%) and a mix of strategic measures (20%).
Over the 2014-16 performance period, Caltex’s share price increased from $20.05 to $30.46 and its TSR
was 178%. This placed Caltex at the 82nd percentile against S&P/ASX 100 companies. The company also
achieved 100% of the free cash flow target, and the Board determined that performance against the strategic
measures was just above target performance (allowing 74.42% of this tranche to vest). As a result, 84.78% of
the 2014 grant vested on 1 April 2017 and the remaining 15.22% lapsed. There was no clawback during 2017.
1d. Summary of 2017 Non-executive Director fees
Non-executive Director fees are fixed and do not have any variable components. The Chairman receives a fee for chairing the
Caltex Board and is not paid any other fees. Other Non-executive Directors receive a base fee and additional fees for each
additional Committee chairmanship and membership, except for the Nomination Committee, where no additional fee is paid.
There was no increase to any Non-executive Director fees in 2017.
Superannuation contributions were made at a rate of 9.5%. No additional retirement benefits were paid.
Fees paid to Non-executive Directors are subject to a maximum annual Non-executive Director fee pool of $2.5 million
(including superannuation). This fee pool was approved by shareholders at the 2016 AGM and was not increased at the 2017 AGM.
See sections 4a and 4b for further detail.
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Directors’ Reportcontinued
1e. Outlook for FY18 (unaudited)
Key issues and changes to remuneration arrangements in FY18 are outlined below:
Change
Commentary
MD & CEO
remuneration
The Board determined that it would again freeze the fixed remuneration of the MD & CEO for 2018. The MD
& CEO last received a fixed remuneration increase in April 2015.
In 2018, the MD & CEO’s target STI opportunity will increase from 60% to 70% of base salary, with stretch
STI opportunity increasing proportionally from 100% to 140%. The Board determined that this was
appropriate given:
• advice from Aon Hewitt, the Human Resources Committee’s independent remuneration adviser,
indicated that target STI opportunities for MD & CEOs in our peer group were typically around 90-100%
of fixed remuneration and were typically higher (in percentage terms) than for other members of the
leadership team, and
• the increase in the STI opportunity brings the MD & CEO’s target STI and total target remuneration
closer to (but still below) the median of the customised peer group that is used for benchmarking
purposes. See section 3a for further information on the peer groups used.
No Senior Executive, aside from the EGM Fuels & Infrastructure, will receive a salary increase in 2018.
The EGM Fuels & Infrastructure will receive a fixed remuneration increase of 13.8% in 2018. This increase
reflects enhanced capability within the role, ensures that scope and responsibilities between roles are
appropriately rewarded and seeks to address relativities between Senior Executives.
Overall, the Board’s approach to Senior Executive base salary increases reflects the restrained approach
Caltex will take to fixed remuneration within the company in 2018.
The Board has determined that it is appropriate to increase the target STI opportunity for its Senior
Executives from 50% to 60% of base salary from 2018 (with a stretch increasing proportionately from 100%
to 120%). Benchmarking by external consultants has consistently shown that the target STI of our Senior
Executives is well below the median of our benchmarked peer groups (which, at median, is typically 60-65%
of total fixed remuneration). These increases in STI opportunity will bring the Senior Executive’s target STI
and total target remuneration closer to the median of the company’s peer groups, and maintain relativities to
the MD & CEO. This change also ensures that Senior Executives will only benefit from these changes if they
are able to deliver on the key financial and operational metrics which determine STI payouts.
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These increases were determined by the Board, upon the recommendation of the Human Resources
Committee, taking into account the Senior Executives’ performance over the year, market data, forecast
market movements and the remuneration recommendations made by Aon Hewitt.
The 2015 LTI grant had a performance period from 1 January 2015 to 31 December 2017 and vests in
April 2018. This grant was subject to the achievement of relative TSR against S&P/ASX 100 companies (75%),
and a profit growth measure (25%).
Over the 2015-17 performance period, when averaged for TSR purposes, Caltex’s share price increased
from $31.08 to $34.00 and TSR was 121%. Despite a good TSR result, and the significant growth in share
price from 2014 to 2016 immediately prior to the commencement of the performance period, this result
only placed Caltex at the 32nd percentile against S&P/ASX 100 companies. This means that no portion of
this tranche will vest. Against the profit growth measure, the Board also determined that the company had
performed well against this hurdle due to very strong profit growth in its step out ventures. As a result,
22.38% of the 2015 grant will vest on 1 April 2018, and the remaining 77.62% will lapse.
Non-executive Director base fees will increase by 2% in 2018. Audit and Human Resources Committee
Chairs will receive a $10,000 increase in Chair fees, with the OHS & Environmental Risk Chair receiving a
$4,000 increase. All Committee members will receive a Committee fee increase of $2,000, aside from the
Nomination Committee, for which no fees are paid.
These fee increases reflect advice from Aon Hewitt that the Committee fees were below market and better
aligns the fees with those of our peer companies.
Senior Executive
remuneration
LTI
Non-executive
Director fees
Non-executive
Director fee pool
There will be no change to the Non-executive Director fee pool for 2018.
Remuneration Report continued
2. Oversight and external advice
2a. Board and Human Resources Committee
The Board takes an active role in the governance and oversight of Caltex’s remuneration policies and practices. Approval of
certain key human resources and remuneration matters are reserved for the Board, including setting remuneration for directors
and Senior Executives and any discretion applied in relation to the targets or funding pool for Caltex’s incentive plans.
The Human Resources Committee assists the Board to fulfil its corporate governance and oversight responsibilities in relation
to Caltex’s remuneration framework, incentive plans, succession planning, remuneration and diversity and inclusion disclosures,
including setting the measurable objectives for achieving diversity and inclusion. It also reviews, on an annual basis, progress
made towards achieving these objectives.
The Human Resources Committee undertakes functions delegated by the Board, including approving Caltex’s annual
remuneration program and aspects of its incentive plans.
The Human Resources Committee seeks to put in place appropriate remuneration arrangements and practices that are clear
and understandable, that attract and retain talent and capability, and support superior performance and long term growth in
shareholder value.
Further information about the role of the Board and the Human Resources Committee is set out in their charters, which are
available on the company’s website (www.caltex.com.au).
2b. External advice
The Human Resources Committee is independent of management and is authorised to obtain external professional advice as
necessary. The use of external specialists to provide advice and recommendations specifically in relation to the remuneration of
Non-executive Directors, the MD & CEO and Senior Executives is either initiated directly, or approved by, the Human Resources
Committee, and these specialists are directly engaged by the Human Resources Committee Chairman.
During 2017, Caltex received “remuneration recommendations” (as defined in the Corporations Act) from Aon Hewitt in relation
to Non-executive Director fees and the remuneration for the MD & CEO and other Senior Executives.
Aon Hewitt has provided a formal declaration confirming that the recommendations provided were free from “undue influence”
by the members of the KMP to whom the recommendations were related, and the Board is satisfied that the recommendations
were made free from any undue influence. No KMP were involved in the selection and appointment of Aon Hewitt or in the
development of any advice or recommendations in relation to their own roles.
The fee paid to Aon Hewitt for the above remuneration advice and recommendations was $35,000 excluding GST. Aon Hewitt
also provided additional services (Finance and HR related) to Caltex over 2017. The fee for these additional services was
$26,850 excluding GST.
3. Senior Executive remuneration
3a. Remuneration philosophy and structure
The overarching goal of the Caltex remuneration philosophy and structure is to support the delivery of top quartile shareholder
returns. The guiding philosophy for how Caltex rewards Senior Executives and all other employees is outlined below:
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Guiding philosophy
Commentary
Alignment with
shareholders’ interests
Performance focused
and differentiated
Market competitive
Ensure gender equity in
remuneration outcomes
The payment of variable incentives is dependent upon achieving financial and non-financial
performance measures that are aligned with shareholders’ interests. Share retention arrangements
require all executives to build up and maintain shareholdings to encourage further alignment with
Caltex shareholders.
The company’s reward, performance planning and review systems are closely integrated to maintain
a strong emphasis and accountability for performance at the company, department and individual
levels. Rewards are differentiated to incentivise and reward superior performance.
All elements of remuneration are set at competitive levels for comparable roles in Australia and allow
Caltex to attract and retain quality candidates in the talent market.
Remuneration is reviewed to remove gender based pay differences on a like-for-like job level basis.
Alignment with strategy
Both the short term and long term incentive plans are directly aligned to the company’s strategy.
Short term incentives reward the delivery of stretching but potentially attainable financial and non-financial performance
measures aligned to the annual business plan.
Long term incentives are directly aligned to the company’s key measure of success, being to safely and reliably deliver top
quartile shareholder returns. The company’s secondary strategic growth measures focus the Senior Executives on the most
important initiatives that need to be executed to support top quartile shareholder returns. Further detail on these measures
is outlined in section 3d.
Directors’ Reportcontinued
Market positioning and peer groups
In order to be able to attract and retain key talent, and drive strong performance, the company’s remuneration philosophy is to
position fixed remuneration at the median of a customised peer group of companies, with total remuneration able to reach the
upper quartile for outstanding performance. For 2017, the customised peer group consisted of 20 companies that are broadly
of comparable size and complexity and which the Board considers to be leading competitors for capital and people. The peer
group was adjusted to include additional companies with a retail focus to align with Caltex’s strategy.
The Board recognises that external stakeholders often assess pay reasonableness against a pure market capitalisation peer
group. Due to this, in making pay decisions, the Board also considers pay positioning against a secondary peer group.
This secondary peer group consists of 20 companies (10 with a market capitalisation directly above, and 10 with a market
capitalisation directly below, that of Caltex). Externally managed trusts and overseas domiciled companies are excluded.
Remuneration structure
Our Senior Executive remuneration structure consists of:
1. Fixed remuneration – this comprises base salary, non-monetary benefits and superannuation. Superannuation is generally
payable at a rate of 9.5% of base salary plus any cash incentive payments. Where an employee’s superannuation contributions
are above the superannuation contributions limit, the employee may elect to receive the excess amount as cash in lieu of
superannuation.
2. Variable remuneration – this comprises a mix of cash and equity based incentives awarded upon the achievement of financial
and non-financial performance measures. Superannuation is also paid on any short term incentive payments.
The remuneration structure (including the remuneration mix) is reviewed annually by the Board.
3b. Remuneration mix
The “at target” remuneration mix for Senior Executives is outlined below.
The “at target” remuneration mix in 2017 is skewed towards variable pay to better align executive pay and performance; and
within the variable pay components, the mix is skewed towards the long term incentive. External advisers have confirmed
that Caltex has a more stretching relative TSR vesting schedule than most ASX 100 companies. See section 3d for further
information on the relative TSR vesting schedule.
2017 Remuneration mix “at target”
MD & CEO
Other Senior
Executives
38.5%
23%
48%
24%
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38.5%
28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
■ Base Salary
■ At Risk – STI Cash
■ At Risk – Equity
Notes:
(i) “At target” performance in the remuneration mix for “Other Senior Executives” reflects an STI target of 50% of base salary for Mr Hepworth, Mr Pearson
and Ms Warner.
(ii) LTI Equity comprises performance rights granted under the Caltex Equity Incentive Plan (CEIP). It assumes that the relative TSR measure is achieved at
the 75th percentile, with the profit growth and strategic convenience retail measure achieved at target. Grants of performance rights under the CEIP are
made at the maximum stretch level of 150% of base salary for the MD & CEO and 90% of base salary for other Senior Executives. The proportion of the
grant that vests is based on meeting service and performance conditions.
The diagram below shows the payout profile of the various remuneration elements:
Fixed
remuneration
STI
(cash)
LTI
(equity)
Four year share
retention period
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Note:
(i) For LTI awards made in 2015, 25% of vested equity needs to be held by the Senior Executive up until Year 7. For awards made from 2016 onwards, this
requirement applies if the Senior Executive does not hold at least 100% of their base salary in Caltex shares prior to the vesting of the applicable awards.
Remuneration Report continued
3. Senior Executive remuneration continued
3c. Performance based “at risk” remuneration – 2017 STI Plan
Plan
Plan rationale
STI awards are made under the Rewarding Results Plan.
The Plan rewards a combination of financial and non-financial performance measures that are
aligned to the creation of shareholder value. Primary emphasis is placed on RCOP NPAT, and
the non-financial measures focus our executives and employees on executing the most critical
objectives aligned to the annual business plan.
Performance period
The performance period is for 12 months ended 31 December 2017.
2017 target and maximum
stretch opportunity levels
MD & CEO – the target STI opportunity is 60% of base salary and the maximum stretch STI
opportunity is 120% of base salary.
Financial gateway
Use of discretion
Payment vehicle
Payment frequency
Other Senior Executives – the target STI opportunity is 50% of base salary and the maximum stretch
STI opportunity is 100% of base salary.
RCOP NPAT performance, including the cost of incentives, needs to be at least 80% of target before
any short term incentives are payable.
The Human Resources Committee, in its advisory role, reviews proposed adjustments to Rewarding
Results outcomes where there are exceptional unforeseen and uncontrollable impacts on the agreed
performance measures and makes recommendations for any changes to performance measures,
which may only be approved by the Board.
During 2017, discretion was exercised by the Board to exclude three items from the RCOP NPAT
result (net $14m) for both statutory disclosure and incentive purposes. These items were determined
by the Board to be outside the control of employees and/or not part of normal trading operations.
Items excluded were profits on the sale of the fuel oil business, and expenses associated with
Franchisee Employee Assistance Fund and restructuring costs associated with the Quantum Leap
Project cost reduction program. All of these items have been previously disclosed to shareholders
and analysts and are recognised as significant or non-recurring items and outside the underlying
RCOP NPAT result.
STI awards are delivered in cash. STI deferral was removed for STI awards made to Senior Executives
from payments made in 2016 onwards because the long term incentive share retention arrangements
came into place at this time. See section 3d for further detail.
STI awards are paid annually. Payments are made in April following the end of the
performance period.
Setting and evaluating the performance of executives in 2017
Performance measures for 2017 were derived from the business plan in line with the company direction set by the Board. The
Board approved the 2017 business plan and has regularly monitored and reviewed progress against plan milestones and targets.
The approved Caltex business plan was then translated into department objectives. The company objectives were approved by
the Human Resources Committee at the start of the performance year.
Within each business unit, specific performance agreements were then developed for individual employees, thus completing the
link between employees and the delivery of the business plan. Performance agreements must be agreed between the employee
and his or her manager. Senior Executives set their performance agreements jointly with the MD & CEO, and the MD & CEO’s
performance objectives are approved by the Board.
Senior Executive performance objectives and outcomes
The table below outlines the common performance objectives that applied to the Senior Executives over 2017. These measures
accounted for between 50% and 55% of the Senior Executive’s scorecard, depending upon their role. The remaining 45-50% of
performance objectives were customised to the executive’s remit. Such objectives include delivery of specific strategic growth
projects, achievement of specific free cash flow targets, achievement of divisional EBIT targets, and achievement of key retail
development targets. Actual performance against the common objectives has been provided.
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Directors’ Reportcontinued
Measure
Description of
measure
Weighting
Actual performance range Commentary on performance
l
B
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s
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a
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T
h
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Personal safety
(assessed at
company or
business unit level)
Performance is
measured based
on the total
treatable injury
frequency rate
(TTIFR)
5-7.5%
✔
Process safety
(assessed at
company or
business unit level)
Performance is
measured based
on the number of
spills
5-7.5%
✔
RCOP NPAT
See explanation
of RCOP NPAT
below
40%
✔
While Caltex delivered significant
improvements in personal safety
performance in 2017 with a total recordable
injury frequency rate (TRIFR) of 5.2, and
a “days away from work injury frequency
rate (DAFWIFR)” of 1.36 (a significant
improvement vs last year and the prior
three-year average), this metric is below
threshold due to the company’s first fatality
in 20 years.
Process safety results were strong in 2017,
with Caltex equalling its best ever spill
performance of nine (with no marine spills).
However, due to the challenging targets set
by the Company this was above our target
of eight spills.
RCOP NPAT was between target and stretch
at $621m due to above budget retail results,
strong refiner margins and strong trading
and shipping results.
If business objectives are achieved at threshold level, 60% of the target STI opportunity would be payable. If 100% of the target
is achieved, 100% of the STI target opportunity would be payable. If business objectives are achieved at the maximum level,
200% of the STI target opportunity would be payable. Payments are pro-rated between threshold and target, and between
target and maximum. This payout schedule deliberately incentivises over-plan performance.
57
At Caltex, incentives are not designed as “profit sharing arrangements” and therefore performance measures may factor in
externalities which management cannot control (such as global refining margins). There will be occasions when incentives are paid
when externalities such as the refiner margins and exchange rate fluctuations may have reduced overall shareholder returns. Equally,
incentives may not be paid when externalities are favourable to shareholders, but the company’s relative performance is poor.
RCOP NPAT
The Board has selected replacement cost of sales operating profit (RCOP) NPAT as the primary STI measure because RCOP
NPAT removes the impact of inventory gains and losses, giving a truer reflection of underlying financial performance.
Gains and losses in the cost of goods sold due to fluctuations in the AUD price of crude and product prices (which are impacted
by both the USD price and the foreign exchange rate) constitute a major external influence on Caltex’s profits. RCOP NPAT
restates profit to remove these unintended impacts. The Caltex RCOP methodology is consistent with the methods used by
other refining and marketing companies for restatement of their financial results.
As a general rule, an increase in crude prices on an AUD basis will create an earnings gain for Caltex (but working capital
requirements will also increase). Conversely, a fall in crude prices on an AUD basis will create an earnings loss. This is a direct
consequence of the first in first out (FIFO) costing process used by Caltex in adherence with accounting standards to produce
the financial result on a historical cost basis.
With Caltex holding approximately 30 to 45 days of inventory, revenues reflect current prices in Singapore, whereas FIFO costing
reflects costs some 30 to 45 days earlier. The timing difference creates these inventory gains and losses.
To remove the impact of this factor on earnings and to better reflect the underlying performance of the business, the RCOP
NPAT methodology calculates the cost of goods sold on the basis of theoretical new purchases instead of actual costs from
inventory. The cost of these theoretical new purchases is calculated as the average monthly cost of cargoes received during the
month of those sales.
Each year, the Board reviews any significant items, positive and negative, and considers their relevance to the RCOP NPAT
result. The Board may exclude any exceptional events from RCOP NPAT that management and the Board consider to be outside
the scope of usual business. Exclusions may be made to give a clearer reflection of underlying financial performance from one
period to the next.
Remuneration Report continued
3. Senior Executive remuneration continued
3d. Performance based “at risk” remuneration – 2017 LTI Plan
Plan
Plan rationale
LTI instrument
Allocation methodology
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LTI awards are granted under the CEIP.
The Plan aligns executive rewards with the shareholder experience. This is done through the use of
relative TSR as the primary performance measure, and through the use of strategic growth measures
which contribute towards the delivery of top quartile shareholder returns as the secondary measure.
The Plan has also been designed to act as a retention mechanism and to encourage Senior
Executives to build and retain Caltex shares over the long term.
Performance rights are granted by the company for nil consideration. Each performance right is a
right to receive a fully-paid ordinary share at no cost if service based and performance based vesting
conditions are achieved. Performance rights do not carry voting or dividend rights.
The Board may determine to pay executives the cash value of a share in satisfaction of a vested
performance right, instead of providing a share or a restricted share. It is expected that such
discretion will only be exercised in limited cases, typically where the executive is a “good leaver”
from Caltex, i.e. where the employee ceases employment due to redundancy or retirement.
The number of performance rights granted is determined by dividing the maximum opportunity level
by the five day volume weighted average share price up to the first day of the performance period,
discounted by the value of the annual dividend to which the performance rights are not entitled.
No discount is applied for the probability of achieving the performance measures.
The performance period is three years commencing on 1 January in the year the awards are made.
For the 2017 awards, this is the three year period from 1 January 2017 to 31 December 2019.
The MD & CEO received a grant of performance rights based on a maximum stretch LTI value of 150%
of base salary. The target LTI value is 100% of base salary.
Other Senior Executive grants were based on a maximum stretch LTI value of 90% of base salary.
The target LTI value is 60% of base salary.
For 2017, the LTI performance measures were relative TSR (weighted at 60%) a strategic growth
measure (weighted at 20%), and a strategic convenience retail measure (weighted at 20%).
Relative TSR
Relative TSR is assessed against a comparator group of S&P/ASX 100 companies. The vesting
schedule is:
Performance scale
Below Threshold
Vesting %
Zero
Threshold: 50th percentile
33.3% of the rights will vest
Between Threshold and Target
Pro-rata vesting occurs between these relative performance levels
Target: 75th percentile
66.6% of the rights will vest
Between Target and Stretch
Pro-rata vesting occurs between these relative performance levels
Stretch: 90th percentile
100% of the rights will vest
Strategic growth measure
In 2017, a financial gateway applies to the strategic growth measure, being return on average funds
employed (RoAFE). The RoAFE gateway is measured as Profit Before Interest and Tax/Average
Funds Employed excluding refining over the prior 12 month period (including intangibles but
excluding debt). The RoAFE gateway has been included in the strategic growth measure to ensure
that executives are only rewarded when Caltex has invested in the right projects and created
shareholder value.
