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ACN 004 201 307
Caltex Australia Limited
Treasury in AsiaFinance & Treasury Association Congress - November 2016
Overview
• Caltex is the nation’s leading transport fuel supplier
• Australian Securities Exchange top 50 company
• Market capitalisation of circa $8 billion
• Strong investment grade credit rating (BBB+)
• Operations in Australia and Singapore
2
Refresh Vision & Strategy
Capital Management
Growth
Value Chain Optimisation
Tabula Rasa
Ampol Singapore
Invest in Distribution Infrastructure
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11
10
3
Supply Chain review
Business Model
Integrated Supply
Chain
Kurnell conversion
2010 2011 2012 2013 2014 2015 Beyond
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5
3
6
7
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9
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Caltex Values
Establish Vision
Transport Fuels Leader
Measure of Success
TSR
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1
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A multi-year strategy to transform Caltex and drive Total Shareholder Returns (TSR)
Reduction in volatility of earnings and cash flow
• Conversion of Kurnell Refinery and financial risk management has reduced commodity price and FX volatility • Earnings are greater weighted to Caltex’s integrated supply and marketing of petroleum products
• Caltex has undertaken financial policy and operating model initiatives to substantially improve the quality and stability of its earnings and free cash flow
[dummy chart - data to follow]
Refining (Lytton) Refining (Lytton) Refining (Lytton) Refining (Lytton) Refining (Lytton)
Refining (Kurnell) Refining (Kurnell)
Price Timing Price Timing
Price TimingPrice Timing Price Timing
FXFX
FX
FX
Basis
Basis
Basis
2009 2010 2014 2015 2016
2 refineries +No Hedging
2 refineries +50% Hedge of FX
1 Refinery + 80% FX Hedging
1 Refinery + 80% FX Hedging +
Basis & Price Timing Hedging
1 Refinery + 100% FX Hedging
+ Basis & Price Timing Hedging
Cash Flow-at-Risk under different operating models – Illustrative Only
Other Commodity Risk1
Other Commodity Risk1
Other Commodity Risk1
FX Timing
FX Timing
FX TimingFX Timing
Other Commodity Risk1
Other Commodity Risk1
2017
1 Refinery + 80-100% FX Hedging + Basis & Improved Price
Timing Hedging
Pricing Timing
4
As Caltex has shifted its business model, investors recognise the de-risked cash flow profile, driving share price performance
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$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Reb
ased
to C
alte
x (A
$)
Caltex Share Price vs S&P/ASX100
ASX100 Caltex
22/8/2011Announcment of
27/2/2012Full yearresults release
16/12/2011Full year profit outlook'Flag of impairment'
31/7/2012Announcement of hybrid issue
26/7/2012Announcement of supply chain restructure
16/2/2012Caltex announces writedownof refinery assets
10/5/2012AGM advice that Kurnell weakest preformer
27/8/2012Half year results release
24/2/2014Flag Organisation reviewand Cost review
28/9/2012Confirmation that Kurnell will close in 2014
7/9/2012Strategy day- lower volatility- strength of marketing- focus on growth
20/6/2013Analyst Day at Lytton Refinery
27/6/2013Half year profit outlook- lower Marketing result
25/8/2014Annoucement of Tabular Rasa outcomes
1/10/2014Kurnell Refinery closure
Increased marketexpectations of
Source: Reuters as at 8 November 2016
23/2/20152014 results release- discussion on growth
27/3/2015Chevron announces sale of stake in Caltex
23/2/20162015 results release- discussion on growth
23/2/2016Off-market shareBuy-Back announced.
18/10/2016Confirms interest in WOW
The Caltex supply chain
Crude + Products
sourced annually
~16bn litres
$9.2bn Infrastructure
(reinstatement cost)
~$20bn revenue
Commercial and Wholesale sales
Product delivery & inventory holding
Terminals, tankers, pipelines, depots,
airports, diesel stops, truck stops,
outlets and card
Lytton Refinery
Consumersales
Imported Crude & Product(Ampol Trading & Shipping)
Major fuel wholesalers (e.g. Viva, Mobil, BP)
Controlled Retail
Woolworths Caltex sites
Independent & branded resellers
Transport, Mining & Industrials
Other (lubricants, fuel oil)
Aviation
Other Australian refiners/
importers
Product sourcing Infrastructure Customer
Typically linked through buy-sell
agreements
Global suppliers/ counterparties
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Caltex supply chain and risk
Transactions in USDSettlements in USD
Transactions in USD and AUDMajority of sales settled in AUD
Product cracks
Price timing
FXFreight
Product Basis Crude premiums
Product premiums
Caltex’s Supply Chain generates risk in a range of
categories
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Ampol Singapore overview
• Established in late 2013, with ramp up of capabilities and activities during 2014 prior to closure of Kurnell refinery
• Activity in Ampol has increased significantly following the conversion of Kurnell in October 2014
• Ampol is now accountable for sourcing all crude, feedstock and refined product imports for Caltex
• Counterparties include refiners across the region, traders and integrated oil companies
• Ampol continues to expand and improve its capabilities to optimise the integrated value chain, and continue to evolve as a world class manager of complex supply chains, in line with the company strategy
Standalone Trading and Shipping
Product sourcing
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CustomerCustomer
Controlled Retail
Woolworths Caltex sites
Independent & branded resellers
Transport, Mining & Industrials
Other (lubricants, bitumen & fuel oil)
Major fuel wholesalers (e.g.