Once the RoAFE gateway has been met, the strategic growth measure that will apply is a three year
earnings growth measure from mergers and acquisitions (core and non-core) and step-out ventures
(new products/services/geographies). This measure was chosen as it reflects the importance of
profit growth in achieving our key success measure of top quartile shareholder returns.
Directors’ Reportcontinued
Performance measures
continued
Shares acquired
upon vesting of the
performance rights
Share retention
arrangements
Clawback Policy
Termination provisions
Convenience retail measure
This hurdle measures the implementation of Caltex’s convenience retail strategy. The Board will
measure this through both quantitative and qualitative metrics including:
• the rollout of new format across existing and new Calstores network;
• the average percentage sales uplift per store; and
• a customer metric, based on improvement in customer feedback using net promoter score
methodology.
Each measure in this hurdle is assessed separately and then aggregated to determine the final
vesting percentage. This is to be overlaid with the Board’s qualitative assessment of how the
company has performed in implementing the company’s convenience retail strategy, including
an assessment that a threshold return on investment has been maintained.
Disclosure of performance outcomes
Specific details of the RoAFE gateway and the strategic measures have not been disclosed due to
commercial sensitivity. However, in the 2019 Remuneration Report, the Board will set out how Caltex
performed against these measures. See section 3h for the Board’s rationale for the performance
outcomes of the LTI awards that were granted in 2015 and that vest in April 2018.
Shares to satisfy vested performance rights are usually purchased on market.
Shares allocated upon vesting of performance rights will carry the same rights as other ordinary
shares (including dividends and voting rights).
The share retention arrangements are designed to encourage all executives to build up and maintain
sizeable shareholdings in Caltex for a longer period of time and further align the interests of Caltex
executives and shareholders.
Under the share retention arrangements, 25% of the vested portion of performance rights will be
converted into restricted shares. These shares are unable to be sold for a further period of four
years (until 1 April 2024 for the 2017 LTI awards). This effectively extends the life of the LTI plan from
three years to seven years. For LTI awards from 2016, retention arrangements will be waived if the
executive can demonstrate that he or she holds the equivalent of 100% of their base salary in shares
prior to vesting.
Based on this policy, if it is assumed that the LTI awards vest at target levels over a period of four
years, the MD & CEO and Senior Executives would have theoretical shareholdings of 100% and 60%
of their base salary respectively.
On ceasing employment, all dealing restrictions on the restricted shares cease to apply, subject to
the application of the Clawback Policy.
59
See section 3e for information on the Caltex Clawback Policy.
If a participant ceases to be an employee due to resignation, all unvested equity awards held by the
participant will lapse, except in exceptional circumstances as approved by the Board.
The Board has the discretion to determine the extent to which equity awards granted to a participant
under the LTI plan vest on a pro-rated basis where the participant ceases to be an employee of a
Group company for reasons including retirement, death, total and permanent disablement, and bona
fide redundancy. In these cases, the Board’s usual practice is to pro-rate the award to reflect the
portion of the period from the date of grant to the date the participant ceased to be employed. In
addition, the portion of the award that ultimately vests is determined by testing against the relevant
performance measures at the usual time.
Change of control
provisions
Any unvested performance rights may vest at the Board’s discretion, having regard to pro-rated
performance.
Legacy LTI awards
The 2015 and 2016 LTI awards will vest in April 2018 and April 2019 respectively. The operation of these awards is broadly
consistent with the 2017 awards, except for the weighting and the 2017 awards having the convenience retail measure.
The performance measures for the 2015 awards were relative TSR (weighted at 75%) and strategic measures (weighted at 25%).
The performance measures for the 2016 awards were relative TSR (60%) and strategic measures (40%).
Remuneration Report continued
3. Senior Executive remuneration continued
3d. Performance based “at risk” remuneration – 2017 LTI Plan continued
Performance measure
Commentary
Relative TSR – 2015 and
2016 grant
Strategic measures
The operation of the relative TSR measure is the same as that outlined above under the 2017 awards.
Performance measures
2015: The strategic measure is based on a profit growth target at the end of 2017 (in reference to 2014)
attributable to M&A (core and non-core) and step-out ventures (new products/services/geographies).
2016: The strategic measure is based on a profit growth target at the end of 2018 (in reference to 2015)
attributable to M&A (core and non-core) and step-out ventures (new products/services/geographies).
A RoAFE gateway applies to the 2016 strategic growth measure.
Disclosure and performance assessment
2015: See section 3h for Caltex’s performance against the strategic measures applicable for the
2015 awards.
2016: The Board will set out in the 2019 Remuneration Report how Caltex performed against the
2016 measures, including the Board’s rationale for the relevant vesting percentage.
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3e. Clawback Policy
Caltex has a Clawback Policy which allows the company to recoup incentives which may have been awarded and/or vested
to Senior Executives in certain circumstances. The specific triggers which allow Caltex to recoup the incentives include Senior
Executives acting fraudulently or dishonestly, acting in a manner which has brought a Group company into disrepute; where
there has been a material misstatement or omission in the financial statements in relation to a Group company in any of the
previous three financial years; or any other circumstances the Board determines in good faith to have resulted in an “unfair
benefit” to the Senior Executive.
Upon the occurrence of any of the triggers, the Board may then take such actions it deems necessary or appropriate to address
the events that gave rise to an “unfair benefit”. Such actions may include:
1. requiring the Senior Executive to repay some or all of any cash or equity incentive remuneration paid in any of the previous
three financial years
2. requiring the Senior Executive to repay any gains realised in any of the previous three financial years through the CEIP or on
the open-market sale of vested shares
3. cancelling or requiring the forfeiture of some or all of the Senior Executive’s unvested performance rights, restricted shares
or shares
4. reissuing any number of performance rights or restricted shares to the participant subject to new vesting conditions in place
of the forfeited performance rights, restricted shares or shares
5. adjusting the Senior Executive’s future incentive remuneration, and/or
6. initiating legal action against the Senior Executive.
3f. Hedging and margin lending policies
The Caltex Securities Trading Policy prohibits Designated Caltex Personnel, which includes Senior Executives, from entering
into any arrangements that would have the effect of limiting their exposure relating to Caltex securities, including vested Caltex
securities or unvested entitlements to Caltex securities under Caltex employee incentive schemes.
Designated Caltex Personnel are prohibited from entering into any margin lending arrangements and other secured financing
arrangements in respect of Caltex securities.
Designated Caltex Personnel are required to undertake training to ensure that they are aware of and understand their obligations
and responsibilities under the Securities Trading Policy. A contravention is a serious matter and may lead to disciplinary action,
including termination of employment.
Directors’ Reportcontinued
3g. Senior Executive remuneration and service agreements
MD & CEO
The MD & CEO’s remuneration is determined by the Board following receipt of a recommendation from the Human Resources
Committee. In making its remuneration recommendation, the Human Resources Committee considered the performance of the
MD & CEO and advice provided by Aon Hewitt, which took into account remuneration levels provided by companies of a similar
size and complexity.
The split between the MD & CEO’s 2017 total target and maximum stretch remuneration is outlined below.
Total target and maximum stretch remuneration
Fixed remuneration including
superannuation
“At risk” – performance based remuneration
STI
LTI (ii)
$2,248,500 (i)
“At target”
“At target”– when TSR is at the 75th percentile of peer
companies, and the strategic growth measure has been
met at target.
$1,289,100 (60% of base salary)
$2,148,500 (100% of base salary)
“Stretch”
“Stretch” – when TSR is at the 90th percentile of peer
companies and the strategic growth measure has been
met at stretch.
$2,578,200 (120% of base salary)
$3,222,750 (150% of base salary)
Notes:
(i) The MD & CEO’s remuneration was unchanged during the 2017 remuneration review.
(ii) Share retention arrangements have been implemented to encourage share retention and promote alignment with shareholders over the longer term.
Table 1. Summary of MD & CEO’s Service Agreement
Term
Duration
Conditions
Ongoing until notice is given by either party
Termination by MD & CEO
Six months’ notice
Company may elect to make payment in lieu of notice
61
Termination by company for cause No notice requirement or termination benefits (other than accrued entitlements)
Termination by company (other)
12 months’ notice
Termination payment of 12 months’ base salary (reduced by any payment in lieu of notice)
Treatment of unvested STI and LTI in accordance with plan terms
Post-employment restraints
Restraint applies for 12 months if employed in the same industry within Australia
Other Senior Executives
The remuneration and terms of employment for the other Senior Executives are formalised in Service Agreements (contracts
of employment). The material terms of the Service Agreements are set out below.
The other Senior Executives of Caltex are appointed as permanent Caltex employees. Their employment contracts require both
Caltex and the executive to give a notice period within a range of three and six months as stipulated by their individual contracts
should they resign or have their service terminated by Caltex. The terms and conditions of the executive contracts reflect market
conditions at the time of the contract negotiation and appointment.
The details of the contracts of the current Senior Executives of Caltex are set out below. The durations of the contracts are open
ended (i.e. ongoing until notice is given by either party).
Table 2. Summary of Service Agreements for other Senior Executives
Notice
Simon Hepworth
Richard Pearson
Louise Warner
Termination on notice
(by the company)
Resignation
(by the Senior Executive)
3 months
6 months
6 months
3 months
6 months
6 months
If a Senior Executive was to resign, their entitlement to unvested shares payable through the LTI would generally be forfeited and,
if resignation was on or before 31 December of the year, generally their payment from the Rewarding Results Plan would also be
forfeited, subject to the discretion of the Board. If a Senior Executive is made redundant, their redundancy payment is determined
by the Caltex Redundancy Policy, with the payment calculated based on years of service and the applicable notice period.
Remuneration Report continued
3. Senior Executive remuneration continued
3g. Senior Executive remuneration and service agreements continued
Other than prescribed notice periods, there is no special termination benefit payable under the contracts of employment.
Statutory benefits (such as long service leave) are paid in accordance with the legislative requirements at the time the
Senior Executive ceases employment.
Executive General Manager, Retail
Mr Richard Pearson was appointed on 1 August 2017. Mr Pearson’s contract included relocation and accommodation support
to assist him to relocate from Melbourne, where he was previously employed. If Mr Pearson’s employment ceases due to
resignation, serious and wilful misconduct or negligent behaviour within 12 months of commencement, the entire cost of
relocation assistance must be repaid, with a pro-rated portion repayable if employment ceases for these reasons between
12 and 36 months.
Executive General Manager, Commercial
Mr Bruce Rosengarten ceased employment on 1 April 2017, as his position of Executive General Manager, Commercial was
made redundant, with the B2B business moving to the Fuels & Infrastructure division and a new Retail division being created.
On Mr Rosengarten ceasing employment, his unvested long term incentive awards were pro-rated based on the portion of the
vesting period he was employed. The portion of LTI awards he retained remains subject to the applicable performance hurdles
and will vest, if applicable, in accordance with the original terms of offer in April 2018 and April 2019. As notice was provided in
March 2017, the remaining five months’ notice were paid on cessation of employment. He also received a redundancy payment
for his service paid in accordance with the company’s redundancy policy.
3h. Link between company performance and executive remuneration
The link between executive remuneration and company performance is outlined in various parts of this report. This includes
section 1 where the 2017 remuneration outcomes are provided, and section 3 where the STI and LTI performance measures are
explained, including why the measures have been chosen and how they relate to the performance of the company.
Table 3 below outlines Caltex’s TSR, dividend, share price, earnings per share, RCOP NPAT results and safety performance each
year from 2013 to 2017 together with the linkage to actual STI and LTI outcomes.
Table 3. Link between company performance and executive remuneration (unaudited)
Summary of performance over 2013-17
2017
2016
2015
2014
2013
12 month TSR % (i)
Dividends (cents per share)
Share price (ii)
RCOP excluding significant items earnings per share
RCOP NPAT excluding significant items (million) (iii)
Caltex safety – TRIFR (iv)
Caltex safety – LTIFR (v)
Link to remuneration
11.8
121c
$34.05
$2.38
$621
5.2
(against a
target of 5.6)
1.36
-16.4
102c
$30.46
$2.01
$524
2.35
13.6
117c
$37.70
$2.33
$628
2.35
74.1
70c
$34.21
$1.83
$493
1.76
6.1
34c
$20.05
$1.23
$332
1.36
1.11
0.62
0.77
0.63
STI – percentage of business plan RCOP NPAT target achieved
STI – funding of STI pool (relative to target)
LTI – percentage vesting three years after grant date
Year of grant
Percentage of grant vesting
119%
128%
87%
100%
134%
141%
125%
127%
76%
0%
2015
2014
2013
22.38%
84.78%
80.49%
2012
88.9%
2011
42.3%
Notes:
(i) TSR is calculated as the change in share price for the year, plus dividends announced for the year, divided by the opening share price. TSR is a
measure of the return to shareholders in respect of each financial year.
(ii) The price quoted is the trading price for the last day of trading (31 December) in each calendar year.
(iii) Measured using the RCOP method which excludes the impact of the rise or fall in oil and product prices (a key external factor) and excludes significant
items as determined by the Board.
(iv) Total Recordable Injury Frequency Rate. It is important to note that in the period prior to 2017 Caltex used a different metric, being the Total Treatable
Injury Frequency Rate (TTIFR). In 2017 changes were made to the suite of metrics measured and reported on in 2017. A major change included
Introduction of TRIFR as a replacement measure for TTIFR, and this brought Caltex in line with the reporting by other ASX companies.
(v) LTIFR – Lost Time Injury Frequency Rate.
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Directors’ Reportcontinued
Alignment between STI outcomes and RCOP NPAT
The strong alignment between STI outcomes and company profitability as measured by RCOP NPAT is shown below.
160%
140%
120%
100%
80%
60%
40%
20%
0%
■ % of business plan
RCOP NPAT achieved
■ Size of STI pool
(relative to target)
2013
2014
2015
2016
2017
2015 LTI vesting outcomes and the link to company performance
Relative TSR (75%)
The chart below provides a comparison of Caltex’s three year TSR performance compared to S&P/ASX 100 companies over
the period from 1 January 2015 to 31 December 2017. This reflects the final status of the tranche of the 2015 LTI grant that is
subject to the relative TSR performance measure. Caltex’s TSR over this period was 121%, placing it at the 32nd percentile of
the comparator group. As no percentage of this tranche vests unless the Company’s TSR performance achieves at least the 50th
percentile performance, 0% of the performance rights subject to the relative TSR performance measure will vest on 1 April 2018.
Caltex Australia Limited and the Constituents of the S&P/ASX 100 Index
Total Shareholders Return Performance
1 January 2015 – 31 December 2017
Caltex
90th Percentile
75th Percentile
50th Percentile
ASX100 Index
63
220
215
210
205
200
195
190
185
180
175
170
165
160
155
150
145
140
135
130
125
120
115
110
105
100
95
90
e
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1
Constituents derived from the S&P/ASX 100 Index as at 1 January 2015
Performance start and end data price derived by applying a 60 day average
Date
Profit growth (25%)
Caltex has performed at a stretch level against the profit growth hurdle. This is primarily due to the performance of the Ampol
trading and shipping business, which was assessed as a step-out growth opportunity for the company for the profit growth
component of the 2015 LTI award. When measured against the business plan approved by the Board at the start of the 2015–2017
performance period, the profit generated by the trading and shipping business in the final year of the performance period has
significantly exceeded the budgeted forecast.
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Remuneration Report continued
3. Senior Executive remuneration continued
3h. Link between company performance and executive remuneration continued
This exceptional performance was driven by a variety of factors including:
• faster than anticipated capability and relationship building with key suppliers in the Asian market
• the faster than anticipated expansion of trading and shipping team into other growth areas, including crude and feedstocks
trading, freight opportunities, blending and other optimisations of cargoes
improved market analysis to identify new opportunities and improve decision making timeliness
•
• expansion of optimisation envelope and better decision making by improvements made to processes linking Trading with
Supply and Lytton refinery, delivering additional value into both Ampol and the earnings in Australia.
Measured against the target profit growth hurdle, Caltex has generated additional NPAT in the final year of the performance
period which was 143% of the NPAT growth target. This will result in 89.5% of this tranche vesting (between target and stretch
level of performance).
3i. Remuneration tables
Table 4a. Total remuneration earned by Senior Executives in 2017 (unaudited, non-statutory disclosures)
The following table sets out the actual remuneration earned by Senior Executives in 2017. The value of remuneration includes
the equity grants where the Senior Executive received control of the shares in 2017.
The purpose of this table is to provide a summary of the “past” and “present” remuneration outcomes received in either cash
or equity. Due to this, the values in this table will not reconcile with those provided in the statutory disclosures in table 4b.
For example, table 4b discloses the value of LTI grants which may or may not vest in future years, whereas this table discloses
the value of LTI grants from previous years which vested in 2017.
Salary and
fees (i)
Other
remune-
ration (ii)
Bonus
(short term
incentive)
Termination
Benefit
LTI vested
during the
Remuneration
“earned” for
year (iii)
2017 (iv)
Executive Director
Julian Segal (Managing Director & CEO) (v)
2017
2,223,500
Senior executives
Simon Hepworth (Chief Financial Officer)
2017
864,486
234,128
1,516,575
–
4,049,731
8,023,934
Richard Pearson (Executive General Manager, Retail) (vi)
2017
353,016
96,018
226,392
146,831
520,848
–
–
908,950
2,441,116
–
675,426
Bruce Rosengarten (Executive General Manager, Commercial) (v)(vii)
2017
(70,323)
266,188
Louise Warner (Executive General Manager, Fuels & Infrastructure)
2017
778,229
93,012
–
615,198
855,017
1,666,080
444,796
–
241,975
1,558,013
Total remuneration: senior executives
2017
4,485,419
499,667
2,708,611
–
6,055,674
14,364,568
Notes:
(i) Salary and fees comprises base salary and cash payments in lieu of employer superannuation (on 2017 base salary and/or on STI payments made in
respect of the 2016 performance year paid in 2017).
(ii) Other remuneration includes the cash value of non-monetary benefits, superannuation, annual leave and long service leave entitlements, and any fringe
benefits tax payable on non-monetary benefits.
(iii) This refers to cash and equity based plans from prior years that have vested in the current year. The value is calculated using the closing share price of
company shares on the vesting date. The 2017 figures reflect the strong performance in respect of the LTI that was granted in 2014 and that operated
over the performance period from 1 January 2014 to 31 December 2016. Over this period, Caltex’s TSR was 178% and the Caltex share price increased
from $20.05 to $30.46. At the time of vesting, the Caltex share price was $29.52. Ms Warner’s 2014 LTI award was cash based, as it was granted while
she led Caltex’s Ampol Singapore business.
(iv) This refers to the total value of remuneration earned during 2017, being the sum of the prior columns.
(v) These Senior Executives elect to receive an equivalent cash payment in lieu of employer superannuation that is in excess of the quarterly
Superannuation Guarantee Maximum.
(vi) Mr Pearson commenced employment on 1 August 2017 and his remuneration is disclosed from this date.
(vii) Mr Rosengarten ceased employment on 1 April 2017 due to his position as EGM Commercial being made redundant. The “Terminations Benefit” figure
includes the value of his notice paid in lieu, and his redundancy payment.
Directors’ Reportcontinued
Table 4b. Total remuneration for Senior Executives in 2017 (statutory disclosures)
The following table sets out the audited total remuneration for Senior Executives in 2016 and 2017, calculated in accordance
with statutory accounting requirements:
Primary
Post
Employ-
ment
Other
Long Term
Equity
Total
Salary
and fees (i)
Bonus
(short-term
incentive)
Non-
monetary
benefits( ii)
Super-
annuation
Other( iii)
Termination
Benefit
Share
benefits
(long-term
incentive)( iv)
Rights
benefits
(long-term
incentive)( v)
Julian Segal (Managing Director & CEO)(vi)
2017
2016
2,363,951
1,516,575
14,975
25,000
53,702
2,267,804
1,063,792
13,695
25,000
51,206
Simon Hepworth (Chief Financial Officer)
2017
2016
833,339
520,848
26,272
129,177
22,530
852,336
470,506
21,642
139,294
56,964
Richard Pearson (Executive General Manager, Retail) (vi)(vii)
2017
2016
381,212
226,392
24,035
34,635
9,152
–
–
–
–
–
Bruce Rosengarten (Executive General Manager, Commercial) (vi)(viii)
–
–
–
–
–
–
2017
2016
281,649
–
6,278
15,100
(63,896)
615,198
905,819
303,601
15,604
30,400
7,778
Louise Warner (Executive General Manager, Fuels & Infrastructure)(ix)
2017
2016
818,202
444,796
15,885
19,832
17,322
176,165
80,656
10,435
7,912
28,184
Total remuneration: Senior Executives
– 2,207,345 6,181,548
–
2,193,138
5,614,635
–
–
–
–
–
497,478 2,029,644
518,398
2,059,140
119,964
795,390
–
–
194,773 1,049,102
–
–
–
89,328
445,854
1,798,384
65
–
–
220,022 1,536,059
40,154
343,507
2017
2016
4,678,353
2,708,611
87,445
223,744
38,810
615,198
– 3,239,582 11,591,743
4,202,124
1,918,555
61,376
202,606
144,132
–
89,328
3,197,544
9,815,666
Notes:
(i) Salary and fees includes base salary and cash payments in lieu of employer superannuation. For 2017, the cash payments in lieu of employer
superannuation are on 2017 base salary and/or on STI payments made in respect of the 2016 performance year paid in 2017.