Woolworths, Shell, Mobil, BP)
AviationCommercial
and Wholesale
sales
Consumersales
Caltex Service Station Retail Network • Caltex supplies 1,971 card accepting sites, including:
Caltex owned (477) or leased (319) 796 Dealer owned 653 Woolworths supplied 522
• Caltex’s controlled 796 sites are either company operated by Caltex (138 sites) or by a franchisee (645 sites)
• Caltex is one of Australia’s largest franchisors
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Developing a comprehensive financial risk management framework
The role of Treasury in Australia and Singapore
Transformation of the business required a review of our financial risk management framework
• In 1H15 reviewed commodity risk management systems, governance and process controls
• In 1H16 implemented a revised commodity risk management operating model across Sydney and Singapore
• Capability, and improved systems, processes and policies were added
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Jan to Apr 2015
Apr 2016
Jul 2016
Apr to Sept 2016 Dec 2016
Oct 2016Aug 2016Apr to Jul 2016Jan to Mar 2016May 2015 to present
PwC Review of commodity risk
framework
Proposed limitstructure andpolicy update
Policy and limitspresented to
Board for approvalDefine scenarios
Commodity risk improvementproject
Risk appetite andlimits projectlaunched +
commodity hedging commenced in Singapore
Design and build CFaR & VaR models
Established direct executionhedging capability
Modelling analysis
Board workshop
Establish key principles & agree
philosophical approach
CURRENTSTATUS
Nov 2015
Regional Treasury established
Commodity risk policies and limits now anchored in an overarching framework across all risks and linked to strategy
Developing a comprehensive financial risk management framework in 2016 has involved:
1) Aligning with Caltex strategy & positioning2) Establishing risk capacity3) Setting risk appetite4) Allocating risk 5) Setting risk tolerance6) Setting operating risk limits7) Building organisational capability8) Investment in financial systems 9) Revising the Group Treasury policy
Ultimately the enhancements to our Risk Management Framework, Systems and Capabilities will deliver increased certainty that risk is managed within our appetite, while enabling us to pursue strategy faster and with greater confidence.
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Proposed risk limit structure
The following commodity sub-risk categories will be used for monitoring Commodity risk VaR on a day to day basis:- Outright price exposure (price timing)- Time spread exposure- Basis exposure- Other**
CAL – Overall Financial Risk CFaR limit
CAL – Commodity risk CFaR limit (excluding refining
margin)
CAL – Commodity risk VaR limit (excluding refining
margin & freight)
CAL – Volumetric (% of USD Notional) FX Limit
CAL – Interest rate risk volumetric limit (%floating
limit)
CAL – *Financial counterparty credit risk
exposure limit
Commodity risk sub-category management
guideline limits
Policy limits
Management guidelines
* The term “financial counterparties” refers to banks or other financial services providers. ** There may be other categories (e.g. premiums)
Commodity risk CFaR (inc. refining margin & freight), FX CFaR, Interest rate CFaR, *Financial
Counterparty credit CFaR
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Caltex operates a centralised Group Treasury
• However for commodity price risk management, front office responsibilities rest with the Singapore Trading team• Our regional Treasury based in Singapore performs commodity risk analysis and oversight in a Middle Office role
CFO
Front Office
Middle Office
Back Office
Group Treasury
Ampol Trading & Shipping
Commodity Risk
Front Office
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• One financial risk management policy• Cohesive risk management framework• Strategic alignment• Centralised decisions• Central funding planning and evaluation• Efficient cash/liquidity management• Key relationships (Banks, ratings agencies)• Effective use of financial risk systems and tools• Deeper subject matter expertise
Benefits of centralisation retained
Reduced volatility and improved risk management also enables prudent growth in Trading & Shipping
With the expansion in Ampol’s role and capabilities, the strategy and future development of the business is being placed in a carefully designed framework
TOP QUARTILE TSR IS THE OVERIDING OBJECTIVE
TRADING & SHIPPING STRATEGY
PILLARS
KEY EXECUTION ENABLERS
POLICIES & FINANCIAL RISK
APPETITE
STANDALONE PHYSICAL TRADING
STANDALONE SHIPPPING
COMMODITY RISK
MANAGEMENT
SKILLS & PEOPLEASSET &
CAPITAL BASE
RISK MANAGEMENT & OVERSIGHT
PHYSICAL SYSTEM
CFAR1 MODELS
RISK ALLOCATION
VAR
EXPOSURE MANAGEMENT(TIMING, BASIS, FX)
POLICYPROCESSES
REPORTING SYSTEMS
FUNDING LEVELSMONITORING SYSTEMS
SUPERVISIONDOA
EARNINGS GROWTH
SYSTEM BACKED
USE OF HEDGING
KEY RISK TOOLS
STRATEGY IS SUBJECT TO HAVING…
STRATEGY IS SUBJECT TO HAVING…UNDERPINNED BY…
AMPOL IS A GROWTH DRIVER…
MULTIPLE EXPANSION CAPITAL RETURNS++ + INVESTOR ENGAGEMENT
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