(ii) The non-monetary benefits received by Senior Executives include car parking benefits, employee StarCard benefits, the payment of the default
premiums for death and total and permanent disability insurance cover and related fringe benefits tax payments made by Caltex.
(iii) Other long term remuneration represents the long service leave for all Senior Executives.
(iv) This is the value of the restricted shares (calculated under the accounting standards) granted to Mr Rosengarten in 2013, the last tranche of which
vested in 2016.
(v) These values have been calculated under accounting standards. The values may not represent the future value that the Senior Executive will receive,
as the vesting of the performance rights is subject to Caltex achieving pre-defined performance measures.
(vi) These Senior Executives elect to receive an equivalent cash payment in lieu of employer superannuation that is in excess of the quarterly
Superannuation Guarantee Maximum.
(vii) Mr Pearson commenced employment on 1 August 2017 and his remuneration is disclosed from this date.
(viii) Mr Rosengarten ceased employment on 1 April 2017. The redundancy column includes the value of his notice paid in lieu (five months) and his
redundancy payment.
(ix) Ms Warner’s 2016 remuneration relates to the period commencing 3 October 2016 when she was appointed Executive General Manager, Fuels
& Infrastructure and became a KMP.
Remuneration Report continued
3. Senior Executive remuneration continued
3i. Remuneration tables continued
Table 5. 2017 Senior Executive performance rights
Long term incentives for Senior Executives are awarded as performance rights under the CEIP as explained in section 3d.
The following table sets out details of movements in performance rights held by Senior Executives during the year, including
details of the performance rights that vested.
Julian Segal
Simon Hepworth
Richard Pearson
Bruce Rosengarten
Louise Warner
Performance
rights at
1 Jan 2017 (i)
Granted in
2017 (ii)
Vested
in 2017 (iii)
Lapsed in
2017 (iv)
Balance at
31 Dec 2017
364,632
121,200
(137,186)
(24,629)
324,017
84,199
–
79,248
24,166
30,465
26,325
(30,791)
(5,529)
–
–
–
(28,964)
(27,908)
23,455
(8,197)
(1,473)
78,344
26,325
22,376
37,951
Notes:
(i) This relates to the 2014, 2015 and 2016 performance rights. If the service based and performance based vesting conditions are achieved, the 2015 and
2016 performance rights will vest in 2018 and 2019 respectively.
(ii) This relates to the 2017 performance rights. If the service based and performance based vesting conditions are achieved, these performance rights will
vest in 2020.
(iii) This relates to the 2014 performance rights of which 84.78% vested. Senior Executives received one Caltex share for each right that vested.
(iv) This relates to the 2014 performance rights of which 15.22% lapsed.
Table 6. Valuation assumptions of performance rights granted
The fair value of performance rights granted under the CEIP is determined independently by Ernst & Young using an appropriate
numerical pricing model. The model takes into account a range of assumptions and the fair values for each year of grant have
been calculated incorporating the assumptions below.
2017 grant(i)(ii)
2016 grant(i)
2015 grant(i)
Relative
TSR against
S&P/ASX 100
Strategic
measures
Relative
TSR against
S&P/ASX 100
Strategic
measure
Relative
TSR against
S&P/ASX 100
FCF and
strategic
measure
4 April 2017/
12 May 2017
4 April 2017/
12 May 2017
4 April 2016/
13 May 2016
4 April 2016/
13 May 2016
7 April 2015
7 April 2015
1 April 2020
1 April 2020
1 April 2019
1 April 2019
1 April 2018
1 April 2018
Nil
23%
Nil
23%
Nil
26%
Nil
26%
Risk free interest rate
1.87%/1.82%
1.87%/1.82%
1.88%/1.58%
1.88%/1.58%
Dividend yield
3.6%
3.6%
3.3%/2.8%
3.3%/2.8%
Expected life (years)
3.0/2.9
3.0/2.9
3.0/2.9
3.0/2.9
Share price at grant date $29.39/$32.68 $29.39/$32.68 $33.86/$34.20 $33.86/$34.20
Valuation per right
$10.76/$14.50 $26.39/$29.45 $13.34/$12.43 $30.68/$31.55
Nil
30%
1.75%
3.2%
3.0
$34.94
$15.69
Nil
30%
1.75%
3.2%
3.0
$34.94
$31.76
Notes:
(i) Market performance measures, such as relative TSR, must be incorporated into the option-pricing model valuation used for the CEIP performance
rights, which is reflected in the valuation per performance right. Non-market vesting conditions such as free cash flow and strategic measures
are not taken into account when determining the value of the performance right. This explains the higher valuation for these performance rights.
However, the value of the free cash flow and strategic measures may be discounted during the performance period to reflect the Board’s assessment
of the probability of the number of equity instruments that will vest based on progress against the performance measures. These values will be
reflected in table 4b.
(ii) In 2017, two separate major awards of CEIP performance grants were made. Executive awards, excluding the MD & CEO, were made on 4 April 2017.
The MD & CEO’s award was made on 12 May 2017 after shareholder approval for the award was obtained at the 2017 AGM held on 4 May 2017.
The terms of all 2017 awards, including all performance hurdles and vesting conditions, are the same.
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Vesting date
Exercise price
Volatility
Directors’ Reportcontinued
Table 7. Mix of fixed and variable remuneration based on 2017 statutory remuneration table
The proportion of each Senior Executive’s total remuneration for 2017 that was fixed, and the proportion that was subject to
a performance measure, is outlined below. The percentages are based on the 2017 statutory remuneration disclosures in table
4b (including the LTI values which are determined in accordance with accounting standards), and do not correspond to the
“at target” remuneration percentages outlined earlier in this report in section 3b.
Julian Segal
Simon Hepworth
Richard Pearson
Louise Warner
Variable
(including short
and long term
incentive payments)
60%
50%
44%
43%
Fixed
40%
50%
56%
57%
Table 8. FY17 STI outcomes
The table below sets out the actual STI outcome for each Senior Executive as a percentage of their maximum STI opportunity.
Senior Executives
Julian Segal
Simon Hepworth
Richard Pearson (i)
Bruce Rosengarten (ii)
Louise Warner
Average (iii)
2017
59%
58%
62%
–
63%
60%
2016
46%
55%
–
38%
52%
48%
67
Notes:
(i) Mr Pearson commenced in August 2017 and received a pro-rated STI for this year.
(ii) Mr Rosengarten ceased employment due to redundancy in April 2017 and was not eligible for a STI award in 2017.
(iii) This is the average for those KMP who were eligible to receive an STI payment in this year.
4. Non-executive Director fees
4a. Our approach to Non-executive Director fees
Caltex’s business and corporate operations are managed under the direction of the Board. The Board oversees the performance
of Caltex management in seeking to deliver superior business and operational performance and long term growth in shareholder
value. The Board recognises that providing strong leadership and strategic guidance to management is important to achieve our
goals and objectives.
Under the Caltex Constitution and the ASX Listing Rules, the total annual fee pool for Non-executive Directors is determined
by shareholders. Within this aggregate amount, Non-executive Director fees are reviewed by the Human Resources Committee,
taking into account recommendations from an independent remuneration consultant, and set by the Board.
Fees for Non-executive Directors are set at a level to attract and retain directors with the necessary skills and experience to
allow the Board to have a proper understanding of, and competence to deal with, current and emerging issues for Caltex’s
business. The Board seeks to attract directors with different skills, experience expertise and diversity. Additionally, when
setting Non-executive Director fees, the Board takes into account factors such as external market data on fees and the size
and complexity of Caltex’s operations.
The Non-executive Directors’ fees are fixed and Non-executive Directors do not participate in any Caltex incentive or
retirement plan.
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Remuneration Report continued
4. Non-executive Director fees continued
4b. Board and Committee fees for 2017
The current maximum annual fee pool for Non-executive Directors is $2.5 million, including statutory entitlements. This amount
was approved by shareholders at the 2016 Annual General Meeting.
Table 9. 2017 Non-executive Director fees
The table below outlines the 2017 Non-executive Director fees. There were no increases to Non-executive Director fees for 2017.
Board
Committees (i)
Chairman
Member
Committee
Chairman
Member
2017 fee (ii)
$492,360
$164,120
$36,000
$18,000
Notes:
(i) Comprising the Audit Committee, Human Resources Committee, and OHS & Environmental Risk Committee. No fees are paid to the Chairman
or Members of the Nomination Committee.
(ii) Caltex paid superannuation of 9.5% for Non-executive Directors in addition to the above fees in 2017.
4c. Remuneration table
Table 10. Non-executive Director fees in 2017 (statutory disclosures)
The following table sets out the audited Non-executive Director fees in 2016 and 2017 calculated in accordance with statutory
accounting requirements and which reflects the actual remuneration received during the financial year. Non-executive Directors
are not eligible to receive any cash based or equity based incentives.
Dollars
Current Non-executive Directors
Steven Gregg (Chairman)
2017
2016
Trevor Bourne
2017
2016
Melinda Conrad
2017
2016
Bruce Morgan
2017
2016
Barbara Ward AM
2017
2016
Penny Winn
2017
2016
Former Non-executive Directors
Greig Gailey (Chairman)
2017
2016
Total: Non-executive Directors
2017
2016
Primary
Post
Employment
Other
Long Term
Total
Salary
and fees
Non-monetary
benefits
Super-
annuation (i)
Other
299,774
195,258
218,120
220,551
158,354
–
218,120
220,551
218,120
218,120
188,707
179,689
328,240
507,017
1,629,436
1,541,187
–
–
28,479
18,549
1,061
761
90
–
899
791
181
197
–
–
325
430
2,556
2,179
20,721
20,952
15,044
–
20,721
20,952
20,721
20,721
17,927
17,070
31,183
48,167
154,796
146,412
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
328,253
213,808
239,902
242,265
173,488
–
239,741
242,295
239,023
239,039
206,634
196,760
359,748
555,614
1,786,788
1,689,779
Note:
(i) Superannuation contributions are made on behalf of Non-executive Directors to satisfy Caltex’s obligations under the Superannuation Guarantee
legislation. Fees paid to Non-executive Directors may be subject to fee sacrifice arrangements for superannuation. Non-executive Directors may direct
Caltex to pay superannuation contributions referable to fees in excess of the maximum earnings base as cash.
Directors’ Reportcontinued
5. Shareholdings of Key Management Personnel
Table 11. Shareholdings of Key Management Personnel
The movement during the reporting period in the number of shares of Caltex Australia Limited held directly or indirectly by each
KMP, including their personally related entities, is below.
Directors
Steven Gregg
Trevor Bourne
Melinda Conrad
Bruce Morgan
Barbara Ward AM
Penny Winn
Greig Gailey
Senior Executives
Julian Segal
Simon Hepworth
Richard Pearson
Bruce Rosengarten
Louise Warner
Directors
Greig Gailey
Trevor Bourne
Steven Gregg
Bruce Morgan
Barbara Ward AM
Penny Winn
Senior Executives
Julian Segal
Simon Hepworth
Bruce Rosengarten
Louise Warner
Held at
31 Dec 2016
Purchased
Vested
Sold
Held at
31 Dec 2017
–
5,395
–
10,500
5,000
4,911
5,000
222,930
17,193
–
21,321
451
–
–
5,000
–
–
1,000
500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
137,186
30,791
–
28,964
–
(57,200)
(22,500)
–
(50,285)
–
–
5,395
5,000
10,500
5,000
5,911
5,500
302,916
25,484
–
21,321
451
Held at
31 Dec 2015
Purchased
Vested
Sold
Held at
31 Dec 2016
5,000
5,395
–
10,500
–
1,261
141,906
23,681
4,389
451
–
–
–
–
5,000
3,650
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
129,638
28,512
16,932
(48,614)
(35,000)
–
69
5,000
5,395
–
10,500
5,000
4,911
222,930
17,193
21,321
451
6. Other Key Management Personnel transactions
Apart from as disclosed in the indemnity section of the Directors’ Report, no KMP have entered into a material contract,
loan or other transaction with any entity in the Caltex Group during the year ended 31 December 2017 (2016: nil).
Directors’ interests
The directors’ relevant interests in the shares of Caltex Australia Limited at 31 December 2017 are set out in the following table.
Director
Shareholding
Nature of interest
Steven Gregg
Julian Segal
Nil
302,916 shares
N/a
Direct interest (236,210 shares)
324,017 performance rights
Indirect interest (66,706 shares)
Mr Segal also has a direct interest in 324,017 performance rights
Trevor Bourne
5,395 shares
Melinda Conrad
Bruce Morgan
Barbara Ward AM
Penny Winn
5,000 shares
10,500 shares
5,000 shares
5,911 shares
Direct interest (2,395 shares)
Indirect interest (3,000 shares)
Indirect interest
Indirect interest
Direct interest
Indirect interest
Note:
No director has acquired or disposed of any relevant interests in the company’s shares in the period from 1 January 2018 to the date of this Annual Report.
Board and Committee meetings
The Caltex Board met 25 times during the year ended 31 December 2017. In addition, directors attended Board strategy
sessions and workshops, site visits and special purpose committee meetings during the year.
In 2017, the Board convened the following standing committees:
• Audit Committee
• Human Resources Committee
• Nomination Committee
• OHS & Environmental Risk Committee
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The number of Board and Committee meetings attended by each director during 2017 is set out in the following table:
Director
Board (i)
Audit Committee
Human Resources
Committee
Nomination
Committee
OHS &
Environmental Risk
Committee
Current directors
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Steven Gregg
Julian Segal
Trevor Bourne
Melinda Conrad
Bruce Morgan
Barbara Ward AM
Penny Winn
25
25
25
22
25
25
25
25
25
25
22
23
25
25
3
–
–
1
4
4
–
3
–
–
1
4
4
–
–
–
5
–
–
5
5
–
–
5
–
–
5
5
4
–
4
3
4
4
4
4
–
4
2
4
4
4
1
–
4
3
4
–
1
1
–
4
3
4
–
1
Includes out of session meetings. Excludes strategy workshops, briefings.
Notes:
(i)
(ii) All directors are invited to and regularly attend Committee meetings; this table lists attendance only where a director is a member of the relevant Committee.
(iii) A number of directors also participated in Board Committees convened for special purposes.
Shares and interests
The total number of ordinary shares on issue at the date
of this report and during 2017 is 261 million shares (2016:
261 million shares). The total number of performance rights on
issue at the date of this report is 1,178,816 (2016: 1,296,263).
582,965 performance rights were issued during 2017 (2016:
460,515). 369,653 performance rights vested or lapsed during
the year (2016: 646,253). On vesting, Caltex is required to
allocate one ordinary share for each performance right. For
each right that vests, Caltex intends to purchase a share on
market following vesting. No new shares were issued as a
result of the vesting of performance rights during 2017.
Non-audit services
KPMG is the external auditor.
In 2017, KPMG performed non-audit services for Caltex in
addition to its statutory audit and review engagements for the
full year and half year.
KPMG received or was due to receive the following amounts
for services performed for Caltex during the year ended
31 December 2017:
• for non-audit services – total fees of $265,100 (2016:
$247,300); these services included taxation services
($260,000) and other assurance services ($5,100), and
• for audit services – total fees of $1,079,200 (2016:
$1,082,700).
The Board has received a written advice from the Audit
Committee in relation to the independence of KPMG, as
external auditor, for 2017. The advice was made in accordance
with a resolution of the Audit Committee.
The directors are satisfied that:
• the provision of non-audit services to the Caltex Group
during the year ended 31 December 2017 by KPMG is
compatible with the general standard of independence for
auditors imposed by the Corporations Act, and
• the provision of non-audit services during the year ended
31 December 2017 by KPMG did not compromise the
auditor independence requirements of the Corporations Act
for the following reasons:
− the provision of non-audit services in 2017 was
consistent with the Board’s policy on the provision of
services by the external auditor
− the non-audit services provided in 2017 are not
considered to be in conflict with the role of external
auditor, and
− the directors are not aware of any matter relating to the
provision of the non-audit services in 2017 that would
impair the impartial and objective judgement of KPMG
as external auditor.
Directors’ Reportcontinued
Rounding of amounts
Caltex is an entity to which Australian Securities and
Investments Commission (ASIC) Class Order 2016/191 applies.
Amounts in the 2017 Directors’ Report and the 2017 Financial
Report have been rounded off to the nearest thousand dollars
(unless otherwise stated) in accordance with CO2016/191.
The Directors’ Report is made in accordance with a resolution
of the Board.
Steven Gregg
Chairman
Julian Segal
Managing Director & CEO
Sydney, 27 February 2018
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Company secretaries
The following persons are current company secretaries of
Caltex and the Caltex Group as at the date of this report.
Lyndall Stoyles
Ms Stoyles was appointed to this position in October 2016
when she joined Caltex. Ms Stoyles manages Caltex’s legal,
secretariat, internal audit, compliance and corporate affairs
teams. As EGM Legal and Corporate Affairs, she is responsible
for providing legal advice to Caltex’s Board, CEO and broader
leadership team.
Ms Stoyles has more than 20 years’ experience in advising on
competitor, commercial and corporate head office legal issues.
Prior to joining Caltex, Ms Stoyles was Group General Counsel
and Company Secretary for former logistics business Asciano
and spent more than a decade with Clayton Utz advising on
competition, commercial and corporate law issues in a broad
range of industries. Lyndall holds a Diploma of Law/Masters
of Law from the University of Sydney and is a member of the
Australian Institute of Company Directors.
Kara Nicholls
Ms Nicholls has over 20 years’ experience across global
equity capital markets including wide-ranging commercial
and corporate compliance involvement. She brings extensive
knowledge of the Australian Securities Exchange listing
rules, corporate governance and company compliance and
administration to the Board. Prior to joining Caltex, she has
held roles with Woolworths Limited, Arrium Limited, Macquarie
Group Limited and the Australian Securities Exchange Limited.
She is a Non-executive Director and Company Secretary
of the Gidget Foundation Australia, and a member
of the Governance Institute of Australia’s Legislative
Review Committee.
She is a Chartered Secretary, JP, Fellow of the Governance
Institute of Australia, Member of the Australian Institute
of Company Directors and holds a Bachelor of Business
and Master of Legal Studies from the University of
Technology Sydney.
Indemnity and insurance
Caltex has paid insurance premiums for directors’ and officers’
liability for current and former directors and officers of the
company, its subsidiaries and related entities.
The insurance policies prohibit disclosure of the nature of the
liabilities insured against and the amount of the premiums.
The Constitution provides that each officer of the company
and, if the Board considers it appropriate, any officer of a
subsidiary of the company out of the assets of the company
to the relevant extent against any liability incurred by the
officer in or arising out of the conduct of the business of
the company or the subsidiary (as the case may be) or in
or arising out of the discharge of the duties of the officer,
unless incurred in circumstances that the Board resolves
do not justify indemnification. Where the Board considers
it appropriate, the company may execute a documentary
indemnity in any form in favour of any officer of the company
or a subsidiary of the company, provided that such terms are
not inconsistent with the Constitution. For more information,
refer to the Constitution which is located on our website.
Lead Auditor’s Independence Declaration
under section 307C of the Corporations Act 2001
To the Directors of Caltex Australia Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Caltex Australia Limited for the financial year
ended 31 December 2017 there have been:
(i)
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation
to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Greg Boydell
Partner
Sydney
27 February 2018
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KPMG, an Australian partnership and a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional
Standards Legislation.
Directors’ Declaration
In the opinion of the directors of Caltex Australia Limited (the company):
a. the financial statements and notes that are contained in pages 77 to 119 and the Remuneration Report set out on pages
50 to 69 are in accordance with the Corporations Act 2001, including
i. giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its performance for the
financial year ended on that date, and
ii. complying with Australian Accounting Standards, the Corporations Regulations 2001, and
b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due
and payable
c. at the date of this declaration, there are reasonable grounds to believe that the companies in the Caltex Australia Group that
are parties to the Deed of Cross Guarantee as identified in note F1 will be able to meet any obligations or liabilities to which
they are, or may become, subject by virtue of the Deed of Cross Guarantee described in note F1, and
d. a statement of compliance with International Financial Reporting Standards has been included in note A to the financial
statements for the year ended 31 December 2017.
The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Managing
Director & CEO and the Chief Financial Officer for the financial year ended 31 December 2017.
Signed in accordance with a resolution of the directors:
Steven Gregg
Chairman
Julian Segal
Managing Director & CEO
Sydney, 27 February 2018
73
Independent Auditor’s Report
To the Shareholders of Caltex Australia Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of the Group.
In our opinion, the accompanying Financial Report
of Caltex Australia Limited is in accordance with the
Corporations Act 2001, including:
• giving a true and fair view of the Group’s financial
position as at 31 December 2017 and of its financial
performance for the year ended on that date; and
• complying with Australian Accounting Standards and
the Corporations Regulations 2001.
Basis for opinion
The Group consists of Caltex Australia Limited (the Company) and
the entities it controlled at the year end and from time to time during
the financial year.
The Financial Report comprises the:
• consolidated statement of financial position as at 31 December 2017;
• consolidated statement of comprehensive income, consolidated
statement of changes in equity, and consolidated statement of cash
flows for the year then ended;
• notes, including a summary of significant accounting policies; and
• Directors’ Declaration.
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We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the relevant ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code).
We have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified are:
• Site remediation and dismantling provisions, and
• Taxation of Singaporean entities.
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial
Report of the current period.
These matters were addressed in the context of our audit of the
Financial Report as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Site remediation and dismantling provisions (A$345,097k)
Refer to Note C6 to the Financial Report
The key audit matter
How the matter was addressed in our audit
The determination of site remediation and dismantling
provisions relating to oil refining, distribution and
marketing sites, including the Kurnell refinery, following
its conversion to an import terminal, is considered a
key audit matter. This is due to the inherent complexity
in estimating future environmental remediation costs,
particularly those that are forecast to be incurred
several years in the future.
This is influenced by:
• current environmental and regulatory requirements,
and the impact to the completeness of environmental
remediation activities incorporated into the
provision estimate;
• the expected environmental management strategy,
and the nature of costs incorporated into the
provision estimate;
• third party expert advice sought by management
regarding their obligations and estimates of future costs;
• historical experience, and whether this is a reasonable
predictor when evaluating forecast costs; and
• the expected timing of the expenditure.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Our audit procedures to critically appraise management’s determination
of site remediation and dismantling provisions included:
• comparing the basis for recognition and measurement of
remediation provisions for consistency with environmental
and regulatory requirements;
• obtaining third party expert reports as well as internal and external
underlying documentation for management’s determination of future
required activities, their timing, and associated cost estimations and
comparing them to the nature and quantum of costs contained in the
provision balance;
• assessing the competence, capability and objectivity of the
Group’s internal and external experts used in the determination
of the provision estimate;
• testing the accuracy of historical remediation provisions by
comparing to actual expenditure. We used this knowledge
to challenge management’s current cost estimations; and
• evaluating the completeness of the provisions through
examination of the Group’s operating locations, regulatory
correspondence and responses from our independent
request of the Group’s external lawyers for confirmation
of relevant matters.
Liability limited by a scheme approved under Professional
Standards Legislation.
Taxation of Singaporean entities
Refer to Note E1 to the Financial Report
The key audit matter
The determination as to whether the earnings from the Group’s
Singaporean entities are subject to income tax in Australia under
the regime for the taxation of controlled foreign company income
is considered a key audit matter. This is due to the judgement
required in assessing management’s current estimate of taxation,
which required senior audit team member and tax specialist
involvement. The critical elements of this were:
• significant uncertainty surrounding the timing of resolution
of the matter with the Australian Taxation Office (ATO) and
the final tax rate that will be levied in respect of the Group’s
Singaporean entities’ earnings; and
judgement in management’s current estimate of taxation
by applying the Australian income tax rate of 30% to the
Singaporean entities’ earnings, which may exceed the
actual tax that applies if the income is deemed to be
non-assessable or only partially assessable in Australia.
•
Other Information
How the matter was addressed in our audit
Our audit procedures included:
• working with our tax specialists to evaluate documentation
prepared by the Group’s internal and external advisers
based on our specialists’ experience and our understanding
of the issue, including the current status of discussions with
the ATO, expected timing for resolution and the extent of
any potential changes to the estimate; and
• evaluating the disclosures of the Group by comparing
them to our understanding of the matter and potential
adjustments to future period income tax expense.
Other Information is financial and non-financial information in Caltex Australia Limited’s annual reporting which is provided in
addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion
or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider
whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we
have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.
75
Responsibilities of Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the
•
Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is
free from material misstatement, whether due to fraud or error; and
• assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting
is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
• to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether
due to fraud or error; and
• to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian
Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this Financial Report.
A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing and Assurance Standards
Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report.
Independent Auditor’s Report
continued
Report on the Remuneration Report
Opinion
We have audited the Remuneration Report included in the
Directors’ Report for the year ended 31 December 2017.
In our opinion, the Remuneration Report of Caltex Australia
Limited for the year ended 31 December 2017 complies with
Section 300A of the Corporations Act 2001.
Directors’ responsibilities
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report in
accordance with Section 300A of the Corporations Act 2001.
Our responsibilities
Our responsibility is to express an opinion on the Remuneration
Report, based on our Audit conducted in accordance with
Australian Auditing Standards.
KPMG
Greg Boydell
Partner
Sydney
27 February 2018
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Financial
Statements
Contents
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the financial statements
A Basis of preparation
B Results for the year
B1 Revenue and other income
B2 Costs and expenses
B3 Segment reporting
B4 Earnings per share
B5 Dividends
C Operating assets and liabilities
C1 Receivables
C2 Inventories
C3 Intangibles
C4 Property, plant and equipment
C5 Payables
C6 Provisions
C7 Employee benefits
D Capital, funding and risk management
D1 Interest bearing liabilities
D2 Risk management
D3 Capital management
D4 Fair value of financial assets and liabilities
D5 Issued capital
E Taxation
E1 Income tax expense
E2 Deferred tax
F Group structure
F1 Controlled entities
F2 Business combinations
F3 Equity accounted investees
F4 Joint venture operations
F5 Parent entity disclosures
G Other information
G1 Commitments
G2 Contingent liabilities
G3 Related party disclosures
G4 Key management personnel
G5 Notes to the cash flow statement
G6 Auditor remuneration
G7 Net tangible assets per share
G8 New standards and interpretations not yet adopted
G9 Events subsequent to the end of the year
77
Consolidated Income Statement
for the year ended 31 December 2017
Thousands of dollars
Revenue
Replacement cost of goods sold (excluding product duties and taxes and
inventory gains)
Product duties and taxes
Inventory gains
Cost of goods sold – historical cost
Gross profit
Other income
Net foreign exchange losses
Selling and distribution expenses
General and administration expenses
Results from operating activities
Finance costs
Finance income
Net finance costs
Share of net (loss)/profit of entities accounted for using the equity method
Profit before income tax expense
Income tax expense
Net profit
Profit attributable to:
Equity holders of the parent entity
Non-controlling interest
Net profit
Basic and diluted earnings per share:
Historical cost – cents per share
Note
2017
2016
B1
21,398,251
17,933,201
(14,143,091)
(5,112,441)
17,707
(11,154,208)
(4,908,353)
122,329
(19,237,825)
(15,940,232)
2,160,426
1,992,969
B1
B2
F3.4
E1
2,073
(39,071)
(1,024,708)
(168,223)
930,497
(70,102)
3,202
(66,900)
(151)
863,446
(242,694)
620,752
619,085
1,667
620,752
1,805
(3,955)
(923,800)
(132,066)
934,953
(79,623)
7,051
(72,572)
1,382
863,763
(253,283)
610,480
609,940
540
610,480
B4
237.4
231.6
The consolidated income statement for the year ended 31 December 2017 includes significant items totalling a net $24 million
loss before tax ($14 million loss after tax) (2016: nil). Details of these items are disclosed in note B1.
The consolidated income statement is to be read in conjunction with the notes to the financial statements.
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Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Thousands of dollars
Profit for the period
Other comprehensive income
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on defined benefit plans
Tax on items that will not be reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Foreign operations – foreign currency translation differences
Net change in fair value of net investment hedges
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges reclassified to profit or loss
Tax on items that may be reclassified subsequently to profit or loss
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Attributable to:
Equity holders of the parent entity
Non-controlling interest
Total comprehensive income for the period
2017
2016
620,752
610,480
3,519
(1,056)
2,463
(29,577)
1,045
(45,221)
45,294
(2)
(28,461)
(25,998)
(220)
66
(154)
6,698
–
(595)
893
(89)
6,907
6,753
594,754
617,233
593,087
1,667
594,754
616,693
540
617,233
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements.
79
Consolidated Balance Sheet
as at 31 December 2017
Thousands of dollars
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax assets
Other
Total current assets
Non-current assets
Receivables
Investments accounted for using the equity method
Intangibles
Property, plant and equipment
Deferred tax assets
Employee benefits
Other
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Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Current tax liabilities
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Treasury stock
Reserves
Retained earnings
Total parent entity interest
Non-controlling interest
Total equity
Note
2017
2016
C1
C2
C1
F3
C3
C4
E2
C7
C5
D1
C7
C6
C5
D1
C7
C6
D5
44,521
922,420
1,694,915
–
65,767
2,727,623
10,887
11,360
516,866
2,818,353
244,073
3,233
22,825
3,627,597
6,355,220
1,735,254
270,269
151,948
93,677
107,521
2,358,669
10,855
588,652
37,318
251,825
888,650
3,247,319
3,107,901
244,857
747,585
1,080,920
9,524
60,769
2,143,655
2,555
10,394
195,335
2,690,865
238,083
432
21,415
3,159,079
5,302,734
1,079,389
134
167,569
96,379
158,985
1,502,456
8,356
698,340
38,637
244,730
990,063
2,492,519
2,810,215
524,944
(1,210)
(39,511)
2,610,195
3,094,418
13,483
3,107,901
524,944
(344)
(7,955)
2,280,754
2,797,399
12,816
2,810,215
The consolidated balance sheet is to be read in conjunction with the notes to the financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
Thousands of dollars
Balance at
1 January 2016
Total comprehensive
income for the year
Profit for the year
Total other
comprehensive income
Total comprehensive
income for the year
Own shares acquired,
net of tax
Shares vested to
employees
Expense on equity
settled transactions
Shares bought back (i)
Dividends to
shareholders
Balance at
31 December 2016
Balance at
1 January 2017
Total comprehensive
income for the year
Profit for the year
Total other
comprehensive income
Total comprehensive
income for the year
Own shares acquired,
net of tax
Shares vested to
employees
Expense on equity
settled transactions
Dividends to
shareholders
Balance at
31 December 2017
Issued
capital
Treasury
stock
Foreign
currency
translation
reserve
Equity
compen-
sation
reserve
Hedging
reserve
Retained
earnings
Non-
controlling
interest
Total
Total
equity
543,415
(644)
8,922
(1,476)
(16,669) 2,241,981 2,775,529
12,276 2,787,805
–
–
–
–
–
–
–
–
–
6,698
6,698
(10,952)
11,252
–
(18,471)
–
–
–
–
–
–
–
–
–
–
209
209
–
–
–
–
–
–
–
–
609,940
609,940
540
610,480
(154)
6,753
–
6,753
609,786
616,693
540
617,233
902
(11,252)
–
–
(10,050)
–
4,711
–
–
(251,608)
4,711
(270,079)
–
(319,405)
(319,405)
–
–
–
–
–
(10,050)
–
4,711
(270,079)
(319,405)
524,944
(344)
15,620
(1,267)
(22,308) 2,280,754 2,797,399
12,816 2,810,215
524,944
(344)
15,620
(1,267)
(22,308) 2,280,754 2,797,399
12,816 2,810,215
–
–
–
–
–
–
–
–
–
–
–
(28,532)
(28,532)
(10,540)
9,674
–
–
–
–
–
–
–
71
71
–
–
–
–
–
–
619,085
619,085
1,667
620,752
81
2,463
(25,998)
–
(25,998)
– 621,548
593,087
1,667
594,754
3,122
(9,674)
3,457
–
–
–
(7,418)
–
3,457
–
–
–
(7,418)
–
3,457
– (292,107) (292,107)
(1,000) (293,107)
524,944
(1,210)
(12,912)
(1,196)
(25,403) 2,610,195 3,094,418
13,483 3,107,901
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
(i) 9,189,481 shares were bought back and cancelled during the year ended 31 December 2016.
Consolidated Cash Flow Statement
for the year ended 31 December 2017
Thousands of dollars
Note
2017
2016
Cash flows from operating activities
Receipts from customers
Payments to suppliers, employees and governments
Shares acquired for vesting employee benefits
Dividends and disbursements received
Interest received
Interest and other finance costs paid
Income taxes paid
Net operating cash inflows
Cash flows from investing activities
Purchase of investment
Purchases of businesses, net of cash acquired
Purchases of property, plant and equipment
Major cyclical maintenance
Purchases of intangibles
Net proceeds from sale of property, plant and equipment
Net investing cash outflows
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Repayment of finance lease principal
Dividends paid to non-controlling interest
Payments for shares bought back
Dividends paid
Net financing cash outflows
23,693,457
(22,654,228)
(10,540)
300
3,125
(57,693)
(239,389)
20,025,940
(19,014,981)
(10,952)
400
7,077
(65,687)
(13,595)
G5.2
735,032
928,202
F2
–
(425,902)
(324,077)
(38,820)
(49,004)
37,455
(800,348)
(17,686)
–
(290,288)
(32,933)
(30,241)
13,865
(357,283)
5,001,095
(4,842,447)
(561)
(1,000)
–
(292,107)
6,630,000
(6,630,000)
(342)
–
(270,079)
(319,405)
(135,020)
(589,826)
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
(200,336)
244,857
G5.1
44,521
(18,907)
263,764
244,857
The consolidated cash flow statement is to be read in conjunction with the notes to the financial statements.
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Notes to the Financial Statements
A Basis of preparation
For the year ended 31 December 2017
Caltex Australia Limited (Caltex or company) is a company
limited by shares, incorporated and domiciled in Australia.
The shares of Caltex are publicly traded on the Australian
Securities Exchange (ASX: CTX). The consolidated financial
statements for the year ended 31 December 2017 comprise
the company and its controlled entities (together referred
to as the Caltex Group) and the Caltex Group’s interest in
associates and jointly controlled entities. Caltex is a for-profit
entity and is primarily involved in the purchase, refining,
distribution and marketing of petroleum products and the
operation of convenience stores.
The consolidated financial statements were approved by the
Caltex Board on 27 February 2018.
The financial report has been prepared as a general purpose
financial report and complies with the requirements of the
Corporations Act and Australian Accounting Standards
(AASBs). The consolidated financial report also complies with
International Financial Reporting Standards (IFRSs) adopted
by the International Accounting Standards Board (IASB).
The consolidated financial report is prepared on the historical
cost basis, except for derivative financial instruments which
are measured at fair value, and the defined benefit liability
which is recognised as the net total of the plan assets, plus
unrecognised past service cost less the present value of the
defined benefit obligation.
The consolidated financial report is presented in Australian
dollars, which is the Caltex Group’s functional currency.
The company is of a kind referred to in ASIC Class Order
2016/191 dated 24 March 2016. In accordance with that
Class Order, amounts in the consolidated financial report and
Directors’ Report have been rounded to the nearest thousand
dollars, unless otherwise stated.
The Caltex Group has adopted all the mandatory amended
Accounting Standards issued that are relevant to its operations
and effective for the current reporting period.
A number of new standards, amendments to standards and
interpretations effective for annual periods beginning after
1 January 2018 have not been applied in preparing these
consolidated financial statements. Refer to note G8.
The preparation of a consolidated financial report in
conformity with AASBs requires management to make
judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual
results may differ from these estimates. These accounting
policies have been consistently applied by each entity in the
Caltex Group.
The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
and future periods if the revision affects both current and
future periods.
Judgements made by management in the application of
AASBs that have a significant effect on the consolidated
financial report and estimates with a significant risk of material
adjustment in the future financial years are found in the
following notes:
•
information about the assumptions and the risk
factors relating to impairment is described in notes C1
(receivables), C3 (intangibles) and C4 (property, plant
and equipment)
• note D2 provides an explanation of the foreign exchange,
interest rate and commodity price exposures of the Group
and the risk in relation to foreign exchange, interest rate
and commodity price movements
• note C6 provides key sources of estimation, uncertainty
and assumptions used in regard to estimation of provisions,
and
• note E1 provides information around the extent to which
earnings from the Group’s Singaporean entities would be
subject to income tax in Australia.
83
This section highlights the performance of the Caltex Group for the year, including revenue and other income, costs and
expenses, results by operating segment, earnings per share and dividends.
B1 Revenue and other income
Revenue
Sale of goods
Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of consideration received or
receivable, net of rebates, discounts and allowances.
Gross sales revenue excludes amounts collected on behalf of third parties such as goods and services tax (GST). Sales revenue
is recognised when the significant risks and rewards of ownership have been transferred to the customer, which is the date
products are delivered to the customer.
Other revenue
Rental income from leased sites is recognised in the consolidated income statement on a straight-line basis over the term of the
lease. Franchise fee income is recognised in accordance with the substance of the agreement. Royalties are recognised as they
accrue in accordance with the substance of the agreement.
Dividend income is recognised at the date the right to receive payment is established.
Other income
Net profit on disposal of property, plant and equipment
The profit on disposal of property, plant and equipment is brought to account at the date a contract of sale is settled, because
it is at this time that:
• the costs incurred or to be incurred in respect of the sale can be measured reliably, and
• the significant risks and rewards of ownership of the property, plant and equipment have been transferred to the buyer.
Assets that are held for sale are carried at the lower of the net book value and fair value less cost to sell.
Thousands of dollars
Revenue
Sale of goods
Other revenue
Rental income
Royalties and franchise income
Transaction and merchant fees
Other
Total other revenue
Total revenue
Other income
Net gain on sale of property, plant and equipment
2017
2016
21,072,140
17,618,637
73,315
104,131
101,142
47,523
326,111
72,766
115,890
96,280
29,628
314,564
21,398,251
17,933,201
2,073
1,805
Significant items
During 2017, there were net significant items of $24 million loss ($14 million loss after tax). The significant items are a result of
the announced establishment of the Franchisee Employee Assistance Fund ($20 million), restructuring and redundancy costs
associated with the capability and competitiveness project Quantum Leap ($23 million), offset by the profit on sale of Caltex’s
fuel oil business and the utilisation of prior period capital losses to partially offset tax expense on the profit on sale.
No significant items were recognised in the year ended 31 December 2016.
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Notes to the Financial StatementsB Results for the yearFor the year ended 31 December 2017
B2 Costs and expenses
Finance costs are recognised as incurred unless they relate to qualifying assets. Qualifying assets are assets which take more
than 12 months to get ready for their intended use or sale. In these circumstances, finance costs are capitalised to the cost
of the assets. Where borrowings are not specific to an asset, finance costs are capitalised using an average rate based on the
general borrowings of the Group.
Thousands of dollars
Finance costs
Interest expense
Finance charges on capitalised leases
Unwinding of discount on provisions
Less: capitalised finance costs
Finance costs
Finance income
Net finance costs
Depreciation and amortisation
Depreciation of:
Buildings
Plant and equipment
Amortisation of:
Leasehold property
Intangibles
Total depreciation and amortisation
Selected expenses
Total personnel expenses
2017
2016
55,883
–
16,686
(2,467)
70,102
(3,202)
66,900
7,680
188,874
196,554
8,392
24,217
32,609
61,083
220
19,880
(1,560)
79,623
(7,051)
72,572
10,941
172,468
183,409
8,279
17,608
25,887
229,163
209,296
375,111
344,381
85
B3 Segment reporting
B3.1 Segment disclosures
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating
segments’ operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its performance and for which discrete financial information is available.
Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well
as those that can be allocated on a reasonable basis.
Inter-entity sales are recognised based on an internally set transfer price. Sales between segments are based on arm’s length
principles appropriate to reflect prevailing market pricing structures at that time. Where possible, relevant import parity
pricing is used to determine arm’s length pricing between the two segments. Revenue from external parties reported to the
chief operating decision maker is measured in a manner consistent with that in the consolidated income statement. For the
purposes of reporting to the chief operating decision maker, non-fuel income is included on a net basis and is not presented
in gross revenue.
Income taxes and net financial costs are dealt with at a Group level and not within the reportable segments.
The performance of each reportable segment is measured based on segment replacement cost of sales operating profit
before interest and income tax excluding significant items. This measurement base excludes the impact of the rise or fall in
oil or product prices (key external factors) and presents a clearer picture of the reportable segments’ underlying business
performance. Segment replacement cost of sales operating profit before interest and income tax excluding significant items is
measured as management believes that such information is most useful in evaluating the performance of the differing internal
business units relative to each other, and other like business units in the industry. Segment replacement cost operating profit
excluding significant items, interest and income tax is also used to assess the performance of each business unit against
internal performance measures.
continued
B3 Segment reporting continued
B3.1 Segment disclosures continued
Cost of goods sold measured on a replacement cost basis
Cost of goods sold measured on a replacement cost basis excludes the effect of inventory gains and losses, including the impact
of exchange rate movements. Inventory gains or losses arise due to movements in the landed price of crude oil and product prices,
and represent the difference between the actual historic cost of sales and the current replacement value of that inventory.
The net inventory gain or loss is adjusted to reflect the impact of contractual revenue lags.
Types of products and services
The following summary describes the operations in each of the Group’s reportable segments:
Supply and Marketing
The Supply and Marketing function is an integrated transport fuel supply chain which sources crude oil and refined products on
the international market and sells Caltex fuels, lubricants, specialty products and convenience store goods through a national
network of Caltex, Caltex Woolworths and Ampol branded service stations, as well as through company owned and non-equity
resellers and direct sales to corporate customers. The Group’s broad distribution capabilities encompass pipelines, terminals,
depots and both an owned and contracted transportation fleet.
Lytton
Lytton refinery in Brisbane refines crude oil into petrol, diesel, jet fuel and many specialty products such as liquid petroleum gas.
B3.2 Information about reportable segments
Supply and Marketing
Lytton
Total operating segments
Thousands of dollars
2017
2016
2017
2016
2017
2016
Gross segment revenue
Product duties and taxes
20,468,078
(5,112,441)
17,142,594
(4,908,353)
External segment revenue
15,355,637
12,234,241
65,005
–
65,005
48,542
–
20,533,083
(5,112,441)
17,191,136
(4,908,353)
48,542
15,420,642
12,282,783
Inter-segment revenue
Total segment revenue
–
–
4,324,929
3,561,988
4,324,929
3,561,988
15,355,637
12,234,241
4,389,934
3,610,530
19,745,571
15,844,771
Share of profit of associates
and joint ventures
Depreciation and amortisation
Replacement Cost of Sales Operating
Profit (RCOP) before interest and
income tax
Other material items:
Inventory gains
Capital expenditure
(including acquisitions)
(151)
(163,715)
1,382
(147,540)
–
(59,711)
–
(56,192)
(151)
(223,426)
1,382
(203,732)
732,973
709,435
308,300
205,474
1,041,273
914,909
17,707
122,329
–
–
17,707
122,329
(754,682)
(301,156)
(52,271)
(43,158)
(806,953)
(344,314)
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Notes to the Financial StatementsB Results for the yearFor the year ended 31 December 2017
continued
B3.3 Reconciliation of reportable segment revenues, profit or loss and other material items
Thousands of dollars
Revenues
Total revenue for reportable segments
Product duties and taxes
Elimination of inter-segment revenue
Total reportable segments gross revenue
Non-fuel income and rebates
Other revenue
Consolidated revenue
Profit or loss
Segment RCOP before interest and income tax, excluding significant items
Other expenses
RCOP before interest and income tax, excluding significant items
Significant items excluded from profit or loss reported to the chief operating decision maker:
Sale of Fuel Oil Business
Establishment of Franchisee Employee Assistance Fund
Quantum Leap Restructuring Costs
RCOP before interest and income tax
Inventory gains
Consolidated historical cost profit before interest and income tax
Net financing costs
Net profit attributable to non-controlling interest
Consolidated profit before income tax
2017
2016
19,745,571
5,112,441
(4,324,929)
20,533,083
539,057
326,111
15,844,771
4,908,353
(3,561,988)
17,191,136
427,501
314,564
21,398,251
17,933,201
1,041,273
(106,351)
934,922
19,050
(20,000)
(23,000)
910,972
17,707
928,679
(66,900)
1,667
863,446
914,909
(101,443)
813,466
–
–
–
813,466
122,329
935,795
(72,572)
540
863,763
Thousands of dollars
Other material items 2017
Depreciation and amortisation
Inventory gains
Capital expenditure
Other material items 2016
Depreciation and amortisation
Inventory losses
Capital expenditure
87
Reportable
segment
totals
(223,426)
17,707
(806,953)
(203,732)
122,329
(344,314)
Other
Consolidated
totals
(5,737)
–
(4,207)
(5,564)
–
(10,708)
(229,163)
17,707
(811,160)
(209,296)
122,329
(355,022)
continued
B3 Segment reporting continued
B3.4 Geographical segments
The Group operates in Australia, New Zealand and Singapore. Revenue is predominantly generated in Australia and the
Group’s non-financial non-current assets are predominantly located in the Group’s country of domicile, Australia. Following
the acquisition of Gull New Zealand, the Group in 2017 has generated A$203,500,000 revenue and holds A$304,800,000 of
non-current assets in New Zealand.
B3.5 Major customer
Revenues from one customer of the Group’s Supply and Marketing segment represent approximately $3,400,000,000
(2016: $3,100,000,000) of the Group’s total gross sales revenue (excluding product duties and taxes).
B3.6 Revenue from products and services
Thousands of dollars
Petrol
Diesel
Jet
Lubricants
Specialty and other products
Crude
Non-fuel income and rebates
Product duties and taxes
Other revenue
B4 Earnings per share
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Historical cost
RCOP excluding significant items
2017
2016
5,856,264
6,705,228
1,735,383
216,747
187,802
719,218
539,057
5,112,441
326,111
4,958,773
5,155,048
1,367,969
201,133
193,681
406,179
427,501
4,908,353
314,564
21,398,251
17,933,201
2017
237.4
238.0
2016
231.6
199.0
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The calculation of historical cost basic earnings per share for the year ended 31 December 2017 was based on the net
profit attributable to ordinary shareholders of the parent entity of $619,085,000 (2016: $609,940,000) and a weighted
average number of ordinary shares outstanding during the year ended 31 December 2017 of 261 million shares
(2016: 263 million shares).
The calculation of RCOP excluding significant items basic earnings per share for the year ended 31 December 2017 was based
on the net RCOP profit attributable to ordinary shareholders of the parent entity of $620,816,000 (2016: $524,310,000) and a
weighted average number of ordinary shares outstanding as disclosed during the year ended 31 December 2017 of 261 million
shares (2016: 263 million shares). RCOP is calculated by adjusting the statutory profit for significant items and inventory gains
and losses as follows:
Thousands of dollars
Net profit after tax attributable to equity holders of the parent entity
Adjust: significant items losses after tax
Adjust: inventory (gains) after tax
RCOP excluding significant items after tax
2017
2016
619,085
14,126
(12,395)
620,816
609,940
–
(85,630)
524,310
There are no dilutive potential ordinary shares, and therefore diluted earnings per share equals basic earnings per share.
Notes to the Financial StatementsB Results for the yearFor the year ended 31 December 2017
continued
B5 Dividends
B5.1 Dividends declared or paid
Dividends recognised in the current year by the company are:
2017
Interim 2017
Final 2016
Total amount
2016
Interim 2016
Final 2015
Total amount
Date of payment
Franked/
unfranked
Cents
per share
Total amount
$’000
6 October 2017
31 March 2017
Franked
Franked
30 September 2016
4 April 2016
Franked
Franked
60
52
112
50
70
120
156,486
135,621
292,107
130,405
189,000
319,405
Subsequent events
Since 31 December 2017, the Directors declared the following dividend. The dividend has not been provided for and there are
no income tax consequences for the Group in relation to 2017.
Final 2017
6 April 2018
Franked
61
159,094
B5.2 Dividend franking account
Thousands of dollars
30% franking credits available to shareholders of Caltex Australia Limited for
subsequent financial years
2017
2016
936,078
820,375
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
89
The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a
liability, is to reduce the balance by $68,183,321 (2016: $58,123,487).
This section provides information on the assets used to generate the Group’s trading performance and the liabilities incurred
as a result.
C1 Receivables
The following balances are amounts due from the Group’s customers and others.
Thousands of dollars
Current
Trade debtors
Allowance for impairment
Associated entities
Other related entities
Other debtors
Non-current
Other loans
2017
2016
736,644
(6,255)
730,389
10,398
2,054
179,579
922,420
659,115
(6,550)
652,565
11,129
1,217
82,674
747,585
10,887
2,555
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Receivables are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at
amortised cost less impairment losses.
Impairment testing is performed at reporting date. A provision for impairment losses is raised if there is a specific indicator that
an impairment loss on receivables has been incurred.
An impairment loss is reversed when an event, occurring after the impairment loss was recognised, objectively indicates an
increase in the recoverable amount.
Impaired receivables
As at 31 December 2017, current trade receivables of the Group with a nominal value of $6,255,000 (2016: $6,550,000) were
impaired. The individually impaired receivables relate to a variety of customers who are in financial difficulties. No collateral is
held over these impaired receivables.
As at 31 December 2017, trade receivables of $27,922,000 (2016: $34,457,000) were past due but not impaired. These relate
to a number of customers for whom there is no recent history of default. The ageing analysis of receivables past due but not
impaired is as follows:
Thousands of dollars
Past due 0 – 30 days
Past due 31 – 60 days
Movements in the allowance for impairment of receivables are as follows:
Thousands of dollars
At 1 January
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
At 31 December
2017
25,735
2,187
27,922
2017
6,550
2,216
(2,511)
6,255
2016
32,289
2,168
34,457
2016
8,235
2,266
(3,951)
6,550
The creation and release of the provision for impaired receivables has been included in general and administration expenses
in the income statement. Amounts charged to the allowance account are written off when there is no expectation of recovering
additional cash.
The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit
history of these other classes, it is expected that these amounts will be received when due.
Fair value and credit risk
Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. Maximum
exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above. Refer to note D2.4
for further details.
Notes to the Financial StatementsC Operating assets and liabilitiesFor the year ended 31 December 2017
C2 Inventories
Thousands of dollars
Crude oil and raw materials
Inventory in process
Finished goods
Materials and supplies
At 31 December
2017
2016
409,910
51,882
1,216,592
16,531
1,694,915
172,997
36,225
856,253
15,445
1,080,920
Inventories are measured at the lower of cost and net realisable value. Cost is based on the first in first out (FIFO) principle and
includes direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure incurred in
acquiring the inventories and bringing them into the existing location and condition.
The amount of any write-down or loss of inventory is recognised as an expense in the period it is incurred. Inventory write-downs
may be reversed when net realisable value increases subsequent to initial write-down. The reversal is limited to the original
write-down amount.
There was no inventory written down to net realisable value at 31 December 2017 and 31 December 2016.
C3 Intangibles
Thousands of dollars
Note
Goodwill
Rights and
licences
Software
Total
Cost
At 1 January 2017
Acquisitions through business combinations
Additions
Disposals
Foreign Currency Translation
Balance at 31 December 2017
F2
Cost
At 1 January 2016
Additions
Disposals
Reclassification
Balance at 31 December 2016
Amortisation
At 1 January 2017
Amortisation for the year
Disposals
Foreign Currency Translation
Balance at 31 December 2017
Amortisation
At 1 January 2016
Amortisation for the year
Disposals
Reclassification
Balance at 31 December 2016
91
146,460
284,600
–
(4,659)
(10,653)
415,748
147,638
–
(1,178)
–
146,460
(16,391)
–
–
–
(16,391)
(16,391)
–
–
–
(16,391)
32,878
37,896
31
(1,348)
(1,820)
67,637
32,100
778
–
–
32,878
(19,501)
(6,094)
1,060
–
(24,535)
(14,895)
(4,606)
–
–
(19,501)
164,477
–
48,973
(28,152)
(375)
184,923
103,007
29,463
(4,491)
36,498
164,477
343,815
322,496
49,004
(34,159)
(12,848)
668,308
282,745
30,241
(5,669)
36,498
343,815
(112,588)
(18,123)
20,032
163
(148,480)
(24,217)
21,092
163
(110,516)
(151,442)
(68,833)
(13,002)
1,058
(31,811)
(112,588)
(100,119)
(17,608)
1,058
(31,811)
(148,480)
continued
C3 Intangibles continued
Thousands of dollars
Carrying amount
At 1 January 2017
Balance at 31 December 2017
Carrying amount
At 1 January 2016
Balance at 31 December 2016
Goodwill
Rights and
licences
Software
Total
130,069
399,357
131,247
130,069
13,377
43,102
17,205
13,377
51,889
74,407
34,174
51,889
195,335
516,866
182,626
195,335
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The amortisation charge of $24,217,000 (2016: $17,608,000) is recognised in selling and distribution expenses and general and
administration expenses in the income statement.
Goodwill
Goodwill arising on the acquisition of subsidiaries is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is tested annually for impairment. In respect of equity accounted investees, the carrying
amount of goodwill is included in the carrying amount of the investment in the associate.
Negative goodwill arising on an acquisition is recognised directly in the consolidated income statement.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Amortisation
Amortisation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of
intangible assets. Other intangible assets are amortised from the date they are available for use. The estimated useful lives in the
current and comparative periods are reflected by the following amortisation percentages:
Software development
Software not integrated with hardware
Rights and licences
7 – 17%
7 – 18%
4 – 33%
Impairment
The carrying amounts of intangible assets are reviewed to determine if there is any indication of impairment. If any such indication
exists, the assets’ recoverable amounts are estimated and, if required, an impairment is recognised in the income statement.
Impairment tests for cash-generating units containing goodwill and indefinite life intangibles
Total goodwill and indefinite life intangibles at 31 December 2017 is $399,357,000 and $20,316,000 respectively. This is allocated
to each group of cash-generating units as follows. Goodwill: Gull NZ $221,816,000, Supply and Marketing: $177,541,000;
indefinite life intangibles: Gull NZ $19,537,000, Supply and Marketing $779,000. Goodwill and indefinite life intangibles have been
allocated to the group of cash-generating units containing all the assets in the integrated value chain (inclusive of retail sites,
depots, pipelines and terminals).
The recoverable amount of the group of cash-generating units including goodwill and indefinite life intangibles has been
determined based on a value in use calculation. This calculation uses pre-tax cash flow projections based on an extrapolation
of the year end cash flows and available budget information. The cash flows have been discounted using a pre-tax discount rate
of 12.9% p.a. The cash flows have been extrapolated using a constant growth rate of 1 – 2.5%. The growth rates used do not
exceed the long term growth rate for the industry.
There were no goodwill impairment losses recognised during the year ended 31 December 2017 (2016: nil).
Key assumptions used in value in use calculations
Key assumption
Cash flow
Estimated long term average growth rate
Discount rate
Basis for determining value in use assigned to key assumption
Earnings before interest, tax, depreciation and amortisation
1 – 2.5%
The discount rate is disclosed above
The values assigned to the key assumptions represent management’s assessment of future trends in the petroleum industry and
are based on both external sources and internal sources (historic data).
Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based
would not cause the carrying amount of goodwill recorded to exceed its recoverable amount.
Notes to the Financial StatementsC Operating assets and liabilitiesFor the year ended 31 December 2017
C4 Property, plant and equipment
Thousands of dollars
Freehold land
At cost
Accumulated impairment losses
Net carrying amount
Buildings
At cost
Accumulated depreciation and impairment losses
Net carrying amount
Leasehold property
At cost
Accumulated amortisation
Net carrying amount
Plant and equipment
At cost
Accumulated depreciation and impairment losses
Net carrying amount
Capital projects in progress
At cost
Accumulated impairment losses
Net carrying amount
Total net carrying amount
2017
2016
440,289
(37,284)
403,005
693,770
(261,270)
432,500
209,112
(109,620)
99,492
376,079
(37,284)
338,795
661,591
(253,591)
408,000
186,977
(101,228)
85,749
5,581,002
(4,107,544)
5,464,093
(3,918,669)
1,473,458
1,545,424
410,389
(491)
409,898
319,127
(6,230)
312,897
2,818,353
2,690,865
Owned assets
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost
includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the
cost of materials, direct labour and an appropriate proportion of production overheads.
93
The cost of property, plant and equipment includes the cost of decommissioning and restoration costs at the end of their economic lives
if a present legal or constructive obligation exists. More details of how this cost is estimated and recognised is contained in note C6.
Assessment of impairment is evaluated as set out below.
Leased assets
Leases of property, plant and equipment under which the Group assumes substantially all the risks and rewards of ownership are
classified as finance leases. Other leases are classified as operating leases.
Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately,
including cyclical maintenance, is capitalised. Other subsequent expenditure is capitalised only when it is probable that the
future economic benefits embodied within the item will flow to the Caltex Group and the cost of the item can be reliably
measured. All other expenditure is recognised in the consolidated income statement as an expense as incurred.
Major cyclical maintenance
Major cyclical maintenance expenditure is separately capitalised as an asset component to the extent that it is probable that
future economic benefits, in excess of the originally assessed standard of performance, will eventuate. All other such costs are
expensed as incurred. Capitalised cyclical maintenance expenditure is depreciated over the lesser of the additional useful life of
the asset or the period until the next major cyclical maintenance is scheduled to occur.
Depreciation
Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are depreciated
using the straight-line method over their expected useful lives. Leasehold improvements are amortised over the shorter of the
lease term or useful life.
The depreciation rates used, in the current and prior year, for each class of asset are as follows:
Freehold buildings
Leasehold property
Plant and equipment
Leased plant and equipment
2%
2 – 10%
3 – 25%
3 – 25%
Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is
completed and held ready for use.
continued
C4 Property, plant and equipment continued
Impairment
The carrying amounts of assets are reviewed to determine if there is any indication of impairment. If any such indication
exists, these assets’ recoverable amounts are estimated and, if required, an impairment is recognised in the income statement.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
In assessing the carrying value of property, plant and equipment, management considers long term assumptions relating to
key external factors including Singapore refiner margins, foreign exchange rates and crude oil prices; any changes in these
assumptions can have a material impact on the carrying value.
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
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Thousands of dollars
Freehold land
Carrying amount at the beginning of the year
Additions
Acquisition through business combination
Disposals
Reclassification
Carrying amount at the end of the year
Buildings
Carrying amount at the beginning of the year
Additions
Disposals
Transfers from capital projects in progress
Depreciation
Reclassification
Carrying amount at the end of the year
Leasehold property
Carrying amount at the beginning of the year
Additions
Acquisition through business combination
Disposals
Transfers from capital projects in progress
Amortisation
Foreign Currency Translation
Carrying amount at the end of the year
Plant and equipment
Carrying amount at the beginning of the year
Additions
Acquisition through business combination
Disposals
Transfers from capital projects in progress
Depreciation
Foreign Currency Translation
Reclassification
Carrying amount at the end of the year
Capital projects in progress
Carrying amount at the beginning of the year
Additions
Borrowing costs capitalised
Transfers to buildings, leased property, plant and equipment
Carrying amount at the end of the year
2017
2016
338,795
54,777
14,077
(4,644)
–
403,005
408,000
9,986
(12,796)
34,230
(7,680)
760
432,500
85,749
5,089
20,929
(4,097)
788
(8,392)
(574)
99,492
1,545,424
47,434
39,290
(90,311)
116,059
(188,874)
4,436
–
1,473,458
312,897
245,611
2,467
(151,077)
409,898
368,624
29,362
–
(4,913)
(54,278)
338,795
353,760
3,392
(6,160)
67,949
(10,941)
–
408,000
76,423
3,704
–
(4,057)
17,958
(8,279)
–
85,749
1,442,786
75,254
–
(31,595)
175,537
(172,468)
–
55,910
1,545,424
361,272
211,509
1,560
(261,444)
312,897
Notes to the Financial StatementsC Operating assets and liabilitiesFor the year ended 31 December 2017
C5 Payables
Thousands of dollars
Current
Trade creditors – unsecured
– Related entities
– Other corporations and persons
Other creditors and accrued expenses
Non-current
Other creditors and accrued expenses
2017
2016
–
1,361,704
373,550
1,735,254
–
774,633
304,756
1,079,389
10,855
8,356
Payables are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the
Group. Trade accounts payable are normally settled on between 30 and 60 day terms.
Payables are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at
amortised cost.
C6 Provisions
Thousands of dollars
Balance at 1 January 2017
Provisions made during the year
Provisions used during the year
Discounting movement
Balance at 31 December 2017
Current
Non-current
Site remediation
and dismantling
Other
Total
385,519
7,460
(62,410)
14,528
345,097
97,194
247,903
345,097
18,196
9,337
(13,284)
–
14,249
10,327
3,922
14,249
403,715
16,797
(75,694)
14,528
359,346
107,521
251,825
359,346
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A provision is recognised when there is a present legal or constructive obligation as a result of a past event that can be
measured reliably and it is probable that a future sacrifice of economic benefits will be required to settle the obligation,
the timing or amount of which is uncertain.
A provision is determined by discounting the expected future cash flows (adjusted for expected future risks) required to settle the
obligation at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Subsequent accretion to the amount of a provision due to unwinding of the discount is recognised as a financing cost.
Estimates of the amount of an obligation are based on current legal and constructive obligations, technology and price levels.
Actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and
conditions and can take place many years in the future. The carrying amounts of provisions and liabilities are regularly reviewed
and adjusted to take account of such change.
In general, the further in the future that a cash outflow for a liability is expected to occur, the greater the degree of uncertainty
around the amount and timing of that cash outflow. Examples of cash outflows that are expected to occur a number of years
in the future and, as a result, about which there is uncertainty of the amounts involved, include asset decommissioning and
restoration obligations and employee pension obligations.
A change in the estimate of a recognised provision or liability would impact the consolidated income statement, with the
exception of decommissioning and certain restoration costs that relate to the initial construction of an asset, which would
be accounted for on a prospective basis.
continued
C6 Provisions continued
Site remediation and dismantling
Provisions relating to current and future remediation activities are recognised as liabilities when a legal or constructive
obligation arises.
The provision is the best estimate of the present value of the expenditure to settle the obligation at the reporting date. These costs
are reviewed annually and any changes are reflected in the provision at the end of the reporting period through the consolidated
income statement.
The ultimate cost of remediation is uncertain and cost estimates can vary in response to many factors, including changes to the
relevant legal and environmental requirements, the emergence of new techniques or experience at other sites and uncertainty as
to the remaining life of existing sites.
Costs for the future dismantling and removal of assets, and restoration of the site on which the assets are located, are provided
for and capitalised upon initial construction of the asset, where an obligation to incur such costs arises. The present value of the
expected future cash flows required to settle these obligations is capitalised and depreciated over the useful life of the asset.
Subsequent accretion to the amount of a provision due to unwinding of the discount is recognised as a finance cost. A change
in estimate of the provision is added to or deducted from the cost of the related asset in the period of the change, to the extent
that any amount of deduction does not exceed the carrying amount of the asset. Any deduction in excess of the carrying amount
is recognised in the consolidated income statement immediately. If an adjustment results in an addition to the cost of the related
asset, consideration will be given to whether an indication of impairment exists and the impairment policy will be applied.
Dividends
A provision for dividends payable is recognised in the reporting period in which the dividends are declared, for the entire
undistributed amount.
Other
Other includes legal, insurance and other provisions.
C7 Employee benefits
Thousands of dollars
Non-current assets
Defined benefit superannuation asset
Total asset for employee benefits
Current liabilities
Liability for annual leave
Liability for long service leave
Liability for termination benefits
Bonus accrued
Total current liability for employee benefits
Non-current liabilities
Liability for long service leave
Defined benefit superannuation obligation
Total non-current liability for employee benefits
Total net liability for employee benefits
2017
2016
3,233
3,233
29,570
4,823
13,864
45,420
93,677
35,198
2,120
37,318
127,762
432
432
32,091
9,219
16,114
38,955
96,379
35,479
3,158
38,637
134,584
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Notes to the Financial StatementsC Operating assets and liabilitiesFor the year ended 31 December 2017
This section focuses on the Group’s capital structure and related financing costs. This section also describes how the Group
manages the capital and the financial risks it is exposed to as a result of its operating and financing activities.
D1 Interest bearing liabilities
Thousands of dollars
Current
Bank facilities
Domestic medium term notes
Lease liabilities
Non-current
Bank facilities
Domestic medium term notes
Subordinated notes
Lease liabilities
Note
2017
2016
G1
G1
120,154
149,923
192
270,269
588,495
–
–
157
588,652
–
–
134
134
–
149,836
547,728
776
698,340
Interest bearing liabilities are initially recorded at the amount of proceeds received (fair value) less transaction costs. After
that date the liability is amortised to face value at maturity using an effective interest rate method with any gains or losses
recognised in the income statement.
Domestic medium term and subordinated notes
These notes are initially recognised when issued at fair value, less transaction costs. These costs are subsequently accounted
for using the amortised cost method. Any difference between the fair value and the principal value is recognised in the
consolidated income statement over the period of the interest bearing liability on an effective interest basis.
D2 Risk management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange, interest rate and
commodity price), as well as credit and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to reduce potential adverse effects on financial performance. The Group uses
a range of derivative financial instruments to hedge market exposures.
97
The Group enters into derivative transactions, principally interest rate swaps, foreign exchange contracts (forwards, swaps and
options), and crude and finished product swap contracts. The purpose is to manage the market risks arising from the Group’s
operations and its sources of finance.
Derivative financial instruments are recognised at fair value. The gain or loss on subsequent remeasurement is recognised
immediately in the consolidated income statement. However, where derivatives qualify for hedge accounting, recognition
of any resultant gain or loss depends on the nature of the item being hedged.
It is the Group’s policy that no speculative trading in financial instruments shall be undertaken.
Group Treasury centrally manages market risk, liquidity risk, financial institutional credit risk, funding and capital management.
Risk management activities in respect to customer credit risk are carried out by the Group’s Credit Risk department. Both Group
Treasury and Credit Risk operate under policies approved by the Board of directors. Group Treasury and Credit Risk identify,
evaluate and monitor the financial risks in close co-operation with the Group’s operating units.
The Group currently finances its operations through a variety of financial instruments including bank facilities, domestic medium
term notes and finance leases. Surplus funds are invested in cash and short term deposits.
The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.
The magnitude of each type of financial risk that has arisen over the year is discussed in notes D2.1 to D2.5 below.
Notes to the Financial StatementsD Capital, funding and risk managementFor the year ended 31 December 2017 continued
D2 Risk management continued
Hedge accounting
(a) Cash flow hedges
The Group designates interest rate swaps and foreign exchange contracts (forwards, swaps and options) as cash flow hedges.
The effective portion of changes in fair value of these financial instruments is recognised in equity. The gain or loss relating
to the ineffective portion is recognised immediately in the consolidated income statement.
The cumulative gain or loss in equity is transferred to the consolidated income statement in the period when the hedged item
affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, the cumulative gain or loss existing in equity at the time remains in equity and is recognised when the forecast
transaction ultimately affects profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately transferred to the consolidated income statement.
(b) Net investment hedges
The Group designates a portion of the New Zealand dollar bank facilities as a net investment hedge of Gull NZ assets. Foreign
exchange differences arising from the translation of the net investment in foreign operations, and of related hedges that are
effective, are recognised in other comprehensive income and presented in the foreign currency translation reserve within equity.
They are released to the consolidated income statement upon disposal of the foreign operation.
D2.1 Interest rate risk
Interest rate instruments
The Group enters into fixed interest rate instruments to manage cash flow risks associated with the interest rate volatility
on borrowings that are floating. Interest rate instruments allow the Group to swap floating rate borrowings into fixed rates.
Maturities of swap contracts are principally between three and five years.
At 31 December 2017, the fixed rates under these swap contracts varied from 2.3% p.a. to 2.5% p.a. (2016: 2.5% p.a. to 3.4% p.a.),
a weighted average rate of 2.4% p.a. (2016: 2.7% p.a.).
The net fair value of interest rate swap contracts at 31 December 2017 was a $1,000,000 loss (2016: $556,000 loss).
Interest rate sensitivity analysis
At 31 December 2017, if interest rates had changed by -/+1% from the year end rates, with all other variables held constant,
the impact on post-tax profit for the year for the Group and equity would have been:
Thousands of dollars
Interest rates decrease by 1%
Interest rates increase by 1%
2017
2016
Post-tax profit Hedge reserve Post-tax profit Hedge reserve
4,600
(4,600)
(10,900)
10,400
2,100
(2,100)
(4,400)
4,200
Interest rate risk exposure
The Group’s exposure to interest rate risk (after hedging) for classes of financial assets and liabilities are set out as follows:
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Thousands of dollars
Financial assets
Cash at bank and on hand
Financial liabilities
Variable rate borrowings
Bank facilities
Subordinated note
Fixed interest rate – repricing dates:
Twelve months or less
One to five years
Note
2017
2016
44,521
44,521
244,857
244,857
D1
D1
D1
D1
428,649
–
150,115
280,157
858,921
–
417,728
50,134
230,612
698,474
Notes to the Financial StatementsD Capital, funding and risk managementFor the year ended 31 December 2017
D2.2 Foreign exchange risk
Foreign currency transactions are recorded, on initial recognition, in Australian dollars by applying the exchange rate at the date
of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars
at the foreign exchange rate applicable for that date. Foreign exchange differences arising on translation are recognised in the
consolidated income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates at the dates the
fair value was determined.
The Group is exposed to the effect of changes in exchange rates on its operations and investments.
Foreign exchange contracts (forwards, swaps and options) are used to hedge foreign currency exposure in accordance with
Group Treasury Policy. The Group also enters into foreign exchange contracts to cover major capital expenditure items.
As at 31 December 2017, the total fair value of all outstanding foreign exchange contracts (forwards, swaps and options)
amounted to a $8,913,000 loss (2016: $9,415,000 gain).
Foreign exchange rate sensitivity analysis
At 31 December 2017, had the Australian dollar strengthened/weakened by 10% against the following currencies respectively
(with all other variables held constant), the impact on post-tax profit for the year for the Group and equity would have been:
Thousands of dollars
AUD strengthens against US Dollar 10%
AUD weakens against US Dollar 10%
AUD strengthens against NZ Dollar 10%
AUD weakens against NZ Dollar 10%
AUD strengthens against Philippine Peso 10%
AUD weakens against Philippine Peso 10%
Exposure to foreign exchange risk
2017
Post-tax
profit
(8,000)
9,700
–
–
–
–
Hedge
reserve
(100)
200
13,200
(16,200)
(1,000)
8,600
2017
2016
Post-tax
profit
(20,500)
30,400
–
–
–
–
Hedge
reserve
(300)
300
–
–
–
–
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Thousands of dollars
(Australian dollar equivalent amounts)
US Dollar
NZ Dollar
Philippine
Peso
Australian
Dollar
Bank facilities
Cash and cash equivalents
Trade receivables
Trade payables
Forward exchange contracts
(forwards, swaps and options)
Crude and finished product swap contracts
–
21,909
186,358
(1,316,461)
(9,888)
(30,644)
(302,149)
8,854
8,928
(22,824)
–
–
–
–
–
–
975
–
2016
Thousands of dollars
(Australian dollar equivalent amounts)
US Dollar
NZ Dollar
Philippine
Peso
Australian
Dollar
Bank facilities
Cash and cash equivalents
Trade receivables
Trade payables
Forward exchange contracts
(forwards, swaps and options)
Crude and finished product swap contracts
–
154,975
141,762
(668,847)
9,415
7,800
–
–
–
–
–
–
–
–
–
–
–
–
(406,500)
13,758
738,021
(367,267)
Total
(708,649)
44,521
933,307
(1,706,552)
–
–
(8,913)
(30,644)
–
89,882
608,378
(428,313)
Total
–
244,857
750,140
(1,097,160)
–
–
9,415
7,800
continued
D2 Risk management continued
D2.3 Commodity price risk
The Group is exposed to the effect of changes in commodity price on its operations.
The Group utilises both crude and finished product swap contracts to manage the risk of price movements. The enterprise
commodity risk management policy seeks to minimise adverse price timing risks and basis exposures brought about by
purchase and sales transactions.
In 2017, Caltex’s policy has been not to hedge refiner margins. As at 31 December 2017, the total fair value of all outstanding
crude and finished product swap contracts amounted to a $30,644,000 loss (2016: $7,800,000 gain).
Commodity price sensitivity analysis
At 31 December 2017, if commodity prices had changed by -/+10% from the year end prices, with all other variables held
constant, the impact on post-tax profit for the year for the Group and equity would have been:
Thousands of dollars
Commodity prices decrease 10%
Commodity prices increase 10%
2017
Post-tax
profit
35,200
(35,200)
Hedge
reserve
–
–
2016
Post-tax
profit
9,500
(9,500)
Hedge
reserve
–
–
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D2.4 Credit risk
Customer credit risk
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.
The credit risk on financial assets of the Group which have been recognised on the consolidated balance sheet is the carrying
amount of trade debtors, net of allowances for impairment (see note C1).
Caltex has a Board approved Credit Policy and manual which provide the guidelines for the management and diversification
of the credit risk to Caltex. The guidelines provide for the manner in which the credit risk of customers is assessed and the use
of credit rating and other information in order to set appropriate limits of trade with customers. The credit quality of customers
is consistently monitored in order to identify any potential adverse changes in the credit risk of the customers.
Caltex also minimises concentrations of credit risk by undertaking transactions with a large number of customers across a
variety of industries and networks.
Security is required to be supplied by certain groups of Caltex customers to minimise risk. The security could be in the form of
a registered personal property security interest over the customer’s business and mortgages over the business property. Bank
guarantees, other contingent instruments or insurance bonds are also provided in some cases, as are mortgages taken over
directors’ property such as residential houses or rural properties.
Financial institution credit risk
Credit risk on cash, short term deposits and derivative contracts is minimised by transacting with relationship banks which have
acceptable credit ratings determined by a recognised ratings agency.
Interest rate swaps, foreign exchange contracts (forwards, swaps and options) and crude and finished products swap contracts
are subject to credit risk in relation to the relevant counterparties, which are principally large relationship banks.
The maximum credit risk exposure on foreign exchange contracts and crude and finished products swap contracts is the fair
value amount of the foreign currency that Caltex receives when settlement occurs, should the counterparty fail to pay the
amount which it is committed to pay the Group.
The credit risk on interest rate swaps is limited to the positive mark to market amount to be received from counterparties over
the life of contracts that are favourable to the Group.
Notes to the Financial StatementsD Capital, funding and risk managementFor the year ended 31 December 2017
D2.5 Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Due to the dynamic nature of the underlying business, the liquidity risk policy requires maintaining sufficient cash and an
adequate amount of committed credit facilities to be held above the forecast requirements of the business.
The Group manages liquidity risk centrally by monitoring cash flow forecasts, maintaining adequate cash reserves and debt
facilities. The debt portfolio is periodically reviewed to ensure there is funding flexibility across an appropriate maturity profile.
The tables below set out the contractual timing of cash flows on derivative and non-derivative financial assets and liabilities at
the reporting date, including drawn borrowings and interest.
Thousands of dollars
Derivative financial instruments
Less than one year
One to five years
2017
2016
Derivative
financial
liabilities
Derivative
financial
assets
Net derivative
financial
(liabilities)
/assets
Derivative
financial
liabilities
Derivative
financial
assets
Net derivative
financial
(liabilities)
/assets
(799,166)
(559)
787,728
1,106
(11,438)
547
(10,891)
(796,050)
(1,788)
804,215
2,291
8,165
503
8,668
Thousands of dollars
Non-derivative financial instruments
Less than one year
One to five years
Over five years
2017
2016
Other
financial
liabilities
Net other
financial
(liabilities)
/assets
(2,041,587)
(599,514)
–
(2,041,587)
(599,514)
–
(2,641,101)
Other
financial
liabilities
(1,132,218)
(329,119)
(1,234,616)
Net other
financial
(liabilities)
/assets
(1,132,218)
(329,119)
(1,234,616)
(2,695,953)
101
The Group has the following committed undrawn floating rate borrowing facilities:
Thousands of dollars
Financing arrangements
Expiring beyond one year
2017
2016
953,664
953,664
1,100,000
1,100,000
continued
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D3 Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue
to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
During 2017, the Group’s strategy was to maintain a minimum long term credit rating of BBB+, in order to secure access to
finance at a reasonable cost. The credit rating is impacted by a number of key ratios, with the primary metric being Debt/
Earnings Before Interest, Tax, Depreciation and Amortisation.
The Group’s gearing ratio is calculated as net debt/total capital. Net debt is calculated as total interest bearing liabilities less
cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus net debt.
The gearing ratios at 31 December 2017 and 31 December 2016 were as follows:
Thousands of dollars
Total interest bearing liabilities
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
2017
2016
858,921
(44,521)
814,400
3,107,901
3,922,301
20.8%
698,474
(244,857)
453,617
2,810,215
3,263,832
13.9%
D4 Fair value of financial assets and liabilities
The Group’s accounting policies and disclosures may require the measurement of fair values for both financial and non-financial
assets and liabilities. The Group has an established framework for fair value measurement. When measuring the fair value of an
asset or a liability, the Group uses market observable data where available.
Fair values are categorised into different levels in a fair value hierarchy based on the following valuation techniques:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability are categorised in different levels of the fair value hierarchy,
then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input
that is significant to the entire measurement.
Fair values of recognised financial assets and liabilities with their carrying amounts shown in the balance sheet are as follows:
Thousands of dollars
Asset/(Liability)
31 December 2017
Interest bearing liabilities
Bank facilities (i)
Domestic medium term notes (ii)
Subordinated note
Lease liabilities (iii)
Payables
Interest rate swaps (iv)
Forward foreign exchange contracts
(forwards, swaps and options) (iv)
Crude and finished product swap contracts (iv)
Total
Carrying
amount
Fair value
total
Quoted
market price
(Level 1)
Observable
inputs
(Level 2)
Non-market
observable
inputs
(Level 3)
(708,649)
(149,923)
–
(349)
(707,948)
(156,107)
–
(372)
(1,000)
(1,000)
(8,913)
(30,644)
(8,913)
(30,644)
(899,478)
(904,984)
–
–
–
–
–
–
–
–
(707,948)
(156,107)
–
(372)
(1,000)
(8,913)
(30,644)
(904,984)
–
–
–
–
–
–
–
–
Notes to the Financial StatementsD Capital, funding and risk managementFor the year ended 31 December 2017
Thousands of dollars
Asset/(Liability)
31 December 2016
Interest bearing liabilities
Bank facilities (i)
Domestic medium term notes (ii)
Subordinated note
Lease liabilities (iii)
Payables
Interest rate swaps (iv)
Forward foreign exchange contracts
(forwards, swaps and options) (iv)
Crude and finished product swap contracts (iv)
Carrying
amount
Fair value
total
Quoted
market price
(Level 1)
Observable
inputs
(Level 2)
Non-market
observable
inputs
(Level 3)
–
(149,836)
(547,728)
(910)
–
(175,950)
(562,408)
(1,058)
–
–
(562,408)
–
(556)
(556)
9,415
7,800
9,415
7,800
–
–
–
–
(175,950)
–
(1,058)
(556)
9,415
7,800
–
–
–
–
–
–
–
–
Total
(681,815)
(722,757)
(562,408)
(160,349)
Estimation of fair values
(i) Bank facilities
The fair value of bank facilities is estimated as the present value of future cash flows using the applicable market rate.
(ii) Domestic medium term notes
The fair value of domestic medium term notes is determined by using an independent broker quotation.
(iii) Lease liabilities
The fair value is estimated as the present value of future cash flows using the Group’s risk free rate.
(iv) Derivatives
Interest rate swaps
The fair value of interest rate swap contracts is the estimated amount that the Group would receive or pay to terminate
the swap at balance date taking into account current interest rates and credit adjustments.
Foreign exchange contracts (forwards, swaps and options)
The fair value of forward exchange contracts (forwards, swaps) is calculated by reference to current forward exchange
rates for contracts with similar maturity profiles as at reporting date. The fair value of foreign currency option contracts
is determined using standard valuation techniques. Spot foreign exchange contracts are recorded at fair value, being the
quoted market price at balance date.
Crude and finished product swap contracts
The fair value of crude and product swap contracts is calculated by reference to market prices for contracts with similar
maturity profiles at reporting date.
103
D5 Issued capital
Thousands of dollars
Ordinary shares
Shares on issue at beginning of period – fully paid
Shares repurchased for cash
Shares on issue at end of period – fully paid
2017
2016
524,944
–
543,415
(18,471)
524,944
524,944
In April 2016, the Group repurchased 9,189,481 shares at a total cost of $270 million as part of the Group’s capital management
program. The capital component of the shares repurchased was $18.5 million.
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of shareholders.
In the event of the winding up of Caltex, ordinary shareholders rank after all creditors and are fully entitled to any proceeds of
liquidation. Caltex grants performance rights to senior executives (refer to the Remuneration Report for further detail). For each
right that vests, Caltex intends to purchase a share on-market following vesting.
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This section provides details of the Group’s income tax expense, current tax provision and deferred tax balances and the Group’s
tax accounting policies.
E1 Income tax expense
E1.1 Recognised in the income statement
Thousands of dollars
Current tax expense:
Current year
Adjustments for prior years
Deferred tax benefit:
Origination and reversal of temporary differences
Benefit of tax losses recognised
Adjustments for prior years
Total income tax expense in the income statement
E1.2 Reconciliation between income tax expense and profit before income tax expense
Thousands of dollars
Profit before income tax expense
Income tax using the domestic corporate tax rate of 30% (2016: 30%)
Effect of tax rates in foreign jurisdictions
(Decrease) in income tax expense due to:
Share of net profit of associated entities
Capital tax losses utilised for which no deferred tax asset was recognised
Research and development allowances
Deferred tax against equity
Other
Income tax over provided in prior years
2017
2016
226,065
2,958
229,023
21,325
–
(7,654)
13,671
242,694
192,753
432
193,185
62,192
(6)
(2,088)
60,098
253,283
2017
2016
863,446
863,763
259,034
259,129
(6,204)
–
45
(3,697)
(850)
–
(938)
(4,696)
(415)
(3,218)
(1,000)
(23)
(263)
(927)
Total income tax expense in the income statement
242,694
253,283
Income tax expense comprises current tax expense and deferred tax expense. Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustments to tax payable in respect of
previous years. Deferred tax expense represents the changes in temporary differences between the carrying amount of an asset
or liability in the statement of financial position and its tax base.
Taxation of Singaporean entities
At the date of this report, the Australian Taxation Office (ATO) had not determined the extent to which earnings from the
Group’s Singaporean entities would be subject to income tax in Australia under the regime for the taxation of controlled foreign
company income. Due to the uncertainty surrounding the ATO’s determination, the Group has estimated the income tax rate
on those particular earnings to be 30% for 2016 and 2017, being the Australian corporate income tax rate. The Singaporean
corporate income tax rate is 17%; however, due to some of the Group’s Singaporean entities’ status as a Global Trader Company,
specified income of those entities is subject to a lower tax rate. If the outcome of the ATO’s decision is in Caltex’s favour, an
amount of income tax expense recognised to date could be written back in future periods.
E2 Deferred tax
Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Subject to the
comments contained in note F2, the following temporary differences are not provided for: goodwill, the initial recognition of
assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit,
and differences relating to investments in subsidiaries, associates and jointly controlled entities to the extent that the Group
is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the
foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Notes to the Financial StatementsE TaxationFor the year ended 31 December 2017
E2.1 Movement in deferred tax
Thousands of dollars
Asset/(Liability)
Balance at
1 Jan 17
Recognised
in income
Recognised
in equity
Cash/Receivables
Inventories
Property, plant and equipment and
intangibles
Goodwill
Payables
Interest bearing liabilities
Provisions
Tax value of recognised tax losses
Other
Net deferred tax asset
113
(1,281)
65,234
–
12,484
3,494
160,925
6
(2,892)
238,083
24
6,127
(25,082)
(5,028)
22,043
255
(14,636)
(6)
2,632
(13,671)
–
–
–
–
–
(22)
(1,056)
–
20
(1,058)
Acquired
in business
combination
–
364
(4,986)
25,141
16
–
138
–
46
20,719
Balance at
31 Dec 17
137
5,210
35,166
20,113
34,543
3,727
145,371
–
(194)
244,073
Thousands of dollars
Asset/(Liability)
Balance at
1 Jan 16
Recognised
in income
Recognised
in equity
Acquired
in business
combination
Balance at
31 Dec 16
Cash/Receivables
Inventories
Property, plant and equipment and
intangibles
Goodwill
Payables
Interest bearing liabilities
Provisions
Tax value of recognised tax losses
Other
Net deferred tax asset
1,922
14,574
87,058
–
12,007
2,568
182,342
–
(2,313)
298,158
(1,809)
(15,855)
(21,824)
–
477
837
(21,351)
6
(579)
(60,098)
–
–
–
–
–
89
(66)
–
–
23
–
–
–
–
–
–
–
–
–
–
113
(1,281)
65,234
–
12,484
3,494
160,925
6
(2,892)
238,083
105
E2.2 Deferred tax recognised directly in equity
Thousands of dollars
Related to actuarial gains
Related to derivatives
Related to foreign operations – foreign currency translation differences
E2.3 Unrecognised deferred tax assets
Thousands of dollars
Capital tax losses
2017
2016
(1,056)
(22)
20
(1,058)
(66)
89
–
23
2017
2016
108,990
118,683
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will
be available against which these benefits can be utilised by the Group. These have not been tax effected.
E2.4 Tax consolidation
Caltex Australia Limited recognises all current tax balances relating to its wholly owned Australian resident entities included in
the tax-consolidated group (TCG). Caltex Australia Limited, in conjunction with the other members of the TCG, has entered into
a tax funding arrangement which sets out the funding obligations of members of the TCG in respect of tax amounts.
This section provides information on the Group’s structure and how this impacts the results of the Group as a whole, including
details of joint arrangements, controlled entities, transactions with non-controlling interests and changes made to the structure
during the year.
F1 Controlled entities
Controlled entities are those entities controlled by the Caltex Group. Control exists when the Caltex Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns from its involvement with
the entity and through its power over the entity.
The following entities were controlled during 2017:
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Name
Companies
Ampol Bendigo Pty Ltd
Ampol International Holdings Pte Ltd.
Ampol Management Services Pte Ltd.
Ampol Procurement Services Pte. Ltd.
Ampol Property (Holdings) Pty Ltd
Ampol Refineries (Matraville) Pty Ltd
Ampol Road Pantry Pty. Limited
Ampol Singapore Trading Pte. Ltd.
Australian Petroleum Marine Pty Ltd
B & S Distributors Pty Ltd
Bowen Petroleum Services Pty. Limited
Brisbane Airport Fuel Services Pty Limited
CAL Group Holdings NZ Limited
Calgas Pty Ltd
Calstores Pty Ltd
Caltex Australia Custodians Pty Limited
Caltex Australia Management Pty Ltd
Caltex Australia Nominees Pty Ltd
Caltex Australia Petroleum Pty Ltd
Caltex Fuel Services Pty Ltd
Caltex Lubricating Oil Refinery Pty Ltd
Caltex Petroleum (Qld) Pty Ltd
Caltex Petroleum (Victoria) Pty Ltd
Caltex Petroleum Pty Ltd
Caltex Petroleum Services Pty Ltd
Caltex Refineries (NSW) Pty Ltd
Caltex Refineries (Qld) Pty Ltd
Circle Petroleum (Q’land) Pty. Limited
Cocks Petroleum Pty Limited
Cooper & Dysart Pty Ltd
Graham Bailey Pty Ltd
Gull New Zealand Limited
Hanietee Pty. Limited
Hunter Pipe Line Company Pty Limited
Jayvee Petroleum Pty Ltd
Jet Fuels Petroleum Distributors Pty. Ltd.
Link Energy Pty Ltd
Manworth Proprietary Limited
Newcastle Pipe Line Company Pty Limited
Northern Marketing Management Pty Ltd
Northern Marketing Pty Ltd
Octane Insurance Pte Ltd
Pilbara Fuels Pty Ltd
R & T Lubricants Pty Ltd
% interest
Note
2017
2016
(iii)
(ii)
(ii)
(ii)
(iii)
(ii)
(iii)
(iv)
(v)(ix)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(iii)
(v)
(iii)
(iii)
(iii)
(iii)
(iii)
(ii)
(iii)
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
Notes to the Financial StatementsF Group structureFor the year ended 31 December 2017
Name
Real FF Pty Ltd
Ruzack Nominees Pty. Ltd.
Solo Oil Australia Proprietary Limited
Solo Oil Corporation Pty. Ltd.
Solo Oil Investments Pty. Ltd.
Solo Oil Pty Ltd
South Coast Oils Pty. Limited
South East Queensland Fuels Pty. Ltd.
Sydney Metropolitan Pipeline Pty Ltd
Teraco Pty Ltd
Terminals New Zealand Limited
Tulloch Petroleum Services Pty. Ltd.
Western Fuel Distributors Pty Ltd
Unit trusts
Eden Equity Unit Trust
Petroleum Leasing Unit Trust
Petroleum Properties Unit Trust
South East Queensland Fuels Unit Trust
Note
(iii)
(iii)
(iii)
(iv)
(iv)
(v)(x)
(iii)
(iv)
(vi)
(vii)
(vii)
(viii)
% interest
2017
2016
100
100
100
100
100
100
100
100
60
50
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
60
50
–
100
50
100
100
100
100
(i) All companies were incorporated in Australia except those noted in (ii) and (v). All trusts were formed in Australia.
(ii) Incorporated in Singapore.
(iii) These companies are parties to a Deed of Cross Guarantee dated 22 December 1992 as amended, varied and restated (DOCG) with Caltex and each
other. Real FF Pty Ltd was acceded on 27 April 2017.
(iv) Included as controlled entities in accordance with AASB 10 Consolidated Financial Statements. In each case, control exists because a company within
the Caltex Group has the ability to dominate the composition of the entity’s board of directors, or enjoys the majority of the benefits and is exposed
to the majority of the risks of the entity.
107
(v) Incorporated in New Zealand.
(vi) Caltex Petroleum Services Pty Ltd is the sole unit holder.
(vii) Solo Oil Pty Ltd is the sole unit holder.
(viii) Caltex Australia Petroleum Pty Ltd and Caltex Petroleum Services Pty Ltd each own half of the units in this trust.
(ix) Incorporated on 24 January 2017 and changed its name from Gull Acquisition 1 Limited on 13 April 2017.
(x) Incorporated on 25 January 2017 and changed its name from Gull Acquisition 2 Limited on 13 April 2017.
F1.1 Deed of cross guarantee
Income statement for entities covered by the Deed of Cross Guarantee
Thousands of dollars
Revenue
Cost of goods sold – historical cost
Gross profit
Other income
Operating expenses
Finance costs
Share of profit of equity-accounted investees
Profit before income tax expense
Income tax expense
Net profit
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Retained earnings at the beginning of the year
Current year earnings
Movement in reserves
Shares bought back
Dividends provided for or paid
Retained earnings at the end of the year
2017
2016
20,104,855
(18,189,919)
17,330,238
(15,542,862)
1,914,936
1,787,376
2,073
(1,165,312)
(66,900)
(151)
684,646
(211,810)
472,836
2,534
475,370
2,225,596
472,836
2,463
–
(292,107)
(3,955)
(1,020,018)
(72,572)
1,382
692,213
(201,291)
490,922
55
490,977
2,305,841
490,922
(154)
(251,608)
(319,405)
2,408,788
2,225,596
continued
F1 Controlled entities continued
F1.1 Deed of cross guarantee continued
Balance sheet for entities covered by the Deed of Cross Guarantee
Thousands of dollars
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax asset
Other
Total current assets
Non-current assets
Receivables
Investments accounted for using the equity method
Property, plant and equipment
Intangibles
Deferred tax assets
Employee benefits
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Current tax liabilities
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Treasury stock
Reserves
Retained earnings
Total equity
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2017
2016
13,432
618,516
922,355
–
130,392
116,606
554,769
787,912
9,524
98,126
1,684,695
1,566,937
10,887
11,360
2,713,392
246,104
233,313
3,233
20,120
3,238,409
4,923,104
732,274
202,124
86,086
93,677
102,413
2,555
10,394
2,598,726
170,182
241,457
432
20,856
3,044,602
4,611,539
707,515
143
138,111
96,379
156,086
1,216,574
1,098,234
10,855
500,052
37,318
251,353
799,578
2,016,152
2,906,952
8,356
698,340
38,637
244,352
989,685
2,087,919
2,523,620
524,942
(1,210)
(25,568)
2,408,788
524,944
(344)
(23,578)
2,022,598
2,906,952
2,523,620
Notes to the Financial StatementsF Group structureFor the year ended 31 December 2017
F2 Business combinations
2017
Gull New Zealand
On 22 December 2016, Caltex entered into an agreement to purchase Gull New Zealand for NZ$340 million (A$329 million).
The acquisition delivers on Caltex’s strategic plan as it optimises Caltex’s infrastructure position, builds trading and shipping
capability, grows the supply base and enhances Caltex’s retail fuel offering through low risk entry into a new market.
The acquisition was completed on 3 July 2017 and had the following provisional effect on the Group’s assets and liabilities:
Thousands of dollars
Intangibles
Property, plant and equipment
Inventories
Other assets
Liabilities
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration transferred
Cash acquired
Net cash outflow
Recognised
values
37,896
63,295
34,790
8,257
(38,144)
106,094
221,816
(328,697)
787
(327,910)
Milemaker Petroleum
On 4 November 2016, Caltex entered into an agreement to purchase Milemaker Petroleum’s retail fuel business assets in Victoria
for $95 million. The acquisition secured Caltex’s existing network in Victoria and provides a stronger platform from which to
provide new and improved customer offerings in the convenience marketplace.
The acquisition was completed on 8 May 2017 and had the following effect on the Group’s assets and liabilities:
109
Thousands of dollars
Property, plant and equipment
Inventories
Deferred tax assets
Liabilities
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied in cash
Net cash outflow
Recognised
values
10,220
3,888
25,141
(3,621)
35,628
59,717
(95,345)
(95,345)
As part of the acquisition of Milemaker, a deferred tax asset was recognised in respect of future deductible amounts. This deferred
tax asset reduces the goodwill on acquisition.
Nashi Sandwich and Coffee Bar
Caltex acquired Nashi Sandwich and Coffee Bar, a Melbourne based high street retailer with nine outlets. The acquisition was
completed on 9 March 2017 and had the following effect on the Group’s assets and liabilities:
Thousands of dollars
Property, plant and equipment
Inventories
Liabilities
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
2016
There were no material business combinations during the year ended 31 December 2016.
Recognised
values
781
162
(1,363)
(420)
3,067
(2,658)
11
(2,647)
continued
F3 Equity accounted investees
Associates are those entities over whose financial and operating policies the Group has significant influence, but not control.
Joint ventures are those entities whose financial and operating policies the Group has joint control over, and where the Group
has rights to the net assets of the entity.
The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates and joint
ventures on an equity accounted basis, from the date that significant influence or joint control commences until the date that
it ceases. When the Group’s share of losses exceeds the carrying amount of the associate or joint venture, the carrying amount
is reduced to nil and recognition of future losses is discontinued except to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the associate or joint venture.
Other movements in reserves are recognised directly in the consolidated reserves.
Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest
in the entity. Unrealised losses arising from transactions with associates and joint ventures are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.
F3.1 Investments accounted for using the equity method
Name
Investments in associates and joint ventures
Airport Fuel Services Pty. Limited
Australasian Lubricants Manufacturing Company Pty Ltd (i)
Cairns Airport Refuelling Service Pty Ltd (iii)
Event Group Holdings Pty Limited (ii)
Event Group Holdings Unit Trust (ii)
Geraldton Fuel Company Pty Ltd
Kitchen Food Company Pty Limited (ii)
Kitchen Food Company Unit Trust (ii)
% interest
2017
2016
40
50
25
49
49
50
49
49
40
50
25
–
–
50
–
–
(i) Australasian Lubricants Manufacturing Company Pty Ltd ceased joint venture operations on 17 April 2015.
(ii) Effective 3 May 2017.
(iii) Caltex increased interest to 33.33% with effect from 28 December 2017.
The companies listed in the above table were all incorporated in Australia, have a 31 December balance date and are principally
concerned with the sale, marketing and/or distribution of fuel products and the operation of convenience stores.
F3.2 Investments in associates
Thousands of dollars
2017
2016
Revenue
(100%)
150,167
115,287
Profit
(100%)
65
3,790
Share of
associates’
net profit
recognised
Total
assets
(100%)
Total
liabilities
(100%)
Net assets
as reported
by associates
(100%)
Share of
associates’
net assets
equity
accounted
(151)
1,382
56,526
30,167
43,127
11,038
13,399
19,129
10,591
9,625
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F3.2 Investments in associates continued
Thousands of dollars
Results of associates
Share of associates’ profit before income tax expense
Share of associates’ income tax expense
Share of associates’ net profit
Unrealised profit in inventories
Share of associates’ net profit – equity accounted
Commitments
Share of associates’ operating lease commitments not provided for
in the financial report and payable:
Within one year
Between one and five years
Share of associates’ finance lease commitments not provided
for in the financial report and payable:
Within one year
Between one and five years
Future finance charges
F3.3 Investments in joint ventures
Thousands of dollars
Revenue
(100%)
Profit
(100%)
Share
of joint
ventures’
net profit
recognised
2017
2016
9,426
9,366
–
–
–
–
Total
assets
(100%)
4,046
3,483
Total
liabilities
(100%)
2,123
1,560
Thousands of dollars
Joint ventures’ assets and liabilities
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Commitments
Share of joint ventures’ operating lease commitments not provided for
in the financial report and payable:
Within one year
Between one and five years
2017
2016
221
(345)
(124)
(27)
(151)
394
1,969
2,363
750
1,551
2,301
(173)
2,128
1,967
(590)
1,377
5
1,382
355
1,773
2,128
958
1,132
2,090
(127)
1,963
111
Net assets
as reported
by joint
venture
(100%)
Share
of joint
ventures’
net assets
equity
accounted
1,923
1,923
769
769
2017
2016
1,660
2,386
4,046
2,123
–
2,123
–
–
–
1,759
1,724
3,483
1,560
–
1,560
1,100
456
1,556
continued
F3 Equity accounted investees continued
F3.4 Reconciliation to income statement
Thousands of dollars
Share of net profit/(loss) of associates accounted for using the equity method
Share of net profit of joint ventures accounted for using the equity method
F3.5 Reconciliation to balance sheet
Thousands of dollars
Investment in associates accounted for using the equity method
Investment in joint ventures accounted for using the equity method
2017
(151)
–
(151)
2017
10,591
769
11,360
2016
1,382
–
1,382
2016
9,625
769
10,394
2018 – Proposed equity investment
SEAOIL Philippines Inc.
On 21 December 2017, Caltex announced the acquisition of a 20% ownership interest in SEAOIL and supply fuel to SEAOIL via
Caltex Australia’s fuel sourcing and shipping business, Ampol Singapore. This transaction will support SEAOIL’s growth strategy,
which aims to double the company’s retail network and terminal storage capacity over the next five years.
The 20% equity interest is being acquired for consideration of approximately A$115 million at prevailing exchange rates. Funds
from the transaction will be largely used by SEAOIL to fund its future expansion plans. The investment by Caltex will be funded
utilising existing debt facilities, is expected to be EPS accretive and generate returns above cost of capital in its first full year
of ownership.
Subject to satisfaction of the conditions precedent relating to a restructure of the SEAOIL group, completion is expected to take
place during the first half of 2018.
F4 Joint venture operations
Joint venture operations are those entities whose financial and operating policies the Group has joint control over, and where
the Group has rights to the assets and obligations for the liabilities of the entity.
The interests of the Group in unincorporated joint operations are brought to account by recognising in its financial statements
the assets it controls and the liabilities that it incurs, and the expenses it incurs and its share of income that it earns from the
sale of goods or services by the joint operation.
The Group has joint interests in multiple Joint User Hydrant Installations (JUHIs), which are based at airports across Australia.
The Group’s interest in the JUHIs ranges from 20% – 50%. The principal activity of the JUHIs is refuelling aircraft at the airports.
For the year ended 31 December 2017, the contribution of the JUHIs to the operating profit of the Group was nil (2016: nil).
Included in the assets and liabilities of the Group are the Group’s interests in the assets and liabilities employed in the joint
venture operation:
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Thousands of dollars
Non-current assets
Plant and equipment
Less: accumulated depreciation
Total non-current assets
Total assets
2017
2016
65,895
(38,645)
27,250
27,250
62,085
(36,649)
25,436
25,436
Notes to the Financial StatementsF Group structureFor the year ended 31 December 2017
F5 Parent entity disclosures
As at, and throughout, the financial year ended 31 December 2017, the parent entity of the Group was Caltex Australia Limited.
Thousands of dollars
Result of the parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Issued capital
Treasury stock
Reserves
Retained earnings
Total equity
2017
2016
269,942
1,407
271,349
11,836
1,859,326
144,939
1,388,984
378,505
(1,210)
(25,339)
118,386
470,342
719,277
(213)
719,064
35,162
1,964,100
128,952
1,322,507
524,944
(344)
(23,490)
140,483
641,593
Parent entity guarantees in respect of the debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that each company agrees to guarantee all of the
debts (in full) of all companies that are parties to the deed subject to, and in accordance with, the terms set out in the deed.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note F1.
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This section includes other information to assist in understanding the financial performance and position of the Group, or items
to be disclosed to comply with accounting standards and other pronouncements.
G1 Commitments
G1.1 Capital expenditure
Thousands of dollars
Capital expenditure contracted but not provided for in the financial report and payable
2017
16,645
2016
35,624
G1.2 Leases
Finance leases
Assets of the Group acquired under finance leases are capitalised and included in property, plant and equipment at the lesser
of fair value or present value of the minimum lease payments with a corresponding finance lease liability. Contingent rentals are
written off as an expense of the period in which they are incurred. Capitalised lease assets are depreciated over the shorter of
the lease term and their useful life.
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance
charge components of lease payments are charged to the consolidated income statement to reflect a constant finance rate on
the remaining balance of the liability for each accounting period.
2017
2016
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Within one year
Between one and five years
Minimum
lease
payments
219
164
383
Interest
Principal
27
7
34
192
157
349
Minimum
lease
payments
219
889
1,108
Interest
Principal
85
113
198
134
776
910
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The Group leases plant and equipment under finance leases expiring from one to four years. No contingent rentals were paid
during the year (2016: nil).
Operating leases
Payments made under operating leases are charged against net profit or loss in equal instalments over the accounting period
covered by the lease term, except where an alternative basis is more representative of the benefits to be derived from the leased
property. Contingent rentals are recognised as an expense in the period in which they are incurred. Lease incentives received
are recognised in the consolidated income statement as an integral part of the total lease expense on a straight-line basis over
the lease term.
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Thousands of dollars
2017
2016
Non-cancellable operating leases – Group as lessee
Future minimum rentals payable:
Within one year
Between one and five years
After five years
158,685
418,624
581,671
1,158,980
127,466
430,119
344,887
902,472
The Group holds operating leases expiring from one to 35 years. Leases generally provide the Group with a right of renewal at
which time all terms are renegotiated. Lease payments comprise mainly a base amount; however, in a few cases, they include
a base amount and incremental contingent rental. Contingent rentals are based on operating performance criteria. Contingent
rentals of $626,018 were paid during the year (2016: $478,760).
The expense recognised in the income statement during the year in respect of operating leases is $193,594,000
(2016: $167,980,000).
There are no restrictions placed upon the Group by entering into these leases. Renewals are at the option of the specific entity
that holds the lease.
Notes to the Financial StatementsG Other informationFor the year ended 31 December 2017
G1.2 Leases continued
Thousands of dollars
Non-cancellable operating leases – Group as lessor
Future minimum rentals receivable:
Within one year
Between one and five years
After five years
2017
2016
5,335
124,754
22,405
152,494
6,557
178,233
5,396
190,186
The Group has granted operating leases expiring from one to 34 years. Some of the leased properties have been sublet by the
Group. The leases and subleases expire between 2018 and 2050.
Note B1 shows the rental income recognised in the income statement in respect of operating leases.
G2 Contingent liabilities
Discussed below are items where either it is not probable that the Group will have to make future payments or the amounts
of the future payments are not able to be measured.
Legal and other claims
In the ordinary course of business, the Group is involved as a plaintiff or defendant in legal proceedings. Where appropriate,
Caltex takes legal advice. The Group does not consider that the outcome of any current proceedings is likely to have a material
effect on its operations or financial position.
A liability has been recognised for any known losses expected to be incurred where such losses are capable of reliable measurement.
Bank guarantees
The Group has granted indemnities to banks to cover bank guarantees given on behalf of controlled entities to a maximum
exposure of $5,744,000 (2016: $5,385,000).
Deed of Cross Guarantee and class order relief
Details of the Deed of Cross Guarantee are disclosed in note F1.
G3 Related party disclosures
2017
There have been no material related party transactions in the year ended 31 December 2017.
2016
There have been no material related party transactions in the year ended 31 December 2016.
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Associates
The Group sold petroleum products to associates totalling $117,716,000 (2016: $98,320,000). The Group received income from
associates for rental income of $593,000 (2016: $477,000).
Details of associates are set out in note F3. Amounts receivable from associates are set out in note C1. Dividend and
disbursement income from associates is $300,000 (2016: $400,000).
Caltex has interests in associates primarily for the marketing, sale and distribution of fuel products. Details of Caltex’s interests
are set out in note F3.
Joint ventures
Caltex has interests in joint ventures primarily for the marketing, sale and distribution of fuel products and the operation of
convenience stores. There were no material related party transactions with Caltex’s joint venture entities during 2017 (2016: nil).
Details of Caltex’s interests are set out in notes F3 and F4.
continued
G4 Key management personnel
The key management personnel of the Caltex Group during 2017 and 2016 were:
Current directors
• Steven Gregg, Chairman and Independent, Non-executive Director (from 18 August 2017)
• Julian Segal, Managing Director & CEO
• Trevor Bourne, Independent, Non-executive Director
• Melinda Conrad, Independent, Non-executive Director (from 1 March 2017)
• Bruce Morgan, Independent, Non-executive Director
• Barbara Ward AM, Independent, Non-executive Director
• Penny Winn, Independent, Non-executive Director
Former directors
• Greig Gailey, Chairman and Independent, Non-executive Director (to 18 August 2017)
Senior executives
• Julian Segal, Managing Director & CEO
• Simon Hepworth, Chief Financial Officer
• Richard Pearson, Executive General Manager, Retail (from 1 August 2017)
• Louise Warner, Executive General Manager, Fuels & Infrastructure (from 3 October 2016)
Former executives
• Bruce Rosengarten, Executive General Manager, Commercial (to 1 April 2017)
• Peter Lim, Executive General Manager, Legal & Corporate Affairs (to 7 December 2016)
• Adam Ritchie, Executive General Manager, Supply (from 1 April 2015 to 31 December 2016)
• Simon Willshire, Executive General Manager, Human Resources (to 30 April 2016)
Key management personnel compensation
Dollars
Short term benefits
Other long term benefits
Post-employment benefits
Termination benefits
Share based payments
2017
2016
9,106,401
38,810
378,540
615,198
3,172,575
7,725,421
144,132
349,018
–
3,286,872
13,311,524
11,505,443
Information regarding directors’ and executives’ compensation and some equity instruments disclosures is provided in the
Remuneration Report section of the Directors’ Report. The 2016 key management personnel compensation has been updated
to reflect the current key management personnel of the Caltex Group in 2017, refer to the Remuneration Report for further details.
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Notes to the Financial StatementsG Other informationFor the year ended 31 December 2017
Opening
balance
Number of
performance
rights
2017
583,894
206,708
505,661
G4 Key management personnel continued
Performance rights
Since 1 January 2007, Senior Executives may receive performance rights under Caltex’s Equity Incentive Plan, based on the
achievement of specific targets related to the performance of the Group. The measure of performance is Total Shareholder
Returns (TSR) over a three year period relative to a comparator group.
Granted
Vested during the year
Lapsed during the year
Closing balance
Number
of perfor-
mance
rights
Start
date
Fair value
of perfor-
mance
rights
($)
Distrib-
ution
date
Number
of perfor-
mance
rights
Weighted
average
fair value
per share
($)
Number
of perfor-
mance
rights
Weighted
average
fair value
per share
($)
Lapsed
date
Number
of perfor-
mance
rights
Fair value
aggregate
($)
4 Apr 17 349,779
4 Apr 17 233,186
13.25
28.76
4 Apr 17 (330,759)
29.39 Q1 2017
(723)
Q2 2017 (225,947)
Q3 2017
(64,451)
Q4 2017
(78,532)
(369,653)
1,296,263
582,965
(330,759)
2016
951,454
426,798
103,749
4 Apr 16 276,309
4 Apr 16 184,206
13.34
30.68
1 Apr 16
(333,821)
33.82
Q1 2016
(3,680)
Q2 2016
(132,914)
Q3 2016 (112,290)
Q4 2016
(63,548)
555,859 7,486,055
209,964
5,715,750
412,993 9,296,085
1,178,816 22,497,890
583,894
8,193,885
206,708
4,375,595
505,661 11,300,979
–
–
–
–
–
–
–
–
1,482,001
460,515
(333,821)
(312,432)
1,296,263 23,870,459
For information regarding the inputs used in the measurement of the fair values at each grant date, please refer to table 6 of the
Remuneration Report on page 66 of the Directors’ Report.
G5 Notes to the cash flow statement
G5.1 Reconciliation of cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.
Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included
as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.
117
For the purposes of the cash flow statement, cash and cash equivalents includes:
Thousands of dollars
Cash at bank
Total cash and cash equivalents
2017
44,521
44,521
2016
244,857
244,857
continued
G5 Notes to the cash flow statement continued
G5.2 Reconciliation of net profit to net operating cash flows
Thousands of dollars
Net profit
Adjustments for:
Net gain on sale of property, plant and equipment
Finance charges on finance leases
Interest paid capitalised
Amortisation of finance costs
Depreciation/amortisation of property, plant and equipment
Amortisation and impairment of intangibles
Treasury stock movements net of expense
Share of associates’ and joint ventures’ net profit
Movements in assets and liabilities:
(Increase) in receivables
(Increase) in inventories
Decrease/(increase) in other assets
Increase in payables
(Decrease)/increase in current tax balances
Decrease in deferred tax assets
Decrease in provisions
Net operating cash inflows
G6 Auditor remuneration
Dollars
Audit services – KPMG Australia, Singapore and New Zealand
Non-audit services – KPMG Australia
Other assurance services
Taxation services and Advisory
G7 Net tangible assets per share
Dollars
Net tangible assets per share
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2017
2016
620,752
610,480
(2,073)
–
(2,467)
2,359
204,946
24,217
(7,083)
(966)
(183,167)
(575,155)
26,843
671,191
(14,788)
18,093
(47,670)
735,032
(1,805)
220
(1,560)
3,235
191,688
17,608
(6,241)
(982)
(65,774)
(111,035)
(25,118)
152,857
179,636
60,052
(75,059)
928,202
2017
2016
1,079,200
1,082,700
5,100
260,000
74,100
173,200
1,344,300
1,330,000
2017
9.88
2016
9.88
Net tangible assets are net assets attributable to members of Caltex Australia Limited less intangible assets. The weighted
average number of ordinary shares used in the calculation of net tangible assets per share was 261 million (2016: 263 million).
Notes to the Financial StatementsG Other informationFor the year ended 31 December 2017
G8 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning after
1 January 2018, and have not been applied in preparing these
consolidated financial statements. None of these are expected
to have a significant effect on the consolidated financial
statements of the Group, except for:
•
IFRS 16 Leases, which becomes mandatory for Caltex’s
2019 consolidated financial statements and requires that
operating leases be recognised on the balance sheet.
Caltex does not plan to adopt this standard early. Caltex
is well progressed in preparation for the implementation
of this standard, which will bring a significant number
of operating leases onto the Balance Sheet and result in
the recognition of a material right of use asset and lease
liability. Management is proceeding with the Modified
Retrospective approach, where for Caltex’s more recent
and material leases, the right of use asset and depreciation
calculation will be completed retrospectively. The
remainder of the lease portfolio (for both right of use asset
and liability) will be recognised using Simplified Transition
methodology (assuming all remaining leases started on
1 January 2019).
• AASB 9 Financial Instruments, which becomes mandatory
for Caltex’s 2018 consolidated financial statements and
has not been early adopted. Caltex has reviewed its current
classification and measurement of financial assets and
liabilities in light of the new standard, and does not expect
any material change to be made in either accounting
procedures for financial instruments or to the Group’s
financial statement disclosures. Caltex has performed
reviews of internal documentation procedures, including
those concerning hedge transactions to ensure compliance
with the new standard.
• AASB 15 Revenue from Contracts with Customers, which
becomes mandatory for Caltex’s 2018 consolidated
financial statements and could change the basis for
the recognition of revenue. Caltex has not adopted this
standard early and the extent of the impact is not expected
to be material. The Group has performed a review of sales
contracts for major customers to identify any potential
pricing or performance obligations which are impacted by
the new standard. Based on this review, the Group does not
expect significant differences in the timing or amount of
revenue recognition.
G9 Events subsequent to the end of the year
Caltex announced the outcome of the 2-year review of its
Convenience Retail operating model to determine which
model will best deliver our retail growth objectives. The retail
operating model review commenced after the launch of our
Freedom of Convenience strategy in 2015. This strategy has
seen Caltex transform from a refiner-marketer to a company
with a Fuels & Infrastructure business and a separate but
interconnected Convenience Retail business.
The operating model review determined that controlling
our core business is the best way to achieve our retail
growth objectives.
Company operation of this core business is key to accelerating
the changes required to:
• provide a more consistent customer experience;
• roll out new platforms;
• standardise services; and
• simplify supply arrangements.
As at 31 December 2017, a total of 314 sites within the
810 Caltex retail consumer network were company operated.
This compares with 152 sites at 31 December 2016, and
233 as at 30 June 2017. The remainder of Caltex service
station sites are operated by franchisees or third parties.
Caltex aims to transition all retail franchise sites to company
operations by mid-2020.
Total costs of the transition to company operations is
estimated to be around $100 million to $120 million, over the
next three years. This covers:
• Anticipated transition costs covering dedicated transition
team, direct labour costs (training; on boarding),
implementation costs and anticipated downtime/store
ramp up;
• Consideration paid to franchisees if they agree to the
reduced tenure; and
• Acquisition of working capital and fixed assets in
accordance with franchise agreements.
There were no other items, transactions or events of a material
or unusual nature, that, in the opinion of the Board, are likely to
significantly affect the operations of Caltex, the results of those
operations or the state of affairs of the Group that have arisen in
the period from 31 December 2017 to the date of this report.
119
Comparative Financial Information
The additional information on pages 120 to 123 is provided for the information of shareholders.
The information is based on, but does not form part of, the 2017 Financial Report.
Caltex Australia Limited consolidated results
2017
2016
2015
2014
2013
Profit and loss ($million)
Historical cost operating profit excluding significant
items, interest and income tax expense
Interest income
Borrowing costs
Historical cost income tax expense before
significant items
Historical cost operating profit after tax and before
significant items
Significant items (net of tax)
Historical cost operating profit/(loss) after income tax
Dividends
Amount paid and payable ($/share)
Times covered (excl. significant items)
Dividend payout ratio – RCOP basis
(excl. significant items)
Dividend franking percentage
Other data
Total revenue ($m)
Earnings per share – HCOP (cents per share)
Earnings per share – RCOP (cents per share)
(excl. significant items)(v)
Earnings before interest and tax –
historical cost basis ($m) (excl. sig items)
Earnings before interest and tax –
replacement cost basis ($m) (excl. sig items)
Operating cash flow per share ($/share)
Interest cover – historical cost basis
Interest cover – replacement cost basis
(excl. significant items)
Return on capital employed – historical cost basis (%)(vi)
Return on capital employed – RCOP basis
(excl. significant items)(vi)
Equity attributable to members of the company ($m)
Total equity ($m)
Total assets ($m)
Net tangible asset backing ($/share)
Debt ($m)
Net debt ($m)
Net debt to net debt plus equity (%)
t
r
o
p
e
R
l
a
u
n
n
A
7
1
0
2
120
I
A
L
A
R
T
S
U
A
X
E
T
L
A
C
953
3
(70)
936
7
(80)
783
5
(82)
279
8
(120)
798
9
(98)
(233)
(253)
(214)
(56)
(205)
633
(14)(i)
619
1.21
2.01
51%
100%
610
–
610
1.02
2.29
51%
100%
493
29(ii)
522
1.17
1.56
50%
100%
132
(112)(iii)
20
0.70
0.70
38%
100%
504
26(iv)
530
0.34
5.49
28%
100%
21,398
237
17,933
232
20,027
193
24,231
7
24,676
196
238
929
935
2.8
13.9
14.0
15.8
15.8
3,094
3,108
6,355
9.88
859
814
21
199
936
813
3.6
12.9
11.2
18.7
16.1
2,797
2,810
5,303
9.88
698
454
14
233
783
977
3.3
10.6
12.7
16.2
19.5
2,776
2,788
5,105
9.60
695
432
13
183
279
795
2.5
1.3
7.1
0.6
15.5
2,521
2,533
5,129
8.64
1,176
639
20
123
798
551
2.3
9.3
6.2
15.9
9.9
2,588
2,597
6,021
9.05
942
742
22
(i)
Includes net significant items before tax totalling a loss of $24 million, that have been recognised in the income statement. The significant items are a
result of the announced establishment of the Franchisee Employee Assistance Fund ($20 million), restructuring and redundancy costs associated with
the capability and competitiveness project Quantum Leap ($23 million), offset by the profit on sale of Caltex’s fuel oil business and the utilisation of
prior period capital losses to partially offset tax expense on the profit on sale.
(ii) Includes significant items before tax totalling a gain of $31,924,000, that have been recognised in the income statement. This gain relates to the sale
of surplus property in Western Australia.
(iii) Includes significant items before tax totalling a loss of $160,163,000, that have been recognised in the income statement. These items relate to the
Group cost and efficiency review project and include consulting fees ($25,065,000), redundancy costs ($53,814,000), contract cancellation costs
($12,000,000), interest expense ($20,311,000), foreign exchange gains ($4,755,000) and accelerated depreciation ($22,773,000) and environmental
liabilities ($30,955,000).
(iv) Includes significant items totalling a gain of $27,763,000 before tax, that have been recognised in the income statement. These items relate to a
gain on the sale of the bitumen business, net of costs relating to acquisitions and disposals ($38,766,000) and the net adjustment to provisions
($11,003,000) relating to the closure of the Kurnell refinery.
(v) Dividend payout ratio – replacement cost of sales operating profit basis calculated as follows:
Dividends paid and payable in respect of financial year
Replacement cost of sales operating profit after income tax (excl. significant items)
(vi) Return on capital employed is calculated as follows:
Net Profit After Tax
Net Debt + Equity
Replacement Cost of Sales
Operating Profit Basis of Accounting
• To assist in understanding the Group’s operating performance, the directors have provided additional disclosure of the Group’s
results for the year on a replacement cost of sales operating profit basis(i), which excludes net inventory gains and losses.
• On a replacement cost of sales operating profit basis excluding significant items, the Group’s net profit after income tax
for the year was $621 million, compared to a profit of $524 million in 2016.
• 2017 net profit before interest, income tax and significant items on a replacement cost of sales operating profit basis was
$935 million, an increase of $122 million over 2016.
RCOP Basis of Accounting
Five years*
2017
2016
2015
2014
2013
Historical cost operating profit excluding
significant items, interest and income
tax expense
Add/(deduct) inventory losses/(gains)(ii)
Replacement cost of sales operating net
profit before significant items, interest and
income tax expense
Net borrowing costs
Historical cost income tax expense before
significant items
Add/(deduct) tax effect of inventory
gains/(losses)
Replacement cost of sales operating profit
after income tax(iii)
*Note: Totals may not sum due to rounding.
3,749
323
4,071
(397)
953
(18)
935
(67)
936
(122)
813
(73)
783
193
977
(77)
(980)
(252)
(253)
(214)
(97)
2,598
5
621
37
524
(58)
628
279
516
795
(91)
(56)
(155)
493
798
(246)
551
(89)
(205)
74
332
(i) The replacement cost of sales operating profit basis (RCOP) removes the unintended impact of inventory gains and losses, giving a truer reflection
of underlying financial performance. Gains and losses in the value of inventory due to fluctuations in the USD price of crude oil and foreign exchange
impacts constitute a major external influence on company profits. RCOP restates profit to remove these impacts. The Caltex RCOP methodology is
consistent with the methods used by other refining and marketing companies for restatement of their financials.
As a general rule, an increase in crude prices on an Australian dollar basis will create an earnings gain for Caltex (but working capital requirements
will also increase). Conversely, a drop in crude prices on an Australian dollar basis will create an earnings loss. This is a direct consequence of the
first in first out (FIFO) costing process used by Caltex in adherence with accounting standards to produce the financial result on a historical cost basis.
With Caltex holding approximately 45 to 60 days of inventory, revenues reflect current prices in Singapore whereas FIFO costings reflect costs some
45 to 60 days earlier. The timing differences creates these inventory gains and losses.
To remove the impact of this factor on earnings and to better reflect the underlying performance of the business, the RCOP NPAT methodology
calculates the cost of goods sold on the basis of theoretical new purchases instead of actual costs form inventory. The cost of these theoretical new
purchases is calculated as the average monthly cost of cargoes received during the month of those sales.
(ii) Historical cost results include gross inventory gains or losses from the movement in crude oil prices. In 2017, the historical cost result includes
$18 million inventory gain (2016: $122 million inventory gain). Net inventory loss is adjusted to reflect impact of revenue lags.
(iii) Replacement cost profit after income tax is calculated before taking into account any significant items over the five years. The total effect of these
significant items in each year was: 2013: $28 million gain before tax ($26 million after tax); 2014: $160 million expenses before tax ($112 million
after tax); 2015: $32 million gain before tax ($29 million after tax); 2016: no significant items were recognised and 2017: $24 million expenses before
tax ($14 million expenses after tax) were recognised.
121
Shareholder Information
As at 28 February 2018
Share capital
There are 260,810,519 fully paid ordinary shares on issue, held by 32,942 holders.
Holders with less than a marketable parcel
296 shareholders hold less than a marketable parcel of $500 based on a share price of $35.17 per share.
Buy-back
There is no on-market buy-back in operation.
Shares purchased on-market
From 1 January 2017, 364,842 fully paid ordinary shares were purchased on-market at an average cost of $28.89 per share
for the purposes of the Caltex Australia Limited Equity Incentive Plan.
From 1 January 2017, 27,697 fully paid ordinary shares were purchased on-market at an average cost of $31.98 per share
for the purposes of the Caltex Australia Limited Employee Share Plan.
Substantial shareholders
Substantial Shareholder
BlackRock Group
Shareholder distribution
t
r
o
p
e
R
l
a
u
n
n
A
7
1
0
2
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
122
100,001 – 9,999,999,999
Rounding
Total
I
A
L
A
R
T
S
U
A
X
E
T
L
A
C
Number of
shares held
% of issued
capital
18,550,318
7.11%
Total holders
Units
% of Issued
capital
25,617
10,041,274
6,436
13,633,709
566
285
38
4,060,581
7,096,809
225,978,146
3.85
5.23
1.56
2.72
86.64
0.00
32,942
260,810,519
100.00
Top 20 shareholders
Details of the 20 largest shareholders of Caltex Australia Limited shares are listed in the table below.
Shareholders
1
2
3
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
4 National Nominees Limited
5
6
7
8
9
BNP Paribas Nominees Pty Ltd
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